UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended September 30, ~~2017~~2022

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

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

For the transition period from ___ to ___

Commission file number: 001-34785

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

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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 x⌧     No ¨◻

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).    Yes  x⌧     No  ¨◻

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

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

Emerging growth company¨
☐

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

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

As of November ~~9, 2017, 26,545,690~~ 10, 2022, 83,232,262shares of the registrant’s common stock were outstanding.

Table of Contents

~~FORM Holdings Corp.~~

XWELL, Inc. and Subsidiaries
Table of Contents

Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
30
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
39
Item 4.
Controls and Procedures
26
40

PART II. OTHER INFORMATION
26
42

Item 1.
Legal Proceedings
26
42
Item 1A.
Risk Factors
26
42
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
42
Item 3.
Defaults Upon Senior Securities
28
42
Item 4.
Mine Safety Disclosures
28
42
Item 5.
Other Information
28
42
Item 6.
Exhibits
29
43

2
Table of Contents~~Part~~
PART I - FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements (Unaudited)
~~FORM Holdings Corp.~~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
September 30,
2017
(Unaudited) December 31,
2016
Current assets
Cash and cash equivalents $ 10,072 $ 17,910
Accounts receivable, net 2,668 404
Inventory 4,044 2,890
Other current assets 630 2,150
Assets held for disposal 451 1,507
Total current assets 17,865 24,861

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

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

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

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

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

3
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. (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

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

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

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

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

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

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

4
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In ~~thousands)~~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
Preferred
stock Common
stock Additional
paid-in
capital Accumulated
deficit Accumulated
other
comprehensive
loss Total
FORM
equity Non
controlling
interests Total
equity
December 31, 2016 $ 5 $ 183 $ 280,221 $ (220,868 ) $ (13 ) $ 59,528 $ 4,641 $ 64,169
Issuance of common stock for services — — 20 — — 20 — 20
Shares of common stock issued for the acquisition of Excalibur — 9 1,800 — — 1,809 — 1,809
Net proceeds from sale and issuance of shares of common stock in public offering — 69 6,515 — — 6,584 — 6,584
Decrease in shares of preferred stock issued to XpresSpa sellers — — (908 ) — — (908 ) — (908 )
Conversion of preferred stock to common stock (1 ) 4 (4 ) — — (1 ) — (1 )
Stock-based compensation — — 2,179 — — 2,179 — 2,179
Net loss for the period — — — (18,132 ) — (18,132 ) 329 (17,803 )
Foreign currency translation — — — — (120 ) (120 ) — (120 )
Net distributions to
noncontrolling interests — — — — — — (93 ) (93 )
September 30, 2017 $ 4 $ 265 $ 289,823 $ (239,000 ) $ (133 ) $ 50,959 $ 4,877 $ 55,836

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

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

5
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
(Unaudited)
(In ~~thousands)~~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
Nine months ended
September 30,
2017 2016
Cash flows from operating activities
Consolidated net loss $ (17,803 ) $ (20,023 )
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Items not affecting cash flows
Depreciation and amortization 6,849 1,404
Impairment of intangible assets — 11,937
Amortization of debt discount and debt issuance costs — 1,798
Stock-based compensation 2,179 1,447
Amendment to warrants as part of debt modification — (281 )
Extinguishment of debt — 356
Issuance of shares of common stock for services 20 53
Gain on disposal of asset (148 ) —
Change in fair value of derivative warrant liabilities and conversion feature (207 ) 185
Conversion of shares of preferred stock to shares of common stock (1 ) —
Exchange rate gain, net — (76 )
Changes in current assets and liabilities net of effects of acquisition
Increase in accounts receivable, net (1,729 ) (1,581 )
Increase in inventory (1,103 ) (89 )
Decrease in other current assets and other assets 1,739 307
Increase (decrease) in accounts payable, accrued expenses and other current liabilities (1,593 ) 1,502
Increase (decrease) in deferred revenue (79 ) 81
Decrease in other liabilities (13 ) (267 )
Net cash used in operating activities – continuing operations (11,889 ) (3,247 )
Net cash provided by operating activities – discontinued operations 930 278
Net cash used in operating activities (10,959 ) (2,969 )
Cash flows from investing activities
Cash acquired as part of acquisition 26 —
Acquisition of property and equipment (2,734 ) (243 )
Acquisition of software (331 ) —
Proceeds from sale of asset 150 —
Decrease in deposits — 2,001
Increase in investments — (1,734 )
Net cash provided by (used in) investing activities (2,889 ) 24
Cash flows from financing activities
Proceeds from commitments to issue common stock under subscription agreement — 1,734
Net proceeds from sale and issuance of shares of common stock in public offering 6,584 —
Repayment of debt and line of credit (361 ) (2,011 )
Net distributions to noncontrolling interests (93 ) —
Debt issuance costs — (50 )
Net cash provided by (used in) financing activities 6,130 (327 )
Effect of exchange rate changes on cash and cash equivalents (120 ) —
Decrease in cash and cash equivalents (7,838 ) (3,272 )
Cash and cash equivalents at beginning of period 17,910 24,951
Cash and cash equivalents at end of period $ 10,072 $ 21,679
Cash paid during the period for
Interest $ 580 $ 40

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

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

6
Table of Contents
XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

Nine months ended September 30,


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.

7
~~FORM Holdings Corp.~~Table of Contents
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
~~FORM Holdings Corp.~~On October 25, 2022, the Company changed its name to XWELL, Inc. (“~~FORM”~~XWELL” or the “Company”) ~~has three operating segments:~~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 ~~technology~~services company, both in the airport and ~~intellectual property.~~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 ~~wellness operating segment consists~~Certificate of ~~XpresSpa, which~~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.~~services through its XpresSpa ~~is a well-recognized airport~~ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products. 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 ~~Company acquired XpresSpa~~medical services companies pay XpresTest a monthly fee to operate in the ~~fourth quarter~~XpresCheck Wellness Centers. Under the terms of ~~2016.~~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.

8
Table of Contents
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 ~~technology operating~~HyperPointe segment, consists of Group Mobile as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation and deployment services. Thewhich the Company acquired ~~Group Mobile~~ in ~~the fourth quarter~~January 2022 (see Note 7.Acquisition of ~~2015 and Excalibur Integrated Systems Inc. (“Excalibur”~~HyperPointe), ~~which was merged with Group Mobile, in the first quarter~~provides a broad range of ~~2017. The Company’s equity interest in InfoMedia increased from 8.25% to 11% in the first quarter~~service and support options for our customers, including technical support services and advanced services.
Basis of ~~2017 due to a realignment~~Presentation and Principles of ~~ownership interests.~~
Consolidation
The Company is currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. The Company is seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.
~~The Company’s intellectual property operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.~~
As further detailed in Note 10 “Discontinued Operations and Assets and Liabilities Held for Disposal,” in June 2017, the Company concluded that the requirement to report the results of FLI Charge as discontinued operations was triggered. FLI Charge was subsequently sold in October 2017.
On July 26, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, acting as the representative of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 6,900,000 shares of the Company’s common stock, par value $0.01 per share (“FORM Common Stock”) including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from the Company pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. The net proceeds to the Company from the Offering were $6,584 after deducting underwriting discounts and commissions and other estimated offering expenses.
~~Note 2. Accounting and Reporting Policies~~
~~(a) Basis of presentation and principles of consolidation~~
~~The accompanying~~unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States of America (“~~U.S.~~ GAAP”) for interim financial information and the instructions to ~~Rule 10-01~~Article 8-03 of Regulation S-X, and should be read in conjunction with the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~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-month periods~~nine months ended September 30, ~~2017~~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
~~(b) Use~~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 ~~estimates~~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 ~~preparation~~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 ~~accompanying condensed~~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.
9
Table of Contents

