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Table of Contents

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, 2022

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 May 13, 2022, 95,360,271 shares of the registrant’s common stock were outstanding.

Table of Contents

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

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II. OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

35

2

Table of Contents

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)

    

March 31, 

    

December 31, 

2022

2021

Current assets

 

  

 

  

Cash and cash equivalents

$

82,990

$

105,506

Accounts receivable

1,924

615

Inventory

 

2,522

 

1,763

Other current assets

 

1,027

 

1,095

Total current assets

 

88,463

 

108,979

Restricted cash

 

751

 

751

Property and equipment, net

 

8,273

 

6,658

Intangible assets, net

 

5,205

 

3,732

Operating lease right of use assets, net

 

4,245

 

4,336

Goodwill

4,260

-

Other assets

 

2,541

 

2,810

Total assets

$

113,738

$

127,266

Current liabilities

 

  

 

  

Accounts payable, accrued expenses and other

$

12,918

$

12,958

Current portion of operating lease liabilities

2,833

2,736

Deferred revenue

1,464

549

Current portion of promissory note, unsecured

1,433

3,584

Total current liabilities

 

18,648

 

19,827

Long-term liabilities

 

 

Operating lease liabilities

 

7,301

 

7,504

Total liabilities

25,949

27,331

Commitments and contingencies (see Note 13)

 

  

 

  

Equity

 

  

 

  

Series A Convertible Preferred Stock, $0.01 par value per share; 6,968 shares authorized; none issued and 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; none issued and outstanding

 

-

 

-

Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; none issued and outstanding

-

-

Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 95,071,210 and 101,269,349 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

951

1,013

Additional paid-in capital

 

478,649

 

487,306

Accumulated deficit

 

(399,558)

 

(395,275)

Accumulated other comprehensive loss

 

(353)

 

(312)

Total equity attributable to XpresSpa Group, Inc.

 

79,689

 

92,732

Noncontrolling interests

 

8,100

 

7,203

Total equity

 

87,789

 

99,935

Total liabilities and equity

$

113,738

$

127,266

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

3

Table of Contents

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 March 31, 

    

    

2022

    

2021

    

Revenue, net

 

 

  

 

  

 

Managed services fees

$

$

8,174

Patient services revenue

19,389

Services

3,777

265

Products

 

345

 

65

 

Other

537

8

Total revenue, net

 

24,048

 

8,512

 

Cost of sales

 

  

 

  

 

Labor

 

5,462

 

1,215

 

Occupancy

 

1,068

 

481

 

Products and other operating costs

 

8,517

 

2,463

 

Total cost of sales

 

15,047

 

4,159

 

Depreciation and amortization

 

1,264

 

744

 

Impairment/disposal of assets

22

General and administrative

 

10,188

 

4,508

 

Total operating expenses

 

26,499

 

9,433

 

Operating loss

 

(2,451)

 

(921)

 

Interest income, net

 

7

 

12

 

Other non-operating (expense) income, net

 

(318)

 

102

 

Loss before income taxes

 

(2,762)

 

(807)

 

Income tax expense

 

-

 

(1)

 

Net loss

(2,762)

(808)

Net loss attributable to noncontrolling interests

 

(1,521)

 

(248)

 

Net loss attributable to XpresSpa Group, Inc.

$

(4,283)

$

(1,056)

Net loss

$

(2,762)

$

(808)

Other comprehensive loss from operations

 

(41)

 

(16)

Comprehensive loss

$

(2,803)

$

(824)

Loss per share

 

  

 

  

Basic and diluted loss per share

$

(0.04)

$

(0.01)

Weighted-average number of shares outstanding during the period

 

  

 

  

Basic

 

101,601,913

 

101,058,500

Diluted

 

101,601,913

 

101,058,500

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

4

Table of Contents

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)

    

    

    

Accumulated

    

    

    

Additional

other

Total

Non-

Common stock

paid- 

Accumulated

comprehensive

Company

controlling

Total

    

Shares

    

Amount

    

in capital

    

deficit

    

loss

    

equity

    

interests

    

equity

December 31, 2021

101,269,349

$

1,013

$

487,306

$

(395,275)

$

(312)

$

92,732

$

7,203

$

99,935

Issuance of Common Stock for acquisition

552,487

5

901

906

906

Vesting of restricted stock units

391,820

4

(4)

