UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number: 001-34785

XWELL, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		20-4988129
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

254 West 31^st Street, 11th Floor, New York, NY		10001
(Address of principal executive offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code): (212) 750-9595

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	XWEL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	⌧	Smaller reporting company	☒
		Emerging growth company	☐

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. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of May 14, 2024, 4,183,435 shares of the registrant’s common stock were outstanding.

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PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	March 31,		December 31,
	2024		2023
Current assets
Cash and cash equivalents	$	4,317	$	8,437
Marketable Securities		14,784		14,613
Accounts receivable		2,900		1,667
Inventory		834		900
Other current assets		1,621		949
Total current assets		24,456		26,566

Restricted cash		751		751
Property and equipment, net		2,139		2,454
Intangible assets, net		1,264		1,353
Operating lease right of use assets, net		5,651		4,656
Goodwill		1,431		1,371
Other assets		1,785		1,842
Total assets	$	37,477	$	38,993

Current liabilities
Accounts payable	$	2,017	$	1,099
Accrued expenses and other current liabilities		3,695		4,968
Current portion of operating lease liabilities		2,585		2,402
Deferred revenue		890		861
Total current liabilities		9,187		9,330

Long-term liabilities
Operating lease liabilities		9,525		8,692
Total liabilities		18,712		18,022
Commitments and contingencies (see Note 13)

Equity
Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 4,182,617 and 4,179,631 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		42		42
Additional paid-in capital		470,996		470,737
Accumulated deficit		(458,365)		(455,853)
Accumulated other comprehensive loss		(2,099)		(1,924)
Total equity attributable to XWELL, Inc.		10,574		13,002
Noncontrolling interests		8,191		7,969
Total equity		18,765		20,971
Total liabilities and equity	$	37,477	$	38,993

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three months ended March 31,
	2024		2023

Revenue, net
Services		8,035		6,467
Products		691		596
Total revenue, net		8,726		7,063
Cost of sales
Labor		4,149		4,378
Occupancy		942		1,213
Products and other operating costs		964		950
Total cost of sales		6,055		6,541

Gross Profit	$	2,671	$	522

Depreciation and amortization		225		587
Impairment of long-lived assets		652		-
Loss on disposal of assets		-		132
General and administrative		2,092		3,966
Salaries and Benefits		2,081		2,125
Total operating expenses		5,050		6,810
Operating loss		(2,379)		(6,288)
Interest income, net		110		393
Gain on Investments, realized and unrealized		135		24
Foreign exchange gain (loss)		(166)		85
Other non-operating expense, net		(58)		(43)
Loss before income taxes		(2,358)		(5,829)
Income tax expense		-		-
Net loss		(2,358)		(5,829)
Net loss (income) attributable to noncontrolling interests		(154)		320
Net loss attributable to XWELL, Inc.	$	(2,512)	$	(5,509)

Net loss	$	(2,358)	$	(5,829)
Other comprehensive loss from operations		(175)		(130)
Comprehensive loss income	$	(2,533)	$	(5,959)
Loss per share
Basic and diluted loss per share	$	(0.60)	$	(1.32)
Weighted-average number of shares outstanding during the period*
Basic		4,182,617		4,167,295
Diluted		4,182,617		4,167,295

*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on September 28, 2023.

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share and per share data)


								Accumulated
				Additional				other		Total		Non-
	Common stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		in capital		deficit		loss		equity		interests		equity
December 31, 2023	4,179,631	$	42	$	470,737	$	(455,853)	$	(1,924)	$	13,002	$	7,969	$	20,971
Issuance of restricted stock units	2,986		—		—		—		—		—		—		—
Stock-based compensation	—		—		259		—		—		259		23		282
Net loss for the period	—		—		—		(2,512)		—		(2,512)		154		(2,358)
Foreign currency translation	—		—		—		—		(175)		(175)		45		(130)
March 31, 2024	4,182,617	$	42	$	470,996	$	(458,365)	$	(2,099)	$	10,574	$	8,191	$	18,765

