UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, ~~2017~~2019

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.~~XpresSpa Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		20-4988129
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer
~~incorporation or organization)~~		Identification No.)

~~780 Third Avenue, 12th~~254 West 31^st Street, 11th Floor, New York, NY		~~10017~~10001
(Address of principal executive offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code):(212) 309-7549

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		XSPA		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 (§ 232.405 of this chapter) 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, a smaller reporting company or an emerging growth company. See ~~the~~ definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company,”~~company” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act.~~Act:

Large accelerated filer¨	¨	Accelerated filer	¨
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~	x	Smaller reporting company	x
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November ~~9, 2017, 26,545,690~~12, 2019, 14,452,664 shares of the registrant’s common stock were outstanding.

~~FORM Holdings Corp.~~XpresSpa Group, Inc. and Subsidiaries

Table of Contents

Part I- FINANCIAL INFORMATION

~~Item 1. Condensed Consolidated Financial Statements~~

Item 1.

Consolidated Condensed Financial Statements

~~FORM Holdings Corp.~~XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ BALANCE SHEETS

(In thousands, except share and per share data)

September 30,
2017
(Unaudited) December 31,
2016
Current assets
Cash and cash equivalents $ 10,072 $ 17,910
Accounts receivable, net 2,668 404
Inventory 4,044 2,890
Other current assets 630 2,150
Assets held for disposal 451 1,507
Total current assets 17,865 24,861

Restricted cash 487 638
Property and equipment, net 14,411 16,284
Intangible assets, net 13,897 15,233
Goodwill 25,836 24,409
Other assets 1,343 1,382
Total assets $ 73,839 $ 82,807

Current liabilities
Accounts payable, accrued expenses and other current liabilities $ 10,401 $ 11,434
Deferred revenue 174 133
Liabilities held for disposal 80 206
Total current liabilities 10,655 11,773

Long-term liabilities
Debt 6,500 6,500
Derivative warrant liabilities 52 259
Other liabilities 796 106
Total liabilities 18,003 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 420,541 outstanding with a liquidation value of $20,186 as of September 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; 26,540,690 and 18,304,881 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 265 183
Additional paid-in capital 289,823 280,221
Accumulated deficit (239,000 ) (220,868 )
Accumulated other comprehensive loss (133 ) (13 )
Total equity attributable to the Company 50,959 59,528
Noncontrolling interests 4,877 4,641
Total equity 55,836 64,169
Total liabilities and equity $ 73,839 $ 82,807
September 30,
2019
(Unaudited) December 31,
2018
Current assets
Cash and cash equivalents $ 2,432 $ 3,403
Retail inventory 854 782
Other current assets 690 1,574
Total current assets 3,976 5,759
Restricted cash 451 487
Property and equipment, net 9,621 11,795
Intangible assets, net 7,358 9,167
Operating lease right of use assets, net 9,818 —
Other assets 2,494 3,376
Total assets $ 33,718 $ 30,584
Current liabilities
Accounts payable, accrued expenses and other $ 7,761 $ 8,172
Senior secured note — 6,500
Convertible notes, net — 1,986
Total current liabilities 7,761 16,658
Senior secured note, net 4,153 —
Convertible note, net 1,046 —
Derivative liabilities 6,088 476
Operating lease liabilities 9,818 —
Other liabilities 315 315
Total liabilities 29,181 17,449
Commitments and contingencies (see Note 16)
Stockholders’ equity *
Series A Convertible Preferred Stock, $0.01 par value per share; 6,968 shares authorized; 6,673 issued and none outstanding — —
Series C Junior Preferred Stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding — —
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; 480,417 shares issued and 425,750 shares outstanding as of both periods with a liquidation value of $20,436 4 4
Series E Convertible Preferred Stock, $0.01 par value per share, 2,397,060 shares authorized; 967,742 issued and outstanding as of both periods with a liquidation value of $3,000 10 10
Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; 8,996 shares issued and outstanding at September 30, 2019 and none at December 31, 2018 with a liquidation value of $900 — —
Common Stock, $0.01 par value per share; 150,000,000 shares authorized; 2,918,169 and 1,761,802 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively 363 352
Additional paid-in capital 301,601 295,904
Accumulated deficit (301,068 ) (286,913 )
Accumulated other comprehensive loss (360 ) (251 )
Total stockholders’ equity attributable to common shareholders 550 9,106
Noncontrolling interests 3,987 4,029
Total stockholders’ equity 4,537 13,135
Total liabilities and stockholders’ equity $ 33,718 $ 30,584
*Adjusted, where applicable, to reflect the impact of the 1:20 reverse stock split that became effective on February 22, 2019.

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

3
~~FORM Holdings Corp.~~
XpresSpa Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
Wellness $ 12,652 $ — $ 36,563 $ —
Technology 4,879 1,751 11,820 5,478
Intellectual property 200 1,350 300 11,000
Total revenue 17,731 3,101 48,683 16,478

Cost of sales
Wellness 10,347 — 29,583 —
Technology 3,902 1,554 9,520 4,858
Intellectual property* 126 1,164 343 6,127
Total cost of sales 14,375 2,718 39,446 10,985
Depreciation, amortization and impairment 1,894 182 6,849 13,341
General and administrative* 5,473 3,564 17,012 8,059
Total operating expenses 21,742 6,464 63,307 32,385
Operating loss from continuing operations (4,011 ) (3,363 ) (14,624 ) (15,907 )
Non-operating income (expense), net (85 ) (272 ) (24 ) 246
Interest expense (183 ) (949 ) (550 ) (1,697 )
Extinguishment of debt — (262 ) — (472 )
Loss from continuing operations before income taxes (4,279 ) (4,846 ) (15,198 ) (17,830 )
Income tax expense (57 ) — (284 ) —
Consolidated net loss from continuing operations (4,336 ) (4,846 ) (15,482 ) (17,830 )
Loss from discontinued operations before income taxes (208 ) (415 ) (2,321 ) (2,193 )
Income tax expense — — — —
Net loss from discontinued operations (208 ) (415 ) (2,321 ) (2,193 )
Consolidated net loss (4,544 ) (5,261 ) (17,803 ) (20,023 )
Net income attributable to noncontrolling interests (153 ) — (329 ) —
Net loss attributable to the Company $ (4,697 ) $ (5,261 ) $ (18,132 ) $ (20,023 )

Consolidated net loss from continuing operations $ (4,336 ) $ (4,846 ) $ (15,482 ) $ (17,830 )
Other comprehensive income (loss) from continuing operations: foreign currency translations 31 — (120 ) —
Comprehensive loss from continuing operations (4,305 ) (4,846 ) (15,602 ) (17,830 )
Consolidated net loss from discontinued operations (208 ) (415 ) (2,321 ) (2,193 )
Other comprehensive loss from discontinued operations: foreign currency translations — — — —
Comprehensive loss from discontinued operations (208 ) (415 ) (2,321 ) (2,193 )
Comprehensive loss $ (4,513 ) $ (5,261 ) $ (17,923 ) $ (20,023 )

Loss per share:
Basic and diluted net loss per share
Loss per share from continuing operations $ (0.19 ) $ (0.31 ) $ (0.76 ) $ (1.20 )
Loss per share from discontinued operations (0.01 ) (0.03 ) (0.11 ) (0.15 )
Total basic and diluted net loss per share $ (0.20 ) $ (0.34 ) $ (0.87 ) $ (1.35 )
Weighted-average number of shares outstanding during the period:
Basic 24,144,002 15,473,895 20,852,034 14,880,925
Diluted 24,144,002 15,473,895 20,852,034 14,880,925

*Includes stock-based compensation expense, as follows:
Intellectual property $ — $ 59 $ — $ 191
General and administrative 706 426 2,179 1,256
Total stock-based compensation expense $ 706 $ 485 $ 2,179 $ 1,447
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Revenue
Services $ 10,230 $ 10,391 $ 30,704 $ 31,220
Products 2,301 2,531 5,781 6,540
Other — — 1,184 800
Total revenue 12,531 12,922 37,669 38,560
Cost of sales
Labor 5,842 5,997 17,507 18,697
Occupancy 1,894 1,996 5,811 6,216
Products and other operating costs 1,953 1,992 5,322 5,208
Total cost of sales 9,689 9,985 28,640 30,121
General and administrative 3,108 3,943 9,204 12,443
Depreciation and amortization 1,464 1,879 4,692 5,375
Impairment of assets 106 — 936 —
Impairment of goodwill — — — 19,630
Total operating expenses 14,367 15,807 43,472 67,569
Operating loss from continuing operations (1,836 ) (2,885 ) (5,803 ) (29,009 )
Interest expense (780 ) (624 ) (2,052 ) (1,212 )
Other non-operating income (expense), net (2,161 ) 378 (5,817 ) 877
Loss from continuing operations before income taxes (4,777 ) (3,131 ) (13,672 ) (29,344 )
Income tax benefit 143 66 101 198
Loss from continuing operations after income taxes (4,634 ) (3,065 ) (13,571 ) (29,146 )
Loss from discontinued operations, net of income taxes — — — (1,115 )
Net loss (4,634 ) (3,065 ) (13,571 ) (30,261 )
Net income attributable to noncontrolling interests (210 ) (122 ) (584 ) (382 )
Net loss attributable to common shareholders $ (4,844 ) $ (3,187 ) $ (14,155 ) $ (30,643 )
Loss from continuing operations $ (4,634 ) $ (3,065 ) $ (13,571 ) $ (29,146 )
Other comprehensive income (loss) from continuing operations 82 (3 ) (109 ) (205 )
Comprehensive loss from continuing operations (4,552 ) (3,068 ) (13,680 ) (29,351 )
Comprehensive loss from discontinued operations — — — (1,115 )
Comprehensive loss $ (4,552 ) $ (3,068 ) $ (13,680 ) $ (30,466 )
Loss per share attributable to common shareholders
Loss per share from continuing operations $ (1.68 ) $ (2.25 ) $ (6.33 ) $ (21.66 )
Loss per share from discontinued operations — — — (.82 )
Basic and diluted net loss per common share $ (1.68 ) $ (2.25 ) $ (6.33 ) $ (22.48 )
Weighted-average number of shares outstanding during the period*:
Basic 2,875,501 1,417,614 2,236,323 1,363,440
Diluted 2,875,501 1,417,614 2,236,323 1,363,440
*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on February 22, 2019.

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

~~FORM Holdings Corp.~~XpresSpa Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)

Preferred
stock Common
stock Additional
paid-in
capital Accumulated
deficit Accumulated
other
comprehensive
loss Total
FORM
equity Non
controlling
interests Total
equity
December 31, 2016 $ 5 $ 183 $ 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
Net proceeds from sale and issuance of shares of common stock in public offering — 69 6,515 — — 6,584 — 6,584
Decrease in shares of preferred stock issued to XpresSpa sellers — — (908 ) — — (908 ) — (908 )
Conversion of preferred stock to common stock (1 ) 4 (4 ) — — (1 ) — (1 )
Stock-based compensation — — 2,179 — — 2,179 — 2,179
Net loss for the period — — — (18,132 ) — (18,132 ) 329 (17,803 )
Foreign currency translation — — — — (120 ) (120 ) — (120 )
Net distributions to
noncontrolling interests — — — — — — (93 ) (93 )
September 30, 2017 $ 4 $ 265 $ 289,823 $ (239,000 ) $ (133 ) $ 50,959 $ 4,877 $ 55,836

Preferred
stock Common
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
Vesting of restricted stock units (“RSUs”) — 1 (1 ) — — — — —
Issuance of common stock for repayment of convertible debt and related interest — 18 3,031 — — 3,049 — 3,049
Sale of shares of common stock from subscription agreement — 7 1,727 — — 1,734 — 1,734
Stock-based compensation — — 1,447 — — 1,447 — 1,447
Net loss for the period — — — (20,023 ) — (20,023 ) — (20,023 )
September 30, 2016 $ — $ 158 $ 243,450 $ (216,885 ) $ — $ 26,723 $ — $ 26,723
Preferred
stock Common
stock Additional
paid-
in capital Accumulated
deficit Accumulated
other
comprehensive
loss Total
Company
equity Non-
controlling
interests Total
equity
December 31, 2018 $ 14 $ 352 $ 295,904 $ (286,913 ) $ (251 ) $ 9,106 $ 4,029 $ 13,135
Issuance of common stock for repayment of debt and interest — 2 815 — — 817 — 817
Stock-based compensation — — 104 — — 104 — 104
Net income (loss) for the period — — — (2,973 ) — (2,973 ) 129 (2,844 )
Foreign currency translation — — — — (21 ) (21 ) — (21 )
Distributions to noncontrolling interests — — — — — — (166 ) (166 )
March 31, 2019 14 354 296,823 (289,886 ) (272 ) 7,033 3,992 11,025
Conversion of senior notes and warrants into common shares — 6 3,488 — — 3,494 — 3,494
Stock-based compensation — — 127 — — 127 — 127
Foreign currency translation — — — — (170 ) (170 ) — (170 )
Net income (loss) for the period — — — (6,338 ) — (6,338 ) 245 (6,093 )
Contributions from noncontrolling interests — — — — — — 16 16
Distributions to noncontrolling interests — — — — — �� (174 ) (174 )
June 30, 2019 14 360 300,438 (296,224 ) (442 ) 4,146 4,079 8,225
Issuance of Series F Preferred Stock        —           — 1,131 —          — 1,131 — 1,131
Stock-based compensation — — 35 — — 35 — 35
Exercise of June 2019 Class A Warrants into common stock — 3 (3) — — — — —
Foreign currency translation — — — — 82 82 — 82
Net income (loss) for the period — — — (4,844 ) — (4,844 ) 210 (4,634 )
Distributions to noncontrolling interests — — — — — — (302 ) (302 )
September 30, 2019 $ 14 $ 363 $ 301,601 $ (301,068 ) $ (360 ) $ 550 $ 3,987 $ 4,537
*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on February 22, 2019.

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

5
~~FORM Holdings Corp.~~
XpresSpa Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
Preferred
stock Common
stock Additional
paid-
in capital Accumulated
deficit Accumulated
other
comprehensive
loss Total
Company
equity Non-
controlling
interests Total
equity
December 31, 2017 $ 4 $ 265 $ 290,396 $ (249,708 ) $ (74 ) $ 40,883 $ 4,956 $ 45,839
Vesting of restricted stock units (“RSUs”) — 1 (1 ) — — — — —
Stock-based compensation — — 312 — — 312 — 312
Net income (loss) for the period — — — (23,933 ) — (23,933 ) 83 (23,850 )
Foreign currency translation — — — — (66 ) (66 ) — (66 )
Contributions from noncontrolling interests — — — — — — — —
Distributions to noncontrolling interests — — — — — — (220 ) (220 )
March 31, 2018 4 266 290,707 (273,641 ) (140 ) 17,196 4,819 22,015
Vesting of restricted stock units (“RSUs”) — 5 (5 ) — — — — —
Issuance of equity warrants — — 64 — — 64 — 64
Stock-based compensation — — 259 — — 259 — 259
Net income (loss) for the period — — — (3,523 ) — (3,523 ) 177 (3,346 )
Foreign currency translation — — — — (136 ) (136 ) — (136 )
Contributions from noncontrolling interests — — — — — — 76 76
Distributions to noncontrolling interests — — — — — — (920 ) (920 )
June 30, 2018 4 271 291,025 (277,164 ) (276 ) 13,860 4,152 18,012
Stock-based compensation       — — 194 — — 194 194
Issuance of common stock for repayment of debt and interest — 48 770 — — 818 — 818
Net income (loss) for the period — — — (3,187 ) — (3,187 ) 122 (3,065 )
Foreign currency translation — — — — (3 ) (3 ) (3 )
Contributions from noncontrolling interests — — — — — — 43 43
Distributions to noncontrolling interests — — — — — — (244 ) (244 )
September 30, 2018 $ 4 $ 319 291,989 (280,351 ) (279 ) 11,682 4,073 15,755
The accompanying notes form an integral part of these consolidated condensed financial statements.

XpresSpa Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

Nine months ended
September 30,
2017 2016
Cash flows from operating activities
Consolidated net loss $ (17,803 ) $ (20,023 )
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Items not affecting cash flows
Depreciation and amortization 6,849 1,404
Impairment of intangible assets — 11,937
Amortization of debt discount and debt issuance costs — 1,798
Stock-based compensation 2,179 1,447
Amendment to warrants as part of debt modification — (281 )
Extinguishment of debt — 356
Issuance of shares of common stock for services 20 53
Gain on disposal of asset (148 ) —
Change in fair value of derivative warrant liabilities and conversion feature (207 ) 185
Conversion of shares of preferred stock to shares of common stock (1 ) —
Exchange rate gain, net — (76 )
Changes in current assets and liabilities net of effects of acquisition
Increase in accounts receivable, net (1,729 ) (1,581 )
Increase in inventory (1,103 ) (89 )
Decrease in other current assets and other assets 1,739 307
Increase (decrease) in accounts payable, accrued expenses and other current liabilities (1,593 ) 1,502
Increase (decrease) in deferred revenue (79 ) 81
Decrease in other liabilities (13 ) (267 )
Net cash used in operating activities – continuing operations (11,889 ) (3,247 )
Net cash provided by operating activities – discontinued operations 930 278
Net cash used in operating activities (10,959 ) (2,969 )
Cash flows from investing activities
Cash acquired as part of acquisition 26 —
Acquisition of property and equipment (2,734 ) (243 )
Acquisition of software (331 ) —
Proceeds from sale of asset 150 —
Decrease in deposits — 2,001
Increase in investments — (1,734 )
Net cash provided by (used in) investing activities (2,889 ) 24
Cash flows from financing activities
Proceeds from commitments to issue common stock under subscription agreement — 1,734
Net proceeds from sale and issuance of shares of common stock in public offering 6,584 —
Repayment of debt and line of credit (361 ) (2,011 )
Net distributions to noncontrolling interests (93 ) —
Debt issuance costs — (50 )
Net cash provided by (used in) financing activities 6,130 (327 )
Effect of exchange rate changes on cash and cash equivalents (120 ) —
Decrease in cash and cash equivalents (7,838 ) (3,272 )
Cash and cash equivalents at beginning of period 17,910 24,951
Cash and cash equivalents at end of period $ 10,072 $ 21,679
Cash paid during the period for
Interest $ 580 $ 40

Noncash investing and financing transactions
Issuance of common stock to repay debt and interest — 2,996
Nine months ended
September 30,
2019 2018
Cash flows from operating activities:
Net loss $ (13,571 ) $ (30,261 )
Net loss from discontinued operations — (1,115 )
Net loss from continuing operations (13,571 ) (29,146 )
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization 4,692 5,375
Issuance of Series F Convertible Preferred Stock 1,131 —
Revaluation of warrants and conversion options 780 (1,541 )
Debt conversion expense 1,547 169
Amortization of debt discount and debt issuance costs 955 589
Impairment of assets 936 —
Stock-based compensation 266 765
Impairment of cost method investment 1,188 —
Accretion of interest on notes 476 —
Issuance of warrants 689 64
Impairment of goodwill — 19,630
Gain on the sale of patents — (450 )
Changes in assets and liabilities:
(Increase) decrease in inventory (72 ) 357
Increase in other current assets and other assets 574 (741 )
(Increase) in accounts payable, accrued expenses and other (373) (1,095 )
Decrease in other liabilities — (105 )
Net cash used in operating activities – continuing operations (782 ) (6,129 )
Net cash provided by operating activities – discontinued operations — 1,501
Net cash used in operating activities (782 ) (4,628 )
Cash flows from investing activities:
Acquisition of property and equipment (1,641 ) (2,682 )
Acquisition of software — (143 )
Proceeds from the sale of patents — 250
Cash received from payment of note receivable — 800
Net cash used in investing activities (1,641 ) (1,775 )
Cash flows from financing activities:
Issuance of note to Calm 2,500 —
Distributions to noncontrolling interests (642 ) (1,384 )
Contributions from noncontrolling interests 16 119
Debt issuance costs (220 ) (320 )
Payments on convertible notes (129 ) —
Proceeds from convertible notes and warrants — 4,350
Net cash provided by financing activities: 1,525 2,765
Effect of exchange rate changes and foreign currency translation (109 ) (205 )
Decrease in cash and cash equivalents (1,007 ) (3,843 )
Cash and cash equivalents and restricted cash at beginning of period 3,890 6,368
Cash and cash equivalents and restricted cash at end of period $ 2,883 $ 2,525
Cash paid during the period for:
Interest $ 628 $ 580
Income taxes $ 35 $ —
Non-cash investing and financing transactions:
Addition of right of use assets and liabilities $ 9,818 —
Conversion of notes and interest into common stock $ 2,728 $ —
Increase in note to pay fee to lender $ 500 $ —
Issuance of common stock to repay $649 of debt and interest $ — $ 818
Non-cash acquisition of cost method investment $ — $ 2,705
Debt discount related to issuance of convertible notes $ — $ 1,962

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

~~FORM Holdings Corp.~~
XpresSpa Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except for share and per share data)

Note 1. General

Overview
On January 5, 2018, the Company changed its name to XpresSpa Group, Inc. (“XpresSpa Group” or the “Parent”) from FORM Holdings Corp. The Company rebranded to XpresSpa Group to align its corporate strategy to build a pure-play health and wellness services company, which commenced following its acquisition of XpresSpa Holdings, LLC (“~~FORM”~~Holdings” or “XpresSpa”) on December 23, 2016 (XpresSpa Group, Inc. and Holdings consolidated is referred to as the “Company”) ~~has three operating segments: wellness, technology and intellectual property.~~.