Value of Shares Withheld to fund payroll taxes

(73)

(73)

(73)

Stock-based compensation

1,543

1,543

1,543

Net loss for the period

(4,283)

(4,283)

1,521

(2,762)

Repurchase and retirement of common stock

(7,142,446)

(71)

(11,024)

(11,095)

(11,095)

Foreign currency translation

(41)

(41)

(41)

Distributions to noncontrolling interests

(824)

(824)

Contributions from noncontrolling interests

200

200

March 31, 2022

95,071,210

$

951

$

478,649

$

(399,558)

$

(353)

$

79,689

$

8,100

$

87,789

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

5

Table of Contents

XpresSpa Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)

    

    

    

Accumulated

    

    

    

Additional

other

Total

Non-

Common stock

paid- 

Accumulated

comprehensive

Company

controlling

Total

    

Shares

    

Amount

    

in capital

    

deficit

    

loss

    

equity

    

interests

    

equity

December 31, 2020

94,058,853

$

941

$

475,709

$

(398,624)

$

(220)

$

77,806

$

2,565

$

80,371

Warrant exercises, net of costs

11,223,529

112

16,895

17,007

17,007

Stock-based compensation

264

264

741

1,005

Net loss for the period

(1,056)

(1,056)

248

(808)

Foreign currency translation

(16)

(16)

(16)

Contributions from noncontrolling interests

333

333

March 31, 2021

105,282,382

$

1,053

$

492,868

$

(399,680)

$

(236)

$

94,005

$

3,887

$

97,892

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)

Three months ended March 31, 

    

2022

    

2021

Cash flows from operating activities

 

  

 

  

Net loss

$

(2,762)

$

(808)

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

 

1,264

 

744

Impairment/disposal of assets

 

 

22

Amortization of operating lease right of use asset

398

224

Stock-based compensation

 

1,543

 

1,005

Loss (gain) on equity investment

273

(99)

Changes in assets and liabilities:

 

 

Increase in inventory

(759)

 

(508)

Increase in accounts receivable

(906)

(3,019)

Increase in deferred revenue

192

Other assets, current and non-current

82

 

91

Other liabilities, current and non-current

(1,612)

(825)

Decrease in accounts payable

513

 

(325)

Net cash used in operating activities

 

(1,774)

 

(3,498)

Cash flows from investing activities

 

  

 

Acquisition of property and equipment

 

(1,659)

 

(986)

Acquisition of HyperPointe net of cash assumed

(4,853)

Acquisition of software

 

(267)

 

Net cash used in investing activities

 

(6,779)

 

(986)

Cash flows from financing activities

 

 

Warrant exercises, net of costs

17,007

Repurchase of Common Stocks

(11,095)

Contributions from noncontrolling interests

200

333

Payments for shares withheld on vesting

(73)

Repayment of Paycheck Protection Program

(2,151)

Distributions to noncontrolling interests

(824)

Net cash (used in) provided by financing activities

 

(13,943)

 

17,340

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

 

(20)

 

(8)

(Decrease)/ Increase in cash, cash equivalents and restricted cash

 

(22,516)

 

12,848

Cash, cash equivalents, and restricted cash at beginning of the period

106,257

90,502

Cash, cash equivalents, and restricted cash at end of the period

$

83,741

$

103,350

Cash paid for

 

 

Interest

$

7

$

Income taxes

$

Non-cash investing and financing transactions

 

 

Capital expenditures included in Accounts payable, accrued expenses and other

$

765

$

Issuance of Common Stock on acquistion of gcg Connect, LLC, d/b/a HyperPointe

$

906

$

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 Group” or the “Company”) is a leading global travel health and wellness services holding company. XpresSpa Group currently has four reportable operating segments: XpresSpa®, XpresTest®, Treat, and HyperPointe which was acquired in January 2022.

XpresSpa Group’s subsidiary, XpresSpa Holdings, LLC (“XpresSpa”) has been a global airport retailer of spa services through its XpresSpa spa locations, offering travelers premium spa services, including massage, nail and skin care, as well as spa and travel products (“XpresSpa”).

