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~~

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2020

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

◻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

~~Delaware~~		20-4988129
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer 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)~~	⌧	Smaller reporting companyx	⌧
		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~~July 2, 2020, 56,473,913 shares of the registrant’s common stock were outstanding.

Table of Contents

EXPLANATORY NOTE

On May 11, 2020, XpresSpa Group, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Form 8-K”) with the U.S. Securities and Exchange Commission (the “SEC”) indicating its reliance on the 45-day extension provided by an order issued by the SEC on March 25, 2020 pursuant to Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (Release No. 34-88465) (the “Order”) regarding exemptions granted to certain public companies. Consistent with the Company’s statements made in the Form 8-K, the Company was unable to file its Quarterly Report on Form 10-Q (the “Quarterly Report”) by May 15, 2020 because of the coronavirus disease 2019 (“COVID-19”) pandemic and related events which resulted in the Company’s management devoting significant time and attention to assessing the potential impact of COVID-19 and those events on the Company’s operations and financial position and developing operational and financial plans to address those matters. This diverted management resources from completing all of the tasks necessary to file its Quarterly Report by the original May 15, 2020 deadline.

Table of Contents

~~FORM Holdings Corp.~~

XpresSpa Group, Inc. and Subsidiaries

Table of Contents

Table of Contents

~~Part~~PART I - FINANCIAL INFORMATION

Item 1.Consolidated Condensed ~~Consolidated~~ Financial Statements

XpresSpa Group, Inc. and Subsidiaries

~~FORM Holdings Corp. and Subsidiaries~~

CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ BALANCE SHEETS

(In thousands, except share and per share data)


	March 31, 2020		December 31,
	(Unaudited)		2019
Current assets
Cash and cash equivalents	$	3,855	$	2,184
Inventory		596		647
Other current assets		998		1,102
Total current assets		5,449		3,933

Restricted cash		451		451
Property and equipment, net		7,951		8,064
Intangible assets, net		6,213		6,783
Operating lease right of use assets, net		7,727		8,254
Other assets		1,399		1,239
Total assets	$	29,190	$	28,724

Current liabilities
Accounts payable, accrued expenses and other	$	11,528	$	12,551
Current portion of operating lease liabilities		3,665		3,669
Merchant account advance		910		—
Total current liabilities		16,103		16,220

Long-term liabilities
Convertible senior secured note, net		3,562		4,580
Convertible note, net		1,318		1,182
Derivative liabilities		6,428		3,137
Operating lease liabilities		5,202		5,826
Other liabilities		315		315
Total liabilities		32,928		31,260
Commitments and contingencies (see Note 10)

Stockholders’ equity (deficit)
Series A Convertible Preferred Stock, $0.01 par value per share; 6,968 shares authorized; 6,673 issued and none outstanding		—		—
Series C Junior Preferred Stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding		—		—
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; none issued and outstanding		—		—
Series E Convertible Preferred Stock, $0.01 par value per share, 2,397,060 shares authorized; 987,988 and 977,865 issued and outstanding with a liquidation value of $3,063 and $3,031 at March 31, 2020 and December 31, 2019, respectively		10		10
Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; 1,531 and 8,996 shares issued and outstanding with a liquidation value of $153 and $900 as of March 31, 2020 and December 31, 2019, respectively		—		—
Common Stock, $0.01 par value per share 150,000,000 shares authorized; 18,601,467 and 5,157,390 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		186		52
Additional paid-in capital		311,389		302,118
Accumulated deficit		(318,752)		(308,136)
Accumulated other comprehensive loss		(283)		(283)
Total stockholders' equity (deficit) attributable to XpresSpa Group, Inc.		(7,450)		(6,239)
Noncontrolling interests		3,712		3,703
Total stockholders’ deficit		(3,738)		(2,536)
Total liabilities and stockholders’ deficit	$	29,190	$	28,724

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

* Adjusted, where applicable, to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

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

~~FORM Holdings Corp.~~Table of Contents

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 March 31,
	2020		2019

Revenue
Services	$	6,686	$	9,628
Products		891		1,418
Other		141		1,184
Total revenue		7,718		12,230
Cost of sales
Labor		4,476		5,778
Occupancy		1,410		1,865
Products and other operating costs		1,282		1,455
Total cost of sales		7,168		9,098
Depreciation and amortization		1,265		1,649
General and administrative		3,233		3,600
Total operating expenses		11,666		14,347
Operating loss		(3,948)		(2,117)
Interest expense		(1,061)		(611)
(Loss) gain on revaluation of warrants and conversion options		(5,369)		152
Other non-operating expense, net		(346)		(257)
Loss from operations before income taxes		(10,724)		(2,833)
Income tax expense		—		(11)
Net loss		(10,724)		(2,844)
Net loss (income) attributable to noncontrolling interests		108		(129)
Net loss attributable to XpresSpa Group, Inc.	$	(10,616)	$	(2,973)

Net loss	$	(10,724)	$	(2,844)
Other comprehensive gain / (loss) from operations		—		(21)
Comprehensive loss	$	(10,724)	$	(2,865)

Loss per share*
Basic and diluted net loss per share	$	(1.74)	$	(4.82)
Weighted-average number of shares outstanding during the year*
Basic		6,276,012		617,357
Diluted		6,276,012		617,357

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

* Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

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

~~FORM Holdings Corp.~~Table of Contents

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In ~~thousands)~~thousands, except share data)


														Accumulated		Total
	Series E			Series F						Additional				other		Company		Non-
	Preferred stock			Preferred stock			Common stock			paid-		Accumulated		comprehensive		equity		controlling		Total
	Shares	Amount		Shares	Amount		Shares *	Amount *		in capital *		deficit		income (loss)		(deficit)		interests		equity (deficit)
December 31, 2019	977,865	$	10	8,996	$	—	5,157,390	$	52	$	302,118	$	(308,136)	$	(283)	$	(6,239)	$	3,703	$	(2,536)
Issuance of Common Stock for payment of interest on B3D Note	—		—	—		—	236,077		2		418		—		—		420		—		420
Issuance of Series E Preferred Stock for payment of interest on Calm Note	10,123		—	—		—	—		—		63		—		—		63		—		63
Conversion of Series F Preferred Stock into Common Stock	—		—	(7,465)		—	930,326		9		(9)		—		—		—		—		—
Direct offerings of registered Common Stock and exercise of pre-funded warrants, net of costs	—		—	—		—	8,210,239		82		4,176		—		—		4,258		—		4,258
Exercise of May 2018 Series A Warrants into Common Stock	—		—	—		—	2,578,455		26		3,096		—		—		3,122		—		3,122
Conversion of B3D Note to Common Stock	—		—	—		—	1,430,647		14		1,321		—		—		1,335		—		1,335
Issuance of Common Stock for services	—		—	—		—	58,333		1		134		—		—		135		—		135
Stock-based compensation	—		—	—		—	—		—		72		—		—		72		—		72
Net loss for the period	—		—	—		—	—		—		—		(10,616)		—		(10,616)		(108)		(10,724)
Foreign currency translation	—		—	—		—	—		—		—		—		—		—		—		—
Contributions from noncontrolling interests	—		—	—		—	—		—		—		—		—		—		117		117
March 31, 2020	987,988	$	10	1,531	$	—	18,601,467	$	186	$	311,389	$	(318,752)	$	(283)	$	(7,450)	$	3,712	$	(3,738)

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

* Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

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

~~FORM Holdings Corp.~~Table of Contents

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(In ~~thousands)~~thousands, except share data)


																	Accumulated
	Series D			Series E			Series F						Additional				other		Total		Non-
	Preferred stock			Preferred stock			Preferred stock			Common stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Shares *	Amount *		in capital *		deficit		loss		equity		interests		equity
December 31, 2018	425,750	$	4	967,742	$	10	—	$	—	587,267	$	6	$	296,250	$	(286,913)	$	(251)	$	9,106	$	4,029	$	13,135
Issuance of Common Stock for repayment of debt and interest	—		—	—		—	—		—	59,847		—		817		—		—		817		—		817
Stock-based compensation	—		—	—		—	—		—	—		—		104		—		—		104		—		104
Net income (loss) for the period	—		—	—		—	—		—	—		—		—		(2,973)		—		(2,973)		129		(2,844)
Foreign currency translation	—		—	—		—	—		—	—		—		—		—		(21)		(21)		—		(21)
Distributions to noncontrolling interests	—		—	—		—	—		—	—		—		—		—		—		—		(166)		(166)
March 31, 2019	425,750	$	4	967,742	$	10	—	$	—	647,114	$	6	$	297,171	$	(289,886)	$	(272)	$	7,033	$	3,992	$	11,025

* Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

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

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

~~FORM Holdings Corp.~~Table of Contents

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three months ended March31,
	2020		2019
Cash flows from operating activities
Net loss	$	(10,724)	$	(2,844)
Adjustments to reconcile net loss to net cash used in operating activities:
Items included in net loss not affecting operating cash flows:
Depreciation and amortization		1,265		1,649
Revaluation of warrants and conversion options		5,369		(152)
Accretion of debt discount on notes		602		—
Amortization of right of use lease asset		527		271
Issuance of shares of Common Stock for payment of interest		420		132
Loss on the extinguishment of debt		265		—
Issuance of shares of Common Stock for services		135		—
Amortization of debt issuance costs		87		394
Stock-based compensation		72		104
Issuance of shares of Series E convertible Preferred Stock for payment of interest on Calm Note		63		—
Changes in assets and liabilities:
Decrease (increase) in inventory		51		(99)
(Increase) decrease in other current assets and other assets		(710)		65
(Decrease) increase in accounts payable, accrued expenses and other		(939)		664
Net cash (used in) provided by operating activities		(3,517)		184
Cash flows from investing activities
Acquisition of property and equipment		(584)		(575)
Net cash used in investing activities		(584)		(575)
Cash flows from financing activities
Proceeds from direct offering of Common Stock and warrants		4,258		—
Proceeds from funding advances, net		910		—
Proceeds from additional borrowing from B3D		900		—
Debt issuance costs		(400)		—
Contributions from noncontrolling interests		117		—
Distributions to noncontrolling interests		—		(166)
Net cash provided by financing activities		5,785		(166)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(13)		(21)
Increase (decrease) in cash, cash equivalents and restricted cash		1,671		(578)
Cash, cash equivalents, and restricted cash at beginning of the period		2,635		3,890
Cash, cash equivalents, and restricted cash at end of the period	$	4,306	$	3,312
Cash paid during the period for
Interest	$	169	$	187
Income taxes	$	2	$	—
Non-cash investing and financing transactions
Settlement of derivative liability through the issuance of Common Stock	$	3,122	$	—
Conversion of B3D Note and warrants into Common Stock	$	1,335	$	—
Conversion of Series F Preferred Stock into Common Stock	$	9	$	—
Issuance of common stock to repay debt	$	—	$	685

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

Table of Contents

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

~~FORM Holdings Corp.~~XpresSpa Group, Inc. (“~~FORM”~~XpresSpa” or the “Company”) ~~has three operating segments:~~is a pure-play health and wellness ~~technology~~services company and ~~intellectual property.~~

~~The Company’s wellness operating segment consists of XpresSpa, which is~~ a leading airport retailer of spa services. ~~XpresSpa is a well-recognized airport spa brand with 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. The Company ~~acquired XpresSpa in the fourth quarter~~currently has one operating segment that is also its sole reporting unit.

Basis of ~~2016.~~

Presentation and Principals of Consolidation

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.

On July 26, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, acting as the representative of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 6,900,000 shares of the Company’s common stock, par value $0.01 per share (“FORM Common Stock”) including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from the Company pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. The net proceeds to the Company from the Offering were $6,584 after deducting underwriting discounts and commissions and other estimated offering expenses.

~~Note 2. Accounting and Reporting Policies~~

~~(a) Basis of presentation and principles of consolidation~~

~~The accompanying~~unaudited interim consolidated condensed ~~consolidated~~ financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“~~U.S.~~ GAAP”) for interim financial information and the instructions to ~~Rule 10-01~~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, ~~2016.~~2019. The unaudited interim consolidated condensed financial statements for all 2019 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~~three-month period ended ~~September 30, 2017~~March 31, 2020 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.

Reverse Stock Split

~~(b) Use~~On June 11, 2020, the Company effected a 1-for-3 reverse stock split, whereby every three shares of ~~estimates~~its Common Stock was reduced to one share of its Common Stock and the price per share of its Common Stock was multiplied by 3. All references to shares and per share amounts have been adjusted to reflect the reverse stock split.

Recent Developments

Newly launched XpresCheck™ brand

On May 22, 2020, the Company announced the signing of a contract with JFK International Air Terminal LLC (“JFKIAT”) to pilot test our concept of providing diagnostic COVID-19 tests located in Terminal 4. To facilitate the JFK pilot test, we signed an agreement with JFKIAT for a new modular constructed testing facility within the terminal that will host nine separate testing rooms with a capacity to administer over 500 tests per day. We intend to initially offer our services to airline employees, contractors and workers, concessionaires and their employees, TSA officers, and U.S. Customs and Border Protection agents. All COVID-19 screening and testing will be conducted by a newly launched brand, XpresCheck™, which will operate under our XpresTest subsidiary. The pilot test at JFK launched on June 22, 2020.

Effect of Coronavirus on Business

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, which continues to spread throughout the U.S. and the world, as a pandemic. The outbreak is having an impact on the global economy, resulting in rapidly changing market and economic conditions. National and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The outbreak and associated restrictions on travel that have been implemented have had a material adverse impact on the Company’s business and cash flow from operations, similar to many businesses in the travel sector. Effective March 24, 2020, the

Table of Contents

Company temporarily closed all global spa locations, largely due to the categorization of the spa locations by local jurisdictions as “non-essential services”. The Company intends to reopen its spa locations and resume normal operations once restrictions are lifted and airport traffic returns to sufficient levels to support operations. The impact of COVID-19 is unknown and may continue as the rates of infection have increased in many states in the U.S., thus additional restrictive measures may be necessary. As a result, management has concluded that there was a long-lived asset impairment triggering event during the first quarter of 2020, which would require management to perform an impairment evaluation of its long-lived and definite-lived asset balances, which consists primarily of leasehold improvements at spa locations, trademarks and right of use lease assets of approximately $22,891 as of March 31, 2020. As a result of the triggering event, the Company reassessed its projections and based on management’s expectation of resuming normal operations, no impairment was indicated at this time. The full extent to which COVID-19 will impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact.

