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~~2021

~~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~~		~~20-4988129~~
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,” 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~~ 5, 2021, 105,662,421shares of the registrant’s common stock were outstanding.

Table of Contents

~~FORM Holdings Corp.~~

XpresSpa Group, Inc. and Subsidiaries
Table of Contents

Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
30
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
40
Item 4.
Controls and Procedures
26
40

PART II. OTHER INFORMATION
26
42

Item 1.
Legal Proceedings
26
42
Item 1A.
Risk Factors
26
42
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
42
Item 3.
Defaults Upon Senior Securities
28
42
Item 4.
Mine Safety Disclosures
28
42
Item 5.
Other Information
28
43
Item 6.
Exhibits
29
44

2
Table of Contents~~Part~~
PART I - FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements (Unaudited)
~~FORM Holdings Corp.~~XpresSpa Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)


September 30,

December 31,

2021

2020
Current assets




Cash and cash equivalents (including $1,080 of variable interest entities (see note 3) as of September 30, 2021)

$
109,161

$
89,801
Accounts receivable, net

64

-
Inventory

2,040

657
Other current assets

1,835

1,321
Total current assets

113,100

91,779

Restricted cash

751

701
Property and equipment, net

4,532

4,161
Intangible assets, net

2,725

870
Operating lease right of use assets

5,667

3,034
Other assets

2,502

2,588
Total assets

$
129,277

$
103,133

Current liabilities




Accounts payable, accrued expenses and other

$
8,724

$
6,468
Current portion of operating lease liabilities

2,797

2,797
Deferred revenue

24

914
Current portion of promissory note, unsecured

5,653

3,298
Total current liabilities

17,198

13,477

Long-term liabilities

Promissory note, unsecured

-

2,355
Operating lease liabilities

8,156

6,930
Total liabilities

25,354

22,762
Commitments and contingencies (see Note 14)





Equity




Series A Convertible Preferred Stock, $0.01 par value per share; 6,968 shares authorized; NaN issued and outstanding

-

-
Series C Junior Preferred Stock, $0.01 par value per share; 300,000 shares authorized; NaN issued and outstanding

-

-
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; NaN issued and outstanding

-

-
Series E Convertible Preferred Stock, $0.01 par value per share, 2,397,060 shares authorized; NaN issued and outstanding

-

-
Series F Convertible Preferred Stock, $0.01 par value per share, 9,000 shares authorized; NaN issued and outstanding

-

-
Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 105,327,379 and 94,058,853 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

1,053

941
Additional paid-in capital

493,814

475,709
Accumulated deficit

(398,550)

(398,624)
Accumulated other comprehensive loss

(283)

(220)
Total equity attributable to XpresSpa Group, Inc.

96,034

77,806
Noncontrolling interests

7,889

2,565
Total equity

103,923

80,371
Total liabilities and equity

$
129,277

$
103,133
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

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

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

Three months ended September 30,

Nine months ended September 30,


2021

2020


2021

2020


Revenue, net









Managed services fees

$
-

$
-

$
16,843

$
-

Patient services revenue

25,351

-

25,351

-

Services

1,158

93

1,761

6,779

Products

258

45

402

936

Other

-

63

14

347

Total revenue, net

26,767

201

44,371

8,062

Cost of sales









Labor

4,277

514

7,419

5,480

Occupancy

587

468

1,511

2,334

Products and other operating costs

8,798

423

16,592

1,737

Total cost of sales

13,662

1,405

25,522

9,551

Depreciation and amortization

852

1,424

2,542

3,875

Impairment/disposal of assets

-

2,227

22

6,319

General and administrative

5,196

4,368

14,350

10,972

Total operating expenses

19,710

9,424

42,436

30,717

Operating income (loss)

7,057

(9,223)

1,935

(22,655)

Interest income (expense), net

6

(120)

31

(1,856)

Gain (loss) on revaluation of warrants and conversion options

-

2,750

-

(50,917)

Other non-operating expense, net

(381)

(47)

(830)

(389)

Income (loss) before income taxes

6,682

(6,640)

1,136

(75,817)

Income tax expense

(87)

(3)

(79)

(22)

Net income (loss)

6,595

(6,643)

1,057

(75,839)

Net (income) loss attributable to noncontrolling interests

(998)

533

(983)

1,034

Net income (loss) attributable to XpresSpa Group, Inc.

$
5,597

$
(6,110)

$
74

$
(74,805)

Net income (loss)

$
6,595

$
(6,643)

$
1,057

$
(75,839)

Other comprehensive (loss) income from operations

(52)

18

(63)

33

Comprehensive income (loss)

$
6,543

$
(6,625)

$
994

$
(75,806)

Earnings / Loss per share









Basic and diluted net earnings / loss per share

$
0.05

$
(0.10)

$
-

$
(2.15)

Weighted-average number of shares outstanding during the period









Basic

105,531,418

61,106,894

103,950,731

35,309,004

Diluted

105,957,317

61,106,894

104,301,344

35,309,004

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

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

4
~~FORM Holdings Corp.~~Table of Contents
XpresSpa Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In ~~thousands)~~thousands, except share and per share data)








Accumulated






Series E

Series F

Additional

other

Total

Non-

Preferred stock

Preferred stock

Common stock

paid-

Accumulated

comprehensive

Company

controlling

Total


Shares

Amount

Shares

Amount

Shares

Amount

in capital

deficit

loss

equity

interests

equity
December 31, 2020

—

$
—

—

$
—

94,058,853

$
941

$
475,709

$
(398,624)

$
(220)

$
77,806

$
2,565

$
80,371
Warrant exercises, net of costs

—

—

—

—

11,223,529

112

16,895

—

—

17,007

—

17,007
Stock-based compensation

—

—

—

—

—

—

264

—

—

264

741

1,005
Net loss for the period

—

—

—

—

—

—

—

(1,056)

—

(1,056)

248

(808)
Foreign currency translation

—

—

—

—

—

—

—

—

(16)

(16)

—

(16)
Contributions from noncontrolling interests

—

—

—

—

—

—

—

—

—

—

333

333
March 31, 2021

—

$
—

—

$
—

105,282,382

$
1,053

$
492,868

$
(399,680)

$
(236)

$
94,005

$
3,887

$
97,892
Issuance of Common Stock for services

—

—

—

—

223,637

2

318

—

—

320

—

320
Issuance of restricted stock

—

—

—

—

27,983

—

—

—

—

`
—

—

—
Stock-based compensation

—

—

—

—

—

—

267

—

—

267

61

328
Net loss for the period

—

—

—

—

—

—

—

(4,467)

—

(4,467)

(263)

(4,730)
Foreign currency translation

—

—

—

—

—

—

—

—

5

5

—

5
Redemptions of certain noncontrolling interests

—

—

—

—

—

—

—

—

—

—

(133)

(133)
June 30, 2021

—

$
—

—

$
—

105,534,002

$
1,055

$
493,453

$
(404,147)

$
(231)

$
90,130

$
3,552

$
93,682
Stock-based compensation

—

—

—

—

—

—

767

—

—

767

23

790
Stock Grant for services

—

—

—

—

—

—

29

—

—

29

—

29
Consolidation of Variable Interest Entities

—

—

—

—

—

—

—

—

—

—

4,307

4,307
Issuance of restricted stock

—

—

—

—

35,043

—

—

—

—

—

—

—
Net income for the period

—

—

—

—

—

—

—

5,597

—

5,597

998

6,595
Foreign currency translation

—

—

—

—

—

—

—

—

(52)

(52)

—

(52)
Repurchase and retirement of common stock

—

—

—

—

(250,000)

(2)

(448)

—

—

(450)

—

(450)
Distributions to noncontrolling interests

—

—

—

—

—

—

—

—

—

—

(991)

(991)
Stock option exercises

—

—

—

—

8,334

—

13

—

—

13

—

13
September 30, 2021

—

$
—

—

$
—

105,327,379

$
1,053

$
493,814

$
(398,550)

$
(283)

$
96,034

$
7,889

$
103,923
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

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

5
~~FORM Holdings Corp.~~Table of Contents
XpresSpa Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
(Unaudited)
(In ~~thousands)~~thousands, except share and per share data)








Accumulated






Series E

Series F

Additional

other

Total

Non-

Preferred stock

Preferred stock

Common stock

paid-

Accumulated

comprehensive

Company

controlling

Total


Shares

Amount

Shares

Amount

Shares *

Amount *

in capital *

deficit

loss

equity (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)
Issuances 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)

—

—

0

—

0
Direct offerings of Common Stock and pre-funded warrants, net of costs

—

—

-

—

8,210,239

82

4,176

—

—

4,258

—

4,258
Exercise of May 2018 Class 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

—

—

—

—

—

—

—

(10,617)

—

(10,617)

(108)

(10,725)
Foreign currency translation

—

—

—

—

—

—

—

—

—

—

—

—
Contributions from noncontrolling interests

—

—

—

—

—

—

—

—

—

—

117

117
March 31, 2020

987,988

$
10

1,531

$
—

18,601,467

$
186

$
311,389

$
(318,753)

$
(283)

$
(7,451)

$
3,712

$
(3,739)
Issuance of Common Stock for payment of interest on B3D Note

—

—

—

—

88,508

1

41

—

—

42

—

42
Conversion of Series E Preferred Stock into Common Stock

(987,988)

(10)

—

—

510,460

5

5

—

—

—

—

—
Conversion of Series F Preferred Stock into Common Stock

—

—

(1,531)

—

291,619

3

(3)

—

—

—

—

—
Exercise of May 2018 Class A Warrants into Common Stock

—

—

—

—

2,382,835

24

5,891

—

—

5,915

—

5,915
Exercise of Calm Warrants into Common Stock

—

—

—

—

1,622,149

16

4,092

—

—

4,108

—

4,108
Exercise of March 2020 pre-funded warrants into Common Stock

—

—

—

—

201,667

2

4

—

—

6

—

6
March Warrant Exchange for Common Stock - Class A Warrant

—

—

—

—

2,385,528

24

6,410

—

—

6,434

—

6,434
March Warrant Exchange for Common Stock - Class D Warrant
��
—

—

—

—

527,669

5

(5)

—

—

—

—

—
June Warrant Exchange for Common Stock - Calm Warrant

—

—

—

—

2,062,126

21

11,734

—

—

11,755

—

11,755
Conversion of B3D Note to Common Stock

-

-

-

—

10,789,591

108

14,197

—

—

14,305

—

14,305
Conversion of Calm Note to Common Stock

—

—

—

—

4,761,906

48

10,551

—

—

10,599

—

10,599
Direct offerings of Common Stock and pre-funded warrants, net of costs

—

—

—

—

12,235,911

122

38,275

—

—

38,397

—

38,397
Stock-based compensation

—

—

—

—

—

—

424

—

—

424

—

424
Issuance of restricted stock

—

—

—

—

12,500

—

—

—

—

—

—

—
Fractional shares retired in reverse stock split

—

—

—

—

(23)

—

—

—

—

—

—

—
Foreign currency translation

—

—

—

—

—

—

—

—

15

15

—

15
Net loss for the period

—

—

—

—

—

—

—

(58,078)

—

(58,078)

(393)

(58,471)
Distributions to noncontrolling interests

—

—

—

—

—

—

—

—

—

—

(129)

(129)
June 30, 2020

—

$
—

—

$
—

56,473,913

$
565

$
403,005

$
(376,831)

$
(268)

$
26,471

$
3,190

$
29,661
Conversion of B3D Note to Common Stock

—

—

—

—

1,276,270

13

3,350

—

—

3,363

—

3,363
Stock-based compensation

—

—

—

—

—

—

470

—

—

470

—

470
Stock option exercises

—

—

—

—

4,167

—

5

—

—

5

—

5
Issuance of Common Stock for payment of interest on Calm Note

—

—

—

—

47,305

—

35

—

—

35

—

35
Direct offerings of Common Stock and pre-funded warrants, net of costs

—

—

—

—

11,216,932

112

31,350

—

—

31,462

—

31,462
Issuance of restricted stock

—

—

—

—

58,301

1

(1)

—

—

—

—

—
Foreign currency translation

—

—

—

—

—

—

—

—

18

18

—

18
Net loss for the period

—

—

—

—

—

—

—

(6,110)

—

(6,110)

(533)

(6,643)
September 30, 2020

—

$
—

—

—

69,076,888

691

438,214

(382,941)

(250)

55,714

2,657

58,371
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
*    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 unaudited condensed consolidated financial statements.

