UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
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| (Address of principal executive offices) | (Zip code) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| Stock Market LLC | ||||
| 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.
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| Large accelerated filer | ☐ | 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.
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As of November 8, 2023, the registrant had shares of common stock, $.00001 par value, outstanding.
Table of Contents
i
Part I - Financial Information
Item 1 - Financial Statements.
LUXURBAN HOTELS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Treasury Bills | ||||||||
| Processor Retained Funds | ||||||||
| Receivables from On-Line Travel Agents (“OTAs”) | ||||||||
| Prepaid Expenses and Other Current Assets | ||||||||
| Security Deposits - Current | ||||||||
| Total Current Assets | ||||||||
| Other Assets | ||||||||
| Furniture, Equipment and Leasehold Improvements, Net | ||||||||
| Restricted Cash | ||||||||
| Security Deposits - Noncurrent | ||||||||
| Prepaid Expenses and Other Noncurrent Assets | ||||||||
| Operating Lease Right-Of-Use Assets, Net | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Rents Received in Advance | ||||||||
| Short Term Business Financing | ||||||||
| Loans Payable - Current | ||||||||
| Operating Lease Liabilities - Current | ||||||||
| Development Incentive Advances - Current | ||||||||
| Accrued Income Taxes | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Loans Payable - Noncurrent | ||||||||
| Development Incentive Advances - Noncurrent | ||||||||
| Security Deposit Letter of Credit | ||||||||
| Operating Lease Liabilities - Noncurrent | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Common Stock (shares authorized, issued and outstanding – and , respectively) | ||||||||
| Additional Paid In Capital | ||||||||
| Accumulated Deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Equity (Deficit) | ( |
) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
LUXURBAN HOTELS INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
| For The Three Months Ended September 30, |
For The Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Rental Revenue | $ | $ | $ | $ | ||||||||||||
| Rent Expense | ||||||||||||||||
| Non-Cash Rent Expense Amortization | ( |
) | ||||||||||||||
| Other Expenses | ||||||||||||||||
| Total Cost of Revenue | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| General and Administrative Expenses | ||||||||||||||||
| Non-Cash Issuance of Common Stock for Operating Expenses | ||||||||||||||||
| Non-Cash Stock Compensation Expense | ||||||||||||||||
| Non-Cash Stock Option Expense | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Income from Operations | ( |
) | ||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Other Income | ||||||||||||||||
| Interest and Financing Costs | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Non-Cash Financing Costs | ( |
) | ( |
) | ( |
) | ||||||||||
| Total Other Expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income (Loss) Before (Benefit from) Provision for Income Taxes | ( |
) | ( |
) | ( |
) | ||||||||||
| (Benefit from) Provision for Income Taxes | ( |
) | ( |
) | ||||||||||||
| Net Income (Loss) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Basic Earnings (Loss) Per Common Share | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Diluted Earnings (Loss) Per Common Share | $ | ( |
) | ( |
) | ( |
) | |||||||||
| Basic Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| Diluted Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
LUXURBAN HOTELS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| Common Stock |
Members’ Deficit |
Additional Paid in Capital |
Accumulated Deficit |
Stockholders’ Equity (Deficit) |
||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Net Loss | - | ( |
) | ( |
) | |||||||||||||||||||
| Non-Cash Stock Compensation Expense | ||||||||||||||||||||||||
| Non-Cash Option Compensation Expense | - | |||||||||||||||||||||||
| Issuance of Shares for Operating Expenses | ||||||||||||||||||||||||
| Conversion of Loans | ||||||||||||||||||||||||
| Warrant Exercise | ||||||||||||||||||||||||
| Loss on Debt Extinguishment | - | |||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Net Loss | - | ( |
) | ( |
) | |||||||||||||||||||
| Non-Cash Stock Option Expense | - | |||||||||||||||||||||||
| Conversion of Loans | ||||||||||||||||||||||||
| Issuance of Shares for Operating Expenses | ||||||||||||||||||||||||
| Warrant Exercise | ||||||||||||||||||||||||
| Issuance of Shares to Satisfy Loans | ||||||||||||||||||||||||
| Issuance of Shares for Deferred Compensation | ||||||||||||||||||||||||
| Issuance of Shares for Revenue Share Agreements | ||||||||||||||||||||||||
| Termination of Revenue Share Agreement Adjustment | - | |||||||||||||||||||||||
| Modification of Warrants | - | |||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Non-Cash Stock Option Expense | - | |||||||||||||||||||||||
| Issuance of Shares for Operating Expenses and Settlements | ||||||||||||||||||||||||
| Issuance of Shares for Director Compensation | ||||||||||||||||||||||||
| Warrant Exercise | ||||||||||||||||||||||||
| Issuance of Shares for Revenue Share Agreements | ( |
) | ||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Balance - December 31, 2021 | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||
| Cumulative effect changes in accounting principle | - | ( |
) | ( |
) | |||||||||||||||||||
| Conversion to C Corp | ( |
) | ||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Net Income | - | ( |
) | ( |
) | |||||||||||||||||||
| Conversion of Loans | ||||||||||||||||||||||||
| Sale of Commons Stock (Net of Related Costs) | ||||||||||||||||||||||||
| Warrant Expense | - | |||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||
| Post IPO Warrant | - | |||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
LUXURBAN HOTELS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022
(UNAUDITED)
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||||||
| Non-cash stock compensation expense | ||||||||
| Non-cash stock option expense | ||||||||
| Depreciation expense | ||||||||
| Shares issued for operating expenses | ||||||||
| Non-cash lease expense | ||||||||
| Gain on sale of Treasury Bills | ( |
) | ||||||
| Issuance of shares for revenue share agreement | ||||||||
| Termination of revenue share agreement | ||||||||
| Modification of warrants | ||||||||
| Non-cash financing changes associated with short term business financing | ||||||||
| Loss on debt extinguishment | ||||||||
| Loan forgiveness – SBA – PPP loan | ( |
) | ||||||
| Warrant expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) Decrease in: | ||||||||
| Processor retained funds | ( |
) | ||||||
| Receivables from OTAs | ( |
) | ||||||
| Prepaid expense and other assets | ( |
) | ( |
) | ||||
| Security deposits | ( |
) | ( |
) | ||||
| (Decrease) Increase in: | ||||||||
| Accounts payable and accrued expenses | ( |
) | ||||||
| Operating lease liabilities | ( |
) | ( |
) | ||||
| Rents received in advance | ( |
) | ||||||
| Accrued Income Taxes | ||||||||
| Net cash used in operating activities | $ | ( |
) | $ | ( |
) | ||
| Cash Flows from Investing Activities | ||||||||
| Purchase of furniture and equipment and leaseholds | ( |
) | ( |
) | ||||
| Proceeds from the sale of (purchase of) Treasury Bills | ( |
) | ||||||
| Net cash provided by (used in) investing activities | $ | $ | ( |
) | ||||
| Cash Flows from Financing Activities | ||||||||
| Deferred offering costs - net | ( |
) | ||||||
| Repayments of short term business financing - net | ( |
) | ( |
) | ||||
| Warrant Exercises | ||||||||
| (Repayments of) loans payable – related parties - net | ( |
) | ||||||
| Issuance of common stock - net | ||||||||
| Proceeds from development incentive advances | ||||||||
| (Repayments of) proceeds from loans payable - net | ( |
) | ||||||
| Net cash provided by financing activities | $ | $ | ||||||
| Net Increase in Cash and Cash Equivalents and Restricted Cash | ||||||||
| Cash and Cash Equivalents and Restricted Cash - beginning of the period | ||||||||
| Cash and Cash Equivalents and Restricted Cash - end of the period | $ | $ | ||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Restricted Cash | $ | $ | ||||||
| Total Cash and Cash Equivalents and Restricted Cash | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Noncash operating activities: | ||||||||
| Acquisition of New Operating Lease Right-of-Use Assets | $ | $ | ||||||
| Noncash financing activities: | ||||||||
| Conversion of debt to common stock and additional paid-in capital | $ | $ | ||||||
| Common stock issued in exchange for warrants | $ | $ | ||||||
| Accrued deferred offering costs | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LUXURBAN HOTELS INC.
