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~~2023

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

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

For the transition period from ___ to ___

Commission file number: 001-34785

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

(Exact Name of Registrant as Specified in its Charter)

~~Delaware~~		~~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~~ 2023, 4,179,631shares of the registrant’s common stock were outstanding.

Table of Contents

XWELL, Inc. and Subsidiaries
~~FORM Holdings Corp.~~
Table of Contents

Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
24
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
31
Item 4.
Controls and Procedures
26
31

PART II. OTHER INFORMATION
26
32

Item 1.
Legal Proceedings
26
32
Item 1A.
Risk Factors
26
32
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
32
Item 3.
Defaults Upon Senior Securities
28
32
Item 4.
Mine Safety Disclosures
28
32
Item 5.
Other Information
28
32
Item 6.
Exhibits
29
33

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


September 30,

December 31,

2023

2022
Current assets




Cash and cash equivalents

$
4,827

$
19,038
Marketable Securities

21,311

23,153
Accounts receivable

1,193

2,858
Inventory

968

1,161
Other current assets

1,663

1,122
Total current assets

29,962

47,332

Restricted cash

751

751
Property and equipment, net

3,801

3,666
Intangible assets, net

2,174

4,008
Operating lease right of use assets, net

6,075

8,276
Goodwill

-

4,024
Other assets

1,787

2,369
Total assets

$
44,550

$
70,426

Current liabilities




Accounts payable

$
1,511

$
2,312
Accrued expenses and other current liabilities

4,198

5,719
Current portion of operating lease liabilities

2,375

2,586
Deferred revenue

73

339
Total current liabilities

8,157

10,956

Long-term liabilities

Operating lease liabilities

9,123

11,521
Total liabilities

17,280

22,477
Commitments and contingencies (see Note 13)





Equity




Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 4,174,381 and 4,161,613 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively*

42

42
Additional paid-in capital

470,270

468,530
Accumulated deficit

(449,269)

(428,112)
Accumulated other comprehensive loss

(1,642)

(534)
Total equity attributable to XWELL, Inc.

19,401

39,926
Noncontrolling interests

7,869

8,023
Total equity

27,270

47,949
Total liabilities and equity

$
44,550

$
70,426

*Adjusted, where applicable, to reflect the impact of the 1:20 reverse stock split that became effective September 28, 2023.
September 30,
2017
(Unaudited) December 31,
2016
Current assets
Cash and cash equivalents $ 10,072 $ 17,910
Accounts receivable, net 2,668 404
Inventory 4,044 2,890
Other current assets 630 2,150
Assets held for disposal 451 1,507
Total current assets 17,865 24,861

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

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

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

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

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

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

Three months ended September 30,

Nine months ended September 30,


2023

2022


2023

2022


Revenue, net









Patient services revenue

$
—

$
4,607

$
148

$
31,728

Services

6,709

5,583

20,485

15,341

Products

747

542

2,044

1,308

Other

12

4

29

4

Total revenue, net

7,468

10,736

22,706

48,381

Cost of sales









Labor

4,462

5,222

13,609

16,161

Occupancy

1,063

1,082

3,237

3,412

Products and other operating costs

852

3,035

3,057

17,170

Total cost of sales

6,377

9,339

19,903

36,743

Gross Profit

1,091

1,397

2,803

11,638

Depreciation and amortization

590

1,564

1,770

4,329

Impairment of long-lived assets

6,782

677

6,782

677

Impairment of operating lease right-of-use assets

—

38

—

38

Loss on disposal of assets

16

325

34

273

Advertising and promotion expense

313

863

628

3,696

IT/Hosting services

273

741

1,186

2,247

Other general and administrative expenses

3,593

4,843

13,891

18,250

Total operating expenses

11,567

9,051

24,291

29,510

Operating loss

(10,476)

(7,654)

(21,488)

(17,872)

Interest income, net

105

114

334

159

Foreign exchange remeasurement gain/(loss)

366

(2)

(690)

(7)

Gain on Securities, realized and unrealized

225

—

703

—

Other non-operating expense, net

(198)

(134)

(345)

(643)

Loss before income taxes

(9,978)

(7,676)

(21,486)

(18,363)

Income tax expense

—

(3)

—

(5)

Net loss

(9,978)

(7,679)

(21,486)

(18,368)

Net (income) loss attributable to noncontrolling interests

60

500

329

(1,012)

Net loss attributable to XWELL, Inc.

$
(9,918)

$
(7,179)

$
(21,157)

$
(19,380)

Net loss

$
(9,978)

$
(7,679)

$
(21,486)

$
(18,368)

Other comprehensive loss

(514)

(102)

(1,108)

(248)

Comprehensive loss

$
(10,492)

$
(7,781)

$
(22,594)

$
(18,616)

Loss per share









Basic and diluted loss per share*

$
(2.38)

$
(1.52)

$
(5.07)

$
(3.99)

Weighted-average number of shares outstanding during the period









Basic and diluted*

4,173,894

4,731,066

4,170,629

4,858,393

*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on September 28, 2023.
Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Revenue
Wellness $ 12,652 $ — $ 36,563 $ —
Technology 4,879 1,751 11,820 5,478
Intellectual property 200 1,350 300 11,000
Total revenue 17,731 3,101 48,683 16,478

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

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

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

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

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

4
~~FORM Holdings Corp.~~Table of Contents
XWELL, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (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, 2022

4,161,613

$
42

—

—

$
468,530

$
(428,112)

$
(534)

$
39,926

$
8,023

$
47,949
Issuance of restricted stock units

6,015

—

—

—

—

—

—

—

—

—
Value of shares withheld to fund payroll taxes

—

—

—

—

(22)

—

—

(22)

—

(22)
Stock-based compensation

—

—

—

—

589

—

—

589

23

612
Net loss for the period

—

—

—

—

—

(5,509)

—

(5,509)

(320)

(5,829)
Foreign currency translation

—

—

—

—

—

—

(130)

(130)

11

(119)
March 31, 2023

4,167,628

$
42

—

$
—

$
469,097

$
(433,621)

$
(664)

$
34,854

$
7,737

$
42,591
Issuance of restricted stock units

3,297

—

—

—

—

—

—

—

—

—
Stock-based compensation

—

—

—

—

603

—

—

603

23

626
Distributions to noncontrolling interests

—

—

—

—

—

—

—

—

(120)

(120)
Foreign currency translation

—

—

—

—

—

—

(464)

(464)

46

(418)
Net loss for the period

—

—

—

—

—

(5,730)

—

(5,730)

51

(5,679)
June 30, 2023

4,170,925

$
42

—

$
—

$
469,700

$
(439,351)

$
(1,128)

$
29,263

$
7,737

$
37,000
Issuance of restricted stock units

3,456

—

—

—

—

—

—

—

—

—
Stock-based compensation

—

—

—

—

567

—

—

567

24

591
Grant of stock for services

—

—

—

—

3

—

—

3

—

3
Contributions from noncontrolling interests

—

—

—

—

—

—

—

—

150

150
Foreign currency translation

—

—

—

—

—

—

(514)

(514)

18

(496)
Net loss for the period

—

—

—

—

—

(9,918)

—

(9,918)

(60)

(9,978)
September 30, 2023

4,174,381

$
42

—

$
—

$
470,270

$
(449,269)

$
(1,642)

$
19,401

$
7,869

$
27,270

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
*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on September 28, 2023.
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, 2021

5,063,467

$
51

—

—

$
488,268

$
(395,275)

$
(312)

$
92,732

$
7,203

$
99,935
Issuance of Common Stock for acquisition

27,624

—

—

—

906

—

—

906

—

906
Vesting of restricted stock units

19,591

—

—

—

—

—

—

—

—

—
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

(357,122)

(3)

—

—

(11,092)

—

—

(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

4,753,560

$
48

—

$
—

$
479,552

$
(399,558)

$
(353)

$
79,689

$
8,100

$
87,789
Vesting of restricted stock units

14,453

—

—

—

—

—

—

—

—

—
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

—

—

(66,920)

(1,021)

—

—

—

(1,021)

—

(1,021)
Foreign currency translation

—

—

—

—

—

—

(105)

(105)

—

(105)
Distributions to noncontrolling interests

—

—

—

—

—

—

—

—

(132)

(132)
June 30, 2022

4,768,013

$
48

(66,920)

$
(1,021)

$
480,338

$
(407,476)

$
(458)

$
71,431

$
8,508

$
79,939
Vesting of restricted stock units

12,812

—

—

—

—

—

—

—

—

—
Grant of stock options for services

—

—

—

—

16

—

—

16

—

16
Contributions from noncontrolling interests

—

—

—

—

—

—

—

—

546

546
Stock-based compensation

—

—

—

—

392

—

—

392

91

483
Net loss for the period

—

—

—

—

—

(7,179)

—

(7,179)

(500)

(7,679)
Repurchase and retirement of common stock

(619,212)

(6)

66,920

1,021

(12,688)

—

—

(11,673)

—

(11,673)
Foreign currency translation

—

—

—

—

—

—

(102)

(102)

(3)

(105)
Distributions to noncontrolling interests

—

—

—

—

—

—

—

—

—

—
September 30, 2022

4,161,613

$
42

—

$
—

$
468,058

$
(414,655)

$
(560)

$
52,885

$
8,642

$
61,527

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
*Adjusted to reflect the impact of the 1:20 reverse stock split that became effective on September 28, 2023.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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

Nine months ended September 30,


2023

2022
Cash flows from operating activities




Net loss

$
(21,486)

$
(18,368)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

1,770

4,329
Impairment of long lived assets

6,782

715
Foreign currency remeasurement loss

690

—
Loss on disposal of assets

34

273
Gain on lease termination

(821)

—
Unrealized gain on marketable securities

(668)

—
Amortization of operating lease right of use asset

1,163

1,357
Stock-based compensation

1,832

3,346
Loss on equity investment

53

528
Changes in assets and liabilities:

Decrease in inventory

192

794
Decrease (increase) in accounts receivable

1,665

(352)
Increase in other assets, current and non-current

(336)

