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 September 30, 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 31st 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 November 14, 2024, 5,256,024 shares of the registrant’s common stock were outstanding.

XWELL, Inc. and Subsidiaries

Table of Contents

		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	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

2

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	September 30,		December 31,
	2024		2023
	(Unaudited)
Current assets
Cash and cash equivalents	$	4,365	$	8,437
Marketable securities		11,660		14,613
Accounts receivable		914		1,667
Inventory		669		900
Other current assets		1,905		949
Total current assets		19,513		26,566
Restricted cash		751		751
Property and equipment, net		2,959		2,454
Intangible assets, net		1,107		1,353
Operating lease right of use assets, net		6,234		4,656
Goodwill		1,389		1,371
Other assets		1,832		1,842
Total assets	$	33,785	$	38,993
Current liabilities
Accounts payable	$	2,704	$	1,099
Accrued expenses and other current liabilities		3,692		4,968
Current portion of operating lease liabilities		2,508		2,402
Deferred revenue		946		861
Total current liabilities		9,850		9,330
Long-term liabilities
Operating lease liabilities		9,108		8,692
Total liabilities		18,958		18,022
Commitments and contingencies (see Note 13)
Equity
Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 5,256,024 and 4,179,631 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		53		42
Additional paid-in capital		473,773		470,737
Accumulated deficit		(465,111)		(455,853)
Accumulated other comprehensive loss		(2,411)		(1,924)
Total equity attributable to XWELL, Inc.		6,304		13,002
Noncontrolling interests		8,523		7,969
Total equity		14,827		20,971
Total liabilities and equity	$	33,785	$	38,993

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

3

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Revenue, net
Services	$	7,486	$	6,721	$	23,924	$	20,662
Products		936		747		2,506		2,044
Total revenue, net		8,422		7,468		26,430		22,706
Cost of sales
Labor		4,426		4,462		13,235		13,609
Occupancy		919		1,063		2,564		3,237
Products and other operating costs		1,024		852		2,834		3,057
Total cost of sales		6,369		6,377		18,633		19,903
Gross Profit	$	2,053	$	1,091	$	7,797	$	2,803
Depreciation and amortization		252		590		705		1,770
Impairment of long-lived assets		-		7,878		652		7,878
Impairment of operating lease right-of-use assets		-		517		-		517
Loss on disposal of assets		152		16		171		34
General and administrative		4,525		3,001		9,682		10,282
Salaries and benefits		1,893		1,178		5,627		5,423
Total operating expenses		6,822		13,180		16,837		25,904
Operating loss		(4,769)		(12,089)		(9,040)		(23,101)
Interest income, net		100		105		308		334
Gain on investments, realized and unrealized		106		205		293		650
Foreign exchange gain (loss)		(69)		366		(210)		(690)
Other non-operating expense, net		(73)		(178)		(205)		(292)
Loss before income taxes		(4,705)		(11,591)		(8,854)		(23,099)
Income tax expense		-		-		-		-
Net loss		(4,705)		(11,591)		(8,854)		(23,099)
Net loss (income) attributable to noncontrolling interests		(45)		60		(404)		329
Net loss attributable to XWELL, Inc.	$	(4,750)	$	(11,531)	$	(9,258)	$	(22,770)
Net loss	$	(4,705)	$	(11,591)	$	(8,854)	$	(23,099)
Other comprehensive loss from operations		(247)		(514)		(487)		(1,108)
Comprehensive loss	$	(4,952)	$	(12,105)	$	(9,341)	$	(24,207)
Loss per share
Basic and diluted loss per share	$	(0.99)	$	(2.76)	$	(2.11)	$	(5.46)
Weighted-average number of shares outstanding during the period
Basic and diluted		4,818,681		4,173,894		4,394,106		4,170,629

