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
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Act registration statement number of the earlier effective registration statement for the same offering. ¨
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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. ¨
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. ¨
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 should be read in connection with the
existing disclosures on risk factors in the sections entitled “Risk Factors” contained in our most recent annual report on Form 10-K and quarterly report on Form 10-Q, which have been
filed with the SEC and are 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, results of operations or cash flows 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 Business Operations
We are 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 our operations.
We depend 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 our products
and services diminishes, this could have an adverse effect on our growth, business activities, cash flow, financial condition and
results of operations. Some reasons for these events could include:
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the impact of a public health epidemic, including the novel coronavirus (“COVID-19”), which has interfered and may continue to interfere with our ability, or the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. A public health epidemic, including the coronavirus, poses the risk of disruptions from the temporary closure of third-party suppliers and manufacturers, restrictions on the shipment of our products, restrictions on our employees' and other service providers' ability to travel, the decreased willingness or ability of our customers to travel or to utilize our services and shutdowns that may be requested or mandated by governmental authorities. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others;
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the temporary closure of our spa locations, largely due to the categorization of such spa locations by local jurisdictions as “non-essential services” in connection with the recent outbreak of COVID-19;
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terrorist activities (including cyber-attacks) impacting either domestic or international travel through airports where we 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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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 existing 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, pandemics, 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.
Our operating results may fluctuate
significantly due to certain factors, some of which are beyond our control.
Our 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, nationally locally and internationally;
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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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Our 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.
Our expansion into new airports or
off-airport locations may present increased risks due to our unfamiliarity with those areas.
Our growth strategy depends upon expanding
into markets where we have 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 our 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. We may find it more difficult in new markets to hire, motivate and keep qualified employees who can
project our vision, passion and culture. We 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 us from achieving our target revenues on a timely basis. Operations in new markets may also have lower average revenues
or enplanements than in the markets where we currently operate. 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 our results of operations.
Our growth strategy is highly dependent
on our ability to successfully identify and open new XpresSpa locations.
Our growth strategy primarily contemplates
expansion through procuring new XpresSpa locations and opening new XpresSpa stores and kiosks. Implementing this strategy depends
on our ability to successfully identify new store locations. We will also need to assess and mitigate the risk of any new store
locations, to open the stores on favorable terms and to successfully integrate their operations with ours. We may not be able to
successfully identify opportunities that meet these criteria, or, if it does, we may not be able to successfully negotiate and
open new stores on a timely basis. If we are unable to identify and open new locations in accordance with our operating plan, our
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 on Form 10-K 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.
We currently rely on a skilled, licensed
labor force to provide spa services, and the supply of this labor force is finite. If we cannot hire adequate staff for our locations,
we will not be able to operate.
As of March 15, 2020, we had approximately
507 full-time and 221 part-time employees in our 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. We compete 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 us must pass the background checks and security clearances necessary
to work in airport locations. If we are unable to attract and retain qualified staff to work in our airport locations, our ability
to operate will be impacted negatively.
Effective March 24, 2020, we temporarily
closed all global locations and furloughed the majority of our employees, largely due to the categorization of such spa locations
by local jurisdictions as “non-essential services” in connection with the outbreak of COVID-19. We intend on reinstating
the furloughed employees when restrictions related to non-essential services are relaxed and/or eliminated, but there can be no
assurances that such employees will return to our locations in a timely manner or at all.
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.
Our labor force could unionize, putting
upward pressure on labor costs.
Currently, our 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 our locations for its unionization
efforts. In the event of the successful unionization of all of our labor force, we 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.
We compete for new locations in airports
and may not be able to secure new locations.
We participate in the highly competitive
and lucrative airport concessions industry, and as a result compete 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, we compete 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.
Our leases may be terminated, either
for convenience by the landlord or as a result of an XpresSpa default.
We have store locations and kiosks in a
number of airports in which the landlord, with prior written notice to us, can terminate our lease, including for convenience or
as necessary for airport purposes or operations. If a landlord elects to terminate a lease at an airport, we may have to shut down
one or more store locations at that airport.
Additionally, our leases have numerous
provisions governing the operation of our stores. Violation of one or more of these provisions, even unintentionally, may result
in the landlord finding that we are in default of the lease. Violation of lease provisions may result in fines and, in some cases,
termination of a lease.
Our ability to operate depends on
the traffic patterns of the terminals in which we operates, and the cessation or disruption of air traveler traffic in these terminals
would negatively impact our addressable market.
We depend on a high volume of air travelers
in terminals. It is possible that a terminal in which we operate could become subject to a lower volume of air travelers, which
would significantly impact traffic near and around our locations and therefore our 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 we operate 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 we operate, 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 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,
we are 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 we are unable to find and/or partner with an appropriate ACDBE, we
may lose opportunities to open new locations. In addition, a number of our 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 our profitability and/or our ability to meet financial forecasts.
Further, if we fail to comply with the
minimum ACDBE participation requirements, we may be held responsible for a breach of contract, which could result in the termination
of a lease and impairment of our ability to bid on or obtain future concession contracts. To the extent that our leases are terminated
and we are required to shut down one or more store locations, there could be a material adverse impact to our business and results
of operations.
