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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 001-41473

 

LUXURBAN HOTELS INC.

(Exact name of registrant as specified in its charter)

 

Delaware   82-3334945
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification Number)

 

2125 Biscayne Blvd Suite 253 Miami, Florida 33137   33137
(Address of principal executive offices)   (Zip code)

 

(833)-723-7368
(Registrant’s telephone number including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
Common stock, $0.00001 par value per share   LUXH   Nasdaq Stock Market LLC
13.00% Series A Cumulative Redeemable Preferred Stock, $0.00001 par value per share   LUXHP   Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

As of August 20, 2024, the registrant had 123,400,956 shares of common stock, $.00001 par value, outstanding.

 

 

 

 

 

 

Explanatory Note

 

LuxUrban Hotels Inc. (the “Company”) is filing this Amendment No.1 on Form 10-Q/A for the quarter ended March 31, 2024 (this “Form 10-Q/A”).

 

This Form 10-Q/A amends the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission (“SEC”) on May 13, 2024 (the “Original Filing”). This Form 10-Q/A is being filed to restate the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2024. The restatement reflects applying charges allocated by the Channel Retained Funds of the security, deposited by the Company and expensing them to other expenses category in cost of goods sold. The restatement provides a reserve for bad debt expense for Processor Retained Funds, Receivable from On-Line Travel Agencies and the Receivable from the City of New York and Landlords reducing those assets and increasing bad debt expense in General and Administrative Expenses. The restatement reflects the adjustment for the proposed settlement with the landlord for the receivable due from the City of New York. The restatement reflects the amortization of prepaid real estate taxes which reduced Prepaid Expenses and Other Current Assets and increased real estate taxes included in Other Expenses, Cost of Revenue. The restatement reflects the increase in liability of the Bookings Received in Advance and reduces the Net Rental Revenue. The restatement also adjusts for the cancelation of reservations by a merchant service provider reducing Net Rental Revenue and decreasing receivables from On-Line Travel Agencies and increasing accrued expenses liability for the amount due the guests. The restatement reflects the reversal of revenue for the three months ended March 31, 2024, caused by the transfer from one merchant service provider to another merchant service provider. These adjustments were evaluated by management in accordance with SEC Staff Accounting Bulletin Topic 1M, “Materiality” and management determined the effects of the restatement to be material. See Note 2 to the unaudited condensed consolidated financial statements included in this Form 10-Q/A for further information regarding the restatement.

 

The Company is filing this Form 10-Q/A to amend and restate the Original Filing with modification as necessary to reflect the restatement. The following items have been amended to reflect the restatement:

 

Part I, Item 1:

Part I, Item 2:

Part II, Item 1A:

 

In addition, the Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this Form 10-Q/A (Exhibits 31.1, 31.2, 32.1 and 32.2).

 

Except as otherwise described above and as otherwise set forth in this Form 10-Q/A, this Form 10-Q/A does not amend, modify or update any other information contained in the Original Filing. This Form 10-Q/A does not purport to reflect any information or events subsequent to the Original Filing, except as expressly described herein. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing. Among other things, forward-looking statements and risk factor disclosure in the Original 10-Q have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing, and such forward-looking statements and risk factors should be read in their historical context.

 

 

 

 

Table of Contents

 

Part I - Financial Information   1
     
Item 1 - Financial Statements   1
     
LUXURBAN HOTELS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AS RESTATED)   1
     
LUXURBAN HOTELS INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (AS RESTATED)   2
     
LUXURBAN HOTELS INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED) (AS RESTATED)   3
     
LUXURBAN HOTELS INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023 (UNAUDITED) (AS RESTATED)   4
     
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS LUXURBAN HOTELS INC. March 31, 2024 (AS RESTATED)   5
     
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   26
     
Item 3 - Quantitative and Qualitative Disclosures About Market Risk   47
     
Item 4 - Controls and Procedures   48
     
Part II - Other Information   49
     
Item 1 - Legal Proceedings   49
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds   50
     
Item 3 - Defaults Upon Senior Securities   50
     
Item 4 - Mine Safety Disclosures   50
     
Item 5 - Other Information   51
     
Item 6 - Exhibits   53
     
SIGNATURES   57

 

i

 

 

Part I - Financial Information

 

Item 1 - Financial Statements.

 

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

                 
    March 31,        
    2024,
as restated
    December 31,
2023
 
ASSETS                
Current Assets                
Cash and Cash Equivalents   $ 994,904     $ 752,848  
Accounts Receivable, Net     486,067       329,887  
Channel Retained Funds, Net     -       1,500,000  
Processor Retained Funds, Net     -       2,633,926  
Receivables from On-Line Travel Agencies, Net     -       6,936,254  
Receivables from City of New York and Landlords, Net     1,831,651       4,585,370  
Prepaid Expenses and Other Current Assets     1,018,902       1,959,022  
Prepaid Guarantee Trust - Related Party     672,750       1,023,750  
Total Current Assets     5,004,274       19,721,057  
Other Assets                
Furniture, Equipment and Leasehold Improvements, Net     677,559       691,235  
Security Deposits - Noncurrent     20,607,413       20,307,413  
Prepaid Expenses and Other Noncurrent Assets     5,974,276       960,729  
Operating Lease Right-Of-Use Assets, Net     229,016,100       241,613,588  
Total Other Assets     256,275,348       263,572,965  
Total Assets   $ 261,279,622     $ 283,294,022  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts Payable and Accrued Expenses   $ 30,779,912     $ 23,182,305  
Bookings Received in Advance     14,626,651       4,404,216  
Short Term Business Financing, Net     3,733,417       1,115,120  
Loans Payable - Current     1,666,108       1,654,589  
Initial Direct Costs Leases - Current     300,000       486,390  
Operating Lease Liabilities - Current     1,944,026       1,982,281  
Development Incentive Advances - Current     8,893,987       300,840  
Total Current Liabilities     61,944,101       33,125,741  
Long-Term Liabilities                
Loans Payable     1,447,720       1,459,172  
Development Incentive Advances - Noncurrent     -       5,667,857  
Initial Direct Costs Leases - Noncurrent     3,950,000       4,050,000  
Operating Lease Liabilities - Noncurrent     231,815,657       242,488,610  
Total Long-Term Liabilities     237,213,377       253,665,639  
Total Liabilities     299,157,478       286,791,380  
Mezzanine equity                
13% Redeemable Preferred Stock; Liquidation Preference $25 per Share; 10,000,000 Shares Authorized; 294,144 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively     5,775,596       5,775,596  
Commitments and Contingencies                
Stockholders’ Deficit                
Common Stock (shares authorized, issued, outstanding - 41,839,361, and 39,462,440, shares outstanding as of March 31, 2024 and December 31, 2023, respectively)     418       394  
Additional Paid In Capital     98,455,107       90,437,155  
Accumulated Deficit     (142,108,977 )     (99,710,503 )
Total Stockholders’ Deficit     (43,653,452 )     (9,272,954 )
Total Liabilities and Stockholders’ Deficit   $ 261,279,622     $ 283,294,022  

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

                 
    For The  
    Three Months Ended  
    March 31,  
    2024,
as restated
    2023  
Net Rental Revenue   $ 13,957,361     $ 22,814,175  
Rent Expense     8,344,007       5,421,867  
Non-Cash Rent Expense Amortization     2,093,667       1,651,669  
Surrender of Deposits     750,000       -  
Other Expenses     24,350,623       10,378,765  
Total Cost of Revenue     35,538,297       17,452,301  
Gross (Loss) Profit     (21,580,936 )     5,361,874  
General and Administrative Expenses     12,143,305       2,742,586  
Non-Cash Issuance of Common Stock for Operating Expenses     304,925       884,816  
Non-Cash Stock Compensation Expense     724,514       429,996  
Non-Cash Stock Option Expense     152,339       167,573  
Partnership Considerations     2,679,469       -  
Total Operating Expenses     16,004,552       4,224,971  
(Loss) Income from Operations     (37,585,488 )     1,136,903  
Other Income (Expense)                
Other Income     210,076       39,878  
Cash Interest and Financing Costs     (2,459,800 )     (2,130,605 )
Non-Cash Financing Costs     (2,324,270 )     (1,704,549 )
Total Other Expense     (4,573,994 )     (3,795,276 )
Loss Before Provision for Income Taxes     (42,159,482 )     (2,658,373 )
Provision for Income Taxes     -       122,161  
Net Loss     (42,159,482 )     (2,780,534 )
Preferred Stock Dividend     (238,992 )     -  
Net Loss Attributable to Common Stockholders   $ (42,398,474 )   $ (2,780,534 )
Basic Loss Per Common Share   $ (0.87 )   $ (0.10 )
Diluted Loss Per Common Share   $ (0.87 )   $ (0.10 )
Basic and Diluted Weighted Average Number of Common Shares Outstanding     49,223,606       28,659,358  

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023

(UNAUDTIED)

 

                                         
    Common Stock     Additional
Paid in
    Accumulated     Stockholders’  
    Shares     Value     Capital     Deficit     (Deficit)  
Balance - December 31, 2023     39,462,440     $ 394     $ 90,437,155     $ (99,710,503 )   $ (9,272,954 )
Net Loss     -       -       -       (42,159,482 )     (42,159,482 )
Non-Cash Stock Compensation Expense     222,800       2       633,074               633,076  
Non-Cash Option Compensation Expense     -       -       152,339       -       152,339  
Issuance of Shares for Operating Expenses     69,863       1       304,925       -       304,926  
Modification of Warrants     -       -       2,036,200       -       2,036,200  
Warrant Exercise     1,450,000       15       4,799,985       -       4,800,000  
Issuance of Shares to Satisfy Loans     20,008       -       91,435       -       91,435  
Issuance of Shares for Revenue Share Agreements     614,250       6       (6 )     -       -  
Preferred Dividends     -       -       -       (238,992 )     (238,992 )
Balance - March 31, 2024, as restated     41,839,361     $ 418     $ 98,455,107     $ (142,108,977 )   $ (43,653,452 )
                                         
Balance - December 31, 2022     27,691,918     $ 276     $ 17,726,592     $ (21,018,992 )   $ (3,292,124 )
Net Loss     -       -       -       (2,780,534 )     (2,780,534 )
Non-Cash Stock Compensation Expense     166,665       2       429,994       -       429,996  
Non-Cash Stock Option Expense     -       -       167,573       -       167,573  
Issuance of Shares for Operating Expenses     433,881       4       884,812       -       884,816  
Conversion of Loans     900,000       9       2,699,991       -       2,700,000  
Warrant Exercise     200,000       2       399,998       -       400,000  
Loss on Debt Extinguishment     -       -       58,579       -       58,579  
Balance - March 31, 2023     29,392,464     $ 293     $ 22,367,539     $ (23,799,526 )   $ (1,431,694 )

 

See accompanying notes to consolidated financial statements.

