10-Q: XWELL Faces Going Concern Amid Revenue Dip, Secures New Debt

XWELL, Inc. reported recurring losses and substantial doubt about its ability to continue as a going concern, despite securing new senior secured convertible notes and improving operating losses.

Summary

• XWELL, Inc. reported a net loss attributable to common stockholders of $9.8 million for the nine months ended September 30, 2025, an improvement from $9.258 million in the prior year.
• Total revenue decreased by 17% to $22.056 million for the nine months ended September 30, 2025, primarily due to reduced CDC revenue for XpresTest and lower surge billing for XpresSpa.
• Operating loss improved significantly to $(6.620) million for the nine months ended September 30, 2025, compared to $(9.040) million in the same period last year.
• The company has expressed substantial doubt about its ability to continue as a going concern for at least one year due to recurring losses and insufficient liquidity.
• XWELL exchanged a portion of its Series G Preferred Stock for $3.4 million in senior secured convertible notes on November 3, 2025, which are secured by first-priority liens on substantially all company assets.
• Key amendments to Series G Preferred Stock and Warrants include a reduced conversion/exercise price to $1.00 and new anti-dilution provisions.
• The company identified five material weaknesses in its internal control over financial reporting as of September 30, 2025, including issues with lease accounting, financial close, IT vendor controls, revenue process, and foreign subsidiaries.
• XpresSpa segment's operating income turned positive to $1.060 million for the nine months ended September 30, 2025, from a loss of $(6.581) million in the prior year.
• XpresTest secured a new three-year bio-surveillance contract with a base value of $22.2 million (up to $24.8 million maximum ceiling value).
• Working capital surplus significantly decreased to $758k as of September 30, 2025, from $6.113 million at December 31, 2024.
• Net cash used in operating activities increased to $8.671 million for the nine months ended September 30, 2025, from $7.541 million in the prior year.

Sentiment

Score: 3

Explanation: The company faces significant financial distress, evidenced by the 'going concern' warning, declining liquidity, and increased cash burn. While there are some operational improvements in specific segments and cost reductions, the reliance on highly dilutive and secured debt financing, coupled with material weaknesses in internal controls, paints a challenging picture. The future outlook is heavily dependent on successful capital raises and operational turnaround, which are uncertain.

Positives

• Operating loss significantly improved to $(770)k for the three months ended September 30, 2025, from $(4,769)k in the prior year.
• Net loss attributable to XWELL, Inc. improved to $(724)k for the three months ended September 30, 2025, from $(4,750)k in the prior year.
• Basic and diluted loss per share improved to $(0.26) for the three months ended September 30, 2025, from $(0.99) in the prior year.
• General and administrative expenses decreased by 76% to $1,554k for the three months ended September 30, 2025, due to lower accounting, legal, and public company costs, and recognition of an employee retention credit.
• XpresSpa segment achieved an operating income of $1.060 million for the nine months ended September 30, 2025, a substantial improvement from a $(6.581) million loss in the prior year.
• XpresTest secured a new three-year contract for bio-surveillance monitoring with a total base value of $22.2 million and a maximum ceiling value of $24.8 million.
• The company regained compliance with Nasdaq's minimum bid price rule on August 7, 2025.
• Interest income, net, increased by $390k for the three months ended September 30, 2025, primarily due to $473k from an employee retention credit.

