Short Sellers Knock 40% Off MARK Stock In Two Days With Bogus Claims

  • Wildly inaccurate and misleading article published by short sellers 
  • Released mid-day during the most volatile market session in years
  • Multiple instances of misleading negative headlines but no evidence
  • Author appears to accuse CEO of trying to steal Kankan from shareholders
  • MARK stock now trading at barely over 1/2 the price per share that savvy APAC region acquiror CP Group paid for $10m Remark Shares 2 months ago 

We reviewed the article published Tuesday by a short seller and found it to be full of wildly misleading claims and erroneous statements. We find it difficult to believe that these factual inaccuracies and errors were all based on poor due diligence or misunderstanding of the financial statements. It appears that the author of this report is doing exactly what she is accusing Remark management of doing – making misleading statements to lead investors/traders to false assumptions about the value of this company. We highlight some of what appears to be blatant attempts to deceive below.

The article starts with three sentences, which we discuss in 1,2 and 3 below, followed by a discussion of a few other ridiculous claims –

The article starts with three sentences –“.. No “there” there: Wherever we look, we cannot find a real business behind Remark Holdings. The company changes its business description so quickly that even management struggles to explain. That does not stop them from pushing out press releases that make wild claims for fantastic new technologies to come.”

1) No “there” there: Wherever we look, we cannot find a real business behind Remark Holdings.
It doesn’t take a very deep dive into the filings to see that Remark is a holding company that owns many assets and/or operating businesses including but not limited to Vegas.com, Sharecare, its domain businesses (Banks.com, IRS.com, Bikini.com), Fanstang and Kankan. A quick review –

a) Vegas.com – generating approximately $65m-$75m in revenue per Remark’s most recently filed investor update. But the author wrote “At the time of acquisition, Vegas.com reported total bookings of USD 250 mln but no revenue. It still has not reported revenue”. It appears the author’s comments are trying to lead investors to believe that Vegas.com has not reported any revenue since being acquired, which is clearly untrue and verifiable by reading the company’s financials as filed with the SEC or reviewing the company’s investor deck.

b) 5% Sharecare stake – Sharecare is a very real business and we believe that the author is pointing to a bogus $10.2 million annual revenue figure that is likely short by $300 million or more to try to obscure the value of Remark’s Sharecare stake. We believe that the Seeking Alpha article on Sharecare’s value is still on point and that Remark’s 5% stake will prove to be worth over $100 million if Sharecare is acquired and possibly much more if Sharecare goes public.

c) Kankan – The author appears to intentionally try to muddy the water around Remark’s use of the VIE structure that foreign companies often use when setting up operations in China. It is complicated and we believe it is likely that few US investors are familiar with the hoops foreign companies have to jump through to offer services in China. But any suggestion that Kankan and thus Remark Holdings shareholders will not receive the revenue and other economic benefits of Kankan’s AI technologies and products is simply false and any effort to hint at such is misleading regardless whether it is intentional of just ill-informed.

The CP Group is quite familiar with how the VIE structure works as their effective employment of it to own and operate subsidiaries in many verticals has led to $100’s of billions of dollars in revenue for their owners on an annual basis. It should be noted that the CP Group made its $10 million investment in Remark after reviewing the company’s Kankan operations over several months and its chairman specifically mentioned Kankan when commenting on the $10 million investment the company made at $12 per share.

2) The author wrote  “The company changes its business description so quickly that even management struggles to explain.”
We see that the company changed the description in their press releases several times over the last year. It appears this was done as the company developed new products / services it could offer to further monetize its Kankan AI subsidiary’s technology and data. This should not be a surprise, as the company has historically generated the majority of its revenue from its legacy businesses (like Vegas.com) and Kankan has gone from generating zero in revenue in 2016 to an expected $8 million in 2017 and an expected $30 million+ in 2018. We think the description should change to incorporate such significant new offerings, particularly when a holding company develops a subsidiary that is growing as rapidly as Kankan.  Regardless, we have spoken with management on multiple occasions, watched them present at conventions and participated on conference calls and management has always done a very good job of explaining what Remark does.   This is another instance of the author making claims that she does not seem to have any way of backing up with examples or any proof of a time when management struggled to explain what they do.