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

4

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
Issuance of restricted stock units	818		—		—		—		—		—		—		—
Exercise of stock options	3,000		—		4		—		—		4		—		4
Stock-based compensation	—		—		281		—		—		281		23		304
Net loss for the period	—		—		—		(1,996)		—		(1,996)		205		(1,791)
Foreign currency translation	—		—		—				(65)		(65)		11		(54)
June 30, 2024	4,186,435	$	42	$	471,281	$	(460,361)	$	(2,164)	$	8,798	$	8,430	$	17,228
Issuance of restricted stock units	884		—		—		—		—		—		—		—
Exercise of stock options	—		—		—		—		—		—		—		—
Stock issued related to legal settlement	416,000		4		936		—		—		940		—		940
Stock-based compensation	—		—		208		—		—		208		24		232
Proceeds from registered offering	652,705		7		1,348		—		—		1,355		—		1,355
Net loss for the period	—		—		—		(4,750)		—		(4,750)		45		(4,705)
Foreign currency translation	—		—		—		—		(247)		(247)		24		(223)
September 30, 2024	5,256,024	$	53	$	473,773	$	(465,111)	$	(2,411)	$	6,304	$	8,523	$	14,827

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

5

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 units	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
Issuance of restricted stock	3,297		—		—		—		—		—		—		—
Stock-based compensation	—		—		603		—		—		603		23		626
Distributions to noncontrolling interests	—		—		—		—		—		—		(120)		(120)
Foreign currency translation	—		—		—		—		(464)		(464)		46		(418)
Net loss for the period	—		—		—		(5,730)		—		(5,730)		51		(5,679)
June 30, 2023	4,170,925	$	42	$	469,700	$	(439,351)	$	(1,128)	$	29,263	$	7,737	$	37,000
Issuance of restricted stock	3,456		—		—		—		—		—		—		—
Stock-based compensation	—		—		567		—		—		567		24		591
Grant of stock for services	—		—		3		—		—		3		—		3
Distributions to noncontrolling interests	—		—		—		—		—		—		150		150
Foreign currency translation	—		—		—		—		(514)		(514)		18		(496)
Net loss for the period	—		—		—		(11,531)		—		(11,531)		(60)		(11,591)
September 30, 2023	4,174,381	$	42	$	470,270	$	(450,882)	$	(1,642)	$	17,788	$	7,869	$	25,657

*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.

6

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine months ended September 30,
	2024		2023
Cash flows from operating activities
Net loss	$	(8,854)	$	(23,099)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		705		1,770
Impairment/loss on disposal of fixed assets		569		8,429
Impairment of operating lease right-of-use assets		254		—
Unrealized gain on marketable securities		(301)		(668)
Gain on Lease Termination		(655)		(821)
Foreign currency remeasurement loss		210		690
Amortization of operating lease right of use asset		928		1,163
Stock-based compensation		818		1,832
(Gain) loss on equity investment		8		53
Changes in assets and liabilities:
Decrease in inventory		231		192
Decrease in accounts receivable		746		1,665
(Increase) in other assets, current and non-current		(1,233)		(336)
Increase (decrease) in deferred revenue		85		(266)
(Decrease) in other liabilities, current and non-current		(2,143)		(3,226)
Increase (decrease) in accounts payable		1,091		(251)
Net cash used in operating activities		(7,541)		(12,873)
Cash flows from investing activities
Acquisition of property and equipment		(1,054)		(1,639)
Investment in marketable securities		(238)		(1,991)
Acquisition of Naples Wax net of cash assumed		—		(1,574)
Sale of marketable securities		3,492		4,500
Acquisition of intangibles		(9)		(468)
Net cash provided by (used in) investing activities		2,191		(1,172)
Cash flows from financing activities
Contributions from noncontrolling interests		—		150
Net proceeds from stock sale		1,355		—
Payments for shares withheld on vesting		—		(22)
Stock options exercised		4		—
Distributions to noncontrolling interests		—		(120)
Net cash provided by financing activities		1,359		8
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(81)		(174)
Decrease in cash, cash equivalents and restricted cash		(4,072)		(14,211)
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	$	5,116	$	5,578
Cash paid for
Income taxes	$	36	$	142
Non-cash investing and financing transactions
Issuance of shares of Common Stock for legal settlement		940		—
Capital expenditures included in Accounts payable, accrued expenses and other current liabilities	$	521	$	197

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

7

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 September 30, 2024, there were 19 domestic XpresSpa locations in total, 17 Company-owned locations and two franchises. The Company also had 10 international locations operating as of September 30, 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 four 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 Wellness locations, the Company started to close XpresCheck Wellness Centers. As of December 31, 2023, we have closed all XpresCheck Wellness locations.