Continued minimum wage increases
could negatively impact our cost of labor.
We compensate our licensed technicians
via a formula that includes commissions. As a result, an increase in the minimum wage could increase our cost of labor and have
an adverse impact on our business, financial condition and results of operations.
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 we are unable to protect our customers’
credit card data and other personal information, we could be exposed to data loss, litigation and liability, and our 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 us to increased risk of privacy and/or security breaches as well as other risks. The majority of
our sales are by credit or debit cards. Additionally, we collect and stores personal information from individuals, including our
customers and employees.
In the future, we may experience security
breaches in which credit and debit card information or other personal information is stolen. Although we use 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 our 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 us. In addition, contractors,
or third parties with whom we does business or to whom we outsources business operations may attempt to circumvent our 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 our security measures or those of third parties, he or she could destroy or steal valuable information
or disrupt our operations. We may become subject to claims for purportedly fraudulent transactions arising out of the actual or
alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these
types of incidents. Any such claim or proceeding could cause us to incur significant unplanned expenses, which could have an adverse
effect on our business or results of operations. Further, adverse publicity resulting from these allegations could significantly
harm our reputation and may have a material adverse effect on us. Although we carry 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 our ability to recruit workers.
Our affinity among consumers is highly
dependent on their positive feelings about the brand, our customer service and the range and quality of services and products that
we offer. A negative customer experience that is posted to social media outlets and is distributed virally could tarnish our brand
and our customers may opt to no longer engage with the brand.
We employ people in multiple different
jurisdictions, and the employment laws of those jurisdictions are subject to change. In addition, our services are regulated through
government-issued operating licenses. Noncompliance with applicable laws could result in employee lawsuits or legal action taken
by government authorities.
We must comply with a variety of employment
and business practices laws across the United States, Netherlands and United Arab Emirates. We monitors the laws governing our
activities, but in the event we do not become aware of a new regulation or fails to comply with a regulation, we could be subject
to disciplinary action by governing bodies and potentially employee lawsuits.
We are not currently cash flow positive
and will depend on funding to open new locations. In the event that capital is unavailable, we will not be able to open new locations.
Throughout our operating history, we have
not generated sufficient cash from operations to fund our new store development. As a result, we will be dependent upon additional
funding for our new location growth until such time as we can produce enough cash to profitably fund our own location growth.
We source, develop and sell products
that may result in product liability defense costs and product liability payments.
Our 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. We may face substantial product liability exposure for products we sell to the general
public or that we use in our services. Product liability claims, regardless of their merits, could be costly and divert management’s
attention, and adversely affect our reputation and the demand for our products and services. We to date have not been named as
a defendant in any product liability action.
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 662/3 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 2022. 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.
Our business, results of operations
and financial condition have been and may continue to be materially adversely impacted by public health epidemics, including the recent
coronavirus outbreak.
Our business, results of operations and
financial condition has been and may continue to be materially adversely impacted if a public health epidemic, including the recent
coronavirus outbreak, interferes with our ability, or the ability of our employees, workers, contractors, suppliers and other
business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business.
A public health epidemic, including the coronavirus, poses the risk of disruptions from the temporary closure of third-party
suppliers and manufacturers, restrictions on the shipment of our products, restrictions on our employees' and other service providers'
ability to travel, the decreased willingness or ability of our customers to travel or to utilize our services and shutdowns that
may be requested or mandated by governmental authorities. The extent to which the coronavirus continues to impact our
results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which
may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its
impact, among others.
We have no operating history in
the diagnostic testing industry.
Despite our management’s extensive
experience in health and wellness services, we have no specific operating history in the diagnostic testing industry, including
providing management services to a professional practice offering diagnostic testing services. We will face substantial risks and
uncertainties to which our new diagnostic testing line of business will be subject. To address these risks and uncertainties, we
must, among other things, successfully execute our business strategy, respond to competitive developments and attract and retain
qualified personnel. We cannot assure you that we will operate profitably or that our business strategy will be successful. As
a result, our diagnostic testing line of business may not succeed.
We have established formal contracts and
relationships with professional practices for the ordering of and collection of samples for, and with laboratories for the performance
of, COVID-19 testing in our XpresCheck locations.
We are exploring the possibility of offering COVID-19 testing
in XpresCheck airport locations. On June 22, 2020, we began pilot testing and have established formal contractual relationships
with professional practices for the ordering of and collection of samples for, and with clinical laboratories for the performance,
of COVID-19 testing. We may never formalize longer term arrangements with a professional practice or clinical laboratory for these
purposes and may never fully commence diagnostic testing operations. As a result, there can be no assurances that we will be able
execute our current plans or generate any revenue associated with our current XpresCheck COVID-19 testing plans.
There can be no assurances that
we will be able to successfully secure new locations or transition our existing spa facilities into XpresCheck locations at which
COVID-19 testing will be ordered or performed.
