Shareholder CPC Pain & Wellness SPV, LLC (CPC), holding 9.42% of XWELL, Inc. (Nasdaq: XWEL) shares, has initiated legal action against the company's board of directors, accusing them of breaching fiduciary duties and blocking alternative director nominations.
The lawsuit, filed on Friday, aims to offer shareholders the chance to elect new directors at the upcoming annual meeting.
XWELL has seen a precipitous decline in shareholder value, with its stock plummeting approximately 99% from $1,788 to $1.85 per share since February 2016. The company also reported substantial net operating losses totaling $207.3 million from 2018 through 2023.
During this period, the board members referred to as the Entrenched Directors, have been criticized for awarding themselves significant compensation packages despite the company's financial downturn.
The current board, under Chairman Bruce Bernstein's leadership, has been accused of failing to reverse the company's fortunes, with CPC alleging negligence and self-interest. CPC's lawsuit contends that the directors improperly applied the company's bylaws to prevent CPC from proposing its own slate of directors for the annual shareholder meeting.
CPC's proposed directors aim to refocus on cost efficiencies and profitability, suggesting a strategy to use the company's remaining cash to acquire profitable businesses in the health and wellness sector. The shareholder group emphasizes the need for directors who prioritize shareholder interests over personal financial gain.
Meanwhile, XWELL has contested the board takeover attempt by CPC Pain and Wellness SPV, LLC (CPC). It claims that CPC's move to nominate four candidates for XWELL's Board of Directors is invalid due to non-compliance with SEC's filing requirements and the company's bylaws. The company also suspects CPC of planning a 'Take-Under' deal, which could lead to the undervaluation of XWELL and significant dilution of current stockholders' shares.
CPC, which holds a 9.42% equity stake in XWELL, has initiated litigation against XWELL without rectifying its filing deficiencies. It argued that CPC's notice lacks reference to its plans and violates the company's bylaws. Moreover, the company asserted that CPC's Schedule 13D disclosure does not meet SEC's standards and has urged CPC to update its filing to provide transparent information to stockholders and the investment public.
InvestingPro Insights
As XWELL, Inc. faces legal challenges and scrutiny over its financial performance and governance, an analysis of real-time data and InvestingPro Tips can provide a clearer picture of the company's current standing. The company's market capitalization has shrunk to $7.74 million USD, reflecting the severe decline in shareholder value mentioned in the lawsuit. With a negative P/E ratio of -0.32 and adjusted P/E ratio for the last twelve months as of Q1 2024 at -0.44, XWELL's profitability concerns are underscored by these metrics.
Despite recent challenges, XWELL has demonstrated some positive movements in its stock price, with an 11.45% total return over the past week. This could indicate a market reaction to potential changes in the company's leadership or strategic direction. However, the company's revenue has seen a significant contraction, with a -18.44% change in the last twelve months as of Q1 2024, aligning with the revenue decrease highlighted by CPC in their press release statement.
InvestingPro Tips suggest that while XWELL holds more cash than debt on its balance sheet, which is a positive sign for liquidity, the company is rapidly burning through cash. Additionally, XWELL's gross profit margins are considered weak at 18.35%, which may raise concerns about the company's ability to manage costs effectively. For investors looking to delve deeper into XWELL's financial health and future prospects, there are over 15 additional InvestingPro Tips available at https://www.investing.com/pro/XWEL. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable insights.
The ongoing legal battle and the upcoming annual meeting will be critical for XWELL as it attempts to navigate its financial difficulties and reshape its corporate governance. Investors and stakeholders will be watching closely to see if the proposed changes can steer the company towards a more profitable and stable future.
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