SEC Filing - XWELL

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023

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

For the transition period from ___ to ___

Commission file number: 001-34785

XWELL, Inc.

(Exact Name of Registrant as Specified in its Charter)


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

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

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

XpresSpa Group, Inc.

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

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


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

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

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

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

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

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

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

As of August 10, 2023, 83,487,663 shares of the registrant’s common stock were outstanding.

Table of Contents

XWELL, Inc. and Subsidiaries

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION		31

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	June 30,		December 31,
	2023		2022
Current assets
Cash and cash equivalents	$	6,378	$	19,038
Marketable Securities		25,526		23,153
Accounts receivable		1,934		2,858
Inventory		845		1,161
Other current assets		1,445		1,122
Total current assets		36,128		47,332

Restricted cash		751		751
Property and equipment, net		3,867		3,666
Intangible assets, net		3,710		4,008
Operating lease right of use assets, net		6,392		8,276
Goodwill		4,024		4,024
Other assets		1,715		2,369
Total assets	$	56,587	$	70,426

Current liabilities
Accounts payable	$	2,164	$	2,312
Accrued expenses and other current liabilities		4,597		5,719
Current portion of operating lease liabilities		2,243		2,586
Deferred revenue		262		339
Total current liabilities		9,266		10,956

Long-term liabilities
Operating lease liabilities		10,321		11,521
Total liabilities		19,587		22,477
Commitments and contingencies (see Note 13)

Equity
Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 83,418,535 and 83,232,262 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		833		832
Additional paid-in capital		468,909		467,740
Accumulated deficit		(439,351)		(428,112)
Accumulated other comprehensive loss		(1,128)		(534)
Total equity attributable to XWELL, Inc.		29,263		39,926
Noncontrolling interests		7,737		8,023
Total equity		37,000		47,949
Total liabilities and equity	$	56,587	$	70,426

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

Table of Contents

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022

Revenue, net
Patient services revenue	$	17	$	7,732	$	148	$	27,121
Services		6,869		4,787		12,641		8,564
Products		701		421		1,297		766
HyperPointe Services		574		657		1,135		1,180
Other		14		—		17		14
Total revenue, net		8,175		13,597		15,238		37,645
Cost of sales
Labor		4,769		5,477		9,147		10,939
Occupancy		961		1,262		2,174		2,330
Products and other operating costs		1,255		5,618		2,205		14,135
Total cost of sales		6,985		12,357		13,526		27,404

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

Depreciation and amortization		593		1,501		1,180		2,765
Loss (gain) on disposal of assets		18		(52)		18		(52)
Advertising and promotion expense		204		1,222		315		2,833
IT/Hosting services		204		839		913		1,506
Other general and administrative expenses		4,895		5,497		10,298		13,407
Total operating expenses		5,914		9,007		12,724		20,459
Operating loss		(4,724)		(7,767)		(11,012)		(10,218)
Interest income, net		105		38		229		45
Realized and unrealized foreign exchange loss		(1,141)		(3)		(1,056)		(5)
Gain on Securities, realized and unrealized		201		—		478		—
Other non-operating expense, net		(120)		(193)		(147)		(509)
Loss before income taxes		(5,679)		(7,925)		(11,508)		(10,687)
Income tax expense		—		(2)		—		(2)
Net loss		(5,679)		(7,927)		(11,508)		(10,689)
Net (income) loss attributable to noncontrolling interests		(51)		9		269		(1,512)
Net loss attributable to XWELL, Inc.	$	(5,730)	$	(7,918)	$	(11,239)	$	(12,201)

Net loss	$	(5,679)	$	(7,927)	$	(11,508)	$	(10,689)
Other comprehensive loss		(464)		(105)		(594)		(146)
Comprehensive loss	$	(6,143)	$	(8,032)	$	(12,102)	$	(10,835)
Loss per share
Basic and diluted loss per share	$	(0.07)	$	(0.08)	$	(0.13)	$	(0.12)
Weighted-average number of shares outstanding during the period
Basic and diluted		83,410,562		95,352,025		83,378,408		98,458,153

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

Table of Contents

XWELL, Inc. and Subsidiaries

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

(Unaudited)

(In thousands, except share and per share data)