There can be no assurances that we will be able to obtain new
XpresCheck locations or make available or renovate our existing spa facilities for the purpose of operating a location at which
XpresCheck COVID-19 testing will be ordered and/or performed by a professional practice. If we are unable to successfully transition
such facilities to locations at which COVID-19 testing will be ordered and/or performed due to issues with lease agreements, permits,
licenses or other delays, we will not be able to move forward with our planned short-term business transition.
We may rely on a limited number of
professional practices and suppliers and, in some cases, a single professional practice or supplier, for the COVID-19 test and
certain of the laboratory substances, equipment and other materials used for COVID-19 tests, and any delays or difficulties securing
these materials could disrupt our operations and materially harm our business.
We plan to contract with a limited number of professional practices,
and potentially only a single professional practice, for the ordering of and collection of samples for COVID-19 testing. If our
professional practice partner begins performing point of care COVID-19 testing at our XpresCheck locations in the future, we may
rely on a limited number of suppliers for the COVID-19 test kits, collection supplies, reagents, and various other equipment and
materials we intend to use in performing COVID-19 testing. We currently do not have formal agreements with any potential professional
practice or supplier, and, as a result, if such services or supplies are obtained, the professional practice or supplier could
cease supplying these services or tests, materials and equipment to us at any time due to our inability to reach agreement on terms,
disruptions in the professional practice’s or supplier’s operations, a determination to pursue other activities or
lines of business, or for other reasons, or the professional practice or supplier could fail to provide us with sufficient quantities
of services or materials that meet our specifications. Transitioning to a new professional practice or supplier or locating a temporary
substitute, if any are available, would be time-consuming and expensive, could result in interruptions in or otherwise affect the
performance specifications of our intended operations, or could require that we revalidate the tests we use. In addition, the use
of services, equipment or materials provided by a replacement professional practice or supplier could require us to alter our future
operations and procedures. Moreover, we believe there are currently only a limited number of manufacturers that are capable of
supplying and servicing some of the equipment and other materials necessary for our intended operations. As a result, replacement
equipment and materials that meet our quality control and performance requirements may not be available on reasonable terms, in
a timely manner or at all. If we encounter delays or difficulties securing, reconfiguring or revalidating the equipment, reagents
and other materials required for administering tests, our operations could be materially disrupted and our business, financial
condition, results of operations, and reputation could be adversely affected. We also may experience services or supply issues
as we increase test volume.
Since our professional practice
partner have begun performing point of care COVID-19 testing at our XpresCheck locations, the COVID-19 testing technology we have
chosen may not perform as expected, as a result of human error or otherwise. No assurance can be given that the COVID-19 testing
technology we use will aid in the testing of this virus.
On June 22, 2020, our professional practice partner began performing
point of care COVID-19 testing at our XpresCheck locations, our success will depend on the COVID-19 testing technology we have
chosen to use to provide a reliable, high-quality diagnostic result. There is no guarantee that the COVID-19 test technology we
have chosen will be accurate. We believe that customers will be particularly sensitive to test defects and errors. As a result,
the failure of the chosen tests to perform as expected could significantly impair our reputation and the public image of the tests
we use. There can be no assurance that the COVID-19 test technology will be broadly adopted for use. Many companies are developing
tests for COVID-19 and the COVID-19 test technology we are currently using may not be effective. As a result, the failure or perceived
failure of the chosen tests to perform as expected could have a material adverse effect on our business, financial condition, results
of operation and cash flows.
If there is little or no demand for
the COVID-19 test, our business could be materially harmed.
There can be no assurance that demand for
our planned COVID-19 testing services will exist in the future because of the success of containment efforts, the emergence of
a vaccine or due to other events. If there is no demand for our planned COVID-19 testing services, our business will be materially
harmed.
The intended COVID-19 testing capabilities
may never achieve significant market acceptance.
We may expend substantial funds and management
effort on the development and marketing of our professional practice partner’s COVID-19 testing capabilities with no assurance
that we will be successful in implementing our planned diagnostic testing business. Our ability to successfully offer COVID-19
tests will depend significantly on the perception that the tests used by our professional practice partner can reduce transmission
risk and are reliable.
We will use potentially hazardous
materials, chemicals and patient samples in our business and any disputes relating to improper handling, storage or disposal of
these materials could be time consuming and costly.
Our professional practice partner’s
diagnostic testing activities will involve the controlled use of hazardous laboratory materials and chemicals, including small
quantities of acid and alcohol, and patient samples. They will be subject to U.S. laws and regulations related to the protection
of the environment, the health and safety of employees and the handling, transportation and disposal of medical specimens, infectious
and hazardous waste. They could be liable for accidental contamination or discharge or any resultant injury from hazardous materials,
and conveyance, processing, and storage of and data on patient samples. If they fail to comply with applicable laws or regulations,
they could be required to pay penalties or be held liable for any damages that result and this liability could exceed their financial
resources. Further, future changes to environmental health and safety laws could cause them to incur additional expense or restrict
operations.