Through XpresSpa Group’s XpresTest, Inc. subsidiary (“XpresTest”), the company launched XpresCheck Wellness Centers, also in airports. XpresCheck offers COVID-19 and other medical diagnostic testing services to the traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents. XpresTest has entered into managed services agreements (“MSAs”) with professional medical services companies that provide health care services to patients. The medical services companies pay XpresTest a monthly fee to operate in the XpresCheck Wellness Centers. Under the terms of the MSAs, XpresTest provides office space, equipment, supplies, non-licensed staff, and management services in return for a management fee. Effective July 1, 2021, the Company determined that the PLLCs are VIEs due to their equity holders having sufficient capital at risk, and the Company having a variable interest and a primary beneficiary in the PLLCs.

The third segment is Treat, which is operating through XpresSpa Group’s subsidiary Treat, Inc. (“Treat”). Treat is a travel health and wellness brand that provides access to health and wellness services for travelers at on-site centers (currently located in JFK International Airport and  Phoenix Sky Harbor International Airport and opening later this year in Salt Lake City International Airport).

The Company’s HyperPointe segment, which the Company acquired in January 2022 (see Note 7. Acquisition of HyperPointe), provides a broad range of service and support options for our customers, including technical support services and advanced services.

Basis of Presentation and Principles 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, 2021, as amended. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited annual financial statements but does not include all information required by GAAP for annual 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 as well as variable interest entities in which we are the primary beneficiaries. 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 months ended March 31, 2022 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.

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Recent Developments

XpresCheck Wellness Centers

XpresCheck’s business has MSAs with state licensed physicians and nurse practitioners, under which we administer COVID-19 testing options, including a Polymerase Chain Reaction (PCR) test and a rapid PCR test. As of the date of this report, there are 15 operating XpresCheck locations operating in 12 airports, including following locations opened since December 31, 2021:

In February 2022, a second XpresCheck Wellness Center opened at Denver International Airport, pre-security in the Great Hall. It contains six separate testing rooms to provide diagnostic COVID-19 testing.

In March 2022, we opened an XpresCheck Wellness Center in Orlando International Airport, pre-security, in the South Walk area of the Main Terminal. It contains five separate testing rooms to provide diagnostic COVID-19 testing.

During 2021, XpresCheck initiated a $2,001 eight-week pilot program with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo. Under this program, XpresCheck is conducting biosurveillance monitoring at four major U.S. airports (JFK International Airport, Newark Liberty International Airport, San Francisco International Airport, and Hartsfield-Jackson Atlanta International Airport) aimed at identifying existing and new SARS-CoV-2 variants. On January 31, 2022, the Company announced the extension of the program, bringing the total contract to $5,534. Approximately $1,396 and $1,368 of the full $5,534 amount was recognized during the first quarter of 2022 and the fourth quarter of 2021, respectively. The Company anticipates that the remaining $2,770 of the full $5,534 amount will be realized in the second and third quarters of 2022.

XpresSpa

There are currently nineteen operating XpresSpa domestic locations (including two franchise location in Austin-Bergstrom International Airport) and the Company expects to re-open four additional domestic locations in the near-term. A significant number of the domestic XpresSpa locations are operating approximately eight hours per day during the busiest hours (compared to up to sixteen hours per day pre-pandemic) improving labor productivity. Additionally, XpresSpa implemented a price increase in mid-October 2021 in its efforts to return to profitability. As passenger airport volumes improve, the Company will continue to review operating hours to optimize revenue opportunity.

During the fourth quarter of 2021, the Company began testing several new services to take advantage of a growing interest in non-traditional spa services and expansion of our retail offering to align more closely with the services the Company provides. The company is evaluating the success of these new initiatives at each airport on an on-going basis and will incorporate changes to our approach as more of the portfolio is reactivated.

The Company also has six international locations operating, including three XpresSpa locations in Dubai International Airport in the United Arab Emirates and three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands. The Company also signed for an additional five locations at Istanbul Airport and expects to open the first store during the summer of 2022.

Treat

Treat is the Company’s new travel, health and wellness brand transforming the way we access care through a suite of health and wellness services supported by an integrated digital platform and a relevant retail offering to the traveling public.

Treat’s on-site centers (currently located in JFK International Airport and in Phoenix Sky Harbor International Airport and opening later this year in Salt Lake City International Airport) provide access to health and wellness services for travelers. The Treat teams provide travel-related diagnostic testing for virus, cold, flu and other illnesses as well as hydration therapy, IV drips, and vitamin injections. Travelers can purchase time blocks to use the Company’s wellness rooms to engage in

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interactive services like self-guided yoga, meditation and low impact weight exercises or to relax and unplug from the hectic pace of the airport and renew themselves before or after their trip.