6
Table of Contents
XpresSpa Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

Nine months ended September 30,


2021

2020
Cash flows from operating activities




Net income (loss)

$
1,057

$
(75,839)
Adjustments to reconcile net loss to net cash used in operating activities:

Revaluation of warrants and conversion options

—

50,917
Depreciation and amortization

2,542

3,875
Impairment/disposal of assets

22

6,319
Accretion of debt discount on notes

—

1,070
Amortization of operating lease right of use asset

1,162

1,568
Issuance of shares of Common Stock for payment of interest

—

497
Issuance of shares of Series E Preferred Stock for payment of interest

—

63
Loss on the extinguishment of debt

—

182
Issuance of shares of Common Stock for services

349

135
Amortization of debt issuance costs

—

125
Stock-based compensation

2,123

966
Loss on equity investment

716

—
Changes in assets and liabilities:

(Increase) decrease in inventory

(1,385)

9
Decrease in accounts receivable, net

74

—
Decrease in deferred revenue

(890)

—
Other assets, current and non-current

519

(376)
Other liabilities, current and non-current

(3,035)

(4,286)
Increase (decrease) in accounts payable

2,713

(2,231)
Net cash provided by (used) in operating activities

5,967

(16,926)
Cash flows from investing activities



Acquisition of property and equipment

(2,650)

(3,099)
Cash acquired on consolidations of certain Variable Interest Entities

2,434

—
Acquisition of software

(2,156)

(380)
Net cash used in investing activities

(2,372)

(3,479)
Cash flows from financing activities

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

17,007

74,125
Proceeds from borrowings under Paycheck Protection Program

—

5,653
Proceeds from additional borrowing from B3D

—

500
Proceeds from stock option exercises

13

5
Proceeds from funding advance

—

910
Repayment of funding advance

—

(819)
Redemption of non-controlling interests

(133)

—
Repurchase of Common Stocks

(450)

—
Contributions from noncontrolling interests

333

117
Distributions to noncontrolling interests

(991)

(129)
Net cash provided by financing activities

15,779

80,362
Effect of exchange rate changes on cash, cash equivalents and restricted cash

36

3
Increase in cash, cash equivalents and restricted cash

19,410

59,960
Cash, cash equivalents, and restricted cash at beginning of the period

90,502

2,635
Cash, cash equivalents, and restricted cash at end of the period

$
109,912

$
62,595
Cash paid during the period for

Interest

$
—

$
187
Income taxes

$
—

$
11
Non-cash investing and financing transactions

Conversions of B3D Note into Common Stock

$
—

$
19,003
Conversions of Calm Note into Common Stock

$
—

$
10,599
Conversion and exchange of Calm Warrant into Common Stock

$
—

$
15,863
Exercise and exchanges of May 2018 Class A Warrants

$
—

$
15,471
Conversion of Series E Preferred Stock into Common Stock

$
—

$
10
Conversion of Series F Preferred Stock into Common Stock

$
—

$
12

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

7
~~FORM Holdings Corp.~~Table of Contents
XpresSpa Group, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except for share and per share data)
Note 1. General
Overview
~~FORM Holdings Corp.~~XpresSpa Group, Inc. (“~~FORM”~~XpresSpa Group or the “Company”) is a leading global travel health and wellness services holding company. XpresSpa Group currently has ~~three~~3 reportable operating segments: ~~wellness, technology~~XpresSpa™, XpresTest™, and ~~intellectual property.~~Treat™ brand.

~~The Company’s wellness operating segment consists of~~ XpresSpa ~~which is~~has been a ~~leading~~global airport retailer of spa ~~services. XpresSpa is a well-recognized airport~~services through its XpresSpa™ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel ~~products. The~~products (“XpresSpa”).

Through XpresSpa Group’s subsidiary, XpresTest, Inc. (“XpresTest”), the Company ~~acquired XpresSpa~~launched XpresCheck™ Wellness Centers, also in airports. XpresCheck offers COVID-19 and other medical diagnostic testing services to the ~~fourth quarter of 2016.~~
~~The Company’s technology operating segment consists of Group Mobile~~traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents. XpresTest has entered into managed services agreements (“the MSAs”) with Professional Corporation or Professional Limited Liability Companies (“PCs”) that provide health care services to patients. PCs pay XpresTest a monthly fee to operate in the XpresCheck Wellness Centers. Under the terms of the MSAs, the Company provides office space, equipment, supplies, non-licensed staff, and management services in return for a management fee. PCs arrange requisite COVID-19 and other medical diagnostic testing servicesthrough contracting with physicians and other medical professional providers to render these COVID-19 and other medical diagnostic testing services.

XpresSpa Group is developing Treat™, a travel health and wellness brand that is positioned for a post-pandemic world. The Company anticipates delivering on-demand access to integrated healthcare through technology and personalized services, while leveraging XpresSpa’s historic travel wellness experience and XpresTest’s healthcare expertise under the XpresCheck brand. The Company sees this concept evolution as an ~~11% equity interest~~opportunity in ~~InfoMedia Services Limited (“InfoMedia”).~~a new niche industry where XpresSpa Group ~~Mobile offers rugged hardware~~can leverage technology in addition to its existing real estate and ~~software solutions, including laptops, tablets,~~airport experience, providing travelers with peace of mind and ~~mobile printers,~~access to integrated care. Over the long-term, we envision that digital channels will provide growth opportunities beyond the Company’s airport locations, achieved through subscription-based services that provide care and tools supporting travel health and wellness. Furthermore, the Company anticipates offering upstream content that can be monetized through affiliate revenue as well as ~~installation and deployment services. The Company acquired Group Mobile in~~curated retail through ecommerce through the ~~fourth~~Company’s dedicated website, www.treatcare.com launched during the second quarter of ~~2015 and Excalibur Integrated Systems Inc. (“Excalibur”), which was merged with Group Mobile, in~~2021, later converting to www.treat.com during the ~~first~~third quarter of ~~2017. The Company’s equity interest in InfoMedia increased from 8.25% to 11% in the first quarter~~2021.

Basis of ~~2017 due to a realignment~~Presentation and Principles of ~~ownership interests.~~
Consolidation
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 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~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020, as amended. The condensed consolidated balance sheet as of December 31, 2020 was derived from the audited annual financial statements but does not include all information required by GAAP for annual financial statements. The financial statements include the accounts of the Company, all entities that are wholly owned by the Company, and all entities in which the Company has a controlling financial interest as well as variable interest entities of which we are the primary beneficiary. 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~~nine months periods ended September 30, ~~2017~~2021 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.
8
Table of Contents
Recent Developments

Effect of Novel Coronavirus (COVID-19) on Business
~~(b) Use of estimates~~
~~The preparation~~In March 2020, the Company temporarily closed all global XpresSpa locations due to the categorization by local jurisdictions of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesspa locations as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s intangible assets, the useful lives“non-essential services.” A majority of the Company’s ~~intangible assets,~~XpresSpa locations remain closed. The Company intends to reopen XpresSpa spa locations on a location-by-location basis and resume normal operations at such selected locations once restrictions are lifted and airport traffic returns to sufficient levels to support operations at a unit level. Between June 28^th, 2021 and July 1^st, 2021, the ~~valuation~~Company re-opened its four top performing XpresSpa™ locations with modified hours and top selling services: Hartsfield-Jackson Atlanta International Airport (ATL) Concourse A, Dallas/Fort Worth International Airport (DFW) Concourse A, Charlotte Douglas International Airport (CLT) Concourse D, and Las Vegas McCarran International Airport (LAS) Concourse D. There are also 3 XpresSpa locations operating in Dubai International Airport in the United Arab Emirates as well as 3 XpresSpa locations operating in Schiphol Amsterdam Airport in the Netherlands.

During the third quarter of 2021, the Company re-opened following XpresSpa™ locations with modified hours and top selling services:
● John F. Kennedy International Airport (JFK) on September 16, 2021;
● Charlotte Douglas International Airport (CLT) Concourse A/B on September 20, 2021.

During the fourth quarter of 2021 to date, the Company re-opened the following XpresSpa™ locations with modified hours and top selling services:
● Hartsfield-Jackson Atlanta International Airport (ATL) Concourse C on October 14, 2021;
● Orlando International Airport (MCO) on October 18, 2021;
● Dallas/Fort Worth International Airport (DFW) Concourse D on October 23, 2021;
● William P. Hobby Airport (HOU) on November 8, 2021.

A majority of the domestic XpresSpa locations are operating approximately eight hours per day (compared to 16 hours pre-pandemic) with sales volumes about 30% to 60% of pre-pandemic levels. The Company implemented a price increase in mid-October and is planning to test some new touchless massage services and new retail items during the fourth quarter.

The Company will re-evaluate each airport on a month-by-month basis as well as review continued learnings as the portfolio is re-activated. An additional 2 XpresSpa reopenings are planned for the remainder of the year.

Since the beginning of that temporary closure, the Company successfully launched its XpresCheck™ Wellness Centers, offering such testing services, as described above and below. Also, the Company continues to evaluate alternative testing protocols and work in partnership with airlines for safe travels.
While management has used all currently available information in assessing its business prospects, the ultimate impact of the COVID-19 pandemic and the Company’s XpresCheck™ Wellness Centers on its results of operations, financial condition and cash flows remains uncertain. The success or failure of the Company’s ~~derivative warrants,~~XpresCheck™ Wellness Centers could also have a material effect on the ~~valuation~~Company’s business.
XpresCheck™ Wellness Centers
Through the Company’s XpresCheck™ Wellness Centers and under the terms of ~~stock-based compensation, deferred tax assets~~the MSAs with physicians’ practices, the Company offers testing services from the Company’s 14 XpresCheck™ Wellness Centers at 12 Airports in 11 states to airline employees, contractors, concessionaire employees, TSA officers and ~~liabilities, income tax uncertainties,~~U.S. Customs and Border Protection agents, as well as the traveling public. The Company has entered into MSAs with professional medical service entities that provide healthcare services to patients. Under the terms of the MSAs, XpresTest provides office space, equipment, supplies, non-
9
Table of Contents
licensed staff, and management services to be used for the purpose of COVID-19 and other ~~contingencies.~~medical diagnostic testing in return for a management fee. Since December 31, 2020, the Company announced the opening of the following XpresCheck™ Wellness Centers to provide diagnostic COVID-19 testing:
● On January 12, 2021, the Company opened its second XpresCheck™ Wellness Center at Boston’s Logan International Airport. It contains 4 separate testing rooms to provide diagnostic COVID-19 testing.

● On January 20, 2021, the Company announced the opening of an XpresCheck™ Wellness Center at Salt Lake City International Airport. It contains 4 separate testing rooms to provide diagnostic COVID-19 testing.

● On February 16, 2021, the Company announced the opening of an XpresCheck™ Wellness Center of the Company’s second XpresCheck™ testing facility at Newark Liberty International Airport. It contains 4 separate testing rooms to provide diagnostic COVID-19 testing.

● On March 8, 2021, the Company announced the opening of an XpresCheck™ Wellness Center at Houston George Bush Intercontinental Airport. It contains 4 separate testing rooms to provide diagnostic COVID-19 testing.

● On March 15, 2021, the Company announced the opening of XpresCheck™ Wellness Centers at Dulles International and Reagan National Airports in Virginia, containing 9 and 4 separate testing rooms, respectively, to provide diagnostic COVID-19 testing.

● On April 8, 2021, the Company announced the opening of an XpresCheck™ Wellness Center at Seattle-Tacoma International Airport. It contains 8 separate testing rooms to provide diagnostic COVID-19 testing.

● On April 21, 2021, the Company announced the opening of an XpresCheck™ Wellness Center at San Francisco International Airport. It contains 9 separate testing rooms to provide diagnostic COVID-19 testing.

● On October 13, 2021, the Company opened an XpresCheck™ Wellness Center at Hartsfield-Jackson Atlanta International Airport (ATL) Concourse E. It contains 6 separate testing rooms to provide diagnostic COVID-19 testing.

~~(c) Revenue recognition~~Airport Rent Concessions
The Company has 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 through payment deferrals. Currently, the periods of relief from these payments, which began in March 2020, range from three to twenty-eight months. The Company received minimum guaranteed payment concessions of approximately $585 and $611 in the three months ended September 30, 2021 and 2020, respectively, $1,568 and $1,379 in the nine months ended September 30, 2021 and 2020, respectively, and $3,600 in the eighteen months ended September 30, 2021. The Company expects to realize additional rent concessions while a majority of its spas remain closed.

Liquidity and Financial Condition
As of September 30, 2021, the Company had cash and cash equivalents, excluding restricted cash, of $109,161, total current assets of $113,100, total current liabilities of $17,198 and positive working capital of $95,902, compared to a positive working capital of $78,302 as of December 31, 2020.
During the nine months ended September 30, 2021, holders of the Company’s December 2020 Investor Warrants, December 2020 Placement Agent Warrants and December 2020 Placement Agent Tail Fee Warrants exercised a total of 11,223,529 warrants for common shares. The Company received gross proceeds of approximately $19,161. In accordance with the placement agent agreements with H.C. Wainwright & Co., LLC and Palladium, the Company paid cash fees of
10
Table of Contents
$2,154 and issued 842,588 warrants to H.C. Wainwright & Co., LLC at an exercise price of $2.125 per share and 325,500 warrants to Palladium at an exercise price of $1.70 per share. See Note 11. Stockholders’ Equity for related discussion.

Note 2. Significant Accounting and Reporting Policies
(a) Variable Interest Entities
The Company evaluates its ownership, contractual, pecuniary, and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex and involve judgment. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively.

(b) Revenue Recognition Policy
The Company recognizes revenue ~~for the wellness operating segment~~ from the sale of XpresSpa products and services when the services are rendered at XpresSpa stores and from the sale of products at the ~~point of sale,~~time products are purchased at the Company’s stores or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. Revenues from the XpresSpa ~~wholesale~~retail and e-commerce businesses are recorded at the time goods are shipped.