September 30, 2023
1 - DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
LuxUrban Hotels Inc. (“LUXH” or the “Company”) utilizes an asset light business model to lease entire hotels on a long-term basis and rent out hotel rooms in the properties it leases. The Company currently manages a portfolio of hotel rooms in New York, Washington D.C., Miami Beach, New Orleans and Los Angeles.
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.
The consolidated financial statements include the accounts of LuxUrban Hotels Inc. (“LuxUrban”) and its wholly owned subsidiary SoBeNY Partners LLC (“SoBeNY”). On November 2, 2022, CorpHousing Group Inc. (“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. SoBeNY was dissolved on December 30, 2022.
All significant intercompany accounts and transactions have been eliminated in consolidation.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| 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”). These condensed consolidated financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 31, 2023. Results of operations for the three months and nine months ended September 30, 2023 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2023. The consolidated balance sheet at September 30, 2023 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. |
| b. | Revenue Recognition - The Company’s revenue is derived primarily from the rental of units to its guests. 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. |
5
The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial.
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 September 30, 2023 and December 31, 2022, was $
| 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. | 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 September 30, 2023, the Company had cash and cash equivalents of $ |
| e. | 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 September 30, 2023 and December 31, 2022 because of their short term natures. |
| f. | 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 and nine months ended September 30, 2023, commissions were $ |
| g. | 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 and nine months ended September 30, 2023, the Company recorded a tax provision of a benefit of $
6
| h. | 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 September 30, 2023 and December 31, 2022, the Company accrued sales tax payable of $ |
| i. | 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. |
| j. | Earnings Per Share (“EPS”) - Basic net loss per share is the same as diluted net loss per share for the nine months ended September 30, 2023 because the inclusion of potentially issuable shares of common stock would have been anti-dilutive for the periods presented. For the three months ended September 30, 2023, additional shares were included for diluted net income per share versus basic net income per share. For the three months and nine months ended September 30, 2022, 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. |
| k. | Liquidity - The accompanying financial statements have been prepared in conformity with GAAP, which contemplates continuation as a going concern. As reflected in the accompanying statement of operations, for the three months and nine months ended September 30, 2023, the Company had a net income of $ |
3 - LEASES
In February 2017, the FASB issued ASU No. 2016-02, Leases (“Topic 842”), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about lease arrangements, specifically differentiating between different types of leases. The Company adopted Topic 842, with an effective date of January 1, 2022. The consolidated financial statements from this date are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments.
Under Topic 842, the Company applied 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.
7
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 adoption of the new
lease standard had a significant impact on the Consolidated Balance Sheets, resulting in the recognition on January 1, 2022 a
right-of-use asset of $
The components of the right-of-use assets and lease liabilities as of September 30, 2023 and December 31, 2022 were as follows:
At September 30, 2023 and December 31, 2022, supplemental balance sheet information related to leases were as follows:
| September 30, 2023 |
December 31, 2022 |
|||||||
| Operating lease right of use assets, net | $ | $ | ||||||
| Operating lease liabilities, current portion | $ | $ | ||||||
| Operating lease liabilities, net of current portion | $ | $ | ||||||
At September 30 2023, future minimum lease payments under the non-cancelable operating leases are as follows:
| Twelve Months Ending September 30, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payment | $ | |||
| Less interest | ( |
) | ||
| Present value obligation | ||||
| Short-term liability | ||||
| Long-term liability | $ | |||
The following summarizes other supplemental information about the Company’s operating lease:
| September 30, 2023 |
||||
| Weighted average discount rate | % | |||
| Weighted average remaining lease term (years) | ||||
8
|
Three Months Ended 2023 |
Nine Months Ended September 30, 2023 |
|||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | $ | ( |
) | $ | ||||
| Total lease cost | $ | $ | ||||||
4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued expenses totaled $
5 - 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 $
In April and May 2020, SoBeNY and CorpHousing obtained funding of $
Accrued interest at September 30, 2023 and December 31, 2022, was $
Future minimum principal repayments of the SBA - PPP loans payable are as follows:
| For the Twelve Months Ending September 30, | ||||
| 2024 | $ | |||
9
6 - LOANS PAYABLE – SBA – EIDL LOAN
During 2020, the Company received three SBA Economic Injury Disaster Loans (“EIDL”) in response to the COVID-19 pandemic. These are
On April 21, 2020, SoBeNY received an EIDL loan in the amount of $
The outstanding balance at September 30, 2023 and December 31, 2022, was $
Accrued interest at September 30, 2023 was $
Future minimum principal repayments of the SBA - EIDL loans payable are as follows:
| For the Twelve Months Ending September 30, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
7 - 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 September 30, 2023 and December 31, 2022, the outstanding balance on these merchant cash advances net of unamortized costs was $
10
8 - LOANS PAYABLE
Loans payable consist of the following as of:
| September 30, 2023 |
December 31, 2022 |
|||||||
| Original borrowings of $ |
||||||||
| Original payable of $ |
||||||||
| Original payable of $ |
||||||||
| Original payable of $ |
||||||||
| Borrowings of $ |
||||||||
| Original borrowings of $ |
||||||||
| Original amounts due of $ |
||||||||
| Original borrowing of $ |
||||||||
| Other borrowing | ||||||||
| Less: Current maturities | ||||||||
| $ | $ | |||||||
Future minimum principal repayments of the loans payable are as follows:
| For the Twelve Months Ending September 30, | ||||
| 2024 | $ | |||
| 2025 | ||||
| Loans payable | $ | |||
9 - LOANS PAYABLE – RELATED PARTIES
Loans payable — related parties consists of the following:
| September 30, 2023 |
December 31, 2022 |
|||||||
| Original borrowings of $ |
$ | $ | ||||||
| Less: Current maturities | ||||||||
| $ | $ | |||||||
In May of 2023, the Company issued
11
10 - CONVERTIBLE NOTES
On February 17, 2023, we entered into an exchange agreement with investors pursuant to which all principal, interest and prepayment premium outstanding under a nonconvertible 15% original issue discount (“OID”) note with private investors was exchanged for a convertible note in the principal amount of $
11 - LINE OF CREDIT
In February 2019, the Company entered into a line of credit agreement in the amount of $
12 - SECURITY DEPOSIT LETTER OF CREDIT
In November of 2022, the Company entered into a standby letter of credit agreement in the amount of $
13 - RELATED PARTY TRANSACTIONS
Consulting services related to the management of the Company, including overseeing the leasing of additional units and revenue management, were provided to the Company through a consulting agreement with SuperLuxMia LLC, a consulting firm owned by the Chief Executive Officer and Chairman of the Company. For the three and nine months ended September 30, 2023, these consulting fees of the Company were zero. For the three and nine months ended September 30, 2022, these consulting fees of the Company were zero and $
On December 20, 2022, the Company, and our 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 September 30, 2022, 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 has agreed to convert from time to time up to $
12
14 - 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 $
15 - 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
Options
During the nine months ended September 30, 2023, the Company granted options to purchase an aggregate of shares of common stock under the Company’s 2022 performance equity plan with a weighted average exercise price of $.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model using the assumptions noted as follows: expected volatility was based on the historical volatility of a peer group of companies; the expected term of options granted was determined using the simplified method under SAB 107, which represents the mid-point between the vesting term and the contractual term; and the risk-free rate is calculated using the U.S. Treasury yield curve and is based on the expected term of the option.
