UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2022~~2023

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

For the transition period from ___ to ___

Commission file number: 001-34785

XWELL, Inc.

(Exact Name of Registrant as Specified in its Charter)


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

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

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

XpresSpa Group, Inc.

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

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


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

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

As of ~~November~~August 10, ~~2022, 83,232,262~~2023, 83,487,663 shares of the registrant’s common stock were outstanding.

Table of Contents

XWELL, Inc. and Subsidiaries

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XWELL, Inc. ~~(Formerly known as XpresSpa Group, Inc.)~~ and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
Current assets
Cash and cash equivalents	$	49,429	$	105,506	$	6,378	$	19,038
Marketable Securities						25,526		23,153
Accounts receivable		1,309		615		1,934		2,858
Contract Assets		1,128		-
Inventory		940		1,763		845		1,161
Other current assets		2,375		1,095		1,445		1,122
Total current assets		55,181		108,979		36,128		47,332

Restricted cash		751		751		751		751
Property and equipment, net		8,102		6,658		3,867		3,666
Intangible assets, net		4,414		3,732		3,710		4,008
Operating lease right of use assets, net		10,299		4,336		6,392		8,276
Goodwill		4,024		-		4,024		4,024
Other assets		2,205		2,810		1,715		2,369
Total assets	$	84,976	$	127,266	$	56,587	$	70,426

Current liabilities
Accounts payable, accrued expenses and other	$	7,981	$	12,958
Accounts payable					$	2,164	$	2,312
Accrued expenses and other current liabilities						4,597		5,719
Current portion of operating lease liabilities		2,746		2,736		2,243		2,586
Deferred revenue		257		549		262		339
Current portion of promissory note, unsecured		-		3,584
Total current liabilities		10,984		19,827		9,266		10,956

Long-term liabilities
Operating lease liabilities		12,465		7,504		10,321		11,521
Total liabilities		23,449		27,331		19,587		22,477
Commitments and contingencies (see Note 15)
Commitments and contingencies (see Note 13)

Equity
Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 83,232,262 and 101,269,349 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		832		1,013
Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 83,418,535 and 83,232,262 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						833		832
Additional paid-in capital		467,268		487,306		468,909		467,740
Accumulated deficit		(414,655)		(395,275)		(439,351)		(428,112)
Accumulated other comprehensive loss		(560)		(312)		(1,128)		(534)
Total equity attributable to XWELL, Inc.		52,885		92,732		29,263		39,926
Noncontrolling interests		8,642		7,203		7,737		8,023
Total equity		61,527		99,935		37,000		47,949
Total liabilities and equity	$	84,976	$	127,266	$	56,587	$	70,426

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

Table of Contents

XWELL, Inc. ~~(Formerly known as XpresSpa Group, Inc.)~~ and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022

Revenue, net
Managed services fees	$	-	$	-	$	-	$	16,843
Patient services revenue		4,607		25,351		31,728		25,351	$	17	$	7,732	$	148	$	27,121
Services		4,924		1,158		13,488		1,761		6,869		4,787		12,641		8,564
Products		542		258		1,308		402		701		421		1,297		766
Hyperpointe Services		659		-		1,853		-
HyperPointe Services										574		657		1,135		1,180
Other		4		-		4		14		14		—		17		14
Total revenue, net		10,736		26,767		48,381		44,371		8,175		13,597		15,238		37,645

Cost of sales
Labor		5,222		4,277		16,161		7,419		4,769		5,477		9,147		10,939
Occupancy		1,082		587		3,412		1,511		961		1,262		2,174		2,330
Products and other operating costs		3,035		8,798		17,170		16,592		1,255		5,618		2,205		14,135
Total cost of sales		9,339		13,662		36,743		25,522		6,985		12,357		13,526		27,404

Gross Profit										1,190		1,240		1,712		10,241

Depreciation and amortization		1,564		852		4,329		2,542		593		1,501		1,180		2,765
Impairment of long-lived assets		677		-		677		-
Loss on disposal of assets, net		325		-		273		22
Impairment of operating lease right-of-use assets		38		-		38		-
General and administrative		6,447		5,196		24,193		14,350
Loss (gain) on disposal of assets										18		(52)		18		(52)
Advertising and promotion expense										204		1,222		315		2,833
IT/Hosting services										204		839		913		1,506
Other general and administrative expenses										4,895		5,497		10,298		13,407
Total operating expenses		18,390		19,710		66,253		42,436		5,914		9,007		12,724		20,459
Operating (loss) income		(7,654)		7,057		(17,872)		1,935
Operating loss										(4,724)		(7,767)		(11,012)		(10,218)
Interest income, net		114		6		159		31		105		38		229		45
Realized and unrealized foreign exchange loss										(1,141)		(3)		(1,056)		(5)
Gain on Securities, realized and unrealized										201		—		478		—
Other non-operating expense, net		(136)		(381)		(650)		(830)		(120)		(193)		(147)		(509)
(Loss) income before income taxes		(7,676)		6,682		(18,363)		1,136
Loss before income taxes										(5,679)		(7,925)		(11,508)		(10,687)
Income tax expense		(3)		(87)		(5)		(79)		—		(2)		—		(2)
Net (loss) income		(7,679)		6,595		(18,368)		1,057
Net loss (income) attributable to noncontrolling interests		500		(998)		(1,012)		(983)
Net (loss) income attributable to XWELL, Inc.	$	(7,179)	$	5,597	$	(19,380)	$	74
Net loss										(5,679)		(7,927)		(11,508)		(10,689)
Net (income) loss attributable to noncontrolling interests										(51)		9		269		(1,512)
Net loss attributable to XWELL, Inc.									$	(5,730)	$	(7,918)	$	(11,239)	$	(12,201)

Net (loss) income	$	(7,679)	$	6,595	$	(18,368)	$	1,057
Other comprehensive loss from operations		(102)		(52)		(248)		(63)
Comprehensive (loss) income	$	(7,781)	$	6,543	$	(18,616)	$	994
Net loss									$	(5,679)	$	(7,927)	$	(11,508)	$	(10,689)
Other comprehensive loss										(464)		(105)		(594)		(146)
Comprehensive loss									$	(6,143)	$	(8,032)	$	(12,102)	$	(10,835)
Loss per share
Basic and diluted loss per share	$	(0.08)	$	0.05	$	(0.20)	$	-	$	(0.07)	$	(0.08)	$	(0.13)	$	(0.12)
Weighted-average number of shares outstanding during the period
Basic		94,621,339		105,531,418		97,167,867		103,950,731
Diluted		94,621,339		105,957,317		97,167,867		104,301,344
Basic and diluted										83,410,562		95,352,025		83,378,408		98,458,153

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

Table of Contents

XWELL, Inc. ~~(Formerly known as XpresSpa Group, Inc.)~~ and Subsidiaries

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

(Unaudited)

(In thousands, except share and per share data)


											Accumulated																		Accumulated
							Additional				other		Total		Non-										Additional				other		Total		Non-
	Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total		Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		Shares		Amount	in capital		deficit		loss		equity		interests		equity		Shares	Amount		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)
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	—		—	—		—		1,543		—		—		1,543		—		1,543	—		—	—		—		589		—		—		589		23		612
Net loss for the period	—		—	—		—		—		(4,283)		—		(4,283)		1,521		(2,762)	—		—	—		—		—		(5,509)		—		(5,509)		(320)		(5,829)
Repurchase and retirement of common stock	(7,142,446)		(71)	—		—		(11,024)		—		—		(11,095)		—		(11,095)
Foreign currency translation	—		—	—		—		—		—		(41)		(41)		—		(41)	—		—	—		—		—		—		(130)		(130)		11		(119)
March 31, 2023																			83,352,580	$	833	—	$	—	$	468,306	$	(433,621)	$	(664)	$	34,854	$	7,737	$	42,591
Issuance of restricted stock units																			65,955		—	—		—		—		—		—		—		—		—
Stock-based compensation																			—		—	—		—		603		—		—		603		23		626
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(824)		(824)	—		—	—		—		—		—		—		—		(120)		(120)
Contributions from noncontrolling interests	—		—	—		—		—		—		—		—		200		200
March 31, 2022	95,071,210	$	951	—	$	—	$	478,649	$	(399,558)	$	(353)	$	79,689	$	8,100	$	87,789
Vesting of restricted stock units	289,061		3	—		—		(3)		—		—		—		—		—
Grant of stock options for services	—		—	—		—		15		—		—	`	15		—		15
Stock-based compensation	—		—	—		—		771		—		—		771		549		1,320
Net loss for the period	—		—	—		—		—		(7,918)		—		(7,918)		(9)		(7,927)
Repurchase of common stock	—		—	(1,338,404)		(1,021)		—		—		—		(1,021)		—		(1,021)
Foreign currency translation	—		—	—		—		—		—		(105)		(105)		—		(105)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(132)		(132)
June 30, 2022	95,360,271	$	954	(1,338,404)	$	(1,021)	$	479,432	$	(407,476)	$	(458)	$	71,431	$	8,508	$	79,939
Vesting of restricted stock units	256,251		2	—		—		(2)		—		—		—		—		—
Grant of stock options for services	—		—	—		—		16		—		—		16		—		16
Contributions from noncontrolling interests	—		—	—		—		—		—		—		—		546		546
Stock-based compensation	—		—	—		—		392		—		—		392		91		483
Foreign currency translation	—		—	—		—		—		—		(102)		(102)		(3)		(105)	—		—	—		—		—		—		(464)		(464)		46		(418)
Net loss for the period	—		—	—		—		—		(7,179)		—		(7,179)		(500)		(7,679)	—		—	—		—		—		(5,730)		—		(5,730)		51		(5,679)
Repurchase and retirement of common stock	(12,384,260)		(124)	1,338,404		1,021		(12,570)		—		—		(11,673)		—		(11,673)
September 30, 2022	83,232,262	$	832	—		—	$	467,268	$	(414,655)	$	(560)	$	52,885	$	8,642	$	61,527
June 30, 2023																			83,418,535	$	833	-	$	-	$	468,909	$	(439,351)	$	(1,128)	$	29,263	$	7,737	$	37,000

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

Table of Contents

XWELL, Inc. and Subsidiaries

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

(Unaudited)

(In thousands, except share and per share data)


											Accumulated
							Additional				other		Total		Non-														Accumulated
	Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total								Additional				other		Total		Non-
	Shares	Amount		Shares		Amount	in capital		deficit		loss		equity		interests		equity		Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total
December 31, 2020	94,058,853	$	941	—		—	$	475,709	$	(398,624)	$	(220)	$	77,806	$	2,565	$	80,371
Warrant exercises, net of costs	11,223,529		112	—		—		16,895		—		—		17,007		—		17,007
																			Shares	Amount		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	—		—	—		—		264		—		—		264		741		1,005	—		—	—		—		1,543		—		—		1,543		—		1,543
Net loss for the period	—		—	—		—		—		(1,056)		—		(1,056)		248		(808)	—		—	—		—		—		(4,283)		—		(4,283)		1,521		(2,762)
Foreign currency translation	—		—	—		—		—		—		(16)		(16)		—		(16)
Contributions from noncontrolling interests	—		—	—		—		—		—		—		—		333		333
March 31, 2021	105,282,382	$	1,053	—	$	—	$	492,868	$	(399,680)	$	(236)	$	94,005	$	3,887	$	97,892
Issuance of Common Stock for services	223,637		2	—		—		318		—		—		320		—		320
Issuance of restricted stock	27,983		—	—		—		—		—		—		—		—		—
Foreign currency translation	—		—	—		—		—		—		5		5		—		5
Net loss for the period	—		—	—		—		—		(4,467)		—		(4,467)		(263)		(4,730)
Stock-based compensation	—		—	—		—		267		—		—		267		61		328
Redemption of certain noncontrolling interests	—		—	—		—		—		—		—		—		(133)		(133)
June 30, 2021	105,534,002	$	1,055	—	$	—	$	493,453	$	(404,147)	$	(231)	$	90,130	$	3,552	$	93,682
Stock grant for services	—		—	—		—		29		—		—		29		—		29
Stock-based compensation	—		—	—		—		767		—		—		767		23		790
Stock option exercises	8,334		—	—		—		13		—		—		13		—		13
Consolidation of Variable Interest Entities	—		—	—		—		—		—		—		—		4,307		4,307
Repurchase and retirement of common stock	(250,000)		(2)	—		—		(448)		—		—		(450)		—		(450)	(7,142,446)		(71)	—		—		(11,024)		—		—		(11,095)		—		(11,095)
Issuance of restricted stock	35,043		—	—		—		—		—		—		—		—		—
Foreign currency translation	—		—	—		—		—		—		(52)		(52)		—		(52)	—		—	—		—		—		—		(41)		(41)		—		(41)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(991)		(991)	—		—	—		—		—		—		—		—		(824)		(824)
Net income for the period	—		—	—		—		—		5,597		—		5,597		998		6,595
September 30, 2021	105,327,379		1,053					493,814		(398,550)		(283)		96,034		7,889		103,923
Contributions from noncontrolling interests																			—		—	—		—		—		—		—		—		200		200
March 31, 2022																			95,071,210	$	951	—	$	—	$	478,649	$	(399,558)	$	(353)	$	79,689	$	8,100	$	87,789
Vesting of restricted stock units																			289,061		3	—		—		(3)		—		—		—		—		—
Grant of stock options for services																			—		—	—		—		15		—		—		15		—		15
Stock-based compensation																			—		—	—		—		771		—		—		771		549		1,320
Net loss for the period																			—		—	—		—		—		(7,918)		—		(7,918)		(9)		(7,927)
Repurchase of common stock																			—		—	(1,338,404)		(1,021)		—		—		—		(1,021)		—		(1,021)
Foreign currency translation																			—		—	—		—		—		—		(105)		(105)		—		(105)
Distributions to noncontrolling interests																			—		—	—		—		—		—		—		—		(132)		(132)
June 30, 2022																			95,360,271	$	954	(1,338,404)	$	(1,021)	$	479,432	$	(407,476)	$	(458)	$	71,431	$	8,508	$	79,939