 

3

 

 

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023

(UNAUDITED)

 

                 
    March 31,  
    2024,
as restated
    2023  
Cash Flows from Operating Activities                
Net Loss   $ (42,159,482 )   $ (2,780,534 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Writeoff of bad debts     7,843,456       -  
Writeoff of channel retained funds security deposit     1,500,000       -  
Writeoff of security deposits     750,000       -  
Writeoff of vendor overpayment     50,000       -  
Non-cash stock compensation expense     55,500       429,996  
Non-cash stock director expense     577,576       -  
Non-cash stock option expense     152,339       167,573  
Depreciation expense     13,676       11,031  
Shares issued for operating expenses     304,926       884,816  
Modification of Warrants     2,036,200       -  
Non-cash lease expense     10,146,639       6,456,386  
Gain on lease exit     (209,811 )     -  
Non-cash forgiveness of Development Incentive Advances     (75,210 )        
Gain on sale of Treasury Bills     -       (31,014 )
Non-cash Financing Charges Associated with Short Term Business Financing     286,576       78,402  
Loss on Debt Extinguishment     -       58,579  
Changes in operating assets and liabilities:                
(Increase) Decrease in:                
Accounts Receivable, Net     (156,180 )     -  
Processor retained funds     -       (218,023 )
Receivables from On-Line Travel Agencies, Net     2,711,468       -  
Receivables from City of New York and Landlords, Net     1,768,975       -  
Prepaid expense and other assets     (4,073,427 )     261,157  
Prepaid Guarantee Trust - Related Party     351,000       -  
Security deposits     (1,050,000 )     (3,907,720 )
(Decrease) Increase in:                
Accounts payable and accrued expenses     7,547,607       1,024,948  
Operating lease liabilities     (8,050,548 )     (4,804,716 )
Rents received in advance     10,222,435       2,630,239  
Accrued Income Taxes     -       122,161  
Net cash (used in) provided by operating activities     (9,456,285 )     383,281  
                 
Cash Flows from Investing Activities                
Purchase of Furniture and Equipment     -       (249,762 )
Proceeds from the sale of Treasury Bills     -       2,692,396  
Net cash provided by investing activities     -       2,442,634  
                 
Cash Flows from Financing Activities                
Deferred offering costs - net                
Proceeds from (Repayments of) short term business financing - net     2,331,721       (1,255,512 )
Warrant Exercises     4,800,000       400,000  
Proceeds from Development Incentive Advances     3,000,500       -  
Proceeds from (Repayments of) loans payable - net     67       (165,896 )
Repayments of financed initial direct costs     (194,955 )     -  
Preferred shareholder dividends paid     (238,992 )     -  
Net cash provided by (used in) financing activities     9,698,341       (1,021,408 )
                 
Net Increase in Cash and Cash Equivalents and Restricted Cash     242,056       1,804,507  
Cash and Cash Equivalents and Restricted Cash - beginning of the period     752,848       2,176,402  
Cash and Cash Equivalents and Restricted Cash - end of the period     994,904       3,980,909  
                 
Cash and Cash Equivalents     994,904       2,880,909  
Restricted Cash     -       1,100,000  
Total Cash and Cash Equivalents and Restricted Cash   $ 994,904     $ 3,980,909  
                 
Supplemental Disclosures of Cash Flow Information                
Taxes   $ -     $ -  
Interest   $ 1,598,784     $ 2,130,605  
Noncash operating activities:                
Acquisition of New Operating Lease Right-of-Use Assets   $ -     $ 88,267,775  
Noncash financing activities:            
Financed Initial Direct Costs for leases paid with common stock   $ 91,435     $ -  
Conversion of debt to common stock and additional paid-in capital   $ -     $ 2,700,000  

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LUXURBAN HOTELS INC. (AS RESTATED)

March 31, 2024

 

1 - DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION

 

LuxUrban Hotels Inc. (LUXH) leases entire existing hotels on a long-term basis and rents out hotel rooms in the properties it leases. It currently has a portfolio of hotel rooms in New York, Miami Beach, New Orleans, and Los Angeles through long-term lease agreements and manages these hotels directly. Its revenues are generated through the rental of rooms to guests and through ancillary services such as cancellable room rate fees, resort fees, late and early check-in and check-out fees, baggage fees, parking fees, grab and go food service fees, and upgrade fees.

 

In late 2021, LUXH commenced the process of winding down its legacy business of leasing and re-leasing multifamily residential units, as it pivoted toward its new strategy of leasing hotels. This wind-down was substantially completed by the end of 2022. This legacy business was conducted under the names SoBeNY Partners LLC (“SoBeNY”) and CorpHousing Group Inc. (“CorpHousing”).

 

The consolidated financial statements presented herein include the accounts of LuxUrban Hotels Inc. (“LuxUrban”) and its wholly owned subsidiary SoBeNY. On November 2, 2022, CorpHousing changed its name to LuxUrban Hotels Inc. In June 2021, the members of SoBeNY exchanged all of their membership interests for additional membership interests in Corphousing LLC, with SoBeNY becoming a wholly owned subsidiary of Corphousing LLC. Both entities were under common control at the time of the transaction. Since there was no change in control over the net assets, there is no change in basis in the net assets.

 

In January 2022, Corphousing LLC and its wholly owned subsidiary, SoBeNY, converted into C corporations, with the then current members of Corphousing LLC becoming the stockholders of the newly formed C corporation, CorpHousing Group Inc. The conversion has no effect on our business or operations and was undertaken to convert the forms of these legal entities into corporations for purposes of operating as a public company. All properties, rights, businesses, operations, duties, obligations and liabilities of the predecessor limited liability companies remain those of CorpHousing Group Inc. and SoBeNY Partners Inc.

 

In August 2023, the Company entered into franchise agreements with Wyndham Hotels & Resorts, Inc. pursuant to which the hotels operated by the Company were to become part of the Trademark Collection® by Wyndham and Travelodge by Wyndham brands while staying under the operational control of the Company.

 

In May 2024, in light of discussions between our Company and Wyndham on the initial and projected future performance of our properties within the franchise relationships, we commenced the return of all property listings to our control, terminating our franchise relationship with Wyndham. The Company is currently in the process of de-platforming these properties from Wyndham’s systems and moving each hotel listing back under the Company’s control. The Company expects that this process will be completed by the end of May 2024 with minimal operational disruption, although unforeseen risks could cause delays. As part of the Company’s previously announced imitative to add industry depth and breadth to its board of directors and management to help evolve operations, the Company’s enhanced board and executive teams have reviewed all existing operational relationships. Given the Company’s operating model, it was concluded that over the long term the Company would be better served operationally and financially by operating the hotels as an independent operator.

 

All significant intercompany accounts and transactions have been eliminated in consolidation.

 

5

 

 

2 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

On August 9, 2024, the Company in concurrence with the Company’s audit committee, concluded that our 2024 unaudited condensed consolidated financial statements as of the first quarterly period in 2024 included in our Quarterly Report on Form 10-Q for the respective period, (the “Prior Period Financial Statements”) should no longer be relied upon due to misstatements that are described below, and that we would restate such financial statements to make the necessary accounting corrections. Details of the restated condensed consolidated financial statements for the three months ended March 31, 2024, are provided below (“Restatement Items”).

 

The Restatement Items reflect adjustments to correct errors in the March 31, 2024, condensed consolidated financial statement areas including Channel Retained Funds, Other Expenses, Bookings Received in Advance and Net Rental Revenue. The nature and impact of these adjustments are described below and also detailed in the tables below.

 

Restatement Items

 

Channel Retained Funds and Other Expenses – The Company did not correctly apply the charges allocated to the Channel Retained Funds by the vendor. The corrections resulted in a decrease in Channel Retained Funds in the amount of $1,500,000 and resulted in an increase in Other Expenses, Cost of Revenue in the amount of $1,500,000. Refer to reference “a” below.

 

Processor Retained Funds, Receivables from On-Line Travel Agencies, Receivables from City of New York and Landlords, Accounts Payable and Accrued Expenses and Net Rental Revenue – The Company did not properly reserve for bad debt expense of $7,843,456 in the first quarter of 2024. The Company incorrectly recognized revenue in the first quarter of 2024 for reservations that were booked and paid for, but reservations were cancelled by the merchant service provider. The corrections resulted in a decrease in Processor Retained Funds of $2,633,926, Receivables from On-Line Travel Agencies of $6,749,769, Receivables from City of New York of $984,744 and increase in Accounts Payable and Accrued Expenses of $3,738,224 and a decrease in Net Rental Revenue of $6,263,207 and increase in General and Administrative Expenses of $8,387,549. Refer to reference “b” below.

 

Receivable from City of New York, Accounts Payable and Accrued Expenses and Net Rental Revenue – The Company did not reflect the net receivable due from the City of New York. The corrections reflect the net amount due from the City of New York in conjunction with the landlord. The receivable has been reduced by $3,201,640, the payables have been reduced by $1,827,157 and the Net Rental Revenue has been reduced by $830,390. Refer to reference “c” below.

 

Prepaid Expenses and Other Current Assets and Other Expenses – The Company did not properly amortize the prepaid real estate taxes in the first quarter of 2024. The correction resulted in a decrease in Prepaid Expenses and Other Current Assets and an increase in Other Expenses, Cost of Revenue in the amount of $342,212. Refer to reference “d” below.

