XpresSpa Group(XWEL) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents XWELL, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheets (Unaudited) - Key Changes (June 30, 2025 vs. December 31, 2024) | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------------------ | | Cash and cash equivalents | $5,263 | $4,550 | $713 | 15.67% | | Marketable Securities | $2,885 | $7,247 | $(4,362) | -60.19% | | Total current assets | $11,833 | $15,337 | $(3,504) | -22.85% | | Total assets | $22,445 | $25,352 | $(2,907) | -11.47% | | Total current liabilities | $9,476 | $9,224 | $252 | 2.73% | | Derivative liability | $1,036 | $— | $1,036 | N/A | | Total liabilities | $18,321 | $17,610 | $711 | 4.04% | | Total equity | $3,709 | $7,742 | $(4,033) | -52.09% | Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - Key Changes (Six months ended June 30, 2025 vs. 2024) | Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | Percentage Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------------------ | | Total revenue, net | $14,712 | $18,008 | $(3,296) | -18.30% | | Total cost of sales | $11,618 | $12,264 | $(646) | -5.27% | | Gross Profit | $3,094 | $5,744 | $(2,650) | -46.14% | | Operating loss | $(5,850) | $(4,271) | $(1,579) | 36.97% | | Net loss attributable to XWELL, Inc. | $(6,988) | $(4,508) | $(2,480) | 55.01% | | Basic and diluted loss per share | $(1.56) | $(1.08) | $(0.48) | 44.44% | | Weighted-average shares outstanding | 5,340,442 | 4,182,959 | 1,157,483 | 27.67% | Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - Key Changes (Three months ended June 30, 2025 vs. 2024) | Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | Percentage Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------------------ | | Total revenue, net | $7,689 | $9,282 | $(1,593) | -17.16% | | Total cost of sales | $5,914 | $6,203 | $(289) | -4.66% | | Gross Profit | $1,775 | $3,079 | $(1,304) | -42.39% | | Operating loss | $(2,692) | $(1,893) | $(799) | 42.21% | | Net loss attributable to XWELL, Inc. | $(2,269) | $(1,996) | $(273) | 13.68% | | Basic and diluted loss per share | $(0.56) | $(0.48) | $(0.08) | 16.67% | | Weighted-average shares outstanding | 5,417,271 | 4,182,617 | 1,234,654 | 29.52% | Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Deficit) (Unaudited) Changes in Equity (January 1, 2025 to June 30, 2025) | Item | Amount (in thousands) | | :------------------------------------------------ | :-------------------- | | Total equity as of January 1, 2025 | $7,742 | | Stock-based compensation | $679 | | Series G Preferred Stock accretion | $(1,082) | | Series G Preferred Stock dividends | $(149) | | Accrual of Series G Preferred Stock and dividend redemption | $0 (reduction in shares/amount) | | Deemed dividends on Preferred Stock | $(108) | | Reclass of warrant liability upon warrant modification | $2,658 | | Foreign currency translation | $589 | | Other comprehensive income, net | $8 | | Net loss for the period | $(6,988) | | Total equity as of June 30, 2025 | $3,709 | Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Changes (Six months ended June 30, 2025 vs. 2024) | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash used in operating activities | $(6,564) | $(4,125) | $(2,439) | | Net cash provided by investing activities | $3,091 | $1,181 | $1,910 | | Net cash provided by financing activities | $3,650 | $4 | $3,646 | | Increase (decrease) in cash, cash equivalents and restricted cash | $213 | $(3,018) | $3,231 | | Cash, cash equivalents, and restricted cash at end of period | $5,514 | $6,170 | $(656) | Note 1. Business Overview and Going Concern - XWELL operates three reportable segments: XpresSpa (airport spa services), XpresTest (bio-surveillance programs at airports), and Naples Wax Center (upscale hair removal and skincare)[19] - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern for at least one year due to recurring losses, negative cash flows from operations, and insufficient liquidity[20][21][22] - The Company is implementing strategic initiatives to reduce operating expenses, improve working capital, and enhance cash flow, including cost reduction, capital spending controls, and exploring additional financing options[22] Note 2. Accounting and Reporting Policies - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and include accounts of wholly-owned entities and those with controlling financial interest[24] - The Series G Convertible Preferred Stock is classified as mezzanine equity and certain embedded features are bifurcated as a derivative liability under ASC 815 due to its debt-like characteristics and redeemable