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

Table of Contents

XWELL, Inc. ~~(Formerly known as XpresSpa Group, Inc.)~~ and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine months ended September 30,				Six months ended June 30,
	2022		2021		2023		2022
Cash flows from operating activities
Net (loss) income	$	(18,368)	$	1,057
Net loss					$	(11,508)	$	(10,689)
Adjustments to reconcile net loss to net cash used in operating activities:
Items included in net loss not affecting operating cash flows:
Depreciation and amortization		4,329		2,542		1,180		2,765
Impairment of long-lived assets		715		—
Loss on disposal of assets, net		273		22
Unrealized loss on foreign currency remeasurements						1,103		—
Loss (gain) on disposal of assets						18		(52)
Unrealized gain on marketable securities						(309)		—
Amortization of operating lease right of use asset		1,357		1,162		806		828
Issuance of shares of Common Stock for services		31		349		—		15
Stock-based compensation		3,346		2,123		1,238		2,863
Loss on equity investment		528		716		33		430
Changes in assets and liabilities:
Decrease (increase) in inventory		794		(1,385)
(Increase) decrease in accounts receivable		(352)		74
(Increase) decrease in contract assets		(1,128)		—
(Decrease) increase in deferred revenue		(1,015)		(890)
Other assets, current and non-current		(1,137)		519
Other liabilities, current and non-current		(3,913)		(3,035)
(Decrease) increase in accounts payable		(2,866)		2,713
Net cash provided by (used in) operating activities		(17,406)		5,967
Decrease in inventory						316		684
Decrease in accounts receivable						924		186
Decrease (increase) in other assets, current and non-current						65		(295)
Decrease in deferred revenue						(77)		(1,027)
Decrease in other liabilities, current and non-current						(2,592)		(2,803)
Increase (decrease) in accounts payable						185		(1,520)
Net cash used in operating activities						(8,618)		(8,615)
Cash flows from investing activities
Acquisition of property and equipment		(5,797)		(2,650)		(1,235)		(4,062)
Cash acquired on consolidation of certain Variable Interest Entities		—		2,434
Investment in marketable securities						(2,064)		—
Acquisition of HyperPointe net of cash assumed		(4,853)		—		—		(4,853)
Acquisition of software		(279)		(2,156)
Acquisition of intangibles						(471)		(283)
Net cash used in investing activities		(10,929)		(2,372)		(3,770)		(9,198)
Cash flows from financing activities
Proceeds from direct offerings of Common Stock and warrants exercises, net of costs		—		17,007
Redemption of non-controlling interests		—		(133)
Repurchase of Common Stock		(23,789)		(450)		—		(12,116)
Contributions from noncontrolling interests		746		333		—		200
Proceeds from stock option exercises		—		13
Payments for shares withheld on vesting		(73)		—		(22)		(73)
Repayment of Paycheck Protection Program		(3,584)		—		—		(3,584)
Distributions to noncontrolling interests		(956)		(991)		(120)		(956)
Net cash provided by (used in) financing activities		(27,656)		15,779
Net cash used in financing activities						(142)		(16,529)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(86)		36		(130)		(56)
(Decrease)/ Increase in cash, cash equivalents and restricted cash		(56,077)		19,410
Decrease in cash, cash equivalents and restricted cash						(12,660)		(34,398)
Cash, cash equivalents, and restricted cash at beginning of the period		106,257		90,502		19,789		106,257
Cash, cash equivalents, and restricted cash at end of the period	$	50,180	$	109,912	$	7,129	$	71,859
Cash paid for
Interest	$	10	$	—	$	—	$	10
Income taxes		5	$	—		122	$	2
Non-cash investing and financing transactions
Capital expenditures included in Accounts payable, accrued expenses and other	$	592	$	—
Capital expenditures included in Accounts payable, accrued expenses and other current liabilities					$	397	$	231
Issuance of Common Stock on acquisition of gcg Connect, LLC, d/b/a HyperPointe	$	906	$	—	$	—	$	906

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

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XWELL, Inc. ~~(Formerly known as XpresSpa Group, Inc.)~~ and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1. ~~General~~Business, Basis of Presentation and Liquidity

Overview

On October 25, 2022, the Company changed its name to XWELL, Inc. (“XWELL” or the “Company”) from XpresSpa Group, Inc. The Company’s common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL” since the opening of the trading market on October 25, 2022. ~~In pursuance, the~~The Company filed an amended and restated ~~its~~ certificate of incorporation ~~filed~~ 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 in the airport and off airport marketplaces.

In addition, prior to filing the Amended and Restated Certificate, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with respect to its Series A Convertible Preferred Stock, par value $0.01 per share, Series D Convertible Preferred Stock, par value $0.01 per share, Series E Convertible Preferred Stock, par value $0.01 per share, and Series F Convertible Preferred Stock, par value $0.01 per share (collectively, the “Eliminated Preferred Stock”) with the Delaware Secretary of State, becoming effective as of at 11:59 p.m., Eastern Time on October 24, 2022.

The Certificate of Elimination (i) eliminated the previous designation of 6,968 shares of Series A Convertible Preferred Stock, none of which were outstanding at the time of filing, (ii) eliminated the previous designation of 500,000 shares of Series D Convertible Preferred Stock, none of which were outstanding at the time of filing, (iii) eliminated the previous designation of 2,397,060 shares of Series E Convertible Preferred Stock, none of which were outstanding at the time of filing, (iv) eliminated the previous designation of 9,000 shares of Series F Convertible Preferred Stock, none of which were outstanding at the time of filing, (v) caused such shares of Eliminated Preferred Stock to resume the status of authorized but unissued shares of preferred stock of the Company and (vi) eliminated all reference to the Eliminated Preferred Stock from the Company’s Certificate of Incorporation filed with the Secretary of State of the State of Delaware and effective prior to the effective time of the Amended and Restated Certificate.

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

XpresSpa

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

As of June 30, 2023, there were 25 operating XpresSpa ~~spa locations were closed between March 2020 and September 2021, largely due to the airport traffic remaining at insufficient levels to support operations at a unit level.~~

domestic locations. During ~~the period between March 2020 and September 2021, when~~2022, the Company ~~was unable~~sold one location in Austin-Bergstrom International Airport to ~~reopen~~ its ~~spa~~franchisee which now operates both locations ~~for normal operations,~~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 also had 10 international locations operating as of June 30, 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. ~~XpresTest offers COVID-19 and other medical diagnostic~~During 2022, as countries continued to relax their testing ~~services to~~requirements resulting in rapid decline of testing volumes at the traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents. XpresTest has entered into managed services agreements (“MSAs”) with professional medical services companies that provide health care services to patients. The medical services companies pay XpresTest a monthly fee to operate inCompany’s XpresCheck locations, the Company closed all but one XpresCheck Wellness ~~Centers. Under~~Center. As of June 30, 2023, we have closed all XpresCheck locations.

XpresTest began conducting biosurveillance monitoring with the ~~terms~~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 ~~MSAs, XpresTest provides office space, equipment, supplies, non-licensed staff, and management services~~initial program, bringing the total contract to $5,534. As of August 2022, the program was renewed in ~~return~~partnership with Ginkgo BioWorks for a ~~management fee. Effective July 1, 2021,~~new two-year contract term which represents approximately $7,331 in revenue (for the ~~Company~~first year) for the XpresTest segment. On August 11, 2023, the revenue for the second year was determined ~~that the medical service companies are variable interest entities (“VIEs”) due~~ to ~~their equity holders having sufficient capital at risk; and the Company having a variable interest in and being a primary beneficiary of the medical service companies.~~be approximately $6,000.

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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 airports and the decision was made to convert these locations to Treat.

By the third quarter of 2022, it became clear that the Treat business required a change in strategy 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 2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As of June 30, 2023, the Treat brand operates at 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 HyperPointe segment, which the Company acquired in January 2022, (~~see Note 7.~~~~Acquisition of HyperPointe~~), provides a broad range of service and support options for our customers, including technical support services and advanced services.

Basis of Presentation and Principles of Consolidation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8-03 of Regulation S-X, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as amended. The condensed consolidated balance sheet as of December 31, ~~2021~~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~~six months ended ~~September~~June 30, ~~2022~~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

~~Recent Developments~~

~~XpresSpa~~

~~There are currently twenty operating XpresSpa domestic locations and~~As of June 30, 2023, the Company ~~expects~~had cash and cash equivalents, excluding restricted cash, of $6,378, $25,526 in marketable securities, and total current assets of $36,128. The Company’s total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,266 as of June 30, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $26,862 as of June 30, 2023, compared to ~~re-open two additional domestic locations in the near-term~~a working capital surplus of $36,376 as ~~airport traffic return to sufficient levels to support operations at a unit level. . During 2022, the Company sold its~~ ~~two franchise locations in Austin-Bergstrom International Airport.~~ ~~A significant number~~ of the domestic XpresSpa locations are operating approximately eight hours per day during the busiest hours (compared to up to sixteen hours per day pre-pandemic). Additionally, XpresSpa implemented a price increase in mid-October 2021 in its efforts to return to profitability. As the Companies continue to monitor fluctuating airport volumes, the Company will also continue to review operating hours to optimize revenue opportunity.

During the fourth quarter of 2021, the Company began testing several new services to take advantage of a growing interest in non-traditional spa services and expansion of its retail offering to align more closely with the services the Company provides. The Company is evaluating the success of these new initiatives at each airport on an on-going basis and will incorporate changes to its approach as more of the portfolio is reactivated.December 31, 2022.

The Company ~~also~~ has ~~eight international locations~~significantly reduced operating ~~including three XpresSpa locations in Dubai International Airport in~~and overhead expenses since the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and two XpresSpa locations in Istanbul Airport in Turkey. The Company had signed for 5 locations at Istanbul Airport in Turkeysecond half of ~~which 3 of them opened after September 30, 2022: the Company expects~~2022, while it continues to ~~open the remaining two locations before the end of 2022.~~

~~XpresCheck Wellness Centers~~

XpresTest’s business has MSAs with state licensed physicians and nurse practitioners, under which we administer COVID-19 testing options, including a Polymerase Chain Reaction (PCR) test and a rapid PCR test. As of the date of this report, there are eight operating XpresCheck locations operating in eight airports, including one in Orlando International Airport, pre-security, in the South Walk area of the Main Terminal, which opened in March 2022.focus on returning to overall profitability.

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~~During 2022, as countries continued to relax their testing requirements resulting in rapid decline of testing volumes at the Company’s XpresCheck locations, the Company closed or consolidated its~~ ~~five~~ ~~non performing XpresCheck Wellness Centers and~~ ~~two~~ ~~XpresCheck Wellness Centers were assimilated into the Treat Segment. Also, due to the rapid decline of testing volumes at the Company’s XpresCheck locations, the company absorbed a loss of~~ ~~$1,040 related to the write-off of long-lived assets during the quarter ended September 30, 2022.~~

During 2021, XpresTest initiated a $2,001 eight-week pilot program with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo Bioworks (NYSE: DNA). Under this program, XpresTest is conducting biosurveillance monitoring at four major U.S. airports (JFK International Airport, Newark Liberty International Airport, San Francisco International Airport, and Hartsfield-Jackson Atlanta International Airport) aimed at identifying existing and new SARS-CoV-2 variants. On January 31, 2022, the Company announced the extension of the program, bringing the total contract to $5,534. Approximately $4,166 and $1,368 of the full $5,534 amount was recognized during 2022 and the fourth quarter of 2021, respectively.

During the third quarter of 2022, XpresTest, in partnership with Ginkgo Bioworks and 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 the Company is 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 the Company is entitled. The Company ~~recognizes revenue over time for both sample collection performance obligations, using the input method based on time elapsed~~has taken actions 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). The Company will recognize revenue over time for the traveler enrollment initiative performance obligation based on the amount for which the Company has the right to invoice. The Company recorded $916 in revenue during the quarter ended September 30, 2022.

~~Treat~~

~~Treat is the Company’s new travel, health~~improve its overall cash position and ~~wellness brand transforming the way we access care through a suite of health and wellness services supported by an integrated digital platform and a relevant retail offering to the traveling public.~~

~~Treat’s on-site centers (currently located in JFK International Airport, Phoenix Sky Harbor International Airport and Salt Lake City International Airport) provide~~ access to ~~health~~liquidity through equity offerings and ~~wellness services for travelers. The Treat teams provide travel-related diagnostic testing for virus, cold, flu~~debt retirements, by exploring valuable strategic partnerships, right sizing its corporate structure and other illnesses as well as hydration therapy, IV drips, and vitamin injections. Travelers can purchase time blocks to use the Company’s 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, on-demand chat care by licensed providers, a health wallet to store personal and family health records (including COVID-19 testing results), and a scheduler to arrange for direct care at one of the Company’s on-site locations. ~~The information on the Treat website is not incorporated by reference into this Quarterly Report on Form 10-Q and does not constitute a part of this Form 10-Q.~~

~~HyperPointe Acquisition~~

~~In January 2022, the Company announced and closed on the acquisition of gcg Connect, LLC d/b/a HyperPointe.~~

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The purchase price in the transaction consisted of $7,121 in cash and $906 in common stock, offset by the settlement of intercompany accounts payable of $770 as well as potential additional earn-out payments of up to $7,500 over a three-year timeframe based upon future performance; these earn-out payments may be satisfied in cash or common stock or a combination thereof subject to various terms and conditions. As of the acquisition date, and as of September 30, 2022, the Company believes that the fair value of the potential earnout payment is $0.

HyperPointe currently operates as a new operating segment within XWELL. The chief executive officer of HyperPointe before the Company’s acquisition, continues to serve as the chief executive officer of HyperPointe, as well as serving as the chief executive officer of XpresCheck. See ~~Note 7. Acquisition of HyperPointe~~ ~~for related discussion.~~

~~Liquidity and Financial Condition~~

As of September 30, 2022, the Company had cash and cash equivalents, excluding restricted cash, of $49,429, total current assets of $55,181, total current liabilities of $10,984 and positive working capital of $44,197 compared to a positive working capital of $89,152 as of December 31, 2021. Management has performed an assessment of the Company’s ability to continue as a going concern. As of the date of the report, the Company believes it has sufficient liquidity to fund operations for the next twelve months from the issuance of these financial statements. The Company’s liquidity projections and actual performance through issuance relies heavily on the success and profitability of the Company’s re-opened XpresSpa locations, and tailored service offerings. In addition, the Company’s future liquidity relies on the market acceptance to the Company’s new travel, health and wellness brand, Treat, which has generated a net loss of $1,290 and $4,049, for the three and nine months ended September 30, 2022, respectively. Furthermore, because the Company relies heavily on international and domestic airplane travel, any such decrease in demand for travel could have a negative impact on the Company’s operations and liquidity.

streamlining its operations.