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)

(Unaudited)

(In thousands, except share and per share data)


								Accumulated
				Additional				other		Total		Non-
	Common stock*			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		in capital		deficit		loss		equity		interests		equity
December 31, 2022	4,161,613	$	42	$	468,530	$	(428,112)	$	(534)	$	39,926	$	8,023	$	47,949
Issuance of restricted stock	6,015		—		—		—		—	`	—		—		—
Value of shares withheld to fund payroll taxes	—		—		(22)		—		—		(22)		—		(22)
Stock-based compensation	—		—		589		—		—		589		23		612
Net loss for the period	—		—		—		(5,509)		—		(5,509)		(320)		(5,829)
Foreign currency translation	—		—		—		—		(130)		(130)		11		(119)
March 31, 2023	4,167,628	$	42	$	469,097	$	(433,621)	$	(664)	$	34,854	$	7,737	$	42,591

*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on September 28, 2023.

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three months ended March 31,
	2024		2023
Cash flows from operating activities
Net loss	$	(2,358)	$	(5,829)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		225		587
Impairment of fixed assets		398		—
Impairment of operating lease right-of-use assets		254		—
Unrealized Gain on marketable securities		(92)		(206)
Foreign currency remeasurement loss		166		85
Amortization of operating lease right of use asset		286		416
Stock-based compensation		282		612
(Gain) loss on equity investment		(43)		(25)
Changes in assets and liabilities:
Decrease in inventory		66		166
Increase (decrease) in accounts receivable		(1,223)		843
Increase in other assets, current and non-current		(594)		(469)
Increase in deferred revenue		29		6
Decrease in other liabilities, current and non-current		(1,987)		(2,567)
Increase in accounts payable		909		516
Net cash used in operating activities		(3,682)		(5,865)
Cash flows from investing activities
Acquisition of property and equipment		(291)		(1,404)
Investment in marketable securities		(80)		(1,882)
Acquisition of intangibles		—		(4)
Net cash used in investing activities		(371)		(3,290)
Cash flows from financing activities
Payments for shares withheld on vesting		—		(22)
Net cash used in financing activities		—		(22)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(67)		8
Decrease in cash, cash equivalents and restricted cash		(4,120)		(9,169)
Cash, cash equivalents, and restricted cash at beginning of the period		9,188		19,789
Cash, cash equivalents, and restricted cash at end of the period	$	5,068	$	10,620
Cash paid for
Interest	$	—	$	—
Income taxes		—	$	—
Non-cash investing and financing transactions
Capital expenditures included in Accounts payable, accrued expenses and other current liabilities	$	17	$	38

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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XWELL, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for share and per share data)

Note 1. Business, Basis of Presentation and Liquidity

Overview

XWELL is a global wellness company operating multiple brands and focused on bringing restorative, regenerative and reinvigorating products and services to travelers. XWELL currently has four reportable operating segments: XpresSpa®, XpresTest®, Naples Wax Center and Treat™.

On October 25, 2022, the Company changed its name to XWELL, Inc. (“XWELL” or the “Company”) from XpresSpa Group, Inc. The Company’s common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL”. The Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State on October 24, 2022 (the “Amended and Restated Certificate”) reflecting the name change. Rebranding to XWELL aligned the Company’s corporate strategy to build a pure-play wellness services company, in both the airport and off-airport marketplaces.

XpresSpa

XWELL’s subsidiary, XpresSpa Holdings, LLC (“XpresSpa”) has been a global airport retailer of spa services through its XpresSpa spa locations, offering travelers premium spa services, including massage, nail and skin care, as well as spa and travel products.

As of March 31, 2024, there were 21 domestic XpresSpa locations in total, 19 Company-owned locations and two franchises. The Company also had 11 international locations operating as of March 31, 2024, including two XpresSpa locations in Dubai International Airport in the United Arab Emirates, one XpresSpa location in Zayad International Airport in Abu Dhabi, UAE, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in the Istanbul Airport in Turkey.

