XWELL, Inc. - Quarter Report: 2022 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

☐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 10, 2022, 83,232,262 shares of the registrant’s common stock were outstanding.

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XWELL, Inc. and Subsidiaries

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION		42

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

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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,
	2022		2021
Current assets
Cash and cash equivalents	$	49,429	$	105,506
Accounts receivable		1,309		615
Contract Assets		1,128		-
Inventory		940		1,763
Other current assets		2,375		1,095
Total current assets		55,181		108,979

Restricted cash		751		751
Property and equipment, net		8,102		6,658
Intangible assets, net		4,414		3,732
Operating lease right of use assets, net		10,299		4,336
Goodwill		4,024		-
Other assets		2,205		2,810
Total assets	$	84,976	$	127,266

Current liabilities
Accounts payable, accrued expenses and other	$	7,981	$	12,958
Current portion of operating lease liabilities		2,746		2,736
Deferred revenue		257		549
Current portion of promissory note, unsecured		-		3,584
Total current liabilities		10,984		19,827

Long-term liabilities
Operating lease liabilities		12,465		7,504
Total liabilities		23,449		27,331
Commitments and contingencies (see Note 15)

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
Additional paid-in capital		467,268		487,306
Accumulated deficit		(414,655)		(395,275)
Accumulated other comprehensive loss		(560)		(312)
Total equity attributable to XWELL, Inc.		52,885		92,732
Noncontrolling interests		8,642		7,203
Total equity		61,527		99,935
Total liabilities and equity	$	84,976	$	127,266

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

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,
	2022		2021		2022		2021

Revenue, net
Managed services fees	$	-	$	-	$	-	$	16,843
Patient services 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, net		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
Products 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 expenses		18,390		19,710		66,253		42,436
Operating (loss) income		(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 XWELL, Inc.	$	(7,179)	$	5,597	$	(19,380)	$	74

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
Loss per share
Basic and diluted loss per share	$	(0.08)	$	0.05	$	(0.20)	$	-
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

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

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

(Unaudited)

(In thousands, except share and per share data)


											Accumulated
							Additional				other		Total		Non-
	Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	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	—		—	—		—		1,543		—		—		1,543		—		1,543
Net loss for the period	—		—	—		—		—		(4,283)		—		(4,283)		1,521		(2,762)
Repurchase and retirement of common stock	(7,142,446)		(71)	—		—		(11,024)		—		—		(11,095)		—		(11,095)
Foreign currency translation	—		—	—		—		—		—		(41)		(41)		—		(41)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(824)		(824)
Contributions from noncontrolling interests	—		—	—		—		—		—		—		—		200		200
March 31, 2022	95,071,210	$	951	—	$	—	$	478,649	$	(399,558)	$	(353)	$	79,689	$	8,100	$	87,789
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)
Net loss for the period	—		—	—		—		—		(7,179)		—		(7,179)		(500)		(7,679)
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

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

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XWELL, Inc. and Subsidiaries

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

(Unaudited)

(In thousands, except share and per share data)


											Accumulated
							Additional				other		Total		Non-
	Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		Shares		Amount	in capital		deficit		loss		equity		interests		equity
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
Stock-based compensation	—		—	—		—		264		—		—		264		741		1,005
Net loss for the period	—		—	—		—		—		(1,056)		—		(1,056)		248		(808)
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)
Issuance of restricted stock	35,043		—	—		—		—		—		—		—		—		—
Foreign currency translation	—		—	—		—		—		—		(52)		(52)		—		(52)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(991)		(991)
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

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities
Net (loss) income	$	(18,368)	$	1,057
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
Impairment of long-lived assets		715		—
Loss on disposal of assets, net		273		22
Amortization of operating lease right of use asset		1,357		1,162
Issuance of shares of Common Stock for services		31		349
Stock-based compensation		3,346		2,123
Loss on equity investment		528		716
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
Cash flows from investing activities
Acquisition of property and equipment		(5,797)		(2,650)
Cash acquired on consolidation of certain Variable Interest Entities		—		2,434
Acquisition of HyperPointe net of cash assumed		(4,853)		—
Acquisition of software		(279)		(2,156)
Net cash used in investing activities		(10,929)		(2,372)
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)
Contributions from noncontrolling interests		746		333
Proceeds from stock option exercises		—		13
Payments for shares withheld on vesting		(73)		—
Repayment of Paycheck Protection Program		(3,584)		—
Distributions to noncontrolling interests		(956)		(991)
Net cash provided by (used in) financing activities		(27,656)		15,779
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(86)		36
(Decrease)/ Increase in cash, cash equivalents and restricted cash		(56,077)		19,410
Cash, cash equivalents, and restricted cash at beginning of the period		106,257		90,502
Cash, cash equivalents, and restricted cash at end of the period	$	50,180	$	109,912
Cash paid for
Interest	$	10	$	—
Income taxes		5	$	—
Non-cash investing and financing transactions
Capital expenditures included in Accounts payable, accrued expenses and other	$	592	$	—
Issuance of Common Stock on acquisition of gcg Connect, LLC, d/b/a HyperPointe	$	906	$	—

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

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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

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 Company amended and restated its certificate of incorporation filed with the Delaware Secretary of State on October 24, 2022 (the “Amended and Restated Certificate”). Rebranding to XWELL aligned the Company’s corporate strategy to build a pure-play health and wellness services company, 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.