Note 2. Significant Accounting and Reporting Policies

(a) Revenue Recognition Policy

XpresSpa

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

~~Through its XpresCheck Wellness Centers~~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 ~~under~~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 ~~terms~~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 ~~Managed Services Agreement (“MSA”) with Professional Limited Liability Companies (“PLLCs”) that~~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 $1,688 and $3,358 in ~~turn contract with physicians~~revenue during the three and ~~Nurse Practitioners,~~six months ended June 30, 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. During the three months ended June 30, 2023, the Company offers testing services to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, as well as the traveling public. Under the terms of the MSAs which may be modified for commercial reasonableness and fair market value, XpresTest provides office space, equipment, supplies, non-

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~~licensed staff, and management services to be used~~also recorded $570 for the ~~purpose of COVID-19 and other medical diagnostic testing in return for a management fee which was deemed a performance obligation for recognizing revenue prior to July 1, 2021.~~

~~Effective July 1, 2021 (~~~~see Note 3. Variable Interest Entities~~), the Company determined that the PLLCs are variable interest entities due to their equity holders having insufficient capital at risk, and the Company having a variable interest and being the primary beneficiary of the PLLCs. As a result of this determination, the total revenue of the PLLCs is designated as revenue for the Company. The performance obligation for this revenue is the PLLCs administering COVID-19 tests to airline employees, contractors, concessionaire employees, TSA officers and U.S. Customs and Border Protection agents, as well as the traveling public, with revenue being recognized at the point in time at which the service is performed.traveler enrollment initiatives.

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 with 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 ~~their~~its equity ~~holders~~holder having insufficient capital at risk, and the Company having a variable interest ~~and being the primary beneficiary of~~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

~~The Company’s~~Our HyperPointe segment which we acquired in January 2022, (~~see Note 7. Acquisition of HyperPointe),~~provides a broad range of service and support options for ~~its~~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 isare treated as deferred revenue which was ~~$240~~$226 and $322 as of ~~September~~June 30, 2023 and December 31, 2022, respectively. The Company recognized $210 from the deferred revenue balance as of December 31, 2022. HyperPointe had unbilled receivables of ~~$212~~$291 and $0 as of June 30, 2023 and December 31, 2022, respectively, included in ~~Contract Assets as of September 30, 2022.~~other current assets.

The Company excludes all sales taxes assessed to ~~its~~our customers from revenue. Sales taxes assessed on revenues are included in ~~Accounts payable,~~ accrued expenses and other current liabilitieson the Company’s condensed consolidated balance sheets until remitted to state agencies.

(b) ~~Variable Interest Entities~~Translation into United States dollars

The Company ~~evaluates its ownership, contractual, pecuniary,~~conducts certain transactions in foreign currencies, which are recorded at the exchange rate as of the transaction date. All exchange gains and ~~other interests~~losses occurring from the remeasurement of monetary balance sheet items denominated in ~~entities to determine if it has any variable interest~~non-dollar currencies are deemed non-operating income in ~~a variable interest entity (“VIE”). These evaluations are complex~~the consolidated statements of operations and ~~involve judgment. If~~comprehensive loss. During the three and six months ended June 30, 2023, the Company ~~determines that an entity~~recognized $1,001 and $1,103, respectively, in ~~which it holds a contractual or ownership interest is a VIE~~foreign exchange losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies. During the three and ~~that~~six months ended June 30, 2022, the Company isdid not incur any foreign exchange gains or losses occurring from the ~~primary beneficiary, the Company consolidates such entity~~remeasurement of monetary balance sheet items denominated in ~~its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both~~non-dollar currencies.

Accounts of the ~~following criteria: (i) has~~foreign subsidiaries of XpresSpa are translated into United States dollars. Assets and liabilities have been translated primarily at period end exchange rates and revenues and expenses have been translated at average monthly rates for the ~~power to make decisions that most significantly affect~~three and six months ended June 2023 and 2022. The translation adjustments arising from the ~~economic performance~~use of different exchange rates are included as foreign currency translation within the ~~VIE;~~condensed consolidated statements of operations and ~~(ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments~~comprehensive income (loss) and condensed consolidated statements of ~~whether~~ changes in ~~the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively.~~stockholders’ equity.

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(c) Business Combinations

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

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

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

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(d) Goodwill

The Company accounts for goodwill under FASB ASC 350-30, Intangibles-Goodwill and ~~Other~~.Other. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the ~~company~~Company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss.

13(e) Reclassification

~~Table~~Certain balances in the condensed consolidated financial statements for the three and six months ended June 30, 2022 have been reclassified to conform to the presentation in the condensed consolidated financial statements for the three and six months ended June 30, 2023, primarily the separate classification and presentation of ~~Contents~~accounts payable, gross profits, advertising and promotion expense, IT/Hosting services, and realized and unrealized foreign exchange loss. The above separation affected accounts payable, accrued expenses and other, general and administrative expenses, and other non-operating expense, net in the comparative 2022 financial statements. Such reclassifications did not have a material impact on the unaudited condensed consolidated financial statements.

Recently adopted accounting pronouncements

In June 2016, the FASB issued Accounting Standards Update ~~No. 2020-06—Debt--Debt~~(“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 in scope. The guidance is effective for annual periods beginning after December 15, 2022, including interim 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 ~~Conversion~~Customers (“ASU 2021-08”). ASU 2021-08 requires contract assets and ~~Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts~~contract liabilities acquired in ~~Entity’s Own Equity (Subtopic 815-40)~~

Issued in August 2020, this update is intended to reduce the unnecessary complexity of the current guidance thus resulting in more accurate accounting for convertible instruments and consistent treatment from one entity to the next. Under current GAAP, there are five accounting models for convertible debt instruments. Except for the traditional convertible debt model that recognizes a convertible debt instrument as a single debt instrument, the other four models, with their different measurement guidance, require that a convertible debt instrument be separated (using different separation approaches) into a debt component and an equity or a derivative component. Convertible preferred stock also is requiredbusiness acquisition to be ~~assessed under similar models. The Financial Accounting Standard Board (“FASB”) decided to simplify~~recognized and measured in accordance with ASC Topic 606, Revenues from Contracts with Customers, which the ~~accounting for convertible instruments by removing certain separation models currently included~~Company generally expects will result in ~~other accounting guidance~~the recognition and measurement of contract assets and contract liabilities in a manner that ~~were being applied to current accounting for convertible instruments. Under~~is consistent with the acquiree. For the Company, the amendments ~~in this update, an embedded conversion feature no longer needs to be separated from the host contract for convertible instruments with conversion features that~~ are not required to be accounted for as derivatives. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The FASB also decided to add additional disclosure requirements in an attempt to improve the usefulness and relevance of the information being provided. The new standard is effective for fiscal years beginning after December 15, ~~2021, and~~2022, including interim periods within those fiscal years. The Company ~~adopted~~implemented the ASU ~~2020-06 as~~2021-08 in 2023. Although, the materiality of the ~~reporting period beginning January 1, 2022. The adoption~~application of ~~this update~~ASU 2021-08 depends on the recognition and measurement of acquired assets and liabilities associated with future acquisitions, as the Company did not have aany acquisition during the three and six months ended June 2023, the adoption of ASU 2021-08 did not have material impact on the Company’s ~~condensed consolidated~~ financial statements.

~~ASU 2021-04: Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options~~

In May 2021, the FASB issued ASU 2021-04, "Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options'" ("ASU 2021-04"), which introduces a new way for companies to account for warrants either as stock compensation or derivatives. Under the new guidance, if the modification does not change the instrument's classification as equity, the company accounts for the modification as an exchange of the original instrument for a new instrument. In general, if the fair value of the "new" instrument is greater than the fair value of the "original" instrument, the excess is recognized based on the substance of the transaction, as if the issuer has paid cash. The effective date of the standard is for interim and annual reporting periods beginning after December 15, 2021 for all entities. The Company adopted ASU 2021-04 as of the reporting period beginning January 1, 2022. The adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

~~Note 3. Variable Interest Entities~~

Through its XpresCheck Wellness 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 provides 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.

~~Table of Contents~~

The Company also has exclusive responsibility for the provision of all nonmedical 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 shareholders were modified in a manner that changes the characteristics or adequacy of the nominee shareholders’ 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 variable interest entities. Notwithstanding their legal 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 and total liabilities included on the consolidated balance sheets for the PLLCs after elimination of intercompany transactions were $550, included in Cash and Cash Equivalents, and $168 included in ~~Accounts payable, accrued expenses and other~~, respectively, as of September 30, 2022. The aggregate carrying value of total assets and total liabilities included on the consolidated balance sheets for the PLLCs after elimination of intercompany transactions were $3,033, included in Cash and Cash Equivalents, and $683, included in ~~Accounts payable, accrued expenses and other~~, respectively, as of December 31, 2021. The total revenue included on the consolidated statements of operations and comprehensive income (loss) for the PLLCs after elimination of intercompany transactions was $4,607 and $31,728 for the three months and nine months ended September 30, 2022, respectively.

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Note 3. Potentially Dilutive Securities
The table below presents the computation of basic and diluted net loss per share of Common Stock:

Three months ended

Six months ended

June 30,

June 30,


2023

2022

2023

2022
Basic numerator:








Net loss attributable to XWELL, Inc.

$
(5,730)

$
(7,918)

$
(11,239)

$
(12,201)
Net loss attributable to common shareholders

$
(5,730)

$
(7,918)

$
(11,239)

$
(12,201)
Basic and diluted denominator:




Basic and diluted weighted average shares outstanding

83,410,562

95,352,025

83,378,408

98,458,153
Basic and diluted loss per share

$
(0.07)

$
(0.08)

$
(0.13)

$
(0.12)

Net loss per share data presented above excludes from the calculation of diluted net loss, 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

7,641,697

4,756,973

7,641,697

4,756,973
Unvested RSUs to issue an equal number of shares of Common Stock

332,638

78,125

332,638

78,125
Warrants to purchase an equal number of shares of Common Stock

4,000

29,460,560

4,000

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

7,978,335

34,295,658

7,978,335

34,295,658

~~Note 4. Potentially Dilutive Securities~~
~~The table below presents the computation of basic and diluted net loss per share of Common Stock:~~

Three months ended

Nine months ended

September 30,

September 30,


2022

2021

2022

2021
Basic numerator:








Net (loss) income attributable to common shareholders

$
(7,179)

$
5,597

$
(19,380)

$
74
Basic denominator:




Basic weighted average shares outstanding

94,621,339

105,531,418

97,167,867

103,950,731
Basic (loss) earnings per share

$
(0.08)

$
0.05

$
(0.20)

$
—
Diluted numerator:




(Loss) earnings attributable to common shareholders

$
(7,179)

$
5,597

$
(19,380)

$
74
Diluted denominator:




Diluted weighted average shares outstanding

94,621,339

105,957,317

97,167,867

104,301,344
Diluted (loss) earnings per share

$
(0.08)

$
0.05

$
(0.20)

$
—

Net (loss) income 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

4,713,363

2,606,771

4,713,363

2,631,246
Unvested RSUs to issue an equal number of shares of Common Stock

39,064

821,361

39,064

876,131
Warrants to purchase an equal number of shares of Common Stock

17,124,051

37,907,794

17,124,051

37,903,835
Total number of potentially dilutive securities excluded from the calculation of earnings/(loss) per share attributable to common shareholders

21,876,478

41,335,926

21,876,478

41,411,212

Note 5.4. Cash, Cash Equivalents, and Restricted Cash

A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 is as follows:


September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022
Cash denominated in United States dollars

$
46,977

$
102,560

$
3,550

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

2,338

2,133

2,686

2,562
Restricted cash

751

751

751

751
Credit and debit card receivables

114

813

142

132
Total cash, cash equivalents and restricted cash

$
50,180

$
106,257

$
7,129

$
19,789

The Company places its cash and temporary cash investments with credit quality institutions. At times, such cash denominated in United States dollars may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, deposits in excess of FDIC limits were ~~$46,509~~$3,552 and ~~$103,339~~

~~Table of Contents~~

$16,069, respectively. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company held cash balances in overseas accounts, totaling ~~$2,338~~$2,686 and ~~$2,133~~$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.

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Note 5. Other current assets
As of June 30, 2023 and December 31, 2022, other current assets consisted of the following:

June 30, 2023

December 31, 2022
Prepaid expenses

$
1,075

$
1,074
Contract assets

291

—
Other

79

48
Total other current assets

$
1,445

$
1,122

~~Note 6. Other current assets~~
~~As of September 30, 2022 and December 31, 2021, other current assets consisted of the following:~~

September 30, 2022

December 31, 2021
Prepaid expenses

$
2,058

$
1,047
Other receivables

270

—
Other

47

48
Total other current assets

$
2,375

$
1,095

~~Note 7. Acquisition of HyperPointe~~
On January 14, 2022, the Company acquired all of the equity interests in gcg Connect, LLC, d/b/a HyperPointe, a New Jersey limited liability company (“HyperPointe”), for an aggregate initial purchase price of approximately $7,257, which consisted of (i)$7,121 in cash offset by settlement of intercompany accounts payable of $770, and (ii) the issuance of 552,487 shares of common stock of the Company to the equity owners of HyperPointe, plus additional consideration in the form of a potential earnout of up to $7,500 (the “Acquisition”). The portion of the initial consideration for the Acquisition comprising the 552,487 shares of Company common stock was valued at $906 based upon a closing reference price of $1.64 as contemplated by the acquisition agreement.
XWELL also agreed pursuant to an earnout provision to issue up to an additional $7,500 in cash or stock if certain earnout performance targets are met during an earnout period ending on the third anniversary of the date of the acquisition agreement. For purposes of the earnout, the Common Stock will also be valued on a per share basis. The earnout payments may be satisfied in (i) cash, (ii) shares of Common Stock (priced at $1.81), or (iii) any combination thereof, at the election of the equity owners of HyperPointe, provided that in the event (and to the extent) XWELL does not have sufficient authorized shares of Common Stock that are unissued and not duly reserved for issuance upon options, warrants or other convertible securities, then XWELL shall be permitted to settle any earnout payments in cash. As a result, XWELL may issue up to an additional 4,143,647 shares of Common Stock; however, the actual number of shares that will be issued under the earnout, if any, will depend on (i) the extent of fulfillment of the earnout performance targets at the time of calculation of the earnout and (ii) the elections and conditions described in the previous sentence.
~~XWELL granted an equity award to the previous Chief Executive Officer of HyperPointe and who was offered employment with the Company in connection with~~ ~~XWELL’s acquisition of the equity interests of HyperPointe, as an inducement material to such new employee entering into employment with the Company.~~
~~The employee received stock options to purchase 1,000,000 shares of~~ ~~XWELL~~ common stock. The stock options were issued upon the closing of the acquisition of HyperPointe and employee’s hire date in connection therewith (the "Grant Date"), and all stock options included within the equity inducement award have an exercise price of $1.64 per share, resulting in the fair value of $1,457 which would be recognized in expense on a straight-line basis, over the requisite service period~~. One-third of the options will vest on each of the first~~ ~~three~~ ~~anniversaries of the Grant Date, subject to the employee's continued employment with~~ ~~XWELL~~ ~~or its subsidiaries on such vesting dates. The stock options have a ten-year term.~~
The Company has recognized the assets and liabilities based on the acquisition date fair values. Based on an assessment of probability, the Company concluded that the acquisition did not result in the creation of any contingent consideration as of the Acquisition date and as of September 30, 2022.

~~Table of Contents~~

Determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
The fair value of intangible assets other than Goodwill was determined primarily using income approaches. This included estimated multi-period excess earnings valuation method for Customer relationships and the relief-from-royalty valuation for the tradename.
~~The adjustments set forth in the following condensed unaudited consolidated Balance Sheet reflect the effect of the consummation of the acquisition:~~

Consideration paid
$
7,257

Fair value of assets acquired and liabilities assumed

Cash and cash equivalents
$
2,269
Accounts receivable

346
Unbilled Receivables

56
Prepaid expenses and other current assets

19
Other long-term assets

16
Property and equipment

68
Customer relationships

1,198
Trade name

302
Software

335

Accounts payable

(653)
Deferred revenue

(723)

3,233
Goodwill
$
4,024

~~Table of Contents~~

~~Note 8. Accounts payable, accrued expenses and other~~
~~As of September 30, 2022 and December 31, 2021, Accounts payable, accrued expenses and other consisted of the following:~~

September 30, 2022

December 31, 2021
Accounts payable

$
3,642

$
5,966
Litigation accrual

845

845
Accrued compensation

1,176

2,862
Tax-related liabilities

594

603
Common area maintenance accruals

573

16
Gift certificates

494

494
Construction accrual

213

930
Credit card processing fees

70

501
Other miscellaneous accruals

374

741
Total accounts payable, accrued expenses and other current liabilities

$
7,981

$
12,958

~~Table of Contents~~

Note 9.6. Intangible Assets

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

September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying


Amount

Amortization

Amount

Amount

Amortization

Amount

Amount

Amortization

Amount

Amount

Amortization

Amount
Trade names

$
1,641

$
(1,302)

$
339

$
1,339

$
(1,118)

$
221

$
302

$
(37)

$
265

$
302

$
(24)

$
278
Customer relationships

1,510

(482)

1,028

—

—

—

1,510

(661)

849

1,510

(542)

968
Software

4,403

(1,448)

2,955

3,886

(484)

3,402

4,646

(2,073)

2,573

4,485

(1,761)

2,724
Licenses

116

(24)

92

116

(7)

109

40

(17)

23

55

(17)

38
Total intangible assets

$
7,670

$
(3,256)

$
4,414

$
5,341

$
(1,609)

$
3,732

$
6,498

$
(2,788)

$
3,710

$
6,352

$
(2,344)

$
4,008

The Company’s intangible assets are amortized over their expected useful lives. The Company recorded amortization expense of ~~$474~~$377 and ~~$95~~$471 during the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$1,338~~$759 and ~~$300~~$864 during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.
Based on the intangible assets balance as of ~~September~~June 30, ~~2022,~~2023, the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:

Calendar Years ending December 31,

Amount

Amount
Remaining 2022

$
439
2023

1,491
Remaining 2023

$
834
2024

1,449

1,666
2025

397

502
2026

323

393
2027

77
Thereafter

315

238
Total

$
4,414

$
3,710

Note 7. Variable Interest Entities
Through its XpresCheck Wellness and Treat Centers the Company provided 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

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“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 provides 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 had 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.
Notwithstanding their legal 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 total revenue included on the condensed consolidated statements of operations and comprehensive loss for the PLLCs after elimination of intercompany transactions was $17 and $148 for the three and six months ended June 30, 2023, respectively, and $7,732 and $27,121, for the three and six months ended June 2022, respectively. 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.

Note 8. Accrued expenses and other current liabilities
As of June 30, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following:

June 30, 2023

December 31, 2022
Litigation accrual

$
449

$
963
Accrued compensation

1,749

2,008
Tax-related liabilities

552

573
Common area maintenance accruals

90

160
Accounts payable accruals

779

754
Gift certificates

495

496
Credit card processing fees

35

33
Other miscellaneous accruals

448

732
Total accrued expenses and other current liabilities

$
4,597

$
5,719

Note ~~10.~~9. Leases
The Company leases its retail and diagnostic testing locations at various domestic and international airports. Additionally, the Company leases its corporate office in New York City. During 2022 the Company commenced new leases at Istanbul Airport in Turkey & Salt Lake City International Airport in Utah. At inception, the Company determines if a lease qualifies under ASC 842. Certain of the Company’s lease arrangements contain fixed payments throughout the term of the lease, while others involve a variable component to determine the lease obligation wherein a certain percentage of sales is used to calculate the lease payment.

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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 right of use assets and operating lease liabilities are recognized as of the 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 as of the commencement date of the lease, which approximates the rate at which the Company can borrow funds on a secured basis, in determining the present value of the guaranteed lease payments.

~~Table of Contents~~

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.
The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent through payment deferrals. The periods of relief from these payments, which began in March 2020, ranged from ~~three~~ ~~to twenty-eight months enabling the Company to receive minimum guaranteed payment concessions of approximately $431 and $1,568 in the nine months ended September 30, 2022 and 2021, respectively.~~

The Financial Accounting Standards Board (“FASB”) issued a Q&A in March 2020 that focused on the application of lease guidance in ASC 842 for lease concessions related to the effects of COVID-19. The FASB staff has said that entities can elect to not evaluate whether concessions granted by lessors related to COVID-19 are lease modifications. Entities that make this election can then apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. ~~XWELL~~ ~~has elected to not treat the concessions as lease modifications and will instead account for the lease concessions as if they were contemplated as part of the existing leases.~~
When a lessor grants a concession that contractually releases a lessee from certain lease payments or defers lease payments, a lessee may account for the concession as a negative variable lease payment and recognize negative variable lease expense in the period when the rent concession becomes accruable. The Company has recorded negative variable lease expense and adjusted lease liabilities at the point in which the rent concession has become accruable.
Supplemental cash flow information related to leases for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows:

Nine months ended September 30,

Six months ended June 30,


2022

2021

2023

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

Operating cash flows from operating leases

$
(3,072)

$
(3,189)

$
(1,839)

$
(2,031)
Leased assets obtained in exchange for new and modified operating lease liabilities

$
7,380

$
3,673

$
—

$
3,273
Leased assets surrendered in exchange for termination of operating lease liabilities

$
—

$
9

~~Table of Contents~~

As of ~~September~~June 30, ~~2022,~~2023, operating leases contain the following future minimum commitments:

Calendar Years ending December 31,

Amount

Amount
Remaining 2022

$
1,005
2023

3,459
Remaining 2023

$
1,611
2024

3,050

3,002
2025

2,614

2,649
2026

1,586

1,634
2027

1,511
2028

1,132
Thereafter

5,683

3,341
Total future lease payments

17,397

14,880
Less: interest expense at incremental borrowing rate

(2,186)

(2,316)
Net present value of lease liabilities

$
15,211

$
12,564

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

Weighted average remaining lease term:

~~5.95~~6.15
years
Weighted average discount rate used to determine present value of operating lease liability:

~~7.33~~7.40
%

Cash paid for minimum annual rental obligations during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$445~~$598 and ~~$1,191,~~$1,259, respectively. Cash paid for minimum annual rental obligations during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$185~~$349 and ~~$399,~~$620, respectively.

Variable lease payments calculated monthly as a percentage of product and services revenue, were ~~$397~~$365 and ~~$51~~$324 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$1,085~~$711 and ~~$262~~$689 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

~~Note 11. Debt~~
~~Total Debt as of September 30, 2022 and December 31, 2021 is comprised of the following:~~


September 30, 2022

December 31, 2021
Promissory note, unsecured (Current)

—

3,584
Total debt

$
—

$
3,584

~~Paycheck Protection Program~~
On May 1, 2020, the Company entered into a U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“the PPP”) promissory note in the principal amount of $5,653 payable to Bank of America, NA (“Bank of America”) evidencing a PPP loan (the “PPP Loan”). The PPP Loan bore interest at a rate of 1% per annum. No payments were due on the PPP Loan during a six-month deferral period commencing on May 2, 2020. Commencing one month after the expiration of the deferral period and continuing on the same day of each month thereafter until the maturity date of the PPP Loan, the Company was obligated to make monthly payments of principal and interest, each in such equal amount required to fully amortize the principal amount outstanding on the PPP Loan by the maturity date. The PPP loan was paid off on the maturity date of May 2, 2022.

2216

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Note 10. Other Assets
As of June 30, 2023 and December 31, 2022, assets consisted of the following:


June 30, 2023

December 31, 2022
Equity investments

$
71

$
104
Lease deposits

1,549

1,973
Other

95

292
Other assets

$
1,715

$
2,369

Note ~~12.~~11. Stockholders’ Equity
Warrants
The following table represents the activity related to the Company’s warrants during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

~~Exercise~~

~~No. of Warrants~~

~~price range~~
~~December 31, 2021~~

~~37,817,694~~

$
~~0.525 - 6.566~~
~~Granted~~

—

$

~~Exercised~~

—

$

~~Expired~~

~~(20,693,643)~~

$
~~3.02 - 6.566~~
~~September 30, 2022~~

~~17,124,051~~

$
~~1.7 - 2.125~~


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
June 30, 2023

4,000

$
2.125

$
2.125

Share Repurchase Program
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 its 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. Under the program, the Company purchased 8,480,850 shares for $12,116 and retired ~~19,526,706~~7,142,446 of these purchased shares ~~for $23,789~~ during the ~~nine~~six months ended ~~September~~June 30, 2022, and the remaining 1,338,404 shares were retired on August 3, 2022.
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 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 corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount 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 excise tax, 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 same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

Stock-based Compensation
In September 2020, the Board of Directors approved a new stock-based compensation plan available to grant stock options, restricted stock and Restricted Stock Units (“RSU’s”) aggregating to 5,000,000 shares of Common Stock, to the

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Company’s directors, employees and consultants. Shareholder approval of the plan was subsequently obtained on October 28, 2020. On October 4, 2022, shareholders approved the amendment to the ~~Company’s~~ 2020 ~~Equity Incentive~~ Plan to increase the number of shares authorized for issuance under the 2020 Plan by 7,500,000 shares of Common Stock ~~was approved.~~to an aggregate of 12,500,000 shares. Under the 2020 Equity Incentive Plan (the “2020 Plan”), a maximum of ~~7,353,289~~4,321,334 shares of Common Stock may be ~~issued.~~issued as of June 30, 2023. The Company’s previous Employee, Director and Consultant Equity Incentive Plan (the “2012 Plan”) was terminated upon receipt of shareholder approval of the 2020 Plan.

Awards granted under the 2012 Plan remain in effect pursuant to their terms. Generally, stock options are granted with exercise prices equal to the fair market value on the date of grant, vest in four equal quarterly installments, and expire 10 years from the date of grant. RSU’s granted generally vest over a period of one year.

~~Table of Contents~~

In September 2020, XpresTest created a stock-based compensation plan available to grant stock options, Restricted Stock Awards (“~~RSAs”~~RSAs��) and RSU’s to XpresTest’s directors, employees and consultants. Under the XpresTest 2020 Equity Incentive Plan (the “XpresTest Plan”), a maximum of 200 shares of XpresTest common stock may be awarded, which would represent 20% of the total number of shares of common stock of XpresTest as of ~~September~~June 30, ~~2022.~~2023. Certain named executive officers, consultants, and directors of the Company are eligible to participate in the XpresTest Plan. The XpresTest Plan RSAs vest upon satisfaction of certain service and performance-based conditions. The fair value of the XpresTest Plan RSAs is determined based on the weighted average of (i) Fair Value of XpresTest under the Indirect Valuation Method developing assumptions for ~~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 ~~September~~June 30, ~~2022,~~2023, there is ~~$214~~$144 of unrecognized stock-based compensation related to the XpresTest Plan.

