ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise stated, dollar amounts are provided in thousands, except share and per share data.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements (including notes to the consolidated financial statements) and the other consolidated financial information appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Actual results and timing of events could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Our Strategy and Outlook
We believe that our company is well positioned to benefit from consumers’ growing interest and pent-up demand in travel health and wellness and increasing demand for health and wellness related services and products. Our go-forward plan includes the expansion and integration of products and services across our brands; the right-sizing of our existing airport portfolio to a leaner and more profitable business; the execution of an ‘off-airport’ strategy through acquisition to deliver more products and services, which will serve as a catalyst for our future growth; the implementation of an international expansion plan; and ensuring we can scale our growth in a responsible way that drives shareholder value. Through right sizing our existing business, optimizing our cost structure, and making acquisitions that further leverage the strength of our brand portfolio, XWELL is positioning itself for both financial and operational growth now and in the future. However, these plans are not finalized or fully within the Company’s control, and there is uncertainty regarding their execution and effectiveness. As noted previously in these financial statements, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for at least one year from the date these financial statements are issued. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Recent Developments
January 2025 Private Placement
On January 14, 2025, we entered into a securities purchase agreement (the “January 2025 Purchase Agreement”) with certain accredited investors thereto, pursuant to which it agreed to sell to such investors (i) an aggregate of 4,000 shares of our newly-designated Series G Convertible Preferred Stock, par value of $0.01 per share and a stated value of $1,000 per share, initially convertible into up to 2,673,797 shares of our common stock at a conversion price of $1.496 per share, (ii) Series A Warrants to acquire up to an aggregate of 2,673,797 shares of common stock at an exercise price of $1.496 per share, and (iii) Series B Warrants to acquire up to an aggregate of 2,673,797 shares of common stock at an exercise price of $1.7952 per share (the “January 2025 Private Placement”), each for a term of five years following the date of issuance. In connection with the January 2025 Private Placement, we also entered into that certain registration rights agreement, dated as of January 14, 2025, with the investors in the January 2025 Private Placement. The January 2025 Private Placement closed on January 14, 2025.
38
Table of Contents
Year ended December 31, 2024, compared to the year ended December 31, 2023
Revenue
Year ended December 31,
During the year ended December 31, 2024, total revenues increased $3,788, or 13%. The increase in revenue was primarily due to a full year service revenue generated from the acquired Naples Wax business and an increase in service revenue in the XpresSpa new touchless locations.
Cost of sales
Year ended December 31,
The decrease in total cost of sales during the year ended December 31, 2024, was primarily driven by the closure of XpresSpa locations that were under performing. The largest components in the cost of sales for that segment are labor costs at the location-level. Total cost of sales also includes rent and related occupancy costs, which primarily includes rent based on percentage of sales, as well as other product costs directly associated with the procurement of retail inventory, and other operating costs.
Depreciation and amortization
Year ended December 31,
Depreciation and amortization $ 938 $ 2,065 $ (1,127)
During the year ended December 31, 2024, depreciation and amortization expense decreased $1,127, or 55%, compared to the depreciation and amortization expense recorded during the year ended December 31, 2023. The decrease was primarily due to fewer long-lived assets available for depreciation and amortization in 2024 as compared to 2023 due the impairment of long-lived assets which occurred in the latter half of fiscal year 2023.
Impairment/loss on disposal of assets
The following table summarizes impairment charges the years ended December 31, 2024 and 2023, recorded on the consolidated statement of operations and comprehensive loss:
Year ended December 31,
Impairment of long-lived assets $ 1,711 $ 3,927 $ (2,216)
Impairment of operating lease right-of-use assets 2,805 926 1,879
Loss on disposal of assets, net 90 34 56
Goodwill impairment — 4,024 (4,024)
The Company identified triggering events and completed an assessment of the Company’s property and equipment, intangible assets and right of use lease assets for impairment as of December 31, 2024 and 2023. As of December 31, 2024, the Company recorded an impairment of property and equipment, intangible assets, and right of use lease assets of approximately $1,706, $5 and $2,805, respectively, as compared to December 31, 2023 of approximately $1,159, $2,768, and $926 impairment of property and equipment, intangible assets, and right of use lease assets, respectively.
39
Table of Contents
The Company completed an assessment of goodwill for impairment as of December 31, 2024. The year-over-year decrease is based upon the results of the 2024 impairment assessment whereby the Company identified a triggering event for goodwill but deemed that the reporting unit’s fair value is greater than its carrying value, therefore no impairment for goodwill was recognized as of December 31, 2024. During the year ended December 31, 2023 the Company identified a triggering event, related to the Goodwill associated with XpresTest’s HyperPointe business, and as a result recognized an impairment charge of $4,024.
General and administrative
Year ended December 31,
During the year ended December 31, 2024, general and administrative expenses decreased by $415 or 3%, which was primarily due to rightsizing our existing business and optimizing our cost structure. We have significantly reduced operating and overhead expenses while we continue to focus on returning to overall profitability. The decrease in general and administrative expenses were partially offset by an increase in one-time legal fees of approximately $2.1 million related to the defense of the CPC lawsuit.
Salaries and benefits
Year ended December 31,
During the year ended December 31, 2024, salaries and benefits expenses decreased by $414 or 5%, primarily due to the closing of unprofitable or poorly performing spas, optimization of systems and processes that support the business, headcount reductions and elimination of infrastructure no longer necessary to support our future growth.
Gain on investments, realized and unrealized
Year ended December 31,
Gain on investments, realized and unrealized $ 356 $ 857 $ (501)
As of December 31, 2024, the decrease is primarily driven by the decrease in marketable securities balance in 2024 as compared to 2023. Gain on investments is affected by the adjustments to the fair value of our equity investment, which could fluctuate materially from period to period. The fair value of these instruments depends on a variety of assumptions.
Other non-operating expenses, net
Year ended December 31,
Other non-operating expense, net $ (211) $ (355) $ 144
40
Table of Contents
The following is a summary of the transactions included in other non-operating expenses, net for the years ended December 31, 2024 and 2023:
Year ended December 31,
Bank fees and financing charges $ (179) $ (320)
Other (32) (35)
Income Taxes
As of December 31, 2024, our estimated aggregate total gross NOLs were $150,926 for U.S. federal purposes, expiring 20 years from the respective tax years to which they relate, and $114,321 for U.S. federal purposes with an indefinite life due to new regulations in the Tax Act of 2017. The NOL amounts are presented before Internal Revenue Code, Section 382 limitations (“Section 382”). The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of NOL and tax credits in the event of an ownership change of a corporation. Thus, our ability to utilize all such NOL and credit carryforwards may be limited. The CARES Act was enacted on March 27, 2020, and provides favorable changes to tax laws for businesses impacted by COVID-19. However, we do not anticipate the income tax law changes will materially benefit us.
We did not have any material unrecognized tax benefits as of December 31, 2024. We do not expect to record any additional material provisions for unrecognized tax benefits within the next year.
Going Concern and Liquidity
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern as we have suffered recurring losses from operations and have insufficient liquidity to fund our future operations. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. As of December 31, 2024, we had approximately $4,550 of cash and cash equivalents, $7,247 in marketable securities, and total current assets of approximately $15,337. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,224 as of December 31, 2024. The working capital surplus was $6,113 as of December 31, 2024, compared to a working capital surplus of $17,236 as of December 31, 2023.
The Company significantly reduced operating and overhead expenses in the 2023 and 2024, 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, while at the same time the Company is aggressively trying to get the company to profitability which the Company believes will strengthen the Company’s stock price and put the Company in a stronger position to be able to raise capital in 2025 and beyond. The Company is aggressively pursuing strategic partnerships that the Company expects will further strengthen the long-term profitability of the business, which puts the Company in a position of strength as the Company raises more capital.
Our primary liquidity and capital requirements are for the maintenance of our current XpresSpa locations and brand, as well as the expansion outside the airports. During the year ended December 31, 2024, we used net cash of $11,005 to fund our operating activities.
In order to have sufficient cash to fund our operations in the future, we will need to raise additional equity or debt capital and cannot provide any assurance that we will be successful in doing so. If we are unable to raise sufficient capital to fund our operations, we may need to delay, reduce or eliminate certain of our operations, sell some or all of our assets or merge with another entity.
41
Table of Contents
We do not currently have sufficient available liquidity to fund its operations for at least the next 12 months. These conditions and events raise substantial doubt about our ability to continue as a going concern within one year after the date that these audited annual consolidated financial statements are issued.
Cash flows
Year ended December 31,
Net cash provided by investing activities $ 5,895 $ 5,650 $ 245
Net cash provided by financing activities $ 1,359 $ 8 $ 1,351
Operating activities
During the year ended December 31, 2024, net cash used in operating activities was $11,005 compared to net cash used in operating activities during the year ended December 31, 2023 of $16,074. The decrease in net cash used in operating activities was primarily due the Company’s reduction of operating and overhead expenses such as lower occupancy costs in 2024 as compared to 2023. In addition, there has been higher cash flows from full year operations of the acquired Naples Wax business in 2024 as compared to 2023.
Investing activities
During the year ended December 31, 2024, net cash provided by investing activities was $5,895 compared to net cash provided by investing activities during the year ended December 31, 2023 of $5,650. Cash provided in 2024 came primarily from the sale of marketable securities of approximately $7,986. Cash provided in 2023 came primarily from the sale of marketable securities of approximately $9,417.
Financing activities
During the year ended December 31, 2024, net cash provided by financing activities increased by $1,351 primarily due to the net proceeds received from the August 2024 Registered Direct Offering (as defined below).
Sources of Liquidity
August 2024 Registered Direct Offering
On August 6, 2024, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to sell and issue in a registered direct offering (the “August 2024 Registered Direct Offering”), an aggregate of 652,705 shares (the “August 2024 Shares”) of our common stock. The gross proceeds to us from the August 2024 Registered Direct Offering, prior to deducting estimated fees and expenses of $0.1 million, were approximately $1.4 million. The August 2024 Registered Direct Offering closed on August 8, 2024.
The August 2024 Shares were offered and sold pursuant to a shelf registration statement on Form S-3 (File No. 333-273726), previously filed with the SEC on August 4, 2023, and declared effective by the SEC on September 29, 2023, and the base prospectus included therein
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
42
Table of Contents
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
We believe the following accounting estimates to be the most critical estimates we used in preparing our consolidated financial statements for the year ended December 31, 2024.
Goodwill
The Company accounts for goodwill under FASB ASC 350-30, Intangibles-Goodwill and Other. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired and liabilities assumed. 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. 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 year ended December 31, 2024, the Company identified a triggering event for goodwill but deemed that the fair value of the reporting unit is greater than its carrying value; therefore, no impairment loss was recognized. During the year ended December 31, 2023, the Company identified a triggering event and as a result recognized an impairment charge of $4,024, which is recorded in goodwill impairment on the consolidated statements of operations and comprehensive loss.
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 the right to use lease assets for each of its locations (considered the asset group). The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts 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 the 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
43
Table of Contents
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 year ended December 31, 2024, the Company identified triggering events and completed an impairment assessment of long-lived assets for impairment and recognized an impairment charge of $1,706 and $2,805, which is recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets, respectively, on the consolidated statements of operations and comprehensive loss. During the year ended December 31, 2023, the Company recognized an impairment charge of $1,159 and $926, which is recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets, respectively, on the consolidated statements of operations and comprehensive loss.
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 year ended December 31, 2024, the Company recorded $5 of intangible impairment loss. During the year ended December 31, 2023, the Company recorded $2,768 of intangible impairment loss.
Recently adopted accounting pronouncements
Please refer Note 2 to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Known Trends, Events and Uncertainties
Ongoing conflicts in Russia and Ukraine, and Israel and Palestine, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. We may not be able to raise sufficient additional capital and may tailor our business and operations based on the amount of funding we are able to raise in the future. Nevertheless, there is no assurance that these initiatives will be successful. Additionally, our ability to operate depends upon a large number of airplane travelers with the propensity for health and wellness, and in particular spa treatments and products, spending significant time post-security clearance check points at airports. The number of airline travelers at any given time is volatile and subject to change based on various conditions, including but not limited to market and other conditions, prices of travel fare, and oil and gas prices.
Other than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required as we are a smaller reporting company.
44
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements required by this Item are set forth in Item 15 beginning on page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report to provide reasonable assurance that material information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms due to the material weaknesses described below.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Our management evaluated, with the participation of our chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, our Certifying Officers concluded that, as of December 31, 2024, the evaluation date, our disclosure controls and procedures were not effective due to the following material weaknesses:
45
Table of Contents
Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
Management is committed to the remediation of the material weaknesses described above, as well as the continued improvement of the Company’s internal control over financial reporting. Management has implemented, and continues to implement, the actions described below to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weaknesses described above will continue to exist. We cannot provide any assurance that the remediation efforts below will be successful or that our internal control over financial reporting will be effective because of these efforts. Management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
Changes in Internal Control over Financial Reporting
Other than as set forth in the foregoing paragraph, there have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Notwithstanding the material weaknesses in our internal control over financial reporting, our management has determined that the consolidated financial statements for the periods covered by and included in this Annual Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
ITEM 9B. OTHER INFORMATION
Not Applicable
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information called for by this Item will be included in an amendment to this Annual Report on Form 10-K to be filed with the SEC and is incorporated by reference in this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by this Item will be included in an amendment to this Annual Report on Form 10-K to be filed with the SEC and is incorporated by reference in this Item 11.
46
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information called for by this Item will be included in an amendment to this Annual Report on Form 10-K to be filed with the SEC and is incorporated by reference in this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information called for by this Item will be included in an amendment to this Annual Report on Form 10-K to be filed with the SEC and is incorporated by reference in this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information called for by this Item will be included in an amendment to this Annual Report on Form 10-K to be filed with the SEC and is incorporated by reference in this Item 14.
47
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Consolidated Financial Statements. For the financial statements included in this Annual Report on Form 10-K, see “Index to the Financial Statements” on page F-1.
(a)(2) Consolidated Financial Statement Schedules. All schedules are omitted because they are not applicable or because the required information is included in the financial statements or notes thereto.
(a)(3) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
Exhibits Index
Exhibit No. Description
48
Table of Contents
Exhibit No. Description
49
Table of Contents
Exhibit No. Description
19.1* Insider Trading Policy of XWELL, Inc.
23.1* Consent of Marcum LLP, independent registered public accounting firm
50
Table of Contents
Exhibit No. Description
24.1* Power of Attorney (attached to the signature page hereto).
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL documents)
* Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan or arrangement.
†† Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.
+ Certain of the schedules (and similar attachments) to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K under the Securities Act because they do not contain information material to an investment or voting decision and that information is not otherwise disclosed in the exhibit or the disclosure document. The registrant hereby agrees to furnish a copy of all omitted schedules (or similar attachments) to the SEC upon its request.
ITEM 16. FORM 10-K SUMMARY
None.
51
Table of Contents
XWELL, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Changes in Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to the Consolidated Financial Statements F-9
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
XWELL, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of XWELL, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audits, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
F-2
Table of Contents
Marcum LLP
We have served as the Company’s auditor since 2020.
Morristown, New Jersey
April 15, 2025
F-3
Table of Contents
XWELL, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
Current assets
Cash and cash equivalents $ 4,550 $ 8,437
Accounts receivable, net of allowance for credit losses 1,793 1,667
Property and equipment, net 1,809 2,454
Operating lease right of use assets, net 3,409 4,656
Current liabilities
Accrued expenses and other current liabilities 4,088 4,968
Current portion of operating lease liabilities 2,381 2,402
Total current liabilities 9,224 9,330
Long-term liabilities —
Operating lease liabilities 8,386 8,692
Commitments and contingencies (see Note 17)
Equity
Accumulated other comprehensive loss (1,959) (1,924)
Total (deficit) equity attributable to XWELL, Inc. (788) 13,002
The accompanying notes form an integral part of these consolidated financial statements.
F-4
Table of Contents
XWELL, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Year ended December 31,
Revenue, net
Cost of sales
Products and other operating costs 3,789 4,023
Depreciation and amortization 938 2,065
Impairment of long-lived assets 1,711 3,927
Goodwill impairment — 4,024
Loss on disposal of assets, net 90 34
Impairment of operating lease right-of-use assets 2,805 926
Salaries and Benefits 7,540 7,954
Interest income, net 380 448
Foreign exchange loss (259) (738)
Gain on investments, realized and unrealized 356 857
Other non-operating expense, net (211) (355)
Income tax expense (49) (35)
Net loss (income) attributable to noncontrolling interests (363) 288
Net loss attributable to XWELL, Inc. $ (16,853) $ (27,741)
Other comprehensive loss from operations 69 (1,279)
Loss per share
Basic and diluted loss per share $ (3.66) $ (6.64)
Weighted-average number of shares outstanding during the year
The accompanying notes form an integral part of these consolidated financial statements.
F-5
Table of Contents
XWELL, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
Accumulated
Additional other Total Non-
Shares Amount in capital deficit loss equity interests equity
The accompanying notes form an integral part of these consolidated financial statements.
F-6
Table of Contents
XWELL, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
Accumulated Total
Additional other Company Non-
Shares Amount in capital deficit loss interests equity
Stock-based compensation — — 799 — — 799 94 893
Exercise of stock options 8,000 — 4 — — 4 — 4
The accompanying notes form an integral part of these consolidated financial statements.
F-7
Table of Contents
XWELL, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
Cash flows from operating activities
Depreciation and amortization 938 2,065
Impairment of long-lived assets 1,706 1,159
Impairment of goodwill — 4,024
Impairment of intangible assets 5 2,768
Impairment of operating lease right-of-use assets 2,805 926
Unrealized gain on marketable securities (321) (877)
Foreign currency remeasurement loss 259 738
Gain on Lease Termination (655) (821)
Loss on disposal of assets, net 90 34
Amortization of operating lease right of use asset 1,335 1,481
Issuance of shares of Common Stock for services — 3
Provision for credit losses 50 —
Stock-based compensation 893 2,319
(Gain) loss on equity investment (35) 54
Changes in assets and liabilities:
Decrease in inventory 399 261
(Increase) decrease in accounts receivable (193) 1,191
Increase (decrease) in deferred revenue 281 (289)
(Increase) decrease in other assets, current and non-current (103) 512
(Decrease) in other liabilities, current and non-current (2,356) (3,105)
Increase (decrease) in accounts payable 387 (488)
Net cash used in operating activities (11,005) (16,074)
Cash flows from investing activities
Acquisition of property and equipment (1,783) (1,905)
Investment in marketable securities (299) —
Sale of marketable securities 7,986 9,417
Acquisition of Naples Wax net of cash assumed — (1,394)
Acquisition of intangibles (9) (468)
Net cash provided by investing activities 5,895 5,650
Cash flows from financing activities
Contributions from noncontrolling interests — 150
Stock option exercised 4 —
Payments for shares withheld on vesting — (22)
Net proceeds from stock sale 1,355 —
Distributions to noncontrolling interests — (120)
Net cash provided by financing activities 1,359 8
Decrease in cash, cash equivalents and restricted cash (3,887) (10,601)
Cash paid for
Income taxes $ 59 $ 35
Non-cash investing and financing transactions
Issuance of shares of Common Stock for legal settlement $ 940 —
The accompanying notes form an integral part of these consolidated financial statements.
F-8
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
Note 1. General
Overview
XWELL, Inc. (“XWELL” or the “Company”) is a global wellness company operating multiple brands and focused on bringing restorative, regenerative and reinvigorating products and services to travelers. As of the date of this Annual Report on Form 10-K, XWELL currently has four reportable operating segments: XpresSpa®, XpresTest®, Naples Wax Center® and Treat®.
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 December 31, 2024, there were 18 domestic XpresSpa locations in total, comprised of 17 Company-owned locations and one franchise. The Company also had 10 international locations operating as of December 31, 2024, including two XpresSpa locations in the Dubai International Airport in the United Arab Emirates, one XpresSpa location in the Zayad International Airport in Abu Dhabi, United Arab Emirates, three XpresSpa locations in the Schiphol Amsterdam Airport in the Netherlands and four XpresSpa locations in the Istanbul Airport in Turkey.
XWELL’s subsidiary, XpresTest, in partnership with certain COVID-19 testing partners, successfully launched its XpresCheck Wellness Centers 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. As of December 31, 2023, the Company closed all XpresCheck locations and XpresTest no longer provides diagnostic testing services.
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.
XWELL’s subsidiary Treat, Inc. (“Treat”) will be converting its final remaining location in the JFK International Airport in New York City into an XWELL location.
XWELL’s subsidiary Naples Wax Center, LLC, which was acquired on September 12, 2023, for a purchase price of $1,624 operates a group of upscale hair removal boutiques in Florida. There are currently four Naples Wax Center locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. However, as discussed below, the Company has concluded that substantial doubt exists about its ability to continue as a going concern within one year after the date the financial statements are issued.
As of December 31, 2024, the Company had cash and cash equivalents of $4,550 (excluding restricted cash), $7,247 in marketable securities, and total current assets of $15,337. The Company’s total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was $9,224 as of December 31, 2024, and $9,330 as of December 31, 2023. The working capital surplus was $6,113 as of December 31, 2024, compared to a working capital surplus of $17,236 as of December 31, 2023. The Company expects to continue incurring losses and negative cash flows from operations through 2025.
F-9
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
The Company has significantly reduced operating and overhead expenses, while it continues to focus on returning to overall profitability.
Management is implementing various strategic initiatives to reduce operating expenses, improve working capital, and enhance cash flow. These include cost reduction efforts, capital spending controls, and exploration of additional financing options. Subsequent to December 31, 2024, on January 14, 2025, the Company entered into a securities purchase agreement with the investors named therein, pursuant to which the Company issued and sold on January 14, 2025, in a private placement (the “January 2025 Private Placement”), (i) an aggregate of 4,000 shares of the Company’s newly-designated Series G Convertible Preferred Stock, par value $0.01 per share (the “Series G Preferred Stock”), initially convertible into up to 2,673,797 shares of common stock at a conversion price of $1.496 per share, (ii) Series A warrants to acquire up to an aggregate of 2,673,797 shares of common stock at an exercise price of $1.496 per share, and (iii) Series B warrants to acquire up to an aggregate of 2,673,797 shares of common stock at an exercise price of $1.7952 per share. Each share of Series G Preferred Stock and accompanying Warrants were sold together at a combined offering price of $1,000. The January 2025 Private Placement closed on January 14, 2025. The aggregate gross proceeds from the Private Placement were $4 million. However, other strategic plans are not finalized or fully within the Company’s control, and there is uncertainty regarding their execution and effectiveness.
As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for at least one year from the date these financial statements are issued. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2. Accounting and Reporting Policies
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated 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 significant intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the accompanying 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 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.
Translation into United States dollars
The Company conducts certain transactions in foreign currencies, such as the Euro, Turkish Lira and United Arab Emirates Dirham, 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 consolidated statements of operations and comprehensive loss. During the years ended December 31, 2024 and 2023, the Company recorded $259 and $738, respectively, in exchange losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies.
F-10
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
Accounts of the foreign subsidiaries of XpresSpa are translated into United States dollars. Assets and liabilities have been translated primarily at year end exchange rates and revenues and expenses have been translated at average monthly rates for the year. The translation adjustments arising from the use of different exchange rates are included as foreign currency translation within the consolidated statements of operations and comprehensive loss and consolidated statements of changes in stockholders’ equity.
Cash and cash equivalents
The Company maintains cash in checking and money market accounts with financial institutions. The Company has established guidelines relating to the diversification and maturities of its investments in order to minimize credit risk and maintain high liquidity of funds. The Company considers all highly liquid investments purchased with an original maturity of three months or less from the time they are acquired to be cash equivalents. The Company had $11 and $4,025 of such investments as of December 31, 2024 and 2023, respectively.
Accounts Receivables
Accounts receivables are reported at their outstanding unpaid principal balances, net of allowances for credit loss. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for an allowance for credit loss based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company writes off accounts receivable against the allowance for credit loss when a balance is determined to be uncollectible. During the years ended December 31, 2024 and 2023, the Company recorded write-offs of accounts receivable totaling $50 and $0, respectively. Recoveries of amounts previously written off were $0 for both period.
The allowance for credit losses on accounts receivable was $13 and $0 as of December 31, 2024 and 2023, respectively.
The Company estimates its allowance for credit losses using a historical loss rate approach, adjusted for current economic conditions and forward-looking information when relevant. The methodology considers the aging of receivables, the creditworthiness of customers, and macroeconomic trends. There were no significant changes to estimation techniques or assumptions during the periods presented.
Inventory
All inventory, which are all finished goods, is valued at the lower of cost or net realizable value. Cost is determined using a weighted-average cost method.
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
F-11
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
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 years ended December 31, 2024 and 2023, the Company recognized impairment of intangible assets of $5 and $2,768, respectively.
Property and Equipment
Property and equipment are recorded at historical cost and primarily consists of leasehold improvements, furniture and fixtures, and other operating equipment. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of the lease term or economic useful life. Maintenance and repairs are charged to expense, and renovations or improvements that extend the service lives of the Company’s assets are capitalized over the lesser of the extension period or life of the improvement.
Impairment of long-lived assets
Long-lived assets are tested for impairment at the lowest level at which there are identifiable operating cash flows, which is at the individual airport location for the XpresSpa and XpresTest businesses. The Company’s long-lived assets consist primarily of leasehold improvements and the right to use lease assets for each of its airport 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 groups fair value. The Company estimates the fair value of long-lived assets using present value income approach. Future cash flow was calculated based on forecasts over the estimated remaining useful life of the asset group, which for each of the Company’s airport locations is the remaining term of the operating lease.
The Company identified triggering events and completed an assessment of long-lived assets for impairment. Based upon the results of the impairment test, the Company recorded an impairment expense related to property and equipment and intangibles and right of use lease assets during the year ended December 31, 2024 of $1,711, and $2,805, respectively, which is recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets, respectively, on the consolidated statements of operations and comprehensive loss related to the Company’s Spa locations.
The Company recorded impairment expense related to property and equipment of $1,159 and intangibles of $2,768 during the year ended December 31, 2023. Additionally, the Company recorded an impairment expense related to operating lease right of use assets of $926 during the year ended December 31, 2023. The impairment charges are recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets, respectively, on the consolidated statements of operations and comprehensive loss. The expense was primarily related to the impairment of leasehold improvements made to the Company’s Treat and Spa locations and its operating lease right of use assets where management determined that the locations discounted future cash flows were not sufficient to recover the carrying value of these assets over the remaining lease term.
Leases
The right of use asset (“ROU”) on the Company’s consolidated balance sheets represents a lessee’s right to use an asset over the life of a lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. The amortization period for the right of use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease
F-12
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
term. The Company has elected to exclude all short-term leases (i.e. leases with terms of 12 months or less) from recognition on the balance sheet.
The Company’s lease liabilities are determined by calculating the present value of all future lease payments using the rate implicit in the lease if it can be readily determined, or the lessee’s incremental borrowing rate. The Company uses its incremental borrowing rate at the inception of the lease to determine the present value of future lease payments as the rate implicit in its leases cannot be readily determined.
Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of sales that are in excess of a predetermined level, an increase based on a change in the consumer price index or fair market value. These amounts are excluded from the calculation of the right of use asset and lease liability under ASC 842. Minimum rent under these leases is included in the determination of rent expense when it is probable that the expense has been incurred and the amount can be reasonably estimated.
Restricted cash
Restricted cash, which is listed as a separate line item in the consolidated balance sheets, represents balances at financial institutions to secure bonds and letters of credit as required by the Company’s various lease agreements.
Equity investments
Equity investments are carried at fair value with the changes in fair value recorded in the consolidated statement of operations and other comprehensive loss in accordance with ASU 2016-01. The Company performs a qualitative assessment on an annual basis and recognizes impairment if there are sufficient indicators that the fair value of the investment is less than the carrying value. As of the year ended December 31, 2024 and 2023, there were no indicators of impairment.
Revenue recognition
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
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 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. As of December 31, 2023, the Company closed all XpresCheck locations and XpresTest no longer provides diagnostic testing services. XpresTest began conducting bio surveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo Bioworks Holdings, Inc. (“Ginkgo Bioworks”) in 2021.
F-13
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
The program was renewed through August 2024. The revenue to XpresTest from such one-year extension totaled approximately $7,044. In January 2024, the program funding and scope were expanded, a revenue increase of $4,000, to an estimated $11,044 in revenue for XpresTest with new collection locations at U.S. international airports and the roll out of multi-pathogen testing across the program. In July 2024, the contract was further amended to extend the time period for services by two weeks (extension period August 12, 2024 to August 25, 2024). An increase of $293 in revenue for the two week extension brought total revenue to $11,337. The program was again extended in August 2024 through February 25, 2025. The funding was expanded with a revenue increase of $3,763, to an estimated $15,100 in revenue for XpresTest. In February 2025, the program was extended through a three-year contract with a total base value of $22.2 million over three years, and a maximum ceiling value of $24.8 million within the same timeframe, which represents the amount of consideration that we are entitled. The Company recognizes revenue over time for the diagnostic testing services, using the input method based on time elapsed to measure progress towards satisfying the performance obligation. The Company recognizes revenue ratably (straight line basis) over the term of the contract (three years).
The Company recorded $11,123 and $7,521, in revenue for the years ended December 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 services 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. The Company applies the right-to-invoice practical expedient and recognizes revenue in the amount it is entitled to invoice when that amount corresponds directly with the value of the performance to date. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered. Revenue billed in advance are treated as deferred revenue which was $181 and $72 as of December 31, 2024 and 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 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 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 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,
F-14
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
revenue is recognized as income. The deferred revenue was $956 and $778 for the year ended December 31, 2024 and 2023, respectively.
Deferred revenue
Contract liabilities are classified as deferred revenue in the consolidated balance sheets. The activity in deferred revenue for the years ended December 31, 2024 and 2023 was as follows:
Year ended December 31,
Beginning of the period contract liability $ 861 $ 1,150
End of period contract liability $ 1,143 $ 861
Contract costs
For the years ended December 31, 2024 and 2023, the Company did not incur any incremental costs to obtain and/or fulfill contracts with customers.
Segment reporting
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Company. The Company currently has four reportable operating segments: XpresSpa. XpresTest, Naples Wax Center and Treat. See Note 14. Segment Information.
There are currently no intersegment revenues. Asset information by operating segment is presented below Note 14 since the chief operating decision maker reviews this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s audited consolidated financial statements.
Pre-opening costs
Pre-opening and start-up activity costs, which include rent and occupancy, supplies, advertising, and other direct expenses incurred prior to the opening of a new store, are expensed in the period in which they are incurred.
Cost of sales
Cost of sales consists of location operating costs. These costs include all costs that are directly attributable to the location’s operations and include:
● payroll and related benefits for the location’s operations and management;
● rent, percentage rent and occupancy costs;
F-15
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
● the cost of merchandise and testing supplies;
● freight, shipping and handling costs;
● production costs;
● inventory shortage and valuation adjustments; and
● costs associated with sourcing operations.
Stock-based compensation
Stock-based compensation is recognized as an expense in the consolidated statements of operations and comprehensive loss and such cost is measured at the grant-date fair value of the equity-settled award. 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 fair value of Restricted Stock Units (“RSUs”) is calculated as of the date of grant using the grant date closing share price multiplied by the number of RSUs granted. The expense is recognized on a straight-line basis, over the requisite service period. The Company uses the simplified method to estimate the expected term of options due to insufficient history and high turnover in the past. Expected volatility is estimated based on a weighted average historical volatility of the Company. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve as of the date of grant. The Company recognizes forfeitures as they occur. The Company issues new stock to deliver shares under its Equity Plan.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not more likely than not to be realized. Tax benefits related to excess deductions on stock-based compensation arrangements are recognized when they reduce taxes payable.
In assessing the need for a valuation allowance, the Company looks at cumulative losses in recent years, estimates of future taxable earnings, feasibility of tax planning strategies, the ability to realize tax benefit carryforwards, and other relevant information. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable earnings. Ultimately, the actual tax benefits to be realized will be based upon future taxable earnings levels, which are very difficult to predict. If actual results differ from these estimates in future periods, the Company will be required to adjust the valuation allowance.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company had no uncertain tax positions as of December 31, 2024 and 2023.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2024, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets.
F-16
Table of Contents
XWELL, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for share and per share data)
Noncontrolling interests
Noncontrolling interests represent the noncontrolling holders’ percentage share of earnings or losses from; i) the subsidiaries, in which the Company holds a majority, but less than 100%, ownership interest, ii) Variable Interest Entities, where the Company is a primary beneficiary (See sub note Variable Interest Entities below, and the results of which are included in the Company’s consolidated statements of operations and comprehensive loss. Net loss attributable to noncontrolling interests represents the proportionate share of the noncontrolling holders’ ownership in certain subsidiaries of XpresSpa and of XpresTest.
Net income/(loss) per common share
Basic net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders for the period by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net loss attributable to the Company for the period by the weighted-average number of shares of Common Stock plus dilutive potential Common Stock considered outstanding during the period.
Commitments and contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.