The accompanying notes form an integral
part of these condensed consolidated financial statements.
The accompanying notes form an integral
part of these condensed consolidated financial statements.
The accompanying notes form an integral
part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(In thousands, except for share and per
share data)
Note 1. General
FORM Holdings Corp. (“FORM”
or the “Company”) has three operating segments: wellness, technology and intellectual property.
The Company’s wellness operating
segment consists of XpresSpa, which is a leading airport retailer of spa services. XpresSpa is a well-recognized airport spa brand
with 51 locations, consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers travelers premium
spa services, including massage, nail and hair as well as spa and travel products. The Company acquired XpresSpa in the fourth
quarter of 2016.
The Company’s technology operating
segment consists of Group Mobile as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group
Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation
and deployment services. The Company acquired Group Mobile in the fourth quarter of 2015 and Excalibur Integrated Systems Inc.
(“Excalibur”), which was merged with Group Mobile, in the first quarter of 2017. The Company’s equity interest
in InfoMedia increased from 8.25% to 11% in the first quarter of 2017 due to a realignment of ownership interests.
The Company is currently evaluating strategic
alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include
a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions.
The Company is seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.
The Company’s intellectual property
operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.
As further detailed in Note 10 “Discontinued
Operations and Assets and Liabilities Held for Disposal,” in June 2017, the Company concluded that the requirement to report
the results of FLI Charge as discontinued operations was triggered. FLI Charge was subsequently sold in October 2017.
On July 26, 2017, the Company entered into
an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, acting as the representative
of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the
“Offering”) of 6,900,000 shares of the Company’s common stock, par value $0.01 per share (“FORM Common
Stock”) including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August
2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to
purchase the shares of FORM Common Stock from the Company pursuant to the Underwriting Agreement at a purchase price of $1.023
per share. The net proceeds to the Company from the Offering were $6,584 after deducting underwriting discounts and commissions
and other estimated offering expenses.
Note 2. Accounting and Reporting Policies
(a) Basis of presentation and principles of consolidation
The accompanying interim condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“U.S. GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X, and should be
read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016. All adjustments that, in
the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company.
Such adjustments are of a normal, recurring nature. The results of operations for the three and nine-month periods ended September
30, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim
period. All significant intercompany balances and transactions have been eliminated in consolidation.
(b) Use of estimates
The preparation of the accompanying condensed
consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual
results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s
intangible assets, the useful lives of the Company’s intangible assets, the valuation of the Company’s derivative warrants,
the valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties, and other contingencies.
(c) Revenue recognition
The Company recognizes revenue for the
wellness operating segment from the sale of XpresSpa products and services at the point of sale, net of discounts and applicable
sales taxes. Revenues from the XpresSpa wholesale and e-commerce businesses are recorded at the time goods are shipped. The Company
excludes all sales taxes assessed to its customers. Sales taxes assessed on revenues are included in accounts payable, accrued
expenses and other current liabilities in the condensed consolidated balance sheets until remitted to the state agencies.
The Company records revenue from product
sales in the technology operating segment when title and risk of loss are passed to the customer, there is persuasive evidence
of an arrangement for sale, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.
The Company’s shipping terms typically specify F.O.B. destination, at which time title and risk of loss have passed to the
customer. At the time of sale of hardware products, the Company records an estimate for sales returns and allowances based on historical
experience. Hardware products sold by the Company are warranted by the vendor.
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;
|
|
•
|
inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part of acquisition; and
|
|
•
|
costs associated with sourcing operations.
|
Cost of sales for the Company’s technology
operating segment includes costs to acquire or manufacture goods for inventory.
Cost of sales for the Company’s intellectual
property operating segment mainly includes expenses incurred in connection with the Company’s patent licensing and enforcement
activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement
related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.
(e) Recently adopted accounting pronouncements
ASU No. 2017-01, Business Combinations
(Topic 805): Clarifying the Definition of a Business
In January 2017, the FASB issued Accounting
Standards Update No. 2017-01 (“ASU 2017-01”) “Business Combinations (Topic 805): Clarifying the Definition of
a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals)
of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in
a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. The Company adopted
ASU 2017-01 as of January 1, 2017 on a prospective basis.