 

Bookings Received in Advance and Net Rental Revenue – The Company incorrectly recognized revenue in the first quarter of 2024 for reservations that were booked and paid for, but the guest had not yet stayed at the property. The corrections resulted in an increase in Bookings Received in Advance in the amount of $8,050,248 and a decrease in Net Rental Revenue in the amount of $8,050,248. The future revenues will be recognized when the guest checks in. Refer to reference “d” below.

 

6

 

 

The following tables present the effect of the Restatement Items on the Company’s condensed consolidated balance sheet for the period indicated:

                             
    As of March 31, 2024
(unaudited)
 
    As Previously
Reported
    Restatement
Adjustments
   
As Restated
    Restatement
References
 
ASSETS                        
Current Assets                              
Cash and Cash Equivalents   $ 994,904     $ -     $ 994,904        
Accounts Receivable, Net     486,067       -       486,067        
Channel Retained Funds, Net     1,500,000       (1,500,000 )     -     a  
Processor Retained Funds, Net     2,633,926       (2,633,926 )     -     b  
Receivables from On-Line Travel Agencies, Net     6,749,769       (6,749,769 )     -     b  
              (984,744 )           b  
Receivables from City of New York and Landlords, Net     6,018,035       (3,201,640 )     1,831,651     c  
Prepaid Expenses and Other Current Assets     1,361,114       (342,212 )     1,018,902     d  
Prepaid Guarantee Trust - Related Party     672,750       -       672,750        
Total Current Assets     20,416,565       (15,412,291 )     5,004,274        
Other Assets                              
Furniture, Equipment and Leasehold Improvements, Net     677,559       -       677,559        
Security Deposits - Noncurrent     20,607,413       -       20,607,413        
Prepaid Expenses and Other Noncurrent Assets     5,974,276       -       5,974,276        
Operating Lease Right-Of-Use Assets, Net     229,016,100       -       229,016,100        
Total Other Assets     256,275,348       -       256,275,348        
Total Assets   $ 276,691,913     $ (15,412,291 )   $ 261,279,622        
                               
LIABILITIES AND STOCKHOLDERS’ EQUITY                              
Current Liabilities                              
            $ 3,738,225             b  
Accounts Payable and Accrued Expenses   $ 28,868,844       (1,827,157 )   $ 30,779,912     c  
Bookings Received in Advance     6,576,403       8,050,248       14,626,651     e  
Short Term Business Financing, Net     3,733,417       -       3,733,417        
Loans Payable - Current     1,666,108       -       1,666,108        
Initial Direct Costs Leases - Current     300,000       -       300,000        
Operating Lease Liabilies - Current     1,944,026       -       1,944,026        
Development Incentive Advances - Current     8,893,987       -       8,893,987        
Total Current Liabilities     51,982,785       9,961,316       61,944,101        
Long-Term Liabilities                              
Loans Payable     1,447,720       -       1,447,720        
Development Incentive Advances - Noncurrent     -       -       -        
Initial Direct Costs Leases - Noncurrent     3,950,000       -       3,950,000        
Operating Lease Liabilities - Noncurrent     231,815,657       -       231,815,657        
Total Long-Term Liabilities     237,213,377       -       237,213,377        
Total Liabilities     289,196,162       9,961,316       299,157,478        
Mezzanine equity                              
13% Redeemable Preferred Stock; Liquidation Perference $25 per Share; 10,000,000 Shares Authorized; 294,144 shares issued and outstanding as of March 31, 2024     5,775,596       -       5,775,596        
Commitments and Contingencies                              
Stockholders’ Deficit                              
Common Stock (90,000,000 shares authorized, issued, outstanding - 41,839,361)     418       -       418        
Additional Paid In Capital     98,455,107       -       98,455,107        
Accumulated Deficit     (116,735,370 )     (25,373,607 )     (142,108,977 )   a, b, c, d, e  
Total Stockholders’ Deficit     (18,279,845 )     (25,373,607 )     (43,653,452 )      
Total Liabilities and Stockholders’ Deficit   $ 276,691,913     $ (15,412,291 )   $ 261,279,622        

 

See accompanying notes to condensed consolidated financial statements.

 

7

 

 

The following tables present the effect of the Restatement Items on the Company’s condensed consolidated statement of operations for the period indicated:

                             
    As of March 31, 2024
(unaudited)
 
    As Previously
Reported
    Restatement
Adjustments
     
As Restated
    Restatement
References
 
Net Rental Revenue   $ 29,101,207     $ (15,143,846 )   $ 13,957,361     b, c, e  
Rent Expense     8,344,007       -       8,344,007        
Non-Cash Rent Expense Amortization     2,093,667       -       2,093,667        
Surrender of Deposits     750,000       -       750,000        
Other Expenses     22,508,411       1,842,212       24,350,623     a, d  
Total Cost of Revenue     33,696,085       1,842,212       35,538,297        
Gross (Loss) Profit     (4,594,878 )     (16,986,058 )     (21,580,936 )      
General and Administrative Expenses     3,755,756       8,387,549       12,143,305     b  
Non-Cash Issuance of Common Stock for Operating Expenses     304,925       -       304,925        
Non-Cash Stock Compensation Expense     724,514       -       724,514        
Non-Cash Stock Option Expense     152,339       -       152,339        
Partnership Considerations     2,679,469       -       2,679,469        
Total Operating Expenses     7,617,003       8,387,549       16,004,552        
(Loss) Income from Operations     (12,211,881 )     (25,373,607 )     (37,585,488 )      
Other Income (Expense)                              
Other Income     210,076       -       210,076        
Cash Interest and Financing Costs     (2,459,800 )     -       (2,459,800 )      
Non-Cash Financing Costs     (2,324,270 )     -       (2,324,270 )      
Total Other Expense     (4,573,994 )     -       (4,573,994 )      
Loss Before Provision for Income Taxes     (16,785,875 )     (25,373,607 )     (42,159,482 )      
Provision for Income Taxes     -       -       -        
Net Loss     (16,785,875 )     (25,373,607 )     (42,159,482 )      
Preferred Stock Dividend     (238,992 )     -       (238,992 )      
Net Loss Attributable to Common Stockholders   $ (17,024,867 )   $ (25,373,607 )   $ (42,398,474 )      
Basic Loss Per Common Share   $ (0.35 )   $ (0.52 )   $ (0.87 )      
Diluted Loss Per Common Share   $ (0.35 )   $ (0.52 )   $ (0.87 )      
Basic and Diluted Weighted Average Number of Common Shares Outstanding     49,223,606       49,223,606       49,223,606        

 

See accompanying notes to condensed consolidated financial statements.

 

8

 

 

The following tables present the effect of the Restatement Items on the Company’s condensed consolidated statement of changes in stockholders’ deficit for the period indicated:

                                             
    Common Stock     Additional
Paid in
    Accumulated     Stockholders’     Restatement  
    Shares     Value     Capital     Deficit     (Deficit)     References  
Balance - December 31, 2023     39,462,440     $ 394     $ 90,437,155     $ (99,710,503 )   $ (9,272,954 )      
Net Loss     -       -       -       (16,785,875 )     (16,785,875 )      
Non-Cash Stock Compensation Expense     222,800       2       633,074       -       633,076        
Non-Cash Option Compensation Expense     -       -       152,339       -       152,339        
Issuance of Shares for Operating Expenses     69,863       1       304,925       -       304,926        
Modification of Warrants     -       -       2,036,200       -       2,036,200        
Warrant Exercise     1,450,000       15       4,799,985       -       4,800,000        
Issuance of Shares to Satisfy Loans     20,008       -       91,435       -       91,435        
Issuance of Shares for Revenue Share                                              
Agreement     614,250       6       (6 )     -       -        
Preferred Dividends     -       -       -       (238,992 )     (238,992 )      
Restatement Items                             (25,373,607 )     (25,373,607 )   a, b, c, d, e  
Balance - March 31, 2024     41,839,361     $ 418     $ 98,455,107     $ (142,108,977 )   $ (43,653,452 )      
                                               
Balance - December 31, 2022     27,691,918     $ 276     $ 17,726,592     $ (21,018,992 )   $ (3,292,124 )      
Net Loss     -       -       -       (2,780,534 )     (2,780,534 )      
Non-Cash Stock Compensation Expense     166,665       2       429,994       -       429,996        
Non-Cash Option Compensation Expense     -       -       167,573       -       167,573        
Issuance of Shares for Operating Expenses     433,881       4       884,812       -       884,816        
Conversion of loans     900,000       9       2,699,991       -       2,700,000        
Warrant Exercise     200,000       2       399,998       -       400,000        
Loss on Debt Extinguishment     -       -       58,579       -       58,579        
Restatement Items     -       -       -       -       -        
Balance - March 31, 2023     29,392,464     $ 293     $ 22,367,539     $ (23,799,526 )   $ (1,431,694 )      

 

See accompanying notes to condensed consolidated financial statements.

