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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
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.
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 |
) |
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.
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.
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.
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.
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.
The
following tables present the effect of the Restatement Items on the Company’s condensed consolidated balance sheet for the period
indicated:
Condensed balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The
following tables present the effect of the Restatement Items on the Company’s condensed consolidated statement of operations for
the period indicated:
Condensed income statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
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.
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:
Stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The following
tables present the effect of the Restatement Items on the Company’s condensed consolidated statement of cash flows for the period indicated:
Condensed Cash Flow Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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. |
|
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. |
|
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.
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:
Schedule of supplemental balance sheet information related to leases |
|
|
|
|
|
|
|
|
|
|
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
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:
Schedule of other supplemental information related to 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 |
|
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:
Schedule of future minimum principal repayments of the SBA,PPP loans payable |
|
|
|
For the Twelve Months Ending March 31, |
|
|
|
2025 |
|
$ |
276,658 |
|
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
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.
10 - LOANS PAYABLE
Loans payable consist of the following as of:
Schedule of loans payable |
|
|
|
|
|
|
|
|
|
|
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:
Schedule of future minimum principal repayments of the loans payable |
|
|
|
|
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.
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.
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:
Schedule of Black-Scholes option pricing model was used with the following weighted assumptions for options granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
Schedule of status of non-vested options |
|
|
|
|
|
|
|
|
|
|
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 |
|
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 5 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 5 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 5 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.
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:
Schedule of stock option activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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).
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.
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
Schedule of equity transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; |
|
● |
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.
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.
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:
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our ability to secure equity or debt capital resources as needed to stabilize our business and continue our expansion; |
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the potential effects on our business from pandemics, such as those experienced during the COVID-19; |
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the potential effects of a challenging economy, for example, on the demand for vacation travel accommodations such as ours; |
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the ability of our short-stay accommodation offerings to achieve and sustain market acceptance across multiple cities throughout the United States and internationally; |
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the impact of increased competition; |
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the need to geographically centralize principal operations. |
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our efforts to identify, recruit and retain qualified officers, key employees, and directors possessing experience in the hotel and online travel services industries; |
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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; |
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our ability to protect our intellectual property; |
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our ability to complete strategic acquisitions, including joint ventures; |
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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; |
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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; |
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the liquidity and trading of our securities; |
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regulatory and operational risks; |
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our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and |
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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.
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.
Our portfolio of properties as of March 31, 2024 (as adjusted for the surrender of certain properties mentioned above) was as follows:
Property |
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# of Units |
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Property Type |
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Lease Term |
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Lease Remaining at 3/31/24 (years) |
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Extension Option (remaining at 3/31/24) |
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Annual Escalation |
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Date Commenced |
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Blakely: 136 W 55th St, New York, NY 10105 |
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117 |
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Licensed hotel |
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15-year |
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12.6 |
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10-year |
|
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3% |
|
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11/1/2021 |
|
|
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|
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|
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|
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|
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|
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|
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Herald: 71 W 35th St, New York, NY 10001 |
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168 |
|
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Licensed hotel |
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15-year |
|
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13.2 |
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None |
|
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3% |
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6/2/2022 |
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|
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|
|
|
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|
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Variety: 1700 Alton Rd Miami Beach, FL 33139 |
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68 |
|
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Licensed hotel |
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12.5-year |
|
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9.6 |
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None |
|
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3% |
|
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3/26/2021 |
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|
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Lafayette: 600 St Charles Ave, New Orleans, LA 70130 |
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60 |
|
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Licensed hotel |
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19.4-year |
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18.0 |
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None |
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2% |
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11/1/2022 |
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Townhouse: 150 20th St., Miami Beach, FL 33139 |
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70 |
|
|
Licensed hotel |
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11.25-year |
|
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10.2 |
|
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10-year |
|
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3% |
|
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3/1/2023 |
|
|
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Tuscany: 120 E 39th St., New York, NY 10016 |
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125 |
|
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Licensed hotel |
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15-year |
|
|
13.8 |
|
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10-year |
|
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2% |
|
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1/1/2023 |
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
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O Hotel: 2869 819 Flower St, Los Angeles, CA 90017 |
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68 |
|
|
Licensed hotel |
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15-year |
|
|
14.0 |
|
|
5-year |
|
|
3% |
|
|
4/1/2023 |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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Hotel 57: 2869 130 E 57th St., New York, NY 10022 |
|
216 |
|
|
Licensed hotel |
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15-year |
|
|
14.3 |
|
|
10-year |
|
|
3% |
|
|
7/1/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Condor: 56 Franklin Ave, Brooklyn, NY 11205 |
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35 |
|
|
Licensed hotel |
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15-year |
|
|
14.4 |
|
|
10-year |
|
|
3% |
|
|
9/1/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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BeHome: 56 765 8th Ave, New York, NY 10036 |
|
44 |
|
|
Licensed hotel |
|
25-year |
|
|
24.3 |
|
|
None |
|
|
10% |
|
|
7/1/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Hotel 46: 129 West 46th St., New York, NY 11206 |
|
79 |
|
|
Licensed hotel |
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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 |
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