UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31,June 30, 2017

 

¨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

 

FORM Holdings Corp.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware20-4988129

(State or other jurisdiction of

(I.R.S. Employer
incorporation or organization)

(I.R.S. Employer Identification No.)
  
780 Third Avenue, 12th Floor, New York, NY10017
(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 Name of each exchange on which registered
Common Stock, par value $0.01 per share The NASDAQ Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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 x     No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x     No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer¨Accelerated filer¨
    
Non-accelerated filer¨(Do (Do not check if a smaller reporting company)Smaller reporting companyx

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).¨

 

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    x

 

As of May 15,August 7, 2017, 19,565,53126,483,467 shares of the registrant’s common stock were outstanding.

 

 

 

 

FORM Holdings Corp. and Subsidiaries

 

Table of Contents

 

  Page
   
PART I. FINANCIAL INFORMATION3
   
Item 1.Condensed Consolidated Financial Statements3
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1619
Item 3.Quantitative and Qualitative Disclosures About Market Risk2026
Item 4.Controls and Procedures2026
   
PART II. OTHER INFORMATION2126
   
Item 1.Legal Proceedings2126
Item 1A.Risk Factors2126
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2128
Item 3.Defaults Upon Senior Securities2128
Item 4.Mine Safety Disclosures2128
Item 5.Other Information2128
Item 6.Exhibits29

 222

Part I- FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements

Item 1. Condensed Consolidated Financial Statements

 

FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

  

  March 31,
2017
(Unaudited)		  December 31,
2016		 
Current assets        
Cash and cash equivalents $11,673  $17,910 
Accounts receivable, net  1,726   449 
Inventory  2,918   2,943 
Other current assets  1,379   2,242 
Total current assets  17,696   23,544 
         
Restricted cash  476   638 
Property and equipment, net  16,226   16,467 
Intangible assets, net  15,488   15,610 
Goodwill  27,486   25,166 
Other assets  1,330   1,382 
Total assets $78,702  $82,807 
         
Current liabilities        
Accounts payable, accrued expenses and other current liabilities $10,497  $11,630 
Deferred revenue  328   143 
Total current liabilities  10,825   11,773 
         
Long-term liabilities        
Debt  6,500   6,500 
Derivative warrant liabilities  233   259 
Other liabilities  807   106 
Total liabilities  18,365   18,638 
Commitments and contingencies (see Note 10)        
         
Stockholders’ equity        
Series A Convertible Preferred stock, $0.01 par value per share; 500,000 shares authorized; 6,968 issued and none outstanding  —   — 
Series B Convertible Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; 1,666,667 issued and none outstanding  —   — 
Series C Junior Preferred stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding  —   — 
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; 491,427 issued and outstanding; liquidation value of $23,588  5   5 
Common stock, $0.01 par value per share; 150,000,000 shares authorized; 19,198,454 and 18,304,881 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively  192   183 
Additional paid-in capital  282,773   280,221 
Accumulated deficit  (227,293)  (220,868)
Accumulated other comprehensive loss  (57)  (13)
Total stockholders’ equity attributable to the Company  55,620   59,528 
Noncontrolling interests  4,717   4,641 
Total stockholders’ equity  60,337   64,169 
Total liabilities and stockholders’ equity $78,702  $82,807 

  June 30,
2017
(Unaudited)		  December 31,
2016		 
Current assets        
Cash and cash equivalents $7,958  $17,910 
Accounts receivable, net  2,216   404 
Inventory  4,327   2,890 
Other current assets  935   2,150 
Assets held for disposal  467   1,507 
Total current assets  15,903   24,861 
         
Restricted cash  476   638 
Property and equipment, net  14,377   16,284 
Intangible assets, net  14,475   15,233 
Goodwill  25,821   24,409 
Other assets  1,330   1,382 
Total assets $72,382  $82,807 
         
Current liabilities        
Accounts payable, accrued expenses and other current liabilities $11,437  $11,434 
Deferred revenue  201   133 
Liabilities held for disposal  97   206 
Total current liabilities  11,735   11,773 
         
Long-term liabilities        
Debt  6,500   6,500 
Derivative warrant liabilities  100   259 
Other liabilities  794   106 
Total liabilities  19,129   18,638 
Commitments and contingencies (see Note 11)        
         
Equity        
Series A Convertible Preferred stock, $0.01 par value per share; 500,000 shares authorized; 6,968 issued and none outstanding  —   — 
Series B Convertible Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; 1,666,667 issued and none outstanding  —   — 
Series C Junior Preferred stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding  —   — 

Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; 475,208 issued and 429,948 outstanding with a liquidation value of $20,638 as of June 30, 2017; 491,427 issued and outstanding with a liquidation value of $23,588 as of December 31, 2016

  4   5 
Common stock, $0.01 par value per share; 150,000,000 shares authorized; 19,565,531 and 18,304,881 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively  196   183 
Additional paid-in capital  282,603   280,221 
Accumulated deficit  (234,303)  (220,868)
Accumulated other comprehensive loss  (164)  (13)
Total equity attributable to the Company  48,336   59,528 
Noncontrolling interests  4,917   4,641 
Total equity  53,253   64,169 
Total liabilities and equity $72,382  $82,807 

 

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


3

FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

 

 Three months ended March 31,  Three months ended June 30, Six months ended June 30, 
 2017  2016  2017 2016 2017 2016 
Revenue                 
Wellness $10,984  $—  $12,927 $— $23,911 $— 
Technology  3,525   1,294  3,450 2,450 6,941 3,727 
Intellectual property  100   750   —  8,900  100  9,650 
Total revenue  14,609   2,044   16,377  11,350  30,952  13,377 
                 
Cost of sales                 
Wellness  8,835   —  10,401 — 19,236 — 
Technology  2,960   1,127  2,690 2,180 5,618 3,304 
Intellectual property*  99   720   118  4,243  217  4,963 

Total cost of sales

  11,894   1,847  13,209 6,423 25,071 8,267 
Depreciation and amortization  1,899   851 
Depreciation, amortization and impairment 3,094 12,329 4,955 13,159 
General and administrative*  6,860   2,952   5,204  2,316  11,539  4,495 
Total expenses  20,653   5,650 
Operating loss  (6,044)  (3,606)
Non-operating income, net  111   337 
Total operating expenses  21,507  21,068  41,565  25,921 
Operating loss from continuing operations (5,130) (9,718) (10,613) (12,544)
Non-operating income (expense), net (50) 181 61 518 
Interest expense  (189)  (476) (178) (272) (367) (748)
Extinguishment of debt  —   (210)  —  —  —  (210)
Loss before income tax expense  (6,122)  (3,955)
Loss from continuing operations before income taxes (5,358) (9,809) (10,919) (12,984)
Income tax expense  (227)  —   —  —  (227)  — 
Consolidated net loss from continuing operations  (5,358)  (9,809)  (11,146)  (12,984)
Loss from discontinued operations before income taxes (1,552) (998) (2,113) (1,778)
Income tax expense  —  —  —  — 
Net loss from discontinued operations  (1,552)  (998)  (2,113)  (1,778)
Consolidated net loss  (6,349)  (3,955)  (6,910)  (10,807)  (13,259)  (14,762)
Net income attributable to noncontrolling interests  (76)  —   (100)  —  (176)  — 
Net loss attributable to the Company $(6,425) $(3,955) $(7,010) $(10,807) $(13,435) $(14,762)
                 
Consolidated net loss $(6,349) $(3,955)
Other comprehensive loss: foreign currency translation  (44)  — 
Consolidated net loss from continuing operations $(5,358) $(9,809) $(11,146) $(12,984)
Other comprehensive loss from continuing operations: foreign currency translations  (107)  —  (151)  — 
Comprehensive loss from continuing operations  (5,465)  (9,809)  (11,297)  (12,984)
Consolidated net loss from discontinued operations (1,552) (998) (2,113) (1,778)
Other comprehensive loss from discontinued operations: foreign currency translations  —  —  —  — 
Comprehensive loss from discontinued operations  (1,552)  (998)  (2,113)  (1,778)
Comprehensive loss $(6,393) $(3,955) $(7,017) $(10,807) $(13,410) $(14,762)
                 
Loss per share:                 
Basic net loss per share $(0.34) $(0.28)
Diluted net loss per share $(0.34) $(0.28)
Basic and diluted net loss per share         
Loss per share from continuing operations $(0.28) $(0.65) $(0.59) $(0.89)
Loss per share from discontinued operations  (0.08)  (0.07)  (0.11)  (0.12)
Total basic and diluted net loss per share $(0.36) $(0.72) $(0.70) $(1.01)
Weighted-average number of shares outstanding during the period:                 
Basic  18,862,715   14,158,680   19,310,994  14,993,686  19,178,769  14,576,183 
Diluted  18,862,715   14,158,680   19,310,994  14,993,686  19,178,769  14,576,183 
         
*Includes stock-based compensation expense, as follows:                 
Intellectual property costs $—  $68 
Intellectual property $— $64 $— $132 
General and administrative  741   395   732  435  1,473  830 
Total stock-based compensation expense $741  $463  $732 $499 $1,473 $962 

 

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


4

FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

  Common
stock		  Preferred
stock		  Additional
paid-
in capital		  Accumulated
deficit		  Accumulated other
comprehensive loss		  Total
FORM equity		  Non-
controlling
interest		  Total equity 
December 31, 2016 $183  $5  $280,221  $(220,868) $(13) $59,528  $4,641  $64,169 
Issuance of common stock for services  —   —   11   —   —   11   —   11 
Shares of common stock issued for the acquisition of Excalibur  9   —   1,800   —   —   1,809   —   1,809 
Stock-based compensation  —   —   741   —   —   741   —   741 
Net loss for the period  —   —   —   (6,425)  —   (6,425)  —   (6,425)
Foreign currency translation  —   —   —   —   (44)  (44)  —   (44)
Noncontrolling interests  —   —   —   —   —   —   76   76 
March 31, 2017 $192  $5  $282,773  $(227,293) $(57) $55,620  $4,717  $60,337 

 

  Common
stock		  Preferred
stock		  Additional
paid-
in capital		  Accumulated
deficit		  Accumulated other
comprehensive loss		  Total
FORM equity		  Non-
controlling
interest		  Total equity 
December 31, 2015 $132  $—  $237,246  $(196,862) $—  $40,516  $—  $40,516 
Issuance of common stock for repayment of convertible debt and related interest  18   —   2,978   —   —   2,996   —   2,996 
Stock-based compensation  —   —   463   —   —   463   —   463 
Net loss for the period  —   —   —   (3,955)  —   (3,955)  —   (3,955)
March 31, 2016 $150  $—  $240,687  $(200,817) $—  $40,020  $—  $40,020 