 

9

 

 

The following tables present the effect of the Restatement Items on the Company’s condensed consolidated statement of cash flows for the period indicated:

                             
    As of March 31, 2024
(unaudited)
 
    As Previously     Restatement     As     Restatement  
    Reported     Adjustments     Restated     References  
Cash Flows from Operating Activities                              
Net (Loss)   $ (16,785,875 )   $ (25,373,607 )   $ (42,159,482 )   a, b, c, d, e  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                              
Writeoff of bad debts             7,843,456       7,843,456     b  
Writeoff of channel retained funds security deposit             1,500,000       1,500,000     a  
Writeoff of security deposits     750,000       -       750,000        
Writeoff of vendor overpayment     50,000       -       50,000        
Non-cash stock compensation expense     55,500       -       55,500        
Non-cash stock director expense     577,576       -       577,576        
Non-cash stock option expense     152,339       -       152,339        
Depreciation expense     13,676       -       13,676        
Shares issued for operating expenses     304,926       -       304,926        
Modification of Warrants     2,036,200       -       2,036,200        
Non-cash lease expense     10,146,639       -       10,146,639        
Gain on lease exit     (209,811 )     -       (209,811 )      
Non-cash foregiveness of Development Incentive Advances     (75,210 )     -       (75,210 )      
Gain on sale of Treasury Bills     -       -       -        
Non-cash Financing Charges Associated with Short Term Business Financing     286,576       -       286,576        
Loss on Debt Extinguishment     -       -       -        
Changes in operating assets and liabilities:                              
(Increase) Decrease in:                              
Accounts Receivable, Net     (156,180 )     -       (156,180 )      
Receivables from On-Line Travel Agencies, Net     186,485       2,524,983       2,711,468     b  
Receivables from City of New York and Landlords, Net     (1,432,665 )     3,201,640       1,768,975     c  
Prepaid expense and other assets     (4,415,639 )     342,212       (4,073,427 )   d  
Prepaid Guarantee Trust - Related Party     351,000       -       351,000        
Security deposits     (1,050,000 )     -       (1,050,000 )      
(Decrease) Increase in:                     -        
Accounts payable and accrued expenses     5,636,539       1,911,068       7,547,607     b, c  
Operating lease liabilities     (8,050,548 )     -       (8,050,548 )      
Rents received in advance     2,172,187       8,050,248       10,222,435     e  
Accrued Income Taxes     -       -       -        
Net cash provided by operating activities     (9,456,285 )     -       (9,456,285 )      
                               
Cash Flows from Investing Activities                              
Purchase of Furniture and Equipment     -       -       -        
Proceeds from the sale of Treasury Bills     -       -       -        
Net cash provided by investing activities     -       -       -        
                               
Cash Flows from Financing Activities                              
Deferred offering costs - net                              
Proceeds from (Repayments of) short term business financing - net     2,331,721       -       2,331,721        
Warrant Exercises     4,800,000       -       4,800,000        
Proceeds from Development Incentive Advances     3,000,500       -       3,000,500        
Proceds from (Repayments of) loans payable - net     67       -       67        
Repayments of loans payable - net     (194,955 )     -       (194,955 )      
Preferred shareholder dividends paid     (238,992 )     -       (238,992 )      
Net cash used in financing activities     9,698,341       -       9,698,341        
                               
Net Increase in Cash and Cash Equivalents and Restricted Cash     242,056       -       242,056        
Cash and Cash Equivalents and Restricted Cash - beginning of the period     752,848       -       752,848        
Cash and Cash Equivalents and Restricted Cash - end of the period     994,904       -       994,904        
                               
Cash and Cash Equivalents     994,904       -       994,904        
Restricted Cash     -       -       -        
Total Cash and Cash Equivalents and Restricted Cash   $ 994,904     $ -     $ 994,904        
                               
Supplemental Disclosures of Cash Flow Information                              
Taxes   $ -     $ -     $ -        
Interest   $ 1,598,784     $ -     $ 1,598,784        
Noncash operating activities:                              
Acquisition of New Operating Lease Right-of-Use Assets   $ -     $ -     $ -        
Noncash financing activities:                              
Financed Initial Direct Costs for leases paid with common stock   $ 91,435     $ -     $ 91,435        
Conversion of debt to common stock and additional paid-in capital   $ -     $ -     $ -        

 

See accompanying notes to condensed consolidated financial statements.

 

10

 

 

3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, AS RESTATED

 

  a. Basis of Presentation — The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

  b.

Revenue Recognition — The Company’s revenue is derived primarily from the rental of units to its guests. The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606. The Company recognizes revenue when obligations under the terms of a contract are satisfied and control over the promised goods and services is transferred to the guest. For the majority of revenue, this occurs when the guest occupies the unit for the agreed upon length of time and receives any services that may be included with their stay. Revenue is measured as the amount of consideration it expects to receive in exchange for the promised goods and services. The Company recognizes any refunds and allowances as a reduction of rental income in the consolidated statements of operations.

 

Payment received for the future use of a rental unit is recognized as a liability and reported as rents received in advance on the balance sheets. Rents received in advance are recognized as revenue after the rental unit is occupied by the customer for the agreed upon length of time. The rents received in advance balance as of March 31, 2024, and December 31, 2023, was $14,626,651 and $4,404,216, respectively and is expected to be recognized as revenue within a one-year period.

 

 

c.

Use of Estimates — The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates.

 

 

d

Going Concern — The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation as a going concern. As reflected in the accompanying statement of operations, for the year ended December 31, 2023, and the three-month ended March 31, 2024, the Company had a net loss of $78,523,377 and $42,159,482, respectively. In addition, the Company sustained significant losses in prior years. The Company’s working capital as of March 31, 2024, was a deficit of $56,939,827. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management has evaluated the significance of the conditions in relation to the Company’ ability to meet its obligations and believes that its current cash balance along with its currently projected cash flows from operations will not provide sufficient capital to continue as a going concern. In an effort to achieve liquidity that would be sufficient to meet all of our commitments, we have undertaken a number of actions, including raising capital through the sale of equity and the sale of debt. The Company’s ability to continue as a going concern is dependent upon improving operating margins and raising capital through debt and/or equity financing. Without additional capital, we may not have sufficient capital to continue operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

 

 

e.

Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. As of March 31, 2024, the Company had cash and cash equivalents of $994,904. The Company had $752,848 of cash equivalents as of December 31, 2023.

 

f. Accounts Receivable, Channel Retained Funds, and Processor Retained Funds — The Company’s accounts receivable consists of amounts due from landlords, amounts due from the City of New York, and receivables from Online Travel Agents (“OTAs”) and other sales channels. The amounts due from landlords are related to common area expenses we incur for the benefit of all tenants and ultimately can be netted to amounts owed to the landlord, not requiring an allowance as the amounts owed to the landlord are far greater than amounts owed to us. Regarding the receivable with the City of New York, we have cancelled our contract with the City of New York and do not expect the need for an allowance of credit losses on the remaining balanced owed to us. During the year ended December 31, 2023, we wrote off $2,947,780 of receivables from the city on a property we leased but later decided to exit due to the timing of payments from the City of New York. Finally, we have a reserve for credit losses with receivables from OTAs, in the amount of the full balance outstanding and $529,000 as of March 31, 2024 and December 31, 2023, respectively. Processor retained funds on the balance sheet are net of any requested and allowed chargebacks and funds released to use during the period.

 

11

 

 

  g. Fair Value of Financial Instruments — The carrying amount of cash and cash equivalents, processor retained funds, security deposits, accounts payable and accrued expenses, rents received in advance, receivables from OTAs, development incentive advances, and short-term business financing advances approximate their fair values as of March 31, 2024 and December 31, 2023 because of their short term natures.

 

  h. Commissions — The Company pays commissions to third-party sales channels to handle the marketing, reservations, collections, and other rental processes for most of the units. For the three months ended March 31, 2024, commissions were $6,192,305 as compared to $3,073,533 for the three months ended March 31, 2023. These expenses are included in cost of revenue in the accompanying consolidated statement of operations.

 

  i. Income Taxes — In accordance with GAAP, the Company follows the guidance in FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition and measurement of a tax position taken or expected to be taken in a tax return.

 

The Company is subject to income taxes in the jurisdictions in which it operates. The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry-forwards. A valuation allowance is recorded for deferred tax assets if it is more likely than not that the deferred tax assets will not be realized.

 

For the three months ended March 31, 2024, the Company did not record a tax provision for income taxes as a result of net losses for the period. For the three months ended March 31, 2023, the Company recorded a tax provision of $122,161.

 

  j. Sales Tax — The majority of sales tax is collected from customers by our third-party sales channels and remitted to governmental authorities by these third-party sales channels. For any sales tax that is the Company’s responsibility to remit, the Company records the amounts collected as accrued expenses and relieves such liability upon remittance to the taxing authority. Rental income is presented net of any sales tax collected. As of March 31, 2024 and December 31, 2023, the Company accrued sales tax payable of $363,952 and $3,266,302, respectively, and it is included in accounts payable and accrued expenses in the consolidated balance sheet.

 

k. Paycheck Protection Program Loan (“PPP”) — As disclosed in Note 3, the Company has chosen to account for the loan under FASB ASC 470, Debt. Repayment amounts due within one year are recorded as current liabilities, and the remaining amounts due in more than one year, if any, as other liabilities. In accordance with ASC 835, Interest, no imputed interest is recorded as the below market interest rate applied to this loan is governmentally prescribed. If the Company is successful in receiving forgiveness for those portions of the loan used for qualifying expenses, those amounts will be recorded as a gain upon extinguishment as noted in ASC 405, Liabilities.

 

12

 

 

  l. Earnings Per Share (“EPS”) — Basic net loss per share is the same as diluted net loss per share for the three months ended March 31, 2024 because the inclusion of potentially issuable shares of common stock would have been anti-dilutive for the periods presented. For the three months ended March 31, 2023, basic net loss per share is the same as diluted net loss per share because the inclusion of potentially issuable shares of common stock would have been anti-dilutive for the periods presented.

 

m. Preferred Stock — The Company accounts for its preferred stock in accordance with ASC Topic 480, Distinguishing Liabilities from Equity. Conditionally redeemable preferred stock is classified as mezzanine equity within the Company’s consolidated balance sheet.

 

4 - LEASES

 

Under ASC 842, the Company applies a dual approach to all leases whereby the Company is a lessee and classifies leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the Company. Lease classification is evaluated at the inception of the lease agreement. Regardless of classification, the Company records a right-of-use asset and a lease liability for all leases with a term greater than 12 months. Operating lease expense is recognized on a straight-line basis over the term of the lease.

 

Operating right of use (“ROU”) assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating right of use assets represent our right to use an underlying asset and is based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases.