In the event of a lawsuit or investigation
concerning such hazardous materials, we could be held responsible for any injury caused to persons or property by exposure to,
or release of, these hazardous materials or patient samples that may contain infectious materials. The cost of this liability could
exceed our resources. While we expect to maintain broad form liability insurance coverage for these risks, and we expect our professional
practice partner to maintain appropriate malpractice insurance, the level or breadth of our coverage may not be adequate to fully
cover potential liability claims.
Our XpresCheck diagnostic testing
business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes
in, or interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, and the Clinical Laboratory
Improvement Amendments of 1988 (CLIA), or those of Medicare, Medicaid or other national, state or local agencies in the U.S. and
other countries where we operate laboratories.
The performance of laboratory testing is
subject to extensive U.S. regulation, and many of these statutes and regulations have not been interpreted by the courts. CLIA
extends federal oversight to virtually all physician practices performing clinical laboratory testing and to clinical laboratories
operating in the U.S. by requiring that they be certified by the federal government or, in the case of clinical laboratories, by
a federally approved accreditation agency. The sanction for failure to comply with CLIA requirements may be suspension, revocation
or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or
criminal penalties. In addition, we expect to be subject to regulation under state law. State laws may require that laboratories
and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records.
Applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner
that would adversely affect our business. Potential sanctions for violation of these statutes and regulations include significant
fines and the suspension or loss of various licenses, certificates and authorizations, which could have a material adverse effect
on our business. In addition, compliance with future legislation could impose additional requirements on us, which may be costly.
U.S. Food and Drug Administration
(FDA) regulation of diagnostic products could result in increased costs and the imposition of fines or penalties, and could have
a material adverse effect upon our business.
The
FDA has regulatory responsibility for instruments, test kits, reagents and other devices used by clinical laboratories. The
FDA enforces laws and regulations that govern the development, testing, manufacturing, performance, labeling, advertising, marketing,
distribution and surveillance of diagnostic products, and it regularly inspects and reviews the manufacturing processes and product
performance of diagnostic products.
FDA
regulation of the diagnostic products we use could result in increased costs and administrative and legal actions for noncompliance,
including warning letters, fines, penalties, product suspensions, product recalls, injunctions and other civil and criminal sanctions,
which could have a material adverse effect on our business, financial condition, results of operation and cash flows.
If we fail to comply with the complex
federal, state, local and foreign laws and regulations that apply to our XpresCheck business, we could suffer severe consequences
that could materially and adversely affect our operating results and financial condition.
We expect our planned operations to be
subject to extensive federal, state, local and foreign laws and regulations, all of which are subject to change. These laws and
regulations currently include, among other things:
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CLIA, which requires that laboratories obtain certification from the federal government, and state licensure laws;
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FDA laws and regulations;
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HIPAA, which imposes comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments to HIPAA under HITECH, which strengthen and expand HIPAA privacy and security compliance requirements, increase penalties for violators, extend enforcement authority to state attorneys general and impose requirements for breach notification;
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state laws regulating genetic testing and protecting the privacy of genetic test results, as well as state laws protecting the privacy and security of health information and personal data and mandating reporting of breaches to affected individuals and state regulators;
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the federal anti-kickback law, or the Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program;
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other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;
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the federal Physician Payments Sunshine Act, which requires medical device manufactures to track and report to the federal government certain payments and other transfers of value made to physicians and teaching hospitals and ownership or investment interests held by physicians and their immediate family members;
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Section 216 of the federal Protecting Access to Medicare Act of 2014, which requires applicable laboratories to report private payor data in a timely and accurate manner beginning in 2017 and every three years thereafter (and in some cases annually);
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state laws that impose reporting and other compliance-related requirements;
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state billing laws, including regulations on “pass through billing” which may limit our ability to submit claims for payment and/or mark up the cost of services in excess of the price paid for such services, and “direct-bill” laws which may limit our ability to purchase services from a laboratory and bill for the services ordered;
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similar foreign laws and regulations that apply to us in the countries in which we operate.
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These laws and regulations are complex
and are subject to interpretation by the courts and by government agencies. Our failure to comply could lead to civil or criminal
penalties, exclusion from participation in state and federal health care programs, or prohibitions or restrictions on our laboratory’s
ability to provide or receive payment for our services. We believe that we are in material compliance with all statutory and regulatory
requirements, but there is a risk that one or more government agencies could take a contrary position, or that a private party
could file suit under the qui tam provisions of the federal False Claims Act or a similar state law. Such occurrences, regardless
of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including
managed care organizations, and other private third-party payors.
Changes in the way that the FDA
regulates COVID-19 tests could result in the delay or additional expense in XpresCheck offering tests.
Historically, the U.S. Food and Drug Administration
(“FDA”) has exercised enforcement discretion with respect to most laboratory-developed tests (“LDTs”) and
has not required laboratories that furnish LDTs to comply with the agency’s requirements for medical devices (e.g., establishment
registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls).
