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~~

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

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

☐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

~~FORM Holdings Corp.~~XWELL, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

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

~~780 Third Avenue, 12th~~ 254 West 31^st Street, 11th Floor, New York, NY		~~10017~~ 10001
(Address of principal executive offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code):~~(212) 309-7549~~(212) 750-9595

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 x⌧     No ¨◻

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).    Yes  x⌧     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 ~~the~~ definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company,”~~company” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act.~~Act:

Large accelerated filer¨
◻
Accelerated filer¨
◻
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~
☒
Smaller reporting companyx
☒

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  x☒

As of ~~November 9, 2017, 26,545,690~~ May 12, 2023, 83,418,535shares of the registrant’s common stock were outstanding.

Table of Contents

~~FORM Holdings Corp.~~
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
19
24
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
28
Item 4.
Controls and Procedures
26
28

PART II. OTHER INFORMATION
26
30

Item 1.
Legal Proceedings
26
30
Item 1A.
Risk Factors
26
30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
30
Item 3.
Defaults Upon Senior Securities
28
30
Item 4.
Mine Safety Disclosures
28
30
Item 5.
Other Information
28
30
Item 6.
Exhibits
29
30

2
Table of Contents~~Part~~
PART I - FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements (Unaudited)
~~FORM Holdings Corp.~~XWELL, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)


March 31,

December 31,

2023

2022
Current assets




Cash and cash equivalents

$
9,869

$
19,038
Marketable Securities

25,241

23,153
Accounts receivable

2,015

2,858
Inventory

995

1,161
Other current assets

1,773

1,122
Total current assets

39,893

47,332

Restricted cash

751

751
Property and equipment, net

4,326

3,666
Intangible assets, net

3,629

4,008
Operating lease right of use assets, net

7,759

8,276
Goodwill

4,024

4,024
Other assets

2,213

2,369
Total assets

$
62,595

$
70,426

Current liabilities




Accounts payable

$
2,318

$
2,312
Accrued expenses and other current liabilities

4,014

5,719
Current portion of operating lease liabilities

2,376

2,586
Deferred revenue

345

339
Total current liabilities

9,053

10,956

Long-term liabilities

Operating lease liabilities

10,951

11,521
Total liabilities

20,004

22,477
Commitments and contingencies (see Note 11)





Equity




Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 83,352,580 and 83,232,262 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

833

832
Additional paid-in capital

468,306

467,740
Accumulated deficit

(433,621)

(428,112)
Accumulated other comprehensive loss

(664)

(534)
Total equity attributable to XWELL, Inc.

34,854

39,926
Noncontrolling interests

7,737

8,023
Total equity

42,591

47,949
Total liabilities and equity

$
62,595

$
70,426

September 30,
2017
(Unaudited) December 31,
2016
Current assets
Cash and cash equivalents $ 10,072 $ 17,910
Accounts receivable, net 2,668 404
Inventory 4,044 2,890
Other current assets 630 2,150
Assets held for disposal 451 1,507
Total current assets 17,865 24,861

Restricted cash 487 638
Property and equipment, net 14,411 16,284
Intangible assets, net 13,897 15,233
Goodwill 25,836 24,409
Other assets 1,343 1,382
Total assets $ 73,839 $ 82,807

Current liabilities
Accounts payable, accrued expenses and other current liabilities $ 10,401 $ 11,434
Deferred revenue 174 133
Liabilities held for disposal 80 206
Total current liabilities 10,655 11,773

Long-term liabilities
Debt 6,500 6,500
Derivative warrant liabilities 52 259
Other liabilities 796 106
Total liabilities 18,003 18,638
Commitments and contingencies (see Note 11)

Equity
Series A Convertible Preferred stock, $0.01 par value per share; 500,000 shares authorized; 6,968 issued and none outstanding — —
Series B Convertible Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; 1,666,667 issued and none outstanding — —
Series C Junior Preferred stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding — —
Series D Convertible Preferred Stock, $0.01 par value per share; 500,000 shares authorized; 475,208 issued and 420,541 outstanding with a liquidation value of $20,186 as of September 30, 2017; 491,427 issued and outstanding with a liquidation value of $23,588 as of December 31, 2016 4 5
Common stock, $0.01 par value per share; 150,000,000 shares authorized; 26,540,690 and 18,304,881 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 265 183
Additional paid-in capital 289,823 280,221
Accumulated deficit (239,000 ) (220,868 )
Accumulated other comprehensive loss (133 ) (13 )
Total equity attributable to the Company 50,959 59,528
Noncontrolling interests 4,877 4,641
Total equity 55,836 64,169
Total liabilities and equity $ 73,839 $ 82,807

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

3
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)

Three months ended March 31,



2023

2022


Revenue, net





Patient services revenue

$
131

$
19,389

Services

5,772

3,777

Products

596

345

HyperPointe Services

561

523

Other

3

14

Total revenue, net

7,063

24,048

Cost of sales





Labor

4,378

5,462

Occupancy

1,213

1,068

Products and other operating costs

950

8,517

Total cost of sales

6,541

15,047

Gross Profit

522

9,001

Depreciation and amortization

587

1,264

Loss on disposal of assets

132

-

General and administrative

6,091

10,188

Total operating expenses

6,810

11,452

Operating loss

(6,288)

(2,451)

Interest income, net

393

7

Foreign exchange gain (loss)

85

(2)

Other non-operating expense, net

(19)

(316)

Loss before income taxes

(5,829)

(2,762)

Income tax expense

-

-

Net loss

(5,829)

(2,762)

Net loss (income) attributable to noncontrolling interests

320

(1,521)

Net loss attributable to XWELL, Inc.

$
(5,509)

$
(4,283)

Net loss

$
(5,829)

$
(2,762)

Other comprehensive loss from operations

(130)

(41)

Comprehensive loss income

$
(5,959)

$
(2,803)

Loss per share





Basic and diluted loss per share

$
(0.07)

$
(0.04)

Weighted-average number of shares outstanding during the period





Basic

83,345,896

101,601,913

Diluted

83,345,896

101,601,913

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
Wellness $ 12,652 $ — $ 36,563 $ —
Technology 4,879 1,751 11,820 5,478
Intellectual property 200 1,350 300 11,000
Total revenue 17,731 3,101 48,683 16,478

Cost of sales
Wellness 10,347 — 29,583 —
Technology 3,902 1,554 9,520 4,858
Intellectual property* 126 1,164 343 6,127
Total cost of sales 14,375 2,718 39,446 10,985
Depreciation, amortization and impairment 1,894 182 6,849 13,341
General and administrative* 5,473 3,564 17,012 8,059
Total operating expenses 21,742 6,464 63,307 32,385
Operating loss from continuing operations (4,011 ) (3,363 ) (14,624 ) (15,907 )
Non-operating income (expense), net (85 ) (272 ) (24 ) 246
Interest expense (183 ) (949 ) (550 ) (1,697 )
Extinguishment of debt — (262 ) — (472 )
Loss from continuing operations before income taxes (4,279 ) (4,846 ) (15,198 ) (17,830 )
Income tax expense (57 ) — (284 ) —
Consolidated net loss from continuing operations (4,336 ) (4,846 ) (15,482 ) (17,830 )
Loss from discontinued operations before income taxes (208 ) (415 ) (2,321 ) (2,193 )
Income tax expense — — — —
Net loss from discontinued operations (208 ) (415 ) (2,321 ) (2,193 )
Consolidated net loss (4,544 ) (5,261 ) (17,803 ) (20,023 )
Net income attributable to noncontrolling interests (153 ) — (329 ) —
Net loss attributable to the Company $ (4,697 ) $ (5,261 ) $ (18,132 ) $ (20,023 )

Consolidated net loss from continuing operations $ (4,336 ) $ (4,846 ) $ (15,482 ) $ (17,830 )
Other comprehensive income (loss) from continuing operations: foreign currency translations 31 — (120 ) —
Comprehensive loss from continuing operations (4,305 ) (4,846 ) (15,602 ) (17,830 )
Consolidated net loss from discontinued operations (208 ) (415 ) (2,321 ) (2,193 )
Other comprehensive loss from discontinued operations: foreign currency translations — — — —
Comprehensive loss from discontinued operations (208 ) (415 ) (2,321 ) (2,193 )
Comprehensive loss $ (4,513 ) $ (5,261 ) $ (17,923 ) $ (20,023 )

Loss per share:
Basic and diluted net loss per share
Loss per share from continuing operations $ (0.19 ) $ (0.31 ) $ (0.76 ) $ (1.20 )
Loss per share from discontinued operations (0.01 ) (0.03 ) (0.11 ) (0.15 )
Total basic and diluted net loss per share $ (0.20 ) $ (0.34 ) $ (0.87 ) $ (1.35 )
Weighted-average number of shares outstanding during the period:
Basic 24,144,002 15,473,895 20,852,034 14,880,925
Diluted 24,144,002 15,473,895 20,852,034 14,880,925

*Includes stock-based compensation expense, as follows:
Intellectual property $ — $ 59 $ — $ 191
General and administrative 706 426 2,179 1,256
Total stock-based compensation expense $ 706 $ 485 $ 2,179 $ 1,447

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

4
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In ~~thousands)~~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

83,232,262

$
832

$
467,740

$
(428,112)

$
(534)

$
39,926

$
8,023

$
47,949
Issuance of restricted stock units

120,318

1

(1)

—

—

—

—

—
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

83,352,580

$
833

$
468,306

$
(433,621)

$
(664)

$
34,854

$
7,737

$
42,591
Preferred
stock Common
stock Additional
paid-in
capital Accumulated
deficit Accumulated
other
comprehensive
loss Total
FORM
equity Non
controlling
interests Total
equity
December 31, 2016 $ 5 $ 183 $ 280,221 $ (220,868 ) $ (13 ) $ 59,528 $ 4,641 $ 64,169
Issuance of common stock for services — — 20 — — 20 — 20
Shares of common stock issued for the acquisition of Excalibur — 9 1,800 — — 1,809 — 1,809
Net proceeds from sale and issuance of shares of common stock in public offering — 69 6,515 — — 6,584 — 6,584
Decrease in shares of preferred stock issued to XpresSpa sellers — — (908 ) — — (908 ) — (908 )
Conversion of preferred stock to common stock (1 ) 4 (4 ) — — (1 ) — (1 )
Stock-based compensation — — 2,179 — — 2,179 — 2,179
Net loss for the period — — — (18,132 ) — (18,132 ) 329 (17,803 )
Foreign currency translation — — — — (120 ) (120 ) — (120 )
Net distributions to
noncontrolling interests — — — — — — (93 ) (93 )
September 30, 2017 $ 4 $ 265 $ 289,823 $ (239,000 ) $ (133 ) $ 50,959 $ 4,877 $ 55,836

Preferred
stock Common
stock Additional
paid-in
capital Accumulated
deficit Accumulated
other
comprehensive
loss Total
FORM
equity Non
controlling
interests Total
equity
December 31, 2015 $ — $ 132 $ 237,246 $ (196,862 ) $ — $ 40,516 $ — $ 40,516
Vesting of restricted stock units (“RSUs”) — 1 (1 ) — — — — —
Issuance of common stock for repayment of convertible debt and related interest — 18 3,031 — — 3,049 — 3,049
Sale of shares of common stock from subscription agreement — 7 1,727 — — 1,734 — 1,734
Stock-based compensation — — 1,447 — — 1,447 — 1,447
Net loss for the period — — — (20,023 ) — (20,023 ) — (20,023 )
September 30, 2016 $ — $ 158 $ 243,450 $ (216,885 ) $ — $ 26,723 $ — $ 26,723

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

5
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In ~~thousands)~~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, 2021

101,269,349

$
1,013

$
487,306

$
(395,275)

$
(312)

$
92,732

$
7,203

$
99,935
Issuance of Common Stock for acquisition

552,487

5

901

—

—

906

—

906
Vesting of restricted stock units

391,820

4

(4)

—

—

—

—

—
Value of Shares Withheld to fund payroll taxes

—

—

(73)

—

—

(73)

—

(73)
Stock-based compensation

—

—

1,543

—

—

1,543

—

1,543
Net loss for the period

—

—

—

(4,283)

—

(4,283)

1,521

(2,762)
Repurchase and retirement of common stock

(7,142,446)

(71)

(11,024)

—

—

(11,095)

—

(11,095)
Foreign currency translation

—

—

—

—

(41)

(41)

—

(41)
Distributions to noncontrolling interests

—

—

—

—

—

—

(824)

(824)
Contributions from noncontrolling interests

—

—

—

—

—

—

200

200
March 31, 2022

95,071,210

$
951

$
478,649

$
(399,558)

$
(353)

$
79,689

$
8,100

$
87,789

Nine months ended
September 30,
2017 2016
Cash flows from operating activities
Consolidated net loss $ (17,803 ) $ (20,023 )
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Items not affecting cash flows
Depreciation and amortization 6,849 1,404
Impairment of intangible assets — 11,937
Amortization of debt discount and debt issuance costs — 1,798
Stock-based compensation 2,179 1,447
Amendment to warrants as part of debt modification — (281 )
Extinguishment of debt — 356
Issuance of shares of common stock for services 20 53
Gain on disposal of asset (148 ) —
Change in fair value of derivative warrant liabilities and conversion feature (207 ) 185
Conversion of shares of preferred stock to shares of common stock (1 ) —
Exchange rate gain, net — (76 )
Changes in current assets and liabilities net of effects of acquisition
Increase in accounts receivable, net (1,729 ) (1,581 )
Increase in inventory (1,103 ) (89 )
Decrease in other current assets and other assets 1,739 307
Increase (decrease) in accounts payable, accrued expenses and other current liabilities (1,593 ) 1,502
Increase (decrease) in deferred revenue (79 ) 81
Decrease in other liabilities (13 ) (267 )
Net cash used in operating activities – continuing operations (11,889 ) (3,247 )
Net cash provided by operating activities – discontinued operations 930 278
Net cash used in operating activities (10,959 ) (2,969 )
Cash flows from investing activities
Cash acquired as part of acquisition 26 —
Acquisition of property and equipment (2,734 ) (243 )
Acquisition of software (331 ) —
Proceeds from sale of asset 150 —
Decrease in deposits — 2,001
Increase in investments — (1,734 )
Net cash provided by (used in) investing activities (2,889 ) 24
Cash flows from financing activities
Proceeds from commitments to issue common stock under subscription agreement — 1,734
Net proceeds from sale and issuance of shares of common stock in public offering 6,584 —
Repayment of debt and line of credit (361 ) (2,011 )
Net distributions to noncontrolling interests (93 ) —
Debt issuance costs — (50 )
Net cash provided by (used in) financing activities 6,130 (327 )
Effect of exchange rate changes on cash and cash equivalents (120 ) —
Decrease in cash and cash equivalents (7,838 ) (3,272 )
Cash and cash equivalents at beginning of period 17,910 24,951
Cash and cash equivalents at end of period $ 10,072 $ 21,679
Cash paid during the period for
Interest $ 580 $ 40