Treat offers a website (www.treat.com) and mobile app to complement the offering with relevant health and wellness content designed to help people on the go with information that could impact their travel. The platform provides travelers access to a comprehensive online marketplace of services including global illness tracker tools such as the COVID-19 Requirements Map, on-demand chat care by licensed providers, a health wallet to store personal and family health records (including COVID-19 testing results), and a scheduler to arrange for direct care at one of the Company’s on-site locations. The information on the Treat website is not incorporated by reference into this Quarterly Report on Form 10-Q and does not constitute a part of this Form 10-Q.

HyperPointe Acquisition

In January 2022, the Company announced and closed on the acquisition of gcg Connect, LLC d/b/a HyperPointe.  

The purchase price in the transaction consisted of $7,121 in cash and $906 in common stock, offset by the settlement of intercompany accounts payable of $770 as well as potential additional earn-out payments of up to $7,500 over a three-year timeframe based upon future performance; these earn-out payments may be satisfied in cash or common stock or a combination thereof subject to various terms and conditions. As of the acquisition date, and as of March 31, 2022, the Company believes that the fair value of the potential earnout payment is $0.

HyperPointe currently operates as a new operating segment within the XpresSpa Group. The chief executive officer of HyperPointe before the Company’s acquisition, continues to serve as the chief executive officer of HyperPointe, as well as serving as the chief executive officer of XpresCheck.  See Note 7. Acquisition of HyperPointe for related discussion.

Liquidity and Financial Condition

As of March 31, 2022, the Company had cash and cash equivalents, excluding restricted cash, of $82,990, total current assets of $88,463, total current liabilities of $18,648 and positive working capital of $69,815, compared to a positive working capital of $89,152 as of December 31, 2021.

Note 2. Significant Accounting and Reporting Policies

(a) Revenue Recognition Policy

XpresSpa

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 the Company’s stores or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s 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.

The Company has a franchise agreement with an unaffiliated franchisee to operate two XpresSpa locations. Under the Company’s franchising model, all initial franchising fees relate to the franchise right, which is a single performance obligation that transfers over time. Upon receipt of the non-recurring, non-refundable initial franchise fee, management records a deferred revenue liability and recognizes revenue on a straight-line basis over the life of the franchise agreement.

The Company has also entered into collaborative agreements with marketing partners whereby it sells certain of its partners’ products in its XpresSpa. The Company acts as an agent for revenue recognition purposes and therefore records revenue net of the revenue share payable to the partners. Upon receipt of the non-recurring, non-refundable initial collaboration fee, management records a deferred revenue liability and recognizes revenue on a straight-line basis over the life of the collaboration agreement.

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XpresCheck

Through its XpresCheck Wellness Centers and under the terms of the Managed Services Agreement (“MSA”) with Professional Limited Liability Companies (“PLLCs”) that in turn contract with physicians and Nurse Practitioners, the Company offers testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, as well as the traveling public. The Company has entered into MSAs with PLLCs that provide healthcare services to patients. Under the terms of the MSAs which may be modified for commercial reasonableness and fair market value, XpresTest provides office space, equipment, supplies, non-licensed staff, and management services to be used for the purpose of COVID-19 and other medical diagnostic testing in return for a management fee which was deemed a performance obligation for recognizing revenue prior to July 1, 2021.

Effective, July 1, 2021 (see Note 8. Variable Interest Entities), the Company determined that the PLLCs are variable interest entities due to its equity holder having insufficient capital at risk, and the Company having a variable interest in the PLLCs. In pursuance, the total revenue of the PLLCs are designated as revenue for the company.  The performance obligation for this revenue was the PLLCs administering COVID-19 tests to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, as well as the traveling public, with revenue being recognized at the point in time at which the service is performed.

Treat

The Company recognizes revenue from the sale of Treat products and services when the services are rendered at Treat Centers and from the sale of products at the time products are purchased at the Treat Centers or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s single performance obligation related to both in-centers 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 Treat retail and e-commerce businesses are recorded at the time goods are shipped.