nature[26] - Warrants are classified as either equity or liability based on specific terms and ASC 480/815 guidance, with liability-classified warrants re-measured at fair value each period[28][29] - The Company reclassified certain prior-year balances to conform to current presentation, specifically moving salaries and benefits into general and administrative expenses, with no effect on previously reported results[34][35] Note 3. Potentially Dilutive Securities Potentially Dilutive Securities Excluded from Diluted EPS Calculation (as of June 30, 2025) | Security Type | Number of Securities | | :------------------------------------------------------------------------------------------------ | :------------------- | | Vested and unvested options to purchase Common Stock | 944,554 | | Unvested RSUs to issue Common Stock | 30,000 | | Series A and Series B warrants to purchase Common Stock | 5,347,594 | | Series G Convertible Preferred Stock on an as-converted basis | 2,406,417 | | Total potentially dilutive securities excluded | 8,728,565 | - All listed potentially dilutive securities had an anti-dilutive impact during periods of net loss for the three and six months ended June 30, 2025 and 2024, thus not affecting diluted loss per share[31][36] Note 4. Cash, Cash Equivalents, and Restricted Cash Cash, Cash Equivalents, and Restricted Cash (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------------------------ | :------------ | :---------------- | | Cash denominated in United States dollars | $2,741 | $2,145 | | Cash denominated in currency other than United States dollars | $2,186 | $2,160 | | Restricted cash | $251 | $751 | | Credit and debit card receivables | $336 | $245 | | Total cash, cash equivalents and restricted cash | $5,514 | $5,301 | - The Company's total cash, cash equivalents, and restricted cash increased by $213 thousand from December 31, 2024, to June 30, 2025[18][37] Note 5. Other current assets Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Prepaid expenses | $1,553 | $1,190 | | Other | $104 | $56 | | Total other current assets | $1,657 | $1,246 | - Total other current assets increased by $411 thousand, primarily driven by an increase in prepaid expenses[39] Note 6. Intangible Assets Intangible Assets, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Trade names | $160 | $171 | | Customer relationships | $521 | $571 | | Software | $189 | $281 | | Total intangible assets, net | $870 | $1,023 | - Total intangible assets, net decreased by $153 thousand from December 31, 2024, to June 30, 2025, primarily due to amortization[40] Estimated Amortization Expense for Intangible Assets (in thousands) | Calendar Years ending December 31, | Amount | | :--------------------------------- | :----- | | Remaining 2025 | $149 | | 2026 | $223 | | 2027 | $122 | | 2028 | $122 | | 2029 | $122 | | Thereafter | $132 | | Total | $870 | Note 7. Accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Accrued compensation | $1,631 | $2,384 | | Tax-related liabilities | $547 | $571 | | AP Accruals | $462 | $340 | | Gift certificates | $644 | $507 | | Total accrued expenses and other current liabilities | $3,572 | $4,088 | - Total accrued expenses and other current liabilities decreased by $516 thousand, mainly due to a reduction in accrued compensation[42] Note 8. Leases - The Company is contingently liable to a surety company under general indemnity agreements related to lease agreements, believing all contingent liabilities will be satisfied by performance[43] - A lease modification for the XpresSpa Las Vegas Airport lease resulted in an $80 thousand increase to both operating lease right-of-use assets and liabilities as of June 30, 2025[44] Future Minimum Lease Commitments (as of June 30, 2025, in thousands) | Calendar Years ending December 31, | Amount | | :--------------------------------- | :----- | | Remaining 2025 | $1,568 | | 2026 | $2,260 | | 2027 | $2,137 | | 2028 | $1,701 | | 2029 | $1,403 | | Thereafter | $2,858 | | Total future lease payments | $11,927 | | Less: interest expense at incremental borrowing rate | $(1,942) | | Net present value of lease liabilities | $9,985 | - Cash paid for minimum annual rental obligations increased significantly from $769 thousand in H1 2024 to $1,240 thousand in H1 2025[45] Note 9. Other Assets Other Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Equity investments | $106 | $85 | | Lease deposits | $2,050 | $1,535 | | Other | $12 | $14 | | Total other assets | $2,168 | $1,634 | - Total other assets increased by $534 thousand, primarily due to an increase in lease deposits[47] Note 10. Stock-based Compensation Total Stock-based Compensation (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three months ended June 30, | $599 | $304 | | Six months ended June 30, | $682 | $586 | - Stock-based compensation significantly increased for both the three-month (96.9%) and six-month (16.4%) periods ended June 30, 2025, compared to 2024[49] - As of June 30, 2025, unrecognized stock-based payment cost related to non-vested stock options was $567 thousand, vesting over 3.82 years, and for non-vested RSUs was $30 thousand[51][52] Note 11. Private Placement - On January 14, 2025, XWELL completed a private placement, issuing 4,000 shares of Series G Convertible Preferred Stock (convertible into up to 2,673,797 common shares at $1.496/share) and Series A and B warrants (to acquire 2,673,797 common shares each at $1.496 and $1.7952/share, respectively)[53] - The private placement generated aggregate gross proceeds of $4 million, with net proceeds of $3,745 thousand after $255 thousand in transaction costs (placement agent fees, legal, accounting)[54][56] - The Series G Preferred Stock is redeemable in six equal quarterly installments starting July 1, 2025, payable in cash (107% of stated value) or common stock, and accrues dividends at 8% per annum (15% upon a Triggering Event)[59][60] - The warrants were initially classified as liabilities due to certain provisions but were reclassified to equity on May 16, 2025, following an omnibus amendment that made them meet equity classification requirements under ASC 815-40[72][73] Change in Fair Value of Warrant and Derivative Liabilities (in thousands) | Item | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Change in fair value of derivative liability | $421 | $279 | | Change in fair value of warrant liability | $625 | $3,215 | | Loss on issuance of Series G Preferred Stock | $— | $(3,443) | Note 12. Commitments and Contingencies - The Company is involved in an arbitration proceeding with Cordial Endeavor Concessions of Atlanta, LLC, requested by the City of Atlanta, concerning alleged breaches of contract for XpresSpa locations at Hartsfield-Jackson Atlanta International Airport. An arbitration hearing is scheduled for March 2026[78][79][80] - On May 16, 2025, XWELL entered into a sales and marketing agreement obligating payments of $662 thousand over the next three years[82] - Management believes the ultimate resolution of current legal actions will not have a material adverse effect on the Company's financial position, results of operations, or cash flows, but acknowledges inherent unpredictability[77][83][84] Note 13. Segment Information - XWELL operates three reportable segments: XpresSpa, XpresTest, and Naples Wax Center. The Treat brand was aggregated with XpresSpa in Q1 2025[19][86] Segment Revenue and Operating (Loss)/Income (Three months ended June 30, 2025 vs. 2024, in thousands) | Segment | 2025 Revenue | 2024 Revenue | Revenue Change | 2025 Operating (Loss)/Income | 2024 Operating (Loss)/Income | Operating (Loss)/Income Change | | :-------------- | :----------- | :----------- | :------------- | :--------------------------- | :--------------------------- | :----------------------------- | | XpresSpa | $4,886 | $4,923 | $(37) | $579 | $(1,444) | $2,023 | | XpresTest | $2,156 | $3,842 | $(1,686) | $689 | $1,642 | $(953) | | Naples Wax | $647 | $517 | $130 | $(240) | $(30) | $(210) | | Corporate & other | $— | $— | $— | $(3,720) | $(2,061) | $(1,659) | | Total | $7,689 | $9,282 | $(1,593) | $(2,692) | $(1,893) | $(799) | Segment Revenue and Operating (Loss)/Income (Six months ended June 30, 2025 vs. 2024, in thousands) | Segment | 2025 Revenue | 2024 Revenue | Revenue Change | 2025 Operating (Loss)/Income | 2024 Operating (Loss)/Income | Operating (Loss)/Income Change | | :-------------- | :----------- | :----------- | :------------- | :--------------------------- | :--------------------------- | :----------------------------- | | XpresSpa | $9,180 | $9,358 | $(178) | $1,378 | $(4,222) | $5,600 | | XpresTest | $4,333 | $7,485 | $(3,152) | $1,308 | $3,312 | $(2,004) | | Naples Wax | $1,199 | $1,165 | $34 | $(663) | $(111) | $(552) | | Corporate & other | $— | $— | $— | $(7,873) | $(3,250) | $(4,623) | | Total | $14,712 | $18,008 | $(3,296) | $(5,850) | $(4,271) | $(1,579) | Geographical Revenue (Six months ended June 30, in thousands) | Region | 2025 Revenue | 2024 Revenue | Change | | :------------- | :----------- | :----------- | :----- | | United States | $11,902 | $15,113 | $(3,211) | | All other countries | $2,810 | $2,895 | $(85) | | Total revenue | $14,712 | $18,008 | $(3,296) | Note 14. Revenue Disaggregated Revenue by Nature of Products and Services (Six months ended June 30, in thousands) | Revenue Type | 2025 | 2024 | Change | | :----------------- | :--- | :--- | :----- | | Revenue, point in time | $10,379 | $10,523 | $(144) | | Revenue, over time | $4,333 | $7,485 | $(3,152) | | Total Revenue | $14,712 | $18,008 | $(3,296) | Deferred Revenue Activity (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------------------------------------------------------- | :------------ | :---------------- | | Beginning of the period contract liability | $1,143 | $861 | | Revenue recognized from beginning balance | $(488) | $(461) | | Increases due to cash received net of amounts recognized revenue | $382 | $743 | | End of period contract liability | $1,037 | $1,143 | - The unrecognized committed amount for the Ginkgo/BioWorks contract is $5,210 thousand as of June 30, 2025[95] Note 15. Property and Equipment, net Property and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Leasehold improvements | $5,633 | $4,566 | | Furniture and fixtures | $430 | $359 | | Other operating equipment | $912 | $722 | | Accumulated depreciation | $(4,038) | $(3,838) | | Total property and equipment, net | $2,937 | $1,809 | - Total property and equipment, net increased by $1,128 thousand, primarily due to additions in leasehold improvements and other operating equipment[100] Depreciation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three months ended June 30, | $110 | $150 | | Six months ended June 30, | $200 | $294 | Note 16. Fair Value Measurements - The Company measures financial assets and liabilities at fair value using a three-level hierarchy, maximizing observable inputs[101][102] Fair Value Measurement Hierarchy (as of June 30, 2025, in thousands) | Item | Balance | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------ | :------ | :------ | :------ | | Equity and debt securities: | | | | | | Route1, Inc. | $20 | $— | $20 | $— | | Marketable securities | $2,885 | $2,885 | $— | $— | | Derivatives: | | | | | | Derivative liability | $1,036 | $— | $— | $1,036 | | Total recurring fair value measurements | $3,941 | $2,885 | $20 | $1,036 | - The fair value of the bifurcated embedded derivative related to convertible preferred stock was estimated at $1,036 thousand as of June 30, 2025, using a Monte Carlo simulation model[67][105][107] - The warrant liability balance was reclassified to Additional Paid-in Capital (APIC) due to a warrant modification on May 16, 2025, resulting in a zero balance as of June 30, 2025[73][74][107] Note 17. Related Party - On January 30, 2025, XWELL entered into a consulting agreement with XWEL INV I, LLC and Jason Aintabi (a >5% beneficial owner) for advisory services, extended on May 12, 2025, for a total of $530 thousand over twelve months[108] - For the six months ended June 30, 2025, $346 thousand of this contract was recognized in general and administrative expenses, and $184 thousand was recognized as a prepaid expense[108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses XWELL's financial condition and operations, including segment performance, recent developments, going concern, liquidity, and critical accounting estimates Overview - XWELL is a global wellness company focused on restorative and health-focused services for travelers, operating XpresSpa, XpresTest, and Naples Wax Center segments[112] - As of June 30, 2025, XpresSpa operates 17 domestic (16 company-owned, 1 franchise) and 11 international locations. All Treat locations were converted to XWELL by Q2 2025[115][118] - XpresTest transitioned from COVID-19 testing to bio-surveillance programs with the CDC and Ginkgo Bioworks, securing a three-year contract with a base value of $22.2 million and a maximum ceiling of $24.8 million[119][120] - Naples Wax Center, acquired in September 2023, provides upscale hair removal and skincare, aiming to expand XWELL's retail footprint beyond airports and contribute to long-term financial goals[121] - The Company plans to expand its retail strategy, align products with service offerings, and build capabilities for health and wellness services outside of airports, including international expansion[122][123] Recent Developments - XWELL regained compliance with Nasdaq's Minimum Bid Price Rule on August 7, 2025, after its common stock closed at or above $1.00 for 16 consecutive business days[124][125][126] - The January 2025 Private Placement involved the sale of Series G Convertible Preferred Stock and Series A and B Warrants, closing on January 14, 2025, with a resale registration statement declared effective on June 30, 