Negatives

• Substantial doubt exists about the company's ability to continue as a going concern for at least one year due to recurring losses and insufficient liquidity.
• Total revenue decreased by 13% to $7,345k for the three months ended September 30, 2025, and by 17% to $22,056k for the nine months ended September 30, 2025.
• Working capital surplus significantly decreased to $758k as of September 30, 2025, from $6.113 million at December 31, 2024.
• Net cash used in operating activities increased to $8,671k for the nine months ended September 30, 2025, from $7,541k in the prior year.
• Marketable securities decreased significantly to $237k as of September 30, 2025, from $7,247k at December 31, 2024.
• Naples Wax Center segment's operating loss significantly worsened to $(1,051)k for the nine months ended September 30, 2025, from $(177)k in the prior year.
• Corporate and other operating loss increased to $(10,396)k for the nine months ended September 30, 2025, from $(6,732)k in the prior year.
• Foreign exchange loss increased significantly to $(1,127)k for the nine months ended September 30, 2025, primarily due to currency fluctuations in Turkey.
• The company incurred a loss on issuance of Series G Preferred Stock of $(3,443)k for the nine months ended September 30, 2025.
• The new senior secured convertible notes are secured by first-priority liens on substantially all of the company's and its subsidiaries' assets, indicating a high level of debt risk.
• The conversion price of Series G Preferred Stock and exercise price of Warrants were reduced to $1.00, and anti-dilution provisions were added, suggesting significant potential for future shareholder dilution.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to recurring losses and negative cash flows from operations, and insufficient liquidity.
• Inability to raise additional equity or debt capital, which may lead to delays, reductions, or elimination of operations, asset sales, or mergers.
• Dependence on a large number of airplane travelers with a propensity for health and wellness services, which is volatile and subject to various conditions (e.g., travel fare, oil prices).
• Adverse impact from ongoing geopolitical conflicts (Russia/Ukraine, Israel/Palestine) on macroeconomic conditions, the global economy, and market volatility.
• Potential adverse effects from changes in U.S. government policy (e.g., tariffs, trade relations, unemployment, inflation).
• Material weaknesses in internal control over financial reporting, specifically regarding lease accounting (ASC 842), entity-level monitoring, service organization/IT vendor controls, revenue process, and foreign subsidiaries, which could lead to material misstatements.
• The arbitration proceeding with Cordial Endeavor Concessions of Atlanta, LLC, regarding XpresSpa locations in Hartsfield-Jackson Atlanta International Airport, could result in liabilities.
• The new senior secured convertible notes are secured by first-priority liens on substantially all of the company's assets, increasing risk for unsecured creditors and potentially limiting future financing options.
• The Notes and amended Warrants include anti-dilution provisions and reduced conversion/exercise prices, which could lead to significant dilution for existing common stockholders.

Future Outlook

Management is implementing various strategic initiatives to reduce operating expenses, improve working capital, and enhance cash flow, including cost reduction efforts, capital spending controls, and exploration of additional financing options. The company aims to return to overall profitability and strengthen its stock price to facilitate future capital raises. It plans to expand its retail strategy, align products with service offerings, and build health and wellness services outside of airports, with a focus on international expansion for all brands, including bio-surveillance. The company intends to submit proposals to stockholders by December 31, 2025, for approval of common stock issuance related to the recently issued convertible notes and amended securities.

Management Comments

• 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 of issuance of these unaudited condensed consolidated financial statements.
• Management is implementing various strategic initiatives to reduce operating expenses, improve working capital and enhance cash flow, including cost reduction efforts, capital spending controls, and exploration of additional financing options.
• We believe there is opportunity to leverage a segment of our products and services across our platform of brands.
• We are expanding our retail strategy, not only adding more products for sale but aligning those products more efficiently to our service offerings.
• We also plan to build our capability for delivering health and wellness services outside of the airport. We believe operating outside of the airport complements our offering and represents the fastest way to scale the XWELL family of brands.
• We will be looking to further expand internationally. We believe a strategy for international expansion further advances our ability to expand our other brands including bio surveillance outside of the US.
• Management is committed to the remediation of the Company's material weaknesses, as well as the continued improvement of the Company's internal control over financial reporting.