(f) Recently issued accounting pronouncements not yet
adopted
ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606)
The core principle of the new standard
is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance was amended
in July 2015 and is effective for annual reporting periods beginning after December 15, 2017. As such, the Company is currently
assessing the impact of the adoption on its condensed consolidated financial statements. The Company will adopt the new standard
and related updates effective January 1, 2018, and intends to use the modified retrospective method of adoption.
Based upon its preliminary assessment undertaken
through September 30, 2017, the Company expects that the new standard will have an impact on revenue recognition for Group Mobile
contracts in its technology operating segment, and expects to conclude on this assessment by December 31, 2017. The Company does
not expect for there to be an impact on revenue recognition for its wellness operating segment, as the revenue is recognized when
the service is performed and payment is collected from the customer.
The Company continues to monitor additional
changes, modifications, clarifications or interpretations being undertaken by the FASB, which may, in conjunction with the completion
of the Company’s overall assessment of the new guidance, impact the Company’s current conclusions.
ASU No. 2017-04, Intangibles - Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04 (“ASU 2017-04”) “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment
should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill
allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective
for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019; early adoption is
permitted. 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 adoption on its consolidated financial statements.
(g) Reclassification
Certain balances have been reclassified
to conform to presentation requirements, including presentation of discontinued operations and assets and liabilities held for
disposal with respect to the Company’s FLI Charge business (refer to Note 10), as well as consistent presentation of cost
of sales and general and administrative expenses to align presentation for operating segments.
Note 3. Net Loss per Share of Common
Stock
Basic net loss per share is computed by
dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock
plus dilutive potential common stock considered outstanding during the period. However, as the Company generated a net loss in
all periods presented, potentially dilutive securities, including certain warrants and stock options, were not reflected in diluted
net loss per share because the impact of such instruments was anti-dilutive.
The table below presents the computation
of basic and diluted net loss per share of common stock:
|
|
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 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 of the Company’s common stock, par value $0.01 per share.
As a result of these events, the total
number of shares of FORM Preferred Stock was reduced from 491,427 as of December 31, 2016 to 420,541 shares as of September 30,
2017 and the face value (and liquidation preference) was reduced from $23,588 to $20,186.
Group Mobile
On February 2, 2017, the Company acquired
Excalibur, which is an end-to-end solutions provider of mobile hardware devices, wireless network security, data networking, telephony
and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within
the Company’s technology operating segment.
In consideration for the acquisition, the
Company issued 888,573 unregistered shares of the Company’s common stock, par value $0.01 per share, to the former stockholders
of Excalibur (the “Excalibur Sellers”). In addition, the Excalibur Sellers will, in the three years following the closing
of this transaction, also receive $500 for each $2,000 of gross profit generated by a specified list of Excalibur accounts annually,
until such cumulative gross profit reaches $6,000, and an additional $500 when such cumulative profit reaches $10,000, such amounts
are payable in either cash or the Company’s common stock, at the election of the Company.
The fair value of the total purchase price
is $2,125 and includes a fair value of contingent consideration of $316 and fair value of unregistered shares of common stock issued
of $1,809.
Assets acquired and liabilities assumed
were recorded at their fair values as of the acquisition date. The purchase price for the acquisition was allocated to the net
tangible and intangible assets based on their fair values as of the acquisition date. The excess of the purchase price over the
net tangible assets and intangible assets was recorded as goodwill. The table below presents preliminary allocation of the purchase
price:
|
|
Fair Value
|
|
Assets
|
|
|
|
|
Current assets (including cash of $26)
|
|
$
|
613
|
|
Deferred tax assets
|
|
|
29
|
|
Property and equipment
|
|
|
21
|
|
Intangible assets
|
|
|
556
|
|
Goodwill
|
|
|
2,335
|
|
Total assets
|
|
|
3,554
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
1,214
|
|
Deferred tax liabilities
|
|
|
215
|
|
Total liabilities
|
|
|
1,429
|
|
Net assets, fair value
|
|
$
|
2,125
|
|
The allocation of the purchase price was
based upon a preliminary valuation performed using the Company's estimates and assumptions, which are subject to change within
the measurement period (up to one year from the acquisition date).
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:
|
•
|
technology (Group Mobile); and
|
Segment operating results reflect losses
before corporate and unallocated shared expenses, interest expense and income taxes. Corporate and unallocated shared expenses
principally consist of costs for corporate functions, rent for office space, stock-based compensation, executive management and
certain unallocated administrative support functions.
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness
|
|
$
|
12,652
|
|
|
$
|
—
|
|
|
$
|
36,563
|
|
|
$
|
—
|
|
Technology
|
|
|
4,879
|
|
|
|
1,751
|
|
|
|
11,820
|
|
|
|
5,478
|
|
Intellectual property
|
|
|
200
|
|
|
|
1,350
|
|
|
|
300
|
|
|
|
11,000
|
|
Total revenue
|
|
|
17,731
|
|
|
|
3,101
|
|
|
|
48,683
|
|
|
|
16,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness
|
|
|
10,347
|
|
|
|
—
|
|
|
|
29,583
|
|
|
|
—
|
|
Technology
|
|
|
3,902
|
|
|
|
1,554
|
|
|
|
9,520
|
|
|
|
4,858
|
|
Intellectual property
|
|
|
126
|
|
|
|
1,164
|
|
|
|
343
|
|
|
|
6,127
|
|
Total cost of sales
|
|
|
14,375
|
|
|
|
2,718
|
|
|
|
39,446
|
|
|
|
10,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness
|
|
|
(1,639
|
)
|
|
|
—
|
|
|
|
(6,002
|
)
|
|
|
—
|
|
Technology
|
|
|
(490
|
)
|
|
|
(565
|
)
|
|
|
(2,146
|
)
|
|
|
(1,213
|
)
|
Intellectual property
|
|
|
217
|
|
|
|
113
|
|
|
|
86
|
|
|
|
(8,167
|
)
|
Corporate
|
|
|
(2,099
|
)
|
|
|
(2,911
|
)
|
|
|
(6,562
|
)
|
|
|
(6,527
|
)
|
Total segment operating loss
|
|
|
(4,011
|
)
|
|
|
(3,363
|
)
|
|
|
(14,624
|
)
|
|
|
(15,907
|
)
|
Corporate non-operating expense, net
|
|
|
(268
|
)
|
|
|
(1,483
|
)
|
|
|
(574
|
)
|
|
|
(1,923
|
)
|
Loss from continuing operations before income taxes
|
|
$
|
(4,279
|
)
|
|
$
|
(4,846
|
)
|
|
$
|
(15,198
|
)
|
|
$
|
(17,830
|
)
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Wellness
|
|
$
|
51,151
|
|
|
$
|
57,527
|
|
Technology
|
|
|
14,445
|
|
|
|
7,014
|
|
Intellectual property
|
|
|
603
|
|
|
|
940
|
|
Corporate
|
|
|
7,189
|
|
|
|
15,819
|
|
Assets held for disposal
|
|
|
451
|
|
|
|
1,507
|
|
Total assets
|
|
$
|
73,839
|
|
|
$
|
82,807
|
|
General and administrative costs are allocated
among the operating segments and non-operating corporate segment. The non-operating corporate segment does not have any revenue,
but does incur expenses such as compensation expenses, rent and infrastructure costs. The non-operating corporate segment’s
assets are mainly comprised of cash.
The Company currently operates in two geographical
regions: United States and all other countries. The following table represents the geographical revenue, regional operating loss,
and total asset information as of and for the three and nine months ended September 30, 2017 and 2016. There were no concentrations
of geographical revenue, regional operating loss or total assets related to any single foreign country that were material to the
Company’s condensed consolidated financial statements.
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
16,228
|
|
|
$
|
3,101
|
|
|
$
|
44,802
|
|
|
$
|
16,478
|
|
All other countries
|
|
|
1,503
|
|
|
|
—
|
|
|
|
3,881
|
|
|
|
—
|
|
Total revenue
|
|
|
17,731
|
|
|
|
3,101
|
|
|
|
48,683
|
|
|
|
16,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
13,539
|
|
|
|
2,718
|
|
|
|
37,108
|
|
|
|
10,985
|
|
All other countries
|
|
|
836
|
|
|
|
—
|
|
|
|
2,338
|
|
|
|
—
|
|
Total cost of sales
|
|
|
14,375
|
|
|
|
2,718
|
|
|
|
39,446
|
|
|
|
10,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
(4,540
|
)
|
|
|
(3,360
|
)
|
|
|
(15,849
|
)
|
|
|
(15,901
|
)
|
All other countries
|
|
|
529
|
|
|
|
(3
|
)
|
|
|
1,225
|
|
|
|
(6
|
)
|
Total segment operating loss
|
|
|
(4,011
|
)
|
|
|
(3,363
|
)
|
|
|
(14,624
|
)
|
|
|
(15,907
|
)
|
Corporate non-operating expense, net
|
|
|
(268
|
)
|
|
|
(1,483
|
)
|
|
|
(574
|
)
|
|
|
(1,923
|
)
|
Loss from continuing operations before income taxes
|
|
$
|
(4,279
|
)
|
|
$
|
(4,846
|
)
|
|
$
|
(15,198
|
)
|
|
$
|
(17,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
$
|
70,141
|
|
|
$
|
78,546
|
|
All other countries
|
|
|
|
|
|
|
|
|
|
|
3,247
|
|
|
|
2,754
|
|
Assets held for disposal
|
|
|
|
|
|
|
|
|
|
|
451
|
|
|
|
1,507
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
73,839
|
|
|
$
|
82,807
|
|
Note 6. Fair Value Measurements
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 of
the Company’s derivative warrant liabilities were the current market price of the Company’s common stock, the exercise
price of the derivative warrant liabilities, their remaining expected term, the volatility of the Company’s common stock
price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result
in a significant change in the fair value measurement.
Generally, an increase in the market price
of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and
an increase in the remaining term of the derivative warrant liabilities would each result in a directionally similar change in
the estimated fair value of the Company’s derivative warrant liabilities. Such changes would increase the associated liability
while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease
in the differential between the derivative warrant liabilities’ exercise price and the market price of the Company’s
shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated
liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in
the estimated fair value of the derivative warrant liabilities due to the dividend assumption.
Other Fair Value Measurements
The following table presents the placement
in the fair value hierarchy of 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
|
|
|
u
nobservable
|
|
|
|
Balance
|
|
|
assets (Level 1)
|
|
|
inputs (Level 2)
|
|
|
inputs (Level 3)
|
|
September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
316
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
316
|
|
The purchase value of the contingent consideration
assumed by the Company following the acquisition of Excalibur was determined using the Monte-Carlo simulation and, as such, was
classified as Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes
are consistent with expectations of management based upon the sensitivity and nature of the inputs.
Note 7. Stock-based Compensation
As of September 30, 2017, 1,552,480 shares
of the Company’s common stock were available for future grants under the Company’s 2012 Employee, Director and Consultant
Equity Incentive Plan. Total stock-based compensation expense for the nine-month periods ended September 30, 2017 and 2016 was
$2,179 and $1,447, respectively. Total stock-based compensation expense for the three-month periods ended September 30, 2017 and
2016 was $706 and $485, respectively.
The following table illustrates the options
granted during the nine-month period ended September 30, 2017.
Title
|
|
Grant date
|
|
No. of
options
|
|
Exercise
price
|
|
Fair value at
grant date
|
|
Vesting terms
|
|
Assumptions used in
Black-Scholes
option pricing model
|
Directors, management, and employees
|
|
January 2017
|
|
1,545,000
|
|
$2.12 – $2.15
|
|
$0.89 – $0.96
|
|
Over 1 year for directors; Over 3 years for management and employees
|
|
Volatility: 44.27% – 44.90%
Risk free interest rate: 1.95% – 2.16%
Expected term, in years: 5.29 – 5.79
Dividend yield: 0.00%
|
The following table illustrates the RSUs
granted during the nine-month period September 30, 2017.
Title
|
|
Grant date
|
|
No. of RSUs
|
|
|
Fair value at grant date
|
|
|
Vesting term
|
Management and employees
|
|
January 2017
|
|
|
400,942
|
|
|
$
|
2.12
|
|
|
Over 1 year period, vesting on 1 year anniversary of grant date
|
The activity related to stock options and
RSUs during the nine-month period ended September 30, 2017 consisted of the following:
|
|
RSUs
|
|
|
Options
|
|
|
|
No. of
RSUs
|
|
|
Weighted
average
grant date
fair value
|
|
|
No. of
options
|
|
|
Weighted
average
exercise
price
|
|
|
Exercise
price range
|
|
|
Weighted
average
grant date
fair value
|
|
Outstanding as of January 1, 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
3,679,101
|
|
|
$
|
7.60
|
|
|
$
|
1.55 – 55.00
|
|
|
$
|
5.41
|
|
Granted
|
|
|
400,942
|
|
|
$
|
2.12
|
|
|
|
1,545,000
|
|
|
$
|
2.12
|
|
|
$
|
2.12 – 2.15
|
|
|
$
|
0.93
|
|
Vested/Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(35,377
|
)
|
|
$
|
2.12
|
|
|
|
(330,834
|
)
|
|
$
|
15.57
|
|
|
$
|
1.55 – 41.00
|
|
|
$
|
10.61
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,368
|
)
|
|
$
|
43.66
|
|
|
$
|
9.94 – 55.00
|
|
|
$
|
22.02
|
|
Outstanding as of September 30, 2017
|
|
|
365,565
|
|
|
$
|
2.12
|
|
|
|
4,876,899
|
|
|
$
|
5.21
|
|
|
$
|
1.55 – 41.00
|
|
|
$
|
3.59
|
|
Exercisable as of September 30, 2017
|
|
|
—
|
|
|
|
|
|
|
|
2,780,024
|
|
|
$
|
7.77
|
|
|
$
|
1.55 – 41.00
|
|
|
|
|
|
On January 20, 2017, the Company entered
into amended employment agreements with its named executive officers. Under the terms of certain of these agreements, certain of
these officers are entitled to a percentage of the amount equal to the total amount of cash and the fair market value of all noncash
consideration paid or payable to the Company or its stockholders in connection with an initial public offering or a change of control
of certain subsidiaries of the Company. The amended employment agreements also allow for the granting of equity awards to certain
officers in connection with an initial public offering of certain subsidiaries of the Company.
The Company did not recognize tax benefits
related to its stock-based compensation as there is a full valuation allowance recorded.
Note 8. Income Taxes
The Company’s provision for income
taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision
for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates
its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary. The income tax provisions
for the nine months 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
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 on the Company’s 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 matters described below, and assessed
the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company recorded $745,
which is included in accounts payable, accrued expenses, and other current liabilities in the condensed consolidated balance sheet
as of September 30, 2017.
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.
On January 3, 2017, XpresSpa filed a lawsuit
in the Supreme Court of the State of New York, County of New York against Cordial and several related parties. The lawsuit alleges
breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference,
and breach of good faith and fair dealing related to XpresSpa’s former partnership with Cordial as XpresSpa’s ACDBE
partner in several store locations at Hartsfield-Jackson Atlanta International Airport (the “Cordial Litigation”).
On March 3, 2017, XpresSpa filed a first amended complaint against Cordial. On April 5, 2017, Cordial filed a motion to dismiss
the Cordial Litigation. On September 12, 2017, the Court held a hearing on the motion to dismiss.
On January 4, 2017, XpresSpa filed a lawsuit
in the United States District Court for the Southern District of New York against its former attorney, Kevin Ross, and his law
firm, alleging malpractice, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious
interference, and promissory estoppel related to XpresSpa’s former partnership with Cordial, as well as XpresSpa’s
engagement of Kevin Ross as its attorney (the “Ross Litigation”). On March 17, 2017, XpresSpa filed a First Amended
Complaint against the defendants. On June 2, 2017, the Ross Defendants filed their answer.
Both the Cordial Litigation and Ross Litigation
are pending before the respective courts.
In re Chen et al.
On March 16, 2015, four former employees
of XpresSpa who worked at locations in John F. Kennedy International Airport and LaGuardia Airport filed a putative class and collective
action wage-hour litigation in the United States District Court for the Eastern District of New York, claiming that they and other
spa technicians were misclassified, and that overtime was unpaid. On September 23, 2016, the Court conditionally certified the
class. The parties held a mediation on February 28, 2017 and reached an agreement on a settlement in principle. 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, XpresSpa 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.
Other
XpresSpa is involved in various other
claims and legal actions that arise in the ordinary course of business. The Company does not believe that the ultimate resolution
of these actions will have a material adverse effect on XpresSpa’s financial position, results of operations, liquidity,
or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which
the Company incurs greater liabilities than the Company currently anticipates, could materially adversely affect the Company’s
business, financial condition, results of operations and cash flows.
The Company’s intellectual property
operating segment is engaged in litigation, for which no liability is recorded, as the Company does not expect a material negative
outcome.
On November 6, 2017, Moreton Binn and Marisol
F, LLC, former shareholders of XpresSpa, filed a lawsuit against the Company and its directors alleging that the defendants engaged
in securities violations, misrepresentation, and various other allegations regarding the Company’s acquisition of XpresSpa.
The Company is currently in the process of evaluating the claims.