XpresSpa Group, Inc. - FORM 10-Q

Attached files

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EX-32 - EX-32 - XpresSpa Group, Inc.	xspa-20200331xex32.htm
EX-31 - EX-31 - XpresSpa Group, Inc.	xspa-20200331xex31.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

⌧QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

◻TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number: 001-34785

XpresSpa Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		20-4988129
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

254 West 31^st Street, 11th Floor, New York, NY		10001
(Address of principal executive offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code): (212) 309-7549

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	XSPA	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	⌧	Smaller reporting company	⌧
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ⌧

As of July 2, 2020, 56,473,913 shares of the registrant’s common stock were outstanding.

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EXPLANATORY NOTE

On May 11, 2020, XpresSpa Group, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Form 8-K”) with the U.S. Securities and Exchange Commission (the “SEC”) indicating its reliance on the 45-day extension provided by an order issued by the SEC on March 25, 2020 pursuant to Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (Release No. 34-88465) (the “Order”) regarding exemptions granted to certain public companies. Consistent with the Company’s statements made in the Form 8-K, the Company was unable to file its Quarterly Report on Form 10-Q (the “Quarterly Report”) by May 15, 2020 because of the coronavirus disease 2019 (“COVID-19”) pandemic and related events which resulted in the Company’s management devoting significant time and attention to assessing the potential impact of COVID-19 and those events on the Company’s operations and financial position and developing operational and financial plans to address those matters. This diverted management resources from completing all of the tasks necessary to file its Quarterly Report by the original May 15, 2020 deadline.

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XpresSpa Group, Inc. and Subsidiaries

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		Page
PART I. FINANCIAL INFORMATION		4

Item 1.	Consolidated Condensed Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION		39

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46

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PART I - FINANCIAL INFORMATION

Item 1.Consolidated Condensed Financial Statements

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)


	March 31, 2020		December 31,
	(Unaudited)		2019
Current assets
Cash and cash equivalents	$	3,855	$	2,184
Inventory		596		647
Other current assets		998		1,102
Total current assets		5,449		3,933

Restricted cash		451		451
Property and equipment, net		7,951		8,064
Intangible assets, net		6,213		6,783
Operating lease right of use assets, net		7,727		8,254
Other assets		1,399		1,239
Total assets	$	29,190	$	28,724

Current liabilities
Accounts payable, accrued expenses and other	$	11,528	$	12,551
Current portion of operating lease liabilities		3,665		3,669
Merchant account advance		910		—
Total current liabilities		16,103		16,220

Long-term liabilities
Convertible senior secured note, net		3,562		4,580
Convertible note, net		1,318		1,182
Derivative liabilities		6,428		3,137
Operating lease liabilities		5,202		5,826
Other liabilities		315		315
Total liabilities		32,928		31,260
Commitments and contingencies (see Note 10)

Stockholders’ equity (deficit)
Series A Convertible Preferred Stock, $0.01 par value per share; 6,968 shares authorized; 6,673 issued and none outstanding		—		—
Series C Junior Preferred Stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding		—		—
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; none issued and outstanding		—		—
Series E Convertible Preferred Stock, $0.01 par value per share, 2,397,060 shares authorized; 987,988 and 977,865 issued and outstanding with a liquidation value of $3,063 and $3,031 at March 31, 2020 and December 31, 2019, respectively		10		10
Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; 1,531 and 8,996 shares issued and outstanding with a liquidation value of $153 and $900 as of March 31, 2020 and December 31, 2019, respectively		—		—
Common Stock, $0.01 par value per share 150,000,000 shares authorized; 18,601,467 and 5,157,390 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		186		52
Additional paid-in capital		311,389		302,118
Accumulated deficit		(318,752)		(308,136)
Accumulated other comprehensive loss		(283)		(283)
Total stockholders' equity (deficit) attributable to XpresSpa Group, Inc.		(7,450)		(6,239)
Noncontrolling interests		3,712		3,703
Total stockholders’ deficit		(3,738)		(2,536)
Total liabilities and stockholders’ deficit	$	29,190	$	28,724

* Adjusted, where applicable, to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

The accompanying notes form an integral part of these consolidated condensed financial statements.

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XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three months ended March 31,
	2020		2019

Revenue
Services	$	6,686	$	9,628
Products		891		1,418
Other		141		1,184
Total revenue		7,718		12,230
Cost of sales
Labor		4,476		5,778
Occupancy		1,410		1,865
Products and other operating costs		1,282		1,455
Total cost of sales		7,168		9,098
Depreciation and amortization		1,265		1,649
General and administrative		3,233		3,600
Total operating expenses		11,666		14,347
Operating loss		(3,948)		(2,117)
Interest expense		(1,061)		(611)
(Loss) gain on revaluation of warrants and conversion options		(5,369)		152
Other non-operating expense, net		(346)		(257)
Loss from operations before income taxes		(10,724)		(2,833)
Income tax expense		—		(11)
Net loss		(10,724)		(2,844)
Net loss (income) attributable to noncontrolling interests		108		(129)
Net loss attributable to XpresSpa Group, Inc.	$	(10,616)	$	(2,973)

Net loss	$	(10,724)	$	(2,844)
Other comprehensive gain / (loss) from operations		—		(21)
Comprehensive loss	$	(10,724)	$	(2,865)

Loss per share*
Basic and diluted net loss per share	$	(1.74)	$	(4.82)
Weighted-average number of shares outstanding during the year*
Basic		6,276,012		617,357
Diluted		6,276,012		617,357

* Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

The accompanying notes form an integral part of these consolidated condensed financial statements.

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XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share data)


														Accumulated		Total
	Series E			Series F						Additional				other		Company		Non-
	Preferred stock			Preferred stock			Common stock			paid-		Accumulated		comprehensive		equity		controlling		Total
	Shares	Amount		Shares	Amount		Shares *	Amount *		in capital *		deficit		income (loss)		(deficit)		interests		equity (deficit)
December 31, 2019	977,865	$	10	8,996	$	—	5,157,390	$	52	$	302,118	$	(308,136)	$	(283)	$	(6,239)	$	3,703	$	(2,536)
Issuance of Common Stock for payment of interest on B3D Note	—		—	—		—	236,077		2		418		—		—		420		—		420
Issuance of Series E Preferred Stock for payment of interest on Calm Note	10,123		—	—		—	—		—		63		—		—		63		—		63
Conversion of Series F Preferred Stock into Common Stock	—		—	(7,465)		—	930,326		9		(9)		—		—		—		—		—
Direct offerings of registered Common Stock and exercise of pre-funded warrants, net of costs	—		—	—		—	8,210,239		82		4,176		—		—		4,258		—		4,258
Exercise of May 2018 Series A Warrants into Common Stock	—		—	—		—	2,578,455		26		3,096		—		—		3,122		—		3,122
Conversion of B3D Note to Common Stock	—		—	—		—	1,430,647		14		1,321		—		—		1,335		—		1,335
Issuance of Common Stock for services	—		—	—		—	58,333		1		134		—		—		135		—		135
Stock-based compensation	—		—	—		—	—		—		72		—		—		72		—		72
Net loss for the period	—		—	—		—	—		—		—		(10,616)		—		(10,616)		(108)		(10,724)
Foreign currency translation	—		—	—		—	—		—		—		—		—		—		—		—
Contributions from noncontrolling interests	—		—	—		—	—		—		—		—		—		—		117		117
March 31, 2020	987,988	$	10	1,531	$	—	18,601,467	$	186	$	311,389	$	(318,752)	$	(283)	$	(7,450)	$	3,712	$	(3,738)

* Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

The accompanying notes form an integral part of these consolidated condensed financial statements.

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XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except share data)


																	Accumulated
	Series D			Series E			Series F						Additional				other		Total		Non-
	Preferred stock			Preferred stock			Preferred stock			Common stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Shares *	Amount *		in capital *		deficit		loss		equity		interests		equity
December 31, 2018	425,750	$	4	967,742	$	10	—	$	—	587,267	$	6	$	296,250	$	(286,913)	$	(251)	$	9,106	$	4,029	$	13,135
Issuance of Common Stock for repayment of debt and interest	—		—	—		—	—		—	59,847		—		817		—		—		817		—		817
Stock-based compensation	—		—	—		—	—		—	—		—		104		—		—		104		—		104
Net income (loss) for the period	—		—	—		—	—		—	—		—		—		(2,973)		—		(2,973)		129		(2,844)
Foreign currency translation	—		—	—		—	—		—	—		—		—		—		(21)		(21)		—		(21)
Distributions to noncontrolling interests	—		—	—		—	—		—	—		—		—		—		—		—		(166)		(166)
March 31, 2019	425,750	$	4	967,742	$	10	—	$	—	647,114	$	6	$	297,171	$	(289,886)	$	(272)	$	7,033	$	3,992	$	11,025

* Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

The accompanying notes form an integral part of these consolidated condensed financial statements.