~~The Company’s~~As a result of the transition to a pure-play health and wellness services company, the Company currently has one operating segment ~~consists of~~that is also its sole reporting unit, XpresSpa, ~~which is a~~the leading airport retailer of spa services. ~~XpresSpa is a well-recognized airport spa brand with 51 locations, consisting of 47 domestic and 4 international, as of September 30, 2017.~~ XpresSpa offers travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products.
Basis of Presentation and Principals of Consolidation
The ~~Company acquired XpresSpa~~unaudited interim consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles in the ~~fourth quarter~~United States of ~~2016.~~America (“GAAP”) for interim financial information and the instructions to Article 8-03 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The unaudited interim consolidated condensed financial statements for all 2018 periods presented have been derived from the audited financial statements. The financial statements include the accounts of the Company, all entities that are wholly owned by the Company, and all entities in which the Company has a controlling financial interest. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company. Such adjustments are of a normal, recurring nature. The results of operations for the three and nine-month periods ended September 30, 2019 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.
Recent Developments

The Company’s technology operating segment consists of Group Mobile 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. The Company acquired Group Mobile 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.
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.~~
As further detailed in Note 10 “Discontinued Operations and Assets and Liabilities Held for Disposal,” in June 2017, the Company concluded that the requirement to report the results of FLI Charge as discontinued operations was triggered. FLI Charge was subsequently sold in October 2017.Calm Private Placement

On July ~~26, 2017,~~8, 2019, the Company entered into ~~an underwriting~~a securities purchase agreement (the ~~“Underwriting~~“Calm Purchase Agreement”) with ~~Roth Capital Partners, LLC, acting as~~Calm.com, Inc. (“Calm”) pursuant to which the ~~representative~~Company agreed to sell (i) an aggregate principal amount of ~~the several underwriters named therein (collectively, the “Underwriters”~~$2,500 in an unsecured convertible note due 2022 (the “Calm Note”), ~~relating~~which is convertible into shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”) and (ii) warrants to ~~the issuance and sale (the “Offering”) of 6,900,000~~purchase 937,500 shares of the Company’s common stock, par value $0.01 per share ~~(“FORM Common~~(the “Common Stock”) ~~including 900,000 shares~~, at an exercise price of $2.00 per share (the “Calm Warrants”) (collectively, the “Calm Private Placement”).
The Company received $2,500 in gross proceeds from the Calm Private Placement.
Convertible Notes and Warrants
The Calm Note is an unsecured subordinated obligation of the Company. Unless earlier converted or redeemed, the Calm Note will mature on May 31, 2022. The Calm Note bears interest at a rate of 5% per annum, subject to increase in the ~~Underwriters’ over-allotment~~event of default to the lesser of 18% per annum or the maximum rate permitted under applicable law. The Calm Note is convertible at any time until the Calm Note is no longer outstanding, in whole or in part, at the option of Calm into shares of Series E Preferred Stock at a conversion price equal to $3.10 per share, except that no shares of Series E Preferred Stock could be issued as payment of interest or in connection with anti-dilution protection or voluntary reduction of the conversion price until receipt of shareholder approval, which approval was obtained on October 2, 2019. Interest on the Calm Note is payable in arrears beginning on the last day of each February, May, August and November during the period beginning on the original issuance date and ending on, and including, the maturity date, when all amounts outstanding under the Calm Note becomes due and payable in cash. The Company may elect to pay interest in cash, shares of Series E Preferred Stock or a combination thereof.
The Calm Warrants entitle Calm to purchase an aggregate of 937,500 shares of Common Stock. The Calm Warrants are exercisable beginning six months from the date of issuance, have a term of five years and feature an exercise price equal to $2.00 per share.
See Note 9. “Long-term Notes and Convertible Notes”, for discussion of the accounting for the Calm Private Placement.

Calm Collaboration Agreement
On July 8, 2019, the Company entered into an Amended and Restated Product Sale and Marketing Agreement with Calm (the “Amended and Restated Collaboration Agreement”), which replaced the parties’ previous Product Sale and Marketing Agreement, dated as of November 12, 2018. The Amended and Restated Collaboration Agreement primarily relates to the display, marketing, promotion, offer for sale and sale of Calm’s products in each of the Company’s branded stores worldwide. The Amended and Restated Collaboration Agreement will remain in effect until July 31, 2021, unless terminated earlier in accordance with the Amended and Restated Collaboration Agreement, and automatically renews for successive terms of six months unless either party provides written notice of termination no later than thirty days prior to any such automatic renewal of the Amended and Restated Collaboration Agreement. On October 30, 2019, the Company and Calm entered into an amendment to the Amended and Restated Collaboration Agreement, which provides for the addition of certain Calm branded products, which amendment is attached as Exhibit 10.8 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
Amendment to Certificate of Designation of Series E Convertible Preferred Stock
On July 8, 2019, the Company filed a certificate of amendment to the Certificate of Designation of Series E Convertible Preferred Stock (the “Series E COD Amendment”) with the State of Delaware to (i) increase the number of authorized shares of Series E Preferred Stock to 2,397,060 and (ii) upon receipt of Shareholder Approval, reduce the conversion price to $2.00. The Series E COD Amendment was approved by the Board of Directors of the Company and the Company obtained shareholder approval of the Series E COD Amendment on October 2, 2019. See Note 10.“Stockholders’ Equity”.
B3D Transaction and Senior Secured Note
On July 8, 2019, Holdings entered into the fourth amendment (the “Credit Agreement Amendment”) to its existing Credit Agreement with B3D, LLC (“B3D”) (the “Senior Secured Note” or the “B3D Note”) in order to, among other provisions, (i) extend the maturity date to May 31, 2021, (ii) reduce the applicable interest rate to 9.0%, and (iii) to amend and restate certain other provisions relating to its 11.24% Senior Secured Note. As consideration for these and other modifications the principal amount owed to B3D was increased to $7.0 million. Principal and any interest accrued thereon are convertible, at B3D’s option, into Common Stock subject to receipt of shareholder approval, which was ~~exercised~~obtained on October 2, 2019 ( the “B3D Transaction”).
B3D Note
The B3D Note is a senior secured and guaranteed obligation of Holdings, secured by the personal property of the parent company of Holdings (XpresSpa Group, Inc.) and Holdings’ wholly owned subsidiaries. Unless earlier converted or redeemed, the B3D Note will mature on May 31, 2021. The B3D Note bears interest at a rate of 9.00% per annum, calculated on a monthly basis. Interest only is payable in arrears on the last business date of each month (the "Monthly Interest"). Notwithstanding the foregoing, until the earlier of (i) ninety days from the date of the Credit Agreement Amendment or (ii) the date upon which shareholder approval is received, which approval was obtained on October 2, 2019 (the "Interest Deferment Date"), the Monthly Interest continued to accrue, compounded monthly, and all unpaid amounts thereof became due and payable on the Interest Deferment Date. At the option of Holdings, all or any portion of the Monthly Interest that is payable (i) on the Interest Deferment Date or (ii) after the Interest Deferment Date, but not more than twenty-one days and not less than five trading days prior to the date on which each payment of Monthly Interest is due, may be paid in shares of XpresSpa Group, Inc.’s Common Stock. At any time after receipt of shareholder approval until the B3D Note is no longer outstanding, at the option of B3D, all or any portion of the outstanding principal amount of the B3D Note, plus any accrued and unpaid interest thereon, shall be convertible into XpresSpa Group, Inc.’s Common Stock at a conversion price equal to $2.00 per share.
See Note 9."Long-term Notes and Convertible Notes", for discussion of the accounting for the B3D Transaction and B3D Note.
On August ~~2, 2017~~22, 2019, the Company entered into an amendment to the B3D Note. Among other provisions, the amendment provided that B3D shall not have the right to convert the B3D Note into shares of Common Stock to the extent that such conversion would cause B3D to beneficially own in excess of the Beneficial Ownership Limitation, initially defined as 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the B3D Note.
Series D Convertible Preferred Stock Amendment and ~~closed on August 4, 2017. The~~December 2016 Warrant Amendment
Series D Convertible Preferred Stock Amendment
On July 8, 2019, the Company filed a certificate of amendment to the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D COD Amendment”) with the State of Delaware to, upon receipt of shareholder approval, reduce the conversion price to $2.00 and provide for automatic conversion of the ~~public~~Series D Convertible Preferred Stock (the “Series D Preferred Stock”) into shares of Common Stock. The Series D COD Amendment was approved by the Company’s Board and the Company obtained shareholder approval on October 2, 2019.

December 2016 Warrant Amendment
On July 8, 2019, the Company entered into an amendment to certain outstanding warrants issued in December 2016 (the “December 2016 Warrants”) to the holders of its Series D Preferred Stock (the “December 2016 Warrant Amendment”) to provide for (i) a reduction in the ~~Offering~~price to convert to Common Stock to $2.00, (ii) certain anti-dilution price protection and (iii) voluntary reduction of the conversion price by the Company in its discretion. The Company obtained shareholder approval in connection with the December 2016 Warrant Amendment on October 2, 2019. The December 2016 Warrants were recorded as an equity instrument at December 31, 2016. As such, no adjustment to the consolidated condensed financial statements was ~~$1.10~~made as a result of the change in the conversion price.
May 2018 SPA Amendment, Series F Preferred Stock and Series B Preferred Stock
May 2018 SPA Amendment
On May 15, 2018, in a private placement offering, the Company issued (i) 5% Secured Convertible Notes (the “5% Secured Convertible Notes”) convertible into Common Stock at $12.40 per share, due November 2019, (ii) May 2018 Class A Warrants to purchase 357,863 shares of Common Stock (the “May 2018 Class A Warrants”) and (iii) Class B Warrants to purchase 178,932 shares of Common Stock (the “May 2018 Class B Warrants”).
On July 8, 2019, the Company entered into an amendment (the “May 2018 SPA Amendment”) to its Securities Purchase Agreement, dated as of May 15, 2018, by and between the Company and the ~~Underwriters agreed~~purchasers party thereto (the “May 2018 SPA”), to ~~purchase~~provide for, among other provisions, (i) an update to certain definitions, including the ~~shares~~definition of ~~FORM Common Stock from~~an “Exempt Issuance,” (ii) the ~~Company~~waiver of certain provisions regarding restrictions on subsequent equity sales and participation in subsequent financings, (iii) the removal of certain of such provisions upon receipt of shareholder approval (obtained on October 2, 2019), (iv) the amendment to certain provisions of the May 2018 Class A Warrants issued pursuant to the ~~Underwriting Agreement at~~May 2018 SPA to modify certain provisions in connection with a ~~purchase~~Notice Failure (as such term is defined in the May 2018 Class A Warrants), and the reduction in the exercise price of ~~$1.023~~the May 2018 Class A Warrants issuable pursuant to anti-dilution price protection contained in such May 2018 Class A Warrants to $2.00 per ~~share. The net proceeds~~share following receipt of shareholder approval, which approval was obtained on October 2, 2019, (v) the cancellation of all outstanding May 2018 Class B Warrants and (vi) the establishment of a new class of preferred stock, designated Series F Convertible Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”) and the issuance of 8,996 shares of such Series F Preferred Stock to the parties to the May 2018 SPA Amendment, which are convertible into Common Stock upon receipt of shareholder approval, which approval was obtained on October 2, 2019.
Certificate of Designation of Series F Preferred Stock
In connection with the May 2018 SPA Amendment, on July 8, 2019, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock (the “Series F Certificate of Designation”) establishing and designating the rights, powers and preferences of the Series F Preferred Stock. The Company designated 9,000 shares of Series F Preferred Stock. The Series F Convertible Preferred Stock was recorded at its fair value on July 8, 2019 of $1,154 (net of issuance costs of approximately $123) in the Company’s consolidated condensed balance sheet as of September 30, 2019. See Note 10.“Stockholders’ Equity” for further discussion.
Certificate of Elimination of Series B Preferred Stock
On July 8, 2019, the Company filed a Certificate of Elimination of Shares of Series B Preferred Stock (the “Certificate of Elimination”) to the Company’s amended and restated certificate of incorporation. The Certificate of Elimination reduced, pursuant to Section 151(g) of the Delaware General Corporation Law, the number of authorized shares of Series B Convertible Preferred Stock of the Company, par value $0.01 per share (the “Series B Preferred Stock”) from 1,609,167 shares to zero shares. Pursuant to the provisions of Section 151(g) of the Delaware General Corporation Law, the 1,609,167 authorized shares of Series B Preferred Stock were eliminated pursuant to the reduction return to the available undesignated preferred stock of the Company and may be re-designated into another series of preferred stock.
CEO Transition
On February 8, 2019, Edward Jankowski resigned as Chief Executive Officer of the Company and as a director of the Company. Mr. Jankowski’s resignation was not as a result of any disagreement with the Company on any matters related to the Company’s operations, policies or practices. Mr. Jankowski is receiving termination benefits including $375 payable in equal installments over a twelve-month term which commenced on February 13, 2019 and COBRA continuation coverage paid in full by the Company for up to a maximum of twelve months.

Effective as of February 11, 2019, Douglas Satzman was appointed by the Company’s Board of Directors as the Chief Executive Officer of the Company and as a director of the Company to fill the position vacated by Mr. Jankowski.
Liquidity and Going Concern
As of September 30, 2019, the Company had cash and cash equivalents of $2,432, total current assets of $3,976, total current liabilities of $7,761, and a working capital deficiency of $3,785, compared to a working capital deficiency of $10,899 as of December 31, 2018.
The Company is exploring valuable strategic partnerships, right-sizing its corporate structure, and stream-lining spa operations. The Company expects that these actions will be executed in alignment with the anticipated timing of its long-term liquidity needs. There can be no assurance, however, that any such opportunities will materialize.
The Company has also reduced operating expenses with net cash used in operating activities decreasing from $6,129 for the nine months ended September 30, 2018 to $782 for the nine months ended September 30, 2019. While the Company continues to focus on its overall profitability; the Company expects to incur net losses in the foreseeable future.
The report of the Company’s independent registered public accounting firm on its financial statements for the year ended December 31, 2018 included an explanatory paragraph indicating that there is substantial doubt about the Company’s ability to continue as a going concern. In addition to the transactions that have already occurred, the Company believes it is probable that it will generate additional liquidity through other actions it expects to undertake in the near future. The Company’s management believes it will successfully mitigate the substantial doubt raised by its historical operating results and will satisfy its liquidity needs for at least twelve months from the ~~Offering were $6,584 after deducting underwriting discounts~~issuance of these financial statements. However, the Company cannot reasonably predict with any certainty that the results of its actions will generate the liquidity required to satisfy its liquidity needs.
If the Company continues to experience operating losses, and ~~commissions~~the Company is not able to generate additional liquidity through the actions described above or through some combination of other actions, while not expected, the Company may not be able to access additional funds and ~~other estimated offering expenses.~~the Company might need to secure additional sources of funds, which may or may not be available. Additionally, a failure to generate additional liquidity could negatively impact its access to inventory or services that are important to the continued operation of the business.
Note 2. Accounting and Reporting Policies
~~(a) Basis of presentation and principles of consolidation~~

(a) Right of use asset and lease liability
The ~~accompanying interim~~right of use asset on our consolidated condensed ~~consolidated financial statements have been prepared~~balance sheet represents a lessee's right to use an asset over the life of a lease. The asset is calculated as the initial amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. The amortization period for the right of use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset.
The addition of these items on the balance sheet is in accordance with ~~generally accepted~~new lease accounting ~~principles~~standard Topic 842-Leases issued by the FASB. This standard requires operating leases to be recorded on the balance sheet as assets and liabilities and requires disclosure of key information about leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition 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 resultsstatement of operations ~~for the three~~ and nine-month periods ended September 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.comprehensive loss.

11

(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 at the time the goods are purchased at our stores or online (usually by credit card) and services when they are rendered at ~~the point of sale,~~our stores, net of discounts and applicable sales taxes. Revenues from the XpresSpa wholesale and e-commerce businesses are recorded at the time goods are shipped. Accordingly, the Company recognizes revenue for its single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. 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 consolidated condensed ~~consolidated~~ balance sheets until remitted to the respective state agencies.

~~The Company records~~Other revenue ~~from product sales in~~relates to one-time intellectual property licenses as well as 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.~~

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 pricecertain 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.
intellectual property. Revenue from patent licensing is recognized ~~if collectability is reasonably assured, persuasive evidence of an arrangement exists,~~when the ~~sales price is fixed or determinable and delivery of the service has been rendered. Currently, revenue arrangements related to~~Company transfers promised 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.

~~(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) Recently issued accounting pronouncements not yet adopted~~
~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~
~~The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services~~ to customers in an amount that reflects the consideration to which the ~~entity~~Company expects to be entitled in exchange for those ~~goods~~intellectual property rights.
(c) Recently adopted accounting pronouncements
ASU No. 2016-02, Leases (Topic 842), as amended
This standard and its amendments provide new guidance related to accounting for leases and supersedes GAAP on lease accounting with the intent to increase transparency. This standard requires operating leases to be recorded on the balance sheet as assets and liabilities and requires disclosure of key information about leasing arrangements. Leases will be classified as either finance or ~~services.~~ operating, with classification affecting the pattern of expense recognition in the statement of operations and comprehensive loss.
On January 1, 2019, the Company adopted ASU 2016-02 on a prospective basis, beginning on January 1, 2019 using the optional transition method. The Company applied the transition options permitted by ASU 2018-11 and elected the package of practical expedients to alleviate certain operational and reporting complexities related to the adoption, one of which was not to recognize a right of use asset or lease liability for leases with a term of twelve months or less. See Note 8. “Leases” for further discussion. The Company recorded right of use assets and lease liabilities for its operating leases of $9,565 upon adoption of ASU 2016-02.
ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This standard provides guidance ~~was amended~~on the reclassification of certain tax effects from accumulated other comprehensive income to retained earnings in ~~July 2015~~the period in which the effects of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. The new standard is effective for ~~annual reporting periods~~the fiscal year beginning after December 15, ~~2017. As such,~~2018. The Company adopted this standard on January 1, 2019. Adoption of this standard did not have a material impact on the ~~Company is currently assessing~~Company’s consolidated condensed financial statements.
(d) Recently issued accounting pronouncements
ASU No. 2016-13, Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This standard changes the ~~impact~~impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize estimated credit losses to be incurred over the entire contractual term of the ~~adoption on its condensed consolidated financial statements.~~instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. The ~~Company will adopt the~~ new standard ~~and related updates effective January 1, 2018, and intends to use the modified retrospective method of adoption.~~
Based upon its preliminary assessment undertaken through September 30, 2017, the Company expects that the new standard will have an impact on revenue recognition for Group Mobile contracts in its technology operating segment, and expects to conclude on this assessment by December 31, 2017. The Company does not expect for there to be an impact on revenue recognition for its wellness operating segment, as the revenue is recognized when the service is performed and payment is collected from the customer.
The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may, in conjunction with the completion of the Company’s overall assessment of the new guidance, impact the Company’s current conclusions.
~~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~~the fiscal ~~years~~year beginning after December 15, ~~2019;~~2019, with early adoption is permitted. ~~The Company currently anticipates~~Based upon the outstanding balance of the Company’s trade receivables and its positive collection history, the Company’s management does not believe that the adoption of ~~ASU 2017-04~~this standard will ~~not~~ have a material impact on its consolidated financial ~~statements.~~position and results of operations.

ASU No. ~~2017-09, Stock Compensation~~2018-13, Fair Value Measurement (Topic ~~718)~~820): ~~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 changesDisclosure Framework—Changes to the ~~terms or conditions of a share-based payment award require an entity~~Disclosure Requirements for Fair Value Measurement
This amendment provides updates to ~~apply modification accounting~~the disclosure requirements on fair value measures in Topic ~~718.~~820 which includes the changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements, the option of additional quantitative information surrounding unobservable inputs and the elimination of disclosures around the valuation processes for Level 3 measurements. The ~~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~~new standard is effective for ~~annual periods, and interim periods within those annual periods,~~the fiscal year beginning after December 15, ~~2017; early~~2019. The Company’s management does not believe that the adoption ~~is permitted. The Company is currently in the process~~ of ~~evaluating the potential~~this standard will have a material impact ~~of the adoption~~ on its consolidated financial ~~statements.~~position and results of results of operations.

(e) Presentation

~~(g) Reclassification~~
Certain ~~balances~~items in the 2018 financial statements have been reclassified to conform to the presentation ~~requirements, including~~in the 2019 financial statements. Such reclassifications did not have a material impact on the 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.~~overall financial statements.

Note 3. ~~Net~~ Potentially Dilutive Securities
Loss per ~~Share~~share attributable to common shareholders data for each period presented excludes from the calculation of diluted net loss the following potentially dilutive securities (reflecting the impact of the 1:20 reverse stock split that became effective on February 22, 2019) as they had an anti-dilutive impact:
As of September 30,
2019 2018
Both vested and unvested options to purchase an equal number of shares of Common Stock of the Company 178,229 114,250
Unvested RSUs to issue an equal number of shares of Common Stock of the Company 37,500 22,750
Warrants to purchase an equal number of shares of Common Stock of the Company 1,462,224 703,670
Preferred stock on an as converted basis 862,035 163,216
Convertible notes on an as converted basis — 217,500
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders 2,539,988 1,221,386
The 5% Secured Convertible Notes were converted into Common Stock in June 2019. See Note 9.“Long-term Notes and Convertible Notes.”

~~Basic net loss per share is computed by dividing~~On October 2, 2019, the ~~net loss for~~Company obtained shareholder approval of the ~~period by~~reduction in the ~~weighted-average number~~conversion price of the Company’s Series D Preferred Stock to Common Stock. Effective October 2, 2019, the Series D Preferred Stock converted into 10,964,460 shares of ~~common stock outstanding during~~Common Stock and 1,408,050 warrants to purchase Common Stock. As of November 12, 2019, 570,035 of 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, potentially dilutive securities, including certain warrants have been exercised and ~~stock options, were not reflected in diluted net loss per share because the impact of such instruments was anti-dilutive.~~

~~The table below presents the computation of basic and diluted net loss per share of common stock:~~
Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Basic numerator:
Net loss from continuing operations attributable to shares of common stock $ (4,489 ) $ (4,846 ) $ (15,811 ) $ (17,830 )
Net loss from discontinued operations attributable to shares of common stock (208 ) (415 ) (2,321 ) (2,193 )
Net loss attributable to shares of common stock $ (4,697 ) $ (5,261 ) $ (18,132 ) $ (20,023 )
Basic denominator:
Basic shares of common stock outstanding 24,144,002 15,473,895 20,852,034 14,880,925
Basic loss per share of common stock from continuing operations $ (0.19 ) $ (0.31 ) $ (0.76 ) $ (1.20 )
Basic loss per share of common stock from discontinued operations (0.01 ) (0.03 ) (0.11 ) (0.15 )
Basic net loss per share of common stock $ (0.20 ) $ (0.34 ) $ (0.87 ) $ (1.35 )

Diluted numerator:
Net loss from continuing operations attributable to shares of common stock $ (4,489 ) $ (4,846 ) $ (15,811 ) $ (17,830 )
Net loss from discontinued operations attributable to shares of common stock (208 ) (415 ) (2,321 ) (2,193 )
Net loss attributable to shares of common stock $ (4,697 ) $ (5,261 ) $ (18,132 ) $ (20,023 )
Diluted denominator:
Diluted shares of common stock outstanding 24,144,002 15,473,895 20,852,034 14,880,925
Diluted loss per share of common stock from continuing operations $ (0.19 ) $ (0.31 ) $ (0.76 ) $ (1.20 )
Diluted loss per share of common stock from discontinued operations (0.01 ) (0.03 ) (0.11 ) (0.15 )
Diluted net loss per share of common stock $ (0.20 ) $ (0.34 ) $ (0.87 ) $ (1.35 )

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 4,876,899 1,492,434 4,876,899 1,492,434
Unvested RSUs to issue an equal number of shares of common stock of the Company 365,565 — 365,565 —
Warrants to purchase an equal number of shares of common stock of the Company 3,087,500 1,006,679 3,087,500 1,006,679
Preferred stock on an as converted basis 3,439,587 — 3,620,626 —
Conversion feature of senior secured notes — — — 105,920
Total number of potentially dilutive instruments, excluded from the calculation of net loss per share 11,769,551 2,499,113 11,950,590 2,605,033
converted into Common Stock.