3) The author wrote – “That does not stop them from pushing out press releases that make wild claims for fantastic new technologies to come.”
> We have not found any instances of press releases from Remark making wild claims for fantastic new technologies other than what they own and are now using. The author did not provide any examples or evidence related to this claim.

4) The author wrote – “MARK claims to have developed language-recognition software, web filtration, Big Data analysis of virtually all China’s consumer records, and 3D face recognition, all on a historical total of USD 2.8 mln in R&D costs. “
>We could not find any evidence of MARK management making such claims and wonder why the author did not provide links to filings or press releases where MARK claims to have Big Data analysis of virtually all of China’s consumer records or where MARK claims to have spent $2.8m TOTAL for the development of Kankan.  Again, the author is referencing things she says management has claimed, which should allow for links to press releases, filings, conference call transcripts, etc. but provides none.  Our review of these things has not turned up any evidence to support these claims from the short seller.

5) The author did not substantiate with a link to a filing or press release where Remark management “claims to be a major player in credit checks” 
>We are aware of a press releases that announce deals with several major banks but management has stated publicly that these deals represent less than a fraction of one percent of consumer lending in the Chinese market. We believe that readers of the short seller’s report are likely to believe that Remark management actually “claims to be a major player in credit checks” when in fact they do not. Again, we believe this kind of thing should be easy to prove with links to press releases, filings or conference call transcripts if it were true, but it appears that it is not true so again there is nothing to support this claim from the short seller.

6) The author wrote – Vaulting the firewall: “MARK management says that it offers international advertisers the opportunity to avoid China’s firewall controls on content.”
>The author states this, then provides as evidence only a quote from Remark’s CEO that says nothing remotely like that. We could not find where MARK management has claimed to “offer international advertisers the opportunity to avoid China’s firewall controls on content”. We note that the author did not provide a link or any other evidence of MARK management making such a claim and we could find none.

7) The author claimed “The real driver behind share appreciation seems to be that management is looking to cash in on options.” Somehow in her deep due diligence process the author failed to discover that the CEO of Remark owns (if all his options are included) close to 30% of the company’s stock and he has not sold any of them.

8) Patents – in our experience it is often difficult to find patents under a company name, as it is usually more fruitful to search by the name of the original developer. Also, the patent approval process often takes years. Given the uncertainty of getting pending patent applications actually granted and the time-frame involved, we find it difficult to ascribe value to them at this point in time and seriously doubt that any Remark investors bought stock based on some perceived value of its patents. We did not ascribe any  value to Remark’s existing patents or the pending patents in our due diligence reports because we believe the value of work-in-progress patents is too difficult to ascertain. The author seems to imply here that Remark is not actually working towards getting patents granted or that investors are ascribing too much value to the Remark’s intellectual property. We think the author is wrong on both counts.

9) Under “Nothing Owned” the author goes beyond the previous attempts to make it appear that MARK shareholders will not get the benefit of Kankan ownership.  She boldly claims that our CEO Tao Shing is trying to “seize without disclosure what legal control of KanKan Remark shareholders may have” – it appears that she is accusing our CEO of trying to steal Kankan from shareholders.  Not only would such a claim be beyond ludicrous generally, but it would also highlight another gaping hole in the author’s due diligence as it appears she is unaware that the CEO is by a very large margin the largest shareholder with ownership of just under 30% of outstanding shares.   So the key takeaway from this report is that the author has discovered that our CEO is trying to steal Kankan from himself? 

Another “smoking gun” the author seems to think she has uncovered relates to the entity (Bonet) setup in China that all Kankan revenue flows through. The author wrote “We obtained financial records for Bonet for the years 2015 and 2016. Bonet should be collecting all Remark’s China revenue. But the company records show that it had no revenue in either year.” We hope the author did not go to too much trouble to obtain those records because the SEC filings and conference call statements from management made it crystal clear that Kankan did not start to earn revenue until 2017. While this part of the article was kind of difficult to follow, to summarize it all here we believe that the author was trying to make it appear that Remark Holdings investors will not receive the benefit of Kankan’s operations.

10) The author stated that the company has $35.5m in debts and her review of the financials suggested that there was no way to repay it. Surprisingly, it seems the author was not aware of the cash Remark has in the bank or the recent $10m cash infusion from CP Group. Our review of the company’s last 10Q plus the publicly announced deals that have happened since the end of that quarter lead us believe Remark will report it ended Q4 with almost enough cash to pay off the debt in its entirety, though we believe they will likely pay down only a portion of it and use their much improved financial condition to get a better long term debt arrangement.

11) The author tried to throw shade at Remark’s unique arrangement with Aspire Capital that allowed the company to “put” shares to Aspire based on market prices when it needed liquidity. The author presented it in such a way as to lead investors to believe that the company is still selling stock to Aspire for less than $4.50 per share. While this did occur back when the stock was trading for less than $4.50 per share, that is not happening now. The author may not have intended to give that impression though, it could have just been another instance where she did not understand the filings.

12) In the section titled “Snake oil, Vegas, and bikinis” the author lists several Remark acquisitions from the past five years (Bikini.com, Banks.com, Hotelmobi, etc.) and uses the distressed financials of each of those companies before they were acquired and seems to be trying to suggest that buying such companies somehow allowed “…executives to make money form the financial engineering of the deal itself, while shareholders lose” but did not give one single item of evidence to support such a claim.

In summary, we believe the report published yesterday is a seriously flawed piece that should be viewed for what it is – an attempt by a short seller to bring a company’s stock down. The timing was perfect for the scheme given the broader market weakness and it worked to drive the stock down to levels that essentially value the company’s fastest growing and arguably most valuable asset (Kankan) at zero. We note that comparable valuation metrics used for similarly situated companies operating in China would value Remark’s Kankan holding to be worth much more than the company’s entire $178 million market cap. We note further that the company’s other assets (Vegas.com, Sharecare stake, domain businesses, etc.) combined are likely worth  more per share than the current $6.50 range where the stock has been trading. Investors and traders have today what we think will be a very short lived opportunity – the chance to buy shares of Remark Holdings at a price that is less than half the intrinsic value of the company and close to half of what one of the largest and most sophisticated acquriors in the APAC region paid ($12 per share) for $10 million worth of Remark shares less than two months ago. The only material happenings with Remark since CP Group completed its due diligence and paid $12 per share are:

  1. New contract with Bank of China for Fintech product
  2. New contracts with  CITIC Bank (which was formerly known as China International Trust Investment Corporation), Industrial Bank, Guangdong Development Bank and China Minsheng Bank for Fintech product
  3. New contract with China Mobile’s Internet of Things subsidiary  as its AI-solution partner for facial recognition and verification technology
  4. New contract with Beijing Hualian Group, one of China’s largest retailers, as its data and AI solution partner
  5. New contract with Shanghai Open University to provide an AI-based automatic video indexing and editing product—KanKan Media Box—as its online class video-management platform.
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February 8, 2018 at 10:00 am Leave a comment

The Opportunity to Buy Remark Holdings On the Cheap

We see a tremendous opportunity in shares of Remark Holdings (NASDAQ: MARK) today, as broader market weakness and what appears to be a piling on of opportunistic short sellers have pushed MARK shares down over 30% the last two weeks without any negative company or industry news. The shorts’ aggressive tactics have pushed the shares so far today that they just triggered NASDAQ’s “uptick rule” for the day and MARK shares are trading well below the levels they traded prior to the company’s most recent update revealing the company’s new Fintech product that had led to multi-million dollar contracts with three large banks in China. We see Kankan’s Fintech division as likely worth significantly more than $10 per Remark share based on its existing products and management has indicated that we should see more new offerings in the near future.

While short sellers and other speculators have tried to use unsubstantiated accusations and false innuendo to spook Remark investors, we think holders of MARK shares would do well to take a hard look at the CP Group’s investment in Remark shares last month. CP Group is arguably one of the savviest and most opportunistic acquiror’s in the history of Chinese commerce and you can be sure that their due diligence process is significantly more rigorous than anything an individual investor or even what most institutional investors could put forth. They paid $12 per MARK share to take down $10 million worth of Remark shares. CP Group did this before the stock had ever traded that high and they did it knowing that they would have to hold those shares for at least a year before they could sell them. CP Group made this investment because they know that by December of 2018, the stock will be worth substantially more than the $12 they paid to acquire them. Remark shares are worth much more than $12 per share today and we believe they will be worth substantially more in the near future.  Remark Holdings’ shares are dirt cheap below $10 and today’s trading is offering an opportunity that may not be around very long.

January 30, 2018 at 11:37 am 2 comments

Is LMFA About To Go Blockchain?

  • Much chatter about LMFA Pivot to Blockchain
  • Debt for Equity Swap Made Blockchain Investor Esousa a Top Shareholder
  • Esousa Became Top NETE Holder In Months Prior to NETE’s Blockchain Pivot
  • Company Intro In Wednesday’s PR Suggests New Technology Focus
  • Stock Trading Unusually High Volume
  • LMFA Has Tiny Public Float of 1 Million Shares w/ Nearly Half Sold Short

There has been significant chatter recently about LMFA and whether the company might be preparing to pursue blockchain initiatives.  We have done a very deep dive investigating this question, doing everything from reaching out to management to reviewing every message board post, Tweet, Twit and financial article we could find over the last few months that mentions LMFA.

We found quite a few recent mentions of LMFA with a blockchain angle. What we have found can be broken down into two distinct categories:

1) Talk that LMFA is going blockchain in a hard pivot – like RIOT Blockchain (NASDAQ: RIOT) or Long Blockchain (NASDAQ: LBCC), this rumor has LMFA chucking its existing business and starting to pursue some blockchain based business model. It appears that there were rumors of such a move by LMFA back in November and the stock rose from below $2 to $6.65. The stock gave it all back as days went by with no announcement of such a change from the company and no corporate action that would indicate such a pivot might be in the works.

2) More recently there has been chatter about LMFA taking its proprietary software and tweaking it to work with distributed ledger technology (blockchain) to improve several broken real estate transaction processes (for example marking the short sale process more transparent, secure and transformed to a smoother process generally). This would be made available to condo associations and banks, ostensibly opening up the company’s current business to tens of thousands of new customers, potentially growing the business exponentially.

#1 LMFA is arguably a better prospect for a #1 than the several who have done that very thing (see the chart below). It has a much smaller number of publicly held shares than all the others and it has few shares outstanding than all but one. Additionally, the current market value of all publicly traded shares is at a ridiculously cheap sub $2m price tag. Looking at it from this perspective, a hard pivot doesn’t seem that far-fetched.

#2 This talk was interesting in that it seemed reasonable that a small, conservatively run company might start a blockchain initiative like this to build its existing business.

While we have no first hand knowledge of the company moving to do either #1 or #2 above, we did reach out to the company for comment twice over the past 10 days and received no reply. Additionally, we found a number of things that might lead a reasonable person to believe that this company might very well be on the verge of pursuing blockchain initiatives –

1)  NYC based Esousa Holdings LLC, which is known for investing in blockchain pivots acquired all LMFA long term debt outstanding and converted to equity over the last few weeks.

2) Esousa acquired a similar equity stake in Net Element (NASDAQ: NETE) in the months prior to their pivot to blockchain technology in December.

3) NETE is very simliar to LMFA – FL based, Nasdaq listed company with market cap around $10m and float of < 4 million shares.

4) NETE pivot announcement pushed stock from $4 range to $33+ before settling into trading range around $10.

5) The “Master Exchange” to convert LMFA debt to equity was scheduled to price the stock based on formula related to trading price through February 11 (60 days after start date) but Esousa elected to have that changed from 60 to just 15 days less than a week after seeing the pivot announcement push NETE from $4 range to $33+.

