XWELL, Inc.

Previous wording

We believe that our company is well positioned to benefit from consumers’ growing interest and pent-up demand in travel health and wellness and increasing demand for health and wellness related services and products. Our go-forward plan includes the expansion and integration of products and services across our six brands; the right-sizing of our existing airport portfolio to a leaner and more profitable business; the execution of an ‘off-airport’ strategy through acquisition to deliver more products and services, which will serve as a catalyst for our future growth; the implementation of an international expansion plan; and ensuring we can scale our growth in a responsible way that drives shareholder value. Through right-sizing our existing business, optimizing our cost structure, and making acquisitions that further leverage the strength of our brand portfolio, XWELL is positioning itself for both financial and operational growth now and in the future.

Current wording

We believe that our company is well positioned to benefit from consumers’ growing interest and pent-up demand in travel health and wellness and increasing demand for health and wellness related services and products. Our go-forward plan includes the expansion and integration of products and services across our brands; the right-sizing of our existing airport portfolio to a leaner and more profitable business; the execution of an ‘off-airport’ strategy through acquisition to deliver more products and services, which will serve as a catalyst for our future growth; the implementation of an international expansion plan; and ensuring we can scale our growth in a responsible way that drives shareholder value. Through right sizing our existing business, optimizing our cost structure, and making acquisitions that further leverage the strength of our brand portfolio, XWELL is positioning itself for both financial and operational growth now and in the future. However, these plans are not finalized or fully within the Company’s control, and there is uncertainty regarding their execution and effectiveness. As noted previously in these financial statements, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for at least one year from the date these financial statements are issued. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Previous wording

The decrease in total cost of sales during the year ended December 31, 2023, was primarily driven by the corresponding decline in our XpresTest locations as countries continued to relax their testing requirements. The largest components in the cost of sales for that segment are costs of testing kits and labor costs at the location-level, rent and related occupancy costs, which primarily includes rent based on percentage of sales, and other operating costs. The Company did not reopen spas that were shut down during Covid and close spas that were open during the year that were under performing. That resulted in additional costs of sales.

Current wording

The decrease in total cost of sales during the year ended December 31, 2024, was primarily driven by the closure of XpresSpa locations that were under performing. The largest components in the cost of sales for that segment are labor costs at the location-level. Total cost of sales also includes rent and related occupancy costs, which primarily includes rent based on percentage of sales, as well as other product costs directly associated with the procurement of retail inventory, and other operating costs.

Previous wording

During the year ended December 31, 2023, depreciation and amortization expense decreased $3,364, or 62%, compared to the depreciation and amortization expense recorded during the year ended December 31, 2022. The decrease wasprimarily due to fewer long-lived assets available for depreciation.

Current wording

During the year ended December 31, 2024, depreciation and amortization expense decreased $1,127, or 55%, compared to the depreciation and amortization expense recorded during the year ended December 31, 2023. The decrease was primarily due to fewer long-lived assets available for depreciation and amortization in 2024 as compared to 2023 due the impairment of long-lived assets which occurred in the latter half of fiscal year 2023.

Previous wording

We completed an assessment of our property and equipment, intangible assets and right of use lease assets for impairment both as of December 31, 2023 and 2022. Based upon the results of the impairment test, we recorded an impairment of property and equipment, intangible assets, goodwill and right of use lease assets of approximately $1,159, $2,768, $4,024 and $926, respectively for the year ended December 31, 2023. We recorded an impairment of property and equipment, intangible assets and right of use lease assets of approximately $4,559, $110 and $1,110, respectively, in the year ended December 31, 2022. During the year ended December 31, 2022, the impairment was primarily related to the impairment of leasehold improvements made to our Treat locations and its related operating lease right of use assets where management determined that the locations discounted future cash flows were not sufficient to recover the carrying value of these assets over the remaining lease term.

Current wording

The Company identified triggering events and completed an assessment of the Company’s property and equipment, intangible assets and right of use lease assets for impairment as of December 31, 2024 and 2023. As of December 31, 2024, the Company recorded an impairment of property and equipment, intangible assets, and right of use lease assets of approximately $1,706, $5 and $2,805, respectively, as compared to December 31, 2023 of approximately $1,159, $2,768, and $926 impairment of property and equipment, intangible assets, and right of use lease assets, respectively.