HyperPointe

Our HyperPointe segment which we acquired in January 2022 (see Note 7 Acquisition of HyperPointe) provides broad range of service and support options for our customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered.  Revenue billed in advance are treated as deferred revenue which was $544 as of March 31, 2022.  HyperPointe had unbilled receivables of $136 included in Accounts Receivable.

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 on the Company’s condensed consolidated balance sheets until remitted to state agencies.

(b) Variable Interest Entities

The Company evaluates its ownership, contractual, pecuniary, and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex and involve judgment. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively.

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(c) Business Combinations

The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.

While the company uses its best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets. Although the Company believes the assumptions and estimates that have been made are reasonable and appropriate, they are based in part on historical experience and information obtained from the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets the Company has acquired include future expected cash flows, and discount rates.

(d) Goodwill

The Company accounts for goodwill under ASC 350-30, Intangibles-Goodwill and Other. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss.

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Recently adopted 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 FASB 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 adopted ASU 2020-06 as of the reporting period beginning January 1, 2022. The adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

ASU 2021-04: Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, "Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options'" ("ASU 2021-04"), which introduces a new way for companies to account for warrants either as stock compensation or derivatives. Under the new guidance, if the modification does not change the instrument's classification as equity, the company accounts for the modification as an exchange of the original instrument for a new instrument. In general, if the fair value of the "new" instrument is greater than the fair value of the "original" instrument, the excess is recognized based on the substance of the transaction, as if the issuer has paid cash. The effective date of the standard is for interim and annual reporting periods beginning after December 15, 2021 for all entities. The Company adopted ASU 2021-04 as of the reporting period beginning January 1, 2022. The adoption of this update did not have a material impact on the Company’s 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

March 31, 

    

2022

    

2021

Basic and diluted numerator:

 

  

 

  

Net loss attributable to common shareholders

$

(4,283)

$

(1,056)

Basic and diluted denominator:

 

 

  

Basic and dliuted weighted average shares outstanding

 

101,601,913

 

101,058,500

Basic and diluted loss per share

$

(0.04)

$

(0.01)

Net income (loss) per share data presented above excludes from the calculation of diluted net income (loss), the following potentially dilutive securities, having an anti-dilutive impact, in case of net loss

 

  

 

  

Both vested and unvested options to purchase an equal number of shares of Common Stock

 

4,062,699

 

3,022,185

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

 

367,189

 

105,125

Warrants to purchase an equal number of shares of Common Stock

 

29,460,560

 

37,988,940

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

 

33,890,448

 

41,116,250

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 March 31, 2022 and December 31, 2021 is as follows:

    

March 31, 2022

    

December 31, 2021

Cash denominated in United States dollars

$

80,096

$

102,560

Cash denominated in currency other than United States dollars

 

2,624

 

2,133

Restricted cash

751

751

Credit and debit card receivables

 

270

 

813

Total cash, cash equivalents and restricted cash

$

83,741

$

106,257

The Company places its cash and temporary cash investments with credit quality institutions. At times, such cash denominated in United States dollars may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. At March 31, 2022 and December 31, 2021, deposits in excess of FDIC limits were $78,917 and $103,339, respectively. As of March 31, 2022 and December 31, 2021, the Company held cash balances in overseas accounts, totaling $2,624 and $2,113 respectively, which are not insured by the FDIC. If the Company were to distribute the amounts held overseas, the Company would need to follow an approval and distribution process as defined in its operating and partnership agreements, which may delay and/or reduce the availability of that cash to the Company.

Note 5. Intangible Assets

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

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March 31, 2022

December 31, 2021

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Trade names

$

1,605

$

(1,178)

$

427

$

1,339

$

(1,118)

$

221

Customer Relationships

1,338

(355)

983

Software

 

4,460

 

(769)

 

3,691

 

3,886

 

(484)

 

3,402

Licenses

116

(12)

104

116

(7)

109

Total intangible assets

$

7,519

$

(2,314)

$

5,205

$

5,341

$

(1,609)

$

3,732

The Company’s trade name relates to the value of the XpresSpa and HyperPointe trade names, software relates to certain capitalized third-party costs related to a website and a point-of-sale system as well as software assumed on our acquisition of HyperPointe; and licenses relates to certain capitalized costs of foreign acquisitions. Customer relationships were assumed on our acquisition of HyperPointe.

The Company’s intangible assets are amortized over their expected useful lives. The Company recorded amortization expense of $393 and $99 during the three months ended March 31, 2022 and 2021.

