# XWELL, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [XWELL, Inc.](/companies/xwel.md) (CIK 1410428)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 17:05 ET
- Period: 2023-09-30
- Accession: 0001558370-23-019060
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1410428/000155837023019060/xwel-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1410428/000155837023019060/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $7.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $22.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $6.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $19.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $1.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $2.8m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$10.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$21.5m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$9.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$21.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$2.38 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$5.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$2.38 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$5.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 4,173,894 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 4,170,629 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$12.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $4.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $30.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $44.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $8.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $17.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $19.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,585 characters.

*This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipates,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “will be,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed on April 17, 2023, as subsequently amended on May 1, 2023 (the “Annual Report”), our Quarterly Report on Form 10-Q for the three months and six months ended March 31, 2023 and June 30, 2023, respectively, and this Quarterly Report on Form 10-Q and any future reports we file with the Securities and Exchange Commission (“SEC”). The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.*

*All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to XWELL, Inc., a Delaware corporation, and its consolidated subsidiaries.*

### Overview

On October 25, 2022, we changed our name to XWELL, Inc. (“XWELL” or the “Company”) from XpresSpa Group, Inc. Our common stock, par value $0.01 per share, which had previously been listed under the trading symbol “XSPA” on the Nasdaq Capital Market, now trades under the trading symbol “XWEL” since the opening of the trading market on October 25, 2022. We filed an amended and restated certificate of incorporation with the Delaware Secretary of State on October 24, 2022 (the “Amended and Restated Certificate”) reflecting the name change. Rebranding to XWELL aligned our corporate strategy to build a pure-play wellness services company, in both the airport and off airport marketplaces.

On August 4, 2023, we filed Form S-3 with the United States Securities and Exchange Commission (“SEC”). This Form S-3 which is a Registration Statement under the Securities Act of 1933, when accepted by the SEC, would enable us to issue, from time to time at prices and on terms to be determined at or prior to the time of the offering, up to $200,000 of any combination of the securities described in the registration, either individually or in units. We may also offer common stock or preferred stock upon conversion of or exchange for the debt securities; common stock upon conversion of or exchange for the preferred stock; common stock, preferred stock or debt securities upon the exercise of warrants or rights.

XWELL is a global wellness company operating multiple brands and focused on bringing restorative, regenerative and reinvigorating products and services to travelers. XWELL currently has three reportable operating segments: XpresSpa®, XpresTest®, and Treat™.

#### XpresSpa

XWELL’s subsidiary, XpresSpa Holdings, LLC (“XpresSpa”) has been a global airport retailer of spa services through our XpresSpa spa locations, offering travelers premium spa services, including massage, nail and skin care, as well as spa and travel products.

As of September 30, 2023, there were 21 operating XpresSpa domestic locations. During 2022, we sold one location in Austin-Bergstrom International Airport to our franchisee which now operates both locations at this airport. We also had 10 international locations operating as of September 30, 2023, including two XpresSpa locations in Dubai International

Airport in the United Arab Emirates, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in Istanbul Airport in Turkey.

#### XpresTest

We, in partnership with certain COVID-19 testing partners, successfully launched our XpresCheck Wellness Centers through our XpresTest, Inc. subsidiary (“XpresTest”), offering testing services, also in airports. During 2022, as countries continued to relax their testing requirements resulting in rapid decline of testing volumes at our XpresCheck locations, we closed all but one XpresCheck Wellness Center. As of September 30, 2023, all our XpresCheck locations have ceased operations.

XpresTest began conducting bio-surveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo in 2021 and on January 31, 2022, we announced the extension of the initial program, bringing the total contract to $5,534. As of August 2022, the program was renewed in partnership with Ginkgo BioWorks for a new two-year contract term which represents approximately $7,331 in revenue (for the first year) for the XpresTest segment. Effective as of August 12, 2023, the revenue for the second year was determined to be approximately $6,675.

For reporting purposes, the former Hyperpointe segment has been consolidated into the XpresTest segment. This determination was made given that XpresTest and Hyperpointe are managed by its Chief Executive Officer, Ezra Ernst, as a single segment.

HyperPointe, which the Company acquired in January 2022, provides a broad range of service and support options for our customers, including technical support services and advanced services.

#### Treat

The Treat segment, which is operating through XWELL’s subsidiary Treat, Inc. (“Treat”) is a wellness brand that provides access to wellness services for travelers at on-site centers (currently located in JFK International Airport and in Salt Lake City International Airport).

In 2022, our Treat brand opened new locations in Phoenix Sky Harbor International Airport (pre-security) and Salt Lake City International Airport. With respect to these locations in Phoenix and Salt Lake City, agreements had already been executed with the airports and the decision was made to convert these locations to Treat.

By the third quarter of 2022, it became clear that the Treat business required a change in strategy and as a result, we began to retool the offerings within the Treat locations by providing additional retail as part of our retail strategy expansion as well as lay the foundation to bring more spa-like services into the Treat location in an attempt to unify our core offering.

By the fourth quarter of 2022, the decision was made to close the pre-security Treat location at Phoenix Sky Harbor Airport. As of September 30, 2023, the Treat brand operates in two locations in the airport (JFK International Airport and Salt Lake City International Airport). These remaining Treat locations offer a full retail product offering and a suite of wellness and spa services.

As of September 12, 2023, XWELL acquired Naples Wax, LLC, a group of upscale hair removal boutiques in Florida, for a purchase price of approximately $1.6 million. Known for providing a memorable customer experience, Naples Wax Center operates three high-performing locations with core products and service offerings from face and body waxing to a range of skincare and cosmetic products. The acquisition of Naples Wax Center enables the company to move beyond its airport client base with a business it can adapt a larger wellness platform while also growing its retail footprint to serve its long-term financial expectations.

For reporting purposes, the Naples Wax acquisition is consolidated under the Treat segment.

Although we recognize three segments of business, our strategy for the future is to create and leverage a fully integrated set of products and services that are both profitable and scalable across our portfolio of brands. Additionally, we are expanding our retail strategy, not only adding more products for sale but aligning those products more efficiently to our service offerings. This product strategy includes, for example, adding muscle relaxation patches to a neck or back massage to continue treatment after the delivery of the service.

We also plan to build our capability for delivering wellness services outside 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. With international travel slowly returning to pre-pandemic levels, we continue to be opportunistic in our approach, by taking advantage of the current market growth. We believe a strategy for international expansion further advances our ability to expand our other brands including bio-surveillance outside of the US.

These strategic imperatives will be accomplished through development of an infrastructure specifically focused on enabling scalable and efficient growth.

### Results of Operations

### Revenue

We recognize revenue from the sale of XpresSpa and Naples Wax services when they are rendered at our stores and from the sale of products at the time goods are purchased at our stores or online (usually by credit card), net of discounts and applicable sales taxes.

We have entered into managed services agreements with professional medical services companies that provide healthcare services to patients in our XpresCheck and Treat Wellness Centers. The medical services companies will pay XpresTest and Treat, a monthly management fee to operate in the XpresCheck and Treat Wellness Centers. For the bio-surveillance program, XpresTest receive a flat monthly fee for its services.

HyperPointe provides a broad range of service and support options for our customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term.

### Cost of sales

Cost of sales for our XpresSpa and Treat segments consist of store-level costs. Store-level costs include all costs that are directly attributable to the store operations, primarily payroll and related benefit costs for store personnel, occupancy costs and cost of products sold. Cost of sales of our XpresTest and Treat segments include costs related to the XpresCheck and Treat medical office business, and consists of expenses directly attributable to the operations under the terms of the MSAs, primarily payroll and related benefit costs for personnel, occupancy costs and cost of supplies.

### Other general and administrative expenses

Other general and administrative expenses include management and administrative personnel, overhead and occupancy costs, insurance and various professional fees, as well as stock-based compensation for directors, management and administrative personnel.

### Three months ended September 30, 2023 compared to the three months ended September 30, 2022

### Revenue

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Total revenue | ​ | $7,468 | ​ | $10,736 | ​ | $(3,268) |

The decrease in revenue of $3,268 or 30%, was primarily due to the reduction in patient service revenue triggered by the rapid decline of the XpresTest segment as countries continued to relax their testing requirements and we experienced decreased testing volumes at our now closed XpresCheck locations.

### Cost of sales

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Cost of sales | ​ | $6,377 | ​ | $9,339 | ​ | $(2,962) |

The decrease in cost of sales of $2,962 or 32%, is commensurate with the decrease in revenues offset by the reopening of certain XpresSpa locations. We had 31 open spa locations as of September 30, 2023, and 20 open Spa locations as of September 30, 2022. The largest component in the cost of sales are the costs of testing kits and labor costs at the location-level. Cost of sales also includes rent and related occupancy costs, which can primarily include rent based on percentage of sales, as well as other product costs directly associated with the procurement of retail inventory, and other operating costs.

### Depreciation and amortization

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Depreciation and amortization | ​ | $590 | ​ | $1,564 | ​ | $(974) |

The decrease in depreciation and amortization of approximately 62% was primarily due to the write-off of the stores that were permanently closed since September 30, 2022. Fewer locations resulted in lower amortization of leasehold improvements. Depreciation and amortization expense also decreased because of the impairments and disposals of fixed assets during the year ended December 31, 2022.

### Impairment/loss on disposal of assets

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Impairment / loss on disposal of assets | ​ | $6,798 | ​ | $1,040 | ​ | $5,758 |

The increase in impairment is primarily due to the impairment of Hyperpointe-related assets including goodwill.

### Other general and administrative expenses

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Other general and administrative expenses | ​ | $3,593 | ​ | $4,843 | ​ | $(1,250) |

27

The decrease of approximately 26% was primarily due to rightsizing our existing business and optimizing our cost structure as well as reduction of functional costs associated with the operations of now closed XpresCheck Wellness Centers. We have significantly reduced operating and overhead expenses since the second half of 2022, while we continue to focus on returning to overall profitability.

### Other non-operating expense, net

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Other non-operating income (expense), net | ​ | $(198) | ​ | $(134) | ​ | $(64) |

The following is a summary of the transactions included in other non-operating expense, net for the three months ended September 30, 2023 and 2022:

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: |
| Loss on equity investments | ​ | $(20) | ​ | $(98) |
| Bank fees and financing charges | ​ | ​ (178) | ​ | ​ (36) |
| Total | ​ | $(198) | ​ | $(134) |

### Realized and unrealized foreign exchange loss

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Foreign exchange remeasurement gain/(loss) | ​ | $366 | ​ | $(2) | ​ | $368 |

Foreign exchange gain during 2023 primarily pertains to remeasurement of foreign currency transactions at our newly opened Turkish locations.

### Interest income, net

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Interest income, net | ​ | $105 | ​ | $114 | ​ | $(9) |

### Nine months ended September 30, 2023 compared to the Nine months ended September 30, 2022

### Revenue

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Total revenue | ​ | $22,706 | ​ | $48,381 | ​ | $(25,675) |

The decrease in revenue of $25,675, or 53%, was primarily due to the reduction in patient service revenue triggered by the rapid decline of the XpresTest segment as countries continued to relax their testing requirements and we experienced decreased testing volumes at our now closed XpresCheck locations.

### Cost of sales

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Cost of sales | ​ | $19,903 | ​ | $36,743 | ​ | $(16,840) |

28

The decrease in cost of sales of $16,840 or 46%, is commensurate with the decrease in revenues offset by the reopening of certain XpresSpa locations. We had 31 open spa locations as of September 30, 2023, and 20 open Spa locations as of September 30, 2022. The largest component in the cost of sales are the costs of testing kits and labor costs at the location-level. Cost of sales also includes rent and related occupancy costs, which can primarily include rent based on percentage of sales, as well as other product costs directly associated with the procurement of retail inventory, and other operating costs.

### Depreciation and amortization

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Depreciation and amortization | ​ | $1,770 | ​ | $4,329 | ​ | $(2,559) |

The decrease in depreciation and amortization of approximately 59% was primarily due to the write-off of the stores that were permanently closed since September 30, 2022. Fewer locations resulted in lower amortization of leasehold improvements. Depreciation and amortization expenses also decreased because of the impairments and disposals of fixed assets during the year ended December 31, 2022.

### Impairment/loss on disposal of assets

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Impairment / loss on disposal of assets | ​ | $6,816 | ​ | $988 | ​ | $5,828 |

The increase in impairment is primarily due to the impairment of Hyperpointe-related assets including goodwill.

### Other general and administrative expenses

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Other general and administrative expenses | ​ | $13,891 | ​ | $18,250 | ​ | $(4,359) |

The decrease of approximately 24% in other general and administrative expenses was primarily due to rightsizing our existing business and optimizing our cost structure as well as reduction of functional costs associated with the operations of now closed XpresCheck Wellness Centers. We have significantly reduced operating and overhead expenses since the second half of 2022, while we continue to focus on returning to overall profitability.

### Other non-operating expense, net

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Other non-operating income (expense), net | ​ | $(345) | ​ | $(643) | ​ | $298 |

The following is a summary of the transactions included in other non-operating expense, net for the nine months ended September 30, 2023 and 2022:

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: |
| Loss on equity investments | ​ | $(53) | ​ | $(521) |
| Bank fees and financing charges | ​ | (282) | ​ | (122) |
| Other | ​ | ​ (10) | ​ | ​ — |
| Total | ​ | $(345) | ​ | $(643) |

29

### Realized and unrealized foreign exchange loss

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Foreign exchange remeasurement gain/(loss) | ​ | $(690) | ​ | $(7) | ​ | $(683) |

Foreign exchange loss during 2023 primarily pertains to remeasurement of foreign currency transactions at our newly opened Turkish locations.

### Interest income, net

| ​ ​ ​ | ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Inc/(Dec) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Interest income, net | ​ | $334 | ​ | $159 | ​ | $175 |

Interest income, net increased because of increased interest rates and elimination of interest expense since the beginning of May 2022.

### Liquidity and Capital Resources

As of September 30, 2023, we had approximately $4,827 of cash and cash equivalents (excluding restricted cash), $21,311 in marketable securities, and total current assets of $29,962. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was approximately $8,157 as of September 30, 2023 and $10,956 as of December 31, 2022. The working capital surplus was $21,805 as of September 30, 2023, compared to a working capital surplus of $36,376 as of December 31, 2022.

We have carried out an assessment of our ability to continue as a going concern. As of the date of the report, we believe that our Company has sufficient liquidity to fund operations for the next twelve months. Our primary liquidity and capital requirements are for the maintenance of our current XpresSpa and Treat locations and brand, as well as the expansion of Naples Wax and our off-airport strategy. During the nine months ended September 30, 2023 and 2022, we used $12,873 and $17,406 in operations, respectively.

On August 31, 2021, our board of directors initially authorized a stock repurchase program that permitted the purchase and repurchase of up to 750,000 shares of our common stock through September 15, 2022. In May 2022, the Board increased the share repurchase program by an additional 500,000 shares and extended its effectiveness through September 15, 2023. Under this stock repurchase program, management has discretion in determining the conditions under which shares may be purchased from time to time. The program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice.

Pursuant to our share repurchase program, we purchased 424,042 shares for $12,116 and retired 357,122 of these purchased shares during the nine months ended September 30, 2022, and the remaining 66,920 shares were retired on August 3, 2022. We did not repurchase any shares during the nine months ended September 30, 2023.

### Critical Accounting Estimates

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended, filed with the SEC which includes a description of our critical accounting estimates that involve subjective and complex judgments that could potentially affect reported results. There have been no material changes to our critical accounting estimates as to the methodologies or assumptions we apply under them. We continue to monitor such methodologies and assumptions.

## Controls and procedures

As filed, 3,731 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

This type of evaluation is performed on a quarterly basis so that conclusions of management, including our Chief Executive Officer and the Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. The overall goals of these evaluation activities are to monitor our disclosure controls and to modify them as necessary. We intend to maintain the disclosure controls as dynamic systems that we adjust as circumstances merit. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2023.

#### Remediation Plan for Material Weakness in Internal Control over Financial Reporting

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. Management has implemented, and continues to implement, the actions described below to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weaknesses described above will continue to exist. We cannot provide any assurance that the below remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. Management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:

1\) The Company has turned on the multi-currency features related to its cloud-based accounting systems.

2\) The Company has engaged outside service providers to assist with the valuation, accounting, and recording of key reporting areas such as leases, revenue recognition and stock compensation expense.

3\) The Company utilizes independent consulting firms to assist with the preparation of the Financial Statements and U.S. GAAP accounting research.

4\) The Company has engaged outside service providers to review the applicable complementary user entity controls described in the service organizations’ reports for their potential impact on the Company’s financial reporting.

5\) On July 10, 2023, the Company hired a new permanent Chief Financial Officer.

#### Changes in Internal Control over Financial Reporting

Other than as set forth in the foregoing paragraph, there have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 162 characters.

There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-019060. Last ingested by Listed: Oct 29, 2026, 16:07 ET. No prices; not investment advice.