 

13

 

 

The components of the right-of-use assets and lease liabilities as of March 31, 2024 and December 31, 2023 were as follows:

 

At March 31, 2024 and December 31, 2023, supplemental balance sheet information related to leases were as follows:

 

               
    March 31,
2024
    December 31,
2023
 
Operating lease right of use assets, net   $ 229,016,100     $ 241,613,588  
Operating lease liabilities, current portion   $ 1,944,026     $ 1,982,281  
Operating lease liabilities, net of current portion   $ 231,815,657     $ 242,488,610  

 

At March 31, 2024, future minimum lease payments under the non-cancelable operating leases are as follows:

 

Schedule of future minimum lease payments under the non-cancelable operating leases

 

       
Twelve Months Ending March 31,      
2025   $ 30,835,724  
2026     31,709,210  
2027     32,589,176  
2028     33,826,455  
2029     34,890,889  
Thereafter     409,189,267  
Total lease payment   $ 573,040,721  
Less interest     (339,281,038 )
Present value obligation     233,759,683  
Short-term liability     1,944,026  
Long-term liability   $ 231,815,657  

 

The following summarizes other supplemental information about the Company’s operating lease:

 

               
    March 31,
2024
    March 31,
2023
 
Weighted average discount rate     12.15 %     10.0 %
Weighted average remaining lease term (years)     13.4 years       13.0 years  

 

   

Three Months Ended
March 31,

2024

    Three Months Ended March 31, 2023  
Operating lease cost   $ 10,146,639     $ 6,456,680  
Short-term lease cost   $ 291,035   $ 616,856  
Total lease cost   $ 10,437,674     $ 7,073,536  

 

14

 

 

5 - ACCOUNTS RECEIVABLES, PROCESSOR AND CHANNEL RETAINED FUNDS, AS RESTATED

 

As of March 31, 2024 we had $0 of channel retained funds, $0 of processor retained funds, $0 of receivables from OTAs $1,480,000 in receivables from the City of New York and landlords and other receivables of $351,651. These items as of December 31, 2023 had $1,500,000 of channel retained funds, $2,633,926 of processor retained funds, (net of allowances for credit losses of $393,412) $6,936,254 of receivables from OTAs (net of allowances for credit losses of $529,000) $4,585,370 in receivables from the City of New York and landlords and other receivables of $329,987 (net of allowances for credit losses of $486,708).

 

6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, AS RESTATED

 

Accounts payable and accrued expenses totaled $30,779,912 and $23,182,305 as of March 31, 2024 and December 31, 2023, respectively.

 

As of March 31, 2024, the balance consisted of approximately $1,203,000 of accrued payroll and related liabilities, $3,329,000 of utilities fees, $9,783,000 of legal exposure, $4,912,000 in sales and other taxes, $3,258,000 for rent, $850,000 for interest expense, $289,000 for telephone and cable expense, $627,000 of insurance expense, $246,000 professional fees, $960,000 for repairs, maintenance and improvements, $582,000 for linens, sundries and supplies, $317,000 for cleaning expense, $563,000 for initial franchise fees paid on behalf of the Company by a related party (repaid subsequent to March 31, 2024), $123,000 for commissions, $216,000 for printing expense, $3,738,000 refunds due customers and $690,000 of other miscellaneous items.

 

As of December 31, 2023, the balance consisted of approximately $2,024,000 of accrued payroll and related liabilities, $3,265,000 of utilities fees, $1,737,000 of rent, $632,000 of commissions, $8,400,000 of legal exposure, $3,910,000 in sales and other taxes, $590,000 in professional fees, $420,000 of supplies and sundries, $719,000 of repairs, maintenance and improvements, $194,000 of insurance expense, $288,223 of bank and service fees, $52,000 of processing fees, $94,000 of license fees and public relations, $263,000 of printing expenses, $231,000 of Director fees, $71,000 of internet and software expense and $42,000 of other miscellaneous items.

 

Of the legal amounts accrued, the company believes the accrual best estimates the most likely outcomes of these matters however the range of outcomes could be between $5 million and $8.5 million.

 

7 - LOANS PAYABLE – SBA – PPP LOAN

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to provide emergency assistance for individuals, families, and organizations affected by the coronavirus pandemic. The PPP, created through the CARES Act, provides qualified organizations with loans of up to $10,000,000. Under the terms of the CARES Act and the PPP, the Company can apply for and be granted forgiveness for all or a portion of the loan issued to the extent the proceeds are used in accordance with the PPP.

 

In April and May 2020, SoBeNY and CorpHousing obtained funding of $516,225 and $298,958, respectively, from a bank established by the Small Business Administration (“SBA”). The loans have an initial deferment period wherein no payments are due until the application of forgiveness is submitted, not to exceed ten months from the covered period. Interest will continue to accrue during this deferment period. The April loan was written off by the bank in the September 2022 quarter and subsequently taken to other income. After the deferment period ends, the May loan is payable in equal monthly installments of $15,932, including principal and interest at a fixed rate of 1.00%. No collateral or personal guarantees were required to obtain the PPP loans. The Company does not intend to apply for forgiveness of these loans and expects to repay the loans in accordance with the terms of the agreements.

 

Accrued interest at March 31, 2024 and December 31, 2023, was $6,318 and $5,571, respectively, and is included in accounts payable and accrued expenses in the consolidated balance sheets.

 

Future minimum principal repayments of the SBA - PPP loans payable are as follows:

 

     
For the Twelve Months Ending March 31,      
2025   $ 276,658  

 

15

 

 

8 - LOANS PAYABLE – SBA – EIDL LOAN

 

During 2020, the Company received three 3 SBA Economic Injury Disaster Loans (“EIDL”) in response to the COVID-19 pandemic. These are 30-year loans under the EIDL program, which is administered through the SBA. Under the guidelines of the EIDL, the maximum term is 30 years; however, terms are determined on a case-by-case basis based on each borrower’s ability to repay and carry an interest rate of 3.75%. The EIDL loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from this loan must be used solely as working capital to alleviate economic injury caused by the COVID-19 pandemic.

 

On April 21, 2020, SoBeNY received an EIDL loan in the amount of $500,000. The loan bears interest at 3.75% and requires monthly payments of principal and interest of $2,437 beginning April 21, 2022, and is personally guaranteed by a major stockholder. On June 18, 2020, Corphousing received an EIDL loan in the amount of $150,000. The loan bears interest at 3.75% and requires monthly payments of principal and interest of $731 beginning June 18, 2022. On July 25, 2020, SoBeNY received an EIDL loan in the amount of $150,000. The loan bears interest at 3.75% and requires monthly payments of principal and interest of $731 beginning July 25, 2022. Any remaining principal and accrued interest is payable thirty years from the date of the EIDL loan.

 

The outstanding balance at March 31, 2024 and December 31, 2023, was $783,319 and $786,950, respectively.

 

Accrued interest at March 31, 2024 and December 31, 2023 was $8,966 and $27,644 and respectively included in accounts payable and accrued expenses in the consolidated balance sheets.

 

Future minimum principal repayments of the SBA - EIDL loans payable are as follows:

 

Schedule of future minimum principal repayments of the SBA,EIDL loans payable

 

       
For the Twelve Months Ending March 31,      
2025   $ 18,699  
2026     15,536  
2027     16,129  
2028     16,744  
2029     17,383  
Thereafter     698,828  
Total   $ 783,319  

 

9 - SHORT-TERM BUSINESS FINANCING

 

The Company entered into multiple short-term factoring agreements related to future credit card receipts to fund operations. The Company is required to repay this financing in fixed daily payments until the balance is repaid. Fees associated with this financing have been recognized in interest expense in the accompanying consolidated statement of operations. As of March 31, 2024 and December 31, 2023, the outstanding balance on these merchant cash advances net of unamortized costs was $3,733,417 and $1,115,120, respectively and is expected to be repaid within twelve months.

 

16

 

 

10 - LOANS PAYABLE

 

Loans payable consist of the following as of:

 

               
    March 31,
2024
   

December 31,

2023

 
Original payable of $151,096 with additional net borrowings of $252,954, requires monthly payments of $1,500 until total payments of $404,050 have been made     356,012       338,512  
Original payable of $553,175 with additional net borrowings of $72,237, requires monthly payments of $25,000 until total payments of $625,412 have been made     400,000       400,000  
Original payable of $492,180 with additional net borrowings of $620,804 requires monthly payments of $25,000 until total payments of $1,112,984 have been made     865,618       865,618  
Original amounts due of $195,000, related to services provided by a vendor, requires monthly payments of $10,000 through May 2022, then monthly payments of $25,000 through August 2022 at which time any remaining balance is due     20,000       20,000  
Other borrowing     342,246       356,048  
Less: Current maturities     1,370,751       1,360,609  
    $ 613,125     $ 619,569  

 

Future minimum principal repayments of the loans payable are as follows:

 

       
For the Twelve Months Ending March 31,      
2024   $ 1,370,751  
2025     613,125  
Loans payable   $ 1,983,876  

 

11 - LINE OF CREDIT

 

In February 2019, the Company entered into a line of credit agreement in the amount of $95,000. The line bears interest at prime, 8.25% as of March 31, 2024, plus 3.49%. The line matures in February 2029. Outstanding borrowings were $69,975 as of March 31, 2024 and December 31, 2023.

 

12 - RELATED PARTY TRANSACTIONS

 

On December 20, 2022, the Company, and our former Chairman and Chief Executive Officer, Brian Ferdinand (“Ferdinand”), entered into a Note Extension and Conversion Agreement with Greenle Partners LLC Series Alpha PS (“Greenle Alpha”) and Greenle Partners LLC Series Beta P.S., a Delaware limited liability company (“Greenle Beta” and, together with Greenle Alpha, “Greenle”). Greenle was the purchaser of 15% OID senior secured notes (the “Notes”) and warrants to purchase our common stock (“Warrants”) under certain securities purchase agreements and loan agreements between us and Greenle, including the Securities Purchase Agreement dated as of March 31, 2023, as amended by the letter agreement dated October 20, 2022, and the Loan Agreement dated as of November 23, 2022.

 

17

 

 

Under the terms of the Note Extension and Conversion Agreement, Greenle agreed to convert from time to time up to $3,000,000 aggregate principal amount of the Notes into up to 1,000,000 shares of the Company’s common stock (the “Conversion Shares”) at the conversion price of $3.00 per share prescribed by the Notes. Additionally, Greenle agreed that the payment date of certain of the Notes in the aggregate principal amount of $1,250,000, maturing on January 30, 2023, would be extended to March 1, 2023. On the date of any such conversion, the Company would be obligated to issue to Greenle a number of credits under our existing revenue share agreements with them equal to fifteen percent (15%) of the principal amount of the Notes so converted. As of December 31, 2022, $300,000 of this note was converted and the entire $3,000,000 was converted in January of 2023. As part of this conversion, Mr. Ferdinand contributed to the Company 874,474 shares of common stock owned by him and his affiliates, which in turn, were used by the Company to fund the issuance of the Conversion Shares to Greenle in exchange for the conversion of the debt under the notes, which was maturing within a few months of this contribution. At the time of such contribution by Mr. Ferdinand, the market value of the shares of common stock so contributed was approximated $1.5 million.

