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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 June 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 31st 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 August 14, 2020, 56,776,261 shares of the registrant’s common stock were outstanding.


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EXPLANATORY NOTE

On August 14, 2020, XpresSpa Group, Inc. (the “Company”) filed a Notification of Late Filing on Form 12b-25 (the “Form 12b-25”) with the U.S. Securities and Exchange Commission (the “SEC”) seeking relief pursuant to Rule 12b-25(b).  Consistent with the Company’s statements made in the Form 12b-25, the Company was unable to file its Quarterly Report on Form 10-Q (the “Quarterly Report”) by August 14, 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 August 14, 2020 deadline.

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XpresSpa Group, Inc. and Subsidiaries

Table of Contents

    

Page

PART I. FINANCIAL INFORMATION

4

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II. OTHER INFORMATION

46

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

3


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

    

June 30, 2020

    

December 31, 

(Unaudited)

2019

Current assets

 

  

 

  

Cash and cash equivalents

$

37,765

$

2,184

Inventory

 

598

 

647

Other current assets

 

656

 

1,102

Total current assets

 

39,019

 

3,933

Restricted cash

 

701

 

451

Property and equipment, net

 

6,261

 

8,064

Intangible assets, net

 

5,644

 

6,783

Operating lease right of use assets, net

 

5,124

 

8,254

Other assets

 

1,413

 

1,239

Total assets

$

58,162

$

28,724

Current liabilities

 

  

 

  

Accounts payable, accrued expenses and other

$

7,225

$

12,551

Current portion of operating lease liabilities

3,550

3,669

Derivative liabilities

6,359

-

Current portion of promissory note, unsecured

1,884

Convertible senior secured note, net

577

-

Total current liabilities

 

19,595

 

16,220

Long-term liabilities

 

 

  

Promissory note, unsecured

3,769

-

Convertible senior secured note, net

 

-

 

4,580

Convertible notes, net

-

1,182

Derivative liabilities

 

-

 

3,137

Operating lease liabilities

 

4,822

 

5,826

Other liabilities

315

315

Total liabilities

 

28,501

 

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 June 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 June 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; 56,473,913 and 5,157,390 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively *

 

565

 

52

Additional paid-in capital

 

403,005

 

302,118

Accumulated deficit

 

(376,831)

 

(308,136)

Accumulated other comprehensive loss

 

(268)

 

(283)

Total stockholders' equity (deficit) attributable to XpresSpa Group, Inc.

 

26,471

 

(6,239)

Noncontrolling interests

 

3,190

 

3,703

Total stockholders’ equity (deficit)

 

29,661

 

(2,536)

Total liabilities and stockholders’ equity (deficit)

$

58,162

$

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.

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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 June 30, 

Six months ended June 30, 

    

2020

    

2019

    

2020

    

2019

    

Revenue, net

 

  

 

  

 

  

 

  

 

Services

$

-

$

10,846

$

6,686

$

20,474

Products

-

2,062

891

3,480

Other

 

143

 

-

 

284

 

1,184

 

Total revenue, net

 

143

 

12,908

 

7,861

 

25,138

 

Cost of sales

 

  

 

  

 

  

 

  

 

Labor

 

490

 

5,888

 

4,966

 

11,665

 

Occupancy

 

456

 

2,052

 

1,866

 

3,917

 

Products and other operating costs

 

32

 

1,913

 

1,314

 

3,369

 

Total cost of sales

 

978

 

9,853

 

8,146

 

18,951

 

Depreciation and amortization

 

1,186

 

1,579

 

2,451

 

3,228

 

Impairment/disposal of assets

4,092

1,971

4,092

1,971

General and administrative

 

3,371

 

2,496

 

6,604

 

6,096

 

Total operating expenses

 

9,627

 

15,899

 

21,293

 

30,246

 

Operating loss

 

(9,484)

 

(2,991)

 

(13,432)

 

(5,108)

 

Interest expense

 

(675)

 

(661)

 

(1,736)

 

(1,272)

 

Loss on revaluation of warrants and conversion options

(48,298)

(772)

(53,667)

(621)

Other non-operating income (expense), net

 

5

 

(1,638)

 

(341)

 

(1,894)

 

Loss from operations before income taxes

 

(58,452)

 

(6,062)

 

(69,176)

 

(8,895)

 

Income tax expense

 

(19)

 

(31)

 

(19)

 

(42)

 

Net loss

(58,471)

(6,093)

(69,195)

(8,937)

Net loss (income) attributable to noncontrolling interests

 

393

 

(245)

 

501

 

(374)

 

Net loss attributable to XpresSpa Group, Inc.

