DEF 14A: XWELL Seeks Shareholder Approval for Reverse Split, Board Changes

XWELL, Inc. will hold its 2025 Annual Meeting to vote on proposals including a reverse stock split, board classification, and significant equity issuances to maintain Nasdaq listing and secure financing.

Summary

• The 2025 Annual Meeting of Stockholders will be held virtually on Thursday, December 18, 2025, at 10:00 a.m. Eastern Time.
• Stockholders will vote on the election of five directors: Ezra Ernst, Bruce T. Bernstein, Robert Weinstein, Galle Wizenberg, and Michael Lebowitz.
• A proposal to ratify CBIZ CPAs P.C. as the independent registered public accounting firm for fiscal year 2025 will be voted on.
• Stockholders will cast non-binding advisory votes on executive compensation (Say-on-Pay) and the frequency of future Say-on-Pay votes (Say-on-Frequency), with the Board recommending 'Every Three Years' for frequency.
• An amendment to classify the Board of Directors into two classes with staggered two-year terms is proposed.
• A reverse stock split at a ratio of 1-for-2 to 1-for-20, at the Board's discretion, is proposed to maintain Nasdaq listing compliance.
• Approval is sought for the issuance of common stock underlying Series G Convertible Preferred Stock, amended and restated Series A and B Warrants, and Senior Secured Convertible Notes, which may exceed 19.99% of outstanding common stock, to comply with Nasdaq Listing Rule 5635(d).
• The company entered into a Securities Exchange and Amendment Agreement on November 3, 2025, exchanging Series G Preferred Stock and accrued dividends ($1,553,806.00) for Senior Secured Convertible Notes totaling $3,387,138.80 in aggregate principal amount.
• The Series G Preferred Stock conversion price and Warrant exercise prices were amended to $1.00, and the Notes have an initial conversion price of $1.00.
• The Board unanimously recommends voting FOR all proposals except for the Say-on-Frequency Proposal, for which it recommends 'Every Three Years'.

Sentiment

Score: 3

Explanation: The company is taking necessary steps to address critical issues like Nasdaq listing compliance and funding, which is positive. However, the underlying financial performance (consistent net losses, declining TSR) is poor, and the proposed reverse stock split and significant potential dilution from recent financing activities are substantial negatives. The high cost of capital and the need for these measures indicate a challenging financial position.

Positives

• The company is actively addressing Nasdaq's minimum bid price requirement through a proposed reverse stock split, aiming to maintain its listing.
• The Exchange Agreement secured $3,387,138.80 in Senior Secured Convertible Notes, providing additional funds for general corporate purposes and addressing cash requirements.
• The Board has a clear leadership structure with a non-executive Chairman and independent directors chairing all committees, enhancing corporate governance.
• The company has a Code of Conduct and Ethics and policies to ensure equity award timing is independent of material nonpublic information release.

Negatives

• The company has been non-compliant with Nasdaq's minimum bid price requirement in the recent past, necessitating the proposed reverse stock split.
• The potential issuance of common stock underlying Series G Preferred Stock, Warrants, and Notes could result in significant dilution for existing stockholders.
• The company's financial performance shows net losses: $(16,490) thousand in 2024, $(28,029) thousand in 2023, and $(32,629) thousand in 2022.
• Total Shareholder Return has been significantly negative, with a $100 investment declining to $6.34 in 2024, $7.31 in 2023, and $30.25 in 2022.
• Failure to obtain stockholder approval for the Issuance Proposal would incur additional costs for subsequent meetings and could force cash redemption payments if the company cannot issue shares, potentially impacting operations or requiring asset sales/mergers.
• The Board Classification Proposal, while offering continuity, may also discourage some takeover bids that could offer a premium to stockholders.