 

On November 17, 2023, the Company entered into a financing agreement with THA Holdings LLC (the “Lender”), an entity controlled and operated by Mr. Ferdinand, pursuant to which the Company agreed to issue to the Lender an unsecured, advancing term promissory note (the “Note”). Under the Note, the Company is able to borrow, and the Lender has committed to lend to the Company up to an aggregate principal amount of $10,000,000 (the “Initial Principal Amount”) to be funded in increments of $1,000,000 upon the Company’s request by the sale, from time to time, of shares of the Company’s common stock, owned by the Lender. On December 3, 2023, the Company and Mr. Ferdinand mutually agreed to cancel the Note. The amount of proceeds, less taxes, resulting from sales of common stock prior to the cancelation in the amount of $311,234 was contributed to the Company by Mr. Ferdinand. This was recorded as a contribution by founder in the accompanying consolidated statement of changes in equity.

 

In December of 2023 and during the three months ended March 31, 2024, we paid $1,350,000 and $351,000, respectively to Ferdinand under the terms of the Guarantee Trust agreement as part of his personal guarantees on the Wyndham agreements and the Development Incentive Advances. At December 31, 2023 and March 31, 2024, $1,023,750 and $672,750 of this payment was classified as prepaid. During the three months ended March 31, 2024, $351,000 was expensed.

 

13 - RISKS AND UNCERTAINTIES

 

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. The Company places its cash with high quality credit institutions. At times, balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. All accounts at an insured depository institution are insured by the FDIC up to the standard maximum deposit insurance of $250,000 per institution.

 

14 - MAJOR SALES CHANNELS

 

The Company uses third-party sales channels to handle the reservations, collections, and other rental processes for most of the units. These sales channels represented over 85% of total revenue during the three months ended March 31, 2024 and March 31, 2023, respectively. The loss of business from one or a combination of the Company’s significant sales channels, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.

 

18

 

 

15 - STOCK OPTIONS, RESTRICTED STOCK UNITS AND WARRANTS

 

Options

 

During the three months ended March 31, 2024, the Company did not grant any options to purchase shares of common stock under the Company’s 2022 performance equity plan.

 

The following table summarizes stock option activity for the three months ended March 31, 2024:

 

                               
    Number of
Shares
    Weighted Average
Exercise Price
    Weighted
Average
Remaining
Contractual
Life (Years)
    Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2023     1,746,885     $ 2.86       9.0     $ 5,427,118  
Granted     -       -                  
Exercised     -       -                  
Expired     -       -                  
Forfeited     (29,250 )     2.09                  
Outstanding at March 31, 2024     1,717,635     $ 2.88       8.7     $ -  
Exercisable at March 31, 2024     485,045     $ 2.69       8.6     $ -  

 

The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expense of $152,339 for the three months ended March 31, 2024. The Company recognized stock option expense of $167,573 for the three months ended March 31, 2023. Unamortized option expense as of March 31, 2024, for all options outstanding amounted to $1,137,358. These costs are expected to be recognized over a weighted average period of .92 years.

 

A summary of the status of the Company’s nonvested options as of March 31, 2024, is presented below:

 

               
    Number of
Nonvested Options
    Weighted Average
Grant Date
Fair Value
 
Nonvested options at December 31, 2023     1,257,590     $ 2.93  
Granted     -       -  
Forfeited     -       -  
Vested     (25,000 )   $ 1.74  
Nonvested options at March 31, 2024     1,232,590     $ 2.95  

 

19

 

 

Restricted Stock Units

 

In March 2024, the Company granted 100,000 restricted shares to certain employees under the Company’s 2022 performance equity plan. The restricted shares were vested either immediately or over 3.00 years. The aggregated grant date fair value of all these restricted shares was $220,000.

 

As of March 31, 2024, there was $166,500 of unrecognized compensation cost related to unvested restricted shares.

 

Warrants

 

In connection with certain private placements funded by certain of the Company’s officers and directors prior to the Company’s initial public offering, the Company issued promissory notes and warrants. The warrants were contingent upon, and became effective upon, consummation of the Company’s initial public offering on August 11, 2022. In total, warrants to purchase up to 695,000 shares of the Company’s common stock were issued to certain of the Company’s officers and directors with a weighted average exercise price of $4.20. These warrants are exercisable for five years from date of effectiveness and expire in August 2027.

 

Also, in conjunction with the initial public offering, the Company issued warrants to purchase up to 135,000 shares of the Company’s common stock to the underwriter of the initial public offering, Maxim Group LLC (“Maxim”), with an exercise price of $4.40. These warrants are exercisable for five years and expire in August 2027.

 

Also, in connection with certain private placements with Greenle, the Company issued warrants to purchase up to 920,000 shares of the Company’s common stock with an exercise price of $4.00. These warrants are exercisable for five years and expire in August of 2027. In connection with such private placements, the Company also issued warrants to purchase up to 32,000 shares of the Company’s common stock to Maxim (which served as agent for such private placement) at an exercise price of $4.40. These warrants are exercisable for five years and expire in August of 2027.

 

On September 16, 2022, September 30, 2022, and October 30, 2022 in conjunction with a financing with the same third-party investor, the Company issued warrants to purchase up to 517,500 shares, 352,188 shares, and 366,562 shares of the Company’s common stock, respectively, all of which warrants had an exercise price of $4.00 per share. These warrants were subsequently cancelled and reissued at $2.00 per share in August of 2023.

 

On February 15, 2023, in conjunction with an advisory agreement, the Company issued warrants to purchase up to 250,000 shares of our common stock with an exercise price of $4.00 per share. These warrants have a term of five years and expire in February 2028. As a result of these transaction, the Company recorded $167,573 in warrant expense.

 

On April 16, 2023 in conjunction with an agreement with certain lenders, the Company issued warrants to purchase up to 1,000,000 shares of the Company’s common stock with an exercise price of $3.00 per share, and warrants to purchase up to 250,000 shares of our common stock with an exercise price of $4.00 per share. All of these warrants have a term of 5 years and expire in April of 2028. Under this agreement, these lenders would be required to exercise all or a portion of these warrants if the Company’s common stock traded at prices between $3.00 per share and $4.00 per share for a prescribed number of trading days. On June 19, 2023, this agreement was modified to convert all of related outstanding debt in exchange for a reduction in the exercise price of all of these warrants to $2.50 per share. In conjunction with these transactions, the Company recorded non-cash financing expenses of $259,074.

 

On November 6, 2023, in conjunction with an agreement with certain shareholders to amend agreements to waive registration rights for any currently issued common stock for a period of 12 months and any future issuances for a rolling 12-month period from the date such of issuance of such common stock. As consideration for this waiver, the Company issued 2,000,000 warrants of common stock at an exercise price of $4.00 a share. As a result of these transactions, the Company recorded $4,939,000 in warrant expense.

 

On December 17, 2023, the Company and certain existing warrant holders entered into an agreement pursuant to which these warrant holders exercised a portion of their existing warrants to purchase an aggregate of 1,000,000 shares of the Company’s common stock. for gross proceeds of $4,000,000. As consideration for this agreement, the Company issued new warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $5.00 per share. As a result of these transactions, the Company recorded $4,187,800 in warrant expense.

 

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On December 27, 2023, the Company and certain existing warrant holders entered into an agreement pursuant to which these warrant holders exercised a portion of their existing warrants to purchase an aggregate of 500,000 shares of the Company’s common stock for gross proceeds of $2,000,000. As consideration for this agreement, the Company issued new warrant to purchase up to 1,000,000 shares of Common Stock at an exercise price of $5.50. As a result of these transactions, the Company recorded $3,081,400 in warrant expense.

 

On February 16, 2024, LuxUrban Hotels Inc. (“Company”) entered into a letter agreement with Greenle Partners LLC Series Alpha P.S., a Delaware limited liability company (“Greenle Alpha”), and Greenle Partners LLC Series Beta P.S., a Delaware limited liability company (“Greenle Beta” and together with Greenle Alpha, “Greenle”) holders of certain warrants to purchase the Company’s common stock (“Warrants”), which were issued in private placements from time to time as previously reported by the Company. Under the terms of the letter agreement, in consideration of the agreement of Greenle to exercise 50% of the Warrants originally issued by the Company on November 6, 2023 (the “November Warrants”) within three (3) business days of the date of the letter agreement and 50% of the November Warrants on or prior to February 23, 2024, the exercise price of the November Warrants has been reduced from $4.00 to $2.00 and the exercise price of all of the other Warrants held by Greenle has been reduced from $5.00 and $5.50, as applicable, to $2.50. Except as described above, the Warrants remain unchanged.

 

The following table summarizes warrant activity for the three months ended March 31, 2024:

 

                               
    Number of
Shares
    Weighted
Average
Exercise Price
    Weighted
Average
Remaining
Contractual
Life (Years)
    Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2023     5,442,000     $ 4.68       4.7     $ 7,038,940  
Granted     -       -                  
Exercised     (1,450,000 )     3.31                  
Expired     -       -                  
Forfeited     -       -                  
Outstanding at March 31, 2024     3,992,000     $ 2.92       4.4     $ -  
Exercisable at March 31, 2024     3,992,000     $ 2.92       4.4     $ -  

 

During the three months ended March 31, 2024, 1,450,000 shares were issued from the exercise of warrants.

 

16 - Revenue Share Exchange

 

Under the terms of agreements entered into with Greenle, we were obligated to make quarterly payments (each a “Revenue Share”) to Greenle based on certain percentages of the revenues generated by certain of our leased properties during the term of the applicable leases (including any extensions thereof).

 

As previously reported, on February 13, 2023, the Company and Greenle entered into an agreement pursuant to which certain Revenue Share payments for 2023 were converted into an obligation to issue shares of our common stock to Greenle in the amounts prescribed therein (the “February 2023 Revenue Share Agreement”), with all future Revenue Share obligations accruing on and after January 1, 2024 remaining in place.