(2,265)
Increase in deferred revenue

(266)

(1,015)
Increase in other liabilities, current and non-current

(3,226)

(3,913)
Decrease in accounts payable

(251)

(2,866)
Net cash used in operating activities

(12,873)

(17,406)
Cash flows from investing activities



Acquisition of property and equipment

(1,639)

(5,797)
Investment in marketable securities

(1,991)

—
Sale of marketable securities

4,500

—
Acquisition of Naples Wax

(1,574)

—
Acquisition of HyperPointe, net of cash assumed

—

(4,853)
Acquisition of intangibles

(468)

(279)
Net cash used in investing activities

(1,172)

(10,929)
Cash flows from financing activities

Repurchase of Common Stock

—

(23,789)
Contributions from noncontrolling interests

150

746
Payments for shares withheld on vesting

(22)

(73)
Repayment of Paycheck Protection Program

—

(3,584)
Distributions to noncontrolling interests

(120)

(956)
Net cash provided by (used in) financing activities

8

(27,656)
Effect of exchange rate changes on cash, cash equivalents and restricted cash

(174)

(86)
Decrease in cash, cash equivalents and restricted cash

(14,211)

(56,077)
Cash, cash equivalents, and restricted cash at beginning of the period

19,789

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

$
5,578

$
50,180
Cash paid for

Interest

$
—

$
10
Income taxes

$
142

$
5
Non-cash investing and financing transactions

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

$
197

$
592
Issuance of Common Stock on acquisition of gcg Connect, LLC, d/b/a HyperPointe

$
—

$
906

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

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XWELL, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except for share and per share data)
Note 1. ~~General~~Business, Basis of Presentation and Liquidity
Overview
~~FORM Holdings Corp.~~On October 25, 2022, the Company changed its name to XWELL, Inc. (“~~FORM”~~XWELL” or the “Company”) from XpresSpa Group, Inc. The Company’s common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL” since the opening of the trading market on October 25, 2022. The Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State on October 24, 2022 (the “Amended and Restated Certificate”) reflecting the name change. Rebranding to XWELL aligned the Company’s corporate strategy to build a pure-play wellness services company, in both the airport and off airport marketplaces.

XWELL is a global wellness company operating multiple brands and focused on bringing restorative, regenerative and reinvigorating products and services to travelers. XWELL currently has three reportable operating segments: ~~wellness, technology~~XpresSpa^®, XpresTest^®, and ~~intellectual property.~~Treat^™.

~~The Company’s wellness operating segment consists of~~XpresSpa
XWELL’s subsidiary, XpresSpa ~~which is~~Holdings, LLC (“XpresSpa”) has been a ~~leading~~global airport retailer of spa ~~services.~~services through its XpresSpa ~~is a well-recognized airport~~ spa ~~brand with 51~~ locations, ~~consisting of 47 domestic and 4 international, as of September 30, 2017. XpresSpa offers~~offering travelers premium spa services, including massage, nail and ~~hair~~skin care, as well as spa and travel products.
As of September 30, 2023, there were 21 operating XpresSpa domestic locations. During 2022, the Company sold one location in Austin-Bergstrom International Airport to its franchisee which now operates both locations at that airport. The Company also had 10 international locations operating as of September 30, 2023, including two XpresSpa locations in Dubai International Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in Istanbul Airport in Turkey.
XpresTest
The Company, in partnership with certain COVID-19 testing partners, successfully launched its XpresCheck Wellness Centers through its XpresTest, Inc. subsidiary (“XpresTest”), offering testing services, also in airports. 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 all but one XpresCheck Wellness Center. As of September 30, 2023, we have closed all XpresCheck locations.

XpresTest began conducting bio-surveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo in 2021 and on January 31, 2022, the Company announced the extension of the initial program, bringing the total contract to $5,534. As of August 2022, the program was renewed in partnership with Ginkgo BioWorks for a new two-year contract term which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. Effective as of August 12, 2023, the revenue for the second year was determined to be approximately $6,675.

For reporting purposes, the former Hyperpointe segment has been consolidated into the XpresTest segment. This determination was made given that XpresTest and Hyperpointe are managed by its Chief Executive Officer, Ezra Ernst, as a single segment.

HyperPointe, which the Company acquired ~~XpresSpa~~ in January 2022, provides a broad range of service and support options for our customers, including technical support services and advanced services.
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Treat

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

By the fourth quarter of ~~2016.~~
~~The Company’s technology operating segment consists~~2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As 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. The Company acquired Group MobileSeptember 30, 2023, the Treat brand operated at two locations in the ~~fourth quarter~~airport (JFK International Airport and Salt Lake City International Airport). These remaining Treat locations offer a full retail product offering and a suite of ~~2015~~wellness and Excalibur Integrated Systems Inc. (“Excalibur”), which was merged with Group Mobile, in the first quarter of 2017. The Company’s equity interest in InfoMedia increased from 8.25% to 11% in the first quarter of 2017 due to a realignment of ownership interests.spa services.
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,~~September 12, 2023, XWELL acquired Naples Wax, LLC, ~~acting as the representative~~a group 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 publicupscale hair removal boutiques 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~~Florida, for a purchase price of ~~$1.023 per share.~~approximately $1.6 million. Known for providing a memorable customer experience, Naples Wax Center operates three high-performing locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products. The ~~net proceeds~~acquisition of Naples Wax Center enables the company to move beyond its airport client base with a business it can adapt a larger wellness platform while also growing its retail footprint to serve its long-term financial expectations.

For reporting purposes, the ~~Company from~~Naples Wax acquisition is consolidated under the ~~Offering were $6,584 after deducting underwriting discounts and commissions and other estimated offering expenses.~~Treat segment.

~~Note 2. Accounting and Reporting Policies~~
~~(a)~~ Basis of ~~presentation~~Presentation and ~~principles~~Principles of ~~consolidation~~
Consolidation
The ~~accompanying~~unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States of America (“~~U.S.~~ GAAP”) for interim financial information and the instructions to ~~Rule 10-01~~Article 8-03 of Regulation S-X, and should be read in conjunction with the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022, as amended. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited annual financial statements but does not include all information required by GAAP for annual financial statements. The financial statements include the accounts of the Company, all entities that are wholly owned by the Company, and all entities in which the Company has a controlling financial interest as well as variable interest entities in which we are the primary beneficiaries. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company. Such adjustments are of a normal, recurring nature. The results of operations for the three and ~~nine-month periods~~nine months ended September 30, ~~2017~~2023 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

~~(b) Use~~Reverse Stock Split

On September 28, 2023, the Company effected a 1-for-20 reverse stock split, whereby every twenty shares of ~~estimates~~its Common Stock were reduced to one share of its Common Stock and the price per share of its Common Stock was multiplied by 20. All references to shares and per share amounts have been adjusted to reflect the reverse stock split.

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Table of Contents
Liquidity and Financial Condition
As of September 30, 2023, the Company had cash and cash equivalents of $4,827 (excluding restricted cash), $21,311 in marketable securities, and total current assets of $29,962. The Company’s total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $8,157 as of September 30, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $21,805 as of September 30, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.
The ~~preparation~~Company has significantly reduced operating and overhead expenses since the second half of ~~the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management~~2022, while it continues to ~~make certain estimates~~focus on returning to overall profitability.
The Company has taken actions to improve its overall cash position and ~~assumptions that affect the reported amounts of assets~~access to liquidity through equity offerings and ~~liabilities~~debt retirements, by exploring valuable strategic partnerships, rightsizing its corporate structure and ~~disclosure of contingent assets~~streamlining its operations.

Note 2. Significant Accounting and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s intangible assets, the useful lives of the Company’s intangible assets, the valuation of the Company’s derivative warrants, the valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties, and other contingencies.Reporting Policies
(a) Revenue Recognition Policy
~~(c) Revenue recognition~~XpresSpa
The Company recognizes revenue ~~for the wellness operating segment~~ from the sale of XpresSpa products and services when the services are rendered at XpresSpa stores and from the sale of products at the ~~point of sale,~~time products are purchased at the Company’s stores or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s single performance obligation related to both in-store and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. Revenues from the XpresSpa ~~wholesale~~retail and e-commerce businesses are recorded at the time goods are shipped.
The Company has also entered into collaborative agreements with marketing partners whereby it sells certain of its partners’ products in its XpresSpa spas. The Company acts as an agent for revenue recognition purposes and therefore records revenue net of the revenue share payable to the partners. Upon receipt of the non-recurring, non-refundable initial collaboration fee, management records a deferred revenue liability and recognizes revenue on a straight-line basis over the life of the collaboration agreement.
XpresTest
During the third quarter of 2022, XpresTest, in partnership with Ginkgo BioWorks in continuation of their support to the CDC’s traveler-based SARS-CoV-2 genomic surveillance program was awarded a new contract. The partnership is expected to support public health and biosecurity services totaling approximately $16,000, with an overall potential to exceed $61,000 based on CDC program options and public health priorities. As COVID-19 sub-variants and other biological threats continue to emerge, the partners plan to expand the program footprint and incorporate innovative modalities and offerings, such as monitoring of wastewater from aircraft lavatories. The current contract with Ginkgo BioWorks related to the above partnership contains fixed pricing for which we are entitled to $6,761 for the sample collection (passenger and aircraft wastewater) and $570 for the traveler enrollment initiatives, which represents the amount of consideration that we are entitled. The Company recognizes revenue over time for both sample collection performance obligations, using the input method based on time elapsed to measure progress towards satisfying each of the performance obligations. We recognized the revenue for the traveler enrollment initiative performance obligation in the second quarter of 2023. The Company recognizes revenue ratably (straight line basis) over the term of the contract (one year). The Company recorded $1,603 and $5,531 in revenue during the three and nine months ended September 30, 2023 related to sample collection performance obligations because the Company’s efforts towards satisfying each of the performance obligations are expended evenly throughout the period of performance.
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Table of Contents
HyperPointe, which we acquired in January 2022, provides broad range of service and support options for our customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered. Revenue billed in advance is treated as deferred revenue which was $56 and $322 as of September 30, 2023 and December 31, 2022, respectively. The Company has recognized $210 of the December 31, 2022 deferred revenue balance in 2023. HyperPointe had unbilled receivables of $187 and $0 as of September 30, 2023 and December 31, 2022, respectively, included in other current assets.
The Company excludes all sales taxes assessed to ~~its customers.~~our customers from revenue. Sales taxes assessed on revenues are included in ~~accounts payable,~~ accrued expenses and other current liabilities inon the Company’s unaudited condensed consolidated balance sheets until remitted to ~~the~~ state agencies.
Treat
The Company ~~records~~recognizes revenue from ~~product~~the sale of Treat and Naples Wax products and services when the services are rendered at Treat Centers and Naples Wax Centers and from the sale of products at the time products are purchased at the Treat Centers, online, and the Naples Wax Centers usually by credit card, net of discounts and applicable sales intaxes. Accordingly, the ~~technology operating segment when title~~Company recognizes revenue for the Company’s single performance obligation related to both in-centers and ~~risk of loss are passed to~~online sales at 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,point at which ~~time title and risk~~the service has been performed or the control of ~~loss have~~the merchandise has passed to the customer. AtRevenues from the Treat retail and e-commerce businesses are recorded at the time goods are shipped.
(b) Translation into United States dollars
The Company conducts certain transactions in foreign currencies, which are recorded at the exchange rate as of ~~sale~~the transaction date. All exchange gains and losses occurring from the remeasurement of ~~hardware products,~~monetary balance sheet items denominated in non-dollar currencies are deemed non-operating income in the unaudited condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2023, the Company ~~records an estimate for sales returns~~recognized a gain of $366 and ~~allowances based on historical experience. Hardware products sold by~~a loss of $690, respectively, as a result of foreign exchange, occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies. During the three and nine months ended September 30, 2022, the Company did not incur any foreign exchange gains or losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies.