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XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three months ended March31,
	2020		2019
Cash flows from operating activities
Net loss	$	(10,724)	$	(2,844)
Adjustments to reconcile net loss to net cash used in operating activities:
Items included in net loss not affecting operating cash flows:
Depreciation and amortization		1,265		1,649
Revaluation of warrants and conversion options		5,369		(152)
Accretion of debt discount on notes		602		—
Amortization of right of use lease asset		527		271
Issuance of shares of Common Stock for payment of interest		420		132
Loss on the extinguishment of debt		265		—
Issuance of shares of Common Stock for services		135		—
Amortization of debt issuance costs		87		394
Stock-based compensation		72		104
Issuance of shares of Series E convertible Preferred Stock for payment of interest on Calm Note		63		—
Changes in assets and liabilities:
Decrease (increase) in inventory		51		(99)
(Increase) decrease in other current assets and other assets		(710)		65
(Decrease) increase in accounts payable, accrued expenses and other		(939)		664
Net cash (used in) provided by operating activities		(3,517)		184
Cash flows from investing activities
Acquisition of property and equipment		(584)		(575)
Net cash used in investing activities		(584)		(575)
Cash flows from financing activities
Proceeds from direct offering of Common Stock and warrants		4,258		—
Proceeds from funding advances, net		910		—
Proceeds from additional borrowing from B3D		900		—
Debt issuance costs		(400)		—
Contributions from noncontrolling interests		117		—
Distributions to noncontrolling interests		—		(166)
Net cash provided by financing activities		5,785		(166)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(13)		(21)
Increase (decrease) in cash, cash equivalents and restricted cash		1,671		(578)
Cash, cash equivalents, and restricted cash at beginning of the period		2,635		3,890
Cash, cash equivalents, and restricted cash at end of the period	$	4,306	$	3,312
Cash paid during the period for
Interest	$	169	$	187
Income taxes	$	2	$	—
Non-cash investing and financing transactions
Settlement of derivative liability through the issuance of Common Stock	$	3,122	$	—
Conversion of B3D Note and warrants into Common Stock	$	1,335	$	—
Conversion of Series F Preferred Stock into Common Stock	$	9	$	—
Issuance of common stock to repay debt	$	—	$	685

The accompanying notes form an integral part of these consolidated condensed financial statements.

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XpresSpa Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for share and per share data)

Note 1. General

Overview

XpresSpa Group, Inc. (“XpresSpa” or the “Company”) is a pure-play health and wellness services company and a leading airport retailer of spa services. XpresSpa offers travelers premium spa services, including massage, nail and skin care, as well as spa and travel products. The Company currently has one operating segment that is also its sole reporting unit.

Basis of Presentation and Principals of Consolidation

The unaudited interim consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8-03 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The unaudited interim consolidated condensed financial statements for all 2019 periods presented have been derived from the audited financial statements. The financial statements include the accounts of the Company, all entities that are wholly owned by the Company, and all entities in which the Company has a controlling financial interest. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company. Such adjustments are of a normal, recurring nature. The results of operations for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

Reverse Stock Split

On June 11, 2020, the Company effected a 1-for-3 reverse stock split, whereby every three shares of its Common Stock was reduced to one share of its Common Stock and the price per share of its Common Stock was multiplied by 3. All references to shares and per share amounts have been adjusted to reflect the reverse stock split.

Recent Developments

Newly launched XpresCheck™ brand

On May 22, 2020, the Company announced the signing of a contract with JFK International Air Terminal LLC (“JFKIAT”) to pilot test our concept of providing diagnostic COVID-19 tests located in Terminal 4. To facilitate the JFK pilot test, we signed an agreement with JFKIAT for a new modular constructed testing facility within the terminal that will host nine separate testing rooms with a capacity to administer over 500 tests per day. We intend to initially offer our services to airline employees, contractors and workers, concessionaires and their employees, TSA officers, and U.S. Customs and Border Protection agents. All COVID-19 screening and testing will be conducted by a newly launched brand, XpresCheck™, which will operate under our XpresTest subsidiary. The pilot test at JFK launched on June 22, 2020.

Effect of Coronavirus on Business

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, which continues to spread throughout the U.S. and the world, as a pandemic. The outbreak is having an impact on the global economy, resulting in rapidly changing market and economic conditions. National and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The outbreak and associated restrictions on travel that have been implemented have had a material adverse impact on the Company’s business and cash flow from operations, similar to many businesses in the travel sector. Effective March 24, 2020, the

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Company temporarily closed all global spa locations, largely due to the categorization of the spa locations by local jurisdictions as “non-essential services”. The Company intends to reopen its spa locations and resume normal operations once restrictions are lifted and airport traffic returns to sufficient levels to support operations. The impact of COVID-19 is unknown and may continue as the rates of infection have increased in many states in the U.S., thus additional restrictive measures may be necessary. As a result, management has concluded that there was a long-lived asset impairment triggering event during the first quarter of 2020, which would require management to perform an impairment evaluation of its long-lived and definite-lived asset balances, which consists primarily of leasehold improvements at spa locations, trademarks and right of use lease assets of approximately $22,891 as of March 31, 2020. As a result of the triggering event, the Company reassessed its projections and based on management’s expectation of resuming normal operations, no impairment was indicated at this time. The full extent to which COVID-19 will impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact.

The impact of the COVID-19 pandemic could continue to have a material adverse effect on our business, results of operations, financial condition, liquidity and prospects in the near-term and beyond 2020. While management has used all currently available information in its forecasts, the ultimate impact of the COVID-19 pandemic and the Company’s newly launched brand, XpresCheck^TM, on its results of operations, financial condition and cash flows is highly uncertain, and cannot currently be accurately predicted. The Company’s results of operations, financial condition and cash flows are dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact, which at the present time are highly uncertain and cannot be predicted with any accuracy. The success or failure of the Company’s newly launched brand, XpresCheck^TM, could also have a material effect on the Company’s business.

Airport Rent Concessions

The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent in excess of minimum guaranteed amounts where percentage-of-revenue rent exceeds the minimum. Currently, the period of relief from these payments range from three- to ten-months beginning in March 2020. The Company did not pay a total of approximately $75 in rent in March 2020 as a result of receiving these concessions for the month in which we began closing our spa locations. We will realize additional savings in rent expense going forward since we closed all of our spas on March 24, 2020, and therefore there will be no percentage-of-revenue rent. We also received deferrals on unpaid rent for three to six months on certain of our leases.

Warrant Exchanges

On March 19, 2020, the Company entered into separate Warrant Exchange Agreements (the “March Exchange Agreements”) with the holders of certain existing warrants (the “March Exchanged Warrants”) to exchange warrants for shares of the Company’s Common Stock, subject to receipt of the approval of the Company’s stockholders, which was obtained on May 28, 2020. The March Exchanged Warrants were originally issued (i) pursuant to a securities purchase agreement, dated as of May 15, 2018, and (ii) in connection with that certain Agreement and Plan of Merger by and among the Company (formerly known as FORM Holdings Corp.), FHXMS, LLC, XpresSpa Holdings, LLC and Mistral XH Representative, LLC, as representative of the unitholders, dated October 25, 2016, as subsequently amended. In June 2020, pursuant to the March Exchange Agreements, the holders exchanged 1,942,131 of the March Exchanged Warrants for an aggregate of 2,913,197 shares of Common Stock.

On June 4, 2020, the Company entered into a Warrant Exchange Agreement (the “June Exchange Agreement”) with the holder of certain existing warrants (the “June Exchanged Warrants”) to exchange the June Exchanged Warrants for shares of the Company’s Common Stock. The June Exchanged Warrants were originally acquired pursuant to a separately negotiated private transaction between the holder and Calm.com, Inc. Pursuant to the June Exchange Agreement, on the closing date the holder exchanged 1,374,750 of the June Exchanged Warrants for an aggregate of 2,062,125 shares of Common Stock.

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Liquidity and Financial Condition

As of March 31, 2020, the Company had cash and cash equivalents, excluding restricted cash, of $3,855, total current assets of $5,449, total current liabilities of $16,103, and a working capital deficiency of $10,654 compared to a working capital deficiency of $12,287 as of December 31, 2019. The report of the Company’s independent registered public accounting firm on its financial statements for the year ended December 31, 2019 included an explanatory paragraph indicating that there was substantial doubt about the Company’s ability to continue as a going concern.

To address the working capital deficiency, and outstanding long-term debt, subsequent to March 31, 2020 the Company raised approximately $43,050 of gross proceeds in a series of registered direct equity offerings, which eliminated the working capital deficiency and resulted in positive working capital of approximately $27,800 after the offerings. In addition, the Company reduced the $9,975 of principal amount of debt owed as of March 31, 2020 by $9,075, through a series of transactions including (i) converting $5,665 of the B3D Note to Common Stock, (ii) converting the $2,500 Calm Note to Common Stock, and (iii) repaying in full the $910 owed to Credit Cash, net of a discount of approximately $91.

The Company believes that as a result of the transactions that have occurred, it has successfully mitigated the substantial doubt raised by its historical operating results and will satisfy its liquidity needs for at least twelve months from the issuance of these financial statements. However, while the Company has addressed its working capital deficiency and long-term debt, while continuing to focus on its overall operating profitability, the Company expects to incur net losses in the foreseeable future and therefore cannot predict with any certainty that the results of its actions will satisfy its liquidity needs in the longer-term.

Credit Cash Funding Advance

On January 9, 2020, certain wholly-owned subsidiaries (the “CC Borrowers”) of the Company entered into an accounts receivable advance agreement (the “CC Agreement”) with CC Funding, a division of Credit Cash NJ, LLC (the “CC Lender”). Pursuant to the terms of the CC Agreement, the CC Lender agreed to make an advance of funds in the amount of $1,000 for aggregate fees of $160, for a total repayment amount of $1,160. As of March 31, 2020, the outstanding repayment amount of $910 was secured by substantially all of the assets of the CC Borrowers, including CC Borrowers’ existing and future accounts receivables and other rights to payment. On June 1, 2020, the CC Borrowers entered into a payoff letter (the “Payoff Letter”) with the CC Lender pursuant to which the CC Agreement was terminated. Under the Payoff Letter, the Company repaid $733 owed under the CC Agreement as of June 1, 2020 and the CC Lender released all security interests held on the assets of the CC Borrowers, including the CC Borrowers’ existing and future accounts receivables and other rights to payment.

As compensation for the consent of existing creditor B3D, LLC (“B3D”) to the CC Agreement described above, on January 9, 2020, XpresSpa Holdings, LLC (“XpresSpa Holdings”), a wholly-owned subsidiary of the Company, entered into a fifth amendment (the “Fifth Credit Agreement Amendment”) to its existing credit agreement with B3D in order to, among other provisions, (i) amend and restate its existing convertible promissory note (the “B3D Note”) in order to increase the principal amount owed to B3D from $7,000 to $7,150, which additional $150 in principal and any interest accrued thereon will become convertible, at B3D’s option, into shares of the Company’s Common Stock upon receipt of the approval of the Company’s stockholders, which was obtained on May 28, 2020 and (ii) provide for the advance payment of 97,223 shares of Common Stock in satisfaction of the interest payable pursuant to the B3D Note for the months of October, November and December 2020. The Common Stock was issued to B3D on January 14, 2020.

B3D Senior Secured Loan

On March 6, 2020, XpresSpa Holdings, LLC, our wholly-owned subsidiary, entered into a sixth amendment (the “Sixth Credit Agreement Amendment”) to its existing credit agreement with B3D. In connection with the Sixth Credit Agreement Amendment and B3D Note, B3D agreed to provide the Company with $500 in additional funding and to submit one or more conversion notices to convert an aggregate of $375 in principal under the B3D Note to Common Stock on or prior to March 27, 2020. XpresSpa Holdings entered into the Sixth Credit Agreement Amendment in order to, among other provisions, (i) amend and restate its existing convertible promissory note with B3D in order to increase the principal amount owed from $7,150 million to $7,900 , which additional $750 in principal and any interest accrued thereon will be

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convertible, at B3D’s option, into shares of Common Stock subject to receipt of the approval of the Company’s stockholders, which was approved on May 28, 2020 and (ii) decrease the conversion rate under the B3D Note from $6.00 per share to $1.68 per share. On March 19, 2020, the conversion rate was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments. In connection with the Sixth Credit Agreement Amendment, B3D converted a total of $750 in principal and was issued a total of 446,429 shares of our Common Stock in March 2020.

Registered Direct Common Stock Offerings

On March 19, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which it issued and sold, in a registered direct offering, (i) 1,396,281 shares of Common Stock at an offering price of $0.525 per share and (ii) an aggregate of 698,958 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.495 per pre-funded warrant.

On March 25, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which it issued and sold, in a registered direct offering, (i) 2,483,333 shares of Common Stock at an offering price of $0.60 per share and (ii) an aggregate of 500,000 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.57 per pre-funded warrant.

On March 27, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which it issued and sold, in a registered direct offering (i) 2,631,666 shares of Common Stock at an offering price of $0.60 per share and (ii) an aggregate of 701,666 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.57 per pre-funded warrant.

The Company sold a total of 6,511,280 shares of Common Stock and 1,900,625 of pre-funded warrants and received total proceeds of $4,209, net of financial advisory and consulting fees of $626, in the above offerings. During the three months ended March 31, 2020, 1,698,959 pre-funded warrants were exercised for total proceeds of approximately $49. As of March 31, 2020, 201,666 warrants were not exercised and were subsequently exercised.

On April 6, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which it issued and sold, in a registered direct offering (i) 4,049,573 shares of Common Stock at an offering price of $0.66 per share and (ii) an aggregate of 485,151 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.63 per pre-funded warrant. The Company received gross proceeds of approximately $3,050 in connection with this offering, before deducting financial advisory consultant fees and related offering expenses. Each pre-funded warrant represented the right to purchase one share of Common Stock at an exercise price of $0.03 per share and was ultimately exercised.

On June 17, 2020, the Company entered into a securities purchase agreement with certain purchasers pursuant to which the Company agreed to issue and sell 7,614,700 shares of the Company’s Common Stock at an offering price of $5.25 per share (the “Registered Offering”). In a concurrent private placement (the “Private Placement” and together with the Registered Offering, the “Offerings”), the Company agreed to issue to the purchasers who participated in the Registered Offering warrants (the “Warrants”) exercisable for an aggregate of 7,614,700 shares of Common Stock at an exercise price of $5.25 per share. Each Warrant will be immediately exercisable and will expire 21 months from the issuance date. The Warrants and the shares of Common Stock issuable upon the exercise of the Warrants are not registered under the Securities Act of 1933, as amended (the “Securities Act”), were not offered pursuant to a registration statement and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Offerings closed on June 19, 2020 with the Company receiving gross proceeds of approximately $40,000 before deducting placement agent fees and related offering expenses.

Paycheck Protection Program

On May 1, 2020, the Company entered into a U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) promissory note in the principal amount of $5,653 payable to Bank of America, NA (the “Bank of America”) evidencing a PPP loan (the “PPP Loan”). The PPP Loan bears interest at a rate of 1% per annum. No payments will be due on the PPP Loan during a six-month deferral period commencing on May 2, 2020. Commencing one month after the

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expiration of the deferral period, and continuing on the same day of each month thereafter until the maturity date of the PPP Loan, the Company will be obligated to make monthly payments of principal and interest, each in such equal amount required to fully amortize the principal amount outstanding on the PPP Loan by the maturity date. The maturity date is May 2, 2022. The principal amount of the PPP Loan is subject to forgiveness under the PPP upon the Company’s request to the extent that PPP Loan proceeds are used to pay expenses permitted by the PPP. Bank of America may forgive interest accrued on any principal forgiven if the SBA pays the interest. There can be no assurance that any part of the PPP Loan will be forgiven. The PPP Loan contains customary borrower default provisions and lender remedies, including the right of Bank of America to require immediate repayment in full the outstanding principal balance of the PPP Loan with accrued interest.

Note 2. Significant Accounting and Reporting Policies

(a) Recently issued accounting pronouncements

Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

Issued in January 2020, the amendments in this update affect all entities that apply the guidance in Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an as option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. The Company applies the guidance included in Topic 815 to its derivative liabilities but does not intend on applying the new measurement alternative included in the update. The new standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe the adoption of this standard will have a material impact on its consolidated condensed financial statements.

Accounting Standards Update No. 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.

Issued in December 2019, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to guidance in Topic 740. The specific areas of potential simplification were submitted by stakeholders as part of the FASB’s simplification initiative. The Company does not believe the adoption of this standard will have a material impact on its consolidated condensed financial statements.

(b) Recently adopted accounting pronouncements

Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”)

On January 1, 2020 the Company adopted ASU No. 2016-13 using a modified-retrospective approach. This standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize estimated credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. Adoption of this standard did not result in an adjustment to opening accumulated deficit and did not have a material impact on the Company's consolidated condensed financial statements.

Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”)

On January 1, 2020, the Company adopted ASU No. 2018-13. This amendment provides updates to the disclosure requirements on fair value measures in Topic 820, which includes the changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements, the option of additional quantitative information

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surrounding unobservable inputs and the elimination of disclosures around the valuation processes for Level 3 measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty have been applied prospectively beginning in the quarter ended March 31, 2020. All other amendments have been applied retrospectively to all periods presented. Adoption of this standard did not have a material impact on the Company's consolidated condensed financial statements.

Certain balances in the 2019 financial statements have been reclassified to conform to the presentation in the 2020 financial statements, primarily the classification and presentation of certain items in the operating activities section of the statement of cash flows. Such reclassifications did not have a material impact on the condensed consolidated financial statements.

Note 3. Potentially Dilutive Securities

The table below presents the computation of basic and diluted net loss per share of Common Stock:


	Three months ended
	March 31,
	2020		2019

Basic and diluted numerator:
Net loss	$	(10,616)	$	(2,973)
Less: deemed dividend on warrants and preferred stock		(308)		—
Net loss attributable to common shareholders	$	(10,924)	$	(2,973)
Basic and diluted denominator:
Basic and diluted weighted average shares outstanding		6,276,012		617,357
Basic and diluted net loss per share	$	(1.74)	$	(4.82)

Net loss per share data presented above excludes from the calculation of diluted net loss the following potentially dilutive securities, as they had an anti-dilutive impact:
Both vested and unvested options to purchase an equal number of shares of Common Stock		45,964		49,167
Unvested RSUs to issue an equal number of shares of Common Stock		20,000		18,417
Warrants to purchase an equal number of shares of Common Stock		8,832,776		234,557
Preferred stock on an as converted basis		802,079		2,121,443
Convertible notes on an as converted basis		15,551,497		72,500
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders		25,252,316		2,496,084

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Note 4. Intangible Assets

The following table provides information regarding the Company’s intangible assets subject to amortization, which consist of the following:


	March 31, 2020						December 31, 2019
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Trade name	$	13,307	$	(7,262)	$	6,045	$	13,309	$	(6,709)	$	6,600
Software		314		(146)		168		312		(129)		183
Total intangible assets	$	13,621	$	(7,408)	$	6,213	$	13,621	$	(6,838)	$	6,783

The Company’s trade name relates to the value of the XpresSpa trade name, and software relates to certain capitalized third-party costs related to a new point-of-sale system.

The Company's intangible assets are amortized over their expected useful lives. During the three months ended March 31, 2020 and 2019, the Company recorded amortization expense of $570 and $568, respectively.

Based on the intangible assets balance as of March 31, 2020 the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:


Calendar Years ending December 31,	Amount
Remainder of 2020	$	1,711
2021		2,277
2022		2,206
2023		19
Total	$	6,213

Note 5. Leases

The Company leases its retail space at various domestic and international airports. Additionally, the Company leases its corporate office in New York City. Certain leases entered into by the Company fall under ASU No. 2016-02, Leases (“ASC 842”). At inception, the Company determines if a lease qualifies under ASC 842. Certain of the Company’s lease arrangements contain fixed payments throughout the term of the lease while others involve a variable component to determine the lease obligation wherein a certain percentage of sales is used to calculate the lease payments. Certain leases that expire and are then extended on a month-to-month basis are not included in the calculation of the total lease liability and the right of use asset after they convert to month-to-month.

All qualifying leases held by the Company are classified as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. The Company records its operating lease assets and liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate as of the commencement date of the lease, which approximates the rate at which the Company can borrow funds on a secured basis, in determining the present value of the guaranteed lease payments.

The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any leases should be accounted for pursuant to the guidance in ASC 842. The Company recalculates the right of use asset and lease liability based on the modified lease term and adjusted both balances.

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The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent in most cases, and in certain cases providing relief from rent required to be paid as a percentage of revenue in excess of minimum guaranteed amounts for the month. The relief from these rent payments range from three- to ten-month periods beginning in March 2020. The Company did not pay a total of approximately $75 in rent in March 2020 as a result of receiving these concessions.

The Financial Accounting Standards Board (“FASB”) issued a Q&A in March 2020 that focused on the application of lease guidance in ASC 842 for lease concessions related to the effects of COVID-19. The FASB staff has said that entities can elect to not evaluate whether concessions granted by lessors related to COVID-19 are lease modifications. Entities that make this election can then apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. XpresSpa has elected to not treat the concessions as lease modifications and will instead account for the lease concessions as if they were contemplated as part of the existing leases.

When a lessor grants a concession that contractually releases a lessee from certain lease payments or defers lease payments, a lessee may account for the concession as a negative variable lease payment and recognize negative variable lease expense in the period when the rent concession becomes accruable. The Company did not record rent expense for the month which it received a concession from the landlord. Since negative variable lease expense is not recognized until it becomes accruable, lease liabilities will not be adjusted until the actual month that the rent is accruable.

There were no lease modifications during the period.The following is a summary of the activity in the Company’s operating lease liabilities for the three months ended March 31, 2020:


Operating lease liabilities, January 1, 2020	$	9,495
New leases entered		—
Extension of term of existing lease obligations		—
Termination of existing qualifying leases		—
Payments of lease obligations		(628)
Operating lease liabilities, March 31, 2020	$	8,867

As of March 31, 2020, operating leases contain the following future minimum commitments:


Calendar Years ending December 31,	Amount
Remainder of 2020	$	2,973
2021		3,145
2022		2,428
2023		1,454
2024		664
Thereafter		624
Total future lease payments		11,288
Less: interest expense at incremental borrowing rate		(2,421)
Net present value of lease liabilities	$	8,867

Other assumptions and pertinent information related to the Company’s accounting for operating leases are:


Weighted average remaining lease term:		4.6	years
Weighted average discount rate used to determine present value of operating lease liability:		10.98	%
Cash paid for minimum annual rental obligations during the three months ended March 31, 2020:	$	725

Variable lease payments calculated monthly as a percentage of a product and services revenue, were $477 and $338 for the three months ended March 31, 2020 and 2019, respectively.

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Amortization expense of right of use lease assets was $527 and $271 for the three months ended March 31, 2020 and 2019, respectively.

Note 6. Convertible Notes

Total Debt as of March 31, 2020 and December 31, 2019 is comprised of the following:


	March 31, 2020		December 31, 2019
B3D Note, net of $3,002 and $2,420 in unamortized debt discount and debt issuance costs as of March 31, 2020 and December 31, 2019, respectively	$	3,562	$	4,580
Calm Note, net of $1,182 and $1,318 in unamortized debt discount and debt issuance costs as of March 31, 2020 and December 31, 2019, respectively		1,318		1,182
Total debt	$	4,880	$	5,762

B3D 9% Senior Secured Note due May 31, 2021

On July 8, 2019, the Company entered into the fourth amendment to its existing credit agreement (the “Fourth Credit Agreement Amendment”) with B3D. As consideration for modifications agreed upon in the Fourth Credit Agreement Amendment, the principal amount owed to B3D was increased to $7,000.

On January 9, 2020, as compensation for the consent of B3D to the CC Agreement (see Note 1. General), the Company entered into the Fifth Credit Agreement Amendment with B3D in order to (i) increase the principal amount owed to B3D from $7,000 to $7,150, which additional $150 in principal and any interest accrued thereon will become convertible, at B3D’s option, into shares of the Company’s Common Stock upon receipt of the approval of the Company’s stockholders, which was obtained on May 28, 2020 and (ii) provide for the advance payment of 97,223 shares of Common Stock in satisfaction of the interest payable pursuant to the B3D Note for the months of October, November and December 2020. The Common Stock was issued to B3D on January 14, 2020.

On March 6, 2020, XpresSpa Holdings entered into the Sixth Credit Agreement Amendment with B3D in order to, among other provisions, (i) increase the principal amount owed to B3D from $7,150 to $7,900, which additional $750 in principal ($500 in new funding and $250 in debt issuance costs) and any interest accrued thereon will be convertible, at B3D’s option, into shares of the Company’s Common Stock subject to receipt of the approval of the Company’s stockholders which was obtained on May 28, 2020 and (ii) decrease the conversion rate under the B3D Note from $6.00 per share to $1.68 per share. On March 19, 2020, the conversion rate was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments.

The Sixth Credit Agreement Amendment was accounted for as an extinguishment of debt in the Company’s consolidated condensed financial statements. The Company extinguished approximately $2,048 of derivative liability, which represented the estimated fair value of the conversion option based upon provisions included in the Fifth Credit Agreement Amendment and recorded a new derivative liability of $3,656 which represents the fair value of the conversion option on March 6, 2020 based upon provisions in the Sixth Credit Agreement Amendment. The Company engaged an independent third party to assess the fair value of the debt extinguished and the conversion feature included in the B3D Note at each reporting date. During the three months ended March 31, 2020 the Company recorded $485 of accretion expense, which is included in “Interest expense” in the consolidated condensed statement of operations and comprehensive loss, that increased the carrying value of the B3D Note. In addition, as a result of the partial conversions of the B3D Note, the Company settled approximately $599 of derivative liability, reduced the carrying value of the B3D Note by $736 and issued 1,430,647 shares the Company’s Common Stock to B3D. The Company recognized a loss on the extinguishment of debt of approximately $265 which represents the difference between the carrying amount of the debt recorded under the Fifth Credit Agreement Amendment and the debt recorded under the Sixth Credit Agreement Amendment. Included in the loss on the extinguishment of debt was the write off of approximately $476 in deferred financing costs. The Company capitalized approximately $250 in deferred financing costs related to the Sixth Credit Agreement Amendment. These costs will be amortized over the remaining term of the B3D Note. Total amortization expense related to the B3D Note was $68 for the three months ended March 31, 2020 and is included in “Interest expense” in the consolidated condensed statement

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of operations and comprehensive loss. The balance of the deferred issuance costs related to the B3D Note was $189 as of March 31, 2020 and is presented as a reduction of the B3D Note balance in the Company's consolidated condensed balance sheet. At March 31, 2020, the fair value of the conversion option was estimated to be $3,457, which is included in “Derivative liabilities” on the consolidated condensed balance sheet. The conversion option was marked to market as of March 31, 2020 and, as a result, the Company recorded a revaluation loss for the three months ended March 31, 2020 of approximately $651 that is included in “Loss (gain) on revaluation of warrants and conversion options” in the consolidated condensed statement of operations and comprehensive loss.

The B3D Note is guaranteed on a full, unconditional, joint, and several basis, by the parent Company, XpresSpa Group, Inc., and all wholly owned subsidiaries of XpresSpa Holdings (the “Guarantor Subsidiaries”). Under the terms of a security and guarantee agreement dated July 8, 2019, XpresSpa Group, Inc. (the parent company) and the Guarantor Subsidiaries each fully and unconditionally, jointly and severally, guarantee the payment of interest and principal on the B3D Note. XpresSpa Holdings pledged and granted to B3D a first priority security interest in, among other things, all of its equity interests in XpresSpa Holdings and all of its rights to receive distributions, cash or other property in connection with Holdings. The Company does not present separate consolidating financial statements of XpresSpa Group, Inc., XpresSpa Holdings and the Guarantor Subsidiaries as each entity has guaranteed the B3D Note, so each entity is equally responsible for its payment.

Calm 5% Note due May 2022

On July 8, 2019, the Company entered into a securities purchase agreement with Calm.com, Inc. (“Calm”) pursuant to which the Company agreed to sell (i) an aggregate principal amount of $2,500 in an unsecured convertible note (the “Calm Note”), which is convertible into shares of Series E Convertible Preferred Stock at a conversion price of $6.00 per share (the “Series E Preferred Stock”) and (ii) warrants to purchase 312,500 shares of the Company’s Common Stock at an exercise price of $6.00 per share (the “Calm Warrants”). On March 6, 2020, the exercise price of the Calm Warrants was reduced to $1.68 per share after giving effect to certain anti-dilution adjustments. Subsequently, on March 19, 2020, the exercise price of the Calm Warrants was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments. The Calm Note is an unsecured subordinated obligation of the Company. The Calm Note matures on May 31, 2022, and bears interest at a rate of 5% per annum, subject to increase in the event of default. Interest on the Calm Note is payable in arrears and may be paid in cash, shares of Series E Preferred Stock or a combination thereof. The Company recorded derivative liabilities for the conversion feature and the Calm Warrants related to the issuance of the Calm Note on July 8, 2019 and engages a third party to assess the fair value of the conversion feature and Calm Warrant derivative liabilities at each balance sheet reporting date in order to determine the adjustment needed to mark each liability to market.The independent third party’s appraisal resulted in estimated fair value of $550 for the conversion option, and $123 for the Calm Warrants as of March 31, 2020, which resulted in the Company recording a revaluation loss of approximately $75 that is included in "(Loss) gain on revaluation of warrants and conversion options” in the consolidated condensed statements of operations and comprehensive loss for the three months ended March 31, 2020.

The Company capitalized approximately $220 of costs related to the issuance of the Calm Note in 2019 and recorded amortization expense of approximately $19 during the three months ended March 31, 2020. Amortization expense is included in "Interest expense" in the Company's consolidated condensed statement of operations and comprehensive loss for the three-month period ended March 31, 2020. The balance of the deferred issuance costs related to the Calm Note was $165 as of March 31, 2020 and is presented as a reduction of the Calm Note balance in the Company's consolidated condensed balance sheet. During the three months ended March 31, 2020, the Company recorded $117 of accretion expense that increased the carrying value of the Calm Note.

(Loss) gain on revaluation of warrants and conversion options

Included in the ”(Loss) gain on revaluation of warrants and conversion options for the three months ended March 31, 2020 was mark-to-market adjustments of the derivative conversion option and warrants associated with the B3D Note of $651, the Calm Note of $75 and Class A Warrants of $4,643.

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May 2018 Convertible Notes

The Company recorded $394 in amortization of debt discount and debt issuance costs during the three months ended March 31, 2019, related to its since settled May 2018 convertible notes.

Note 7. Stockholders' Equity

See Note 1. General for discussion of financing transactions that occurred during the quarter ended March 31, 2020.

Warrants

The following table represents the activity related to the Company’s warrants during the first quarter ended March 31, 2020.


		Exercise
	No. of warrants*	price range*
December 31, 2019	1,129,371	$	6.00 – 300.00
Granted	13,576,310	$	0.03 – 0.525
Exercised	(5,872,905)	$	0.03 – 0.525
March 31, 2020	8,832,776	$	0.03 – 300.00

*Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

On March 31, 2020, the Company had outstanding 201,666 pre-funded Warrants from the March 27, 2020 registered direct offering at an exercise price of $0.03. Subsequently, 201,666 warrants were exercised, and 201,666 shares of Common Stock were issued.

On March 31, 2020, the Company had outstanding 4,573,688 Class A Warrants at an exercise price of $0.525. Subsequently, 2,983,164 warrants were exercised on a cashless basis resulting in the issuance of 2,382,836 shares of Common Stock. In addition, 1,590,524 warrants were converted into 2,385,527 shares of Common Stock in connection with the March Exchange Agreement.

On March 31, 2020, the Company had outstanding 476,202 of the December 2016 Warrants at an exercise price of $.0.525. Subsequently, in connection with the March Exchange Agreement, 351,779 December 2016 Warrants were converted into 527,669 shares of Common Stock and 124,423 December 2016 Warrants remain outstanding.

On March 31, 2020 the Company had outstanding 3,571,428 Calm Warrants at an exercise price of $0.525. Subsequently, 2,196,681 warrants were exercised on a cashless basis resulting in the issuance of 1,622,149 shares of Common Stock. In addition, 1,374,747 warrants were converted into 2,062,126 shares of Common Stock in connection with the June Exchange Agreement.

Series E Convertible Preferred Stock

On March 31, 2020, the Company had outstanding 987,988 shares of Series E Convertible Preferred Stock. All outstanding shares were converted into 510,460 shares of Common Stock in the second quarter of 2020.

Series F Convertible Preferred Stock

In connection with an amendment to a May 2018 private placement offering agreement, the Company issued 8,996 shares of Series F Convertible Preferred Stock. The Company engaged an independent third party to perform an appraisal to determine the fair value of the Series F Preferred Stock, which was appraised at $1,131, net of issuance costs. The Series F Preferred Stock has a par value of $0.01 per share, a stated value of $100 per share, and was initially convertible into Common Stock at an exercise price of $6.00 per share. On March 6, 2020, the exercise price was reduced from $6.00 to $1.68 and on March 19, 2020 was reduced again to $0.525 after giving effect to certain anti-dilution adjustments. When a

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reporting entity changes the terms of its outstanding preferred stock, it must assess whether the changes should be accounted for as either a modification or an extinguishment. The Company engaged an independent third party to perform an appraisal to determine the fair value of the Series F Preferred Stock before and after the reduction of the exercise price. The results of the fair value assessment indicated that the fair values before and after the reduction of the exercise price was not substantially different (in practice, substantially different has been interpreted to be greater than 10%). Therefore, the Company did not record an adjustment to the Series F Preferred Stock in 2020.

On March 31, 2020, the Company had outstanding 1,531 shares of Series F Convertible Preferred Stock. These shares were converted into 291,619 shares of Common Stock after March 31, 2020.

Reverse Stock Split

On June 10, 2020, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-3 reverse stock split of the Company’s shares of Common Stock. Such amendment and ratio were previously approved by the Company’s stockholders and Board of Directors.

As a result of the reverse stock split, every three (3) shares of the Company’s pre-reverse split Common Stock were combined and reclassified into one (1) share of Common Stock. A total of 146,577,707 pre-reverse split shares of Common Stock were combined and reclassified into 48,859,213 shares of Common Stock post-reverse stock split. Proportionate voting rights and other rights of common stockholders were affected by the reverse stock split. Stockholders who would have otherwise held a fractional share of Common Stock received payment in cash in lieu of any such resulting fractional shares of Common Stock as the post-reverse split amounts of Common Stock were rounded down to the nearest full share. No fractional shares were issued in connection with the reverse stock split. The reverse stock split became effective at 5:00 p.m., Eastern Time, on June 10, 2020, and the Company’s Common Stock traded on the Nasdaq Capital Market on a post-reverse split basis at the open of business on June 11, 2020.

Note 8. Derivative Liabilities and Fair Value Measurements

Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).

The Company’s financial instruments as of March 31, 2020 and December 31, 2019 consisted of cash and cash equivalents, trade receivables, accounts payable, accrued expenses and other current liabilities. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term nature of these instruments.

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Derivative Liabilities

The following table presents the placement in the fair value hierarchy of the Company’s derivative liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:


			Quoted prices in
			active markets		Significant other		Significant
			for identical		observable		unobservable
As of March 31, 2020:	Balance		assets (Level 1)		inputs (Level 2)		inputs (Level 3)

May 2018 Class A Warrants	$	2,298	$	—	$	—	$	2,298
B3D Conversion Option		3,457		—		—		3,457
Calm Warrants		123		—		—		123
Calm Conversion Option		550		—		—		550
Total	$	6,428		—		—	$	6,428
As of December 31, 2019:

May 2018 Class A Warrants	$	778	$	—	$	—	$	778
B3D Conversion Option		382		—		—		382
Calm Warrants		216		—		—		216
Calm Conversion Option		1,761		—		—		1,761
Total	$	3,137	$	—	$	—	$	3,137

The Company measures its derivative liabilities at fair value. The derivative liabilities were classified within Level 3 because they were valued using the Monte-Carlo model, which utilizes significant inputs that are unobservable in the market. The Company assumed an investment round in years 2020 and 2021 to take into account the possible impact of the anti-dilution rights included in its derivative liabilities.

These derivative liabilities were initially measured at fair value and are marked to market at each balance sheet date. The revaluation adjustment of the derivative liabilities is included in “(Loss) gain on revaluation of warrants and conversion options”” in the consolidated condensed statements of operations and comprehensive loss.

The following table summarizes the changes in the Company’s derivative warrant liabilities measured at fair value using significant unobservable inputs (Level 3) during the three months ended March 31, 2020:


December 31, 2019	$	3,137
Increase due to the recording of new B3D Note based upon the Sixth Credit Agreement Amendment		1,643
Conversions of B3D Note		(599)
Settlement of derivative liability due to the exercise of Class A Warrants		(3,122)
Revaluation of derivative conversion options and warrants at March 31, 2020		5,369
March 31, 2020	$	6,428

In March 2020, the Company recorded the settlement of the derivative liability associated with the exercise of its May 2018 Class A Warrants of $3,122. The exercise of the May 2018 Class A Warrants resulted in the issuance of 2,578,455 shares of Common Stock and was recorded in “Common Stock” and “Additional Paid-in Capital” on the Company’s consolidated condensed balance sheet as of March 31, 2020.

Valuation Processes for Level 3 Fair Value Measurements

Fair value measurement of the derivative warrant liabilities falls within Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.

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March 31, 2020:


Description	Valuation technique	Unobservable inputs	Range
May 2018 Class A Warrants	Monte Carlo Method	Volatility	80.50	%
		Risk-free interest rate	0.37	%
		Expected term, in years	3.13
		Dividend yield	0.00	%

Description	Valuation technique	Unobservable inputs	Range
Calm Warrants	Monte Carlo Method	Volatility	79.10	%
		Risk-free interest rate	0.44	%
		Expected term, in years	4.27
		Dividend yield	0.00	%

Description	Valuation technique	Unobservable inputs	Range
Calm Conversion option	Monte Carlo Method	Volatility	79.10	%
		Risk-free interest rate	0.28	%
		Expected term, in years	2.17
		Dividend yield	0.00	%

Description	Valuation technique	Unobservable inputs	Range
B3D Conversion option	Monte Carlo Method	Volatility	89.50	%
		Risk-free interest rate	0.22	%
		Expected term, in years	1.17
		Dividend yield	0.00	%

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December 31, 2019:


Description	Valuation technique	Unobservable inputs	Range
May 2018 Class A Warrants	Monte Carlo Model	Volatility	65.20	%
		Risk-free interest rate	1.67	%
		Expected term, in years	3.38
		Dividend yield	0.00	%

Calm Warrants	Monte Carlo Model	Volatility	66.90	%
		Risk-free interest rate	1.62	%
		Expected term, in years	4.52
		Dividend yield	0.00	%

Calm Conversion option	Monte Carlo Model	Volatility	66.90	%
		Risk-free interest rate	1.75	%
		Expected term, in years	2.41
		Dividend yield	0.00	%

B3D Conversion option	Monte Carlo Model	Volatility	65.70	%
		Risk-free interest rate	1.62	%
		Expected term, in years	1.42
		Dividend yield	0.00	%

Sensitivity of Level 3 Measurements to Changes in Significant Unobservable Inputs

The inputs to estimate the fair value of the Company’s derivative liabilities were the current market price of the Company’s Common Stock, the exercise price of the derivative of the conversion options and the warrants, their remaining expected term, the volatility of the Company’s Common Stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

Generally, an increase in the market price of the Company’s shares of Common Stock, an increase in the volatility of the Company’s shares of Common Stock, and an increase in the remaining term of the derivative liabilities would each result in a directionally similar change in their estimated fair values. Such changes would increase the associated liabilities while decreases in these assumptions would decrease the associated liabilities. An increase in the risk-free interest rate or a decrease in the differential between the derivative liabilities’ exercise price and the market price of the Company’s shares of Common Stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not declared, and does not plan to declare, dividends on its Common Stock, and as such, there is no change in the estimated fair value of the derivative liabilities due to the dividend assumption.

Note 9. Income Taxes

The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Due to the novel circumstances surrounding the COVID-19 pandemic in 2020, a reliable forecast cannot be substantiated; therefore, each quarter the Company will utilize the year to date effective tax rate and record adjustments as deemed necessary. The Company had de minimis income tax expense for the three months ended March 31, 2020. This was attributable primarily to operating results in conjunction with a full valuation allowance. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. The Company does not expect to record any additional material provisions for unrecognized tax benefits in the next year.

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As of March 31, 2020, the Company has net operating loss carryforwards for U.S. federal purposes, certain of which expire 20 years from the respective tax years to which they relate and certain of which have an indefinite life due to regulations in the Tax Act of 2017 (the “Tax Act”). The deferred tax assets generated from the Company’s activities in the United States were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit.

Note 10. Commitments and Contingencies

Litigation and legal proceedings

Certain of the Company’s outstanding legal matters include speculative claims for substantial or indeterminate amounts of damages. The Company regularly evaluates developments in its legal matters that could affect the amount of any potential liability and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being any potential liability and the estimated amount of a loss related to the Company’s legal matters.

With respect to the Company’s outstanding legal matters, based on its current knowledge, the Company’s management believes that the amount or range of a potential loss will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company evaluated the outstanding legal matters and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company has recorded accruals of $1,457 and $1,800 as of March 31, 2020 and December 31, 2019, respectively, which is included in “Accounts payable, accrued expenses and other current liabilities” in the consolidated condensed balance sheets.

The Company expenses legal fees in the period in which they are incurred.

Cordial

Effective October 2014, XpresSpa terminated its former Airport Concession Disadvantaged Business Enterprise (“ACDBE”) partner, Cordial Endeavor Concessions of Atlanta, LLC (“Cordial”), in several store locations at Hartsfield-Jackson Atlanta International Airport.

Cordial filed a series of complaints with the City of Atlanta, both before and after the termination, in which Cordial alleged, among other things, that the termination was not valid and that XpresSpa unlawfully retaliated against Cordial when Cordial raised concerns about the joint venture. In response to the numerous complaints it received from Cordial, the City of Atlanta required the parties to engage in two mediations.

After the termination of the relationship with Cordial, XpresSpa sought to substitute two new ACDBE partners in place of Cordial.

In April 2015, Cordial filed a complaint with the United States Federal Aviation Administration (“FAA”), which oversees the City of Atlanta with regard to airport ACDBE programs, and, in December 2015, the FAA instructed that the City of Atlanta review XpresSpa’s request to substitute new partners in lieu of Cordial and Cordial’s claims of retaliation. In response to the FAA instruction, pursuant to a corrective action plan approved by the FAA, the City of Atlanta held a hearing in February 2016 and ruled in favor of XpresSpa such substitution and claims of retaliation. Cordial submitted a further complaint to the FAA claiming that the City of Atlanta was biased against Cordial and that the City of Atlanta’s decision was wrong. In August 2016, the parties met with the FAA. On October 4, 2016, the FAA sent a letter to the City of Atlanta directing that the City of Atlanta retract previous findings on Cordial’s allegations and engage an independent third party to investigate issues previously decided by Atlanta. The FAA also directed that the City of Atlanta determine monies potentially due to Cordial.

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On January 3, 2017, XpresSpa filed a lawsuit in the Supreme Court of the State of New York, County of New York, against Cordial and several related parties. The lawsuit alleges breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and breach of good faith and fair dealing. XpresSpa is seeking damages, declaratory judgment, and rescission/termination of certain agreements, disgorgement of revenue, fees and costs, and various other relief. On February 21, 2017, the defendants filed a motion to dismiss. On March 3, 2017, XpresSpa filed a first amended complaint against the defendants. On April 5, 2017, Cordial filed a motion to dismiss. On September 12, 2017, the Court held a hearing on the motion to dismiss. On November 2, 2017, the Court granted the motion to dismiss which was entered on November 13, 2017. On December 22, 2017, XpresSpa filed a notice of appeal, and on September 24, 2018, XpresSpa perfected its appellate rights and submitted a brief to the Supreme Court of New York, First Department appellate court. Oral argument on the appeal went forward on March 20, 2019. The appellate court entered an order on April 11, 2019 reinstating the Company’s complaint, with some exceptions. On June 13, 2019, Cordial filed a motion to reargue and alternatively to appeal to the New York Court of Appeals, and the appellate court denied that motion on October 22, 2019.

On March 30, 2018, Cordial filed a lawsuit against XpresSpa, a subsidiary of XpresSpa, and several additional parties in the Superior Court of Fulton County, Georgia, alleging the violation of Cordial’s civil rights, tortious interference, breach of fiduciary duty, civil conspiracy, conversion, retaliation, and unjust enrichment. Cordial has threated to seek punitive damages, attorneys’ fees and litigation expenses, accounting, indemnification, and declaratory judgment as to the status of the membership interests of XpresSpa and Cordial in the joint venture and Cordial’s right to profit distributions and management fees from the joint venture. On May 4, 2018, the defendants moved the lawsuit to the United States District Court for the Northern District of Georgia. On August 9, 2018, the Court granted an additional extension of time for the defendants’ response until September 7, 2018, and thereafter provided another extension pending the Court’s consideration of XpresSpa’s Motion to Stay all action in the Georgia lawsuit, pending resolution of the New York lawsuit and the FAA action. On October 29, 2018, XpresSpa’s Motion to Stay was denied. Prior to resolution of the Motion to Stay, Cordial filed a Motion for Temporary Restraining Order (“TRO Motion”), seeking to enjoin the defendants and specifically XpresSpa, from, among other things, distributing any cash flow, net profits, or management fees, or otherwise expending resources beyond necessary operating expenses. XpresSpa filed an opposition and, in a decision entered December 26, 2018, the Court denied Cordial’s TRO Motion entirely. Defendants filed a Motion to Dismiss the Complaint in its entirety on November 20, 2018.

A Director's Determination was issued by the FAA in connection with the Part 16 Complaint ("Part 16 Proceeding") filed by Cordial against the City of Atlanta ("City") in 2017 ("Director's Determination"). The Company and Cordial were not parties to the FAA action, and had no opportunity to present evidence or otherwise be heard in such action. The Director's Determination concluded that the City was not in compliance with certain Federal obligations concerning the federal government's ACDBE program, including relating to the City's oversight of the Joint Venture Operating Agreement between the Company and Cordial, Cordial's termination, and Cordial's retaliation and harassment claims, and the City was ordered to achieve compliance in accordance with the Director's Determination. The Director's Determination does not constitute a Final Agency Decision and it is not subject to judicial review, pursuant to 14 CFR § 16.247(b)(2). Because the Company is not a party to the Part 16 Proceeding, the Company would not be considered "a party adversely affected by the Director's Determination" with a right of appeal to the FAA Assistant Administrator for Civil Rights.

On August 7, 2019, the Company filed a response, advising the U.S. District Court that: (i) the Company is not party to the FAA proceeding and therefore had no opportunity to present evidence or otherwise be heard in such action; (ii) as non-party, the Company is not bound by the Director's Determination; and (iii) the FAA cannot dictate the interpretation or enforceability of the contract between Cordial and the Company, which is the subject of the U.S. District Court action initiated by Cordial and the New York State Court action initiated by the Company.

On August 16, 2019, the Court entered an Order granting, in part, the Company’s Motion to Dismiss. The Court dismissed all federal claims alleged in the Complaint against all Defendants, declined to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c) over the remaining state law claims alleged in the Complaint, and remanded the case to the Superior Court of Fulton County. Plaintiffs filed an appeal of the federal court’s decision to the Eleventh Circuit Court of Appeals, and the case was docketed on October 15, 2019 (“Eleventh Circuit Appeal”).

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In response to the numerous complaints it received from Cordial, the City of Atlanta required the parties to engage in mediation. On November 22, 2019, a Mutual Release and Settlement Agreement (the "Settlement Agreement") and a Confidential Payment Agreement (the “Payment Agreement”) were executed by the applicable parties, except the City of Atlanta, and are pending the requisite approval by the FAA of the terms of the Settlement Agreement. The requisite approval from the FAA has been obtained and the Leases have been executed by the Company. However, the condition precedent that an operating agreement between the Company and Cordial is finalized and executed has not yet been satisfied. The Company has been involved in negotiations seeking to resolve all pending matters, and those negotiations are continuing. Based on this, management has determined that the matter may not be completely resolved, at least to the extent of one or more of the settling parties seeking to enforce the terms of the Settlement Agreement, and thus resulting in a continuation of the litigation.

In re Chen et al.

In March 2015, four former XpresSpa employees who worked at XpresSpa locations in John F. Kennedy International Airport and LaGuardia Airport filed a putative class and collective action wage-hour litigation in the United States District Court, Eastern District of New York. In re Chen et al., CV 15-1347 (E.D.N.Y.). Plaintiffs claim that they and other spa technicians around the country were misclassified as exempt commissioned salespersons under Section 7(i) of the federal Fair Labor Standards Act (“FLSA”). Plaintiffs also assert class claims for unpaid overtime on behalf of New York spa technicians under the New York Labor Law, and discriminatory employment practices under New York State and City laws. On July 1, 2015, the plaintiffs moved to have the court authorize notice of the FLSA misclassification claim sent to all employees in the spa technician job classification at XpresSpa locations around the country in the last three years. Defendants opposed the motion. On February 16, 2016, the Magistrate Judge assigned to the case issued a Report & Recommendation, recommending that the District Court Judge grant the plaintiffs’ motion. On March 1, 2016, the defendants filed Opposition to the Magistrate Judge’s Report & Recommendation, arguing that the District Court Judge should reject the Magistrate Judge’s findings. On September 23, 2016, the court ruled in favor of the plaintiffs and conditionally certified the class. The parties held a mediation on February 28, 2017 and reached an agreement on a settlement in principle. On September 6, 2017, the parties entered into a settlement agreement. On September 15, 2017, the parties filed a motion for settlement approval with the Court. XpresSpa subsequently paid the agreed-upon settlement amount to the settlement claims administrator to be held in escrow pending a fairness hearing and final approval by the Court. On March 30, 2018, the Court entered a Memorandum and Order denying the motion without prejudice to renewal due to questions and concerns the Court had about certain settlement terms. On April 24, 2018, the parties jointly submitted a supplemental letter to the Court advocating for the fairness and adequacy of the settlement and appeared in Court on April 25, 2018 for a hearing to discuss the settlement terms in greater detail with the assigned Magistrate Judge. At the conclusion of the hearing, the Court still had questions about the adequacy and fairness of the settlement terms, and the Judge asked that the parties jointly submit additional information to the Court addressing the open issues. The parties submitted such information to the Court on May 18, 2018 and are awaiting the Court’s ruling on the open issues.

On August 21, 2019, the Court issued an Order denying the parties' motion for preliminary approval of the revised settlement, as the Court still had concerns about several of the settlement terms. At the December 6, 2019 status conference with the Court, the Court reiterated its denial of preliminary approval of the proposed settlement agreement. The Court instructed a notice of pendency to be disseminated to putative collective members. Notice was sent out in early February 2020 and approximately 415 individuals have joined the case. On June 6, 2020 the Company participated in a status conference with the Court, and the parties discussed the possibility of entering into a new settlement agreement that addresses the Court’s concerns. The Company intends to continue to vigorously defend this case. At this time, the Company cannot predict the ultimate outcome or range of liability with any degree of certainty.

Binn et al. v. FORM Holdings Corp. et al.

On November 6, 2017, Moreton Binn and Marisol F, LLC, former stockholders of XpresSpa, filed a lawsuit against FORM Holdings Corp. (“FORM”) and its directors in the United States District Court for the Southern District of New York. The lawsuit alleged violations of various sections of the Securities Exchange Act of 1934 (“Exchange Act”), material omissions and misrepresentations (negligent and fraudulent), fraudulent omission, expropriation, breach of fiduciary duties, aiding and abetting, and unjust enrichment in the defendants’ conduct related to the Company’s acquisition of XpresSpa, and sought rescission of the transaction, damages, equitable and injunctive relief, fees and costs, and various other relief. On

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January 17, 2018, the defendants filed a motion to dismiss the complaint. On February 7, 2018, the plaintiffs amended their complaint. On February 28, 2018, the defendants filed a motion to dismiss the amended complaint. By March 30, 2018, the motion to dismiss was fully briefed. On August 7, 2018, the Court ruled on the defendants’ motion, dismissing eight of the plaintiffs’ ten claims and denying the defendants’ motion to dismiss with respect to the two remaining claims, related to the Exchange Act. On October 30, 2018, the Court ordered that the plaintiffs could file an amended complaint, and, in response, the defendants could move for summary judgment.

Consistent with the Court’s Order, on November 16, 2018, the plaintiffs filed a second amended complaint, modifying their allegations, and asserting claims pursuant to the Exchange Act and the Securities Act of 1933, as well as bringing a breach of contract claim. On December 17, 2018, the defendants filed a motion for summary judgment seeking dismissal of all claims. On February 1, 2019, the plaintiffs opposed defendant’s motion, requested discovery and cross-moved for partial summary judgement filed an opposition to defendants’ motion and a counter motion for partial summary judgment. Defendants’ summary judgement motion and plaintiff’s cross-motion for partial summary judgment were fully briefed as of March 15, 2019. On April 29, 2019, an emergency hearing was held before the Court in which the plaintiff sought a temporary restraining order and preliminary injunction to preclude acceleration of the maturity on the Senior Secured Note. The Court entered a temporary restraining order, while allowing parties the opportunity to brief the issue.

On May 21, 2019, the Court granted the defendant’s motion for summary judgement in full, dismissing all claims in the action. On July 3, 2019, the plaintiffs filed a notice of appeal in the United States Court of Appeals for the second circuit. On July 1, 2019, the Court held oral argument on Binn’s motion for preliminary injunction. After hearing argument by both sides, the Court deferred action and ordered that the temporary restraining order remain in place. On July 23, 2019, the Court denied the plaintiffs' request for a preliminary injunction and vacated the temporary restraining order. On September 13, 2019, plaintiffs filed their appellate brief in the Second Circuit. As of December 13, 2019, plaintiffs’ appeal was fully briefed. Oral argument occurred on May 4, 2020, at which time the Second Circuit affirmed the dismissal of all claims against all defendants.

Kainz v. FORM Holdings Corp. et al.

On March 20, 2019, a second suit was commenced in the United States District Court for the Southern District of New York against FORM, seven of its directors and former directors, as well as a managing director of Mistral Equity Partners (“Mistral”). The individual plaintiff, a shareholder of XpresSpa Holdings, LLC at the time of the merger in December 2016, alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false statements concerning, inter alia, the merger and the independence of FORM’s board of directors, violated Section 12(2) of the Securities Act of 1933, breached the merger agreement by making false and misleading statements concerning the merger and fraudulently induced the plaintiff into signing the joinder agreement related to the merger. On May 8, 2019, the Company and its directors and the managing director of Mistral filed a motion to dismiss the complaint. On June 5, 2019, plaintiffs opposed the motion and filed a cross-motion for a partial stay. Defendants’ motion to dismiss was fully briefed as of June 19, 2019.

On November 13, 2019, the matter was dismissed in its entirety. On December 12, 2019, plaintiff filed a motion for reconsideration to vacate the order and judgment, dismissing the action, and for leave to amend the complaint. The motion was fully briefed as of February 6, 2020. On April 1, 2020, the Court denied plaintiff’s motion in full. On April 10, 2020, plaintiff filed a notice of appeal to the United States Court of Appeals for the Second Circuit. On June 1, 2020 plaintiff filed his appellate brief. The defendants opposition is due July 6, 2020. The Company and its directors continue to believe that this action is without merit and intend to defend the appeal.

Binn, et al. v. Bernstein et al.

On June 3, 2019, a third suit was commenced in the United States District Court for the Southern District of New York against FORM, five of its directors, as well as Rockmore, the Company’s previous senior secured lender and a senior executive of the lender. Although this action is brought by Morton Binn and Marisol F, LLC, it is asserted derivatively on behalf of the Company. Plaintiffs assert eight causes of action, including that certain individual defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making false statements concerning, inter alia, the merger and the independence of FORM’s board of directors and the valuation of the Company’s lease portfolio. Plaintiffs

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also assert common law claims for breach of fiduciary duty, corporate waste, unjust enrichment, faithless servant doctrine, and aiding and abetting certain of the directors’ alleged breaches of fiduciary duty. The Company and its directors believe that this action is without merit and intend to file a motion to dismiss and defend the action vigorously.

The defendants filed a motion to dismiss on October 23, 2019. The court heard oral argument on the defendants’ motion to dismiss on January 22, 2020 and has not yet ruled on the motion.

Route1

On or about May 23, 2018, Route1 Inc., Route1 Security Corporation (together, “Route1”) and Group Mobile Int’l, LLC (“Group Mobile”) commenced a legal proceeding against the Company in the Ontario Superior Court of Justice.

Route1 and Group Mobile seek damages in relation to alleged breaches of a Membership Purchase Agreement entered into between Route1 and the Company on or about March 7, 2018, pursuant to which Route1 acquired the Company’s 100% membership interest in Group Mobile. The Plaintiffs allege that the Company: (i) failed to ensure all tax returns were true, correct and compliant in all respects and that all taxes had been paid in full; (ii) failed to ensure that all inventory of Group Mobile had been priced in accordance with GAAP and consisted of a quality and quantity that was materially usable and salable in the ordinary course of business; (iii) failed to ensure that Group Mobile’s most recent balance sheet was materially complete and correct and prepared in accordance with GAAP; (iv) failed to record all liabilities on Group Mobile’s most recent balance sheet; and (v) failed to deliver the agreed upon amount of net working capital, and/or

XpresSpa Group, Inc. - FORM 10-Q - July 6, 2020

Attached files