XpresTest, Inc 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. The program was renewed in August of 2024.

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.

8

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

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, LLC, d/b/a Naples Wax Centers (“Naples Wax Center” or “Naples Wax”) 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.

XWELL Studios

The Company plans to open its first XWELL Studios location in Jacksonville, Florida in 2025.  XWELL Studios 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.

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 and nine months ended September 30, 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.

9

Liquidity and Financial Condition

As of September 30, 2024, the Company had cash and cash equivalents of $4,365 (excluding restricted cash), $11,660 in marketable securities, and total current assets of $19,513. The Company’s total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was $9,850 as of September 30, 2024, and $9,330 as of December 31, 2023. The working capital surplus was $9,663 as of September 30, 2024, compared to a working capital surplus of $17,236 as of December 31, 2023.

The Company has significantly reduced operating and overhead expenses, while it continues to focus on returning to overall profitability.

The Company has taken actions to improve its overall cash position, right sizing its corporate structure and streamlining its operations. The Company is pursuing strategic partnerships that the Company expects will further strengthen the long-term profitability of the business.

Note 2. Accounting and Reporting Policies

Use of estimates

The preparation of the accompanying unaudited 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. The Company recognizes revenue from Priority Pass services when an invoice is generated to Priority Pass detailing the number of services performed multiplied by the agreed upon price.

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 $14,730 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 $2,542 and $9,289 in revenue for the three and nine months ended September 30, 2024,

10

respectively, and $1,603 and $5,531 in revenue for the three and nine months ended September 30, 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 $112 and $72 as of September 30, 2024, and December 31, 2023, respectively. Deferred revenue recognized in the three and nine months ended September 30, 2024, were $0 and $72, respectively. Deferred revenue recognized in the three and nine months ended September 30, 2023, were $111 and $321, 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.

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 September 30, 2024, was $828 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 and nine months ended September 30, 2024, the Company recorded $69 and $210, respectively, in exchange gains occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies. During the three and nine months ended September 30, 2023, the Company recorded $366 in exchange losses and $690 in exchange gains respectively, occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies.

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

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for the three and nine months ended September 30, 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 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 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.  During the three and nine months ended September 30, 2024, the Company did not record any intangible impairment loss. During the three and nine months ended September 30, 2023, the Company recorded $2,758 of intangible impairment loss.

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,

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and that excess is recognized as a goodwill impairment loss. During the three and nine months ended September 30, 2024, the Company did not record any goodwill impairment loss. During the three and nine months ended September 30, 2023, the Company recorded $4,024 of goodwill impairment loss.

Reclassification

Certain balances in the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023, have been reclassified to conform to the presentation in the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024, primarily the presentation of revenue, general and administrative expense, the realized and unrealized gain on investments and other operating expenses. The above separation affected revenue classifications, general and administrative expenses, the realized and unrealized gain on investments and other operating expense 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.

The estimates used to calculate future cash flows are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated fair value of each asset group. The Company will calculate the future cash flow using what it believes to be the most predictable of several scenarios. Typically, the changes in assumptions run under different business scenarios would not result in a material change in the assessment of the potential impairment or the impairment amount of a locations long-lived asset group. But if these estimates or related assumptions were to change materially, the Company may be required to record an impairment charge.

During the three and nine months ended September 30, 2024, the Company recorded impairment of long-lived assets of $0 and $652, respectively compared to $1,096 for the three and nine months ended September 30, 2023, respectively.

Recently Issued Accounting Standards

ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating segment expense disclosures related to its Annual Report on Form 10-K for fiscal year 2024.

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ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is currently evaluating income tax disclosures related to its Annual Report on Form 10-K for fiscal year 2025.

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				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Basic numerator:
Net loss attributable to XWELL, Inc.	$	(4,750)	$	(11,531)	$	(9,258)	$	(22,770)
Basic denominator:
Basic weighted average shares outstanding		4,818,681		4,173,894		4,394,106		4,170,629
Basic net (loss) per share	$	(0.99)	$	(2.76)	$	(2.11)	$	(5.46)
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		439,487		377,717