Spa chain secured $5.6M in coronavirus relief for small businesses despite losses last year

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An airport spa chain secured a taxpayer-funded loan through a small business rescue fund, weeks after it told investors that an independent auditor raised “substantial doubt” about its ability to continue operating amid a series of operating losses.

XpresSpa, which operates spas in 25 airports, including two overseas, received a $5.6 million loan through the Paycheck Protection Program, according to a Securities and Exchange Commission filing from May 7. The report came three days after the company reported severing ties with CohnReznick, the accounting firm previously critical of XpresSpa’s business.

It’s unclear why XpresSpa fired CohnReznick. At the end of April, XpresSpa said in a regulatory filing that the auditor had warned its operation was at risk.

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“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,” it said. “Our auditors’ doubts are based on our recurring losses from operations and working-capital deficiency.”

XpresSpa did not respond to a request for comment. The company’s CEO, Doug Satzman, told the New York Post, which first reported the news, that XpresSpa dismissed CohnReznick because it had decided to switch to a less expensive accounting firm -- not because of any disputes.

Before the virus gained a foothold in the U.S., prompting a broad swath of the nation’s economy to shut down, XpresSpa had reported significant losses: Last year, the company suffered a $20.5 million net loss, ending the year with just $2.1 million in cash on hand.

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“Similar to many businesses in the travel sector, our business has been materially adversely impacted by the recent COVID-19 outbreak and associated restrictions on travel that have been implemented,” the company said in the filing.

“While we have aggressively reduced operating and overhead expenses, and while we continue to focus on our overall profitability, we have continued to generate negative cash flows from operations, and we expect to incur net losses for the foreseeable future, especially considering the negative impact COVID-19 will have on our liquidity and financial position,” it added.

Congress created the $610 billion program to keep small businesses afloat during the coronavirus pandemic. The money can be used for payroll and other expenses, like insurance premiums, mortgages, rent or utilities through June 30. As long as 75 percent of the money goes toward keeping workers employed and maintaining salary levels, the loans, which are guaranteed by the federal government, will be fully forgiven.

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During the program's first round of funding -- which was exhausted in 13 days -- a slew of large, public companies received loans, igniting a firestorm of criticism. An Associated Press report found that companies that had warned investors months earlier that their ability to remain in business was questionable also tapped the loan program.

As of last Saturday, more than 4.42 million loans worth close to $511 billion had been distributed through the program.

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