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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 September 30, 2022

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 31st 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 November 10, 2022, 83,232,262 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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

40

PART II. OTHER INFORMATION

42

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

    

September 30, 

    

December 31, 

2022

2021

Current assets

 

  

 

  

Cash and cash equivalents

$

49,429

$

105,506

Accounts receivable

1,309

615

Contract Assets

1,128

-

Inventory

 

940

 

1,763

Other current assets

 

2,375

 

1,095

Total current assets

 

55,181

 

108,979

Restricted cash

 

751

 

751

Property and equipment, net

 

8,102

 

6,658

Intangible assets, net

 

4,414

 

3,732

Operating lease right of use assets, net

 

10,299

 

4,336

Goodwill

4,024

-

Other assets

 

2,205

 

2,810

Total assets

$

84,976

$

127,266

Current liabilities

 

  

 

  

Accounts payable, accrued expenses and other

$

7,981

$

12,958

Current portion of operating lease liabilities

2,746

2,736

Deferred revenue

257

549

Current portion of promissory note, unsecured

-

3,584

Total current liabilities

 

10,984

 

19,827

Long-term liabilities

 

 

Operating lease liabilities

 

12,465

 

7,504

Total liabilities

23,449

27,331

Commitments and contingencies (see Note 15)

 

  

 

  

Equity

 

  

 

  

Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 83,232,262 and 101,269,349 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

832

1,013

Additional paid-in capital

 

467,268

 

487,306

Accumulated deficit

 

(414,655)

 

(395,275)

Accumulated other comprehensive loss

 

(560)

 

(312)

Total equity attributable to XWELL, Inc.

 

52,885

 

92,732

Noncontrolling interests

 

8,642

 

7,203

Total equity

 

61,527

 

99,935

Total liabilities and equity

$

84,976

$

127,266

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

3

Table of Contents

XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three months ended September 30, 

Nine months ended September 30, 

    

2022

    

2021

    

2022

    

2021

    

Revenue, net

 

  

 

  

 

  

 

  

 

Managed services fees

$

-

$

-

$

-

$

16,843

Patient services revenue

4,607

25,351

31,728

25,351

Services

4,924

1,158

13,488

1,761

Products

 

542

 

258

 

1,308

 

402

 

Hyperpointe Services

659

-

1,853

-

Other

4

-

4

14

Total revenue, net

 

10,736

 

26,767

 

48,381

 

44,371

 

Cost of sales

 

  

 

  

 

  

 

  

 

Labor

 

5,222

 

4,277

 

16,161

 

7,419

 

Occupancy

 

1,082

 

587

 

3,412

 

1,511

 

Products and other operating costs

 

3,035

 

8,798

 

17,170

 

16,592

 

Total cost of sales

 

9,339

 

13,662

 

36,743

 

25,522

 

Depreciation and amortization

 

1,564

 

852

 

4,329

 

2,542

 

Impairment of long-lived assets

677

-

677

-

Loss on disposal of assets, net

325

-

273

22

Impairment of operating lease right-of-use assets

38

-

38

-

General and administrative

 

6,447

 

5,196

 

24,193

 

14,350

 

Total operating expenses

 

18,390

 

19,710

 

66,253

 

42,436

 

Operating (loss) income

 

(7,654)

 

7,057

 

(17,872)

 

1,935

 

Interest income, net

 

114

 

6

 

159

 

31

 

Other non-operating expense, net

 

(136)

 

(381)

 

(650)

 

(830)

 

(Loss) income before income taxes

 

(7,676)

 

6,682

 

(18,363)

 

1,136

 

Income tax expense

 

(3)

 

(87)

 

(5)

 

(79)

 

Net (loss) income

(7,679)

6,595

(18,368)

1,057

Net loss (income) attributable to noncontrolling interests

 

500

 

(998)

 

(1,012)

 

(983)

 

Net (loss) income attributable to XWELL, Inc.

$

(7,179)

$

5,597

$

(19,380)

$

74

Net (loss) income

$

(7,679)

$

6,595

$

(18,368)

$

1,057

Other comprehensive loss from operations

 

(102)

 

(52)

 

(248)

 

(63)

Comprehensive (loss) income

$

(7,781)

$

6,543

$

(18,616)

$

994

Loss per share

 

  

 

  

 

  

 

  

Basic and diluted loss per share

$

(0.08)

$

0.05

$

(0.20)

$

-

Weighted-average number of shares outstanding during the period

 

  

 

  

 

  

 

  

Basic

 

94,621,339

 

105,531,418

 

97,167,867

 

103,950,731

Diluted

 

94,621,339

 

105,957,317

 

97,167,867

 

104,301,344

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

4

Table of Contents

XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries

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

(Unaudited)

(In thousands, except share and per share data)

    

    

    

Accumulated

    

    

    

Additional

other

Total

Non-

Common stock

Treasury Stock

paid- 

Accumulated

comprehensive

Company

controlling

Total

    

Shares

    

Amount

Shares

Amount

    

in capital

    

deficit

    

loss

    

equity

    

interests

    

equity

December 31, 2021

101,269,349

$

1,013

$

487,306

$

(395,275)

$

(312)

$

92,732

$

7,203

$

99,935

Issuance of Common Stock for acquisition

552,487

5

901

906

906

Vesting of restricted stock units

391,820

4

(4)

Value of Shares Withheld to fund payroll taxes

(73)

(73)

(73)

Stock-based compensation

1,543

1,543

1,543

Net loss for the period

(4,283)

(4,283)

1,521

(2,762)

Repurchase and retirement of common stock

(7,142,446)

(71)

(11,024)

(11,095)

(11,095)

Foreign currency translation

(41)

(41)

(41)

Distributions to noncontrolling interests

(824)

(824)

Contributions from noncontrolling interests

200

200

March 31, 2022

95,071,210

$

951

$

$

478,649

$

(399,558)

$

(353)

$

79,689

$

8,100

$

87,789

Vesting of restricted stock units

289,061

3

(3)

Grant of stock options for services

15

`

15

15

Stock-based compensation

771

771

549

1,320

Net loss for the period

(7,918)

(7,918)

(9)

(7,927)

Repurchase of common stock

(1,338,404)

(1,021)

(1,021)

(1,021)

Foreign currency translation

(105)

(105)

(105)

Distributions to noncontrolling interests

(132)

(132)

June 30, 2022

95,360,271

$

954

(1,338,404)

$

(1,021)

$

479,432

$

(407,476)

$

(458)

$

71,431

$

8,508

$

79,939

Vesting of restricted stock units

256,251

2

(2)

Grant of stock options for services

16

16

16

Contributions from noncontrolling interests

546

546

Stock-based compensation

392

392

91

483

Foreign currency translation

(102)

(102)

(3)

(105)

Net loss for the period

(7,179)

(7,179)

(500)

(7,679)

Repurchase and retirement of common stock

(12,384,260)

(124)

1,338,404

1,021

(12,570)

(11,673)

(11,673)

September 30, 2022

83,232,262

$

832

$

467,268

$

(414,655)

$

(560)

$

52,885

$

8,642

$

61,527

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

5

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, 2020

94,058,853

$

941

$

475,709

$

(398,624)

$

(220)

$

77,806

$

2,565

$

80,371

Warrant exercises, net of costs

11,223,529

112

16,895

17,007

17,007

Stock-based compensation

264

264

741

1,005

Net loss for the period

(1,056)

(1,056)

248

(808)

Foreign currency translation

(16)

(16)

(16)

Contributions from noncontrolling interests

333

333

March 31, 2021

105,282,382

$

1,053

$

$

492,868

$

(399,680)

$

(236)

$

94,005

$

3,887

$

97,892

Issuance of Common Stock for services

223,637

2

318

320

320

Issuance of restricted stock

27,983

Foreign currency translation

5

5

5

Net loss for the period

(4,467)

(4,467)

(263)

(4,730)

Stock-based compensation

267

267

61

328

Redemption of certain noncontrolling interests

(133)

(133)

June 30, 2021

105,534,002

$

1,055

$

$

493,453

$

(404,147)

$

(231)

$

90,130

$

3,552

$

93,682

Stock grant for services

29

29

29

Stock-based compensation

767

767

23

790

Stock option exercises

8,334

13

13

13

Consolidation of Variable Interest Entities

4,307

4,307

Repurchase and retirement of common stock

(250,000)

(2)

(448)

(450)

(450)

Issuance of restricted stock

35,043

Foreign currency translation

(52)

(52)

(52)

Distributions to noncontrolling interests

(991)

(991)

Net income for the period

5,597

5,597

998

6,595

September 30, 2021

105,327,379

1,053

493,814

(398,550)

(283)

96,034

7,889

103,923

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

6

Table of Contents

XWELL, Inc. (Formerly known as XpresSpa Group, Inc.) and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine months ended September 30, 

    

2022

    

2021

Cash flows from operating activities

 

  

 

  

Net (loss) income

$

(18,368)

$

1,057

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Items included in net loss not affecting operating cash flows:

 

 

Depreciation and amortization

 

4,329

 

2,542

Impairment of long-lived assets

 

715

 

Loss on disposal of assets, net

273

22

Amortization of operating lease right of use asset

1,357

1,162

Issuance of shares of Common Stock for services

 

31

 

349

Stock-based compensation

 

3,346

 

2,123