$

(58,078)

$

(6,338)

$

(68,694)

$

(9,311)

Net loss

$

(58,471)

$

(6,093)

$

(69,195)

$

(8,937)

Other comprehensive gain / (loss) from operations

 

15

 

(170)

 

15

 

(191)

Comprehensive loss

$

(58,456)

$

(6,263)

$

(69,180)

$

(9,128)

Loss per share*

 

  

 

  

 

  

 

  

Basic and diluted net loss per share

$

(1.51)

$

(9.65)

$

(3.09)

$

(14.61)

Weighted-average number of shares outstanding during the year*

 

  

 

  

 

  

 

  

Basic

 

38,873,131

 

656,706

 

22,569,032

 

637,143

Diluted

 

38,781,442

 

656,706

 

22,569,032

 

637,143

*    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.

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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)

$

(283.00)

$

(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

*    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.

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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

*    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.

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XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Six months ended June 30, 

    

2020

    

2019

Cash flows from operating activities

 

  

 

  

Net loss

$

(69,195)

$

(8,937)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Items included in net loss not affecting operating cash flows:

 

 

Revaluation of warrants and conversion options

 

53,667

 

(69)

Depreciation and amortization

 

2,451

 

3,228

Impairment/disposal of assets

 

4,092

 

830

Impairment of cost method investment

1,141

Accretion of debt discount on notes

1,008

817

Amortization of operating lease right of use asset

1,074

683

Issuance of shares of Common Stock for payment of interest

462

Issuance of shares of Series E Preferred Stock for payment of interest

63

Loss on the extinguishment of debt

181

Debt conversion expense

 

 

1,547

Issuance of shares of Common Stock for services

 

135

 

Issuance of warrants

 

 

689

Amortization of debt issuance costs

 

137

 

54

Stock-based compensation

 

496

 

231

Changes in assets and liabilities:

 

 

Decrease (increase) in inventory

 

49

 

(110)

Increase in other current assets and other assets

 

272

 

701

Decrease in lease libilities

(1,305)

(683)

Decrease in other liabilities

(190)

(Decrease) increase in accounts payable, accrued expenses and other

 

(5,306)

 

312

Net cash (used in) provided by operating activities

 

(11,719)

 

244

Cash flows from investing activities

 

  

 

Acquisition of property and equipment

 

(1,345)

 

(802)

Net cash used in investing activities

 

(1,345)

 

(802)

Cash flows from financing activities

 

 

Proceeds from direct offerings of Common Stock and warrants

42,661

Proceeds from borrowings under Paycheck Protection Program

5,653

Proceeds from additional borrowing from B3D

 

500

 

Proceeds from funding advance

910

Repayment of funding advance

(819)

Payments on convertible notes

(129)

Contributions from noncontrolling interests

117

16

Distributions to noncontrolling interests

(129)

(340)

Net cash provided by financing activities

 

48,893

 

(453)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

2

 

(191)

Increase (decrease) in cash, cash equivalents and restricted cash

 

35,831

 

(1,202)

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

$

38,466

$

2,688

Cash paid during the period for

 

 

Interest

$

183

$

498

Income taxes

$

8

$

32

Non-cash investing and financing transactions

 

 

Conversions of B3D Note into Common Stock

$

15,640

$

Conversions of Calm Note into Common Stock

$

10,599

$

Conversion and exchange of Calm Warrant into Common Stock

$

15,863

$

Conversions and exchanges of May 2018 Class A Warrants

$

15,471

$

Conversion of Series E Preferred Stock into Common Stock

$

10

$

Conversion of Series F Preferred Stock into Common Stock

$

12

$

Conversion of convertible notes and interest into Common Stock

$

$

2,728

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

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XpresSpa Group, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED 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 condensed consolidated 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 condensed consolidated 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 and six-month periods ended June 30, 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, the Company 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. The pilot test at JFK launched on June 22, 2020.

On August 13, 2020, the Company announced that it had signed a contract with the Port Authority of New York and New Jersey to provide diagnostic COVID-19 testing at Newark Liberty International Airport through its XpresCheck brand.

The company is currently building a modular constructed testing facility within Terminal B that will host 6 separate testing rooms with a capacity to administer over 350 tests per day.