Accounts of the foreign subsidiaries of XpresSpa are ~~warranted by~~translated into United States dollars. Assets and liabilities have been translated primarily at period end exchange rates and revenues and expenses have been translated at average monthly rates for the ~~vendor.~~three and nine months ended September 2023 and 2022. The translation adjustments arising from the use of different exchange rates are included as foreign currency translation within the condensed consolidated statements of operations and comprehensive income (loss) and unaudited condensed consolidated statements of changes in stockholders’ equity.

(c) Business Combinations
The Company ~~has drop-shipment arrangements with many~~applies the provisions of ~~its hardware vendors~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and ~~suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements~~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 ~~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,~~measured as the ~~Company is~~excess of consideration transferred over the principal in the transaction, as the primary obligor in the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price 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
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Table of Contents
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 FASB ASC 350-30, Intangibles-Goodwill and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the related technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, upon receipt of the upfront fee, and when all other revenue recognition criteria have been met.

~~(d) Cost of sales~~
~~Cost of sales for the Company’s wellness operating segment consists of store-level costs. Store-level costs include all costs that are directly attributable to the store operations and include:~~
~~payroll and related benefits for store operations and store-level management;~~
~~rent, percentage rent and occupancy costs;~~
Other. Goodwill represents the cost of ~~merchandise;~~
~~freight, shipping and handling costs;~~
~~production costs;~~
~~inventory shortage and valuation adjustments, including purchase price allocation increase~~a business acquisition in ~~fair values which was recorded as part of acquisition; and~~
~~costs associated with sourcing operations.~~
~~Cost of sales for the Company’s technology operating segment includes costs to acquire or manufacture goods for inventory.~~
Cost of sales for the Company’s intellectual property operating segment mainly includes expenses incurred in connection with the Company’s patent licensing and enforcement activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses.
~~(e) Recently adopted accounting pronouncements~~
~~ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business~~
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (“ASU 2017-01”) “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially allexcess of the fair value of the ~~gross~~net assets ~~acquired (or disposed of)~~acquired. Goodwill is ~~concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are~~ not ~~considered a business. The Company adopted ASU 2017-01 as of January 1, 2017 on a prospective basis.~~
~~(f) Recently issued accounting pronouncements not yet adopted~~
~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~
The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance was amended in July 2015amortized and is ~~effective~~reviewed for ~~annual reporting periods beginning after December 15, 2017. As such, the Company~~impairment annually, or more frequently if facts and circumstances indicate that it is currently assessing the impact of the adoption on its condensed consolidated financial statements. The Company will adopt the new standard and related updates effective January 1, 2018, and intends to use the modified retrospective method of adoption.
~~Based upon its preliminary assessment undertaken through September 30, 2017, the Company expects~~more likely than not that the new standard will have an impact on revenue recognition for Group Mobile contracts in its technology operating segment, and expects to conclude on this assessment by December 31, 2017. The Company does not expect for there to be an impact on revenue recognition for its wellness operating segment, as the revenue is recognized when the service is performed and payment is collected from the customer.
The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may, in conjunction with the completion of the Company’s overall assessment of the new guidance, impact the Company’s current conclusions.
~~ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (“ASU 2017-04”) “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. ~~Additionally,~~If the carrying amount exceeds fair value, goodwill of ~~goodwill allocated to each~~the reporting unit ~~with~~is considered impaired, and that excess is recognized as a ~~zero~~goodwill impairment loss. During the quarter ended September 30, 2023, the Company recognized an impairment charge of $4,024, which is included in Impairment of long-lived assets in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss).
(e) Reclassification
Certain balances in the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 have been reclassified to conform to the presentation in the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023, primarily the separate classification and presentation of accounts payable, gross profits, advertising and promotion expense, IT/Hosting services, and foreign exchange remeasurement gain/(loss). The above separation affected accounts payable, accrued expenses and other, general and administrative expenses, and other non-operating expense, net in the comparative 2022 financial statements. Such reclassifications did not have a material impact on the unaudited condensed consolidated financial statements.

(f) Impairment of long-lived assets
Long-lived assets are tested for impairment at the lowest level at which there are identifiable operating cash flows. The Company’s long-lived assets consist primarily of leasehold improvements and right to use lease assets for each of its airport locations (considered the asset group). The Company reviews its long-lived assets for recoverability yearly or ~~negative~~sooner if events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable. If indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset group in question to its carrying amount. An impairment loss is recognized if it is determined that the long-lived asset group is not recoverable and is calculated based on the excess of the carrying amount of ~~net~~the long-lived asset group over the long-lived asset groups fair value. The Company estimates the fair value of long-lived assets ~~should be disclosed.~~ using present value income approach. Future cash flows are calculated based on forecasts over the estimated remaining useful life of the asset group, which for each of the Company’s airport locations, is the remaining term of the operating lease.

The Company recorded an impairment expense related to intangible assets of $2,758 during the quarter ended September 30, 2023, which is included in Impairment of long-lived assets in the Company’s consolidated statements of operations and comprehensive income (loss). The expense was primarily related to the impairment of intangible assets for the Company’s Treat segment and Hyperpointe business.
Recently adopted accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU ~~2017-04~~2016-13"). ASU 2016-13's main goal is to
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improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The guidance is effective for annual orperiods beginning after December 15, 2022, including interim ~~goodwill impairment tests performed~~periods within those fiscal years. On implementation in 2023, the ASU did not have material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires contract assets and contract liabilities acquired in a business acquisition to be recognized and measured in accordance with ASC Topic 606, Revenues from Contracts with Customers, which the Company generally expects will result in the recognition and measurement of contract assets and contract liabilities in a manner that is consistent with the acquiree. For the Company, the amendments are effective for fiscal years beginning after December 15, ~~2019; early adoption is permitted. The Company currently anticipates that the adoption of ASU 2017-04 will not have a material impact on its 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, and2022, including interim periods within those ~~annual periods, beginning after December 15, 2017; early adoption is permitted.~~fiscal years. The ~~Company is currently in the process of evaluating the potential impact~~materiality of the ~~adoption~~application of ASU 2021-08 depends on ~~its consolidated financial statements.~~
~~(g) Reclassification~~
~~Certain balances have been reclassified to conform to presentation requirements, including presentation~~the recognition and measurement of ~~discontinued operations and~~acquired assets and liabilities ~~held for disposal~~associated 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.future acquisitions.

Note 3. ~~Net Loss per Share of Common Stock~~Potentially Dilutive Securities
Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. However, as the Company generated a net loss in all periods presented, potentially dilutive securities, including certain warrants and stock options, were not reflected in diluted net loss per share because the impact of such instruments was anti-dilutive.

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

Three months ended

Nine months ended

September 30,

September 30,


2023

2022

2023

2022
Basic numerator:








Net loss attributable to XWELL, Inc.

$
(9,918)

$
(7,179)

$
(21,157)

$
(19,380)
Net loss attributable to common shareholders

$
(9,918)

$
(7,179)

$
(21,157)

$
(19,380)
Basic and diluted denominator:




Basic and diluted weighted average shares outstanding

4,173,894

4,731,066

4,170,629

4,858,393
Basic and diluted loss per share

$
(2.38)

$
(1.52)

$
(5.07)

$
(3.99)

Both vested and unvested options to purchase an equal number of shares of Common Stock

377,717

235,668

377,717

235,668
Unvested RSUs to issue an equal number of shares of Common Stock

14,444

1,953

14,444

1,953
Warrants to purchase an equal number of shares of Common Stock

200

856,203

200

856,203
Total number of potentially dilutive securities excluded from the calculation of loss per share attributable to common shareholders

392,361

1,093,824

392,361

1,093,824

Note 4. Cash, Cash Equivalents, and Restricted Cash
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

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


September 30, 2023

December 31, 2022
Cash denominated in United States dollars

$
2,203

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

2,358

2,562
Restricted cash

751

751
Credit and debit card receivables

266

132
Total cash, cash equivalents and restricted cash

$
5,578

$
19,789

The Company places its cash and temporary cash investments with credit quality institutions. At times, such cash denominated in United States dollars may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. As of September 30, 2023 and December 31, 2022, deposits in excess of FDIC limits were $1,612 and $16,069,
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respectively. As of September 30, 2023 and December 31, 2022, the Company held cash balances in overseas accounts, totaling $2,358 and $2,562 respectively, which are not insured by the FDIC. If the Company were to distribute the amounts held overseas, the Company would need to follow an approval and distribution process as defined in its operating and partnership agreements, which may delay and/or reduce the availability of that cash to the Company.