Based on the intangible assets balance as of March 31, 2022, 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

Remaining 2022

$

1,383

2023

 

1,509

2024

 

1,404

2025

 

345

2026

283

Thereafter

281

Total

$

5,205

Note 6. Leases

The Company leases its retail and diagnostic testing locations 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 payment.

All qualifying leases held by the Company are classified as operating leases. Operating lease right of use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease right of use assets and operating lease 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 right of use assets and operating lease 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 terms and adjusts both balances accordingly.

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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 or providing relief from rent through payment deferrals. Currently, the period of relief from these payments range from three to thirty one months and began in March 2020.  The Company received minimum guaranteed payment concession of approximately $321 in the three months ended March 31, 2022 and $472 in the three months ended March 31, 2021. The Company expects to realize additional rent concessions while some of its spas remain closed.

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 has recorded negative variable lease expense and adjusted lease liabilities at the point in which the rent concession has become accruable.

Supplemental cash flow information related to leases for the three months ended March 31, 2022 and 2021 were as follows:

Three months ended March 31, 

    

2022

    

2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

(1,010)

$

(1,073)

Leased assets obtained in exchange for new and modified operating lease liabilities

$

305

$

325

Leased assets surrendered in exchange for termination of operating lease liabilities

$

$

9

As of March 31, 2022, operating leases contain the following future minimum commitments:

Calendar Years ending December 31, 

    

Amount

Remaining 2022

$

2,746

2023

 

2,890

2024

 

2,150

2025

 

1,572

2026

 

764

Thereafter

 

1,074

Total future lease payments

 

11,196

Less: interest expense at incremental borrowing rate

 

(1,062)

Net present value of lease liabilities

$

10,134

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

Weighted average remaining lease term:

4.05

years

Weighted average discount rate used to determine present value of operating lease liability:

 

10.0

%

Cash paid for minimum annual rental obligations was $271 and $150 for the three months ended March 31, 2022 and 2021, respectively.

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Variable lease payments calculated monthly as a percentage of product and services revenue were $364 and $97 for the three months ended March 31, 2022 and 2021, respectively.

Note 7. Acquisition of HyperPointe

On January 14, 2022, the Company acquired all of the equity interests in gcg Connect, LLC, d/b/a HyperPointe, a New Jersey limited liability company (“HyperPointe”), for an aggregate initial purchase price of approximately $7,257, which consisted of (i) $7,121 in cash offset by settlement of intercompany payable of $770,  and (ii) the issuance of 552,487 shares of common stock of the Company to the equity owners of HyperPointe, plus additional consideration in the form of a potential earnout of up to $7,500 (the “Acquisition”). The portion of the initial consideration for the Acquisition comprising the 552,487 shares of Company common stock was valued at $906 based upon a closing reference price of $1.64 as contemplated by the acquisition agreement.

XpresSpa Group also agreed pursuant to an earnout provision to issue up to an additional $7,500 in cash or stock if certain earnout performance targets are met during an earnout period ending on the third anniversary of the date of the acquisition agreement. For purposes of the earnout, the Common Stock will also be valued on a per share basis. The earnout payments may be satisfied in (i) cash, (ii) shares of Common Stock (priced at $1.81), or (iii) any combination thereof, at the election of the equity owners of HyperPointe, provided that in the event (and to the extent) XpresSpa Group does not have sufficient authorized shares of Common Stock that are unissued and not duly reserved for issuance upon options, warrants or other convertible securities, then XpresSpa Group shall be permitted to settle any earnout payments in cash. As a result, XpresSpa Group may issue up to an additional 4,143,647 shares of Common Stock; however, the actual number of shares that will be issued under the earnout, if any, will depend on (i) the extent of fulfillment of the earnout performance targets at the time of calculation of the earnout and (ii) the elections and conditions described in the previous sentence.

XpresSpa Group granted an equity award to the previous Chief Executive Officer of HyperPointe and who was offered employment with the Company in connection with XpresSpa’s acquisition of the equity interests of HyperPointe, as an inducement material to such new employee entering into employment with the Company. The equity award was approved on January 7, 2022, in accordance with Nasdaq Listing Rule 5635(c)(4).