Through its XpresCheck facilities, the Company will be offering its testing services to airline employees, contractors and workers, concessionaires and their employees, TSA officers, and U.S. Customs and Border Protection agents, and over time, will expand to the traveling public as well. The Company entered into a one year management services agreement with a professional medical service entity that provides health care services to patients  whereby XpresTest shall provide office space, equipment, supplies, non-licensed staff, and management services to be used for the purpose of COVID-19 testing in return for fees negotiated at arms length and at a fair value.

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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 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 and definite-lived asset impairment triggering event during the six months ended June 30, 2020 which would require management to perform an impairment evaluation of its property and equipment, intangible assets and operating lease right of use assets of approximately $21,088 (before any impairment adjustments) as of June 30, 2020.  

We completed an assessment of our property and equipment and operating lease right of use assets for impairment as of June 30, 2020. Based upon the results of the impairment test, we recorded an impairment expense related to property and equipment and operating lease right of use assets of approximately $1,821 and $2,238, respectively, during the three months ended June 30, 2020, which is included in Impairment/disposal of assets in the Company’s condensed consolidated statements of operations and comprehensive loss. The expense was primarily related to the impairment of leasehold improvements made to certain spa locations and operating lease right of use assets where management determined that the locations discounted future cash flow was not sufficient to support the carrying value of these assets over the remaining lease term. The property and equipment and right of use asset net balances decreased approximately 23% and 28%, respectively as a result of recording the impairment charges. Property and equipment, net decreased approximately $1,803 as a result of impairment of $1,821, depreciation expense of $1,312, offset by purchases during the six month period ended June 30, 2020 of $1,345. The impairment expense represents the excess of the carrying value of these assets over the estimated future discounted cash flows. Management calculated the future cash flow of each location using a present value income approach. The sum of expected cash flow for the remainder of the lease term for each location was present valued at a discount rate of 9.0%, which represents the current borrowing rate of our B3D Note. We believe that this rate incorporates the time value of money and an appropriate risk premium.

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We completed an assessment of our intangible assets for impairment as of June 30, 2020. 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.   Management will continue to evaluate and assess its projections.  

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, XpresCheckTM, 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 through payment deferrals. Currently, the period of relief from these payments range from three- to ten-months and began in March 2020.  The Company received minimum guaranteed payment concession of approximately $693 in the three months ended June 30, 2020 and $768 in the six months ended June 30, 2020. We expect to realize additional rent concessions while our spas remain closed.

Liquidity and Financial Condition

As of June 30, 2020, the Company had cash and cash equivalents, excluding restricted cash, of $37,765, total current assets of $39,019, total current liabilities of $19,595, and positive working capital of $19,424 compared to a working capital deficiency of $12,287 as of December 31, 2019.

During the three months ended June 30, 2020, to address the Company’s historical working capital deficiencies, and its outstanding long-term debt, the Company raised $38,397 in a series of registered direct equity offerings, net of approximately $4,653 in broker commissions, legal fees and other related offering expenses.  The Company settled its long-term debt owed as of March 31, 2020 by converting $5,664 of the B3D Note to Common Stock and by converting the $2,500 Calm Note to Common Stock.   The Company also paid in full the short-term $910 advance funding owed to Credit Cash, recognizing a gain of approximately $91.   Finally, 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.   See Note 7. Debt.

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. 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.

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Note 2. Significant Accounting and Reporting Policies

(a) Revenue Recognition Policy

The Company recognizes revenue from the sale of XpresSpa products and services when the services are rendered at XpresSpa stores and from the sale of products at the time products are purchased at our stores or online usually by credit card,  net of discounts and applicable sales taxes. Accordingly, the Company  recognizes revenue for our single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. Revenues from the XpresSpa retail and e-commerce businesses are recorded at the time goods are shipped.

In June 2020, the Company entered into a management services agreement with a professional medical services company that provides health care services to patients in connection with the launch of its new XpresCheck brand. The XpresCheck  business will provide diagnostic COVID-19 tests, at Company locations in airports, to airport employees and will expand to the traveling public as well. The medical services company will pay XpresCheck a monthly fee to operate in the XpresCheck facility and the fee and related costs will be recorded monthly as earned and incurred, respectively over the term of the agreement.

