Business context and reporting period
This is FORM Holdings Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The filing describes three segments: wellness (XpresSpa), technology (Group Mobile, including acquired Excalibur), and intellectual property. XpresSpa operated 52 airport locations. The request metadata names XWELL, Inc., but the filing itself identifies the registrant as FORM Holdings Corp.; investors should verify the entity and corporate succession relevant to their review.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. The filing’s financial statements are presented in thousands.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $16.377 | $11.350 | $30.952 | $13.377 |
| Gross profit | $3.168 | $4.927 | $5.881 | $5.110 |
| Gross margin | 19.3% | 43.4% | 19.0% | 38.2% |
| Operating loss, continuing operations | $(5.130) | $(9.718) | $(10.613) | $(12.544) |
| Net loss attributable to company | $(7.010) | $(10.807) | $(13.435) | $(14.762) |
| Basic and diluted loss per share | $(0.36) | $(0.72) | $(0.70) | $(1.01) |
- Q2 revenue rose 44.3%; six-month revenue rose 131.4%. The increases reflect the addition of XpresSpa and Excalibur, while Q2 2016 included a one-time $8.9 million intellectual-property license payment. Technology revenue increased 40.8% in Q2 and 86.2% for the six months, year over year.
- Q2 cost of sales increased 105.7%, faster than revenue, and consolidated gross margin fell to 19.3% from 43.4%. Management attributed the change mainly to XpresSpa’s store-level costs and noted it expected cost of sales as a percentage of revenue to decline gradually over time.
- Q2 operating loss improved year over year, in part because the prior-year quarter included a $11.937 million patent impairment. General and administrative expense increased to $5.204 million from $2.316 million, including acquired-business costs and higher stock compensation.
- Cash and cash equivalents were $7.958 million at June 30, versus $17.910 million at December 31, 2016. Six-month operating cash use was $7.853 million, including $8.784 million used by continuing operations and $0.931 million provided by discontinued operations. Investing activities used $1.687 million; financing activities used $0.261 million.
- Current assets were $15.903 million and current liabilities $11.735 million. Long-term debt was $6.500 million, unchanged from year-end; it is owed to an entity controlled by a board member. The company extended its maturity from May 2018 to May 2019. Total liabilities were $19.129 million.
- After quarter-end, the company completed a public offering of 6.9 million common shares at $1.10 per share, receiving approximately $6.7 million net. Common shares outstanding were 19.566 million at June 30 and 26.483 million as of August 7.
Material changes, outlook, risks and unusual items
- XpresSpa and Excalibur acquisitions materially changed the consolidated business and comparability with 2016. Excalibur was acquired in February 2017 for consideration with a reported fair value of $2.125 million, including contingent consideration.
- In June, the company classified FLI Charge as discontinued operations while negotiating a transaction to transfer it to a third party in exchange for a minority preferred-stock interest. Closing was expected in Q3 2017; the company stated it would not continue management or financing support. A noncash impairment charge of $1.092 million was recorded. Discontinued operations generated a $1.552 million Q2 loss and $2.113 million six-month loss.
- Management was evaluating strategic alternatives for Group Mobile, potentially including a sale, merger, spin-off, or other transaction, and sought a transaction in Q1 2018. It expected available funds and operating cash flows to support at least 12 months of operations, while noting possible additional fundraising for store openings or acquisitions. No quantified earnings guidance was provided.
- Management cited planned XpresSpa openings, existing-store maintenance, and renovations; several locations were expected to undergo maintenance or renovation in Q3. A JFK flagship renovation increased depreciation after the company revised asset useful lives.
- The company reported a $0.650 million accrual for legal matters. A wage-and-hour case had reached a settlement in principle, pending formal documentation and court approval; other litigation remained pending. Management did not expect current legal matters to have a material adverse effect, but described outcomes as uncertain.
- Key risks include the ability to secure and open suitable new airport locations, store performance and integration, liquidity and financing needs, execution of proposed transactions, legal contingencies, and potential failure to meet public guidance or expectations. The company stated disclosure controls were effective; the internal-control assessment excluded XpresSpa and Excalibur, both recent acquisitions.
Important facts for investors to verify
- Confirm the registrant’s identity and the relationship between FORM Holdings Corp., XpresSpa, and the XWELL name in the request metadata.
- Assess recurring revenue and margins separately from acquired operations and the prior-period one-time intellectual-property license payment.
- Track cash burn, working-capital requirements, the use of public-offering proceeds, and the terms and related-party nature of the $6.5 million debt.
- Verify completion and final economics of the FLI Charge transaction and any Group Mobile strategic transaction.
- Review dilution from the 6.9 million-share offering, preferred-stock conversion rights, options, warrants, and other potentially dilutive securities.
- Monitor XpresSpa location openings, renovations, store-level profitability, and the resolution of legal matters.