Note 4. ~~Business Combinations~~Cash, Cash Equivalents, and Restricted Cash

~~XpresSpa~~
~~During~~Cash, cash equivalents, and restricted cash in the ~~second quarter of 2017, the Company learned new information about legal and other professional costs which existed as~~consolidated condensed balance sheets are comprised 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 second and third quarters of 2017, certain XpresSpa Sellers converted an aggregate of 54,667 shares of their FORM Preferred Stock into 437,235 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 420,541 shares~~following as of September 30, ~~2017~~2019 and December 31, 2018:
September 30, 2019 December 31, 2018
Cash denominated in United States dollars $ 480 $ 2,000
Cash denominated in currency other than United States dollars 1,605 1,143
Restricted cash 451 487
Credit and debit card receivables 347 260
Total cash, cash equivalents, and restricted cash $ 2,883 $ 3,890
Cash denominated in Unites States dollars decreased from December 31, 2018 primarily due to increased capital expenditures to renovate spas and to open new spas, distributions to the ~~face value (and liquidation preference) was reduced from $23,588 to $20,186.~~Company’s noncontrolling interest investees and payments made on the Senior Secured Notes.

~~Group Mobile~~
~~On February 2, 2017, the Company acquired Excalibur, which is an end-to-end solutions provider~~Restricted cash represents balances at financial institutions to secure bonds and letters 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 withincredit as required by 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.~~
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) $ 613
Deferred tax assets 29
Property and equipment 21
Intangible assets 556
Goodwill 2,335
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).various lease agreements.

Note 5. ~~Segment Information~~
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 (XpresSpa);~~
~~technology (Group Mobile); and~~
~~intellectual property~~
Segment operating results reflect losses before corporate and unallocated shared expenses, interest expense and income 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.Other Current Assets

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
Wellness $ 12,652 $ — $ 36,563 $ —
Technology 4,879 1,751 11,820 5,478
Intellectual property 200 1,350 300 11,000
Total revenue 17,731 3,101 48,683 16,478

Cost of sales
Wellness 10,347 — 29,583 —
Technology 3,902 1,554 9,520 4,858
Intellectual property 126 1,164 343 6,127
Total cost of sales 14,375 2,718 39,446 10,985

Segment operating income (loss)
Wellness (1,639 ) — (6,002 ) —
Technology (490 ) (565 ) (2,146 ) (1,213 )
Intellectual property 217 113 86 (8,167 )
Corporate (2,099 ) (2,911 ) (6,562 ) (6,527 )
Total segment operating loss (4,011 ) (3,363 ) (14,624 ) (15,907 )
Corporate non-operating expense, net (268 ) (1,483 ) (574 ) (1,923 )
Loss from continuing operations before income taxes $ (4,279 ) $ (4,846 ) $ (15,198 ) $ (17,830 )
As of September 30, 2019, and December 31, 2018, the Company’s other current assets were comprised of the following:

September 30,
2017 December 31,
2016
Assets
Wellness $ 51,151 $ 57,527
Technology 14,445 7,014
Intellectual property 603 940
Corporate 7,189 15,819
Assets held for disposal 451 1,507
Total assets $ 73,839 $ 82,807
September 30, 2019 December 31, 2018
Cash in escrow $ 254 $ —
Prepaid expenses 222 1,204
Other 214 370
Total other current assets $ 690 $ 1,574

~~General and administrative costs~~Cash in escrow is the amount the Company was required to put into escrow to fund the renovation of one of its spa locations. Prepaid expenses 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 mainlypredominantly comprised of ~~cash.~~prepaid insurance policies which have terms of one year or less. The balance decreased from December 31, 2018 due to the timing of payments and amortization of the year end prepaid insurance balance.

Note 6. Other Assets
Other assets in the consolidated condensed balance sheets are comprised of the following as of September 30, 2019 and December 31, 2018:
September 30, 2019 December 31, 2018
Cost method investments $ 1,294 $ 2,482
Lease deposits 894 894
Other 306 —
Total other assets $ 2,494 $ 3,376

The Company ~~currently operates~~recorded an impairment loss on its FLI Charge cost method investment of approximately $47 which is included in ~~two geographical regions: United States~~“Impairment of assets” on the Company’s consolidated condensed statements of operations and ~~all other countries. The following table represents the geographical revenue, regional operating~~comprehensive loss ~~and total asset information as of and~~ for the three and nine months ended September 30, ~~2017~~2019. As of September 30, 2019, the Company’s cost method investments consist primarily of a $787 investment in InfoMedia Services Limited which the Company acquired in 2014 and ~~2016.~~ the remaining investment in Route1 of $484, which it received as part of the disposition of Group Mobile in March 2018.
In the second quarter of 2019, the Company impaired its investment in Route1, due to an under performance of operating results. The Company recorded an impairment charge of $1,141 in the second quarter of 2019, which is included in “Other non-operating income (expense), net” on the consolidated condensed statement of operations and comprehensive loss for the nine months ended September 30, 2019.
The Company has not identified any other events or changes in circumstances that could have a significant adverse effect on the carrying value of its remaining cost method investments.
Note 7. Intangible Assets and Goodwill
The following table provides information regarding the Company’s intangible assets subject to amortization, which consist of the following:
September 30, 2019 December 31, 2018
Gross
Carrying
Amount Accumulated
Amortization
and
Impairment Net
Carrying
Amount Gross
Carrying
Amount Accumulated
Amortization
and Impairment Net
Carrying
Amount
Trade name $ 13,309 $ (6,149 ) $ 7,160 $ 13,309 $ (4,485 ) $ 8,824
Customer relationships 312 (312 ) — 312 (312 ) —
Software 312 (114 ) 198 312 (69 ) 243
Patents 26,897 (26,897 ) — 26,897 (26,797 ) 100
Total intangible assets $ 40,830 $ (33,472 ) $ 7,358 $ 40,830 $ (31,663 ) $ 9,167
The Company’s trade name relates to the value of the XpresSpa trade name, customer relationships represent the value of loyalty customers, software relates to certain capitalized third-party costs related to a new point-of-sale system, and patents consist of intellectual property portfolios acquired from third parties.
The Company’s intangible assets are amortized over their expected useful lives. During the three and nine months ended September 30, 2019 and 2018, the Company recorded amortization expense of $583 and $510, respectively, and $1,727 and $1,901, respectively.
During the three months ended September 30, 2019, the Company wrote off the net book value of certain patents that were no longer generating cash flow totaling approximately $85, which is included in “Impairment of assets” for the three and nine months ended September 30, 2019 on the Company’s consolidated condensed statement of operations and comprehensive loss.
Based on the intangible assets balance as of September 30, 2019, the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:
Calendar Years ending December 31, Amount
Remainder of 2019 $ 463
2020 2,275
2021 2,275
2022 2,275
2023 70
Total $ 7,358
There were no ~~concentrations of geographical revenue, regional operating loss or total assets~~impairment indicators related to any ~~single foreign country~~of the Company’s amortizable intangible assets during the nine months ended September 30, 2019.

Goodwill Impairment
During the first quarter of fiscal year 2018, the Company’s stock price declined from an opening price of $1.36 on January 2, 2018 to $0.72 on March 29, 2018. Subsequently, on April 19, 2018, the Company entered into a separation agreement with its Chief Executive Officer regarding his resignation as Chief Executive Officer and Director. These events were identified by the Company’s management as triggering events requiring that goodwill be tested for impairment as of March 31, 2018.  As the stock price had not rebounded, the Company determined that there was an impairment of the goodwill. The Company performed a quantitative goodwill impairment test, in which the Company compared the carrying value of the reporting unit to its estimated fair value, which was calculated using an income approach. The key assumptions for this approach were ~~material~~projected future cash flows and a discount rate, which was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected future cash flows. As a result of the quantitative goodwill impairment test performed as of March 31, 2018, the Company determined that the fair value of the reporting unit was less than its’ carrying amount and, therefore, goodwill of the reporting unit was considered impaired. The Company recorded an impairment charge of $19,630 to reduce the carrying value of goodwill to its fair value, which was determined to be zero. The impairment to goodwill was a result of the structural changes to the Company, including completion of the transition from a holding company to a pure-play health and wellness company, the change in Chief Executive Officer and the reduction in the Company’s stock price.
Note 8. Leases
The Company leases its retail space at various domestic and international airports. Additionally, the Company leases its corporate office in New York. Certain leases entered into by the Company fall under ASU No. 2016-02, Leases (“Topic 842”) discussed in Note 2 (b) “Recently adopted accounting pronouncements”. The Company determines if an arrangement is a lease at inception and if it qualifies under Topic 842. Some of the Company’s lease arrangements contain fixed payments throughout the term of the lease. Others involve a variable component to determine the lease obligation where a certain percentage of sales is used to calculate the lease payments. The Company enters into certain leases that expire and are then extended on a month-to-month basis. These leases are not included in the calculation of the total lease liability and the right of use asset after they convert to month-to-month.
All qualifying leases held by the Company are classified as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company records its operating lease assets and liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate, which approximates the rate at which the Company can borrow funds on a secured basis, using the information available at commencement date of the lease in determining the present value of guaranteed lease payments. The interest rate implicit in the lease is generally not determinable in transactions where a company is the lessee.
The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any agreements should be accounted for pursuant to the guidance in Topic 842. The option to extend the term of one existing lease contract was exercised during the current period. The Company recalculated the right of use asset and lease liability based on the modified lease term and adjusted both balances. There were no other lease modifications during the period. The Company entered into two new lease arrangements that are included in the balances of its right of use asset and lease liability as of September 30, 2019.
The following is a summary of the activity in the Company’s operating lease liabilities for the nine months ended September 30, 2019:
Operating lease liabilities, January 1, 2019 $ 10,809
New leases entered 1,531
Termination of existing qualifying leases (421 )
Amortization of lease obligation (2,101 )
Operating lease liabilities, September 30, 2019 $ 9,818
In July 2019, as a result of an early termination of a lease for one of its locations that was closed, the Company assessed all assets at the closed location (primarily leasehold improvements) for impairment. This resulted in a charge of approximately $620 which was included in“Impairment of assets” in the consolidated condensed statements of operations and comprehensive loss that was recorded in June 30, 2019 and is reflected in the current period year to date results. The Company also reduced the remaining balance in the right of use assets and the lease liabilities by approximately $421 in June 2019 to write off the balances related to the leases for this location.
The Company expensed approximately $210 of costs capitalized in anticipation of opening new spas that the Company later determined would not be realized. This charge is included in the“Impairment of assets” line in the consolidated condensed statement of operations and comprehensive loss for the nine months ended September 30, 2019.

As of September 30, 2019, operating leases contain the following future minimum commitments:
Calendar Years ending December 31, Amount
Remainder of 2019 $
922

2020
3,441

2021
2,897

2022 2,196
2023 1,282
Thereafter
1,495

Total future lease payments 12,233
Less: interest expense at incremental borrowing rate (2,415 )
Net present value of lease liabilities $ 9,818
Other assumptions and pertinent information related to the Company’s ~~condensed consolidated financial statements.~~accounting for operating leases are:
Weighted average remaining lease term: 5.1 years
Weighted average discount rate used to determine present value of operating lease liability: 11.01 %
Cash paid for lease obligations during the nine months ended September 30, 2019: $ 2,827
Variable lease payments calculated monthly as a percentage of a product and services revenue, was $794 and $2,291 for the three and nine months ended September 30, 2019.
Note 9. Long-term Notes and Convertible Notes
Total Debt as of September 30, 2019 and December 31, 2018 is comprised of the following:

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
United States $ 16,228 $ 3,101 $ 44,802 $ 16,478
All other countries 1,503 — 3,881 —
Total revenue 17,731 3,101 48,683 16,478

Cost of sales
United States 13,539 2,718 37,108 10,985
All other countries 836 — 2,338 —
Total cost of sales 14,375 2,718 39,446 10,985

Segment operating loss
United States (4,540 ) (3,360 ) (15,849 ) (15,901 )
All other countries 529 (3 ) 1,225 (6 )
Total segment operating loss (4,011 ) (3,363 ) (14,624 ) (15,907 )
Corporate non-operating expense, net (268 ) (1,483 ) (574 ) (1,923 )
Loss from continuing operations before income taxes $ (4,279 ) $ (4,846 ) $ (15,198 ) $ (17,830 )

September 30,
2017 December 31,
2016
Assets
United States $ 70,141 $ 78,546
All other countries 3,247 2,754
Assets held for disposal 451 1,507
Total assets $ 73,839 $ 82,807
September 30, 2019 December 31, 2018
B3D Note, net of $2,847 in unamortized debt issuance costs and fair value adjustments as of September 30, 2019 $ 4,153 $ 6,500
5% Secured Convertible Notes, net — 1,986
Calm Note, net of $1,454 in unamortized debt issuance costs and fair value adjustments 1,046 —
Total debt $ 5,199 $ 8,486
B3D Note
On July 8, 2019, the Company entered into the fourth amendment to its existing credit agreement (the “Amendment to the Credit Agreement”) with B3D, to renegotiate the terms of its 11.24 %, $6,500 senior secured note as discussed in Note 1“General” underRecent Developments. The Amendment to the Credit Agreement, among other provisions, (i) extended the maturity date to May 31, 2021, (ii) reduced the applicable interest rate to 9.0%, and (iii) amended and restated certain other provisions. As consideration for these and other modifications, the principal amount owed to B3D was increased to $7,000.
The Company engaged an independent third party to assess the fair value of each of the derivative instruments included in the B3D Note. The results of the appraisal were that the conversion feature and the B3D Note should be bifurcated, and that the conversion option should be treated as a separate derivative liability. A fair value of $2,774 was assigned to the conversion option, which is included in “Derivative Liabilities” on the consolidated condensed balance sheet and the B3D Note was assigned a fair value of $4,226 as of July 8, 2019. The conversion option was marked to market as of September 30, 2019 and as a result, the Company recorded a revaluation gain of approximately $479 that is included in“Other income (expense), net” for the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2019 the Company recorded $362 of accretion expense that increased the carrying value of the B3D Note.
The modification to the terms included in the Credit Agreement Amendment were accounted for as a troubled debt restructuring in the Company’s consolidated condensed financial statements as of September 30, 2019, in accordance with ASC 470-60“Troubled Debt Restructurings by Debtors”. A debtor in a troubled debt restructuring involving only a modification of terms of a payable should account for the effects of the restructuring prospectively from the time of restructuring and not change the carrying amount of the payable at the time of the restructuring. The Company will pay interest monthly at the revised 9.0% rate over the life of the B3D Note. Since the future cash payments for principal and interest under the restructured B3D Note will be greater than the carrying value of the original note no gain was recorded.

As a result of the extension of the maturity date to May 31, 2021, the balance of the B3D Note was reclassified from current liabilities as of December 31, 2018 to long-term liabilities on the Company’s consolidated condensed balance sheet as of September 30, 2019.
The Company agreed upon a $500 increase in the principal amount of the B3D Note which will be amortized on a straight-line basis over the revised term of the B3D Note. The net balance of the deferred issuance costs was $435 as of September 30, 2019 and is presented as a reduction of the B3D Note balance in the Company’s consolidated condensed balance sheet. Amortization expense from July 8, 2019 through September 30, 2019 was $65 and is included in “Interest expense” in the consolidated condensed statements of operations and comprehensive loss. Amortization of debt issuance costs for the three and nine months ended September 30, 2018 was $394 and $589, respectively, also included in “Interest expense”.
The B3D Note is guaranteed on a full, unconditional, joint, and several basis, by the parent Company, XpresSpa Group, Inc., and all wholly owned subsidiaries of Holdings (the “Guarantor Subsidiaries”). Under the terms of a security and guarantee agreement dated July 8, 2019, XpresSpa Group, Inc. (the parent company) and the Guarantor Subsidiaries each fully and unconditionally, jointly and severally, guarantee the payment of interest and principal on the B3D Note. Holdings pledged and granted to B3D a first priority security interest in, among other things, all of its equity interests in Holdings and all of its rights to receive distributions, cash or other property in connection with Holdings. The Company has not presented separate consolidating financial statements of XpresSpa Group, Inc., Holdings and Holdings wholly owned subsidiaries as each entity has guaranteed the B3D Note, so each entity is responsible for the payment.
Convertible Notes
5% Secured Convertible Notes
On May 15, 2018, in a private placement offering, the Company issued (i) 5% Secured Convertible Notes (the “5% Secured Convertible Notes”) convertible into Common Stock at $12.40 per share, originally due November 2019, (ii) May 2018 Class A Warrants to purchase 357,863 shares of Common Stock and (iii) May 2018 Class B Warrants to purchase 178,932 shares of Common Stock. The May 2018 Class A and May 2018 Class B Warrants were originally convertible into Common Stock at $12.40 per share. The Company received aggregate proceeds of $4,438 from the May 2018 private placement. Debt issuance costs that had been capitalized related to the 5% Secured Convertible Notes, were being amortized on a straight-line basis over their remaining term of the 5% Secured Convertible Notes. The Company did not record amortization expense of the debt issuance costs related to the 5% Secured Convertible Notes after June 30, 2019 as the notes were converted into Common Stock on June 27, 2019. The balance of debt issuance costs of $135 was written off in June 2019 and was included in “Interest expense” in the consolidated condensed financial statements for the nine months ended September 30, 2019.
During the second quarter of 2019, the Company failed to make minimum monthly payments as required pursuant to the 5% Secured Convertible Notes, which failure constituted an event of default. Pursuant to the terms of the 5% Secured Convertible Notes, upon an event of default, an investor may elect to accelerate payment of the outstanding principal amount of such investor’s 5% Secured Convertible Notes, liquidated damages and other amounts owing in respect thereof through the date of acceleration, which amounts become immediately due and payable in cash. No investor provided notice to the Company electing to exercise its right to accelerate payment.
On June 27, 2019, the Company entered into the Third Amendment Agreement to the 5% Secured Convertible Notes (the “Third Amendment”) whereby the holders of the 5% Convertible Notes agreed to convert their notes then held into Common Stock. The Third Amendment reduced the conversion price of the 5% Convertible Notes to Common Stock from $12.40 per share to $2.48 per share. As a result of the reduction in the conversion price, the Company recorded debt conversion expense of $1,547 to account for the additional consideration paid over what was agreed to in the original 5% Secured Convertible Notes agreement. The expense is reflected in “Other non-operating income (expense), net” in the consolidated condensed statement of operations and comprehensive loss. The 5% Secured Convertible Notes holders converted their remaining outstanding principal balances plus accrued interest into 586,389 shares of Common Stock and 356,772 Class A Warrants (the “June 2019 Class A Warrants”). The June 2019 Class A Warrants had an exercise price of $0.01 and are otherwise identical in form and substance to the Company's existing May 2018 Class A Warrants.
The Company had an independent third party perform an appraisal of the June 2019 Class A Warrants as of June 30, 2019. The June 2019 Class A Warrants were assigned an appraised value of $689. The value of these warrants was recorded as a derivative liability on the consolidated balance sheet and will be marked to market at the end of each reporting period. The expense of $689 is included in“Other non-operating income (expense), net” in the consolidated condensed statements of operations and comprehensive loss in the second quarter of 2019 and is included in our current period year to date results.
The June 2019 Class A Warrants were converted into 354,502 shares of Common Stock in July 2019.

Calm Note
The Calm Note is an unsecured subordinated obligation of the Company. The Calm Note will mature on May 31, 2022, and bears interest at a rate of 5% per annum, subject to increase in the event of default. The Calm Note is convertible at any time, in whole or in part, at the option of Calm into shares of Series E Preferred Stock at a conversion price equal to $3.10 per share. Interest on the Calm Note is payable in arrears and may be paid in cash, shares of Series E Preferred Stock or a combination thereof.
The Company engaged an independent third party to assess the fair value of each of the derivative instruments included in the Calm Note. The results of the appraisal were that the conversion feature and the Calm Warrants should be bifurcated, and both treated as derivative liabilities. A fair value of $351 was assigned to the conversion option, a fair value of $1,018 was assigned to the Calm Warrants and the Calm Note was assigned a fair value of $1,131 as of July 8, 2019. The conversion option and the Calm Warrants were marked to market as of September 30, 2019 and, as a result, the Company recorded a revaluation gain of approximately $185 that is included in“Other income (expense), net” in the consolidated condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2019.
The Company capitalized approximately $220 of costs related to the issuance of the Calm Note and recorded amortization expense of approximately $19 from the date the debt was issued on July 8, 2019 through September 30, 2019. The net balance of the deferred issuance costs is $201 as of September 30, 2019 and is presented as a reduction of the Calm Note balance in the Company’s consolidated condensed balance sheet. Amortization expense is included in“Interest expense” in the Company’s consolidated condensed statements of operations and comprehensive loss for the three- and nine-month periods ended September 30,2019. During the three and nine months ended September 30, 2019, the Company recorded $116 of accretion expense that increased the carrying value of the Calm Note.
Note 10. Stockholders’ Equity
Series D Convertible Preferred Stock Amendment and December 2016 Warrant Amendment
On July 8, 2019, the Company filed the Series D COD Amendment with the State of Delaware to reduce the conversion price of Series D Convertible Preferred Stock to Common Stock to $2.00 and to then provide for automatic conversion of the Series D Convertible Preferred Stock into shares of Common Stock.
When a reporting entity changes the terms of its preferred stock it must assess whether the changes should be accounted for as either a modification or extinguishment. The Company engaged an independent third party to perform an appraisal to determine the fair value of the Series D Preferred Stock before and after the changes were made. The results of the fair value assessment indicated that the fair values before and after the change in the provisions and characteristics of the Series D Preferred Shares were not substantially different (in practice, substantially different has been interpreted to be greater than ten percent). Therefore, the Company did not record an adjustment to the Series D Preferred Stock.
Also, on July 8, 2019, the Company entered into an amendment to the December 2016 Warrants to provide for (i) a reduction in the exercise price into Common Stock to $2.00, (ii) certain anti-dilution price protection and (iii) a voluntary reduction at a future date of the exercise price by the Company in its discretion.
Series E Convertible Preferred Stock
On July 8, 2019, the Company filed the Series E COD Amendment with the State of Delaware to (i) increase the number of authorized shares of Series E Preferred Stock to 2,397,060 and (ii) reduce the conversion price to $2.00. The Series E COD Amendment was approved by the Board of Directors of the Company and the Company obtained shareholder approval of the Series E COD Amendment on October 2, 2019.
When a reporting entity changes the terms of its outstanding preferred stock it must assess whether the changes should be accounted for as either a modification or an extinguishment. The Company engaged an independent third party to perform an appraisal to determine the fair value of the Series E Preferred Stock before and after the changes were made. The results of the fair value assessment indicated that the fair values before and after the change in the provisions and characteristics of the Series E Preferred Stock were not substantially different (in practice, substantially different has been interpreted to be greater than ten percent). Therefore, the Company did not record an adjustment to the Series E Preferred Stock.
Series F Convertible Preferred Stock
In connection with the May 2018 SPA Amendment, the Company issued 8,996 shares of Series F Convertible Preferred Stock to the parties to the May 2018 SPA Amendment. The Company engaged an independent third party to perform an appraisal to determine the fair value of the Series F Preferred Stock. The Series F Preferred Stock has a par value of $0.01 per share and a stated value of $100 per share. The Series F Preferred Stock was appraised at a fair value of $1,254, which was recorded as a charge to“Other income (expense), net” in the Company’s consolidated condensed financial statements for the three and nine months ended September 30, 2019.
Reverse Stock Split
On February 22, 2019, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-20 reverse stock split of the Company’s shares of Common Stock. Such amendment and ratio were previously approved by the Company’s stockholders and Board of Directors.
As a result of the reverse stock split, every twenty (20) shares of the Company’s pre-reverse split Common Stock were combined and reclassified into one (1) share of Common Stock. Proportionate voting rights and other rights of common stockholders were affected by the reverse stock split. Stockholders who would have otherwise held a fractional share of Common Stock received payment in cash in lieu of any such resulting fractional shares of Common Stock as the post-reverse split amounts of Common Stock were rounded down to the nearest full share. No fractional shares were issued in connection with the reverse stock split.

