Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On April 12, 2024, the Audit Committee (the "Audit Committee") of the Board of Directors of XWELL, Inc. (the "Company"), after audit work performed and consultation with management and with its independent registered public accounting firm, determined that the Company incorrectly applied U.S. Generally Accepted Accounting Principles ("GAAP") as related to the determination of the impairment of the Company's Treat, Inc. ("Treat") business segment for the three and nine months ended September 30, 2023 ("Q3 2023").

The Company is currently in the process of determining the full effect of the misapplication of GAAP as related to the impairment of the Treat business segment and preliminarily estimates that the cumulative effect is an understatement of the impairment expenses as related to the Treat business segment of $1,613,000 for Q3 2023; however, such amounts are subject to revision as the Company finalizes its analysis with its independent registered public accounting firm. These errors have no effect on the Company's previously reported cash and cash equivalents or marketable securities balances or cash runway. The Company previously reported impairment charges of approximately $6.8 million associated with certain intangible assets in its Quarterly Report on Form 10-Q for Q3 2023, filed with the Securities and Exchange Commission (the "SEC") on November 14, 2023 ("Third Quarter Quarterly Report").

As part of its determination, the Audit Committee concluded that it is appropriate to correct the misapplication of GAAP described above for financial statements for Q3 2023 included in the Third Quarter Quarterly Report, by restating such unaudited financial information because the errors in the financial statements are material to the financial statements for Q3 2023. As a result, unaudited financial statements for Q3 2023 should no longer be relied on. Similarly, any previously issued or filed reports, press releases, earnings releases, and investor presentations or other communications describing the Company's financial statements and other related financial information covering Q3 2023, should no longer be relied upon. The Company will disclose in its Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Annual Report"), the restated financial statements for Q3 2023 ("Restatement") by adjusting the Q3 2023 data (as originally filed). The Company is currently working to complete the filing of its 2023 Annual Report, as soon as practicable, which such filing will include the Restatement.

Management is assessing the effect of the Restatement on the Company's internal control over financial reporting and its disclosure controls and procedures. The Company expects to report at least one material weakness following completion of its analysis of the cause of the Restatement. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis. The existence of one or more material weaknesses precludes a conclusion by management that the Company's disclosure controls and procedures and internal control over financial reporting are effective. As a result of the material weakness or material weaknesses, the Company believes that its internal control over financial reporting was not effective, and its disclosure controls and procedures were not effective for Q3 2023.

The Company's management and the Audit Committee have discussed the matters described in this Item 4.02 with its independent registered public accounting firm, Marcum LLP.

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Xwell Inc. published this content on 12 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 April 2024 21:07:36 UTC.