The ~~preparation~~impact of the ~~accompanying condensed consolidated~~COVID-19 pandemic could continue to have a material adverse effect on our business, results of operations, financial ~~statements~~condition, liquidity and prospects in ~~conformity with U.S. GAAP requires~~the near-term and beyond 2020. While management ~~to make certain estimates and assumptions that affect~~has used all currently available information in its forecasts, the ~~reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as~~ultimate impact of the ~~date~~COVID-19 pandemic and the Company’s newly launched brand, XpresCheck^TM, on its results of operations, financial condition and cash flows is highly uncertain, and cannot currently be accurately predicted. The Company’s results of operations, financial condition and cash flows are dependent on future developments, including the duration of the ~~condensed consolidated financial statements~~pandemic and the ~~reported amounts~~related length of ~~revenues~~its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and ~~expenses for~~any new information that may emerge concerning the ~~periods presented. Actual results may differ from such estimates. Significant items subject~~COVID-19 outbreak and the actions to ~~such estimates~~contain it or treat its impact, which at the present time are highly uncertain and ~~assumptions include the Company’s intangible assets, the useful lives~~cannot be predicted with any accuracy. The success or failure of the Company’s ~~intangible assets,~~newly launched brand, XpresCheck^TM, could also have a material effect on the ~~valuation~~Company’s business.

Airport Rent Concessions

The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent in excess of minimum guaranteed amounts where percentage-of-revenue rent exceeds the minimum. Currently, the period of relief from these payments range from three- to ten-months beginning in March 2020. The Company did not pay a total of approximately $75 in rent in March 2020 as a result of receiving these concessions for the month in which we began closing our spa locations. We will realize additional savings in rent expense going forward since we closed all of our spas on March 24, 2020, and therefore there will be no percentage-of-revenue rent. We also received deferrals on unpaid rent for three to six months on certain of our leases.

Warrant Exchanges

On March 19, 2020, the Company entered into separate Warrant Exchange Agreements (the “March Exchange Agreements”) with the holders of certain existing warrants (the “March Exchanged Warrants”) to exchange warrants for shares of the Company’s ~~derivative~~Common Stock, subject to receipt of the approval of the Company’s stockholders, which was obtained on May 28, 2020. The March Exchanged Warrants were originally issued (i) pursuant to a securities purchase agreement, dated as of May 15, 2018, and (ii) in connection with that certain Agreement and Plan of Merger by and among the Company (formerly known as FORM Holdings Corp.), FHXMS, LLC, XpresSpa Holdings, LLC and Mistral XH Representative, LLC, as representative of the unitholders, dated October 25, 2016, as subsequently amended. In June 2020, pursuant to the March Exchange Agreements, the holders exchanged 1,942,131 of the March Exchanged Warrants for an aggregate of 2,913,197 shares of Common Stock.

On June 4, 2020, the Company entered into a Warrant Exchange Agreement (the “June Exchange Agreement”) with the holder of certain existing warrants (the “June Exchanged Warrants”) to exchange the ~~valuation~~June Exchanged Warrants for shares of ~~stock-based compensation, deferred tax~~the Company’s Common Stock. The June Exchanged Warrants were originally acquired pursuant to a separately negotiated private transaction between the holder and Calm.com, Inc. Pursuant to the June Exchange Agreement, on the closing date the holder exchanged 1,374,750 of the June Exchanged Warrants for an aggregate of 2,062,125 shares of Common Stock.

Table of Contents

Liquidity and Financial Condition

As of March 31, 2020, the Company had cash and cash equivalents, excluding restricted cash, of $3,855, total current assets of $5,449, total current liabilities of $16,103, and ~~liabilities, income tax uncertainties,~~a working capital deficiency of $10,654 compared to a working capital deficiency of $12,287 as of December 31, 2019. The report of the Company’s independent registered public accounting firm on its financial statements for the year ended December 31, 2019 included an explanatory paragraph indicating that there was substantial doubt about the Company’s ability to continue as a going concern.

To address the working capital deficiency, and ~~other contingencies.~~

~~(c) Revenue recognition~~

outstanding long-term debt, subsequent to March 31, 2020 the Company raised approximately $43,050 of gross proceeds in a series of registered direct equity offerings, which eliminated the working capital deficiency and resulted in positive working capital of approximately $27,800 after the offerings. In addition, the Company reduced the $9,975 of principal amount of debt owed as of March 31, 2020 by $9,075, through a series of transactions including (i) converting $5,665 of the B3D Note to Common Stock, (ii) converting the $2,500 Calm Note to Common Stock, and (iii) repaying in full the $910 owed to Credit Cash, net of a discount of approximately $91.

The Company ~~recognizes revenue~~believes that as a result of the transactions that have occurred, it has successfully mitigated the substantial doubt raised by its historical operating results and will satisfy its liquidity needs for ~~the wellness operating segment~~at least twelve months from the ~~sale~~issuance of ~~XpresSpa products~~these financial statements. However, while the Company has addressed its working capital deficiency and ~~services at~~long-term debt, while continuing to focus on its overall operating profitability, the ~~point of sale,~~Company expects to incur net of discounts and applicable sales taxes. Revenues from the XpresSpa wholesale and e-commerce businesses are recorded at the time goods are shipped. The Company excludes all sales taxes assessed to its customers. Sales taxes assessed on revenues are included in accounts payable, accrued expenses and other current liabilitieslosses in the ~~condensed consolidated balance sheets until remitted to~~foreseeable future and therefore cannot predict with any certainty that the ~~state agencies.~~

~~The Company records revenue from product sales~~results of its actions will satisfy its liquidity needs in the ~~technology operating segment when title and risk~~longer-term.

Credit Cash Funding Advance

On January 9, 2020, certain wholly-owned subsidiaries (the “CC Borrowers”) 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~~entered into 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~~accounts receivable advance agreement (the “CC Agreement”) with ~~many~~CC Funding, a division of its hardware vendors and suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements is recorded on a gross basis upon delivery to the customer with contract terms that typically specify F.O.B. destination. Revenue is recognized on a gross basis, as the Company is the principal in the transaction, as the primary obligor in the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price of the product to the customer, assumes credit risk for the amounts invoiced, and works closely with the customers to determine their hardware specifications.

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

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

~~whether the risks of ownership have passed to the customer;~~

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

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

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

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

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

~~the goods must be complete and ready for shipment.~~

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

Revenue from patent licensing is recognized if collectability is reasonably assured, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery of the service has been rendered. Currently, revenue arrangements related to intellectual property provide for the payment of contractually determined fees and other consideration for the grant of certain intellectual property rights related to the Company’s patents. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patents, (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted typically extend until the expiration of the related patents. Pursuant to the terms of ~~these agreements,~~the CC Agreement, the CC Lender agreed to make an advance of funds in the amount of $1,000 for aggregate fees of $160, for a total repayment amount of $1,160. As of March 31, 2020, the outstanding repayment amount of $910 was secured by substantially all of the assets of the CC Borrowers, including CC Borrowers’ existing and future accounts receivables and other rights to payment. On June 1, 2020, the CC Borrowers entered into a payoff letter (the “Payoff Letter”) with the CC Lender pursuant to which the CC Agreement was terminated. Under the Payoff Letter, the Company ~~has no further obligation with respect~~repaid $733 owed under the CC Agreement as of June 1, 2020 and the CC Lender released all security interests held on the assets of the CC Borrowers, including the CC Borrowers’ existing and future accounts receivables and other rights to payment.

As compensation for the consent of existing creditor B3D, LLC (“B3D”) to the ~~grant~~CC Agreement described above, on January 9, 2020, XpresSpa Holdings, LLC (“XpresSpa Holdings”), a wholly-owned subsidiary of the ~~non-exclusive retroactive~~Company, entered into a fifth amendment (the “Fifth Credit Agreement Amendment”) to its existing credit agreement with B3D in order to, among other provisions, (i) amend and ~~future licenses, covenants-not-to-sue, releases,~~restate its existing convertible promissory note (the “B3D Note”) in order to increase the principal amount owed to B3D from $7,000 to $7,150, which additional $150 in principal and ~~other deliverables, including no express or implied obligation on~~any interest accrued thereon will become convertible, at B3D’s option, into shares of 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, orCommon Stock upon receipt of the ~~upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution~~approval of the Company’s stockholders, which was obtained on May 28, 2020 and (ii) provide for the advance payment of 97,223 shares of Common Stock in satisfaction of the interest payable pursuant to the B3D Note for the months of October, November and December 2020. The Common Stock was issued to B3D on January 14, 2020.

B3D Senior Secured Loan

On March 6, 2020, XpresSpa Holdings, LLC, our wholly-owned subsidiary, entered into a sixth amendment (the “Sixth Credit Agreement Amendment”) to its existing credit agreement ~~upon~~with B3D. In connection with the Sixth Credit Agreement Amendment and B3D Note, B3D agreed to provide the Company with $500 in additional funding and to submit one or more conversion notices to convert an aggregate of $375 in principal under the B3D Note to Common Stock on or prior to March 27, 2020. XpresSpa Holdings entered into the Sixth Credit Agreement Amendment in order to, among other provisions, (i) amend and restate its existing convertible promissory note with B3D in order to increase the principal amount owed from $7,150 million to $7,900 , which additional $750 in principal and any interest accrued thereon will be

Table of Contents

convertible, at B3D’s option, into shares of Common Stock subject to receipt of the ~~upfront fee, and when all other revenue recognition criteria have been met.~~

~~(d) Cost~~approval 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~~stockholders, which was ~~recorded as part~~approved on May 28, 2020 and (ii) decrease the conversion rate under the B3D Note from $6.00 per share to $1.68 per share. On March 19, 2020, the conversion rate was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments. In connection with the Sixth Credit Agreement Amendment, B3D converted a total of ~~acquisition;~~$750 in principal and

was issued a total of 446,429 shares of our Common Stock in March 2020.
Registered Direct Common Stock Offerings
~~costs associated~~
On March 19, 2020, the Company entered into a securities purchase agreement with ~~sourcing operations.~~
certain purchasers, pursuant to which it issued and sold, in a registered direct offering, (i) 1,396,281 shares of Common Stock at an offering price of $0.525 per share and (ii) an aggregate of 698,958 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.495 per pre-funded warrant.
~~Cost~~On March 25, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which it issued and sold, in a registered direct offering, (i) 2,483,333 shares of ~~sales~~Common Stock at an offering price of $0.60 per share and (ii) an aggregate of 500,000 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.57 per pre-funded warrant.
On March 27, 2020, the ~~Company’s technology operating segment includes costs~~Company entered into a securities purchase agreement with certain purchasers, pursuant to ~~acquire or manufacture goods~~which it issued and sold, in a registered direct offering (i) 2,631,666 shares of Common Stock at an offering price of $0.60 per share and (ii) an aggregate of 701,666 pre-funded warrants exercisable for ~~inventory.~~shares of Common Stock at an offering price of $0.57 per pre-funded warrant.
The Company sold a total of 6,511,280 shares of Common Stock and 1,900,625 of pre-funded warrants and received total proceeds of $4,209, net of financial advisory and consulting fees of $626, in the above offerings. During the three months ended March 31, 2020, 1,698,959 pre-funded warrants were exercised for total proceeds of approximately $49. As of March 31, 2020, 201,666 warrants were not exercised and were subsequently exercised.
~~Cost~~On April 6, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which it issued and sold, in a registered direct offering (i) 4,049,573 shares of ~~sales~~Common Stock at an offering price of $0.66 per share and (ii) an aggregate of 485,151 pre-funded warrants exercisable for ~~the Company’s intellectual property operating segment mainly includes expenses incurred~~shares of Common Stock at an offering price of $0.63 per pre-funded warrant. The Company received gross proceeds of approximately $3,050 in connection with this offering, before deducting financial advisory consultant fees and related offering expenses. Each pre-funded warrant represented the right to purchase one share of Common Stock at an exercise price of $0.03 per share and was ultimately exercised.
On June 17, 2020, the Company entered into a securities purchase agreement with certain purchasers pursuant to which the Company agreed to issue and sell 7,614,700 shares of the Company’s ~~patent licensing~~Common Stock at an offering price of $5.25 per share (the “Registered Offering”). In a concurrent private placement (the “Private Placement” and ~~enforcement activities, patent-related legal~~together with the Registered Offering, the “Offerings”), the Company agreed to issue to the purchasers who participated in the Registered Offering warrants (the “Warrants”) exercisable for an aggregate of 7,614,700 shares of Common Stock at an exercise price of $5.25 per share. Each Warrant will be immediately exercisable and will expire 21 months from the issuance date. The Warrants and the shares of Common Stock issuable upon the exercise of the Warrants are not registered under the Securities Act of 1933, as amended (the “Securities Act”), were not offered pursuant to a registration statement and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Offerings closed on June 19, 2020 with the Company receiving gross proceeds of approximately $40,000 before deducting placement agent fees and related offering expenses.
Paycheck Protection Program
On May 1, 2020, the Company entered into a U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) promissory note in the principal amount of $5,653 payable to Bank of America, NA (the “Bank of America”) evidencing a PPP loan (the “PPP Loan”). The PPP Loan bears interest at a rate of 1% per annum. No payments will be due on the PPP Loan during a six-month deferral period commencing on May 2, 2020. Commencing one month after the

Table of Contents

expiration of the deferral period, and continuing on the same day of each month thereafter until the maturity date of the PPP Loan, the Company will be obligated to make monthly payments of principal and interest, each in such equal amount required to fully amortize the principal amount outstanding on the PPP Loan by the maturity date. The maturity date is May 2, 2022. The principal amount of the PPP Loan is subject to forgiveness under the PPP upon the Company’s request to the extent that PPP Loan proceeds are used to pay expenses ~~paid~~permitted by the PPP. Bank of America may forgive interest accrued on any principal forgiven if the SBA pays the interest. There can be no assurance that any part of the PPP Loan will be forgiven. The PPP Loan contains customary borrower default provisions and lender remedies, including the right of Bank of America to ~~external patent counsel (including contingent legal fees), licensing~~require immediate repayment in full the outstanding principal balance of the PPP Loan with accrued interest.

Note 2. Significant Accounting and ~~enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.~~Reporting Policies

~~(e)~~(a) Recently ~~adopted~~issued 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~~2020-01, Investments—Equity Securities (Topic ~~805):~~ 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the ~~Definition~~Interactions between Topic 321, Topic 323, and Topic 815.

Issued in January 2020, the amendments in this update affect all entities that apply the guidance in Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an as option to purchase securities that, upon settlement of ~~a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should~~the forward contract or exercise of the purchased option, would be accounted for ~~as acquisitions (or disposals)~~under the equity method 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.accounting. The Company ~~adopted ASU 2017-01 as of January 1, 2017~~applies the guidance included in Topic 815 to its derivative liabilities but does not intend on ~~a prospective basis.~~

~~(f) Recently issued accounting pronouncements not yet adopted~~

~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~

applying the new measurement alternative included in the update. 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 expects to be entitled in exchange for those goods or services. This guidance was amended in July 2015 and is effective for annual reporting periods beginning after December 15, 2017. As such, the Company is currently assessing the impact of the adoption on its condensed consolidated financial statements. 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 fiscal years beginning after December 15, ~~2019; early adoption is permitted.~~2020, and interim periods within those fiscal years. The Company ~~currently anticipates that~~does not believe the adoption of ~~ASU 2017-04~~this standard will ~~not~~ have a material impact on its consolidated condensed financial statements.