2025[127][128] Results of Operations - Revenue recognition for XpresSpa, Treat, and Naples Wax services occurs when rendered or products are sold. XpresTest revenue from bio-surveillance is recognized over time using the input method[129][130] - Cost of sales includes payroll, occupancy, and product costs directly attributable to segment operations. General and administrative expenses cover management, overhead, insurance, professional fees, and stock-based compensation[131][132] Revenue Comparison (Three months ended June 30, in thousands) | Item | 2025 | 2024 | Inc/(Dec) | Percentage Change | | :---------------- | :--- | :--- | :-------- | :---------------- | | Total revenue, net | $7,689 | $9,282 | $(1,593) | -17% | - The 17% decrease in revenue for the three months ended June 30, 2025, was primarily due to less CDC revenue for XpresTest and reduced XpresSpa revenue from Priority Pass and surge billing compared to 2024[133] Cost of Sales Comparison (Three months ended June 30, in thousands) | Item | 2025 | 2024 | Inc/(Dec) | Percentage Change | | :---------------- | :--- | :--- | :-------- | :---------------- | | Total cost of sales | $5,914 | $6,203 | $(289) | -5% | - Cost of sales decreased by 5% for the three months ended June 30, 2025, driven by lower product costs (clockwork manicure machines no longer active) and reduced labor due to XpresSpa store closures and less CDC testing surge billing[134] Revenue Comparison (Six months ended June 30, in thousands) | Item | 2025 | 2024 | Inc/(Dec) | Percentage Change | | :---------------- | :--- | :--- | :-------- | :---------------- | | Total revenue, net | $14,712 | $18,008 | $(3,296) | -18% | - The 18% decrease in revenue for the six months ended June 30, 2025, was primarily due to less CDC revenue for XpresTest and reduced XpresSpa revenue from Priority Pass and surge billing compared to 2024[141] Cost of Sales Comparison (Six months ended June 30, in thousands) | Item | 2025 | 2024 | Inc/(Dec) | Percentage Change | | :---------------- | :--- | :--- | :-------- | :---------------- | | Total cost of sales | $11,618 | $12,264 | $(646) | -5% | - Cost of sales decreased by 5% for the six months ended June 30, 2025, due to lower product costs and reduced labor from XpresSpa store closures and less CDC testing surge billing[142] - Impairment of long-lived assets decreased by $652 thousand for the six months ended June 30, 2025, as no similar impairment occurred in 2025 compared to 2024[144] - Foreign exchange loss increased by $857 thousand for the six months ended June 30, 2025, primarily due to Turkish Lira fluctuations impacting lease liabilities[146] - A loss of $3,443 thousand was recognized on the issuance of Series G Preferred Stock for the six months ended June 30, 2025, as the initial fair value of the shares exceeded the net proceeds received[148] Going Concern and Liquidity - Substantial doubt exists about XWELL's ability to continue as a going concern due to recurring losses, negative operating cash flows, and insufficient liquidity to fund future operations for at least the next 12 months[150][154] Liquidity Position (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Cash and cash equivalents | $5,263 | $4,550 | | Marketable securities | $2,885 | $7,247 | | Total current assets | $11,833 | $15,337 | | Total current liabilities | $9,476 | $9,224 | | Working capital surplus | $2,357 | $6,113 | - Net cash used in operating activities was $6,564 thousand for the six months ended June 30, 2025[152] - The Company is actively pursuing strategic partnerships and aims to raise additional equity or debt capital to fund operations, but there is no assurance of success[151][153] Critical Accounting Estimates - Critical accounting estimates involve significant judgment and assumptions, particularly for long-lived assets, intangible assets, stock-based compensation, warrant liabilities, derivative liability, and deferred taxes[25][157][158] - Derivative financial instruments, including embedded derivatives in preferred stock, are recognized as liabilities at fair value and re-measured periodically, using models like Monte Carlo simulation[161][162] - Warrants are classified as equity or liability based on ASC 480 and ASC 815 criteria, with liability-classified warrants re-measured at fair value using the Black Scholes Model[163] Known Trends, Events and Uncertainties - Ongoing geopolitical conflicts (Russia-Ukraine, Israel-Palestine) could adversely impact macroeconomic conditions, the global economy, and market volatility, potentially affecting XWELL's business[164] - The Company's ability to operate depends on a high volume of airport travelers with a propensity for health and wellness spending, which is volatile and subject to various external conditions[164] - Changes in U.S. policy could impact the economy, tariffs, trade relations, and regulatory environment, potentially affecting XWELL's business[164] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company - The Company has no applicable quantitative and qualitative disclosures about market risk[166] Item 4. Controls and Procedures This section evaluates the Company's disclosure controls and procedures, identifying material weaknesses as of June 30, 2025, and outlining remediation plans Evaluation of Disclosure Controls and Procedures - As of June 30, 2025, management concluded that the Company's disclosure controls and procedures were not effective due to identified material weaknesses[168][170] - Material Weaknesses Identified: * Lack of effective controls over foreign subsidiaries * Improper design, implementation, and consistent operation of controls over lease accounting (ASC 842) * Failure to design or maintain effective entity-level monitoring controls over the financial close and reporting process * Lack of effective controls over service organizations and IT vendors, specifically regarding complementary user entity controls * Ineffective design and operation of controls over the revenue process, leading to a lack of precision to prevent or detect material misstatements[169][172] Remediation Plan for Material Weakness in Internal Control over Financial Reporting - Management is committed to remediating material weaknesses and improving internal control over financial reporting[171] - Remediation Actions: * Activated multi-currency features in cloud-based accounting systems * Engaged outside service providers for valuation, accounting, and recording in key areas like leases, revenue recognition, and stock compensation * Contracted an independent consulting firm for financial statement preparation and U.S. GAAP accounting research * Engaged outside service providers to review complementary user entity controls in service organizations' reports[175] - There is no assurance that remediation efforts will be successful or that internal control over financial reporting will be effective as a result[174] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates legal proceedings from Note 12, focusing on an ongoing arbitration for XpresSpa locations in Atlanta and other claims - The Company is involved in an arbitration proceeding concerning alleged breaches of contract for XpresSpa locations in Hartsfield-Jackson Atlanta International Airport, with a hearing scheduled for March 2026[78][79][80][178] - Management believes the ultimate resolution of current legal actions will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[77][83][84] Item 1A. Risk Factors This section outlines material changes to risk factors, emphasizing the risk of Nasdaq delisting due to non-compliance, despite recent re-compliance with the minimum bid price rule - The Company recently regained compliance with Nasdaq's Minimum Bid Price Rule on August 7, 2025, after its common stock traded above $1.00 for 16 consecutive business days[181] - Failure to maintain compliance with Nasdaq listing requirements in the future could lead to delisting, negatively affecting stock price, liquidity, and the ability to raise capital[182][183][184][185] - A reverse stock split, if implemented to maintain Nasdaq listing, could significantly negatively affect the common stock price[182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - There were no unregistered sales of equity securities or use of proceeds to report[186] Item 3. Defaults Upon Senior Securities This section indicates that the Company has no defaults upon senior securities to report - There were no defaults upon senior securities[187] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[189] Item 5. Other Information This section indicates that there is no other information to report - There is no other information to report[190] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including bylaws amendments, equity plans, omnibus amendments, certifications, and XBRL documents - Key exhibits include: * First Amendment to Third Amended and Restated Bylaws of XWELL, Inc * Amendment to the XWELL, Inc. 2020 Equity Incentive Plan * Form of Omnibus Amendment, dated May 20, 2025, between XWELL, Inc. and investors * Certifications of Principal Executive Officer and Principal Financial Officer (Sarbanes-Oxley Act) * Inline XBRL Instance Document and Taxonomy Extension Documents[192]