XpresSpa Group, Inc. - FORM 10-Q

Attached files

file	filename
EX-32 - EX-32 - XpresSpa Group, Inc.	xspa-20200930xex32.htm
EX-31 - EX-31 - XpresSpa Group, Inc.	xspa-20200930xex31.htm

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 September 30, 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 November 9, 2020, 69,514,905 shares of the registrant’s common stock were outstanding.

XpresSpa Group, Inc. and Subsidiaries

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47

PART II. OTHER INFORMATION		49

Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	September 30,		December 31,
	2020		2019
Current assets
Cash and cash equivalents	$	61,894	$	2,184
Inventory		638		647
Other current assets		1,336		1,102
Total current assets		63,868		3,933

Restricted cash		701		451
Property and equipment, net		6,095		8,064
Intangible assets, net		5,421		6,783
Operating lease right of use assets, net		4,143		8,254
Other assets		1,301		1,239
Total assets	$	81,529	$	28,724

Current liabilities
Accounts payable, accrued expenses and other	$	8,150	$	12,551
Current portion of operating lease liabilities		2,698		3,669
Derivative liabilities		681		-
Current portion of promissory note, unsecured		2,591		-
Convertible senior secured note, net		169		-
Total current liabilities		14,289		16,220

Long-term liabilities
Promissory note, unsecured		3,062		-
Convertible senior secured note, net		-		4,580
Convertible notes, net		-		1,182
Derivative liabilities		-		3,137
Operating lease liabilities		5,490		5,826
Other liabilities		317		315
Total liabilities		23,158		31,260
Commitments and contingencies (see Note 11)

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 issued and none outstanding as of September 30, 2020 and 977,865 issued and outstanding with a liquidation value of $3,031 as of December 31, 2019		-		10
Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; 8,996 issued and none outstanding as of September 30, 2020 and 8,996 shares issued and outstanding with a liquidation value of $900 as of December 31, 2019		-		-
Common Stock, $0.01 par value per share 150,000,000 shares authorized; 69,076,888 and 5,157,390 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively *		691		52
Additional paid-in capital		438,214		302,118
Accumulated deficit		(382,941)		(308,136)
Accumulated other comprehensive loss		(250)		(283)
Total stockholders' equity (deficit) attributable to XpresSpa Group, Inc.		55,714		(6,239)
Noncontrolling interests		2,657		3,703
Total stockholders’ equity (deficit)		58,371		(2,536)
Total liabilities and stockholders’ equity (deficit)	$	81,529	$	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 unaudited condensed consolidated financial statements.

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Revenue, net
Services	$	93	$	10,230	$	6,779	$	30,704
Products		45		2,301		936		5,781
Other		63		-		347		1,184
Total revenue, net		201		12,531		8,062		37,669

Cost of sales
Labor		514		5,842		5,480		17,507
Occupancy		468		1,894		2,334		5,811
Products and other operating costs		423		1,953		1,737		5,322
Total cost of sales		1,405		9,689		9,551		28,640
Depreciation and amortization		1,424		1,464		3,875		4,692
Impairment/disposal of assets		2,227		106		6,319		936
General and administrative		4,368		3,108		10,972		9,204
Total operating expenses		9,424		14,367		30,717		43,472
Operating loss		(9,223)		(1,836)		(22,655)		(5,803)
Interest expense, net		(120)		(780)		(1,856)		(2,052)
Gain (loss) on revaluation of warrants and conversion options		2,750		(848)		(50,917)		(780)
Other non-operating expense, net		(47)		(1,313)		(389)		(5,037)
Loss from operations before income taxes		(6,640)		(4,777)		(75,817)		(13,672)
Income tax (expense) benefit		(3)		143		(22)		101
Net loss		(6,643)		(4,634)		(75,839)		(13,571)
Net loss (income) attributable to noncontrolling interests		533		(210)		1,034		(584)
Net loss attributable to XpresSpa Group, Inc.	$	(6,110)	$	(4,844)	$	(74,805)	$	(14,155)

Net loss	$	(6,643)	$	(4,634)	$	(75,839)	$	(13,571)
Other comprehensive gain / (loss) from operations		18		82		33		(109)
Comprehensive loss	$	(6,625)	$	(4,552)	$	(75,806)	$	(13,680)

Loss per share*
Basic and diluted net loss per share	$	(0.10)	$	(1.68)	$	(2.15)	$	(6.33)
Weighted-average number of shares outstanding during the year*
Basic		61,106,894		2,875,501		35,309,004		2,236,323
Diluted		61,106,894		2,875,501		35,309,004		2,236,323

* 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 unaudited condensed consolidated financial statements.