  Common
stock		  Preferred
stock		  Additional
paid-
in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
loss		  Total
FORM
equity		  Non
controlling
interests		  Total
equity		 
December 31, 2016 $183  $5  $280,221  $(220,868) $(13) $59,528  $4,641  $64,169 
Issuance of common stock for services  —   —   20   —   —   20   —   20 
Shares of common stock issued for the acquisition of Excalibur  9   —   1,800   —   —   1,809   —   1,809 
Decrease in shares of preferred stock issued to XpresSpa sellers  —   —   (908)  —   —   (908)  —   (908)
Conversion of preferred stock to common stock  4   (1)  (3)  —   —   —   —   — 
Stock-based compensation  —   —   1,473   —   —   1,473   —   1,473 
Net loss for the period  —   —   —   (13,435)  —   (13,435)  176   (13,259)
Foreign currency translation  —   —   —   —   (151)  (151)  —   (151)
Contributions from
noncontrolling interests		  —   —   —   —   —   —   100   100 
June 30, 2017 $196  $4  $282,603  $(234,303) $(164) $48,336  $4,917  $53,253 

  Common
stock		  Preferred
stock		  Additional
paid-
in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
loss		  Total
FORM
equity		  Non
controlling
interests		  Total
equity		 
December 31, 2015 $132  $—  $237,246  $(196,862) $—  $40,516  $—  $40,516 
Issuance of common stock forrepayment of convertible debt and related interest  18   —   2,978   —   —   2,996   —   2,996 
Stock-based compensation  —   —   962   —   —   962   —   962 
Net loss for the period  —   —   —   (14,762)  —   (14,762)  —   (14,762)
June 30, 2016 $150  $—  $241,186  $(211,624) $—  $29,712  $—  $29,712 

  

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

 

5 

5

 

 

FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

  Three months ended March 31, 
  2017  2016 
Cash flows from operating activities        
Consolidated net loss $(6,349) $(3,955)
Adjustments to reconcile consolidated net loss to net cash used in operating activities:        
Items not affecting cash flows        
Depreciation and amortization  1,899   851 
Amortization of debt discount and debt issuance costs  —   414 
Stock-based compensation  741   463 
Amendment to warrants as part of debt modification  —   (281)
Loss on extinguishment of debt  —   356 
Issuance of shares of common stock for services  11   — 
Change in fair value of derivative warrant liabilities and conversion feature  (26)  11 
Exchange rate gain, net  —   (86)
Changes in current assets and liabilities net of effects of acquisition        
Increase in accounts receivable  (742)  (814)
Decrease (increase) in inventory  76   (96)
Decrease in other current assets and other assets  1,121   239 
Decrease in accounts payable, accrued expenses and other current liabilities  (1,693)  (2,490)
Increase in deferred revenue  65   193 
Decrease in other liabilities  (2)  (234)
Net cash used in operating activities  (4,899)  (5,429)
Cash flows from investing activities        
Cash acquired as part of acquisition(1)  26   — 
Acquisition of property and equipment  (895)  — 
Acquisition of software  (64)  (86)
Decrease in deposits  —   1,173 
Net cash provided by (used in) investing activities  (933)  1,087 
Cash flows from financing activities        
Repayment of line of credit  (361)  — 
Debt issuance costs  —   (50)
Net cash used in financing activities  (361)  (50)
Effect of exchange rate changes and foreign currency translation  (44)  1 
Decrease in cash and cash equivalents  (6,237)  (4,391)
Cash and cash equivalents at beginning of period  17,910   24,951 
Cash and cash equivalents at end of period $11,673  $20,560 
Cash paid during the period for        
Interest $150  $— 
Noncash investing and financing transactions        
Issuance of common stock to repay debt and interest  —   2,996 
         
(1) Cash acquired as part of acquisition        
Working capital (excluding cash and cash equivalents)  79   — 
Property and equipment  (21)  — 
Intangible assets  (556)  — 
Goodwill  (2,320)  — 
Deferred tax assets  (29)  — 
Line of credit with interest  361   — 
Other liabilities  387   — 
Fair value of shares of common stock issued  1,809   — 
Fair value of contingent liability  316   — 
   26   — 

  Six months ended June 30, 
  2017  2016 
Cash flows from operating activities        
Consolidated net loss $(13,259) $(14,762)
Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities:        
Items not affecting cash flows        
Depreciation and amortization  4,955   1,222 
Impairment of intangible assets  —   11,937 
Amortization of debt discount and debt issuance costs  —   660 
Stock-based compensation  1,473   962 
Amendment to warrants as part of debt modification  —   (281)
Extinguishment of debt  —   356 
Issuance of shares of common stock for services  20   — 
Change in fair value of derivative warrant liabilities and conversion feature  (159)  (87)
Exchange rate loss (gain), net  —   (75)
Changes in current assets and liabilities net of effects of acquisition        
Increase in accounts receivable  (1,277)  (139)
Increase in inventory  (1,386)  (32)
Decrease in other current assets and other assets  1,473   443 
Increase (decrease) in accounts payable, accrued expenses and other current liabilities  (557)  375 
Increase (decrease) in deferred revenue  (52)  146 
Decrease in other liabilities  (15)  (246)
Net cash provided by (used in) operating activities – continuing operations  (8,784)  479 
Net cash provided by operating activities - discontinued operations  931   219 
Net cash provided by (used in) operating activities  (7,853)  698 
Cash flows from investing activities        
Cash acquired as part of acquisition  26   — 
Acquisition of property and equipment  (1,565)  (151)
Acquisition of software  (148)  — 
Decrease in deposits  —   2,001 
Net cash provided by (used in) investing activities  (1,687)  1,850 
Cash flows from financing activities        
Repayment of line of credit  (361)  — 
Net contributions from noncontrolling interests  100   — 
Debt issuance costs  —   (50)
Net cash used in financing activities  (261)  (50)
Effect of exchange rate changes on cash and cash equivalents  (151)  — 
Increase (decrease) in cash and cash equivalents  (9,952)  2,498 
Cash and cash equivalents at beginning of period  17,910   24,951 
Cash and cash equivalents at end of period $7,958  $27,449 
Cash paid during the period for        
Interest $430  $40 
         
Noncash investing and financing transactions        
Issuance of common stock to repay debt and interest  —   2,996 

     

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

 

6 

6

 

 

FORM Holdings Corp. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for share and per share data)

 

Note 1. General

 

FORM Holdings Corp. (“FORM” or the “Company”) is a holding company of small to middle market growth companies. The Company has three operating segments: wellness, technology and intellectual property.

 

The Company’s wellness operating segment consists of XpresSpa, which is a leading airport retailer of spa services. XpresSpa is a well-recognized airport spa brand with 5352 locations, in 40 terminalsincluding 48 domestic and 22 airports in the United States, Netherlands, and United Arab Emirates.4 international, as of June 30, 2017. XpresSpa offers travelers premium spa services, including massage, nail and hair as well as spa and travel products. The Company acquired XpresSpa in the fourth quarter of 2016.

 

The Company’s technology operating segment consists of Group Mobile and FLI Charge as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation and deployment services. FLI Charge offers wireless conductive charging and power solutions for electronic devices. The Company acquired Group Mobile and FLI Charge in the fourth quarter of 2015 and Excalibur Integrated Systems Inc. (“Excalibur”), which was merged with Group Mobile, in the first quarter of 2017. The Company’s equity interest in InfoMedia increased from 8.25% to 11% in the first quarter of 2017 due to a realignment of ownership interests.

As further detailed in Note 10 “Discontinued Operations and Assets and Liabilities Held for Disposal,” during June 2017, the Company concluded that the requirement to report the results of FLI Charge as discontinued operations was triggered.

The Company is currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. The Company is seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.

 

The Company’s intellectual property operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.

Note 2. Accounting and Reporting Policies

 

(a) Basis of presentation and principles of consolidation

 

The accompanying interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Rule 10-01 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, 2016. 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-month periodthree and six-month periods ended March 31,June 30, 2017 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.

 

(b) Use of estimates

 

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s intangible assets, the useful lives of the Company’s intangible assets, the valuation of the Company’s derivative warrants, the valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties, and other contingencies.

 

(c) Revenue recognition

 

The Company recognizes revenue for the wellness operating segment from the sale of XpresSpa products and services at the point of sale, net of discounts and applicable sales taxes. Revenues from the XpresSpa wholesale and e-commerce businesses are recorded at the time goods are shipped. The Company excludes all sales taxes assessed to its customers. Sales taxes assessed on revenues are included in accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheets until remitted to the state agencies.

 

The Company records revenue from product sales in the technology operating segment when title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for sale, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. The Company’s shipping terms typically specify F.O.B. destination, at which time title and risk of loss have passed to the customer. At the time of sale of hardware products, the Company records an estimate for sales returns and allowances based on historical experience. Hardware products sold by the Company are warranted by the vendor.

7

 

The Company has drop-shipment arrangements with many of its hardware vendors and suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements is recorded on a gross basis upon delivery to the customer with contract terms that typically specify F.O.B. destination. Revenue is recognized on a gross basis, as the Company is the principal in the transaction, as the primary obligor in the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price of the product to the customer, assumes credit risk for the amounts invoiced, and works closely with the customers to determine their hardware specifications.

 

Freight billed to customers is recognized as net product revenue and the related freight costs as a cost of sales.

 

On certain occasions, the Company’s technology operating segment will enter into a bill and hold arrangement with a customer. When this occurs, the Company makes a determination as to when it will be the proper time to recognize revenue. In doing so, the Company takes the following into consideration:

 

whether the risks of ownership have passed to the customer;

 

the customer must have made a fixed commitment to purchase the goods;

 

the customer must request and have a substantial business purpose for ordering on a bill and hold basis;

 

there must be a fixed schedule for delivery that is reasonable and consistent with the customer’s business purpose;

 

the Company cannot retain any specific performance obligations that would make the earnings process incomplete;

 

the goods must be segregated from remaining inventory (i.e., they cannot be used to fill orders for others); and

 

the goods must be complete and ready for shipment.

 

For multiple-element arrangements in the Company’s technology operating segment that include hardware products, services and maintenance, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.

 

Revenue from patent licensing is recognized if collectability is reasonably assured, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery of the service has been rendered. Currently, revenue arrangements related to intellectual property provide for the payment of contractually determined fees and other consideration for the grant of certain intellectual property rights related to the Company’s patents. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patents, (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, the Company has no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the related technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, upon receipt of the upfront fee, and when all other revenue recognition criteria have been met.