In recent years, however, the FDA publicly announced its intention to regulate certain LDTs and issued two draft guidance documents
that set forth a proposed phased-in risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs. However,
these guidance documents were withdrawn at the end of the Obama administration and replaced by an informal discussion paper reflecting
some of the feedback that FDA had received on LDT regulation. The FDA acknowledged that the discussion paper in January 2017
does not represent the formal position of the FDA and is not enforceable. Nevertheless, the FDA wanted to share its synthesis of
the feedback that it had received in the hope that it might advance public discussion on future LDT oversight. Notwithstanding
the discussion paper, the FDA continues to exercise enforcement discretion and may decide to regulate certain LDTs on a case-by-case
basis at any time, which could result in delay or additional expense in offering tests. Until the FDA finalizes its regulatory
position regarding LDTs, or other legislation is passed reforming the federal government’s regulation of LDTs, it is unknown
how the FDA may regulate tests we use in the future and what testing and data may be required to support any required clearance
or approval.
Since our professional practice
partner have begun performing point of care COVID-19 testing at our XpresCheck locations, failure to accurately bill for testing
services, or to comply with applicable laws relating to government health care programs, could have a material adverse effect
on our business.
Billing for diagnostic testing services is complex and subject
to extensive and non-uniform rules and administrative requirements. Depending on the billing arrangement and applicable law, we
expect to bill various payers, such as patients, insurance companies, Medicare, Medicaid, clinicians, hospitals and employer groups
as we perform point of care COVID-19 testing at our XpresCheck locations.
We expect that the majority of our billing and related operations will be provided by a third party. Failure to accurately bill
for our services could have a material adverse effect on our business. In addition, failure to comply with applicable laws relating
to billing government health care programs may result in various consequences, including the return of overpayments, civil and
criminal fines and penalties, exclusion from participation in government health care programs and the loss of various licenses,
certificates and authorizations necessary to operate our business, as well as incur additional liabilities from third-party claims,
all of which could have a material adverse effect on our business. Certain violations of these laws may also provide the basis
for a civil remedy under the federal False Claims Act, including fines and damages of up to three times the amount claimed. The qui
tam provisions of the federal False Claims Act and similar provisions in certain state false claims acts allow private individuals
to bring lawsuits against health care companies on behalf of the government.
Although
we expect to be in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a
regulatory agency or tribunal would not reach a different conclusion. The federal and state governments have substantial leverage
in negotiating settlements since the amount of potential damages and fines far exceeds the rates at which services will be reimbursed,
and the government has the remedy of excluding a non-compliant provider from participation in the Medicare and Medicaid programs.
We expect that federal and state governments continue aggressive enforcement efforts against perceived health care fraud. Legislative
provisions relating to health care fraud and abuse provide government enforcement personnel with substantial funding, powers, penalties
and remedies to pursue suspected cases of fraud and abuse.
We
will depend on third parties to provide services critical to our XpresCheck diagnostic testing business, and we will depend on
them to comply with applicable laws and regulations. Additionally, any breaches of the information technology systems of third
parties could have a material adverse effect on our operations.
We will depend on third parties
to provide services critical to our XpresCheck diagnostic testing business, including supplies,
ground and air transport of clinical and diagnostic testing supplies and specimens, research products, and people, among other
services. Third parties that will provide services to us will be subject to similar risks related to security of customer-related
information and compliance with U.S., state, local, or international environmental, health and safety, and privacy and security
laws and regulations as we will be. Any failure by third parties to comply with applicable laws, or any failure of third parties
to provide services more generally, could have a material impact on us, whether because of the loss of the ability to receive services
from the third parties, our legal liability for the actions or inactions of third parties, or otherwise. In addition, third parties
to whom we outsource certain services or functions may process personal data, or other confidential information belonging to us.
A breach or attack affecting these third parties could also harm our business, results of operations and reputation.
Our
business operations and reputation may be materially impaired if we do not comply with privacy laws or information security policies.
We
will collect, generate, process or maintain sensitive information, such as patient data and other personal information. If we do
not use or adequately safeguard that information in compliance with applicable requirements under federal, state and international
laws, or if it were disclosed to persons or entities that should not have access to it, our business could be materially impaired,
our reputation could suffer and we could be subject to fines, penalties and litigation. In the event of a data security breach,
we may be subject to notification obligations, litigation and governmental investigation or sanctions, and may suffer reputational
damage, which could have an adverse impact on our business.
We
will be subject to laws and regulations regarding protecting the security and privacy of certain healthcare and personal information,
including: (a) the federal Health Insurance Portability and Accountability Act and the regulations thereunder, which establish
(i) a complex regulatory framework including requirements for safeguarding protected health information and (ii) comprehensive
federal standards regarding the uses and disclosures of protected health information; and (b) state laws, including the California
Consumer Privacy Act.
Hardware
and software failures or delays in our information technology systems, including failures resulting from our systems conversions
or otherwise, could disrupt our operations and cause the loss of confidential information, customers and business opportunities
or otherwise adversely impact our business.
IT
systems will be used extensively in virtually all aspects of our business, including clinical testing, test reporting, billing,
customer service, logistics and management of medical data. Our success depends, in part, on the continued and uninterrupted performance
of our IT systems. A failure or delay in our IT systems could impede our ability to serve our customers and patients and protect
their confidential personal data. Despite redundancy and backup measures and precautions that we have implemented, our IT systems
may be vulnerable to damage, disruptions and shutdown from a variety of sources, including telecommunications or network failures,
system conversion or standardization initiatives, human acts and natural disasters. These issues can also arise as a result from
failures by third parties with whom we do business and for which we have limited control. Any disruption or failure of our IT systems
could have a material impact on our ability to serve our customers and patients, including negatively affecting our reputation
in the marketplace.
We must
comply with complex and overlapping laws protecting the privacy and security of health information and personal data.
There are a number of state, federal and
international laws protecting the privacy and security of health information and personal data. Under the administrative
simplification provisions of HIPAA, HHS has issued regulations which establish uniform standards governing the conduct of certain
electronic health care transactions and protecting the privacy and security of PHI used or disclosed by health care providers and
other covered entities.
The privacy regulations regulate the use
and disclosure of PHI by health care providers engaging in certain electronic transactions or “standard transactions.”
They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered health care provider,
including the right to access or amend certain records containing PHI or to request restrictions on the use or disclosure of PHI.
The HIPAA security regulations establish administrative, physical, and technical standards for maintaining the integrity and availability
of PHI in electronic form. These standards apply to covered health care providers and also to “business associates”
or third parties providing services involving the use or disclosure of PHI. The HIPAA privacy and security regulations establish
a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater
rights with respect to the privacy or security of, and access to, their records containing PHI. As a result, we may be required
to comply with both HIPAA privacy regulations and varying state privacy and security laws.
Moreover, HITECH, among other things, established
certain health information security breach notification requirements. In the event of a breach of unsecured PHI, a covered entity
must notify each individual whose PHI is breached, federal regulators and in some cases, must publicize the breach in local or
national media. Breaches affecting 500 individuals or more are publicized by federal regulators who publicly identify the breaching
entity, the circumstances of the breach and the number of individuals affected.
These laws contain significant fines and
other penalties for wrongful use or disclosure of PHI. Given the complexity of HIPAA and HITECH and their overlap with state privacy
and security laws, and the fact that these laws are rapidly evolving and are subject to changing and potentially conflicting interpretation,
our ability to comply with the HIPAA, HITECH and state privacy requirements is uncertain and the costs of compliance are significant.
Adding to the complexity is that our planned operations are currently evolving and the requirements of these laws will apply differently
depending on such things as whether or not we bill electronically for our services, or provide services involving the use or disclosure
of PHI and incur compliance obligations as a business associate. The costs of complying with any changes to the HIPAA, HITECH and
state privacy restrictions may have a negative impact on our operations. Noncompliance could subject us to criminal penalties,
civil sanctions and significant monetary penalties as well as reputational damage.
We also will be required to collect and
maintain personal information about our employees as well as receive and transfer certain payment information, to accept payments
from our customers, including credit card information. Most states have adopted laws requiring notification of affected individuals
and state regulators in the event of a breach of personal information, which is a broader class of information than the health
information protected by HIPAA. Many state laws impose significant data security requirements, such as encryption or mandatory
contractual terms to ensure ongoing protection of personal information. Activities outside of the United States implicate local
and national data protection standards, impose additional compliance requirements, and generate additional risks of enforcement
for non-compliance. The collection and use of such information may be subject to contractual obligations as well. If the security
and information systems that we or our outsourced third-party providers use to store or process such information are compromised
or if we, or such third parties, otherwise fail to comply with these laws, regulations, and contractual obligations, we could face
litigation and the imposition of penalties that could adversely affect our financial performance.
We must comply with all applicable privacy
and data security laws in order to operate our business and may be required to expend significant capital and other resources to
ensure ongoing compliance, to protect against security breaches and hackers or to alleviate problems caused by such breaches. Breaches
of health information and/or personal data may be extremely expensive to remediate, may prompt federal or state investigation,
fines, civil and/or criminal sanctions and significant reputational damage.
Our XpresCheck capital expenditures may
not generate a positive return and we will incur significant additional costs.
Our capital expenditures may
not generate a positive return. Significant capital expenditures will be required to construct new XpresCheck locations
or renovate our existing spa facilities to accommodate our proposed new XpresCheck business model. No assurance can be given
that our future capital expenditures will generate a positive return or that we will have adequate capital
available to finance such construction or renovations. If we are unable to, or elect not to, pay for costs associated with
such construction or renovations, the ability of our professional practice partner to order or perform COVID-19 testing could be
limited, and our competitive position could be harmed.
Additionally, we expect to
incur significant additional costs as we implement the ability of our professional practice partner to perform on-site COVID-19
testing by XpresCheck. The COVID-19 outbreak could disrupt our future supply chain, including
by impacting our ability to secure COVID-19 testing supplies and to provide personal protective equipment for our employees in
our testing locations. For similar reasons, the COVID-19 pandemic has also adversely impacted, and may continue to adversely impact,
third parties that will be critical to our business, including vendors, suppliers, and business partners. These developments, and
others that are difficult or impossible to predict, could materially impact our business, financial results, cash flows, and financial
position.
