A cash-strapped airport spa chain hooked up $ 5.6 million in federal coronavirus aid weeks after warning investors that its independent auditor had raised “substantial doubts” about its ability to continue operating amid heavy losses, it has reported. The Post.
New York-based XpresSpa told investors it had obtained the Payroll Protection Program loan in a regulatory filing on May 7, just days after its board cut ties to a critical auditor of its business.
XpresSpa did not say why it fired CohnReznick, but on April 20 the company revealed that the auditor had issued a warning about the state of the company’s finances before the pandemic forced it to close its operations in the United States.
“The report of our independent registered public accounting firm in our financial statements for the years ended December 31, 2019 and 2018 included an explanatory paragraph indicating that there are substantial doubts about our ability to continue as a going concern,” he said. the company in the April regulatory filing.
“Our auditors’ concerns are based on our recurring losses from operations and a deficiency in working capital.”
XpresSpa operates 51 stores in 25 airports that offer passenger chair massages and manicures. It also sells head pillows and eye masks, according to its website.
“XpresSpa was developed to address stress and downtime at the airport, allowing travelers to spend this time productively, relaxing and focusing on personal care and wellness,” the company said in its annual report.
CEO Doug Satzman says XpresSpa cut ties to CohnReznick because he decided to switch to a less expensive accounting firm, not because of disagreements. He also said that the coronavirus pandemic hit the company just as it was beginning to change, noting that comparable store sales increased 2.9 percent last year after falling 3.2 percent in 2018.
“There is a lot of cleanup work to do when you turn around,” Satzman told The Post. “… With the PPP loan opportunity, it gave us a tool to use for our free workforce to help keep us loyal and ready to return full time when the airports are busy.”
However, before the coronavirus hit retailers across the country with orders to stay home from coast to coast, XpresSpa was in the red.
Last year, XpresSpa suffered a net loss of $ 20.5 million as its liabilities dwarfed its assets by about $ 12.2 million. As of December 31, the company had only $ 2.1 million in cash and cash equivalents and current assets of $ 3.9 million. Its current liabilities, by contrast, totaled $ 16.2 million, including accounts payable and accrued expenses, he said.
“We expect to incur net losses for the foreseeable future, especially given the negative impact that COVID-19 will have on our liquidity and financial position,” the company said in the presentation.
XpresSpa is the latest company to receive a taxpayer-backed loan despite the problems that preceded the virus, which has blocked retailers with requests to stay home from coast to coast. According to an Associated Press report, some companies obtained sizable loans after telling investors they either had no products to sell or were running out of cash.
The $ 659 billion government effort to help small businesses overcome the crisis has also been criticized for helping businesses that have access to fundraising through public markets at the expense of Main Street operations .
“It is a blow to the tens of thousands of closed small businesses that never received the aid they were promised,” said Jeremy Funk, a spokesman for the nonpartisan corruption watchdog. Accountable.US.
XpresSpa has obtained $ 9.4 million in external financing in recent months, including $ 7.9 million from four separate share offerings in March and April, according to records.
In the most recent offering, on April 6, the company sold $ 1 million worth of shares to Alpha Capital Anstalt, a Lichtenstein-based hedge fund that came under the sights of regulators two years ago.
Alpha, which did not respond to a request for comment, was among nearly two dozen defendants accused in 2018 by the Securities and Exchange Commission of participating in a $ 27 million penny fraud led by the disgraced capitalist. risk Barry Honig.
Alpha allegedly bought shares of a company at a discount and then sold them after Honig helped inflate the share price. The fund had to pay $ 908,000 under a ruling issued last year, although it did not admit to any crime.
XpresSpa is now trying to convert some of its 46 locations in the US. USA At COVID-19 test centers for airport workers, which has helped increase the stock price. The stock rose nearly 70 percent on May 22, for example, after announcing a contract with JFK International Air Terminal to provide a COVID-19 diagnostic test facility.
XpresSpa shares closed at 83 cents on Friday, and penny shares were trading at 12 cents in March.