XpresSpa Group, Inc. and Subsidiaries

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

(Unaudited)

(In thousands, except share and per 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)
Issuances 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)		—		—		0		—		0
Direct offerings of Common Stock and pre-funded warrants, net of costs	—		—	—		—	8,210,239		82		4,176		—		—		4,258		—		4,258
Exercise of May 2018 Class 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	—		—	—		—	—		—		—		(10,617)		—		(10,617)		(108)		(10,725)
Foreign currency translation	—		—	—		—	—		—		—		—		—		—		—		—
Contributions from noncontrolling interests	—		—	—		—	—		—		—		—		—		—		117		117
March 31, 2020	987,988	$	10	1,531	$	—	18,601,467	$	186	$	311,389	$	(318,753)	$	(283)	$	(7,451)	$	3,712	$	(3,739)
Issuance of Common Stock for payment of interest on B3D Note	—		—	—		—	88,508		1		41		—		—		42		—		42
Conversion of Series E Preferred Stock into Common Stock	(987,988)		(10)	—		—	510,460		5		5		—		—		—		—		—
Conversion of Series F Preferred Stock into Common Stock	—		—	(1,531)		—	291,619		3		(3)		—		—		—		—		—
Exercise of May 2018 Class A Warrants into Common Stock	—		—	—		—	2,382,835		24		5,891		—		—		5,915		—		5,915
Exercise of Calm Warrants into Common Stock	—		—	—		—	1,622,149		16		4,092		—		—		4,108		—		4,108
Exercise of March 2020 pre-funded warrants into Common Stock	—		—	—		—	201,667		2		4		—		—		6		—		6
March Warrant Exchange for Common Stock - Class A Warrant	—		—	—		—	2,385,528		24		6,410		—		—		6,434		—		6,434
March Warrant Exchange for Common Stock - Class D Warrant	—		—	—		—	527,669		5		(5)		—		—		—		—		—
June Warrant Exchange for Common Stock - Calm Warrant	—		—	—		—	2,062,126		21		11,734		—		—		11,755		—		11,755
Conversion of B3D Note to Common Stock	—		—	—		—	10,789,591		108		14,197		—		—		14,305		—		14,305
Conversion of Calm Note to Common Stock	—		—	—		—	4,761,906		48		10,551		—		—		10,599		—		10,599
Direct offerings of Common Stock and pre-funded warrants, net of costs	—		—	—		—	12,235,911		122		38,275		—		—		38,397		—		38,397
Stock-based compensation	—		—	—		—	—		—		424		—		—		424		—		424
Issuance of restricted stock	—		—	—		—	12,500		—		—		—		—		—		—		—
Fractional shares retired in reverse stock split	—		—	—		—	(23)		—		—		—		—		—		—		—
Foreign currency translation	—		—	—		—	—		—		—		—		15		15		—		15
Net loss for the period	—		—	—		—	—		—		—		(58,078)		—		(58,078)		(393)		(58,471)
Distributions to noncontrolling interests	—		—	—		—	—		—		—		—		—		—		(129)		(129)
June 30, 2020	—	$	—	—	$	—	56,473,913	$	565	$	403,005	$	(376,831)	$	(268)	$	26,471	$	3,190	$	29,661
Conversion of B3D Note to Common Stock	—		—	—		—	1,276,270		13		3,350		—		—		3,363		—		3,363
Stock-based compensation	—		—	—		—	—		—		470		—		—		470		—		470
Stock option exercises	—		—	—		—	4,167		—		5		—		—		5		—		5
Issuance of Common Stock for payment of interest on Calm Note	—		—	—		—	47,305		—		35		—		—		35		—		35
Direct offerings of Common Stock and pre-funded warrants, net of costs	—		—	—		—	11,216,932		112		31,350		—		—		31,462		—		31,462
Issuance of restricted stock	—		—	—		—	58,301		1		(1)		—		—		—		—		—
Foreign currency translation	—		—	—		—	—		—		—		—		18		18		—		18
Net loss for the period	—		—	—		—	—		—		—		(6,110)		—		(6,110)		(533)		(6,643)
September 30, 2020	—	$	—	—	$	—	69,076,888	$	691	$	438,214	$	(382,941)	$	(250)	$	55,714	$	2,657	$	58,371

* 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 unaudited condensed consolidated financial statements.

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)


														Accumulated
	Series D			Series E						Additional				other		Total		Non-
	Preferred stock			Preferred stock			Common stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	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	—		—	—		—	59,846		1		816		—		—		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	647,113	$	7	$	297,170	$	(289,886)	$	(272)	$	7,033	$	3,992	$	11,025
Conversion of senior notes and warrants into common shares	—		—	—		—	126,235		1		3,493		—		—		3,494		—		3,494
Stock-based compensation	—		—	—		—	-		—		127		—		—		127		—		127
Net income (loss) for the period	—		—	—		—	-		—		—		(6,338)		—		(6,338)		245		(6,093)
Foreign currency translation	—		—	—		—	-		—		—		—		(170)		(170)		—		(170)
Contributions from noncontrolling interests	—		—	—		—	-		—		—		—		—		—		16		16
Distributions to noncontrolling interests	—		—	—		—	-		—		—		—		—		—		(174)		(174)
June 30, 2019	425,750	$	4	967,742	$	10	773,348	$	8	$	300,790	$	(296,224)	$	(442)	$	4,146	$	4,079	$	8,225
Issuance of Series F Preferred Stock	—		—	—		—	—		—		1,131		—		—		1,131		—		1,131
Stock-based compensation	—		—	—		—	—		—		35		—		—		35		—		35
Exercise of June 2019 Class a Warrants into common stock	—		—	—		—	—		1		(1)		—		—		—		—		—
Foreign currency translation	—		—	—		—	—		—		—		—		82		82		—		82
Net income (loss) for the period	—		—	—		—	—		—		—		(4,844)		—		(4,844)		210		(4,634)
Distributions to noncontrolling interests	—		—	—		—	—		—		—		—		—		—		(302)		(302)
September 30, 2019	425,750		4	967,742		10	773,348		9		301,955		(301,068)		(360)		550		3,987		4,537

* 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 unaudited condensed consolidated financial statements.

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine months ended September 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(75,839)	$	(13,571)
Adjustments to reconcile net loss to net cash used in operating activities:
Revaluation of warrants and conversion options		50,917		780
Depreciation and amortization		3,875		4,692
Impairment/disposal of assets		6,319		936
Accretion of debt discount on notes		1,070		1,293
Amortization of operating lease right of use asset		1,568		2,101
Issuance of shares of Common Stock for payment of interest		497		—
Issuance of Series F Convertible Preferred Stock		—		1,131
Issuance of shares of Series E Preferred Stock for payment of interest		63		—
Loss on the extinguishment of debt		182		—
Debt conversion expense		—		1,547
Issuance of shares of Common Stock for services		135		—
Amortization of debt issuance costs		125		138
Bad debt expense		80		—
Stock-based compensation		966		266
Impairment of cost method investment		—		1,188
Issuance of warrants		—		689
Changes in assets and liabilities:
Decrease (increase) in inventory		9		(72)
(Increase) decrease in other current assets and other assets		(376)		574
Decrease in lease liabilities		(2,118)		(2,101)
Increase in other liabilities		2		—
Decrease in accounts payable, accrued expenses and other		(4,401)		(373)
Net cash used in operating activities		(16,926)		(782)
Cash flows from investing activities
Acquisition of property and equipment		(3,099)		(1,641)
Acquisition of software		(380)		—
Net cash used in investing activities		(3,479)		(1,641)
Cash flows from financing activities
Proceeds from direct offerings of Common Stock and warrants		74,125		—
Proceeds from borrowings under Paycheck Protection Program		5,653		—
Proceeds from additional borrowing from B3D		500		—
Proceeds from stock option exercises		5		—
Proceeds from funding advance		910		—
Repayment of funding advance		(819)		—
Issuance of Calm Note		—

XpresSpa Group, Inc. - FORM 10-Q - November 16, 2020

Attached files