Note 6.11. Derivative Liabilities and Fair Value Measurements

~~Derivative Warrant Liabilities~~Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require us to use present value and other valuation techniques in the determination of fair value (Level 3).

The Company’s financial instruments as of September 30, 2019 and December 31, 2018 consisted of cash and cash equivalents, trade receivables, retail inventory, accounts payable, accrued expenses and other current liabilities. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term nature of these instruments.
Derivative Liabilities
In connection with the Calm Private Placement, the Company granted warrants to purchase 937,500 shares of the Company’s Common Stock, at an exercise price of $2.00 per share.
The Calm Warrants issued in connection with the Calm Private Placement entitle Calm to purchase an aggregate of 937,500 shares of Common Stock. The Calm Warrants are exercisable beginning six months from the date of issuance, have a term of five years and can be exercised for shares of Common Stock at an exercise price of $2.00 per share.
At September 30, 2019, the Company had outstanding its May 2018 Class A Warrants and the Calm Warrants which are classified as liabilities and are included in“Derivative liabilities” on the consolidated condensed balance sheet. Both the May 2018 Class A Warrants and the Calm Warrants were fair valued as of September 30, 2019 and market to market as of that date (see Note 9. Long-term Notes and Convertible Notes for further discussion).
The May 2018 Class B Warrants were cancelled in July 2019. Holders of these warrants were granted Class A Warrants and shares of the Company’s Series F Preferred Stock (see Note 10.“Stockholders’ Equity” for further discussion regarding the Series F Preferred Stock).
The fair value of the conversion options related to the issuance of the B3D Note of $2,295 and the Calm Note of $324 are included in “Derivative liabilities” on the consolidated condensed balance sheet as of September 30, 2019.
The following table presents the placement in the fair value hierarchy of the Company’s derivative ~~warrant~~ liabilities measured at fair value on a recurring basis as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

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)
September 30, 2017:
May 2015 Warrants $ 52 $ — $ — $ 52

December 31, 2016:
May 2015 Warrants $ 259 $ — $ — $ 259
Quoted prices in
active markets Significant other Significant
for identical observable unobservable
Balance assets (Level 1) inputs (Level 2) inputs (Level 3)
September 30, 2019:

May 2018 Class A Warrants $ 2,609 $ — $ — $ 2,609
B3D conversion option 2,295 — — 2,295
Calm Warrants 860 — — 860
Calm conversion option 324 — — 324
Total $ 6,088 $ — $ — $ 6,088

December 31, 2018:
May 2018 Class A Warrants $ 476 $ — $ — $ 476
May 2018 Class B Warrants — — — —
Total $ 476 $ — $ — $ 476

The Company measures its derivative ~~warrant~~ liabilities at fair value. The ~~May 2015 Warrants~~derivative liabilities were classified within Level 3 because they were valued using the ~~Black-Scholes-Merton~~Monte-Carlo model, which utilizes significant inputs that are ~~unobservable.~~unobservable in the market. These derivative ~~warrant~~ liabilities were initially measured at fair value and are marked to market at each balance sheet date. The derivative liabilities are recorded shown as “Derivative liabilities” in the consolidated condensed balance sheets and the revaluation of the derivative liabilities is included in“Other non-operating income (expense), net” in the consolidated condensed statements of operations and comprehensive loss.

In addition to the above, the Company’s financial instruments as of September 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- and nine-month periods~~nine months ended September 30, ~~2017:~~2019:

May 2015
Warrants
December 31, 2016 $ 259
Decrease in fair value of the derivative warrant liabilities (159 )
June 30, 2017 100
Decrease in fair value of the derivative warrant liabilities (48 )
September 30, 2017 $ 52
December 31, 2018 $ 476
Fair value ascribed to embedded derivative conversion options and warrants 4,143
Issuance of June 2019 Class A Warrants 689
Conversion of June 2019 Class A Warrants into Common Stock (689 )
Revaluation of derivative conversion options and warrants at September 30, 2019 1,469
September 30, 2019 $ 6,088

Valuation ~~processes~~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.

September 30, ~~2017:~~2019:
Description Valuation technique Unobservable inputs Range
Calm Warrants Monte Carlo Model Volatility 67.1 %
Risk-free interest rate 1.60 %
Expected term, in years 4.77
Dividend yield 0.00 %
Calm conversion option Monte Carlo Model Volatility 67.2 %
Risk-free interest rate 1.63 %
Expected term, in years 2.67
Dividend yield 0.00 %
B3D conversion option Monte Carlo Model Volatility 67.6 %
Risk-free interest rate 1.73 %
Expected term, in years 1.67
Dividend yield 0.00 %
May 2018 Class A Warrants Monte Carlo Model Volatility 42.5 %
Risk-free interest rate 1.60 %
Expected term, in years 3.63
Dividend yield 0.00 %
December 31, 2018:

Description Valuation technique Unobservable inputs Range
~~May 2015~~Class A Warrants ~~Black-Scholes-Merton~~Monte Carlo Model Volatility ~~42.49~~70.61 %
~~Risk free~~Risk-free interest rate ~~1.57~~2.53 %
Expected term, in years ~~2.59~~4.38
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~~Measurements to ~~changes~~Changes in ~~significant unobservable inputs~~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,~~Common Stock, the exercise price of the derivative ~~warrant liabilities,~~of the conversion options and the warrants, their remaining expected term, the volatility of the Company’s ~~common stock~~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.

Generally, an increase in the market price of the Company’s shares of ~~common stock,~~Common Stock, an increase in the volatility of the Company’s shares of ~~common stock,~~Common Stock, and an increase in the remaining term of the derivative ~~warrant~~ liabilities would each result in a directionally similar change in ~~the~~their estimated fair ~~value of the Company’s derivative warrant liabilities.~~values Such changes would increase the associated ~~liability~~liabilities while decreases in these assumptions would decrease the associated ~~liability.~~liabilities. 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~~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 declared, and does not plan to declare, dividends on its ~~common stock~~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 the contingent consideration assumed by the Company following the acquisition of Excalibur, which is measured at fair value on a recurring basis:
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)
September 30, 2017:
Contingent consideration $ 316 $ — $ — $ 316
The purchase value of the contingent consideration assumed by the Company following the acquisition of Excalibur was determined using the Monte-Carlo simulation and, as such, was 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.

Note 7.12. Stock-based Compensation

~~As of September 30, 2017, 1,552,480 shares of~~The Company has a stock-based compensation plan available to grant stock options and RSUs to the Company’s ~~common stock were available for future grants under~~directors, employees and consultants. Under the ~~Company’s~~ 2012 Employee, Director and Consultant Equity Incentive ~~Plan.~~ Plan (the “Plan”) a maximum of 355,000 shares of Common Stock may be awarded. In February 2019, the Company granted a total of 32,500 stock options to members of its Board of Directors and 75,000 stock options to the Company’s newly elected Chief Executive Officer at an exercise price of $4.20 per share. The options vest over a period of one year. The Company also granted 37,500 RSUs to its newly elected Chief Executive Officer at an exercise price of $4.20 per share.
Total stock-based compensation expense for the ~~nine-month periods~~three and nine months ended September 30, ~~2017~~2019 was $35 and ~~2016 was $2,179~~$266, respectively, and ~~$1,447, respectively. Total~~for the three and nine months ended September 30, 2018, stock-based compensation expense ~~for the three-month periods ended September 30, 2017~~was $194 and ~~2016 was $706 and $485,~~$570, respectively.

Note 13. Related Party Transactions
On April 14, 2018, the Company entered into a consulting agreement with an employee of Mistral Equity Partners, which is a significant shareholder of the Company and whose Chief Executive Officer is a member of the Board of Directors of the Company, to consult on certain business-related matters. The ~~following table illustrates~~total consideration was $10 per month through April 30, 2019, when it was terminated. The Company recorded consulting expense of $40 up through the ~~options granted during~~termination date of the agreement.
Note 14. Discontinued Operations
FLI Charge
On October 20, 2017 (the “Closing Date”), the Company sold FLI Charge, a wholly owned subsidiary included in its discontinued technology operating segment, to a group of private investors and FLI Charge management. As part of the sale, the Company received a perpetual royalty agreement (the “Royalty Agreement”). The Company also received a warrant exercisable in shares of FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events.
In June 2019, the Company received a buyout from the Royalty Agreement and warrants in the amount of $1,100. This is reflected in“Other” revenue on the consolidated condensed statement of operations and comprehensive loss.
Group Mobile
On March 7, 2018, the Company entered into a membership purchase agreement (the “Purchase Agreement”) with Route1 Security Corporation, a Delaware corporation (the “Buyer”), and Route1 Inc., an Ontario corporation (“Route1”), pursuant to which the Buyer agreed to acquire Group Mobile, a wholly-owned subsidiary included in the Company’s discontinued technology operating segment, (the “Disposition”). The transaction closed on March 22, 2018 (the “Closing Date”), after which the Company no longer had any involvement with Group Mobile.
In consideration for the Disposition, the Buyer issued to the Company:
· 25,000,000 shares of common stock of Route1 (“Route1 Common Stock”);
· warrants to purchase 30,000,000 shares of Route1 Common Stock, which had an exercise price of CAD 5 cents per share of Route 1 Common Stock and will be exercisable for a three-year period; and
· certain other payments over the three-year period pursuant to an earn-out provision in the Purchase Agreement.

Post-closing, the Company owned approximately 6.7% of Route1 common stock. The Route1 common stock is not tradable until a date no earlier than 12 months after the Closing Date; 50%, or 12,500,000 shares of Route1 common stock are tradeable after 12 months plus an additional 2,083,333 shares of Route1 common stock are tradeable each month until 18 months after the Closing Date, subject to a change of control provision. The Company has the ability to sell the Route1 common stock and warrants to qualified institutional investors. The Group Mobile Purchase Agreement also contains representations, warranties, and covenants customary for transactions of this type.
The total consideration of the Disposition was recognized as a cost method investment and, as such, was measured at cost on the date of acquisition, which, as of the Closing Date, approximated fair value. The fair value of the total consideration as of the Closing Date was determined to be $1,625, which was less than the carrying value of the asset. This resulted in a loss on disposal which is included in consolidated net loss from discontinued operations in the consolidated condensed statement of operations and comprehensive loss that was recorded in the nine-month period ended September 30, ~~2017.~~2018 of $1,115.
The value of the total consideration for the Group Mobile disposition was determined using a combination of valuation methods including:

~~Title~~ (i) The value of the Route 1 common stock was determined to be $308, which was estimated by multiplying the number of shares as they become tradeable by the price per share as of the Closing Date.
~~Grant date~~(ii) The value of the warrants was determined to be $176, which was calculated using the Black-Scholes-Merton model.
~~No.~~(iii) The value of
~~options~~ ~~Exercise~~
~~price~~ ~~Fair value at~~
~~grant date~~ ~~Vesting terms~~ ~~Assumptions used in~~
~~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 earn-out provision was determined to be $1,141, which was estimated using a Monte-Carlo simulation analysis.

Due to the underperformance of operating results by Group Mobile in the first period for which results were required to be reported to the Company, we determined that the asset was impaired as of June 30, 2019 and recorded an impairment charge of $1,141, which is included in“Other non-operating income (expense), net” on the consolidated condensed statement of operations and comprehensive loss for the nine months ended September 30, 2019 (See Note 6.“Other Assets”).
Operating Results of Discontinued Operations
The following table ~~illustrates~~presents the ~~RSUs granted during~~components of the ~~nine-month period September 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~~consolidated net loss from discontinued operations, as presented in the consolidated condensed statements of operations and ~~RSUs during~~comprehensive loss for the nine-month period ended September 30, ~~2017 consisted of the following:~~2018:

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 (35,377 ) $ 2.12 (330,834 ) $ 15.57 $ 1.55 – 41.00 $ 10.61
Expired — — (16,368 ) $ 43.66 $ 9.94 – 55.00 $ 22.02
Outstanding as of September 30, 2017 365,565 $ 2.12 4,876,899 $ 5.21 $ 1.55 – 41.00 $ 3.59
Exercisable as of September 30, 2017 — 2,780,024 $ 7.77 $ 1.55 – 41.00

On January 20, 2017, the Company entered into amended employment agreements with its named executive officers. Under the terms of certain 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 noncash 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.~~
Nine months
ended
September 30,
2018
Revenue $ 2,834
Cost of sales (2,305 )
Depreciation and amortization (131 )
General and administrative (1,190 )
Loss on disposal (301 )
Non-operating income (expense), net (22 )
Loss from discontinued operations $ (1,115 )

Note 8.15. 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 ~~nine months~~nine-month period ended September 30, ~~2017~~2019 reflect an estimated global annual effective tax benefit at the rate of approximately ~~-3.0% from continuing operations. Discontinued operations for the nine months ended September 30, 2017 reflect an annual effective tax rate of 0.0%~~1%.

As of September 30, ~~2017,~~2019, deferred tax assets generated from the Company’s ~~U.S.~~ activities in the United States 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~~
The Company recorded an income tax ~~expense for~~benefit during the three and nine months ended September 30, ~~2017~~2019, which is comprised primarily of ~~approximately $284 was attributable primarily to~~the release of a liability for an uncertain tax ~~deductions related to goodwill,~~position for which ~~there is no corresponding financial statement amortization expense,~~the statute of limitations expired in the third quarter of 2019 of $132, partially offset by ~~the reduction in the valuation allowance needed following the acquisition of Excalibur's deferred tax liability.~~earnings generated by foreign subsidiaries. The final annual tax rate cannot be determined until the end of the fiscal ~~year;~~year therefore, the actual tax rate could differ from current estimates. ~~Although the~~The Company has an immaterial amount of remaining liabilities for uncertain tax positions ~~the Company~~and does not expect to record any additional material provisions for unrecognized tax benefits ~~with~~in the next year.
~~Note 9. Related Parties Transactions~~
On April 22, 2015, XpresSpa entered into a credit agreement and secured promissory note (the “Debt”) with Rockmore Investment Master Fund Ltd. (“Rockmore”) 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 both September 30, 2017 and December 31, 2016, which is included in long-term liabilities in the condensed consolidated balance sheets. During the three- and nine-month period ended September 30, 2017, XpresSpa paid $150 and $580 of interest and recorded $183 and $548 of interest expense, respectively. During May 2017, 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 modified.
In addition, the Company paid $212 to Mr. Bernstein in 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.

~~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. As a result, a non-cash impairment loss of $1,092 relating to FLI Charge’s technology assets and goodwill was recorded as of June 30, 2017.
On October 20, 2017 (the “Closing Date”), the Company sold FLI Charge to a group of private investors and FLI Charge management, who will own and operate FLI Charge. The Company will not be providing any continued management or financing support to FLI Charge.
Total consideration for the sale of FLI Charge is $1,250, payable in installments. The consideration is secured by a note and security agreement. Additionally, the Company is entitled to a 5% royalty, in perpetuity, on the gross revenue of FLI Charge and of any affiliate of FLI Charge with regard to conductive wireless charging, power, or accessories. The Company also received a warrant exercisable in FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events. The Company is currently evaluating the gain on the sale of FLI Charge.
~~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
September 30,

Nine months ended
September 30,

2017 2016 2017 2016
Revenue $ 10 4 63 $ 33
Cost of sales (15 ) (7 ) (83 ) (9 )
Depreciation, amortization and impairment (21 ) (21 ) (1,189 ) (63 )
General and administrative (182 ) (391 ) (1,112 ) (2,154 )
Loss from discontinued operations before income taxes (208 ) (415 ) (2,321 ) (2,193 )
Income tax expense — — — —
Net loss from discontinued operations $ (208 ) $ (415 ) $ (2,321 ) $ (2,193 )
In addition, the following table presents the carrying amounts of the major classes of assets and liabilities held for sale as of September 30, 2017 and December 31, 2016, as presented in the condensed consolidated balance sheets.
September 30,
2017 December 31,
2016
Accounts receivable, net $ 39 $ 45
Inventory 212 53
Other current assets 9 92
Property and equipment, net 191 183
Intangible assets, net — 377
Goodwill — 757
Assets held for disposal $ 451 $ 1,507

Accounts payable, accrued expenses and other current liabilities $ 71 $ 196
Deferred revenue 9 10
Liabilities held for disposal $ 80 $ 206

Note ~~11.~~16. 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 any potential liability and the estimated amount of a loss related to the Company’s legal matters. ~~Based~~
With respect to the Company’s outstanding legal matters, based on ~~the Company’s~~its current knowledge, the Company’s management believes that the amount or range of a potential loss ~~from its outstanding legal matters~~ 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 outstanding legal matters ~~described below,~~ and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company ~~recorded $745,~~has reserved $290 as of September 30, 2019 and December 31, 2018, which is included in ~~accounts~~“Accounts payable, accrued expenses and other current ~~liabilities~~ liabilities”in the consolidated condensed ~~consolidated~~ balance ~~sheet as of September 30, 2017.~~sheets.

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

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.

Cordial filed a series of complaints with the City of Atlanta, both before and after the termination, in which Cordial alleged, among other things, that the termination was not valid and that XpresSpa unlawfully retaliated against Cordial when Cordial raised concerns about the joint venture. In response to the numerous complaints it received from Cordial, the City of Atlanta required the parties to engage in two mediations.
After the termination of the relationship with Cordial, XpresSpa sought to substitute two new ACDBE partners in place of Cordial.
In April 2015, Cordial filed a complaint with the United States Federal Aviation Administration (“FAA”), which oversees the City of Atlanta with regard to airport ACDBE programs, and, in December 2015, the FAA instructed that the City of Atlanta review XpresSpa’s request to substitute new partners in lieu of Cordial and Cordial’s claims of retaliation. In response to the FAA instruction, pursuant to a corrective action plan approved by the FAA, the City of Atlanta held a hearing in February 2016 and ruled in favor of XpresSpa such substitution and claims of retaliation. Cordial submitted a further complaint to the FAA claiming that the City of Atlanta was biased against Cordial and that the City of Atlanta’s decision was wrong. In August 2016, the parties met with the FAA. On October 4, 2016, the FAA sent a letter to the City of Atlanta directing that the City of Atlanta retract previous findings on Cordial’s allegations and engage an independent third party to investigate issues previously decided by Atlanta. The FAA also directed that the City of Atlanta determine monies potentially due to Cordial.
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~~dealing. XpresSpa is seeking damages, declaratory judgment, rescission/termination of certain agreements, disgorgement of revenue, fees and costs, and various other relief. On February 21, 2017, the defendants filed a motion 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”).~~dismiss. On March 3, 2017, XpresSpa filed a first amended complaint against ~~Cordial.~~the defendants. On April 5, 2017, Cordial filed a motion to ~~dismiss the Cordial Litigation.~~dismiss. On September 12, 2017, the Court held a hearing on the motion to dismiss.
On ~~January 4,~~November 2, 2017, the Court granted the motion to dismiss which was entered on November 13, 2017. On December 22, 2017, XpresSpa filed a notice of appeal, and on September 24, 2018, XpresSpa perfected its appellate rights and submitted a brief to the Supreme Court of New York, First Department appellate court. Oral arguments on the appeal are expected to take place in early 2019. Oral argument on the appeal went forward on March 20, 2019, and the Company expects the court to rule on the appeal in the coming months.

On March 30, 2018, Cordial filed a lawsuit against XpresSpa, a subsidiary of XpresSpa, and several additional parties in the Superior Court of Fulton County, Georgia, alleging the violation of Cordial’s civil rights, tortious interference, breach of fiduciary duty, civil conspiracy, conversion, retaliation, and unjust enrichment. Cordial has threated to seek punitive damages, attorneys’ fees and litigation expenses, accounting, indemnification, and declaratory judgment as to the status of the membership interests of XpresSpa and Cordial in the joint venture and Cordial’s right to profit distributions and management fees from the joint venture. On May 3, 2018, the Court issued an order extending the time for the defendants to respond to Cordial’s lawsuit until June 25, 2018. On May 4, 2018, the defendants moved the lawsuit to the United States District Court for the ~~Southern~~Northern District of Georgia. On June 5, 2018, the Court granted an extension of time for the defendants’ response until August 17, 2018. On August 9, 2018, the Court granted an additional extension of time for the defendants’ response until September 7, 2018, and thereafter provided another extension pending the Court’s consideration of XpresSpa’s Motion to Stay all action in the Georgia lawsuit, pending resolution of the New York ~~against its former attorney, Kevin Ross,~~lawsuit and ~~his law firm, alleging malpractice, unjust enrichment, breach~~the FAA action. On October 29, 2018, XpresSpa’s Motion to Stay was denied. Prior to resolution of ~~fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference,~~the Motion to Stay, Cordial filed a Motion for Temporary Restraining Order (“TRO Motion”), seeking to enjoin the defendants 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 17, 2017,~~specifically XpresSpa, from, among other things, distributing any cash flow, net profits, or management fees, or otherwise expending resources beyond necessary operating expenses. XpresSpa filed an opposition and, in a ~~First Amended Complaint against~~decision entered December 26, 2018, the ~~defendants. On June 2, 2017, the Ross~~Court denied Cordial’s TRO Motion entirely. Defendants filed ~~their answer.~~a Motion to Dismiss the Complaint in its entirety on November 20, 2018, which is pending decision by the Court.

~~Both~~A Director's Determination was issued by the FAA in connection with the Part 16 Complaint ("Part 16 Proceeding") filed by Cordial ~~Litigation~~against the City of Atlanta ("City") in 2017 ("Director's Determination"). The Company and ~~Ross Litigation are pending before~~Cordial were not parties to the ~~respective courts.~~FAA action, and had no opportunity to present evidence or otherwise be heard in such action. The Director's Determination concluded that the City was not in compliance with certain Federal obligations concerning the federal government's ACDBE program, including relating to the City's oversight of the Joint Venture Operating Agreement between Clients and Cordial, Cordial's termination, and Cordial's retaliation and harassment claims, and the City was ordered to achieve compliance in accordance with the Director's Determination. The Director's Determination does not constitute a Final Agency Decision and it is not subject to judicial review, pursuant to 14 CFR § 16.247(b)(2). Because the Company is not a party to the Part 16 Proceeding, the Company would not be considered "a party adversely affected by the Director's Determination" with a right of appeal to the FAA Assistant Administrator for Civil Rights.