XpresTest

The Company, in partnership with certain COVID-19 testing partners, successfully launched its XpresCheck Wellness Centers, in June of 2020, through its XpresTest, Inc. subsidiary (“XpresTest”), which offered COVID-19 and other medical diagnostic testing services to the traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents during the pandemic. During 2022 and 2023, as countries continued to relax their testing requirements resulting in rapid decline of testing volumes at the Company’s XpresCheck locations, the Company closed XpresCheck Wellness Centers. As of December 31, 2023, we have closed all XpresCheck locations.

XWELL’s subsidiary, XpresTest, Inc (“XpresTest”) began conducting bio surveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo BioWorks in 2021. The program was extended in January 2022 and renewed in August of 2022 and 2023. In March 2024, the program funding and scope were expanded.

HyperPointe

XWELL’s subsidiary, gcg Connect, LLC, operating as HyperPointe, provides direct to business marketing support across a number of health and health-related channels. From the creation of marketing campaigns for the pharmaceutical industry, to learning management systems to website and health related content creation, HyperPointe is a complementary service provider to XWELL’s health-focused brands as well as providing the majority of services to the external community.

For reporting purposes, the former HyperPointe segment has been consolidated into the XpresTest segment.

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Treat

Treat, which is operating through XWELL’s subsidiary Treat, Inc. (“Treat”) is a wellness brand that provides access to wellness services for travelers at on-site centers (currently located in JFK International Airport). In April 2024, the decision was made to close the location in the Salt Lake City International Airport.

Treat offers a full retail product offering and a suite of wellness and spa services. Travelers can purchase time blocks to use our wellness rooms to engage in interactive services like self-guided yoga, meditation and low impact weight exercises or to relax and unplug from the hectic pace of the airport and renew themselves before or after their trip.

Naples Wax Center

XWELL’s subsidiary Naples Wax Center, LLC, which was acquired on September 12, 2023, for a purchase price of $1,624 operates three high-performing locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products. The acquisition of Naples Wax Center is intended to enable the Company to move beyond its airport client base with a business that can be adapted to a larger wellness platform while also growing its retail footprint to serve long-term financial goals.

TreatStudios

In Q4 of 2023, the Company began plans to open its first TreatStudios location in Jacksonville, Florida in 2024. TreatStudios is an out-of-airport concept providing leased space to established wellness service providers. Revenue will be derived from both lease payments received from the wellness practitioners and the sale of retail at the wellness center.

The Company believes that these strategic imperatives will be accomplished through development of an infrastructure specifically focused on enabling scalable and efficient growth.

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8-03 of Regulation S-X, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as amended. The consolidated balance sheet as of December 31, 2023 was derived from the audited annual financial statements but does not include all information required by GAAP for annual financial statements. The financial statements include the accounts of the Company, all entities that are wholly owned by the Company, and all entities in which the Company has a controlling financial interest. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company. Such adjustments are of a normal, recurring nature. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

Reverse Stock Split

On September 28, 2023, the Company effected a 1-for-20 reverse stock split, (the “Reverse Stock Split”) whereby every twenty shares of its Common Stock were reduced to one share of its Common Stock and the price per share of its Common Stock was multiplied by 20. All references to shares and per share amounts have been adjusted to reflect the reverse stock split.

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Note 2. Accounting and Reporting Policies

Use of estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s long-lived assets, intangibles assets, the useful lives of the Company’s intangible assets, the valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties, and other contingencies.

Revenue Recognition Policy

XpresSpa, Treat and Naples Wax Center

The Company recognizes revenue from the sale of products and services when the services are rendered at XpresSpa, Treat, and Naples Wax Centers locations and from the sale of products at the time products are purchased at the Company’s stores or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer.