The Black-Scholes option pricing model was used with the following weighted assumptions for options granted during the period:
Schedule of Black-Scholes option pricing model was used with the following weighted assumptions for options granted
| September 30, 2023 |
|||
| Risk-free interest rate | – | ||
| Expected option life | months – months | ||
| Expected volatility | – | ||
| Expected dividend yield | % | ||
| Exercise price | $ – |
13
The following table summarizes stock option activity for the three months ended September 30, 2023:
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, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ||||||||||||||||
| Forfeited | ( |
) | ||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
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 $ for the three months ended September 30, 2023 and $ for the nine months ended September 30, 2023. The Company recognized stock option expense of $ for the three months ended September 30, 2023 and $ for the nine months ended September 30, 2022. Unamortized option expense as of September 30, 2023, for all options outstanding amounted to $. These costs are expected to be recognized over a weighted average period of years.
A summary of the status of the Company’s nonvested options as of September 30, 2023, is presented below:
Nonvested options
| Number of Nonvested Options |
Weighted Average Grant Date Fair Value |
|||||||
| Nonvested options at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( |
) | ||||||
| Vested | ( |
) | ||||||
| Nonvested options at September 30, 2023 | ||||||||
Warrants
In connection with certain private placements funded by certain of our officers and directors prior to our initial public offering, we issued notes and warrants. The warrants were contingent upon, and became effective only upon, consummation of our initial public offering on August 11, 2022. In total,
Also, in conjunction with the initial public offering, the Company issued
Also, in connection with certain private placements with a third-party investor, the Company issued
14
On September 16, September 30, and October 20, 2022 in conjunction with a financing with the same third-party investor, we issued
On February 15, 2023 in conjunction with an advisory agreement, we issued
On April 16, 2023
The following table summarizes warrant activity for the nine months ended September 30, 2023:
| Number of Shares Issuable Upon Exercise of Warrants |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ( |
) | - | |||||||||||||
| Expired | - | |||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
During the nine months ended September 30, 2023,
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 $
On September 11, 2023, the Company issued shares of the Company’s common stock and shares of the Company’s common stock to Greenle Beta and Greenle Alpha, respectively, in connection with the February 2023 Revenue Share Agreement. As of November 8, 2023, the registrant had shares of common stock outstanding. Shares outstanding inclusive of shares committed to be issued but not yet issued as of this date on both the February 2023 Revenue Share Agreement and the May 2023 Revenue Share Exchange Agreement are (or for the February 2023 Revenue Share Agreement and for the May 2023 Revenue Share Agreement).
15
18 - WYNDHAM AGREEMENTS
On August 2, 2023, the Company entered into franchise agreements with Wyndham Hotels & Resorts, Inc. pursuant to which the hotels operated by the Company and future acquired properties will 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 have initial terms of
Pursuant to the Franchise Agreements, Wyndham will provide capital through development advance notes (“Development Incentive Advances”) to the Company. Consistent with market practice, such Development Incentive Advances will be evidenced by certain promissory notes with customary amortization and repayment terms. The Development Incentive Advances are not repayable if the terms of the agreement are 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.
As of September 30, 2023, the Company had Development Incentive Advances of $
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.
16
For the three months ended September 30, 2023
| Description | P/L Account | Date | Shares | Price | Value | ||||||||||||
| Non-employee Board members pursuant to related comp. policy | Non-Cash Stock Compensation Expense | 8/16/2023 | $ | $ | |||||||||||||
| In connection with certain property finders' fee arrangements | Non-Cash Issuance of Common Stock for Operating Expenses | 8/21/2023 | $ | $ | |||||||||||||
| Advisory and legal services | Non-Cash Issuance of Common Stock for Operating Expenses | 8/21/2023 | $ | $ | |||||||||||||
| Acorn Management Partners in connection with advisory services | Non-Cash Issuance of Common Stock for Operating Expenses | 8/28/2023 | $ | $ | |||||||||||||
| Elizabeth Brown in connection with her termination of employment | Non-Cash Issuance of Common Stock for Operating Expenses | 8/28/2023 | $ | $ | |||||||||||||
| Subtotal | $ | ||||||||||||||||
For the three months ended June 30, 2023
| Description | P/L Account | Date | Shares | Price | Value | ||||||||||||
| Issuance of shares for deferred compensation | Accrued Liabilities | 5/24/2023 | $ | $ | |||||||||||||
| Issuance of shares for deferred compensation | Accrued Liabilities | 5/17/2023 | $ | $ | |||||||||||||
| Subtotal | $ | ||||||||||||||||
| Acorn Management Partners in connection with advisory services | Non-Cash Issuance of Common Stock for Operating Expenses | 6/1/2023 | $ | $ | |||||||||||||
| In connection with certain property finders' fee arrangements | Non-Cash Issuance of Common Stock for Operating Expenses | 5/17/2023 | $ | $ | |||||||||||||
| Issuance of shares for consulting agreement | Non-Cash Issuance of Common Stock for Operating Expenses | 5/3/2023 | $ | $ | |||||||||||||
| Subtotal | $ | ||||||||||||||||
For the three months ended March 31, 2023
| Description | P/L Account | Date | Shares | Price | Value | ||||||||||||
| Non-employee Board members pursuant to related comp. policy | Non-Cash Stock Compensation Expense | 3/1/2023 | $ | $ | |||||||||||||
| In connection with certain property finders' fee arrangements | Non-Cash Issuance of Common Stock for Operating Expenses | 3/17/2023 | $ | $ | |||||||||||||
| In connection with a consulting agreement | Non-Cash Issuance of Common Stock for Operating Expenses | 2/10/2023 | $ | $ | |||||||||||||
| In connection with a marketing agreement | Non-Cash Issuance of Common Stock for Operating Expenses | 2/10/2023 | $ | $ | |||||||||||||
| Subtotal | $ | ||||||||||||||||
| Total for nine months ended September 30, 2023 | $ | ||||||||||||||||
For the three months and nine months ended September 30, 2022
| Description | P/L Account | Date | Shares | Price | Value | ||||||||||||
| Non-employee Board members pursuant to related comp. policy | Non-Cash Stock Compensation Expense | 8/16/2022 | $ | $ | |||||||||||||
| Total for nine months ended September 30, 2022 | $ | ||||||||||||||||
17
20 - SUBSEQUENT EVENTS
Preferred Pricing
On October 24, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital L.P., as representative of the several underwriters named therein (the “Underwriters”), relating to the offer and sale of shares of Series A Preferred Stock (as defined below). Pursuant to the Underwriting Agreement, the Company granted the Underwriters a 45-day option to purchase up to an additional 15% of Series A Preferred Stock. The closing of the offering occurred on October 26, 2023.
