XWELL, Inc. Fair Value Disclosure
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 Company’s 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 when the derived fair value is below carrying value in the consolidated balance sheets. Recoverability is based on estimated undiscounted cash flows or other relevant observable/unobservable measures. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment. If it is determined that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is included in Impairment of long-lived assets and Impairment of operating lease right-of-use assets on the consolidated statements of operations and comprehensive loss.
Fair value measurement at reporting date using | ||||||||||||
| | Quoted prices in | | | ||||||||
active markets | Significant other | Significant | ||||||||||
for identical | observable | unobservable | ||||||||||
Balance | assets (Level 1) | inputs (Level 2) | inputs (Level 3) | |||||||||
As of December 31, 2025: |
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Recurring fair value measurements | ||||||||||||
Equity and debt securities: | ||||||||||||
Route1, Inc. | $ | 112 | $ | — | $ | 112 | $ | — | ||||
Marketable securities | 7 | 7 | — | — | ||||||||
Total equity and debt securities | 119 | 7 | 112 | — | ||||||||
Derivatives: | ||||||||||||
Derivative liability | 3,870 | — | — | 3,870 | ||||||||
Total derivatives | 3,870 | — | — | 3,870 | ||||||||
Total recurring fair value measurements | $ | 3,989 | $ | 7 | $ | 112 | $ | 3,870 | ||||
Nonrecurring fair value measurements | ||||||||||||
Property, plant and equipment | $ | 1,665 | $ | — | $ | — | $ | 1,665 | ||||
Operating lease right-of-use asset | 1,039 | — | — | 1,039 | ||||||||
Convertible senior secured note | 6,689 | — | — | 6,689 | ||||||||
Total nonrecurring fair value measurements | $ | 9,393 | $ | — | $ | — | $ | 9,393 | ||||
As of December 31, 2024 |
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Recurring fair value measurements | ||||||||||||
Equity and debt securities: | ||||||||||||
Route1 | $ | 85 | $ | — | $ | 85 | $ | — | ||||
Marketable securities | 7,247 | 7,247 | — | — | ||||||||
Total equity and debt securities | 7,332 | 7,247 | 85 | — | ||||||||
Derivatives: | ||||||||||||
Derivative liability | — | — | — | — | ||||||||
Total derivatives | — | — | — | — | ||||||||
Total recurring fair value measurements | $ | 7,332 | $ | 7,247 | $ | 85 | $ | — | ||||
Nonrecurring fair value measurements | ||||||||||||
Property, plant and equipment | $ | 1,809 | $ | — | $ | — | $ | 1,809 | ||||
Operating lease right-of-use asset | 3,409 | — | — | 3,409 | ||||||||
Total nonrecurring fair value measurements | $ | 5,218 | $ | — | $ | — | $ | 5,218 | ||||
The following table sets forth a summary of the change in the fair value of the warrant liability that is measured at fair value on a recurring basis:
Balance on January 1, 2025 |
| — | |
Issuance of warrants reported as fair value |
| 5,873 | |
| (3,215) | ||
Reclassification to APIC due to warrant modification | (2,658) | ||
Balance on December 31, 2025 | $ | — |
The following table sets forth a summary of the change in the fair value of the bifurcated embedded derivative liabilities that are measured at fair value on a recurring basis:
Balance on January 1, 2025 |
| — | |
Issuance of convertible preferred stock with bifurcated embedded derivative |
| 1,315 | |
| 80 | ||
Issuance of convertible debt with bifurcated embedded derivative | 3,105 | ||
Extinguishment of convertible preferred stock with bifurcated embedded derivative | (630) | ||
Balance on December 31, 2025 | $ | 3,870 |
In addition to the above, the Company’s financial instruments as of December 31, 2025 and 2024 consisted of cash and cash equivalents, receivables and accounts payable. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term maturities of these instruments.
The fair values of the Company’s asset groups were determined using the income approach. The income approach incorporated the use of a discounted cash flow method in which the estimated future cash flows and terminal values for the Company were discounted to the present value using a discount rate. Cash flow projections are based on management’s estimates of economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The discount rate in turn is based on the specific risk characteristics of the Company, the weighted average cost of capital and its underlying forecast.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Apr 1, 2026 | Showing above |
| 2024 | Apr 15, 2025 | |
| 2023 | Apr 16, 2024 | |
| 2022 | Apr 17, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Mar 31, 2021 | |
| 2019 | Apr 20, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Mar 29, 2018 | |
| 2016 | Mar 30, 2017 | |
| 2015 | Mar 10, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.