XpresTest

During the third quarter of 2022, XpresTest, in partnership with Ginkgo BioWorks in continuation of their support to the CDC’s traveler-based SARS-CoV-2 genomic surveillance program was awarded a new contract. The partnership is expected to support public health and biosecurity services totaling approximately $16,000, with an overall potential to exceed $61,000 based on CDC program options and public health priorities. As COVID-19 sub-variants and other biological threats continue to emerge, the partners plan to expand the program footprint and incorporate innovative modalities and offerings, such as monitoring of wastewater from aircraft lavatories. The current contract with Ginkgo BioWorks related to the above partnership contains fixed pricing for which the Company is entitled to $10,674 for the sample collection (passenger and aircraft wastewater) and $370 for the traveler enrollment initiatives, which represents the amount of consideration that we are entitled. The Company recognizes revenue over time for both sample collection performance obligations, using the input method based on time elapsed to measure progress towards satisfying each of the performance obligations. We recognized the revenue for the traveler enrollment initiative performance obligation in the second quarter of 2023. The Company recognizes revenue ratably (straight line basis) over the term of the contract (one year). The Company recorded $3,306 and $1,670, in revenue for the three months ended March 31, 2024 and 2023, respectively, related to sample collection performance obligations because the Company’s efforts towards satisfying each of the performance obligations are expended evenly throughout the period of performance.

HyperPointe

The Company’s HyperPointe business provides a broad range of service and support options for HyperPointe’s customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered. Revenues billed in advance are treated as deferred revenue, which was $87 and $72 as of March 31, 2024 and December 31, 2023, respectively.

The Company excludes all sales taxes assessed to our customers from revenue. Sales taxes assessed on revenues are included in Accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets until remitted to state agencies.

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Gift cards, customer rewards and prepaid packages

XWELL offers no-fee, non-expiring gift cards to its customers. No revenue is recognized upon the issuance of a gift card and a liability is established for the gift card’s cash value. The liability is relieved, and revenue is recognized upon redemption by the customer. As the gift cards have no expiration date, there is no provision for the reduction in the value of unused card balances.

In addition, XWELL maintains a rewards program in which customers earn loyalty points, which can be redeemed for future services. Loyalty points are rewarded upon joining the loyalty program, for customer birthdays, and based upon customer spending. When a customer redeems loyalty points, the Company recognizes revenue for the redeemed cash value and reduces the related loyalty program liability. In 2023 the Company adopted a formal expiration policy whereby any loyalty members with inactivity for an 18-month period will forfeit any unused loyalty rewards.

The costs associated with gift cards and reward points are accrued as the rewards are earned by the cardholder and are included in Accrued expenses and other current liabilities in the condensed consolidated balance sheets until used.

Naples Wax Center offers prepaid wax packages that are either unlimited for one year or a set number of services. When the packages are purchased, the sales are recorded as deferred revenue. As services related to prepaid packages are used, revenue is recognized as income. The deferred revenue as of March 31, 2024 was $794 and for the year ended December 31, 2023 deferred revenue was $778.

Translation into United States dollars

The Company conducts certain transactions in foreign currencies, which are recorded at the exchange rate as of the transaction date. All exchange gains and losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies are deemed non-operating income in the condensed consolidated statements of operations and comprehensive loss. During the three months ended March 2024, the Company recorded $166 in exchange losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies. During the three months ended March 2023, the Company recorded $85 in exchange gain.

Accounts of the foreign subsidiaries of XpresSpa are translated into United States dollars. Assets and liabilities have been translated primarily at period end exchange rates and revenues and expenses have been translated at average monthly rates for the three months ended March 31, 2024. The translation adjustments arising from the use of different exchange rates are included as foreign currency translation within the condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of changes in stockholders’ equity.

Business Combinations

The Company uses the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.