Risks Related to our Financial Condition
and Capital Requirements
Our independent registered public
accounting firm has expressed substantial doubt as to our ability to continue as a going concern.
The audited financial statements included
in our annual report on Form 10-K for the year ended December 31, 2020 have been prepared assuming that we will continue
as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. The report
of our independent registered public accounting firm on our financial statements for the years ended December 31, 2019 and
2018 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.
Our auditors’ doubts are based on our recurring losses from operations and working capital deficiency. The inclusion of a
going concern explanatory paragraph in future reports of our independent auditors may make it more difficult for us to secure additional
financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the
terms of any financing that we might obtain.
The recent COVID-19 outbreak was
declared a pandemic by the World Health Organization on March 11, 2020 and has rapidly spread to the United States and many
other parts of the world and may continue to adversely affect our business operations, employee availability, financial
condition, liquidity and cash flow for an extended period of time.
The COVID-19 outbreak is having an impact
on the global economy, resulting in rapidly changing market and economic conditions. Similar to many businesses in the travel sector,
our business has been materially adversely impacted by the recent COVID-19 outbreak due to the restrictions on travel that have
been implemented. Effective March 24, 2020, we temporarily closed all global spa locations, largely due to the categorization
of our spa locations by local jurisdictions as “non-essential services” in connection with the outbreak of COVID-19.
This has had a materially adverse impact on our cash flows from operations and caused a liquidity crisis. Ongoing significant
reductions in business related activities could result in further loss of sales and profits and other material adverse
effects. The extent of the impact of COVID-19 on our business, financial results, liquidity and cash flows will depend largely
on future developments, including new information that may emerge concerning the severity and action taken to contain or prevent
further spread within the U.S. and the related impact on consumer confidence and spending, all of which are highly uncertain and
cannot be predicted. As the outbreak of COVID-19 continues to spread rapidly in the U.S. and globally, related government and private
sector responsive actions may continue to adversely affect our business operations. It is impossible to predict the effect
and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving. If the COVID-19 outbreak continues and
persists for an extended period of time, we expect there will be significant and material disruptions to our
operations, which will have a material adverse effect on our business, financial condition and results of operations.
In connection with the preparation
of our annual financial statements for the year ended December 31, 2019, we identified a material weakness in our internal
control over financial reporting. Any failure to maintain effective internal control over financial reporting could have a material
adverse effect on our results of operations and financial position.
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in
accordance with U.S. generally accepted accounting principles. In connection with our audit of the year ended December 31,
2019, we identified a material weakness in our internal controls over our financial close and reporting process. A material weakness
is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely
basis. Our management has concluded that additional formal procedures need to be put in place in the financial close and reporting
process to ensure that appropriate reviews occur on all financial reporting analysis in a timely manner. We also concluded that
we did not maintain a sufficient complement of corporate employee personnel with appropriate levels of accounting and controls
knowledge and experience commensurate with our financial reporting requirements to appropriately analyze record and disclose accounting
matters completely and accurately. As this deficiency created a reasonable possibility that a material misstatement would not have
been prevented or detected in a timely basis, management concluded that the control deficiency represented a material weakness
and accordingly our internal control over financial reporting was not effective as of December 31, 2019.
We are still considering the full extent
of the procedures to implement in order to remediate the material weakness described above. Our preliminary remediation plan, complimented
by our existing outsourced internal audit procedures, includes implementing a more robust review process, an increase in the supervision
and monitoring of the financial reporting processes and our accounting personnel, and implementing better controls over calculations,
analysis and conclusions associated with non-routine transactions at a more precise level.
We cannot assure you that any of our remedial
measures will be effective in resolving this material weakness. If our management is unable to conclude that we have effective
internal control over financial reporting, or to certify the effectiveness of such controls, or if additional material weaknesses
in our internal controls are identified in the future, we could be subject to regulatory scrutiny and a loss of public confidence,
which could have a material adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial
and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our
financial performance on a timely basis, which could adversely affect our results of operations and financial condition.
Our business and financial condition
could be constrained by our outstanding debt, including the impact of the receipt of an explanatory paragraph with respect to our
financial statements for the years ended December 31, 2019 and 2018, indicating that there is substantial doubt about our
ability to continue as a going concern.
We are obligated under a credit agreement
and convertible secured promissory note payable to B3D of approximately $900,000 as of July 13, 2020, with a maturity
date of May 31, 2021 (the “Senior Secured Note”). The Senior Secured Note accrues interest of 9.0% per annum.
We are obligated to make periodic interest payments on such debt obligations in cash, shares of our Common Stock, or a combination
thereof. While we do not anticipate failing to make any such payments, the failure to do so may result in the default of loan obligations,
leading to financial and operational hardship. We have granted B3D a security interest in all of our tangible and intangible personal
property to secure our obligations under the Senior Secured Note. The Senior Secured Note is an outstanding obligation of ours
but is guaranteed by us.
As discussed above and in our annual report on Form 10-K for
the year ended December 31, 2020, the report of our independent registered public accounting firm on our financial statements for
the years ended December 31, 2019 and 2018 includes an explanatory paragraph indicating that there is substantial doubt about our
ability to continue as a going concern. The receipt of this explanatory paragraph with respect to our financial statements for
the years ended December 31, 2019 and 2018 will result in a breach of a covenant under the Senior Secured Note which, if unremedied
for a period of 30 days after the date of notice, will constitute an event of default under the Senior Secured Note. Upon the occurrence
of an event of default under the Senior Secured Note, B3D may, among other things, declare the Senior Secured Note and all accrued
and unpaid interest thereon and all other amounts owing under the Senior Secured Note to be due and payable.
If we fail to meet certain conditions under
the terms of our outstanding indebtedness, we will be obligated to repay in cash any principal amount, interest and any other sum
that remains outstanding. If the maturity date of our indebtedness is accelerated as a result of an event of default, the outstanding
principal amount, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become,
at the holder’s election, immediately due and payable in cash.
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 will 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 will 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, 2019, our estimated
aggregate total net operating loss carryforwards (“NOLs”) were $182,327,000 for U.S. federal purposes, expiring 20
years from the respective tax years to which they relate, and $31,401,000 for U.S. federal purposes with an indefinite life due
to new regulations in the Tax Cuts and Jobs Act of 2017. 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, the Tax Reform Act of 1986 imposed
substantial restrictions on the utilization of NOL and tax credits in the event of an ownership change of a corporation. Thus,
our ability to utilize all such NOL and credit carryforwards may be limited. Future changes in stock ownership may also trigger
an ownership change and, consequently, a Section 382 limitation.
The Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) was enacted on March 27, 2020 and includes favorable changes to tax law and incentives
for businesses impacted by COVID-19. However, we do not anticipate the income tax law changes and incentives will have a material
impact on our results of operations or financial position.
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 Relating To Our Securities
If we sell
shares of our Common Stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price
may decline.
We may from time
to time issue additional shares of Common Stock at a discount from the current market price of our Common Stock. As a result, our
stockholders would experience immediate dilution upon the purchase of any shares of our Common Stock sold at such discount. In
addition, as opportunities present themselves, we may enter into financings or similar arrangements in the future, including the
issuance of debt securities, preferred stock or Common Stock. If we issue Common Stock or securities convertible or exercisable
into Common Stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.
An active
trading market for our Common Stock may not be sustained.
Although our Common
Stock is listed on the Nasdaq, the market for our Common Stock has demonstrated varying levels of trading activity. Furthermore,
the current level of trading may not be sustained in the future. The lack of an active market for our Common Stock may impair investors’
ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair
market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may
impair our ability to acquire additional intellectual property assets by using our shares as consideration.
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.
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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the effects that COVID-19 might have on our results of operations and financial position;
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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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Our Common Stock has historically
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 consistent 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.
Our stock
price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.
Our Common Stock
currently trades on Nasdaq. There is limited public float, and trading volume historically has been low and sporadic. As a result,
the market price for our Common Stock may not necessarily be a reliable indicator of our fair market value. The price at which
our Common Stock trades may fluctuate as a result of a number of factors, including the number of shares available for sale in
the market, quarterly variations in our operating results, actual or anticipated announcements of new releases by us or competitors,
the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions in our industry
and the economy as a whole.
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 be 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 services;
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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 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;
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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; and
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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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If our Common Stock becomes subject
to the penny stock rules, it may be more difficult to sell our Common Stock.
The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price
of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain
automated quotation systems, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of our Common Stock
is less than $5.00 and our Common Stock is no longer listed on a national securities exchange such as Nasdaq, our stock may be
deemed a penny stock. The penny stock rules require a broker-dealer, at least two business days prior to a transaction in
a penny stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing
specified information and to obtain from the customer a signed and date acknowledgment of receipt of that document. In addition,
the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules,
a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive:
(i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement
to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure
requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders
may have difficulty selling their shares.
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 July 13, 2020, we had 56,483,913
shares of Common Stock issued and outstanding, excluding shares of Common Stock issuable upon exercise of warrants, options or
restricted stock units 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.
The conversion of a substantial amount
of notes or the exercise of a substantial number of warrants or options by our security holders may have an adverse effect on the
market price of our Common Stock.
Should the B3D Note outstanding as of July 13, 2020 be converted
into Common Stock at a conversion price of $0.525 per share there would be an additional 1,714,286 shares of Common Stock eligible
for trading in the public market. Should our warrants and options outstanding as of July 13, 2020 be exercised, there would be
an additional 9,152,520 shares of Common Stock eligible for trading in the public market. Such securities, if converted or exercised,
will increase the number of issued and outstanding shares of our Common Stock. Therefore, the sale of the shares of Common Stock
underlying these instruments 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 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.
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 holder of Common Stock, which could impair the value of our shares.
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.
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
$250,000,000 and annual revenues of less than $100,000,000 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.