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

The following variables were used as inputs in the model:

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

$
~~0.78~~0.36 - ~~1.64~~0.41

Exercise price:

$
~~0.78~~0.36 - ~~1.64~~0.41

Expected volatility:

~~123.45~~119.41-121.04
%
Expected dividend yield:

0
%
Annual average risk-free rate:

~~1.62~~3.65 - ~~3.24~~3.96
%
Expected term:

~~6.43~~6.32 - 6.41
years

Total stock-based compensation for the three months ended ~~September~~June 30, 2023 and 2022 is $626 and ~~2021 is $483 and $819,~~$1,320, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 is $1,238 and ~~2021 is $3,294 and $2,152,~~$2,863, respectively. The Company had ~~$2,831~~$2,437 and ~~$2,088~~$2,506 of unrecognized stock-based compensation related to the XWELL Stock Options, as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. ~~During October 2022, the Company granted 375,000 RSUs and 150,000 Stock Options to its certain executives.~~
~~The following table sets forth the Company’s Equity Incentive activities for the nine months ended September 30, 2022:~~

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, 2021

600,000

$
1.63

—

$
—

2,826,871

$
2.57

$
1.19 - 2,460
Granted

156,250

1.28

15.0

56,890

2,200,338

1.51

0.78 - 1.64
Exercised/Vested

(717,186)

1.57

(10.0)

61,550

—

—

Forfeited

—

—

—

—

(245,027)

1.55

1.43-3.82
Expired

—

—

—

—

(68,819)

8.23

1.44-2,232
Outstanding as of September 30, 2022

39,064

$
1.28

5.0

$
47,570

4,713,363

$
2.04

$
0.78 - 2,460
Exercisable as of September 30, 2022

1,955,823

$
2.62

$
0.78 - 2,460

2418

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~~Note 13. Fair Value Measurements~~
Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).
The following table ~~presents~~sets forth the ~~placement in~~Company’s Equity Incentive activities for the ~~fair value hierarchy measured at fair value on a recurring basis as of September~~six months ended June 30, ~~2022 and December 31, 2021 (in thousands):~~2023:

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)
As of September 30, 2022:








Recurring fair value measurements

Equity securities:

Route1, Inc.

$
194

$
—

$
194

$
—
Total equity securities

194

—

194

—
Total recurring fair value measurements

$
194

$
—

$
194

$
—

As of December 31, 2021








Recurring fair value measurements

Equity securities:

Route1

$
722

$
—

$
722

$
—
Total equity securities

722

—

722

—
Total recurring fair value measurements

$
722

$
—

$
722

$
—

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

238,888

0.32

—

—

2,886,388

0.40

0.36 - 0.41
Exercised/Vested

(187,500)

0.65

—

—

—

—

Forfeited

—

—

—

—

(49,919)

1.32

0.40 - 1.61
Expired

—

—

—

—

(24,801)

11.75

1.53 - 1,908
Outstanding as of June 30, 2023

332,638

$
0.41

5.00

$
47,570

7,641,697

$
1.37

$
0.36 - 2,460
Exercisable as of June 30, 2023

3,962,957

$
1.66

$
0.40- 2,460

Equity securities pertain to common shares in Route1, Inc. obtained in the 2018 sale of Group Mobile to Route 1, Inc. As of September 30, 2022, the Company owns 3,855,443 common shares of Route 1. In connection with the remeasurement of the common shares of Route 1, Inc., the Company recorded an unrealized loss of $98 and $528 for the three and nine months ended September 30, 2022, respectively, and $302 and $716, for the three and nine months ended September 30, 2021, respectively.
In addition to the above, the Company’s financial instruments as of September 30, 2022 and December 31, 2021 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.

Note ~~14.~~12. Income Taxes
The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary. The income tax provision for the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 reflect an estimated global annual effective tax rate of approximately ~~(0.10)%~~0% from continuing operations. Discontinued operations for the three and six months ended June 30, 2023 reflected an annual effective tax rate of 0%.

~~Table of Contents~~

As of ~~September~~June 30, ~~2022,~~2023, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. Net operating loss carryforwards generated after December 31, 2017 do not expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit.

Income tax expense/(benefit) for the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 was $5$0 which was attributed to ~~foreign~~state taxing jurisdictions in which ~~controlled foreign corporations were profitable. In addition~~a measure of income is utilized to ~~income taxes, the Company operates in foreign jurisdictions in which excise taxes are levied.~~determine a tax liability. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates.

Note ~~15.~~13. Commitments and Contingencies

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 ~~makes adjustments~~adjusts as appropriate. ~~Significant~~A 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.

With respect to the Company’s outstanding legal matters, based on its current knowledge, the Company’s management believes that the amount or range of a potential loss 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 and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company has recorded accruals of ~~$845 both~~$449 and $963 as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, which is included in ~~Accounts payable, accrued~~Accrued expenses and other current liabilities in the condensed consolidated balance sheets.

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The Company expenses legal fees in the period in which they are incurred.

Kyle Collins v. Spa Products Import & Distribution Co., LLC et al

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 employees in the 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.~~20, 2022 for the amount of $517 and additional payroll taxes of $4. Funding of the settlement amount ~~is predicted to be end of year.~~

occurred on January 26, 2023.

OTG Management PHL B v. XpresSpa Philadelphia Terminal B et al.

On May 9, 2022, a lawsuit was filed in the Philadelphia Court of Common Pleas by OTG Management at Philadelphia International Airport, claiming that XWELL improperly backed out of its sublease for space at Terminal B and now owes between $864 and $2,250 in accelerated rent for the 12-year contract. They claim that 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 acts and omissions), XWELL breached the lease. OTG Management has agreed to extend XWELL’s time to respond to the Complaint ~~from previously November 1, 2022~~ to ~~January 3,~~September 5, 2023.

~~Table~~In addition to those matters specifically set forth herein, the Company and its subsidiaries are involved in various other claims and legal actions that arise in the ordinary course of ~~Contents~~business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on 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.

In the event that an action is brought against the Company or one of its subsidiaries, the Company will investigate the allegation and vigorously defend itself.

Leases

XWELL is contingently liable to a surety company under certain general indemnity agreements required by various airports relating to its 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 specified lease agreements.

Note ~~16.~~14. Segment Information
As a result of the Company’s transition to a pure-play health and wellness services company, the Company currently has four reportable operating segments: XpresSpa, XpresTest, Treat and HyperPointe, acquired in January 2022. The Company analyzes the results of the Company’s business through the four reportable segments. The 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 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 Company’s on-site wellness centers as they reopen. The HyperPointe segment provides a broad range of service and support options for its customers, including technical support services and advanced services. The chief operating decision maker evaluates the 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.

For the three months ended

September 30,


2022

2021
Revenue




XpresSpa

$
3,557

$
1,416
XpresTest

6,079

25,351
Treat

425

—
HyperPointe

675

—
Corporate and other

—

—
Total revenue

$
10,736

$
26,767

Operating income (loss)




XpresSpa

$
(2,508)

$
(1,595)
XpresTest

(1,692)

12,015
Treat

(1,282)

(2,305)
HyperPointe

(193)

—
Corporate and other

(1,979)

(1,058)
Total operating (loss) income

$
(7,654)

$
7,057

Depreciation & Amortization

XpresSpa

$
364

$
340
XpresTest

576

509
Treat

520

—
HyperPointe

86

—
Corporate and other

18

3
Total Depreciation & Amortization

$
1,564

$
852

2720

Table of Contents

For the nine months ended

September 30,


2022

2021
Revenue




XpresSpa

$
9,490

$
2,172
XpresTest

35,928

42,199
Treat

1,110

—
HyperPointe

1,853

—
Corporate and other

—

—
Total revenue

$
48,381

$
44,371

Operating loss




XpresSpa

$
(8,921)

$
(4,828)
XpresTest

2,576

14,597
Treat

(4,038)

(4,115)
HyperPointe

(745)

—
Corporate and other

(6,744)

(3,719)
Total operating (loss) income

$
(17,872)

$
1,935

Depreciation & Amortization

XpresSpa

$
1,065

$
931
XpresTest

1,711

1,604
Treat

1,287

—
HyperPointe

243

—
Corporate and other

23

7
Total depreciation & amortization

$
4,329

$
2,542

Capital Expenditures

XpresSpa

$
1,413

$
706
XpresTest

675

3,984
Treat

3,329

—
HyperPointe

—

—
Corporate and other

55

77
Total capital expenditures

$
5,472

$
4,767

For the three months ended

June 30,


2023

2022
Revenue




XpresSpa

$
5,228

$
3,290
XpresTest

2,285

9,253
Treat

88

399
HyperPointe

574

655
Total revenue

$
8,175

$
13,597

Operating income (loss)




XpresSpa

$
(2,822)

$
(1,958)
XpresTest

596

(1,937)
Treat

(360)

(1,460)
HyperPointe

(113)

(275)
Corporate and other

(2,025)

(2,137)
Total operating loss

$
(4,724)

$
(7,767)

Depreciation & Amortization

XpresSpa

$
431

$
358
XpresTest

5

606
Treat

67

442
HyperPointe

78

95
Corporate and other

12

—
Total Depreciation & Amortization

$
593

$
1,501

��

For the six months ended

June 30,


2023

2022
Revenue




XpresSpa

$
9,727

$
5,933
XpresTest

4,084

29,849
Treat

292

685
HyperPointe

1,135

1,178
Total revenue

$
15,238

$
37,645

2023

2022
Operating loss




XpresSpa

$
(5,954)

$
(6,413)
XpresTest

571

4,268
Treat

(804)

(2,756)
HyperPointe

(369)

(552)
Corporate and other

(4,456)

(4,765)
Total operating loss

$
(11,012)

$
(10,218)

2821

Table of Contents

September 30,

December 31,

2022

2021
Long-lived Assets

XpresSpa

$
14,203

8,419
XpresTest

112

2,246
Treat

6,280

2,700
HyperPointe

123

—
Corporate and other

522

1,132
Total long-lived Assets

$
21,240

$
14,497

September 30,

December 31,

2022

2021
Assets




XpresSpa

$
21,348

$
12,351
XpresTest

5,356

19,349
Treat

9,822

5,918
HyperPointe

7,126

—
Corporate and other

41,324

89,648
Total assets

$
84,976

$
127,266

For the six months ended

June 30,

2023

2022
Depreciation & amortization

XpresSpa

$
854

$
701
XpresTest

5

1,135
Treat

132

767
HyperPointe

164

157
Corporate and other

25

5
Total depreciation & amortization

$
1,180

$
2,765

2023

2022
Capital expenditures

XpresSpa

$
1,445

$
641
XpresTest

45

614
Treat

45

2,123
HyperPointe

11

—
Corporate and other

14

54
Total capital expenditures

$
1,560

$
3,432

June 30, 2023

December 31, 2022
Long-lived Assets

XpresSpa

$
10,031

$
11,851
XpresTest

95

112
Treat

2,191

2,314
HyperPointe

4,044

4,108
Corporate and other

294

409
Total long-lived Assets

$
16,655

$
18,794

June 30, 2023

December 31, 2022
Assets




XpresSpa

$
19,861

$
21,135
XpresTest

2,049

4,285
Treat

3,115

3,186
HyperPointe

6,326

6,913
Corporate and other

25,236

34,907
Total assets

$
56,587

$
70,426

2922

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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, ~~2021~~2022 filed on ~~March 31, 2022,~~April 17, 2023, as subsequently amended on May ~~2, 2022~~1, 2023 (the ~~“2021 Annual~~“Annual Report”), our Quarterly ~~Reports~~Report on Form 10-Q for the three months ended March 31, ~~2022 and June 30, 2022 ,~~2023, 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.
All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to XWELL, Inc. ~~(prior to October 25, 2022 and January 5, 2018, known as “XpresSpa Group, Inc.” and “FORM Holdings Corp”)~~, a Delaware corporation, and its consolidated ~~subsidiaries unless the context requires otherwise.~~subsidiaries.

Overview
On October 25, 2022, we changed our name to XWELL, Inc. (“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. We 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 ~~Inc.~~ aligned our corporate strategy to build a pure-play health and wellness services company, in both in the airport and ~~off-airport marketplace~~s.off airport marketplaces.

On August 4, 2023, we filed Form S-3 with the United States Securities and Exchange Commission (“SEC”). This Form S-3 which is a Registration Statement under the Securities Act of 1933, when accepted by the SEC, would enable us to issue, from time to time at prices and on terms to be determined at or prior to the time of the offering, up to $200,000 of any combination of the securities described in the registration, either individually or in units. We may also offer common stock or preferred stock upon conversion of or exchange for the debt securities; common stock upon conversion of or exchange for the preferred stock; common stock, preferred stock or debt securities upon the exercise of warrants or rights.

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

XpresSpa
XWELL’s subsidiary, XpresSpa Holdings, LLC (“XpresSpa”) has been a global airport retailer of spa services through ~~its~~our XpresSpa spa locations, offering travelers premium spa services, including massage, nail and skin care, as well as spa and travel products.
~~XWELL’s subsidiary,~~As of June 30, 2023, there were 25 operating XpresSpa ~~Holdings, LLC (“XpresSpa”) has been a global~~domestic locations. During 2022, we sold one location in Austin-Bergstrom International Airport to our franchisee which now operates both locations at this airport. As we continue to monitor fluctuating airport ~~retailer~~volumes, we will also continue to review operating hours to optimize revenue opportunity.

Table of ~~spa services through its~~Contents

We also had 10 international locations operating as of June 30, 2023, including two XpresSpa ~~spa~~ locations ~~offering travelers premium spa services, including massage, nail~~in Dubai International Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and ~~skin care, as well as spa and travel products. Most of~~five XpresSpa ~~spa~~ locations ~~were closed between March 2020 and September 2021, largely due to the airport traffic remaining at insufficient levels to support operations at a unit level.~~ in Istanbul Airport in Turkey.

~~During the period between March 2020 and September 2021, when we were unable to reopen our spa locations for normal operations,~~

XpresTest

We, in partnership with certain COVID-19 testing partners, we successfully launched our XpresCheck Wellness Centers through our XpresTest, Inc. subsidiary (“XpresTest”), offering testing services, also in airports. ~~XpresTest offers COVID-19 and other medical diagnostic~~During 2022, as countries continued to relax their testing services to the traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents. XpresTest has entered into MSAs with professional medical services companies or professional limited liability companies (“PLLCs”) that provide health care services to patients. The PLLCs pay XpresTest a monthly fee to operaterequirements resulting in ~~the~~rapid decline of testing volumes at our XpresCheck locations, we closed all but one XpresCheck Wellness ~~Centers. Under~~Center. As of June 30, 2023, all our XpresCheck locations have ceased operations.

XpresTest began conducting biosurveillance monitoring with the ~~terms~~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 ~~MSAs, we provide office space, equipment, supplies, non-licensed staff, and management services~~the initial program, bringing the total contract to $5,534. As of August 2022, the program was renewed in ~~return~~partnership with Ginkgo BioWorks for a ~~management fee. Effective July 1, 2021, we~~new two-year contract term which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. On August 11, 2023, the revenue for the second year was determined ~~that the PLLCs are VIEs due~~ to ~~their equity holders having insufficient capital at risk, and the Company having a variable interest in and being a primary beneficiary of these PLLCs.~~be approximately $6,000.

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~~Furthermore, XWELL continues to develop~~ Treat

The Treat segment, which is operating through XWELL’s subsidiary Treat, Inc. (“Treat”) is a travel health and wellness brand that ~~is positioned~~provides access to health and wellness services for ~~a post-pandemic world. Treat’s~~travelers at on-site centers (currently located in JFK International Airport and in Salt Lake City International Airport).
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 airports and the decision was made to convert these locations to Treat.
By the third quarter of 2022, it became clear that the Treat business required a change in strategy 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 2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As of June 30, 2023, the Treat brand operates in two locations (JFK International Airport and Salt Lake City International Airport) provide access to health and wellness services for travelers. 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. The integration and expansion of services and products, both domestically and internationally, is part of our objective to grow airport business.
. These remaining Treat ~~offers~~locations offer a ~~website (www.treat.com) and mobile app to complement the~~full retail product 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, on-demand chat care by licensed providers, a health wallet to store personal and family health records (including COVID-19 testing results), and a ~~scheduler to arrange for direct care at one~~suite of ~~our on-site locations.~~ ~~The information on the Treat website is not incorporated by reference into this Quarterly Report on Form 10-Q~~wellness and ~~does not constitute a part of this Form 10-Q.~~spa services.

HyperPointe

Our HyperPointe segment, which wethe Company acquired in January 2022, provides 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 ~~will expand~~are expanding our retail strategy, not only adding more products for sale but aligning those products more efficiently to our service offerings. ~~For~~This product strategy includes, for example, ~~adding fortified water and hydration packets to the delivery of an onsite hydration IV or~~ adding muscle relaxation patches to a neck or back massage to continue treatment after the delivery of the service. ~~The integration and expansion of services and products, both domestically and internationally, is part of our objective to grow airport business.~~

We also plan to build our capability for delivering health and wellness services outside the airport. We believe operating outside of the airport complements our offering and ~~allows us~~represents the fastest way to scale ~~growth faster.~~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 growth. We believe a strategy for international expansion further advances our ability to 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.

While management has used all currently available information in assessing our business prospects, the ultimate impact of the COVID-19 pandemic on our XpresCheck Wellness Centers and on our results of operations, financial condition and cash flows remains uncertain and could have a material effect on our business.

~~Recent Developments~~
~~XpresSpa~~
~~There are currently twenty operating XpresSpa domestic locations, and we expect to re-open two additional domestic locations in 2022. During 2022, we sold our~~ ~~two franchise locations in Austin-Bergstrom International Airport~~ A majority of the domestic XpresSpa locations are operating approximately eight hours per day during the busiest hours (compared to up to sixteen hours per day pre-pandemic). Additionally, XpresSpa implemented a price increase in mid-October 2021 in its efforts to return to profitability. As we continue to monitor fluctuating airport volumes, we will continue to review our operating hours to optimize revenue opportunity.
During the fourth quarter of 2021, we began testing several new services to take advantage of a growing interest in non-traditional spa services and expansion of our retail offering to align more closely with the services we provide. We are evaluating the success of these new initiatives at each airport on an on-going basis and will incorporate changes to our approach as more of the portfolio is reactivated.

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There are also eight international locations operating, including three XpresSpa locations in Dubai International Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and two XpresSpa locations in Istanbul Airport in Turkey. The Company had signed for 5 locations at Istanbul Airport in Turkey of which 3 of them opened after September 30, 2022:, and we expect to open an additional two locations before the end of 2022.

We have received rent concessions from landlords on a majority of our leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent through payment deferrals. The periods of relief from these payments, which began in March 2020, ranged from three to twenty-eight months enabling us to receive minimum guaranteed payment concessions of approximately $431 and $1,568 in the nine months ended September 30, 2022 and 2021, respectively.

~~XpresCheck Wellness Centers~~

XpresTest’s business has management services agreements with state licensed physicians and nurse practitioners, under which we administer COVID-19 testing options, including a Polymerase Chain Reaction (PCR) test and a rapid PCR test.

As of the date of this report, there are eight operating XpresCheck locations operating in eight airports, including an XpresCheck Wellness Center in Orlando International Airport, pre-security, in the South Walk area of the Main Terminal, which opened in March 2022.

During 2022, as countries continued to relax their testing requirements resulting in rapid decline of testing volumes at our XpresCheck locations, we closed or consolidated our five non performing XpresCheck Wellness Centers and two XpresCheck Wellness Centers were assimilated into the Treat Segment.

During 2021, XpresTest initiated a $2,001, eight-week pilot program with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo Bioworks (NYSE: DNA). Under this program, XpresTest is conducting biosurveillance monitoring at four major U.S. airports (JFK International Airport, Newark Liberty International Airport, San Francisco International Airport, and Hartsfield-Jackson Atlanta International Airport) aimed at identifying existing and new SARS-CoV-2 variants. On January 31, 2022, we announced the extension of the program, bringing the total contract to $5,534. Approximately $4,166 and $1,368 of the full $5,534 amount was recognized during the first half of 2022 and the fourth quarter of 2021, respectively.

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. We recognizes revenue over time for both sample collection performance obligations, using the input method based on time elapsed to measure progress towards satisfying each of the performance obligations. We recognize 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. We recorded $916 in revenue during the quarter ended September 30, 2022.

~~Treat~~

Treat is our new travel, health and wellness brand transforming the way we access care through a suite of health and wellness services supported by an integrated digital platform and a relevant retail offering to the traveling public.

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Treat’s on-site centers (currently located in JFK International Airport, Phoenix Sky Harbor International Airport and Salt Lake City International Airport) provide access to health and wellness services for travelers. 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.

~~HyperPointe Acquisition~~

In January 2022, we acquired gcg Connect, LLC d/b/a HyperPointe. HyperPointe is a leading digital healthcare and data analytics relationship marketing agency servicing the global healthcare and pharmaceutical industry. HyperPointe has significant experience in patient and healthcare professional marketing and deep technological experience with CXM (customer experience management) and data analytics. Since June 2020, HyperPointe’s management team and suite of services and technology have been used to develop and deploy the technological infrastructure needed to scale the growth of our XpresTest business HyperPointe’s experience in this space continues to serve the XpresTest business and we expect it will play a critical role in the expansion of our on-going biosurveillance collaboration with the CDC.

The purchase price in the transaction consisted of $7,121 in cash and $906 in common stock, offset by the settlement of intercompany accounts payable of $770. as well as potential additional earn-out payments of up to $7,500 over a three-year timeframe based upon future performance; these earn-out payments may be satisfied in cash or common stock or a combination thereof subject to various terms and conditions.

HyperPointe currently operates as a segment within XWELL. Ezra Ernst, who was the chief executive officer of HyperPointe before our acquisition, continues to serve as the chief executive officer of HyperPointe, as well as the chief executive officer of XpresTest, reporting to Scott Milford, XWELL CEO.

Results of Operations

Revenue

We recognize revenue from the sale of XpresSpa services when they are rendered at our stores and from the sale of products at the time goods are purchased at our stores or 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 and Treat Wellness Centers. The medical services companies will pay XpresTest and Treat, a monthly management fee to operate in the XpresCheck and Treat Wellness Centers.

Our HyperPointe segment provides a 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.

Cost of sales

Cost of sales for our XpresSpa segment consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations, primarily payroll and related benefit costs for store personnel, occupancy costs and cost of products sold. Cost of sales of our XpresTest and Treat segments include costs related to the XpresCheck and Treat Medical Office business, and consists of expenses directly attributable to the clinic operations under the terms of the MSAs, primarily payroll and related benefit costs for personnel, occupancy costs and cost of supplies used to administer the diagnostic COVID-19 tests and a suite of health and wellness ~~services~~services.

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~~General~~Other general and administrative expenses

~~General~~Other general and administrative expenses include management and administrative personnel, overhead and occupancy costs, insurance and various professional fees, as well as stock-based compensation for directors, management and administrative personnel.

Three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021~~2022

Revenue

Three months ended September 30,


2022

2021

Inc/(Dec)
Total revenue

$
10,736

$
26,767

$
(16,031)

Three months ended June 30,


2023

2022

Inc/(Dec)
Total revenue

$
8,175

$
13,597

$
(5,422)

The decrease in revenue of ~~$16,031~~$5,422 or ~~60%~~40%, was primarily due to the reduction in patient service revenue triggered by the rapid decline of the XpresTest segment as countries continued to relax their testing requirements and we experienced decreased testing volumes at our now closed XpresCheck ~~locations decreased as we progressed through 2022. We saw an increase in revenue associated with the XpresSpa locations that opened during and after the third quarter of 2021.~~
locations.
Cost of sales

Three months ended September 30,


2022

2021

Inc/(Dec)
Cost of sales

$
9,339

$
13,662

$
(4,323)

Three months ended June 30,


2023

2022

Inc/(Dec)
Cost of sales

$
6,985

$
12,357

$
(5,372)

The decrease in cost of sales of ~~$4,323~~$5,372 or ~~32%~~43%, ~~was primarily due to~~is commensurate with the decrease in revenues ~~resulting in decreased costs to operate the decreased volume at XpresCheck locations. There were some related costs of sales triggered~~offset by the reopening of certain XpresSpa locations that were temporarily closed during ~~the second quarter of 2021.~~Q2 2022. We had ~~twenty~~35 open spa locations as of June 30, 2023, and 22 open Spa locations as of ~~September~~June 30, ~~2022, and two open Spa locations as of September 30, 2021.~~2022. The largest component in the cost of sales are costs of testing kits and labor costs at the location-level. Cost of sales also includes rent and related occupancy costs, which can primarily include rent based on percentage of sales, as well as other product costs directly associated with the procurement of retail inventory, and other operating costs.

~~Depreciation and amortization~~

Three months ended September 30,


2022

2021

Inc/(Dec)
Depreciation and amortization

$
1,564

$
852

$
712

The increase in depreciation and amortization of approximately 84% was primarily due to depreciation and amortization related to the XpresCheck and Treat Wellness Centers opened after the third quarter of the Calendar year 2021.

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Depreciation and amortization

Three months ended June 30,


2023

2022

Inc/(Dec)
Depreciation and amortization

$
593

$
1,501

$
(908)

The decrease in depreciation and amortization of approximately 60% was primarily due to the write-off of the stores that were permanently closed since June 30, 2022. Fewer locations resulted in lower amortization of leasehold improvements. Depreciation and amortization expense also decreased because of the impairments and disposals of fixed assets during the year ended December 31, 2022.
Impairment/loss on disposal of assets

Three months ended September 30,

Three months ended June 30,


2022

2021

Inc/(Dec)

2023

2022

Inc/(Dec)
Impairment/Loss on disposal of assets

$
1,040

$
—

$
1,040
Loss (gain) on disposal of assets

$
18

$
(52)

$
70

~~Impairment/loss~~Loss on disposal of assets ~~primarily pertain~~pertains to ~~closure~~demolition costs of closed XpresCheck ~~Locations triggered by~~ ~~the rapid decline in testing volumes at our XpresCheck locations as countries continue to relax their testing requirements.~~
locations.

~~General~~Other general and administrative expenses

Three months ended September 30,

Three months ended June 30,


2022

2021

Inc/(Dec)

2023

2022

Inc/(Dec)
General and administrative

$
6,447

$
5,196

$
1,251
Other general and administrative expenses

$
4,895

$
5,497

$
(602)

The ~~increase~~decrease of approximately ~~24%~~11% 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 ~~more~~now closed XpresCheck Wellness Centers. We have significantly reduced operating and ~~Treat Wellness Centers, XpresSpa locations, and~~overhead expenses since the ~~newly acquired HyperPointe segment.~~
second half of 2022, while we continue to focus on returning to overall profitability.
Other non-operating expense, net

Three months ended September 30,

Three months ended June 30,


2022

2021

Inc/(Dec)

2023

2022

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

$
(136)

$
(381)

$
245
Other non-operating income (expense), net

$
(120)

$
(193)

$
73

The following is a summary of the transactions included in other non-operating expense, net for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

Three months ended September 30,

Three months ended June 30,


2022

2021

2023

2022
Loss on equity investments

$
(98)

$
(302)

$
(58)

$
(157)
Bank fees and financing charges

(38)

(62)

(52)

(36)
Other

—

(17)

(10)

—
Total

$
(136)

$
(381)

$
(120)

$
(193)

Realized and unrealized foreign exchange loss

Three months ended June 30,


2023

2022


Inc/(Dec)
Realized and unrealized foreign exchange loss

$
(1,141)

$
(3)

$
(1,138)

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Foreign exchange loss during 2023 primarily pertains to remeasurement of foreign currency transactions at our newly opened Turkish locations.

Interest income, net


	Three months ended September 30,						Three months ended June 30,
	2022		2021		Inc/(Dec)		2023		2022		Inc/(Dec)
Interest income, net	$	114	$	6	$	108	$	105	$	38	$	67

Interest income, net increased ~~as a result~~because of increased interest rates and elimination of interest expense since the beginning of May 2022.

~~Table of Contents~~

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~Nine~~Six months ended ~~September~~June 30, ~~2021~~2022

Revenue


	Nine months ended September 30,						Six months ended June 30,
	2022		2021		Inc/(Dec)		2023		2022		Inc/(Dec)
Total revenue	$	48,381	$	44,371	$	4,010	$	15,238	$	37,645	$	(22,407)

The ~~increase~~decrease in revenue of ~~$4,010~~$22,407, or 9%60%, was primarily due to the reduction in patient service revenue triggered by the rapid ~~growth~~decline of the XpresTest segment ~~with the addition of more locations between October 1, 2021~~as countries continued to relax their testing requirements and ~~June 30, 2022. The Company also saw an increase in revenue associated with the XpresSpa locations that opened after October 1, 2021.~~

we experienced decreased testing volumes at our now closed XpresCheck locations.

Cost of sales


	Nine months ended September 30,						Six months ended June 30,
	2022		2021		Inc/(Dec)		2023		2022		Inc/(Dec)
Cost of sales	$	36,743	$	25,522	$	11,221	$	13,526	$	27,404	$	(13,878)

The ~~increase~~decrease in cost of sales of ~~$11,221~~$13,878 or ~~44%~~51%, ~~was due to~~is commensurate with the ~~increase~~decrease in revenues ~~resulting in increased costs to operate the increased number of XpresCheck locations and~~offset by the reopening of certain XpresSpa locations that were temporarily closed during ~~the second quarter of 2021.~~Q1 2022. We had 2035 open spa locations as of June 30, 2023, and 22 open Spa locations as of ~~September~~June 30, ~~2022, and two open Spa locations as of September 30, 2021.~~2022. The largest component in the cost of sales are costs of testing kits and labor costs at the location-level. Cost of sales also includes rent and related occupancy costs, which can primarily include rent based on percentage of sales, as well as other product costs directly associated with the procurement of retail inventory, and other operating costs.

Depreciation and amortization


	Nine months ended September 30,						Six months ended June 30,
	2022		2021		Inc/(Dec)		2023		2022		Inc/(Dec)
Depreciation and amortization	$	4,329	$	2,542	$	1,787	$	1,180	$	2,765	$	(1,585)

The ~~increase~~decrease in depreciation and amortization of approximately ~~70%~~57% was primarily due to ~~depreciation~~the write-off of the stores that were permanently closed since June 30, 2022. Fewer locations resulted in lower amortization of leasehold improvements. Depreciation and amortization ~~related to XpresCheck~~expenses also decreased because of the impairments and ~~Treat Wellness Centers after September 30, 2021.~~

~~Impairment/loss on disposal~~disposals of ~~assets~~

Nine months ended September 30,


2022

2021

Inc/(Dec)
Impairment/Loss on disposal of assets

$
988

$
22

$
966

~~Impairment/loss on disposal of~~fixed assets ~~primarily pertain to closure of XpresCheck Locations triggered by~~during the ~~rapid decline in testing volumes at our XpresCheck locations as countries continue to relax their testing requirements.~~
year ended December 31, 2022.

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~~General and administrative~~Impairment/loss on disposal of assets


	Nine months ended September 30,						Six months ended June 30,
	2022		2021		Inc/(Dec)		2023		2022		Inc/(Dec)
General and administrative	$	24,193	$	14,350	$	9,843
Loss (gain) on disposal of assets							$	18	$	(52)	$	70

Loss on disposal of assets pertains to demolition costs of closed XpresCheck locations.

Other general and administrative expenses

Six months ended June 30,


2023

2022

Inc/(Dec)
Other general and administrative expenses

$
10,298

$
13,407

$
(3,109)

The ~~increase~~decrease of approximately ~~69%~~23% in other general and administrative expenses 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 ~~Treat Wellness Centers, XpresSpa locations, and~~overhead expenses since the ~~newly acquired HyperPointe segment.~~
second half of 2022, while we continue to focus on returning to overall profitability.
Other non-operating expense, net

Nine months ended September 30,

Six months ended June 30,


2022

2021

Inc/(Dec)

2023

2022

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

$
(650)

$
(830)

$
180
Other non-operating income (expense), net

$
(147)

$
(509)

$
362

The following is a summary of the transactions included in other non-operating expense, net for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

Nine months ended September 30,


2022

2021
Loss on equity investments

$
(528)

$
(716)
Bank fees and financing charges

(122)

(97)
Other

—

(17)
Total

$
(650)

$
(830)

Six months ended June 30,


2023

2022
Loss on equity investments

$
(33)

$
(430)
Bank fees and financing charges

(104)

(79)
Other

(10)

—
Total

$
(147)

$
(509)

Realized and unrealized foreign exchange loss

Six months ended June 30,


2023

2022


Inc/(Dec)
Realized and unrealized foreign exchange loss

$
(1,056)

$
(5)

$
(1,051)

Foreign exchange loss during 2023 primarily pertains to remeasurement of foreign currency transactions at our newly opened Turkish locations.

Interest income, net

Nine months ended September 30,


2022

2021

Inc/(Dec)
Interest income, net

$
159

$
31

$
128

Six months ended June 30,


2023

2022

Inc/(Dec)
Interest income, net

$
229

$
45

$
184

Interest income, net increased ~~as a result~~because of increased interest rates and elimination of interest expense since the beginning of May 2022.

Table of Contents

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2022,~~2023, we had approximately $6,378 of cash and cash equivalents ~~excluding~~(excluding restricted ~~cash, of $49,429,~~cash), $25,526 in marketable securities, and total current assets of ~~$55,181,~~$36,128. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,266 as of ~~$10,984~~June 30, 2023 and ~~positive working capital of $44,197, compared to a positive working capital of $89,152~~$10,956 as of December 31, ~~2021.~~ 2022. The working capital surplus was $26,862 as of June 30, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.

We have ~~performed~~carried out an assessment of our ability to continue as a going concern. As of the date of the report, we ~~believes~~believe that our Company has sufficient liquidity to fund operations for the next twelve months. Our primary liquidity ~~projections~~ and ~~actual performance through issuance relies heavily on~~capital requirements are for the ~~success and profitability~~maintenance of our ~~re-opened~~current XpresSpa and Treat locations and ~~tailored service offerings. In addition, our future liquidity relies on~~brand, as well as the ~~market acceptance to our new travel, health and wellness brand, Treat, which has generated a net loss of $1,290 and $4,049, for~~expansion outside the ~~three and nine~~airports. During the six months ended ~~September~~June 30, 2023 and 2022, ~~respectively. Furthermore, because~~ we ~~rely heavily on international~~used $8,618 and ~~domestic airplane travel, any such decrease~~$8,615 in ~~demand for travel could have a negative impact on the Company’s~~ operations, ~~and liquidity.~~ respectively.

~~Table of Contents~~

On August 31, 2021, our 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 ~~the new~~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. ~~Under the~~

Pursuant to our share repurchase program, we purchased 8,480,850 shares for $12,116 and retired ~~19,526,706~~7,142,446 of these purchased shares ~~for $23,789~~ during the ~~nine~~six months ended ~~September~~June 30, 2022, and the remaining 1,338,404 shares were retired on August 3, 2022.

~~While~~ We did not repurchase any shares during the six months ended June 30, 2023. As of June 30, 2023, we ~~have addressed our working capital deficiency and long-term debt, and continue~~were permitted to focus on our overall operating profitability, we expect to incur net losses in the foreseeable future. In addition, the ongoing impact of the COVID-19 pandemic on our business going forward remains uncertain atrepurchase approximately 0.8 million additional shares under this ~~time and may result in additional material adverse impacts on our liquidity position and access to capital.~~program.

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, ~~2021,~~2022, as amended, filed with the SEC which includes a description of our critical accounting estimates that involve subjective and complex judgments that could potentially affect reported results. There have been no material changes to our critical accounting estimates as to the methodologies or assumptions we apply under them. We continue to monitor such methodologies and assumptions.

~~Adjusted EBITDA~~

Adjusted EBITDA is a supplemental measure of financial performance that is not required by or presented in accordance with GAAP but is a measurement used by management to assess the trends in our business. In evaluating our performance as measured by Adjusted EBITDA, we recognize and consider the limitations of this measurement.

~~We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization expense, non-cash charges, and stock-based compensation expense.~~

We consider Adjusted EBITDA to be an important indicator for the performance of our operating business, but it is not a measure of performance or liquidity calculated in accordance with 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 growth companies such as ours.

In particular, we believe that it is useful for analysts and investors to understand that Adjusted EBITDA excludes certain transactions not related to our core cash operating activities, which are primarily related to our XpresCheck Wellness Centers. 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. Adjusted EBITDA does not reflect our obligations for the payment of income taxes, interest expense, or other obligations such as capital expenditures.

~~Table of Contents~~

A reconciliation of operating income (loss) from operations presented in accordance with GAAP for the three and nine month periods ended September 30, 2022 and 2021 to Adjusted EBITDA is presented in the table below.

~~Q3 2022 Results of Operations and Adjusted EBITDA~~

~~(Amounts in thousands)~~

Three months ended September 30,

Nine months ended September 30,
Revenue:

2022

2021


2022

2021
Managed services fees

$
—

$
—

$
—

$
16,843
Patient service revenue

4,607

25,351

31,728

25,351
Services

4,924

1,158

13,488

1,761
Products

542

258

1,308

402
Hyperpointe Services

659

—

1,853

—
Other

4

—

4

14
Total revenue

10,736

26,767

48,381

44,371

Cost of sales

Labor

5,222

4,277

16,161

7,419
Occupancy

1,082

587

3,412

1,511
Product and other operating costs

3,035

8,798

17,170

16,592
Total cost of sales

9,339

13,662

36,743

25,522
Depreciation and amortization

1,564

852

4,329

2,542
Impairment of long-lived assets

677

—

677

—
Loss on disposal of assets, net

325

—

273

22
Impairment of operating lease right-of-use assets

38

—

38

—
General and administrative

6,447

5,196

24,193

14,350
Total operating expense

18,390

19,710

66,253

42,436
(Loss) income from operations

(7,654)

7,057

(17,872)

1,935
Interest income, net

114

6

159

31
Other non-operating expense, net

(136)

(381)

(650)

(830)
(Loss) income before income taxes

(7,676)

6,682

(18,363)

1,136
Income tax expense

(3)

(87)

(5)

(79)
Net (loss) income

(7,679)

6,595

(18,368)

1,057
Net loss (income) attributable to noncontrolling interests

500

(998)

(1,012)

(983)
Net (loss) income attributable to common shareholders

$
(7,179)

$
5,597

$
(19,380)

$
74

(Loss) income from operations

$
(7,654)

$
7,057

$
(17,872)

$
1,935
Add back:

Depreciation and amortization

1,564

852

4,329

2,542
Impairment of long-lived assets

677

—

677

—
Loss on disposal of assets, net

325

—

273

22
Impairment of operating lease right-of-use assets

38

—

38

—
Stock-based compensation expense

483

790

3,346

2,123
Adjusted EBITDA

$
(4,567)

$
8,699

$
(9,209)

$
6,622

Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
Not required as we are a smaller reporting company.

~~Table of Contents~~

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 Exchange 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.
As of ~~September~~June 30, ~~2022, our management~~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. ~~Our management’s~~
This type of evaluation asis performed on a quarterly basis so that conclusions of ~~December 31, 2019 identified a material weakness in our internal control over financial reporting. Based on our evaluation,~~management, including our Chief Executive Officer and the Interim Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in

Table of Contents

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 ~~September~~June 30, 2022, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding this conclusion, management believes that the condensed consolidated financial statements in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.2023.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

~~We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority.~~ Management is committed to the ~~planning~~remediation of the Company’s material weaknesses, as well as the continued improvement of the Company’s internal control over financial reporting. Management has implemented, and ~~implementation~~continues to implement, the actions described below to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weaknesses described above will continue to ~~address control deficiencies and~~exist. We cannot provide any ~~other identified areas of risk. These~~assurance that the below remediation efforts ~~are intended to both address the identified material weakness and to enhance our overall financial control environment. In particular:~~


	·		~~we will continue to strengthen our interim and annual financial review controls to function with a sufficient~~ ~~level of precision to detect and correct errors on a timely basis; and~~
	·		~~we will continue to improve the timeliness of our closing processes with respect to interim and annual periods.~~

~~Following identification of this control deficiency, commenced remediation efforts by implementing modifications to better ensure~~will be successful or that ~~the Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in~~ our internal control over financial reporting will ~~not~~ be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management is testing and evaluating the implementation of these modifications during 2022 to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.

~~The steps we took to address the deficiencies identified included:~~

~~we hired a permanent Chief Financial Officer in December 2020, and following his departure in June 2022 we are currently searching for a new Chief Financial Officer;~~

~~we have engaged in efforts to restructure accounting processes and revise organizational structures to enhance accurate accounting and appropriate financial reporting;~~

~~we have engaged outside service providers to assist with the valuation and recording of key reporting areas such as leases and stock compensation expense;~~

~~Table of Contents~~

~~we have implemented additional accounting software to aid in the accounting and financial reporting process;~~

~~we have contracted an independent consulting firm to assist with the preparation of the Financial Statements and U.S. GAAP accounting research; and~~

~~in March 2021, we hired a seasoned Certified Public Accountant as a permanent Corporate Controller, who also has a Certified Information Systems Auditor accreditation.~~

We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.

~~As noted above, we believe that,~~effective as a result of ~~management’s in-depth review of its accounting processes,~~these efforts. Management has commenced the following actions and ~~the~~will continue to assess additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-Q and, to the best of our knowledge, we believe that the condensed consolidated financial statements in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.opportunities for remediation on an ongoing basis:

The Company has turned on the multi-currency features related to its cloud-based accounting systems.

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.

The Company utilizes independent consulting firms to assist with the preparation of the Financial Statements and U.S. GAAP accounting research.

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.

On July 10, 2023, the Company hired a new permanent Chief Financial Officer.

Changes in Internal Control over Financial Reporting

Based on our evaluation, management concluded that our internal control over financial reporting was not effective as of September 30, 2022, due to a material weakness in our internal control over our financial close and reporting process, which was discovered in 2019, still remaining unmitigated. Management continues to conclude that as of September 30, 2022 we still did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, we also selectively used outside consultants who possessed the appropriate levels of accounting and controls knowledge to appropriately analyze, record, and disclose accounting matters completely and accurately.

Other than as set forth in the foregoing paragraph, there have been no changes in our internal control over financial reporting that occurred during the ~~quarter~~three months ended ~~September~~June 30, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

4130

Table of Contents

PART II – OTHER INFORMATION
Item 1.         Legal Proceedings.
For information regarding legal proceedings, see Note ~~15.~~13. “Commitments and Contingencies” in our notes to the condensed consolidated financial statements included in “Item 1. Condensed Consolidated Financial Statements (Unaudited).”

Item 1A.      Risk Factors.
There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None

Item 3.         Defaults Upon Senior Securities.
None.

Item 4.         Mine Safety Disclosures.
Not applicable.

Item 5.         Other Information.
None.

4231

Table of Contents

Item 6. Exhibits.
Exhibit
No.

