*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on February 22, 2019. 

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

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

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

XpresSpa Group, Inc. and Subsidiaries

CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

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

XpresSpa Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1. General

Basis of Presentation and Principals of Consolidation

The unaudited interim consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8-03 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The unaudited interim consolidated condensed financial statements for all 2018 periods presented have been derived from audited financial statements. The financial statements include the accounts of the Company, all entities that are wholly owned by the Company, and all entities in which the Company has a controlling financial interest. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company. Such adjustments are of a normal, recurring nature. The results of operations for the three and six-month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

Overview

On January 5, 2018, FORM Holdings Corp.the Company changed its name to XpresSpa Group, Inc. (“XpresSpa Group” or, the “Company”, “we”, “us”, “our”). from FORM Holdings Corp. The Company’s common stock, par value $0.01 per share, which had previously been listed under the trading symbol “FH” on the Nasdaq Capital Market (“Nasdaq”), has been listed under the trading symbol “XSPA” since January 8, 2018. RebrandingCompany rebranded to XpresSpa Group aligned the Company’sto align our corporate strategy to build a pure-play health and wellness services company, which the Company commenced following itsour acquisition of XpresSpa Holdings, LLC (“XpresSpa”) on December 23, 2016.

As a result of the transition to a pure-play health and wellness services company, the Companywe currently hashave one operating segment that is also itsour sole reporting unit, XpresSpa, athe leading airport retailer of spa services. XpresSpa is a well-recognized airport spa brand with 57 locations, consisting of 52 domestic and 5 international locations as of June 30, 2018. XpresSpaThe Company offers travelers premium spa services, including massage, nail and skin care, as well as spa and travel products.

Recent Developments

In October 2017,Calm Private Placement

On July 8, 2019, the Company completedentered into a securities purchase agreement (the “Calm Purchase Agreement”) with Calm.com, Inc. (“Calm”) pursuant to which the saleCompany agreed to sell (i) an aggregate principal amount of FLI Charge, Inc. (“FLI Charge”$2,500 in 5.00% unsecured convertible Notes due 2022 (the “Calm Notes”), which will be convertible into shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”) and in March 2018, the Company completed the sale(ii) warrants to purchase 937,500 shares of Group Mobile Int’l LLC (“Group Mobile”). These two entities formerly comprised the Company’s technology operating segment, which was discontinued followingcommon stock, par value $0.01 per share (the “Common Stock”), at an exercise price of $2.00 per share (the “Calm Warrants”) (collectively, the disposition of Group Mobile. The results of operations for FLI Charge and Group Mobile are presented in the condensed consolidated statements of operations and comprehensive loss as consolidated net loss from discontinued operations. The carrying amounts of assets and liabilities belonging to Group Mobile are presented in the condensed consolidated balance sheets as assets held for disposal and liabilities held for disposal, respectively, as of June 30, 2018 and December 31, 2017.“Calm Private Placement”).

The Company owns certain patent portfolios, which it looksreceived $2,500 in gross proceeds from the Calm Private Placement.

Notes and Warrants

The Calm Notes are the unsecured subordinated obligations of the Company. Unless earlier converted or redeemed, the Calm Notes will mature on May 31, 2022. The Calm Notes bear interest at a rate of 5% per annum, subject to monetize through salesincrease in the event of default to the lesser of 18% per annum or the maximum rate permitted under applicable law. The Calm Notes are convertible at any time until the Calm Notes are no longer outstanding, in whole or in part, at the option of Calm into shares of Series E Preferred Stock at a conversion price equal to $3.10 per share, except that no shares of Series E Preferred Stock may be issued as payment of interest or in connection with anti-dilution protection or voluntary reduction of the conversion price until receipt of Shareholder Approval. Interest on the Calm Notes is payable in arrears beginning on the last day of each February, May, August and licensing agreements. DuringNovember during the six-month period ended June 30, 2018,beginning on the original issuance date and ending on, and including, the maturity date, when all amounts outstanding under the Calm Notes become due and payable in cash. The Company may elect to pay interest in cash, shares of Series E Preferred Stock or a combination thereof.

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

Calm Collaboration Agreement

On July 8, 2019, the Company determined that its former intellectual property operating segment wouldentered into an Amended and Restated Product Sale and Marketing Agreement with Calm (the “Amended and Restated Collaboration Agreement”), which replaced the parties’ previous Product Sale and Marketing Agreement, dated as of November 12, 2018. The Amended and Restated Collaboration Agreement primarily relates to the display, marketing, promotion, offer for sale and sale of Calm’s products in each of the Company’s branded stores throughout the United States. The Amended and Restated Collaboration Agreement will remain in effect until July 31, 2021, unless terminated earlier in accordance with the Amended and Restated Collaboration Agreement, and automatically renews for successive terms of six months unless either party provides written notice of termination no longer be an arealater than thirty days prior to any such automatic renewal of focusthe Amended and as such, will no longer operate asRestated Collaboration Agreement.

Amendment to Certificate of Designation of Series E Convertible Preferred Stock

On July 8, 2019, the Company filed a separate operating segment, as it is not expectedcertificate of amendment to generate any material revenues or operating costs.the Certificate of Designation of Series E Convertible Preferred Stock (the “Series E COD Amendment”) with the State of Delaware to (i) increase the number of authorized shares of Series E Preferred to 2,397,060 and (ii) upon receipt of Shareholder Approval, reduce the conversion price to $2.00. The Series E COD Amendment was approved by the Board of Directors of the Company. The Company intends to seek Shareholder Approval of the Series E COD Amendment.

B3D Transaction

On April 19,July 8, 2019, the Company entered into a fourth amendment (the “Credit Agreement Amendment”) to its existing Credit Agreement with B3D, LLC (“B3D”) in order to, among other provisions, (i) extend the maturity date to May 31, 2021, (ii) reduce the applicable interest rate to 9.0%, and (iii) amend and restate the Senior Secured Note in order to increase the principal amount owed to B3D to $7.0 million, which principal and any interest accrued thereon will be convertible, at B3D’s option, into Common Stock subject to receipt of Shareholder Approval (the “B3D Notes”) (together, the “B3D Transaction”).

B3D Notes

The B3D Notes are the senior secured obligations of the Company, secured by the personal property of the Company and its subsidiaries. Unless earlier converted or redeemed, the B3D Notes will mature on May 31, 2021. The B3D Notes bear interest at a rate of 9.00% per annum, calculated on a monthly basis. Interest only is payable in arrears on the last business date of each month (the “Monthly Interest”). Notwithstanding the foregoing, until the earlier of (i) ninety days from the date of the Credit Agreement Amendment or (ii) the date upon which Shareholder Approval is received (the “Interest Deferment Date”), the Monthly Interest will continue to accrue, will be compounded monthly, and all unpaid amounts thereof will be due and payable on the Interest Deferment Date. At the option of the Company, all or any portion of the Monthly Interest that is payable (i) on the Interest Deferment Date or (ii) after the Interest Deferment Date, but not more than twenty-one days and not less than five trading days prior to the date on which each payment of Monthly Interest is due, may be paid in shares of Common Stock. At any time after receipt of Shareholder Approval until the B3D Notes are no longer outstanding, all or any portion of the outstanding principal amount of the B3D Notes, plus any accrued and unpaid interest thereon, shall be convertible into Common Stock at the option of B3D at a conversion price equal to $2.00 per share.

Series D Amendment and December 2016 Warrant Amendment

Amendment to Certificate of Designation of Series D Convertible Preferred Stock

On July 8, 2019, the Company filed a certificate of amendment to the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D COD Amendment”) with the State of Delaware to, upon receipt of Shareholder Approval, reduce the conversion price to $2.00 and provide for automatic conversion of the Series D Convertible Preferred Stock into shares of Common Stock. The Series D COD Amendment was approved by the Company Board. The Company intends to seek Shareholder Approval of the Series D COD Amendment.

December 2016 Warrant Amendment

On July 8, 2019, the Company entered into an amendment to certain outstanding warrants issued in December 2016 to the holders of its Series D Convertible Preferred Stock (the “December 2016 Warrant Amendment”) to provide for (i) a reduction in the exercise price to $2.00, (ii) certain anti-dilution price protection and (iii) voluntary reduction of the exercise price by the Company in its discretion. The Company intends to seek Shareholder Approval in connection with the December 2016 Warrant Amendment.

May 2018 Andrew D. PerlmanSPA Amendment, Series F Preferred Stock and Series B Preferred Stock

May 2018 SPA Amendment

On July 8, 2019, the Company entered into an amendment (the “May 2018 SPA Amendment”) to that certain Securities Purchase Agreement, dated as of May 15, 2018, by and between the Company and the purchasers party thereto (the “May 2018 SPA”), to provide for, among other provisions, (i) an update to certain definitions, including the definition of an “Exempt Issuance,” (ii) the waiver of certain provisions regarding restrictions on subsequent equity sales and participation in subsequent financings, and the removal of certain such provisions upon receipt of Shareholder Approval, (iii) the amendment to certain provisions of the Class A Warrants issued pursuant to the May 2018 SPA to modify certain provisions in connection with a Notice Failure (as such term is defined in the Class A Warrants), and to reduce the exercise price of the Class A Warrants issuable pursuant to anti-dilution price protection contained in such Class A Warrants to $2.00 per share following receipt of Shareholder Approval (iv) the cancellation of all outstanding Class B Warrants and (v) the establishment of a new class of preferred stock, to be designated Series F Convertible Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”) and the issuance of 9,000 shares of such Series F Preferred Stock to the parties to the May 2018 SPA Amendment, which will be convertible into Common Stock upon receipt of Shareholder Approval.

Certificate of Designation of Series F Preferred Stock

In connection with the May 2018 SPA Amendment, on July 8, 2019, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock (the “Series F Certificate of Designation”) establishing and designating the rights, powers and preferences of the Series F Preferred Stock. The Company designated 9,000 shares of Series F Preferred Stock.

Certificate of Elimination of Series B Preferred Stock

On July 8, 2019, the Company filed a Certificate of Elimination of Shares of Series B Preferred Stock (the “Certificate of Elimination”) to the Company’s amended and restated certificate of incorporation. The Certificate of Elimination reduced, pursuant to Section 151(g) of the Delaware General Corporation Law, the number of authorized shares of Series B Convertible Preferred Stock of the Company, par value $0.01 per share (the “Series B Preferred Stock”) from 1,609,167 shares of Series B Preferred Stock to zero shares of Series B Preferred Stock, the number of shares of Series B Preferred Stock issued and outstanding as of July 8, 2019. Pursuant to the provisions of Section 151(g) of the Delaware General Corporation Law, the 1,609,167 authorized shares of Series B Preferred Stock eliminated pursuant to the reduction return to the available undesignated preferred stock of the Company and may be re-designated into another series of preferred stock.

As of June 30, 2019, the Company had $2,259 of cash and cash equivalents and total current assets of $3,819, total current liabilities balance of $8,451, and a working capital deficiency of $4,632. The $2,500 capital infusion from Calm on July 8, 2019 increased the Company’s cash balance by $2,500 and reduced the Company’s working capital deficiency by $2,500.

The Company is exploring valuable strategic partnerships, right-sizing its corporate structure, and stream-lining spa operations. The Company expects that these actions will be executed in alignment with the anticipated timing of its long-term liquidity needs. There can be no assurance, however, that any such opportunities will materialize.

The Company has also reduced operating and overhead expenses and generated positive cash flows from continuing operations of $244 for the six months ended June 30, 2019, compared to a cash loss from continuing operations of $5,061 for the six months ended June 30, 2018. While the Company continues to focus on its overall profitability, the Company expects to incur net losses in the foreseeable future.

The report of the Company’s independent registered public accounting firm on its financial statements for the year ended December 31, 2018 included an explanatory paragraph indicating that there is substantial doubt about the Company’s ability to continue as a going concern. The Company believes it is probable that it will generate additional liquidity through, not only the transactions that have already occurred, but through other actions it expects to undertake in the near future. The Company’s management believes it will successfully mitigate the substantial doubt raised by its historical operating results and will satisfy its liquidity needs for at least 12 months from the issuance of these financial statements. However, the Company cannot reasonably predict with any certainty that the results of its actions will generate the liquidity required to satisfy its liquidity needs.

If the Company continues to experience operating losses, and the Company is not able to generate additional liquidity through the actions described above or through some combination of other actions, while not expected, the Company may not be able to access additional funds and the Company might need to secure additional sources of funds, which may or may not be available. Additionally, a failure to generate additional liquidity could negatively impact its access to inventory or services that are important to the operation of the business.

CEO Transition

On February 8, 2019, Edward Jankowski resigned as Chief Executive Officer of the Company and as a Directordirector of the Company, effective as of that date.Company. Mr. Perlman’sJankowski’s resignation was not as a result of any disagreement with the Company on any matters related to the Company’s operations, policies or practices. Mr. Jankowski is receiving termination benefits including $375 payable in equal installments over a twelve-month term which commenced on February 13, 2019 and COBRA continuation coverage paid in full by the Company for up to a maximum of twelve months.

Effective as of the same date, Edward Jankowski, Senior Vice President and Chief Executive Officer of the Company’s wholly-owned subsidiary, XpresSpa,February 11, 2019, Douglas Satzman was appointed by the BoardCompany’s board of Directorsdirectors as the Chief Executive Officer of the Company and as a Directordirector of the Company.Company to fill the position vacated by Mr. Jankowski.

Reverse Stock Split

On February 22, 2019, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-20 reverse stock split of the Company’s shares of Common Stock. Such amendment and ratio were previously approved by the Company’s stockholders and board of directors.

On May 15, 2018,

As a result of the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to sell up to (i) an aggregate principal amount of $4,438 in 5% Secured Convertible Notes due November 16, 2019, which includes $88 to be issued to Palladium Capital Advisors as Placement Agent (the “Convertible Notes”), convertible intoreverse stock split, every twenty (20) shares of the Company’s pre-reverse split Common Stock were combined and reclassified into one (1) share of Common Stock. Proportionate voting rights and other rights of common stockholders were affected by the reverse stock par value $0.01 persplit. Stockholders who would have otherwise held a fractional share (the “Common Stock”) at a conversion price of $0.62 per share, (ii) Class A Warrants (the “Class A Warrants”) to purchase 7,157,259Common Stock received payment in cash in lieu of any such resulting fractional shares of Common Stock at an exercise price of $0.62 per share and (iii) Class B Warrants (the “Class B Warrants,” and together withas the Class A Warrants, the “Warrants”) to purchase 3,578,630 sharespost-reverse split amounts of Common Stock at an exercise price of $0.62 perwere rounded down to the nearest full share. The Convertible Notes bear interest at a rate of 5% per annum. The Convertible Notes are senior secured obligations ofNo fractional shares were issued in connection with the Company and are secured by certain of its personal property. Unless earlier converted or redeemed, the Convertible Notes will mature on November 16, 2019. The transaction closed on May 17, 2018, at which time the Company received $4,350 in gross proceeds from the Investors.reverse stock split.

Collaboration Agreement

On June 19,November 12, 2018, Anastasia Nyrkovskaya, Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer of the Company, resigned from her positions at the Company to pursue other career interests. Ms. Nyrkovskaya has agreed to remain with the Company in a reduced capacity through October 15, 2018, during which time she is expected to transition certain projects while the Company completes an ongoing search for a new Chief Financial Officer. On June 19, 2018, the Companywe entered into a separation agreementProduct Sale and Marketing Agreement (the “Collaboration Agreement”) with Ms. Nyrkovskaya, a copyCalm primarily related to the display, marketing, promotion, offer for sale and sale of which is attached as Exhibit 10.1 hereto and is incorporated herein by reference.Calm’s products in each of our branded stores throughout the United States.

As of June 30, 2018,On July 8, 2019, we entered into an Amended and Restated Product Sale and Marketing Agreement with Calm (the “Amended and Restated Collaboration Agreement”), which replaced the Company’s current assets were $6,235, which included cashprevious Collaboration Agreement. The Amended and cash equivalents of $4,458. The Company’s current liabilities were $9,873 as of June 30, 2018, which included $1,754 of convertible notes classified as short-term for which principal repayments may be made in the Company’s common stock at the Company’s election. In addition, included in total current liabilities is approximately $1,762 whichRestated Collaboration Agreement primarily relates to obligations that will not settlethe display, marketing, promotion, offer for sale and sale of Calm’s products in cash,each of XpresSpa’s stores. The Amended and an additional $465Restated Collaboration Agreement shall remain in effect until July 31, 2021, unless terminated earlier in accordance with the Amended and Restated Collaboration Agreement, and automatically renews for successive terms of liabilities that are not expectedsix months unless either party provides written notice of termination no later than thirty days prior to settle in the next twelve months.

The Company’s management believes that its current cash balance, cash to be provided by future operating activities, and cash proceeds from the anticipated liquidation of certain investments, will be sufficient to fund its planned operations and pay its liabilities as they become due, including scheduled Convertible Note principal repayments for at least the next twelve months following the filing date of these financial statements. At the Company’s election, principal repaymentsany such automatic renewal of the Convertible Notes may be made in cash or, subject to certain conditions, in registered shares of the Company’s common stock. In addition, the Company has access to additional sources of financingAmended and may attempt to renegotiate terms of various contracts.Restated Collaboration Agreement. 

Note 2. Accounting and Reporting Policies

(a) Basis of presentation and principles of consolidation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2017. The condensed consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company, and all entities in which the Company has a controlling financial interest. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company. Such adjustments are of a normal, recurring nature. The results of operations for the three and six-month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Use of estimates(a) Right-of-use asset and lease liability

The preparationright-of-use asset on our Consolidated Condensed Balance Sheet represents a lessee's right to use an asset over the life of a lease. The asset is calculated as the initial amount of the accompanying condensed consolidated financial statementslease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. The amortization period for the right-of-use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset.

The addition of these items on the balance sheet is in conformityaccordance with U.S. GAAPnew lease accounting standard Topic 842-Leases issued by the FASB. This standard requires managementoperating leases to make certain estimates and assumptions that affectbe recorded on the reported amounts ofbalance sheet as assets and liabilities and requires disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s intangible assets, investmentskey information about leasing arrangements. Leases will be classified as other assets,either finance or operating, with classification affecting the useful livespattern of expense recognition in the Company’s intangible assets, the valuationstatement of the Company’s derivative warrant liabilities, the valuation of stock-based compensation, deferred tax assetsoperations and liabilities, income tax uncertainties, and other contingencies.

(c) Cash and Cash Equivalents

The Company maintains cash in checking accounts with financial institutions. The Company has established guidelines relating to diversification and maturities of its investments in order to minimize credit risk and maintain high liquidity of funds. Cash equivalents include amounts due from third-party financial institutions for credit and debit card transactions. These items typically settle in less than five days. As of June 30, 2018, the Company held significant portions of its cash balance in overseas accounts, totaling $1,232, which is not insured by the Federal Deposit Insurance Corporation (“FDIC”). If the Company were to distribute the amounts held overseas, the Company would need to follow an approval process as defined in its operating and partnership agreements, which may delay the availability of cash to the Company.comprehensive loss.

(d)(b) Revenue recognition

The Company recognizes revenue from the sale of XpresSpa products at the time the goods are purchased at our stores or online (usually by credit card) and services when they are rendered at the point of sale,our stores. net of discounts and applicable sales taxes. Revenues from the XpresSpa wholesale and e-commerce businesses are recorded at the time goods are shipped. Accordingly, the Company recognizes revenue for its single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. The Company excludes all sales taxes assessed to its customers. Sales taxes assessed on revenues are included in accounts payable, accrued expenses and other current liabilities in the consolidated condensed consolidated balance sheets until remitted to the state agencies.

Other revenue relates to one-time intellectual property licenses as well as the sale of certain of the Company’s intellectual property. Revenue from patent licensing is recognized when the Company transfers promised intellectual property rights to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those intellectual property rights. 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, receipt of the upfront fee, and transfer of the promised intellectual property rights.

(e) Cost of sales

Cost of sales consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations and include:

Cost of sales related to the Company’s intellectual property 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.

(f) Investments

The Company accounts for its investments in other entities using the cost method of accounting when the Company has no substantial influence over, and the investment is less than 20% of, the investee entity. Under the cost method, the investment is recorded at cost, which approximates fair value, on the date of acquisition. The Company performs an assessment for impairment on at least an annual basis, or when there is an indication that cost exceeds fair value.

(g) Fair value measurements

The Company measures fair value in accordance with FASB ASC 820-10,Fair Value Measurements and Disclosures. FASB ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received by selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, FASB ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

(h)(c) Recently issuedadopted accounting pronouncements

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

The core principle of this new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance was amended in July 2015 and is effective for annual reporting periods beginning after December 15, 2017. Adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2016-01, Financial Instruments – Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

This standard amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to the Company’s condensed consolidated financial statements, the most significant impact relates to the accounting for equity investments. It will impact the disclosure and presentation of financial assets and liabilities. The amendments in this update are effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2016-02, Leases (Topic 842), as amended

This standard and its amendments provides new guidance related to accounting for leases and supersedes U.S. GAAP on lease accounting with the intent to increase transparency. This standard requires operating leases to be recorded on the balance sheet as assets and liabilities and requires disclosure of key information about leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations and comprehensive loss. The adoption will require

On January 1, 2019, the Company adopted ASU 2016-02 on a modified retrospective approach as ofprospective basis, beginning on January 1, 2019 using the beginning of the earliest period presented. The new standard is effective for the fiscal year beginning after December 15, 2018, with early adoption permitted.optional transition method. The Company is currently inapplied the processtransition options permitted by ASU 2018-11 and elected the package of evaluatingpractical expedients to alleviate certain operational and reporting complexities related to the impact of the adoption on its condensed consolidated financial statements, but theadoption. See Note 8 “Leases” for further discussion.