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

~~In May 2017, the FASB issued~~ Accounting Standards Update No. ~~2017-09 (“ASU 2017-09”) “Stock Compensation~~2019-12—Income Taxes (Topic ~~718)~~740): ~~Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes to~~Simplifying the ~~terms or conditions of a share-based payment award require an entity to apply modification accounting~~Accounting for Income Taxes.

Issued in ~~Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under~~December 2019, the amendments in this ~~update. ASU 2017-09 is~~update are effective for ~~annual periods,~~fiscal years, and interim periods within those ~~annual periods,~~fiscal years, beginning after December 15, ~~2017; early adoption is permitted.~~2020. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to guidance in Topic 740. The specific areas of potential simplification were submitted by stakeholders as part of the FASB’s simplification initiative. The Company ~~is currently in~~does not believe the ~~process~~adoption of ~~evaluating the potential~~this standard will have a material impact ~~of the adoption~~ on its consolidated condensed financial statements.

(b) Recently adopted accounting pronouncements

Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”)

~~(g) Reclassification~~On January 1, 2020 the Company adopted ASU No. 2016-13 using a modified-retrospective approach. This standard changes the 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 instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. Adoption of this standard did not result in an adjustment to opening accumulated deficit and did not have a material impact on the Company's consolidated condensed financial statements.

Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”)

On January 1, 2020, the Company adopted ASU No. 2018-13. This amendment provides updates to the disclosure requirements on fair value measures in Topic 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

Table of Contents

surrounding unobservable inputs and the elimination of disclosures around the valuation processes for Level 3 measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty have been applied prospectively beginning in the quarter ended March 31, 2020. All other amendments have been applied retrospectively to all periods presented. Adoption of this standard did not have a material impact on the Company's consolidated condensed financial statements.

(c) Presentation

Certain balances in the 2019 financial statements have been reclassified to conform to the presentation ~~requirements, including~~in the 2020 financial statements, primarily the classification and presentation of ~~discontinued operations and assets and liabilities held for disposal with respect to~~certain items in the ~~Company’s FLI Charge business (refer to Note 10), as well as consistent presentation~~operating activities section of ~~cost~~the statement of ~~sales and general and administrative expenses to align presentation for operating segments.~~cash flows. Such reclassifications did not have a material impact on the condensed consolidated financial statements.

Note 3. ~~Net Loss per Share of Common Stock~~Potentially Dilutive Securities

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

The table below presents the computation of basic and diluted net loss per share of ~~common stock:~~Common Stock:

Three months ended

March 31,


2020

2019

Basic and diluted numerator:




Net loss

$
(10,616)

$
(2,973)
Less: deemed dividend on warrants and preferred stock

(308)

—
Net loss attributable to common shareholders

$
(10,924)

$
(2,973)
Basic and diluted denominator:


Basic and diluted weighted average shares outstanding

6,276,012

617,357
Basic and diluted net loss per share

$
(1.74)

$
(4.82)

Net loss per share data presented above 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

45,964

49,167
Unvested RSUs to issue an equal number of shares of Common Stock

20,000

18,417
Warrants to purchase an equal number of shares of Common Stock

8,832,776

234,557
Preferred stock on an as converted basis

802,079

2,121,443
Convertible notes on an as converted basis

15,551,497

72,500
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders

25,252,316

2,496,084

Table of Contents

Note 4. Intangible Assets

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

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

March 31, 2020

December 31, 2019

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying


Amount

Amortization

Amount

Amount

Amortization

Amount
Trade name

$
13,307

$
(7,262)

$
6,045

$
13,309

$
(6,709)

$
6,600
Software

314

(146)

168

312

(129)

183
Total intangible assets

$
13,621

$
(7,408)

$
6,213

$
13,621

$
(6,838)

$
6,783
The Company’s trade name relates to the value of the XpresSpa trade name, and software relates to certain capitalized third-party costs related to a new point-of-sale system.
The Company's intangible assets are amortized over their expected useful lives. During the three months ended March 31, 2020 and 2019, the Company recorded amortization expense of $570 and $568, respectively.
Based on the intangible assets balance as of March 31, 2020 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 2020

$
1,711
2021

2,277
2022

2,206
2023

19
Total

$
6,213

Note ~~4. Business Combinations~~5. Leases
~~XpresSpa~~
~~During the second quarter of 2017,~~The Company leases its retail space at various domestic and international airports. Additionally, the Company ~~learned new information about legal~~leases its corporate office in New York City. Certain leases entered into by the Company fall under ASU No. 2016-02, Leases (“ASC 842”). At inception, the Company determines if a lease qualifies under ASC 842. Certain of the Company’s lease arrangements contain fixed payments throughout the term of the lease while others involve a variable component to determine the lease obligation wherein a certain percentage of sales is used to calculate the lease payments. Certain leases that expire and ~~other professional costs which existed~~are then extended on a month-to-month basis 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 as of the ~~acquisition~~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 as of the commencement date of ~~XpresSpa. As~~the lease, which approximates the rate at which the Company can borrow funds on a secured basis, in determining the present value of the guaranteed lease payments.
The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any leases should be accounted for pursuant to the guidance in ASC 842. The Company recalculates the right of use asset and lease liability based on the modified lease term and adjusted both balances.

Table of Contents

The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent in most cases, and in certain cases providing relief from rent required to be paid as a percentage of revenue in excess of minimum guaranteed amounts for the month. The relief from these rent payments range from three- to ten-month periods beginning in March 2020. The Company did not pay a total of approximately $75 in rent in March 2020 as a result of receiving these concessions.

The Financial Accounting Standards Board (“FASB”) issued a Q&A in March 2020 that focused on the application of lease guidance in ASC 842 for lease concessions related to the effects of COVID-19. The FASB staff has said that entities can elect to not evaluate whether concessions granted by lessors related to COVID-19 are lease modifications. Entities that make this election can then apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. XpresSpa has elected to not treat the concessions as lease modifications and will instead account for the lease concessions as if they were contemplated as part of the existing leases.

When a lessor grants a concession that contractually releases a lessee from certain lease payments or defers lease payments, a lessee may account for the concession as a negative variable lease payment and recognize negative variable lease expense in the period when the rent concession becomes accruable. The Company did not record rent expense for the month which it received a concession from the landlord. Since negative variable lease expense is not recognized until it becomes accruable, lease liabilities will not be adjusted until the actual month that the rent is accruable.

There were no lease modifications during the period.The following is a summary of the activity in the Company’s operating lease liabilities for the three months ended March 31, 2020:

Operating lease liabilities, January 1, 2020

$
9,495
New leases entered

—
Extension of term of existing lease obligations

—
Termination of existing qualifying leases

—
Payments of lease obligations

(628)
Operating lease liabilities, March 31, 2020

$
8,867

As of March 31, 2020, operating leases contain the following future minimum commitments:

Calendar Years ending December 31,

Amount
Remainder of 2020

$
2,973
2021

3,145
2022

2,428
2023

1,454
2024

664
Thereafter

624
Total future lease payments

11,288
Less: interest expense at incremental borrowing rate

(2,421)
Net present value of lease liabilities

$
8,867

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

Weighted average remaining lease term:

4.6
years
Weighted average discount rate used to determine present value of operating lease liability:

10.98
%
Cash paid for minimum annual rental obligations during the three months ended March 31, 2020:

$
725

Variable lease payments calculated monthly as a percentage of a product and services revenue, were $477 and $338 for the three months ended March 31, 2020 and 2019, respectively.

Table of Contents

Amortization expense of right of use lease assets was $527 and $271 for the three months ended March 31, 2020 and 2019, respectively.

Note 6. Convertible Notes

Total Debt as of March 31, 2020 and December 31, 2019 is comprised of the following:

March 31, 2020

December 31, 2019
B3D Note, net of $3,002 and $2,420 in unamortized debt discount and debt issuance costs as of March 31, 2020 and December 31, 2019, respectively

$
3,562

$
4,580
Calm Note, net of $1,182 and $1,318 in unamortized debt discount and debt issuance costs as of March 31, 2020 and December 31, 2019, respectively

1,318

1,182
Total debt

$
4,880

$
5,762

B3D 9% Senior Secured Note due May 31, 2021

On July 8, 2019, the Company entered into the fourth amendment to its existing credit agreement (the “Fourth Credit Agreement Amendment”) with B3D. As consideration for modifications agreed upon in the Fourth Credit Agreement Amendment, the principal amount owed to B3D was increased to $7,000.

On January 9, 2020, as compensation for the consent of B3D to the CC Agreement (see Note 1. General), the Company entered into the Fifth Credit Agreement Amendment with B3D in order to (i) increase the principal amount owed to B3D from $7,000 to $7,150, which additional $150 in principal and any interest accrued thereon will become convertible, at B3D’s option, into shares of the ~~sellers~~Company’s Common Stock upon receipt of ~~XpresSpa (the “XpresSpa Sellers”) agreed to reduce~~ the ~~total amount~~approval of ~~Series D Convertible Preferred Stock (“FORM Preferred Stock”),~~the Company’s stockholders, which was ~~previously~~obtained on May 28, 2020 and (ii) provide for the advance payment of 97,223 shares of Common Stock in satisfaction of the interest payable pursuant to the B3D Note for the months of October, November and December 2020. The Common Stock was issued to B3D on January 14, 2020.

On March 6, 2020, XpresSpa Holdings entered into the ~~XpresSpa Sellers~~Sixth Credit Agreement Amendment with B3D in ~~conjunction with~~order to, among other provisions, (i) increase the ~~acquisition~~principal amount owed to B3D from $7,150 to $7,900, which additional $750 in principal ($500 in new funding and $250 in debt issuance costs) and any interest accrued thereon will be convertible, at B3D’s option, into shares of ~~XpresSpa.~~the Company’s Common Stock subject to receipt of the approval of the Company’s stockholders which was obtained on May 28, 2020 and (ii) decrease the conversion rate under the B3D Note from $6.00 per share to $1.68 per share. On March 19, 2020, the conversion rate was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments.

The Sixth Credit Agreement Amendment was accounted for as an extinguishment of debt in the Company’s consolidated condensed financial statements. The Company ~~reduced~~extinguished approximately $2,048 of derivative liability, which represented the ~~number~~estimated fair value of the ~~FORM Preferred Stock by 16,219 shares~~conversion option based upon provisions included in the Fifth Credit Agreement Amendment and ~~estimated that~~recorded a new derivative liability of $3,656 which represents the fair value of the ~~reduction~~conversion option on March 6, 2020 based upon provisions in the Sixth Credit Agreement Amendment. The Company engaged an independent third party to assess the fair value of the ~~consideration~~debt extinguished and the conversion feature included in the B3D Note at each reporting date. During the three months ended March 31, 2020 the Company recorded $485 of accretion expense, which is included in “Interest expense” in the consolidated condensed statement of operations and comprehensive loss, that increased the carrying value of the B3D Note. In addition, as a result of the partial conversions of the B3D Note, the Company settled approximately $599 of derivative liability, reduced the carrying value of the B3D Note by $736 and issued 1,430,647 shares the Company’s Common Stock to B3D. The Company recognized a loss on the extinguishment of debt of approximately $265 which represents the difference between the carrying amount of the debt recorded under the Fifth Credit Agreement Amendment and the debt recorded under the Sixth Credit Agreement Amendment. Included in the loss on the extinguishment of debt was ~~$908, which~~the write off of approximately $476 in deferred financing costs. The Company capitalized approximately $250 in deferred financing costs related to the Sixth Credit Agreement Amendment. These costs will be amortized over the remaining term of the B3D Note. Total amortization expense related to the B3D Note was ~~recorded~~$68 for the three months ended March 31, 2020 and is included in “Interest expense” in the consolidated condensed statement

Table of Contents

of operations and comprehensive loss. The balance of the deferred issuance costs related to the B3D Note was $189 as of March 31, 2020 and is presented as a reduction of ~~preferred~~the B3D Note balance in the Company's consolidated condensed balance sheet. At March 31, 2020, the fair value of the conversion option was estimated to be $3,457, which is included in “Derivative liabilities” on the consolidated condensed balance sheet. The conversion option was marked to market as of March 31, 2020 and, as a result, the Company recorded a revaluation loss for the three months ended March 31, 2020 of approximately $651 that is included in “Loss (gain) on revaluation of warrants and conversion options” in the consolidated condensed statement of operations and comprehensive loss.

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 XpresSpa 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. XpresSpa Holdings pledged and granted to B3D a first priority security interest in, among other things, all of its equity interests in XpresSpa Holdings and ~~goodwill.~~all of its rights to receive distributions, cash or other property in connection with Holdings. The Company does not present separate consolidating financial statements of XpresSpa Group, Inc., XpresSpa Holdings and the Guarantor Subsidiaries as each entity has guaranteed the B3D Note, so each entity is equally responsible for its payment.

Calm 5% Note due May 2022

~~Additionally, during~~On July 8, 2019, the ~~second and third quarters of 2017, certain XpresSpa Sellers converted~~Company entered into a securities purchase agreement with Calm.com, Inc. (“Calm”) pursuant to which the Company agreed to sell (i) an aggregate principal amount of ~~54,667~~$2,500 in an unsecured convertible note (the “Calm Note”), which is convertible into shares of ~~their FORM~~Series E Convertible Preferred Stock ~~into 437,235~~at a conversion price of $6.00 per share (the “Series E Preferred Stock”) and (ii) warrants to purchase 312,500 shares of the Company’s ~~common~~Common Stock at an exercise price of $6.00 per share (the “Calm Warrants”). On March 6, 2020, the exercise price of the Calm Warrants was reduced to $1.68 per share after giving effect to certain anti-dilution adjustments. Subsequently, on March 19, 2020, the exercise price of the Calm Warrants was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments. The Calm Note is an unsecured subordinated obligation of the Company. The Calm Note matures on May 31, 2022, and bears interest at a rate of 5% per annum, subject to increase in the event of default. 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 recorded derivative liabilities for the conversion feature and the Calm Warrants related to the issuance of the Calm Note on July 8, 2019 and engages a third party to assess the fair value of the conversion feature and Calm Warrant derivative liabilities at each balance sheet reporting date in order to determine the adjustment needed to mark each liability to market.The independent third party’s appraisal resulted in estimated fair value of $550 for the conversion option, and $123 for the Calm Warrants as of March 31, 2020, which resulted in the Company recording a revaluation loss of approximately $75 that is included in "(Loss) gain on revaluation of warrants and conversion options” in the consolidated condensed statements of operations and comprehensive loss for the three months ended March 31, 2020.

The Company capitalized approximately $220 of costs related to the issuance of the Calm Note in 2019 and recorded amortization expense of approximately $19 during the three months ended March 31, 2020. Amortization expense is included in "Interest expense" in the Company's consolidated condensed statement of operations and comprehensive loss for the three-month period ended March 31, 2020. The balance of the deferred issuance costs related to the Calm Note was $165 as of March 31, 2020 and is presented as a reduction of the Calm Note balance in the Company's consolidated condensed balance sheet. During the three months ended March 31, 2020, the Company recorded $117 of accretion expense that increased the carrying value of the Calm Note.

(Loss) gain on revaluation of warrants and conversion options

Included in the ”(Loss) gain on revaluation of warrants and conversion options for the three months ended March 31, 2020 was mark-to-market adjustments of the derivative conversion option and warrants associated with the B3D Note of $651, the Calm Note of $75 and Class A Warrants of $4,643.

Table of Contents

May 2018 Convertible Notes

The Company recorded $394 in amortization of debt discount and debt issuance costs during the three months ended March 31, 2019, related to its since settled May 2018 convertible notes.

Note 7. Stockholders' Equity

See Note 1. General for discussion of financing transactions that occurred during the quarter ended March 31, 2020.

Warrants

The following table represents the activity related to the Company’s warrants during the first quarter ended March 31, 2020.


		Exercise
	No. of warrants*	price range*
December 31, 2019	1,129,371	$	6.00 – 300.00
Granted	13,576,310	$	0.03 – 0.525
Exercised	(5,872,905)	$	0.03 – 0.525
March 31, 2020	8,832,776	$	0.03 – 300.00

*Adjusted to reflect the impact of the 1:3 reverse stock split that became effective on June 11, 2020.

On March 31, 2020, the Company had outstanding 201,666 pre-funded Warrants from the March 27, 2020 registered direct offering at an exercise price of $0.03. Subsequently, 201,666 warrants were exercised, and 201,666 shares of Common Stock were issued.

On March 31, 2020, the Company had outstanding 4,573,688 Class A Warrants at an exercise price of $0.525. Subsequently, 2,983,164 warrants were exercised on a cashless basis resulting in the issuance of 2,382,836 shares of Common Stock. In addition, 1,590,524 warrants were converted into 2,385,527 shares of Common Stock in connection with the March Exchange Agreement.

On March 31, 2020, the Company had outstanding 476,202 of the December 2016 Warrants at an exercise price of $.0.525. Subsequently, in connection with the March Exchange Agreement, 351,779 December 2016 Warrants were converted into 527,669 shares of Common Stock and 124,423 December 2016 Warrants remain outstanding.

On March 31, 2020 the Company had outstanding 3,571,428 Calm Warrants at an exercise price of $0.525. Subsequently, 2,196,681 warrants were exercised on a cashless basis resulting in the issuance of 1,622,149 shares of Common Stock. In addition, 1,374,747 warrants were converted into 2,062,126 shares of Common Stock in connection with the June Exchange Agreement.

Series E Convertible Preferred Stock

On March 31, 2020, the Company had outstanding 987,988 shares of Series E Convertible Preferred Stock. All outstanding shares were converted into 510,460 shares of Common Stock in the second quarter of 2020.

Series F Convertible Preferred Stock

In connection with an amendment to a May 2018 private placement offering agreement, the Company issued 8,996 shares of Series F Convertible Preferred Stock. The Company engaged an independent third party to perform an appraisal to determine the fair value of the Series F Preferred Stock, which was appraised at $1,131, net of issuance costs. The Series F Preferred Stock has a par value of $0.01 per share, a stated value of $100 per share, and was initially convertible into Common Stock at an exercise price of $6.00 per share. On March 6, 2020, the exercise price was reduced from $6.00 to $1.68 and on March 19, 2020 was reduced again to $0.525 after giving effect to certain anti-dilution adjustments. When a

Table of Contents

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 F Preferred Stock before and after the reduction of the exercise price. The results of the fair value assessment indicated that the fair values before and after the reduction of the exercise price was not substantially different (in practice, substantially different has been interpreted to be greater than 10%). Therefore, the Company did not record an adjustment to the Series F Preferred Stock in 2020.

On March 31, 2020, the Company had outstanding 1,531 shares of Series F Convertible Preferred Stock. These shares were converted into 291,619 shares of Common Stock after March 31, 2020.

Reverse Stock Split

On June 10, 2020, 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-3 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 ~~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 as of September 30, 2017 and the face value (and liquidation preference) was reduced from $23,588 to $20,186.

~~Group Mobile~~

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

~~In consideration for the acquisition, the Company issued 888,573 unregistered~~reverse stock split, every three (3) shares of the Company’s pre-reverse split Common Stock were combined and reclassified into one (1) share of Common Stock. A total of 146,577,707 pre-reverse split shares of Common Stock were combined and reclassified into 48,859,213 shares of Common Stock post-reverse stock split. Proportionate voting rights and other rights of common stockholders were affected by the reverse stock ~~par value $0.01 per~~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 ~~former stockholders of Excalibur (the “Excalibur Sellers”). In addition,~~nearest full share. No fractional shares were issued in connection with 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,reverse stock split. The reverse stock split became effective at 5:00 p.m., Eastern Time, on June 10, 2020, and ~~an additional $500 when such cumulative profit reaches $10,000, such amounts are payable in either cash or~~ the Company’s ~~common stock,~~Common Stock traded on the Nasdaq Capital Market on a post-reverse split basis at the ~~election~~open 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 basedbusiness 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).
June 11, 2020.
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 resources8. Derivative Liabilities 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.
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 )

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
General and administrative costs are allocated among the operating segments and non-operating corporate segment. The non-operating corporate segment does not have any revenue, but does incur expenses such as compensation expenses, rent and infrastructure costs. The non-operating corporate segment’s assets are mainly comprised of cash.
The Company currently operates in two geographical regions: United States and all other countries. The following table represents the geographical revenue, regional operating loss, and total asset information as of and for the three and nine months ended September 30, 2017 and 2016. There were no concentrations of geographical revenue, regional operating loss or total assets related to any single foreign country that were material to the Company’s condensed consolidated financial statements.
Three months ended
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

~~Note 6.~~ Fair Value Measurements
Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).
The Company’s financial instruments as of March 31, 2020 and December 31, 2019 consisted of cash and cash equivalents, trade receivables, 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.

Table of Contents

Derivative ~~Warrant~~ Liabilities

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~~March 31, 2020 and December 31, ~~2016:~~2019:

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
As of March 31, 2020:

Balance

assets (Level 1)

inputs (Level 2)

inputs (Level 3)








May 2018 Class A Warrants

$
2,298

$
—

$
—

$
2,298
B3D Conversion Option

3,457

—

—

3,457
Calm Warrants

123

—

—

123
Calm Conversion Option

550

—

—

550
Total

$
6,428

—

—

$
6,428
As of December 31, 2019:








May 2018 Class A Warrants

$
778

$
—

$
—

$
778
B3D Conversion Option

382

—

—

382
Calm Warrants

216

—

—

216
Calm Conversion Option

1,761

—

—

1,761
Total

$
3,137

$
—

$
—

$
3,137
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. The Company assumed an investment round in years 2020 and 2021 to take into account the possible impact of the anti-dilution rights included in its derivative liabilities.
These derivative ~~warrant~~ liabilities were initially measured at fair value and are marked to market at each balance sheet date.
~~In addition to the above, the Company’s financial instruments as of 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~~revaluation adjustment of the ~~short-term maturities~~derivative liabilities is included in “(Loss) gain on revaluation of ~~these instruments.~~
warrants and conversion options”” in the consolidated condensed statements of operations and comprehensive loss.
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-~~three months ended March 31, 2020:

December 31, 2019

$
3,137
Increase due to the recording of new B3D Note based upon the Sixth Credit Agreement Amendment

1,643
Conversions of B3D Note

(599)
Settlement of derivative liability due to the exercise of Class A Warrants

(3,122)
Revaluation of derivative conversion options and warrants at March 31, 2020

5,369
March 31, 2020

$
6,428
In March 2020, the Company recorded the settlement of the derivative liability associated with the exercise of its May 2018 Class A Warrants of $3,122. The exercise of the May 2018 Class A Warrants resulted in the issuance of 2,578,455 shares of Common Stock and ~~nine-month periods ended September 30, 2017:~~was recorded in “Common Stock” and “Additional Paid-in Capital” on the Company’s consolidated condensed balance sheet as of March 31, 2020.
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
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:~~Table of Contents

March 31, 2020:

~~Description~~	~~Valuation technique~~	~~Unobservable inputs~~	~~Range~~
~~May 2015 Warrants~~ Description	~~Black-Scholes-Merton~~ Valuation technique	~~Volatility~~ Unobservable inputs	Range	~~42.49~~	%
May 2018 Class A Warrants	Monte Carlo Method	~~Risk free~~ Volatility	80.50	%
		Risk-free interest rate	0.37	~~1.57~~	%
		Expected term, in years	3.13	~~2.59~~
		Dividend yield		~~0.00~~	%

~~December 31, 2016:~~

~~Description~~	0.00	~~Valuation technique~~	~~Unobservable inputs~~	~~Range~~		%
~~May 2015 Warrants~~		~~Black-Scholes-Merton~~	~~Volatility~~		~~45.15~~	%
Description		Valuation technique	Unobservable inputs	Range
Calm Warrants		Monte Carlo Method	Volatility	79.10	%
			Risk-free interest rate	0.44	~~1.57~~	%
			Expected term, in years	4.27	~~3.34~~
			Dividend yield	0.00	~~0.00~~ %

Description		Valuation technique	Unobservable inputs	Range
Calm Conversion option		Monte Carlo Method	Volatility	79.10	%
			Risk-free interest rate	0.28	%
			Expected term, in years	2.17
			Dividend yield	0.00	%

Description		Valuation technique	Unobservable inputs	Range
B3D Conversion option		Monte Carlo Method	Volatility	89.50	%
			Risk-free interest rate	0.22	%
			Expected term, in years	1.17
			Dividend yield	0.00	%

Table of Contents

December 31, 2019:


Description	Valuation technique	Unobservable inputs	Range
May 2018 Class A Warrants	Monte Carlo Model	Volatility	65.20	%
		Risk-free interest rate	1.67	%
		Expected term, in years	3.38
		Dividend yield	0.00	%

Calm Warrants	Monte Carlo Model	Volatility	66.90	%
		Risk-free interest rate	1.62	%
		Expected term, in years	4.52
		Dividend yield	0.00	%

Calm Conversion option	Monte Carlo Model	Volatility	66.90	%
		Risk-free interest rate	1.75	%
		Expected term, in years	2.41
		Dividend yield	0.00	%

B3D Conversion option	Monte Carlo Model	Volatility	65.70	%
		Risk-free interest rate	1.62	%
		Expected term, in years	1.42
		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. Stock-based Compensation~~

As of September 30, 2017, 1,552,480 shares of the Company’s common stock were available for future grants under the Company’s 2012 Employee, Director and Consultant Equity Incentive Plan. Total stock-based compensation expense for the nine-month periods ended September 30, 2017 and 2016 was $2,179 and $1,447, respectively. Total stock-based compensation expense for the three-month periods ended September 30, 2017 and 2016 was $706 and $485, respectively.

~~The following table illustrates the options granted during the nine-month period ended September 30, 2017.~~

~~Title~~

~~Grant date~~

~~No. 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 following table illustrates the RSUs granted during 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 and RSUs during the nine-month period ended September 30, 2017 consisted of the following:~~

RSUs Options
No. of
RSUs Weighted
average
grant date
fair value No. of
options Weighted
average
exercise
price Exercise
price range Weighted
average
grant date
fair value
Outstanding as of January 1, 2017 — — 3,679,101 $ 7.60 $ 1.55 – 55.00 $ 5.41
Granted 400,942 $ 2.12 1,545,000 $ 2.12 $ 2.12 – 2.15 $ 0.93
Vested/Exercised — — — — — —
Forfeited (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.~~

~~Note 8.~~9. 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~~Due to the novel circumstances surrounding the COVID-19 pandemic in 2020, a reliable forecast cannot be substantiated; therefore, each quarter the Company ~~updates its estimate of~~will utilize the ~~annual~~year to date effective tax rate and ~~records cumulative~~record adjustments as deemed necessary. The Company had de minimis income tax expense for the three months ended March 31, 2020. This was attributable primarily to operating results in conjunction with a full valuation allowance. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. The Company does not expect to record any additional material provisions for unrecognized tax benefits in the ~~nine months ended September 30, 2017 reflect an estimated global annual effective tax rate~~next year.

Table 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%.~~Contents

As of ~~September 30,~~March 31, 2020, the Company has net operating loss carryforwards for U.S. federal purposes, certain of which expire 20 years from the respective tax years to which they relate and certain of which have an indefinite life due to regulations in the Tax Act of 2017 (the “Tax Act”). The 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 tax expense for the nine months ended September 30, 2017 of approximately $284 was attributable primarily to tax deductions related to goodwill, for which there is no corresponding financial statement amortization expense, partially offset by the reduction in the valuation allowance needed following the acquisition of Excalibur's deferred tax liability. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. Although the Company has an immaterial amount of uncertain tax positions, the Company does not expect to record any additional material provisions for unrecognized tax benefits with the next year.

~~Note 9. Related Parties Transactions~~

On April 22, 2015, XpresSpa entered 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.~~10. 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 has recorded ~~$745,~~accruals of $1,457 and $1,800 as of March 31, 2020 and December 31, 2019, respectively, 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.

Table of Contents

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, and 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 argument on the appeal went forward on March 20, 2019. The appellate court entered an order on April 11, 2019 reinstating the Company’s complaint, with some exceptions. On June 13, 2019, Cordial filed a motion to reargue and alternatively to appeal to the New York Court of Appeals, and the appellate court denied that motion on October 22, 2019.

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 4, 2018, the defendants moved the lawsuit to the United States District Court for the ~~Southern~~Northern District of Georgia. 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~~decision entered December 26, 2018, the Court denied Cordial’s TRO Motion entirely. Defendants filed a Motion to Dismiss the Complaint in its entirety on November 20, 2018.

A Director's Determination was issued by the FAA in connection with the Part 16 Complaint ("Part 16 Proceeding") filed by Cordial against the City of Atlanta ("City") in 2017 ("Director's Determination"). The Company and Cordial were not parties to the 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 the Company 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.

On August 16, 2019, the Court entered an Order granting, in part, the Company’s Motion to Dismiss. The Court dismissed all federal claims alleged in the Complaint against all Defendants, declined to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c) over the ~~defendants.~~remaining state law claims alleged in the Complaint, and remanded the case to the Superior Court of Fulton County. Plaintiffs filed an appeal of the federal court’s decision to the Eleventh Circuit Court of Appeals, and the case was docketed on October 15, 2019 (“Eleventh Circuit Appeal”).

Table of Contents

In response to the numerous complaints it received from Cordial, the City of Atlanta required the parties to engage in mediation. On ~~June 2, 2017,~~November 22, 2019, a Mutual Release and Settlement Agreement (the "Settlement Agreement") and a Confidential Payment Agreement (the “Payment Agreement”) were executed by the ~~Ross Defendants filed their answer.~~

~~Both~~applicable parties, except the ~~Cordial Litigation~~City of Atlanta, and ~~Ross Litigation~~ are pending ~~before~~ the ~~respective courts.~~requisite approval by the FAA of the terms of the Settlement Agreement. The requisite approval from the FAA has been obtained and the Leases have been executed by the Company. However, the condition precedent that an operating agreement between the Company and Cordial is finalized and executed has not yet been satisfied. The Company has been involved in negotiations seeking to resolve all pending matters, and those negotiations are continuing. Based on this, management has determined that the matter may not be completely resolved, at least to the extent of one or more of the settling parties seeking to enforce the terms of the Settlement Agreement, and thus resulting in a continuation of the litigation.

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. At the December 6, 2019 status conference with the Court, the Court reiterated its denial of preliminary approval of the proposed settlement agreement. The Court instructed a notice of pendency to be disseminated to putative collective members. Notice was sent out in early February 2020 and approximately 415 individuals have joined the case. On June 6, 2020 the Company participated in a status conference with the Court, and the parties discussed the possibility of entering into a new settlement agreement that addresses the Court’s concerns. The Company intends to continue to vigorously defend this case. At this time, the Company cannot predict the ultimate outcome or range of liability with any degree of certainty.

Binn et al. 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

Table of Contents

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. 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. On September 13, 2019, plaintiffs filed their appellate brief in the Second Circuit. As of December 13, 2019, plaintiffs’ appeal was fully briefed. Oral argument occurred on May 4, 2020, at which time the Second Circuit affirmed the dismissal of all claims against all defendants.

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, ~~Other~~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. On December 12, 2019, plaintiff filed a motion for reconsideration to vacate the order and judgment, dismissing the action, and for leave to amend the complaint. The motion was fully briefed as of February 6, 2020. On April 1, 2020, the Court denied plaintiff’s motion in full. On April 10, 2020, plaintiff filed a notice of appeal to the United States Court of Appeals for the Second Circuit. On June 1, 2020 plaintiff filed his appellate brief. The defendants opposition is due July 6, 2020. The Company and its directors continue to believe that this action is without merit and intend to defend the 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

Table of Contents

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 court heard oral argument on the defendants’ motion to dismiss on January 22, 2020 and has not yet ruled on the motion.

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. 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 Company counterclaimed against the plaintiffs for amounts owed to the Company in relation to the sale of excluded inventory and seek damages thereon.

The Company and Route1 are actively involved in settlement negotiations on a without-prejudice basis to resolve the matters.

Rodger Jenkins and Gregory Jones v. XpresSpa Group, Inc.

In March 2019, Rodger Jenkins and Gregory Jones 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. When this action was first commenced, the plaintiffs had demanded cash or stock in the sum of $750. On or about January 3, 2020, the court granted the plaintiffs’ motion to amend their pleading to increase their total demand to $1,500.

The Company has denied the material allegations of the complaint in its answer and is currently defending the action. Efforts to settle the parties’ dispute at a court-ordered mediation in March 2020 were not successful. The action was scheduled for a bench trial on May 18, 2020 but was adjourned due to the COVID-19 pandemic, and the judge ordered the parties to submit motions for summary judgment instead. Although we remain confident in the Company’s defenses, some of the rulings by the trial judge in this action have not been favorable to the Company. Accordingly, although we are unable to predict the outcome of this litigation, we cannot rule out the possibility of a judgment being entered against the Company in the absence of a settlement.

EFP Capital Solutions LLC Settlement

In March 2019, a complaint was filed against the Company by EFP Capital Solutions LLC (“EFP”), the receivables factor of the Company’s vendor MobiPT, Inc. (“MobiPT”), relating to payments made incorrectly by the Company to MobiPT for receivables MobiPT had sold to EFP. The ensuing mediation in January 2020 resulted in the Company agreeing to pay EFP $165 for such payments, for which the Company recorded an expense that is included in Accounts payable, accrued expenses and other current liabilities. The Company intends to seek reimbursement of the $165 from MobiPT, but there is no assurance the Company will be successful.

Table of Contents

Regulatory Matters

The continued listing standards of Nasdaq provide, among other things, that a company may be delisted if the bid price of its stock drops below $1.00 for a period of 30 consecutive business days or if stockholders’ equity is less than $2,500. On January 2, 2020, the Company received a deficiency letter from Nasdaq which provided a grace period of 180 calendar days, or until June 30, 2020, to regain compliance with the minimum bid price requirement. On June 19, 2020, the Company was advised by Nasdaq that it had determined that for 10 consecutive business days, from June 3, 2020 to June 16, 2020, the closing bid price of the Company’s common stock has been at $1.00 per share or greater. Accordingly, the Company has regained compliance with the continued listing standards and this matter is now closed.

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 the Company does not expect a material negative outcome.~~

~~On November 6, 2017, Moreton Binn and Marisol F, LLC, former shareholders of XpresSpa, filed a lawsuit~~brought against the Company or one of its subsidiaries, the Company will investigate the allegation and its directors alleging that the defendants engaged in securities violations, misrepresentation, and various other allegations regarding the Company’s acquisition of XpresSpa. The Company is currently in the process of evaluating the claims.vigorously defend itself.

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

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~~2019 filed on ~~March 30, 2017~~April 20, 2020, as subsequently amended on May 18, 2020 and June 12, 2020 (the ~~“2016~~“2019 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.~~statements.

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

~~Our wellness operating segment consists of XpresSpa, which is~~ a leading airport retailer of spa services. ~~XpresSpa is a well-recognized airport spa brand with 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. We ~~acquired XpresSpa~~currently have one operating segment that is also our sole reporting unit.

Table of Contents

Recent Developments

Newly launched XpresCheck™ brand

On May 22, 2020, we announced the signing of a contract with JFK International Air Terminal LLC (“JFKIAT”) to pilot test our concept of providing diagnostic COVID-19 tests in Terminal 4. To facilitate the JFK pilot test, we signed an agreement with JFKIAT for a new modular constructed testing facility within the terminal that will host nine separate testing rooms with a capacity to administer over 500 tests per day. We intend to initially offer our services to airline employees, contractors and workers, concessionaires and their employees, TSA officers, and U.S. Customs and Border Protection agents. All COVID-19 screening and testing will be conducted by a newly launched brand, XpresCheck™, which will operate under our XpresTest subsidiary. The pilot test at JFK launched on June 22, 2020.

Reverse Stock Split

On June 11, 2020, we effected a 1-for-3 reverse stock split, whereby every three shares of our Common Stock was reduced to one share of our Common Stock and the price per share of our Common Stock was multiplied by 3. All references to shares and per share amounts have been adjusted to reflect the reverse stock split.

Effect of Coronavirus on Business

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, which continues to spread throughout the U.S. and the world, as a pandemic. The outbreak has had an impact on the global economy, resulting in rapidly changing market and economic conditions. National and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The outbreak and associated restrictions on travel that have been implemented have had a material adverse impact on our business and cash flow from operations, similar to many businesses in the ~~fourth quarter~~travel sector. Effective March 24, 2020, we temporarily closed all global spa locations, largely due to the categorization of ~~2016.~~the spa locations by local jurisdictions as “non-essential services”. We intend to strategically reopen our spa locations and resume normal operations once restrictions are lifted and airport traffic returns to sufficient levels to support our operations.

~~Our technology operating segment consists~~The impact of ~~Group Mobile~~COVID-19 is unknown and may continue as ~~well as an 11% equity interest~~the rates of infection have increased 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. Inmany states in 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, ExcaliburU.S., thus additional restrictive measures may be necessary. As a result, management has concluded that there was ~~merged with Group Mobile within our technology operating segment. Our equity interest in InfoMedia, which is accounted for under the cost method of investment, increased from 8.25% to 11% in~~a long-lived asset impairment triggering event during the first quarter of ~~2017 due~~2020, which would require management to perform an impairment evaluation of our long-lived and definite-lived asset balances, consisting primarily of leasehold improvements at spa locations, trademarks and right of use lease assets of approximately $21,891 as of March 31, 2020. As a ~~realignment~~result of ~~ownership interests.~~the triggering event, the Company reassessed its projections and based on management’s expectation of resuming normal operations, no impairment was indicated at this time. The full extent to which COVID-19 will impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact.

The impact of the COVID-19 pandemic could continue to have a material adverse effect on our core XpresSpa business, results of operations, financial condition, liquidity and prospects in the near-term and beyond 2020. While management has used all currently available information in our forecasts, the ultimate impact of the COVID-19 pandemic and our newly launched brand, XpresCheck, on our results of operations, financial condition and cash flows is highly uncertain, and cannot currently be accurately predicted. Our results of operations, financial condition and cash flows are dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact, which at the present time are highly uncertain and cannot be predicted with any accuracy. The success or failure of our newly launched brand, XpresCheck, could also have a material effect on our business.

Table of Contents

Airport Rent Concessions

We ~~are currently evaluating strategic alternatives with respect~~have received rent concessions from landlords on a majority of our leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent in excess of minimum guaranteed amounts where percentage-of-revenue rent exceeds the minimum. Currently, the period of relief from these payments range from three- to ~~Group Mobile~~ten-months beginning in ~~an attempt~~March 2020. We did not pay a total of approximately $75 in rent in March 2020 as a result of receiving these concessions for the month in which we began closing our spa locations. We will realize additional savings in rent expense going forward since we closed all of our spas on March 24, 2020, and therefore there will be no percentage-of-revenue rent. We also received deferrals on unpaid rent for three to ~~enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation~~six months on certain of ~~Group Mobile or other forms of business combinations or strategic transactions. We are seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.~~our leases.

As of September 30, 2017, our FLI Charge business is reflected as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and assets held for disposal and liabilities held for disposal in our condensed consolidated balance sheets. FLI Charge was subsequently sold during October 2017.

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

Warrant Exchanges

On ~~July 26, 2017,~~March 19, 2020, we entered into separate Warrant Exchange Agreements (the “March Exchange Agreements”) with the ~~Underwriting~~holders of certain existing warrants (the “March Exchanged Warrants”) to exchange warrants for shares of our Common Stock, subject to receipt of the approval of our stockholders, which was obtained on May 28, 2020. The March Exchanged Warrants were originally issued (i) pursuant to a securities purchase agreement, dated as of May 15, 2018, and in connection with a related consent and (ii) in connection with that certain Agreement ~~with Roth Capital Partners,~~and Plan of Merger by and among us (formerly known as FORM Holdings Corp.), FHXMS, LLC, ~~acting~~XpresSpa Holdings, LLC and Mistral XH Representative, LLC, as ~~the~~ representative of the ~~Underwriters, relating~~unitholders, dated October 25, 2016, as subsequently amended. Pursuant to the ~~Offering~~March Exchange Agreements, the holders exchanged 1,942,131 of ~~6,900,000~~the March Exchanged Warrants for an aggregate of 2,913,197 shares of ~~FORM~~our Common ~~Stock including 900,000 shares subject~~Stock.

On June 4, 2020, we entered into a Warrant Exchange Agreement (the “June Exchange Agreement”) with the holder of certain existing warrants (the “June Exchanged Warrants”) to exchange the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase theJune Exchanged Warrants for shares of ~~FORM~~our Common ~~Stock from us~~Stock. The June Exchanged Warrants were acquired pursuant to a separately negotiated private transaction between the holder and Calm. In June 2020, pursuant to the ~~Underwriting~~June Exchange Agreement, ~~at a purchase price~~on the closing date the holder exchanged 1,374,750 of ~~$1.023 per share. The net proceeds to us from~~ the ~~Offering were $6,584,000 after deducting underwriting discounts~~June Exchanged Warrants for an aggregate of 2,062,125 shares of our Common Stock.

Our Strategy and ~~commissions~~Outlook

Comparable (“Comp”) Store Sales and ~~other estimated offering expenses.~~

~~Third Quarter 2017 Highlights~~

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 to XpresSpa, we review its~~ Adjusted EBITDA ~~a non-GAAP measure, which we define as earnings before interest, tax, depreciation and amortization expense, excluding merger and acquisition, integration and one-time costsand stock-based compensation.~~

~~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.~~ GAAP but are measurements used by management to assess the trends in our business. In evaluating our performance as measured by Comp Store Sales and Adjusted EBITDA, we recognize and consider the limitations of these measurements.

We define Comp Store Sales as current period sales from stores opened more than 12 months compared to those same stores’ sales in the prior year period. 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.

Comp Store Sales

A reconciliation between Comp Store Sales and total revenue as reported on the financial statements is presented below:


	Three months ended March 31, 2020						Three months ended March 31, 2019						% Inc/(Dec)
			Non-Comp						Non-Comp
	Comp Store		Store		Total		Comp Store		Store		Total		Comp Store
Products and Services	$	7,204	$	514	$	7,718	$	9,796	$	2,434	$	12,230	-26.5%

Revenue from Comp Store Sales decreased approximately 26.5% to $7,203 for the three months ended March 31, 2020 from $9,796 for the prior year comparable period. This decrease is primarily due to the negative impact COVID-19 has

Table of Contents

had on our revenue and results of operations. Our revenue began to decrease significantly in February 2020 as COVID-19 began to spread throughout the world and as rates of infection began to increase. Since our spa operations require customers to be in close contact with spa personnel and spa equipment, we believe customers began to forgo spa treatments for fear of being infected with COVID-19. The restrictions on travel that were implemented have had a material adverse impact on our revenue and operations. Effective March 24, 2020, we temporarily closed all global spa locations, largely due to the categorization of the spa locations by local jurisdictions as “non-essential services.” We intend to reopen our spa locations and resume normal operations once restrictions are lifted and airport traffic returns to sufficient levels to support operations.

The decrease in total revenue for the quarter as compared to the prior year comparable period was also due to having 51 locations open during the quarter ended March 31, 2020 versus 55 stores open during the same period in 2019.

Adjusted EBITDA (loss)

Another non-GAAP measurement we use to assess the trends in our business is Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation and amortization expense, excluding financing costs, acquisition integration costs, other one-time costs and stock-based compensation.

We consider Comp Store Sales and Adjusted EBITDA to be an important ~~indicator~~indicators 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.~~ours. In particular, we believe that it is useful for analysts and investors to understand ~~this indicator because it~~that Comp Store Sales only include comparable sales for stores open at least 12 months. 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 Adjusted EBITDA, we recognize and consider the limitations of this measurement.~~ Adjusted EBITDA does not reflect our obligations for the payment of income taxes, interest expense, or other obligations such as capital expenditures. ~~Accordingly, Adjusted EBITDA is only one~~

Table of ~~the measurements that management utilizes.~~Contents

~~The following table provides a~~A reconciliation of operating loss ~~from continuing operations~~presented in accordance with GAAP for ~~our three operating segments and corporate~~the three-month period ended March 31, 2020 to Adjusted EBITDA ~~income~~ (loss) ~~for~~is presented in the ~~three months ended September 30, 2017:~~table below.

Q1 2020 Results of Operations and Adjusted EBITDA (loss)

(amounts in thousands)

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 )


	Three months ended March 31,
Revenue:	2020		2019
Services	$	6,686	$	9,628
Products		891		1,418
Other		141		1,184
Total revenue		7,718		12,230

Cost of sales
Labor		4,476		5,778
Occupancy		1,410		1,865
Product and other operating costs		1,282		1,455
Total cost of sales		7,168		9,098
Depreciation and amortization		1,265		1,649
General and administrative		3,233		3,600
Total operating expense		11,666		14,347

Loss from operations		(3,948)		(2,117)
Interest expense		(1,061)		(611)
(Loss) gain on revaluation of warrants and conversion options		(5,369)		152
Other non-operating expense, net		(346)		(257)
Loss from operations before income taxes		(10,724)		(2,833)
Income tax benefit		—		(11)
Net loss		(10,724)		(2,844)
Net loss (income) attributable to noncontrolling interests		108		(129)
Net loss attributable to common shareholders	$	(10,616)	$	(2,973)

Loss from operations	$	(3,948)	$	(2,117)
Add back:
Depreciation and amortization		1,265		1,649
Stock-based compensation expense		72		104
Less:
Net loss (income) attributable to noncontrolling interests		108		(129)
Adjusted EBITDA loss	$	(2,503)	$	(493)

Results of Operations

Revenue

~~Merger and acquisition, integration and one-time costs relate to~~We recognize revenue from the ~~following:~~

~~For our wellness operating segment, one-time costs related to the interruption~~sale 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~~XpresSpa services when they 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~~

Our wellness operating segment recognized revenue of $12,652,000 during the third quarter of 2017, which was generated by XpresSpa for services provided and health and beauty products sold. We acquired XpresSpa on December 23, 2016 and are actively integrating its corporate functions and optimizing the operating segment’s performance. During the nine-month period ended September 30, 2017, we opened three new flagship locations, consisting of one locationrendered 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 number of our stores ~~will be undergoing maintenance~~and from the sale of products at the time goods are purchased at our stores or ~~renovations during the fourth quarter~~online (usually by credit card), net of ~~2017. Wherever possible, we seek to receive lease extensions or other concessions when we undergo these processes. As~~discounts and applicable sales taxes.

Cost of ~~September 30, 2017, we operated a total~~sales

Cost of ~~51 XpresSpa locations.~~

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, occupancy costs and ~~store-level management;~~

~~rent, percentage rent and other occupancy costs;~~

~~the~~ cost of ~~merchandise as well as its freight, shipping~~products sold.

Table of Contents

General 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 associated with our sourcing operations.~~

administrative

General and administrative ~~costs~~expenses include ~~insurance, infrastructure, payroll and benefits, inventory planning, marketing and other costs. Also included in general~~management and administrative personnel, overhead and occupancy 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~~insurance 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 includes revenues from one-time patent licenses~~various professional fees, as well as expenses incurred in connection with our patent licensing and related internal payroll expenses. In July 2017, the intellectual property operating segment recognized a $148,000 gain on the sale of an asset.

~~Corporate~~

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

Other non-operating income (expense), net

~~Discontinued Operations~~Other non-operating income (expense), net includes transaction gains (losses) from foreign exchange rate differences, and bank charges.

During June 2017, we concluded that the requirement to report the results of FLI Charge, a wholly-owned subsidiary included in our technology operating segment, as discontinued operations was triggered. 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.

~~Results of Operations~~

Three-month period ended ~~September 30, 2017~~March 31, 2020 compared to the three-month period ended ~~September 30, 2016~~

March 31, 2019

Revenue

Three months ended September 30,
2017 2016 Change
Revenue $ 17,731,000 $ 3,101,000 $ 14,630,000


	Three months ended March 31,
	2020		2019		Inc/(Dec)
Total revenue	$	7,718	$	12,230	$	(4,512)

~~During the three-month period ended September 30, 2017, we recorded total~~The decrease in revenue of ~~$17,731,000, which represents an increase~~approximately 36.9% was primarily due the negative adverse impact of ~~$14,630,000 (or 471.8%)~~COVID-19 as discussed above and to a lesser extent a decrease in the number of spas open during the three months ended March 31, 2020 (51 spas) as compared to the ~~three-month~~comparable period ~~ended September 30, 2016. Of~~in 2019 (55 spas). In addition, the ~~increase, XpresSpa generated $12,652,000~~decrease in revenue was the result of ~~revenue~~a one-time sale of intellectual property rights in the ~~third quarter of 2017. We did not recognize any~~prior year period, partially offset by 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~~recently activated sales and marketing agreements 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.

strategic spa partners.

Cost of sales


	Three months ended March 31,
	2020		2019		Inc/(Dec)
Cost of sales	$	7,168	$	9,098	$	(1,930)

Three months ended September 30,
2017 2016 Change
Cost of sales $ 14,375,000 $ 2,718,000 $ 11,657,000

~~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~~21.2% was primarily due in part due to the ~~three-month period ended September 30, 2016. XpresSpa recorded~~decrease in spa-related revenues. Costs of sales did not decrease in the same percentage as total revenue due to there being no 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 related to the ~~confidential license agreement reached during the quarter and royalty expenses to a previous owner~~one-time sale of ~~some of our patents. These~~ intellectual property ~~costs decreased to $126,000 for~~record in 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 will decline gradually over time as a result of the improvement of store-level performance by our wellness operating segment.

prior year period.

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


	Three months ended March 31,
	2020		2019		Inc/(Dec)
Depreciation and amortization	$	1,265	$	1,649	$	(384)

Three months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 1,894,000 $ 182,000 $ 1,712,000

~~During the three-month period ended September 30, 2017,~~The decrease in depreciation and amortization ~~expense totaled $1,894,000, which represents an increase~~ of ~~$1,712,000 (or 940.7%) compared~~approximately 23.3% was due primarily to four fewer locations in the ~~amortization expense recorded during the~~current three-month period ~~ended September 30, 2016. There was no impairment expense for~~versus the prior year. Impairments recorded in 2019 and fewer spa locations open in the current three-month period ~~ended September 30, 2017 and no depreciation or impairment expense recorded for the three-month period ended September 30, 2016.~~

~~The overall increase~~resulted in ~~depreciation, amortization and impairment expense was mainly due to an increase in depreciation expense resulting from leasehold improvements and equipment of $1,110,000 and the~~lower 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.~~

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.

leasehold improvements.

General and administrative


	Three months ended March 31,
	2020		2019		Inc/(Dec)
General and administrative	$	3,233	$	3,600	$	(367)

Table of Contents

Three months ended September 30,
2017 2016 Change
General and administrative $ 5,473,000 $ 3,564,000 $ 1,909,000

~~During the three-month period ended September 30, 2017, general and administrative expenses increased by $1,909,000 (or 53.6%) compared~~The decrease of approximately 10.2% was primarily due to the ~~three-month period ended September 30, 2016.~~ realized benefits of cost cutting and control initiatives instituted in 2019, primarily in salaries, occupancy and professional fees.

(Loss) gain on revaluation of warrants and conversion options:


	Three months ended March 31,
	2020		2019		Inc/(Dec)
(Loss) gain on revaluation of warrants and conversion options	$	(5,369)	$	152	$	(5,521)

(Loss) gain on revaluation of warrants and conversion options represents the loss or gain resulting from the mark to market adjustments of our derivative liabilities. See notes to the consolidated condensed financial statements for discussion.

Other non-operating expense, net


	Three months ended March 31,
	2020		2019		Inc/(Dec)
Non-operating expense, net	$	346	$	257	$	89

The ~~results~~following is a summary 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~~transactions included in other non-operating expense, net for the ~~three-month period~~three months ended ~~September 30, 2017 compared~~March 31, 2020 and 2019:


	Three months ended March 31,
	2020		2019
Loss on extinguishment of debt	$	265	$	—
Other		81		257
Total	$	346	$	257

See Note 6. “Convertible Notes” 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 acquisitionconsolidated condensed financial statements for additional information regarding the loss 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.~~debt.

Interest expense


	Three months ended March 31,
	2020		2019		Inc/(Dec)
Interest expense	$	1,061	$	611	$	450

~~During the three-month period ended September 30, 2017, we recorded total net non-operating~~Interest 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 were offset by a gain of $48,000 on the revaluation of the derivative warrant liabilities.

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 by a gain of $97,000 on the revaluation of the derivative warrant liabilities.

~~Nine-month period ended September 30, 2017 compared to the nine-month period ended September 30, 2016~~

~~Revenue~~

Nine months ended September 30,
2017 2016 Change
Revenue $ 48,683,000 $ 16,478,000 $ 32,205,000

During the nine-month period ended September 30, 2017, we recorded 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, 2017 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%) 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 to the amortization and impairment expense recorded 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~~increased 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 repositioning as a holding company of small- and middle-market growth companies. We concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, we performed the second step of the impairment test to measure the potential impairment by calculating the asset group’s fair value as of May 6, 2016. As a result, following amortization for the month of April 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 expenseinterest and accretion expenses related to the ~~JFK location.~~

~~We expect depreciation~~renegotiated B3D Note 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 period ended September 30, 2016. The results~~issuance 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 acquisitionCalm Note 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,~~July 8, 2019, which was ~~a result of equity awards granted to our directors, management and employees in January 2017.~~

~~Non-operating expense, net~~

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.~~

During the nine-month period ended September 30, 2017, we recorded total net non-operating expense in the amount of $574,000 compared to total net non-operating expense in the amount of $1,923,000 recorded during the nine-month period ended September 30, 2016.

For the nine-month period ended September 30, 2017, we recorded interest expense of $550,000 mainly related 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, we recorded interest expense of $1,697,000 for~~more than the interest ~~recorded~~and accretion expenses incurred related to the ~~monthly interest payments~~B3D Note and the ~~amortization of~~5% Secured Convertible Notes during the debt discount and debt issuance costs as well as accrued interest calculated using the effective interest method associated with debt that was repaid during July 2016. There was also $472,000 of extinguishment of debt recorded when the debt was repaid. These non-operating expenses were offset by a gain of $97,000 on the revaluation of the derivative warrant liabilities and other net non-operating income of $149,000.comparable prior year period.

Liquidity and Capital Resources

~~Our primary liquidity and capital requirements are for new XpresSpa locations for our wellness operating segment, as well as working capital for our technology operating segment.~~ As of ~~September 30, 2017,~~March 31, 2020, we had cash and cash equivalents of ~~$10,072,000~~$3,855, excluding restricted cash, total current assets of $5,449, total current liabilities of $16,103, and a working capital deficiency of $10,654 compared to a working capital deficiency of $12,287 as of December 31, 2019. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2019 included an explanatory paragraph indicating that there was substantial doubt about our ability to continue as a going concern.

To address the working capital deficiency, and outstanding long-term debt, subsequent to March 31, 2020 we raised approximately $43,050 of gross proceeds in a series of registered direct equity offerings, which eliminated the working capital deficiency and resulted in positive working capital of approximately $27,800 after the offerings. In addition, we reduced the $9,975 of principal amount of debt owed as of March 31, 2020 by $9,075, through a series of transactions

Table of Contents

including (i) converting $5,665 of the B3D Note to Common Stock, (ii) converting the $2,500 Calm Note to Common Stock, and (iii) repaying in full the $910 owed to Credit Cash, net of a discount of approximately $91.

We believe that as a result of the consummation of the transactions described below, we have successfully mitigated the substantial doubt raised by our historical operating results and will satisfy our liquidity needs for at least twelve months from the issuance of these financial statements. However, while we have addressed our working capital deficiency and long-term debt, while continuing to focus on our overall operating profitability, we expect to incur net losses in the foreseeable future and therefore cannot predict with any certainty that the results of our actions will satisfy our liquidity needs in the longer-term.

Credit Cash Funding Advance

On January 9, 2020, certain of our wholly-owned subsidiaries (the “CC Borrowers”) entered into an accounts receivable advance agreement (the “CC Agreement”) with CC Funding, a division of Credit Cash NJ, LLC (the “CC Lender”). Pursuant to the terms of the CC Agreement, the CC Lender agreed to make an advance of funds in the amount of $1,000 for aggregate fees of $160, for a total repayment amount of $1,160. As of March 31, 2020, the outstanding repayment amount of $910 was secured by substantially all of the assets of the CC Borrowers, including CC Borrowers’ existing and future accounts receivables and other rights to payment. On June 1, 2020, the CC Borrowers entered into a payoff letter (the “Payoff Letter”) with the CC Lender pursuant to which the CC Agreement was terminated. Under the Payoff Letter, we repaid $733 owed under the CC Agreement as of June 1, 2020 and the CC Lender released all security interests held on the assets of the CC Borrowers, including the CC Borrowers’ existing and future accounts receivables and other rights to payment.

As compensation for the consent of existing creditor B3D, LLC (“B3D”) to the CC Agreement described above, on January 9, 2020, XpresSpa Holdings, LLC (“XpresSpa Holdings”), a wholly-owned subsidiary, entered into a fifth amendment (the “Fifth Credit Agreement Amendment”) to our existing credit agreement with B3D in order to, among other provisions, (i) amend and restate our existing convertible promissory note (the “B3D Note”) in order to increase the principal amount owed to B3D from $7,000 to $7,150, which additional $150 in principal and any interest accrued thereon will become convertible, at B3D’s option, into shares of our Common Stock subject to upon receipt of the approval of our stockholders, which was obtained on May 28, 2020 and (ii) provide for the advance payment of 97,223 shares of Common Stock in satisfaction of the interest payable pursuant to the B3D Note for the months of October, November and December 2020. The Common Stock was issued to B3D on January 14, 2020.

B3D Senior Secured Loan

On March 6, 2020, XpresSpa Holdings, LLC, our wholly-owned subsidiary, entered into a sixth amendment (the “Sixth Credit Agreement Amendment”) to our existing credit agreement with B3D. In connection with the Sixth Credit Agreement Amendment and B3D Note, B3D agreed to provide us with $500 in additional funding and to submit one or more conversion notices to convert an aggregate of $375 in principal under the B3D Note to Common Stock on or prior to March 27, 2020. XpresSpa Holdings entered into the Credit Agreement Amendment in order to, among other provisions, (i) amend and restate our existing convertible promissory note with B3D in order to increase the principal amount owed from $7,150 million to $7,900 , which additional $750 in principal and any interest accrued thereon will be convertible, at B3D’s option, into shares of Common Stock subject to receipt of the approval of our stockholders, which was approved on May 28, 2020, and (ii) decrease the conversion rate under the B3D Note from $6.00 per share to $1.68 per share. On March 19, 2020, the conversion rate was reduced to $0.525 per share after giving effect to certain anti-dilution adjustments. In connection with the Sixth Credit Agreement Amendment, B3D converted a total of $750 in principal and was issued a total of 446,429 shares of our Common Stock in March 2020.

Registered Direct Common Stock Offerings

On March 19, 2020, we entered into a securities purchase agreement with certain purchasers, pursuant to which we issued and sold, in a registered direct offering, (i) 1,396,281 shares of our Common Stock at an offering price of $0.525 per share and (ii) an aggregate of 698,958 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.495 per pre-funded warrant.

Table of Contents

On March 25, 2020, we entered into a securities purchase agreement with certain purchasers, pursuant to which we issued and sold, in a registered direct offering, (i) 2,483,333 shares of Common Stock at an offering price of $0.60 per share and (ii) an aggregate of 500,000 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.57 per pre-funded warrant.

On March 27, 2020, we entered into a securities purchase agreement with certain purchasers, pursuant to which we issued and sold, in a registered direct offering (i) 2,631,666 shares of Common Stock at an offering price of $0.60 per share and (ii) an aggregate of 701,666 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.57 per pre-funded warrant.

We sold a total of 6,511,280 shares of Common Stock and 1,900,625 of pre-funded warrants and received total proceeds of $4,209, net of financial advisory and consulting fees of $626. During the three months ended March 31, 2020, 1,698,959 pre-funded warrants were exercised for total proceeds of approximately $49. As of March 31, 2020, 201,666 warrants were not exercised and remained outstanding.

On April 6, 2020, we entered into a securities purchase agreement with certain purchasers, pursuant to which we issued and sold, in a registered direct offering (i) 4,049,573 shares of Common Stock at an offering price of $0.66 per share and (ii) an aggregate of 485,151 pre-funded warrants exercisable for shares of Common Stock at an offering price of $0.63 per pre-funded warrant.

On June 17, 2020, we entered into a securities purchase agreement with certain purchasers, pursuant to which we agreed to issue and sell, 7,614,700 shares of we Common Stock at an offering price of $5.253 per share (the “Registered Offering”). In a concurrent private placement (the “Private Placement” and together with the Registered Offering, the “Offerings”), we agreed to issue to the purchasers who participated in the Registered Offering warrants (the “Warrants” and collectively with the Shares, the “Securities”) exercisable for an aggregate of 7,614,700 shares of Common Stock at an exercise price of $5.25 per share. Each Warrant will be immediately exercisable and will expire 21 months from the issuance date. The Warrants and the shares of Common Stock issuable upon the exercise of the Warrants are not registered under the Securities Act of 1933, as amended (the “Securities Act”), were not offered pursuant to the Registration Statement and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Offerings closed on June 19, 2020 and we received gross proceeds of approximately $40,000 before deducting placement agent fees and related offering expenses.

We expect to utilize ~~along with~~our cash ~~flows from operations,~~and cash equivalents to provide capital to support the near-term operating loss, limited near-term growth of our core business ~~primarily~~(primarily through potentially opening new XpresSpa ~~locations,~~locations), maintaining our existing XpresSpa locations, ~~purchasing inventory for Group Mobile to support the growth in sales~~funding our recently launched XpresCheck COVID-19 testing centers 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 the Underwriting Agreement with Roth Capital Partners, LLC, acting as the representative of the Underwriters, relating 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 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from us pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. Our net proceeds from the Offering were $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 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 will be complementary to our wellness operating segment. There can be no assurance, however, that any such opportunities will materialize.

~~Off-Balance Sheet Arrangements~~

We have ~~no obligations, assets~~taken actions described above to 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.

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 ~~liabilities~~may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services 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~~are important to ~~as variable interest entities, which would have been established for~~ the ~~purpose~~operation of ~~facilitating off-balance sheet arrangements.~~our business.

Critical Accounting Estimates

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 for the year ended December 31, 2019 filed with the SEC ~~on March 30, 2017,~~ which includes a description of our critical accounting ~~policies~~estimates that involve subjective and complex judgments that could potentially affect reported results. ~~While there~~There have been no material changes to our critical accounting ~~policies~~estimates as to the methodologies or assumptions we apply under ~~them, we~~them. We continue to monitor such methodologies and assumptions.

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required as we are a smaller reporting company.

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 (Principal Financial and ~~Chief Financial Officer,~~Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

As of ~~September 30, 2017,~~March 31, 2020, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Financial and ~~Chief Financial Officer,~~Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on ~~the foregoing,~~ our ~~Chief Executive Officer and Chief Financial Officer~~evaluation, we have concluded that our disclosure controls and procedures were not effective as of March 31, 2020. This determination is based on 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 change, there were no changes~~previously reported material weakness management identified in our internal control over financial reporting, as described below. We are in the process of remediating the material weaknesses in our internal control. We believe the completion of these processes should remedy our disclosure controls and procedures. We will continue to monitor these issues.

Previously Reported Material Weakness in Internal Control Over Financial Reporting

In our Annual Report for the year ended December 31, 2019, filed with the SEC on April 20, 2020, management concluded that our internal control over financial reporting was not effective as of December 31, 2019. In the evaluation, management identified a material weakness in internal control related to our financial close and reporting process. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, the Principal Accounting Officer extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

We are still considering the full extent of the procedures to implement in order to remediate the material weakness described above. The current remediation plan includes a more robust review process, and an increase in the supervision and monitoring of the financial reporting processes and our accounting personnel. We will ensure that accounting personnel have the level of accounting and controls knowledge and experience commensurate with our financial reporting requirements by instituting a formal training program for all accounting personnel on a regular basis on internal control procedures over financial reporting. The current remediation plan also includes implementing controls over calculations, analysis and conclusions associated with nonroutine transactions at a more precise level. We will also allocate additional resources to the corporate accounting function, which may include the use of independent consultants with sufficient expertise to assist in the preparation and review of certain non-recurring transactions and timely review of the account reconciliations. Lastly, we will automate, where possible and practical, all account analysis and calculations currently being done manually by better utilizing our current general ledger accounting system. Where cost effective, we will outsource any manually processes that are time consuming to free up accounting personnel to spend more time preparing and reviewing account analysis.

Changes in Internal Control over Financial Reporting

Other than as described above, there has been no change 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~~March 31, 2020 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

~~Part~~PART II– OTHER INFORMATION

Item 1.Legal Proceedings.

For information regarding legal proceedings, see Note ~~11 “Commitments~~10. “Commitments and Contingencies” in our notes to the consolidated condensed ~~consolidated~~ financial statements included in “Item 1. Financial Statements.”

Item 1A.Risk Factors.

The following additional risk factors, which could affect our business, financial condition, operating results and cash flows should be read in connection with the existing disclosure on risk factors made in the our most recently filed Annual Report on Form 10-K and other filings made with the SEC.

~~Our~~We have no operating history in the diagnostic testing industry.

Despite our management’s extensive experience in health and wellness services, we have no specific operating history in the diagnostic testing industry, including providing management services to a professional practice offering diagnostic testing services. We will face substantial risks and uncertainties to which our new diagnostic testing line of business will be subject. To address these risks and uncertainties, we must, among other things, successfully execute our business strategy, respond to competitive developments and attract and retain qualified personnel. We cannot assure you that we will operate profitably or that our business strategy will be successful. As a result, our diagnostic testing line of business may not succeed.

We have no formal contracts or relationships with any professional practice for the ordering of and collection of samples for, or with any laboratories for the performance of, COVID-19 testing.

Although we are exploring the possibility of offering COVID-19 testing in airport locations, there is currently no formal contractual relationship with any professional practice for the ordering of and collection of samples for, or with any clinical laboratory for the performance, of COVID-19 testing. We may never formalize any arrangement with a professional practice or clinical laboratory for these purposes and may never commence diagnostic testing operations. As a result, there can be no assurances that we will be able execute our current plans or generate any revenue associated with our current COVID-19 testing plans.

There can be no assurances that we will be able to successfully secure new locations or transition our existing spa facilities into locations at which COVID-19 testing will be ordered or performed.

There can be no assurances that we will be able to obtain new locations or make available or renovate our existing spa facilities for the purpose of operating a location at which COVID-19 testing will be ordered and/or performed by a professional practice. If we are unable to successfully transition such facilities to locations at which COVID-19 testing will be ordered and/or performed due to issues with lease agreements, permits, licenses or other delays, we will not be able to move forward with our planned short-term business transition.

We may rely on a limited number of professional practices and suppliers and, in some cases, a single professional practice or supplier, for the COVID-19 test and certain of the laboratory substances, equipment and other materials used for COVID-19 tests, and any delays or difficulties securing these materials could disrupt our operations and materially harm our business.

We plan to contract with a limited number of professional practices, and potentially only a single professional practice, for the ordering of and collection of samples for COVID-19 testing. If our professional practice partner begins performing point of care COVID-19 testing at our locations in the future, we may rely on a limited number of suppliers for the COVID-19 test kits, collection supplies, reagents, and various other equipment and materials we intend to use in performing COVID-19 testing. We currently do not have formal agreements with any potential professional practice or supplier, and, as a result, if such services or supplies are obtained, the professional practice or supplier could cease supplying these services or tests, materials and equipment to us at any time due to our inability to reach agreement on terms, disruptions

Table of Contents

in the professional practice’s or supplier’s operations, a determination to pursue other activities or lines of business, or for other reasons, or the professional practice or supplier could fail to provide us with sufficient quantities of services or materials that meet our specifications. Transitioning to a new professional practice or supplier or locating a temporary substitute, if any are available, would be time-consuming and expensive, could result in interruptions in or otherwise affect the performance specifications of our intended operations, or could require that we revalidate the tests we use. In addition, the use of services, equipment or materials provided by a replacement professional practice or supplier could require us to alter our future operations and procedures. Moreover, we believe there are currently only a limited number of manufacturers that are capable of supplying and servicing some of the equipment and other materials necessary for our intended operations. As a result, replacement equipment and materials that meet our quality control and performance requirements may not be available on reasonable terms, in a timely manner or at all. If we encounter delays or difficulties securing, reconfiguring or revalidating the equipment, reagents and other materials required for administering tests, our operations could be materially disrupted and our business, financial condition, results of operations, and ~~the trading price of our common stock~~reputation could be ~~materially~~ adversely ~~affected by any~~affected. We also may experience services or supply issues as we increase test volume.

If our professional practice partner begins performing point of care COVID-19 testing at our locations in the future, the COVID-19 testing technology we ultimately choose may not perform as expected, as a result of human error or otherwise. No assurance can be given that the COVID-19 testing technology we use will aid in the testing of this virus.

If our professional practice partner begins performing point of care COVID-19 testing at our locations in the future, our success will depend on the COVID-19 testing technology we choose to use to provide a reliable, high-quality diagnostic result. There is no guarantee that the COVID-19 test technology we ultimately choose will be accurate. We believe that customers will be particularly sensitive to test defects and errors. As a result, the failure of the ~~following risks~~chosen tests to perform as ~~well~~expected could significantly impair our reputation and the public image of the tests we use. There can be no assurance that the COVID-19 test technology will be broadly adopted for use. Many companies are developing tests for COVID-19 and the COVID-19 test technology we plan to use may not be effective. As a result, the failure or perceived failure of the chosen tests to perform as ~~the other risks highlighted in our Form 10-K for the year ended December 31, 2016 filed with the SEC~~expected could have a material adverse effect 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.~~operation and cash flows.

If there is little or no demand for the COVID-19 test, our business could be materially harmed.

~~Risks Related~~There can be no assurance that demand for our planned COVID-19 testing services will exist in the future because of the success of containment efforts, the emergence of a vaccine or due to ~~XpresSpa~~other events. If there is no demand for our planned COVID-19 testing services, our business will be materially harmed.

The intended COVID-19 testing capabilities may never achieve significant market acceptance.

We may expend substantial funds and management effort on the development and marketing of our professional practice partner’s COVID-19 testing capabilities with no assurance that we will be successful in implementing our planned diagnostic testing business. Our ~~growth strategy~~ability to successfully offer COVID-19 tests will depend significantly on the perception that the tests used by our professional practice partner can reduce transmission risk and are reliable.

We will use potentially hazardous materials, chemicals and patient samples in our business and any disputes relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our professional practice partner’s diagnostic testing activities will involve the controlled use of hazardous laboratory materials and chemicals, including small quantities of acid and alcohol, and patient samples. They will be subject to U.S. laws and regulations related to the protection of the environment, the health and safety of employees and the handling, transportation and disposal of medical specimens, infectious and hazardous waste. They could be liable for accidental contamination or discharge or any resultant injury from hazardous materials, and conveyance, processing, and storage of and data on patient samples. If they fail to comply with applicable laws or regulations, they could be required to pay penalties or be held liable for any damages that result and this liability could exceed their financial resources. Further, future changes to environmental health and safety laws could cause them to incur additional expense or restrict operations.

Table of Contents

In the event of a lawsuit or investigation concerning such hazardous materials, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials or patient samples that may contain infectious materials. The cost of this liability could exceed our resources. While we expect to maintain broad form liability insurance coverage for these risks, and we expect our professional practice partner to maintain appropriate malpractice insurance, the level or breadth of our coverage may not be adequate to fully cover potential liability claims.

Our diagnostic testing business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, and the Clinical Laboratory Improvement Amendments of 1988 (CLIA), or those of Medicare, Medicaid or other national, state or local agencies in the U.S. and other countries where we operate laboratories.

The performance of laboratory testing is ~~highly dependent~~subject to extensive U.S. regulation, and many of these statutes and regulations have not been interpreted by the courts. CLIA extends federal oversight to virtually all physician practices performing clinical laboratory testing and to clinical laboratories operating in the U.S. by requiring that they be certified by the federal government or, in the case of clinical laboratories, by a federally approved accreditation agency. The sanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. In addition, we expect to be subject to regulation under state law. State laws may require that laboratories and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records. Applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect our business. Potential sanctions for violation of these statutes and regulations include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could have a material adverse effect on our business. In addition, compliance with future legislation could impose additional requirements on us, which may be costly.

U.S. Food and Drug Administration (FDA) regulation of diagnostic products could result in increased costs and the imposition of fines or penalties, and could have a material adverse effect upon our business.

The FDA has regulatory responsibility for instruments, test kits, reagents and other devices used by clinical laboratories. The FDA enforces laws and regulations that govern the development, testing, manufacturing, performance, labeling, advertising, marketing, distribution and surveillance of diagnostic products, and it regularly inspects and reviews the manufacturing processes and product performance of diagnostic products.

FDA regulation of the diagnostic products we use could result in increased costs and administrative and legal actions for noncompliance, including warning letters, fines, penalties, product suspensions, product recalls, injunctions and other civil and criminal sanctions, which could have a material adverse effect on our business, financial condition, results of operation and cash flows.

If we fail to comply with the complex federal, state, local and foreign laws and regulations that apply to our business, we could suffer severe consequences that could materially and adversely affect our operating results and financial condition.

We expect our planned operations to be subject to extensive federal, state, local and foreign laws and regulations, all of which are subject to change. These laws and regulations currently include, among other things:

●

CLIA, which requires that laboratories obtain certification from the federal government, and state licensure laws;

●

FDA laws and regulations;

●

HIPAA, which imposes comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments to HIPAA under HITECH, which strengthen and expand HIPAA privacy and security compliance requirements, increase penalties for violators, extend enforcement authority to state attorneys general and impose requirements for breach notification;

Table of Contents

●

state laws regulating genetic testing and protecting the privacy of genetic test results, as well as state laws protecting the privacy and security of health information and personal data and mandating reporting of breaches to affected individuals and state regulators;

●

the federal anti-kickback law, or the Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program;

●

other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;

●

the federal Physician Payments Sunshine Act, which requires medical device manufactures to track and report to the federal government certain payments and other transfers of value made to physicians and teaching hospitals and ownership or investment interests held by physicians and their immediate family members;

●

Section 216 of the federal Protecting Access to Medicare Act of 2014, which requires applicable laboratories to report private payor data in a timely and accurate manner beginning in 2017 and every three years thereafter (and in some cases annually);

●

state laws that impose reporting and other compliance-related requirements;

●

state billing laws, including regulations on “pass through billing” which may limit our ability to submit claims for payment and/or mark up the cost of services in excess of the price paid for such services, and “direct-bill” laws which may limit our ability to purchase services from a laboratory and bill for the services ordered;

●

similar foreign laws and regulations that apply to us in the countries in which we operate.

These laws and regulations are complex and are subject to interpretation by the courts and by government agencies. Our failure to comply could lead to civil or criminal penalties, exclusion from participation in state and federal health care programs, or prohibitions or restrictions on our laboratory’s ability to provide or receive payment for our services. We believe that we are in material compliance with all statutory and regulatory requirements, but there is a risk that one or more government agencies could take a contrary position, or that a private party could file suit under the qui tam provisions of the federal False Claims Act or a similar state law. Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including managed care organizations, and other private third-party payors.

Changes in the way that the FDA regulates COVID-19 tests could result in the delay or additional expense in offering tests.

Historically, the U.S. Food and Drug Administration (“FDA”) has exercised enforcement discretion with respect to most laboratory-developed tests (“LDTs”) and has not required laboratories that furnish LDTs to comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls). In recent years, however, the FDA publicly announced its intention to regulate certain LDTs and issued two draft guidance documents that set forth a proposed phased-in risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs. However, these guidance documents were withdrawn at the end of the Obama administration and replaced by an informal discussion paper reflecting some of the feedback that FDA had received on LDT regulation. The FDA acknowledged that the discussion paper in January 2017 does not represent the formal position of the FDA and is not enforceable. Nevertheless, the FDA wanted to share its synthesis of the feedback that it had received in the hope that it might advance public discussion on future LDT oversight. Notwithstanding the discussion paper, the FDA continues to exercise enforcement discretion and may decide to regulate certain LDTs on a case-by-case basis at any time, which could result in delay or additional expense in offering tests. Until the FDA finalizes its regulatory position regarding LDTs, or other legislation is passed reforming the federal government’s regulation of LDTs, it is unknown how the FDA may regulate tests we use in the future and what testing and data may be required to support any required clearance or approval.

Table of Contents

If our professional practice partner begins performing point of care COVID-19 testing at our locations in the future, failure to accurately bill for testing services, or to comply with applicable laws relating to government health care programs, could have a material adverse effect on our business.

Billing for diagnostic testing services is complex and subject to extensive and non-uniform rules and administrative requirements. Depending on the billing arrangement and applicable law, we expect to bill various payers, such as patients, insurance companies, Medicare, Medicaid, clinicians, hospitals and employer groups if we begin performing point of care COVID-19 testing at our locations in the future. We expect that the majority of our billing and related operations will be provided by a third party. Failure to accurately bill for our services could have a material adverse effect on our business. In addition, failure to comply with applicable laws relating to billing government health care programs may result in various consequences, including the return of overpayments, civil and criminal fines and penalties, exclusion from participation in government health care programs and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur additional liabilities from third-party claims, all of which could have a material adverse effect on our business. Certain violations of these laws may also provide the basis for a civil remedy under the federal False Claims Act, including fines and damages of up to three times the amount claimed. The qui tam provisions of the federal False Claims Act and similar provisions in certain state false claims acts allow private individuals to bring lawsuits against health care companies on behalf of the government.

Although we expect to be in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion. The federal and state governments have substantial leverage in negotiating settlements since the amount of potential damages and fines far exceeds the rates at which services will be reimbursed, and the government has the remedy of excluding a non-compliant provider from participation in the Medicare and Medicaid programs. We expect that federal and state governments continue aggressive enforcement efforts against perceived health care fraud. Legislative provisions relating to health care fraud and abuse provide government enforcement personnel with substantial funding, powers, penalties and remedies to pursue suspected cases of fraud and abuse.

We will depend on third parties to provide services critical to our diagnostic testing business, and we will depend on them to comply with applicable laws and regulations. Additionally, any breaches of the information technology systems of third parties could have a material adverse effect on our operations.

We will depend on third parties to provide services critical to our diagnostic testing business, including supplies, ground and air transport of clinical and diagnostic testing supplies and specimens, research products, and people, among other services. Third parties that will provide services to us will be subject to similar risks related to security of customer-related information and compliance with U.S., state, local, or international environmental, health and safety, and privacy and security laws and regulations as we will be. Any failure by third parties to comply with applicable laws, or any failure of third parties to provide services more generally, could have a material impact on us, whether because of the loss of the ability to receive services from the third parties, our legal liability for the actions or inactions of third parties, or otherwise. In addition, third parties to whom we outsource certain services or functions may process personal data, or other confidential information belonging to us. A breach or attack affecting these third parties could also harm our business, results of operations and reputation.

Our business operations and reputation may be materially impaired if we do not comply with privacy laws or information security policies.

We will collect, generate, process or maintain sensitive information, such as patient data and other personal information. If we do not use or adequately safeguard that information in compliance with applicable requirements under federal, state and international laws, or if it were disclosed to persons or entities that should not have access to it, our business could be materially impaired, our reputation could suffer and we could be subject to fines, penalties and litigation. In the event of a data security breach, we may be subject to notification obligations, litigation and governmental investigation or sanctions, and may suffer reputational damage, which could have an adverse impact on our business.

We will be subject to laws and regulations regarding protecting the security and privacy of certain healthcare and personal information, including: (a) the federal Health Insurance Portability and Accountability Act and the regulations thereunder,

Table of Contents

which establish (i) a complex regulatory framework including requirements for safeguarding protected health information and (ii) comprehensive federal standards regarding the uses and disclosures of protected health information; and (b) state laws, including the California Consumer Privacy Act.

Hardware and software failures or delays in our information technology systems, including failures resulting from our systems conversions or otherwise, could disrupt our operations and cause the loss of confidential information, customers and business opportunities or otherwise adversely impact our business.

IT systems will be used extensively in virtually all aspects of our business, including clinical testing, test reporting, billing, customer service, logistics and management of medical data. Our success depends, in part, on the continued and uninterrupted performance of our IT systems. A failure or delay in our IT systems could impede our ability to serve our customers and patients and protect their confidential personal data. Despite redundancy and backup measures and precautions that we have implemented, our IT systems may be vulnerable to damage, disruptions and shutdown from a variety of sources, including telecommunications or network failures, system conversion or standardization initiatives, human acts and natural disasters. These issues can also arise as a result from failures by third parties with whom we do business and for which we have limited control. Any disruption or failure of our IT systems could have a material impact on our ability to ~~successfully~~serve our customers and patients, including negatively affecting our reputation in the marketplace.

We must comply with complex and overlapping laws protecting the privacy and security of health information and personal data.

There are a number of state, federal and international laws protecting the privacy and security of health information and personal data. Under the administrative simplification provisions of HIPAA, HHS has issued regulations which establish uniform standards governing the conduct of certain electronic health care transactions and protecting the privacy and security of PHI used or disclosed by health care providers and other covered entities.

The privacy regulations regulate the use and disclosure of PHI by health care providers engaging in certain electronic transactions or “standard transactions.” They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered health care provider, including the right to access or amend certain records containing PHI or to request restrictions on the use or disclosure of PHI. The HIPAA security regulations establish administrative, physical, and technical standards for maintaining the integrity and availability of PHI in electronic form. These standards apply to covered health care providers and also to “business associates” or third parties providing services involving the use or disclosure of PHI. The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI. As a result, we may be required to comply with both HIPAA privacy regulations and varying state privacy and security laws.

Moreover, HITECH, among other things, established certain health information security breach notification requirements. In the event of a breach of unsecured PHI, a covered entity must notify each individual whose PHI is breached, federal regulators and in some cases, must publicize the breach in local or national media. Breaches affecting 500 individuals or more are publicized by federal regulators who publicly identify the breaching entity, the circumstances of the breach and ~~open new XpresSpa locations.~~the number of individuals affected.

~~Our growth strategy primarily contemplates expansion through procuring new XpresSpa locations~~These laws contain significant fines and ~~opening new XpresSpa stores~~other penalties for wrongful use or disclosure of PHI. Given the complexity of HIPAA and ~~kiosks. Implementing this strategy depends on~~HITECH and their overlap with state privacy and security laws, and the fact that these laws are rapidly evolving and are subject to changing and potentially conflicting interpretation, our ability to ~~successfully identify new~~comply with the HIPAA, HITECH and state privacy requirements is uncertain and the costs of compliance are significant. Adding to the complexity is that our planned operations are currently evolving and the requirements of these laws will apply differently depending on such things as whether or not we bill electronically for our services, or provide services involving the use or disclosure of PHI and incur compliance obligations as a business associate. The costs of complying with any changes to the HIPAA, HITECH and state privacy restrictions may have a negative impact on our operations. Noncompliance could subject us to criminal penalties, civil sanctions and significant monetary penalties as well as reputational damage.

Table of Contents

We also will be required to collect and maintain personal information about our employees as well as receive and transfer certain payment information, to accept payments from our customers, including credit card information. Most states have adopted laws requiring notification of affected individuals and state regulators in the event of a breach of personal information, which is a broader class of information than the health information protected by HIPAA. Many state laws impose significant data security requirements, such as encryption or mandatory contractual terms to ensure ongoing protection of personal information. Activities outside of the United States implicate local and national data protection standards, impose additional compliance requirements, and generate additional risks of enforcement for non-compliance. The collection and use of such information may be subject to contractual obligations as well. If the security and information systems that we or our outsourced third-party providers use to 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 process such information are compromised or if we, ~~do,~~or such third parties, otherwise fail to comply with these laws, regulations, and contractual obligations, we could face litigation and the imposition of penalties that could adversely affect our financial performance.

We must comply with all applicable privacy and data security laws in order to operate our business and may be required to expend significant capital and other resources to ensure ongoing compliance, to protect against security breaches and hackers or to alleviate problems caused by such breaches. Breaches of health information and/or personal data may be extremely expensive to remediate, may prompt federal or state investigation, fines, civil and/or criminal sanctions and significant reputational damage.

Our capital expenditures may not generate a positive return and we will incur significant additional costs.

Our capital expenditures may not generate a positive return. Significant capital expenditures will be ~~able~~required to ~~successfully negotiate and open~~construct new ~~stores on~~locations or renovate our existing spa facilities to accommodate our proposed new business model. No assurance can be given that our future capital expenditures will generate a ~~timely basis.~~positive return or that we will have adequate capital available to finance such construction or renovations. If we are unable to, ~~identify~~or elect not to, pay for costs associated with such construction or renovations, the ability of our professional practice partner to order or perform COVID-19 testing could be limited, and ~~open new XpresSpa locations~~our competitive position could be harmed.

Additionally, we expect to incur significant additional costs as we implement the ability of our professional practice partner to perform on-site COVID-19 testing. The COVID-19 outbreak could disrupt our future supply chain, including by impacting our ability to secure COVID-19 testing supplies and to provide personal protective equipment for our employees in ~~accordance with~~ our ~~operating plan,~~testing locations. For similar reasons, the COVID-19 pandemic has also adversely impacted, and may continue to adversely impact, third parties that will be critical to our ~~revenue growth rate~~business, including vendors, suppliers, and business partners. These developments, and others that are difficult or impossible to predict, could materially impact our business, financial results, cash flows, and financial ~~performance may fall short of our expectations.~~position.

~~Risks Related to Our Common Stock~~

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

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

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

None

~~None.~~

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.

Table of Contents

Item 6. Exhibits.


Exhibit No.		Description
3.1		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of XpresSpa Group, Inc., filed with the Secretary of State of the State of Delaware on June 10, 2020 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with SEC on June 10, 2020)

4.1		Third Amended and Restated Convertible Promissory Note, dated as of January 9, 2020 (incorporated by reference from Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on January 14, 2020)

4.2		Fourth Amended and Restated Convertible Promissory Note, dated as of March 6, 2020 (incorporated by reference from Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on March 6, 2020)

4.3		Form of Warrant (incorporated by reference from Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on June 17, 2020)

4.4		Form of Placement Agent Warrant (incorporated by reference from Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on June 17, 2020)

4.5		Amended and Restated Calm Note, dated as of April 17, 2020 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on April 17, 2020).

4.6		Amended and Restated Convertible Promissory Note, dated as of April 22, 2020 (incorporated by reference to Exhibit 4.1 to our Current Report filed with the SEC on April 24, 2020)

10.1		Fifth Amendment to Credit Agreement, dated as of January 9, 2020, by and between XpresSpa Holdings LLC and B3D, LLC (incorporated by reference from Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on January 14, 2020)

10.2		Sixth Amendment to Credit Agreement, dated as of March 6, 2020, by and between XpresSpa Holdings LLC and B3D, LLC (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 6, 2020)

10.3		Form of Accounts Receivable Advance, dated as of January 9, 2020, by and between certain subsidiaries of the Company and CC Funding, a division of Credit Cash NJ, LLC (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 14, 2020)

10.4		Securities Purchase Agreement, date as of March 19, 2020, by and between the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 19, 2020)

10.5		Form of Exchange Agreement, date as of March 19, 2020 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on March 19, 2020)

10.6		Voting Agreement, date as of March 19, 2020, by and between the Company and Mistral Spa Holdings LLC (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on March 19, 2020)

10.7		Securities Purchase Agreement, date as of March 25, 2020, by and between the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 26, 2020)

Table of Contents

~~Exhibit~~ ~~No.~~10.8		~~Description~~ Securities Purchase Agreement, date as of March 27, 2020, by and between the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 30, 2020)

31.1*10.9		Securities Purchase Agreement, date as of April 6, 2020, by and between the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2020)

10.10		U.S. Small Business Administration Paycheck Protection Program Note (incorporated by reference to Exhibit 10.1 to our Current Report filed with the SEC on May 7, 2020)

10.11		Form of Exchange Agreement, dated as of June 4, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 4, 2020)

10.12		Securities Purchase Agreement, date as of June 17, 2020, by and between the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 17, 2020)

31*		Certification of Principal Executive Officer and 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.~~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.~~ 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.
**		~~Filed herewith.~~ Furnished herein.
** †		~~Furnished herein.~~ Management contract or compensatory plan or arrangement.

~~SIGNATURES~~

Table of Contents

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.~~ XpresSpa Group, Inc.

Date:	~~By:~~ July 6, 2020		By:	/s/ ~~ANASTASIA NYRKOVSKAYA~~Douglas Satzman
		~~Anastasia Nyrkovskaya~~		Douglas Satzman
				Chief ~~Financial~~Executive Officer
				(Principal Executive Officer)
				(Principal Financial and Accounting Officer)