The employee received stock options to purchase 1,000,000 shares of XpresSpa common stock. The stock options were issued upon the closing of the acquisition of HyperPointe and employee’s hire date in connection therewith (the "Grant Date"), and all stock options included within the equity inducement award have an exercise price of $1.64 per share, resulting in the fair value of $1,457 which would be charged to expense per the option terms. One-third of the options will vest on each of the first three anniversaries of the Grant Date, subject to the employee's continued employment with XpresSpa or its subsidiaries on such vesting dates. The stock options have a ten-year term.

The Company has recognized the assets and liabilities based on the acquisition date fair values. The acquisition did not result in the creation of any contingent consideration as of the Acquisition date and  as of March 31, 2022.

Determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.

The fair value of intangible assets other than Goodwill was determined primarily using income approaches. This included estimated multi-period excess earnings valuation method for Customer relationships and the relief-from-royalty valuation.

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The adjustments set forth in the following condensed unaudited consolidated Balance Sheet reflect the effect of the consummation of the acquisition:

Consideration paid

$

7,257

Fair value of assets acquired and liabilities assumed

Cash and cash equivalents

$

2,269

Accounts receivable

346

Unbilled Receivables

56

Prepaid expenses and other current assets

19

Other long-term assets

16

Property and equipment

68

Customer relationships

1,026

Trade name

266

Software

307

Accounts payable

(653)

Deferred revenue

(723)

2,997

Goodwill

$

4,260

Note 8. Variable Interest Entities

Through its XpresCheck Wellness Centers the Company provides services pursuant to contracts with PLLCs which in turn contracts with physicians and other medical professional providers to render COVID-19 and other medical diagnostic testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, and the traveling public. The PLLCs collectively represent the Company’s affiliated medical group. The PLLCs were designed and structured to comply with the relevant laws and regulations governing professional medical practice, which generally prohibits the practice of medicine by lay persons or entities. All of the issued and outstanding equity interests of the PLLCs are owned by a licensed medical professional nominated by the Company (the “Nominee Shareholder”). Upon formation of the PLLCs, and initial issuance of equity interests, the Nominee Shareholder contributes a nominal amount of capital in exchange for their interest in the PLLC. The Company then executes with each PLLC a MSA, which provide for various administrative services, management services and day-to-day activities of the practice to be rendered by the Company through its XpresCheck Wellness Centers.

The Company also has exclusive responsibility for the provision of all nonmedical services including contracting with customers who access the PLLCs for a medical visit, handling all financial transactions and day-to-day operations of each PLLC, overseeing the establishment of COVID-19 and other medical diagnostic testing services policies, and making recommendations to the PLLC in establishing the guidelines for the employment and compensation of the physicians and other employees of the PLLCs. Until June 30, 2021, MSA Fees were commensurate with the expected level of activity required to be billed by XpresCheck Wellness Centers. Therefore, these PLLCs were assessed not to be variable interest entities prior to July 1, 2021.

Effective, July 1, 2021, contractual arrangements between the company, the company’s affiliated medical group and nominated shareholder were modified in a manner that changes the characteristics or adequacy of the nominee shareholders equity investment at risk and residual returns. Therefore, due to reassessment triggered by the development on July 1, 2021, the Company determined that the PLLCs are now variable interest entities. Notwithstanding their legal form of ownership of equity interests in the PLLC, the primary beneficiary of the affiliated medical group is the Company as it meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the affiliated medical group; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the affiliated medical group. The Company consolidated the PLLCs under

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the VIE model since the Company has the power to direct activities that most significantly impact the PLLCs economic performance and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the PLLCs.

The aggregate carrying value of total assets and total liabilities included on the consolidated balance sheets for the PLLCs after elimination of intercompany transactions were $973, included in Cash and Cash Equivalents, and $394, included in Accounts payable, accrued expenses and other, respectively, as of March 31, 2022. The total revenue included on the consolidated statements of operations and comprehensive income (loss) for the PLLCs after elimination of intercompany transactions was $19,389 for the three months ended March 31, 2022.

