ValueWalk held its latest virtual contrarian investor conference, organized by ValueWalk, Contrarian Podcast and Breakout Point, today, and Dan David of Wolfpack Research was one of the presenters. He explained why he sees Remark Holdings Inc (NASDAQ:MARK) as a good short.
He said one of the most popular bull cases for Remark Holdings issued by promoters like David Portnoy, is the company's 5% stake in Sharecare, a company popularized by Dr. Oz and worth up to $1 billion in an initial public offering. Remark has talked about the possibility of a Sharecare IPO for years.
The problem is that Remark Holdings' stake in Sharecare has been repossessed and is being held by the Kent County Sheriff in Delaware. The company had agreed to payments of $1 million but didn't make good on those payments. He believes there is no chance Remark will own a stake in Sharecare going forward.
David also said the company claims to own the Chinese company KanKan, but he doesn't believe it does. He said Remark Holdings' agreements don't create contractual ownership. He said to comply with China's laws, which restrict foreign ownership of entities in industries the Chinese government sees as sensitive, Remark employs a structure known as a wholly owned enterprise and variable interest entity (VIE).
Questions About Their Filings
However, as part of that structure, the company has extended loans to the VIE's owner without a loan agreement to protect the interest of its shareholders. Wolfpack questions whether the agreements exist at all.
The contracts are not in the 10K filings like they are for other companies. David also said the SAIC filings for Remark Holdings show the Chinese VIEs are not consolidated in the financial statements.
The Chinese entities are reporting more than $1.85 million in cash on their balance sheets than Remark Holdings did on its consolidated balance sheet last year. If the VIEs were consolidated as Remark claims they are, it would not be possible for the VIEs to have more cash than the parent company.
Remark's five Chinese entities reported almost $2 million more in revenue than Remark, which lost $20 million more than its Chinese entities.
Remark Holdings May Have Been Ready To File For Bankruptcy
David also argued that he believes the company was going to file for bankruptcy when COVID-19 hit. Instead, CEO Kai-Shing Tao used the pandemic to take advantage of the fear.
He said the company had $272,000 on its cash balance sheet at the end of 2019, but it defaulted on a $12.7 million term loan. He believes the move into thermal imaging technology is "just an elaborate stock pump" that won't result in any actual revenue or shareholder value.
Dan also believes the company is relabeling thermal imaging technology from the Chinese company Hikvision instead of creating its own proprietary technology as it claims. He shared pictures from Wynn Las Vegas that appear to show that the two systems are identical.
Remark Holdings also said that Hikvision was one of its suppliers. Further, the company said it was trying to sell to schools, but schools use federal funds, which means they can't use Hikvision products or do business with companies that use their products.
The company also claims its rPAD is proprietary, but David believes it's relabeled technology from the Chinese company Telpo. He noted that the user manual even states that it is Telpo technology.
David also pointed out that Remark Holdings diluted shareholders by 100% in the first half of 2020. It issued 50 million shares to Aspire Capital for 30 million to pay off a term loan it defaulted on multiple times and avoid bankruptcy.
Aspire never filed a 13D or 13G with the SEC, which means it had to have sold those shares right after acquiring them.
He also noted that Remark has issued 99.5 million of its 100 million authorized shares and has 17 million tied to exercisable warrants and options. In the company's own words, if all of its outstanding warrants and stock options were exercised, the total number of common shares it would be required to issue would greatly exceed the number of remaining authorization and unissued common shares.
In a proxy statement for a vote needed to expand the number of authorized shares from 100 million to 300 million, the company said any nonvotes would be counted as no votes. However, after the vote was done, Remark Holdings counted those nonvotes as votes in favor.
After eight days and three lawsuits filed against the board, the company filed a new 8K claiming it made a drafting error when it said the nonvotes would be counted against the amendment in the proxy statement.
David also said the company was evicted from its headquarters in March 2020 for failing to pay rent since July 2019. It owes $1 million in unpaid rent and damages. Remark Holdings is also being sued by American Express.
David called Portnoy "a jackass" for allegedly misleading retail shareholders.
This article first appeared on ValueWalk Premium.