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 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 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

2


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.

3


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.

4


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.

5


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.

6


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

2,500

Debt issuance costs

(220)

Payments on convertible notes

(129)

Contributions from noncontrolling interests

117

16

Distributions to noncontrolling interests

(129)

(642)

Net cash provided by financing activities

 

80,362

 

1,525

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

 

3

 

(109)

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

 

59,960

 

(1,007)

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

$

62,595

$

2,883

Cash paid during the period for

 

 

Interest

$

187

$

628

Income taxes

$

11

$

35

Non-cash investing and financing transactions

 

 

Conversions of B3D Note into Common Stock

$

19,003

$

Conversions of Calm Note into Common Stock

$

10,599

$

Exercise and exchange of Calm Warrant into Common Stock

$

15,863

$