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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 June 30, 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 August 12, 2022, 94,278,118 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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II. OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

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)

    

June 30, 

    

December 31, 

2022

2021

Current assets

 

  

 

  

Cash and cash equivalents

$

71,108

$

105,506

Accounts receivable

832

615

Inventory

 

1,065

 

1,763

Other current assets

 

1,362

 

1,095

Total current assets

 

74,367

 

108,979

Restricted cash

 

751

 

751

Property and equipment, net

 

8,020

 

6,658

Intangible assets, net

 

4,986

 

3,732

Operating lease right of use assets, net

 

6,782

 

4,336

Goodwill

4,024

-

Other assets

 

2,435

 

2,810

Total assets

$

101,365

$

127,266

Current liabilities

 

  

 

  

Accounts payable, accrued expenses and other

$

9,289

$

12,958

Current portion of operating lease liabilities

3,007

2,736

Deferred revenue

245

549

Current portion of promissory note, unsecured

-

3,584

Total current liabilities

 

12,541

 

19,827

Long-term liabilities

 

 

Operating lease liabilities

 

8,885

 

7,504

Total liabilities

21,426

27,331

Commitments and contingencies (see Note 15)

 

  

 

  

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; 95,360,271 and 101,269,349 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

954

1,013

Treasury stock, at cost; 1,338,404 and 0 shares as of June 30, 2022 and December 31, 2021, respectively

(1,021)

-

Additional paid-in capital

 

479,432

 

487,306

Accumulated deficit

 

(407,476)

 

(395,275)

Accumulated other comprehensive loss

 

(458)

 

(312)

Total equity attributable to XpresSpa Group, Inc.

 

71,431

 

92,732

Noncontrolling interests

 

8,508

 

7,203

Total equity

 

79,939

 

99,935

Total liabilities and equity

$

101,365

$

127,266

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, 

    

2022

    

2021

    

2022

    

2021

    

Revenue, net

 

  

 

  

 

  

 

  

 

Managed services fees

$

-

$

8,669

$

-

$

16,843

Patient services revenue

7,732

-

27,121

-

Services

4,787

338

8,564

603

Products

 

421

 

79

 

766

 

144

 

Other

657

6

1,194

14

Total revenue, net

 

13,597

 

9,092

 

37,645

 

17,604

 

Cost of sales

 

  

 

  

 

  

 

  

 

Labor

 

5,477

 

1,927

 

10,939

 

3,142

 

Occupancy

 

1,262

 

443

 

2,330

 

924

 

Products and other operating costs

 

5,618

 

5,331

 

14,135

 

7,794

 

Total cost of sales

 

12,357

 

7,701

 

27,404

 

11,860

 

Depreciation and amortization

 

1,501

 

946

 

2,765

 

1,690

 

(Gain)/impairment on disposal of assets

(52)

-

(52)

22

General and administrative

 

7,558

 

4,646

 

17,746

 

9,154

 

Total operating expenses

 

21,364

 

13,293

 

47,863

 

22,726

 

Operating loss

 

(7,767)

 

(4,201)

 

(10,218)

 

(5,122)

 

Interest income, net

 

38

 

13

 

45

 

25

 

Other non-operating expense, net

 

(196)

 

(551)

 

(514)

 

(449)

 

Loss before income taxes

 

(7,925)

 

(4,739)

 

(10,687)

 

(5,546)

 

Income tax (expense) benefit

 

(2)

 

9

 

(2)

 

8

 

Net loss

(7,927)

(4,730)

(10,689)

(5,538)

Net loss (income) attributable to noncontrolling interests

 

9

 

263

 

(1,512)

 

15

 

Net loss attributable to XpresSpa Group, Inc.

$

(7,918)

$

(4,467)

$

(12,201)

$

(5,523)

Net loss

$

(7,927)

$

(4,730)

$

(10,689)

$

(5,538)

Other comprehensive (loss) income from operations

 

(105)

 

5

 

(146)

 

(11)

Comprehensive loss

$

(8,032)

$

(4,725)

$

(10,835)

$

(5,549)

Loss per share

 

  

 

  

 

  

 

  

Basic and diluted loss per share

$

(0.08)

$

(0.04)

$

(0.12)

$

(0.05)

Weighted-average number of shares outstanding during the period

 

  

 

  

 

  

 

  

Basic and diluted

 

95,352,025

 

105,398,359

 

98,458,153

 

103,240,406

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

    

    

Additional

other

Total

Non-

Common stock

Treasury Stock

paid- 

Accumulated

comprehensive

Company

controlling

Total

    

Shares

    

Amount

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

Vesting of restricted stock units

289,061

3

(3)

Grant of stock options for services

15

`

15

15

Stock-based compensation

771

771

549

1,320

Net loss for the period

(7,918)

(7,918)

(9)

(7,927)

Repurchase of common stock

(1,338,404)

(1,021)

(1,021)

(1,021)

Foreign currency translation

(105)

(105)

(105)

Distributions to noncontrolling interests

(132)

(132)

June 30, 2022

95,360,271

$

954

(1,338,404)

$

(1,021)

$

479,432

$

(407,476)

$

(458)

$

71,431

$

8,508

$

79,939

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) (Continued)

(Unaudited)

(In thousands, except share and per share data)

    

    

Accumulated

    

    

Additional

other

Total

Non-

Common stock

Treasury Stock

paid- 

Accumulated

comprehensive

Company

controlling

Total

    

Shares

    

Amount

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

Issuance of Common Stock for services

223,637

2

318

320

320

Issuance of restricted stock

27,983

Foreign currency translation

5

5

5

Net loss for the period

(4,467)

(4,467)

(263)

(4,730)

Stock-based compensation

267

267

61

328

Redemption of certain noncontrolling interests

(133)

(133)

June 30, 2021

105,534,002

$

1,055

$

$

493,453

$

(404,147)

$

(231)

$

90,130

$

3,552

$

93,682

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, 

    

2022

    

2021

Cash flows from operating activities

 

  

 

  

Net loss

$

(10,689)

$

(5,538)

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

 

2,765

 

1,690

(Gain)/loss on disposal of assets

 

(52)

 

22

Amortization of operating lease right of use asset

828

627

Non-employee stock based compensation

 

15

 

320

Stock-based compensation

 

2,863

 

1,333

Loss (gain) on equity investment

430

414

Changes in assets and liabilities:

 

 

Decrease (increase) in inventory

684

 

(674)

Decrease (increase) in accounts receivable

186

(546)

(Decrease) increase in deferred revenue

(1,027)

2,253

Other assets, current and non-current

(295)

 

(2,478)

Other liabilities, current and non-current

(2,803)

(1,518)

(Decrease) increase in accounts payable

(1,520)

 

2,281

Net cash used in operating activities

 

(8,615)

 

(1,814)

Cash flows from investing activities

 

  

 

Acquisition of property and equipment

 

(4,062)

 

(2,131)

Acquisition of HyperPointe net of cash assumed

(4,853)

Acquisition of software

 

(283)

 

(523)

Net cash used in investing activities

 

(9,198)

 

(2,654)

Cash flows from financing activities

 

 

Proceeds from direct offerings of Common Stock and warrants exercises, net of costs

17,007

Redemption of non-controlling interests

(133)

Repurchase of Common Stock

(12,116)

Contributions from noncontrolling interests

200

333

Payments for shares withheld on vesting

(73)

Repayment of Paycheck Protection Program

(3,584)

Distributions to noncontrolling interests

(956)

Net cash (used in) provided by financing activities

 

(16,529)

 

17,207

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

 

(56)

 

7

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

 

(34,398)

 

12,746

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

$

71,859

$

103,248

Cash paid for

 

 

Interest

$

10

$

Income taxes

2

$

Non-cash investing and financing transactions

 

 

Capital expenditures included in Accounts payable, accrued expenses and other

$

231

$

Issuance of Common Stock on acquisition 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 variable interest entities (“VIEs”) due to their equity holders having sufficient capital at risk; and the Company having a variable interest in and being a primary beneficiary of the PLLCs.

The Treat segment, which is operating through XpresSpa Group’s subsidiary Treat, Inc. (“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 and six months ended June 30, 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 the 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 $3,291 and $1,368 of the full $5,534 amount was recognized during the first half of 2022 and the fourth quarter of 2021, respectively. The Company anticipates that the remaining $875 of the full $5,534 amount will be realized in the third quarter of 2022.

XpresSpa

There are currently eighteen operating XpresSpa domestic locations and the Company expects to re-open four additional domestic locations in the near-term. During 2022, the Company sold its two franchise locations in Austin-Bergstrom International Airport. 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 its 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 its 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 later in 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 June 30, 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 June 30, 2022, the Company had cash and cash equivalents, excluding restricted cash, of $71,108, total current assets of $74,367, total current liabilities of $12,541 and positive working capital of $61,826 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 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 3. Variable Interest Entities), the Company determined that the PLLCs are variable interest entities due to their equity holders having insufficient capital at risk, and the Company having a variable interest and being the primary beneficiary of the PLLCs. As a result of this determination, the total revenue of the PLLCs is designated as revenue for the Company.  The performance obligation for this revenue is 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. Also, under the terms of Treat’s contracts with PLLCs, whereby the PLLCs as their performance obligations provide travel-related diagnostic testing for virus, cold, flu and other illnesses as well as hydration therapy, IV drips, and vitamin injections.  The Company determined that these PLLCs are variable interest entities due to their equity holders having insufficient capital at risk, and the Company having a variable interest and being the primary beneficiary of the PLLCs. As a result of this determination, the total revenue of the PLLCs is designated as revenue for the Company.  This  revenue is recognized at the point in time at which the service is performed by the PLLCs.

HyperPointe

The Company’s HyperPointe segment which we acquired in January 2022 (see Note 7. Acquisition of HyperPointe) provides broad range of service and support options for its 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 $191 as of June 30, 2022. HyperPointe had unbilled receivables of $60 included in Accounts Receivable as of June 30, 2022.

The Company excludes all sales taxes assessed to its 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

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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.

(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.

Note 3. 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 provides 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.

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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 shareholders 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 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 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 $1,638, included in Cash and Cash Equivalents, and $324 included in Accounts payable, accrued expenses and other, respectively, as of June 30, 2022. 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 $3,033, included in Cash and Cash Equivalents, and $683, included in Accounts payable, accrued expenses and other, respectively, as of December 31, 2021. The total revenue included on the consolidated statements of operations and comprehensive income (loss) for the PLLCs after elimination of intercompany transactions was $7,732 and $27,121 for the three months and six months ended June 30, 2022, respectively.

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Note 4. 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, 

    

2022

    

2021

    

2022

    

2021

Basic and diluted numerator:

 

  

 

  

 

  

 

  

Net loss attributable to XpresSpa Group, Inc.

$

(7,918)

$

(4,467)

$

(12,201)

$

(5,523)

Net loss attributable to common shareholders

$

(7,918)

$

(4,467)

$

(12,201)

$

(5,523)

Basic and diluted denominator:

 

 

  

 

 

  

Basic and diluted weighted average shares outstanding

 

95,352,025

 

105,398,359

 

98,458,153

 

103,240,406

Basic and diluted loss per share

$

(0.08)