											Accumulated
							Additional				other		Total		Non-
	Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		Shares	Amount		in capital		deficit		loss		equity		interests		equity
December 31, 2022	83,232,262	$	832	—		—	$	467,740	$	(428,112)	$	(534)	$	39,926	$	8,023	$	47,949
Issuance of restricted stock units	120,318		1	—		—		(1)		—		—		—		—		—
Value of shares withheld to fund payroll taxes	—		—	—		—		(22)		—		—		(22)		—		(22)
Stock-based compensation	—		—	—		—		589		—		—		589		23		612
Net loss for the period	—		—	—		—		—		(5,509)		—		(5,509)		(320)		(5,829)
Foreign currency translation	—		—	—		—		—		—		(130)		(130)		11		(119)
March 31, 2023	83,352,580	$	833	—	$	—	$	468,306	$	(433,621)	$	(664)	$	34,854	$	7,737	$	42,591
Issuance of restricted stock units	65,955		—	—		—		—		—		—		—		—		—
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	83,418,535	$	833	-	$	-	$	468,909	$	(439,351)	$	(1,128)	$	29,263	$	7,737	$	37,000

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

Table of Contents

XWELL, Inc. and Subsidiaries

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

(Unaudited)

(In thousands, except share and per share data)



											Accumulated
							Additional				other		Total		Non-
	Common stock			Treasury Stock			paid-		Accumulated		comprehensive		Company		controlling		Total
	Shares	Amount		Shares	Amount		in capital		deficit		loss		equity		interests		equity
December 31, 2021	101,269,349	$	1,013	—		—	$	487,306	$	(395,275)	$	(312)	$	92,732	$	7,203	$	99,935
Issuance of Common Stock for acquisition	552,487		5	—		—		901		—		—		906		—		906
Vesting of restricted stock units	391,820		4	—		—		(4)		—		—		—		—		—
Value of Shares Withheld to fund payroll taxes	—		—	—		—		(73)		—		—		(73)		—		(73)
Stock-based compensation	—		—	—		—		1,543		—		—		1,543		—		1,543
Net loss for the period	—		—	—		—		—		(4,283)		—		(4,283)		1,521		(2,762)
Repurchase and retirement of common stock	(7,142,446)		(71)	—		—		(11,024)		—		—		(11,095)		—		(11,095)
Foreign currency translation	—		—	—		—		—		—		(41)		(41)		—		(41)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(824)		(824)
Contributions from noncontrolling interests	—		—	—		—		—		—		—		—		200		200
March 31, 2022	95,071,210	$	951	—	$	—	$	478,649	$	(399,558)	$	(353)	$	79,689	$	8,100	$	87,789
Vesting of restricted stock units	289,061		3	—		—		(3)		—		—		—		—		—
Grant of stock options for services	—		—	—		—		15		—		—		15		—		15
Stock-based compensation	—		—	—		—		771		—		—		771		549		1,320
Net loss for the period	—		—	—		—		—		(7,918)		—		(7,918)		(9)		(7,927)
Repurchase of common stock	—		—	(1,338,404)		(1,021)		—		—		—		(1,021)		—		(1,021)
Foreign currency translation	—		—	—		—		—		—		(105)		(105)		—		(105)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(132)		(132)
June 30, 2022	95,360,271	$	954	(1,338,404)	$	(1,021)	$	479,432	$	(407,476)	$	(458)	$	71,431	$	8,508	$	79,939

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

Table of Contents

XWELL, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six months ended June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(11,508)	$	(10,689)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,180		2,765
Unrealized loss on foreign currency remeasurements		1,103		—
Loss (gain) on disposal of assets		18		(52)
Unrealized gain on marketable securities		(309)		—
Amortization of operating lease right of use asset		806		828
Issuance of shares of Common Stock for services		—		15
Stock-based compensation		1,238		2,863
Loss on equity investment		33		430
Changes in assets and liabilities:
Decrease in inventory		316		684
Decrease in accounts receivable		924		186
Decrease (increase) in other assets, current and non-current		65		(295)
Decrease in deferred revenue		(77)		(1,027)
Decrease in other liabilities, current and non-current		(2,592)		(2,803)
Increase (decrease) in accounts payable		185		(1,520)
Net cash used in operating activities		(8,618)		(8,615)
Cash flows from investing activities
Acquisition of property and equipment		(1,235)		(4,062)
Investment in marketable securities		(2,064)		—
Acquisition of HyperPointe net of cash assumed		—		(4,853)
Acquisition of intangibles		(471)		(283)
Net cash used in investing activities		(3,770)		(9,198)
Cash flows from financing activities
Repurchase of Common Stock		—		(12,116)
Contributions from noncontrolling interests		—		200
Payments for shares withheld on vesting		(22)		(73)
Repayment of Paycheck Protection Program		—		(3,584)
Distributions to noncontrolling interests		(120)		(956)
Net cash used in financing activities		(142)		(16,529)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(130)		(56)
Decrease in cash, cash equivalents and restricted cash		(12,660)		(34,398)
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	$	7,129	$	71,859
Cash paid for
Interest	$	—	$	10
Income taxes		122	$	2
Non-cash investing and financing transactions
Capital expenditures included in Accounts payable, accrued expenses and other current liabilities	$	397	$	231
Issuance of Common Stock on acquisition of gcg Connect, LLC, d/b/a HyperPointe	$	—	$	906