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

September 30, 2023

December 31, 2022
Prepaid expenses

$
1,419

$
1,074
Contract assets

187

—
Other

57

48
Total other current assets

$
1,663

$
1,122

Note 6. Intangible Assets

The changes in the carrying amount of intangible assets for the nine months ended September 30, 2023 were as follows:

Gross

Intangible


Assets
Balance as of December 31, 2022

$
6,352
Acquisition of Naples Wax

1,624
Acquisition of Intangible Assets

468
Impairment of Assets

(3,281)
Retirement of Fully-Amortized Assets

(562)
Currency Translation Adjustment

(18)
Balance as of September 30, 2023

$
4,583

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

September 30, 2023

December 31, 2022

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying


Amount

Amortization

Amount

Amount

Amortization

Amount
Trade names

$
—

$
—

$
—

$
302

$
(24)

$
278
Customer relationships

1,936

(312)

1,624

1,510

(542)

968
Software

2,609

(2,078)

531

4,485

(1,761)

2,724
Licenses

38

(19)

19

55

(17)

38
Total intangible assets

$
4,583

$
(2,409)

$
2,174

$
6,352

$
(2,344)

$
4,008

The Company’s intangible assets are amortized over their expected useful lives. The Company recorded amortization expense of $396 and $474 during the three months ended September 30, 2023 and 2022, respectively, and $1,155 and $1,338 during the nine months ended September 30, 2023 and 2022, respectively.
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Table of Contents
Based on the intangible assets balance as of September 30, 2023, the estimated amortization expense for the remainder of the calendar year and each of the succeeding calendar years is as follows:

Calendar Years ending December 31,

Amount
Remaining 2023

$
108
2024

432
2025

426
2026

338
2027

232
Thereafter

638
Total

$
2,174

Note 7. Accrued expenses and other current liabilities
As of September 30, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following:


September 30, 2023

December 31, 2022
Litigation accrual

$
449

$
963
Accrued compensation

1,047

2,008
Tax-related liabilities

465

573
Common area maintenance accruals

291

160
Vendor-related accruals

892

754
Gift certificates

494

496
Credit card processing fees

7

33
Other miscellaneous accruals

553

732
Total accrued expenses and other current liabilities

$
4,198

$
5,719

Note 4.8. Acquisition of Naples Wax, LLC
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations
~~XpresSpa~~
~~During~~ (“ASC 805”) in the ~~second quarter~~accounting for acquisitions of ~~2017,~~businesses. ASC 805 requires the Company ~~learned new information about legal~~to use the acquisition method of accounting by recognizing the identifiable tangible and ~~other professional costs which existed~~intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of ~~XpresSpa. As a result,~~consideration transferred over the ~~Company~~aforementioned amounts.
While the company uses its best estimates and ~~the sellers of XpresSpa (the “XpresSpa Sellers”) agreed~~assumptions to ~~reduce the total amount of Series D Convertible Preferred Stock (“FORM Preferred Stock”), which was previously issued~~accurately apply preliminary values to the XpresSpa Sellers in conjunction with the acquisition of XpresSpa. The Company reduced the number of the FORM Preferred Stock by 16,219 shares and estimated that the fair value of the reduction of the consideration was $908, which was recorded as a reduction of preferred equity and goodwill.
Additionally, during the second and third quarters of 2017, certain XpresSpa Sellers converted an aggregate of 54,667 shares of their FORM Preferred Stock into 437,235 shares of the Company’s common stock, par value $0.01 per share.
As a result of these events, the total number of shares of FORM Preferred Stock was reduced from 491,427 as of December 31, 2016 to 420,541 shares as of September 30, 2017 and the face value (and liquidation preference) was reduced from $23,588 to $20,186.
~~Group Mobile~~
On February 2, 2017, the Company acquired Excalibur, which is an end-to-end solutions provider of mobile hardware devices, wireless network security, data networking, telephony and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within the Company’s technology operating segment.

In consideration for the acquisition, the Company issued 888,573 unregistered shares of the Company’s common stock, par value $0.01 per share, 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.
~~The fair value of the total purchase price 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~~assets acquired and liabilities assumed ~~were recorded~~ at ~~their fair values as of~~ the acquisition ~~date. The purchase price for the acquisition was allocated to the net tangible~~date, these estimates are inherently uncertain and intangible assets based on their fair values as of the acquisition date. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill. The table below presents preliminary allocation of the purchase price:
Fair Value
Assets
Current assets (including cash of $26) $ 613
Deferred tax assets 29
Property and equipment 21
Intangible assets 556
Goodwill 2,335
Total assets 3,554

Liabilities
Accounts payable and accrued expenses 1,214
Deferred tax liabilities 215
Total liabilities 1,429
Net assets, fair value $ 2,125
~~The allocation of the purchase price was based upon a preliminary valuation performed using the Company's estimates and assumptions, which are~~ subject to ~~change within~~refinement. As a result, during the measurement period, ~~(up~~which may be up to one year from the acquisition ~~date).~~date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations.
Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets. Although the Company believes the assumptions and estimates that have been made are reasonable and appropriate, they are based in part on historical experience and information obtained from the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets the Company has acquired include future expected cash flows, and discount rates.
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Table of Contents
On September 12, 2023, the Company acquired all of the equity interests in Naples Wax, LLC, d/b/a Naples Wax Centers, a Florida limited liability company (“Naples Wax”), for an aggregate purchase price of approximately $1,624, of which $1,574 was paid in cash at closing. The remaining $50 will be held for six months as a holdback to cover any potential indemnification claims. For the period ending September 30, 2023, the acquisition is preliminarily included in intangible assets while the Company determines the appropriate purchase price allocation during the measurement period.
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.
9. Leases
The Company ~~currently operates~~leases its retail and diagnostic testing locations at various domestic and international airports. Additionally, the Company leases its corporate office in ~~two geographical regions: United States~~New York City. During 2023, the Company commenced a new lease for its corporate office. 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 ~~all other countries. The following table represents~~operating lease liabilities represent its obligation to make lease payments arising from the ~~geographical revenue, regional~~lease. Operating lease right of use assets and operating ~~loss, and total asset information~~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.
The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any leases should be accounted for pursuant to the guidance in ASC 842. The Company recalculates the right of use asset and lease liability based on the modified lease terms and adjusts both balances accordingly.
Supplemental cash flow information related to leases for the nine months ended September 30, 2023 and 2022 were as follows:

Nine months ended September 30,


2023

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

Operating cash flows from operating leases

$
(2,668)

$
(3,072)
Leased assets obtained in exchange for new and modified operating lease liabilities

$
174

$
7,380

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

Calendar Years ending December 31,

Amount
Remaining 2023

$
814
2024

3,093
2025

2,699
2026

1,615
2027

1,491
2028

1,111
Thereafter

3,259
Total future lease payments

14,082
Less: interest expense at incremental borrowing rate

(2,584)
Net present value of lease liabilities

$
11,498

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

Weighted average remaining lease term:

5.98
years
Weighted average discount rate used to determine present value of operating lease liability:

7.37
%

Cash paid for minimum annual rental obligations during the three and nine months ended September 30, ~~2017~~2023 was $503 and ~~2016. There~~$1,762, respectively. Cash paid for minimum annual rental obligations during the three and nine months ended September 30, 2022 was $445 and $1,191, respectively.

Variable lease payments calculated monthly as a percentage of product and services revenue, were ~~no concentrations~~$302 and $397 for the three months ended September 30, 2023 and 2022, respectively, and $1,013 and $1,085 for the nine months ended September 30, 2023 and 2022, respectively.

Note 10. Other Assets
As of ~~geographical revenue, regional operating loss or total~~September 30, 2023 and December 31, 2022, assets ~~related to any single foreign country that were material to~~consisted of the ~~Company’s condensed consolidated financial statements.~~following:


September 30, 2023

December 31, 2022
Equity investments

$
51

$
104
Lease deposits

1,537

1,973
Other

199

292
Other assets

$
1,787

$
2,369

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~~11. Stockholders’ Equity
~~Derivative Warrant Liabilities~~
Warrants
The following table ~~presents~~represents the ~~placement~~activity related to the Company’s warrants during the nine months ended September 30, 2023.


Weighted average

Exercise

No. of Warrants

exercise price

price range
December 31, 2022

58,604

$
40.00

$
34.0 - 42.5
Granted

—

—

Exercised

—

—

Expired

(58,404)

40.20

$
34.0 - 42.5
September 30, 2023

200

$
42.50

$
42.50

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 750,000 shares of its common stock through September 15, 2022. In May 2022, the Board increased the share repurchase program by an additional 500,000 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 424,042 shares for $12,116 and retired 357,122 of these purchased shares during the nine months ended September 30, 2022, and the remaining 66,920 shares were retired on August 3, 2022.
17
Table of Contents
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 ~~hierarchy~~ of ~~derivative warrant liabilities measured~~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 250,000 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, shareholders approved the amendment to the 2020 Plan to increase the number of shares authorized for issuance under the 2020 Plan by 375,000 of Common Stock to an aggregate of 625,000 shares.Under the 2020 Equity Incentive Plan (the “2020 Plan”), a ~~recurring basis~~maximum of 239,493 of Common Stock may be issued 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
2023. 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 of the Company’s derivative warrant liabilities were the current market price of the Company’s common stock, the exercise price of the derivative warrant liabilities, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the derivative warrant liabilities would each result in a directionally similar change in the estimated fair value of the Company’s derivative warrant liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the differential between the derivative warrant liabilities’ exercise price and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the derivative warrant liabilities due to the dividend assumption.
~~Other Fair Value Measurements~~
The following table presents the placement in the fair value hierarchy of the contingent consideration assumed by the Company following the acquisition of Excalibur, which is measured at fair value on a recurring basis:
Fair value measurement at reporting date using
Quoted prices in
active markets Significant other Significant
for identical observable unobservable
Balance assets (Level 1) inputs (Level 2) inputs (Level 3)
September 30, 2017:
Contingent consideration $ 316 $ — $ — $ 316
The purchase value of the contingent consideration assumed by the Company following the acquisition of Excalibur was determined using the Monte-Carlo simulation and, as such, was classified as Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.
~~Note 7. Stock-based Compensation~~
~~As of September 30, 2017, 1,552,480 shares of the Company’s common stock were available for future grants under the Company’s 2012~~previous Employee, Director and Consultant Equity Incentive Plan (the “2012 Plan”) was terminated upon receipt of shareholder approval of the 2020 Plan. ~~Total stock-based compensation expense for~~

Awards granted under 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~~2012 Plan remain in effect pursuant to their terms. Generally, 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~~are granted with ~~its named executive officers. Under the terms of certain of these agreements, certain of these officers are entitled to a percentage of the amount~~exercise prices equal to ~~the total amount of cash and~~ the fair market value on the date of ~~all noncash consideration paid or payable~~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.
In September 2020, XpresTest created a stock-based compensation plan available to grant stock options, Restricted Stock Awards (“RSAs”) and RSU’s to XpresTest’s directors, employees and consultants. Under the XpresTest 2020 Equity Incentive Plan (the “XpresTest Plan”), a maximum of 200 shares of XpresTest common stock may be awarded, which would represent 20% of the total number of shares of common stock of XpresTest as of September 30, 2023. Certain named executive officers, consultants, and directors of the Company are eligible to participate in the XpresTest Plan. As of September 30, 2023, there is $120 of unrecognized stock-based compensation related to the ~~Company or its stockholders in connection with an initial public offering or a change~~XpresTest Plan.

The fair value of ~~control of certain subsidiaries~~stock options is estimated as of the ~~Company.~~date of grant using the Black-Scholes-Merton (“Black-Scholes”) option-pricing model. The ~~amended employment agreements also allow~~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:

$
4.60 - 8.00

Exercise price:

$
4.60 - 8.00

Expected volatility:

119.41-121.04
%
Expected dividend yield:

0
%
Annual average risk-free rate:

3.65 - 4.19
%
Expected term:

6.32 - 6.41
years

Total stock-based compensation for the ~~granting of equity awards to certain officers in connection with an initial public offering of certain subsidiaries of~~three months ended September 30, 2023 and 2022 is $594 and $483, respectively, and for the ~~Company.~~
nine months ended September 30, 2023 and 2022 is $1,832 and $3,294, respectively. The Company ~~did not recognize tax benefits~~had $1,938 and $2,506 of unrecognized stock-based compensation related to ~~its stock-based compensation~~the XWELL Stock Options, as ~~there is a full valuation allowance recorded.~~of September 30, 2023 and December 31, 2022, respectively.
18
Table of Contents
The following table sets forth the Company’s Equity Incentive activities for the nine months ended September 30, 2023:

RSUs
Stock options




Weighted


Weighted


average

average

Exercise

No. of

grant date
No. of

exercise

price

RSUs

fair value
options

price

range
Outstanding as of December 31, 2022

14,063

$
13.00
241,501

$
40.00

$
13.00 - 49,200
Granted

16,944

5.70
148,069

7.88

4.60 - 8.00
Exercised/Vested

(16,563)

11.76
—

—

Forfeited

—

—
(8,006)

26.27

8.00 - 32.20
Expired

—

—
(3,847)

100.79

8.00 - 38,160
Outstanding as of September 30, 2023

14,444

$
5.86
377,717

$
26.70

$
4.60 - 49,200
Exercisable as of September 30, 2023

206,304

$
29.69

$
8.00 - 49,200

Note 8.12. Income Taxes
The Company’s provision for income taxes consists of federal, state, local, and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary. The income tax ~~provisions~~provision for the three and nine months ended September 30, ~~2017 reflect~~2023 reflects an estimated global annual effective tax rate of approximately ~~-3.0%~~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,~~2023, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire. Net operating loss carryforwards generated after December 31, 2017 do not expire. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of a full valuation allowance; therefore, any loss before income taxes does not generate a corresponding income tax benefit.
Income tax ~~expense~~expense/(benefit) for the three and nine months ended September 30, ~~2017~~2023 was $0 which was attributed to state taxing jurisdictions in which a measure of ~~approximately $284 was attributable primarily~~income is utilized 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 deferreddetermine a tax liability. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. ~~Although~~

Note 13. Commitments and Contingencies
Certain of the Company’s outstanding legal matters include speculative claims for substantial or indeterminate amounts of damages. The Company regularly evaluates developments in its legal matters that could affect the amount of any potential liability and adjusts as appropriate. A significant judgment is required to determine both the likelihood of there being any potential liability and the estimated amount of a loss related to the Company’s legal matters.
With respect to the Company’s outstanding legal matters, based on its current knowledge, the Company’s management believes that the amount or range of a potential loss will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company evaluated the outstanding legal matters and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company has ~~an immaterial amount~~recorded accruals 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~~$449 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$963 as of ~~both~~ September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively, 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, accruedAccrued 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.
The Company expenses legal fees in the period in which they are incurred.
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
19
Table of Contents
OTG Management PHL B v. XpresSpa Philadelphia Terminal B et al.
On May 9, 2022, a lawsuit was filed in the Philadelphia Court of Common Pleas by OTG Management at Philadelphia International Airport, claiming that XWELL improperly backed out of its sublease for space at Terminal B and now owes between $864 and $2,250 in accelerated rent for the 12-year contract. They claim that by refusing to complete the project, failing to commence and maintain operations, refusing to pay rent and improperly purporting to terminate the lease (among other acts and omissions), XWELL breached the lease. On October 20, 2023, the parties filed a Stipulation to Hold the Matter in Civil Suspense.
In addition to those matters specifically set forth herein, the Company and its subsidiaries are involved in various other claims and legal actions that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company’s financial position, results of operations, liquidity, or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than the Company currently anticipates, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.
In the event that an action is brought against the Company or one of its subsidiaries, the Company will investigate the allegation and vigorously defend itself.
Leases
XWELL is contingently liable to a surety company under certain general indemnity agreements required by various airports relating to its lease agreements. XWELL agrees to indemnify the surety for any payments made on contracts of suretyship, guaranty, or indemnity. The Company believes that all contingent liabilities will be satisfied by its performance under the specified lease agreements.

Note ~~11. Commitments~~14. Segment Information
As a result of the Company’s transition to a pure-play wellness services company, the Company currently has three reportable operating segments: XpresSpa, XpresTest (inclusive of its Hyperpointe acquisition), Treat (inclusive of its Naples Wax acquisition). The Company analyzes the results of the Company’s business through the three reportable segments. The XpresSpa segment provides travelers premium spa services, including massage, nail and ~~Contingencies~~
~~Litigation~~skin care, as well as spa and ~~legal proceedings~~
~~Significant judgment is required~~travel products. The XpresTest segment provided diagnostic COVID-19 tests at XpresCheck Wellness Centers in airports, to ~~determine both the likelihood of there being any potential liability~~airport employees and ~~the estimated amount of a loss related~~ to the ~~Company’s legal matters. Based on~~traveling public but has transitioned to the CDC’s bio-surveillance program. The Treat segment is a wellness brand that provides access to wellness services for travelers at on-site centers.HyperPointe provides a broad range of service and support options for its customers, including technical support services and advanced services. Naples Wax Center operates three high-performing locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products.
The chief operating decision maker evaluates the operating results and performance of the Company’s ~~current knowledge, the Company’s management believes~~segments through operating income. Expenses that ~~the amount or range of~~can be specifically identified with a ~~potential loss from its outstanding legal matters will not, either individually or~~segment have been included as deductions 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 matters described below, and assessed the probability and likelihood of the occurrence of liability. Based on management’s estimates, the Company recorded $745, which is included in accounts payable, accrueddetermining operating income. Any remaining expenses and other ~~current liabilities~~charges are included in ~~the condensed consolidated balance sheet as~~Corporate and Other.

20
Table of ~~September 30, 2017.~~Contents

For the three months ended

September 30,


2023

2022
Revenue




XpresSpa

$
4,955

$
3,557
XpresTest

2,322

6,754
Treat

191

425
Corporate and other

—

—
Total revenue

$
7,468

$
10,736

Operating income (loss)




XpresSpa

$
(2,947)

$
(2,508)
XpresTest

(5,267)

(1,885)
Treat

28

(1,282)
Corporate and other

(2,290)

(1,979)
Total operating loss (including impairment)

$
(10,476)

$
(7,654)

Depreciation & Amortization

XpresSpa

$
421

$
364
XpresTest

91

662
Treat

66

520
HyperPointe

—

—
Corporate and other

12

18
Total Depreciation & Amortization

$
590

$
1,564

Impairment / loss on disposal of assets

XpresSpa

$
1,460

$
—
XpresTest

5,338

1,040
Treat

—

—
Corporate and other

—

—
Total Impairment / loss on disposal of assets

$
6,798

$
1,040

21
Table of Contents

For the nine months ended

September 30,


2023

2022
Revenue




XpresSpa

$
14,682

$
9,490
XpresTest

7,541

37,781
Treat

483

1,110
Corporate and other

—

—
Total revenue

$
22,706

$
48,381

2023

2022
Operating loss




XpresSpa

$
(8,901)

$
(8,921)
XpresTest

(5,067)

1,831
Treat

(776)

(4,038)
Corporate and other

(6,744)

(6,744)
Total operating loss (including impairment)

$
(21,488)

$
(17,872)

2023

2022
Depreciation & amortization

XpresSpa

$
1,275

$
1,065
XpresTest

260

1,954
Treat

198

1,287
Corporate and other

37

23
Total depreciation & amortization

$
1,770

$
4,329

Impairment / loss on disposal of assets

XpresSpa

$
1,468

$
—
XpresTest

5,348

988
Treat

—

—
Corporate and other

—

—
Total Impairment / loss on disposal of assets

$
6,816

$
988

Capital expenditures

XpresSpa

$
1,596

$
1,413
XpresTest

80

675
Treat

56

3,329
Corporate and other

28

55
Total capital expenditures

$
1,760

$
5,472

September 30, 2023

December 31, 2022
Long-lived Assets

XpresSpa

$
9,514

$
11,851
XpresTest

118

4,220
Treat

2,118

2,314
Corporate and other

467

409
Total long-lived Assets

$
12,217

$
18,794
22
Table of Contents

September 30, 2023

December 31, 2022
Assets




XpresSpa

$
17,626

$
21,135
XpresTest

1,935

11,198
Treat

4,016

3,186
Corporate and other

20,973

34,907
Total assets

$
44,550

$
70,426

~~The Company expenses legal fees in the period in which they are incurred.~~23

~~Cordial~~
~~Effective October 2014, XpresSpa terminated its former Airport Concession Disadvantaged Business Enterprise (“ACDBE”) partner, Cordial Endeavor Concessions~~Table of ~~Atlanta, LLC (“Cordial”), in several store locations at Hartsfield-Jackson Atlanta International Airport.~~Contents
On January 3, 2017, XpresSpa filed a lawsuit in the Supreme Court of the State of New York, County of New York against Cordial and several related parties. The lawsuit alleges breach of contract, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and breach of good faith and fair dealing related to XpresSpa’s former partnership with Cordial as XpresSpa’s ACDBE partner in several store locations at Hartsfield-Jackson Atlanta International Airport (the “Cordial Litigation”). On March 3, 2017, XpresSpa filed a first amended complaint against Cordial. On April 5, 2017, Cordial filed a motion to dismiss the Cordial Litigation. On September 12, 2017, the Court held a hearing on the motion to dismiss.
On January 4, 2017, XpresSpa filed a lawsuit in the United States District Court for the Southern District of New York against its former attorney, Kevin Ross, and his law firm, alleging malpractice, unjust enrichment, breach of fiduciary duty, fraudulent inducement, fraudulent concealment, tortious interference, and promissory estoppel related to XpresSpa’s former partnership with Cordial, as well as XpresSpa’s engagement of Kevin Ross as its attorney (the “Ross Litigation”). On March 17, 2017, XpresSpa filed a First Amended Complaint against the defendants. On June 2, 2017, the Ross Defendants filed their answer.
~~Both the Cordial Litigation and Ross Litigation are pending before the respective courts.~~
~~In re Chen 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 litigation in the United States District Court for the Eastern District of New York, claiming that they and other spa technicians were misclassified, 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~~
XpresSpa is involved in various other claims and legal actions that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on XpresSpa’s financial position, results of operations, liquidity, or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than the Company currently anticipates, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.
~~The Company’s intellectual property operating segment 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~~2022 filed on April 17, 2023, as subsequently amended on May 1, 2023 (the “Annual Report”), our Quarterly Report on Form 10-Q for the three months and six months ended March 31, 2023 and June 30, ~~2017 (the “2016 Annual Report”)~~2023, respectively, and this Quarterly Report on Form 10-Q and any future reports we file with the Securities and Exchange Commission (“SEC”). The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such ~~statements, except as required by law.~~statements.
All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to ~~FORM Holdings Corp. (prior to May 5, 2016, known as “Vringo,~~XWELL, Inc.”), a Delaware corporation, and its consolidated subsidiaries.

Overview
~~FORM Holdings Corp.~~On October 25, 2022, we changed our name to XWELL, Inc. (“~~FORM”~~XWELL” or the “Company”) ~~has three operating segments:~~from XpresSpa Group, Inc. Our common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL” since the opening of the trading market on October 25, 2022. We filed an amended and restated certificate of incorporation with the Delaware Secretary of State on October 24, 2022 (the “Amended and Restated Certificate”) reflecting the name change. Rebranding to XWELL aligned our corporate strategy to build a pure-play wellness ~~technology~~services company, in both the airport and ~~intellectual property.~~off airport marketplaces.

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

XWELL is a global wellness company operating multiple brands and focused on bringing restorative, regenerative and reinvigorating products and services to travelers. XWELL currently has three reportable operating segments: XpresSpa^®, XpresTest^®, and Treat^™.

XpresSpa
XWELL’s subsidiary, XpresSpa Holdings, LLC (“XpresSpa”) has been a global airport retailer of spa ~~services.~~services through our 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 XpresSpa in the fourth quarter of 2016.~~
Our technology operating segment consists of Group Mobile as well as an 11% equity interest in InfoMedia Services Limited (“InfoMedia”). Group Mobile offers rugged hardware and software solutions, including laptops, tablets, and mobile printers, as well as installation and deployment services. In the first quarter 2017, we completed the acquisition of Excalibur Integrated Systems, Inc. (“Excalibur”) which is an end-to-end solutions provider of mobile hardware devices, wireless network security, data networking, telephony and mobile application development and software solutions. Following the acquisition, Excalibur was merged with Group Mobile within our technology operating segment. Our equity interest in InfoMedia, which is accounted for under the cost method of investment, increased from 8.25% to 11% in the first quarter of 2017 due to a realignment of ownership interests.
We are currently evaluating strategic alternatives with respect to Group Mobile in an attempt to enhance stockholder value. These strategic alternatives may include a possible sale, merger, spin-off or other separation of Group Mobile or other forms of business combinations or strategic transactions. We are seeking to enter into one or more strategic transactions involving Group Mobile in the first quarter of 2018.
As of September 30, ~~2017,~~2023, there were 21 operating XpresSpa domestic locations. During 2022, we sold one location in Austin-Bergstrom International Airport to our ~~FLI Charge business is reflected~~franchisee which now operates both locations at this airport. We also had 10 international locations operating as ~~discontinued operations~~of September 30, 2023, including two XpresSpa locations in ~~our condensed consolidated statements~~Dubai International
24
Table 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.~~Contents
~~Our intellectual property operating segment is engaged~~Airport in the ~~monetization~~United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in Istanbul Airport in Turkey.
XpresTest
We, in partnership with certain COVID-19 testing partners, successfully launched our XpresCheck Wellness Centers through our XpresTest, Inc. subsidiary (“XpresTest”), offering testing services, also in airports. During 2022, as countries continued to relax their testing requirements resulting in rapid decline of ~~patents related~~testing volumes at our XpresCheck locations, we closed all but one XpresCheck Wellness Center. As of September 30, 2023, all our XpresCheck locations have ceased operations.

XpresTest began conducting bio-surveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo in 2021 and on January 31, 2022, we announced the extension of the initial program, bringing the total contract to ~~content and ad delivery, remote monitoring and mobile technologies.~~$5,534. As of August 2022, the program was renewed in partnership with Ginkgo BioWorks for a new two-year contract term which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. Effective as of August 12, 2023, the revenue for the second year was determined to be approximately $6,675.

~~On July 26, 2017, we entered~~For reporting purposes, the former Hyperpointe segment has been consolidated into the ~~Underwriting Agreement~~XpresTest segment. This determination was made given that XpresTest and Hyperpointe are managed by its Chief Executive Officer, Ezra Ernst, as a single segment.

HyperPointe, which the Company acquired in January 2022, provides a broad range of service and support options for our customers, including technical support services and advanced services.
Treat

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

By the fourth quarter of ~~6,900,000 shares~~2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As of ~~FORM Common Stock including 900,000 shares subject to~~September 30, 2023, the ~~Underwriters’ over-allotment option, which was exercised on August 2, 2017 and closed on August 4, 2017. The price to the public~~Treat brand operates in two locations in the ~~Offering was $1.10 per share~~airport (JFK International Airport and ~~the Underwriters agreed to purchase the shares~~Salt Lake City International Airport). These remaining Treat locations offer a full retail product offering and a suite of ~~FORM Common Stock from us pursuant to the Underwriting Agreement at~~wellness and spa services.

As of September 12, 2023, XWELL acquired Naples Wax, LLC, a group of upscale hair removal boutiques in Florida, for a purchase price of ~~$1.023 per share.~~approximately $1.6 million. Known for providing a memorable customer experience, Naples Wax Center operates three high-performing locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products. The ~~net proceeds~~acquisition of Naples Wax Center enables the company to ~~us from~~move beyond its airport client base with a business it can adapt a larger wellness platform while also growing its retail footprint to serve its long-term financial expectations.

For reporting purposes, the ~~Offering were $6,584,000~~Naples Wax acquisition is consolidated under the Treat segment.

25
Table of Contents
Although we recognize three segments of business, our strategy for the future is to create and leverage a fully integrated set of products and services that are both profitable and scalable across our portfolio of brands. Additionally, we are expanding our retail strategy, not only adding more products for sale but aligning those products more efficiently to our service offerings. This product strategy includes, for example, adding muscle relaxation patches to a neck or back massage to continue treatment after ~~deducting underwriting discounts and commissions and other estimated offering expenses.~~the delivery of the service.

~~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~~also plan to build our capability for delivering wellness services outside the airport. We believe operating outside of the airport complements our offering and ~~non-GAAP measurements~~represents the fastest way to ~~assess~~scale the ~~trends~~XWELL family of brands. We will be looking to further expand internationally. With international travel slowly returning to pre-pandemic levels, we continue to be opportunistic in our ~~business. With respect to XpresSpa, we review its Adjusted EBITDA,~~approach, by taking advantage of the current market growth. We believe a ~~non-GAAP measure, which we define as earnings before interest, tax, depreciation and amortization expense, excluding merger and acquisition, integration and one-time costsand stock-based compensation.~~
Adjusted EBITDA has been presented in this Quarterly Report on Form 10-Q and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We consider Adjusted EBITDA to be an important indicatorstrategy for the performance of our business, but not a measure of performance or liquidity calculated in accordance with U.S. GAAP. We have included this non-GAAP financial measure because management utilizes this information for assessing our performance and liquidity, and as an indicator ofinternational expansion further advances our ability to make capital expenditures and finance working capital requirements. We believe that Adjusted EBITDA is a measurement that is commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful for analysts and investors to understand this indicator because it excludes transactions not related toexpand our core cash operating activities. We believe that excluding these transactions allows investors to meaningfully analyze the performance of our core cash operations. Adjusted EBITDA should not be considered in isolation or as an alternative to cash flow from operating activities or as an alternative to operating income or as an indicator of operating performance or any other measure of performance derived in accordance with GAAP. In evaluating our performance as measured by Adjusted EBITDA, we recognize and consider the limitations of this measurement. Adjusted EBITDA does not reflect our obligations for the payment of income taxes, interest expense, or other obligations such as capital expenditures. Accordingly, Adjusted EBITDA is only onebrands including bio-surveillance outside of the ~~measurements~~US.

These strategic imperatives will be accomplished through development of an infrastructure specifically focused on enabling scalable and efficient growth.
Results of Operations
Revenue
We recognize revenue from the sale of XpresSpa and Naples Wax 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 ~~utilizes.~~fee to operate in the XpresCheck and Treat Wellness Centers. For the bio-surveillance program, XpresTest receive a flat monthly fee for its services.
~~The following table~~HyperPointe provides a ~~reconciliation~~broad range of ~~operating loss from continuing operations~~service and support options for our ~~three operating segments~~customers, including technical support services and ~~corporate to Adjusted EBITDA income (loss) for~~advanced services. Technical support services represent 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~~majority 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,offerings which are ~~also~~distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term.
Cost of sales
Cost of sales for our ~~reportable segments: wellness, technology~~XpresSpa 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~~Treat segments consist 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. Store-level costs include all costs that are directly attributable to the store operations, ~~and include:~~
primarily payroll and related ~~benefits~~benefit costs for ~~our~~ store ~~operations~~personnel, occupancy costs and ~~store-level management;~~
~~rent, percentage rent and other occupancy costs;~~
~~the~~ cost of ~~merchandise as well as its freight, shipping~~products sold. Cost of sales of our XpresTest 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~~Treat segments 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~~XpresCheck and Treat medical office business, and consists of ~~business due to hurricanes that affected our locations in Houston, Texas, Miami and Orlando, Florida, and Atlanta, Georgia and the integration costs related~~expenses directly attributable to the ~~acquisition, which together amounted to $529,000 during~~operations under the ~~third quarter of 2017.~~
~~Depreciation and amortization costs include the depreciation of leasehold improvements and equipment and the amortization~~terms of the ~~brand~~MSAs, primarily payroll and ~~customer relationship intangible assets, which were recorded at fair value as of the acquisition date.~~
~~Technology~~
~~Our technology operating segment predominantly includes revenues~~related benefit costs for personnel, occupancy costs and cost of ~~sales generated by Group Mobile~~supplies.
Other general and ~~Excalibur. During the third quarter~~administrative expenses
Other general and administrative expenses include management and administrative personnel, overhead and occupancy costs, insurance and various professional fees, as well as stock-based compensation for directors, management and administrative personnel.
26
Table of ~~2017, Group Mobile’s revenue increased 178.6% from $1,751,000 for the three-month period~~Contents
Three months ended September 30, ~~2016~~2023 compared to ~~$4,879,000 for~~ the ~~three-month period~~three months ended September 30, ~~2017. This~~ 2022
Revenue

Three months ended September 30,


2023

2022

Inc/(Dec)
Total revenue

$
7,468

$
10,736

$
(3,268)

The decrease in revenue of $3,268 or 30%, was ~~mainly~~primarily 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~~reduction in ~~connection with our patent licensing and related internal payroll expenses. In July 2017,~~patient service revenue triggered by the ~~intellectual property operating segment recognized a $148,000 gain on~~rapid decline of 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~~XpresTest segment as ~~discontinued operations was triggered. As a result, a non-cash impairment loss of $1,092,000 relating~~countries continued to ~~FLI Charge’s technology assets~~relax their testing requirements and ~~goodwill was recorded during the second quarter of 2017.~~
~~On October 20, 2017,~~ we ~~sold FLI Charge to a group of private investors and FLI Charge management, who will own and operate FLI Charge. We will not be providing any continued management or financing support to FLI Charge.~~
Total consideration for the sale of FLI Charge is $1,250,000, payable in installments. The consideration is secured by a note and security agreement. Additionally, we are entitled to a 5% royalty, in perpetuity, on the gross revenue of FLI Charge and of any affiliate of FLI Charge with regard to conductive wireless charging, power, or accessories. We also received a warrant exercisable in FLI Charge or an affiliate of FLI Charge upon an initial public offering or certain defined events in connection with a change of control. The warrant has a five-year life and is based on a valuation of the lesser of $30,000,000 or the financing valuation of FLI Charge preceding the initial public offering or certain defined events. We are currently evaluating the gain on the sale of FLI Charge.
The results of operations for FLI Charge are presented on the condensed consolidated statements of operations and comprehensive loss as consolidated net loss from discontinued operations, which totaled $208,000 and $2,321,000 for the three- and nine-month periods ended September 30, 2017, respectively. In addition, the carrying amounts of assets and liabilities belonging to FLI Charge are presented on the condensed consolidated balance sheets as assets held for disposal and liabilities held for disposal, respectively.
~~Results of Operations~~
~~Three-month period ended September 30, 2017 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 whichexperienced decreased testing volumes at our ~~intellectual property operating segment recognized a one-time lump sum payment of $1,350,000 in connection with an executed confidential license agreement.~~
now closed XpresCheck locations.
Cost of sales

Three months ended September 30,


2023

2022

Inc/(Dec)
Cost of sales

$
6,377

$
9,339

$
(2,962)
Three months ended September 30,
2017 2016 Change
Cost of sales $ 14,375,000 $ 2,718,000 $ 11,657,000

~~During the three-month period ended September 30, 2017, we recorded total~~The decrease in cost of sales of ~~$14,375,000,~~$2,962 or 32%, is commensurate with the decrease in revenues offset by the reopening of certain XpresSpa locations. We had 31 open spa locations as of September 30, 2023, and 20 open Spa locations as of September 30, 2022. The largest component in the cost of sales are the costs of testing kits and labor costs at the location-level. Cost of sales also includes rent and related occupancy costs, which ~~represents an~~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,


2023

2022

Inc/(Dec)
Depreciation and amortization

$
590

$
1,564

$
(974)

The decrease in depreciation and amortization of approximately 62% was primarily due to the write-off of the stores that were permanently closed since September 30, 2022. Fewer locations resulted in lower amortization of leasehold improvements. Depreciation and amortization expense also decreased because of the impairments and disposals of fixed assets during the year ended December 31, 2022.
Impairment/loss on disposal of assets

Three months ended September 30,


2023

2022

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

$
6,798

$
1,040

$
5,758

The increase in impairment is primarily due to the impairment of ~~$11,657,000 (or 428.9%)~~Hyperpointe-related assets including goodwill.

Other general and administrative expenses

Three months ended September 30,


2023

2022

Inc/(Dec)
Other general and administrative expenses

$
3,593

$
4,843

$
(1,250)
27
Table of Contents
The decrease of approximately 26% was primarily due to rightsizing our existing business and optimizing our cost structure as well as reduction of functional costs associated with the operations of now closed XpresCheck Wellness Centers. We have significantly reduced operating and overhead expenses since the second half of 2022, while we continue to focus on returning to overall profitability.
Other non-operating expense, net

Three months ended September 30,


2023

2022

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

$
(198)

$
(134)

$
(64)

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

Three months ended September 30,


2023

2022
Loss on equity investments

$
(20)

$
(98)
Bank fees and financing charges

(178)

(36)
Total

$
(198)

$
(134)

Realized and unrealized foreign exchange loss

Three months ended September 30,


2023

2022

Inc/(Dec)
Foreign exchange remeasurement gain/(loss)

$
366

$
(2)

$
368

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

Interest income, net

Three months ended September 30,


2023

2022

Inc/(Dec)
Interest income, net

$
105

$
114

$
(9)

Nine months ended September 30, 2023 compared to the ~~three-month period~~Nine months ended September 30, ~~2016. XpresSpa recorded total~~2022
Revenue

Nine months ended September 30,


2023

2022

Inc/(Dec)
Total revenue

$
22,706

$
48,381

$
(25,675)

The decrease in revenue of $25,675, or 53%, was primarily due to the reduction in patient service revenue triggered by the rapid decline of the XpresTest segment as countries continued to relax their testing requirements and we experienced decreased testing volumes at our now closed XpresCheck locations.
Cost of sales

Nine months ended September 30,


2023

2022

Inc/(Dec)
Cost of sales

$
19,903

$
36,743

$
(16,840)
28
Table of Contents

The decrease in 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~~$16,840 or 46%, is commensurate with the ~~quarter was 18.2%. Our technology operating segment recorded~~decrease in revenues offset by the reopening of certain XpresSpa locations. We had 31 open spa locations as of September 30, 2023, and 20 open Spa locations as of September 30, 2022. The largest component in the cost of sales are the costs of ~~$3,902,000, which resulted in our technology operating segment generating 20.0% gross margin during~~testing kits and labor costs at the ~~quarter.~~
~~During the three-month period ended September 30, 2016, we recorded total cost~~location-level. Cost of sales ~~of $2,718,000. Group Mobile recorded total cost of sales of $1,554,000,~~also includes rent and related occupancy costs, 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~~can primarily include rent based on percentage of sales, as ~~a percentage~~well as other product costs directly associated with the procurement of ~~sales will decline gradually over time as a result of the improvement of store-level performance by our wellness~~retail inventory, and other operating ~~segment.~~
costs.
Depreciation ~~amortization~~ and ~~impairment~~amortization

Nine months ended September 30,


2023

2022

Inc/(Dec)
Depreciation and amortization

$
1,770

$
4,329

$
(2,559)

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,~~The decrease in depreciation and amortization ~~expense totaled $1,894,000, which represents an increase~~ of ~~$1,712,000 (or 940.7%) compared~~approximately 59% was primarily due to the write-off of the stores that were permanently closed since September 30, 2022. Fewer locations resulted in lower amortization ~~expense recorded~~of leasehold improvements. Depreciation and amortization expenses also decreased because of the impairments and disposals of fixed assets during the ~~three-month period~~year ended September 30, 2016. There was no impairment expense for the three-month period ended September 30, 2017 and no depreciation or impairment expense recorded for the three-month period ended September 30, 2016.December 31, 2022.
Impairment/loss on disposal of assets

Nine months ended September 30,


2023

2022

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

$
6,816

$
988

$
5,828

The ~~overall~~ increase in ~~depreciation, amortization and~~ impairment ~~expense was mainly~~is primarily due to ~~an increase~~the impairment of Hyperpointe-related assets including goodwill.

Other general and administrative expenses

Nine months ended September 30,


2023

2022

Inc/(Dec)
Other general and administrative expenses

$
13,891

$
18,250

$
(4,359)

The decrease of approximately 24% 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,~~other general and administrative expenses ~~increased by $1,909,000 (or 53.6%) compared~~was primarily due to ~~the three-month period ended September 30, 2016. The results of the three-month period ended September 30, 2017 include incremental general~~rightsizing our existing business and ~~administrative expenses associated with~~optimizing 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~~cost structure as well as ~~other net non-operating expense~~reduction 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~~functional costs associated with ~~debt that was repaid during July 2016.~~the operations of now closed XpresCheck Wellness Centers. We ~~also recorded $262,000~~have significantly reduced operating and overhead expenses since the second half of ~~extinguishment~~2022, while we continue to focus on returning to overall profitability.
Other non-operating expense, net

Nine months ended September 30,


2023

2022

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

$
(345)

$
(643)

$
298

The following is a summary of ~~debt when~~ the ~~debt was repaid. These were~~transactions included 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~~net for the nine months ended September 30, ~~2016 was significantly higher~~2023 and ~~was~~2022:

Nine months ended September 30,


2023

2022
Loss on equity investments

$
(53)

$
(521)
Bank fees and financing charges

(282)

(122)
Other

(10)

—
Total

$
(345)

$
(643)
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Realized and unrealized foreign exchange loss

Nine months ended September 30,


2023

2022

Inc/(Dec)
Foreign exchange remeasurement gain/(loss)

$
(690)

$
(7)

$
(683)

Foreign exchange loss during 2023 primarily ~~attributed~~pertains to ~~an $11,937,000 impairment charge to~~remeasurement of foreign currency transactions at our ~~patents asset group. During~~newly opened Turkish locations.

Interest income, net

Nine months ended September 30,


2023

2022

Inc/(Dec)
Interest income, net

$
334

$
159

$
175

Interest income, net increased because of increased interest rates and elimination of interest expense since the second quarter of 2016, we determined that there were impairment indicators related to certain of our patents. A significant factor considered when making this determination occurred on May 6, 2016, when we changed the name of our company from “Vringo, Inc.” to “FORM Holdings Corp.” and concurrently announced our repositioning as a holding company of small- and middle-market growth companies. We concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, we performed the second step of the impairment test to measure the potential impairment by calculating the asset group’s fair value asbeginning of May 6, 2016. As a result, following amortization for the month of April 2016, we recorded an impairment charge of $11,937,000, or 88.7% of the carrying value of the patents prior to impairment, which resulted in a new carrying value of $1,526,000 on May 6, 2016. Following the impairment, we reevaluated the remaining useful life and concluded that there were no changes in the estimated useful life. There were no impairment indicators related to any of our other amortizable intangible assets during the nine-month period ended September 30, 2017.

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

Liquidity and Capital Resources
As of September 30, 2023, we had approximately $4,827 of cash and cash equivalents (excluding restricted cash), $21,311 in marketable securities, and total current assets of $29,962. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $8,157 as of September 30, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $21,805 as of September 30, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.
We have carried out an assessment of our ability to continue as a going concern. As of the date of the report, we believe that our Company has sufficient liquidity to fund operations for the next twelve months. Our primary liquidity and capital requirements are for ~~new~~the maintenance of our current XpresSpa and Treat locations ~~for our wellness operating segment,~~and brand, as well as ~~working capital for~~the expansion of Naples Wax and 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~~off-airport strategy. During 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~~nine months ended September 30, ~~2017 was related either~~2023 and 2022, we used $12,873 and $17,406 in operations, respectively.
On August 31, 2021, our board of directors initially authorized a stock repurchase program that permitted the purchase and repurchase of up to ~~non-recurring payments, capital expenditures~~750,000 shares of our common stock through September 15, 2022. In May 2022, the Board increased the share repurchase program by an additional 500,000 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 ~~payments~~terminated at any time without prior notice.
Pursuant to our share repurchase program, we purchased 424,042 shares for ~~inventory,~~$12,116 and retired 357,122 of these purchased shares during 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~~nine months ended September 30, ~~2017:~~2022, and the remaining 66,920 shares were retired on August 3, 2022. We did not repurchase any shares during the nine months ended September 30, 2023.
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 unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended, filed with the SEC ~~on March 30, 2017,~~ which includes a description of our critical accounting ~~policies~~estimates that involve subjective and complex judgments that could potentially affect reported results. ~~While there~~There have been no material changes to our critical accounting ~~policies~~estimates as to the methodologies or assumptions we apply under ~~them, we~~them. We continue to monitor such methodologies and assumptions.

30
Table of Contents
Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
Not required as we are a smaller reporting company.

Item 4.         Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, ~~2017,~~2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.
This type of evaluation is performed on a quarterly basis so that conclusions of management, including our Chief Executive Officer and the Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. The overall goals of these evaluation activities are to monitor our disclosure controls and to modify them as necessary. We intend to maintain the disclosure controls as dynamic systems that we adjust as circumstances merit. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective ~~as of the end of the period covered by this report.~~
The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of our subsidiaries except Excalibur, which was acquired on February 2, 2017. Our consolidated revenue for the nine-month period ended September 30, 2017 was $48,683,000, of which Excalibur represented $4,195,000, and our total assets as of September 30, ~~2017 were $73,839,000, of which Excalibur represented $4,772,000.~~
2023.
~~Changes~~Remediation Plan for Material Weakness in Internal Control over Financial Reporting
~~On February 2, 2017, we acquired Excalibur, which~~Management is ~~an end-to-end solutions provider~~committed to the remediation of ~~mobile hardware devices, wireless network security, data networking, telephony~~the Company’s material weaknesses, as well as the continued improvement of the Company’s internal control over financial reporting. Management has implemented, and ~~mobile application development and software solutions. Following~~continues to implement, the ~~acquisition, Excalibur was merged with Group Mobile within~~actions described below to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weaknesses described above will continue to exist. We cannot provide any assurance that the below remediation efforts will be successful or that our ~~technology operating segment. We are currently in the process of evaluating and integrating Excalibur's historical~~ internal ~~controls~~control over financial reporting ~~into ours.~~will be effective as a result of these efforts. Management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
1) The Company has turned on the multi-currency features related to its cloud-based accounting systems.
2) The Company has engaged outside service providers to assist with the valuation, accounting, and recording of key reporting areas such as leases, revenue recognition and stock compensation expense.
3) The Company utilizes independent consulting firms to assist with the preparation of the Financial Statements and U.S. GAAP accounting research.
4) The Company has engaged outside service providersto review the applicable complementary user entity controls described in the service organizations’ reports for their potential impact on the Company’s financial reporting.
5) On July 10, 2023, the Company hired a new permanent Chief Financial Officer.
Changes in Internal Control over Financial Reporting
Other than ~~this change,~~as set forth in the foregoing paragraph, there ~~were~~have been no changes in our internal control over financial reporting that occurred during the ~~quarter~~three months ended September 30, ~~2017~~2023 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.
31
Table of Contents~~Part~~
PART II– OTHER INFORMATION
Item 1.Legal Proceedings.
For information regarding legal proceedings, see Note ~~11 “Commitments~~13. “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.2022.

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

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

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

Item 4.Mine Safety Disclosures.
Not applicable.

Item 5.Other Information.
None.

28
32
Table of Contents
Item 6.         Exhibits.
~~Exhibit~~
~~No.~~
~~Description~~
Exhibit
No.
Description
31.1*

3.1

Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on September 27, 2023)

31.1*
Certification of Principal Executive Officer pursuant to Exchange Act, Rules 13a -– 14(a) and 15d -– 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~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~~

33
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, 2023
By:
/s/ Scott R Milford
Scott R. Milford
Chief Executive Officer
(Principal Executive Officer)

Date:
November 14, 2023

By:
/s/ Suzanne A. Scrabis

Suzanne A. Scrabis

Chief Financial Officer

(Principal Financial and Accounting Officer)

34


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¨	☐