The Company expects that it will result in a significant increase in its long-termrecorded right-of-use assets and liabilities.lease liabilities for its operating leases of $9,565 upon adoption of ASU 2016-02.

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

This standard provides new guidance to eliminate the requirement to calculate the implied fair value of goodwill, or the Step 2 test, to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The loss recognized should not exceed the total goodwill allocated to the reporting unit. The new standard is effective for the fiscal year beginning after December 15, 2019, with early adoption permitted. The Company early adopted this standard effective January 1, 2018. Adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)

This standard provides new guidance to address the complexity of accounting for certain financial instruments with down round features. The amendments of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. A down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument (or embedded conversion feature) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The new standard is effective for the fiscal year beginning after December 15, 2018 with early adoption permitted. The Company early adopted this standard effective January 1, 2018. Adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

This standard provides guidance on the reclassification of certain tax effects from accumulated other comprehensive income to retained earnings in the period in which the effects of the change in the United StatesU.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. The new standard is effective for the fiscal year beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. Adoption of this standard did not have a material impact on the Company’s consolidated condensed financial statements.

(d) Recently issued accounting pronouncements

ASU No. 2016-13, Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

This standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize estimated credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is currently inprobable the processloss has been incurred. The new standard is effective for the fiscal year beginning after December 15, 2019, with early adoption permitted. Based upon the outstanding balance of evaluating the potential impact ofCompany’s trade receivables and its positive collection history, the Company’s management does not believe that the adoption of this standard will have a material impact on its condensed consolidated financial statements.position and results of operations.

(i) ReclassificationASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

Certain balances have been reclassifiedThis amendment provides updates to conform to presentationthe disclosure requirements includingon fair value measures in Topic 820 which includes the presentationchanges in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements, the option of discontinued operationsadditional quantitative information surrounding unobservable inputs and the consistent presentationelimination of disclosures around the valuation processes for Level 3 measurements. The new standard is effective for the fiscal year beginning after December 15, 2019. The Company’s management does not believe that the adoption of this standard will have a material impact on its consolidated financial position and results of results of operations.

Note 3. Potentially Dilutive Securities

Loss per share attributable to common shareholders data for each period presented excludes from the calculation of diluted net loss the following potentially dilutive securities (reflecting the impact of the allocation of cost of sales1:20 reverse stock split that became effective on February 22, 2019) as they had an anti-dilutive impact:

The Convertible Notes were converted into common stock in June 2019. See Note 9 “Senior Secured Note and generalConvertible Notes.” 

Note 4. Cash, Cash Equivalents, and administrative expenses between store locationsRestricted Cash

Cash, cash equivalents, and corporaterestricted cash in the consolidated condensed balance sheets are comprised of the following as of June 30, 2019 and December 31, 2018: 

Cash denominated in Unites States dollars decreased from December 31, 2018 primarily due to increased capital expenditures to renovate spas and to open new spas, distributions to the Company’s noncontrolling interest investees and payments made on the Senior Secured Notes. Credit and debit card receivables balance increased due to the timing of payments from credit card companies at the end of June 2019.

Restricted cash represents balances at financial institutions to secure bonds and letters of credit as required by the Company’s various lease agreements. 

Note 5. Other Current Assets

As of June 30, 2019, and December 31, 2018, the Company’s other current assets were comprised of the following:

Prepaid expenses are predominantly comprised of prepaid insurance policies which have terms of one year or less. The balance decreased from December 31,2018 due to the timing of payments and amortization of the year end prepaid insurance balance.

Note 6. Other Assets

Other assets in the consolidated condensed balance sheets are comprised of the following as of June 30, 2019 and December 31, 2018:

As of June 30, 2019, the Company’s cost method investments consist primarily of a $787 investment in InfoMedia Services Limited which the Company acquired in 2014 and the remaining investment in Route1 (“Route1”) of $484, which it received as part of the disposition of Group Mobile in March 2018.

In the second quarter of 2019, the Company impaired its investment in Route1, due to an under performance of operating results. The Company recorded an impairment charge of $1,141 for the three and six months ended June 30, 2019, which is included in “Other non-operating income (expense), net” on the consolidated condensed statements of operations and comprehensive loss.income.

The Company has not identified any other events or changes in circumstances that could have a significant adverse effect on the carrying value of its remaining cost method investments.

Note 3. Net Loss per Share7. Intangible Assets and Goodwill

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

The Company’s trade name relates to the value of the XpresSpa trade name, customer relationships represent the value of the loyalty customers, software relates to certain capitalized third-party costs related to a new point-of-sale system, and patents consist of intellectual property portfolios acquired from third parties.

The table below presentsCompany’s intangible assets are amortized over their expected useful lives. During the computationthree and six-months ended June 30, 2019 and 2018, the Company recorded amortization expense of basic$576 and diluted net loss per share of common stock:$611, respectively and $1,144 and $1,217, respectively.

Based on the Intangible assets balance as of June 30, 2019 the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:

There were no impairment indicators related to any of the Company’s amortizable intangible assets during the six months ended June 30, 2019.

Note 4. Goodwill Impairment

On January 5, 2018, the Company changed its name to XpresSpa Group as part of a rebranding effort to carry out its corporate strategy to build a pure-play health and wellness services company, which the Company commenced following its acquisition of XpresSpa on December 23, 2016. The Company completed the sale of Group Mobile on March 22, 2018, which was the only remaining component of the Company’s technology operating segment. Following the sale of Group Mobile, the Company’s management made the decision that its intellectual property operating segment would no longer be an area of focus and would no longer be a separate operating segment as it is not expected to generate any material revenues. This completed the transition of the Company into a pure-play health and wellness company with only one operating segment, consisting of its XpresSpa business.

The Company’s market capitalization is sensitive to the volatility of its stock price. On January 2, 2018, the first trading day of fiscal year 2018, the Company’s stock price opened at $1.36 and closed at $1.45. The closing price of the Company’s stock on March 29, 2018, the last trading day ofDuring the first quarter of fiscal year 2018, was $0.72. The average closingour stock price declined from an opening price of the Company from$1.36 on January 2, 2018 throughto $0.72 on March 29, 2018 was approximately $1.02, ranging from $0.71 to $1.80 during that period.

On2018. Subsequently, on April 19, 2018, the Companywe entered into a separation agreement with itsour Chief Executive Officer regarding his resignation as Chief Executive Officer and as a Director the Company. On that same date, the Company’s Senior Vice President and Chief Executive Officer of XpresSpa was appointed by the Board of Directors as the Chief Executive Officer and as a Director of the Company.

Director. These events were identified by the Company’sour management as triggering events requiring that goodwill be tested for impairment as of March 31, 2018.  In addition to the Company’s rebranding efforts to a pure-play health and wellness services company, its stock price continued to decline even after the announcement of the new Chief Executive Officer. As the stock price had not rebounded, the Companywe determined that there was an impairment of the impairment related to the three-month period ended March 31, 2018.

goodwill. The Company performed a quantitative goodwill impairment test, in which the Company compared the carrying value of the reporting unit to its estimated fair value, which was calculated using an income approach. The key assumptions for this approach were projected future cash flows and a discount rate, which was based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected future cash flows. As a result of the quantitative goodwill impairment test performed as of March 31, 2018, the Company determined that the fair value of the reporting unit did not exceed itswas less than its’ carrying amount and, therefore, goodwill of the reporting unit was considered impaired.

Based on the estimated fair value of goodwill, the Company We recorded an impairment charge of $19,630 to reduce the carrying value of goodwill to its fair value, which was determined to be zero. The impairment to goodwill was a result of the structural changes to the Company, including completion of the transition from a holding company to a pure-play health and wellness company, the change in Chief Executive Officer and the reduction in our stock price. 

Note 8. Leases

The Company leases its retail space at various domestic and international airports. Additionally, the Company leases its corporate office in New York. Certain leases entered into by the Company fall under ASU No. 2016-02, Leases (“Topic 842”) discussed in Note 2 (b) “Recently adopted accounting pronouncements”. The Company determines if an arrangement is a lease at inception and if it qualifies under Topic 842. Certain lease arrangements contain fixed payments throughout the term of the lease. Others involve a variable component to determine the lease obligation where a certain percentage of sales is used to calculate the lease payments.

Additionally, all qualifying leases held by the Company are classified as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based as the present value of lease payments over the lease term. The Company records its operating lease assets and liabilities based on required guaranteed payments under each lease agreement. As the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of guaranteed lease payments.

The following is a summary of the activity in the Company’s Operating lease liabilities for the six months ended June 30, 2019:

In July 2019, the lease for our location in the World Trade Center in New York was terminated. As a result, the Company assessed all assets (primarily leasehold improvements) for impairment. This impairmentresulted in a charge of approximately $620 which is included in goodwill impairment“Impairment of fixed assets” in the consolidated condensed consolidated statements of operations and comprehensive loss for the six-month periodthree and six months ended June 30, 2018.

