# XWELL, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [XWELL, Inc.](/companies/xwel.md) (CIK 1410428)
- Form: 10-Q
- Filed: 2024-08-14
- Accepted by EDGAR: Aug 14, 2024, 16:15 ET
- Period: 2024-06-30
- Accession: 0001558370-24-012235
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1410428/000155837024012235/xwel-20240630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1410428/000155837024012235/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $9.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $18.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $6.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $12.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $3.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $5.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $3.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-01-01 to 2024-06-30 | $5.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$1.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$4.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$2.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$4.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 4,182,617 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 4,182,959 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$4.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $644.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $5.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $23.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $36.3m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $10.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $19.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $8.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,852 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 (the “Exchange Act”). 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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2024, as subsequently amended on April 17, 2024 and April 29, 2024 (the “Annual Report”) and this Quarterly Report on Form 10-Q and any future reports we file with the 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

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 four reportable operating segments: XpresSpa®, XpresTest®, Naples Wax Center and Treat™.

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”. 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.

Although we recognize four segments of business, we believe there is opportunity to leverage a segment of our products and services across the Company’s platform 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 are also continuing to add new service offerings to our in and out of airport locations.

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. With international travel returning to pre-pandemic levels, we continue to be opportunistic in our approach, by taking advantage of the current market to growth. We believe a strategy for international expansion further advances our ability to expand our other brands including bio surveillance outside of the United States.

#### 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 June 30, 2024, there were 21 domestic XpresSpa locations in total, 19 Company-owned locations and two franchises. We also had 11 international locations operating as of June 30, 2024, including two XpresSpa locations in Dubai International Airport in the United Arab Emirates, one XpresSpa location in Zayad International Airport in Abu Dhabi, UAE, three XpresSpa locations in Schiphol Amsterdam Airport in the Netherlands and five XpresSpa locations in the Istanbul Airport in Turkey.

#### XpresTest

We, in partnership with certain COVID-19 testing partners, successfully launched its XpresCheck Wellness Centers, in June of 2020, through our XpresTest, Inc. subsidiary (“XpresTest”), which offered COVID-19 and other medical diagnostic testing services to the traveling public, as well as airline, airport and concessionaire employees, and TSA and U.S. Customs and Border Protection agents during the pandemic. During 2022 and 2023, as countries continued to relax their testing requirements resulting in rapid decline of testing volumes at the Company’s XpresCheck Wellness locations, the Company started to close XpresCheck Wellness Centers. As of December 31, 2023, we have closed all XpresCheck Wellness locations.

XpresTest began conducting bio surveillance monitoring with the Centers for Disease Control and Prevention (CDC) in collaboration with Concentric by Ginkgo BioWorks in 2021 and on January 31, 2022, we announced the extension of our initial program, bringing the total contract to $5,537. In August 2022, the program was renewed in partnership with Ginkgo BioWorks. A new two-year contract was initiated which represents approximately $7,330 in revenue (for the first year) for the XpresTest segment.

The program was further renewed in August 2023 through a new one-year contract. The revenue to XpresTest from such one-year extension totaled approximately $7,044. In March 2024, the program funding and scope were expanded, a revenue increase of $4,000, to an estimated $11,044 in revenue for XpresTest with new collection locations at U.S. international airports in Miami (MIA) and Chicago (ORD) and the roll out of multi-pathogen testing across the program.

#### HyperPointe

XWELL’s subsidiary, gcg Connect, LLC, operating as HyperPointe, provides direct to business marketing support across a number of health and health-related channels. From the creation of marketing campaigns for the pharmaceutical industry, to learning management systems to website and health related content creation, HyperPointe is a complementary service provider to our health-focused brands as well as providing the majority of services to the external community.

For reporting purposes, HyperPointe has been consolidated into the XpresTest segment.

#### Treat

Treat, which is operating through our 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). In April 2024, the decision was made to close the location in the Salt Lake City International Airport.

Treat offers a full retail product offering and a suite of wellness and spa services. Travelers can purchase time blocks to use our wellness rooms to engage in interactive services like self-guided yoga, meditation, and low impact weight exercises or to relax and unplug from the hectic pace of the airport and renew themselves before or after their trip.

#### Naples Wax Center

On September 12, 2023, we acquired our subsidiary Naples Wax, LLC d/b/a Naples Wax Centers (“Naples Wax Centers” or “Naples Wax”), a group of upscale hair removal boutiques in Florida, for a purchase price of $1,624. Aiming to provide 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 is intended to enable us to move beyond our airport client base with a business that can be adapted to a larger wellness platform while also growing our retail footprint to serve our long-term financial goals.

#### XWELL Studios

In Q4 of 2023, we began plans to open our first XWELL Studios location in Jacksonville, Florida in 2024. XWELL Studios is an out-of-airport concept providing leased space to established wellness service providers. Revenue will be derived from both lease payments received from the wellness practitioners and the sale of retail at the wellness center.

We believe that these strategic imperatives will be accomplished through development of an infrastructure specifically focused on enabling scalable and efficient growth.

### Recent Developments

#### August 2024 Registered Direct Offering

On August 6, 2024, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to sell and issue in a registered direct offering (the “August 2024 Offering”), an aggregate of 652,705 shares (the “August 2024 Shares”) of our common stock. The gross proceeds to us from the August 2024 Offering, prior to deducting estimated fees and expenses, were approximately $1.4 million. The August 2024 Offering closed on August 8, 2024.

The August 2024 Shares were offered and sold by us pursuant to a shelf registration statement on Form S-3 (File No. 333-273726), previously filed with the SEC on August 4, 2023, and declared effective by the SEC on September 29, 2023, and the base prospectus included therein.

### 2023 Reverse Stock Split

On September 28, 2023, we effected a 1-for-20 reverse stock split (the “Reverse Stock Split”), whereby every twenty shares of our common stock were reduced to one share of our common stock and the price per share of our common stock was multiplied by 20. All references to shares and per share amounts, including shares of common stock underlying stock options, warrants, and applicable exercise prices, have been retroactively adjusted for all periods presented herein to give effect to the Reverse Stock Split as required in accordance with US GAAP.

### Results of Operations

### Revenue

We recognize revenue from the sale of XpresSpa, Treat 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.

During the third quarter of 2022, XpresTest, in partnership with Ginkgo BioWorks in continuation of their support to the CDC’s traveler-based SARS-CoV-2 genomic surveillance program was awarded a new contract. We recognize revenue over time for both sample collection performance obligations, using the input method based on time elapsed to measure progress towards satisfying each of the performance obligations. The Company recognizes revenue ratably (straight line basis) over the term of the contract (one year).

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, XpresTest, Naples Wax and Treat segments consist of location and segment level costs. Location and segment level costs include all costs that are directly attributable to operations, primarily payroll and related benefit costs for personnel, occupancy costs and cost of products sold.

### General and administrative expenses

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 June 30, 2024, compared to the three months ended June 30, 2023

### Revenue

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Total revenue | ​ | $9,282 | ​ | $8,175 | ​ | $1,107 |

The increase in revenue of $1,107 or 14%, was primarily due to the increase in the XpresTest CDC contract and the addition of Naples Wax.

### Cost of sales

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Cost of sales | ​ | $6,203 | ​ | $6,985 | ​ | $(782) |

The decrease in cost of sales of $782 or 11%, is a result of three XpresSpa locations closing during 2023. The largest component in the cost of sales is 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 June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Depreciation and amortization | ​ | $228 | ​ | $593 | ​ | $(365) |

The decrease in depreciation and amortization of approximately 62% was primarily due to the write-off of the stores that were permanently closed in 2023. Fewer locations resulted in lower depreciation of leasehold improvements. Depreciation and amortization expense also decreased because of the impairments and disposals of fixed assets during the year ended December 31, 2023 and the three months ended March 31, 2024.

### Impairment/loss on disposal of assets

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Loss on disposal of assets | ​ | $19 | ​ | $18 | ​ | $1 |

The increase in loss on disposal of assets of approximately 6% was due to the closing of one XpresSpa in Orlando.

### General and administrative expenses

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| General and administrative | ​ | $3,072 | ​ | $3,183 | ​ | $(111) |

The decrease of approximately 3% was primarily due to rightsizing our existing business and optimizing our cost structure. We have significantly reduced operating and overhead expenses while we continue to focus on returning to overall profitability.

### Salaries and benefits

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Salaries and benefits | ​ | $1,653 | ​ | $2,120 | ​ | $(467) |

The decrease of approximately 22% was primarily due to headcount reductions as we continue rightsizing our existing business.

### Other non-operating expense, net

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Other non-operating income (expense), net | ​ | $(72) | ​ | $(62) | ​ | $(10) |

The following is a summary of the transactions included in other non-operating expense, net for the three months ended June 30, 2024 and 2023:

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | --- | --- | --- |
| Bank fees and financing charges | ​ | ​ (41) | ​ | ​ (52) |
| Other | ​ | ​ (31) | ​ | ​ (10) |
| Total | ​ | $(72) | ​ | $(62) |

### Interest income, net

| ​ ​ ​ | ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Interest income, net | ​ | $97 | ​ | $105 | ​ | $(8) |

The decrease of $8 was primarily due to having less cash in interest bearing accounts.

### Six months ended June 30, 2024, compared to the six months ended June 30, 2023

### Revenue

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Total revenue | ​ | $18,008 | ​ | $15,238 | ​ | $2,770 |

The increase in revenue of $2,770 or 18%, was primarily due to the increase in the XpresTest CDC contract and the addition of Naples Wax.

### Cost of sales

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Cost of sales | ​ | $12,264 | ​ | $13,526 | ​ | $(1,262) |

The decrease in cost of sales of $1,262 or 9%, is a result of three XpresSpa locations closing during 2023. The largest component in the cost of sales is 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

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Depreciation and amortization | ​ | $453 | ​ | $1,180 | ​ | $(727) |

The decrease in depreciation and amortization of approximately 62% was primarily due to the write-off of the stores that were permanently closed in 2023. Fewer locations resulted in lower depreciation of leasehold improvements. Depreciation and amortization expense also decreased because of the impairments and disposals of fixed assets during the year ended December 31, 2023 and the three months ended March 31, 2024.

### Impairment/loss on disposal of assets

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Loss on disposal of assets | ​ | $671 | ​ | $18 | ​ | $653 |

The increase of approximately $653 was primarily due to the write-off of the Salt Lake City International Airport Treat location that was closed as of May 1, 2024 and one XpresSpa location in Orlando that was closed as of May 31, 2024.

### General and administrative expenses

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| General and administrative | ​ | $5,156 | ​ | $7,281 | ​ | $(2,125) |

The decrease of approximately 29% was primarily due to rightsizing our existing business and optimizing our cost structure. We have significantly reduced operating and overhead expenses while we continue to focus on returning to overall profitability.

### Salaries and benefits

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Salaries and benefits | ​ | $3,735 | ​ | $4,245 | ​ | $(510) |

The decrease of approximately 12% was primarily due to headcount reductions as we continue rightsizing our existing business.

### Other non-operating expense, net

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Other non-operating income (expense), net | ​ | $(131) | ​ | $(114) | ​ | $(17) |

The following is a summary of the transactions included in other non-operating expense, net for the six months ended June 30, 2024 and 2023:

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Bank fees and financing charges | ​ | (90) | ​ | (104) |
| Other | ​ | ​ (41) | ​ | ​ (10) |
| Total | ​ | $(131) | ​ | $(114) |

### Interest income, net

| ​ ​ ​ | ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Variance |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Interest income, net | ​ | $207 | ​ | $229 | ​ | $(22) |

The decrease of $22 was primarily due to having less cash in interest bearing accounts.

### Liquidity and Capital Resources

As of June 30, 2024, we had cash and cash equivalents of $5,418 (excluding restricted cash), $12,965 in marketable securities, and total current assets of $23,135. Our total current liabilities balance, which includes accounts payable, deferred revenue, accrued expenses, and operating lease liabilities was $10,440 as of June 30, 2024, and $9,330 as of December 31, 2023. The working capital surplus was $12,695 as of June 30, 2024, compared to a working capital surplus of $17,236 as of December 31, 2023.

We have carried out an assessment of our ability to continue as a going concern. As of the date of this Quarterly Report on Form 10Q, we believe that we have 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 six months ended June 30, 2024 and 2023, we used $4,125 and $8,618 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.

### Critical Accounting Estimates

The unaudited condensed consolidated financial statements included with this Quarterly Report on Form 10Q 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, 2023, 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, 3,765 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-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 June 30, 2024, 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 June 30, 2024.

#### 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 has contracted an independent consulting firm 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.

#### 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 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the six months ended June 30, 2024 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, 2023.

Filed Aug 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-012235. Last ingested by Listed: Oct 29, 2026, 16:07 ET. No prices; not investment advice.