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 of 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.

During the period between March 2020 and September 2021, when the Company was unable to reopen its spa locations for normal operations, 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 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 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 in the XpresCheck Wellness Centers. Under the terms of the MSAs, XpresTest provides office space, equipment, supplies, non-licensed staff, and management services in return for a management fee. Effective July 1, 2021, the Company 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.

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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, Phoenix Sky Harbor International Airport and Salt Lake City International Airport).

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, as amended. The condensed consolidated balance sheet as of December 31, 2021 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 months ended September 30, 2022 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.

Recent Developments

XpresSpa

There are currently twenty operating XpresSpa domestic locations and the Company expects to re-open two additional domestic locations in the near-term 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.

The Company also has 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: the Company expects 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.

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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 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 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 and wellness services for travelers. The Treat 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 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.

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. 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 and under the terms of the Managed Services Agreement (“MSA”) with Professional Limited Liability Companies (“PLLCs”) that in turn contract with physicians and Nurse Practitioners, 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 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.

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 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. This revenue is recognized at the point in time at which the service is performed by the PLLCs.

HyperPointe

The Company’s 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 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 is treated as deferred revenue which was $240 as of September 30, 2022. HyperPointe had unbilled receivables of $212 included in Contract Assets as of September 30, 2022.

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

(b) Variable Interest Entities

The Company evaluates its ownership, contractual, pecuniary, and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex and involve judgment. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; 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 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.

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

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

(d) Goodwill

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

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Recently adopted accounting pronouncements

Accounting Standards Update No. 2020-06—Debt--Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts 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 required to be assessed under similar models. The Financial Accounting Standard Board (“FASB”) decided to simplify the accounting for convertible instruments by removing certain separation models currently included in other accounting guidance that were being applied to current accounting for convertible instruments. Under 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 interim periods within those fiscal years. The Company adopted ASU 2020-06 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.

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.

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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 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. 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 30, 2022 and December 31, 2021 is as follows:


	September 30, 2022		December 31, 2021
Cash denominated in United States dollars	$	46,977	$	102,560
Cash denominated in currency other than United States dollars		2,338		2,133
Restricted cash		751		751
Credit and debit card receivables		114		813
Total cash, cash equivalents and restricted cash	$	50,180	$	106,257

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 30, 2022 and December 31, 2021, deposits in excess of FDIC limits were $46,509 and $103,339

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respectively. As of September 30, 2022 and December 31, 2021, the Company held cash balances in overseas accounts, totaling $2,338 and $2,133 respectively, which are not insured by the FDIC. If the Company were to distribute the amounts held overseas, the Company would need to follow an approval and distribution process as defined in its operating and partnership agreements, which may delay and/or reduce the availability of that cash to the Company.

Note 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.

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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

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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

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Note 9. 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
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Trade names	$	1,641	$	(1,302)	$	339	$	1,339	$	(1,118)	$	221
Customer relationships		1,510		(482)		1,028		—		—		—
Software		4,403		(1,448)		2,955		3,886		(484)		3,402
Licenses		116		(24)		92		116		(7)		109
Total intangible assets	$	7,670	$	(3,256)	$	4,414	$	5,341	$	(1,609)	$	3,732

The Company’s intangible assets are amortized over their expected useful lives. The Company recorded amortization expense of $474 and $95 during the three months ended September 30, 2022 and 2021, respectively, and $1,338 and $300 during the nine months ended September 30, 2022 and 2021, respectively.

Based on the intangible assets balance as of September 30, 2022, the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:


Calendar Years ending December 31,	Amount
Remaining 2022	$	439
2023		1,491
2024		1,449
2025		397
2026		323
Thereafter		315
Total	$	4,414

Note 10. 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.

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.

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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 months ended September 30, 2022 and 2021 were as follows:


	Nine months ended September 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(3,072)	$	(3,189)
Leased assets obtained in exchange for new and modified operating lease liabilities	$	7,380	$	3,673
Leased assets surrendered in exchange for termination of operating lease liabilities	$	—	$	9

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


Calendar Years ending December 31,	Amount
Remaining 2022	$	1,005
2023		3,459
2024		3,050
2025		2,614
2026		1,586
Thereafter		5,683
Total future lease payments		17,397
Less: interest expense at incremental borrowing rate		(2,186)
Net present value of lease liabilities	$	15,211

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


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

Cash paid for minimum annual rental obligations during the three and nine months ended September 30, 2022 was $445 and $1,191, respectively. Cash paid for minimum annual rental obligations during the three and nine months ended September 30, 2021 was $185 and $399, respectively.

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

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Note 12. Stockholders’ Equity

Warrants

The following table represents the activity related to the Company’s warrants during the nine months ended September 30, 2022.


		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

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 and retired 19,526,706 shares for $23,789 during the nine months ended September 30, 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 Company’s directors, employees and consultants. Shareholder approval of the plan was subsequently obtained on October 28, 2020. On October 4, 2022, the amendment to the Company’s 2020 Equity Incentive Plan to increase the number of shares authorized for issuance under the Plan by 7,500,000 shares of Common Stock was approved. Under the 2020 Equity Incentive Plan (the “2020 Plan”), a maximum of 7,353,289 shares of Common Stock may be issued. 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.

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In September 2020, XpresTest created a stock-based compensation plan available to grant stock options, Restricted Stock Awards (“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 30, 2022. 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 30, 2022, there is $214 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 - 1.64
Exercise price:	$	0.78 - 1.64
Expected volatility:		123.45	%
Expected dividend yield:		0	%
Annual average risk-free rate:		1.62 - 3.24	%
Expected term:		6.43	years

Total stock-based compensation for the three months ended September 30, 2022 and 2021 is $483 and $819, respectively, and for the nine months ended September 30, 2022 and 2021 is $3,294 and $2,152, respectively. The Company had $2,831 and $2,088 of unrecognized stock-based compensation related to the XWELL Stock Options, as of September 30, 2022 and December 31, 2021, 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

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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 the placement in the fair value hierarchy measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):


			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	$	—

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. 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 months ended September 30, 2022 reflect an estimated global annual effective tax rate of approximately (0.10)%.

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As of September 30, 2022, 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 months ended September 30, 2022 was $5 which was attributed to foreign taxing jurisdictions in which controlled foreign corporations were profitable. In addition to income taxes, the Company operates in foreign jurisdictions in which excise taxes are levied. 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. 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 as appropriate. Significant judgment is required to determine both the likelihood of there being any potential liability and the estimated amount of a loss related to the Company’s legal matters.

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 as of September 30, 2022 and December 31, 2021, which is included in Accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheets.

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. Funding of the settlement amount is predicted to be end of year.

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, 2023.

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Leases

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

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	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

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	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

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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 filed on March 31, 2022, as subsequently amended on May 2, 2022 (the “2021 Annual Report”), our Quarterly Reports on Form 10-Q for the three months ended March 31, 2022 and June 30, 2022 , 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.

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. Rebranding to XWELL, Inc. aligned our corporate strategy to build a pure-play health and wellness services company, both in the airport and off-airport marketplaces.

XWELL, is a leading global travel health and wellness services holding company. XWELL currently has four reportable operating segments: XpresSpa®, XpresTest®, Treat™ and HyperPointe. 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.

During the period between March 2020 and September 2021, when we were unable to reopen our spa locations for normal operations, 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 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 operate in the XpresCheck Wellness Centers. Under the terms of MSAs, we provide office space, equipment, supplies, non-licensed staff, and management services in return for a management fee. Effective July 1, 2021, we 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.

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Furthermore, XWELL continues to develop Treat, a travel health and wellness brand that is positioned for a post-pandemic world. 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. The integration and expansion of services and products, both domestically and internationally, is part of our objective to grow airport business.

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 our 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.

Our HyperPointe segment, which we 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 our retail strategy, not only adding more products for sale but aligning those products more efficiently to our service offerings. 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 to scale growth faster.

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 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

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General and administrative

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 30, 2022 compared to the three months ended September 30, 2021

Revenue


	Three months ended September 30,
	2022		2021		Inc/(Dec)
Total revenue	$	10,736	$	26,767	$	(16,031)

The decrease in revenue of $16,031 or 60%, was primarily due to reduction in patient service revenue triggered by the rapid decline of the XpresTest segment as countries continued to relax their testing requirements, testing volumes at our 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.

Cost of sales


	Three months ended September 30,
	2022		2021		Inc/(Dec)
Cost of sales	$	9,339	$	13,662	$	(4,323)

The decrease in cost of sales of $4,323 or 32%, was primarily due to the decrease in revenues resulting in decreased costs to operate the decreased volume at XpresCheck locations. There were some related costs of sales triggered by the reopening of certain XpresSpa locations that were temporarily closed during the second quarter of 2021. We had twenty open Spa locations as of September 30, 2022, and two open Spa locations as of September 30, 2021. 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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Impairment/loss on disposal of assets


	Three months ended September 30,
	2022		2021		Inc/(Dec)
Impairment/Loss on disposal of assets	$	1,040	$	—	$	1,040

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

General and administrative


	Three months ended September 30,
	2022		2021		Inc/(Dec)
General and administrative	$	6,447	$	5,196	$	1,251

The increase of approximately 24% was primarily due to functional costs associated with the operations of more XpresCheck and Treat Wellness Centers, XpresSpa locations, and the newly acquired HyperPointe segment.

Other non-operating expense, net


	Three months ended September 30,
	2022		2021		Inc/(Dec)
Other non-operating expense, net	$	(136)	$	(381)	$	245

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


	Three months ended September 30,
	2022		2021
Loss on equity investments	$	(98)	$	(302)
Bank fees and financing charges		(38)		(62)
Other		—		(17)
Total	$	(136)	$	(381)

Interest income, net


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

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

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Nine months ended September 30, 2022 compared to the Nine months ended September 30, 2021

Revenue


	Nine months ended September 30,
	2022		2021		Inc/(Dec)
Total revenue	$	48,381	$	44,371	$	4,010

The increase in revenue of $4,010 or 9%, was primarily due to patient service revenue triggered by the rapid growth of the XpresTest segment with the addition of more locations between October 1, 2021 and June 30, 2022. The Company also saw an increase in revenue associated with the XpresSpa locations that opened after October 1, 2021.

Cost of sales


	Nine months ended September 30,
	2022		2021		Inc/(Dec)
Cost of sales	$	36,743	$	25,522	$	11,221

The increase in cost of sales of $11,221 or 44%, was due to the increase in revenues resulting in increased costs to operate the increased number of XpresCheck locations and the reopening of certain XpresSpa locations that were temporarily closed during the second quarter of 2021. We had 20 open Spa locations as of September 30, 2022, and two open Spa locations as of September 30, 2021. 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,
	2022		2021		Inc/(Dec)
Depreciation and amortization	$	4,329	$	2,542	$	1,787

The increase in depreciation and amortization of approximately 70% was primarily due to depreciation and amortization related to XpresCheck and Treat Wellness Centers after September 30, 2021.

Impairment/loss on disposal of assets


	Nine months ended September 30,
	2022		2021		Inc/(Dec)
Impairment/Loss on disposal of assets	$	988	$	22	$	966

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General and administrative


	Nine months ended September 30,
	2022		2021		Inc/(Dec)
General and administrative	$	24,193	$	14,350	$	9,843

The increase of approximately 69% was primarily due to functional costs associated with the operations of XpresCheck and Treat Wellness Centers, XpresSpa locations, and the newly acquired HyperPointe segment.

Other non-operating expense, net


	Nine months ended September 30,
	2022		2021		Inc/(Dec)
Other non-operating expense, net	$	(650)	$	(830)	$	180

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


	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)

Interest income, net


	Nine months ended September 30,
	2022		2021		Inc/(Dec)
Interest income, net	$	159	$	31	$	128

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

Liquidity and Capital Resources

As of September 30, 2022, we 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. We have performed an assessment of our ability to continue as a going concern. As of the date of the report, we believes that our Company has sufficient liquidity to fund operations for the next twelve months. Our liquidity projections and actual performance through issuance relies heavily on the success and profitability of our re-opened XpresSpa locations, and tailored service offerings. In addition, our future liquidity relies on 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 the three and nine months ended September 30, 2022, respectively. Furthermore, because we rely 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.

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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 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, we purchased and retired 19,526,706 shares for $23,789 during the nine months ended September 30, 2022.

While we have addressed our working capital deficiency and long-term debt, and continue 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 at this time and may result in additional material adverse impacts on our liquidity position and access to capital.

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, 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.

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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.

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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 30, 2022, our management 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 evaluation as of December 31, 2019 identified a material weakness in our internal control over financial reporting. Based on our evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 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.

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 and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These 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 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;

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•

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, as a result of management’s in-depth review of its accounting processes, and the 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.

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 ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding legal proceedings, see Note 15. “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.

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.

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Item 6. Exhibits.


Exhibit No.		Description

3.1		Certificate of Elimination of Series A Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, effective on October 24, 2022 (incorporated by reference to Exhibit 3.1 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

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.

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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 14, 2022	By:	/s/ Scott R Milford
			Scott R. Milford
			Chief Executive Officer
			(Principal Executive Officer)


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