Through its XpresCheck™ Wellness Centers and under the terms of the Managed Services Agreement (“MSA”) with PCs that in turn contract with physicians and Nurse Practitioners, the Company offers testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, as well as the traveling public. The Company has entered into MSAs with PCs that provide healthcare services to patients. Under the terms of the MSAs which may be modified for commercial reasonableness and fair market value, XpresTest provides office space, equipment, supplies, non-licensed staff, and management services to be used for the purpose of COVID-19 and other medical diagnostic testing in return for a management fee. However, as a result of uncertainties around the cash flows of the XpresCheck™ Wellness Centers, the Company concluded in 2020 that the collectability criteria to qualify as a contract under ASC 606 was not met, and therefore, revenue associated with the monthly management fee would not be recognized until a subsequent reassessment resulted in the MSAs meeting the collectability criteria. XpresTest recognized revenue of $16,843 (including catch-up revenue of $3,186 for 2020) during the six months ended June 30, 2021, under the MSAs, pursuant to reassessments in 2021, of the MSAs executed in 2020 and amended in 2021, and assessments and reassessments of MSAs executed and amended in 2021 until June 30, 2021, resulting in management’s conclusion that they met the collectability criteria. Any revenue collected not meeting the collectability criteria was recorded as deferred revenue.

Effective, July 1, 2021 (see Note 3), the Company determined that the PCs are variable interest entities due to its equity holder having insufficient capital at risk, and the Company has a variable interest in the PCs. In pursuance, the total revenue of $25,351 for the PCs for the three months ended September 30, 2021 were designated as revenue for the company.

During the third quarter of 2021, the Company has been authorized to proceed with a $2,000, 8-week pilot program with the Centers for Disease Control and Prevention (CDC) through the Company’s niche in XpresCheck™ COVID-19 testing. Under the 8-week pilot program, conducted in collaboration with Concentric by Ginkgo, XpresCheck™ will conduct biosurveillance monitoring, initially from India, at three major U.S. airports operating XpresCheck™ COVID-19 testing facilities, which will be aimed at identifying existing and new SARS-CoV-2 variants, including the highly contagious
11
Table of Contents
Delta variant and other new variants surfacing in the U.S. The revenue on this contract which is based on certain milestones specified in the contract, would be booked through the 5 steps criteria of ASC 606 as and when a particular milestone is reached, pursuant to which the Company expects to recognize approximately $1,500 which is 75% of the contract consideration during the fourth quarter of 2021.
The Company has a franchise agreement with an unaffiliated franchisee to operate an XpresSpa location. Under the Company’s franchising model, all initial franchising fees relate to the franchise right, which is a single performance obligation that transfers over time. Upon receipt of the non-recurring, non-refundable initial franchise fee, management records a deferred revenue liability and recognizes revenue on a straight-line basis over the life of the franchise agreement.

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

The Company excludes all sales taxes assessed to ~~its customers.~~the Company’s customers from revenue. Sales taxes assessed on revenues are included in ~~accounts~~Accounts payable, accrued expenses and other ~~current liabilities in~~ on the Company’s condensed consolidated balance sheets until remitted to ~~the~~ state agencies.

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

The Company has drop-shipment arrangements with many of its hardware vendors and suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements is recorded on a gross basis upon delivery to the customer with contract terms that typically specify F.O.B. destination. Revenue is recognized on a gross basis, as the Company is the principal in the transaction, as the primary obligor in the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price of the product to the customer, assumes credit risk for the amounts invoiced, and works closely with the customers to determine their hardware specifications.
~~Freight billed to customers is recognized as net product revenue and the related freight costs as a cost of sales.~~
On certain occasions, the Company’s technology operating segment will enter into a bill and hold arrangement with a customer. When this occurs, the Company makes a determination as to when it will be the proper time to recognize revenue. In doing so, the Company takes the following into consideration:
~~whether the risks of ownership have passed to the customer;~~
~~the customer must have made a fixed commitment to purchase the goods;~~
~~the customer must request and have a substantial business purpose for ordering on a bill and hold basis;~~
~~there must be a fixed schedule for delivery that is reasonable and consistent with the customer’s business purpose;~~
~~the Company cannot retain any specific performance obligations that would make the earnings process incomplete;~~
~~the goods must be segregated from remaining inventory (i.e., they cannot be used to fill orders for others); and~~
~~the goods must be complete and ready for shipment.~~
For multiple-element arrangements in the Company’s technology operating segment that include hardware products, services and maintenance, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.
Revenue from patent licensing is recognized if collectability is reasonably assured, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery of the service has been rendered. Currently, revenue arrangements related to intellectual property provide for the payment of contractually determined fees and other consideration for the grant of certain intellectual property rights related to the Company’s patents. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patents, (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, the Company has no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the related technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, upon receipt of the upfront fee, and when all other revenue recognition criteria have been met.

~~(d) Cost of sales~~
~~Cost of sales for the Company’s wellness operating segment consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations and include:~~
~~payroll and related benefits for store operations and store-level management;~~
~~rent, percentage rent and occupancy costs;~~
~~the cost of merchandise;~~
~~freight, shipping and handling costs;~~
~~production costs;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part of acquisition; and~~
~~costs associated with sourcing operations.~~
~~Cost of sales for the Company’s technology operating segment includes costs to acquire or manufacture goods for inventory.~~
Cost of sales for the Company’s intellectual property operating segment mainly includes expenses incurred in connection with the Company’s patent licensing and enforcement activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.
~~(e)~~(c) 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~~2020-06—Debt--Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)
Issued in August 2020, this update is intended to reduce the unnecessary complexity of the current guidance thus resulting in more accurate accounting for convertible instruments and consistent treatment from one entity to the next. Under current GAAP, there are five accounting models for convertible debt instruments. Except for the traditional convertible debt model that recognizes a convertible debt instrument as a single debt instrument, the other four models, with their different measurement guidance, require that a convertible debt instrument be separated (using different separation approaches) into a debt component and an equity or a derivative component. Convertible preferred stock also is required to be assessed under similar models. The Financial Accounting Standard Board (“~~ASU 2017-01”~~FASB”) ~~“Business Combinations (Topic 805): Clarifying~~decided to simplify the ~~Definition of a Business.” ASU 2017-01 provides~~accounting for convertible instruments by removing certain separation models currently included in other accounting guidance that were being applied to ~~evaluate whether transactions should~~current accounting for convertible instruments. Under the amendments in this update, an embedded conversion feature no longer needs to be separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as ~~acquisitions (or disposals)~~derivatives. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The FASB also decided to add additional disclosure requirements in an attempt to improve the usefulness and relevance of ~~assets~~the information being provided.
The new standard is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company does not believe the adoption of this standard will have a material impact on its condensed consolidated financial statements.
ASU 2021-04: Issuer's Accounting for Certain Modifications or ~~businesses. If substantially all~~Exchanges of Freestanding Equity Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, "Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options'" ("ASU 2021-04"), which introduces a new way for companies to account for warrants either as stock compensation or derivatives. Under the new guidance, if the modification does not change the instrument's classification as equity, the company accounts for the modification as an exchange of the original instrument for a new instrument. In general, if the fair value of the ~~gross assets acquired (or disposed of)~~"new" instrument is ~~concentrated in a single asset or a group~~greater than the fair value of ~~similar assets,~~the
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"original" instrument, the ~~assets acquired (or disposed of) are not considered a business. The Company adopted ASU 2017-01 as of January 1, 2017~~excess is recognized based on ~~a prospective basis.~~
~~(f) Recently issued accounting pronouncements not yet adopted~~
~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~
~~The core principle~~the substance of the ~~new~~transaction, as if the issuer has paid cash. The effective date of the 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~~interim 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~~2021 for all entities, 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. The Company currently anticipates that the adoption of ASU 2017-04 will not have a material impact on its consolidated financial statements.
~~ASU No. 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting~~
In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (“ASU 2017-09”) “Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017; early adoption is permitted. The Company is currently ~~in the process of~~ evaluating the ~~potential~~ impact of the new guidance and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures.

(d) Recently adopted accounting pronouncements
Accounting Standards Update No. 2020-10—Codification Improvements

Issued in October 2020, this release updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The Company adopted ASU 2020-10 as of the reporting period beginning January 1, 2021. The adoption of this update did not have a material effect on the Company’s condensed consolidated financial statements.

Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
~~(g) Reclassification~~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 the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. The Company applies the guidance included in Topic 815 to its derivative liabilities but does not intend on applying the new measurement alternative included in the update. The new standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
Accounting Standards Update No. 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Issued in December 2019, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 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. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
(e) Presentation
Certain balances in the 2020 consolidated financial statements have been reclassified to conform to the presentation ~~requirements, including~~in the 2021 condensed consolidated financial statements, primarily the classification and presentation of ~~discontinued~~deferred revenue on the condensed consolidated balance sheet.

Note 3. Variable Interest Entities
Through its XpresCheck™ Wellness Centers the Company provides services pursuant to contracts with PCs which in turn contracts with physicians and other medical professional providers to render COVID-19 and other medical diagnostic testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, and the traveling public. The PCs collectively represent the Company’s affiliated medical group. The PCs were designed and structured to comply with the relevant laws and regulations governing professional medical practice, which generally prohibits the practice of medicine by lay persons or entities. All of the issued and outstanding equity interests of the PCs are owned by a licensed medical professional nominated by the Company (the “Nominee Shareholder”). Upon formation of the PCs, and initial issuance of equity interests, the Nominee Shareholder contributes a
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nominal amount of capital in exchange for their interest in the PC. The Company then executes with each PC a MSA, which provide for various administrative services, management services and day-to-day activities of the practice to be rendered by the Company through its XpresCheck™ Wellness Centers.
The Company also has exclusive responsibility for the provision of all nonmedical services including contracting with customers who access the PCs for a medical visit, handling all financial transactions and day-to-day operations of each PC, overseeing the establishment of COVID-19 and other medical diagnostic testing services policies, and making recommendations to the PC in establishing the guidelines for the employment and compensation of the physicians and other employees of the PCs. Until June 30, 2021, MSA Fees were commensurate with the expected level of activity required to be billed by XpresCheck™ Wellness Centers. Therefore, these PCs were assessed not to be variable interest entities prior to July 1, 2021.

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

The aggregate carrying value of total assets and total liabilities included on the condensed consolidated balance sheets for the PCs after elimination of intercompany transactions were $1,080, primarily cash, and $0, respectively, as of September 30, 2021. The total revenue and net loss included on the condensed consolidated statements of operations and assets and liabilities held for disposal with respect to the Company’s FLI Charge business (refer to Note 10), as well as consistent presentation of cost of sales and general and administrative expenses to align presentation for operating segments.
~~Note 3. Net Loss per Share of Common Stock~~
~~Basic net loss per share is computed by dividing the net loss~~comprehensive income (loss) for the ~~period by the weighted-average number~~PCs after elimination of ~~shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss~~intercompany transactions was $25,351 and $455 for the ~~period by the weighted-average number~~three months ended September 30, 2021.

14
Table 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.Contents

Note 4. Potentially Dilutive Securities
The table below presents the computation of basic and diluted net loss per share of ~~common stock:~~Common Stock:

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Basic numerator:








Net income (loss) attributable to XpresSpa Group, Inc.

$
5,597

$
(6,110)

$
74

$
(74,805)
Less: deemed dividend on warrants and preferred stock

—

—

—

(945)
Net income (loss) attributable to common shareholders

$
5,597

$
(6,110)

$
74

$
(75,750)
Basic denominator:




Basic weighted average shares outstanding

105,531,418

61,106,894

103,950,731

35,309,004
Basic income (loss) per share

$
0.05

$
(0.10)

$
—

$
(2.15)

Diluted numerator:




Net income (loss) attributable to common shareholders

$
5,597

$
(6,110)

$
74

$
(75,750)
Diluted denominator:




Diluted weighted average shares outstanding

105,957,317

61,106,894

104,301,344

35,309,004
Diluted net income (loss) per share

$
0.05

$
(0.10)

$
—

$
(2.15)

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








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

2,606,771

706,073

2,631,246

706,073
Unvested RSUs to issue an equal number of shares of Common Stock

821,361

—

876,131

—
Warrants to purchase an equal number of shares of Common Stock

37,907,794

20,818,889

37,903,835

20,818,889
Convertible notes on an as converted basis

—

438,017

—

438,017
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders

41,335,926

21,962,979

41,411,212

21,962,979

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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

Note 5. Cash, Cash Equivalents, and Restricted Cash
~~Note 4. Business Combinations~~
~~XpresSpa~~
During the second quarter of 2017, the Company learned new information about legal and other professional costs which existed as of the acquisition date of XpresSpa. As a result, the Company and the sellers of XpresSpa (the “XpresSpa Sellers”) agreed to reduce the total amount of Series D Convertible Preferred Stock (“FORM Preferred Stock”), which was previously issued to the XpresSpa Sellers in conjunction with the acquisition of XpresSpa. The Company reduced the number of the FORM Preferred Stock by 16,219 shares and estimated that the fair value of the reduction of the consideration was $908, which was recorded as a reduction of preferred equity and goodwill.
~~Additionally, during the second and third quarters of 2017, certain XpresSpa Sellers converted an aggregate of 54,667 shares of their FORM Preferred Stock into 437,235 shares~~A reconciliation of the Company’s ~~common stock, par value $0.01 per share.~~
~~As a result~~cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements 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~~Cash Flows as of September 30, ~~2017~~2021 and December 31, 2020 is as follows:


September 30, 2021

December 31, 2020
Cash denominated in United States dollars

$
106,384

$
88,636
Cash denominated in currency other than United States dollars

2,274

1,158
Restricted cash

751

701
Other

503

7
Total cash, cash equivalents and restricted cash

$
109,912

$
90,502

The Company places its cash and temporary cash investments with credit quality institutions. At times, such cash denominated in United States dollars may be in excess of the ~~face value (and liquidation preference) was reduced from $23,588 to $20,186.~~
~~Group Mobile~~
~~On February 2, 2017,~~Federal Deposit Insurance Corporation (“FDIC”) insurance limit. As of September 30, 2021 and December 31, 2020, deposits in excess of FDIC limits were $106,120 and $88,556, respectively. As of September 30, 2021 and December 31, 2020, the Company ~~acquired Excalibur,~~held cash balances in overseas accounts, totaling $2,274 and $1,158 respectively, which isare not insured by the FDIC. If the Company were to distribute the amounts held overseas, the Company would need to follow an ~~end-to-end solutions provider~~approval and distribution process as defined in its operating and partnership agreements, which may delay and/or reduce the availability of ~~mobile hardware devices, wireless network security, data networking, telephony~~that cash to the Company.