The Company has a franchise agreement with an unaffiliated franchisee to operate an XpresSpa location. The Company has identified the franchise right as a distinct performance obligation that transfers over time, and therefore any portion of the non-recurring initial franchise fee that is allocated to the franchise right should be recognized over the course of the contract rather than all upfront as would be the case with distinct performance obligations. Under the Company’s franchising model, all initial franchising fees relate to the franchise right are recognized over the course of the contract which commences upon signing of the agreement. Upon receipt of the non-recurring, non-refundable initial franchise fee, management records a deferred revenue asset and recognizes revenue on a straight-line basis over the contract term.

The Company has also entered into a collaborative agreement with a customer whereby it  sells certain of its customer’s products in the Company’s retail spas. The Company acts as an agent for revenue recognition purposes and therefore records revenue net of the revenue share payable to the customer.

The Company excludes  all sales taxes assessed to our customers from revenue. Sales taxes assessed on revenues are included in accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheets until remitted to state agencies.

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(b)  Recently issued accounting pronouncements

Accounting Standards Update No. 2020-06— Debt--Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity (Subtopic 815-40)

Issued in August 2020, this update is intended to reduce the unnecessary complexity of the current guidance thus resulting in more accurate  accounting  for convertible instruments and consistent treatment from one entity to the next. Under current GAAP, there are five accounting models for convertible debt instruments. Except for the traditional convertible debt model that recognizes a convertible debt instrument as a single debt instrument, the other four models, with their different measurement guidance, require that a convertible debt instrument be separated (using different separation approaches) into a debt component and an equity or a derivative component. Convertible preferred stock also is required to be assessed under similar models. The Financial Accounting Standard  Board (“FASB”) decided to simplify the accounting for convertible instruments by removing certain separation models currently included in other accounting guidance that were being applied to current accounting for convertible instruments. Under the amendments in this update, an embedded conversion feature no longer needs to be separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives.  Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The  Board also decided to add additional disclosure requirements in an attempt to improve the usefulness and relevance of the information being provided.

The new standard is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company does not believe the adoption of this standard will have a material impact on its condensed consolidated financial statements.

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 condensed consolidated 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 condensed consolidated financial statements.

(c) 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

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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 condensed consolidated 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 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 condensed consolidated financial statements.

(d) Presentation

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 and the loss from operations before income taxes section of the statement of operations and comprehensive loss. Such reclassifications did not have a material impact on the condensed consolidated financial statements.

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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

Six months ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Basic and diluted numerator:

 

  

 

  

 

  

 

  

Net loss attributable to XpresSpa Group, Inc.

$

(58,078)

$

(6,338)

$

(68,694)

$

(9,311)

Less: deemed dividend on warrants and preferred stock

 

(637)

 

 

(945)

 

Net loss attributable to common shareholders

$

(58,715)

$

(6,338)

$

(69,639)

$

(9,311)

Basic and diluted denominator:

 

 

  

 

 

  

Basic and diluted weighted average shares outstanding

 

38,873,131

 

656,706

 

22,569,032

 

637,143

Basic and diluted net loss per share

$

(1.51)

$

(9.65)

$

(3.09)

$

(14.61)

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

 

669,801

 

49,167

 

669,801

 

49,167

Unvested RSUs to issue an equal number of shares of Common Stock

 

20,000

 

18,417

 

20,000

 

18,417

Warrants to purchase an equal number of shares of Common Stock

 

8,482,380

 

234,557

 

8,482,380

 

234,557

Preferred stock on an as converted basis

 

 

2,121,443

 

 

2,121,443

Convertible notes on an as converted basis

 

1,714,286

 

72,500

 

1,714,286

 

72,500

Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders

 

10,886,467

 

2,496,084

 

10,886,467

 

2,496,084

Note 4. Cash, Cash Equivalents, and Restricted Cash

A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows as of June 30, 2020 is as follows:

    

June 30, 2020

    

December 31, 2019

Cash denominated in United States dollars

$

36,809

$

890

Cash denominated in currency other than United States dollars

 

956

 

1,048

Restricted cash

701

451

Credit and debit card receivables

 

-

 

246

Total cash and cash equivalents

$

38,466

$

2,635

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Note 5. Intangible Assets

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

June 30, 2020

December 31, 2019

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Trade name

$

13,309

$

(7,815)

$

5,494

$

13,309

$

(6,709)

$

6,600

Software

 

312

 

(162)

 

150

 

312

 

(129)

 

183

Total intangible assets

$