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

Table of Contents

XWELL, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1. Business, Basis of Presentation and Liquidity

Overview

On October 25, 2022, the Company changed its name to XWELL, Inc. (“XWELL” or the “Company”) from XpresSpa Group, Inc. The Company’s common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL” since the opening of the trading market on October 25, 2022. The Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State on October 24, 2022 (the “Amended and Restated Certificate”) reflecting the name change. Rebranding to XWELL aligned the Company’s corporate strategy to build a pure-play health and wellness services company, in both the airport and off airport marketplaces.

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

XpresSpa

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

As of June 30, 2023, there were 25 operating XpresSpa domestic locations. During 2022, the Company sold one location in Austin-Bergstrom International Airport to its franchisee which now operates both locations at this airport. As the Company continues to monitor fluctuating airport volumes, the Company will also continue to review operating hours to optimize revenue opportunity.

The Company also had 10 international locations operating as of June 30, 2023, including two XpresSpa locations in Dubai International Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in Istanbul Airport in Turkey.

XpresTest

The Company, in partnership with certain COVID-19 testing partners, successfully launched its XpresCheck Wellness Centers through its XpresTest, Inc. subsidiary (“XpresTest”), offering testing services, also in airports. 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 June 30, 2023, we have closed all XpresCheck locations.

XpresTest began conducting biosurveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo in 2021 and on January 31, 2022, the Company announced the extension of the initial program, bringing the total contract to $5,534. As of August 2022, the program was renewed in partnership with Ginkgo BioWorks for a new two-year contract term which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. On August 11, 2023, the revenue for the second year was determined to be approximately $6,000.

Table of Contents

Treat

The Treat segment, which is operating through XWELL’s subsidiary Treat, Inc. (“Treat”) is a travel health and wellness brand that provides access to health and wellness services for travelers at on-site centers (currently located in JFK International Airport and in Salt Lake City International Airport).

In 2022, the Company’s Treat brand opened new locations in Phoenix Sky Harbor International Airport (pre-security) and Salt Lake City International Airport. With respect to these locations in Phoenix and Salt Lake City, agreements had already been executed with the airports and the decision was made to convert these locations to Treat.

By the third quarter of 2022, it became clear that the Treat business required a change in strategy and as a result, the Company began to retool the offerings within the Treat locations by providing additional retail as part of our retail strategy expansion as well as lay the foundation to bring more spa-like services into the Treat location in an attempt to unify our core offering.

By the fourth quarter of 2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As of June 30, 2023, the Treat brand operates at two locations (JFK International Airport and Salt Lake City International Airport). These remaining Treat locations offer a full retail product offering and a suite of wellness and spa services.

HyperPointe

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

Basis of Presentation and Principles of Consolidation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8-03 of Regulation S-X, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 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 six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

Liquidity and Financial Condition

As of June 30, 2023, the Company had cash and cash equivalents, excluding restricted cash, of $6,378, $25,526 in marketable securities, and total current assets of $36,128. The Company’s total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,266 as of June 30, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $26,862 as of June 30, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.

The Company has significantly reduced operating and overhead expenses since the second half of 2022, while it continues to focus on returning to overall profitability.

Table of Contents

The Company has taken actions to improve its overall cash position and access to liquidity through equity offerings and debt retirements, by exploring valuable strategic partnerships, right sizing its corporate structure and streamlining its operations.