 

On May 21, 2023, we entered into a further agreement with Greenle (the “May 2023 Revenue Share Exchange Agreement”) pursuant to which the right to receive any and all Revenue Share with respect to any property or operations of the Company has been terminated in its entirety for 2024 and forever thereafter, and Greenle shall not be entitled to receive any payment therefor (other than the remaining periodic share issuances and cash payments under the February 2023 Revenue Share Agreement, all of which shall be completed by January 1, 2024).

 

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In consideration for the termination of the Revenue Share for 2024 and thereafter, we agreed to issue to Greenle, from time to time, in each case, at Greenle’s election upon 61 days’ prior written notice delivered to us on and after September 1, 2023 and before August 31, 2028, up to an aggregate of 6,740,000 shares of our common stock (the “Agreement Shares”). As a result of this transaction, we recorded interest expense of $28,174,148 in the second quarter of 2023.

 

On February 12, 2024, the Company issued 36,179 shares of the Company’s common stock and 578,071 shares of the Company’s common stock to Greenle Beta and Greenle Alpha, respectively, in connection with the February 2023 Revenue Share Agreement.

 

17 - WYNDHAM AGREEMENTS

 

In May 2024, in light of discussions between our Company and Wyndham on the initial and projected future performance of our properties within the franchise relationships, we commenced the return of all property listings to our control, terminating our franchise relationship with Wyndham. The Company is currently in the process of de-platforming these properties from Wyndham’s systems and moving each hotel listing back under the Company’s control. The Company expects that this process will be completed by the end of May 2024 with minimal operational disruption, although unforeseen risks could cause delays. As part of the Company’s previously announced imitative to add industry depth and breadth to its board of directors and management to help evolve operations, the Company’s enhanced board and executive teams have reviewed all existing operational relationships. Given the Company’s operating model, it was concluded that over the long term the Company would be better served operationally and financially by operating the hotels as an independent operator.

 

As of March 31, 2024, we recorded the Development Incentive Advances as a current liability on our Condensed Consolidated Balance Sheets and recorded an additional charge of $2.6 million for all of the costs and potential additional liabilities related to this transition in our Condensed Consolidated Statement of Operations for the three months ended March 31, 2024. We believe it is in the best interest of both parties to mutually work out an agreeable outcome for the complete settlement of this matter.

 

Prior to the termination discussed above, on August 2, 2023, the Company entered into franchise agreements with Wyndham Hotels & Resorts, Inc. pursuant to which the hotels operated by the Company were to become part of the Trademark Collection® by Wyndham and Travelodge by Wyndham brands while staying under the operational control of the Company.

 

The Franchise Agreements had initial terms of 15 to 20 years and required Wyndham to provide financial, sales and operational-related support with respect to the Initial Properties. The Franchise Agreements contained customary representations, warranties, covenants, indemnification, liquidated damages and other terms for transactions of a similar nature, including customary membership and marketing fees and if applicable, booking fees.

 

Pursuant to the Franchise Agreements, Wyndham was to provide capital through development advance notes (“Development Incentive Advances”) to the Company. Consistent with market practice, such Development Incentive Advances were to be evidenced by certain promissory notes with customary amortization and repayment terms. The Development Incentive Advances were not repayable if the terms of the agreement were met, including but not limited to the length of the agreement. In conjunction with the Company’s entry into the Franchise Agreements, the Company also paid a one-time, initial, nonrefundable franchise fee to Wyndham.

 

18 - REDEEMABLE PREFERRED STOCK

 

On October 26, 2023, the Company issued 280,000 shares of 13% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) at a stated value of $25 per share. Subsequently as part of the underwriters’ overallotment option, an additional 14,144 shares were sold on December 5, 2023. The Company realized aggregate net proceeds of $5,775,596 in connection with the issuances of these shares.

 

As part of the terms of the Series A Preferred Stock offering, if a change of control or delisting event occurs prior to October 26, 2024, the Company will be required to redeem the Series A Preferred Stock plus an amount equal to any accrued and unpaid interest. Under FASB Topic D-98, this redemption provision requires the classification of this security outside of permanent equity. The Company has classified this security as Mezzanine Equity on its March 31, 2024 Balance Sheet and expects to do so until October 26, 2024.

 

During the three months ended March 31, 2024, the Company paid $238,992 in aggregate dividends on its outstanding Series A Preferred Stock.

 

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19 - EQUITY TRANSACTIONS

 

The tables below outline equity issuances not related to the conversion from an LLC to C Corp, the initial public offering the exercise of Options or Warrants, the conversion of debt into equity or the issuance of shares pursuant to revenue share agreements.

 

For the three months ended March 31, 2024

 

                                 
Description   General Ledger Account   Date     Shares     Price     Value  
Non-employee loan payment   Loan payable   1/25/2024       20,008     $ 4.57     $ 91,437  
Non-employee commission expense   Commission Expense   1/25/2024       10,079     $ 4.57     $ 46,061  
Non-employee investor relations expense   Investor Relations Expense   1/30/2024       59,784     $ 4.33     $ 258,865  
Non-employee director compensation   Non-Cash Issuance of Common Stock for Director Compensation Expenses   2/8/2024       197,800     $ 2.92     $ 577,576  
Employee Compensation   Non-Cash Issuance of Common Stock for Compensation Expenses   3/15/2024       25,000     $ 2.22     $ 55,500  
Subtotal               312,671             $ 1,029,439  

 

For the three months ended March 31, 2023

 

Description   General Ledger Account   Date     Shares     Price     Value  
Non-employee Board members pursuant to related comp. policy   Non-Cash Stock Compensation Expense   3/1/2023       166,665     $ 2.58     $ 429,996  
In connection with certain property finders’ fee arrangements   Non-Cash Issuance of Common Stock for Operating Expenses   3/17/2023       136,887     $ 2.45     $ 335,373  
In connection with a consulting agreement   Non-Cash Issuance of Common Stock for Operating Expenses   2/10/2023       196,994     $ 1.85     $ 364,439  
In connection with a marketing agreement   Non-Cash Issuance of Common Stock for Operating Expenses   2/10/2023       100,000     $ 1.85     $ 185,000  
Subtotal               600,546             $ 1,314,808  

 

20 - SUBSEQUENT EVENTS

 

Management Transitions

 

The Company has been engaged in a dedicated effort to enhance its management and operations teams through the recruitment of talented directors and officers who possess meaningful and broad experience in the hotel and online travel services industries, as well as business development expertise. As part of these efforts, effective April 22, 2024, the Company implemented the following:

 

 

Elan Blutinger, a hotel and travel technology veteran and a member of the Company’s board of directors, was named its Nonexecutive Chairman of the Board;

 

 

Shanoop Kothari, the Company’s Co-Chief Executive Officer and acting Chief Financial Officer, was named its sole Chief Executive Officer;

 

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Brian Ferdinand, the Company’s founder, stepped down as Chairman of the Board and Co-Chief Executive Officer and became a consultant to the Company, in which role he will oversee the management and expansion of the Company’s hotel properties portfolio and assist Mr. Kothari in his transition to sole Chief Executive Officer; and stepped down as Chief Executive Officer and Chief Financial Officer in June 2024.

 

 

Andrew Schwartz, a respected financial industry veteran and credit, debt and equity financing expert, was elected as a member of the Company’s board of directors. Mr. Schwartz stepped down in June 2024.

     
  Robert Arigo, a respected hotelier was appointed as Chief Executive Officer of the Company in June 2024.
     
  Michael James, a respected financial industry veteran was appointed as Chief Financial Officer in June 2024.

 

Capital Raises

 

On May 23, 2024, the Company sold 35,075,000 common shares for $8,768,750 netting $7,026,437 after fees.

 

On June 27, 2024, the Company sold 8,000,000 common shares and 8,000,000 rights for $2,000,000 netting $1,834.000 after fees.

 

On July 18, 2024, the Company sold 4,500,000 common shares for $765,000 netting $703,800 after fees.

 

On July 31, 2024, the Company sold 11,573,333 common shares for $1,736,000 netting $1,530,800 after fees.

 

In August 2024, the Company has raised through the sale of convertible debt $3,012,000 netting $2,815,000 after fees.

 

As part of the foregoing transitions, the Company entered into a Nonexecutive Chairman of the Board Agreement with Mr. Blutinger for a term of three years and will pay him an annual fee of $100,000 cash and issue him an annual grant of 250,000 shares of our common stock (each such grant vesting in three equal annual installments).

 

As part of the foregoing transitions, the Company entered into a Consulting Agreement with Mr. Ferdinand for a term of three years and will pay him a monthly consulting fee of $50,000, and continue material compensation and other terms of the employment agreement between our company and Mr. Ferdinand that was in effect immediately prior to April 22, 2024.

 

Amended and Restated Claw Back Policy

 

In November 2023, the Company adopted a claw back policy that provides for the recovery, or “claw back”, of erroneously awarded incentive-based executive compensation, as required by Rule 10D-1 under the Securities Exchange Act of 1934 (“Rule 10D-1”) and the Nasdaq listing requirements. In April 2024, the Company adopted a restated and amended version of that policy to add immaterial but clarifying provisions.

 

Sale Restriction Waiver

 

In April 2024, the Company secured from Greenle Partners LLC Series Alpha P.S. (“Greenle Alpha”) and Greenle Partners LLC Series Beta P.S. (“Greenle Beta” and, together with Greenle Alpha, “Greenle”) a waiver on the restrictions contained in its financing agreements with the Company that prohibits the Company’s sales of shares of common stock prior to November 2024 at per-share prices below $5.00 (as may be adjusted for stock splits and similar transactions, the “Trigger Price”). The restriction on sales of common stock by the Company below the Trigger Price terminates in November 2024. This waiver permitted the Company to sell up to an aggregate of 15 million shares prior to November 2024 at prices below the Trigger Price. In consideration of this waiver, Greenle is entitled to be issued up to an aggregate of 2.8 million shares of our common stock (“Initial Greenle Waiver Shares”) from time to time upon written notice to our company. This waiver was amended in May 2024 to increase number of shares permitted to be sold by the Company at prices under the Trigger Price prior to November 2024 to the greater of (i) 30 million shares and (ii) $30 million (based on the gross sale prices of such shares). In consideration of this waiver modification, Greenle is entitled to demand from time to time that the Company issue an amount of additional shares (the “Additional Greenle Waiver Shares” and collectively with the Initial Greenle Shares and the Greenle Revenue Participation Shares, the “Greenle Shares”) equal to 0.22 shares of common stock for each share of common stock sold by the Company through November 6, 2024 in excess of 15 million shares at prices below the Trigger Price.

 

24

 

 

Termination of Partnership Agreement

 

In May 2024, in light of discussions between our Company and Wyndham on the initial and projected future performance of our properties within the franchise relationships, we commenced the return of all property listings to our control, terminating our franchise relationship with Wyndham. The Company is currently in the process of de-platforming these properties from Wyndham’s systems and moving each hotel listing back under the Company’s control. The Company expects that this process will be completed by the end of May 2024 with minimal operational disruption, although unforeseen risks could cause delays. As part of the Company’s previously announced imitative to add industry depth and breadth to its board of directors and management to help evolve operations, the Company’s enhanced board and executive teams have reviewed all existing operational relationships. Given the Company’s operating model, it was concluded that over the long term the Company would be better served operationally and financially by operating the hotels as an independent operator.

 

At this time, we have recorded the Development Incentive Advances as a current liability from long-term on our Condensed Consolidated Balance Sheets as well as included an additional $2.6 million in accruals for all of the costs and potential additional liabilities related to this transition on our Condensed Consolidated Statement of Operations. However, we believe it is in the best interest of both parties to mutually work out an agreeable outcome for the complete settlement of this matter.

 

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Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

When we refer to “we,” “us,” “our,” “LUXH,” or “the Company,” we mean LuxUrban Hotels Inc. and its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q (“Quarterly Report”). Some of the comments we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section below entitled “Special Note Regarding Forward-Looking Statements.” Certain factors that could cause actual results or events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”).

 

Special Note Regarding Forward-Looking Statements [to be review by counsel]

 

This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The statements contained in this Quarterly Report that are not purely historical are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report may include, for example, statements about:

 

  our ability to secure equity or debt capital resources as needed to stabilize our business and continue our expansion;

 

  the potential effects on our business from pandemics, such as those experienced during the COVID-19;

 

  the potential effects of a challenging economy, for example, on the demand for vacation travel accommodations such as ours;

 

  the ability of our short-stay accommodation offerings to achieve and sustain market acceptance across multiple cities throughout the United States and internationally;

 

  the impact of increased competition;

 

  the need to geographically centralize principal operations.

 

  our efforts to identify, recruit and retain qualified officers, key employees, and directors possessing experience in the hotel and online travel services industries;

 

  our ability to service our existing indebtedness and Series A Preferred Stock dividend and to obtain additional financing, including through the issuance of equity and debt, when and as needed on commercially reasonable terms;

 

  our ability to protect our intellectual property;

 

  our ability to complete strategic acquisitions, including joint ventures;

 

  the need to obtain uninterrupted service from the third-party service providers we rely on for material aspects of our operations, including payment processing, data collection and security, online reservations, and booking and other technology services;

 

26

 

 

  the effects of employment, labor union, and customer related litigations and disputes that may arise from time to time in the course of our operations and our efforts to minimize and resolve same;

 

  the liquidity and trading of our securities;

 

  regulatory and operational risks;

 

  our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

 

  the time during which we will be an Emerging Growth Company (“EGC”) under the Jumpstart Our Business Startups Act of 2012, or JOBS Act.

 

The forward-looking statements contained in this Quarterly Report are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those risk factors described in “Item 1A. Risk Factors” of our Annual Report, elsewhere in this Form 10-Q and any updates to those factors as set forth in this and subsequent Quarterly Reports on Form 10-Q or other public filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

 

See Item 1A. “Risk Factors” within our Annual Report for further discussion of these risks, as well as additional risks and uncertainties that could cause actual results or events to differ materially from those described in the Company’s forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this Quarterly Report.

 

Overview

 

We lease entire existing hotels on a long-term basis and rent out hotel rooms in the properties we lease. We currently have a portfolio of hotel rooms in New York, Miami Beach, New Orleans, and Los Angeles through long-term lease agreements and manage these hotels directly. Our revenues are generated through the rental of rooms to guests and through ancillary services such as cancellable room rate fees, resort fees, late and early check-in and check-out fees, baggage fees, parking fees, grab and go food service fees, and upgrade fees. As of the date of this Annual Report, we have 1,406 hotel rooms available for rent through our portfolio. We believe the COVID-19 pandemic created, and current economic conditions continue to present, an historic opportunity for us to lease additional dislocated and underutilized hotels at favorable economics for our company. We have been expanding our domestic operations and U.S.-based portfolio of available hotel rooms since inception, with our next planned target city being Boston, and have plans to open one or more international markets in the near term, with London as the initial target international market.

 

We strive to improve operational efficiencies by leveraging proprietary technology to identify, lease, manage, and market globally the hotel space we lease to business and vacation travelers through our online portal and third-party sales and distribution channels. Our top three sales channels represented more than 85% of revenue during the three month ended March 31, 2024 and more than 85% of revenue during the three months ended March 31, 2023.

 

27

 

 

Our company has been engaged in a dedicated effort to enhance our management and operations teams through the recruitment of talented directors and officers who have meaningful and broad experience in the hotel and online travel services industries, as well as business development expertise. These efforts have included the recently announced additions of Elan Blutinger and Kim Schaefer, hotel and travel technology veterans, to our board of directors. We are continuing the efforts to deepen management and operational experience across all areas of our company through active recruitment of new personnel and the assignment of existing management personnel to areas in which their expertise can be focused.

 

General

 

We have been and are continuing to build a portfolio of existing hotels that provide short-term accommodations for guests at average nightly and occupancy rates that exceed our total cost and expenses. We are growing this portfolio by capitalizing on the dislocation in the hotel industry created by the COVID-19 pandemic and the high interest rate environment. We target business and vacation travelers under our consumer brand LuxUrban and we market our hotel properties primarily through numerous third-party online travel agency (“OTA”) channels and our own listing platforms. See Note 19 to our Financial Statements included in this Report.

 

Many of the hotels that we lease are hotels that were shuttered or underutilized as a result of the global pandemic. Other properties that we lease were either poorly managed prior to our acquisition, which caused landlords to seek a more stable tenant, or became attainable when LuxUrban provided landlords with more desirable long-term lease terms and prospects than other potential tenants.

 

Currently, we focus our portfolio expansion efforts on turnkey properties that require limited amounts of incremental capital to make the property guest-ready. We expect over time that we may need to invest additional capital as prime hotel lease acquisition opportunities diminish, but believe there will remain many attractive opportunities for properties where the economics will still be favorable despite the additional capital investment requirements. In these cases, we believe we will be able to obtain greater concessions from landlords as a result of the capital outlays that would be required from us.

 

Property Summary

 

We enter into triple net leases in which we are responsible for all of the costs on the property outside of exterior structural maintenance. As of December 31, 2023, we leased 18 properties with 1,599 units available for rent. In March 2024 and in April of 2024, we surrendered four of these hotels, based on our evaluation that such properties (a) had relatively poor performance, (b) presented suboptimal size and scale, and (c) are of general quality that over time could present risks to our company. After giving effect to the surrender of these properties, we leased 13 properties with 1,341 units available for rent. We are in active negotiations with one or more of the hotels we surrendered in March 2024 for modified lease terms that would allow such hotels to work within our operating model, but there is no assurance that we will obtain the terms desired or that if we do we will not replace these hotels with other hotels that we believe present greater opportunity for our company. In addition, in late 2023, we elected to not move forward on a previously agreed to long-term lease for a hotel because required repairs had not been timely completed by the landlord.

 

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Our portfolio of properties as of March 31, 2024 (as adjusted for the surrender of certain properties mentioned above) was as follows:

 

Property   # of Units     Property Type   Lease Term     Lease
Remaining at 3/31/24
(years)
    Extension
Option
(remaining at 3/31/24)
    Annual
Escalation
    Date
Commenced
 
Blakely: 136 W 55th St, New York, NY 10105   117     Licensed hotel   15-year     12.6     10-year     3%     11/1/2021  
                                         
Herald: 71 W 35th St, New York, NY 10001   168     Licensed hotel   15-year     13.2     None     3%     6/2/2022  
                                         
Variety: 1700 Alton Rd Miami Beach, FL 33139   68     Licensed hotel   12.5-year     9.6     None     3%     3/26/2021  
                                         
Lafayette: 600 St Charles Ave, New Orleans, LA 70130   60     Licensed hotel   19.4-year     18.0     None     2%     11/1/2022  
                                         
Townhouse: 150 20th St., Miami Beach, FL 33139   70     Licensed hotel   11.25-year     10.2     10-year     3%     3/1/2023  
                                         
Tuscany: 120 E 39th St., New York, NY 10016   125     Licensed hotel   15-year     13.8     10-year     2%     1/1/2023  
                                         
O Hotel: 2869 819 Flower St, Los Angeles, CA 90017   68     Licensed hotel   15-year     14.0     5-year     3%     4/1/2023  
                                         
Hotel 57: 2869 130 E 57th St., New York, NY 10022   216     Licensed hotel   15-year     14.3     10-year     3%     7/1/2023  
                                         
Condor: 56 Franklin Ave, Brooklyn, NY 11205   35     Licensed hotel   15-year     14.4     10-year     3%     9/1/2023  
                                         
BeHome: 56 765 8th Ave, New York, NY 10036   44     Licensed hotel   25-year     24.3     None     10%     7/1/2023  
                                         
Hotel 46: 129 West 46th St., New York, NY 11206   79     Licensed hotel   25-year     24.6     None     3%     11/1/2023  
                                         
Hotel 27: 62 Madison Ave, New York, NY 10016   74     Licensed hotel   15-year     14.6     10-year     3%     11/1/2023  
                                         
Washington: 8 Albany Street, New York, NY 10006   217     Licensed hotel   15.2-year     13.9     None     2%     9/20/2022