Industry Context

XWELL operates in the travel wellness and public health sectors, with its XpresSpa segment serving airport travelers and XpresTest focusing on bio-surveillance programs at international airports. The acquisition of Naples Wax Center indicates a strategy to diversify beyond airport-centric services into broader wellness markets. The continued contract with Ginkgo Bioworks for bio-surveillance highlights the ongoing importance of public health infrastructure in travel, a trend that emerged strongly during the pandemic. The company's focus on international expansion aligns with the global nature of air travel and the potential for broader adoption of wellness and bio-surveillance services in diverse markets.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• XpresSpa Holdings, LLC is involved in an arbitration proceeding (Case No. 2126399) with Cordial Endeavor Concessions of Atlanta, LLC, et al., requested by the City of Atlanta, concerning alleged breaches of contract and improper conduct related to XpresSpa locations in Hartsfield-Jackson Atlanta International Airport. An arbitration hearing is scheduled for March 2026.

Related Party Transactions

• On January 30, 2025, XWELL entered into a consulting agreement with XWEL INV I, LLC and Jason Aintabi (a greater than 5% beneficial owner). The agreement was extended on May 12, 2025, for a total of 12 months, with a total amount of $530k. For the nine months ended September 30, 2025, $245k was recognized in general and administrative expenses.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from the conversion of Series G Preferred Stock and Warrants at a reduced price of $1.00, and potential further dilution from anti-dilution provisions. The 'going concern' warning indicates a risk of substantial loss of investment. The new senior secured convertible notes place first-priority liens on assets, potentially reducing recovery for equity holders in a liquidation scenario.
• **Creditors**: The new senior secured convertible notes provide first-priority liens on substantially all assets, offering a higher level of security for these specific investors compared to other creditors.
• **Employees**: The company's focus on cost reduction efforts and streamlining operations may impact employment levels or compensation. The 'going concern' uncertainty creates job insecurity.
• **Customers**: Continued operation of XpresSpa, XpresTest, and Naples Wax Center locations depends on the company's ability to resolve its liquidity issues and achieve profitability. The transition of XpresTest to bio-surveillance impacts the type of services offered.
• **Suppliers/Vendors**: The company's financial instability and 'going concern' warning could impact its ability to meet payment obligations, potentially affecting relationships with suppliers and vendors.

Next Steps

• Management will continue implementing strategic initiatives to reduce operating expenses, improve working capital, and enhance cash flow.
• The company will explore additional financing options to fund future operations.
• XWELL plans to expand its retail strategy and build health and wellness services outside of airports.
• The company intends to pursue international expansion for its brands, including bio-surveillance.
• The arbitration hearing for XpresSpa Holdings, LLC v. Cordial Endeavor Concessions of Atlanta, LLC is scheduled for March 2026.
• The company intends to submit proposals to its stockholders for approval by December 31, 2025, regarding the issuance of common stock in connection with the conversion of the Notes and amended securities, to comply with Nasdaq listing rules.
• Management is committed to remediating the identified material weaknesses in internal control over financial reporting, including engaging outside service providers and implementing multi-currency features in accounting systems.

Key Dates

Recommendation

The filing explicitly states 'substantial doubt exists about the Company's ability to continue as a going concern for at least one year' due to recurring losses and insufficient liquidity. This is the most critical factor. While operating losses improved, revenue declined, and working capital significantly deteriorated. The recent financing involved exchanging preferred stock for senior secured convertible notes with first-priority liens on assets, indicating severe financial distress and a high cost of capital. The reduced conversion/exercise prices and anti-dilution provisions for the new debt and warrants suggest substantial future dilution for common stockholders. Furthermore, the identification of five material weaknesses in internal control over financial reporting raises serious concerns about financial integrity and operational oversight. Given the severe liquidity issues, high risk of dilution, and internal control deficiencies, the stock presents a high-risk investment with significant downside potential.

Keywords

XWELL, XWEL, 10-Q, Quarterly Report, SEC Filing, Financial Results, Going Concern, Liquidity, XpresSpa, XpresTest, Naples Wax Center, Bio-surveillance, Convertible Notes, Preferred Stock, Warrants, Internal Controls, Material Weakness, Airport Wellness, Travel Wellness, Corporate Governance, Dilution, Nasdaq Compliance