The fair value measurement2019. We also reduced the remaining balance in Right of goodwill was classified within Level 3 ofuse asset and the fair value hierarchy because the income approach was used, which utilizes significant inputs that are unobservable in the market. The Company believes it made reasonable estimates and assumptions to calculate the fair value of the reporting unit as of the impairment test measurement date.

Note 5. Other Assets

Other assets in the condensed consolidated balance sheets are comprised of the following as of June 30, 2018 and December 31, 2017:

As of June 30, 2018, the Company’s other assets included:

Note 6. Segment InformationLease liability by approximately $421.

As a result of the Company’s transition to a pure-play health and wellness services company, it currently has one operating segment that is also its sole reporting unit, XpresSpa.

The Company currently operatesalso expensed approximately $210 of costs capitalized in two geographical segments:anticipation of opening new spas that the United StatesCompany later determined would never be realized. This charge is included in the “Impairment of fixed assets” line in the consolidated condensed statements of operations and all other countries. The following table represents the geographical revenue and segment operatingcomprehensive loss for the three- and six-month periods ended June 30, 2019.

As of June 30, 2019, operating leases contain the future minimum commitments: 

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

Variable lease payments were $875 and $1,497 for the three and six months ended June 30, 2019, respectively.

Note 9. Senior Secured Note and Convertible Notes

Senior Secured Note

As of June 30, 2019, the Company had an 11.24% interest bearing senior secured note of $6.500 outstanding with B3D, assigned from Rockmore Investment Master Fund Ltd. (“Rockmore”). Rockmore is an investment entity controlled by the Company’s Chairman of the Board of Directors, Bruce T. Bernstein. The senior secured note was due on December 31, 2019 (the “Senior Secured Note”). In May 2017, the Company granted Rockmore 250,000 class A warrants as consideration for extending the maturity date of the Senior Secured Note from May 1, 2018 to May 1, 2019. On May 14, 2018, the Company and 2017Rockmore agreed to extend the maturity date of the Senior Secured Note again from May 1, 2019 to December 31, 2019. The warrants issued to Rockmore are classified as equity warrants in the consolidated condensed balance sheets.

In July 2019, the Company renegotiated the terms of the Senior Secured Note to, among other things, increase the principal amount outstanding by $500 and total asset informationextend the maturity date to May 31, 2021. As a result, the Senior Secured Note has been reclassified from current liabilities to long-term liabilities on the Company’s consolidated condensed balance sheet as of June 30, 2019. See Note 16 “Subsequent Events” for additional information.

Convertible Notes

On May 15, 2018, in a private placement offering, the Company issued (i) 5% Secured Convertible Notes ( the “Convertible Notes”) convertible into Common Stock at $12.40 per share, due November 2019, (ii) May 2018 Class A Warrants to purchase 357,863 shares of Common Stock and December 31, 2017. There(iii) Class B Warrants to purchase 178,932 shares of Common Stock (the “May 2018 Class B Warrants”). The May 2018 Class A and Class B Warrants were no concentrationsconvertible into Common Stock at $12.40 per share. The Company received aggregate proceeds of geographical revenue, segment operating loss or total assets related$4,438 from the May 2018 private placement.

During the second quarter of 2019, the Company failed to any single foreign country that were materialmake minimum monthly payments as required pursuant to the Company’s condensed consolidated financial statements.Convertible Notes, which failure constituted an event of default. Pursuant to the terms of the Convertible Notes, upon an event of default, an investor may elect to accelerate payment of the outstanding principal amount of such investor’s Convertible Note, liquidated damages and other amounts owing in respect thereof through the date of acceleration, which amounts become immediately due and payable in cash. No investor provided notice to the Company electing to exercise its right to accelerate payment.  We have since renegotiated the terms of the Convertible Notes (See discussion below).

Debt discount and debt issuance costs were amortized on a straight-line basis over the remaining term of the Convertible Notes. During the three and six months ended June 30, 2019, the Company recorded $342 and $736 of amortization of debt discount and debt issuance costs, which was included in “Interest expense” for the three and six months ended June 30, 2019, respectively. Additionally, for the three and six months ended June 30, 2019, the Company wrote off the balance of debt issuance costs of $135, which is also included in “Interest expense”, as the Convertible Notes were converted into Common Stock on June 27, 2019, (See discussion below).