Risks

• The reverse stock split may not increase the price of common stock over the long-term, and the common stock may still be delisted from Nasdaq.
• Delisting from Nasdaq could significantly reduce the liquidity and trading price of common stock, increase transaction costs, harm capital raising ability, and lead to loss of investor confidence.
• The reverse stock split may decrease the liquidity of common stock due to a reduced number of outstanding shares and potentially fewer market makers.
• The reverse stock split may result in stockholders owning 'odd lots' (less than 100 shares), which can be more difficult to sell or incur higher transaction costs.
• The reverse stock split may lead to a decrease in the company's overall market capitalization if the per share price does not increase proportionally.
• The potential issuance of additional shares of common stock upon conversion or exercise of Series G Preferred Stock, Notes, and Warrants will result in dilution of current stockholders' percentage ownership.
• The issuance or resale of common stock to Series G Preferred Stock, Notes, and Warrant holders could cause the market price of common stock to decline.
• The increased number of issued shares in connection with the Exchange may have an incidental anti-takeover effect by diluting stock ownership of parties seeking control.

Future Outlook

The company aims to maintain its Nasdaq listing by increasing its per share market price through a proposed reverse stock split. It also seeks to ensure financial flexibility and meet funding requirements through the approval of equity issuances related to recent financing activities. The Board intends to continue aligning management's interests with stockholders' long-term value creation through equity compensation programs, with a recommendation for advisory votes on executive compensation every three years to allow for evaluation over a similar timeframe.

Management Comments

• "Your vote is very important, regardless of the number of shares of our voting securities that you own."
• "On behalf of the Board of Directors, I urge you to submit your proxy as soon as possible, even if you currently plan to attend the Annual Meeting virtually."
• "I look forward to seeing you at the virtual Annual Meeting."
• "We are excited to embrace the latest technology to provide ease of access, real-time communication and cost savings for our stockholders and our Company."
• "Hosting a virtual meeting provides easy access for our stockholders and facilitates participation because stockholders can participate from any location around the world."
• "Our compensation philosophy is designed to provide the compensation and incentives needed to motivate and reward fairly those individuals who perform over time at or above the levels that we expect and to attract, as needed, and retain individuals with the skills necessary to achieve our objectives and who are crucial to our long-term success."
• "We believe that a classified board structure will help to assure the continuity and stability of our long-term policies in the future and to reduce our vulnerability to hostile and potentially abusive takeover tactics that could be adverse to the best interests of our company and its stockholders."
• "We believe that forcing potential bidders to negotiate with our Board for a change of control transaction will allow our Board to better maximize stockholder value in any change of control transaction."
• "The primary goal of the Reverse Stock Split is to increase the per share market price of our Common Stock to meet the minimum per share bid price requirements for continued listing on Nasdaq."
• "We believe that the Exchange was necessary in light of our cash and funding requirements and our obligations under the Certificate of Designations."

Industry Context

The company operates in an environment where maintaining public listing standards, such as Nasdaq's minimum bid price, is crucial for market access and investor confidence. The need for a reverse stock split and capital raises through convertible securities suggests challenges in sustaining market valuation and funding operations, which is not uncommon for smaller-cap companies navigating competitive or evolving markets. The focus on long-term value creation through equity compensation and board stability (classified board) indicates a strategic effort to build resilience, a common theme in industries facing volatility or requiring sustained investment in growth initiatives.

Comparison to Industry Standards

• The company's net losses of $(16,490) thousand in 2024, $(28,029) thousand in 2023, and $(32,629) thousand in 2022, along with a declining Total Shareholder Return (TSR) from $30.25 in 2022 to $6.34 in 2024 (based on a $100 initial investment), indicate underperformance compared to typical growth expectations for publicly traded companies, especially those seeking to maintain Nasdaq listing.
• The necessity of a reverse stock split to meet Nasdaq's minimum bid price requirement (previously non-compliant between March 31, 2025, to May 12, 2025) suggests the company's stock price performance is below the standards generally maintained by healthy, well-capitalized public companies.
• The issuance of Senior Secured Convertible Notes with an 8.0% interest rate (15% upon default) and Series G Preferred Stock with an 8% dividend rate (15% upon triggering event), along with significant potential dilution from conversions and warrants, indicates a higher cost of capital and more aggressive financing terms than typically seen in stable, well-performing companies within the retail and health and wellness industries.
• The company's cash and cash equivalents of approximately $5,263,000 as of June 30, 2025, while supplemented by the recent financing, must be viewed in the context of its ongoing losses and the need for additional funds for general corporate purposes, suggesting a tighter liquidity position compared to industry leaders.

Management Changes

Corporate Governance

Legal Proceedings

• No directors or executive officers have been involved in any bankruptcy petitions, criminal proceedings, injunctions, or findings of federal/state securities or commodities law violations during the past ten years.

Related Party Transactions

• No transactions since the beginning of the last fiscal year, nor any currently proposed transactions, exceeding the lower of $120,000 or one percent of average total assets at year-end for the last two completed fiscal years, in which any director, executive officer, 5% holder, or immediate family member had a direct or indirect material interest.
• Iroquois Capital Investment Group, LLC (ICIG) and its affiliate Iroquois Master Fund Ltd. (IMF) participated in the Private Placement and Exchange Agreement. They may acquire rights to a majority of the voting power if the Issuance Proposal is approved, due to their holdings of Series G Preferred Stock, Notes, and Warrants.

Stakeholder Impact

• **Shareholders:** Potential significant dilution from the issuance of common stock underlying Series G Preferred Stock, Warrants, and Notes. The reverse stock split aims to maintain Nasdaq listing, which could benefit shareholders by preserving liquidity and market access, but carries risks of not achieving sustained price increase or further liquidity reduction. The Board Classification Proposal could make it harder for shareholders to effect changes in board composition.
• **Investors (specifically ICIG and IMF):** These investors are key participants in the recent financing and stand to convert their Series G Preferred Stock and Notes, and exercise Warrants, potentially gaining a majority of the voting power if the Issuance Proposal is approved. Their interests are directly tied to the approval of the Issuance Proposal.
• **Employees:** Executive compensation programs are designed to attract and retain skilled talent, linking compensation to performance and long-term value creation. Management changes, such as the appointment of a new CEO and CFO, could impact employee morale and strategic direction.
• **Customers/Suppliers:** No direct impact mentioned, but maintaining Nasdaq listing and financial stability could indirectly assure business continuity and relationships.
• **Creditors:** The Senior Secured Convertible Notes are secured by a first priority security interest in company assets, providing a level of protection for these specific creditors. Failure to meet payment obligations could trigger events of default.

Next Steps

• Hold the 2025 Annual Meeting of Stockholders virtually on December 18, 2025.
• Stockholders to vote on director elections, auditor ratification, executive compensation, frequency of executive compensation votes, board classification, reverse stock split, and equity issuance proposals.
• If approved, the Board will have discretion to implement the reverse stock split prior to the one-year anniversary of stockholder approval.
• If the Issuance Proposal is not approved, the company will be required to hold additional stockholder meetings every ninety days thereafter to seek approval, incurring additional costs.
• The company will file final voting results on Form 8-K within four business days after the Annual Meeting.

Key Dates

Recommendation

The company is at a critical juncture, taking necessary actions to address its Nasdaq listing compliance and secure essential financing. The proposed reverse stock split is a defensive measure to avoid delisting, which is crucial for market access and liquidity. The recent capital raise, while providing needed funds, comes with significant potential dilution for existing shareholders and a high cost of capital, reflecting underlying financial challenges. The company has a history of net losses and declining Total Shareholder Return, indicating fundamental operational issues. While management is addressing immediate threats, the long-term outlook remains uncertain given the financial performance and the dilutive nature of the financing. A 'hold' recommendation is appropriate as the company navigates these challenges; investors should monitor the effectiveness of the reverse split, the impact of dilution, and any improvements in operational profitability before considering further investment.

Keywords

XWELL, XWEL, Proxy Statement, Annual Meeting, Reverse Stock Split, Nasdaq Listing, Board Classification, Equity Issuance, Convertible Notes, Warrants, Corporate Governance, Executive Compensation, Shareholder Vote, SEC Filing, Financial Reporting