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 ~~financial statements~~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 ~~conformity~~collaboration with Concentric by Ginkgo Bioworks (NYSE: DNA). Under this program, XpresTest is conducting biosurveillance monitoring at four major U.S. ~~GAAP requires management~~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 ~~make certain estimates~~$5,534. Approximately $4,166 and ~~assumptions~~$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 ~~affect~~ the ~~reported amounts~~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.
10
Table of Contents
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 ~~liabilities and disclosure~~positive working capital of ~~contingent assets and liabilities~~$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 ~~condensed consolidated financial statements and~~report, the ~~reported amounts of revenues and expenses~~Company believes it has sufficient liquidity to fund operations for the ~~periods presented. Actual results may differ~~next twelve months from ~~such estimates. Significant items subject to such estimates~~the issuance of these financial statements. The Company’s liquidity projections and ~~assumptions include~~actual performance through issuance relies heavily on the ~~Company’s intangible assets, the useful lives~~success and profitability of the Company’s ~~intangible assets, the valuation of~~re-opened XpresSpa locations, and tailored service offerings. In addition, the Company’s ~~derivative warrants,~~future liquidity relies on the ~~valuation~~market acceptance to the Company’s new travel, health and wellness brand, Treat, which has generated a net loss of ~~stock-based compensation, deferred tax assets~~$1,290 and ~~liabilities, income tax uncertainties,~~$4,049, for the three and ~~other contingencies.~~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.

~~(c)~~
Note 2. Significant Accounting and Reporting Policies
(a) Revenue ~~recognition~~Recognition Policy
XpresSpa
The Company recognizes revenue ~~for the wellness operating segment~~ from the sale of XpresSpa products and services when the services are rendered at XpresSpa stores and from the sale of products at the ~~point of sale,~~time products are purchased at the Company’s stores or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. Revenues from the XpresSpa ~~wholesale~~retail and e-commerce businesses are recorded at the time goods are shipped.
The Company has also entered into collaborative agreements with marketing partners whereby it sells certain of its partners’ products in its XpresSpa 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-
11
Table of Contents
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.~~customers from revenue. Sales taxes assessed on revenues are included in ~~accounts~~Accounts payable, accrued expenses and other ~~current liabilities in~~ on the Company’s condensed consolidated balance sheets until remitted to ~~the~~ state agencies.
(b) Variable Interest Entities
The Company ~~records revenue from product sales~~evaluates its ownership, contractual, pecuniary, and other interests in ~~the technology operating segment when title~~entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for sale, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. The Company’s shipping terms typically specify F.O.B. destination, at which time title and risk of loss have passed to the customer. At the time of sale of hardware products,involve judgment. If the Company ~~records~~determines that an ~~estimate for sales returns~~entity in which it holds a contractual or ownership interest is a VIE and ~~allowances based on historical experience. Hardware products sold by the Company are warranted by the vendor.~~

The Company has drop-shipment arrangements with many of its hardware vendors and suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements is recorded on a gross basis upon delivery to the customer with contract terms that ~~typically specify F.O.B. destination. Revenue is recognized on a gross basis, as~~ the Company is the ~~principal~~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 ~~transaction,~~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.
12
Table of Contents
(c) Business Combinations
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 ~~primary obligor in~~excess of consideration transferred over the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price of the product to the customer, assumes credit risk for the amounts invoiced, and works closely with the customers to determine their hardware specifications.aforementioned amounts.
~~Freight billed to customers is recognized as net product revenue and the related freight costs as a cost of sales.~~
On certain occasions, the Company’s technology operating segment will enter into a bill and hold arrangement with a customer. When this occurs, the Company makes a determination as to when it will be the proper time to recognize revenue. In doing so, the Company takes the following into consideration:
~~whether the risks of ownership have passed to the customer;~~
~~the customer must have made a fixed commitment to purchase the goods;~~
~~the customer must request and have a substantial business purpose for ordering on a bill and hold basis;~~
~~there must be a fixed schedule for delivery that is reasonable and consistent with the customer’s business purpose;~~
~~the Company cannot retain any specific performance obligations that would make the earnings process incomplete;~~
~~the goods must be segregated from remaining inventory (i.e., they cannot be used to fill orders for others); and~~
~~the goods must be complete and ready for shipment.~~
For multiple-element arrangements in the Company’s technology operating segment that include hardware products, services and maintenance, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances,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 ~~hierarchy~~result, during the measurement period, which may be up to ~~determine~~one year from the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only whenacquisition date, the Company ~~sells~~may record adjustments to the ~~deliverable separately~~assets acquired and isliabilities assumed with the ~~price actually charged by~~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 ~~for~~believes the assumptions and estimates that ~~deliverable. ESPs reflect~~have been made are reasonable and appropriate, they are based in part on historical experience and information obtained from the ~~Company’s best~~acquired companies and are inherently uncertain. Critical estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.
~~Revenue from patent licensing is recognized if collectability is reasonably assured, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery~~in valuing certain of the service has been rendered. Currently, revenue arrangements related to intellectual property provide for the payment of contractually determined fees and other consideration for the grant of certain intellectual property rights related to the Company’s patents. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patents, (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted typically extend until the expiration of the related patents. Pursuant to the terms of these agreements,intangible assets the Company has ~~no further obligation with respect to the grant of the non-exclusive retroactive~~acquired include future expected cash flows, and ~~future licenses, covenants-not-to-sue, releases,~~discount rates.
(d) Goodwill
The Company accounts for goodwill under ASC 350-30, Intangibles-Goodwill and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the related technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, upon receipt of the upfront fee, and when all other revenue recognition criteria have been met.

~~(d) Cost of sales~~Other
~~Cost of sales for the Company’s wellness operating segment consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations and include:~~
~~payroll and related benefits for store operations and store-level management;~~
~~rent, percentage rent and occupancy costs;~~
. Goodwill represents the cost of ~~merchandise;~~
~~freight, shipping and handling costs;~~
~~production costs;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase~~a business acquisition in ~~fair values which was recorded as part of acquisition; and~~
~~costs associated with sourcing operations.~~
~~Cost of sales for the Company’s technology operating segment includes costs to acquire or manufacture goods for inventory.~~
Cost of sales for the Company’s intellectual property operating segment mainly includes expenses incurred in connection with the Company’s patent licensing and enforcement activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.
~~(e) Recently adopted accounting pronouncements~~
~~ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business~~
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (“ASU 2017-01”) “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially allexcess of the fair value of the ~~gross~~net assets ~~acquired (or disposed of)~~acquired. Goodwill is ~~concentrated~~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.
13
Table of Contents
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 ~~asset~~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 ~~group of~~derivative component. Convertible preferred stock also is required to be assessed under similar ~~assets,~~models. The Financial Accounting Standard Board (“FASB”) decided to simplify the ~~assets acquired (or disposed of)~~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 ~~considered~~required to be accounted for as derivatives. Consequently, a ~~business.~~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 ~~2017-01~~2020-06 as of the reporting period beginning January 1, ~~2017~~2022. The adoption of this update did not have a material impact on ~~a prospective basis.~~
~~(f) Recently issued accounting pronouncements not yet adopted~~
the Company’s condensed consolidated financial statements.
ASU ~~No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~2021-04: Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options
~~The core principle~~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 ~~that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange~~ for ~~those goods or services. This guidance was amended in July 2015~~interim and ~~is effective for~~ annual reporting periods beginning after December 15, ~~2017. As such, the~~2021 for all entities. The Company ~~is currently assessing the impact~~adopted ASU 2021-04 as of the ~~adoption on its condensed consolidated financial statements. The Company will adopt the new standard and related updates effective~~reporting period beginning January 1, ~~2018, and intends to use the modified retrospective method of adoption.~~
Based upon its preliminary assessment undertaken through September 30, 2017, the Company expects that the new standard will have an impact on revenue recognition for Group Mobile contracts in its technology operating segment, and expects to conclude on this assessment by December 31, 2017.2022. The Company does not expect for there to be an impact on revenue recognition for its wellness operating segment, as the revenue is recognized when the service is performed and payment is collected from the customer.
The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may, in conjunction with the completion of the Company’s overall assessment of the new guidance, impact the Company’s current conclusions.
~~ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (“ASU 2017-04”) “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019; early adoption is permitted. The Company currently anticipates that the adoption of ~~ASU 2017-04 will~~this update did not have a material impact on ~~its~~the Company’s condensed consolidated financial statements.
~~ASU No. 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting~~
In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (“ASU 2017-09”) “Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017; early adoption is permitted. The Company is currently in the process of evaluating the potential impact of the adoption on its consolidated financial statements.
~~(g) Reclassification~~
Certain balances have been reclassified to conform to presentation requirements, including presentation of discontinued operations and assets and liabilities held for disposal with respect to the Company’s FLI Charge business (refer to Note 10), as well as consistent presentation of cost of sales and general and administrative expenses to align presentation for operating segments.