While the Company uses its best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the condensed consolidated statements of operations.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets. Although the Company believes the assumptions and estimates that have been made are reasonable and appropriate, they are based in part on historical experience and

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information obtained from the acquired companies and are inherently uncertain. Estimates in valuing certain of the intangible assets the Company has acquired include future expected cash flows, and discount rates.

Intangible assets

Intangible assets include customer relationships, trade names, and technology, which were primarily acquired as part of the acquisition of XpresSpa in December 2016, HyperPointe in 2022 and Naples Wax Center in 2023 and were recorded based on the estimated fair value in purchase price allocation. In addition, intangible assets include software and website development costs that were capitalized as part of the Company’s development of a mobile application and website for the Treat brand. The Company accounts for these costs in accordance with ASC 350-40, Internal-Use Software. The intangible assets are amortized over their estimated useful lives, which are periodically evaluated for reasonableness.

The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value is then compared to the carrying value and an impairment charge is recognized by the amount in which the carrying value exceeds the fair value of the asset. In assessing the recoverability of the Company’s intangible assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information.

Goodwill

Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss. During the quarter ended March 31, 2024, the Company did not record any goodwill impairment loss.

Reclassification

Certain balances in the unaudited condensed consolidated financial statements for the three months ended March 31, 2023 have been reclassified to conform to the presentation in the unaudited condensed consolidated financial statements for the three months ended March 31, 2024, primarily the presentation of revenue, general and administrative expense, foreign currency exchange gain, and the realized and unrealized gain on investments and other operating expenses. The above separation affected revenue classifications, general and administrative expenses, foreign currency exchange gain, and the realized and unrealized gain on investments and other operating expenses in the comparative 2023 financial statements. Such reclassifications did not have a material impact on the unaudited condensed consolidated financial statements.

Impairment of Long-Lived Assets

Long-lived assets are tested for impairment at the lowest level at which there are identifiable operating cash flows. The Company’s long-lived assets consist primarily of leasehold improvements and right to use lease assets for each of its locations (considered the asset group). The Company reviews its long-lived assets for recoverability yearly or sooner if events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable. If indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset group in question to its carrying amount. An impairment loss is recognized if it is determined that the long-lived asset group is not recoverable and is calculated based on the excess of the carrying amount of the long-lived asset group over the long-lived asset group’s fair value. The Company estimates the fair value of long-lived assets using present value income approach. Future cash flows are calculated based on forecasts over the estimated remaining useful life of the asset group, which for each of the Company’s locations, is the remaining term of the operating lease.

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Note 3. Potentially Dilutive Securities

The table below presents the computation of basic and diluted net loss per share of Common Stock:


	Three months ended
	March 31,
	2024		2023
Basic numerator:
Net loss attributable to XWELL, Inc.	$	(2,512)	$	(5,509)
Basic denominator:
Basic weighted average shares outstanding		4,182,617		4,167,295
Basic loss per share	$	(0.60)	$	(1.32)

Net loss per share data presented above excludes from the calculation of diluted net (loss) income, the following potentially dilutive securities, having an anti-dilutive impact, in case of net loss
Both vested and unvested options to purchase an equal number of shares of Common Stock		452,474		384,719
Unvested RSUs to issue an equal number of shares of Common Stock		6,458		16,319
Warrants to purchase an equal number of shares of Common Stock		—		200
Total number of potentially dilutive securities excluded from the calculation of earnings/(loss) per share attributable to common shareholders		458,932		401,238

Reverse Stock Split

Note 4. Cash, Cash Equivalents, and Restricted Cash

A reconciliation of the Company’s cash and cash equivalents in the Unaudited Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Unaudited Condensed Consolidated Statements of Cash Flows as of March 31, 2024 and December 31, 2023 is as follows:


	March 31, 2024		December 31, 2023
Cash denominated in United States dollars	$	1,875	$	5,726
Cash denominated in currency other than United States dollars		2,155		2,395
Restricted cash		751		751
Credit and debit card receivables		287		316
Total cash, cash equivalents and restricted cash	$	5,068	$	9,188

The Company places its cash and temporary cash investments with credit quality institutions. At times, such cash denominated in United States dollars may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. As of March 31, 2024, and December 31, 2023, deposits in excess of FDIC limits were $932 and $4,195, respectively. As of March 31, 2024, and December 31, 2023, the Company held cash balances in overseas accounts, totaling $2,155 and $2,395 respectively, which are not insured by the FDIC. If the Company were to distribute the amounts held overseas, the Company would need to follow an approval and distribution process as defined in its operating and partnership agreements, which may delay and/or reduce the availability of that cash to the Company.