6) Company has been unusually silent. We reached out to the company twice over the last 10 days and the company did not respond. This leads us to believe they could be working on something big that they are not quite ready to talk about.

7) The company’s Wednesday press release announcing the Master Exchange Agreement’s completion.  Did you notice that the company’s press release intro line from its prior releases read –
“LM Funding America, Inc., together with its subsidiaries, is a specialty finance company…”

But as of the closing of the deal that made Esousa (the blockchain pivot investor) one of the top shareholders, that intro line now reads

“LM Funding America, Inc., together with its subsidiaries, is a technology-based specialty finance company”.  A small step, but we have to ask what has changed or is changing that makes the company add “technolgy-based” to their intro line?

8) LMFA’s capital structure, status as one of smallest Nasdaq listed market caps available, small number of shares outstanding and tiny public float make it one of the best prospects for a pivot – even cleaner than some of the recent high profile blockchain pivots (RIOT, Long Blockchain, Netease, etc.).

In summary, we think LMFA is tremendously undervalued and possibly on the verge of a pivot that would bring much more attention to the LMFA story. We think the stock is undervalued whether that occurs or not, but if it does we could see the stock moving much higher in a very short time frame due to the limited number of shares that are in the public float to meet a significant uptick in demand. LMFA’s public float (1.01 million shares) is a little less than 1/2 the size of Net Elements’ (NETE) public float, less than 1/4 the size of Long Blockchain’s (NASDAQ: LBCC) public float and less than 1/6th the size of Riot Blockchain’s (NASDAQ: RIOT) float.

Each of these companies saw a huge spike in share buying and prices following their pivot and each had significantly more shares than LMFA to meet that demand. Adding to the share supply shortage is the fact that nearly 1/2 of LMFA’s 1 million share float is already sold short.. These short positions could be subject to forced buy-ins if LMFA surges in value similar to what we saw with NETE, LBCC or RIOT, meaning that brokers would be aggressively bidding to buy shares to cover those positions, battling traders and investors who are buying to establish a long position. If this “perfect storm” of buying emerges LMFA stock could surge to levels few could contemplate in any normalized trading scenario, in which case those investors who buy LMFA shares at current levels could potentially earn very significant double or even triple digit returns.

January 26, 2018 at 3:45 am Leave a comment

LMFA Update – Short Interest and the True Public Float

We have received a number of questions about the public float of LM Funding (NASDAQ: LMFA) since yesterday’s press release announcing the master exchange agreement.  LMFA exchanged its $4,741,601.40 debt for 2,676,378 shares of its common stock.  Thus, the total shares outstanding for LMFA increased from 3,300,000 to 5,976,378.  However, according to the agreement the shares issued were not registered so it appears that it did not increase the shares available to be traded day to day, or the “public float”.  The public float for LMFA remains at the 1.01 million shares that existed prior to the exchange agreement.

Of course, this number is extremely important to investors and traders because it represents how many shares are actually available to be bought and sold each day.  This takes on even more importance given the number of shares of LMFA that have been sold short, with 41-51% being reported by the Nasdaq in its last two reports.   It is quite rare to see a NASDAQ listed company with a float as small as 1.01 million and it is equally or even more unusual to see a company with nearly 50% of its public float sold short.

January 25, 2018 at 8:07 pm 1 comment

Introducing LM Funding (NASDAQ: LMFA) to the Groove Focus List

 

  • LMFA could rally 50% or more to pre-default levels due to conversion of all debt to equity on favorable terms.
  • Tiny public float of 1 million shares w/ 51% sold short could cause exaggerated move higher on uptick in buying interest.

Today we are announcing our new focus stock to the Groove community – LM Funding America (NASDAQ: LMFA).  LMFA is a small company whose stock has recently fallen to $1.50 per share, breaking down from the $4-$8 per share range it had traded over the last two years. LMFA’s stock price was eviscerated over the last few months when the company began to miss payments on its long term debt. The downdraft accelerated with what appeared to be year end tax loss selling that pushed the stock to historical lows. The stock has continued to trade near to those lows despite the fact that all of the company’s long term debt was converted to equity on very favorable terms over the last few weeks.

Chart
LMFA data by YCharts

With a clean balance sheet, a significantly reduced cost structure in place and a very significant vote of confidence from a notable third party investor; we would (at a minimum) expect to see LMFA’s stock trade back to a range more in line with its market cap prior to the events of default on its debt. Using LMFA’s historical trading range of $4 – $6 per share and adjusting for the additional shares issued with the debt exchange, that would put LMFA’s shares in the $2.25 – $3.35 range or 50-100% higher than its price as of yesterday’s close.

Groove participants can review our full due diligence report on LMFA by clicking here.

In summary, we believe that LMFA is significantly undervalued and that the current trading range offers a great opportunity for Groove community participants to establish a stake in a company that could offer returns of 50% or more when the stock starts to reflect the company’s improved outlook.  If any other positive developments were to surface, the jaw dropping short interest (511,000 shares or 51% of the entire public float) outstanding could become a major factor driving share prices much higher as it appears that it would not take much for a short squeeze to materialize. Regardless whether that occurs, we think LMFA is dirt cheap and Groove community participants who buy at these levels should enjoy significant upside soon.

 

 

January 24, 2018 at 4:32 pm Leave a comment

Groove Community Update – Remark Holdings

BTFD.  That is all.

January 24, 2018 at 11:12 am Leave a comment

RAVE Restaurant Group Update

Rave Restaurant Group’s (NASDAQ: RAVE) stock surged Friday, closing up 19% after rallying almost 50% in early trading on volume that was more than 20x normal volume.  This on the heels of a 10% move the prior day on 5x normal volume.  Have investors realized that RAVE appears to be back in growth mode?  With new Pie Five locations opening in Miami, New Jersey, San Francisco and Baltimore over the last few months while the stock has continued to trade at prices that suggest bankruptcy is imminent, one could argue that the stock is finally just catching up with the operational outlook.  Pie Five is growing and new CEO Scott Crane has the company at the forefront of the fast casual pizza space in terms of innovation.  In addition to opening in these many new high profile locations over the last few months, Pie Five has also been the first in the space to offer a drive through, delivery, adding sandwiches to the menu, adding a 14″ shareable pizza and adding a super healthy cauliflower pizza crust.  While it is still too early to see the revenue implications of any of these initiatives, we do believe that CEO Crane is leading a turnaround with RAVE and that the stock had not adjusted to reflect this potential. 

But was the move at the end of last week a flood of recognition from investors that things are turning around?  Probably not.  The speed and fury with which traders were piling in to RAVE stock Friday morning (so much so that the NASDAQ halted trading briefly) suggests to us that it was something else entirely. There were posts in various online forums suggesting that RAVE was about to switch its customer rewards program to a blockchain based cryptocurrency reward program similar to what Chanticleer Holdings (NASDAQ: BURG) announced last week. Prior to that announcement on January 2, BURG’s stock had been very thinly traded in a range of $1.90 – $2.60 for months. On the blockchain rewards announcement, the stock surged to over $5 per share and traded many millions of shares and it has since settled in to a trading range over $3 with much higher average daily volumes.  We think traders were looking at a thinly traded, small float, big short interest stock that was oversold and decided to buy in on the chance that it might be the next big blockchain mover.  Had the company actually announced such a deal, we would not have been surprised at all to see RAVE shares make a similar move ($5+) though it would have likely given much of that back in the same way that BURG and many of the others have done.  So if we get a Wednesday morning PR that RAVE is “going blockchain”, we think the stock will move even higher on the economics of huge demand vs. small supply.  And while the move may only be short lived, traders who bought shares below $2 will likely be rewarded handsomely in such a surge and if it plays out like the many others before it, RAVE would settle into a trading range much higher than the $1.40 – $1.50 range where this all started. And we think the company’s operational momentum already justifies a double digit percentage upgrade to that trading range.

January 16, 2018 at 12:51 pm 3 comments

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