Note 3. ~~Net Loss per Share~~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 ~~Common Stock~~
~~Basic net loss per share is computed~~medicine by ~~dividing~~lay persons or entities. All of the ~~net loss~~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.
14
Table of Contents
The Company also has exclusive responsibility for the ~~period~~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 ~~weighted-average number~~development on July 1, 2021, the Company determined that the PLLCs are variable interest entities. Notwithstanding their legal form of ~~shares~~ownership of ~~common stock outstanding during~~equity interests in the ~~period. Diluted net loss per share~~PLLC, the primary beneficiary of the affiliated medical group is ~~computed by dividing~~ the ~~net loss~~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 ~~period by~~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 ~~weighted-average number~~consolidated balance sheets for the PLLCs after elimination of ~~shares~~intercompany transactions were $3,033, included in Cash and Cash Equivalents, and $683, included in Accounts payable, accrued expenses and other, respectively, as of ~~common stock plus dilutive potential common stock considered outstanding during~~December 31, 2021. The total revenue included on the ~~period. However, as~~consolidated statements of operations and comprehensive income (loss) for the ~~Company generated a net loss in all periods presented, potentially dilutive securities, including certain warrants~~PLLCs after elimination of intercompany transactions was $4,607 and ~~stock options, were not reflected in diluted net loss per share because~~$31,728 for the ~~impact~~three months and nine months ended September 30, 2022, respectively.
15
Table of ~~such instruments was anti-dilutive.~~Contents

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

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

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

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

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
16
Table of Contents
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 ~~4. Business Combinations~~7. Acquisition of HyperPointe
~~XpresSpa~~
~~During the second quarter of 2017,~~On January 14, 2022, the Company ~~learned new information about legal~~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 ~~other professional costs which existed~~(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 ~~date~~agreement. For purposes of ~~XpresSpa.~~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 ~~and~~in connection with XWELL’s acquisition of the ~~sellers~~equity interests of ~~XpresSpa (the “XpresSpa Sellers”) agreed~~HyperPointe, as an inducement material to ~~reduce~~such new employee entering into employment with the ~~total amount~~Company.
The employee received stock options to purchase 1,000,000 shares of ~~Series D Convertible Preferred Stock (“FORM Preferred Stock”), which was previously~~XWELL common stock. The stock options were issued toupon the ~~XpresSpa Sellers in conjunction with~~closing of the acquisition of ~~XpresSpa. The Company reduced~~HyperPointe and employee’s hire date in connection therewith (the "Grant Date"), and all stock options included within the ~~number~~equity inducement award have an exercise price of ~~the FORM Preferred Stock by 16,219 shares and estimated that~~$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 ~~reduction~~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.
17
Table of Contents
Determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
The fair value of intangible assets other than Goodwill was ~~$908,~~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

18
Table of Contents
Note 8. Accounts payable, accrued expenses and other
As of September 30, 2022 and December 31, 2021, Accounts payable, accrued expenses and other consisted of the following:


September 30, 2022

December 31, 2021
Accounts payable

$
3,642

$
5,966
Litigation accrual

845

845
Accrued compensation

1,176

2,862
Tax-related liabilities

594

603
Common area maintenance accruals

573

16
Gift certificates

494

494
Construction accrual

213

930
Credit card processing fees

70

501
Other miscellaneous accruals

374

741
Total accounts payable, accrued expenses and other current liabilities

$
7,981

$
12,958

19
Table of Contents

Note 9. Intangible Assets

The following table provides information regarding the Company’s intangible assets subject to amortization, which ~~was~~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 ~~as a reduction~~amortization expense of ~~preferred equity~~$474 and ~~goodwill.~~
~~Additionally,~~$95 during the ~~second~~three months ended September 30, 2022 and ~~third quarters~~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 ~~2017, certain XpresSpa Sellers converted an aggregate~~September 30, 2022, the estimated amortization expense for the remainder of ~~54,667 shares~~the calendar year and each of ~~their FORM Preferred Stock into 437,235 shares~~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.
20
Table of Contents
The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any leases should be accounted for pursuant to the guidance in ASC 842. The Company recalculates the right of use asset and lease liability based on the modified lease terms and adjusts both balances accordingly.
The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent or providing relief from rent through payment deferrals. The periods of relief from these payments, which began in March 2020, ranged from three to twenty-eight months enabling the Company to receive minimum guaranteed payment concessions of approximately $431 and $1,568 in the nine months ended September 30, 2022 and 2021, respectively.

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

21
Table of Contents
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.

22
Table of Contents
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 ~~par~~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 corporationsoccurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. Theamount of the excise tax is generally 1% of the fair market value ~~$0.01 per share.~~of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excisetax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the sametaxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulationsand 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.

As23
Table of Contents
In September 2020, XpresTest created a ~~result~~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 ~~these events,~~200 shares of XpresTest common stock may be awarded, which would represent 20% of the total number of shares of ~~FORM Preferred Stock was reduced from 491,427 as~~common stock of ~~December 31, 2016 to 420,541 shares~~XpresTest as of September 30, ~~2017~~2022. Certain named executive officers, consultants, and ~~the face value (and liquidation preference) was reduced from $23,588 to $20,186.~~
~~Group Mobile~~
~~On February 2, 2017,~~directors of the Company ~~acquired Excalibur, which is an end-to-end solutions provider~~are eligible to participate in the XpresTest Plan. The XpresTest Plan RSAs vest upon satisfaction of ~~mobile hardware devices, wireless network security, data networking, telephony~~certain service and ~~mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within the Company’s technology operating segment.~~

~~In consideration for the acquisition, the Company issued 888,573 unregistered shares~~performance-based conditions. The fair value of the ~~Company’s common stock, par value $0.01 per share,~~XpresTest Plan RSAs is determined based on the weighted average of (i) Fair Value of XpresTest under the Indirect Valuation Method developing assumptions for XWELL’s Net Market Cap and XWELL’s standalone Fair Value, and (ii) Direct Valuation Method developing assumptions for XpresTest Representative Forecasted Revenue for 2021 and Peer companies Revenue’s Multiple. As of September 30, 2022, there is $214 of unrecognized stock-based compensation related to the former stockholders of Excalibur (the “Excalibur Sellers”). In addition, the Excalibur Sellers will, in the three years following the closing of this transaction, also receive $500 for each $2,000 of gross profit generated by a specified list of Excalibur accounts annually, until such cumulative gross profit reaches $6,000, and an additional $500 when such cumulative profit reaches $10,000, such amounts are payable in either cash or the Company’s common stock, at the election of the Company.XpresTest Plan.

The fair value of ~~the total purchase price~~stock options is ~~$2,125 and includes a fair value of contingent consideration of $316 and fair value of unregistered shares of common stock issued of $1,809.~~
~~Assets acquired and liabilities assumed were recorded at their fair values~~estimated as of the ~~acquisition date.~~date of grant using the Black-Scholes-Merton (“Black-Scholes”) option-pricing model. The ~~purchase~~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 ~~acquisition was allocated~~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 ~~net tangible and intangible assets based on their fair values~~XWELL Stock Options, as of September 30, 2022 and December 31, 2021, respectively. During October 2022, the ~~acquisition date. The excess of the purchase price over the net tangible assets~~Company granted 375,000 RSUs and ~~intangible assets was recorded as goodwill. The table below presents preliminary allocation of the purchase price:~~150,000 Stock Options to its certain executives.
Fair Value
Assets
Current assets (including cash of $26) $ 613
Deferred tax assets 29
Property and equipment 21
Intangible assets 556
Goodwill 2,335
Total assets 3,554

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

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

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

September 30,
2017 December 31,
2016
Assets
Wellness $ 51,151 $ 57,527
Technology 14,445 7,014
Intellectual property 603 940
Corporate 7,189 15,819
Assets held for disposal 451 1,507
Total assets $ 73,839 $ 82,807
General and administrative costs are allocated among the operating segments and non-operating corporate segment. The non-operating corporate segment does not have any revenue, but does incur expenses such as compensation expenses, rent and infrastructure costs. The non-operating corporate segment’s assets are mainly comprised of cash.
~~The Company currently operates in two geographical regions: United States and all other countries.~~ The following table ~~represents~~sets forth the ~~geographical revenue, regional operating loss,~~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

24
Table of Contents

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 ~~total asset information~~(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, ~~2017~~2022, respectively, and ~~2016. There~~$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)%.
25
Table of Contents
As of September 30, 2022, deferred tax assets generated from the Company’s U.S. activities were ~~no concentrations of geographical revenue, regional~~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 ~~or total assets related~~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 ~~single~~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 ~~country that~~taxing jurisdictions in which controlled foreign corporations were ~~material~~profitable. In addition to income taxes, the ~~Company’s condensed consolidated financial statements.~~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.
Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
United States $ 16,228 $ 3,101 $ 44,802 $ 16,478
All other countries 1,503 — 3,881 —
Total revenue 17,731 3,101 48,683 16,478

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

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

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

Note ~~6. Fair Value Measurements~~15. Commitments and Contingencies
~~Derivative Warrant Liabilities~~
~~The following table presents the placement in the fair value hierarchy of derivative warrant liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:~~
Fair value measurement at reporting date using
Quoted prices in
active markets Significant other Significant
for identical observable unobservable
Balance assets (Level 1) inputs (Level 2) inputs (Level 3)
September 30, 2017:
May 2015 Warrants $ 52 $ — $ — $ 52

December 31, 2016:
May 2015 Warrants $ 259 $ — $ — $ 259
The Company measures its derivative warrant liabilities at fair value. The May 2015 Warrants were classified within Level 3 because they were valued using the Black-Scholes-Merton model, which utilizes significant inputs that are unobservable. These derivative warrant liabilities were initially measured at fair value and are marked to market at each balance sheet date.
In addition to the above, the Company’s financial instruments as of September 30, 2017 and December 31, 2016 consisted of cash and cash equivalents, receivables, accounts payable and Debt. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term maturities of these instruments.
The following table summarizes the changes in the Company’s derivative warrant liabilities measured at fair value using significant unobservable inputs (Level 3) during the three- and nine-month periods ended September 30, 2017:
May 2015
Warrants
December 31, 2016 $ 259
Decrease in fair value of the derivative warrant liabilities (159 )
June 30, 2017 100
Decrease in fair value of the derivative warrant liabilities (48 )
September 30, 2017 $ 52
~~Valuation processes for Level 3 Fair Value Measurements~~
Fair value measurement of the derivative warrant liabilities falls within Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.
~~September 30, 2017:~~
~~Description~~ ~~Valuation technique~~ ~~Unobservable inputs~~ ~~Range~~
~~May 2015 Warrants~~ ~~Black-Scholes-Merton~~ ~~Volatility~~ ~~42.49~~ %
~~Risk free interest rate~~ ~~1.57~~ %
~~Expected term, in years~~ ~~2.59~~
~~Dividend yield~~ ~~0.00~~ %
~~December 31, 2016:~~
~~Description~~ ~~Valuation technique~~ ~~Unobservable inputs~~ ~~Range~~
~~May 2015 Warrants~~ ~~Black-Scholes-Merton~~ ~~Volatility~~ ~~45.15~~ %
~~Risk-free interest rate~~ ~~1.57~~ %
~~Expected term, in years~~ ~~3.34~~
~~Dividend yield~~ ~~0.00~~ %
~~Sensitivity of Level 3 measurements to changes in significant unobservable inputs~~
~~The inputs to estimate the fair value~~Certain of the Company’s ~~derivative warrant liabilities were the current market price~~outstanding legal matters include speculative claims for substantial or indeterminate amounts of the Company’s common stock, the exercise price of the derivative warrant liabilities, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

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

~~The following table illustrates the RSUs granted during the nine-month period September 30, 2017.~~
Title Grant date No. of RSUs Fair value at grant date Vesting term
Management and employees January 2017 400,942 $ 2.12 Over 1 year period, vesting on 1 year anniversary of grant date
~~The activity related to stock options and RSUs during the nine-month period ended September 30, 2017 consisted of the following:~~
RSUs Options
No. of
RSUs Weighted
average
grant date
fair value No. of
options Weighted
average
exercise
price Exercise
price range Weighted
average
grant date
fair value
Outstanding as of January 1, 2017 — — 3,679,101 $ 7.60 $ 1.55 – 55.00 $ 5.41
Granted 400,942 $ 2.12 1,545,000 $ 2.12 $ 2.12 – 2.15 $ 0.93
Vested/Exercised — — — — — —
Forfeited (35,377 ) $ 2.12 (330,834 ) $ 15.57 $ 1.55 – 41.00 $ 10.61
Expired — — (16,368 ) $ 43.66 $ 9.94 – 55.00 $ 22.02
Outstanding as of September 30, 2017 365,565 $ 2.12 4,876,899 $ 5.21 $ 1.55 – 41.00 $ 3.59
Exercisable as of September 30, 2017 — 2,780,024 $ 7.77 $ 1.55 – 41.00