Note 9. Debt

Total Debt as of March 31, 2022 and December 31, 2021 is comprised of the following:

    

March 31, 2022

    

December 31, 2021

Promissory note, unsecured (Current)

1,433

3,584

Total debt

$

1,433

$

3,584

Paycheck Protection Program

On May 1, 2020, the Company entered into a U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“the PPP”) promissory note in the principal amount of $5,653 payable to Bank of America, NA (“Bank of America”) evidencing a PPP loan (the “PPP Loan”). The PPP Loan bears interest at a rate of 1% per annum. No payments were due on the PPP Loan during a six-month deferral period commencing on May 2, 2020. Commencing one month after the 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 is 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 PPP loan was paid off on the maturity date of May 2, 2022. The principal amount of the PPP Loan was subject to forgiveness under the PPP upon the Company’s request to the extent that the PPP Loan proceeds are used to pay expenses permitted by the PPP. Bank of America may have forgiven interest accrued on any principal forgiven if the SBA pays the interest. Currently, the Company is paying its monthly principal and interest related to the PPP Loan when due. 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. As of both March 31, 2022 and December 31, 2021, $4 has been accrued and is included in Accounts payable, accrued expenses and other in the condensed consolidated balance sheet.

Note 10. Stockholders’ Equity

During the three months ended March 31, 2022, the Company continuing to execute on its share repurchase program, repurchased 7,142,446 shares at average cost of $1.55 per share, for a total of $11,095.

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Warrants

The following table represents the activity related to the Company’s warrants during the three months ended March 31, 2022.

    

Exercise

No. of Warrants

price range

December 31, 2021

37,817,694

$

0.525 - 6.566

Granted

$

Exercised

$

Expired

(8,357,134)

$

5.25-6.566

March 31, 2022

29,460,560

$

1.7 - 3.9375

Stock-based Compensation

In September 2020, the Board of Directors approved a new stock-based compensation plan available to grant stock options, restricted stock and RSU’s to the Company’s directors, employees and consultants. Under the 2020 Equity Incentive Plan (the “2020 Plan”), a maximum of 5,000,000 shares of Common Stock may be issued, subject to receiving shareholder approval which was subsequently obtained on October 28, 2020. The 2012 Plan was terminated upon receipt of shareholder approval of the 2020 Plan.

Awards granted under the 2012 Plan remain in effect pursuant to their terms. Generally, stock options are granted with exercise prices equal to the fair market value on the date of grant, vest in four equal quarterly installments, and expire 10 years from the date of grant. RSUs granted generally vest over a period of one year.

In September 2020, the Company’s XpresTest subsidiary created a stock-based compensation plan available to grant stock options, restricted stock and RSU’s to the subsidiary’s directors, employees and consultants. Under the XpresTest 2020 Equity Incentive Plan (the “XpresTest Plan”), a maximum of 200 shares of XpresTest Common Stock may be awarded, which would represent 20% of the total number of shares of common stock of XpresTest as of March 31, 2022. Certain named executive officers, consultants, and directors of the Company are eligible to participate in the XpresTest Plan. The XpresTest Plan RSAs vest upon satisfaction of certain service and performance-based conditions.

The fair value of stock options is estimated as of the date of grant using the Black-Scholes-Merton (“Black-Scholes”) option-pricing model. The Company uses the simplified method to estimate the expected term of options due to insufficient history and high turnover in the past.

The following variables were used as inputs in the model:

Share price of the Company’s Common Stock on the grant date:

$

1.28 - 1.64

Exercise price:

$

1.28 - 1.64

Expected volatility:

 

123.45

%

Expected dividend yield:

 

0

%

Annual average risk-free rate:

 

1.62 - 1.71

%

Expected term:

 

6.43

years

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Total following table sets forth the Company’s Equity Incentive activities for the three months ended March 31, 2022:

RSUs

Stock options

    

    

Weighted

    

Weighted

    

average

average

Exercise

No. of

grant date

No. of

exercise

price

RSUs

fair value

options

price

range

Outstanding as of December 31, 2021

600,000

$

1.63

2,826,871

$

2.57

$

1.19 - 2,460.0

Granted

156,250

1.28

1,294,375

1.56

1.28 - 1.64

Exercised/Vested

(389,061)

1.59

Forfeited

(56,880)

1.90

Expired

 

(1,667)

1.53

Outstanding as of March 31, 2022

367,189

$

1.52

4,062,699

$

2.26

$

1.19 - 2,460.0

Exercisable as of March 31, 2022

1,829,142

$

2.90

$

1.19 - 2,460.0

Total stock-based compensation for the three-month periods ended March 31, 2022 and 2021 is $1,543 and $1,005, respectively.

Note 11. 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).T