 

8


(d) Cost of sales

 

Cost of sales for the Company’s wellness operating segment consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations and include:

 

payroll and related benefits for store operations and store-level management;

  

rent, percentage rent and occupancy costs;

 

the cost of merchandise;

 

freight, shipping and handling costs;

 

production costs;

 

inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part of acquisition; and

 

costs associated with sourcing operations.

 

Cost of sales for the Company’s technology operating segment includes costs to acquire or manufacture goods for inventory.

 

Cost of sales for the Company’s intellectual property operating segment mainly includes expenses incurred in connection with the Company’s patent licensing and enforcement activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.

 

(e) Recently adopted accounting pronouncements

ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (“ASU 2017-01”) “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. The Company adopted ASU 2017-01 as of January 1, 2017 on a prospective basis.

 

(f) Recent issued accounting pronouncements not yet adopted

 

ASU No. 2017-04, Intangibles –- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (“ASU 2017-04”) “Intangibles –- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019; early adoption is permitted. The Company currently anticipates that the adoption of ASU 2017-04 will not have a material impact on its consolidated financial statements.

 

ASU No. 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting

In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (“ASU 2017-09”) “Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment awareaward require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017; early adoption is permitted. The Company is currently in the process of evaluating the potential impact of the adoption on its consolidated financial statements.

 

(g) Reclassification

 

Certain balances have been reclassified to conform to presentation requirements, including presentation of discontinued operations and assets and liabilities held for disposal with respect to the Company’s FLI Charge business (refer to Note 10), as well as consistent presentation of cost of sales and general and administrative expenses to align presentation for operating segments.

 

Note 3. Net Loss per Share of Common Stock

Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. However, as the Company generated a net loss in all periods presented, some potentially dilutive securities, including certain warrants and stock options, were not reflected in diluted net loss per share because the impact of such instruments was anti-dilutive.

9

 

The table below presents the computation of basic and diluted net lossesloss per share of common stock:

 

  Three months ended March 31, 
  2017  2016 
Basic numerator:        
Net loss attributable to shares of common stock $(6,425) $(3,955)
Basic denominator:        
Basic shares of common stock outstanding  18,862,715   14,158,680 
Basic net loss per share of common stock $(0.34) $(0.28)
         
Diluted numerator:        
Diluted net loss attributable to shares of common stock $(6,425) $(3,955)
Diluted denominator:        
Diluted shares of common stock outstanding  18,862,715   14,158,680 
Diluted net loss per share of common stock $(0.34) $(0.28)
         
Net loss per share data presented excludes from the calculation of diluted net loss the following potentially dilutive securities, as they had an anti-dilutive impact:        
Both vested and unvested options to purchase an equal number of shares of common stock of the Company  5,138,732   862,484 
Unvested restricted stock units (“RSUs”) to issue an equal number of shares of common stock of the Company  400,942   25,620 
Warrants to purchase an equal number of shares of common stock of the Company  3,430,877   1,006,679 
Preferred stock on an as converted basis  3,931,416   — 
Conversion feature of notes  —   318,924 
Total number of potentially dilutive instruments excluded from the calculation of net loss per share of common stock  12,901,967   2,213,707 


  Three months ended June 30,  Six months ended June 30, 
  2017  2016  2017  2016 
Basic numerator:                
Net loss from continuing operations attributable to shares of common stock $(5,458) $(9,809) $(11,322) $(12,984)
Net loss from discontinued operations attributable to shares of common stock  (1,552)  (998)  (2,113)  (1,778)
Net loss attributable to shares of common stock $(7,010) $(10,807) $(13,435) $(14,762)
Basic denominator:                
Basic shares of common stock outstanding  19,310,994   14,993,686   19,178,769   14,576,183 
Basic loss per share of common stock from continuing operations $(0.28) $(0.65) $(0.59) $(0.89)
Basic loss per share of common stock from discontinued operations  (0.08)  (0.07)  (0.11)  (0.12)
Basic net loss per share of common stock $(0.36) $(0.72) $(0.70) $(1.01)
                 
Diluted numerator:                
Net loss from continuing operations attributable to shares of common stock $(5,458) $(9,809) $(11,322) $(12,984)
Net loss from discontinued operations attributable to shares of common stock  (1,552)  (998)  (2,113)  (1,778)
Net loss attributable to shares of common stock $(7,010) $(10,807) $(13,435) $(14,762)
Diluted denominator:                
Diluted shares of common stock outstanding  19,310,994   14,993,686   19,178,769   14,576,183 
Diluted loss per share of common stock from continuing operations $(0.28) $(0.65) $(0.59) $(0.89)
Diluted loss per share of common stock from discontinued operations  (0.08)  (0.07)  (0.11)  (0.12)
Diluted net loss per share of common stock $(0.36) $(0.72) $(0.70) $(1.01)
                 
Net loss per share data presented excludes from the calculation of diluted net loss the following potentially dilutive securities, as they had an anti-dilutive impact:                
Both vested and unvested options to purchase an equal number of shares of common stock of the Company  5,135,399   1,492,434   5,135,399   1,492,434 
Unvested restricted stock units (“RSUs”) to issue an equal number of shares of common stock of the Company  400,942   7,808   400,942   7,808 
Warrants to purchase an equal number of shares of common stock of the Company  3,430,877   1,006,679   3,430,877   1,006,679 
Preferred stock on an as converted basis  3,439,587   —   3,620,626   — 
Conversion feature of senior secured notes  —   —   —   159,462 
Total number of potentially dilutive instruments, excluded from the calculation of net loss per share  12,406,805   2,506,921   12,587,844   2,666,383 

Note 4. Business CombinationCombinations

 

XpresSpa

During the three months ended June 30, 2017, the Company learned new information about legal and other professional costs which existed as of the acquisition date of XpresSpa. As a result, the Company and the sellers of XpresSpa (the “XpresSpa Sellers”) agreed to reduce the total amount of Series D Convertible Preferred Stock (“FORM Preferred Stock”), which was previously issued to the XpresSpa Sellers in conjunction with the acquisition of XpresSpa. The Company reduced the number of the FORM Preferred Stock by 16,219 shares and estimated that the fair value of the reduction of the consideration was $908, which was recorded as a reduction of preferred equity and goodwill.

Additionally, during the three months ended June 30, 2017, certain XpresSpa Sellers converted 45,260 shares of their FORM Preferred Stock into 362,077 shares of the Company’s common stock, par value $0.01 per share.

As a result of these events, the total number of shares of FORM Preferred Stock was reduced from 491,427 as of December 31, 2016 to 429,948 shares as of June 30, 2017 and the face value (and liquidation preference) was reduced from $23,588 to $20,638.

Group Mobile

On February 2, 2017, the Company acquired Excalibur, which is an end-to-end solutions provider of mobile hardware devices, wireless network security, data networking, telephony and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within the Company’s technology operating segment.

 

In consideration for the acquisition, the Company issued 888,573 unregistered shares of the Company’s common stock, par value $0.01 per share, to the former stockholders of Excalibur (the “Excalibur Sellers”). In addition, the Excalibur Sellers will, in the three years following the closing of this transaction, also receive $500 for each $2,000 of gross profit generated by a specified list of Excalibur accounts annually, until such cumulative gross profit reaches $6,000, and an additional $500 when such cumulative profit reaches $10,000, such amounts are payable in either cash or the Company’s common stock, at the election of the Company.

 

The fair value of the total purchase price is $2,125 and includes a fair value of contingent consideration of $316 and fair value of unregistered shares of common stock issued of $1,809.

10

 

Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The purchase price for the acquisition was allocated to the net tangible and intangible assets based on their fair values as of the acquisition date. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill. The table below presents preliminary allocation of the purchase price:

 

  Fair Value 
Assets    
Current assets (including cash of $26) $628 
Deferred tax assets  29 
Property and equipment  21 
Intangible assets  556 
Goodwill  2,320 
Total assets  3,554 
     
Liabilities    
Accounts payable and accrued expenses  1,214 
Deferred tax liabilities  215 
Total liabilities  1,429 
Net assets, fair value $2,125 

 

The allocation of the purchase price was based upon a preliminary valuation performed using the Company's estimates and assumptions, which are subject to change within the measurement period (up to one year from the acquisition date).

 

Note 5. Segment Information

 

Prior to January 1, 2017, the Company had four operating segments: XpresSpa, which was acquired on December 23, 2016, Group Mobile, FLI Charge and intellectual property. Following the acquisitions of XpresSpa in December 2016 and Excalibur in February 2017, the Company re-evaluated the operating segments and roles within the executive team to better align financial and human capital resources. The Company’s operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company concluded that it conducts its business through three operating segments, which are also its reportable segments: wellness, technology and intellectual property.

 


wellness (XpresSpa);

technology (Group Mobile); and

intellectual property

Segment operating results reflect losses before corporate and unallocated shared expenses, interest expense and income taxes and noncontrolling interests.taxes. Corporate and unallocated shared expenses principally consist of costs for corporate functions, rent for office space, stock-based compensation, executive management and certain unallocated administrative support functions.

  Three months ended June 30,  Six months ended June 30, 
  2017  2016  2017  2016 
Revenue                
Wellness $12,927  $—  $23,911  $— 
Technology  3,450   2,450   6,941   3,727 
Intellectual property  —   8,900   100   9,650 
Total revenue  16,377   11,350   30,952   13,377 
                 
Cost of sales                
Wellness  10,401   —   19,236   — 
Technology  2,690   2,180   5,618   3,304 
Intellectual property  118   4,243   217   4,963 
Total cost of sales  13,209   6,423   25,071   8,267 
                 
Segment operating loss                
Wellness  (1,992)  —   (4,363)  — 
Technology  (742)  (327)  (1,656)  (648)
Intellectual property  (126)  (7,577)  (131)  (8,280)
Corporate  (2,270)  (1,814)  (4,463)  (3,616)
Total segment operating loss  (5,130)  (9,718)  (10,613)  (12,544)
Corporate non-operating expense, net  (228)  (91)  (306)  (440)
Loss from continuing operations before income taxes $(5,358) $(9,809) $(10,919) $(12,984)

 

  Three months ended March 31, 
  2017  2016 
Revenue        
Wellness $10,984  $— 
Technology  3,525   1,294 
Intellectual property  100   750 
Total revenue $14,609  $2,044 
         

Cost of sales

        
Wellness $8,835  $— 
Technology  2,960   1,127 
Intellectual property  99   720 

Total cost of sales

 $11,894  $1,847 
         
Segment operating loss        
Wellness $(2,371) $— 
Technology  (1,475)  (1,101)
Intellectual property  (5)  (703)
Corporate  (2,193)  (1,802)
Total segment operating loss  (6,044)  (3,606)
Non-operating expense, net  (78)  (349)
Loss before income tax expense $(6,122) $(3,955)
11

 

   March 31,
2017		   December 31, 2016 
Assets        
Wellness $55,076  $57,527 
Technology  12,838   8,634 
Intellectual property  765   940 
Corporate  10,023   15,706 
Total assets $78,702  $82,807 

  June 30, 2017  December 31, 2016 
Assets        
Wellness $53,137  $57,527 
Technology  4,602   8,634 
Intellectual property  825   940 
Corporate  13,818   15,706 
Total assets $72,382  $82,807 

 

General and administrative costs are allocated among the operating segments and non-operating corporate segment. The non-operating corporate segment does not have any revenue, but does incur expenses such as compensation expenses, rent and infrastructure costs. The non-operating corporate segment’s assets are mainly comprised of cash.


