Financial Analysis

Note 17. Commitments and Contingencies Certain of the Companys outstanding legal matters include speculative claims for substantial or indeterminate amounts of damages. The Company regularly evaluates developments in its legal matters that could affect the amount of any potential liability and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being any potential liability and the estimated amount of a loss related to the Companys legal matters. With respect to the Companys outstanding legal matters, based on its current knowledge, the Companys management believes that the amount or range of a potential loss will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company evaluated the outstanding legal matters and assessed the probability and likelihood of the occurrence of liability. Based on managements estimates, the Company has recorded accruals of $0 and $0 as of December 31, 2025 and December 31, 2024, respectively, which is included in Accrued expenses and other current liabilities in the consolidated balance sheets. The Company expenses legal fees in the period in which they are incurred. November 2025 Employment Litigation On November 10, 2025, a former employee filed a complaint in t …

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Note 10. Convertible Notes On November 10, 2025, the Company issued the Notes to the Investors as part of the Exchange. The Notes are convertible into shares of the Companys Common Stock in accordance with their terms and will be secured by a first priority security interest in the assets of the Company and its subsidiaries. The Notes will mature on the date that is three years and four months from the date of issuance (the Notes Maturity Date), which may be extended as set forth in the Notes. The Notes bear an interest rate of 8.0% per annum compounded each quarter, which are payable in arrears (i) on the first trading day of each quarter beginning February 2, 2026 (each such date, an Interest Date), in cash, (ii) on each Interest Date occurring on an Installment Date (as defined in the Notes), payable by way of inclusion of the interest in the applicable Installment Amount (as defined in the Notes), (iii) prior to the First Installment Date (as defined herein), payable by way of inclusion of interest in the Conversion Amount (as defined in the Notes) on each conversion date occurring prior to the First Installment Date, or (iv) upon any redemption or any required payment upon any Event of Default (as defined in the Notes). Upon the occurrence and during the continuance of an Event of Default, the Notes accrue interest at the rate of 15% per annum. The Notes are convertible into shares of Common Stock at the election of the holder at any time at an initial conversion price o …

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The following table provides information about disaggregated revenue from contracts with customers by the nature of products and services provided (in thousands): For the years ended December 31, 2025 2024 Revenue, point in time $ 20,961 $ 20,842 Revenue, over time 8,249 13,055 Total Revenue $ 29,210 $ 33,897 …

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Note 12. Stock-based Compensation The Company has a stock-based compensation plan available to grant stock options and RSUs to the Companys directors, employees and consultants. In September 2020, the Board of Directors approved a new stock-based compensation plan available to grant stock options, restricted stock and Restricted Stock Units (RSUs) aggregating to 250,000 shares of Common Stock, to the Companys directors, employees and consultants. Shareholder approval of the plan was subsequently obtained on October 28, 2020. On October 4, 2022, shareholders approved the amendment to the Companys 2020 Equity Incentive Plan to increase the number of shares authorized for issuance under the Plan by 375,000 shares of Common Stock to an aggregate of 625,000 shares. On February 13, 2025 shareholders approved an amendment to the Companys 2020 Equity Incentive Plan to increase the number of shares authorized for issuance under the Plan by approximately 2,500,000 shares of Common Stock to an aggregate of 3,125,000 shares. Under the 2020 Equity Incentive Plan (as amended, the 2020 Plan), a maximum of 1,552,745 shares of Common Stock remained available for issuance as of December 31, 2025. The Companys previous Employee, Director and Consultant Equity Incentive Plan (the 2012 Plan) was terminated upon receipt of shareholder approval of the 2020 Plan. Awards granted under the 2012 Plan remain in effect pursuant to their terms. Generally, stock options are granted with exercise prices equ …

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Note 11. Fair Value Measurements Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy exists, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are: Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 3: Unobservable inputs, that are supported by little or no market activity and are developed based on the best information available in the circumstances. For example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data. The following table presents the placement in the fair value hierarchy of the Companys assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2025 and 2024. Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to tangible property and equipment, right-of-use assets, and other intangible assets, which are remeasured …

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Note 7. Intangible Assets The following table provides information regarding the Companys intangible assets, which consist of the following: December 31, 2025 December 31, 2024 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Amount Amortization Amount Amount Amortization Amount Trade names $ 200 $ (200) $ $ 200 $ (29) $ 171 Customer relationships 1,012 (1,012) 1,012 (441) 571 Software 2,583 (2,482) 101 2,583 (2,302) 281 Total intangible assets $ 3,795 $ (3,694) $ 101 $ 3,795 $ (2,772) $ 1,023 The Companys trade names and customer relationships relate to the Naples Wax Center, software relates to certain capitalized third-party costs related to a new website and a point-of-sale system, and licenses relate to certain capitalized costs of foreign acquisition. In the year ended December 31, 2025, the Company recorded an impairment of $620 related to trade names and customer relationships which is included in Impairment of long-lived assets on the consolidated statement of operations and comprehensive loss. The impairment expense primarily relates to intangible assets of Naples Wax. The impairment related to intangibles is included within the accumulated amortization of the above schedule. In the year ended December 31, 2024, the Company identified a triggering event and recorded an impairment of $5 related to Licenses which is included in Impairment of long-lived assets on the consolidated statement of operations and comprehensive loss. The fair va …

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Note 16. Income Taxes For the years ended December 31, 2025 and 2024, the loss from continuing operations before taxes consists of the following: 2025 2024 Domestic $ (15,621) $ (15,026) Foreign (456) (1,415) $ (16,077) $ (16,441) Income tax expense attributable to continued operations for the years ended December 31, 2025 and 2024 consisted of the following: For the years ended December 31, 2025 2024 Current: Federal $ $ State 13 30 Foreign 16 19 Deferred: Federal State Foreign $ 29 $ 49 Income tax attributable to continuing operations differed from the amounts computed by applying the applicable U.S. federal income tax rate to loss from continuing operations before taxes on income as a result of the following: For the years ended December 31, 2025 In thousands Percent Income (loss) from operations before income taxes $ (3,376) 21 % Tax rate State and Local Taxes (Net of Federal Income Tax Effect) 3 -0.02 % Foreign Tax Effects International Rate Differential - Netherlands 6 -0.04 % International Rate Differential - Other (59) 0.37 % Foreign Tax Effects - VA 164 -1.02 % Change in Valuation Allowance 2,927 -18.21 % Nontaxable or nondeductible items Meals & Entertainment 8 -0.05 % JV and Foreign Tax Activity (38) 0.23 % Loss on Preferred Stock 723 (4.50) % Derivative Liability 17 (0.10) % Impairment 62 -0.38 % Warrant Liability (675) 4.20 % Other Adjustments Return to Provision Adjustment 87 -0.54 % Asset Impairment Adjustment 24 -0.15 % Stock-Based Compensation Deferred Ad …

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Note 8. Leases The Company leases spa and clinic locations at various domestic and international airports. Additionally, the Company leases its corporate office in New York City and other off airport locations in various US cities. Leases entered into by the Company are accounted for in accordance with ASC 842. The Company determines if an arrangement is a lease at inception and if it qualifies under ASC 842. The Companys lease arrangements generally contain fixed payments throughout the term of the lease and most also contain a variable component to determine the lease obligation where a certain percentage of sales is used to calculate the lease payments. The Company enters into leases that expire, are amended and extended, or are extended on a month-to-month basis. Leases are not included in the calculation of the total lease liability and the right of use asset when they are month-to-month. All qualifying leases held by the Company are classified as operating leases. Operating lease assets represent the Companys right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company records its operating lease assets and liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate, whic …

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Recently Issued Accounting Standards ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures In November 2024, the FASB issued ASU 2024-03, which requires public business entities to disclose, on an annual and interim basis, disaggregated information about certain income statement expense line items in the notes to the financial statements. Public business entities are required to apply the guidance prospectively and may elect to apply it retrospectively. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the effect of adopting this new accounting pronouncement. ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets In July 2025, the FASB issued ASU 2025-05, which amends ASC 326-20 to provide a practical expedient related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. The practical expedient permits all entities to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. The amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its conso …

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Note 18. Related Party On January 30, 2025, the Company entered into a consulting agreement (Consulting Agreement) with XWEL INV I, LLC (XWEL INV I) and Jason Aintabi (the Consultant) for the Consultant to provide advisory services to the Company. Mr. Aintabi serves as the Manager of XWEL INV I. The Consulting Agreement is deemed to be related party transaction as Mr. Aintabi is a greater than 5% beneficial owner of the Companys securities. The Consulting Agreement was further extended on May 12, 2025 for a total period of twelve (12) months from the effective date of the agreement in exchange for a total amount for both the original and amended agreements of $530. On December 15, 2025 the Consulting Agreement was further amended to increase the value of agreement by $250, increasing the total amount for original and amended agreements to $780. For the year ended December 31, 2025, $558 of this contract was recognized in general and administrative expenses on the consolidated statement of operations and comprehensive loss, $82 was recognized as a prepaid expense in other current assets and $250 was recognized as an accrued liability on the consolidated balance sheets as of December 31, 2025. …

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Note 14. Revenue Disaggregation of Revenue The following table provides information about disaggregated revenue from contracts with customers by the nature of products and services provided (in thousands): For the years ended December 31, 2025 2024 Revenue, point in time $ 20,961 $ 20,842 Revenue, over time 8,249 13,055 Total Revenue $ 29,210 $ 33,897 As of December 31, 2025, the unrecognized committed amount of the Ginkgo/Bioworks contract is $1,853. Contract costs For the years ended December 31, 2025 and 2024, the Company did not incur any incremental costs to obtain and/or fulfill contracts with customers. Contract Liabilities Contract liabilities are classified as deferred revenue in the consolidated balance sheets. The activity in deferred revenue for the years ended December 31, 2025 and December 31, 2024, was as follows: December 31, 2025 December 31, 2024 Beginning of the period contract liability $ 1,143 $ 861 Revenue recognized from the contract liabilities included in the beginning balance (709) (461) Increases due cash received net of amounts recognized revenue during the period 692 743 End of period contract liability $ 1,126 $ 1,143 Of the $1,143 outstanding as of December 31, 2024, $709 has been recognized as revenue during the year ended December 31, 2025. The Company has elected not to include in unfulfilled performance obligations for contracts in which the amount of revenue it recognizes is equal to the amount which the Company has a right to invoice. No r …

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Note 13. Segment Information XWELL, Inc. transitioned to a pure-play wellness service company, which is organized primarily on the basis of products and services specific to individual entities within the group. The Company currently has three reportable operating segments: XpresSpa, XpresTest and Naples Wax Center. The Company analyzes the results of the Companys business through the three reportable segments. The following is a brief description of our reportable segments: The XpresSpa segment provides travelers premium spa services, including massage, nail and skin care, as well as spa and travel products. The XpresTest segment provides aircraft wastewater and passenger nasal sampling through the CDCs bio-surveillance program. XpresTests HyperPointe business provided a broad range of service and support options for its customers, including technical support services and advanced services and is no longer operating as of December 31, 2025. The Naples Wax Center segment operates six locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products. The CODM evaluates performance and allocates resources for all of its reportable segments based on segment revenues and operating income. The CODM uses segment revenues and segment operating income, to allocate resources (including employees, property, and financial or capital resources) for each segment predominantly in the annual budget and forecasting process. The CODM con …

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Note 19. Subsequent Events February 2026 Private Placement of Preferred Shares and Warrants On February 24, 2026, the Company entered into the February 2026 Purchase Agreement with the February 2026 Purchaser for the issuance and sale in a private placement of an aggregate of (i) 31,333 shares of the Companys newly-designated Series H Convertible Preferred Stock, with a par value of $0.01 per share and a stated value of $1,000 per share, initially convertible into up to 66,665,957 shares of Common Stock, at an initial conversion price of $0.47 per share, subject to adjustment for certain customary adjustments, and (ii) the February 2026 Warrants to purchase up to 66,665,957 shares of Common Stock, at an initial exercise price of $0.345 per share, subject to adjustment for certain customary adjustments. The February 2026 Warrants expire three years from the date of issuance. The February 2026 Private Placement closed on February 27, 2026. The aggregate gross proceeds from the February 2026 Private Placement were $31,300. In connection with the February 2026 Private Placement, pursuant to a placement agency agreement (the Placement Agency Agreement), dated as of February 24, 2026, by and between the Company and Dominari Securities LLC (the Placement Agent), the Company engaged the Placement Agent to act as an exclusive placement agent in connection with the February 2026 Private Placement and agreed to (i) pay to the Placement Agent (a) a cash fee equal to 8% of the gross proce …

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