Noncash investing and financing transactions
Issuance of common stock to repay debt and interest — 2,996

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

6
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

Three months ended March 31,


2023

2022
Cash flows from operating activities




Net loss

$
(5,829)

$
(2,762)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

587

1,264
Gain on marketable securities

(206)

—
Amortization of operating lease right of use asset

416

398
Stock-based compensation

612

1,543
(Gain) loss on equity investment

(25)

273
Changes in assets and liabilities:

Decrease (increase) in inventory

166

(759)
Decrease (increase) in accounts receivable

843

(906)
(Increase) decrease in other assets, current and non-current

(469)

82
Increase in deferred revenue

6

192
Decrease in other liabilities, current and non-current

(2,482)

(1,612)
Increase in accounts payable

516

513
Net cash used in operating activities

(5,865)

(1,774)
Cash flows from investing activities



Acquisition of property and equipment

(1,404)

(1,659)
Investment in marketable securities

(1,882)

—
Acquisition of HyperPointe net of cash assumed

—

(4,853)
Acquisition of intangibles

(4)

(267)
Net cash used in investing activities

(3,290)

(6,779)
Cash flows from financing activities

Repurchase of Common Stock

—

(11,095)
Contributions from noncontrolling interests

—

200
Payments for shares withheld on vesting

(22)

(73)
Repayment of Paycheck Protection Program

—

(2,151)
Distributions to noncontrolling interests

—

(824)
Net cash used in financing activities

(22)

(13,943)
Effect of exchange rate changes on cash, cash equivalents and restricted cash

8

(20)
Decrease in cash, cash equivalents and restricted cash

(9,169)

(22,516)
Cash, cash equivalents, and restricted cash at beginning of the period

19,789

106,257
Cash, cash equivalents, and restricted cash at end of the period

$
10,620

$
83,741
Cash paid for

Interest

$
—

$
7
Income taxes

—

$
—
Non-cash investing and financing transactions

Capital expenditures included in Accounts payable, accrued expenses and other current liabilities

$
38

$
765
Issuance of Common Stock on acquisition of gcg Connect, LLC, d/b/a HyperPointe

$
—

$
906

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

7
Table of Contents
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
~~Note 1. General~~Overview
~~FORM Holdings Corp.~~On October 25, 2022, the Company changed its name to XWELL, Inc. (“~~FORM”~~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” since the opening of the trading market on October 25, 2022. 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 health and wellness services company, in both the airport and off airport marketplaces.

XWELL is a global travel health and wellness services holding company. XWELL currently has ~~three~~four reportable operating segments: ~~wellness, technology~~XpresSpa^®, XpresTest^®, Treat^™, and ~~intellectual property.~~HyperPointe which was acquired in January 2022.

~~The Company’s wellness operating segment consists of~~XpresSpa
XWELL’s subsidiary, XpresSpa ~~which is~~Holdings, LLC (“XpresSpa”) has been a ~~leading~~global airport retailer of spa ~~services.~~services through its XpresSpa ~~is a well-recognized airport~~ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products.
As of March 31, 2023, there were 25 operating XpresSpa domestic locations. During 2022, the Company sold one location in Austin-Bergstrom International Airport to its franchisee which now operates both locations at this airport. As the Company continues to monitor fluctuating airport volumes, the Company will also continue to review operating hours to optimize revenue opportunity.
The Company ~~acquired~~also had 10 international locations operating as of March 31, 2023, including two XpresSpa locations in Dubai International Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in Istanbul Airport in Turkey.

XpresTest
The Company in partnership with certain COVID-19 testing partners, successfully launched its XpresCheck Wellness Centers through its XpresTest, Inc. subsidiary (“XpresTest”), offering testing services, also in airports. During 2022, as countries continued to relax their testing requirements resulting in rapid decline of testing volumes at Company’s XpresCheck locations, the Company closed all but one XpresCheck Wellness Center. Therefore, as of March 31, 2023, there was only one operating XpresCheck location operating in one airport.

XpresTest began conducting biosurveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo in 2021 and on January 31, 2022, the Company announced the extension of the initial program, bringing the total contract to $5,534. As of August 2022, the program was renewed in partnership with Ginkgo BioWorks for a new two-year contract term which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. Funding for the second year is anticipated but has not been confirmed at this time.

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Treat

The Treat segment, which is operating through XWELL’s subsidiary Treat, Inc. (“Treat”) is a travel health and wellness brand that provides access to health and wellness services for travelers at on-site centers (currently located in JFK International Airport and in Salt Lake City International Airport).
In 2022, the Company’s Treat brand opened new locations in Phoenix Sky Harbor International Airport (pre-security) and Salt Lake City International Airport. With respect to these locations in Phoenix and Salt Lake City, agreements had already been executed with the aiports and the decision was made to convert these locations to Treat.
By the third quarter of 2022, it became clear that the Treat business was underperforming and as a result, the Company began to retool the offerings within the Treat locations by providing additional retail as part of our retail strategy expansion as well as lay the foundation to bring more spa-like services into the Treat location in an attempt to unify our core offering.

By the fourth quarter of ~~2016.~~2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As of March 31, 2023, the Treat brand operates two locations (JFK International Airport and Salt Lake City International Airport). These remaining Treat locations offer a full retail product offering and a suite of wellness and spa services.

HyperPointe

The Company’s ~~technology operating~~HyperPointe segment, consists of Group Mobile as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation and deployment services. Thewhich the Company acquired ~~Group Mobile~~ in ~~the fourth quarter~~January 2022, provides a broad range of ~~2015~~service and ~~Excalibur Integrated Systems Inc. (“Excalibur”), which was merged with Group Mobile, in the first quarter~~support options for our customers, including technical support services and advanced services.
Basis of ~~2017. The Company’s equity interest in InfoMedia increased from 8.25% to 11% in the first quarter~~Presentation and Principles of ~~2017 due to a realignment of ownership interests.~~
Consolidation
The Company is currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. The Company is seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.
~~The Company’s intellectual property operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.~~
As further detailed in Note 10 “Discontinued Operations and Assets and Liabilities Held for Disposal,” in June 2017, the Company concluded that the requirement to report the results of FLI Charge as discontinued operations was triggered. FLI Charge was subsequently sold in October 2017.
On July 26, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, acting as the representative of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 6,900,000 shares of the Company’s common stock, par value $0.01 per share (“FORM Common Stock”) including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from the Company pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. The net proceeds to the Company from the Offering were $6,584 after deducting underwriting discounts and commissions and other estimated offering expenses.
~~Note 2. Accounting and Reporting Policies~~
~~(a) Basis of presentation and principles of consolidation~~
~~The accompanying~~unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States of America (“~~U.S.~~ GAAP”) for interim financial information and the instructions to ~~Rule 10-01~~Article 8-03 of Regulation S-X, and should be read in conjunction with the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022, as amended. The condensed consolidated balance sheet as of December 31, 2022 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 as well as variable interest entities in which we are the primary beneficiaries. 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-month periods~~months ended ~~September 30, 2017~~March 31, 2023 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.

Liquidity and Financial Condition
~~(b) Use~~
As of ~~estimates~~
March 31, 2023, the Company had cash and cash equivalents, excluding restricted cash, of $9,869, $25,241 in marketable securities, and total current assets of $39,893. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,053 as of March 31, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $30,840 as of March 31, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.
The ~~preparation~~Company has significantly reduced operating and overhead expenses since the second half of ~~the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management~~2022, while it continues to ~~make certain estimates~~focus on returning to overall profitability.
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The Company has taken actions to improve its overall cash position and ~~assumptions that affect the reported amounts of assets~~access to liquidity through equity offerings and ~~liabilities~~debt retirements, by exploring valuable strategic partnerships, right sizing its corporate structure and ~~disclosure of contingent assets~~streamlining its operations.
Note 2. Significant Accounting 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 intangible assets, the useful lives of the Company’s intangible assets, the valuation of the Company’s derivative warrants, the valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties, and other contingencies.Reporting Policies
(a) Revenue Recognition Policy
~~(c) Revenue recognition~~XpresSpa
The Company recognizes revenue ~~for the wellness operating segment~~ from the sale of XpresSpa products and services when the services are rendered at XpresSpa stores and from the sale of products at the ~~point of sale,~~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. Revenues from the XpresSpa ~~wholesale~~retail and e-commerce businesses are recorded at the time goods are shipped.
The Company has also entered into collaborative agreements with marketing partners whereby it sells certain of its partners’ products in its XpresSpa spas. The Company acts as an agent for revenue recognition purposes and therefore records revenue net of the revenue share payable to the partners. Upon receipt of the non-recurring, non-refundable initial collaboration fee, management records a deferred revenue liability and recognizes revenue on a straight-line basis over the life of the collaboration agreement.
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 were 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 we are entitled to $6,761 for the sample collection (passenger and aircraft wastewater) and $570 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. The Company recognizes revenue ratably (straight line basis) over the term of the contract (one year). We will recognize revenue over time for the traveler enrollment initiative performance obligation based on the amount for which we have the right to invoice. The Company recorded $1,670 in revenue during the first quarter ended March 31, 2023 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.
Treat
The Company recognizes revenue from the sale of Treat products and services when the services are rendered at Treat Centers and from the sale of products at the time products are purchased at the Treat Centers 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-centers and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. Revenues from the Treat retail and e-commerce businesses are recorded at the time goods are shipped. Also, under the terms of Treat’s contracts professional limited liability companies (PLLCs), whereby the PLLCs as their performance obligations provide travel-related diagnostic testing for virus, cold, flu and other illnesses as well as hydration therapy, IV drips, and vitamin injections. The Company determined that these PLLCs are variable interest entities due to its equity holder having insufficient capital at risk, and the Company having a variable interest in the PLLCs. As a result of this determination, the total revenue of the PLLCs is designated as revenue for the Company. This revenue is recognized at the point in time at which the service is performed by the PLLCs.
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HyperPointe
Our HyperPointe segment which we acquired in January 2022, provides broad range of service and support options for our 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. Revenue billed in advance are treated as deferred revenue which was $310 and $322 as of March 31, 2023 and December 31, 2022, respectively. HyperPointe had unbilled receivables of $295 and $0 as of March 31, 2023 and December 31, 2022, respectively, included in other current assets.
The Company excludes all sales taxes assessed to ~~its customers.~~our customers from revenue. Sales taxes assessed on revenues are included in ~~accounts payable,~~ accrued expenses and other current liabilities inon the Company’s condensed consolidated balance sheets until remitted to ~~the~~ state agencies.
(b) Business Combinations
The Company ~~records revenue from product sales~~applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) in the ~~technology operating segment when title~~accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and ~~risk~~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 ~~loss~~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 ~~passed~~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 ~~customer, there is persuasive evidence~~assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of ~~an arrangement~~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 consolidated statements of operations.
Accounting for ~~sale, delivery has occurred,~~business combinations requires management to make significant estimates and assumptions, especially at the sales price is fixed or determinable, and collectability is reasonably assured. The Company’s shipping terms typically specify F.O.B. destination, at which time title and risk of loss have passed to the customer. At the time of sale of hardware products,acquisition date, including estimates for intangible assets. Although the Company ~~records an estimate for sales returns~~believes the assumptions and ~~allowances~~estimates that have been made are reasonable and appropriate, they are based in part on historical ~~experience. Hardware products sold by~~experience and information obtained from the ~~Company~~acquired companies and are ~~warranted by the vendor.~~

The Company has drop-shipment arrangements with many of its hardware vendors and suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements is recorded on a gross basis upon delivery to the customer with contract terms that typically specify F.O.B. destination. Revenue is recognized on a gross basis, as the Company is the principalinherently uncertain. Critical estimates in ~~the transaction, as the primary obligor in the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price~~valuing certain of the ~~product to the customer, assumes credit risk for the amounts invoiced, and works closely with the customers to determine their hardware specifications.~~
~~Freight billed to customers is recognized as net product revenue and the related freight costs as a cost of sales.~~
On certain occasions, the Company’s technology operating segment will enter into a bill and hold arrangement with a customer. When this occurs, the Company makes a determination as to when it will be the proper time to recognize revenue. In doing so, the Company takes the following into consideration:
~~whether the risks of ownership have passed to the customer;~~
~~the customer must have made a fixed commitment to purchase the goods;~~
~~the customer must request and have a substantial business purpose for ordering on a bill and hold basis;~~
~~there must be a fixed schedule for delivery that is reasonable and consistent with the customer’s business purpose;~~
~~the Company cannot retain any specific performance obligations that would make the earnings process incomplete;~~
~~the goods must be segregated from remaining inventory (i.e., they cannot be used to fill orders for others); and~~
~~the goods must be complete and ready for shipment.~~
For multiple-element arrangements in the Company’s technology operating segment that include hardware products, services and maintenance, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.
Revenue from patent licensing is recognized if collectability is reasonably assured, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery of the service has been rendered. Currently, revenue arrangements related to intellectual property provide for the payment of contractually determined fees and other consideration for the grant of certain intellectual property rights related to the Company’s patents. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patents, (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted typically extend until the expiration of the related patents. Pursuant to the terms of these agreements,intangible assets the Company has ~~no further obligation with respect to the grant of the non-exclusive retroactive~~acquired include future expected cash flows, and ~~future licenses, covenants-not-to-sue, releases,~~discount rates.
(c) Goodwill
The Company accounts for goodwill under FASB ASC 350-30, Intangibles-Goodwill and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the related technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, upon receipt of the upfront fee, and when all other revenue recognition criteria have been met.

~~(d) Cost of sales~~
~~Cost of sales for the Company’s wellness operating segment consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations and include:~~
~~payroll and related benefits for store operations and store-level management;~~
~~rent, percentage rent and occupancy costs;~~
Other. Goodwill represents the cost of ~~merchandise;~~
~~freight, shipping and handling costs;~~
~~production costs;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase~~a business acquisition in ~~fair values which was recorded as part of acquisition; and~~
~~costs associated with sourcing operations.~~
~~Cost of sales for the Company’s technology operating segment includes costs to acquire or manufacture goods for inventory.~~
Cost of sales for the Company’s intellectual property operating segment mainly includes expenses incurred in connection with the Company’s patent licensing and enforcement activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.
~~(e) Recently adopted accounting pronouncements~~
~~ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business~~
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (“ASU 2017-01”) “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially allexcess of the fair value of the ~~gross~~net assets ~~acquired (or disposed of)~~acquired. Goodwill is ~~concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are~~ not ~~considered a business. The Company adopted ASU 2017-01 as of January 1, 2017 on a prospective basis.~~
~~(f) Recently issued accounting pronouncements not yet adopted~~
~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~
The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance was amended in July 2015amortized and is ~~effective~~reviewed for ~~annual reporting periods beginning after December 15, 2017. As such, the Company~~impairment annually, or more frequently if facts and circumstances indicate that it is currently assessing the impact of the adoption on its condensed consolidated financial statements. The Company will adopt the new standard and related updates effective January 1, 2018, and intends to use the modified retrospective method of adoption.
~~Based upon its preliminary assessment undertaken through September 30, 2017, the Company expects~~more likely than not that the new standard will have an impact on revenue recognition for Group Mobile contracts in its technology operating segment, and expects to conclude on this assessment by December 31, 2017. The Company does not expect for there to be an impact on revenue recognition for its wellness operating segment, as the revenue is recognized when the service is performed and payment is collected from the customer.
The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may, in conjunction with the completion of the Company’s overall assessment of the new guidance, impact the Company’s current conclusions.
~~ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (“ASU 2017-04”) “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing 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. ~~Additionally,~~If the carrying amount exceeds fair value, goodwill of ~~goodwill allocated to each~~the reporting unit ~~with~~is considered impaired, and that excess is recognized as a ~~zero or negative carrying amount~~goodwill impairment loss.
(d) Reclassification
Certain balances in the condensed consolidated financial statements for the quarter ended March 31, 2022 have been reclassified to conform to the presentation in the condensed consolidated financial statements for the quarter ended March 31, 2023, primarily the separate classification and presentation of ~~net~~accounts payable, gross profits, and foreign exchange gain (loss). Such reclassifications did not have a material impact on the unaudited condensed consolidated financial statements.
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Recently adopted accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13's main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets ~~should be disclosed. ASU 2017-04~~in scope. The guidance is effective for annual orperiods beginning after December 15, 2022, including interim ~~goodwill impairment tests performed~~periods within those fiscal years. On implementation in 2023, the ASU did not have material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires contract assets and contract liabilities acquired in a business acquisition to be recognized and measured in accordance with ASC Topic 606, Revenues from Contracts with Customers, which the Company generally expects will result in the recognition and measurement of contract assets and contract liabilities in a manner that is consistent with the acquiree. For the Company, the amendments are effective for fiscal years beginning after December 15, ~~2019; early adoption is permitted.~~2022, including interim periods within those fiscal years. The Company ~~currently anticipates that~~implemented the ASU 2021-08 in 2023. Although, the materiality of the application of ASU 2021-08 depends on the recognition and measurement of acquired assets and liabilities associated with future acquisitions, as the Company did not have any acquisition during the first quarter of 2023, the adoption of ASU ~~2017-04 will~~2021-08 did not have a material impact on ~~its consolidated~~the Company’s financial statements.

~~ASU No. 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting~~
In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (“ASU 2017-09”) “Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017; early adoption is permitted. The Company is currently in the process of evaluating the potential impact of the adoption on its consolidated financial statements.
~~(g) Reclassification~~
Certain balances have been reclassified to conform to presentation requirements, including presentation of discontinued operations and assets and liabilities held for disposal with respect to the Company’s FLI Charge business (refer to Note 10), as well as consistent presentation of cost of sales and general and administrative expenses to align presentation for operating segments.
Note 3. ~~Net Loss per Share of Common Stock~~Potentially Dilutive Securities
Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. However, as the Company generated a net loss in all periods presented, potentially dilutive securities, including certain warrants and stock options, were not reflected in diluted net loss per share because the impact of such instruments was anti-dilutive.

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

Three months ended

March 31,


2023

2022
Basic numerator:




Net loss attributable to XWELL, Inc.

$
(5,509)

$
(4,283)
Net loss attributable to common shareholders

$
(5,509)

$
(4,283)
Basic and diluted denominator:


Basic and diluted weighted average shares outstanding

83,345,896

101,601,913
Basic and diluted loss per share

$
(0.07)

$
(0.04)

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

7,694,370

4,062,699
Unvested RSUs to issue an equal number of shares of Common Stock

326,388

367,189
Warrants to purchase an equal number of shares of Common Stock

4,000

29,460,560
Total number of potentially dilutive securities excluded from the calculation of earnings/(loss) per share attributable to common shareholders

8,024,758

33,890,448

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Basic numerator:
Net loss from continuing operations attributable to shares of common stock $ (4,489 ) $ (4,846 ) $ (15,811 ) $ (17,830 )
Net loss from discontinued operations attributable to shares of common stock (208 ) (415 ) (2,321 ) (2,193 )
Net loss attributable to shares of common stock $ (4,697 ) $ (5,261 ) $ (18,132 ) $ (20,023 )
Basic denominator:
Basic shares of common stock outstanding 24,144,002 15,473,895 20,852,034 14,880,925
Basic loss per share of common stock from continuing operations $ (0.19 ) $ (0.31 ) $ (0.76 ) $ (1.20 )
Basic loss per share of common stock from discontinued operations (0.01 ) (0.03 ) (0.11 ) (0.15 )
Basic net loss per share of common stock $ (0.20 ) $ (0.34 ) $ (0.87 ) $ (1.35 )

Diluted numerator:
Net loss from continuing operations attributable to shares of common stock $ (4,489 ) $ (4,846 ) $ (15,811 ) $ (17,830 )
Net loss from discontinued operations attributable to shares of common stock (208 ) (415 ) (2,321 ) (2,193 )
Net loss attributable to shares of common stock $ (4,697 ) $ (5,261 ) $ (18,132 ) $ (20,023 )
Diluted denominator:
Diluted shares of common stock outstanding 24,144,002 15,473,895 20,852,034 14,880,925
Diluted loss per share of common stock from continuing operations $ (0.19 ) $ (0.31 ) $ (0.76 ) $ (1.20 )
Diluted loss per share of common stock from discontinued operations (0.01 ) (0.03 ) (0.11 ) (0.15 )
Diluted net loss per share of common stock $ (0.20 ) $ (0.34 ) $ (0.87 ) $ (1.35 )

Net loss per share data presented excludes from the calculation of diluted net loss the following potentially dilutive securities, as they had an anti-dilutive impact:
Both vested and unvested options to purchase an equal number of shares of common stock of the Company 4,876,899 1,492,434 4,876,899 1,492,434
Unvested RSUs to issue an equal number of shares of common stock of the Company 365,565 — 365,565 —
Warrants to purchase an equal number of shares of common stock of the Company 3,087,500 1,006,679 3,087,500 1,006,679
Preferred stock on an as converted basis 3,439,587 — 3,620,626 —
Conversion feature of senior secured notes — — — 105,920
Total number of potentially dilutive instruments, excluded from the calculation of net loss per share 11,769,551 2,499,113 11,950,590 2,605,033

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Note 4. ~~Business Combinations~~Cash, Cash Equivalents, and Restricted Cash


March 31, 2023

December 31, 2022
Cash denominated in United States dollars

$
7,405

$
16,344
Cash denominated in currency other than United States dollars

2,335

2,562
Restricted cash

751

751
Credit and debit card receivables

129

132
Total cash, cash equivalents and restricted cash

$
10,620

$
19,789

~~XpresSpa~~
The Company places its cash and temporary cash investments with credit quality institutions. At times, such cash denominated in United States dollars may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. At March 31, 2023 and December 31, 2022, deposits in excess of FDIC limits were $7,286 and $16,069, respectively. As of March 31, 2023 and December 31, 2022, the Company held cash balances in overseas accounts, totaling $2,335 and $2,562 respectively, which are not insured by the FDIC. If the Company were to distribute the amounts held overseas, the Company would need to follow an approval and distribution process as defined in its operating and partnership agreements, which may delay and/or reduce the availability of that cash to the Company.
Note 5. Intangible Assets
The following table provides information regarding the Company’s intangible assets subject to amortization, which consist of the following:

March 31, 2023

December 31, 2022

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying


Amount

Amortization

Amount

Amount

Amortization

Amount
Trade names

$
302

$
(30)

$
272

$
302

$
(24)

$
278
Customer relationships

1,510

(602)

908

1,510

(542)

968
Software

4,199

(1,785)

2,414

4,485

(1,761)

2,724
Licenses

54

(19)

35

55

(17)

38
Total intangible assets

$
6,065

$
(2,436)

$
3,629

$
6,352

$
(2,344)

$
4,008

The Company’s trade name relates to the value of the HyperPointe trade name, software relates to certain capitalized third-party costs related to a new website and a point-of-sale system; and licenses relates to certain capitalized costs of foreign acquisition.
The Company’s intangible assets are amortized over their expected useful lives, which is six years for trade names and five and three years for software, whereas the intangibles obtained as a result of the HyperPointe acquisition have an estimated life of 5 to 12 years. The Company recorded amortization expense of $382 and $393 during the three months ended March 31, 2023 and 2022, respectively.
Estimated amortization expense for the Company’s intangible assets at March 31, 2023 is as follows:

Calendar Years ending December 31,

Amount
Remaining 2023

$
1,124
2024

1,462
2025

411
2026

317
2027

77
Thereafter

238
Total

$
3,629

13
Table of Contents
Note 6. Leases
The Company leases spa and clinic locations at various domestic and international airports. Additionally, the Company leases its corporate office in New York City. Certain leases entered into by the Company are accounted for in accordance with ASC 842- Leases (“ASC 842”). The Company determines if an arrangement is a lease at inception and if it qualifies under ASC 842. The Company’s lease arrangements generally contain fixed payments throughout the term of the lease and most also contain a variable component to determine the lease obligation where a certain percentage of sales is used to calculate the lease payments. The Company enters into leases that expire, are amended and extended, or are extended on a month-to-month basis. Leases are not included in the calculation of the total lease liability and the right of use asset when they are month-to-month.
All qualifying leases held by the Company are classified as operating leases. Operating lease right of use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company records its operating lease right of use assets and operating lease liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate, which approximates the rate at which the Company can borrow funds on a secured basis, using the information available at commencement date of the lease in determining the present value of the guaranteed lease payments. The interest rate implicit in the lease is generally not determinable in transactions where a company is the lessee.
The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any leases should be accounted for pursuant to the guidance in ASC 842. The Company recalculates the right of use asset and lease liability based on the modified lease terms and adjusts both balances accordingly.
Supplemental cash flow information related to leases for the three months ended March 31, 2023 and 2022 were as follows:

Three months ended March 31,


2023

2022
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$
(973)

$
(1,010)
Leased assets obtained in exchange for new and modified operating lease liabilities

$
—

$
305

14
Table of Contents
As of March 31, 2023, operating leases contain the following future minimum commitments:

Calendar Years ending December 31,

Amount
Remaining 2023

$
2,533
2024

3,092
2025

2,690
2026

1,631
2027

1,508
2028

1,129
Thereafter

3,328
Total future lease payments

15,911
Less: interest expense at incremental borrowing rate

(2,584)
Net present value of lease liabilities

$
13,327

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

Weighted average remaining lease term:

5.99
years
Weighted average discount rate used to determine present value of operating lease liability:

7.56
%

Cash paid for minimum annual rental obligations was $662 and $271 for the three months ended March 31, 2023 and 2022, respectively.
Variable lease payments calculated monthly as a percentage of product and services revenue were $345 and $364 for the three months ended March 31, 2023 and 2022, respectively.

Note 7. Variable Interest Entities
Through its XpresCheck Wellness and Treat Centers the Company provides services pursuant to contracts with PLLCs which, in turn contracts with physicians and other medical professional providers to render COVID-19 and other medical diagnostic testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, and the traveling public. The PLLCs collectively represent the Company’s affiliated medical group. The PLLCs were designed and structured to comply with the relevant laws and regulations governing professional medical practice, which generally prohibits the practice of medicine by lay persons or entities. All of the issued and outstanding equity interests of the PLLCs are owned by a licensed medical professional nominated by the Company (the “Nominee Shareholder”). Upon formation of the PLLCs, and initial issuance of equity interests, the Nominee Shareholder contributes a nominal amount of capital in exchange for their interest in the PLLC. The Company then executes with each PLLC a MSA, which provide for various administrative services, management services and day-to-day activities of the practice to be rendered by the Company through its XpresCheck Wellness Centers.
The Company also has exclusive responsibility for the provision of all non-medical services including contracting with customers who access the PLLCs for a medical visit, handling all financial transactions and day-to-day operations of each PLLC, overseeing the establishment of COVID-19 and other medical diagnostic testing services policies, and making recommendations to the PLLC in establishing the guidelines for the employment and compensation of the physicians and other employees of the PLLCs. Until June 30, 2021, MSA Fees were commensurate with the expected level of activity required to be billed by XpresCheck Wellness Centers. Therefore, these PLLCs were assessed not to be variable interest entities prior to July 1, 2021.
Effective, July 1, 2021, contractual arrangements between the Company, the Company’s affiliated medical group and nominated shareholder were modified in a manner that changes the characteristics or adequacy of the nominee shareholder’s equity investment at risk and residual returns. Therefore, due to reassessment triggered by the development on July 1, 2021, the Company determined that the PLLCs are now variable interest entities. Notwithstanding their legal
15
Table of Contents
form of ownership of equity interests in the PLLC, the primary beneficiary of the affiliated medical group is the Company as it meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the affiliated medical group; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the affiliated medical group. The Company consolidated the PLLCs under the VIE model since the Company has the power to direct activities that most significantly impact the PLLCs’ economic performance and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the PLLCs.
The aggregate carrying value of total assets included on the condensed consolidated balance sheets for the PLLCs after elimination of intercompany transactions was $147, included in cash and cash equivalents as of March 31, 2023. The aggregate carrying value of total assets and total liabilities included on the condensed balance sheets for the PLLCs after elimination of intercompany transactions were $275, included in cash and cash equivalents, and $146, included in accrued expenses and other current liabilities, respectively, as of December 31, 2022. The total revenue included on the condensed consolidated statements of operations and comprehensive loss for the PLLCs after elimination of intercompany transactions was $131 and $19,389, for the three months ended March 31, 2023 and 2022, respectively.

Note 8. Stockholders’ Equity and Warrants
During the ~~second quarter of 2017,~~three months ended March 31, 2022, the Company ~~learned~~continued to execute on its share repurchase program, repurchasing 7,142,446 shares at an average cost of $1.55 per share, for a total of $11,095. The Company did not repurchase any shares during the three months ended March 31, 2023.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new ~~information about legal~~ U.S. federal 1%excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporationsoccurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. Theamount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excisetax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the sametaxable year. In addition, certain exceptions apply to the excise tax. Exceptions may apply, for example, if the repurchases are less than $1,000 or issued to employees. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulationsand other ~~professional costs which existed as~~guidance to carry out and prevent the abuse or avoidance of the ~~acquisition date of XpresSpa. As a result,~~excise tax.

Warrants
The following table represents the ~~Company and the sellers of XpresSpa (the “XpresSpa Sellers”) agreed to reduce the total amount of Series D Convertible Preferred Stock (“FORM Preferred Stock”), which was previously issued~~activity related to the ~~XpresSpa Sellers in conjunction with~~Company’s warrants during the ~~acquisition~~three months ended March 31, 2023:


Weighted average

Exercise

No. of Warrants

exercise price

price range
December 31, 2022

1,172,088

$
2.00

$
1.7 - 2.125
Granted

—

—

Exercised

—

—

Expired

(1,168,088)

2.01

$
1.7 - 2.125
March 31, 2023

4,000

$
2.125

$
2.125

16
Table of ~~XpresSpa.~~ Contents
Stock-based Compensation
The Company ~~reduced~~has a stock-based compensation plan available to grant stock options and RSUs to the Company’s directors, employees and consultants.

In September 2020, the Board of Directors approved the 2020 Equity Incentive Plan (the “2020 Plan”), a new stock-based compensation plan available to grant stock options, restricted stock and Restricted Stock Units (“RSU’s”) aggregating to 5,000,000 shares of Common Stock, to the Company’s directors, employees and consultants. Shareholder approval of the 2020 Plan was subsequently obtained on October 28, 2020. On October 4, 2022, shareholders approved the amendment to the 2020 Plan to increase the number of shares authorized for issuance under the ~~FORM Preferred~~2020 Plan by 7,500,000 shares of Common Stock ~~by 16,219 shares and estimated that the fair value of the reduction of the consideration was $908, which was recorded as a reduction of preferred equity and goodwill.~~
~~Additionally, during the second and third quarters of 2017, certain XpresSpa Sellers converted~~to an aggregate of ~~54,667~~12,500,000 shares. Under the 2020 Plan, a maximum of 4,388,329 shares of ~~their FORM Preferred~~Common Stock ~~into 437,235~~remained available for issuance as of March 31, 2023.

In September 2020, XpresTest created a stock-based compensation plan available to grant stock options, restricted stock and RSU’s to the XpresTest’s directors, employees and consultants. Under the XpresTest 2020 Equity Incentive Plan (the “XpresTest Plan”), a maximum of 200 shares of ~~the Company’s~~XpresTest common stock ~~par value $0.01 per share.~~
~~As a result~~may be awarded, which would represent 20% of ~~these events,~~ the total number of shares of ~~FORM Preferred Stock was reduced from 491,427~~common stock of XpresTest as of ~~December~~March 31, ~~2016 to 420,541 shares as~~2023. Certain named executive officers, consultants, and directors of ~~September 30, 2017 and the face value (and liquidation preference) was reduced from $23,588 to $20,186.~~
~~Group Mobile~~
~~On February 2, 2017,~~ the Company ~~acquired Excalibur, which is an end-to-end solutions provider~~are eligible to participate in the XpresTest Plan. The XpresTest Plan RSAs vest upon satisfaction of ~~mobile hardware devices, wireless network security, data networking, telephony~~certain service and ~~mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within the Company’s technology operating segment.~~

~~In consideration for the acquisition, the Company issued 888,573 unregistered shares~~performance-based conditions. The fair value of the ~~Company’s common stock, par value $0.01 per share,~~XpresTest Plan RSAs is determined based on the weighted average of (i) Fair Value of XpresTest under the Indirect Valuation Method developing assumptions for XWELL’s Net Market Cap and XWELL’s standalone Fair Value, and (ii) Direct Valuation Method developing assumptions for XpresTest Representative Forecasted Revenue for 2021 and Peer companies Revenue’s Multiple.As of March 31, 2023, there is $167 of unrecognized stock-based compensation related to the former stockholders of Excalibur (the “Excalibur Sellers”). In addition, the Excalibur Sellers will, in the three years following the closing of this transaction, also receive $500 for each $2,000 of gross profit generated by a specified list of Excalibur accounts annually, until such cumulative gross profit reaches $6,000, and an additional $500 when such cumulative profit reaches $10,000, such amounts are payable in either cash or the Company’s common stock, at the election of the Company.XpresTest Plan.

The fair value of ~~the total purchase price~~stock options is ~~$2,125 and includes a fair value of contingent consideration of $316 and fair value of unregistered shares of common stock issued of $1,809.~~
~~Assets acquired and liabilities assumed were recorded at their fair values~~estimated as of the ~~acquisition date. The purchase price for the acquisition was allocated to the net tangible and intangible assets based on their fair values as~~date of the acquisition date. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill. The table below presents preliminary allocation of the purchase price:
Fair Value
Assets
Current assets (including cash of $26) $ 613
Deferred tax assets 29
Property and equipment 21
Intangible assets 556
Goodwill 2,335
Total assets 3,554

Liabilities
Accounts payable and accrued expenses 1,214
Deferred tax liabilities 215
Total liabilities 1,429
Net assets, fair value $ 2,125
~~The allocation of the purchase price was based upon a preliminary valuation performed~~grant using the ~~Company's estimates and assumptions, which are subject to change within the measurement period (up to one year from the acquisition date).~~
~~Note 5. Segment Information~~
The Company’s operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision makerBlack-Scholes-Merton (“~~CODM”~~Black-Scholes”) ~~in deciding how to allocate resources and in assessing performance.~~option-pricing model. The Company ~~concluded that it conducts its business through three operating segments, which are also its reportable segments:~~
~~wellness (XpresSpa);~~
~~technology (Group Mobile);~~uses the simplified method to estimate the expected term of options due to insufficient history and
~~intellectual property~~
Segment operating results reflect losses before corporate and unallocated shared expenses, interest expense and income taxes. Corporate and unallocated shared expenses principally consist of costs for corporate functions, rent for office space, stock-based compensation, executive management and certain unallocated administrative support functions.
Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
Wellness $ 12,652 $ — $ 36,563 $ —
Technology 4,879 1,751 11,820 5,478
Intellectual property 200 1,350 300 11,000
Total revenue 17,731 3,101 48,683 16,478

Cost of sales
Wellness 10,347 — 29,583 —
Technology 3,902 1,554 9,520 4,858
Intellectual property 126 1,164 343 6,127
Total cost of sales 14,375 2,718 39,446 10,985

Segment operating income (loss)
Wellness (1,639 ) — (6,002 ) —
Technology (490 ) (565 ) (2,146 ) (1,213 )
Intellectual property 217 113 86 (8,167 )
Corporate (2,099 ) (2,911 ) (6,562 ) (6,527 )
Total segment operating loss (4,011 ) (3,363 ) (14,624 ) (15,907 )
Corporate non-operating expense, net (268 ) (1,483 ) (574 ) (1,923 )
Loss from continuing operations before income taxes $ (4,279 ) $ (4,846 ) $ (15,198 ) $ (17,830 )

September 30,
2017 December 31,
2016
Assets
Wellness $ 51,151 $ 57,527
Technology 14,445 7,014
Intellectual property 603 940
Corporate 7,189 15,819
Assets held for disposal 451 1,507
Total assets $ 73,839 $ 82,807
~~General and administrative costs are allocated among~~ high turnover in the operating segments and non-operating corporate segment. The non-operating corporate segment does not have any revenue, but does incur expenses such as compensation expenses, rent and infrastructure costs. The non-operating corporate segment’s assets are mainly comprised of cash.
The Company currently operates in two geographical regions: United States and all other countries. The following table represents the geographical revenue, regional operating loss, and total asset information as of and for the three and nine months ended September 30, 2017 and 2016. There were no concentrations of geographical revenue, regional operating loss or total assets related to any single foreign country that were material to the Company’s condensed consolidated financial statements.
Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
United States $ 16,228 $ 3,101 $ 44,802 $ 16,478
All other countries 1,503 — 3,881 —
Total revenue 17,731 3,101 48,683 16,478

Cost of sales
United States 13,539 2,718 37,108 10,985
All other countries 836 — 2,338 —
Total cost of sales 14,375 2,718 39,446 10,985

Segment operating loss
United States (4,540 ) (3,360 ) (15,849 ) (15,901 )
All other countries 529 (3 ) 1,225 (6 )
Total segment operating loss (4,011 ) (3,363 ) (14,624 ) (15,907 )
Corporate non-operating expense, net (268 ) (1,483 ) (574 ) (1,923 )
Loss from continuing operations before income taxes $ (4,279 ) $ (4,846 ) $ (15,198 ) $ (17,830 )

September 30,
2017 December 31,
2016
Assets
United States $ 70,141 $ 78,546
All other countries 3,247 2,754
Assets held for disposal 451 1,507
Total assets $ 73,839 $ 82,807

~~Note 6. Fair Value Measurements~~
~~Derivative Warrant Liabilities~~
past.
The following ~~table presents the placement~~variables were used as inputs in the ~~fair value hierarchy~~model:

Share price of the Company’s Common Stock on the grant date:

$
0.36 - 0.41

Exercise price:

$
0.36 - 0.41

Expected volatility:

119.41-121.04
%
Expected dividend yield:

0
%
Annual average risk-free rate:

3.65 - 3.96
%
Expected term:

6.32 - 6.41
years

17
Table of ~~derivative warrant liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:~~Contents
Fair value measurement at reporting date using
Quoted prices in
active markets Significant other Significant
for identical observable unobservable
Balance assets (Level 1) inputs (Level 2) inputs (Level 3)
September 30, 2017:
May 2015 Warrants $ 52 $ — $ — $ 52

December 31, 2016:
May 2015 Warrants $ 259 $ — $ — $ 259
The Company measures its derivative warrant liabilities at fair value. The May 2015 Warrants were classified within Level 3 because they were valued using the Black-Scholes-Merton model, which utilizes significant inputs that are unobservable. These derivative warrant liabilities were initially measured at fair value and are marked to market at each balance sheet date.
In addition to the above, the Company’s financial instruments as of September 30, 2017 and December 31, 2016 consisted of cash and cash equivalents, receivables, accounts payable and Debt. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term maturities of these instruments.
The following ~~table summarizes the changes in the Company’s derivative warrant liabilities measured at fair value using significant unobservable inputs (Level 3)~~tables summarize information about stock options and RSU activity during the ~~three- and nine-month periods~~three months ended ~~September 30, 2017:~~March 31, 2023:

May 2015
Warrants
December 31, 2016 $ 259
Decrease in fair value of the derivative warrant liabilities (159 )
June 30, 2017 100
Decrease in fair value of the derivative warrant liabilities (48 )
September 30, 2017 $ 52

RSUs

XpresTest RSAs

Stock options




Weighted



Weighted



Weighted


average

average

average

Exercise

No. of

grant date

No. of

grant date

No. of

exercise

price

RSUs

fair value

RSAs

fair value

options

price

range
Outstanding as of December 31, 2022

281,250

$
0.65

5.00

$
47,570

4,830,029

$
2.00

$
0.65 - 2,460
Granted

138,888

0.36

—

—

2,886,388

$
0.40

0.36 - 0.41
Exercised/Vested

(93,750)

0.65

—

—

—

—

Forfeited

—

—

—

—

(16,914)

$
1.43

$
1.43
Expired

—

—

—

—

(5,133)

$
50.93

$
1.53 - 1,908
Outstanding as of March 31, 2023

326,388

$
0.53

5.00

$
47,570

7,694,370

$
1.37

$
0.36 - 2,460
Exercisable as of March 31, 2023

3,285,125

$
1.93

$
0.40- 2,460

~~Valuation processes for Level 3 Fair Value Measurements~~
Fair value measurement of the derivative warrant liabilities falls within Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.
~~September 30, 2017:~~
~~Description~~ ~~Valuation technique~~ ~~Unobservable inputs~~ ~~Range~~
~~May 2015 Warrants~~ ~~Black-Scholes-Merton~~ ~~Volatility~~ ~~42.49~~ %
~~Risk free interest rate~~ ~~1.57~~ %
~~Expected term, in years~~ ~~2.59~~
~~Dividend yield~~ ~~0.00~~ %
~~December 31, 2016:~~
~~Description~~ ~~Valuation technique~~ ~~Unobservable inputs~~ ~~Range~~
~~May 2015 Warrants~~ ~~Black-Scholes-Merton~~ ~~Volatility~~ ~~45.15~~ %
~~Risk-free interest rate~~ ~~1.57~~ %
~~Expected term, in years~~ ~~3.34~~
~~Dividend yield~~ ~~0.00~~ %
~~Sensitivity of Level 3 measurements to changes in significant unobservable inputs~~
The inputs to estimate the fair value of the Company’s derivative warrant liabilities were the current market price of the Company’s common stock, the exercise price of the derivative warrant liabilities, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the derivative warrant liabilities would each result in a directionally similar change in the estimated fair value of the Company’s derivative warrant liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the differential between the derivative warrant liabilities’ exercise price and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the derivative warrant liabilities due to the dividend assumption.
~~Other Fair Value Measurements~~
The following table presents the placement in the fair value hierarchy of the contingent consideration assumed by the Company following the acquisition of Excalibur, which is measured at fair value on a recurring basis:
Fair value measurement at reporting date using
Quoted prices in
active markets Significant other Significant
for identical observable unobservable
Balance assets (Level 1) inputs (Level 2) inputs (Level 3)
September 30, 2017:
Contingent consideration $ 316 $ — $ — $ 316
The purchase value of the contingent consideration assumed by the Company following the acquisition of Excalibur was determined using the Monte-Carlo simulation and, as such, was classified as Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.
~~Note 7. Stock-based Compensation~~
~~As of September 30, 2017, 1,552,480 shares of the Company’s common stock were available for future grants under the Company’s 2012 Employee, Director and Consultant Equity Incentive Plan.~~ Total stock-based compensation ~~expense for the nine-month periods ended September 30, 2017 and 2016 was $2,179 and $1,447, respectively. Total stock-based compensation expense~~ for the three-month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016 was $706~~2022 is $612 and ~~$485,~~$1,543, respectively.
The ~~following table illustrates the options granted during the nine-month period ended September 30, 2017.~~
~~Title~~ ~~Grant date~~ ~~No. of~~
~~options~~ ~~Exercise~~
~~price~~ ~~Fair value at~~
~~grant date~~ ~~Vesting terms~~ ~~Assumptions used in~~
~~Black-Scholes~~
~~option pricing model~~
~~Directors, management, and employees~~ ~~January 2017~~ ~~1,545,000~~ ~~$2.12 – $2.15~~ ~~$0.89 – $0.96~~ ~~Over 1 year for directors; Over 3 years for management and employees~~
~~Volatility: 44.27% – 44.90%~~
~~Risk free interest rate: 1.95% – 2.16%~~
~~Expected term, in years: 5.29 – 5.79~~
~~Dividend yield: 0.00%~~

~~The following table illustrates the RSUs granted during the nine-month period September 30, 2017.~~
Title Grant date No. of RSUs Fair value at grant date Vesting term
Management and employees January 2017 400,942 $ 2.12 Over 1 year period, vesting on 1 year anniversary of grant date
~~The activity~~Company had $2,992 and $2,506 of unrecognized stock-based compensation related to ~~stock options~~the XWELL Stock Options, as of March 31, 2023 and ~~RSUs during~~December 31, 2022, respectively.

Note 9. Accrued expenses and other current liabilities
As of March 31, 2023 and December 31, 2022, the ~~nine-month period ended September 30, 2017 consisted~~Company’s accrued expenses and other current liabilities were comprised of the following:


March 31, 2023

December 31, 2022
Litigation accrual

$
449

$
963
Accrued compensation

990

2,008
Tax-related liabilities

547

573
Common area maintenance accruals

217

160
Accounts payable accruals

662

754
Gift certificates

496

496
Credit card processing fees

34

33
Other miscellaneous accruals

619

732
Total accrued expenses and other current liabilities

$
4,014

$
5,719

RSUs Options
No. of
RSUs Weighted
average
grant date
fair value No. of
options Weighted
average
exercise
price Exercise
price range Weighted
average
grant date
fair value
Outstanding as of January 1, 2017 — — 3,679,101 $ 7.60 $ 1.55 – 55.00 $ 5.41
Granted 400,942 $ 2.12 1,545,000 $ 2.12 $ 2.12 – 2.15 $ 0.93
Vested/Exercised — — — — — —
Forfeited (35,377 ) $ 2.12 (330,834 ) $ 15.57 $ 1.55 – 41.00 $ 10.61
Expired — — (16,368 ) $ 43.66 $ 9.94 – 55.00 $ 22.02
Outstanding as of September 30, 2017 365,565 $ 2.12 4,876,899 $ 5.21 $ 1.55 – 41.00 $ 3.59
Exercisable as of September 30, 2017 — 2,780,024 $ 7.77 $ 1.55 – 41.00

On January 20, 2017, the Company entered into amended employment agreements with its named executive officers. Under the terms of certain of these agreements, certain of these officers are entitled to a percentage of the amount equal to the total amount of cash and the fair market value of all noncash consideration paid or payable to the Company or its stockholders in connection with an initial public offering or a change of control of certain subsidiaries of the Company. The amended employment agreements also allow for the granting of equity awards to certain officers in connection with an initial public offering of certain subsidiaries of the Company.
~~The Company did not recognize tax benefits related to its stock-based compensation as there is a full valuation allowance recorded.~~

Note 8.10. Income Taxes
The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. ~~Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary.~~ The income tax ~~provisions~~provision for the ~~nine months~~three-month period ended ~~September 30, 2017 reflect an~~March 31, 2023 reflects a de minimis estimated global annual effective tax ~~rate of approximately -3.0% from continuing operations. Discontinued operations for the nine months ended September 30, 2017 reflect an annual effective tax rate of 0.0%.~~
rate.
As of ~~September 30, 2017,~~March 31, 2023, deferred tax assets generated from the Company’s ~~U.S.~~ activities in the United States were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. Net operating losses generated for tax years beginning after December 31, 2017 do not expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit.
18
~~Income~~Table of Contents
The Company had de minimis income tax expense for each of the ~~nine months~~three-month period ended ~~September 30, 2017 of approximately $284~~March 31, 2023 and 2022. This was attributable primarily to ~~tax deductions related to goodwill, for which there is no corresponding financial statement amortization expense, partially offset by the reduction~~operating results in ~~the~~conjunction with a full valuation ~~allowance needed following the acquisition of Excalibur's deferred tax liability.~~allowance. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. ~~Although the Company has an immaterial amount of uncertain tax positions, the~~The Company does not expect to record any additional material provisions for unrecognized tax benefits ~~with~~in the next year.
~~Note 9. Related Parties Transactions~~
On April 22, 2015, XpresSpa entered into a credit agreement and secured promissory note (the “Debt”) with Rockmore Investment Master Fund Ltd. (“Rockmore”) that was amended on August 8, 2016. Rockmore is an investment entity controlled by the Company’s board member, Bruce T. Bernstein. The Debt had an outstanding balance of $6,500 as of both September 30, 2017 and December 31, 2016, which is included in long-term liabilities in the condensed consolidated balance sheets. During the three- and nine-month period ended September 30, 2017, XpresSpa paid $150 and $580 of interest and recorded $183 and $548 of interest expense, respectively. During May 2017, per the original agreement and with Rockmore’s consent, the Company elected to extend the maturity date of the Debt from May 1, 2018 to May 1, 2019. No other material terms of the Debt were modified.
In addition, the Company paid $212 to Mr. Bernstein in March 2017 for the legal costs incurred in conjunction with the acquisition of XpresSpa and certain legal proceedings related to litigation with Amiral Holdings SAS (“Amiral”) prior to the completion of such acquisition, as Mr. Bernstein was indemnified by XpresSpa and was a defendant in the Amiral legal proceedings. These costs are included in accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheet as of December 31, 2016.

~~Note 10. Discontinued Operations and Assets and Liabilities Held for Disposal~~
During June 2017, the Company concluded that the requirement to report the results of FLI Charge, a wholly-owned subsidiary included in its technology operating segment, as discontinued operations was triggered. As a result, a non-cash impairment loss of $1,092 relating to FLI Charge’s technology assets and goodwill was recorded as of June 30, 2017.
On October 20, 2017 (the “Closing Date”), the Company sold FLI Charge to a group of private investors and FLI Charge management, who will own and operate FLI Charge. The Company will not be providing any continued management or financing support to FLI Charge.
Total consideration for the sale of FLI Charge is $1,250, payable in installments. The consideration is secured by a note and security agreement. Additionally, the Company is entitled to a 5% royalty, in perpetuity, on the gross revenue of FLI Charge and of any affiliate of FLI Charge with regard to conductive wireless charging, power, or accessories. The Company also received a warrant exercisable in FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events. The Company is currently evaluating the gain on the sale of FLI Charge.
~~The following table represents the components of operating results from discontinued operations, as presented in the condensed consolidated statements of operations and comprehensive loss:~~

Three months ended
September 30,

Nine months ended
September 30,

2017 2016 2017 2016
Revenue $ 10 4 63 $ 33
Cost of sales (15 ) (7 ) (83 ) (9 )
Depreciation, amortization and impairment (21 ) (21 ) (1,189 ) (63 )
General and administrative (182 ) (391 ) (1,112 ) (2,154 )
Loss from discontinued operations before income taxes (208 ) (415 ) (2,321 ) (2,193 )
Income tax expense — — — —
Net loss from discontinued operations $ (208 ) $ (415 ) $ (2,321 ) $ (2,193 )
In addition, the following table presents the carrying amounts of the major classes of assets and liabilities held for sale as of September 30, 2017 and December 31, 2016, as presented in the condensed consolidated balance sheets.
September 30,
2017 December 31,
2016
Accounts receivable, net $ 39 $ 45
Inventory 212 53
Other current assets 9 92
Property and equipment, net 191 183
Intangible assets, net — 377
Goodwill — 757
Assets held for disposal $ 451 $ 1,507

Accounts payable, accrued expenses and other current liabilities $ 71 $ 196
Deferred revenue 9 10
Liabilities held for disposal $ 80 $ 206
Note 11. Commitments and Contingencies
~~Litigation~~Certain of the Company’s outstanding legal matters include speculative claims for substantial or indeterminate amounts of damages. The Company regularly evaluates developments in its legal matters that could affect the amount of any potential liability and ~~legal proceedings~~
makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being any potential liability and the estimated amount of a loss related to the Company’s legal matters. ~~Based~~
With respect to the Company’s outstanding legal matters, based on ~~the Company’s~~its current knowledge, the Company’s management believes that the amount or range of a potential loss ~~from its outstanding legal matters~~ will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company evaluated the outstanding legal matters ~~described below,~~ and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company has recorded ~~$745,~~accruals of $449 and $963 as of March 31, 2023 and December 31, 2022, respectively, which is included in ~~accounts~~Accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance ~~sheet as of September 30, 2017.~~
sheets.
The Company expenses legal fees in the period in which they are incurred.

~~Cordial~~Kyle Collins v. Spa Products Import & Distribution Co., LLC et al
~~Effective October 2014, XpresSpa terminated its~~This is a combined class action and California Private Attorney’s General Act (“PAGA”) action. Plaintiff seeks to recover wages, penalties and PAGA penalties for claims for (1) failure to provide meal periods, (2) failure to provide rest breaks, (3) failure to pay overtime, (4) inaccurate wage statements, (5) waiting time penalties, and (6) PAGA penalties of $0.1 per employee per pay period per violation. There are approximately 240 current and former Airport Concession Disadvantaged Business Enterprise (“ACDBE”) partner, Cordial Endeavor Concessions of Atlanta, LLC (“Cordial”), in several store locations at Hartsfield-Jackson Atlanta International Airport.
~~On January 3, 2017, XpresSpa filed a lawsuit~~employees in the ~~Supreme Court~~litigation class. The parties agreed to mediation on May 26, 2020, however, due to COVID-19, the parties subsequently stayed all proceedings. The mediation session occurred on March 18, 2021, and the parties reached a settlement which was approved on September 20, 2022 for the amount of $517 and additional payroll taxes of $4. Funding of the State of New York, County of New York against Cordial and several related parties. The lawsuit alleges breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and breach of good faith and fair dealing related to XpresSpa’s former partnership with Cordial as XpresSpa’s ACDBE partner in several store locations at Hartsfield-Jackson Atlanta International Airport (the “Cordial Litigation”). On March 3, 2017,settlement amount occurred on January 26, 2023.
OTG Management PHL B v. XpresSpa ~~filed a first amended complaint against Cordial. On April 5, 2017, Cordial filed a motion to dismiss the Cordial Litigation. On September 12, 2017, the Court held a hearing on the motion to dismiss.~~
On January 4, 2017, XpresSpa filed a lawsuit in the United States District Court for the Southern District of New York against its former attorney, Kevin Ross, and his law firm, alleging malpractice, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and promissory estoppel related to XpresSpa’s former partnership with Cordial, as well as XpresSpa’s engagement of Kevin Ross as its attorney (the “Ross Litigation”). On March 17, 2017, XpresSpa filed a First Amended Complaint against the defendants. On June 2, 2017, the Ross Defendants filed their answer.
~~Both the Cordial Litigation and Ross Litigation are pending before the respective courts.~~
~~In re Chen~~Philadelphia Terminal B et al.
On ~~March 16, 2015, four former employees~~May 9, 2022, a lawsuit was filed in the Philadelphia Court of ~~XpresSpa who worked~~Common Pleas by OTG Management at ~~locations in John F. Kennedy~~Philadelphia International Airport, claiming that XWELL improperly backed out of its sublease for space at Terminal B and ~~LaGuardia Airport filed a putative class~~now owes between $864 and ~~collective action wage-hour litigation~~$2,250 in ~~the United States District Court~~accelerated rent for the ~~Eastern District of New York, claiming~~12-year contract. They claim that ~~they~~by refusing to complete the project, failing to commence and maintain operations, refusing to pay rent and improperly purporting to terminate the lease (among other ~~spa technicians were misclassified,~~acts and ~~that overtime was unpaid. On September 23, 2016,~~omissions), XWELL breached the Court conditionally certified the class. The parties held a mediation on February 28, 2017 and reached an agreement on a settlement in principle. On September 6, 2017, the parties entered into a settlement agreement. On September 15, 2017, the parties filed a motion for settlement approval with the Court; this motion is pending. In October 2017, XpresSpa paid the agreed-upon settlement amountlease. OTG Management has agreed to extend XWELL’s time to respond to the ~~settlement claims administrator,~~Complaint to ~~be held in escrow pending a fairness hearing~~July 4, 2023.
In addition to those matters specifically set forth herein, the Company and ~~final approval by the Court.~~
~~Other~~
~~XpresSpa is~~its subsidiaries are involved in various other claims and legal actions that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on ~~XpresSpa’s~~the Company’s financial position, results of operations, liquidity, or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than the Company currently anticipates, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.
~~The Company’s intellectual property operating segment~~In the event that an action is ~~engaged in litigation, for which no liability is recorded, as the Company does not expect a material negative outcome.~~
~~On November 6, 2017, Moreton Binn and Marisol F, LLC, former shareholders of XpresSpa, filed a lawsuit~~brought against the Company or one of its subsidiaries, the Company will investigate the allegation and vigorously defend itself.
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Leases
XWELL is contingently liable to a surety company under certain general indemnity agreements required by various airports relating to its ~~directors alleging~~lease agreements. XWELL agrees to indemnify the surety for any payments made on contracts of suretyship, guaranty, or indemnity. The Company believes that all contingent liabilities will be satisfied by its performance under the ~~defendants engaged in securities violations, misrepresentation, and various other allegations regarding~~specified lease agreements.
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Note 12. Segment Information
The Company analyzes the results of the Company’s ~~acquisition of XpresSpa.~~business through its four reportable segments: XpresSpa, XpresTest, Treat and HyperPointe. The ~~Company~~XpresSpa segment provides travelers premium spa services, including massage, nail and skin care, as well as spa and travel products. The XpresTest segment provides diagnostic COVID-19 tests at XpresCheck™ Wellness Centers in airports, to airport employees and to the traveling public. The Treat segment provides access to integrated care which can seamlessly fit into a post-pandemic world and is ~~currently~~designed to deliver on-demand access to integrated healthcare through technology and personalized services, positioned for a traveler to access health care, records and real-time information all in one place, as well as book appointments in the ~~process~~Company’s on-site wellness centers as they reopen. HyperPointe, which the Company acquired in January 2022, provides a broad range of ~~evaluating~~service and support options for our customers, including technical support services and advanced services. The chief operating decision maker evaluates the ~~claims.~~operating results and performance of the Company’s segments through operating income. Expenses that can be specifically identified with a segment have been included as deductions in determining operating income. Any remaining expenses and other charges are included in Corporate and Other.

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Table of Contents

For the three months ended

March 31,


2023

2022
Revenue




XpresSpa

$
4,499

$
2,643
XpresTest

1,799

20,596
Treat

204

286
HyperPointe

561

523
Total revenue

$
7,063

$
24,048

2023

2022

Operating loss




XpresSpa

$
(3,132)

$
(4,455)
XpresTest

(25)

6,205
Treat

(444)

(1,296)
HyperPointe

(256)

(277)
Corporate and other

(2,431)

(2,628)
Total operating loss

$
(6,288)

$
(2,451)

2023

2022
Depreciation & amortization

XpresSpa

$
423

$
343
XpresTest

—

529
Treat

65

325
HyperPointe

86

62
Corporate and other

13

5
Total depreciation & amortization

$
587

$
1,264

For the three months ended

March 31,

2023

2022
Capital expenditures

XpresSpa

$
834

$
49
XpresTest

17

563
Treat

33

2,032
HyperPointe

11

—
Corporate and other

7

21
Total capital expenditures

$
902

$
2,665

March 31, 2023

December 31, 2022
Long-lived Assets

XpresSpa

$
12,082

$
11,851
XpresTest

124

112
Treat

2,264

2,314
HyperPointe

4,082

4,108
Corporate and other

393

409
Total long-lived Assets

$
18,945

$
18,794

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March 31, 2023

December 31, 2022
Assets




XpresSpa

$
21,076

$
21,135
XpresTest

2,281

4,285
Treat

3,228

3,186
HyperPointe

6,593

6,913
Corporate and other

29,417

34,907
Total assets

$
62,595

$
70,426

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~
Operations
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipates,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “will be,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 filed on ~~March 30, 2017~~April 17, 2023, as amended on May 1, 2023 (the ~~“2016~~“2022 Annual Report”) and this Quarterly Report on Form 10-Q and any future reports we file with the Securities and Exchange Commission (“SEC”). The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such ~~statements, except as required by law.~~statements.
All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to ~~FORM Holdings Corp. (prior to May 5, 2016, known as “Vringo,~~XWELL, Inc.”), a Delaware corporation, and its consolidated subsidiaries.
Overview
~~FORM Holdings Corp.~~On October 25, 2022, we changed our name to XWELL, Inc. (“~~FORM”~~XWELL” or the “Company”) from XpresSpa Group, Inc. Our 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” since the opening of the trading market on October 25, 2022. Rebranding to XWELL, Inc. aligned our corporate strategy to build a pure-play health and wellness services company, both in the airport and off-airport marketplaces.
XWELL’s subsidiary, XpresSpa Holdings, LLC (“XpresSpa”) has ~~three operating segments: wellness, technology and intellectual property.~~
~~Our wellness operating segment consists of XpresSpa, which is~~been a ~~leading~~global airport retailer of spa ~~services.~~services through its XpresSpa ~~is a well-recognized airport~~ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products.
Following the temporary closure of all global XpresSpa locations due to the categorization by local jurisdictions of the spa locations as “non-essential services” during the COVID-19 pandemic, XpresSpa reopened 25 domestic locations as of March 31, 2023. During 2022, we sold one location in Austin-Bergstrom International Airport to its franchisee which now operates both locations at this airport. As we continue to monitor fluctuating airport volumes, we will also continue to review operating hours to optimize revenue opportunity.
We ~~acquired~~also have 10 international locations operating, including 2 XpresSpa locations in Dubai International Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in Istanbul Airport in Turkey.

Following the temporary closure of all global XpresSpa locations noted above, in partnership with certain COVID-19 testing partners, we successfully launched our XpresCheck^®segment through XWELL’s subsidiary XpresTest, Inc. (“XpresCheck” or “XpresTest”). The XpresCheck Wellness Centersoffered 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.

At one point, XpresCheck had 15 locations open in 12 airports across the United States. Following the relaxation of testing requirements by the US and other countries in 2022, XpresCheck locations began to close. As of March 31, 2023, there is only one operating XpresCheck location operating in one airport.

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Table of Contents
XpresTest began conducting biosurveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo in 2021 and on January 31, 2022, we announced the extension of our initial program, bringing the total contract to $5,534. Approximately $4,166 and $1,368 were recognized in 2022 and 2021, respectively. As of August 2022, the program was renewed in partnership with Ginkgo BioWorks. A new two-year contract was initiated which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. Funding for the second year is anticipated but has not been confirmed at this time.

The Treat segment, which is operating through XWELL’s subsidiary Treat, Inc. (“Treat”) is a travel, health and wellness brand that provides access to health and wellness services for travelers at on-site centers (currently located in JFK International Airport and in Salt Lake City International Airport), transforming the way we provide care to our customers through a suite of health and wellness services supported by an integrated digital platform and a relevant retail offering to the traveling public.
In 2022, our Treat brand opened new locations in Phoenix Sky Harbor International Airport (pre-security) and Salt Lake City International Airport. With respect to these locations in Phoenix and Salt Lake City, agreements had already been executed with the aiports and the decision was made to convert these locations to Treat.
By the third quarter of 2022, it became clear that the Treat business was underperforming and as a result, we began to retool the offerings within the Treat locations by providing additional retail as part of our retail strategy expansion as well as lay the foundation to bring more spa-like services into the Treat location in an attempt to unify our core offering.

By the fourth quarter of ~~2016.~~
Our technology operating segment consists of Group Mobile as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation and deployment services. In2022, the ~~first quarter 2017, we completed~~decision was made to close the acquisition of Excalibur Integrated Systems, Inc. (“Excalibur”) which is an end-to-end solutions provider of mobile hardware devices, wireless network security, data networking, telephony and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within our technology operating segment. Our equity interest in InfoMedia, which is accounted for under the cost method of investment, increased from 8.25% to 11% in the first quarter of 2017 due to a realignment of ownership interests.
We are currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. We are seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.
As of September 30, 2017, our FLI Charge business is reflected as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and assets held for disposal and liabilities held for disposal in our condensed consolidated balance sheets. FLI Charge was subsequently sold during October 2017.
~~Our intellectual property operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.~~
On July 26, 2017, we entered into the Underwriting Agreement with Roth Capital Partners, LLC, acting as the representative of the Underwriters, relating to the Offering of 6,900,000 shares of FORM Common Stock including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from us pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. The net proceeds to us from the Offering were $6,584,000 after deducting underwriting discounts and commissions and other estimated offering expenses.

~~Third Quarter 2017 Highlights~~
Three Months Ended September 30, 2017
Wellness Technology Intellectual
Property Corporate Total
Total revenue $ 12,652,000 $ 4,879,000 $ 200,000 $ — $ 17,731,000

Cost of sales
Products 1,005,000 3,902,000 — — 4,907,000
Labor 6,458,000 — — — 6,458,000
Occupancy 1,950,000 — — — 1,950,000
Other operating costs 934,000 — 126,000 — 1,060,000
Total cost of sales 10,347,000 3,902,000 126,000 — 14,375,000

Gross profit 2,305,000 977,000 74,000 — 3,356,000
Gross profit as a % of total revenue 18.2 % 20.0 % 37.0 % — 18.9 %

Depreciation and amortization
Depreciation 1,110,000 24,000 — 7,000 1,141,000
Amortization 597,000 150,000 6,000 — 753,000
Total depreciation and amortization 1,707,000 174,000 6,000 7,000 1,894,000

General and administrative
Stock-based compensation — — — 706,000 706,000
Other general and administrative 2,237,000 1,293,000 (149,000 ) 1,386,000 4,767,000
Total general and administrative 2,237,000 1,293,000 (149,000 ) 2,092,000 5,473,000

Operating income (loss) from continuing operations $ (1,639,000 ) $ (490,000 ) $ 217,000 $ (2,099,000 ) $ (4,011,000 )
We use GAAP and non-GAAP measurements to assess the trends in our business. With respect to XpresSpa, we review its Adjusted EBITDA, a non-GAAP measure, which we define as earnings before interest, tax, depreciation and amortization expense, excluding m~~erger and acquisition, integration and one-time costsand stock-based compensation.~~
Adjusted EBITDA has been presented in this Quarterly Report on Form 10-Q and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We consider Adjusted EBITDA to be an important indicator for the performance of our business, but not a measure of performance or liquidity calculated in accordance with U.S. GAAP. We have included this non-GAAP financial measure because management utilizes this information for assessing our performance and liquidity, and as an indicator of our ability to make capital expenditures and finance working capital requirements. We believe that Adjusted EBITDA is a measurement that is commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful for analysts and investors to understand this indicator because it excludes transactions not related to our core cash operating activities. We believe that excluding these transactions allows investors to meaningfully analyze the performance of our core cash operations. Adjusted EBITDA should not be considered in isolation or as an alternative to cash flow from operating activities or as an alternative to operating income or as an indicator of operating performance or any other measure of performance derived in accordance with GAAP. In evaluating our performance as measured by Adjusted EBITDA, we recognize and consider the limitations of this measurement. Adjusted EBITDA does not reflect our obligations for the payment of income taxes, interest expense, or other obligations such as capital expenditures. Accordingly, Adjusted EBITDA is only one of the measurements that management utilizes.
The following table provides a reconciliation of operating loss from continuing operations for our three operating segments and corporate to Adjusted EBITDA income (loss) for the three months ended September 30, 2017:
Three Months Ended September 30, 2017
Wellness Technology Intellectual
Property Corporate Total
Operating income (loss) from continuing operations $ (1,639,000 ) $ (490,000 ) $ 217,000 $ (2,099,000 ) $ (4,011,000 )
Plus:
Depreciation and amortization 1,707,000 174,000 6,000 7,000 1,894,000
Stock-based compensation — — — 706,000 706,000
Merger and acquisition, integration and one-time costs 529,000 290,000 — — 819,000
Adjusted EBITDA income (loss) $ 597,000 $ (26,000 ) $ 223,000 $ (1,386,000 ) $ (592,000 )
~~Merger and acquisition, integration and one-time costs relate to the following:~~
For our wellness operating segment, one-time costs related to the interruption of business due to hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia. These one-time costs of $200,000 directly impacted our cost of sales. Without these one-time costs, our wellness operating segment’s gross profit would have been $2,505,000, or 19.7% of the wellness operating segment’s total revenue.
~~For our wellness operating segment, integration costs related to the acquisition amounted to $329,000, which were recorded in general and administrative expense.~~
~~For our technology operating segment, $290,000 of one-time reorganization and personnel re-alignment related costs.~~
Our operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. We concluded that we conduct our business through three operating segments, which are also our reportable segments: wellness, technology and intellectual property.
~~Segment operating results reflect income (loss) before corporate and unallocated shared expenses, interest expense, income taxes and noncontrolling interests.~~

~~Wellness~~
Our wellness operating segment recognized revenue of $12,652,000 during the third quarter of 2017, which was generated by XpresSpa for services provided and health and beauty products sold. We acquired XpresSpa on December 23, 2016 and are actively integrating its corporate functions and optimizing the operating segment’s performance. During the nine-month period ended September 30, 2017, we opened three new flagship locations, consisting of onepre-security Treat location ~~at John F. Kennedy International Airport’s Terminal 4 and two locations~~ at Phoenix Sky Harbor Airport. As of March 31, 2023, the Treat brand operates 2 locations (JFK International ~~Airport.~~ Airport and Salt Lake City International Airport). These remaining Treat locations offer a full retail product offering and a suite of wellness and spa services. Our teams provide travel-related diagnostic testing for virus, cold, flu and other illnesses as well as hydration therapy, IV drips, and vitamin injections. 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.

Treat offers a website (www.treat.com) and mobile app to complement the offering with relevant health and wellness content designed to help people on the go with information that could impact their travel. The platform provides travelers access to a comprehensive online marketplace of services including global illness tracker tools such as the COVID-19 Requirements Map and a scheduler to arrange for direct care at one of our on-site locations.
XWELL’s subsidiary, gcg Connect, LLC, operating as the HyperPointe segment, which was acquired in January 2022, 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, providing a broad range of service and support options for our customers, including technical support services and advanced services.
Although we recognize four segments of business, our strategy for the future, is to create and leverage a fully integrated set of products and services that are both profitable and scalable across our portfolio of brands. Additionally, we are expanding our retail strategy, not only adding more products for sale but aligning those products more efficiently to our service offerings. This product strategy includes, for example, adding muscle relaxation patches to a neck or back massage to continue treatment after the delivery of the service.

We also ~~closed three small temporary kiosks~~plan to ~~better align~~build our ~~resources.~~capability for delivering health and wellness services outside the airport. We ~~also completed~~believe operating outside of the airport complements our offering and represents the fastest way to scale the XWELL family of brands.We will be looking to further expand internationally. With international travel slowly returning to pre-pandemic levels, we continue to be opportunistic in our approach, by taking advantage of the current market to growth. We believe a ~~major renovation~~strategy for international expansion further advances our ability to ~~another location in John F. Kennedy International Airport’s Terminal 4, which opened in September 2017. A number~~expand our other brands including biosurveillance outside of the US.
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These strategic imperatives will be accomplished through development of an infrastructure specifically focused on enabling scalable and efficient growth.

Results of Operations
Revenue
We recognize revenue from the sale of XpresSpa, XpresTest and Treat services when they are rendered at our stores ~~will be undergoing maintenance~~and from the sale of products at the time goods are purchased at our stores or ~~renovations during~~online (usually by credit card), net of discounts and applicable sales taxes.
We have entered into managed services agreements with professional medical services companies that provide healthcare services to patients in our XpresCheck Wellness Centers and Treat locaations. The medical services companies pay XpresTest a monthly management fee to operate in the ~~fourth quarter~~XpresCheck Wellness Centers.
Cost of ~~2017. Wherever possible, we seek to receive lease extensions or other concessions when we undergo these processes. As~~sales
Cost of ~~September 30, 2017, we operated a total~~sales for our XpresSpa and Treat segments consists of ~~51 XpresSpa locations.~~
store-level costs. Store-level costs include all costs that are directly attributable to the store operations, ~~and include:~~
primarily payroll and related ~~benefits~~benefit costs for ~~our~~ store ~~operations~~personnel, occupancy costs and ~~store-level management;~~
~~rent, percentage rent and other occupancy costs;~~
~~the~~ cost of ~~merchandise as well as its freight, shipping~~products sold. Cost of sales of our XpresTest segment include costs related to the XpresCheck business, and ~~handling costs;~~
~~service supplies;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part~~consists of expenses directly attributable to the clinic operations under the terms of the ~~acquisition;~~MSAs, primarily payroll and
related benefit costs ~~associated with our sourcing operations.~~
for personnel, occupancy costs and cost of supplies used to administer the diagnostic COVID-19 tests.
General and administrative
General and administrative ~~costs~~expenses include ~~insurance, infrastructure, payroll and benefits, inventory planning, marketing and other costs. Also included in general~~management and administrative personnel, overhead and occupancy costs, ~~are expenses related to one-time costs related to the interruption of business due to hurricanes that affected our locations in Houston, Texas, Miami~~insurance and ~~Orlando, Florida, and Atlanta, Georgia and the integration costs related to the acquisition, which together amounted to $529,000 during the third quarter of 2017.~~
Depreciation and amortization costs include the depreciation of leasehold improvements and equipment and the amortization of the brand and customer relationship intangible assets, which were recorded at fair value as of the acquisition date.
~~Technology~~
Our technology operating segment predominantly includes revenues and cost of sales generated by Group Mobile and Excalibur. During the third quarter of 2017, Group Mobile’s revenue increased 178.6% from $1,751,000 for the three-month period ended September 30, 2016 to $4,879,000 for the three-month period ended September 30, 2017. This was mainly due to the increased sales pipeline throughout 2016 and 2017.
~~Intellectual Property~~
~~The intellectual property operating segment includes revenues from one-time patent licenses~~various professional fees, as well as expenses incurred in connection with our patent licensing and related internal payroll expenses. In July 2017, the intellectual property operating segment recognized a $148,000 gain on the sale of an asset.
~~Corporate~~
~~Corporate and unallocated shared expenses principally consist of costs for corporate functions, rent for office space,~~ stock-based compensation ~~executive~~for directors, management and ~~certain unallocated~~ administrative ~~support functions.~~personnel.
~~Discontinued Operations~~
During June 2017, we concluded that the requirement to report the results of FLI Charge, a wholly-owned subsidiary included in our technology operating segment, as discontinued operations was triggered. As a result, a non-cash impairment loss of $1,092,000 relating to FLI Charge’s technology assets and goodwill was recorded during the second quarter of 2017.
On October 20, 2017, we sold FLI Charge to a group of private investors and FLI Charge management, who will own and operate FLI Charge. We will not be providing any continued management or financing support to FLI Charge.
Total consideration for the sale of FLI Charge is $1,250,000, payable in installments. The consideration is secured by a note and security agreement. Additionally, we are entitled to a 5% royalty, in perpetuity, on the gross revenue of FLI Charge and of any affiliate of FLI Charge with regard to conductive wireless charging, power, or accessories. We also received a warrant exercisable in FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events. We are currently evaluating the gain on the sale of FLI Charge.
The results of operations for FLI Charge are presented on the condensed consolidated statements of operations and comprehensive loss as consolidated net loss from discontinued operations, which totaled $208,000 and $2,321,000 for the three- and nine-month periods ended September 30, 2017, respectively. In addition, the carrying amounts of assets and liabilities belonging to FLI Charge are presented on the condensed consolidated balance sheets as assets held for disposal and liabilities held for disposal, respectively.
~~Results of Operations~~
Three-month period ended ~~September 30, 2017~~March 31, 2023 compared to the three-month period ended ~~September 30, 2016~~
March 31, 2022
Revenue

Three months ended March 31,


2023

2022

Inc/(Dec)
Total revenue

$
7,063

$
24,048

$
(16,985)
Three months ended September 30,
2017 2016 Change
Revenue $ 17,731,000 $ 3,101,000 $ 14,630,000

~~During the three-month period ended September 30, 2017, we recorded total~~The decrease in revenue of ~~$17,731,000, which represents an increase of $14,630,000 (or 471.8%) compared~~$16,985, or 71%, was primarily due to the ~~three-month period ended September 30, 2016. Of~~reduction in patient service revenue triggered by the ~~increase, XpresSpa generated $12,652,000~~rapid decline of ~~revenue in~~ the ~~third quarter of 2017. We did not recognize any revenue generated by XpresSpa prior~~XpresTest segment as countries continued to its acquisition on December 23, 2016. Our technology operating segment demonstrated 178.6% growth in quarterly revenues from $1,751,000 for the three-month period ended September 30, 2016 to $4,879,000 for the three-month period ended September 30, 2017.relax their testing requirements and we experienced decreased testing volumes at our now closed XpresCheck locations.
Our intellectual property segment recognized a one-time lump sum payment of $200,000 in connection with an executed confidential license agreement for the three-month period ended September 30, 2017, a decrease compared to the three-month period ended September 30, 2016, for which our intellectual property operating segment recognized a one-time lump sum payment of $1,350,000 in connection with an executed confidential license agreement.
Cost of sales

Three months ended March 31,


2023

2022

Inc/(Dec)
Cost of sales

$
6,541

$
15,047

$
(8,506)

Three months ended September 30,
2017 2016 Change
Cost of sales $ 14,375,000 $ 2,718,000 $ 11,657,000
~~During the three-month period ended September 30, 2017, we recorded total~~The decrease in cost of sales of ~~$14,375,000, which represents an increase~~$8,506 or 57%, is commensurate with the decrease in revenues offset by the reopening of ~~$11,657,000 (or 428.9%) compared to~~certain XpresSpa locations that were temporarily closed during Q1 2022. We had 35 open spa locations as of March 31, 2023, and 22 open Spa locations as of March 31, 2022. The largest component in the ~~three-month period ended September 30, 2016. XpresSpa recorded total~~ cost of sales are costs of ~~$10,347,000, which represent direct~~testing kits and labor costs ~~incurred for store operations. As a result, our wellness operating segment’s gross profit for~~at the ~~quarter was 18.2%. Our technology operating segment recorded cost~~location-level. Cost of sales also includes rent and related occupancy costs, which can primarily
26
Table of ~~$3,902,000, which resulted in our technology operating segment generating 20.0% gross margin during the quarter.~~ Contents
During the three-month period ended September 30, 2016, we recorded total cost of sales of $2,718,000. Group Mobile recorded total cost of sales of $1,554,000, which represent direct costs from its product sales. Our intellectual property operating segment’s costs were $1,164,000, which included legal and consulting costs related to the confidential license agreement reached during the quarter and royalty expenses to a previous owner of some of our patents. These intellectual property costs decreased to $126,000 for the three-month period ended September 30, 2017.
~~We expect our cost of sales will grow over time as our revenues increase. We expect that total cost~~include rent based on percentage of sales, as ~~a percentage~~well as other product costs directly associated with the procurement of ~~sales will decline gradually over time~~retail inventory, and other operating costs.
Depreciation and amortization

Three months ended March 31,


2023

2022

Inc/(Dec)
Depreciation and amortization

$
587

$
1,264

$
(677)

The decrease in depreciation and amortization of approximately 54% was primarily due to the write-off of the stores that were permanently closed since March 31, 2022. Fewer locations resulted in lower amortization of leasehold improvements. Depreciation and amortization expense also decreased as a result of the ~~improvement~~impairments and disposals of ~~store-level performance by our wellness operating segment.~~
~~Depreciation, amortization and impairment~~
Three months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 1,894,000 $ 182,000 $ 1,712,000
During the three-month period ended September 30, 2017, depreciation and amortization expense totaled $1,894,000, which represents an increase of $1,712,000 (or 940.7%) compared to the amortization expense recordedfixed assets during the ~~three-month period~~year ended September 30, 2016. There was no impairment expense for the three-month period ended September 30, 2017 and no depreciation or impairment expense recorded for the three-month period ended September 30, 2016.December 31, 2022.
Loss on disposal of assets

Three months ended March 31,


2023

2022

Inc/(Dec)
Loss on disposal of assets

$
132

$
—

$
132

~~The overall increase in depreciation, amortization and impairment expense was mainly due~~Loss on disposal of assets pertains to ~~an increase in depreciation expense resulting from leasehold improvements and equipment~~demolition costs of $1,110,000 and the amortization of the brand and customer relationship intangible assets of $597,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016.closed XpresCheck locations.
We expect depreciation and amortization expense will increase gradually over time for our wellness operating segment as we open more stores and will remain somewhat constant in our technology operating segment.

General and administrative

Three months ended March 31,


2023

2022

Inc/(Dec)
General and administrative

$
6,091

$
10,188

$
(4,097)

Three months ended September 30,
2017 2016 Change
General and administrative $ 5,473,000 $ 3,564,000 $ 1,909,000
The decrease of approximately 40% was primarily due to right-sizing our existing business and optimizing our cost structure as well as reduction of functional costs associated with the operations of now closed XpresCheck Wellness Centers. We have significantly reduced operating and overhead expenses since the second half of 2022, while we continue to focus on returning to overall profitability.
~~During~~Other non-operating income (expense), net

Three months ended March 31,


2023

2022

Inc/(Dec)
Other non-operating income (expense), net

$
66

$
(318)

$
384

The following is a summary of the ~~three-month period~~transactions included in other non-operating income (expense), net for the three months ended ~~September 30, 2017, general~~March 31, 2023 and ~~administrative expenses~~2022:

Three months ended March 31,


2023

2022
Gain (loss) on equity investments

$
25

$
(273)
Foreign exchange gain (loss)

85

(2)
Bank fees and financing charges

(44)

(43)
Total

$
66

$
(318)
27
Table of Contents
Interest income, net

Three months ended March 31,


2023

2022

Inc/(Dec)
Interest income, net

$
393

$
7

$
386

Interest income increased by $1,909,000 (or 53.6%) compared to the three-month period ended September 30, 2016. The results of the three-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016 is primarily attributed to $2,237,000 of general and administrative expenses associated with XpresSpa. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of $221,000, which was$386 as a result of ~~equity awards granted to our directors, management~~increased interest rates and ~~employees in January 2017.~~
~~Non-operating expense, net~~
Three months ended September 30,
2017 2016 Change
Non-operating expense, net $ 268,000 $ 1,483,000 $ (1,215,000 )