The Company currently operates in two geographical segments:regions: United States and all other countries. The following table represents the geographical revenue, segmentregional operating loss, and total asset information as of and for the three and six months ended March 31,June 30, 2017 and 2016. There were no concentrations of geographical revenue, segmentregional operating loss or total assets related to any single foreign country that were material to the Company’s condensed consolidated financial statements.

 

  Three months ended March 31, 
  2017  2016 
Revenue        
United States $13,493  $2,044 
All other countries  1,116   — 
Total revenue $14,609  $2,044 
         

Cost of sales

        
United States $11,217  $1,847 
All other countries  677   — 

Total cost of sales

 $11,894  $1,847 
         

Segment operating income (loss)

        
United States $(6,234) $(3,606)
All other countries  190   — 
Total segment operating loss $(6,044) $(3,606)
Non-operating expense, net  (78)  (349)
Loss before income tax expense $(6,122) $(3,955)

  Three months ended June 30,  Six months ended June 30, 
  2017  2016  2017  2016 
Revenue                
United States $15,115  $11,350  $28,574  $13,377 
All other countries  1,262   —   2,378   — 
Total revenue  16,377   11,350   30,952   13,377 
                 
Cost of sales                
United States  12,384   6,423   23,569   8,267 
All other countries  825   —   1,502   — 
Total cost of sales  13,209   6,423   25,071   8,267 
                 
Segment operating income (loss)                
United States  (5,636)  (9,713)  (11,309)  (12,541)
All other countries  506   (5)  696   (3)
Total segment operating income (loss)  (5,130)  (9,718)  (10,613)  (12,544)
Corporate non-operating expense, net  (228)  (91)  (306)  (440)
Loss from continuing operations before income taxes $(5,358) $(9,809) $(10,919) $(12,984)

  

 March 31,
2017		  December 31,
2016		  June 30, 2017 December 31, 2016 
Assets             
United States $77,073  $80,053  $70,380 $80,053 
All other countries  1,629   2,754   2,002  2,754 
Total assets $78,702  $82,807  $72,382 $82,807 

12

 

Note 6. Fair Value Measurements

Derivative Warrant Liabilities

 

The following table presents the placement in the fair value hierarchy of derivate warrant liabilities measured at fair value on a recurring basis as of March 31,June 30, 2017 and December 31, 2016:

     Fair value measurement at reporting date using 
     Quoted prices in       
     active markets  Significant other  Significant 
     for identical  observable  unobservable 
  Balance  assets (Level 1)  inputs (Level 2)  inputs (Level 3) 
March 31, 2017:                
May 2015 Warrants $233  $—  $—  $233 
                 
December 31, 2016:                
May 2015 Warrants $259  $—  $—  $259 

 


     Fair value measurement at reporting date using 
     Quoted prices in       
     active markets  Significant other  Significant 
     for identical  observable  unobservable 
  Balance  assets (Level 1)  inputs (Level 2)  inputs (Level 3) 
June 30, 2017:                
May 2015 Warrants $100  $—  $—  $100 
                 
December 31, 2016:                
May 2015 Warrants $259  $—  $—  $259 

The Company measures its derivative warrant liabilities at fair value. The May 2015 Warrants were classified within Level 3 because they were valued using the Black-Scholes-Merton model, which utilizes significant inputs that are unobservable in the market. These derivative warrant liabilities were initially measured at fair value and are marked to market at each balance sheet date.

 

In addition to the above, the Company’s financial instruments as of March 31,June 30, 2017 and December 31, 2016 consisted of cash and cash equivalents, receivables, accounts payable and Debt. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term maturities of these instruments.

 

The following table summarizes the changes in the Company’s derivative warrant liabilities measured at fair value using significant unobservable inputs (Level 3) during the three month periodthree- and six-month periods ended March 31,June 30, 2017:

 

 May 2015
Warrants		  May 2015
Warrants		 
December 31, 2016 $259  $259 
Decrease in fair value of the derivative warrant liabilities  (26)  (159)
March 31, 2017 $233 
June 30, 2017 $100 

 

Valuation processes for Level 3 Fair Value Measurements

 

Fair value measurement of the derivative warrant liabilities falls within Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.

 

March 31,June 30, 2017:

 

Description Valuation technique Unobservable inputs Range 
May 2015 Warrants Black-Scholes-Merton Volatility  42.4742.12%
    Risk free interest rate  1.481.51%
    Expected term, in years  3.092.84 
    Dividend yield  0.00%

 

December 31, 2016:

 

Description Valuation technique Unobservable inputs Range 
May 2015 Warrants Black-Scholes-Merton Volatility  45.15%
    Risk-free interest rate  1.57%
    Expected term, in years  3.34 
    Dividend yield  0.00%

 

Sensitivity of Level 3 measurements to changes in significant unobservable inputs

 

The inputs to estimate the fair value of the Company’s derivative warrant liabilities were the current market price of the Company’s common stock, the exercise price of the derivative warrant liabilities, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

 

13

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the derivative warrant liabilities would each result in a directionally similar change in the estimated fair value of the Company’s derivative warrant liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the differential between the derivative warrant liabilities’ exercise price and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the derivative warrant liabilities due to the dividend assumption.

 


Other Fair Value Measurements

The following table presents the placement in the fair value hierarchy of shares of the contingent liabilityconsideration assumed by the Company following the acquisition of Excalibur, which is measured at fair value on February 2, 2017,a recurring basis, and the decrease in shares of FORM Preferred Stock issued to the XpresSpa Sellers, which was measured at fair value on a non-recurring basis as of March 31, 2017:April 4, 2017 (the “Valuation Date”):

 

     Fair value measurement at reporting date using 
     Quoted prices in       
     active markets  Significant other  Significant 
     for identical  observable  unobservable 
  Balance  assets (Level 1)  inputs (Level 2)  inputs (Level 3) 
March 31, 2017:                
Contingent liability $316  $—  $—  $316 
     Fair value measurement at reporting date using 
     Quoted prices in       
     active markets  Significant other  Significant 
     for identical  observable  unobservable 
  Balance  assets (Level 1)  inputs (Level 2)  inputs (Level 3) 
June 30, 2017:                
Contingent consideration $316  $—  $—  $316 
FORM Preferred Stock $908  $—  $—  $908 

 

The purchase consideration value of the contingent liabilityconsideration assumed by the Company following the acquisition of Excalibur on February 2, 2017 wasand the fair value of the decrease in shares of FORM Preferred Stock issued to the XpresSpa Sellers were determined using the Monte-Carlo simulation and, as such, waswere classified as Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.

Valuation processes for Level 3 Fair Value Measurements

To estimate the fair value of the decrease in shares of FORM Preferred Stock, the Monte-Carlo simulation was performed using the following variables:

Description Valuation technique Variables Range 
FORM Preferred Stock Monte-Carlo Share price as of the Valuation Date $1.95 
    Volatility  46.0%
    Risk free interest rate  2.22%

Additionally, the Monte-Carlo simulation used the value of the underlying equity value issued to XpresSpa Sellers on the date of the XpresSpa acquisition, December 23, 2016, which is comprised of the aggregation of the fair value of the shares of the Company’s common stock, shares of FORM Preferred Stock and warrants.

 

Note 7. Stock-based Compensation

 

As of March 31,June 30, 2017, 1,255,2701,258,603 shares of the Company’s common stock were available for future grants under the Company’s 2012 Employee, Director and Consultant Equity Incentive Plan. Total stock-based compensation expense for the six-month periods ended March 31,June 30, 2017 and 2016 was $741$1,473 and $463,$962, respectively. Total stock-based compensation expense for the three-month periods ended June 30, 2017 and 2016 was $732 and $499, respectively.

 

The following table illustrates the options granted during the three-monthsix-month period ended March 31,June 30, 2017.

 

Title Grant date 

No. of


options

 

Exercise


price

 

Fair value at


grant date

 Vesting terms 

Assumptions used in

Black-Scholes
Black-
Scholes option pricing


model

Directors, management, and employees January 2017 1,545,000 $2.12 – $2.15 $0.89 – $0.96 Over 1 year for directors; Over 3 years for management and employees 

Volatility: 44.27% – 44.90%

Risk free interest rate: 1.95% – 2.16%

Expected term, in years: 5.29 – 5.79

Dividend yield: 0.00%


 

The following table illustrates the RSUs granted during the three-monthsix-month period ended March 31,June 30, 2017.

 

Title Grant date No. of RSUs  Fair value at grant date  Vesting term
Management and employees January 2017  400,942  $2.12  Over 1 year period, vesting on 1 year anniversary of grant date

 

The activity related to stock options and RSUs during the three-monthsix-month period ended March 31,June 30, 2017 consisted of the following:

 

  RSUs  Options 
  No. of
RSUs		  Weighted
 average
grant date
fair value		  No. of
options		  Weighted
average
exercise price		  Exercise
price range		  Weighted 
average
grant date
fair value		 
Outstanding as of January 1, 2017  —   —   3,679,101  $7.60  $1.55 – 55.00  $5.41 
Granted  400,942  $2.12   1,545,000  $2.12  $2.12 – 2.15  $0.93 
Vested/Exercised  —   —   —   —   —   — 
Forfeited  —   —   (69,001) $25.92  $1.90 – 37.20  $17.58 
Expired  —   —   (16,368) $43.66  $9.94 – 55.00  $22.02 
Outstanding as of March 31, 2017  400,942  $2.12   5,138,732  $5.59  $1.55 – 41.00  $3.85 
Exercisable as of March 31, 2017  —   —   2,028,941  $11.39  $1.55 – 41.00     

  RSUs  Options 
  No. of
RSUs		  Weighted
 average
grant date
fair value		  No. of
options		  Weighted
average
exercise
price		  Exercise
price range		  Weighted 
average
grant date
fair value		 
Outstanding as of January 1, 2017  —   —   3,679,101  $7.60  $1.55 – 55.00  $5.41 
Granted  400,942  $2.12   1,545,000  $2.12  $2.12 – 2.15  $0.93 
Vested/Exercised  —   —   —   —   —   — 
Forfeited  —   —   (72,334) $24.80  $1.55 – 37.20  $16.81 
Expired  —   —   (16,368) $43.66  $9.94 – 55.00  $22.02 
Outstanding as of June 30, 2017  400,942  $2.12   5,135,399  $5.60  $1.55 – 41.00  $3.85 
Exercisable as of June 30, 2017  —      2,459,982  $9.72  $1.55 – 41.00     

 

15

On January 20, 2017, the Company entered into amended employment agreements with its named executive officers. Under the terms of somecertain of these agreements, certain of these officers are entitled to a percentage of the amount equal to the total amount of cash and the fair market value of all non-cashnoncash consideration paid or payable to the Company or its stockholders in connection with an initial public offering or a change of control of certain subsidiaries of the Company. The amended employment agreements also allow for the granting of equity awards to certain officers in connection with an initial public offering of certain subsidiaries of the Company.

 

The Company did not recognize tax benefits related to its stock-based compensation as there is a full valuation allowance recorded.

  


Note 8. Income Taxes

 

The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary. The income tax provisions for the quartersix months ended March 31,June 30, 2017 reflect an estimated global annual effective tax rate of approximately -7.27%-3.96% from continuing operations. Discontinued operations for the six months ended June 30, 2017 reflect an annual effective tax rate of 0.58%.

As of March 31,June 30, 2017, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit.

 

Income tax expense for the quartersix months ended March 31,June 30, 2017 of approximately $227 was attributable primarily to tax deductions related to goodwill, for which there is no corresponding financial statement amortization expense, partially offset by the reduction in the valuation allowance needed following the acquisition of Excalibur's deferred tax liability. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. Although the Company has an immaterial amount of uncertain tax positions, the Company does not expect to record any additional material provisions for unrecognized tax benefits with the next year.

 

Note 9. Related Parties Transactions

 

On April 22, 2015, XpresSpa entered ininto a credit agreement and secured promissory note (the “Debt”) with Rockmore Investment Master Fund Ltd. (“Rockmore”) on April 22, 2015 that was amended on August 8, 2016. Rockmore is an investment entity controlled by the Company’s board member, Bruce T. Bernstein. The Debt had an outstanding balance of $6,500 as of March 31,both June 30, 2017 and December 31, 2016, which is included in long-term liabilities in the condensed consolidated balance sheets. During the quartersix-month period ended March 31,June 30, 2017, XpresSpa paid $150$430 of interest and recorded $189$365 of interest expense. During May 2017, as per the original agreement and with Rockmore’s consent, the Company elected to extend the maturity date of the Debt from May 1, 2018 to May 1, 2019. No other material terms of the Debt were amended.modified.

 

In addition, the Company paid $212 to Mr. Bernstein duringin March 2017 for the legal costs incurred in conjunction with the acquisition of XpresSpa and certain legal proceedings related to litigation with Amiral Holdings SAS (“Amiral”) prior to the completion of such acquisition, as Mr. Bernstein was indemnified by XpresSpa and was a defendant in the Amiral legal proceedings. These costs are included in accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheet as of December 31, 2016.

16

Note 10. Discontinued Operations and Assets and Liabilities Held For Disposal

During June 2017, the Company concluded that the requirement to report the results of FLI Charge, a wholly-owned subsidiary included in its technology operating segment, as discontinued operations was triggered. The Company is currently negotiating the terms of an agreement to sell FLI Charge to a third-party investor in exchange for a minority investment in the form of shares of preferred stock in the newly created entity, which will own and operate FLI Charge. The Company will not be providing any continued management or financing support to FLI Charge. The transaction is expected to close in the third quarter of 2017. In connection with this agreement, a non-cash impairment loss of $1,092 relating to FLI Charge’s technology assets and goodwill was recorded as of June 30, 2017. The following table represents the components of operating results from discontinued operations, as presented in the condensed consolidated statements of operations and comprehensive loss:

  Three months ended June 30,  Six months ended June 30, 
  2017  2016  2017  2016 
Revenue $19   13   53  $29 
Cost of sales  (36)  —   (68)  (2)
Depreciation, amortization and impairment  (1,130)  (21)  (1,168)  (42)
General and administrative  (405)  (990)  (930)  (1,763)
Loss from discontinued operations before income taxes  (1,552)  (998)  (2,113)  (1,778)
Income tax expense  —   —   —   — 
Net loss from discontinued operations $(1,552) $(998) $(2,113) $(1,778)

In addition, the following table presents the carrying amounts of the major classes of assets and liabilities held for sale as of June 30, 2017 and December 31, 2016, as presented in the condensed consolidated balance sheets.

  June 30, 2017  December 31, 2016 
Accounts receivable, net $39  $45 
Inventory  208   53 
Other current assets  24   92 
Property and equipment, net  196   183 
Intangible assets, net  —   377 
Goodwill  —   757 
Assets held for disposal $467  $1,507 
         
Accounts payable, accrued expenses and other current liabilities $88  $196 
Deferred revenue  9   10 
Liabilities held for disposal $97  $206 

 

Note 10.11. Commitments and Contingencies

 

Litigation and legal proceedings

 

Certain of the Company’s outstanding legal matters include speculative claims for substantial or indeterminate amounts of damages. The Company regularly evaluates developments in its legal matters that could affect the amount of any potential liability and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being a liability and the estimated amount of a loss related to such matters.

 

With respect to the Company’s outstanding legal matters, based on its current knowledge, the Company’s management believes that the amount or range of a potential loss will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company evaluated the matters described below, and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company recorded $650, which is included in accounts payable, accrued expenses, and other current liabilities in the condensed consolidated balance sheet as of March 31,June 30, 2017.

 

The Company expenses legal fees in the period in which they are incurred.

 

14 

17

 

 

Wellness

Cordial

Effective October 2014, XpresSpa terminated its former Airport Concession Disadvantaged Business Enterprise (“ACDBE”) partner, Cordial Endeavor Concessions of Atlanta, LLC (“Cordial”), in several store locations at Hartsfield-Jackson Atlanta International Airport.

 

On January 3, 2017, XpresSpa filed a lawsuit in the Supreme Court of the State of New York, County of New York against Cordial and several related parties. The lawsuit alleges breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and breach of good faith and fair dealing related to XpresSpa’s former partnership with Cordial as XpresSpa’s ACDBE partner in several store locations at Hartsfield-Jackson Atlanta International Airport (the “Cordial Litigation”). On March 3, 2017, XpresSpa filed a first amended complaint against Cordial. On MarchApril 5, 2017, Cordial filed a motion to dismiss the Cordial Litigation.

 

On January 4, 2017, XpresSpa filed a lawsuit in the United States District Court for the Southern District of New York against its former attorney, Kevin Ross, and his law firm, alleging malpractice, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and promissory estoppel related to XpresSpa’s former partnership with Cordial, as well as XpresSpa’s engagement of Kevin Ross as its attorney (the “Ross Litigation”). On March 2, 2017, the defendants filed a letter with the Court requesting a pre-motion conference in anticipation of the defendants’ filing of a motion to dismiss. On March 17, 2017, XpresSpa filed a First Amended Complaint against the defendants.

On June 2, 2017, the Ross Defendants filed their answer.

 

Both the Cordial Litigation and Ross Litigation are pending before the respective courts; no schedule has been set in either matter.courts.

 

In re Chen et al.

On March 16, 2015, four former employees of XpresSpa who worked at locations in John F. Kennedy International Airport and LaGuardia Airport filed a putative class and collective action wage-hour litigation in the United States District Court for the Eastern District of New York, claiming that they and other spa technicians were misclassified, and that overtime was unpaid. On September 23, 2016, the Court conditionally certified the class. The parties held a mediation on February 28, 2017 and reached an agreement on a settlement in principle. The parties are in the process of draftingfinalizing a formal settlement agreement, incorporatingand preparing a motion to the agreed-upon terms.Court for preliminary approval of a classwide settlement.

 

Other

 

XpresSpa is involved in various other claims and legal actions that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on XpresSpa’s financial position, results of operations, liquidity, or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than the Company currently anticipates, could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows.

 

Intellectual Property

The Company’s intellectual property operating segment is engaged in litigation, for which no liability is recorded, as the Company does not expect a material negative outcome.

Note 12. Subsequent Events

On July 26, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, acting as the representative of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 6,900,000 shares of the Company’s common stock, par value $0.01 per share (“FORM Common Stock”) including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from the Company pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. The net proceeds to the Company from the Offering were approximately $6,700 after deducting underwriting discounts and commissions and other estimated offering expenses.

 

15 

18

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipates,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “will be,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed on March 30, 2017 (the “2016 Annual Report”) and this Quarterly Report on Form 10-Q and any future reports we file with the Securities and Exchange Commission (“SEC”). The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by law.

All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to FORM Holdings Corp. (prior to May 5, 2016, known as “Vringo, Inc.”), a Delaware corporation, and its condensed consolidated subsidiaries.

 

Overview

 

FORM Holdings Corp. (“FORM” or the “Company”) is a holding company of small to middle market growth companies. We havehas three operating segments: wellness, technology and intellectual property.

 

Our wellness operating segment consists of XpresSpa, which is a leading airport retailer of spa services. XpresSpa is a well-recognized airport spa brand with 5352 locations, in 40 terminalsincluding 48 domestic and 22 airports in the United States, Netherlands, and United Arab Emirates.4 international, as of June 30, 2017. XpresSpa offers travelers premium spa services, including massage, nail and hair as well as spa and travel products. We acquired XpresSpa in the fourth quarter of 2016.

 

Our technology operating segment consists of Group Mobile and FLI Charge as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation and deployment services. FLI Charge offers wireless conductive charging and power solutions for electronic devices. We acquired Group Mobile and FLI Charge in the fourth quarter of 2015. Our equity interest in InfoMedia increased from 8.25% to 11% inIn the first quarter of 2017 due to a realignment of ownership interests.

On February 2, 2017, we completed the acquisition of Excalibur Integrated Systems, Inc. (“Excalibur”). On that date, we acquired 100% of the capital stock of Excalibur, which is an end-to-end solutions provider of mobile hardware devices, wireless network security, data networking, telephony and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within our technology operating segment. Our equity interest in InfoMedia, which is accounted for under the cost method of investment, increased from 8.25% to 11% in the first quarter of 2017 due to a realignment of ownership interests.

 

In consideration

As of June 30, 2017, our FLI Charge business is reflected as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and assets held for the acquisition, we issueddisposal and liabilities held for disposal in our condensed consolidated balance sheets as a result of an offer from a third party to the former stockholdersfinance its ongoing operations.

We are currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Excalibur (the “Excalibur Sellers”) an aggregateGroup Mobile or other forms of 888,573 unregistered shares of our common stock, par value $0.01 per share. The Excalibur Sellers will,business combinations or strategic transactions. We are seeking to enter into one or more strategic transactions involving Group Mobile in the three years following the closingfirst quarter of this transaction, also receive $500,000 for each $2,000,000 of gross profit generated by a specified list of Excalibur accounts annually, until such cumulative gross profit reaches $6,000,000, and an additional $500,000 when such cumulative profit reaches $10,000,000, such amounts payable in either cash or shares of our common stock, at our election.2018.

 

Our intellectual property operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.

 

2017 Highlights

  Three Months Ended March 31, 2017 
  Corporate  Wellness  Technology  Intellectual
Property		  Total 
Total revenue $—  $10,984,000  $3,525,000  $100,000  $14,609,000 
                     
Cost of sales                    
Products  —   912,000   2,960,000   —   3,872,000 
Labor  —   5,309,000   —   —   5,309,000 
Occupancy  —   1,771,000   —   —   1,771,000 
Other operating costs  —   843,000   —   99,000   942,000 
Total cost of sales  —   8,835,000   2,960,000   99,000   11,894,000 
                     
Gross profit  —   2,149,000   565,000   1,000   2,715,000 
Gross profit as a % of total revenue  —   19.6%  16.0%  1.0%  18.6%
                     
Depreciation and amortization                    
Depreciation  5,000   1,129,000   23,000   —   1,157,000 
Amortization  —   586,000   150,000   6,000   742,000 
Total depreciation and amortization  5,000   1,715,000   173,000   6,000   1,899,000 
                     
Stock-based compensation  741,000   —   —   —   741,000 
Merger and acquisition and integration costs  42,000   484,000   —   —   526,000 
Other general and administrative  1,405,000   2,321,000   1,867,000   —   5,593,000 
Total general and administrative  2,188,000   2,805,000   1,867,000   —   6,860,000 
                     
Operating loss $(2,193,000) $(2,371,000) $(1,475,000) $(5,000) $(6,044,000)

Subsequent to June 30, 2017, we completed a public offering of 6,900,000 shares of our common stock, at $1.10 per share, for net proceeds of approximately $6.7 million.

 

Prior

19

Second Quarter 2017 Highlights

  Three Months Ended June 30, 2017 
  Wellness  Technology  Intellectual
Property		  Corporate  Total 
Total revenue $12,927,000  $3,450,000  $—  $—  $16,377,000 
                     
Cost of sales                    
Products  1,124,000   2,690,000   —   —   3,814,000 
Labor  5,783,000   —   —   —   5,783,000 
Occupancy  1,983,000   —   —   —   1,983,000 
Other operating costs  1,511,000   —   118,000   —   1,629,000 
Total cost of sales  10,401,000   2,690,000   118,000   —   13,209,000 
                     
Gross profit  2,526,000   760,000   (118,000)  —   3,168,000 
Gross profit as a % of total revenue  19.6%  22.0%  —   —   19.3%
                     
Depreciation and amortization                    
Depreciation  2,327,000   14,000   —   7,000   2,348,000 
Amortization  592,000   148,000   6,000   —   746,000 
Total depreciation and amortization  2,919,000   162,000   6,000   7,000   3,094,000 
                     
General and administrative                    
Stock-based compensation  —   —   —   732,000   732,000 
Other general and administrative  1,599,000   1,340,000   2,000   1,531,000   4,472,000 
Total general and administrative  1,599,000   1,340,000   2,000   2,263,000   5,204,000 
                     
Operating loss from continuing operations $(1,992,000) $(742,000) $(126,000) $(2,270,000) $(5,130,000)

We use GAAP and non-GAAP measurements to January 1, 2017,assess the trends in our business. With respect to XpresSpa, we had fourreview XpresSpa’s Adjusted EBITDA, a non-GAAP measure, which we define as earnings before interest, tax, depreciation and amortization expense, excluding one-time costs (e.g., merger and acquisition and integration related costs) and stock-based compensation.

Adjusted EBITDA has been presented in this Quarterly Report on Form 10-Q and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We consider Adjusted EBITDA to be an important indicator for the performance of our business, but not a measure of performance or liquidity calculated in accordance with U.S. GAAP. We have included this non-GAAP financial measure because management utilizes this information for assessing our performance and liquidity, and as an indicator of our ability to make capital expenditures and finance working capital requirements. We believe that Adjusted EBITDA is a measurement that is commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful for analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating segments: XpresSpa, which was acquired on December 23, 2016, Group Mobile, FLI Chargeactivities. We believe that excluding these transactions allows investors to meaningfully analyze the performance of our core cash operations. Adjusted EBITDA should not be considered in isolation or as an alternative to cash flow from operating activities or as an alternative to operating income or as an indicator of operating performance or any other measure of performance derived in accordance with GAAP. In evaluating our performance as measured by Adjusted EBITDA, we recognize and intellectual property. Followingconsider the acquisitionslimitations of XpresSpa in December 2016 and Excalibur in February 2017, we re-evaluatedthis measurement. Adjusted EBITDA does not reflect our obligations for the payment of income taxes, interest expense, or other obligations such as capital expenditures. Accordingly, Adjusted EBITDA is only one of the measurements that management utilizes.

The following table provides a reconciliation of operating loss from continuing operations for our three operating segments and roles withincorporate to Adjusted EBITDA income (loss) for the executive team to better align financial and human capital resources. three months ended June 30, 2017:

  Three Months Ended June 30, 2017 
  Wellness  Technology  Intellectual
Property		  Corporate  Total 
Operating loss from continuing operations $(1,992,000) $(742,000) $(126,000) $(2,270,000) $(5,130,000)
Plus:                    
Depreciation and amortization  2,919,000   162,000   6,000   7,000   3,094,000 
Stock-based compensation  —   —   —   732,000   732,000 
Merger and acquisition, integration and one-time costs  200,000   —   —   110,000   310,000 
Adjusted EBITDA income (loss) $1,127,000  $(580,000) $(120,000) $(1,421,000) $(994,000)

Our operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. We concluded that we conduct our business through three operating segments, which are also our reportable segments: wellness, technology and intellectual property.

 

Segment operating results reflect losses before corporate and unallocated shared expenses, interest expense, income taxes and noncontrolling interests.

Wellness

 

Our wellness operating segment recognized revenue of $10,984,000$12,927,000 during the firstsecond quarter of 2017, which was generated by XpresSpa for services provided and health and beauty products sold. We acquired XpresSpa on December 23, 2016 and are actively integrating its corporate functions and optimizing the operating segment’s performance. SinceDuring the acquisition,six-month period ended June 30, 2017, we opened twothree new flagship locations, the first opening inconsisting of one location at John F. Kennedy International Airport’s Terminal 4 during the first quarter of 2017 and the second intwo locations at Phoenix Sky Harbor International Airport’s Terminal 4 during the second quarter of 2017.Airport. We also closed two small temporary kiosks to better align our resources. During the second quarter of 2017, we also started a major renovation to another location in John F. Kennedy International Airport’s Terminal 4; this renovation is expected to be completed in the third quarter of 2017. A number of our stores will be undergoing maintenance or renovations during the third quarter of 2017. Wherever possible, we seek to receive lease extensions or other concessions when we undergo these processes. As of March 31,June 30, 2017, we operated 53a total of 52 XpresSpa locations.

 

16 

20

 

Store-level costs include all costs that are directly attributable to the store operations and include:

 

payroll and related benefits for our store operations and store-level management;

 

rent, percentage rent and occupancy costs;

 

the cost of merchandise;

 

freight, shipping and handling costs;

 

production costs;

 

inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part of acquisition; and

 

costs associated with our sourcing operations.

 

General and administrative costs include insurance, infrastructure, payroll and benefits, inventory planning, marketing and other costs. Also included in general and administrative costs are expenses related to the integration of XpresSpa as well as office consolidation and moving costs, which amounted to $484,000$310,000 during the firstsecond quarter of 2017.

 

Depreciation and amortization costs include the depreciation of leasehold improvements and equipment and the amortization of the brand and customer relationship intangible assets, which were recorded at fair value as of the acquisition date.

 

Technology

 

Our technology operating segment predominantly includes revenues and cost of sales generated by Group Mobile and Excalibur. During the firstsecond quarter of 2017, Group Mobile’s revenue increased 173.4%40.8% from $1,277,000$2,450,000 for the three-month period ended March 31,June 30, 2016 to $3,491,000$3,450,000 for the three-month period ended March 31,June 30, 2017, respectively. This was mainly due to the increased sales pipeline throughout 2016 and early 2017. In addition, this operating segment includes costs associated with the development of FLI Charge’s technology and products.

 

Intellectual Property

 

The intellectual property operating segment includes revenues from one-time patent licenses as well as expenses incurred in connection with our patent licensing and related internal payroll expenses.

 

Corporate

 

Corporate and unallocated shared expenses principally consist of costs for corporate functions, rent for office space, stock-based compensation, executive management and certain unallocated administrative support functions.

Discontinued Operations

 

17 During June 2017, we concluded that the requirement to report the results of FLI Charge, a wholly-owned subsidiary included in our technology operating segment, as discontinued operations was triggered. We are currently negotiating the terms of an agreement to sell FLI Charge to a third-party investor in exchange for a minority investment in the form of shares of preferred stock in the newly created entity which will own and operate FLI Charge. We will not be providing any continued management or financing support to FLI Charge. The transaction is expected to close in the third quarter of 2017. In connection with this agreement, a non-cash impairment loss of $1,092,000 relating to FLI Charge’s technology assets and goodwill was recorded as of June 30, 2017. The results of operations for FLI Charge are presented on the condensed consolidated statements of operations and comprehensive loss as consolidated net loss from discontinued operations, which totaled $1,552,000 and $2,113,000 for the three- and six-month periods ended June 30, 2017, respectively. In addition, the carrying amounts of assets and liabilities belonging to FLI Charge are presented on the condensed consolidated balance sheets as assets held for disposal and liabilities held for disposal, respectively.

 

Results of Operations

 

Three-month period ended March 31,June 30, 2017 compared to the three-month period ended March 31,June 30, 2016

 

Revenue

 

  Three months ended March 31, 
  2017  2016  Change 
Revenue $14,609,000  $2,044,000  $12,565,000 

  Three months ended June 30, 
  2017  2016  Change 
Revenue $16,377,000  $11,350,000  $5,027,000 

 

During the three-month period ended March 31,June 30, 2017, we recorded total revenue of $14,609,000,$16,377,000, which represents an increase of $12,565,000$5,027,000 (or 614.7%44.3%) compared to the three-month period ended March 31,June 30, 2016. The three-month period ended March 31, 2017 isXpresSpa generated $12,927,000 of revenue in the first fullsecond quarter that includes XpresSpa revenues and operating results.of 2017. Our technology operating segment demonstrated 172.4%40.8% growth in quarterly revenues from $1,294,000$2,450,000 for the three-month period ended March 31,June 30, 2016 to $3,525,000$3,450,000 for the three-month period ended March 31,June 30, 2017.

During the three-month period ended June 30, 2016, our intellectual property operating segment recognized a one-time lump sum payment of $8,900,000 in connection with an executed confidential license agreement. 

21

Cost of sales

  Three months ended June 30, 
  2017  2016  Change 
Cost of sales $13,209,000  $6,423,000  $6,786,000 

During the three-month period ended June 30, 2017, we recorded total cost of sales of $13,209,000, which represents an increase of $6,786,000 (or 105.7%) compared to the three-month period ended June 30, 2016. XpresSpa recorded total cost of sales of $10,401,000, which represent direct costs incurred for store operations. As result, our wellness operating segment’s gross profit for the quarter was 19.6%. Our technology operating segment recorded $2,690,000 of cost of sales, which is driven by the increase in sales during the quarter. As a result, our technology operating segment generated 22.0% gross margin during the quarter.  

During the three-month period ended June 30, 2016, our intellectual property costs were $4,243,000, which include legal and consulting costs related to the confidential license agreement reached during the quarter and royalty expenses to a previous owner of some of our patents. These costs decreased to $118,000 for the three-month period ended June 30, 2017.

As a percentage of total revenue, cost of sales were 80.7% in the second quarter of 2017 compared to 56.6% in the second quarter of 2016, which is driven by the direct cost of sales generated by XpresSpa.

We expect our cost of sales will grow over time as our revenues increase. We expect that total cost of sales as a percentage of sales will decline gradually over time as a result of the improvement of store-level performance by our wellness operating segment and as our technology operating segment implements new offerings.

Depreciation, amortization and impairment

  Three months ended June 30, 
  2017  2016  Change 
Depreciation, amortization and impairment $3,094,000  $12,329,000  $(9,235,000)

During the three-month period ended June 30, 2017, depreciation and amortization expense totaled $3,094,000, which represents a decrease of $9,235,000 (or 74.9%), compared to the amortization and impairment expense recorded during the three-month period ended June 30, 2016. There was no impairment expense for the three-month period ended June 30, 2017 and no depreciation expense recorded for the three-month period ended June 30, 2016. Amortization and impairment expense for the three months ended June 30, 2016 was significantly higher and was primarily attributed to an $11,937,000 impairment charge to our patents asset group.

The overall decrease in depreciation, amortization and impairment expense was partially offset by an increase in depreciation expense resulting from leasehold improvements and equipment of $2,327,000 and the amortization of the brand and customer relationship intangible assets of $592,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016. The depreciation expense of $2,327,000 is higher than the typical depreciation expense for the quarter due to a formal decision made in April 2017 to perform a complete renovation of our flagship JFK location, at which point useful lives were revised to fully depreciate all remaining assets by the store close date.

We expect depreciation and amortization expense will increase gradually over time as we open more stores in our wellness operating segment and will remain somewhat constant in our technology operating segment.

General and administrative

  Three months ended June 30, 
  2017  2016  Change 
General and administrative $5,204,000  $2,316,000  $2,888,000 

During the three-month period ended June 30, 2017, general and administrative expenses increased by $2,888,000 (or 124.7%) compared to the three-month period ended June 30, 2016. As a percentage of revenue, total general and administrative expenses were 31.8% and 20.4% during the second quarter of 2017 and 2016, respectively.

The results of the three-month period ended June 30, 2017 include incremental general and administrative expenses associated with our recent acquisitions of XpresSpa and Excalibur. The increase for the three-month period ended June 30, 2017 compared to the same period ended June 30, 2016 is primarily attributed to $1,599,000 of general and administrative expenses associated with XpresSpa. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of $297,000, which was a result of equity awards granted to our directors, management and employees in January 2017.

Non-operating expense, net

  Three months ended June 30, 
  2017  2016  Change 
Non-operating expense, net $(228,000) $(91,000) $(137,000)


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During the three-month period ended June 30, 2017, we recorded total net non-operating expense in the amount of $228,000 compared to total net non-operating expense in the amount of $91,000 recorded during the three-month period ended June 30, 2016.

For the three-month period ended June 30, 2017, we recorded interest expense of $178,000 mainly related to XpresSpa’s Debt. This was reduced by a gain of $133,000 on the revaluation of the derivative warrant liabilities and additional non-operating expense of $183,000.

For the three-month period ended June 30, 2016, we recorded interest expense of $272,000 for the amortization of the debt discount and debt issuance costs associated with debt that was repaid during July 2016. The non-operating expenses reported during the three-month period ended June 30, 2016 were reduced by a gain of $99,000 on the revaluation of the derivative warrant liabilities.

Six-month period ended June 30, 2017 compared to the six-month period ended June 30, 2016

Revenue

  Six months ended June 30, 
  2017  2016  Change 
Revenue $30,952,000  $13,377,000  $17,575,000 

During the six-month period ended June 30, 2017, we recorded total revenue of $30,952,000, which represents an increase of $17,575,000 (or 131.4%) as compared to $13,377,000 recorded in the six-month period ended June 30, 2016. The results of the six-month period ended June 30, 2017 include incremental revenues associated with our recent acquisitions of XpresSpa and Excalibur. We did not recognize any revenue generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016.

Our technology operating segment demonstrated 86.2% growth in revenue from $3,727,000 for the six-month period ended June 30, 2016 to $6,941,000 for the three-month period ended June 30, 2017.

 

Cost of sales

    

  Three months ended March 31, 
  2017  2016  Change 
Cost of sales $11,894,000  $ 1,847,000  $10,047,000 

  Six months ended June 30, 
  2017  2016  Change 
Cost of sales $25,071,000  $8,267,000  $16,804,000 

 

During the three-monthsix-month period ended March 31,June 30, 2017, we recorded total cost of sales of $11,894,000,$25,071,000, which represents an increase of $10,047,000$16,804,000 (or 544.0%203.3%) compared to the three-monthsix-month period ended March 31,June 30, 2016. The three-monthresults of the six-month period ended March 31,June 30, 2017 is the first full quarter that includes XpresSpainclude incremental cost of sales.sales associated with our recent acquisitions of XpresSpa and Excalibur. We did not recognize any cost of sales generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. We expect the cost of sales to increase over time as we incur the full results of operations of XpresSpa and Excalibur.

 

During the three-month period ended March 31, 2016, cost of sales related only to our technologyDepreciation, amortization and intellectual property operating segments, as this was prior to our acquisition of XpresSpa and the establishment of a wellness operating segment.impairment

 

We expect our cost of sales will grow as our revenues increase. As a percentage of revenue, cost of sales were 81.4% in the first quarter of 2017 and 90.4% in first quarter of 2016. This decrease is primarily driven by new product and services offerings by our technology operating segment. In addition, the first quarter of 2016 included $720,000 of intellectual property costs related to enforcement efforts against ZTE Corporation and ASUSTeK Computer Inc. as compared to $99,000 of intellectual property costs incurred during the first quarter of 2017, which mostly relates to internal payroll expenses. We expect that total cost of sales will continue to decline as a percentage of sales over time through the improvement of store-level performance by our wellness operating segment and as our technology operating segment implements new offerings, made possible due to the integration of Excalibur into Group Mobile.

  Six months ended June 30, 
  2017  2016  Change 
Depreciation, amortization and impairment $4,955,000  $13,159,000  $(8,204,000)

 

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Depreciation and amortization

  Three months ended March 31, 
  2017  2016  Change 
Depreciation and amortization $1,899,000  $851,000  $1,048,000 

During the three-monthsix-month period ended March 31,June 30, 2017, depreciation and amortization expense totaled $1,899,000,$4,955,000, which represents an increasea decrease of $1,048,000$8,204,000 (or 123.1%62.3%), compared to the amortization and impairment expense recorded during the three-monthsix-month period ended March 31,June 30, 2016. There was no impairment expense for the six-month period ended June 30, 2017 and no depreciation expense recorded for the three-monthsix-month period ended March 31,June 30, 2016.

Amortization and impairment expense for the six months ended June 30, 2016 was significantly higher and was primarily attributed to an $11,937,000 impairment charge to our patents asset group. During the six-month period ended June 30, 2016, we determined that there were impairment indicators related to certain of our patents. A significant factor considered when making this determination occurred on May 6, 2016, when we changed the name of our company from “Vringo, Inc.” to “FORM Holdings Corp.” and concurrently announced our repositioning as a holding company of small- and middle-market growth companies. We concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, we performed the second step of the impairment test to measure the potential impairment by calculating the asset group’s fair value as of May 6, 2016. As a result, following amortization for the month of April, we recorded an impairment charge of $11,937,000, or 88.7% of the carrying value of the patents prior to impairment, which resulted in a new carrying value of $1,526,000 on May 6, 2016. Following the impairment, we reevaluated the remaining useful life and concluded that there were no changes in the estimated useful life. There were no impairment indicators related to any of our other amortizable intangible assets during the six-month period ended June 30, 2017.

The overall decrease in depreciation, amortization and impairment expense, when comparing the six-month period ended June 30, 2017 to the six-month period ended June 30, 2016, was partially offset by an increase is driven by thein depreciation ofexpense resulting from leasehold improvements and equipment of $1,129,000$3,456,000 and the amortization of the brand and customer relationship intangible assets of $585,000,$1,177,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016. Additionally, we experiencedThe depreciation expense of $3,456,000 is higher than the typical depreciation expense for the six-month period due to a declineformal decision made in amortizationApril 2017 to perform a complete renovation of our patentsflagship JFK location which resulted in a revision to the useful lives. This resulted in an additional $1,100,000 of $724,000 in our intellectual property operating segment. depreciation expense related to the JFK location.

We expect depreciation and amortization expense will increase gradually over time as we open more stores in our wellness operating segment and new locations and will remain somewhat constant in our technology operating segment.

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General and administrative

 

  Three months ended March 31, 
  2017  2016  Change 
General and administrative $6,860,000  $2,952,000  $3,908,000 

  Six months ended June 30, 
  2017  2016  Change 
General and administrative $11,539,000  $4,495,000  $7,044,000 

 

During the three-monthsix-month period ended March 31,June 30, 2017, general and administrative expenses increased by $3,908,000$7,044,000 (or 132.4%156.7%) compared to the three-monthsix-month period ended March 31,June 30, 2016. The three-month period ended March 31, 2017 is the first full quarter that includes XpresSpa general and administrative expenses. As a percentage of revenue, total general and administrative expenses were 47.0%37.3% and 144.4%33.6% during the first quarter ofsix-month periods ended June 30, 2017 and 2016, respectively.

 

The overall increase inresults of the six-month period ended June 30, 2017 include incremental general and administrative expenses was primarily due toassociated with our recent acquisitions of XpresSpa in Decemberand Excalibur. The increase for the six-month period ended June 30, 2017 compared to the same period ended June 30, 2016 and Excalibur in February 2017, as they incurredis primarily attributed to $4,404,000 of general and administrative expenses associated with XpresSpa, of $2,321,000which $484,000 related to merger and $105,000 during the first quarter of 2017, respectively.acquisition and integration costs. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of approximately $278,000,$643,000, which was a result of equity awards granted to our directors, management and employees in April 2016 and January 2017.

 

Non-operating expense, net

  Six months ended June 30, 
  2017  2016  Change 
Non-operating expense, net $(306,000) $(440,000) $134,000 

 

  Three months ended March 31, 
  2017  2016  Change 
Non-operating expense, net $(78,000) $(349,000) $271,000 

During the three-monthsix-month period ended March 31,June 30, 2017, we recorded total net non-operating expense in the amount of $78,000$306,000 compared to total net non-operating expense in the amount of $349,000$440,000 recorded during the three-monthsix-month period ended March 31,June 30, 2016.

 

For the three-monthsix-month period ended March 31,June 30, 2017, we recorded interest expense of $189,000$367,000 mainly related to XpresSpa’s Debt. This was reduced by a gain of $26,000$159,000 on the revaluation of the derivative warrant liabilities and additional non-operating gainsexpense of $85,000.$98,000.

 

For the three-monthsix-month period ended March 31,June 30, 2016, we recorded interest expense of $476,000$748,000 for the interest recorded related to outstanding notes. Wethe monthly interest payments and the amortization of the debt discount and debt issuance costs as well as accrued interest calculated using the effective interest method associated with debt that was repaid during July 2016. In addition, we elected to repay principal installments on the notesfor this debt for January and February 2016 in shares of our common stock, which were issued at a discount of 15% to market prices, which resulted in a $210,000 recorded as a loss on the extinguishment of debt. These

The net non-operating expenses reported during the six-month period ended June 30, 2016 were reduced by a gain of $270,000$369,000 on the revaluation of the derivative warrant liabilities and conversion feature related to the notes and foreign exchange gains in connection with our deposits with courts.liabilities.

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Liquidity and Capital Resources

 

Our primary liquidity and capital requirements are for new XpresSpa locations for our wellness operating segment, as well as working capital for our technology operating segment. As of March 31,June 30, 2017, we had cash and cash equivalents of $11,673,000$7,958,000 that we expect to utilize, along with cash flows from operations, to provide capital to support the growth of our business, primarily through opening new XpresSpa locations, maintaining our existing XpresSpa locations, purchasing inventory for Group Mobile to support the growth in sales and maintaining corporate functions. In addition, we have approximately $6,023,000$7,478,000 of trade receivables, inventory and other current assets to support our working capital needs.

On July 26, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, acting as the representative of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 6,900,000 shares of our common stock, par value $0.01 per share (“FORM Common Stock”) including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from us pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. Our net proceeds from the Offering were approximately $6,700,000 after deducting underwriting discounts and commissions and other estimated offering expenses.

 


Our total cash decreased $6,237,000from $17,910,000 as of December 31, 2016 to $11,673,000$7,958,000 as of June 30, 2017. Of the $9,952,000 decrease, approximately $6,697,000 was related either to non-recurring payments, capital expenditures or payments for inventory, the latter of which is reflected as a current asset in the condensed consolidated balance sheets.

Key payments and items from December 31, 2016 to March 31, 2017. Included in our key payments that attributed to this decrease are payments related to the following matters:

June 30, 2017:

 

Acquisition and integration-related professional fees $776,000 
Group Mobile and XpresSpa inventory $1,644,000 
Overdue payables acquired as part of XpresSpa  1,500,000 
Capital expenditures  1,263,000 
Merger and acquisition and integration-related professional fees  776,000 
Leases and tax-related matters 453,000   453,000 
Severance 120,000 
Capital expenditures, net 933,000 
Interest paid on Debt 150,000   430,000 
Repayment of line of credit upon Excalibur acquisition  361,000   361,000 
Severance  250,000 
 $2,793,000  $6,677,000 

Our accounts payable, accrued expenses and other current liabilities, for the periods ended March 31, 2017 and December 31, 2016, were as follows:

  March 31, 2017  December 31, 2016 
Accounts payable        
     Wellness $3,374,000  $3,967,000 
     Technology  1,374,000   463,000 
     Intellectual Property  88,000   213,000 
     Corporate  518,000   844,000 
Accrued expenses  3,631,000   4,068,000 
Accrued compensation  635,000   1,356,000 
Tax liabilities  831,000   676,000 
Other  46,000   43,000 
  $10,497,000  $11,630,000 

Accounts payable are primarily comprised of trade payables to vendors, including amounts owed to vendors for acquiring inventory in our wellness and technology operating segments.

Accounts payable related to our wellness operating segment relate to construction in progress, purchase of inventory and other costs for operations in the normal course of business.

Accounts payable related to our technology operating segment consist of inventory purchased once there is a commitment from a customer.

As of March 31, 2017, accrued expenses were primarily comprised of accrued legal costs of $650,000, gift card and customer rewards expenses of $610,000, merchant financing arrangement costs of $466,000, accrued insurance costs of $298,000, and other operations-related costs that were accrued due to timing.

 

Based on our current operating plans, we expect to have sufficient funds for at least the next 12 months of operations. In addition, we may choose to raise additional funds in connection with new store openings and potential acquisitions of operating assets, which will be complementary to our wellness operating segment. There can be no assurance, however, that any such opportunities will materialize.

 

Off-Balance Sheet Arrangements

 

We have no obligations, assets or liabilities whichthat would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

 

Critical Accounting Estimates

 

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 30, 2017, which includes a description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results. While there have been no material changes to our critical accounting policies as to the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.

 

25

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required as we are a smaller reporting company.

Item 4.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As of March 31,June 30, 2017, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of our subsidiaries except XpresSpa and Excalibur, which were acquired on December 23, 2016 and February 2, 2017, respectively. Our consolidated revenue for the three-monthsix-month period ended March 31,June 30, 2017 was $14,609,000,$30,952,000, of which XpresSpa and Excalibur represented $11,682,000,$23,911,000 and $2,086,000, respectively, and our total assets as of March 31,June 30, 2017 were $78,702,000,$72,382,000, of which XpresSpa and Excalibur represented $58,507,000.

$53,137,000 and $4,178,000, respectively.

 

20 

Part II– OTHER INFORMATION

Item 1.Legal Proceedings.

Item 1.Legal Proceedings.

 

For information regarding legal proceedings, see Note 1011 “Commitments and Contingencies” in our notes to the condensed consolidated financial statements included in “Item 1. Financial Statements.”

Item 1A.Risk Factors.

 

There have been no material changes to the risk factors discussed in Item 1A.Risk FactorsFactors.

Our business, financial condition, results of operations and the trading price of our common stock could be materially adversely affected by any of the following risks as well as the other risks highlighted in our Annual Report on Form 10-K for the year ended December 31, 2016.2016 filed with the SEC on March 30, 2017. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially affect our business, financial condition and results of operations.

Risks Related to XpresSpa

Our growth strategy is highly dependent on our ability to successfully identify and open new XpresSpa locations.

Our growth strategy primarily contemplates expansion through procuring new XpresSpa locations and opening new XpresSpa stores and kiosks. Implementing this strategy depends on our ability to successfully identify new store locations. We will also need to assess and mitigate the risk of any new store locations, to open the stores on favorable terms and to successfully integrate their operations with ours. We may not be able to successfully identify opportunities that meet these criteria, or, if we do, we may not be able to successfully negotiate and open new stores on a timely basis. If we are unable to identify and open new XpresSpa locations in accordance with our operating plan, our revenue growth rate and financial performance may fall short of our expectations.

 

26

Risks Related to Our Common Stock

We may fail to meet publicly announced financial guidance or other expectations about our business, which would cause our stock to decline in value.

From time to time, we provide preliminary financial results or forward looking financial guidance, to our investors. Such statements are based on our current views, expectations and assumptions that may not prove to be accurate and may vary from actual results and involve known and unknown risks and uncertainties that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance, achievements or share prices expressed or implied by such statements. Such risks and uncertainties include the risk factors contained herein and in our Form 10-K for the year ended December 31, 2016. If we fail to meet our projections and/or other financial guidance for any reason, our stock price could decline.

27

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.Defaults Upon Senior Securities.

 

None.

 

Item 4.Mine Safety Disclosures.

 

Not applicable.

 

Item 5.Other Information.

 

None.

 

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28

 

 

Item 6.Exhibits.

 

Exhibit

No.

 Description
10.1*Third Amendment to Employment Agreement by and between FORM Holdings, Inc. and Clifford Weinstein, dated as of January 18, 2017.
   
10.2*10.1 Amendment No. 4 to the Employment Agreement dated October 13, 2015, by and between FORM Holdings, Inc.the Company and Edward Jankowski, dated as of January 20, 2017.
10.3*Employment Agreement by and between FORM Holdings, Inc. and Andrew D. Perlman, dated as of January 18, 2017.
10.4*Employment Agreement by and between FORM Holdings, Inc. and Anastasia Nyrkovskaya, dated as of January 17, 2017.
10.5*Employment Agreement by and between FORM Holdings, Inc. and Jason Charkow, dated as of January 17, 2017.
10.6Form of Stock Purchase Agreement, dated as of February 2, 2016, by and between FORM Holdings Corp., Excalibur Integrated Systems, Inc., each of the holders of the capital stock of Excalibur, and the sellers’ representativeClifford Weinstein (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on February 3, 2017)May 5, 2015).
   
31.1* Certification of Principal Executive Officer pursuant to Exchange Act, Rules 13a - 14(a) and 15d - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2* Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a - 14(a) and 15d - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32** Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS* XBRL Instance Document
   
101.SCH* XBRL Taxonomy Extension Schema Document
   
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
   
* Filed herewith.
** Furnished herein.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 15th9th day of MayAugust 2017.

 

FORM Holdings Corp.
 
By:/s/ ANASTASIA NYRKOVSKAYA
 Anastasia Nyrkovskaya
 Chief Financial Officer
 (Principal Financial and Accounting Officer)

 


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