Note 2. Significant Accounting and Reporting Policies

(a) Revenue Recognition Policy

XpresSpa

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

The Company has also entered into collaborative agreements with marketing partners whereby it sells certain of its partners’ products in its XpresSpa spas. The Company acts as an agent for revenue recognition purposes and therefore records revenue net of the revenue share payable to the partners. Upon receipt of the non-recurring, non-refundable initial collaboration fee, management records a deferred revenue liability and recognizes revenue on a straight-line basis over the life of the collaboration agreement.

XpresTest

During the third quarter of 2022, XpresTest, in partnership with Ginkgo Bioworks in continuation of their support to the CDC’s traveler-based SARS-CoV-2 genomic surveillance program were awarded a new contract. The partnership is expected to support public health and biosecurity services totaling approximately $16,000, with an overall potential to exceed $61,000 based on CDC program options and public health priorities. As COVID-19 sub-variants and other biological threats continue to emerge, the partners plan to expand the program footprint and incorporate innovative modalities and offerings, such as monitoring of wastewater from aircraft lavatories. The current contract with Ginkgo Bioworks related to the above partnership contains fixed pricing for which we are entitled to $6,761 for the sample collection (passenger and aircraft wastewater) and $570 for the traveler enrollment initiatives, which represents the amount of consideration that we are entitled. The Company recognizes revenue over time for both sample collection performance obligations, using the input method based on time elapsed to measure progress towards satisfying each of the performance obligations. The Company recognizes revenue ratably (straight line basis) over the term of the contract (one year). We will recognize revenue over time for the traveler enrollment initiative performance obligation based on the amount for which we have the right to invoice. The Company recorded $1,688 and $3,358 in revenue during the three and six months ended June 30, 2023 related to sample collection performance obligations because the Company’s efforts towards satisfying each of the performance obligations are expended evenly throughout the period of performance. During the three months ended June 30, 2023, the Company also recorded $570 for the traveler enrollment initiatives.

Treat

The Company recognizes revenue from the sale of Treat products and services when the services are rendered at Treat Centers and from the sale of products at the time products are purchased at the Treat Centers or online usually by credit card, net of discounts and applicable sales taxes. Accordingly, the Company recognizes revenue for the Company’s single performance obligation related to both in-centers and online sales at the point at which the service has been performed or the control of the merchandise has passed to the customer. Revenues from the Treat retail and e-commerce businesses are recorded at the time goods are shipped. The Company determined that these PLLCs are variable interest entities due to its equity holder having insufficient capital at risk, and the Company having a variable interest in the PLLCs. As a result of this determination, the total revenue of the PLLCs is designated as revenue for the Company. This revenue is recognized at the point in time at which the service is performed by the PLLCs.

Table of Contents

HyperPointe

Our HyperPointe segment which we acquired in January 2022, provides broad range of service and support options for our customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered. Revenue billed in advance are treated as deferred revenue which was $226 and $322 as of June 30, 2023 and December 31, 2022, respectively. The Company recognized $210 from the deferred revenue balance as of December 31, 2022. HyperPointe had unbilled receivables of $291 and $0 as of June 30, 2023 and December 31, 2022, respectively, included in other current assets.

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

(b) Translation into United States dollars

The Company conducts certain transactions in foreign currencies, which are recorded at the exchange rate as of the transaction date. All exchange gains and losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies are deemed non-operating income in the consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2023, the Company recognized $1,001 and $1,103, respectively, in foreign exchange losses occurring from the remeasurement of monetary balance sheet items denominated in non-dollar currencies. During the three and six months ended June 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 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 three and six months ended June 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 condensed consolidated statements of changes in stockholders’ equity.

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

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

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

Table of Contents

(d) Goodwill

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

(e) Reclassification

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

Recently adopted accounting pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13's main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. On implementation in 2023, the ASU did not have material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with 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, 2022, including interim periods within those fiscal years. The Company implemented the ASU 2021-08 in 2023. Although, the materiality of the application of ASU 2021-08 depends on the recognition and measurement of acquired assets and liabilities associated with future acquisitions, as the Company did not have any acquisition during the three and six months ended June 2023, the adoption of ASU 2021-08 did not have material impact on the Company’s financial statements.

Table of Contents

Note 3. Potentially Dilutive Securities

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


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Basic numerator:
Net loss attributable to XWELL, Inc.	$	(5,730)	$	(7,918)	$	(11,239)	$	(12,201)
Net loss attributable to common shareholders	$	(5,730)	$	(7,918)	$	(11,239)	$	(12,201)
Basic and diluted denominator: