Approximate date of commencement of proposed
sale to the public: From time to time after this Registration Statement becomes effective.
If the only securities being registered
on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.
¨
If any of the securities being registered
on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest reinvestment plans, check the following box.
x
If this form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering.
¨
If this form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
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If this Form is a registration statement
pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission
pursuant to Rule 462(e) under the Securities Act, check the following box.
¨
If this Form is a post-effective amendment
to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes
of securities pursuant to Rule 413(b) under the Securities Act, check the following box.
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Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
RISK FACTORS
Investing in our
securities involves a high degree of risk. You should carefully review and consider the following risk factors and in the sections
entitled “Risk Factors” contained in our most recent annual report on Form 10-K, which has been filed with the SEC
and is incorporated by reference in this prospectus, as well as any updates thereto contained in subsequent filings with the SEC,
and all other information contained in this prospectus and incorporated by reference into the prospectus before purchasing our
securities. The risks and uncertainties described below are not the only ones facing our Company. Additional risks and uncertainties
of which we are unaware, or that we currently deem immaterial, also may become important factors that affect us. If any of the
following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In
that case, the trading price of our common stock could decline, and you may lose some or all of your investment.
Risks Related to our Financial Condition
and Capital Requirements
We may not be able to raise additional
capital. Moreover, additional financing may have an adverse effect on the value of the equity instruments held by our stockholders.
We may choose to raise additional funds
in connection with any potential acquisition of operating businesses or other assets. In addition, we may also need additional
funds to respond to business opportunities and challenges, including our ongoing operating expenses, protection of our assets,
development of new lines of business and enhancement of our operating infrastructure. While we may need to seek additional funding,
we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive
to, or otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators
or other third parties. We may not be able to negotiate arrangements on acceptable terms, if at all. If we are unable to obtain
additional funding on a timely basis, we may be required to curtail or terminate some or all of our business plans. Any such financing
that we undertake will likely be dilutive to our current stockholders.
Our ability to use our net operating
loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2017, we had federal
net operating loss carryforwards (“NOL”s) of $159,007,000 which expire 20 years from the respective tax years to which
they relate. Our ability to utilize our NOLs may be limited under Section 382 of the Internal Revenue Code. The limitations apply
if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain stockholders increase
their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically
three years). Additionally, United States tax laws limit the time during which these carryforwards may be utilized against future
taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes. Future
changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
The recently passed comprehensive
federal tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed
into law the “Tax Cuts and Jobs Act,” or TCJA, which significantly reforms the Internal Revenue Code of 1986, as amended,
or the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations
on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts
into effect the migration from a “worldwide” system of taxation to a territorial system. Our net deferred tax assets
and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact, if any, will be recognized in our tax
expense in the year of enactment. We continue to examine the impact this tax reform legislation may have on our business. The overall
impact of the TCJA is uncertain and our business and financial condition could be adversely affected.
Global economic and market conditions
may adversely affect our business, financial condition and operating results.
Our business plan depends significantly
on worldwide economic conditions and our success is dependent on consumer spending, which is sensitive to economic downturns, inflation
and any associated rise in unemployment, decline in consumer confidence, adverse changes in exchange rates, increase in interest
rates, increase in the price of oil, deflation, direct or indirect taxes or increase in consumer debt levels. As a result, economic
downturns may have a material adverse impact on our business, financial condition and results of operations. Moreover, uncertainty
about global economic conditions poses a risk as businesses and individuals may postpone spending in response to tighter credit,
negative financial news and declines in income or asset values. This could have a negative effect on corporate and individual spending
on health and wellness and travel. These factors, taken together or individually, could cause material harm to our business, financial
condition and results of operations.
Risks Related to our Business Operations
XpresSpa is reliant on international
and domestic airplane travel, and the time that airline passengers spend in United States airports post-security. A decrease in
airline travel, a decrease in the desire of customers to buy spa services and products, or decreased time spent in airports would
negatively impact XpresSpa’s operations.
XpresSpa depends upon a large number of
airplane travelers with the propensity for health and wellness, and in particular spa treatments and products, spending significant
time post- security clearance check points.
If the number of airline travelers decreases,
if the time that these travelers spend post-security decreases, and/or if travelers ability or willingness to pay for XpresSpa’s
products and services diminishes, this could have an adverse effect on XpresSpa’s growth, business activities, cash flow,
financial condition and results of operations. Some reasons for these events could include:
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terrorist activities (including cyber-attacks), pandemics and outbreaks of contagious diseases, such as the Zika or Ebola crises, impacting either domestic or international travel through airports where XpresSpa operates, causing fear of flying, flight cancellations, or an economic downturn, or any other event of a similar nature, even if not directly affecting the airline industry, may lead to a significant reduction in the number of airline passengers;
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a decrease in business spending that impacts business travel, such as a recession;
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a decrease in consumer spending that impacts leisure travel, such as a recession or a stock market downturn or a change in consumer lending regulations impacting available credit for leisure travel;
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an increase in airfare prices that impacts the willingness of air travelers to fly, such as an increase in oil prices or heightened taxation from federal or other aviation authorities;
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severe weather, ash clouds, airport closures, natural disasters, strikes or accidents (airplane or otherwise), causing travelers to decrease the amount that they fly and any of these events, or any other event of a similar nature, even if not directly affecting the airline industry, may lead to a significant reduction in the number of airline passengers;
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scientific studies that malign the use of spa services or the products used in spa services, such as the impact of certain chemicals and procedures on health and wellness; or
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streamlined security screening checkpoints, which could decrease the wait time at checkpoints and therefore the time air travelers budget for spending time at the airport.
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Further, any disruption to, or suspension
of services provided by, airlines and the travel industry as a result of financial difficulties, labor disputes, construction work,
increased security, changes to regulations governing airlines, mergers and acquisitions in the airline industry and challenging
economic conditions causing airlines to reduce flight schedules or increase the price of airline tickets could negatively affect
the number of airline passengers.
Additionally, the threat of terrorism and
governmental measures in response thereto, such as increased security measures, recent executive orders in the United States impacting
entry into the United States and changing attitudes towards the environmental impacts of air travel may in each case reduce demand
for air travel and, as a result, decrease airline passenger traffic at airports.
The effect that these factors would have
on our business depends on their magnitude and duration, and a reduction in airline passenger numbers will result in a decrease
in our sales and may have a materially adverse impact on our business, financial condition and results of operations.
Our success will depend in part on
relationships with third parties. Any adverse changes in these relationships could adversely affect our business, financial condition,
or results of operations.