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Note 5. Other current assets

As of March 31, 2024 and December 31, 2023, other current assets consisted of the following:


	March 31, 2024		December 31, 2023
Prepaid expenses	$	1,602	$	894
Other		19		55
Total other current assets	$	1,621	$	949

Note 6. Intangible Assets

The following tables provides information regarding the Company’s intangible assets subject to amortization, which consist of the following:


	March 31, 2024						December 31, 2023
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Trade names	$	200	$	(12)	$	188	$	200	$	(6)	$	194
Customer relationships		1,012		(366)		646		1,012		(341)		671
Software		2,593		(2,174)		419		2,593		(2,120)		473
Licenses		35		(24)		11		35		(20)		15
Total intangible assets	$	3,840	$	(2,576)	$	1,264	$	3,840	$	(2,487)	$	1,353

The Company’s intangible assets are amortized over their expected useful lives. The Company recorded amortization expense of $84 and $382 during the three months ended March 31, 2024 and 2023, respectively.

Based on the intangible assets balance as of March 31, 2024, the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:


Calendar Years ending December 31,	Amount
Remaining 2024	$	229
2025		307
2026		228
2027		122
2028		122
Thereafter		256
Total	$	1,264

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Note 7. Accrued expenses and other current liabilities

As of March 31, 2024 and December 31, 2023, accrued expenses and other current liabilities consisted of the following:



	March 31, 2024		December 31, 2023
Litigation accrual	$	424	$	449
Accrued compensation		1,184		2,098
Tax-related liabilities		485		501
Common area maintenance accruals		495		8
Accounts payable accruals		235		913
Gift certificates		508		509
Credit card processing fees		5		8
Other miscellaneous accruals		359		482
Total accrued expenses and other current liabilities	$	3,695	$	4,968

Note 8. Acquisition of Naples Wax, LLC

On September 12, 2023, the Company acquired all of the equity interests in Naples Wax, LLC, d/b/a Naples Wax Centers, a Florida limited liability company (“Naples Wax”), for an aggregate purchase price of $1,624, of which $1,574 was paid in cash at closing. The remaining $50 was held for six months as a holdback to cover any potential indemnification claims. $14 was paid in the quarter ended March 31, 2024. The remaining $36 was offset by operating expenses.

The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.

While the company uses its best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. As of March 31, 2024, no impairment of the Company’s goodwill was required. The purchase accounting for the acquisition remains incomplete as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the condensed consolidated statements of operations.

Accounting for business combinations requires management to make estimates and assumptions, especially at the acquisition date, including estimates for intangible assets. Although the Company believes the assumptions and estimates that have been made are reasonable and appropriate, they are based in part on historical experience and information obtained from the acquired companies and are inherently uncertain. Estimates in valuing certain of the intangible assets the Company has acquired include future expected cash flows, and discount rates.

For income tax purposes, this acquisition of 100% of the units is treated as an asset acquisition. As a result of the acquisition of Naples Wax, the company generated tax deductible goodwill of $1,371.

Note 9. Leases

The Company leases spa and clinic locations at various domestic and international airports. Additionally, the Company leases its corporate office in New York City and other off airport locations in various US cities. Certain leases entered into by the Company are accounted for in accordance with ASC 842. The Company determines if an arrangement is a lease at

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inception and if it qualifies under ASC 842. The Company’s lease arrangements generally contain fixed payments throughout the term of the lease and most also contain a variable component to determine the lease obligation where a certain percentage of sales is used to calculate the lease payments. The Company enters into leases that expire, are amended and extended, or are extended on a month-to-month basis. Leases are not included in the calculation of the total lease liability and the right of use asset when they are month-to-month.

All qualifying leases held by the Company are classified as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company records its operating lease assets and liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate, which approximates the rate at which the Company can borrow funds on a secured basis, using the information available at commencement date of the lease in determining the present value of guaranteed lease payments. The interest rate implicit in the lease is generally not determinable in transactions where a company is the lessee.

The Company reviews all of its existing lease agreements to determine whether there were any modifications to lease agreements and to assess if any agreements should be accounted for pursuant to the guidance in ASC 842.

The following is a summary of the activity in the Company’s current and long-term operating lease liabilities for the three months ended March 31, 2024 and 2023:

As of March 31, 2024, operating leases contain the following future minimum commitments:


Calendar Years ending December 31,	Amount
Remaining 2024	$	2,577
2025		3,054
2026		1,979
2027		1,866
2028		1,497
2029		1,273
Thereafter		2,609
Total future lease payments		14,855
Less: interest expense at incremental borrowing rate		(2,745)
Net present value of lease liabilities	$	12,110

Other assumptions and pertinent information related to the Company’s accounting for operating leases are:


Weighted average remaining lease term:	5.95	years
Weighted average discount rate used to determine present value of operating lease liability:	7.33	%

Cash paid for minimum annual rental obligations for the three months ended March 31, 2024 and 2023, were $450 and $662 respectively.

Variable lease payments calculated monthly as a percentage of a product and services revenue were $360 and $345 for the three months ended March 31, 2024 and 2023 respectively.

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Note 10. Other Assets

As of March 31, 2024 and December 31, 2023, assets consisted of the following:


	March 31, 2024		December 31, 2023
Equity investments	$	92	$	50
Lease deposits		1,523		1,556
Other		170		236
Other assets	$	1,785	$	1,842

Note 11. Stockholders’ Equity

2023 Reverse Stock Split

On September 28, 2023, we effected the “Reverse Stock Split”, whereby every twenty shares of our common stock were reduced to one share of our common stock and the price per share of our common stock was multiplied by 20. All references to shares and per share amounts, including shares of common stock underlying stock options, warrants, and applicable exercise prices, have been retroactively adjusted for all periods presented herein to give effect to the Reverse Stock Split as required in accordance with United States of America generally accepted accounting principles.

Stock-based Compensation

The Company has a stock-based compensation plan available to grant stock options and RSUs to the Company’s directors, employees and consultants.

In September 2020, the Board of Directors approved a new stock-based compensation plan available to grant stock options, restricted stock and Restricted Stock Units (“RSU’s”) aggregating to 250,000 shares of Common Stock, to the Company’s directors, employees and consultants. Shareholder approval of the plan was subsequently obtained on October 28, 2020. On October 4, 2022, shareholders approved the amendment to the Company’s 2020 Equity Incentive Plan to increase the number of shares authorized for issuance under the Plan by 375,000 shares of Common Stock to an aggregate of 625,000 shares. Under the 2020 Equity Incentive Plan (the “2020 Plan”), a maximum of 141,120 shares of Common Stock remained available for issuance as of March 31, 2024.

The Company’s previous Employee, Director and Consultant Equity Incentive Plan (the “2012 Plan”) was terminated upon receipt of shareholder approval of the 2020 Plan. Awards granted under the 2012 Plan remain in effect pursuant to their terms. Generally, stock options are granted with exercise prices equal to the fair market value on the date of grant, vest in four equal quarterly installments, and expire 10 years from the date of grant. RSU’s granted generally vest over a period of one year.

In September 2020, XpresTest created a stock-based compensation plan available to grant stock options, restricted stock and RSU’s to the XpresTest’s directors, employees and consultants. Under the XpresTest 2020 Equity Incentive Plan (the “XpresTest Plan”), a maximum of 200 shares of XpresTest common stock may be awarded, which would represent 20% of the total number of shares of common stock of XpresTest as of March 31, 2024. Certain named executive officers, consultants, and directors of the Company are eligible to participate in the XpresTest Plan. The XpresTest Plan RSAs vest upon satisfaction of certain service and performance-based conditions. The fair value of the XpresTest Plan RSAs is determined based on the weighted average of (i) Fair Value of XpresTest under the Indirect Valuation Method developing assumptions for XpresSpa Net Market Cap and XpresSpa standalone Fair Value, and (ii) Direct Valuation Method developing assumptions for XpresTest Representative Forecasted Revenue for 2021 and Peer companies Revenue’s Multiples.

As of March 31, 2024 and 2023, there was $74 and $167 respectively of unrecognized stock-based compensation related to the XpresTest Plan.

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The fair value of stock options is estimated as of the date of grant using the Black-Scholes-Merton (“Black-Scholes”) option-pricing model. The Company uses the simplified method to estimate the expected term of options due to insufficient history and high turnover in the past.

The following variables were used as inputs in the model:


Share price of the Company’s Common Stock on the grant date:	$	1.50
Exercise price:	$	1.50
Expected volatility:		121.04	%
Expected dividend yield:		0	%
Annual average risk-free rate:		4.14	%
Expected term:		6.32	years

Total stock-based compensation for the three months ended March 31, 2024 and 2023 is $282 and $612, respectively.

The following tables summarize information about stock options and RSU activity for the three months ended March 31, 2024:


	RSUs			XpresTest RSAs			Stock options
		Weighted			Weighted			Weighted
		average			average			average		Exercise
	No. of	grant date		No. of	grant date		No. of	exercise		price
	RSUs	fair value		RSAs	fair value		options	price		range
Outstanding as of December 31, 2023	11,944	$	6.08	5.00	$	47,570	341,205	$	26.85	$	4.60 - 49,200
Granted	—		-	—		—	150,000	$	1.50		1.50
Exercised/Vested	(2,986)		6.13	—		—	—		—
Forfeited	(2,500)		5.09	—		—	(29,278)	$	17.40	$	1.50 - 34.40
Expired	—		—	—		—	(9,453)	$	67.89	$	8.00 - 49,200
Outstanding as of March 31, 2024	6,458	$	6.74	5.00	$	47,570	452,474	$	18.20	$	1.50 - 7,080
Exercisable as of March 31, 2024							272,683	$	25.07	$	4.60- 7,080

Note 12. Income Taxes

The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary. The income tax provision for the three months ended March 31, 2024, reflects an estimated global annual effective tax rate of approximately 0% from continuing operations.

As of March 31, 2024, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. Net operating loss carryforwards generated after December 31, 2017 do not expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit. Income tax expense/(benefit) for the three months ended March 31, 2024 was $0 which was attributed to state taxing jurisdictions in which a measure of income is utilized to determine a tax liability. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates.

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	For the three months ended
	March 31,
	2024		2023
Revenue
XpresSpa	$	4,345	$	4,499
XpresTest		3,643		2,360
Naples Wax		648		—
Treat		90		204
Total revenue	$	8,726	$	7,063

	2024		2023
Operating loss
XpresSpa	$	(2,107)	$	(3,132)
XpresTest		1,670		(281)
Naples Wax		(78)		—
Treat		(673)		(444)
Corporate and other		(1,191)		(2,431)
Total operating loss	$	(2,379)	$	(6,288)

	2024		2023
Depreciation & amortization
XpresSpa	$	132	$	423
XpresTest		26		86
Naples Wax		31		—
Treat		19		65
Corporate and other		17		13
Total depreciation & amortization	$	225	$	587

		Page
PART I. FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION		30

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31

Three months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases