A little known Las Vegas-based company with heavy Chinese connections named Remark Holdings (NASDAQ:MARK) has seen its stock spike to over $227 million in the last three months. There is very little real information that verifies the basis for this huge gain. I suggest that investors will be better off to stay away from MARK stock.
The jump in the stock price seems to be related to the company’s claims that it has an artificial intelligence-related product. For example, here is the website that the company is promoting its Remark Thermal products. It claims to be able to scan 120 people in a room at once with its thermal cameras.
Problems in Paradise
The problem is the company has not broken out any real revenue from AI product sales in its recently issued 2019 10-K. In fact, the company has not produced quarterly results for the quarter ending March 31.
Moreover, I found out through reading the 10-K that the company has not even been able to pay its rent in Las Vegas. On page 19 of the recently issued 10-K, the company said on April 9, it was sued by its landlord. On page F-35 Remark Holdings admitted had not paid 1.5 million in rent and other required charges for the company’s office at 3960 Howard Hughes Parkway. Remark said it was “in the process of negotiating a settlement” with its landlord.
That’s odd. The company says it has raised $30 million.
Mark Stock and Equity Line of Credit
In fact, as of Dec. 31, 2019, the company had just $272,000 in cash, but over $12 million in current liabilities. Remark reported in a press release at the end of May that it had repaid over $12 million after the end of the quarter — keep an eye out for that in financial filings.
Moreover, the company has signed an effective equity line of credit for up to $30 million with a Wall Street firm called Aspire Capital. On page F-33 in Note 19 of the 10-K, the company says it sold $30 million in common stock shares to Aspire as of May 12.
That probably explains why the MARK stock has shot up so much. In effect, the market thinks the company will be able to use the $30 million it has raised to start making sales of AI products.
I have written about equity lines of credit before. I find that most public companies that use them tend to get a huge spike in their stock price. Whether that spike can last is another issue.
Where Are the AI Sales?
I find it strange that the company hasn’t produced its first-quarter results. Here is the problem. There is no way to verify whether there have been any sales of its AI technology-related products.
The 10-K talks about receiving $50 million over three years from a Chinese company called Hanvon Technology. There is no indication when these sales will start.
The company’s 10-K shows $5 million in sales for all of 2019. But a portion, probably a large portion, of that was for “proof of concept” tests on its AI projects. That is what the 10-K says on page 25. In addition, the company says it was “beginning the deployment and implementation phases of our solutions.”
There is no way to assess how these AI product sales were progressing in Q1 and even year-to-date. The company has not produced any financial information for its 2020 calendar year.
What to Do With MARK Stock
This is very strange at best. There are a lot of red flags. I stay away from red flag stocks like this. I would not do anything with it at least until the company produces this year’s earnings.
Moreover, almost as a class, any company involved in equity lines of credit tends to have very volatile stock prices. There are probably good reasons for this – mostly because it is in the interests of the Wall Street firm issuing the equity line of credit.
So you can see I am skeptical. Maybe you should be as well.
Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers receive a two-week free trial. As of this writing, Hake does not hold a position in any of the aforementioned securities.