Note 6. Other current assets

September 30, 2021

December 31, 2020
Prepaid expenses

$
1,787

$
1,135
Other

48

186
Total other current assets

$
1,835

$
1,321

Note 7. Accounts payable, accrued expenses and ~~mobile application development~~other


September 30, 2021

December 31, 2020
Accounts payable

$
5,436

$
2,440
Litigation accrual

890

2,221
Accrued compensation

396

306
Tax-related liabilities

534

551
Gift certificates and loyalty reward program liabilities

495

495
Common Area Maintenance Accrual

298

—
Security deposit

171

161
Other

504

294
Total accounts payable, accrued expenses and other current liabilities

$
8,724

$
6,468

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Note 8. Intangible Assets

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

September 30, 2021

December 31, 2020

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying


Amount

Amortization

Amount

Amount

Amortization

Amount
Trade name

$
1,339

$
(1,063)

$
276

$
1,339

$
(899)

$
440
Software

2,849

(400)

2,449

694

(264)

430
Total intangible assets

$
4,188

$
(1,463)

$
2,725

$
2,033

$
(1,163)

$
870

The Company’s trade name relates to the value of the XpresSpa™ and trade names, and software ~~solutions. Following~~relates to certain capitalized third-party costs related to a new point-of-sale system and website. Increase in software expenditure relates to the ~~acquisition, Excalibur was merged with Group Mobile within~~development of the Treat™ brand.
The Company’s ~~technology operating segment.~~intangible assets are amortized over their expected useful lives. The Company recorded amortization expense of $95 and $603 during the three months ended September 30, 2021 and 2020, respectively, and $300 and $1,742 during the nine months ended September 30, 2021 and 2020, respectively.

~~In consideration~~Based on the intangible assets balance as of September 30, 2021, the estimated amortization expense for the ~~acquisition,~~remainder of the calendar year and each of the succeeding calendar years is as follows:

Calendar Years ending December 31,

Amount
Remaining 2021

192
2022

1,118
2023

786
2024

629
Total

$
2,725

Note 9. Leases
The Company leases its retail and diagnostic testing locations at various domestic and international airports. Additionally, the Company ~~issued 888,573 unregistered shares~~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 ~~common stock, par~~lease arrangements contain fixed payments throughout the term of the lease, while others involve a variable component to determine the lease obligation wherein a certain percentage of sales is used to calculate the lease payment.
All qualifying leases held by the Company are classified as operating leases. Operating lease right of use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease right of use assets and operating lease liabilities are recognized as of the commencement date based on the present value ~~$0.01 per share,~~of lease payments over the lease term. The Company records its operating lease right of use assets and operating lease liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate as of the commencement date of the lease, which approximates the rate at which the Company can borrow funds on a secured basis, in determining the present value of the guaranteed lease payments.
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Table of Contents
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 ~~former stockholders~~guidance in ASC 842. The Company recalculates the right of ~~Excalibur (the “Excalibur Sellers”). In addition,~~use asset and lease liability based on the ~~Excalibur Sellers will,~~modified lease terms and adjusts both balances accordingly.
The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent through payment deferrals. Currently, the periods of relief from these payments, which began in March 2020, range from three to twenty-eight months and are still in effect for some of the affected leases. The Company received minimum guaranteed payment concession of approximately $585 and $611 in the three ~~years~~months ended September 30, 2021 and 2020, respectively, $1,568 and $1,379 in the nine months ended September 30, 2021 and 2020, respectively, and $3,600 in the eighteen months ended September 30, 2021. The Company expects to realize additional rent concessions while a majority of its spas remain closed.

The Financial Accounting Standards Board (“FASB”) issued a Q&A in March 2020 that focused on the application of lease guidance in ASC 842 for lease concessions related to the effects of COVID-19. The FASB staff has said that entities can elect to not evaluate whether concessions granted by lessors related to COVID-19 are lease modifications. Entities that make this election can then apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. XpresSpa has elected to not treat the concessions as lease modifications and will instead account for the lease concessions as if they were contemplated as part of the existing leases.
When a lessor grants a concession that contractually releases a lessee from certain lease payments or defers lease payments, a lessee may account for the concession as a negative variable lease payment and recognize negative variable lease expense in the period when the rent concession becomes accruable. The Company has recorded negative variable lease expense and adjusted lease liabilities at the point in which the rent concession has become accruable.
Supplemental cash flow information related to leases for the nine months ended September 30, 2021 and 2020 were as follows:

Nine months ended September 30,


2021

2020
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$
(3,189)

$
(1,074)
Leased assets obtained in exchange for new and modified operating lease liabilities

$
(3,673)

$
(811)
Leased assets surrendered in exchange for termination of operating lease liabilities

$
9

$
—

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Table of Contents
As of September 30, 2021, operating leases contain the 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,~~future minimum commitments:

Calendar Years ending December 31,

Amount
Remaining 2021

$
986
2022

3,551
2023

3,071
2024

2,545
2025

1,760
Thereafter

1,526
Total future lease payments

13,439
Less: interest expense at incremental borrowing rate

(2,486)
Net present value of lease liabilities

$
10,953

Other assumptions and ~~an additional $500 when such cumulative profit reaches $10,000, such amounts are payable in either cash or~~pertinent information related to the Company’s ~~common stock, at the election of the Company.~~accounting for operating leases are:

Weighted average remaining lease term:

4.27
years
Weighted average discount rate used to determine present value of operating lease liability:

10.07
%

~~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~~Cash paid for the acquisition was allocated to the net tangible and intangible assets based on their fair values as of the acquisition date. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill. The table below presents preliminary allocation of the purchase price:
Fair Value
Assets
Current assets (including cash of $26) $ 613
Deferred tax assets 29
Property and equipment 21
Intangible assets 556
Goodwill 2,335
Total assets 3,554

Liabilities
Accounts payable and accrued expenses 1,214
Deferred tax liabilities 215
Total liabilities 1,429
Net assets, fair value $ 2,125
The allocation of the purchase price was based upon a preliminary valuation performed using the Company's estimates and assumptions, which are subject to change within the measurement period (up to one year from the acquisition date).
~~Note 5. Segment Information~~
The Company’s operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company concluded that it conducts its business through three operating segments, which are also its reportable segments:
~~wellness (XpresSpa);~~
~~technology (Group Mobile); and~~
~~intellectual property~~
Segment operating results reflect losses before corporate and unallocated shared expenses, interest expense and income taxes. Corporate and unallocated shared expenses principally consist of costs for corporate functions, rent for office space, stock-based compensation, executive management and certain unallocated administrative support functions.
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 forminimum annual rental obligations during the three and nine months ended September 30, ~~2017~~2021 was $185 and ~~2016. There~~$399, respectively. Cash paid for minimum annual rental obligations during three and nine months ended September 30, 2020 was $278 and $1,074, respectively.
Variable lease payments that are calculated monthly as a percentage of product and services revenue, were ~~no concentrations~~$51 and $45 for the three months ended September 30, 2021 and 2020, respectively, and $262 and $468 for the nine months ended September 30, 2021 and 2020, respectively.

Note 10. Debt
Total Debt as of ~~geographical revenue, regional operating loss or total assets~~September 30, 2021 and December 31, 2020 is comprised of the following:


September 30, 2021

December 31, 2020
Promissory note, unsecured

$
5,653

$
5,653
Total debt

$
5,653

$
5,653

Paycheck Protection Program
On May 1, 2020, the Company entered into a U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“the PPP”) promissory note in the principal amount of $5,653 payable to Bank of America, NA (“Bank of America”) evidencing a PPP loan (the “PPP Loan”). The PPP Loan bears interest at a rate of 1% per annum. NaN payments were due on the PPP Loan during a six-month deferral period commencing on May 2, 2020. Commencing one month after the expiration of the deferral period and continuing on the same day of each month thereafter until the maturity date of the PPP Loan, the Company is obligated to make monthly payments of principal and interest, each in such equal amount required to fully amortize the principal amount outstanding on the PPP Loan by the maturity date. The 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 the PPP Loan proceeds are used to pay expenses permitted by the PPP. Bank of America may forgive interest accrued on any principal forgiven if the SBA pays the interest. Currently, the Company is paying its monthly principal and interest related to ~~any single foreign country that were material~~the PPP Loan when due. The PPP Loan contains customary borrower default provisions and lender remedies, including the right of Bank of America to require immediate repayment in full the outstanding
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principal balance of the PPP Loan with accrued interest. As of September 30, 2021, $78 of interest has been accrued and is included in Accounts payable, accrued expenses and other in the condensed consolidated balance sheet.

Note 11. Stockholders’ Equity
Warrants
The following table represents the activity related to the Company’s ~~condensed consolidated financial statements.~~warrants during the nine months ended September 30, 2021.


Exercise

No. of Warrants

price range
December 31, 2020

48,044,381

$
0.525 – 300.00
Granted

1,168,088

$
1.70 - 2.125
Exercised

(11,223,529)

$
1.70 - 2.125
Expired

(278)

$
300.00
September 30, 2021

37,988,662

$
0.525 - 6.566

During the nine months ended September 30 2021, holders of the Company’s December 2020 Investor Warrants, December 2020 Placement Agent Warrants and December 2020 Placement Agent Tail Fee Warrants exercised warrants for a total of 11,223,529 common shares. The Company received gross proceeds of approximately $19,161. In accordance with the placement agent agreements with H.C. Wainwright & Co., LLC and Palladium, the Company paid cash fees of $2,154 and issued 842,588 warrants to H.C. Wainwright & Co., LLC at an exercise price of $2.125 per share and 325,500 warrants to Palladium at an exercise price of $1.70 per share.
Share Repurchase Program

On August 31, 2021, the Company’s board of directors authorized a stock repurchase program that permits the purchase and repurchase of up to 15 million shares of its common stock. The new authorization is currently effective and will be in effect through September 15, 2022. Under the new stock repurchase program, management has discretion in determining the conditions under which shares may be purchased from time to time. The program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Under the program, the Company purchased and retired 250,000 shares for $450 during the three and nine months ended September 30, 2021.
Stock-based Compensation
In September 2020, the Board of Directors approved a new stock-based compensation plan available to grant stock options, restricted stock and RSU’s to the Company’s directors, employees and consultants. Under the 2020 Equity Incentive Plan (the “2020 Plan”), a maximum of 5,000,000 shares of Common Stock may be issued, subject to receiving shareholder approval which was subsequently obtained on October 28, 2020. The 2012 Plan was terminated upon receipt of shareholder approval of the 2020 Plan.

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

In September 2020, XpresTest created a stock-based compensation plan available to grant stock options, restricted stock and RSU’s to the XpresTest’s directors, employees and consultants. Under the XpresTest 2020 Equity Incentive Plan (the
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
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Table of Contents
“XpresTest Plan”), a maximum of 200 shares of XpresTest common stock may be awarded, which would represent 20% of the total number of shares of common stock of XpresTest as of September 30, 2021. Certain named executive officers, consultants, and directors of the Company are eligible to participate in the XpresTest Plan. The XpresTest Plan RSAs vest upon satisfaction of certain service and performance-based conditions. The fair value of the XpresTest Plan RSAs is determined based on the weighted average of (i) Fair Value of XpresTest under the Indirect Valuation Method developing assumptions for XpresSpa Net Market Cap and XpresSpa standalone Fair Value, and (ii) Direct Valuation Method developing assumptions for XpresTest Representative Forecasted Revenue for 2021 and Peer companies Revenue’s Multiples. As of September 30, 2021, there is $14 of unrecognized stock-based compensation related to the XpresTest Plan. During May 2021, XpresTest repurchased 7 common shares, exercised pursuant to the XpresTest Plan, for the grantees to defray their tax liabilities related to the XpresTest Plan RSAs award.

