The curious case of Remark Media Inc

Remark Media Inc. is a US corporation listed on the NASDAQ. It is primarily involved in domaining. “Domaining” is the business of making money with Internet domain names.

Remark Media’s portfolio consist of:

• Sharecare.com
• Bikini.com
• Romilia
• Banks.com
• TaxExtension.com / filelater.com
• Slaptv.com
• IRS.com
• Bowenwang.com
• ComoTudoFunciona (hsw.uol.com.br)

1. USD$15.5 million in cash
2. USD$9.5 million in stocks of Remark 
3. USD$10 million in five warrants to purchase common stock in Remark at an exercise option price of $9.00 per share
4. Up to a total of USD$3 million in earn out payments of the next few years

1. Managing Director & CEO: Kai-Shing Tao
   Non-executive director – Paradise Entertainment Group 
   (Casino management, development and leasing of game machinery & equipment)
2. Director: Robert G. Goldstein
   President of Global Gaming Operations of Las Vegas Sands Corporation
   (Casino management & construction)
3. Director: William W Grounds
   Board member of MGM Resorts International
   (Casino management & construction)
4. Director: Jason Strauss
   Founding Partner TAO Group 
   (Restaurant & Nightlife company with Las Vegas holdings)
5. CFO: Douglas M Osrow
   CFO Paragon Gaming
   (Casino management & construction)

The purchase of VEGAS.COM seems perfectly obvious understanding the boards’ composition and connections, however the terms of the agreement seem strange once the numbers are crunched.
 
For instance, Remark is trading at USD$4.25 a share giving it a market capitalization of USD$61 million. The 52-week high was USD$7.40 which in light of the USD$10 million in warrants at an option price of $9, is more than double the current trading price and 20% more than the 52-week high.
 
Furthermore the USD$9.5 million in Remark shares would equate to around 2.2 million shares. On current trading volume, 31,000 every 10 days, this would equate to 700 days of trading.
 
On pure numbers alone, this deal doesn’t make sense for either party beyond the cash payment. The purchase of shares worth $9.5 million together with the option arrangement valued at more than double Remark’s current position is incredibly strange especially when the Earnings Per Share for the Trailing Twelve Months equates to -$1.31.
 
The strangeness deepens when the Form 10 – Q for Remark Media Inc. is read for the last quarter (ending June ’15). Under the heading Liquidity and Capital Resources the report states:

“During the six months ended June 30, 2015, and in each fiscal year since our inception, we have incurred net losses and generated negative cash flow from operations, resulting in an accumulated deficit of $136.2 million and a cash and cash equivalents balance of $0.8 million, both amounts as of June 30, 2015. Our revenue during the six months ended June 30, 2015 was $1.6 million.”

This reveals that not only has Remark made losses in excess of USD$100 million but that the revenue across its portfolio for the year ending ’15 was near enough to 2% of the total accrued losses.
 
The question remains, why did The Greenspun Corporation accept this deal? Remark has made losses totalling more than $100 million, the shares in the last 12 months have cost investors money rather than made money and the option agreement is grossly overvalued at the current level. So why?
 
In my opinion, there are two distinct possibilities:

1. Greenspun are privy to Remark’s expansion plans for Vegas.com

2. Greenspun needed to off load Vegas.com

1. Make sure the contract for sale includes the Domain name & associated intellectual property
   -    Any similar domains with different suffixes eg. Timstools.com & timstools.net
2. Change the domain name ownership
   -    The changing of domain name ownership can attract a cost. Make sure you account for this        when negotiating the purchase price
3. Make sure you or your IT Team gain control of where the domain is hosted
4. Make sure you or your IT Team have access to the domain name
5. Make sure your details are updated or removed on the website & associated web directories (Google Maps etc)

1. Vegas.com $38 million in 2015*
2. Insurance.com $35.6 million in 2010
3. VacationRentals.com $35 million in 2007
4. PrivateJet.com $30.18 million in 2012
5. Internet.com $18 million in 2009
6. 360.com $17 million in 2015
7. Insure.com $16 million in 2009
8. Fund.com 2008 £9.99 million
9. Sex.com for $14 million in November 2014
10. Hotels.com $11 million in 2001

*Pending shareholder approval.
**All currency is in USD

Sources:
http://www.thedomains.com/2015/08/21/vegas-com-sold-for-up-to-38-million-with-15-5-million-in-cash/
http://biz.yahoo.com/e/150814/mark10-q.html
http://www.remarkmedia.com/board/
http://www.bloomberg.com/research/stocks/snapshot/snapshot.asp?ticker=MARK

This is not to be taken as legal advice.