~~Net non-operating expenses include~~elimination of interest expense ~~revaluation of derivative warrant liabilities, extinguishment of debt and other non-operating income and expenses.~~
~~During~~since the three-month period ended September 30, 2017, we recorded total net non-operating expense in the amount of $268,000 compared to total net non-operating expense in the amount of $1,483,000 recorded during the three-month period ended September 30, 2016.
For the three-month period ended September 30, 2017, we recorded interest expense of $183,000 mainly related to XpresSpa’s Debt as well as other net non-operating expense of $133,000. These expenses were offset by a gain of $48,000 on the revaluation of the derivative warrant liabilities.
For the three-month period ended September 30, 2016, we recorded interest expense of $949,000 for the amortization of the debt discount and debt issuance costs associated with debt that was repaid during July 2016. We also recorded $262,000 of extinguishment of debt when the debt was repaid. These were in addition to other non-operating expenses of $369,000 offset by a gain of $97,000 on the revaluation of the derivative warrant liabilities.
~~Nine-month period ended September 30, 2017 compared to the nine-month period ended September 30, 2016~~
~~Revenue~~
Nine months ended September 30,
2017 2016 Change
Revenue $ 48,683,000 $ 16,478,000 $ 32,205,000
During the nine-month period ended September 30, 2017, we recorded total revenue of $48,683,000, which represents an increase of $32,205,000 (or 195.4%) as compared to $16,478,000 recorded in the nine-month period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental revenues associated with our acquisitions of XpresSpa and Excalibur. We did not recognize any revenue generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Our technology operating segment demonstrated 115.8% growth in revenue from $5,478,000 for the nine-month period ended September 30, 2016 to $11,820,000 for the nine-month period ended September 30, 2017.
~~Cost of sales~~
Nine months ended September 30,
2017 2016 Change
Cost of sales $ 39,446,000 $ 10,985,000 $ 28,461,000
During the nine-month period ended September 30, 2017, we recorded total cost of sales of $39,446,000, which represents an increase of $28,461,000 (or 259.1%) compared to the nine-month period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental cost of sales associated with our acquisitions of XpresSpa and Excalibur. We did not recognize any cost of sales generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. We expect the cost of sales to increase over time as we incur the full results of operations of XpresSpa and Excalibur.
~~Depreciation, amortization and impairment~~
Nine months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 6,849,000 $ 13,341,000 $ (6,492,000 )
During the nine-month period ended September 30, 2017, depreciation and amortization expense totaled $6,849,000, which represents a decrease of $6,492,000 (or 48.7%) compared to the amortization and impairment expense recorded during the nine-month period ended September 30, 2016. There was no impairment expense for the nine-month period ended September 30, 2017 and no depreciation expense recorded for the nine-month period ended September 30, 2016.
Amortization and impairment expense for the nine months ended September 30, 2016 was significantly higher and was primarily attributed to an $11,937,000 impairment charge to our patents asset group. During the second quarter of 2016, we determined that there were impairment indicators related to certain of our patents. A significant factor considered when making this determination occurred on May 6, 2016, when we changed the name of our company from “Vringo, Inc.” to “FORM Holdings Corp.” and concurrently announced our repositioning as a holding company of small- and middle-market growth companies. We concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, we performed the second step of the impairment test to measure the potential impairment by calculating the asset group’s fair value asbeginning of May 6, 2016. As a result, following amortization for the month of April 2016, we recorded an impairment charge of $11,937,000, or 88.7% of the carrying value of the patents prior to impairment, which resulted in a new carrying value of $1,526,000 on May 6, 2016. Following the impairment, we reevaluated the remaining useful life and concluded that there were no changes in the estimated useful life. There were no impairment indicators related to any of our other amortizable intangible assets during the nine-month period ended September 30, 2017.

2022.
The overall decrease in depreciation, amortization and impairment expense, when comparing the nine-month period ended September 30, 2017 to the nine-month period ended September 30, 2016, was partially offset by an increase in depreciation expense resulting from leasehold improvements and equipment of $4,567,000 and the amortization of the brand and customer relationship intangible assets of $1,775,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016. The depreciation expense of $4,567,000 is higher than the typical depreciation expense for the nine-month period due to a formal decision made in April 2017 to perform a complete renovation of our flagship JFK location which resulted in a revision to the useful lives. This resulted in an additional $1,100,000 of depreciation expense related to the JFK location.
We expect depreciation and amortization expense will increase gradually over time as we open more stores in our wellness operating segment and new locations and will remain somewhat constant in our technology operating segment.
~~General and administrative~~
Nine months ended September 30,
2017 2016 Change
General and administrative $ 17,012,000 $ 8,059,000 $ 8,953,000
During the nine-month period ended September 30, 2017, general and administrative expenses increased by $8,953,000 (or 111.1%) compared to the nine-month period ended September 30, 2016. The results of the nine-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the nine-month period ended September 30, 2017 compared to the same period ended September 30, 2016 is primarily attributed to $6,537,000 of general and administrative expenses associated with XpresSpa, of which $1,013,000 related to merger and acquisition, integration, and one-time costs. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of $732,000, which was a result of equity awards granted to our directors, management and employees in January 2017.
~~Non-operating expense, net~~
Nine months ended September 30,
2017 2016 Change
Non-operating expense, net $ 574,000 $ 1,923,000 $ (1,349,000 )
~~Net non-operating expenses include interest expense, revaluation of derivative warrant liabilities, extinguishment of debt and other non-operating income and expenses.~~
During the nine-month period ended September 30, 2017, we recorded total net non-operating expense in the amount of $574,000 compared to total net non-operating expense in the amount of $1,923,000 recorded during the nine-month period ended September 30, 2016.
For the nine-month period ended September 30, 2017, we recorded interest expense of $550,000 mainly related to XpresSpa’s Debt as well as other net non-operating expense of $231,000. These expenses were reduced by a gain of $207,000 on the revaluation of the derivative warrant liabilities.
For the nine-month period ended September 30, 2016, we recorded interest expense of $1,697,000 for the interest recorded related to the monthly interest payments and the amortization of the debt discount and debt issuance costs as well as accrued interest calculated using the effective interest method associated with debt that was repaid during July 2016. There was also $472,000 of extinguishment of debt recorded when the debt was repaid. These non-operating expenses were offset by a gain of $97,000 on the revaluation of the derivative warrant liabilities and other net non-operating income of $149,000.

Liquidity and Capital Resources
As of March 31, 2023, we had approximately $9,869 of cash and cash equivalents (excluding restricted cash), $25,241 in marketable securities, and total current assets of $39,893. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,053 as of March 31, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $30,840 as of March 31, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.
Our primary liquidity and capital requirements are for ~~new~~the maintenance of our current XpresSpa and Treat locations ~~for our wellness operating segment,~~and brand, as well as ~~working capital~~the expansion outside the airports. During the three months ended March 31, 2023 and March 31, 2022, we used $5,865 and $1,774 in operations, respectively.
On August 31, 2021, the Company’s board of directors initially authorized a stock repurchase program that permitted the purchase and repurchase of up to 15 million shares of our common stock through September 15, 2022. In May 2022, the Board increased the share repurchase program by an additional 10 million shares and extended its effectiveness through September 15, 2023. Under this stock repurchase program, management has discretion in determining the conditions under which shares may be purchased from time to time. The program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice.
During 2022, the Company continued to execute on its share repurchase program, repurchasing and retiring 19,526,706 shares at an average cost of $1.22 per share, for ~~our technology operating segment.~~a total of $23,789. The Company did not repurchase any shares during the three months ended March 31, 2023. As of ~~September 30, 2017, we had cash and cash equivalents of $10,072,000 that we expect~~March 31, 2023, the Company was permitted to utilize, along with cash flows from operations, to provide capital to support the growth of our business, primarily through opening new XpresSpa locations, maintaining our existing XpresSpa locations, purchasing inventory for Group Mobile to support the growth in sales and maintaining corporate functions. In addition, we haverepurchase approximately ~~$7,342,000 of trade receivables, inventory and other current assets to support our working capital needs.~~0.8 million additional shares under this program.
On July 26, 2017, we entered into the Underwriting Agreement with Roth Capital Partners, LLC, acting as the representative of the Underwriters, relating to the Offering of 6,900,000 shares of FORM Common Stock including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from us pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. Our net proceeds from the Offering were $6,584,000 after deducting underwriting discounts and commissions and other estimated offering expenses.
Our total cash decreased from $17,910,000 as of December 31, 2016 to $10,072,000 as of September 30, 2017. Approximately $11,057,000 of the cash outflow during the nine-month period ended September 30, 2017 was related either to non-recurring payments, capital expenditures or payments for inventory, the latter of which is reflected as a current asset in the condensed consolidated balance sheets.
~~Key payments and items from December 31, 2016 to September 30, 2017:~~
Cash spent on inventory on-hand $ 1,830,000
Overdue payables acquired as part of XpresSpa 1,500,000
Capital expenditures for stores and technology 3,065,000
Merger and acquisition and integration-related professional fees 1,595,000
Leases and tax-related matters 587,000
Interest paid on Debt 580,000
Repayment of line of credit upon Excalibur acquisition 361,000
XpresSpa severance 407,000
Cash outflow related to discontinued operations 1,132,000
$ 11,057,000
Based on our current operating plans, we expect to have sufficient funds for at least the next 12 months of operations following the date of these financial statements. In addition, we may choose to raise additional funds in connection with new store openings and potential acquisitions of operating assets, which will be complementary to our wellness operating segment. There can be no assurance, however, that any such opportunities will materialize.
~~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.
Critical Accounting Estimates
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended, filed with the SEC ~~on March 30, 2017,~~ which includes a description of our critical accounting ~~policies~~estimates that involve subjective and complex judgments that could potentially affect reported results. ~~While there~~There have been no material changes to our critical accounting ~~policies~~estimates as to the methodologies or assumptions we apply under ~~them, we~~them. We continue to monitor such methodologies and assumptions.

Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
Not required as we are a smaller reporting company.
Item 4.         Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
28
Table of Contents
As of ~~September 30, 2017,~~March 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.
This type of evaluation is performed on a quarterly basis so that conclusions of management, including our Chief Executive Officer and the Interim Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. The overall goals of these evaluation activities are to monitor our disclosure controls and to modify them as necessary. We intend to maintain the disclosure controls as dynamic systems that we adjust as circumstances merit. Based on the foregoing, our Chief Executive Officer and the Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of ~~the end of the period covered by this report.~~
The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of our subsidiaries except Excalibur, which was acquired on February 2, 2017. Our consolidated revenue for the nine-month period ended September 30, 2017 was $48,683,000, of which Excalibur represented $4,195,000, and our total assets as of September 30, 2017 were $73,839,000, of which Excalibur represented $4,772,000.
March 31, 2023.
~~Changes~~Remediation Plan for Material Weakness in Internal Control over Financial Reporting
~~On February 2, 2017, we acquired Excalibur, which~~Management is ~~an end-to-end solutions provider~~committed to the remediation of ~~mobile hardware devices, wireless network security, data networking, telephony~~the Company’s material weaknesses, as well as the continued improvement of the Company’s internal control over financial reporting. Management has implemented, and ~~mobile application development and software solutions. Following~~continues to implement, the ~~acquisition, Excalibur was merged with Group Mobile within~~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 below remediation efforts will be successful or that our ~~technology operating segment. We are currently in the process of evaluating and integrating Excalibur's historical~~ internal ~~controls~~control over financial reporting ~~into ours.~~will be effective as a result of these efforts. Management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
1) The Company has turned on the multi-currency features related to its cloud based accounting systems.
2) The Company has engaged outside service providers to assist with the valuation, accounting, and recording of key reporting areas such as leases, revenue recognition and stock compensation expense.
3) The Company has contracted an independent consulting firm to assist with the preparation of the Financial Statements and U.S. GAAP accounting research.
4) The Company has engaged outside service providersto review the applicable complementary user entity controls described in the service organizations’ reports for their potential impact on the Company’s financial reporting.
5) On May 4, 2023, the Company announced that it has hired a new permanent Chief Financial Officer, who will have a start date effective June 12, 2023.
Changes in Internal Control over Financial Reporting
Other than ~~this change,~~as set forth in the foregoing paragraph, there ~~were~~have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2017~~March 31, 2023 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

29
Table of Contents~~Part~~
PART II– OTHER INFORMATION
Item 1.Legal Proceedings.
For information regarding legal proceedings, see Note ~~11 “Commitments~~11. “Commitments and Contingencies” in our notes to the condensed consolidated financial statements included in “Item 1. Condensed Consolidated Financial ~~Statements.~~Statements (Unaudited).”
.”
Item 1A.Risk ~~Factors.~~Factors
~~Our business, financial condition, results of operations and~~There have been no material changes to the ~~trading price of our common stock could be materially adversely affected by any of the following risks as well as the other risks highlighted~~risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 30, 2017. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially affect our business, financial condition and results of operations.2022.
~~Risks Related to XpresSpa~~
~~Our growth strategy is highly dependent on our ability to successfully identify and open new XpresSpa locations.~~
Our growth strategy primarily contemplates expansion through procuring new XpresSpa locations and opening new XpresSpa stores and kiosks. Implementing this strategy depends on our ability to successfully identify new store locations. We will also need to assess and mitigate the risk of any new store locations, to open the stores on favorable terms and to successfully integrate their operations with ours. We may not be able to successfully identify opportunities that meet these criteria, or, if we do, we may not be able to successfully negotiate and open new stores on a timely basis. If we are unable to identify and open new XpresSpa locations in accordance with our operating plan, our revenue growth rate and financial performance may fall short of our expectations.

~~Risks Related to Our Common Stock~~
~~We may fail to meet publicly announced financial guidance or other expectations about our business, which would cause our stock to decline in value.~~
From time to time, we provide preliminary financial results or forward looking financial guidance, to our investors. Such statements are based on our current views, expectations and assumptions that may not prove to be accurate and may vary from actual results and involve known and unknown risks and uncertainties that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance, achievements or share prices expressed or implied by such statements. Such risks and uncertainties include the risk factors contained herein and in our Form 10-K for the year ended December 31, 2016. If we fail to meet our projections and/or other financial guidance for any reason, our stock price could decline.

Item 2.Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~
Proceeds
None.
Item 3.Defaults Upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
Item 5.Other Information.
None.
28
Item 6.         Exhibits.
~~Exhibit~~
~~No.~~

~~Description~~

Exhibit
No.
Description
31.1*

10.1†*

Executive Employment Agreement dated May 3, 2023, between the Company and Valerie Lightfoot.

31.1*

Certification of Principal Executive Officer pursuant to Exchange Act, Rules 13a -– 14(a) and 15d -– 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002

31.2*

Certification of Principal Financial Officer pursuant to Exchange Act, Rules 13a -– 14(a) and 15d -– 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002

32**

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~ 2002

101.INS*

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

30
Table of Contents
101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*
104

~~Filed herewith.~~
Cover Page Interactive Data File (embedded within the Inline XBRL documents)

*
Filed herewith.
**
Furnished herein.
†
Management contract or compensatory plan or arrangement.

31
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly ~~authorized on the 9th day of November 2017.~~
authorized.
~~FORM Holdings Corp.~~
XWELL, Inc.

~~By:~~

~~/s/ ANASTASIA NYRKOVSKAYA~~

~~Anastasia Nyrkovskaya~~
Date:
May 15, 2023
By:
/s/ Scott R Milford
Scott R. Milford
Chief Executive Officer
(Principal Executive Officer)

Date:
May 15, 2023

By:
/s/ Omar A Haynes

Omar A. Haynes

Interim Chief Financial Officer
(Principal Financial and Accounting Officer)