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

The following variables were used as inputs in the model:

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

$
1.26 - 5.01

Exercise price:

$
1.26 - 5.01

Expected volatility:

123
%
Expected dividend yield:

0
%
Annual average risk-free rate:

0.37
%
Expected term:

5.38
years

Total stock-based compensation for the three months ended September 30, 2021 and 2020 is $819 and $470, respectively, and for the nine months ended September 30, 2021 and 2020 is $2,152 and $496, respectively.
Total following table sets forth the Company’s Equity Incentive activities for the nine months ended September 30, 2021:

RSUs

XpresTest RSAs

Stock options




Weighted



Weighted



Weighted


average

average

average

Exercise

No. of

grant date

No. of

grant date

No. of

exercise

price

RSUs

fair value

RSAs

fair value

options

price

range
Outstanding as of December 31, 2020

—

$
—

28.75

$
11,390.35

1,353,888

$
3.82

$
1.53 - 2,460.00
Granted

1,370,167

1.58

120.00

5,227.20

1,668,297

1.56

1.19 - 1.61
Exercised/Vested

(427,625)

1.50

(141.25)

6,229.35

(8,334)

1.53

Forfeited

—

—

—

—

(183,230)

1.61

Outstanding as of September 30, 2021

942,542

$
1.61

7.50

$
9,978.78

2,830,621

$
2.63

$
1.19 - 2,460.00
Exercisable as of September 30, 2021

858,905

$
2.63

$
1.19 - 2,460.00

Note 12. 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

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Table of Contents
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 following table presents the placement in the fair value hierarchy measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:

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)
As of September 30, 2021:








Recurring fair value measurements

Equity securities:

Route1, Inc.

$
1,052

$
—

$
1,052

$
—
Total equity securities

1,052

—

1,052

—
Total recurring fair value measurements

$
1,052

$
—

$
1,052

$
—

As of December 31, 2020








Recurring fair value measurements

Equity securities:

Route1

$
1,768

$
—

$
1,768

$
—
Total equity securities

1,768

—

1,768

—
Total recurring fair value measurements

$
1,768

$
—

$
1,768

$
—

Equity securities pertain to common shares in Route1, Inc. obtained in the 2018 sale of Group Mobile to Route 1, Inc. On March 22, 2021, the Company executed a cashless exercise of warrants to purchase 3,000,000 common shares of Route 1, Inc. In exchange, the Company received 1,355,443 common shares of Route 1, Inc., bringing the total number of shares owned to 3,855,443. For the three and nine months ended September 30, 2021, the Company recorded an unrealized loss of $302 and $716, respectively, in connection with the remeasurement of the common shares of Route 1, Inc.
In addition to the above, the Company’s financial instruments as of September 30, 2021 and December 31, 2020 consisted of cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term maturities of these instruments.

Note 13. Income Taxes
The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary. The income tax provision for the nine months ended September 30, 2021 reflect an estimated global annual effective tax rate of approximately (0.13)% from continuing operations. Discontinued operations for the nine months ended September 30, 2021 reflected an annual effective tax rate of 0%.
As of September 30, 2021, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. Net operating loss carryforwards generated after December 31, 2017 do not 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.
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Table of Contents
Income tax expense for the nine months ended September 30, 2021 was $79 which was attributed to state taxing jurisdictions in which a measure of income is utilized to determine a 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.

Note ~~6. Fair Value Measurements~~14. Commitments and Contingencies
Litigation and legal proceedings
~~Derivative Warrant Liabilities~~
~~The following table presents the placement in the fair value hierarchy of derivative warrant liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:~~
Fair value measurement at reporting date using
Quoted prices in
active markets Significant other Significant
for identical observable unobservable
Balance assets (Level 1) inputs (Level 2) inputs (Level 3)
September 30, 2017:
May 2015 Warrants $ 52 $ — $ — $ 52

December 31, 2016:
May 2015 Warrants $ 259 $ — $ — $ 259
The Company measures its derivative warrant liabilities at fair value. The May 2015 Warrants were classified within Level 3 because they were valued using the Black-Scholes-Merton model, which utilizes significant inputs that are unobservable. 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 of the short-term maturities of these instruments.
The following table summarizes the changes in the Company’s derivative warrant liabilities measured at fair value using significant unobservable inputs (Level 3) during the three- and nine-month periods ended September 30, 2017:
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 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:~~
~~Description~~ ~~Valuation technique~~ ~~Unobservable inputs~~ ~~Range~~
~~May 2015 Warrants~~ ~~Black-Scholes-Merton~~ ~~Volatility~~ ~~42.49~~ %
~~Risk free interest rate~~ ~~1.57~~ %
~~Expected term, in years~~ ~~2.59~~
~~Dividend yield~~ ~~0.00~~ %
~~December 31, 2016:~~
~~Description~~ ~~Valuation technique~~ ~~Unobservable inputs~~ ~~Range~~
~~May 2015 Warrants~~ ~~Black-Scholes-Merton~~ ~~Volatility~~ ~~45.15~~ %
~~Risk-free interest rate~~ ~~1.57~~ %
~~Expected term, in years~~ ~~3.34~~
~~Dividend yield~~ ~~0.00~~ %
~~Sensitivity of Level 3 measurements to changes in significant unobservable inputs~~
~~The inputs to estimate the fair value~~Certain of the Company’s ~~derivative warrant liabilities were the current market price~~outstanding legal matters include speculative claims for substantial or indeterminate amounts of the Company’s common stock, the exercise price of the derivative warrant liabilities, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the derivative warrant liabilities would each result in a directionally similar change in the estimated fair value of the Company’s derivative warrant liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the differential between the derivative warrant liabilities’ exercise price and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability.damages. The Company ~~has not, and does not plan to, declare dividends on~~regularly evaluates developments in its ~~common stock and, as such, there is no change in the estimated fair value of the derivative warrant liabilities due to the dividend assumption.~~
~~Other Fair Value Measurements~~
The following table presents the placement in the fair value hierarchy of 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 ensurelegal matters 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 ofcould affect the amount ~~equal to the total amount~~ of ~~cash~~any potential liability 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. Income Taxes~~
The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulativemakes adjustments as deemed necessary. The income tax provisions for the nine months ended September 30, 2017 reflect an estimated global annual effective tax rate of approximately -3.0% from continuing operations. Discontinued operations for the nine months ended September 30, 2017 reflect an annual effective tax rate of 0.0%.
As of September 30, 2017, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit.
Income tax expense for the 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. Commitments and Contingencies~~
~~Litigation and legal proceedings~~
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 $890 and $2,221 as of September 30, 2021 and December 31, 2020, respectively, which is included in ~~accounts~~Accounts payable, accrued expenses and other current liabilities in the 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 on such substitution and claims of retaliation. Cordial submitted a further complaint to the FAA claiming that the City of Atlanta was biased against Cordial and that the City of Atlanta’s decision was wrong. In August 2016, the parties met with the FAA. On October 4, 2016, the FAA sent a letter to the City of Atlanta directing that the City of Atlanta retract previous findings on Cordial’s allegations and engage an independent third party to investigate issues previously decided by Atlanta. The FAA also directed that the City of Atlanta determine monies potentially due to Cordial.
On January 3, 2017, XpresSpa filed a lawsuit in the Supreme Court of the State of New York, County of New York, against Cordial and several related parties. The lawsuit alleges breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and breach of good faith and fair ~~dealing related~~dealing. XpresSpa is seeking damages, declaratory judgment, and rescission/termination of certain agreements, disgorgement of
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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.
On March 30, 2018, Cordial filed a lawsuit against XpresSpa Group, a subsidiary of XpresSpa Group, 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 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.
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") have been executed by the ~~Ross Defendants filed their answer.~~applicable parties. Pursuant to the terms of the settlement, all pending litigation was dismissed. Also, pursuant to the Settlement Agreement terms, the City agreed to approve new five-year leases for the Company and Cordial to operate as joint venture partners for spas located on Concourse A and Concourse C of the Hartsfield-Jackson Atlanta International Airport ("together, "Leases"). The city has approved the new Leases, and the Leases have been executed by the Company and the City. The parties are in the process of negotiating and completing an operating agreement. Pursuant to the Payment Agreement, the Company
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has recorded an expense, made payments and accrued the balance of the amounts due thereunder, and has included that balance in Accounts payable, accrued expenses and other current liabilities.

~~Both the Cordial Litigation and Ross Litigation are pending before the respective courts.~~
In re Chen et al.
OnIn March ~~16,~~ 2015, ~~four~~4 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.
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. On or about August 5, 2020, the parties entered into settlement agreements and sought a preliminary approval order from the Court. On March 30, 2021, the Court issued an Order conditionally granting the motion for preliminary approval subject to resolution of certain issues pertaining to administration of the settlement. On April 6, 2021, Plaintiffs’ counsel wrote to the Court regarding their proposed resolution on such issues and the Court ultimately granted preliminary approval on May 25, 2021. Notice of the settlement was sent out to the class members on June 22, 2021.
On October 1, 2021, the Court issued an Order granting the parties’ motion for final approval of the settlement. There were no appeals and the settlement was effective as of November 2, 2021. The Settlement Administrator has confirmed to the parties that settlement checks have been distributed to the Class on November 5, 2021. A joint status letter will be submitted to the Court on November 8, 2021 confirming as such and requesting that the case be closed.
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 with FORM 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
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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. On June 16, 2020, the Second Circuit entered the parties’ non-dispositive stipulation, dismissing certain defendant-appellees, including the Company. On July 6, 2020, the remaining defendants filed their opposition brief. On July 27, 2020, the plaintiff filed their reply brief. On July 28, 2020, the Second Circuit marked plaintiff’s reply brief as defective because it was filed a week late. Subsequently, plaintiff has moved to request permission to file a late reply brief. On January 11, 2021, the judgment of the Court was affirmed by the Second Circuit court.
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 sought damages of $567,000 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 Company counterclaimed against the Plaintiffs for amounts owed to the Company in relation to the sale of Excluded Inventory (as defined in the Membership Purchase Agreement) and sought damages thereon. The Company delivered a draft amended counterclaim to the Plaintiffs on or around November 2019 seeking, among other things, damages. The Company sought Plaintiffs’ consent to amend its counterclaim. Examinations for discovery were scheduled to take place in Toronto, Canada in June 2020.
The action settled at mediation on or about September 17, 2020. The parties agreed to dismiss the claim and the counterclaim, subject to XpresSpa’s right to commence an application to seek rectification of certain shares and warrants that were issued in connection with the Membership Purchase Agreement. On September 21, 2020, the Ontario Superior Court of Justice entered an Order dismissing, without costs, the action and counterclaim. XpresSpa was granted the Order seeking the rectification of the shares and warrant and that matter was completed in March 2021.

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.
On December 11, 2020, the court issued its decision and order on the parties’ respective motions for summary judgment in which the court: (a) awarded plaintiffs damages in the sum of $750, plus prejudgment interest; (b) granted that portion of the Company’s motion dismissing Jenkins’s claim for $600 based on his having executed a written waiver of his right to receive that sum; and (c) denied both sides’ motions with respect to Jones’s claim to recover $150 and directed Jones’s claim to be tried. The court had stated that the trial on the remaining portion of Jones’s claim will occur in May 2021.
The court held a trial on the remaining portion of Jones’s claim for the “second $750” on May 17-18, 2021. Following the trial, the court dismissed that portion of Jones’s claim.
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On May 28, 2021, the court entered judgment against the Company based on its ruling in plaintiffs’ favor as to the “first $750.” The total amount of the judgment, with prejudgment interest, is $948. The rate of post-judgment interest is 0.04 % (i.e. 4/10 of 1%).
On June 24, 2021, the Company filed a notice of appeal of the judgment and posted the necessary bond.
On August 18, 2021, the parties entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement"). Pursuant to the terms of the Settlement Agreement, all pending litigation was dismissed. On August 18, 2021, satisfaction of judgment was entered with the court.

Kyle Collins v. Spa Products Import & Distribution Co., LLC et al
This is a combined class action and California Private Attorney’s General Act (“PAGA”) action. Plaintiff seeks to recover wages, penalties and PAGA penalties for claims for (1) failure to provide meal periods, (2) failure to provide rest breaks, (3) failure to pay overtime, (4) inaccurate wage statements, (5) waiting time penalties, and (6) PAGA penalties of $0.1 per employee per pay period per violation. There are approximately 240 current and former employees in the litigation class. The parties agreed to mediation on May 26, 2020, however, due to COVID-19 the parties subsequently stayed all proceedings. The mediation session occurred on March 18, 2021, and the parties reached a settlement in principle. The parties are currently in the process of preparing/finalizing settlement papers for filing with the court.

Mary Anne Bowen v. XpresSpa Miami Airport, LLC

On September 7, 2018, Plaintiff Mary Anne Bowen (“Plaintiff”) filed a Complaint in the Eleventh Judicial Circuit Court in and for Miami-Dade County, Florida, asserting two causes of action: (I) Respondent Superior to hold XpresSpa accountable for the actions of its employee; and (II) Negligent Hiring, Retention, and Supervision of an employee. On December 21, 2018, the Company filed a Motion to Dismiss Plaintiff’s Complaint in its entirety, arguing that XpresSpa cannot be held liable for the acts of an employee who was acting outside the scope of his employment (Count I) and that Plaintiff did not sufficiently plead XpresSpa had notice of the employee’s unfitness (Count II). The Motion to Dismiss was granted. However, Plaintiff filed an Amended Complaint which the Company answered. On June 30, 2021, the parties participated in a mediation session and an agreement was reached on the terms of a settlement. Settlement papers were signed on July 1, 2021, and a stipulation of dismissal was filed with the Court on July 26, 2021. Accordingly, this case is now closed.

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 vigorously defend itself.
Leases
XpresSpa is contingently liable to a surety company under certain general indemnity agreements required by various airports relating to its ~~directors alleging~~lease agreements. XpresSpa agrees to indemnify the surety for any payments made on contracts of suretyship, guaranty, or indemnity. The Company believes that all contingent liabilities will be satisfied by its performance under the ~~defendants engaged in securities violations, misrepresentation, and various other allegations regarding~~specified lease agreements.

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Note 15. Segment Information
The Company analyzes the results of the Company’s ~~acquisition of XpresSpa.~~business through the Company’s 3 reportable segments: XpresSpa™, XpresTest™, and Treat™. The ~~Company~~XpresSpa segment provides travelers premium spa services, including massage, nail and skin care, as well as spa and travel products. The XpresTest segment provides diagnostic COVID-19 tests at XpresCheck™ Wellness Centers in airports, to airport employees and to the traveling public. The Treat™ segment provides access to integrated care which can seamlessly fit into a post-pandemic world and is ~~currently~~designed to deliver on-demand access to integrated healthcare through technology and personalized services, positioned for a traveler to access health care, records and real-time information all in one place, as well as book appointments in the ~~process~~Company’s on-site wellness centers as they reopen. The chief operating decision maker evaluates the operating results and performance of ~~evaluating~~ the ~~claims.~~Company’s segments through operating income. Expenses that can be specifically identified with a segment have been included as deductions in determining operating income. Any remaining expenses and other charges are included in Corporate and Other.

For the three months ended

September 30,


2021

2020
Revenue




XpresSpa^TM

$
1,415

$
140
XpresTest^TM

25,351

—
Treat^TM

—

—
Corporate and other

—

61
Total revenue

$
26,767

$
201

Operating income (loss)




XpresSpa^TM

$
(1,595)

$
(5,699)
XpresTest^TM

12,015

(1,791)
Treat^TM

(2,305)

—
Corporate and other

(1,058)

(1,733)
Total operating income (loss)

$
7,057

$
(9,223)

For the nine months ended

September 30,


2021

2020
Revenue




XpresSpa^TM

$
2,172

$
7,729
XpresTest^TM

42,199

—
Treat^TM

—

—
Corporate and other

—

333
Total revenue

$
44,371

$
8,062

Operating income (loss)




XpresSpa^TM

$
(4,828)

$
(16,103)
XpresTest^TM

14,597

(1,791)
Treat^TM

(4,115)

—
Corporate and other

(3,719)

(4,761)
Total operating income (loss)

$
1,935

$
(22,655)

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September 30,

September 30,

2021

2020
Assets




XpresSpa^TM

$
15,278

$
5,816
XpresTest^TM

19,428

—
Treat^TM

3,116

—
Corporate and other

91,455

75,713
Total assets

$
129,277

$
81,529

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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~~2020 filed on March 31, 2021, as subsequently amended on April 30, ~~2017~~2021 (the ~~“2016~~“2020 Annual Report”), our Quarterly Reports on Form 10-Q for the three months ended March 31, 202 and June 30, 2021, 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
~~FORM Holdings Corp.~~XpresSpa Group, Inc. (“~~FORM” or the “Company”~~XpresSpa Group”) is a leading global travel health and wellness services holding company. XpresSpa Group currently has three reportable operating segments: ~~wellness, technology~~XpresSpa™, XpresTest™, and ~~intellectual property.~~Treat™.

~~Our wellness operating segment consists of~~ XpresSpa ~~which is~~has been a ~~leading~~global airport retailer of spa ~~services. XpresSpa is a well-recognized airport~~services through its XpresSpa™ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel ~~products.~~products (“XpresSpa”).

Through XpresSpa Group’s subsidiary XpresTest, Inc. (“XpresTest”), we launched XpresCheck™ Wellness Centers, also in airports. XpresCheck offers COVID-19 and other medical diagnostic testing services to the traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents. XpresTest has entered into managed services agreements (“MSAs”) with professional medical services companies that provide health care services to patients. The medical services companies pay XpresTest a monthly fee to operate in the XpresCheck Wellness Centers. Under the terms of MSAs, we provide office space, equipment, supplies, non-licensed staff, and management services in return for a management fee.

Furthermore, XpresSpa Group is developing Treat™, a travel health and wellness brand that is positioned for a post-pandemic world. We ~~acquired~~anticipate delivering on-demand access to integrated healthcare through technology and personalized services, while leveraging XpresSpa’s historic travel wellness experience and XpresTest’s healthcare expertise under the XpresCheck™ brand. We see this concept evolution as an opportunity in a new niche industry where XpresSpa Group can leverage technology in addition to its existing real estate and airport experience, providing travelers with peace of mind and access to integrated care. Over the long-term, we envision that digital channels will provide growth opportunities beyond our airport locations, achieved through subscription-based services that provide care and tools supporting travel health and wellness. Furthermore, we anticipate offering upstream content that can be monetized through affiliate revenue as well as curated retail through ecommerce through our dedicated website, www.treatcare.com launched during the second quarter of 2021, which was converted into www.treat.com in the third quarter of 2021.

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COVID-19 Update

In March 2020, we temporarily closed all global XpresSpa locations due to the categorization by local jurisdictions of the spa locations as “non-essential services.” A majority of our XpresSpa locations remain closed, although several have reopened as described under "Recent Developments -XpresSpa Premium Spa Services" below. We intend to reopen remaining XpresSpa™ spa locations on a location-by-location basis and resume normal operations at such selected locations once restrictions are lifted and airport traffic returns to sufficient levels to support operations at a unit level.
Since the beginning of the temporary closure of our XpresSpa locations, we successfully launched our XpresCheck™ Wellness Centers, offering such testing services, as described above. Also, we continue to evaluate alternative testing protocols and work in partnership with airlines for safe travels.
While management has used all currently available information in assessing our business prospects, the ultimate impact of the COVID-19 pandemic and our XpresCheck™ Wellness Centers on our results of operations, financial condition and cash flows remains uncertain. The success or failure of our XpresCheck™ Wellness Centers could also have a material effect on our business.
Recent Developments
XpresCheck™ Wellness Centers
Through our XpresCheck™ Wellness Centers and under the terms of MSAs with physicians’ practices, we offer diagnostic testing services. We currently have 14 such clinics in 12 airports across 11 states. Since December 31, 2020, we announced the opening of the following XpresCheck™ Wellness Centers to provide diagnostic COVID-19 testing:
● On January 12, 2021, we opened our second XpresCheck™ Wellness Center at Boston’s Logan International Airport. It contains four separate testing rooms to provide diagnostic COVID-19 testing.

● On January 20, 2021, we announced the opening of an XpresCheck™ Wellness Center at Salt Lake City International Airport. It contains four separate testing rooms to provide diagnostic COVID-19 testing.

● On February 16, 2021, we announced the opening of our second XpresCheck™ testing facility at Newark Liberty International Airport. It contains four separate testing rooms to provide diagnostic COVID-19 testing.

● On March 8, 2021, we announced the opening of an XpresCheck™ Wellness Center at Houston George Bush Intercontinental Airport. It contains four separate testing rooms to provide diagnostic COVID-19 testing.

● On March 15, 2021, we announced the opening of XpresCheck™ Wellness Centers at Dulles International and Reagan National Airports in Virginia, containing nine and four separate testing rooms, respectively, to provide diagnostic COVID-19 testing.

● On April 8, 2021, we announced the opening of an XpresCheck™ Wellness Center at Seattle-Tacoma International Airport. It contains eight separate testing rooms to provide diagnostic COVID-19 testing.

● On April 21, 2021, we announced the opening of an XpresCheck™ Wellness Center at San Francisco International Airport. It contains nine separate testing rooms to provide diagnostic COVID-19 testing.

● On October 13, 2021, we opened an XpresCheck™ Wellness Center at Hartsfield-Jackson Atlanta International Airport (ATL) Concourse E. It contains six separate testing rooms to provide diagnostic COVID-19 testing.

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During the third quarter of 2021, we have been authorized to proceed with a $2,000, 8-week pilot program with the Centers for Disease Control and Prevention (CDC) through our niche in XpresCheck™ COVID-19 testing. Under the 8-week pilot program, conducted in collaboration with Concentric by Ginkgo, XpresCheck™ will conduct biosurveillance monitoring, initially from India, at three major U.S. airports operating XpresCheck™ COVID-19 testing facilities, which will be aimed at identifying existing and new SARS-CoV-2 variants, including the highly contagious Delta variant and other new variants surfacing in the U.S. The revenue on this contract which is based on certain milestones specified in the contract, would be booked through the 5 steps of ASC 606 as and when a particular milestone is reached, pursuant to which we expect to recognize approximately $1,500 during the fourth quarter of ~~2016.~~2021, which is approximately 75% of the contract consideration.

~~Our technology~~XpresSpa Premium Spa Services
Between June 28^th, 2021 and July 1^st, 2021, we re-opened our four top performing XpresSpa™ locations with modified hours and top selling services: Hartsfield-Jackson Atlanta International Airport (ATL) Concourse A, Dallas/Fort Worth International Airport (DFW) Concourse A, Charlotte Douglas International Airport (CLT) Concourse D, and Las Vegas McCarran International Airport (LAS) Concourse D. There are also three XpresSpa locations operating ~~segment consists of Group Mobile~~in Dubai International Airport in the United Arab Emirates as well as ~~an 11% equity interest~~three XpresSpa locations operating in ~~InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware~~Schiphol Amsterdam Airport in the Netherlands.

During the third quarter of 2021, we re-opened the following XpresSpa™ locations with modified hours and ~~software solutions, including laptops, tablets,~~top selling services:
● John F. Kennedy International Airport (JFK) on September 16, 2021;
● Charlotte Douglas International Airport (CLT) Concourse A/B on September 20, 2021.

During the fourth quarter of 2021 to date, we re-opened the following XpresSpa™ locations with modified hours and ~~mobile printers,~~top selling services:
● Hartsfield-Jackson Atlanta International Airport (ATL) Concourse C on October 14, 2021;
● Orlando International Airport (MCO) on October 18, 2021;
● Dallas/Fort Worth International Airport (DFW) Concourse D on October 23, 2021;
● William P. Hobby Airport (HOU) on November 8, 2021.
● .

A majority of the reopened domestic XpresSpa locations are operating approximately eight hours per day (compared to 16 hours pre-pandemic) with sales volumes about 30% to 60% of pre-pandemic levels. We implemented a price increase in mid-October and are planning to test some new touchless massage services and new retail items during the fourth quarter.

We will re-evaluate each airport on a month-by-month basis as well as ~~installation~~review continued learnings as the portfolio is re-activated. An additional two XpresSpa reopenings are planned for the remainder of the year.

Treat^TM

During the second quarter of 2021, we launched our dedicated website, www.treatcare.com, later converting to www.treat.com during the third quarter of 2021, to provide growth opportunities beyond our airport locations through digital channels, achieved through subscription-based services that provide care and ~~deployment services. In~~tools supporting travel health and wellness as well as offering upstream content that can be monetized through affiliate revenue.

32
Table of Contents
Airport Rent Concessions
We have received rent concessions from landlords on a majority of our leases, allowing for the ~~first quarter 2017, we completed~~relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent through payment deferrals. Currently, the ~~acquisition~~periods of ~~Excalibur Integrated Systems, Inc. (“Excalibur”)~~relief from these payments, which ~~is an end-to-end solutions provider~~began in March 2020, range from three to twenty-eight months and are still in effect for some of ~~mobile hardware devices, wireless network security, data networking, telephony~~the affected leases. We have received minimum guaranteed payment concessions of approximately $585 and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within our technology operating segment. Our equity interest in InfoMedia, which is accounted for under the cost method of investment, increased from 8.25% to 11%$611 in the ~~first quarter of 2017 due to a realignment of ownership interests.~~
We are currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. We are seeking to enter into one or more strategic transactions involving Group Mobilethree months ended September 30, 2021 and 2020, respectively, $1,568 and $1,379 in the ~~first quarter of 2018.~~
~~As of~~nine months ended September 30, ~~2017, our FLI Charge business is reflected as discontinued operations in our condensed consolidated statements of operations~~2021 and ~~comprehensive loss~~2020, respectively, 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~~$3,600 in the ~~monetization~~eighteen months ended September 30, 2021. We expect to realize additional rent concessions while a majority of ~~patents related to content and ad delivery, remote monitoring and mobile technologies.~~our spas remains closed.

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. The net proceeds to us from the Offering were $6,584,000 after deducting underwriting discounts and commissions 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 supplemental measure of financial performance that is not required by or presented in accordance with ~~GAAP.~~ GAAP but is a measurement used by management to assess the trends in our business. In evaluating our performance as measured by Adjusted EBITDA, we recognize and consider the limitations of this measurement.
We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization expense, non-cash charges, and stock-based compensation expense.
We consider Adjusted EBITDA to be an important indicator for the performance of our operating business, but it is not a measure of performance or liquidity calculated in accordance with ~~U.S.~~ GAAP. We have included this non-GAAP financial measure because management utilizes this information for assessing our performance and liquidity, and as an indicator of our ability to make capital expenditures and finance working capital requirements. We believe that Adjusted EBITDA is a measurement that is commonly used by analysts and some investors in evaluating the performance and liquidity of growth companies such as ~~us.~~ ours.
In particular, we believe that it is useful for analysts and investors to understand ~~this indicator because it~~that Adjusted EBITDA excludes certain transactions not related to our core cash operating ~~activities.~~activities, which are primarily related to our XpresCheck™ Wellness Centers. 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~~

33
Table of ~~the measurements that management utilizes.~~Contents
~~The following table provides a~~A reconciliation of operating ~~loss from continuing operations~~income (loss) presented in accordance with GAAP for ~~our~~the three ~~operating segments~~ and ~~corporate~~nine month periods ended September 30, 2021 and 2020 to Adjusted EBITDA ~~income~~ (loss) is presented in the table below.
Q3 2021 Results of Operations and Adjusted EBITDA
(Amounts in thousands)

Three months ended September 30,

Nine months ended September 30,

Revenue:

2021

2020


2021

2020

Managed services fees

$
—

$
—

$
16,843

$
—

Patient service revenue

25,351

—

25,351

—

Services

1,158

93

1,761

6,779

Products

258

45

402

936

Other

—

63

14

347

Total revenue

26,767

201

44,371

8,062

Cost of sales

Labor

4,277

514

7,419

5,480

Occupancy

587

468

1,511

2,334

Product and other operating costs

8,798

423

16,592

1,737

Total cost of sales

13,662

1,405

25,522

9,551

Depreciation and amortization

852

1,424

2,542

3,875

Impairment/disposal of assets

—

2,227

22

6,319

General and administrative

5,196

4,368

14,350

10,972

Total operating expense

19,710

9,424

42,436

30,717
—
Earnings (loss) from operations

7,057

(9,223)

1,935

(22,655)

Interest income (expense), net

6

(120)

31

(1,856)

Gain (loss) on revaluation of warrants and conversion options

—

2,750

—

(50,917)

Other non-operating expense, net

(381)

(47)

(830)

(389)

Income (loss) before income taxes

6,682

(6,640)

1,136

(75,817)

Income tax expense

(87)

(3)

(79)

(22)

Net income (loss)

6,595

(6,643)

1,057

(75,839)

Net (income) loss attributable to noncontrolling interests

(998)

533

(983)

1,034

Net income (loss) attributable to common shareholders

$
5,597

$
(6,110)

$
74

$
(74,805)

Income (loss) from operations

$
7,057

$
(9,223)

$
1,935

$
(22,655)

Add back:

Depreciation and amortization

852

1,424

2,542

3,875

Impairment/disposal of assets

—

2,227

22

6,319

Stock-based compensation expense

790

424

2,123

496

Adjusted EBITDA

$
8,699

$
(5,148)

$
6,622

$
(11,965)

34
Table of Contents
Results of Operations
Revenue
We recognize revenue from the sale of XpresSpa services when they are rendered at our stores and from the sale of products at the time goods are purchased at our stores or online (usually by credit card), net of discounts and applicable sales taxes. Majority of our spa locations remain closed and therefore generate little revenue.
Through our XpresCheck™ Wellness Centers and under the terms of the Managed Services Agreement (“MSA”) with PCs that in turn contract with physicians and nurse practitioners, we offer testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, as well as the traveling public. We have entered into MSAs with PCs that provide healthcare services to patients. Under the terms of the MSAs which may be modified according to for commercial reasonableness and fair market value, XpresTest provides office space, equipment, supplies, non-licensed staff, and management services to be used for the purpose of COVID-19 and other medical diagnostic testing in return for a management fee. However, as a result of uncertainties around the cash flows of the XpresCheck™ Wellness Centers, we concluded in 2020 that the collectability criteria to qualify as a contract under ASC 606 was not met, and therefore, revenue associated with the monthly management fee would not be recognized until a subsequent reassessment resulted in the MSAs meeting the collectability criteria. XpresTest recognized revenue of $16,843 (including catch-up revenue of $3,186 for 2020) during the six months ended June 30, 2021, under the MSAs, pursuant to reassessments in 2021, of the MSAs executed in 2020 and amended in 2021, and assessments and reassessments of MSAs executed and amended in 2021 until June 30, 2021 resulting in management’s conclusion that they met the collectability criteria. Any revenue collected not meeting the collectability criteria was recorded as deferred revenue. Effective, July 1, 2021 (see Note 3), we determined that the PCs are variable interest entities due to its equity holder having insufficient capital at risk, and we have a variable interest in the PCs. In pursuance, the total revenue of $25,351 for the PCs for the three months ended September 30, ~~2017:~~2021 were designated as a revenue for us.

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 )
Cost of sales
~~Merger and acquisition, integration and one-time costs relate to the following:~~
~~For~~Cost of sales for our ~~wellness operating~~XpresSpa segment ~~one-time costs related to the interruption~~consists 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~~store-level costs.
Our operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. We concluded that we conduct our business through three operating segments, which are also our reportable segments: wellness, technology and intellectual property.
~~Segment operating results reflect income (loss) before corporate and unallocated shared expenses, interest expense, income taxes and noncontrolling interests.~~

~~Wellness~~
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 location at John F. Kennedy International Airport’s Terminal 4 and two locations at Phoenix Sky Harbor International Airport. We also closed three small temporary kiosks to better align our resources. We also completed a major renovation to another location in John F. Kennedy International Airport’s Terminal 4, which opened in September 2017. A number of our stores will be undergoing maintenance or renovations during the fourth quarter of 2017. Wherever possible, we seek to receive lease extensions or other concessions when we undergo these processes. As of September 30, 2017, we operated a total of 51 XpresSpa locations.
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. Cost of sales of our XpresTest segment include costs related to the XpresCheck™ business, and ~~handling costs;~~
~~service supplies;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part~~consists of expenses directly attributable to the clinic operations under the terms of the ~~acquisition;~~MSAs, primarily payroll and
related benefit costs ~~associated with our sourcing operations.~~
for personnel, occupancy costs and cost of supplies used to administer the diagnostic COVID-19 tests.
General and 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~~insurance and various professional fees, as well as stock-based compensation for management and administrative personnel.
Other non-operating income (expense), net
Other non-operating income (expense), net primarily includes loss on revaluation of the equity investment to fair value.
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
Revenue

Three months ended September 30,


2021

2020

Inc/(Dec)
Total revenue

$
26,767

$
201

$
26,566

35
Table of Contents
The increase in revenue was primarily due to patient services revenue generated through managed services agreements with professional medical services companies that provide healthcare services to patients in our XpresCheck™ Wellness Centers (while the majority of XpresSpa locations remain closed), amounting to $25,351 of the total revenue.

Cost of sales

Three months ended September 30,


2021

2020

Inc/(Dec)
Cost of sales

$
13,662

$
1,405

$
12,257

The increase in cost of sales was primarily due to the cost of sales of $12,661 incurred in the XpresCheck™ Wellness Centers pursuant to the XpresTest management services agreement and related patient revenue offset by the decreases in occupancy costs as a result of rent concessions received from airports.

Depreciation and amortization

Three months ended September 30,


2021

2020

Inc/(Dec)
Depreciation and amortization

$
852

$
1,424

$
(572)

The decrease in depreciation and amortization of approximately 40.2% was primarily due to ~~one-time costs~~lower amortization of leasehold improvements in the current period triggered by impairments and disposals of assets recorded in 2020. This decrease was partially offset by depreciation and amortization of $509 related to the ~~interruption~~recently opened XpresCheck™ Wellness Centers.

General and administrative

Three months ended September 30,


2021

2020

Inc/(Dec)
General and administrative

$
5,196

$
4,368

$
828

The increase of ~~business~~approximately19.0% was primarily due to ~~hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia~~start-up costs associated with XpresTest and the ~~integration costs related~~XpresCheck^TM Wellness Centers and development of the Treat™ brand.
Gain on revaluation of warrants and conversion options:

Three months ended September 30,


2021

2020

Inc/(Dec)
Gain on revaluation of warrants and conversion options

$
—

$
2,750

$
(2,750)

Gain on revaluation of warrants and conversion options represents the gain resulting from the mark to market adjustments of our derivative liabilities as of the end of the reporting period and upon conversion of warrants and convertible debt. The decrease in the gain on revaluation of warrants and conversion options was due mainly to the ~~acquisition, which together amounted~~conversion to ~~$529,000~~equity of the majority of the outstanding warrants and convertible debt during the conversion period.
36
Table of Contents
Other non-operating expense, net

Three months ended September 30,


2021

2020

Inc/(Dec)
Other non-operating expense, net

$
381

$
47

$
334

The following is a summary of the transactions included in other non-operating expense, net for the three months ended September 30, 2021 and 2020:

Three months ended September 30,


2021

2020
Loss on equity investment

$
302

$
—
Bank fees and financing charges

62

47
Other

17

—
Total

$
381

$
47

Interest expense, net

Three months ended September 30,


2021

2020

Inc/(Dec)
Interest (income) expense

$
(6)

$
120

$
(126)

Interest expense decreased due to significantly lower outstanding debt as a result of conversions of the B3D Note to Common Stock.

Nine months ended September 30, 2021 compared to the Nine months ended September 30, 2020
Revenue

Nine months ended September 30,


2021

2020

Inc/(Dec)
Total revenue

$
44,371

$
8,062

$
36,309

The increase in revenue was primarily due to patient service revenue of $25,351 during the third quarter of ~~2017.~~
~~Depreciation~~2021 and ~~amortization costs include the depreciation~~MSA fees 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$16,843 for the ~~three-month~~six months ended June 30, 2021, respectively through managed services agreements with professional medical services companies that provide healthcare services to patients in our XpresCheck™ Wellness Centers (while the majority of XpresSpa locations remain closed). In addition, the Company saw a slight increase in revenue associated with the XpresSpa locations that opened during the 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.~~2021.
~~Intellectual Property~~
The intellectual property operating segment includes revenues from one-time patent licenses as well as expenses incurred in connection with our patent licensing and related internal payroll expenses. 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 management and certain unallocated administrative support functions.
~~Discontinued Operations~~
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 compared to the three-month period ended September 30, 2016~~
~~Revenue~~
Three months ended September 30,
2017 2016 Change
Revenue $ 17,731,000 $ 3,101,000 $ 14,630,000

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

Cost of sales

Nine months ended September 30,


2021

2020

Inc/(Dec)
Cost of sales

$
25,522

$
9,551

$
15,971

Three months ended September 30,
2017 2016 Change
Cost of sales $ 14,375,000 $ 2,718,000 $ 11,657,000
37
~~During~~Table of Contents
The increase in cost of sales was primarily due to the ~~three-month period ended September 30, 2017, we recorded total~~ cost of sales of ~~$14,375,000, which represents an~~$23,760 incurred in the XpresCheck™ Wellness Centers pursuant to the XpresTest management services agreement offset by the decrease in variable costs associated with the decline in XpresSpa revenues and decreases in occupancy costs as a result of rent concessions received from airports.

Depreciation and amortization

Nine months ended September 30,


2021

2020

Inc/(Dec)
Depreciation and amortization

$
2,542

$
3,875

$
(1,333)

The decrease in depreciation and amortization of approximately 34.4% was primarily due to lower amortization of leasehold improvements in the current period triggered by impairments and disposals of assets recorded in 2020. This decrease was partially offset by depreciation and amortization of $1,604 related to the recently opened XpresCheck™ Wellness Centers.

General and administrative

Nine months ended September 30,


2021

2020

Inc/(Dec)
General and administrative

$
14,350

$
10,972

$
3,378

The increase of ~~$11,657,000 (or 428.9%) compared~~approximately 30.8% was primarily due to start-up costs associated with the XpresCheck^TM brand, development of the Treat™ brand and additional legal fees related to the ~~three-month period ended September 30, 2016. XpresSpa recorded total cost~~resolution 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 includedcertain legal ~~and consulting~~matters, offset by reduced variable costs related to the ~~confidential license agreement reached during~~closed XpresSpa locations.

Loss on revaluation of warrants and conversion options:

Nine months ended September 30,


2021

2020

Inc/(Dec)
Loss on revaluation of warrants and conversion options

$
—

$
50,917

$
(50,917)

Loss on revaluation of warrants and conversion options represents the ~~quarter and royalty expenses~~loss resulting from the mark to ~~a previous owner of some~~market adjustments of our ~~patents. These intellectual property costs decreased to $126,000 for the three-month period ended September 30, 2017.~~
~~We expect our cost of sales will grow over time~~derivative liabilities 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~~end of ~~store-level performance by our wellness operating segment.~~
~~Depreciation, amortization~~the reporting period and ~~impairment~~
Three months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 1,894,000 $ 182,000 $ 1,712,000
~~During~~upon conversion of warrants and convertible debt. The decrease in the ~~three-month period ended September 30, 2017, depreciation~~loss on revaluation of warrants and ~~amortization expense totaled $1,894,000, which represents an increase of $1,712,000 (or 940.7%) compared~~conversion options was due mainly to the ~~amortization~~conversion to equity of the majority of the outstanding warrants and convertible debt during 2020.
38
Table of Contents
Other non-operating expense, recorded during the three-month period ended September 30, 2016. There was no impairment expense for the three-month period ended September 30, 2017 and no depreciation or impairment expense recorded for the three-month period ended September 30, 2016.net

Nine months ended September 30,


2021

2020

Inc/(Dec)
Other non-operating expense, net

$
830

$
389

$
441

The overall increase 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 amortizationfollowing is a summary 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~~transactions included 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.
~~General and administrative~~
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 to the three-month period ended September 30, 2016. The results of the three-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016 is primarily attributed to $2,237,000 of general and administrative expenses associated with XpresSpa. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of $221,000, which was a result of equity awards granted to our directors, management and employees in January 2017.
~~Non-operating expense, net~~
Three months ended September 30,
2017 2016 Change
Non-operating expense, net $ 268,000 $ 1,483,000 $ (1,215,000 )

~~Net non-operating expenses include interest expense, revaluation of derivative warrant liabilities, extinguishment of debt and~~ other non-operating ~~income and expenses.~~
~~During the three-month period ended September 30, 2017, we recorded total~~expense (income), net ~~non-operating expense in the amount of $268,000 compared to total net non-operating expense in the amount of $1,483,000 recorded during the three-month period ended September 30, 2016.~~
For the three-month period ended September 30, 2017, we recorded interest expense of $183,000 mainly related to XpresSpa’s Debt as well as other net non-operating expense of $133,000. These expenses 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~~2021 and ~~was primarily attributed~~2020:

Nine months ended September 30,


2021

2020
Loss on equity investments

$
716

$
—
Loss on extinguishment of debt

—

182
Bank fees and financing charges

97

207
Other

17

—
Total

$
830

$
389

Interest expense, net

Nine months ended September 30,


2021

2020

Inc/(Dec)
Interest (income) expense

$
(31)

$
1,856

$
(1,887)

Interest expense represents interest and accretion expenses on our convertible debt instruments. Interest expense decreased somewhat due to ~~an $11,937,000 impairment charge~~conversions 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 stepCommon Stock 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 lifeCalm Note 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~~B3D Note during ~~the nine-month period ended September 30, 2017.~~

2020.
The overall decrease in depreciation, amortization and impairment expense, when comparing the nine-month period ended September 30, 2017 to the nine-month period ended September 30, 2016, was partially offset by an increase in depreciation expense resulting from leasehold improvements and equipment of $4,567,000 and the amortization of the brand and customer relationship intangible assets of $1,775,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016. The depreciation expense of $4,567,000 is higher than the typical depreciation expense for the nine-month period due to a formal decision made in April 2017 to perform a complete renovation of our flagship JFK location which resulted in a revision to the useful lives. This resulted in an additional $1,100,000 of depreciation expense related to the JFK location.
We expect depreciation and amortization expense will increase gradually over time as we open more stores in our wellness operating segment and new locations and will remain somewhat constant in our technology operating segment.
~~General and administrative~~
Nine months ended September 30,
2017 2016 Change
General and administrative $ 17,012,000 $ 8,059,000 $ 8,953,000
During the nine-month period ended September 30, 2017, general and administrative expenses increased by $8,953,000 (or 111.1%) compared to the nine-month period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the nine-month period ended September 30, 2017 compared to the same period ended September 30, 2016 is primarily attributed to $6,537,000 of general and administrative expenses associated with XpresSpa, of which $1,013,000 related to merger and acquisition, integration, and one-time costs. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of $732,000, which was a result of equity awards granted to our directors, management and employees in January 2017.
~~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 the interest recorded related to the monthly interest payments and the amortization of the debt discount and debt issuance costs as well as accrued interest calculated using the effective interest method associated with debt that was repaid during July 2016. 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.

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,~~2021, we had cash and cash equivalents, excluding restricted cash, of $10,072,000 that we expect to utilize, along with cash flows from operations, to provide capital to support the growth of our business, primarily through opening new XpresSpa locations, maintaining our existing XpresSpa locations, purchasing inventory for Group Mobile to support the growth in sales and maintaining corporate functions. In addition, we have approximately $7,342,000 of trade receivables, inventory and other$109,161, total current assets ~~to support our~~of $113,100, total current liabilities of $17,198 and positive 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~~$95,902, compared to ~~the Offering~~a positive working capital 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~~$78,302 as of December 31, ~~2016 to $10,072,000 as of September 30, 2017. Approximately $11,057,000 of~~2020.
During the ~~cash outflow during the nine-month period~~nine months ended September 30, ~~2017 was related either~~2021, holders of our December 2020 Investor Warrants, December 2020 Placement Agent Warrants and December 2020 Placement Agent Tail Fee Warrants exercised warrants for a total of 11,223,529 common shares. We received gross proceeds of approximately $19,161. In accordance with the placement agent agreements with H.C. Wainwright & Co., LLC and Palladium, we paid cash fees of $2,154 and issued 842,588 warrants to ~~non-recurring payments, capital expenditures or payments for inventory, the latter~~H.C. Wainwright & Co., LLC at an exercise price of ~~which is reflected as a current asset in~~$2.125 per share and 325,500 warrants to Palladium at an exercise price of $1.70 per share. See Note 11. Stockholders’ Equity to the condensed consolidated ~~balance sheets.~~financial statements for related discussion.
~~Key payments~~On August 31, 2021, our board of directors authorized a stock repurchase program that permits the purchase and ~~items~~repurchase of up to 15 million shares of our common stock. The new authorization is currently effective and will be in effect through September 15, 2022. Under the new stock repurchase program, management has discretion in determining the conditions under which shares may be purchased from ~~December 31, 2016~~time to time. The program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Under the program, we purchased and retired 250,000 shares for $450 during the three and nine months ended September 30, ~~2017:~~2021.
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Table of Contents
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~~However, while we have addressed our working capital deficiency and long-term debt, and continue to focus on our ~~current~~overall operating ~~plans, we expect to have sufficient funds for at least the next 12 months of operations following the date of these financial statements.~~profitability. In addition, wethe ultimate duration and severity of the ongoing COVID-19 pandemic are uncertain at this time, and may ~~choose~~result in additional material adverse impacts on our liquidity position and access to ~~raise additional funds in connection with new store openings~~capital. We continue to expand and ~~potential acquisitions of operating assets, which will be complementary to~~explore strategic partnerships, right-size our ~~wellness operating segment. There can be no assurance, however, that any such opportunities will materialize.~~corporate structure, and streamline our operations.

~~Off-Balance Sheet Arrangements~~
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
Critical Accounting Estimates
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as amended, 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.

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 and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, ~~2017, we~~2021, our management carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our management’s evaluation as of December 31, 2019 identified a material weakness in our internal control over financial reporting. Based on ~~the foregoing,~~our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective ~~as of the end of the period covered by this report.~~
The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of our subsidiaries except Excalibur, which was acquired on February 2, 2017. Our consolidated revenue for the nine-month period ended September 30, 2017 was $48,683,000, of which Excalibur represented $4,195,000, and our total assets as of September 30, ~~2017 were $73,839,000,~~2021, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding this conclusion, management believes that the condensed consolidated financial statements in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of ~~which Excalibur represented $4,772,000.~~
operations and cash flows in conformity with GAAP.
~~Changes~~Remediation Plan for Material Weakness in Internal Control over Financial Reporting
~~On February 2, 2017, we acquired Excalibur, which~~We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is ~~an end-to-end solutions provider~~committed to the planning and implementation of ~~mobile hardware devices, wireless network security, data networking, telephony~~remediation efforts to address control deficiencies and ~~mobile application development~~any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and ~~software solutions.~~ to enhance our overall financial control environment. In particular:
·
we will continue to strengthen our interim and annual financial review controls to function with a sufficient
level of precision to detect and correct errors on a timely basis; and
40
Table of Contents
·
we will continue to improve the timeliness of our closing processes with respect to interim and annual periods.

Following identification of this control deficiency, commenced remediation efforts by implementing modifications to better ensure that the ~~acquisition, Excalibur was merged with Group Mobile within~~Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our ~~technology operating segment. We are currently in the process of evaluating and integrating Excalibur's historical~~ internal ~~controls~~control over financial reporting ~~into ours.~~will not be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management is testing and evaluating the implementation of these modifications during 2021 to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.
The steps we took to address the deficiencies identified included:
we hired a permanent Chief Financial Officer in December 2020;
we have engaged in efforts to restructure accounting processes and revise organizational structures to enhance accurate accounting and appropriate financial reporting;
we have engaged outside service providers to assist with the valuation and recording of key reporting areas such as leases and stock compensation expense;
we have implemented additional accounting software to aid in the accounting and financial reporting process;
we have contracted an independent consulting firm to assist with the preparation of the Financial Statements and U.S. GAAP accounting research; and
in March 2021, we hired a seasoned Certified Public Accountant as a permanent Corporate Controller, who also has a Certified Information Systems Auditor accreditation.
We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.
As noted above, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-Q and, to the best of our knowledge, we believe that the condensed consolidated financial statements in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.
Changes in Internal Control over Financial Reporting
Based on our evaluation, management concluded that our internal control over financial reporting was not effective as of September 30, 2021, due to a material weakness in our internal control over our financial close and reporting process, which was discovered in 2019, still remaining unmitigated. Management continues to conclude that as of September 30, 2021 we still 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, we extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge to appropriately analyze, record, and disclose accounting matters completely and accurately.
Other than ~~this change,~~as set forth in the foregoing paragraph, there ~~were~~have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2017~~2021 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

41
Table of Contents~~Part~~
PART II– OTHER INFORMATION
Item 1.Legal Proceedings.
For information regarding legal proceedings, see Note ~~11 “Commitments~~14. “Commitments and Contingencies” in our notes to the condensed consolidated financial statements included in “Item 1. Condensed Consolidated Financial ~~Statements.~~Statements (Unaudited).”

Item 1A.Risk Factors.
~~Our business, financial condition, results of operations and~~There have been no material changes to the ~~trading price of our common stock could be materially adversely affected by any of the following risks as well as the other risks highlighted~~risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 30, 2017. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially affect our business, financial condition and results of operations.2020.

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

~~Risks Related to Our Common Stock~~
~~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

Issuer Purchases of Equity Securities
Third Quarter 2021
(shares in thousands)
Period

Total Number of
Shares
Purchased ⁽¹⁾

Average Price
Paid per
Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares that May Yet Be Purchased Under the Plans or
Programs (shares in thousands)
July 1, 2021 - July 31, 2021

—

$
—

—

—

August 1, 2021 - August 31, 2021

—

—

—

15,000

September 1, 2021 - September 30, 2021

250

1.8

250

14,750

Total

250

$
1.8

250

14,750

~~None.~~
(1) In August 2021, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to 15 million shares of our common stock. This program authorizes the Company to repurchase shares through September 15, 2022 and does not require the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program will be returned to the status of authorized but unissued shares of common stock.

Item 3.Defaults Upon Senior Securities.
None.

Item 4.Mine Safety Disclosures.
Not applicable.
42
Table of Contents

Item 5.Other Information.
None.

28
43
Table of Contents
Item 6.         Exhibits.
~~Exhibit~~
~~No.~~
~~Description~~
Exhibit
No.
Description
31.1*3.1†
Amendment to Bylaws of XpresSpa Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on August 6, 2021)

31.1*
Certification of Principal Executive Officer pursuant to Exchange Act, Rules 13a -– 14(a) and 15d -– 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~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.~~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*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document

*
104

~~Filed herewith.~~
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*
Filed herewith.
**
Furnished herein.
†
Management contract or compensatory plan or arrangement.

~~SIGNATURES~~

44
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.

~~By:~~

~~/s/ ANASTASIA NYRKOVSKAYA~~

~~Anastasia Nyrkovskaya~~

Date:
November 15, 2021
By:
/s/ Douglas Satzman
Douglas Satzman
Chief Executive Officer
(Principal Executive Officer)

Date:
November 15, 2021

By:
/s/ James A. Berry

James A Berry

Chief Financial Officer

(Principal Financial and Accounting Officer)


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

Large accelerated filer¨	◻	Accelerated filer¨	◻
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~	⌧	Smaller reporting companyx	☒
		Emerging growth company¨	☐