Previous wording

During the year ended December 31, 2023, salaries and benefits expenses decreased by $2,037 or 20%, primarily due to the closing of unprofitable or poorly performing spas, optimization of systems and processes that support the business, headcount reductions and elimination of infrastructure no longer necessary to support our future growth.

Current wording

During the year ended December 31, 2024, salaries and benefits expenses decreased by $414 or 5%, primarily due to the closing of unprofitable or poorly performing spas, optimization of systems and processes that support the business, headcount reductions and elimination of infrastructure no longer necessary to support our future growth.

Previous wording

Gain on securities is affected by the adjustments to the fair value of our equity investment, which could fluctuate materially from period to period. The fair value of these instruments depends on a variety of assumptions.

Current wording

As of December 31, 2024, the decrease is primarily driven by the decrease in marketable securities balance in 2024 as compared to 2023. Gain on investments is affected by the adjustments to the fair value of our equity investment, which could fluctuate materially from period to period. The fair value of these instruments depends on a variety of assumptions.

Previous wording

The following is a summary of the transactions included in other non-operating income (expense), net for the years ended December 31, 2023 and 2022:

Current wording

The following is a summary of the transactions included in other non-operating expenses, net for the years ended December 31, 2024 and 2023:

Previous wording

As of December 31, 2023, our estimated aggregate total NOLs were $150,926 for U.S. federal purposes, expiring 20 years from the respective tax years to which they relate, and $97,968 for U.S. federal purposes with an indefinite life due to new regulations in the Tax Act of 2017. The NOL amounts are presented before Internal Revenue Code, Section 382 limitations (“Section 382”). The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of NOL and tax credits in the event of an ownership change of a corporation. Thus, our ability to utilize all such NOL and credit carryforwards may be limited. The CARES Act was enacted on March 27, 2020, and provides favorable changes to tax laws for businesses impacted by COVID-19. However, we do not anticipate the income tax law changes will materially benefit us.

Current wording

As of December 31, 2024, our estimated aggregate total gross NOLs were $150,926 for U.S. federal purposes, expiring 20 years from the respective tax years to which they relate, and $114,321 for U.S. federal purposes with an indefinite life due to new regulations in the Tax Act of 2017. The NOL amounts are presented before Internal Revenue Code, Section 382 limitations (“Section 382”). The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of NOL and tax credits in the event of an ownership change of a corporation. Thus, our ability to utilize all such NOL and credit carryforwards may be limited. The CARES Act was enacted on March 27, 2020, and provides favorable changes to tax laws for businesses impacted by COVID-19. However, we do not anticipate the income tax law changes will materially benefit us.

Previous wording

As of December 31, 2023, we had approximately $8,437 of cash and cash equivalents, $14,613 in marketable securities, and total current assets of approximately $26,566. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,330 as of December 31, 2023. The working capital surplus was $17,236 as of December 31, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.

Current wording

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern as we have suffered recurring losses from operations and have insufficient liquidity to fund our future operations. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. As of December 31, 2024, we had approximately $4,550 of cash and cash equivalents, $7,247 in marketable securities, and total current assets of approximately $15,337. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $9,224 as of December 31, 2024. The working capital surplus was $6,113 as of December 31, 2024, compared to a working capital surplus of $17,236 as of December 31, 2023.

Previous wording

Our primary liquidity and capital requirements are for the maintenance of our current XpresSpa and Treat locations and brand, as well as the expansion outside the airports. During the year ended December 31, 2023, we used net cash of $16,074 to fund our operating activities.

Current wording

Our primary liquidity and capital requirements are for the maintenance of our current XpresSpa locations and brand, as well as the expansion outside the airports. During the year ended December 31, 2024, we used net cash of $11,005 to fund our operating activities.

Previous wording

During the year ended December 31, 2023, net cash used in operating activities was $16,074 compared to net cash used in operating activities during the year ended December 31, 2022 of $24,188. The decrease in net cash used in operating activities was primarily due to the rapid decline of our XpresCheck business.

Current wording

During the year ended December 31, 2024, net cash used in operating activities was $11,005 compared to net cash used in operating activities during the year ended December 31, 2023 of $16,074. The decrease in net cash used in operating activities was primarily due the Company’s reduction of operating and overhead expenses such as lower occupancy costs in 2024 as compared to 2023. In addition, there has been higher cash flows from full year operations of the acquired Naples Wax business in 2024 as compared to 2023.

Previous wording

During the year ended December 31, 2023, net cash provided by investing activities was $5,650 compared to net cash used in investing activities during the year ended December 31, 2022 of $34,843. Cash provided in 2023 came primarily from the sale of marketable securities of approximately $9,417. In addition, the Company had idle cash that they invested during the year ended December 31, 2022.

Current wording

During the year ended December 31, 2024, net cash provided by investing activities was $5,895 compared to net cash provided by investing activities during the year ended December 31, 2023 of $5,650. Cash provided in 2024 came primarily from the sale of marketable securities of approximately $7,986. Cash provided in 2023 came primarily from the sale of marketable securities of approximately $9,417.

Previous wording

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.

Current wording

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 and liabilities assumed. 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. 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.

Previous wording

During the quarter ended September 30, 2023, the Company identified a triggering event and as a result recognized an impairment charge of $4,024, which is recorded in goodwill impairment on the consolidated statements of operations and comprehensive loss.

Current wording

During the year ended December 31, 2024, the Company identified a triggering event for goodwill but deemed that the fair value of the reporting unit is greater than its carrying value; therefore, no impairment loss was recognized. During the year ended December 31, 2023, the Company identified a triggering event and as a result recognized an impairment charge of $4,024, which is recorded in goodwill impairment on the consolidated statements of operations and comprehensive loss.

Previous wording

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 locations (considered the asset group). The Company reviews its long-lived assets for recoverability yearly or 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 the long-lived asset group over the long-lived asset group’s fair value. The Company estimates the fair value of long-lived assets 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 locations, is the remaining term of the operating lease.

Current wording

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 the right to use lease assets for each of its locations (considered the asset group). The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts 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 the long-lived asset group over the long-lived asset group’s fair value. The Company estimates the fair value of long-lived assets using the 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 locations, is the remaining term of the operating lease.

Previous wording

The estimates used to calculate future cash flows are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated fair value of each asset group. The Company will calculate the future cash flow using what it believes to be the most predictable of several scenarios. Typically, the changes in assumptions run under different business scenarios would not result in a material change in the assessment of the potential impairment or the impairment amount of a locations long-lived asset group. But if these estimates or related assumptions were to change materially, the Company may be required to record an impairment charge.

Current wording

The estimates used to calculate future cash flows are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated fair value of each asset group. The Company will calculate the future cash flow using what it believes to be the most predictable of several scenarios. Typically, the changes in assumptions run under different business scenarios would not result in a material change in the assessment of the potential impairment or the impairment amount of

Previous wording

During the year ended December 31, 2023, the Company performed its annual impairment testing procedures of long-lived assets and recognized an impairment charge of $1,159 and $926, which is recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets on the consolidated statements of operations and comprehensive loss.

Current wording

During the year ended December 31, 2024, the Company identified triggering events and completed an impairment assessment of long-lived assets for impairment and recognized an impairment charge of $1,706 and $2,805, which is recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets, respectively, on the consolidated statements of operations and comprehensive loss. During the year ended December 31, 2023, the Company recognized an impairment charge of $1,159 and $926, which is recorded in Impairment of long-lived assets and Impairment of operating lease right-of-use assets, respectively, on the consolidated statements of operations and comprehensive loss.

Previous wording

the recoverability of the Company’s intangible assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. Based upon the results of the impairment test, we recorded an impairment of intangible assets in Impairment of long-lived assets on the consolidated statements of operations and comprehensive loss of approximately $2,768 for the year ended December 31, 2023.

Current wording

The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value is then compared to the carrying value and an impairment charge is recognized by the amount in which the carrying value exceeds the fair value of the asset. In assessing the recoverability of the Company’s intangible assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. During the year ended December 31, 2024, the Company recorded $5 of intangible impairment loss. During the year ended December 31, 2023, the Company recorded $2,768 of intangible impairment loss.