On August 7, 2019, the Company filed a response, advising the U.S. District Court that: (i) the Company is not party to the FAA proceeding and therefore had no opportunity to present evidence or otherwise be heard in such action; (ii) as non-party, the Company is not bound by the Director's Determination; and (iii) the FAA cannot dictate the interpretation or enforceability of the contract between Cordial and the Company, which is the subject of the U.S. District Court action initiated by Cordial and the New York State Court action initiated by the Company.
The Company has been involved in settlement negotiations seeking to resolve all pending matters, and those negotiations are continuing.
In re Chen et al.

OnIn March ~~16,~~ 2015, four former XpresSpa employees ~~of XpresSpa~~ who worked at XpresSpa 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~~York. In re Chen et al., CV 15-1347 (E.D.N.Y.). Plaintiffs claim that they and other spa technicians around the country were misclassified as exempt commissioned salespersons under Section 7(i) of the federal Fair Labor Standards Act (“FLSA”). Plaintiffs also assert class claims for unpaid overtime on behalf of New York spa technicians under the New York Labor Law, and discriminatory employment practices under New York State and City laws. On July 1, 2015, the plaintiffs moved to have the court authorize notice of the FLSA misclassification claim sent to all employees in the spa technician job classification at XpresSpa locations around the country in the last three years. Defendants opposed the motion. On February 16, 2016, the Magistrate Judge assigned to the case issued a Report & Recommendation, recommending that ~~overtime was unpaid.~~the District Court Judge grant the plaintiffs’ motion. On March 1, 2016, the defendants filed Opposition to the Magistrate Judge’s Report & Recommendation, arguing that the District Court Judge should reject the Magistrate Judge’s findings. On September 23, 2016, the ~~Court~~court ruled in favor of the plaintiffs and conditionally certified the class. The parties held a mediation on February 28, 2017 and reached an agreement on a settlement in principle. On September 6, 2017, the parties entered into a settlement agreement. On September 15, 2017, the parties filed a motion for settlement approval with the ~~Court; this motion is pending. In October 2017,~~Court. XpresSpa subsequently paid the agreed-upon settlement amount to the settlement claims administrator to be held in escrow pending a fairness hearing and final approval by the Court. On March 30, 2018, the Court entered a Memorandum and Order denying the motion without prejudice to renewal due to questions and concerns the Court had about certain settlement terms. On April 24, 2018, the parties jointly submitted a supplemental letter to the Court advocating for the fairness and adequacy of the settlement and appeared in Court on April 25, 2018 for a hearing to discuss the settlement terms in greater detail with the assigned Magistrate Judge. At the conclusion of the hearing, the Court still had questions about the adequacy and fairness of the settlement terms, and the Judge asked that the parties jointly submit additional information to the Court addressing the open issues. The parties submitted such information to the Court on May 18, 2018 and are awaiting the Court’s ruling on the open issues.

On August 21, 2019, the Court issued an Order denying the parties’ motion for preliminary approval of the revised settlement, as the Court still had concerns about several of the settlement terms. The Court set a deadline of September 19, 2019 for the parties to submit a revised proposal. The time to submit a revised settlement agreement for the Chen case has been further extended to November 7, 2019.
~~Other~~Binn v. FORM Holdings Corp. et al.

On November 6, 2017, Moreton Binn and Marisol F, LLC, former stockholders of XpresSpa, filed a lawsuit against FORM Holdings Corp. (“FORM) and its directors in the United States District Court for the Southern District of New York. The lawsuit alleged violations of various sections of the Securities Exchange Act of 1934 (“Exchange Act”), material omissions and misrepresentations (negligent and fraudulent), fraudulent omission, expropriation, breach of fiduciary duties, aiding and abetting, and unjust enrichment in the defendants’ conduct related to the Company’s acquisition of XpresSpa, and sought rescission of the transaction, damages, equitable and injunctive relief, fees and costs, and various other relief. On January 17, 2018, the defendants filed a motion to dismiss the complaint. On February 7, 2018, the plaintiffs amended their complaint. On February 28, 2018, the defendants filed a motion to dismiss the amended complaint. By March 30, 2018, the motion to dismiss was fully briefed. On August 7, 2018, the Court ruled on the defendants’ motion, dismissing eight of the plaintiffs’ ten claims and denying the defendants’ motion to dismiss with respect to the two remaining claims, related to the Exchange Act. On October 30, 2018, the Court ordered that the plaintiffs could file an amended complaint, and, in response, the defendants could move for summary judgment. Consistent with the Court’s Order, on November 16, 2018, the plaintiffs filed a second amended complaint, modifying their allegations, and asserting claims pursuant to the Exchange Act and the Securities Act of 1933, as well as bringing a breach of contract claim. On December 17, 2018, the defendants filed a motion for summary judgment seeking dismissal of all claims. On February 1, 2019, the plaintiffs opposed defendant’s motion, requested discovery and cross-moved for partial summary judgement filed an opposition to defendants’ motion and a counter motion for partial summary judgment. Defendants’ summary judgement motion and plaintiff’s cross-motion for partial summary judgment were fully briefed as of March 15, 2019. On April 29, 2019, an emergency hearing was held before the Court in which the plaintiff sought a temporary restraining order and preliminary injunction to preclude acceleration of the maturity on the Senior Secured Note. The Court entered a temporary restraining order, while allowing parties the opportunity to brief the issue.
On May 21, 2019, the Court granted the defendant’s motion for summary judgement in full, dismissing all claims in the action. On July 3, 2019, the plaintiffs filed a notice of appeal in the United States Court of Appeals for the second circuit. The Company and its directors continue to believe that this action is without merit and intend to defend the appeal vigorously. On July 1, 2019, the Court held oral argument on Binn’s motion for preliminary injunction. After hearing argument by both sides, the Court deferred action and ordered that the temporary restraining order remain in place. On July 23, 2019, the Court denied the plaintiffs’ request for a preliminary injunction and vacated the temporary restraining order.
Kainz v. FORM Holdings Corp. et al.
On March 20, 2019, a second suit was commenced in the United States District Court for the Southern District of New York against FORM, seven of its directors and former directors, as well as a managing director of Mistral Equity Partners (“Mistral”). The individual plaintiff, a shareholder of XpresSpa Holdings, LLC at the time of the merger in December 2016, alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false statements concerning,inter alia,the merger and the independence of FORM’s board of directors, violated Section 12(2) of the Securities Act of 1933, breached the merger agreement by making false and misleading statements concerning the merger and fraudulently induced the plaintiff into signing the joinder agreement related to the merger. On May 8, 2019, the Company and its directors and the managing director of Mistral filed a motion to dismiss the complaint. On June 5, 2019, plaintiffs opposed the motion and filed a cross-motion for a partial stay. Defendants’ motion to dismiss was fully briefed as of June 19, 2019.
On November 13, 2019, the matter was dismissed in its entirety. Plaintiff has 30 days to file a notice of appeal.
Binn, et al. v. Bernstein et al.
On June 3, 2019, a third suit was commenced in the United States District Court for the Southern District of New York against FORM, five of its directors, as well as Rockmore, the Company’s previous senior secured lender and a senior executive of the lender. Although this action is brought by Morton Binn and Marisol F, LLC, it is asserted derivatively on behalf of the Company. Plaintiffs assert eight causes of action, including that certain individual defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making false statements concerning,inter alia,the merger and the independence of FORM’s board of directors and the valuation of the Company’s lease portfolio. Plaintiffs also assert common law claims for breach of fiduciary duty, corporate waste, unjust enrichment, faithless servant doctrine, and aiding and abetting certain of the directors’ alleged breaches of fiduciary duty. The Company and its directors believe that this action is without merit and intend to file a motion to dismiss and defend the action vigorously.
The defendants filed a motion to dismiss on October 23, 2019. The plaintiffs’ opposition brief is due December 6, 2019.

Route1
On or about May 23, 2018, Route1 Inc., Route1 Security Corporation (together, “Route1”) and Group Mobile Int’l, LLC (“Group Mobile”) commenced a legal proceeding against the Company in the Ontario Superior Court of Justice.
Route1 and Group Mobile seek damages in relation to alleged breaches of a Membership Purchase Agreement entered into between Route1 and the Company on or about March 7, 2018, pursuant to which Route1 acquired the Company’s 100% membership interest in Group Mobile. All capitalized terms not otherwise defined herein have the meanings ascribed to them in the Agreement.
The Plaintiffs allege that the Company: (i) failed to ensure all Tax Returns were true, correct and compliant in all respects and that all Taxes had been paid in full; (ii) failed to ensure that all inventory of Group Mobile had been priced in accordance with GAAP and consisted of a quality and quantity that was materially usable and salable in the Ordinary Course of Business; (iii) failed to ensure that Group Mobile’s Most Recent Balance Sheet was materially complete and correct and prepared in accordance with GAAP; (iv) failed to record all liabilities on Group Mobile’s Most Recent Balance Sheet; and (v) failed to deliver the agreed upon amount of Net Working Capital, and/or pay the Shortfall, to Route1. The litigation is at an early stage, and it is not yet possible to assess the likelihood of success and/or liability.
Rodger Jenkins v. XpresSpa Group, Inc.
In March 2019, Rodger Jenkins filed a lawsuit against the Company in the United States District Court for the Southern District of New York. The lawsuit alleges breach of contract of the stock purchase agreement related to the Company’s acquisition of Excalibur Integrated Systems, Inc. and seeks specific performance, compensatory damages and other fees, expenses and costs.
The Company has denied the material allegations of the complaint and is currently defending the action. At this stage, we are unable to predict the outcome of this litigation.
Intellectual Property and Other Matters
The Company is engaged in litigation related to certain of the intellectual property that it owns, for which no liability is recorded, as the Company does not expect a material negative outcome.
In addition to those matters specifically set forth herein, the Company and its subsidiaries are 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~~the Company’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 adversely affect the Company’s business, financial condition, results of operations and cash flows.

~~The Company’s intellectual property operating segment~~In the event that an action is ~~engaged in litigation, for which no liability is recorded, as~~brought against the Company ~~does not expect a material negative outcome.~~or one of its subsidiaries, the Company will investigate the allegation and vigorously defend itself.
Note 17. Subsequent Events

Upon the approval by the Company’s shareholders on October 2, 2019, on October 3, 2019 all issued and outstanding shares of the Company’s Series D Preferred Stock were converted into shares of the Company’s Common Stock pursuant to Section 6.3.4 of the Certificate of Designation of Preferences, Rights and Limitations of the Series D Preferred Stock, as amended on July 8, 2019, except to the extent that any holder of Series D Preferred Stock would otherwise beneficially own in excess any beneficial ownership limitation applicable to such holder after giving effect to the conversion, in which case such holder’s Series D Preferred Stock converted automatically into warrants to purchase the number of shares of the Company’s Common Stock equal to the number of shares of Common Stock into which the holder’s Series D Preferred Stock would otherwise have converted.
On ~~November 6, 2017, Moreton Binn and Marisol F, LLC, former shareholders of XpresSpa, filed a lawsuit against~~October 28, 2019, the Company entered into a Consent Agreement (the “Consent Agreement”) between Holdings and B3D. The Consent Agreement was entered into in order to postpone the interest payment on its ~~directors alleging~~B3D Note of $107, which was due on various dates through December 3, 2019 so that the ~~defendants engaged~~Company can make the payment in ~~securities violations, misrepresentation,~~registered, unrestricted shares of its Common stock.
On October 1, 2019, the Company entered into Amendment No. 3 to the Agreement and ~~various~~Plan of Merger (the “Merger Agreement”), by and among the Company (formerly known as FORM Holdings Corp.), Holdings and Mistral XH Representative, LLC, as representative of the unitholders of Holdings, dated as of August 8, 2016, as subsequently amended. The amendment to the Merger Agreement provided, among other ~~allegations regarding~~things, for the release from escrow of (i) certain shares of the Company’s ~~acquisition~~Series D Preferred Stock to the unitholders of ~~XpresSpa. The~~Holdings and (ii) certain shares of Series D Preferred Stock to the Company ~~is currently~~ in satisfaction of certain indemnification claims in connection with the ~~process of evaluating the claims.~~Merger Agreement.

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~~2018 filed on ~~March~~April 1, 2019, as subsequently amended on April 30, ~~2017~~2019 (the ~~“2016~~“2018 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,~~XpresSpa Group, Inc.”), a Delaware corporation, and its consolidated subsidiaries.

Overview

~~FORM Holdings Corp.~~On January 5, 2018, we changed our name to XpresSpa Group, Inc. (“~~FORM”~~XpresSpa Group” or the “Company”) ~~has three operating segments:~~from FORM Holdings Corp. Rebranding to XpresSpa Group in January 2018 aligned our corporate strategy to build a pure-play health and wellness ~~technology and intellectual property.~~services company, which we commenced following our acquisition of XpresSpa Holdings, LLC (“XpresSpa”) on December 23, 2016.

~~Our~~As a result of the transition to a pure-play health and wellness services company, we currently have one operating segment ~~consists of~~that is also our sole reporting unit, XpresSpa, ~~which is~~ a leading airport retailer of spa services. XpresSpa is a well-recognized airport spa brand with 51 locations, consisting of 4746 domestic and 45 international locations as of September 30, ~~2017.~~2019. XpresSpa offers travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products. ~~We acquired~~For the nine-month period ended September 30, 2019 and 2018, XpresSpa’s revenue was $37,669 and $38,560, respectively. For the nine-month period ended September 30, 2019, approximately 82% of XpresSpa’s total revenue was generated by services, primarily massage and nail care, 15% was generated by retail products, primarily travel accessories and 3% was revenue from the one-time sale of its intellectual property licenses.
Recent Developments
Relocation of Corporate Headquarters and Global Support Team
On October 21, 2019, the Company relocated its corporate office functions and its Global Support Center in New York City from 780 Third Avenue in midtown Manhattan to 254 W 31^st Street in Manhattan. The new XpresSpa Global Support Center will house all corporate employees and the Company estimates that the move will yield an annual cost reduction of $300 in occupancy expenses.
Calm Private Placement
On July 8, 2019, the Company entered into a securities purchase agreement (the “Calm Purchase Agreement”) with Calm.com, Inc. (“Calm”) pursuant to which the Company agreed to sell (i) an aggregate principal amount of $2,500 in a 5% unsecured convertible note due on May 31, 2022 (the “Calm Note”), which is convertible into shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”) and (ii) warrants to purchase 937,500 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), at a conversion price of $2.00 per share (the “Calm Warrants”) (collectively, the “Calm Private Placement”).
The Company received $2,500 in gross proceeds from the Calm Private Placement.
Notes and Warrants
The Calm Note is an unsecured subordinated obligation of the Company. Unless earlier converted or redeemed, the Calm Notes will mature on May 31, 2022. The Calm Note bears interest at a rate of 5% per annum, subject to increase in the ~~fourth quarter~~event of ~~2016.~~default to the lesser of 18% per annum or the maximum rate permitted under applicable law. The Calm Note is convertible at any time until the Calm Note is no longer outstanding, in whole or in part, at the option of Calm into shares of Series E Preferred Stock at a conversion price equal to $3.10 per share, except that no shares of Series E Preferred Stock could be issued as payment of interest or in connection with anti-dilution protection or voluntary reduction of the conversion price until receipt of shareholder approval, which approval was obtained on October 2, 2019. Interest on the Calm Note is payable in arrears beginning on the last day of each February, May, August and November during the period beginning on the original issuance date and ending on, and including, the maturity date, when all amounts outstanding under the Calm Notes become due and payable in cash. The Company may elect to pay interest in cash, shares of Series E Preferred Stock or a combination thereof.

The Calm Warrants entitle Calm to purchase an aggregate of 937,500 shares of Common Stock. The Calm Warrants are exercisable beginning six months from the date of issuance, have a term of five years and feature an exercise price equal to $2.00 per share.

~~Our technology operating segment consists~~See Note 9. “Long-term Notes and Convertible Notes”, to the consolidated condensed financial statements for discussion of the accounting for the Calm Private Placement.
Calm Collaboration Agreement
On July 8, 2019, the Company entered into an Amended and Restated Product Sale and Marketing Agreement with Calm (the “Amended and Restated Collaboration Agreement”), which replaced the parties’ previous Product Sale and Marketing Agreement, dated as of November 12, 2018. The Amended and Restated Collaboration Agreement primarily relates to the display, marketing, promotion, offer for sale and sale of Calm’s products in each of the Company’s branded stores worldwide. The Amended and Restated Collaboration Agreement will remain in effect until July 31, 2021, unless terminated earlier in accordance with the Amended and Restated Collaboration Agreement, and automatically renews for successive terms of six months unless either party provides written notice of termination no later than thirty days prior to any such automatic renewal of the Amended and Restated Collaboration Agreement. On October 30, 2019, the Company and Calm entered into an amendment to the Amended and Restated Collaboration Agreement, which provides for the addition of certain Calm branded products, which amendment is attached as Exhibit 10.8 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
Amendment to Certificate of Designation of Series E Convertible Preferred Stock
On July 8, 2019, the Company filed a certificate of amendment to the Certificate of Designation of Series E Convertible Preferred Stock (the “Series E COD Amendment”) with the State of Delaware to (i) increase the number of authorized shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”) to 2,397,060 and (ii) upon receipt of Shareholder Approval, reduce the conversion price to $2.00. The Series E COD Amendment was approved by the Board of Directors of the Company and the Company obtained shareholder approval of the Series E COD Amendment on October 2, 2019. See Note 10“Stockholders’ Equity”.
B3D Transaction and B3D Note
B3D Transaction
On July 8, 2019, Holdings, entered into the fourth amendment (the “Credit Agreement Amendment”) to its existing Credit Agreement with B3D, LLC (“B3D”) in order to, among other provisions, (i) extend the maturity date to May 31, 2021, (ii) reduce the applicable interest rate to 9.0%, and amend and restate certain other provisions related to its 11.24% senior secured note. As consideration for these and other modifications the principal amount owed to B3D was increased by $500 to $7,000. Principal and any interest accrued thereon are convertible, at B3D’s option, into Common Stock subject to receipt of shareholder approval, which was obtained on October 2, 2019 (the “B3D Transaction”).
B3D Note
The B3D Note is a senior secured obligation of Holdings, secured by the personal property of the parent company of Holdings (XpresSpa Group, ~~Mobile~~Inc.) and Holdings’ wholly owned subsidiaries. Unless earlier converted or redeemed, the B3D Note will mature on May 31, 2021. The B3D Note bears interest at a rate of 9.00% per annum, calculated on a monthly basis. Interest only is payable in arrears on the last business date of each month (the “Monthly Interest”). Notwithstanding the foregoing, until the earlier of (i) ninety days from the date of the Credit Agreement Amendment or (ii) the date upon which shareholder approval is received, which approval was obtained on October 2, 2019 (the “Interest Deferment Date”), the Monthly Interest continued to accrue, compounded monthly, and all unpaid amounts thereof became due and payable on the Interest Deferment Date. At the option of Holdings, all or any portion of the Monthly Interest that is payable (i) on the Interest Deferment Date or (ii) after the Interest Deferment Date, but not more than twenty-one days and not less than five trading days prior to the date on which each payment of Monthly Interest is due, may be paid in shares of XpresSpa Group, Inc.’s Common Stock. At any time after receipt of shareholder approval until the B3D Note is no longer outstanding, at the option of B3D, all or any portion of the outstanding principal amount of the B3D Note, plus any accrued and unpaid interest thereon, shall be convertible into XpresSpa Group, Inc.’s Common Stock at the option of B3D at a conversion price equal to $2.00 per share.
On August 22, 2019, the Company entered into an amendment to the B3D Note. Among other provisions, the amendment provided that B3D shall not have the right to convert the B3D Note into shares of XpresSpa Group, Inc.’s Common Stock to the extent that such conversion would cause B3D to beneficially own in excess of the Beneficial Ownership Limitation, initially defined as ~~well~~4.99% of the number of shares of XpresSpa Group Inc.’s Common Stock outstanding immediately after giving effect to the issuance of shares of XpresSpa Group, Inc.’s Common Stock issuable upon conversion of the B3D Note. See Note 9“Long-term Notes and Convertible Notes” for discussion of the accounting for the B3D Transaction.
28
Series D Convertible Preferred Stock Amendment and December 2016 Warrant Amendment
Series D Convertible Preferred Amendment
On July 8, 2019, the Company filed a certificate of amendment to the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D COD Amendment”) with the State of Delaware to, upon receipt of shareholder approval, reduce the conversion price to $2.00 and provide for automatic conversion of the Series D Convertible Preferred Stock (the “Series D Preferred Stock”) into shares of Common Stock. The Series D COD Amendment was approved by the Company’s Board, and the Company obtained shareholder approval on October 2, 2019.
December 2016 Warrant Amendment
On July 8, 2019, the Company entered into an amendment to certain outstanding warrants issued in December 2016 (the “December 2016 Warrants”) to the holders of its Series D Preferred Stock (the “December 2016 Warrant Amendment”) to provide for (i) a reduction in the price to convert to Common Stock to $2.00, (ii) certain anti-dilution price protection and (iii) voluntary reduction of the conversion price by the Company in its discretion. The Company obtained shareholder approval in connection with the December 2016 Warrant Amendment on October 2, 2019. The December 2016 Warrants were recorded as an ~~11%~~ equity ~~interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers,~~instrument at December 31, 2016. As such, no adjustment to the consolidated condensed financial statements was made as ~~well as installation and deployment services. In~~a result of the first quarter 2017, we completed the acquisition of Excalibur Integrated Systems, Inc. (“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%change in the ~~first quarter of 2017 due to a realignment of ownership interests.~~conversion price.

WeMay 2018 SPA Amendment, Series F Preferred Stock and Series B Preferred Stock
May 2018 SPA Amendment
On May 15, 2018, in a private placement offering, the Company issued (i) 5% Secured Convertible Notes (the “5% Secured Convertible Notes”) convertible into Common Stock at $12.40 per share, due November 2019, (ii) May 2018 Class A Warrants to purchase 357,863 shares of Common Stock (the “May 2018 Class A Warrants”) and (iii) Class B Warrants to purchase 178,932 shares of Common Stock (the “May 2018 Class B Warrants”).
On July 8, 2019, the Company entered into an amendment (the “May 2018 SPA Amendment”) to the Securities Purchase Agreement, dated as of May 15, 2018, by and between the Company and the purchasers party thereto (the “May 2018 SPA”), to provide for, among other provisions, (i) an update to certain definitions, including the definition of an “Exempt Issuance,” (ii) the waiver of certain provisions regarding restrictions on subsequent equity sales and participation in subsequent financings, and the removal of certain of such provisions upon receipt of shareholder approval (obtained on October 2, 2019), (iii) the amendment to certain provisions of the Class A Warrants issued pursuant to the May 2018 SPA to modify certain provisions in connection with a Notice Failure (as such term is defined in the Class A Warrants), and the reduction in the conversion price of the Class A Warrants issuable pursuant to anti-dilution price protection contained in such Class A Warrants to $2.00 per share following receipt of shareholder approval, which approval was obtained on October 2, 2019, (iv) the cancellation of all outstanding Class B Warrants and (v) the establishment of a new class of preferred stock, designated Series F Convertible Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”) and the issuance of 8,996 shares of such Series F Preferred Stock to the parties to the May 2018 SPA Amendment, which are ~~currently evaluating strategic alternatives~~convertible into Common Stock upon receipt of shareholder approval, which approval was obtained on October 2, 2019.
Certificate of Designation of Series F Preferred Stock
In connection with ~~respect~~the May 2018 SPA Amendment, on July 8, 2019, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock (the “Series F Certificate of Designation”) establishing and designating the rights, powers and preferences of the Series F Preferred Stock. The Company designated 9,000 shares of Series F Preferred Stock. The Series F Convertible Preferred Stock was recorded at its fair on July 8, 2019 of $1,131 (net of issuance costs of approximately $123,000) in the Company’s consolidated condensed balance sheet as of September 30, 2019. See Note 10.“Stockholders’ Equity” for further discussion.
Certificate of Elimination of Series B Preferred Stock
On July 8, 2019, the Company filed a Certificate of Elimination of Shares of Series B Preferred Stock (the “Certificate of Elimination”) to ~~Group Mobile in an attempt~~the Company’s amended and restated certificate of incorporation. The Certificate of Elimination reduced, pursuant to ~~enhance stockholder value. These strategic alternatives~~Section 151(g) of the Delaware General Corporation Law, the number of authorized shares of Series B Convertible Preferred Stock of the Company, par value $0.01 per share (the “Series B Preferred Stock”) from 1,609,167 shares to zero shares. Pursuant to the provisions of Section 151(g) of the Delaware General Corporation Law, the 1,609,167 authorized shares of Series B Preferred Stock were eliminated pursuant to the reduction return to the available undesignated preferred stock of the Company and may ~~include~~be re-designated into another series of preferred stock.
29
Reverse Stock Split
On February 22, 2019, the Company filed a ~~possible sale, merger, spin-off or other separation~~certificate of ~~Group Mobile or other forms~~amendment to its amended and restated certificate of ~~business combinations or strategic transactions. We are seeking~~incorporation with the Secretary of State of the State of Delaware to ~~enter~~effect a 1-for-20 reverse stock split of the Company’s shares of Common Stock. Such amendment and ratio were previously approved by the Company’s stockholders and Board of Directors.
As a result of the reverse stock split, every twenty (20) shares of the Company’s pre-reverse split Common Stock were combined and reclassified into one ~~or more strategic transactions involving Group Mobile~~(1) share of Common Stock. Proportionate voting rights and other rights of common stockholders were affected by the reverse stock split. Stockholders who would have otherwise held a fractional share of Common Stock received payment in cash in lieu of any such resulting fractional shares of Common Stock as the ~~first quarter~~post-reverse split amounts of ~~2018.~~Common Stock were rounded down to the nearest full share. No fractional shares were issued in connection with the reverse stock split.

Liquidity and Going Concern
As of September 30, ~~2017,~~2019, we had cash and cash equivalents of $2,432, total current assets of $3,976, total current liabilities of $7,761 and a working capital deficiency of $3,785 as compared to a working capital deficiency of $10,899 as of December 31, 2018.
We have aggressively reduced operating expenses, reducing net cash used in operating activities from continuing operations from $6,129 for the nine months ended September 30, 2018 to $782 for the nine months ended September 30, 2019. While we continue to focus on our ~~FLI Charge business is reflected as discontinued operations~~overall profitability, we expect to incur net losses in the foreseeable future. As discussed above in our Annual Report on Form 10-K, the report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2018 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. The receipt of this explanatory paragraph with respect to our financial statements for the year ended December 31, 2018 resulted in a breach of a covenant under the 5% Secured Convertible Notes. No investor provided notice to the Company electing to exercise its right to accelerate payment. We have since renegotiated the terms of the 5% Secured Convertible Notes. (See Note 9.“Long-term Notes and Convertible Notes” to the consolidated condensed financial statements.)
On June 27, 2019, the Company entered into the Third Amendment Agreement to the 5% Secured Convertible Notes (the “Third Amendment”) with the intention of inducing the holders of the 5% Secured Convertible Notes to convert into Common Stock. To induce the holders to convert, the Third Amendment reduced the conversion price of the 5% Secured Convertible Notes to Common Stock from $12.40 per share to $2.48 per share. As a result of the reduction in the conversion price of the 5% Convertible Notes and the associated May 2018 Class A Warrants from $12.40 per share to $2.48 per share on June 27, 2019, the Company recorded a debt conversion expense of $1,547 to account for the additional consideration paid over what was agreed to in the original Convertible Note agreement. The expense was recorded in“Other non-operating income (expense), net” in the consolidated statement of operations and comprehensive loss in the quarter ended June 30, 2019. Some Note holders converted their remaining outstanding principal balances plus accrued interest into 586,359 shares of Common Stock. Any Note holders who did not convert to Common Stock had their 5% Convertible Notes converted into 356,772 Class A Warrants (the “June 2019 Class A Warrants”). The June 2019 Class A Warrants have an exercise price of $0.01 and are otherwise identical in form and substance to the Company's existing May 2018 Class A Warrants. The Company had an independent third party perform an appraisal of the June 2019 Class A Warrants as of June 30, 2019. The June 2019 Class A Warrants were assigned an appraised value of $689. The value of the June 2019 Class A Warrants was recorded as a derivative liability on the consolidated condensed balance sheet and will be marked to market at the end of each quarter. The expense of $689 is included in“Other non-operating income (expense), net” in the consolidated condensed statements of operations and comprehensive loss in the quarter ended June 30, 2019 and ~~assets held for disposal and liabilities held for disposal~~is included in our ~~condensed consolidated balance sheets. FLI Charge was subsequently sold during October 2017.~~current period year to date results. The June 2019 Class A Warrants were converted into 354,502 shares of Common Stock in July 2019.

We have taken actions to improve our overall cash position and access to liquidity, as discussed above. We continue to execute our strategies to expand and explore strategic partnerships, right-size our corporate structure, and streamline our operations. We expect that the actions taken will enhance our liquidity and financial stability and expect that these actions will be executed in alignment with the anticipated timing of our future liquidity needs. There can be no assurance; however, that any such opportunities will materialize.

Our ~~intellectual property~~historical operating ~~segment~~results indicate that there is ~~engaged~~substantial doubt related to the Company's ability to continue as a going concern. We believe it is probable that the actions discussed have successfully mitigated the substantial doubt raised by our historical operating results and will satisfy our liquidity in the ~~monetization~~short term. However, we cannot reasonably predict with any certainty that the results of ~~patents~~our actions will generate the expected liquidity required to satisfy our long-term liquidity needs.
If we continue to experience operating losses, and we are not able to generate additional liquidity through the actions described above or through some combination of other actions, while not expected, we may not be able to access additional funds and we might need to secure additional sources of funds, which may or may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business.
CEO Transition
On February 8, 2019, Edward Jankowski resigned as our Chief Executive Officer and as a director. Mr. Jankowski’s resignation was not as a result of any disagreement on any matters related to ~~content~~our operations, policies or practices. Mr. Jankowski is receiving termination benefits including $375 payable in equal installments over a twelve-month term which commenced on February 13, 2019 and ~~ad delivery, remote monitoring~~COBRA continuation coverage paid in full for up to a maximum of twelve months.
Effective as of February 11, 2019, Douglas Satzman was appointed by our Board of Directors as our Chief Executive Officer and ~~mobile technologies.~~as a director, filling the position vacated by Mr. Jankowski.
Dispositions
On October 20, 2017, we sold FLI Charge to a group of private investors and FLI Charge management, who now own and operate FLI Charge. In February 2019, we entered into an agreement to release FLI Charge’s obligation to pay any royalties on FLI Charge’s perpetual gross revenues with regard to conductive wireless charging, power, or accessories, and to cancel its warrants exercisable in FLI Charge in exchange for cash proceeds of $1,100 which were received in full on February 15, 2019.
In March 2018, we completed the sale of Group Mobile Int’l LLC (“Group Mobile”). The results of operations for Group Mobile are presented in the consolidated condensed statements of operations and comprehensive loss as“Loss from discontinued operations, net of income taxes”.
Calm Collaboration Agreement
On November 12, 2018, we entered into a Product Sale and Marketing Agreement (the “Collaboration Agreement”) with Calm primarily related to the display, marketing, promotion, offer for sale and sale of Calm’s products in each of our branded stores throughout the United States.

On July ~~26, 2017,~~8, 2019, we entered into ~~the Underwriting~~an Amended and Restated Product Sale and Marketing Agreement with ~~Roth Capital Partners, LLC, acting as~~Calm (the “Amended and Restated Collaboration Agreement”), which replaced the ~~representative~~previous Collaboration Agreement. The Amended and Restated Collaboration Agreement primarily relates to the display, marketing, promotion, offer for sale and sale of Calm’s products in each of XpresSpa’s stores worldwide. The Amended and Restated Collaboration Agreement shall remain in effect until July 31, 2021, unless terminated earlier in accordance with the Amended and Restated Collaboration Agreement, and automatically renews for successive terms of six months unless either party provides written notice of termination no later than thirty days prior to any such automatic renewal of the ~~Underwriters, relating~~Amended and Restated Collaboration Agreement. On October 30, 2019, the Company and Calm entered into an amendment to the ~~Offering~~Amended and Restated Collaboration Agreement, which provides for the addition of ~~6,900,000 shares of FORM Common Stock including 900,000 shares subject~~certain Calm branded products, which amendment is attached as Exhibit 10.8 to ~~the Underwriters’ over-allotment option, which was exercised~~this Quarterly Report on ~~August 2, 2017~~Form 10-Q 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. The net proceeds to us from the Offering were $6,584,000 after deducting underwriting discounts and commissions and other estimated offering expenses.incorporated by reference herein.

~~Third Quarter 2017 Highlights~~Our Strategy and Outlook

Same Store Sales
Three Months Ended September 30, 2017
Wellness Technology Intellectual
Property Corporate Total
Total revenue $ 12,652,000 $ 4,879,000 $ 200,000 $ — $ 17,731,000

Cost of sales
Products 1,005,000 3,902,000 — — 4,907,000
Labor 6,458,000 — — — 6,458,000
Occupancy 1,950,000 — — — 1,950,000
Other operating costs 934,000 — 126,000 — 1,060,000
Total cost of sales 10,347,000 3,902,000 126,000 — 14,375,000

Gross profit 2,305,000 977,000 74,000 — 3,356,000
Gross profit as a % of total revenue 18.2 % 20.0 % 37.0 % — 18.9 %

Depreciation and amortization
Depreciation 1,110,000 24,000 — 7,000 1,141,000
Amortization 597,000 150,000 6,000 — 753,000
Total depreciation and amortization 1,707,000 174,000 6,000 7,000 1,894,000

General and administrative
Stock-based compensation — — — 706,000 706,000
Other general and administrative 2,237,000 1,293,000 (149,000 ) 1,386,000 4,767,000
Total general and administrative 2,237,000 1,293,000 (149,000 ) 2,092,000 5,473,000

Operating income (loss) from continuing operations $ (1,639,000 ) $ (490,000 ) $ 217,000 $ (2,099,000 ) $ (4,011,000 )

We use GAAP and non-GAAP measurements to assess the trends in our ~~business. With respect~~business, including comparable store sales, a non-GAAP measure we define as current period sales from stores opened more than 12 months compared to those same stores’ sales in the prior year period (“Comp Store Sales”). The measurement of Comp Store Sales on a daily, weekly, monthly, quarterly and year-to-date basis provides an additional perspective on XpresSpa’s total sales growth when considering the influence of new unit contribution. Revenue from Comp and Non-Comp Store sales is presented below:
Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 % Inc/(Dec)
Comp Store Non-Comp
Store Total Comp Store Non-Comp
Store Total Comp Store
Products and Services $ 35,642 $ 843 $ 36,485 $ 34,878 $ 2,882 $ 37,760 2.2 %
Comp Store Sales increased 2.2% during the nine months ended September 30, 2019 as compared to the same period in 2018. XpresSpa ~~we review its~~had 51 open locations during the nine months ended September 30, 2019 and 57 open locations during the comparable period of 2018. Comp Store sales increased despite having six fewer stores open primarily due to an increase in the average ticket per transaction and by fixing retail supplier issues and upselling services.
We plan to grow XpresSpa by continuing to focus on spa-level productivity and leveraging retail partnerships to increase units per transaction, which will contribute to the growth of the Comp Store Sales and through the opening of new locations.
Q3 2019 Comp Store Sales and Adjusted EBITDA a(loss)
Another non-GAAP ~~measure,~~measurement we use to assess the trends in our business is Adjusted EBITDA, which we define as earnings before interest, ~~tax,~~taxes, depreciation and amortization expense, excluding m~~erger and~~financing costs, acquisition integration ~~and~~costs, other one-time costsand stock-based compensation.

Comp Store Sales and Adjusted EBITDA ~~has been presented in this Quarterly Report on Form 10-Q and is a~~are supplemental ~~measure~~measures of financial performance that isare not required by or presented in accordance with GAAP. Reconciliations of operating loss from continuing operations for the three and nine-month periods ended September 30, 2019 to Adjusted EBITDA (loss) are presented in the tables below.
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~~these non-GAAP financial ~~measure~~measures 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 Comp Store Sales and Adjusted EBITDA ~~is a measurement~~are measurements that isare 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 indicator~~these indicators because itfor Comp Store Sales only comparable sales for stores open at least 12 months are included. Adjusted EBITDA (loss) excludes transactions not related to our core cash operating activities. 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 Comp Store Sales and Adjusted EBITDA, we recognize and consider the limitations of ~~this measurement.~~these measurements. 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 corporate to Adjusted EBITDA income (loss) for the three months ended September 30, 2017:
Three Months Ended September 30, 2017
Wellness Technology Intellectual
Property Corporate Total
Operating income (loss) from continuing operations $ (1,639,000 ) $ (490,000 ) $ 217,000 $ (2,099,000 ) $ (4,011,000 )
Plus:
Depreciation and amortization 1,707,000 174,000 6,000 7,000 1,894,000
Stock-based compensation — — — 706,000 706,000
Merger and acquisition, integration and one-time costs 529,000 290,000 — — 819,000
Adjusted EBITDA income (loss) $ 597,000 $ (26,000 ) $ 223,000 $ (1,386,000 ) $ (592,000 )
~~Merger and acquisition, integration and one-time costs relate to the following:~~
For our wellness operating segment, one-time costs related to the interruption of business due to hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia. These one-time costs of $200,000 directly impacted our cost of sales. Without these one-time costs, our wellness operating segment’s gross profit would have been $2,505,000, or 19.7% of the wellness operating segment’s total revenue.
~~For our wellness operating segment, integration costs related to the acquisition amounted to $329,000, which were recorded in general and administrative expense.~~
~~For our technology operating segment, $290,000 of one-time reorganization and personnel re-alignment related costs.~~
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 income (loss) before corporate and unallocated shared expenses, interest expense, income taxes and noncontrolling interests.~~

~~Wellness~~Q3 2019 Adjusted EBITDA (loss)
(amounts in thousands)
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Revenue
Services $ 10,230 $ 10,391 $ 30,704 $ 31,220
Products 2,301 2,531 5,781 6,540
Other — — 1,184 800
Total revenue 12,531 12,922 37,669 38,560

Cost of sales
Labor 5,842 5,997 17,507 18,697
Occupancy 1,894 1,996 5,811 6,216
Products and other operating costs 1,953 1,992 5,322 5,208
Total cost of sales 9,689 9,985 28,640 30,121
Depreciation, amortization and impairment
Depreciation and amortization 1,464 1,879 4,692 5,375
Impairment of assets 106 — 936 —
Impairment of goodwill — — — 19,630
Total depreciation, amortization and impairment 1,570 1,879 5,628 25,005

Total general and administrative expense 3,108 3,943 9,204 12,443

Loss from continuing operations (1,836 ) (2,885 ) (5,803 ) (29,009 )
Interest expense (780 ) (624 ) (2,052 ) (1,212 )
Other non-operating income (expense), net (2,161 ) 378 (5,817 ) 877

Loss from continuing operations before income taxes (4,777 ) (3,131 ) (13,672 ) (29,344 )
Income tax benefit 143 66 101 198
Loss from continuing operations (4,634 ) (3,065 ) (13,571 ) (29,146 )
Loss from discontinued operations, net of income taxes — — — (1,115 )
Net loss (4,634 ) (3,065 ) (13,571 ) (30,261 )
Net income attributable to noncontrolling interests (210 ) (122 ) (584 ) (382 )
Net loss attributable to common shareholders $ (4,844 ) $ (3,187 ) $ (14,155 ) $ (30,643 )

Operating loss from continuing operations $ (1,836 ) $ (2,885 ) $ (5,803 ) $ (29,009 )
Add back:
Depreciation, amortization and impairment of assets 1,570 1,879 5,628 5,375
Financing transaction, acquisition integration and other one-time costs 138 452 363 1,057
Goodwill impairment — — — 19,630
Stock-based compensation expense 35 194 266 765
Less:
Net income attributable to noncontrolling interests (210 ) (3 ) (584 ) (382 )

Adjusted EBITDA (loss) $ (303 ) $ (363 ) $ (130 ) $ (2,564 )
33
Results of Operations

~~Our wellness operating segment recognized~~Revenue
We recognize revenue from the sale of ~~$12,652,000 during~~XpresSpa services when they are rendered at our stores and from the ~~third quarter~~sale of ~~2017, which was generated~~products at the time goods are purchased at our stores or online (usually by credit card), net of discounts and applicable sales taxes. Revenues from the XpresSpa ~~for services provided~~wholesale and ~~health and beauty products sold. We acquired XpresSpa on December 23, 2016 and~~e-commerce businesses are ~~actively integrating its corporate functions and optimizing~~recorded at the ~~operating segment’s performance. During~~time goods are shipped. Other revenue relates to one-time intellectual property licenses as well as the ~~nine-month period ended September 30, 2017, we opened three new flagship locations, consisting~~sale of one location at John F. Kennedy International Airport’s Terminal 4 and two locations at Phoenix Sky Harbor International Airport. We also closed three small temporary kiosks to better align our resources. We also completed a major renovation to another location in John F. Kennedy International Airport’s Terminal 4, which opened in September 2017. A numbercertain of our ~~stores will be undergoing maintenance or renovations during the fourth quarter of 2017. Wherever possible, we seek to receive lease extensions or other concessions~~intellectual property. Revenue from patent licensing is recognized when we ~~undergo these processes. As of September 30, 2017,~~transfer promised intellectual property rights to purchasers in an amount that reflects the consideration to which we ~~operated a total of 51 XpresSpa locations.~~expect to be entitled in exchange for those intellectual property rights.

Cost of sales
Cost of sales consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations, ~~and include:~~
primarily payroll and related ~~benefits~~benefit costs for ~~our~~ store ~~operations~~personnel and ~~store-level management;~~
~~rent, percentage~~ rent and ~~other~~ occupancy ~~costs;~~
costs.

~~the cost~~
Cost of ~~merchandise as well as its freight, shipping and handling costs;~~
~~service supplies;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part of the acquisition; and~~
~~costs~~sales 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 one-time costs related to the interruption of business due to hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia and the integration costs related to the acquisition, which together amounted to $529,000 during the third 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 third quarter of 2017, Group Mobile’s~~ revenue ~~increased 178.6%~~ from $1,751,000 for the three-month period ended September 30, 2016 to $4,879,000 for the three-month period ended September 30, 2017. This was mainly due to the increased sales pipeline throughout 2016 and 2017.
~~Intellectual Property~~
~~The~~ intellectual property ~~operating segment~~mainly includes ~~revenues from one-time patent licenses as well as~~ expenses incurred in connection with ~~our~~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. ~~In July 2017, the intellectual property operating segment recognized a $148,000 gain on the sale of an asset.~~

~~Corporate~~General and administrative

~~Corporate~~General and ~~unallocated shared~~administrative expenses ~~principally consist of~~include management and administrative personnel, public and investor relations, overhead/office costs, ~~for corporate functions, rent for office space,~~insurance and various other professional fees, as well as sales and marketing costs and stock-based compensation ~~executive~~for management and ~~certain unallocated~~ administrative ~~support functions.~~personnel.

~~Discontinued Operations~~Other non-operating income (expense), net

~~During June 2017, we concluded that the requirement~~Other non-operating income (expense), net includes transaction gains (losses) from foreign exchange rate differences, impairments of cost method investments not related to ~~report the results~~our primary line of ~~FLI Charge, a wholly-owned subsidiary included in~~business, bank charges, deposits, as well as fair value adjustments related to our technology operating segment, as discontinued operations was triggered. As a result, a non-cash impairment loss of $1,092,000 relating to FLI Charge’s technology assets and goodwill was recorded during the second quarter of 2017.
On October 20, 2017, we sold FLI Charge to a group of private investors and FLI Charge management, who will own and operate FLI Charge. We will not be providing any continued management or financing support to FLI Charge.
Total consideration for the sale of FLI Charge is $1,250,000, payable in installments. The consideration is secured by a note and security agreement. Additionally, we are entitled to a 5% royalty, in perpetuity, on the gross revenue of FLI Charge and of any affiliate of FLI Charge with regard to conductive wireless charging, power, or accessories. We also received a warrant exercisable in FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events. We are currently evaluating the gain on the sale of FLI Charge.
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 $208,000 and $2,321,000 for the three- and nine-month periods ended September 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.derivative liabilities.

~~Results of Operations~~
Three-month period ended September 30, ~~2017~~2019 compared to the three-month period ended September 30, ~~2016~~2018

Revenue

Three months ended September 30,
2017 2016 Change
Revenue $ 17,731,000 $ 3,101,000 $ 14,630,000
Three months ended September 30,
2019 2018 Inc/(Dec)
Revenue $ 12,531 $ 12,922 $ (391 )

~~During~~The decrease in revenue of $391 or 3.0% was primarily due the ~~three-month period~~decrease in the number of spas open during the three months ended September 30, ~~2017, we recorded total revenue of $17,731,000, which represents an increase of $14,630,000 (or 471.8%)~~2019 (51 spas) as compared to the ~~three-month~~comparable period ~~ended September 30, 2016. Of the increase, XpresSpa generated $12,652,000 of revenue~~ in the third quarter of 2017. We did not recognize any revenue generated by XpresSpa prior to its acquisition on December 23, 2016. Our technology operating segment demonstrated 178.6% growth in quarterly revenues from $1,751,000 for the three-month period ended September 30, 2016 to $4,879,000 for the three-month period ended September 30, 2017.
Our intellectual property segment recognized a one-time lump sum payment of $200,000 in connection with an executed confidential license agreement for the three-month period ended September 30, 2017, a decrease compared to the three-month period ended September 30, 2016, for which our intellectual property operating segment recognized a one-time lump sum payment of $1,350,000 in connection with an executed confidential license agreement.2018 (57 spas).

Cost of sales

Three months ended September 30,
2017 2016 Change
Cost of sales $ 14,375,000 $ 2,718,000 $ 11,657,000
Three months ended September 30,
2019 2018 Inc/(Dec)
Cost of sales $ 9,689 $ 9,985 $ (296 )

~~During the three-month period ended September 30, 2017, we recorded total~~
The decrease in cost of sales of ~~$14,375,000, which represents an increase of $11,657,000 (or 428.9%) compared~~$296 or 3.0% was primarily due in part due to the ~~three-month period ended September 30, 2016. XpresSpa recorded total cost~~decrease in revenue and is consistent with initiatives taken by management to streamline processes and reduce store-level costs which included an emphasis on increased productivity of spa personnel and reduced warehousing and shipping charges.
Cost of sales of $10,347,000, which represent direct costs incurred for store operations. As a result, our wellness operating segment’s gross profit for the quarter was 18.2%. Our technology operating segment recorded cost of sales of $3,902,000, which resulted in our technology operating segment generating 20.0% gross margin during the quarter.
During the three-month period ended September 30, 2016, we recorded total cost of sales of $2,718,000. Group Mobile recorded total cost of sales of $1,554,000, which represent direct costs from its product sales. Our intellectual property operating segment’s costs were $1,164,000, which included legal and consulting costs relatedis expected to the confidential license agreement reached during the quarter and royalty expenses to a previous owner of some of our patents. These intellectual property costs decreased to $126,000 for the three-month period ended September 30, 2017.
~~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~~revenues will decline gradually over time as a result of the ~~improvement of~~ store-level performance ~~by our wellness operating segment.~~improvements which we continue to prioritize.

Depreciation ~~amortization~~ and ~~impairment~~amortization

Three months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 1,894,000 $ 182,000 $ 1,712,000
Three months ended September 30,
2019 2018 Inc/(Dec)
Depreciation and amortization $ 1,464 $ 1,879 $ (415 )

~~During~~
The decrease of $415 or 22.1% was primarily due to six fewer locations in the current three-month period ~~ended September 30, 2017, depreciation and~~versus the prior year. Fewer locations result in lower amortization ~~expense totaled $1,894,000, which represents an increase~~ of $1,712,000 (or 940.7%) compared to the amortization expense recorded during the three-month period ended September 30, 2016. There was no impairment expense for the three-month period ended September 30, 2017 and no depreciation or impairment expense recorded for the three-month period ended September 30, 2016.leasehold improvements.
Impairment of assets
Three months ended September 30,
2019 2018 Inc/(Dec)
Impairment of assets $ 106 $ — $ 106

The ~~overall increase~~amount recorded in ~~depreciation, amortization and impairment expense was mainly due~~the current period primarily represents the write down of patent assets that we no longer expect to ~~an increase in depreciation expense resulting from leasehold improvements and equipment of $1,110,000 and~~generate cash flow for the ~~amortization of the brand and customer relationship intangible assets of $597,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016.~~Company.

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

Three months ended September 30,
2019 2018 Inc/(Dec)
General and administrative $ 3,108 $ 3,943 $ (835 )
Three months ended September 30,
2017 2016 Change
General and administrative $ 5,473,000 $ 3,564,000 $ 1,909,000
The decrease of $835 or 21.2% was primarily due to a reduction of higher paid executive management personnel salaries and related benefits of approximately $620, and a net decrease in professional fees and corporate expenses of approximately $260.
~~During~~
Other non-operating income (expense), net
Three months ended September 30,
2019 2018 Inc/(Dec)
Other non-operating income (expense), net $ (2,161 ) $ 378 $ (2,539 )
Included in other non-operating income (expense), net for the ~~three-month period~~three months ended September 30, ~~2017, general~~2019 is expense of $1,154 for the issuance of 8,996 shares of Series F Convertible Preferred Stock, which represents the fair value of the shares as of the date issued of July 8, 2019, and ~~administrative expenses increased by $1,909,000 (or 53.6%) compared~~expense of $1,512 related to the ~~three-month period ended September 30, 2016. The results~~valuation of the three-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016 is primarily attributed to $2,237,000 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 $221,000, which was a result of equity awards granted to our directors, management and employees in January 2017.
~~Non-operating expense, net~~
Three months ended September 30,
2017 2016 Change
Non-operating expense, net $ 268,000 $ 1,483,000 $ (1,215,000 )

~~Net non-operating expenses include interest expense, revaluation of derivative warrant liabilities, extinguishment of debt and other non-operating income and expenses.~~
During the three-month period ended September 30, 2017, we recorded total net non-operating expense in the amount of $268,000 compared to total net non-operating expense in the amount of $1,483,000 recorded during the three-month period ended September 30, 2016.
For the three-month period ended September 30, 2017, we recorded interest expense of $183,000 mainly related to XpresSpa’s Debt as well as other net non-operating expense of $133,000. These expenses wereClass A Warrants, partially offset by a $185 gain ~~of $48,000~~ on the revaluation of the ~~derivative warrant liabilities.~~conversion feature and warrants related to the Calm Private Placement (See Note 11. “Derivative Liabilities and Fair Value Measurements” to the Company’s consolidated condensed financial statements for additional information).

For the three-month period ended September 30, 2016, we recorded interest expense of $949,000 for the amortization of the debt discount and debt issuance costs associated with debt that was repaid during July 2016. We also recorded $262,000 of extinguishment of debt when the debt was repaid. These were in addition to other non-operating expenses of $369,000 offset byThe 2018 amount includes a gain ~~of $97,000~~ on the revaluation of derivative warrants partially offset by the ~~derivative warrant liabilities.~~write down of a cost investment.

Interest expense
Three months ended September 30,
2019 2018 Inc/(Dec)
Interest expense $ (780 ) $ (624 ) $ 156
Interest expense increased $156 or 25.0% primarily due to interest and accretion expenses related to the renegotiation of the B3D Note and the issuance of the Calm Note on July 8, 2019, which was more than interest and accretion expenses incurred related to the Company’s 11.24% senior secured note and the 5% Secured Convertible Notes during the comparable prior year period.
Nine-month period ended September 30, ~~2017~~2019 compared to the nine-month period ended September 30, ~~2016~~2018
Revenue

Nine months ended September 30,
2017 2016 Change
Revenue $ 48,683,000 $ 16,478,000 $ 32,205,000
Nine months ended September 30,
2019 2018 Inc/(Dec)
Revenue $ 37,669 $ 38,560 $ (891 )

During the nine-month period ended September 30, ~~2017, we recorded~~2019, total revenue of $48,683,000, which represents an increase of $32,205,000 (or 195.4%) as compared to $16,478,000 recorded in the nine-month period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental revenues associated with our acquisitions of XpresSpa and Excalibur. We did not recognize any revenue generated by Excalibur prior to its acquisition on February 2, 2017decreased $891 or XpresSpa prior to its acquisition on December 23, 2016. Our technology operating segment demonstrated 115.8% growth in revenue from $5,478,000 for the nine-month period ended September 30, 2016 to $11,820,000 for the nine-month period ended September 30, 2017.
~~Cost of sales~~
Nine months ended September 30,
2017 2016 Change
Cost of sales $ 39,446,000 $ 10,985,000 $ 28,461,000
~~During the nine-month period ended September 30, 2017, we recorded total cost of sales of $39,446,000, which represents an increase of $28,461,000 (or 259.1%)~~2.3% compared to the nine-month period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental cost of sales associated with our 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.
~~Depreciation, amortization and impairment~~
Nine months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 6,849,000 $ 13,341,000 $ (6,492,000 )
~~During the nine-month period ended September 30, 2017, depreciation and amortization expense totaled $6,849,000, which represents a decrease of $6,492,000 (or 48.7%) compared~~2018, primarily due to the ~~amortization and impairment expense recorded~~decrease in the number of spas open during the nine-month period ended September 30, 2016. There was no impairment expense for the nine-month period ended September 30, 2017 and no depreciation expense recorded for the nine-month period ended September 30, 2016.
~~Amortization and impairment expense for~~ the nine months ended September 30, 2016 was significantly higher and was primarily attributed to an $11,937,000 impairment charge to our patents asset group. During the second quarter of 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 repositioning2019 (51 spas) 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 2016, 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 nine-month period ended September 30, 2017.

The overall decrease in depreciation, amortization and impairment expense, when comparing the nine-month period ended September 30, 2017 to the nine-month period ended September 30, 2016, was partially offset by an increase in depreciation expense resulting from leasehold improvements and equipment of $4,567,000 and the amortization of the brand and customer relationship intangible assets of $1,775,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016. The depreciation expense of $4,567,000 is higher than the typical depreciation expense for the nine-month period due to a formal decision made in April 2017 to perform a complete renovation of our flagship JFK location which resulted in a revision to the useful lives. This resulted in an additional $1,100,000 of 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.
~~General and administrative~~
Nine months ended September 30,
2017 2016 Change
General and administrative $ 17,012,000 $ 8,059,000 $ 8,953,000
~~During the nine-month period ended September 30, 2017, general and administrative expenses increased by $8,953,000 (or 111.1%)~~ compared to the ~~nine-month~~comparable prior year period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the nine-month period ended September 30, 2017 compared to the same period ended September 30, 2016 is primarily attributed to $6,537,000 of general and administrative expenses associated with XpresSpa, of which $1,013,000 related to merger and acquisition, integration, and one-time 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 $732,000, which was a result of equity awards granted to our directors, management and employees in January 2017.(57 spas).

~~Non-operating expense, net~~Cost of sales

Nine months ended September 30,
2017 2016 Change
Non-operating expense, net $ 574,000 $ 1,923,000 $ (1,349,000 )
~~Net non-operating expenses include interest expense, revaluation of derivative warrant liabilities, extinguishment of debt and other non-operating income and expenses.~~
Nine months ended September 30,
2019 2018 Inc/(Dec)
Cost of sales $ 28,640 $ 30,121 $ (1,481 )

During the nine-month period ended September 30, ~~2017, we recorded~~2019, total ~~net non-operating expense in the amount~~cost of ~~$574,000~~sales decreased $1,481 or 4.9% compared to the nine-month period ended September 30, 2018. This was primarily due to the decrease in revenue and the impact of initiatives taken by management to streamline processes and reduce store-level costs which included reduced warehousing and shipping charges.
Cost of sales is expected to grow over time as our revenues increase. We expect that total ~~net non-operating~~cost of sales as a percentage of revenues will decline gradually over time as a result of the store-level performance improvements which we continue to prioritize.
Depreciation and amortization
Nine months ended September 30,
2019 2018 Inc/(Dec)
Depreciation and amortization $ 4,692 $ 5,375 $ (683 )
During the nine-month period ended September 30, 2019, depreciation and amortization expense ~~in the amount of $1,923,000 recorded~~decreased $683 or 12.7% due primarily to six fewer locations open during the nine-month period ended September 30, ~~2016.~~2019 versus the comparable prior year period. Fewer locations resulted in lower amortization of leasehold improvements.

~~For~~Impairment of assets
Nine months ended September 30,
2019 2018 Inc/(Dec)
Impairment of assets $ 936 $ — $ 936
In July 2019, the lease for our location in the World Trade Center in New York was terminated. As a result, the Company assessed all assets (primarily leasehold improvements) for impairment. This resulted in a charge of approximately $620.
The balance of $316 primarily represents a $210 write-off of work in progress related to the opening of new spas that was started but ultimately deemed not viable of $210 and an $85 write down of patent assets that were no longer expected to generate cash flow for the Company.
Impairment of goodwill
Nine months ended September 30,
2019 2018 Inc/(Dec)
Impairment of goodwill $ — $ 19,630 $ (19,630 )
During the first quarter of fiscal year 2018, our stock price declined from an opening price of $1.36 on January 2, 2018 to $0.72 on March 29, 2018. Subsequently, on April 19, 2018, we entered into a separation agreement with our Chief Executive Officer regarding his resignation as Chief Executive Officer and Director. These events were identified by our management as triggering events requiring that goodwill be tested for impairment as of March 31, 2018. As the stock price had not rebounded, we determined that the impairment related to the three-month period ended March 31, 2018. We performed testing on the estimated fair value of goodwill and, as a result, we recorded an impairment charge of $19,630 to reduce the carrying value of goodwill to its fair value, which was determined to be zero. The impairment to goodwill was a result of the structural changes to the Company, including completion of the transition from a holding company to a pure-play health and wellness company, the change in our Chief Executive Officer and the reduction in our stock price.
General and administrative
Nine months ended September 30,
2019 2018 Inc/(Dec)
General and administrative $ 9,204 $ 12,443 $ (3,239 )
During the nine-month period ended September 30, ~~2017, we recorded interest expense of $550,000 mainly related~~2019, general and administrative expenses decreased by $3,239 or 26.0% compared to ~~XpresSpa’s Debt as well as other net non-operating expense of $231,000. These expenses were reduced by a gain of $207,000 on the revaluation of the derivative warrant liabilities.~~
~~For~~ the nine-month period ended September 30, ~~2016,~~2018. This decrease was due primarily to a reduction of higher paid executive management personnel salaries and benefits of approximately $1,500, an overall reduction in corporate overhead expenses and lower professional fees compared to the 2018 period where we ~~recorded interest expense of $1,697,000 for the interest recorded~~incurred professional fees related to the ~~monthly interest payments and the amortization~~sale of the ~~debt discount and debt issuance~~Company’s Group Mobile division in March 2018.

Interest expense
Nine months ended September 30,
2019 2018 Inc/(Dec)
Interest expense $ (2,052 ) $ (1,212 ) $ 840
Interest expense increased $840 or 69.3% due primarily to six months of interest expense recorded in the 2019 period on our 5% Secured Convertible Notes versus two months of expense recorded in 2018. We also expensed the remaining balance of deferred financing costs as ~~well as accrued~~a result of the conversion of the 5% Secured Convertible Notes in June 2019 and recorded accretion of interest ~~calculated using the effective interest method~~expense associated with ~~debt that was repaid during July 2016. There was also $472,000~~the 5% Secured Convertible Notes of ~~extinguishment~~approximately $800 in 2019, as compared to approximately $500 recorded in the comparable 2018 period.
Other non-operating income (expense), net
Nine months ended September 30,
2019 2018 Inc/(Dec)
Other non-operating income (expense), net $ (5,817 ) $ 877 $ (6,694 )
The following is a summary of ~~debt recorded when~~ the ~~debt was repaid. These~~transactions included in other non-operating ~~expenses were offset by a gain of $97,000~~income (expense), net for the nine months ended September 30, 2019 and 2018:
Nine months ended September 30,
2019 2018
Debt conversion expense related to conversion of 5% Secured Convertible Notes $ 1,547 $ —
Loss on revaluation of warrants and conversion options 780 898
Issuance of Series F Preferred Stock 1,131 —
Issuance of warrants 689
Impairment of cost method investments 1,188 —
Other 482 (21 )
Total $ 5,817 $ 877
See the notes to the consolidated condensed financial statements for additional information on the ~~revaluation~~above transactions.
Discontinued Operations
In March 2018, we completed the sale of Group Mobile, previously part of our technology operating segment. The results of operations for Group Mobile are presented in the ~~derivative warrant liabilities~~consolidated condensed statements of operations and ~~other~~comprehensive loss as“Loss from discontinued operations, net ~~non-operating~~of income ~~of $149,000.~~taxes” which totaled $1,115 for nine months ended September 30, 2018.

Liquidity and Capital Resources

Our primary liquidity and capital requirements are for ~~new~~the renovation of our current XpresSpa locations and for ~~our wellness operating segment, as well as working capital for our technology operating segment.~~new locations. As of September 30, ~~2017,~~2019, we had cash and cash equivalents of ~~$10,072,000 that~~$2,432. We hold $1,606 of our cash and cash equivalents balance in overseas bank accounts. If we were to distribute the amounts held overseas, we would need to follow an approval and distribution process as it is defined in our operating and partnership agreements, which may delay and/or reduce the availability of cash to us. Our total cash and cash equivalents balance decreased $971 from $3,403 as of December 31, 2018, primarily due to capital expenditures during the nine-month period, distributions to noncontrolling investees, operating activities and debt service payments.
As a result of the refinancing transactions discussion in theOverviewsection above and disclosed in the notes to the consolidated condensed financial statements, the working capital deficiency was reduced from $10,899 as of December 31, 2018 to $3,785 as of September 30, 2019.

We expect to utilize our cash and cash equivalents, 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~~supporting corporate functions. ~~In addition, we have approximately $7,342,000 of trade receivables, inventory and other current assets to support our working capital needs.~~

~~On July 26, 2017, we entered into~~We have taken actions to cure defaults under our debt agreements, improve our overall cash position and our access to liquidity. We continue to expand and explore strategic partnerships, right-size our corporate structure, and streamline our operations. We expect that the ~~Underwriting Agreement with Roth Capital Partners, LLC, acting as the representative of the Underwriters, relating~~actions taken to ~~the Offering of 6,900,000 shares of FORM Common Stock including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017~~date will enhance our liquidity and ~~closed on August 4, 2017. The price to the public in the Offering was $1.10 per share~~financial stability 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 $6,584,000 after deducting underwriting discounts and commissions and other estimated offering expenses.
Our total cash decreased from $17,910,000 as of December 31, 2016 to $10,072,000 as of September 30, 2017. Approximately $11,057,000 of the cash outflow during the nine-month period ended September 30, 2017 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 September 30, 2017:~~
Cash spent on inventory on-hand $ 1,830,000
Overdue payables acquired as part of XpresSpa 1,500,000
Capital expenditures for stores and technology 3,065,000
Merger and acquisition and integration-related professional fees 1,595,000
Leases and tax-related matters 587,000
Interest paid on Debt 580,000
Repayment of line of credit upon Excalibur acquisition 361,000
XpresSpa severance 407,000
Cash outflow related to discontinued operations 1,132,000
$ 11,057,000
~~Based on our current operating plans, we~~ expect ~~to have sufficient funds for at least the next 12 months of operations following the date of~~that these ~~financial statements. In addition, we may choose to raise additional funds in connection with new store openings and potential acquisitions of operating assets, which~~actions will be ~~complementary to~~executed in alignment with the anticipated timing of our ~~wellness operating segment.~~liquidity needs. There can be no assurance, however, that any such opportunities will materialize.
Our historical operating results indicate that there is substantial doubt related to the Company’s ability to continue as a going concern. We believe it is probable that the actions discussed above have successfully mitigated the substantial doubt raised by our historical operating results and will satisfy our liquidity needs in the short-term; however, we cannot reasonably predict with any certainty that the results of our planned actions will generate the expected liquidity required to satisfy our liquidity needs for the long-term.

~~Off-Balance Sheet Arrangements~~If we continue to experience operating losses, and we are not able to generate additional liquidity through some other actions, while not expected, we may not be able to access additional funds and we might need to secure additional sources of funds, which may or may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business.

We have no obligations, assets or liabilities that 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~~Policies

These consolidated 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~~April 1, 2019, as subsequently amended on April 30, ~~2017,~~2019, 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.

~~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. Controls and Procedures.
~~Item 4. Controls and Procedures.~~
Evaluation of Disclosure 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”))~~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~~Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, ~~2017,~~2019, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and ~~Chief~~Principal 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~~Principal 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 Excalibur, which was acquired on February 2, 2017. Our consolidated revenue for the nine-month period ended September 30, 2017 was $48,683,000, of which Excalibur represented $4,195,000, and our total assets as of September 30, 2017 were $73,839,000, of which Excalibur represented $4,772,000.
Changes in Internal Control over Financial Reporting
On February 2, 2017, we 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 our technology operating segment. We are currently in the process of evaluating and integrating Excalibur's historical internal controls over financial reporting into ours.
~~Other than this~~There has been no change ~~there were no changes~~ in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, ~~2017~~2019 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

Part II– OTHER INFORMATION
~~Item 1.~~~~Legal Proceedings.~~
Item 1. Legal Proceedings.

For information regarding legal proceedings, see Note ~~11 “Commitments~~16.“Commitments and Contingencies” in our notes to the consolidated 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 ~~Factors.~~
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 highlightedFactors in our Annual Report on Form 10-K for the year ended December 31, 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.

~~Risks Related to Our Common Stock~~2018.

~~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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
~~Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.~~
Calm Private Placement

~~None.~~On July 8, 2019, the Company entered into the Calm Purchase Agreement with Calm pursuant to which the Company agreed to sell (i) the Calm Notes, which are convertible into shares of Series E Preferred Stock and (ii) the Calm Warrants. The Company received $2,500 in gross proceeds from the Calm Private Placement. For additional information, see Note 1.“General – Recent Developments.”
B3D Transaction
On July 8, 2019, Holdings entered into the Credit Agreement Amendment to its existing Credit Agreement with B3D in order to, among other provisions, (i) extend the maturity date to May 31, 2021, (ii) reduce the applicable interest rate to 9.0%, and (iii) to amend and restate certain other provisions. The principal amount owed to B3D was increased to $7.0 million, which principal and any interest accrued thereon are convertible, at B3D’s option, into Common Stock subject to receipt of shareholder approval, which approval was obtained on October 2, 2019. For additional information, see Note 1.“General – Recent Developments.”
Series F Preferred Stock
In connection with the May 2018 SPA Amendment, on July 8, 2019, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock (the “Series F Certificate of Designation”) establishing and designating the rights, powers and preferences of the Series F Preferred Stock. The Company designated 9,000 shares of Series F Preferred Stock. For additional information, see Note 1.“General – Recent Developments.”
~~Item 3.Defaults Upon Senior Securities.~~
Item 3. Defaults Upon Senior Securities.

None.
~~Item 4.~~~~Mine Safety Disclosures.~~
Item 4. Mine Safety Disclosures.

Not applicable.
~~Item 5.Other Information.~~
Item 5. Other Information.

None.

28
~~Item 6. Exhibits.~~
Item 6. Exhibits.

Exhibit

No.
Description

31.1*3.1 Amendment to the Certificate of Designation, Preferences, Rights and Limitations of the Series E Convertible Preferred Stock, dated as of July 8, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
3.2 Form of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
3.3 Form of Certificate of Designation, Preferences, Rights and Limitations of the Series F Convertible Preferred Stock, dated as of July 8, 2019 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
3.4 Certificate of Elimination of Shares of Series B Convertible Preferred Stock, dated as of July 8, 2019 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
4.1 Form of Calm Note (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
4.2 Form of Calm Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
4.3 Form of B3D Note (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
4.4 Form of December 2016 Warrant Amendment, dated as of July 8, 2019 (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
10.1 Form of Calm Securities Purchase Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
10.2 Form of Calm Registration Rights Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
10.3 Fourth Amendment to Credit Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
10.4 Form of B3D Registration Rights Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
10.5 Form of Amendment to May 2018 Securities Purchase Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).
10.6 Amendment to Second Amended and Restated Convertible Promissory Note, dated as of August 22, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 26, 2019).
10.7 Amendment No. 3 to Agreement and Plan of Merger, dated as of October 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 2, 2019).
10.8* Amendment to Amended and Restated Product Sale and Marketing Agreement, dated as of October 30, 2019.
31* 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.
† Management contract or compensatory plan or arrangement.

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 9th day of November 2017.~~authorized.

~~FORM Holdings Corp.~~
~~By:~~ ~~/s/ ANASTASIA NYRKOVSKAYA~~
~~Anastasia Nyrkovskaya~~XpresSpa Group, Inc.

Date: November 14, 2019 By: /s/ Douglas Satzman
Douglas Satzman
Chief ~~Financial~~Executive Officer
(Principal Executive Officer)
(Principal Financial and Accounting Officer)

		Page

PART I. FINANCIAL INFORMATION		3

Item 1.	Consolidated Condensed ~~Consolidated~~ Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1927
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2638
Item 4.	Controls and Procedures	2638

PART II. OTHER INFORMATION		2639

Item 1.	Legal Proceedings	2639
Item 1A.	Risk Factors	2639
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2839
Item 3.	Defaults Upon Senior Securities	2839
Item 4.	Mine Safety Disclosures	2839
Item 5.	Other Information	2839
Item 6.	Exhibits	2939

	September 30, 2017 (Unaudited)			December 31, 2016
Current assets
Cash and cash equivalents	$	10,072		$	17,910
Accounts receivable, net		2,668			404
Inventory		4,044			2,890
Other current assets		630			2,150
Assets held for disposal		451			1,507
Total current assets		17,865			24,861

Restricted cash		487			638
Property and equipment, net		14,411			16,284
Intangible assets, net		13,897			15,233
Goodwill		25,836			24,409
Other assets		1,343			1,382
Total assets	$	73,839		$	82,807

Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	10,401		$	11,434
Deferred revenue		174			133
Liabilities held for disposal		80			206
Total current liabilities		10,655			11,773

Long-term liabilities
Debt		6,500			6,500
Derivative warrant liabilities		52			259
Other liabilities		796			106
Total liabilities		18,003			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 420,541 outstanding with a liquidation value of $20,186 as of September 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; 26,540,690 and 18,304,881 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		265			183
Additional paid-in capital		289,823			280,221
Accumulated deficit		(239,000	)		(220,868	)
Accumulated other comprehensive loss		(133	)		(13	)
Total equity attributable to the Company		50,959			59,528
Noncontrolling interests		4,877			4,641
Total equity		55,836			64,169
Total liabilities and equity	$	73,839		$	82,807

	September 30, 2019 (Unaudited)			December 31, 2018
Current assets
Cash and cash equivalents	$	2,432		$	3,403
Retail inventory		854			782
Other current assets		690			1,574
Total current assets		3,976			5,759
Restricted cash		451			487
Property and equipment, net		9,621			11,795
Intangible assets, net		7,358			9,167
Operating lease right of use assets, net		9,818			—
Other assets		2,494			3,376
Total assets	$	33,718		$	30,584
Current liabilities
Accounts payable, accrued expenses and other	$	7,761		$	8,172
Senior secured note		—			6,500
Convertible notes, net		—			1,986
Total current liabilities		7,761			16,658
Senior secured note, net		4,153			—
Convertible note, net		1,046			—
Derivative liabilities		6,088			476
Operating lease liabilities		9,818			—
Other liabilities		315			315
Total liabilities		29,181			17,449
Commitments and contingencies (see Note 16)
Stockholders’ equity *
Series A Convertible Preferred Stock, $0.01 par value per share; 6,968 shares authorized; 6,673 issued and none outstanding		—			—
Series C Junior Preferred Stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding		—			—
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; 480,417 shares issued and 425,750 shares outstanding as of both periods with a liquidation value of $20,436		4			4
Series E Convertible Preferred Stock, $0.01 par value per share, 2,397,060 shares authorized; 967,742 issued and outstanding as of both periods with a liquidation value of $3,000		10			10
Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; 8,996 shares issued and outstanding at September 30, 2019 and none at December 31, 2018 with a liquidation value of $900		—			—
Common Stock, $0.01 par value per share; 150,000,000 shares authorized; 2,918,169 and 1,761,802 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		363			352
Additional paid-in capital		301,601			295,904
Accumulated deficit		(301,068	)		(286,913	)
Accumulated other comprehensive loss		(360	)		(251	)
Total stockholders’ equity attributable to common shareholders		550			9,106
Noncontrolling interests		3,987			4,029
Total stockholders’ equity		4,537			13,135
Total liabilities and stockholders’ equity	$	33,718		$	30,584

	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Revenue
Wellness	$	12,652		$	—		$	36,563		$	—
Technology		4,879			1,751			11,820			5,478
Intellectual property		200			1,350			300			11,000
Total revenue		17,731			3,101			48,683			16,478

Cost of sales
Wellness		10,347			—			29,583			—
Technology		3,902			1,554			9,520			4,858
Intellectual property*		126			1,164			343			6,127
Total cost of sales		14,375			2,718			39,446			10,985
Depreciation, amortization and impairment		1,894			182			6,849			13,341
General and administrative*		5,473			3,564			17,012			8,059
Total operating expenses		21,742			6,464			63,307			32,385
Operating loss from continuing operations		(4,011	)		(3,363	)		(14,624	)		(15,907	)
Non-operating income (expense), net		(85	)		(272	)		(24	)		246
Interest expense		(183	)		(949	)		(550	)		(1,697	)
Extinguishment of debt		—			(262	)		—			(472	)
Loss from continuing operations before income taxes		(4,279	)		(4,846	)		(15,198	)		(17,830	)
Income tax expense		(57	)		—			(284	)		—
Consolidated net loss from continuing operations		(4,336	)		(4,846	)		(15,482	)		(17,830	)
Loss from discontinued operations before income taxes		(208	)		(415	)		(2,321	)		(2,193	)
Income tax expense		—			—			—			—
Net loss from discontinued operations		(208	)		(415	)		(2,321	)		(2,193	)
Consolidated net loss		(4,544	)		(5,261	)		(17,803	)		(20,023	)
Net income attributable to noncontrolling interests		(153	)		—			(329	)		—
Net loss attributable to the Company	$	(4,697	)	$	(5,261	)	$	(18,132	)	$	(20,023	)

Consolidated net loss from continuing operations	$	(4,336	)	$	(4,846	)	$	(15,482	)	$	(17,830	)
Other comprehensive income (loss) from continuing operations: foreign currency translations		31			—			(120	)		—
Comprehensive loss from continuing operations		(4,305	)		(4,846	)		(15,602	)		(17,830	)
Consolidated net loss from discontinued operations		(208	)		(415	)		(2,321	)		(2,193	)
Other comprehensive loss from discontinued operations: foreign currency translations		—			—			—			—
Comprehensive loss from discontinued operations		(208	)		(415	)		(2,321	)		(2,193	)
Comprehensive loss	$	(4,513	)	$	(5,261	)	$	(17,923	)	$	(20,023	)

Loss per share:
Basic and diluted net loss per share
Loss per share from continuing operations	$	(0.19	)	$	(0.31	)	$	(0.76	)	$	(1.20	)
Loss per share from discontinued operations		(0.01	)		(0.03	)		(0.11	)		(0.15	)
Total basic and diluted net loss per share	$	(0.20	)	$	(0.34	)	$	(0.87	)	$	(1.35	)
Weighted-average number of shares outstanding during the period:
Basic		24,144,002			15,473,895			20,852,034			14,880,925
Diluted		24,144,002			15,473,895			20,852,034			14,880,925

*Includes stock-based compensation expense, as follows:
Intellectual property	$	—		$	59		$	—		$	191
General and administrative		706			426			2,179			1,256
Total stock-based compensation expense	$	706		$	485		$	2,179		$	1,447

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Revenue
Services	$	10,230		$	10,391		$	30,704		$	31,220
Products		2,301			2,531			5,781			6,540
Other		—			—			1,184			800
Total revenue		12,531			12,922			37,669			38,560
Cost of sales
Labor		5,842			5,997			17,507			18,697
Occupancy		1,894			1,996			5,811			6,216
Products and other operating costs		1,953			1,992			5,322			5,208
Total cost of sales		9,689			9,985			28,640			30,121
General and administrative		3,108			3,943			9,204			12,443
Depreciation and amortization		1,464			1,879			4,692			5,375
Impairment of assets		106			—			936			—
Impairment of goodwill		—			—			—			19,630
Total operating expenses		14,367			15,807			43,472			67,569
Operating loss from continuing operations		(1,836	)		(2,885	)		(5,803	)		(29,009	)
Interest expense		(780	)		(624	)		(2,052	)		(1,212	)
Other non-operating income (expense), net		(2,161	)		378			(5,817	)		877
Loss from continuing operations before income taxes		(4,777	)		(3,131	)		(13,672	)		(29,344	)
Income tax benefit		143			66			101			198
Loss from continuing operations after income taxes		(4,634	)		(3,065	)		(13,571	)		(29,146	)
Loss from discontinued operations, net of income taxes		—			—			—			(1,115	)
Net loss		(4,634	)		(3,065	)		(13,571	)		(30,261	)
Net income attributable to noncontrolling interests		(210	)		(122	)		(584	)		(382	)
Net loss attributable to common shareholders	$	(4,844	)	$	(3,187	)	$	(14,155	)	$	(30,643	)
Loss from continuing operations	$	(4,634	)	$	(3,065	)	$	(13,571	)	$	(29,146	)
Other comprehensive income (loss) from continuing operations		82			(3	)		(109	)		(205	)
Comprehensive loss from continuing operations		(4,552	)		(3,068	)		(13,680	)		(29,351	)
Comprehensive loss from discontinued operations		—			—			—			(1,115	)
Comprehensive loss	$	(4,552	)	$	(3,068	)	$	(13,680	)	$	(30,466	)
Loss per share attributable to common shareholders
Loss per share from continuing operations	$	(1.68	)	$	(2.25	)	$	(6.33	)	$	(21.66	)
Loss per share from discontinued operations		—			—			—			(.82	)
Basic and diluted net loss per common share	$	(1.68	)	$	(2.25	)	$	(6.33	)	$	(22.48	)
Weighted-average number of shares outstanding during the period*:
Basic		2,875,501			1,417,614			2,236,323			1,363,440
Diluted		2,875,501			1,417,614			2,236,323			1,363,440

	Preferred stock			Common stock		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total FORM equity			Non controlling interests			Total equity
December 31, 2016	$	5		$	183	$	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
Net proceeds from sale and issuance of shares of common stock in public offering		—			69		6,515			—			—			6,584			—			6,584
Decrease in shares of preferred stock issued to XpresSpa sellers		—			—		(908	)		—			—			(908	)		—			(908	)
Conversion of preferred stock to common stock		(1	)		4		(4	)		—			—			(1	)		—			(1	)
Stock-based compensation		—			—		2,179			—			—			2,179			—			2,179
Net loss for the period		—			—		—			(18,132	)		—			(18,132	)		329			(17,803	)
Foreign currency translation		—			—		—			—			(120	)		(120	)		—			(120	)
Net distributions to noncontrolling interests		—			—		—			—			—			—			(93	)		(93	)
September 30, 2017	$	4		$	265	$	289,823		$	(239,000	)	$	(133	)	$	50,959		$	4,877		$	55,836

	Preferred stock			Common 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
Vesting of restricted stock units (“RSUs”)		—			1		(1	)		—			—			—			—			—
Issuance of common stock for repayment of convertible debt and related interest		—			18		3,031			—			—			3,049			—			3,049
Sale of shares of common stock from subscription agreement		—			7		1,727			—			—			1,734			—			1,734
Stock-based compensation		—			—		1,447			—			—			1,447			—			1,447
Net loss for the period		—			—		—			(20,023	)		—			(20,023	)		—			(20,023	)
September 30, 2016	$	—		$	158	$	243,450		$	(216,885	)	$	—		$	26,723		$	—		$	26,723

	Preferred stock		Common stock		Additional paid- in capital		Accumulated deficit			Accumulated other comprehensive loss			Total Company equity			Non- controlling interests			Total equity
December 31, 2018	$	14	$	352	$	295,904	$	(286,913	)	$	(251	)	$	9,106		$	4,029		$	13,135
Issuance of common stock for repayment of debt and interest		—		2		815		—			—			817			—			817
Stock-based compensation		—		—		104		—			—			104			—			104
Net income (loss) for the period		—		—		—		(2,973	)		—			(2,973	)		129			(2,844	)
Foreign currency translation		—		—		—		—			(21	)		(21	)		—			(21	)
Distributions to noncontrolling interests		—		—		—		—			—			—			(166	)		(166	)
March 31, 2019		14		354		296,823		(289,886	)		(272	)		7,033			3,992			11,025
Conversion of senior notes and warrants into common shares		—		6		3,488		—			—			3,494			—			3,494
Stock-based compensation		—		—		127		—			—			127			—			127
Foreign currency translation		—		—		—		—			(170	)		(170	)		—			(170	)
Net income (loss) for the period		—		—		—		(6,338	)		—			(6,338	)		245			(6,093	)
Contributions from noncontrolling interests		—		—		—		—			—			—			16			16
Distributions to noncontrolling interests		—		—		—		—			—			��			(174	)		(174	)
June 30, 2019		14		360		300,438		(296,224	)		(442	)		4,146			4,079			8,225
Issuance of Series F Preferred Stock		—		—		1,131		—			—			1,131			—			1,131
Stock-based compensation		—		—		35		—			—			35			—			35
Exercise of June 2019 Class A Warrants into common stock		—		3		(3)		—			—			—			—			—
Foreign currency translation		—		—		—		—			82			82			—			82
Net income (loss) for the period		—		—		—		(4,844	)		—			(4,844	)		210			(4,634	)
Distributions to noncontrolling interests		—		—		—		—			—			—			(302	)		(302	)
September 30, 2019	$	14	$	363	$	301,601	$	(301,068	)	$	(360	)	$	550		$	3,987		$	4,537

	As of September 30,
	2019		2018
Both vested and unvested options to purchase an equal number of shares of Common Stock of the Company		178,229		114,250
Unvested RSUs to issue an equal number of shares of Common Stock of the Company		37,500		22,750
Warrants to purchase an equal number of shares of Common Stock of the Company		1,462,224		703,670
Preferred stock on an as converted basis		862,035		163,216
Convertible notes on an as converted basis		—		217,500
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders		2,539,988		1,221,386

	September 30, 2019		December 31, 2018
Cash denominated in United States dollars	$	480	$	2,000
Cash denominated in currency other than United States dollars		1,605		1,143
Restricted cash		451		487
Credit and debit card receivables		347		260
Total cash, cash equivalents, and restricted cash	$	2,883	$	3,890

	Fair Value
Assets
Current assets (including cash of $26)	$	613
Deferred tax assets		29
Property and equipment		21
Intangible assets		556
Goodwill		2,335
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

	September 30, 2017		December 31, 2016
Assets
Wellness	$	51,151	$	57,527
Technology		14,445		7,014
Intellectual property		603		940
Corporate		7,189		15,819
Assets held for disposal		451		1,507
Total assets	$	73,839	$	82,807

	September 30, 2019		December 31, 2018
Cash in escrow	$	254	$	—
Prepaid expenses		222		1,204
Other		214		370
Total other current assets	$	690	$	1,574

	September 30, 2019		December 31, 2018
Cost method investments	$	1,294	$	2,482
Lease deposits		894		894
Other		306		—
Total other assets	$	2,494	$	3,376

	September 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization and Impairment			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization and Impairment			Net Carrying Amount
Trade name	$	13,309	$	(6,149	)	$	7,160	$	13,309	$	(4,485	)	$	8,824
Customer relationships		312		(312	)		—		312		(312	)		—
Software		312		(114	)		198		312		(69	)		243
Patents		26,897		(26,897	)		—		26,897		(26,797	)		100
Total intangible assets	$	40,830	$	(33,472	)	$	7,358	$	40,830	$	(31,663	)	$	9,167

Calendar Years ending December 31,	Amount
Remainder of 2019	$	463
2020		2,275
2021		2,275
2022		2,275
2023		70
Total	$	7,358

Operating lease liabilities, January 1, 2019	$	10,809
New leases entered		1,531
Termination of existing qualifying leases		(421	)
Amortization of lease obligation		(2,101	)
Operating lease liabilities, September 30, 2019	$	9,818

Weighted average remaining lease term:		5.1 years
Weighted average discount rate used to determine present value of operating lease liability:		11.01	%
Cash paid for lease obligations during the nine months ended September 30, 2019:	$	2,827

	September 30, 2019		December 31, 2018
B3D Note, net of $2,847 in unamortized debt issuance costs and fair value adjustments as of September 30, 2019	$	4,153	$	6,500
5% Secured Convertible Notes, net		—		1,986
Calm Note, net of $1,454 in unamortized debt issuance costs and fair value adjustments		1,046		—
Total debt	$	5,199	$	8,486

			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)
September 30, 2017:
May 2015 Warrants	$	52	$	—	$	—	$	52

December 31, 2016:
May 2015 Warrants	$	259	$	—	$	—	$	259

	May 2015 Warrants
December 31, 2016	$	259
Decrease in fair value of the derivative warrant liabilities		(159	)
June 30, 2017		100
Decrease in fair value of the derivative warrant liabilities		(48	)
September 30, 2017	$	52

December 31, 2018	$	476
Fair value ascribed to embedded derivative conversion options and warrants		4,143
Issuance of June 2019 Class A Warrants		689
Conversion of June 2019 Class A Warrants into Common Stock		(689	)
Revaluation of derivative conversion options and warrants at September 30, 2019		1,469
September 30, 2019	$	6,088

Description	Valuation technique	Unobservable inputs	Range
Calm Warrants	Monte Carlo Model	Volatility		67.1	%
		Risk-free interest rate		1.60	%
		Expected term, in years		4.77
		Dividend yield		0.00	%

Calm conversion option	Monte Carlo Model	Volatility		67.2	%
		Risk-free interest rate		1.63	%
		Expected term, in years		2.67
		Dividend yield		0.00	%

B3D conversion option	Monte Carlo Model	Volatility		67.6	%
		Risk-free interest rate		1.73	%
		Expected term, in years		1.67
		Dividend yield		0.00	%

May 2018 Class A Warrants	Monte Carlo Model	Volatility		42.5	%
		Risk-free interest rate		1.60	%
		Expected term, in years		3.63
		Dividend yield		0.00	%

~~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~~	%

	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		(35,377	)	$	2.12		(330,834	)	$	15.57	$	1.55 – 41.00	$	10.61
Expired		—			—		(16,368	)	$	43.66	$	9.94 – 55.00	$	22.02
Outstanding as of September 30, 2017		365,565		$	2.12		4,876,899		$	5.21	$	1.55 – 41.00	$	3.59
Exercisable as of September 30, 2017		—					2,780,024		$	7.77	$	1.55 – 41.00

	Nine months ended September 30, 2018
Revenue	$	2,834
Cost of sales		(2,305	)
Depreciation and amortization		(131	)
General and administrative		(1,190	)
Loss on disposal		(301	)
Non-operating income (expense), net		(22	)
Loss from discontinued operations	$	(1,115	)

	Three Months Ended September 30, 2017
	Wellness			Technology			Intellectual Property			Corporate			Total
Total revenue	$	12,652,000		$	4,879,000		$	200,000		$	—		$	17,731,000

Cost of sales
Products		1,005,000			3,902,000			—			—			4,907,000
Labor		6,458,000			—			—			—			6,458,000
Occupancy		1,950,000			—			—			—			1,950,000
Other operating costs		934,000			—			126,000			—			1,060,000
Total cost of sales		10,347,000			3,902,000			126,000			—			14,375,000

Gross profit		2,305,000			977,000			74,000			—			3,356,000
Gross profit as a % of total revenue		18.2	%		20.0	%		37.0	%		—			18.9	%

Depreciation and amortization
Depreciation		1,110,000			24,000			—			7,000			1,141,000
Amortization		597,000			150,000			6,000			—			753,000
Total depreciation and amortization		1,707,000			174,000			6,000			7,000			1,894,000

General and administrative
Stock-based compensation		—			—			—			706,000			706,000
Other general and administrative		2,237,000			1,293,000			(149,000	)		1,386,000			4,767,000
Total general and administrative		2,237,000			1,293,000			(149,000	)		2,092,000			5,473,000

Operating income (loss) from continuing operations	$	(1,639,000	)	$	(490,000	)	$	217,000		$	(2,099,000	)	$	(4,011,000	)

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018						% Inc/(Dec)
	Comp Store		Non-Comp Store		Total		Comp Store		Non-Comp Store		Total		Comp Store
Products and Services	$	35,642	$	843	$	36,485	$	34,878	$	2,882	$	37,760		2.2	%

	Nine months ended September 30,
	2017		2016		Change
Non-operating expense, net	$	574,000	$	1,923,000	$	(1,349,000	)

Cash spent on inventory on-hand	$	1,830,000
Overdue payables acquired as part of XpresSpa		1,500,000
Capital expenditures for stores and technology		3,065,000
Merger and acquisition and integration-related professional fees		1,595,000
Leases and tax-related matters		587,000
Interest paid on Debt		580,000
Repayment of line of credit upon Excalibur acquisition		361,000
XpresSpa severance		407,000
Cash outflow related to discontinued operations		1,132,000
	$	11,057,000

Exhibit No.		Description

31.1*3.1		Amendment to the Certificate of Designation, Preferences, Rights and Limitations of the Series E Convertible Preferred Stock, dated as of July 8, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

3.2		Form of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

3.3		Form of Certificate of Designation, Preferences, Rights and Limitations of the Series F Convertible Preferred Stock, dated as of July 8, 2019 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

3.4		Certificate of Elimination of Shares of Series B Convertible Preferred Stock, dated as of July 8, 2019 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

4.1		Form of Calm Note (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

4.2		Form of Calm Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

4.3		Form of B3D Note (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

4.4		Form of December 2016 Warrant Amendment, dated as of July 8, 2019 (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

10.1		Form of Calm Securities Purchase Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

10.2		Form of Calm Registration Rights Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

10.3		Fourth Amendment to Credit Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

10.4		Form of B3D Registration Rights Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

10.5		Form of Amendment to May 2018 Securities Purchase Agreement, dated as of July 8, 2019 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2019).

10.6		Amendment to Second Amended and Restated Convertible Promissory Note, dated as of August 22, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 26, 2019).

10.7		Amendment No. 3 to Agreement and Plan of Merger, dated as of October 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 2, 2019).

10.8*		Amendment to Amended and Restated Product Sale and Marketing Agreement, dated as of October 30, 2019.

31*		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.
†		Management contract or compensatory plan or arrangement.