Description

~~3.1~~10.1†

~~Certificate of Elimination of Series A Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock~~Offer letter dated June 26, 2023, between the Company and ~~Series F Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, effective on October 24, 2022~~Suzanne A. Scrabis (incorporated by reference to Exhibit ~~3.1~~10.1 to our Current Report on Form 8-K filed with the SEC on ~~October 24, 2022)~~

~~3.2~~

Amended and Restated Certificate of Incorporation of XWELL, Inc., effective on October 25, 2022 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on October 24, 2022)

~~3.3~~

~~Fourth Amended and Restated Bylaws of the Company, effective as of October 25, 2022 (incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K filed with the SEC on October 24, 2022)~~

~~10.1†~~

~~XWELL, Inc. 2020 Equity Incentive Plan, as amended October 4, 2022 (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8 filed with the SEC on October 25, 2022)~~

10.2†*

~~Executive Employment Agreement dated January 9, 2022, between the Company and Ezra T. Ernst~~June 28, 2023)

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

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

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

101.INS*

Inline XBRL Instance Document

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

†

Management contract.
*
Filed herewith.
**
Furnished herein.

4332

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.

XWELL, Inc.

Date:
~~November~~August 14, ~~2022~~2023
By:
/s/ Scott R Milford
Scott R. Milford
Chief Executive Officer
(Principal Executive Officer)

Date:
~~November~~August 14, ~~2022~~2023

By:
/s/ ~~Omar~~Suzanne A. ~~Haynes~~Scrabis

~~Omar~~Suzanne A. ~~Haynes~~Scrabis

~~Interim~~ Chief Financial Officer

(Principal Financial and Accounting Officer)

		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	3023
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3929
Item 4.	Controls and Procedures	4029

PART II. OTHER INFORMATION		4231

Item 1.	Legal Proceedings	4231
Item 1A.	Risk Factors	4231
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4231
Item 3.	Defaults Upon Senior Securities	4231
Item 4.	Mine Safety Disclosures	4231
Item 5.	Other Information	4231
Item 6.	Exhibits	4332


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Basic numerator:
Net loss attributable to XWELL, Inc.	$	(5,730)	$	(7,918)	$	(11,239)	$	(12,201)
Net loss attributable to common shareholders	$	(5,730)	$	(7,918)	$	(11,239)	$	(12,201)
Basic and diluted denominator:
Basic and diluted weighted average shares outstanding		83,410,562		95,352,025		83,378,408		98,458,153
Basic and diluted loss per share	$	(0.07)	$	(0.08)	$	(0.13)	$	(0.12)

Net loss per share data presented above excludes from the calculation of diluted net loss, 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		7,641,697		4,756,973		7,641,697		4,756,973
Unvested RSUs to issue an equal number of shares of Common Stock		332,638		78,125		332,638		78,125
Warrants to purchase an equal number of shares of Common Stock		4,000		29,460,560		4,000		29,460,560
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders		7,978,335		34,295,658		7,978,335		34,295,658


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Basic numerator:
Net (loss) income attributable to common shareholders	$	(7,179)	$	5,597	$	(19,380)	$	74
Basic denominator:
Basic weighted average shares outstanding		94,621,339		105,531,418		97,167,867		103,950,731
Basic (loss) earnings per share	$	(0.08)	$	0.05	$	(0.20)	$	—
Diluted numerator:
(Loss) earnings attributable to common shareholders	$	(7,179)	$	5,597	$	(19,380)	$	74
Diluted denominator:
Diluted weighted average shares outstanding		94,621,339		105,957,317		97,167,867		104,301,344
Diluted (loss) earnings per share	$	(0.08)	$	0.05	$	(0.20)	$	—


Net (loss) income 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		4,713,363		2,606,771		4,713,363		2,631,246
Unvested RSUs to issue an equal number of shares of Common Stock		39,064		821,361		39,064		876,131
Warrants to purchase an equal number of shares of Common Stock		17,124,051		37,907,794		17,124,051		37,903,835
Total number of potentially dilutive securities excluded from the calculation of earnings/(loss) per share attributable to common shareholders		21,876,478		41,335,926		21,876,478		41,411,212


	June 30, 2023		December 31, 2022
Prepaid expenses	$	1,075	$	1,074
Contract assets		291		—
Other		79		48
Total other current assets	$	1,445	$	1,122


Consideration paid	$	7,257

Fair value of assets acquired and liabilities assumed

Cash and cash equivalents	$	2,269
Accounts receivable		346
Unbilled Receivables		56
Prepaid expenses and other current assets		19
Other long-term assets		16
Property and equipment		68
Customer relationships		1,198
Trade name		302
Software		335

Accounts payable		(653)
Deferred revenue		(723)
		3,233
Goodwill	$	4,024


Calendar Years ending December 31,	Amount		Amount
Remaining 2022	$	439
2023		1,491
Remaining 2023			$	834
2024		1,449		1,666
2025		397		502
2026		323		393
2027				77
Thereafter		315		238
Total	$	4,414	$	3,710



	June 30, 2023		December 31, 2022
Litigation accrual	$	449	$	963
Accrued compensation		1,749		2,008
Tax-related liabilities		552		573
Common area maintenance accruals		90		160
Accounts payable accruals		779		754
Gift certificates		495		496
Credit card processing fees		35		33
Other miscellaneous accruals		448		732
Total accrued expenses and other current liabilities	$	4,597	$	5,719


Weighted average remaining lease term:	~~5.95~~6.15	years
Weighted average discount rate used to determine present value of operating lease liability:	~~7.33~~7.40	%


	September 30, 2022		December 31, 2021
Promissory note, unsecured (Current)		—		3,584
Total debt	$	—	$	3,584


	June 30, 2023		December 31, 2022
Equity investments	$	71	$	104
Lease deposits		1,549		1,973
Other		95		292
Other assets	$	1,715	$	2,369


		~~Exercise~~
	~~No. of Warrants~~	~~price range~~
~~December 31, 2021~~	~~37,817,694~~	$	~~0.525 - 6.566~~
~~Granted~~	—	$
~~Exercised~~	—	$
~~Expired~~	~~(20,693,643)~~	$	~~3.02 - 6.566~~
~~September 30, 2022~~	~~17,124,051~~	$	~~1.7 - 2.125~~


		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
June 30, 2023	4,000	$	2.125	$	2.125


Share price of the Company’s Common Stock on the grant date:	$	~~0.78~~0.36 - ~~1.64~~0.41
Exercise price:	$	~~0.78~~0.36 - ~~1.64~~0.41
Expected volatility:		~~123.45~~119.41-121.04	%
Expected dividend yield:		0	%
Annual average risk-free rate:		~~1.62~~3.65 - ~~3.24~~3.96	%
Expected term:		~~6.43~~6.32 - 6.41	years


	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, 2021	600,000	$	1.63	—	$	—	2,826,871	$	2.57	$	1.19 - 2,460
Granted	156,250		1.28	15.0		56,890	2,200,338		1.51		0.78 - 1.64
Exercised/Vested	(717,186)		1.57	(10.0)		61,550	—		—
Forfeited	—		—	—		—	(245,027)		1.55		1.43-3.82
Expired	—		—	—		—	(68,819)		8.23		1.44-2,232
Outstanding as of September 30, 2022	39,064	$	1.28	5.0	$	47,570	4,713,363	$	2.04	$	0.78 - 2,460
Exercisable as of September 30, 2022							1,955,823	$	2.62	$	0.78 - 2,460


			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)
As of September 30, 2022:
Recurring fair value measurements
Equity securities:
Route1, Inc.	$	194	$	—	$	194	$	—
Total equity securities		194		—		194		—
Total recurring fair value measurements	$	194	$	—	$	194	$	—

As of December 31, 2021
Recurring fair value measurements
Equity securities:
Route1	$	722	$	—	$	722	$	—
Total equity securities		722		—		722		—
Total recurring fair value measurements	$	722	$	—	$	722	$	—


	For the three months ended
	September 30,
	2022		2021
Revenue
XpresSpa	$	3,557	$	1,416
XpresTest		6,079		25,351
Treat		425		—
HyperPointe		675		—
Corporate and other		—		—
Total revenue	$	10,736	$	26,767


Operating income (loss)
XpresSpa	$	(2,508)	$	(1,595)
XpresTest		(1,692)		12,015
Treat		(1,282)		(2,305)
HyperPointe		(193)		—
Corporate and other		(1,979)		(1,058)
Total operating (loss) income	$	(7,654)	$	7,057



Depreciation & Amortization
XpresSpa	$	364	$	340
XpresTest		576		509
Treat		520		—
HyperPointe		86		—
Corporate and other		18		3
Total Depreciation & Amortization	$	1,564	$	852





	For the nine months ended
	September 30,
	2022		2021
Revenue
XpresSpa	$	9,490	$	2,172
XpresTest		35,928		42,199
Treat		1,110		—
HyperPointe		1,853		—
Corporate and other		—		—
Total revenue	$	48,381	$	44,371



Operating loss
XpresSpa	$	(8,921)	$	(4,828)
XpresTest		2,576		14,597
Treat		(4,038)		(4,115)
HyperPointe		(745)		—
Corporate and other		(6,744)		(3,719)
Total operating (loss) income	$	(17,872)	$	1,935



Depreciation & Amortization
XpresSpa	$	1,065	$	931
XpresTest		1,711		1,604
Treat		1,287		—
HyperPointe		243		—
Corporate and other		23		7
Total depreciation & amortization	$	4,329	$	2,542



Capital Expenditures
XpresSpa	$	1,413	$	706
XpresTest		675		3,984
Treat		3,329		—
HyperPointe		—		—
Corporate and other		55		77
Total capital expenditures	$	5,472	$	4,767

	For the six months ended
	June 30,
	2023		2022
Depreciation & amortization
XpresSpa	$	854	$	701
XpresTest		5		1,135
Treat		132		767
HyperPointe		164		157
Corporate and other		25		5
Total depreciation & amortization	$	1,180	$	2,765

	2023		2022
Capital expenditures
XpresSpa	$	1,445	$	641
XpresTest		45		614
Treat		45		2,123
HyperPointe		11		—
Corporate and other		14		54
Total capital expenditures	$	1,560	$	3,432



	June 30, 2023		December 31, 2022
Long-lived Assets
XpresSpa	$	10,031	$	11,851
XpresTest		95		112
Treat		2,191		2,314
HyperPointe		4,044		4,108
Corporate and other		294		409
Total long-lived Assets	$	16,655	$	18,794

	June 30, 2023		December 31, 2022
Assets
XpresSpa	$	19,861	$	21,135
XpresTest		2,049		4,285
Treat		3,115		3,186
HyperPointe		6,326		6,913
Corporate and other		25,236		34,907
Total assets	$	56,587	$	70,426


	Three months ended September 30,				Nine months ended September 30,
Revenue:	2022		2021		2022		2021
Managed services fees	$	—	$	—	$	—	$	16,843
Patient service revenue		4,607		25,351		31,728		25,351
Services		4,924		1,158		13,488		1,761
Products		542		258		1,308		402
Hyperpointe Services		659		—		1,853		—
Other		4		—		4		14
Total revenue		10,736		26,767		48,381		44,371

Cost of sales
Labor		5,222		4,277		16,161		7,419
Occupancy		1,082		587		3,412		1,511
Product and other operating costs		3,035		8,798		17,170		16,592
Total cost of sales		9,339		13,662		36,743		25,522
Depreciation and amortization		1,564		852		4,329		2,542
Impairment of long-lived assets		677		—		677		—
Loss on disposal of assets, net		325		—		273		22
Impairment of operating lease right-of-use assets		38		—		38		—
General and administrative		6,447		5,196		24,193		14,350
Total operating expense		18,390		19,710		66,253		42,436
(Loss) income from operations		(7,654)		7,057		(17,872)		1,935
Interest income, net		114		6		159		31
Other non-operating expense, net		(136)		(381)		(650)		(830)
(Loss) income before income taxes		(7,676)		6,682		(18,363)		1,136
Income tax expense		(3)		(87)		(5)		(79)
Net (loss) income		(7,679)		6,595		(18,368)		1,057
Net loss (income) attributable to noncontrolling interests		500		(998)		(1,012)		(983)
Net (loss) income attributable to common shareholders	$	(7,179)	$	5,597	$	(19,380)	$	74

(Loss) income from operations	$	(7,654)	$	7,057	$	(17,872)	$	1,935
Add back:
Depreciation and amortization		1,564		852		4,329		2,542
Impairment of long-lived assets		677		—		677		—
Loss on disposal of assets, net		325		—		273		22
Impairment of operating lease right-of-use assets		38		—		38		—
Stock-based compensation expense		483		790		3,346		2,123
Adjusted EBITDA	$	(4,567)	$	8,699	$	(9,209)	$	6,622


Exhibit No.		Description

~~3.1~~10.1†		~~Certificate of Elimination of Series A Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock~~Offer letter dated June 26, 2023, between the Company and ~~Series F Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, effective on October 24, 2022~~Suzanne A. Scrabis (incorporated by reference to Exhibit ~~3.1~~10.1 to our Current Report on Form 8-K filed with the SEC on ~~October 24, 2022)~~

~~3.2~~		Amended and Restated Certificate of Incorporation of XWELL, Inc., effective on October 25, 2022 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on October 24, 2022)

~~3.3~~		~~Fourth Amended and Restated Bylaws of the Company, effective as of October 25, 2022 (incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K filed with the SEC on October 24, 2022)~~

~~10.1†~~		~~XWELL, Inc. 2020 Equity Incentive Plan, as amended October 4, 2022 (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8 filed with the SEC on October 25, 2022)~~

10.2†*		~~Executive Employment Agreement dated January 9, 2022, between the Company and Ezra T. Ernst~~June 28, 2023)

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

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

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

101.INS*		Inline XBRL Instance Document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


†	Management contract.
*		Filed herewith.
**		Furnished herein.


		XWELL, Inc.


Date:	~~November~~August 14, ~~2022~~2023	By:	/s/ Scott R Milford
			Scott R. Milford
			Chief Executive Officer
			(Principal Executive Officer)


Date:	~~November~~August 14, ~~2022~~2023	By:	/s/ ~~Omar~~Suzanne A. ~~Haynes~~Scrabis
			~~Omar~~Suzanne A. ~~Haynes~~Scrabis
			~~Interim~~ Chief Financial Officer
			(Principal Financial and Accounting Officer)