Our success is dependent on our ability
to maintain and renew our business relationships and to establish new business relationships. There can be no assurance that our
management will be able to maintain such business relationships or enter into or maintain new business contracts and other business
relationships, on acceptable terms, if at all. The failure to maintain important business relationships could have a material adverse
effect on our business, financial condition, or results of operations.
We rely on a limited number of distributors
and suppliers for certain of our products, and events outside our control may disrupt our supply chain, which could result in an
inability to perform our obligations under our concession agreements and ultimately cause us to lose our concessions.
We rely on a small number of suppliers
for our products. As a result, these distributors may have increased bargaining power and we may be required to accept less favorable
purchasing terms. In the event of a dispute with a supplier or distributor, the delivery of a significant amount of merchandise
may be delayed or cancelled, or we may be forced to purchase merchandise from other suppliers on less favorable terms. Such events
could cause turnover to fall or costs to increase, adversely affecting our business, financial condition and results of operations.
In particular, we have publicized our sale of certain brands of products in our stores – our failure to sell these brands
may adversely affect our business.
Further, damage or disruption to our supply
chain due to any of the following could impair our ability to sell our products: adverse weather conditions or natural disaster,
government action, fire, terrorism, cyber-attacks, the outbreak or escalation of armed hostilities, pandemic, industrial accidents
or other occupational health and safety issues, strikes and other labor disputes, customs or import restrictions or other reasons
beyond our control or the control of our suppliers and business partners. Failure to take adequate steps to mitigate the likelihood
or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial
condition and results of operations, as well as require additional resources to restore our supply chain.
XpresSpa’s operating results
may fluctuate significantly due to certain factors, some of which are beyond its control.
XpresSpa’s operating results may
fluctuate from period to period significantly because of several factors, including:
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the timing and size of new unit openings, particularly the launch of new terminals;
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passenger traffic and seasonality of air travel;
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changes in the price and availability of supplies;
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macroeconomic conditions, both nationally and locally;
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changes in consumer preferences and competitive conditions;
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expansion to new markets and new locations; and
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increases in infrastructure costs, including those costs associated with the build-out of new concession locations and renovating existing concession locations.
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XpresSpa’s operating results may
fluctuate significantly as a result of the factors discussed above. Accordingly, results for any period are not necessarily indicative
of results to be expected for any other period or for any year.
XpresSpa’s expansion into new
airports or off-airport locations may present increased risks due to its unfamiliarity with those areas.
XpresSpa’s growth strategy depends
upon expanding into markets where it has little or no meaningful operating experience. Those locations may have demographic characteristics,
consumer tastes and discretionary spending patterns that are different from those in the markets where its existing operations
are located. As a result, new airport terminal and/or off-airport operations may be less successful than existing concession locations
in current airport terminals. XpresSpa may find it more difficult in new markets to hire, motivate and keep qualified employees
who can project its vision, passion and culture. XpresSpa may also be unfamiliar with local laws, regulations and administrative
procedures, including the procurement of spa services retail licenses, in new markets which could delay the build-out of new concession
locations and prevent it from achieving its target revenues on a timely basis. Operations in new markets may also have lower average
revenues or enplanements than in the markets where XpresSpa currently operates. Operations in new markets may also take longer
to ramp up and reach expected sales and profit levels, and may never do so, thereby negatively affecting XpresSpa’s results
of operations.
XpresSpa’s growth strategy
is highly dependent on its ability to successfully identify and open new XpresSpa locations.
XpresSpa’s growth strategy primarily
contemplates expansion through procuring new XpresSpa locations and opening new XpresSpa stores and kiosks. Implementing this strategy
depends on XpresSpa’s ability to successfully identify new store locations. XpresSpa will also need to assess and mitigate
the risk of any new store locations, to open the stores on favorable terms and to successfully integrate their operations with
ours. XpresSpa may not be able to successfully identify opportunities that meet these criteria, or, if it does, XpresSpa may not
be able to successfully negotiate and open new stores on a timely basis. If XpresSpa is unable to identify and open new locations
in accordance with its operating plan, XpresSpa’s revenue growth rate and financial performance may fall short of our expectations.
Our profitability depends on the
number of airline passengers in the terminals in which we have concessions. Changes by airport authorities or airlines that lower
the number of airline passengers in any of these terminals could affect our business, financial condition and results of operations.
The number of airline passengers that visit
the terminals in which we have concessions is dependent in part on decisions made by airlines and airport authorities relating
to flight arrivals and departures. A decrease in the number of flights and resulting decrease in airline passengers could result
in fewer sales, which could lower our profitability and negatively impact our business, financial condition and results of operations.
Concession agreements generally provide for a minimum annual guaranteed payment (“MAG”) payable to the airport authority
or landlord regardless of the amount of sales at the concession. Currently, the majority of our concession agreements provide for
a MAG that is either a fixed dollar amount or an amount that is variable based upon the number of travelers using the airport or
other location, retail space used, estimated sales, past results or other metrics. If there are fewer airline passengers than expected
or if there is a decline in the sales per airline passenger at these facilities, we will nonetheless be required to pay the MAG
or fixed rent and our business, financial condition and results of operations may be materially adversely affected.
Furthermore, the exit of an airline from
a market or the bankruptcy of an airline could reduce the number of airline passengers in a terminal or airport where we operate
and have a material adverse impact on our business, financial condition and results of operations.
We may not be able to execute our
growth strategy to expand and integrate new concessions or future acquisitions into our business or remodel existing concessions.
Any new concessions, future acquisitions or remodeling of existing concessions may divert management resources, result in unanticipated
costs, or dilute the ownership of our stockholders.
Part of our growth strategy is to expand
and remodel our existing facilities and to seek new concessions through tenders, direct negotiations or other acquisition opportunities.
In this regard, our future growth will depend upon a number of factors, such as our ability to identify any such opportunities,
structure a competitive proposal and obtain required financing and consummate an offer. Our growth strategy will also depend on
factors that may not be within our control, such as the timing of any concession or acquisition opportunity.
We must also strategically identify which
airport terminals and concession agreements to target based on numerous factors, such as airline passenger numbers, airport size,
the type, location and quality of available concession space, level of anticipated competition within the terminal, potential future
growth within the airport and terminal, rental structure, financial return and regulatory requirements. We cannot provide assurance
that this strategy will be successful.
In addition, we may encounter difficulties
integrating expanded or new concessions or any acquisitions. Such expanded or new concessions or acquisitions may not achieve anticipated
turnover and earnings growth or synergies and cost savings. Delays in the commencement of new projects and the refurbishment of
concessions can also affect our business. In addition, we will expend resources to remodel our concessions and may not be able
to recoup these investments. A failure to grow successfully may materially adversely affect our business, financial condition and
results of operations.
In particular, new concessions and acquisitions,
and in some cases future expansions and remodeling of existing concessions, could pose numerous risks to our operations, including
that we may:
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have difficulty integrating operations or personnel;
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incur substantial unanticipated integration costs;
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experience unexpected construction and development costs and project delays;
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face difficulties associated with securing required governmental approvals, permits and licenses (including construction permits) in a timely manner and responding effectively to any changes in federal, state or local laws and regulations that adversely affect our costs or ability to open new concessions;
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have challenges identifying and engaging local business partners to meet ACDBE requirements in concession agreements;
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not be able to obtain construction materials or labor at acceptable costs;
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face engineering or environmental problems associated with our new and existing facilities;
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experience significant diversion of management attention and financial resources from our existing operations in order to integrate expanded, new or acquired businesses, which could disrupt our ongoing business;
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lose key employees, particularly with respect to acquired or new operations;
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have difficulty retaining or developing acquired or new business customers;
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impair our existing business relationships with suppliers or other third parties as a result of acquisitions;
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fail to realize the potential cost savings or other financial benefits and/or the strategic benefits of acquisitions, new concessions or remodeling; and
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incur liabilities from the acquired businesses and we may not be successful in seeking indemnification for such liabilities.
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In connection with acquisitions or other
similar investments, we could incur debt or amortization expenses related to intangible assets, suffer asset impairments, assume
liabilities or issue stock that would dilute the percentage of ownership of our then-current stockholders. We may not be able to
complete acquisitions or integrate the operations, products, technologies or personnel gained through any such acquisition, which
may have a materially adverse impact on our business, financial condition and results of operations.
If the estimates and assumptions
we use to determine the size of our market are inaccurate, our future growth rate may be impacted.
Market opportunity estimates and growth
forecasts are subject to uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates
and forecasts in this annual report relating to the size and expected growth of the travel retail market may prove to be inaccurate.
Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar
rates, if at all. The principal assumptions relating to our market opportunity include projected growth in the travel retail market
and our share of the market. If these assumptions prove inaccurate, our business, financial condition and results of operations
could be adversely affected.
Our business requires substantial
capital expenditures and we may not have access to the capital required to maintain and grow our operations.
Maintaining and expanding our operations
in our existing and new retail locations is capital intensive. Specifically, the construction, redesign and maintenance of our
retail space in airport terminals where we operate, technology costs, and compliance with applicable laws and regulations require
substantial capital expenditures. We may require additional capital in the future to fund our operations and respond to potential
strategic opportunities, such as investments, acquisitions and expansions.
We must continue to invest capital to maintain
or to improve the success of our concessions and to meet refurbishment requirements in our concessions. Decisions to expand into
new terminals could also affect our capital needs. Our actual capital expenditures in any year will vary depending on, among other
things, the extent to which we are successful in renewing existing concessions and winning additional concession agreements.
We cannot provide assurance that we will
be able to maintain our operating performance, generate sufficient cash flow, or have access to sufficient financing to continue
our operations and development activities at or above our present levels, and we may be required to defer all or a portion of our
capital expenditures. Our business, financial condition and results of operations may be materially adversely affected if we cannot
make such capital expenditures.
XpresSpa currently relies on a skilled,
licensed labor force to provide spa services, and the supply of this labor force is finite. If XpresSpa cannot hire adequate staff
for its locations, it will not be able to operate.
As of May 30, 2018, XpresSpa had 638 full-time
and 142 part-time employees in its locations. Excluding some dedicated retail staff, the majority of these employees are licensed
to perform spa services, and hold such licenses as masseuses, nail technicians, aestheticians, barbers and master barbers. The
demand for these licensed technicians has been increasing as more consumers gravitate to health and wellness treatments such as
spa services. XpresSpa competes not only with other airport-based spa companies but with spa companies outside of the airport for
this skilled labor force. In addition, all staff hired by XpresSpa must pass the background checks and security clearances necessary
to work in airport locations. If XpresSpa is unable to attract and retain qualified staff to work in its airport locations, its
ability to operate will be impacted negatively.
Our business is subject to various
laws and regulations, and changes in such laws and regulations, or failure to comply with existing or future laws and regulations,
could adversely affect us.
We are subject to various laws and regulations
in the United States, Netherlands and United Arab Emirates that affect the operation of our concessions. The impact of current
laws and regulations, the effect of changes in laws or regulations that impose additional requirements and the consequences of
litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory
or public policy issues, could increase our compliance and other costs of doing business and, therefore, have an adverse impact
on our results of operations.
Failure to comply with the laws and regulatory
requirements of governmental authorities could result in, among other things, revocation of required licenses, administrative enforcement
actions, fines and civil and criminal liability. In addition, certain laws may require us to expend significant funds to make modifications
to our concessions in order to comply with applicable standards. Compliance with such laws and regulations can be costly and can
increase our exposure to litigation or governmental investigations or proceedings.
XpresSpa’s labor force could
unionize, putting upward pressure on labor costs.
Currently, XpresSpa stores in two airports
have a labor force which is unionized. Major players in labor organization, and in particular “Unite Here!” which represents
approximately 45,000 employees in the airport concessions and airline catering industries, could target XpresSpa locations for
its unionization efforts. In the event of the successful unionization of all of XpresSpa’s labor force, XpresSpa would likely
incur additional costs in the form of higher wages, more benefits such as vacation and sick leave, and potentially also higher
health care insurance costs.
XpresSpa competes for new locations
in airports and may not be able to secure new locations.
XpresSpa participates in the highly competitive
and lucrative airport concessions industry, and as a result competes for retail leases with a variety of larger, better capitalized
concessions companies as well as smaller, mid-tier and single unit operators. Frequently, an airport includes a spa concept within
its retail product set and, in those instances, XpresSpa competes primarily with BeRelax, Terminal Getaway, Massage Bar and 10
Minute Manicure.
We may not be able to predict accurately
or fulfill customer preferences or demands.
We derive a significant amount of our revenue
from the sale of massage, cosmetic and luxury products which are subject to rapidly changing customer tastes. The availability
of new products and changes in customer preferences has made it more difficult to predict sales demand for these types of products
accurately. Our success depends in part on our ability to predict and respond to quickly changing consumer demands and preferences,
and to translate market trends into appropriate merchandise offerings. Additionally, due to our limited sales space relative to
other retailers, the proper selection of salable merchandise is an important factor in revenue generation. We cannot provide assurance
that our merchandise selection will correspond to actual sales demand. If we are unable to predict or rapidly respond to sales
demand or to changing styles or trends, or if we experience inventory shortfalls on popular merchandise, our revenue may be lower,
which could have a materially adverse impact on our business, financial condition and results of operations.
XpresSpa’s leases may be terminated,
either for convenience by the landlord or as a result of an XpresSpa default.
XpresSpa has store locations and kiosks
in a number of airports in which the landlord, with prior written notice to XpresSpa, can terminate XpresSpa’s lease, including
for convenience or as necessary for airport purposes or operations. If a landlord elects to terminate a lease at an airport, XpresSpa
may have to shut down one or more store locations at that airport.
Additionally, XpresSpa leases have numerous
provisions governing the operation of XpresSpa’s stores. Violation of one or more of these provisions, even unintentionally,
may result in the landlord finding that XpresSpa is in default of the lease. Violation of lease provisions may result in fines
and, in some cases, termination of a lease.
XpresSpa’s ability to operate
depends on the traffic patterns of the terminals in which it operates, and the cessation or disruption of air traveler traffic
in these terminals would negatively impact XpresSpa’s addressable market.
XpresSpa depends on a high volume of air
travelers in its terminals. It is possible that a terminal in which XpresSpa operates could become subject to a lower volume of
air travelers, which would significantly impact traffic near and around XpresSpa locations and therefore its total addressable
market. Lower volume in a terminal could be caused by:
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terminal construction that results in the temporary or permanent closure of a unit, or adversely impacts the volume or pattern of traffic flows within an airport;
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an airline utilizing an airport in which XpresSpa operates could abandon that airport or an individual terminal in favor of other airports or terminals, or because it is contracting operations; or
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adverse weather conditions could cause damage to the terminal or airport in which XpresSpa operates, resulting in the temporary or permanent closure of a unit.
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We are dependent on our local partners.
Our local partners, including our Airport
Concession Disadvantaged Business Enterprise (“ACDBE”) partners, maintain ownership interests in certain of our locations.
Our participation in these operating entities differs from market to market. While the precise terms of each relationship vary,
our local partners may have control over certain portions of the operations of these concessions. The stores are operated pursuant
to the applicable joint venture agreement governing the relationship between us and our local partner. Generally, these agreements
also provide that strategic decisions are to be made by a committee comprised of us and our local partner. These concessions involve
risks that are different from the risks involved in operating a concession independently, and include the possibility that our
local partners:
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are in a position to take action contrary to our instructions, our requests, our policies, our objectives or applicable laws;
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take actions that reduce our return on investment;
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go bankrupt or are otherwise unable to meet their capital contribution obligations;
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have economic or business interests or goals that are or become inconsistent with our business interests or goals; or
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take actions that harm our reputation or restrict our ability to run our business.
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Failure to comply with minimum airport
concession disadvantaged business enterprise participation goals and requirements could lead to lost business opportunities or
the loss of existing business.
Pursuant to ACDBE participation requirements,
XpresSpa is often required to meet, or use good faith efforts to meet, certain minimum ACDBE participation requirements when bidding
on or submitting proposals for new concession contracts. If XpresSpa is unable to find and/or partner with an appropriate ACDBE,
XpresSpa may lose opportunities to open new locations. In addition, a number of XpresSpa’s existing leases contain minimum
ACDBE participation requirements which require the ACDBE to own a significant portion of the business being operated under those
leases. The level of ACDBE participation requirements may affect XpresSpa’s profitability and/or its ability to meet financial
forecasts.
Further, if XpresSpa fails to comply with
the minimum ACDBE participation requirements, XpresSpa may be held responsible for a breach of contract, which could result in
the termination of a lease and impairment of XpresSpa’s ability to bid on or obtain future concession contracts. To the extent
that XpresSpa leases are terminated and XpresSpa is required to shut down one or more store locations, there could be a material
adverse impact to its business and results of operations.
Continued minimum wage increases
would negatively impact XpresSpa’s cost of labor.
XpresSpa compensates its licensed technicians
via a formula that includes commissions. As a result, an increase in the minimum wage would increase XpresSpa’s cost of labor
and have an adverse impact on our business, financial condition and results of operations.
Our business and financial condition
could be constrained by XpresSpa’s outstanding debt.
XpresSpa is obligated under a credit agreement
and secured promissory note payable to Rockmore Investment Master Fund Ltd. (“Rockmore”), a related party, which has
an outstanding balance of approximately $6,500,000, with a maturity date of December 31, 2019 (the “Senior Secured Note”).
The Senior Secured Note accrues interest of 11.24% per annum. XpresSpa has granted Rockmore a security interest in all of its tangible
and intangible personal property to secure its obligations under the Senior Secured Note. The Senior Secured Note is an outstanding
obligation of XpresSpa but is guaranteed by us.
We are obligated under the Secured Convertible
Notes, which has an outstanding balance of $4,437,500 with a maturity date of November 17, 2019. The Secured Convertible Notes
accrue interest of 5% per annum subject to increase in the event of default to the lesser of 18% per annum or the maximum rate
permitted under applicable law. The Secured Convertible Notes, including interest accrued thereon, are convertible at any time
until a Secured Convertible Note is no longer outstanding, in whole or in part, at the option of the holders into shares of our
common stock at a conversion price of $0.62 per share. We have granted the collateral agent for Secured Convertible Notes a security
interest in all of our tangible and intangible personal property to secure our obligations under the Secured Convertible Notes.
Information technology systems failure
or disruption, or changes to information technology related to payment systems, could impact our day-to-day operations.
Our information technology systems are
used to record and process transactions at our point-of-sale interfaces and to manage our operations. These systems provide information
regarding most aspects of our financial and operational performance, statistical data about our customers, our sales transactions
and our inventory management. Fire, natural disasters, power-loss, telecommunications failure, break-ins, terrorist attacks (including
cyber-attacks), computer viruses, electronic intrusion attempts from both external and internal sources and similar events or disruptions
may damage or impact our information technology systems at any time. These events could cause system interruption, delays or loss
of critical data and could disrupt our acceptance and fulfillment of customer orders, as well as disrupt our operations and management.
For example, although our point-of-sales systems are programmed to operate and process customer orders independently from the availability
of our central data systems and even of the network, if a problem were to disable electronic payment systems in our stores, credit
card payments would need to be processed manually, which could result in fewer transactions. Significant disruption to systems
could have a material adverse impact on our business, financial condition and results of operations.
We also continually enhance or modify the
technology used for our operations. We cannot be sure that any enhancements or other modifications we make to our operations will
achieve the intended results or otherwise be of value to our customers. Future enhancements and modifications to our technology
could consume considerable resources. We may be required to enhance our payment systems with new technology, which could require
significant expenditures. If we are unable to maintain and enhance our technology to process transactions, we may experience a
materially adverse impact on our business, financial condition and results of operations.
If XpresSpa is unable to protect
its customers’ credit card data and other personal information, XpresSpa could be exposed to data loss, litigation and liability,
and its reputation could be significantly harmed.
Privacy protection is increasingly demanding,
and the use of electronic payment methods and collection of other personal information, including order history, travel history
and other preferences, exposes XpresSpa to increased risk of privacy and/or security breaches as well as other risks. The majority
of XpresSpa’s sales are by credit or debit cards. Additionally, XpresSpa collects and stores personal information from individuals,
including its customers and employees.
In the future, XpresSpa may experience
security breaches in which credit and debit card information or other personal information is stolen. Although XpresSpa uses secure
private networks to transmit confidential information, third parties may have the technology or know-how to breach the security
of the customer information transmitted in connection with credit and debit card sales, and its security measures and those of
technology vendors may not effectively prohibit others from obtaining improper access to this information. The techniques used
to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect
for long periods of time, which may cause a breach to go undetected for an extensive period of time. Advances in computer and software
capabilities, new tools, and other developments may increase the risk of such a breach. Further, the systems currently used for
transmission and approval of electronic payment transactions, and the technology utilized in electronic payments themselves, all
of which can put electronic payment at risk, are determined and controlled by the payment card industry, not by XpresSpa. In addition,
contractors, or third parties with whom XpresSpa does business or to whom XpresSpa outsources business operations may attempt to
circumvent its security measures in order to misappropriate such information and may purposefully or inadvertently cause a breach
involving such information. If a person is able to circumvent XpresSpa’s security measures or those of third parties, he
or she could destroy or steal valuable information or disrupt XpresSpa’s operations. XpresSpa may become subject to claims
for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and XpresSpa
may also be subject to lawsuits or other proceedings relating to these types of incidents. Any such claim or proceeding could cause
XpresSpa to incur significant unplanned expenses, which could have an adverse effect on its business or results of operations.
Further, adverse publicity resulting from these allegations could significantly harm its reputation and may have a material adverse
effect on it. Although XpresSpa carries cyber liability insurance to protect against these risks, there can be no assurance that
such insurance will provide adequate levels of coverage against all potential claims.
Negative social media regarding XpresSpa
could result in decreased revenues and impact XpresSpa’s ability to recruit workers.
XpresSpa’s affinity among consumers
is highly dependent on their positive feelings about the brand, its customer service and the range and quality of services and
products that it offers. A negative customer experience that is posted to social media outlets and is distributed virally could
tarnish XpresSpa’s brand and its customers may opt to no longer engage with the brand.
XpresSpa employs people in multiple
different jurisdictions, and the employment laws of those jurisdictions are subject to change. In addition, its services are regulated
through government-issued operating licenses. Noncompliance with applicable laws could result in employee lawsuits or legal action
taken by government authorities.
XpresSpa must comply with a variety of
employment and business practices laws across the United States, Netherlands and United Arab Emirates. XpresSpa monitors the laws
governing its activities, but in the event it does not become aware of a new regulation or fails to comply with a regulation, it
could be subject to disciplinary action by governing bodies and potentially employee lawsuits.
XpresSpa is not currently cash flow
positive and will depend on funding to open new locations. In the event that capital is unavailable, XpresSpa will not be able
to open new locations.
Throughout its operating history, XpresSpa
has not generated sufficient cash from operations to fund its new store development. As a result, it will be dependent upon additional
funding for its new location growth until such time as it can produce enough cash to profitably fund its own location growth.
XpresSpa sources, develops and sells
products that may result in product liability defense costs and product liability payments.
The ingredients in XpresSpa’s products
contain ingredients that are deemed to be safe by the United States Federal Drug Administration and the Federal Food, Drug and
Cosmetics Act. However, there is no guarantee that these ingredients will not cause adverse health effects to some consumers given
the wide range of ingredients and allergies amongst the general population. XpresSpa may face substantial product liability exposure
for products it sells to the general public or that is uses in its services. Product liability claims, regardless of their merits,
could be costly and divert management’s attention, and adversely affect XpresSpa’s reputation and the demand for its
products and services. XpresSpa to date has not been named as a defendant in any product liability action.
We have commenced legal proceedings
and/or licensing discussions with security, content distribution and/or telecommunications companies. We expect that licensing
discussions may be time consuming and may either, absent any litigation we initiate, fail to lead to a license, or may result in
litigations commenced by the potential licensee.
To license or otherwise monetize the patent
assets that we own, we have commenced legal proceedings and/or attempted to commence licensing discussions with a number of companies,
during the course of which we allege that such companies infringe one or more of our patents. The future viability of our licensing
program is highly dependent on the outcome of these discussions, and there is a risk that we may be unable to achieve the results
we desire from such negotiations and be forced either to accept minimal royalties or commence litigations against the alleged infringer.
In addition, the recipients of our licensing overtures have substantially more resources than we do, which could make our licensing
efforts more difficult. Furthermore, due to changes in the approach to patent laws around the world it has become much easier for
potential licensees to commence proceedings to revoke or otherwise nullify our patents in lieu of engaging in bona fide licensing
discussions. There is a real risk that any potential licensee we approach would rather commence proceedings to revoke our patents
than engage in any licensing discussions whatsoever.
We anticipate that any legal proceedings
could continue for several years. While we endeavor, where possible, to engage counsel on a full or partial contingency basis,
proceedings may commence that fall outside of contingency arrangements with counsel and may require significant expenditures for
legal fees and other expenses. Disputes regarding the assertion of patents and other intellectual property rights are highly complex
and technical. Once initiated, we may be forced to litigate against other parties in addition to the originally named defendants.
Our adversaries may allege defenses and/or file counterclaims for, among other things, revocation of our patents or file collateral
litigations in an effort to avoid or limit liability and damages for patent infringement. If such actions by our adversaries are
successful, they may preclude our ability to derive licensing revenue from the patents being asserted.
There is a risk that we may be unable to
achieve the results we desire from such litigation, which may harm our business. In addition, the defendants in these litigations
have substantially more resources than we do, which could make our litigation efforts more difficult.
There is a risk that a court will
find our patents invalid, not infringed upon or unenforceable and/or that the USPTO or other relevant patent offices in various
countries will either invalidate the patents or materially narrow the scope of their claims during the course of a reexamination,
opposition or other such proceeding. In addition, even with a positive trial court verdict, the patents may be invalidated, found
not infringed upon or rendered unenforceable on appeal. This risk may occur either presently or from time to time in connection
with future litigations we may bring.
Patent litigation is inherently risky and
the outcome is uncertain. Some of the parties that we believe infringe on our patents are large and well-financed companies with
substantially greater resources than ours. We believe that these parties may devote a substantial amount of resources in an attempt
to avoid or limit a finding that they are liable for infringing upon on our patents or, in the event liability is found, to avoid
or limit the amount of associated damages. In addition, there is a risk that these parties may file reexaminations or other proceedings
with the USPTO or other government agencies in the United States or abroad in an attempt to invalidate, narrow the scope or render
unenforceable the patents we own. In addition, as part of our ongoing legal proceedings, the validity and/or enforceability of
our patents-in-suit is often challenged in a court or an administrative proceeding.
We may not be able to successfully
monetize our patents and, thus, we may fail to realize all of the anticipated benefits of acquisitions from third parties.
There is no assurance that we will be able
to successfully monetize the patent portfolios that we acquired from third parties. The patents we acquired could fail to produce
anticipated benefits or could have other adverse effects that we currently do not foresee.
In addition, the acquisition of a patent
portfolio is subject to a number of risks, including, but not limited to the following:
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There is a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets, if at all. During that time lag, material costs are likely to be incurred that would have a negative effect on our results of operations, cash flows and financial position.
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The integration of a patent portfolio is a time consuming and expensive process that may disrupt our operations. If our integration efforts are not successful, our results of operations could be harmed. In addition, we may not achieve anticipated synergies or other benefits from such acquisition.
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Therefore, there is no assurance that we
will be able to monetize an acquired patent portfolio and recoup our investment.
We and our subsidiaries have been,
are, and may become involved in litigation that could divert management’s attention and harm our businesses.
Litigation often is expensive and diverts
management’s attention and resources, which could adversely affect our businesses. We may be exposed to claims against us
even if no wrongdoing has occurred. Responding to such claims, regardless of their merit, can be time-consuming, costly to defend,
disruptive to our management’s attention and to our resources, damaging to our reputation and brand, and may cause us to
incur significant expenses. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual
obligations.
New legislation, regulations or court
rulings related to enforcing patents could harm our business and operating results.
Intellectual property is the subject of
intense scrutiny by the courts, legislatures and executive branches of governments around the world. Various patent offices, governments
or intergovernmental bodies may implement new legislation, regulations or rulings that impact the patent enforcement process or
the rights of patent holders and such changes could negatively affect licensing efforts and/or litigations. For example, limitations
on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary
standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively
affect our ability to assert our patent or other intellectual property rights.
It is impossible to determine the extent
of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become enacted
as laws. Compliance with any new or existing laws or regulations could be difficult and expensive, affect the manner in which we
conduct our business and negatively impact our business, prospects, financial condition and results of operations.
Our failure or inability to protect
the trademarks or other proprietary rights we use, or claims of infringement by us of rights of third parties, could adversely
affect our competitive position or the value of our brands.
We believe that our trademarks and other
proprietary rights are important to our success and our competitive position. However, any actions that we take to protect the
intellectual property we use may not prevent unauthorized use or imitation by others, which could have an adverse impact on our
image, brand or competitive position. If we commence litigation to protect our interests or enforce our rights, we could incur
significant legal fees. We also cannot provide assurance that third parties will not claim infringement by us of their proprietary
rights. Any such claim, whether or not it has merit, could be time consuming and distracting for our management, result in costly
litigation, cause changes to existing retail concepts or delays in introducing retail concepts, or require us to enter into royalty
or licensing agreements. As a result, any such claim could have a material adverse impact on our business, financial condition
and results of operations.
Future acquisitions or business opportunities
could involve unknown risks that could harm our business and adversely affect our financial condition and results of operations.
We have in the past, and may in the future,
acquire businesses or make investments, directly or indirectly through our subsidiaries, that involve unknown risks, some of which
will be particular to the industry in which the investment or acquisition targets operate, including risks in industries with which
we are not familiar or experienced. Although we intend to conduct appropriate business, financial and legal due diligence in connection
with the evaluation of future investment or acquisition opportunities, there can be no assurance that our due diligence investigations
will identify every matter that could have a material adverse effect on us. We may be unable to adequately address the financial,
legal and operational risks raised by such investments or acquisitions, especially if we are unfamiliar with the relevant industry.
The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing
the projected benefits of the investments or acquisitions, which could adversely affect our financial condition, liquidity, results
of operations, and trading price.
Anti-takeover provisions of Delaware
law, provisions in our charter and bylaws, and our stockholder rights plan could prevent or frustrate attempts by stockholders
to change our Board of Directors or current management and could delay, discourage or make more difficult a third-party acquisition
of control of us.
We are a Delaware corporation and, as such,
certain provisions of Delaware law could prevent or frustrate attempts by stockholders to change the Board of Directors or current
management, or could delay, discourage or make more difficult a third-party acquisition of control of us, even if the change in
control would be beneficial to stockholders or the stockholders regard it as such. We are subject to the provisions of Section
203 of the Delaware General Corporation Law (“DGCL”), which prohibits certain “business combination” transactions
(as defined in Section 203) with an “interested stockholder” (defined in Section 203 as a 15% or greater stockholder)
for a period of three years after a stockholder becomes an “interested stockholder,” unless the attaining of “interested
stockholder” status or the transaction is pre-approved by our Board of Directors, the transaction results in the attainment
of at least an 85% ownership level by an acquirer or the transaction is later approved by our Board of Directors and by our stockholders
by at least a 66 2/3 percent vote of our stockholders other than the “interested stockholder,” each as specifically
provided in Section 203.
Our certificate of incorporation and our
bylaws, each as currently in effect, also contain certain provisions that may delay, discourage or make more difficult a third-party
acquisition of control of us. Such provisions include a provision that any vacancies on our Board of Directors may only be filled
by a majority of the directors then serving, although not a quorum, and not by the stockholders and the ability of our Board of
Directors to issue preferred stock, without stockholder approval, that could dilute the stock ownership of a potential unsolicited
acquirer and hinder an acquisition of control of us that is not approved by our Board of Directors, including through the use of
preferred stock in connection with a stockholder rights plan.
We have also adopted a stockholder rights
plan in the form of a Section 382 Rights Plan, designed to help protect and preserve our substantial tax attributes primarily associated
with our NOLs under Section 382 of the Internal Revenue Code and research tax credits under Sections 382 and 383 of the Internal
Revenue Code and related United States Treasury regulations, which was approved by our stockholders in December 2016 and expires
in March 2019. Although this is not the purpose of the Section 382 Rights Plan, it could have the effect of making it uneconomical
for a third party to acquire us on a hostile basis.
These provisions of the DGCL, our certificate
of incorporation and bylaws, and our Section 382 Rights Plan may delay, discourage or make more difficult certain types of transactions
in which our stockholders might otherwise receive a premium for their shares over the current market price, and might limit the
ability of our stockholders to approve transactions that they think may be in their best interest.
Our confidential information may
be disclosed by other parties.
We routinely enter into non-disclosure
agreements with other parties, including but not limited to vendors, law firms, parties with whom we are engaged in negotiations,
and employees. However, there exists a risk that those other parties will not honor their contractual obligations to not disclose
our confidential information. This may include parties who breach such obligations in the context of confidential settlement offers
and/or negotiations. In addition, there exists a risk that, upon such breach and subsequent dissemination of our confidential information,
third parties and potential licensees may seek to use such confidential information to their advantage and/or to our disadvantage
including in legal proceedings in which we are involved. Our ability to act against such third parties may be limited, as we may
not be in privity of contract with such third parties.
Risks Related to our Capital Stock
Stock prices can be volatile, and
this volatility may depress the price of our common stock.
The stock market has experienced significant
price and volume fluctuations, which have affected the market price of many companies in ways that may have been unrelated to those
companies’ operating performance. Furthermore, we believe that our stock price may reflect certain future growth and profitability
expectations. If we fail to meet these expectations, then our stock price may significantly decline, which could have an adverse
impact on investor confidence. We believe that various factors may cause the market price of our common stock to fluctuate, perhaps
substantially, including, among others, the following:
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additions to or departures of our key personnel;
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announcements of innovations by us or our competitors;
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announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, capital commitments, or new technologies;
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new regulatory pronouncements and changes in regulatory guidelines;
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developments or disputes concerning our patents and efforts in licensing and/or enforcing our patents;
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lawsuits, claims, and investigations that may be filed against us, and other events that may adversely affect our reputation;
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changes in financial estimates or recommendations by securities analysts; and
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general and industry-specific economic conditions.
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Future sales of our shares of common
stock by our stockholders could cause the market price of our common stock to drop significantly, even if our business is otherwise
performing well.
As of May 29, 2018, we have 26,752,399
shares of common stock issued and outstanding, excluding shares of common stock issuable upon exercise of warrants, options or
restricted stock units, or preferred stock on an as-converted basis. As shares saleable under Rule 144 are sold or as restrictions
on resale lapse, the market price of our common stock could drop significantly if the holders of shares of restricted stock sell
them or are perceived by the market as intending to sell them. This decline in our stock price could occur even if our business
is otherwise performing well.
Ownership of our common stock may
be highly concentrated, and it may prevent our existing stockholders from influencing significant corporate decisions and may result
in conflicts of interest that could cause our stock price to decline.
Our executive officers and directors beneficially
own or control approximately 19% of our common stock on a fully diluted basis. Accordingly, these executive officers and directors,
acting individually or as a group, have substantial influence over the outcome of a corporate action requiring stockholder approval,
including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant
corporate transaction. These stockholders may also exert influence in delaying or preventing a change in control of us, even if
such change in control would benefit our other stockholders. In addition, the significant concentration of stock ownership may
adversely affect the market value of our common stock due to investors’ perception that conflicts of interest may exist or
arise.
The exercise of a substantial number
of warrants or options or the conversion of a substantial amount of convertible notes by our security holders may have an adverse
effect on the market price of our common stock.
Should our warrants outstanding and Secured
Convertible Notes outstanding as of June 1, 2018 be exercised or converted, as applicable, there would be an additional 21,230,648
shares of common stock eligible for trading in the public market. Additionally, the incentive equity instruments granted to our
management, employees, directors and consultants are subject to acceleration of vesting of 75% and 100% (according to the agreement
signed with each grantee) upon a subsequent change of control. Such securities, if exercised or converted, as applicable, will
increase the number of issued and outstanding shares of our common stock. Therefore, the sale of the shares of common stock underlying
the warrants, options and Secured Convertible Notes could have an adverse effect on the market price for our securities and/or
on our ability to obtain future financing.
We have no current plans to pay dividends
on our common stock, and our investors may not receive funds without selling their common stock.
We have not declared or paid any cash dividends
on our common stock, nor do we expect to pay any cash dividends on our common stock for the foreseeable future. Investors seeking
cash dividends should not invest in our common stock for that purpose. We currently intend to retain any additional future earnings
to finance our operations and growth and, therefore, we have no plans to pay cash dividends on our common stock at this time. Any
future determination to pay cash dividends on our common stock will be at the discretion of our Board of Directors and will be
dependent on our earnings, financial condition, operating results, capital requirements, any contractual restrictions, and other
factors that our Board of Directors deems relevant.
Accordingly, our investors may have to
sell some or all of their common stock in order to generate cash from their investment. You may not receive a gain on your investment
when you sell our common stock and may lose the entire amount of your investment.
We may fail to meet publicly announced
financial guidance or other expectations about our business, which would cause our stock to decline in value.
From time to time, we provide preliminary
financial results or forward looking financial guidance, to our investors. Such statements are based on our current views, expectations
and assumptions that may not prove to be accurate and may vary from actual results and involve known and unknown risks and uncertainties
that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance,
achievements or share prices expressed or implied by such statements. Such risks and uncertainties include the risk factors contained
herein. If we fail to meet our projections and/or other financial guidance for any reason, our stock price could decline.
The market price of our common stock
historically has been and likely will continue to be highly volatile.
The market price for our shares of common
stock historically has been highly volatile, and the market for our shares has from time to time experienced significant price
and volume fluctuations, based both on our operating performance and for reasons that appear to us unrelated to our operating performance.
The market price of our shares of common stock may fluctuate significantly in response to a number of factors, including:
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our ability to realize the expected value and benefits of our recent business and asset acquisitions;
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the level of our financial resources;
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our ability to develop and introduce new products and/or develop intellectual property;
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developments concerning our intellectual property rights generally or those of us or our competitors;
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our ability to raise additional capital to fund our operations and business plan and the effects that such financing may have on the value of the equity instruments held by our stockholders;
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our ability to retain key personnel;
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general economic conditions and level of consumer and corporate spending on technology, consumer electronics, health and wellness, and travel;
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our ability to hire a skilled labor force and the costs associated;
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our ability to secure new retail locations, maintain existing ones, and ensure continued customer traffic at those locations;
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changes in securities analysts’ estimates of our financial performance or deviations in our business and the trading price of our common stock from the estimates of securities analysts;
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our ability to protect our customers’ financial data and other personal information;
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the loss of one or more of our significant suppliers or vendors;
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unexpected trends in the health and wellness and travel industries and potential technology and service obsolescence;
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market acceptance, quality, pricing, availability and useful life of our products and/or services, as well as the mix of our products and services sold;
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lawsuits, claims, and investigations that may be filed against us and other events that may adversely affect our reputation; and
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our ability to license and monetize our patents, including litigation outcomes.
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Our common stock could be delisted
from Nasdaq, which could affect the market price of our common stock and its liquidity. Our listing on Nasdaq is contingent upon
meeting all the continued listing requirements of Nasdaq which include maintaining a minimum bid price of not less than $1.00 per
share. Nasdaq Listing Rules provide that a failure to meet the minimum bid price requirement exists if the deficiency continues
for a period of 30 consecutive business days.
On March 16, 2018, we received written
notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) that for the preceding
30 consecutive business days (February 1, 2018 through March 15, 2018), our common stock did not maintain a minimum closing bid
price of $1.00 per share as required by Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we
were given an initial compliance period of 180 calendar days, or until September 12, 2018, to regain compliance with Nasdaq Listing
Rule 5550(a)(2). In addition, compliance can be achieved automatically and without further action if the closing bid price of our
common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the 180-day compliance period,
in which case Nasdaq will notify us of our compliance and the matter will be closed.
If our common stock is delisted from Nasdaq,
our ability to raise capital in the future may be limited. Delisting could also result in less liquidity for our stockholders and
a lower stock price. Such a delisting would likely have a negative effect on the price of our common stock and would impair your
ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we expect to take actions to
restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any action taken by us would
result in our common stock becoming listed again, or that any such action would stabilize the market price or improve the liquidity
of our common stock.
Our common stock has traded in low
volumes. We cannot predict whether an active trading market for our common stock will ever develop. Even if an active trading market
develops, the market price of our common stock may be significantly volatile.
Historically, our common stock has experienced
a lack of trading liquidity. In the absence of an active trading market you may have difficulty buying and selling our common stock
at all or at the price you consider reasonable; and market visibility for shares of our common stock may be limited, which may
have a depressive effect on the market price for shares of our common stock and on our ability to raise capital or make acquisitions
by issuing our common stock.
If we raise additional capital in
the future, stockholders’ ownership in us could be diluted.
Any issuance of equity we may undertake
in the future to raise additional capital could cause the price of our shares to decline or require us to issue shares at a price
that is lower than that paid by holders of our shares in the past, which would result in previously issued shares being dilutive.
If we obtain funds through a credit facility or through the issuance of debt or preferred securities, these securities would likely
have rights senior to rights as a common stockholder, which could impair the value of our shares.
If we exercise the option to repay
the preferred stock issued in connection with the merger with XpresSpa (the “Merger”) in stock rather than cash, such
repayment may result in the issuance of a large number of shares of common stock which may have a negative effect on the trading
price of our common stock as well as a dilutive effect.
Pursuant to the terms of the shares of
preferred stock issued in connection with the Merger (the “XSPA Preferred Stock”), on the seven-year anniversary of
the initial issuance date of the shares of XSPA Preferred Stock, December 23, 2024, we may repay each share of XSPA Preferred Stock,
at our option, in cash, by delivery of shares of common stock or through any combination thereof. If we elect to make a payment,
or any portion thereof, in shares of common stock, the number of shares deliverable (the “Base Shares”) will be based
on the volume weighted average price per share of our common stock for the thirty trading days prior to the date of calculation
(the “Base Price”) plus an additional number of shares of common stock (the “Premium Shares”), calculated
as follows: (i) if the Base Price is greater than $9.00, no Premium Shares shall be issued, (ii) if the Base Price is greater than
$7.00 and equal to or less than $9.00, an additional number of shares equal to 5% of the Base Shares shall be issued, (iii) if
the Base Price is greater than $6.00 and equal to or less than $7.00, an additional number of shares equal to 10% of the Base Shares
shall be issued, (iv) if the Base Price is greater than $5.00 and equal to or less than $6.00, an additional number of shares equal
to 20% of the Base Shares shall be issued and (v) if the Base Price is less than or equal to $5.00, an additional number of shares
equal to 25% of the Base Shares shall be issued. Accordingly, if the volume weighted average price per share of our common stock
is below $9.00 per share as of the time of repayment and we exercise the option to make such repayment in shares of our common
stock, a large number of shares of our common stock may be issued to the holders of the XSPA Preferred Stock upon maturity which
may have a negative effect on the trading price of our common stock. At the seven-year maturity date of the XSPA Preferred Stock
(which shall be the date that is seven years from the closing date of the Merger), we, at our election, may decide to issue shares
of our common stock based on the formula set forth above or to re-pay in cash all or any portion of the XSPA Preferred Stock.
On December 23, 2023, upon the maturity
of the XSPA Preferred Stock, when determining whether to repay the XSPA Preferred Stock in cash or shares of common stock, we expect
to consider a number of factors, including our cash position, the price of our common stock and our capital structure at such time.
Because we do not have to make a determination as to which option to elect until 2023, it is impossible to predict whether it is
more or less likely to repay in cash, stock or a portion of each.
Having availed ourselves of scaled
disclosure available to smaller reporting companies, we cannot be certain if such reduced disclosure will make our common stock
less attractive to investors.
Under Section 12b-2 of the Exchange Act,
a "smaller reporting company" is a company that is not an investment company, an asset-backed issuer, or a majority-owned
subsidiary of a parent company that is not a smaller reporting company, and has a public float of less than $75 million and annual
revenues of less than $50 million during the most recently completed fiscal year. Similar to emerging growth companies, smaller
reporting companies are permitted to provide simplified executive compensation disclosure in their filings; they are exempt from
the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide
an attestation report on the effectiveness of internal controls over financial reporting; and they have certain other decreased
disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited
financial statements in annual reports. Decreased disclosure in our SEC filings as a result of our having availed ourselves of
scaled disclosure may make it harder for investors to analyze our results of operations and financial prospects.