On January 20, 2017, the Company entered into amended employment agreements with its named executive officers. Under the terms of certain of these agreements, certain of these officers are entitled to a percentage ofcould affect the amount ~~equal to the total amount~~ of ~~cash~~any potential liability and the fair market value of all noncash consideration paid or payable to the Company or its stockholders in connection with an initial public offering or a change of control of certain subsidiaries of the Company. The amended employment agreements also allow for the granting of equity awards to certain officers in connection with an initial public offering of certain subsidiaries of the Company.
~~The Company did not recognize tax benefits related to its stock-based compensation as there is a full valuation allowance recorded.~~
~~Note 8. 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 cumulativemakes adjustments as deemed necessary. The income tax provisions for the nine months ended September 30, 2017 reflect an estimated global annual effective tax rate of approximately -3.0% from continuing operations. Discontinued operations for the nine months ended September 30, 2017 reflect an annual effective tax rate of 0.0%.
As of September 30, 2017, 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. 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 for the nine months ended September 30, 2017 of approximately $284 was attributable primarily to tax deductions related to goodwill, for which there is no corresponding financial statement amortization expense, partially offset by the reduction in the valuation allowance needed following the acquisition of Excalibur's deferred tax liability. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. Although the Company has an immaterial amount of uncertain tax positions, the Company does not expect to record any additional material provisions for unrecognized tax benefits with the next year.
~~Note 9. Related Parties Transactions~~
On April 22, 2015, XpresSpa entered into a credit agreement and secured promissory note (the “Debt”) with Rockmore Investment Master Fund Ltd. (“Rockmore”) that was amended on August 8, 2016. Rockmore is an investment entity controlled by the Company’s board member, Bruce T. Bernstein. The Debt had an outstanding balance of $6,500 as of both September 30, 2017 and December 31, 2016, which is included in long-term liabilities in the condensed consolidated balance sheets. During the three- and nine-month period ended September 30, 2017, XpresSpa paid $150 and $580 of interest and recorded $183 and $548 of interest expense, respectively. During May 2017, per the original agreement and with Rockmore’s consent, the Company elected to extend the maturity date of the Debt from May 1, 2018 to May 1, 2019. No other material terms of the Debt were modified.
In addition, the Company paid $212 to Mr. Bernstein in March 2017 for the legal costs incurred in conjunction with the acquisition of XpresSpa and certain legal proceedings related to litigation with Amiral Holdings SAS (“Amiral”) prior to the completion of such acquisition, as Mr. Bernstein was indemnified by XpresSpa and was a defendant in the Amiral legal proceedings. These costs are included in accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheet as of December 31, 2016.

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

Three months ended
September 30,

Nine months ended
September 30,

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

Accounts payable, accrued expenses and other current liabilities $ 71 $ 196
Deferred revenue 9 10
Liabilities held for disposal $ 80 $ 206
~~Note 11. Commitments and Contingencies~~
~~Litigation and legal proceedings~~
appropriate. Significant judgment is required to determine both the likelihood of there being any potential liability and the estimated amount of a loss related to the Company’s legal matters. ~~Based~~
With respect to the Company’s outstanding legal matters, based on ~~the Company’s~~its current knowledge, the Company’s management believes that the amount or range of a potential loss ~~from its outstanding legal matters~~ will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company evaluated the outstanding legal matters ~~described below,~~ and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company has recorded ~~$745,~~accruals of $845 both as of September 30, 2022 and December 31, 2021, which is included in ~~accounts~~Accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance ~~sheet as of September 30, 2017.~~
sheets.
The Company expenses legal fees in the period in which they are incurred.

~~Cordial~~Kyle Collins v. Spa Products Import & Distribution Co., LLC et al
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.
~~Effective October 2014,~~
OTG Management PHL B v. XpresSpa terminated its former Airport Concession Disadvantaged Business Enterprise (“ACDBE”) partner, Cordial Endeavor Concessions of Atlanta, LLC (“Cordial”), in several store locations at Hartsfield-Jackson Atlanta International Airport.
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, ~~2017, XpresSpa filed~~2023.
26
Table of Contents
Leases
XWELL is contingently liable to a ~~lawsuit in~~surety company under certain general indemnity agreements required by various airports relating to its lease agreements. XWELL agrees to indemnify the ~~Supreme Court~~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 ~~State~~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 ~~New York, County of New York against Cordial~~the Company’s business through the four reportable segments. The XpresSpa segment provides travelers premium spa services, including massage, nail and several related parties. The lawsuit alleges breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and breach of good faith and fair dealing related to XpresSpa’s former partnership with Cordial as XpresSpa’s ACDBE partner in several store locations at Hartsfield-Jackson Atlanta International Airport (the “Cordial Litigation”). On March 3, 2017, XpresSpa filed a first amended complaint against Cordial. On April 5, 2017, Cordial filed a motion to dismiss the Cordial Litigation. On September 12, 2017, the Court held a hearing on the motion to dismiss.
On January 4, 2017, XpresSpa filed a lawsuit in the United States District Court for the Southern District of New York against its former attorney, Kevin Ross, and his law firm, alleging malpractice, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and promissory estoppel related to XpresSpa’s former partnership with Cordial,skin care, as well as ~~XpresSpa’s engagement of Kevin Ross~~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 ~~its attorney (the “Ross Litigation”). On March 17, 2017, XpresSpa filed a First Amended Complaint against the defendants. On June 2, 2017, the Ross Defendants filed their answer.~~
~~Both the Cordial Litigation and Ross Litigation are pending before the respective courts.~~
~~In re Chen et al.~~
On March 16, 2015, four former employees of XpresSpa who worked at locations in John F. Kennedy International Airport and LaGuardia Airport filed a putative class and collective action wage-hour litigationwell as book appointments in the ~~United States District Court~~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 ~~Eastern District~~operating results and performance of ~~New York, claiming~~the Company’s segments through operating income. Expenses that ~~they~~can be specifically identified with a segment have been included as deductions in determining operating income. Any remaining expenses and other ~~spa technicians were misclassified,~~charges are included in Corporate and that overtime was unpaid. On September 23, 2016, the Court conditionally certified the class. The parties held a mediation on February 28, 2017 and reached an agreement on a settlement in principle. On September 6, 2017, the parties entered into a settlement agreement. On September 15, 2017, the parties filed a motion for settlement approval with the Court; this motion is pending. In October 2017, XpresSpa paid the agreed-upon settlement amount to the settlement claims administrator, to be held in escrow pending a fairness hearing and final approval by the Court.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
27
Table of Contents

For the nine months ended

September 30,


2022

2021
Revenue




XpresSpa

$
9,490

$
2,172
XpresTest

35,928

42,199
Treat

1,110

—
HyperPointe

1,853

—
Corporate and other

—

—
Total revenue

$
48,381

$
44,371

Operating loss




XpresSpa

$
(8,921)

$
(4,828)
XpresTest

2,576

14,597
Treat

(4,038)

(4,115)
HyperPointe

(745)

—
Corporate and other

(6,744)

(3,719)
Total operating (loss) income

$
(17,872)

$
1,935

Depreciation & Amortization

XpresSpa

$
1,065

$
931
XpresTest

1,711

1,604
Treat

1,287

—
HyperPointe

243

—
Corporate and other

23

7
Total depreciation & amortization

$
4,329

$
2,542

Capital Expenditures

XpresSpa

$
1,413

$
706
XpresTest

675

3,984
Treat

3,329

—
HyperPointe

—

—
Corporate and other

55

77
Total capital expenditures

$
5,472

$
4,767

28
Table of Contents

September 30,

December 31,

2022

2021
Long-lived Assets

XpresSpa

$
14,203

8,419
XpresTest

112

2,246
Treat

6,280

2,700
HyperPointe

123

—
Corporate and other

522

1,132
Total long-lived Assets

$
21,240

$
14,497

September 30,

December 31,

2022

2021
Assets




XpresSpa

$
21,348

$
12,351
XpresTest

5,356

19,349
Treat

9,822

5,918
HyperPointe

7,126

—
Corporate and other

41,324

89,648
Total assets

$
84,976

$
127,266

~~Other~~

~~XpresSpa is involved in various other claims and legal actions that arise in the ordinary course~~29
Table of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on XpresSpa’s financial position, results of operations, liquidity, or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than the Company currently anticipates, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.Contents
~~The Company’s intellectual property operating segment is engaged in litigation, for which no liability is recorded, as the Company does not expect a material negative outcome.~~
On November 6, 2017, Moreton Binn and Marisol F, LLC, former shareholders of XpresSpa, filed a lawsuit against the Company and its directors alleging that the defendants engaged in securities violations, misrepresentation, and various other allegations regarding the Company’s acquisition of XpresSpa. The Company is currently in the process of evaluating the claims.

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~
Operations
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipates,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “will be,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 filed on March ~~30, 2017~~31, 2022, as subsequently amended on May 2, 2022 (the ~~“2016~~“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, except as required by law.~~statements.
All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to ~~FORM Holdings Corp.~~XWELL, Inc. (prior to ~~May~~October 25, 2022 and January 5, ~~2016,~~2018, known as ~~“Vringo,~~“XpresSpa Group, Inc.” and “FORM Holdings Corp”), a Delaware corporation, and its consolidated ~~subsidiaries.~~subsidiaries unless the context requires otherwise.

Overview
~~FORM Holdings Corp.~~On October 25, 2022, we changed our name to XWELL, Inc. (“~~FORM”~~XWELL” or the “Company”) from XpresSpa Group, Inc. Our common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL” since the opening of the trading market on October 25, 2022. Rebranding to XWELL, Inc. aligned our corporate strategy to build a pure-play health and wellness services company, both in the airport and off-airport marketplaces.
XWELL, is a leading global travel health and wellness services holding company. XWELL currently has ~~three~~four reportable operating segments: ~~wellness, technology~~XpresSpa®, XpresTest®, Treat™ and ~~intellectual property.~~
~~Our wellness operating segment consists of~~HyperPointe. XWELL’s subsidiary, XpresSpa ~~which is~~Holdings, LLC (“XpresSpa”) has been a ~~leading~~global airport retailer of spa ~~services.~~services through its XpresSpa ~~is a well-recognized airport~~ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products. ~~We acquired~~
XWELL’s subsidiary, XpresSpa ~~in the fourth quarter~~Holdings, LLC (“XpresSpa”) has been a global airport retailer of ~~2016.~~
~~Our technology operating segment consists of Group Mobile~~spa services through its XpresSpa spa locations, offering travelers premium spa services, including massage, nail and skin care, as well as ~~an 11% equity interest~~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 we were unable to reopen our spa locations for normal operations, in ~~InfoMedia Services Limited~~partnership with certain COVID-19 testing partners, we successfully launched our XpresCheck Wellness Centers through our XpresTest, Inc. subsidiary (“~~InfoMedia”~~XpresTest”)~~. Group Mobile~~, offering testing services, also in airports. XpresTest offers ~~rugged hardware~~COVID-19 and ~~software solutions, including laptops, tablets, and mobile printers,~~other medical diagnostic testing services to the traveling public, as well as ~~installation~~airline, airport and ~~deployment services. In~~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 ~~first quarter 2017,~~XpresCheck Wellness Centers. Under the terms of MSAs, we ~~completed~~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 ~~acquisition~~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 ~~Excalibur Integrated Systems, Inc. (“Excalibur”) which~~these PLLCs.
30
Table of Contents
Furthermore, XWELL continues to develop Treat, a travel health and wellness brand that is ~~an end-to-end solutions provider~~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 ~~mobile hardware devices, wireless network security, data networking, telephony~~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 ~~application development~~app to complement the offering with relevant health and ~~software solutions. Following~~wellness content designed to help people on the ~~acquisition, Excalibur was merged~~go with Group Mobile within our technology operating segment. Our equity interest in InfoMedia, which is accounted for under the cost method of investment, increased from 8.25% to 11% in the first quarter of 2017 dueinformation that could impact their travel. The platform provides travelers access to a ~~realignment~~comprehensive online marketplace of ~~ownership interests.~~
We are currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. We are seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.
As of September 30, 2017, our FLI Charge business is reflected as discontinued operations in our condensed consolidated statements of operations and comprehensive loss and assets held for disposal and liabilities held for disposal in our condensed consolidated balance sheets. FLI Charge was subsequently sold during October 2017.
~~Our intellectual property operating segment is engaged in the monetization of patents related to content and ad delivery, remote monitoring and mobile technologies.~~
~~On July 26, 2017, we entered into the Underwriting Agreement with Roth Capital Partners, LLC, acting~~services including global illness tracker tools such as the ~~representative~~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 Underwriters, relating to the Offering of 6,900,000 shares of FORM Common Stock including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from us pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. The net proceeds to us from the Offering were $6,584,000 after deducting underwriting discounts and commissions and other estimated offering expenses.

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

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

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

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

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

Operating income (loss) from continuing operations $ (1,639,000 ) $ (490,000 ) $ 217,000 $ (2,099,000 ) $ (4,011,000 )
We use GAAP and non-GAAP measurements to assess the trends in our business. With respect to XpresSpa, we review its Adjusted EBITDA, a non-GAAP measure, which we define as earnings before interest, tax, depreciation and amortization expense, excluding m~~erger and acquisition, integration and one-time costsand stock-based compensation.~~
~~Adjusted EBITDA has been presented in~~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.
31
Table of Contents
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.
32
Table of Contents
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
33
Table of Contents
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.

34
Table of Contents
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.

35
Table of Contents
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

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.

36
Table of Contents
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.
37
Table of Contents
On August 31, 2021, our board of directors initially authorized a stock repurchase program that permitted the purchase and repurchase of up to 15 million shares of our common stock through September 15, 2022. In May 2022, the Board increased the share repurchase program by an additional 10 million shares and extended its effectiveness through September 15, 2023. Under the new 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.~~ 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 ~~U.S.~~ GAAP. We have included this non-GAAP financial measure because management utilizes this information for assessing our performance and liquidity, and as an indicator of our ability to make capital expenditures and finance working capital requirements. We believe that Adjusted EBITDA is a measurement that is commonly used by analysts and some investors in evaluating the performance and liquidity of growth companies such as ~~us.~~ ours.
In particular, we believe that it is useful for analysts and investors to understand ~~this indicator because it~~that Adjusted EBITDA excludes certain transactions not related to our core cash operating ~~activities.~~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. ~~In evaluating our performance as measured by Adjusted EBITDA, we recognize and consider the limitations of this measurement.~~ Adjusted EBITDA does not reflect our obligations for the payment of income taxes, interest expense, or other obligations such as capital expenditures. ~~Accordingly, Adjusted EBITDA is only one~~

38
Table of ~~the measurements that management utilizes.~~Contents
~~The following table provides a~~A reconciliation of operating ~~loss~~income (loss) from ~~continuing~~ operations ~~for our three operating segments and corporate to Adjusted EBITDA income (loss)~~presented in accordance with GAAP for the three ~~months ended September 30, 2017:~~
Three Months Ended September 30, 2017
Wellness Technology Intellectual
Property Corporate Total
Operating income (loss) from continuing operations $ (1,639,000 ) $ (490,000 ) $ 217,000 $ (2,099,000 ) $ (4,011,000 )
Plus:
Depreciation and amortization 1,707,000 174,000 6,000 7,000 1,894,000
Stock-based compensation — — — 706,000 706,000
Merger and acquisition, integration and one-time costs 529,000 290,000 — — 819,000
Adjusted EBITDA income (loss) $ 597,000 $ (26,000 ) $ 223,000 $ (1,386,000 ) $ (592,000 )
~~Merger~~ and ~~acquisition, integration and one-time costs relate to the following:~~
For our wellness operating segment, one-time costs related to the interruption of business due to hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia. These one-time costs of $200,000 directly impacted our cost of sales. Without these one-time costs, our wellness operating segment’s gross profit would have been $2,505,000, or 19.7% of the wellness operating segment’s total revenue.
~~For our wellness operating segment, integration costs related to the acquisition amounted to $329,000, which were recorded in general and administrative expense.~~
~~For our technology operating segment, $290,000 of one-time reorganization and personnel re-alignment related costs.~~
Our operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. We concluded that we conduct our business through three operating segments, which are also our reportable segments: wellness, technology and intellectual property.
~~Segment operating results reflect income (loss) before corporate and unallocated shared expenses, interest expense, income taxes and noncontrolling interests.~~

~~Wellness~~
Our wellness operating segment recognized revenue of $12,652,000 during the third quarter of 2017, which was generated by XpresSpa for services provided and health and beauty products sold. We acquired XpresSpa on December 23, 2016 and are actively integrating its corporate functions and optimizing the operating segment’s performance. During the nine-month period ended September 30, 2017, we opened three new flagship locations, consisting of one location at John F. Kennedy International Airport’s Terminal 4 and two locations at Phoenix Sky Harbor International Airport. We also closed three small temporary kiosks to better align our resources. We also completed a major renovation to another location in John F. Kennedy International Airport’s Terminal 4, which opened in September 2017. A number of our stores will be undergoing maintenance or renovations during the fourth quarter of 2017. Wherever possible, we seek to receive lease extensions or other concessions when we undergo these processes. As of September 30, 2017, we operated a total of 51 XpresSpa locations.
~~Store-level costs include all costs that are directly attributable to the store operations and include:~~
~~payroll and related benefits for our store operations and store-level management;~~
~~rent, percentage rent and other occupancy costs;~~
~~the cost of merchandise as well as its freight, shipping and handling costs;~~
~~service supplies;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase in fair values which was recorded as part of the acquisition; and~~
~~costs associated with our sourcing operations.~~
General and administrative costs include insurance, infrastructure, payroll and benefits, inventory planning, marketing and other costs. Also included in general and administrative costs are expenses related to one-time costs related to the interruption of business due to hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia and the integration costs related to the acquisition, which together amounted to $529,000 during the third quarter of 2017.
Depreciation and amortization costs include the depreciation of leasehold improvements and equipment and the amortization of the brand and customer relationship intangible assets, which were recorded at fair value as of the acquisition date.
~~Technology~~
Our technology operating segment predominantly includes revenues and cost of sales generated by Group Mobile and Excalibur. During the third quarter of 2017, Group Mobile’s revenue increased 178.6% from $1,751,000 for the three-month period ended September 30, 2016 to $4,879,000 for the three-month period ended September 30, 2017. This was mainly due to the increased sales pipeline throughout 2016 and 2017.
~~Intellectual Property~~
The intellectual property operating segment includes revenues from one-time patent licenses as well as expenses incurred in connection with our patent licensing and related internal payroll expenses. In July 2017, the intellectual property operating segment recognized a $148,000 gain on the sale of an asset.
~~Corporate~~
Corporate and unallocated shared expenses principally consist of costs for corporate functions, rent for office space, stock-based compensation, executive management and certain unallocated administrative support functions.
~~Discontinued Operations~~
During June 2017, we concluded that the requirement to report the results of FLI Charge, a wholly-owned subsidiary included in our technology operating segment, as discontinued operations was triggered. As a result, a non-cash impairment loss of $1,092,000 relating to FLI Charge’s technology assets and goodwill was recorded during the second quarter of 2017.
On October 20, 2017, we sold FLI Charge to a group of private investors and FLI Charge management, who will own and operate FLI Charge. We will not be providing any continued management or financing support to FLI Charge.
Total consideration for the sale of FLI Charge is $1,250,000, payable in installments. The consideration is secured by a note and security agreement. Additionally, we are entitled to a 5% royalty, in perpetuity, on the gross revenue of FLI Charge and of any affiliate of FLI Charge with regard to conductive wireless charging, power, or accessories. We also received a warrant exercisable in FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events. We are currently evaluating the gain on the sale of FLI Charge.
The results of operations for FLI Charge are presented on the condensed consolidated statements of operations and comprehensive loss as consolidated net loss from discontinued operations, which totaled $208,000 and $2,321,000 for the three- and nine-monthnine month periods ended September 30, ~~2017, respectively. In addition,~~2022 and 2021 to Adjusted EBITDA is presented in the carrying amounts of assets and liabilities belonging to FLI Charge are presented on the condensed consolidated balance sheets as assets held for disposal and liabilities held for disposal, respectively.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

~~Three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016~~
~~Revenue~~
Three months ended September 30,
2017 2016 Change
Revenue $ 17,731,000 $ 3,101,000 $ 14,630,000

During the three-month period ended September 30, 2017, we recorded total revenue of $17,731,000, which represents an increase of $14,630,000 (or 471.8%) compared to the three-month period ended September 30, 2016. Of the increase, XpresSpa generated $12,652,000 of revenue in the third quarter of 2017. We did not recognize any revenue generated by XpresSpa prior to its acquisition on December 23, 2016. Our technology operating segment demonstrated 178.6% growth in quarterly revenues from $1,751,000 for the three-month period ended September 30, 2016 to $4,879,000 for the three-month period ended September 30, 2017.
Our intellectual property segment recognized a one-time lump sum payment of $200,000 in connection with an executed confidential license agreement for the three-month period ended September 30, 2017, a decrease compared to the three-month period ended September 30, 2016, for which our intellectual property operating segment recognized a one-time lump sum payment of $1,350,000 in connection with an executed confidential license agreement.
~~Cost of sales~~
Three months ended September 30,
2017 2016 Change
Cost of sales $ 14,375,000 $ 2,718,000 $ 11,657,000
During the three-month period ended September 30, 2017, we recorded total cost of sales of $14,375,000, which represents an increase of $11,657,000 (or 428.9%) compared to the three-month period ended September 30, 2016. XpresSpa recorded total cost of sales of $10,347,000, which represent direct costs incurred for store operations. As a result, our wellness operating segment’s gross profit for the quarter was 18.2%. Our technology operating segment recorded cost of sales of $3,902,000, which resulted in our technology operating segment generating 20.0% gross margin during the quarter.
During the three-month period ended September 30, 2016, we recorded total cost of sales of $2,718,000. Group Mobile recorded total cost of sales of $1,554,000, which represent direct costs from its product sales. Our intellectual property operating segment’s costs were $1,164,000, which included legal and consulting costs related to the confidential license agreement reached during the quarter and royalty expenses to a previous owner of some of our patents. These intellectual property costs decreased to $126,000 for the three-month period ended September 30, 2017.
We expect our cost of sales will grow over time as our revenues increase. We expect that total cost of sales as a percentage of sales will decline gradually over time as a result of the improvement of store-level performance by our wellness operating segment.
~~Depreciation, amortization and impairment~~
Three months ended September 30,
2017 2016 Change
Depreciation, amortization and impairment $ 1,894,000 $ 182,000 $ 1,712,000
During the three-month period ended September 30, 2017, depreciation and amortization expense totaled $1,894,000, which represents an increase of $1,712,000 (or 940.7%) compared to the amortization expense recorded during the three-month period ended September 30, 2016. There was no impairment expense for the three-month period ended September 30, 2017 and no depreciation or impairment expense recorded for the three-month period ended September 30, 2016.
The overall increase in depreciation, amortization and impairment expense was mainly due to an increase in depreciation expense resulting from leasehold improvements and equipment of $1,110,000 and the amortization of the brand and customer relationship intangible assets of $597,000, which were acquired as part of our acquisition of XpresSpa within our wellness operating segment in December 2016.
We expect depreciation and amortization expense will increase gradually over time for our wellness operating segment as we open more stores and will remain somewhat constant in our technology operating segment.
~~General and administrative~~
Three months ended September 30,
2017 2016 Change
General and administrative $ 5,473,000 $ 3,564,000 $ 1,909,000
During the three-month period ended September 30, 2017, general and administrative expenses increased by $1,909,000 (or 53.6%) compared to the three-month period ended September 30, 2016. The results of the three-month period ended September 30, 2017 include incremental general and administrative expenses associated with our acquisitions of XpresSpa and Excalibur. The increase for the three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016 is primarily attributed to $2,237,000 of general and administrative expenses associated with XpresSpa. We did not recognize any general and administrative expenses generated by Excalibur prior to its acquisition on February 2, 2017 or XpresSpa prior to its acquisition on December 23, 2016. Additionally, there was an increase in stock-based compensation expense of $221,000, which was a result of equity awards granted to our directors, management and employees in January 2017.
~~Non-operating expense, net~~
Three months ended September 30,
2017 2016 Change
Non-operating expense, net $ 268,000 $ 1,483,000 $ (1,215,000 )

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

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

~~Liquidity and Capital Resources~~
Our primary liquidity and capital requirements are for new XpresSpa locations for our wellness operating segment, as well as working capital for our technology operating segment. As of September 30, 2017, we had cash and cash equivalents of $10,072,000 that we expect to utilize, along with cash flows from operations, to provide capital to support the growth of our business, primarily through opening new XpresSpa locations, maintaining our existing XpresSpa locations, purchasing inventory for Group Mobile to support the growth in sales and maintaining corporate functions. In addition, we have approximately $7,342,000 of trade receivables, inventory and other current assets to support our working capital needs.
On July 26, 2017, we entered into the Underwriting Agreement with Roth Capital Partners, LLC, acting as the representative of the Underwriters, relating to the Offering of 6,900,000 shares of FORM Common Stock including 900,000 shares subject to the Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public in the Offering was $1.10 per share and the Underwriters agreed to purchase the shares of FORM Common Stock from us pursuant to the Underwriting Agreement at a purchase price of $1.023 per share. Our net proceeds from the Offering were $6,584,000 after deducting underwriting discounts and commissions and other estimated offering expenses.
Our total cash decreased from $17,910,000 as of December 31, 2016 to $10,072,000 as of September 30, 2017. Approximately $11,057,000 of the cash outflow during the nine-month period ended September 30, 2017 was related either to non-recurring payments, capital expenditures or payments for inventory, the latter of which is reflected as a current asset in the condensed consolidated balance sheets.
~~Key payments and items from December 31, 2016 to September 30, 2017:~~
Cash spent on inventory on-hand $ 1,830,000
Overdue payables acquired as part of XpresSpa 1,500,000
Capital expenditures for stores and technology 3,065,000
Merger and acquisition and integration-related professional fees 1,595,000
Leases and tax-related matters 587,000
Interest paid on Debt 580,000
Repayment of line of credit upon Excalibur acquisition 361,000
XpresSpa severance 407,000
Cash outflow related to discontinued operations 1,132,000
$ 11,057,000
Based on our current operating plans, we expect to have sufficient funds for at least the next 12 months of operations following the date of these financial statements. In addition, we may choose to raise additional funds in connection with new store openings and potential acquisitions of operating assets, which will be complementary to our wellness operating segment. There can be no assurance, however, that any such opportunities will materialize.
~~Off-Balance Sheet Arrangements~~
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
~~Critical Accounting Estimates~~
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 30, 2017, which includes a description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results. While there have been no material changes to our critical accounting policies as to the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.

Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
Not required as we are a smaller reporting company.
39
Table of Contents

Item 4.         Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, ~~2017, we~~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 ~~the foregoing,~~our evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective ~~as of the end of the period covered by this report.~~
The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of our subsidiaries except Excalibur, which was acquired on February 2, 2017. Our consolidated revenue for the nine-month period ended September 30, 2017 was $48,683,000, of which Excalibur represented $4,195,000, and our total assets as of September 30, ~~2017 were $73,839,000,~~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 ~~which Excalibur represented $4,772,000.~~
operations and cash flows in conformity with GAAP.
~~Changes~~Remediation Plan for Material Weakness in Internal Control over Financial Reporting
~~On February 2, 2017, we acquired Excalibur, which~~We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is ~~an end-to-end solutions provider~~committed to the planning and implementation of ~~mobile hardware devices, wireless network security, data networking, telephony~~remediation efforts to address control deficiencies and ~~mobile application development~~any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and ~~software solutions.~~ 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 ~~acquisition, Excalibur was merged with Group Mobile within~~Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our ~~technology operating segment. We are currently in the process of evaluating and integrating Excalibur's historical~~ internal ~~controls~~control over financial reporting ~~into ours.~~will 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;
40
Table of Contents
we have implemented additional accounting software to aid in the accounting and financial reporting process;
we have contracted an independent consulting firm to assist with the preparation of the Financial Statements and U.S. GAAP accounting research; and
in March 2021, we hired a seasoned Certified Public Accountant as a permanent Corporate Controller, who also has a Certified Information Systems Auditor accreditation.
We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.
As noted above, we believe that, 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 ~~this change,~~as set forth in the foregoing paragraph, there ~~were~~have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2017~~2022 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

41
Table of Contents~~Part~~
PART II– OTHER INFORMATION
Item 1.Legal Proceedings.
For information regarding legal proceedings, see Note ~~11 “Commitments~~15. “Commitments and Contingencies” in our notes to the condensed consolidated financial statements included in “Item 1. Condensed Consolidated Financial ~~Statements.~~Statements (Unaudited).”

Item 1A.Risk Factors.
~~Our business, financial condition, results of operations and~~There have been no material changes to the ~~trading price of our common stock could be materially adversely affected by any of the following risks as well as the other risks highlighted~~risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 30, 2017. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially affect our business, financial condition and results of operations.2021.

~~Risks Related to XpresSpa~~
~~Our growth strategy is highly dependent on our ability to successfully identify and open new XpresSpa locations.~~
Our growth strategy primarily contemplates expansion through procuring new XpresSpa locations and opening new XpresSpa stores and kiosks. Implementing this strategy depends on our ability to successfully identify new store locations. We will also need to assess and mitigate the risk of any new store locations, to open the stores on favorable terms and to successfully integrate their operations with ours. We may not be able to successfully identify opportunities that meet these criteria, or, if we do, we may not be able to successfully negotiate and open new stores on a timely basis. If we are unable to identify and open new XpresSpa locations in accordance with our operating plan, our revenue growth rate and financial performance may fall short of our expectations.

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

Item 2.Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds
None
~~None.~~
Item 3.Defaults Upon Senior Securities.
None.

Item 4.Mine Safety Disclosures.
Not applicable.

Item 5.Other Information.
None.

28
42
Table of Contents

Item 6.         Exhibits.
~~Exhibit~~
~~No.~~
~~Description~~
Exhibit
No.
Description
31.1*

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.~~2002

31.2*

Certification of Principal Financial Officer pursuant to Exchange Act, Rules 13a -– 14(a) and 15d -– 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
32**
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~ 2002
101.INS*
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

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

†

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

~~SIGNATURES~~

43
Table of Contents

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

~~By:~~

~~/s/ ANASTASIA NYRKOVSKAYA~~

~~Anastasia Nyrkovskaya~~

Date:
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)


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

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