The offering of Series A Preferred Stock was made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-274308) (the “Registration Statement”), which became effective on September 13, 2023, as supplemented by the Prospectus Supplement dated October 24, 2023 relating to the Series A Preferred Stock, filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act on October 26, 2023.
On October 26, 2023, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to designate shares of the Company’s authorized preferred stock as shares of 13.00% Series A Cumulative Redeemable Preferred Stock, par value $ per share, with a liquidation preference of $
Warrant Issuance
On August 31, 2023, in connection with the execution of the August 31, 2023 Letter Agreement between the Company and Greenle, and as consideration for Greenle’s execution of such Agreement, the Company agreed to issue (i) Greenle Alpha a warrant to purchase
On November 6, 2023, in connection with the execution of the Registration Rights Amendment and Warrant Letter Agreement and as consideration for Greenle’s execution of the such Agreement, the Company agreed to issue (i) Greenle Alpha a warrant to purchase
The foregoing descriptions of the material terms of the August 31, 2023 Letter Agreement and the Registration Rights Amendment and Warrant Letter Agreement are qualified in their entirety by reference to the full text of the agreements, copies of which are attached hereto as Exhibits 10.5 and 10.6, respectively.
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Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When we refer to “we,” “us,” “our,” “LUXH,” or “the Company,” we mean LuxUrban Hotels Inc. and its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q (“Quarterly Report”). Some of the comments we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section below entitled “Special Note Regarding Forward-Looking Statements.” Certain factors that could cause actual results or events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”).
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The statements contained in this Quarterly Report that are not purely historical are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report may include, for example, statements about:
| ● | our financial performance, including our ability to generate revenue; |
| ● | the outbreak of the novel coronavirus (“COVID-19”), including the measures to reduce its spread, and the impact on the economy and demand for our services, which may precipitate or exacerbate other risks and uncertainties in our financial performance, including our ability to generate revenue; |
| ● | potential effects of a challenging economy, for example, on the demand for vacation travel accommodations and the effect thereof on our business and financial condition; |
| ● | the ability of our short stay accommodation offerings to achieve market acceptance and to build our portfolio of accommodation offerings in multiple cities throughout the United States and internationally; |
| ● | the impact of increased competition; |
| ● | our success in retaining or recruiting officers, key employees and directors; |
| ● | our ability to service our existing indebtedness and obtain additional financing when and if needed; |
| ● | our ability to protect our intellectual property; |
| ● | our ability to complete strategic acquisitions, including joint ventures; |
| ● | our ability to manage growth and integrate operations from properties that we lease; |
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| ● | our ability to realize the expected benefits of our partnership with Wyndham Hotels & Resorts, Inc.; |
| ● | uninterrupted service by the third-party service providers we rely on for material parts of our operations, including payment processing, data collection and security, online reservations and booking and other technology services; |
| ● | the liquidity and trading of our securities; |
| ● | regulatory and operational risks; |
| ● | the impact of union activity and union relations on our financial performance and operations; |
| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and |
| ● | the time during which we will be an Emerging Growth Company 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 utilize an asset light business model to lease entire hotels on a long-term basis and rent out hotel rooms in the properties we lease. We currently manage a portfolio of hotel rooms in New York, Washington D.C., Miami Beach, New Orleans and Los Angeles. With recent hotel rooms becoming available, as of November 8, 2023, we have approximately 2,032 units under lease. We believe the pandemic created, and current economic conditions present, a historic opportunity for us to lease dislocated and underutilized hotels at favorable economics for our company.
We have plans to expand both domestically and internationally.
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 over 90% of revenue during the three months ended and nine months ended September 30, 2023.
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Business
We are building a portfolio of 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 initially created by the pandemic and carried forward by the subsequent rising interest rate environment and related refinancing market. We target business and vacation travelers under our consumer brand LuxUrban as well as Trademark Collection® by Wyndham and Travelodge by Wyndham.
We believe that as a result of pandemic-induced hotel closures, changing financial requirements for hotel owners, and a significantly higher interest rate and refinancing environment, LuxUrban has a multi-year pipeline of potential properties to lease at favorable economics to our Company.
Some of the hotels that we lease have been hotels that were shuttered or underutilized as a result of the global pandemic. More recent property additions have primarily been either poorly managed properties where the landlord was looking for a more stable tenant, or refinancing opportunities where LuxUrban provided a landlord a more desirable lender-friendly, long-term lease agreement.
Based on the market dislocation created by the rapid rise of interest rates and the related impact to upcoming refinancing, we believe our pipeline of high-quality opportunities will provide multiple leasing opportunities in upcoming years. Currently, we are focused 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 the best opportunities in our pipeline become leased. Even if we need to increase the capital we invest to make ready a property, we believe there are many attractive opportunities for properties where the economics will still be favorable based on the above mentioned market dislocation. In addition, we may be able to obtain greater concessions from landlords as a result of the capital required.
Wyndham Franchise
On August 2, 2023, the Company entered into franchise agreements with Wyndham Hotels & Resorts, Inc. pursuant to which the hotels operated by the Company and future acquired properties will 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 have initial terms of 15 to 20 years and require Wyndham to provide financial, sales and operational-related support with respect to the Initial Properties. The Franchise Agreements contain 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 will provide capital through development advance notes (“Development Incentive Advances”) to the Company. Consistent with market practice, such Development Incentive Advances will be evidenced by certain promissory notes with customary amortization and repayment terms. The Development Incentive Advances are not repayable if the terms of the agreement are 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.
As of September 30, 2023, the Company had Development Incentive Advances of $1,594,557 of which $81,057 is in short term liabilities and $1,513,500 is in long term liabilities, none of which was a reduction of operating expenses, and $466,817 of capitalized Franchise Fees, none of which was amortized into operating expenses.
Revenue Management
We market our hotel properties through our proprietary sales portal, several worldwide online travel agency (“OTA”) channels and on the Wyndham platform. Over time, we believe a majority of our sales will be on Wyndham versus OTAs as it will result in lower operating costs (lower booking fees) as well as improved ADRs from leveraging Wyndham’s reward members, corporate sales team and group bookings.
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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 September 30, 2023, we leased 16 properties with 1,446 units available for rent. As of November 8, 2023, we leased 18 properties with 1,599 units available for rent. As of November 8, 2023, including properties under lease but not yet available for rent we leased 21 properties with 2,032 units. Our portfolio of properties as of November 8, 2023, was as follows:
| Property | # of Units |
Property Type |
Lease Term |
Lease Remaining at September 30, 2023 (years) |
Extension Option |
Annual Escalation |
Date Commenced |
Security Deposit or Letter of Credit |
|||||||||||
| 1200 O: 1200 Ocean Dr, Miami Beach, FL 33139 | 24 | Entire building, licensed for hotel like Rentals | 10-year | 3.3 | None | 3% | 12/31/2016 | $ | 485,000 | ||||||||||
| Blakely: 136 W 55th St, New York, NY 10105(1) | 117 | Licensed hotel | 15-year | 13.1 | 10-year | 3% | 11/1/2021 | $ | 1,000,000 | ||||||||||
| Herald: 71 W 35th St, New York, NY 10001 | 168 | Licensed hotel | 15-year | 13.7 | None | 3% | 6/2/2022 | $ | 1,500,000 | ||||||||||
| Variety: 1700 Alton Rd, Miami Beach, FL 33139 | 68 | Licensed hotel | 5.5-year | 3.0 | None | 3% | 3/26/2021 | $ | 550,000 | ||||||||||
| Impala / Flora: 1228 Collins Ave, Miami Beach, FL 33139 | 48 | Licensed hotel | 5-year | 3.0 | 10-year | 3% | 10/1/2021 | $ | 515,000 | ||||||||||
| Astor: 956 Washington Ave, Miami Beach, FL 33139 | 42 | Licensed hotel | 5-year | 3.6 | 5-year | 4% | 4 /15//2022 | $ | 350,000 | ||||||||||
| Georgetown: 1000 29th St NW, Washington, DC 20007 | 79 | Licensed hotel | 10-year | 8.8 | 10-year | 3% | 8/1/2022 | $ | 500,000 | ||||||||||
| Lafayette: 600 St Charles Ave, New Orleans, LA 70130 | 60 | Licensed hotel | 19.4-year | 18.5 | None | 2% | 11/1/2022 | $ | 300,000 | ||||||||||
| O Hotel: 819 South Flower Street, Los Angeles, CA 90017 | 68 | Licensed hotel | 15-year | 14.5 | 5-year | 3% | 4/1/2023 | $ | 303,000 | ||||||||||
| Washington: 8 Albany Street, New York, NY 10006 | 217 | Licensed hotel | 15.2-year | 14.4 | None | 2% | 9/20/2022 | $ | 6,251,392 | ||||||||||
| Townhouse: 150 20th Street, Miami Beach, FL 33139 | 70 | Licensed hotel | 11.2-year | 10.7 | 10-year | 3% | 3/1/2023 | $ | 1,250,000 | ||||||||||
| Tuscany: 120 E 39th Street, New York, NY 10016 | 125 | Licensed hotel | 15.0-year | 14.3 | 10-year | 2% | 1/1/2023 | $ | 2,750,000 | ||||||||||
| Hotel 57: 130 E 57th Street, New York, NY 10022 | 216 | Licensed hotel | 15.0-year | 14.8 | 10-year | 3% | 7/1/2023 | $ | 2,865,822 | ||||||||||
22
| Property | # of Units |
Property Type |
Lease Term |
Lease Remaining at September 30, 2023 (years) |
Extension Option |
Annual Escalation |
Date Commenced |
Security Deposit or Letter of Credit |
|||||||||||
| Condor: 56 Franklin Ave, New York, NY 11205 | 35 | Licensed hotel | 15.0-year | 14.9 | 10-year | 3% | 9/1/2023 | $ | - | ||||||||||
| The Bogart: 101 Bogart St., Brooklyn, NY 11206 | 65 | Licensed hotel | 10.0-year | 9.8 | None | 3% | 7/1/2023 | $ | 750,000 | ||||||||||
| BeHome: 765 8th Ave, New York, NY 10036 | 44 | Licensed hotel | 25.0-year | 24.8 | None | 10% | 7/1/2023 | $ | 100,000 | ||||||||||
| Weighted Avg(2) | Weighted Avg(2) | Weighted Avg(2) | |||||||||||||||||
| As of September 30, 2023 | |||||||||||||||||||
| Subtotal Operating Units(2) | 1,446 | 12.6 | 17.8 | 3.0% | $ | 19,470,214 | |||||||||||||
| Other Deposits | $ | 2,378,245 | |||||||||||||||||
| Total Deposits (current $112,290, restricted cash $1,100,000 and non-current $20,636,169) | $ | 21,848,459 | |||||||||||||||||
| Properties operating subsequent to 9/30/2023 | |||||||||||||||||||
| Hotel 46: 129 West 46th Street, New York, NY 11206 | 79 | Licensed hotel | |||||||||||||||||
| Hotel 27: 62 Madison Ave, New York, NY 10016 | 74 | Licensed hotel | |||||||||||||||||
| As of November 8, 2023 | |||||||||||||||||||
| Subtotal Operating Units(2) | 1,599 | ||||||||||||||||||
| Properties under lease, not operating | |||||||||||||||||||
| Trinity: 741 8th 851 South Grand Avenue, Los Angeles, CA 90017 | 179 | ||||||||||||||||||
| Royalton: 44 W 44th Street, New York, NY 10036 | 168 | ||||||||||||||||||
| 3 Star: West Midtown, New York, NY | 86 | ||||||||||||||||||
| Under lease | 2,032 | ||||||||||||||||||
| (1) | Recorded as restricted cash as posted by a letter of credit. | |
| (2) | Averages are weighted by unit count |
23
Our Business Strategy
When we lease properties, we typically do so with either a refundable security deposit, refundable letter of credit or both. In most cases we get a period of “free rent” in which we make ready the property. Make ready could include but is not limited to: minor repairs or property updates, hiring appropriate property level staff, getting utilities / Wi-Fi / cable installed, or listing the property on the OTA channels we utilize.
We lease entire properties, which could include food service, gyms, or store fronts. We do and plan to in most cases, sublease the food service or store fronts to generate additional income. We believe these items are non-core to our operations.
Our average deposits / letter of credit by city as of September 30, 2023, were as follows:
| Location | Miami Beach | New York | NOLA | DC | LA | Total | ||||||||||||||||||
| Units | 252 | 987 | 60 | 79 | 68 | 1,446 | ||||||||||||||||||
| Deposit / Letter of Credit | $ | 3,150,000 | $ | 15,217,214 | $ | 300,000 | $ | 500,000 | $ | 303,000 | $ | 19,470,214 | ||||||||||||
| Per Unit | $ | 12,500 | $ | 15,418 | $ | 5,000 | $ | 6,329 | $ | 4,456 | $ | 13,465 | ||||||||||||
| Properties at September 30, 2023 | 5 | 8 | 1 | 1 | 1 | 16 | ||||||||||||||||||
| Properties to be added after September 30, 2023 | ||||||||||||||||||||||||
| Units | - | 407 | - | - | 179 | 586 | ||||||||||||||||||
| Properties | - | 4 | - | - | 1 | 5 | ||||||||||||||||||
| Total | ||||||||||||||||||||||||
| Units | 252 | 1,394 | 60 | 79 | 247 | 2,032 | ||||||||||||||||||
| Properties | 5 | 12 | 1 | 1 | 2 | 21 | ||||||||||||||||||
Revenue Management
We use our proprietary data science and algorithms to manage revenue and create dynamic pricing for our accommodation units. Pricing changes can occur multiple times a day based on revenue momentum or lack thereof. We utilize our technology to both maximize occupancy rates through attractive pricing and increase cash flow in advance of potential guest stays. We initially developed and further improved our revenue management algorithms in our legacy apartment rental business and have now applied it to our hotel operations.
Property Operations
When we lease a new property, we typically streamline operations versus how its operations were managed by the prior operator that includes, but is not limited to:
| ● | Reduction of staffing. Over time and as a result of technology changes, legacy properties we lease typically have staffing at levels higher than we typically operate our properties. In addition, we eliminate staffing for areas we do not plan to operate or operate initially, including restaurants, bars, and workout facilities. |
| ● | Hiring quality general manager (or GM). We believe that our operational success is partially related to empowering on-the-ground employees to make decisions and solve guest concerns. This begins with a quality and experienced GM with a background in hospitality. |
| ● | Continual cost benefit analysis. Our lead operational staff have been trained to continuously calculate cost benefit in our operations. Specifically, we are constantly reviewing the return on requested investment capital and the related payback. We do this both at the corporate level as well as the operational level. For example, during lower periods of occupancy we may delay certain maintenance items as during these periods we can remove these units from inventory for a more prolonged period without experiencing any impact to revenues. |
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Unit Economics
We believe we have one of the lowest per night property-level break-even costs in our markets as a result of leasing our properties at a generational low point. We estimate that the property-level break-even rate for revenue per available room (or “RevPAR”) for our portfolio as of September 30, 2023, was between $150 to $170 a night. We believe RevPAR provides an informative reflection of our business as it combines ADRs (average daily rates) along with occupancy rates. RevPAR for the nine months ended September 30, 2023 was $274, well above the property-level break-even level.
The following table shows historical occupancy and RevPAR at our leased properties:
| Year | Occupancy | RevPAR | ||||||
| 2018 | 86 | % | $ | 160 | ||||
| 2019 | 84 | % | $ | 157 | ||||
| 2020 | 61 | % | $ | 103 | ||||
| 2021 | 72 | % | $ | 122 | ||||
| 2022 | 77 | % | $ | 247 | ||||
| 2023 YTD | 81 | % | $ | 274 | ||||
In late 2021, we began to transition our business to focus on leasing hotel properties in commercially zoned areas, and we have substantially completed this transition as of the date of the this Quarterly Report. As a result, we believe that our historical financial and operating results, including operating metrics such as occupancy and RevPAR, are not indicative of our future operations and are not comparable to our current strategy. However, we believe that the above table is useful in illustrating the higher RevPAR and improved results that we believe that we will achieve as a result of our transition in business strategy.
Regulations Governing Short-Term Rentals
We launched our New York City operations in late 2019. Cities, such as New York City, have been diligent in the implementation and enforcement of short-stay rental regulations to ensure the safety of their communities and housing availability and affordability. Typically, these regulations prohibit rentals having durations of less than 30 days. As the COVID-19 global pandemic, and related travel restrictions and shutdowns, emerged, New York City implemented unprecedented eviction moratoriums. As a result of our operations and the pandemic, we historically experienced violations of short-term rental regulations in some of our units located in residentially zoned areas, including those caused by subtenants who illegally occupy some of our units beyond their rental term (i.e., “squatters”), and, in some cases, illegally “sublet” our units to others. In these circumstances, we took legal measures to reclaim our units, including filing lawsuits seeking orders of removal, and notifying the applicable authorities. Given existing state and local government policy, as well as pandemic-affected resource limitations within the courts, we received limited relief. As part of our going-forward strategy, we have divested ourselves of all leases of residentially zoned properties and only operate properties that are not subject to these short-stay regulations. In conjunction with this divestiture, we have worked with New York City’s Department of Buildings and Office of Special Enforcement to settle any past short-term stay violations, with any settlement expected by management to be nonmaterial.
As our business has grown, we have implemented additional measures to avoid or minimize the incurrence of such violations in all of our operating cities. These measures include our strategy to build our growing portfolio of accommodation units with the execution of long-term leases for hotels that are commercially zoned and not subject to the regulations applicable to residentially zoned areas. We also continuously refine our booking platforms and related software and data to properly identity each type of unit being marketed on our platforms and to systematically prohibit rental lengths that do not comply with existing regulations in the municipalities in which such units are located.
Given the complexity of short-stay regulations in the cities in which we operate, we generally wound-down the majority of our residential area-located apartment inventory by the end of 2022 as part of the transition of our business strategy. As of September 30, 2023, our accommodation units portfolio is comprised of over 98% hotel units that are not subject to short-stay length regulations or contractual provisions and the balance is comprised of apartment units that are subject to such restrictions. Our portfolio growth strategy involves adding exclusively commercially zoned properties that are not subject to short-stay length regulations and divesting our remaining leases for residential-area properties. As a result, the need to comply with local or contractual short-stay length regulations or requirements, and the costs related thereto, have become increasingly less important to our operations.
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Results of Operations
| For The Three Months Ended September 30, |
||||||||||||
| 2023 | 2022 | % ∆ YoY | ||||||||||
| Net Rental Revenue | $ | 31,208,248 | $ | 11,575,325 | 170 | % | ||||||
| Rent Expense | 7,802,847 | 2,786,458 | ||||||||||
| Non-Cash Rent Expense Amortization | 1,952,599 | (11,471 | ) | |||||||||
| Other Expenses | 13,640,517 | 3,911,386 | ||||||||||
| Total Cost of Revenue | 23,395,963 | 6,686,373 | 250 | % | ||||||||
| Gross Profit | 7,812,285 | 4,888,952 | 60 | % | ||||||||
| General and Administrative Expenses | 1,981,774 | 4,952,740 | ||||||||||
| Non-Cash Expenses | 741,634 | 358,286 | ||||||||||
| Total Operating Expenses | 2,723,408 | 5,311,026 | (49 | )% | ||||||||
| Income (Loss) from Operations | 5,088,877 | (422,074 | ) | (1,306 | )% | |||||||
| Other Income (Expense) | ||||||||||||
| Other Income | 31,627 | 606,090 | ||||||||||
| Cash Interest and Financing Costs | (2,185,202 | ) | (79,500 | ) | ||||||||
| Non-Cash Financing Costs | - | (4,072,078 | ) | |||||||||
| Total Other Expense | (2,153,575 | ) | (3,545,488 | ) | (39 | )% | ||||||
| Income (Loss) Before Benefit from for Income Taxes | 2,935,302 | (3,967,562 | ) | 174 | % | |||||||
| Benefit from Income Taxes | (1,999,498 | ) | (750,000 | ) | ||||||||
| Net Income (Loss) | $ | 4,934,800 | $ | (3,217,562 | ) | 253 | % | |||||
Three Months Ended September 30, 2023 as compared to Three Months Ended September 30, 2022
Net Rental Revenue
The increase in net rental revenue of 170% for the three months ended September 30, 2023 to $31.2 million as compared to $11.6 million for the three months ended September 30, 2022 was a result of the increase in average units available to rent from 571 for the three months ended September 30, 2022 to 1,423 for the three months ended September 30, 2023 as well as better RevPAR, or revenue per available room, from $220 for the three months ended September 30, 2022 to $244 for the three months ended September 30, 2023. RevPAR includes both average daily rate (“ADR”) and occupancy.
Cost of Revenue
For the three months ended September 30, 2023, the principal component responsible for the increase in our cost of revenue was expenses for our units available to rent, which increased by $16.7 million, or 250%, from $6.7 million in the three months ended September 30, 2022, to $23.4 million in the three months ended September 30, 2023, as a result of the increased number of units as well as related increases in property-related costs such as utilities, labor, cable / WIFI costs and cost related to greater revenues such as credit card processing fees and commissions.
Gross Profit
The increase in our gross profit of $2.9 million, or approximately 60%, to $7.8 million for the three months ended September 30, 2023, as compared to $4.9 million for the three months ended September 30, 2022, is primarily attributable to the greater number of units and better RevPAR over these periods.
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Total Operating Expenses
Total operating expenses incurred for the three months ended September 30, 2023, decreased by approximately $2.6 million from the three months ended September 30, 2022. Of this decrease, $1.8 million was for costs related to the exit of SoBeNY, which did not occur in the three months ended September 30, 2023. The balance of this decrease was primarily related to the business shift from decentralized apartment rentals and related staffing (SSOs) to more centralized operations with staffing within the properties (union staffing included in cost of revenue).
Other Income (Expense)
Total other expense for the three months ended September 30, 2023 was $2.2 million as compared to $3.5 million for the three months ended September 30, 2022. This decrease is primarily due to non-cash financing costs during the three months ended September 30, 2022 as compared with three months ended September 30, 2023 partially offset by the forgiveness of certain debt included in the three months ended September 30, 2022, that was not included in the three months ended September 30, 2023.
Provision for Income Taxes
Income tax benefit increased $1.25 million to $2.0 million for the three months ended September 30, 2023 from $0.75 million during the three months ended September 30, 2022. The increase is primarily related to the timing and deductibility determination of certain expenses.
| For The Nine Months Ended September 30, |
||||||||||||
| 2023 | 2022 | % ∆ YoY | ||||||||||
| Net Rental Revenue | $ | 85,883,521 | $ | 30,876,088 | 178 | % | ||||||
| Rent Expense | 18,068,828 | 7,371,055 | ||||||||||
| Non-Cash Rent Expense Amortization | 6,187,540 | 1,191,431 | ||||||||||
| Other Expenses | 38,273,980 | 12,054,769 | ||||||||||
| Total Cost of Revenue | 62,530,348 | 20,617,255 | 203 | % | ||||||||
| Gross Profit | 23,353,173 | 10,258,833 | 128 | % | ||||||||
| General and Administrative Expenses | 9,297,097 | 6,817,967 | ||||||||||
| Non-Cash Expenses | 3,057,647 | 358,286 | ||||||||||
| Total Operating Expenses | 12,354,744 | 7,176,253 | 72 | % | ||||||||
| Income from Operations | 10,998,429 | 3,082,580 | 257 | % | ||||||||
| Other Income (Expense) | ||||||||||||
| Other Income | 129,875 | 1,193,157 | ||||||||||
| Cash Interest and Financing Costs | (5,505,708 | ) | (1,239,379 | ) | ||||||||
| Non-Cash Financing Costs | (30,227,289 | ) | (4,072,078 | ) | ||||||||
| Total Other Expense | (35,603,122 | ) | (4,118,300 | ) | 765 | % | ||||||
| Loss Before Provision for Income Taxes | (24,604,693 | ) | (1,035,720 | ) | 2,276 | % | ||||||
| Provision for Income Taxes | 15,702 | - | ||||||||||
| Net Loss | $ | (24,620,395 | ) | $ | (1,035,720 | ) | (2,277 | )% | ||||
Nine Months Ended September 30, 2023 as compared to Nine Months Ended September 30, 2022
Net Rental Revenue
The increase in net rental revenue of 178% for the nine months ended September 30, 2023 to $85.9 million as compared to $30.9 million for the nine months ended September 30, 2022 was a result of the increase in average units available to rent from 592 for the nine months ended September 30, 2022 to 1,160 units for the nine months ended September 30, 2023 as well as better RevPAR, or revenue per available room, from $191 for the nine months ended September 30, 2022 to $274 for the nine months ended September 30, 2023. RevPAR includes both ADR and occupancy.
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Cost of Revenue
For the nine months ended September 30, 2023, the principal component responsible for the increase in our cost of revenue was expenses for our units available to rent, which increased by $41.9 million, or 203%, from $20.6 million in the nine months ended September 30, 2022, to $62.5 million in the nine months ended September 30, 2023, as a result of an increased number of units as well as related increases in property-related costs such as utilities, labor, cable / WIFI costs and cost related to greater revenues such as credit card processing fees and commissions.
Gross Profit
The increase in our gross profit of $13.1 million, or approximately 128%, to $23.4 million for the nine months ended September 30, 2023, as compared to $10.3 million for the nine months ended September 30, 2022, is primarily attributable to the greater number of units and better RevPAR over these periods.
Total Operating Expenses
Total operating expenses incurred for the nine months ended September 30, 2023, increased by approximately $5.2 million from the nine months ended September 30, 2022. The principal component responsible for the increase in total operating expenses is related to our units available to rent during this period and the ramp up in these units. New units incur greater operating expenses in relation to revenue during the first nine months of operation.
Other Income (Expense)
Total other income and expenses incurred for the nine months ended September 30, 2023, increased by approximately $31.5 million from the nine months ended September 30, 2022. The majority of this increase is related to non-recurring, non-cash financing charges of $30.2 million incurred during the nine months ended September 30, 2023 not incurred during the nine months ended September 30, 2022.
Provision for Income Taxes
For the nine months ended September 30, 2023 versus the nine months ended September 30, 2022, the provision for income taxes was almost unchanged as both periods experienced a loss before the tax provision.
Liquidity and Capital Resources
The following table provides information about our liquidity and capital resources as of September 30, 2023 and December 31, 2022:
| As of September 30, 2023 |
As of December 31, 2022 |
|||||||
| Cash and Cash Equivalents | $ | 4,798,580 | $ | 1,076,402 | ||||
| Other Current Assets | $ | 23,330,533 | $ | 10,471,192 | ||||
| Total Current Assets | $ | 28,129,113 | $ | 11,547,594 | ||||
| Total Current Liabilities | $ | 21,561,644 | $ | 25,439,614 | ||||
| Working Capital (Deficit) | $ | 6,567,469 | $ | (13,892,020 | ) | |||
As of September 30, 2023, our cash and cash equivalents balance was $4,798,580 as compared to $1,076,402 at December 31, 2022, and total current assets were $28,129,113 at September 30, 2023, as compared to $11,547,594 at December 31, 2022.
As of September 30, 2023, our company had total current liabilities of $21,561,644 as compared to $25,439,614 at December 31, 2022. Total current liabilities at September 30, 2023 consisted of: accounts payable and accrued expenses of $7,677,799 as compared to $6,252,491 at December 31, 2022; rents received in advance of $3,549,450 at September 30, 2023, as compared to $2,566,504 at December 31, 2022; short-term business loans of $2,312,198 at September 30, 2023, as compared to $2,003,015 at December 31, 2022; loans payable of $1,490,734 at September 30, 2023, as compared to $10,324,519 at December 31, 2022; and operating lease liability of $6,434,704 at September 30,2023, as compared to $4,293,085 at December 31, 2022.
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As of September 30, 2023, our company had positive working capital of $6,567,469 as compared to a deficit of $13,892,020 at December 31, 2022.
We have obtained funding through the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loans (“EIDL”) totaling $814,244 and $800,000, respectively. We have used these funds for our ongoing operations. We have received forgiveness of $516,225 of the PPP loans, and for the balance of these funds we intend to repay them in accordance with the terms of the respective loan agreements or seek forgiveness, as permitted.
We record cash collected prior to stays as “rents received in advance” on our balance sheet as a liability. These collections are then recognized as revenue when guests stay at our properties. In the event that there is a refund in accordance with our refund policy, revenue is not recognized.
We recorded a $28,522,740 charge on May 21, 2023 for the elimination of our revenue share agreements via the issuance of stock. The charge is non-cash, and as a result of the elimination of these agreements, the Company believes this will improve future financial results and cash flows.
We expect that cash on hand, cash flow from operations and cash available from our third-party investor financings will be sufficient to fund our operations during the next 12 months from the date of this Quarterly Report and beyond.
Inflation
Historically, inflation has not had a material effect on our results of operations. However, significant increases in inflation, particularly those related to wages and increases in interest rates could have an adverse impact on our business, financial condition and results of operations.
Potential Future Dilution from Stock Options and Warrants
As of September 30, 2023 we had 1,649,763 options and 1,102,000 warrants outstanding with a weighted average exercise price of $2.63 and $4.02, respectively. The approximate dilutive impact under the treasury stock method for these options and warrants is as follows:
| Net Shares Issuable | ||||||||||||
| Assumed Market Price per Share at the time of Exercise | Options | Warrants | Total | |||||||||
| $3.00 | 203,125 | - | 203,125 | |||||||||
| $3.50 | 409,788 | - | 409,788 | |||||||||
| $4.00 | 564,785 | - | 564,785 | |||||||||
| $4.50 | 685,338 | 118,711 | 804,049 | |||||||||
| $5.00 | 781,780 | 217,040 | 998,820 | |||||||||
| $5.50 | 860,688 | 297,040 | 1,158,179 | |||||||||
| $6.00 | 926,084 | 364,533 | 1,290,978 | |||||||||
Cash Flows from Operating Activities
During the nine months ended September 30, 2023, we used $7,014,551 of cash in operating activities that was primarily related to an increase in security deposits of $9,402,784, an increase in receivables from OTAs of $12,868,602, increase in prepaid expenses and other assets of $3,791,886, and an increase in operating lease liabilities of $17,485,034 offset by non-cash amount of lease expense of $23,695,139, termination of revenue share agreement of $28,174,148, issuance of shares for revenue share agreement of $1,704,549 non-cash stock compensation expense of $1,158,058, and shares used for operating expense of $2,003,210. During the nine months ended September 30, 2022, we used $13,546,273 of cash in operating activities that was primarily related to the increase in processor retained funds of $7,309,323, operating lease liabilities of $2,942,616, increase in prepaid and other assets of $1,265,751 and increase in security deposits of $4,416,722 partially offset by warrant expense of $3,480,725, and non-cash amount of lease expense of $1,191,431.
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Cash Flow from Investing Activities
During the nine months ended September 30, 2023, cash used for the purchase of property and equipment and leaseholds totaled $921,414, and cash generated from the sale of Treasury Bills was $2,692,396.
Cash Flow from Financing Activities
During the nine months ended September 30, 2023, net cash provided by financing activities of $8,965,747 included warrant exercises of $7,666,502 and proceeds from development incentive advances of $1,594,557. During the nine months ended September 30, 2022, net cash provided by financing activities of $14,824,266 which included net proceeds of $10,198,548 from our initial public offering, net proceeds from loans $4,964,200, offset by net repayments of short-term business loans of $1,061,481.
Financing Activities
Registration Rights Amendment and Warrant Letter Agreement
The Company previously entered into:
| ● | a Securities Purchase Agreement, dated as of May 27, 2022 (the “May Agreement”), between the Company and Greenle Partners LLC Series Alpha P.S. (“Greenle Alpha”); |
| ● | a Securities Purchase Agreement, dated as of June 30, 2022, and amended by the letter agreement dated July 15, 2022 and Addendum to Securities Purchase Agreement dated as of August 15, 2022 (as amended, the “June Agreement”), between the Company and Greenle Alpha; |
| ● | a Securities Purchase Agreement, dated as of September 30, 2022, and amended by the letter agreement dated October 20, 2022 (as amended, the “September Agreement” and, together with the May Agreement and the June Agreement, the “Purchase Agreements”), between the Company and Greenle Alpha; |
| ● | a Loan Agreement, dated as of November 23, 2022 (the “Loan Agreement” and collectively with the Purchase Agreements, the “Greenle Agreements”), among the Company, Greenle Alpha and Greenle Partners LLC Series Beta P.S. (“Greenle Beta” and, together with Greenle Alpha, “Greenle”), as supplemented or amended by a letter agreement dated February 17, 2023; |
| ● | a letter agreement between Greenle and the Company dated February 13, 2023 (the “February 2023 Revenue Share Agreement”), as amended by the Revenue Share Exchange Agreement dated May 21, 2023 (the “May 2023 Letter Agreement”); |
| ● | a letter agreement between the Company and Greenle dated June 19, 2023 (the “June 2023 Letter Agreement”); and |
| ● | a letter agreement between the Company and Greenle dated August 15, 2023 (the “August 2023 Letter Agreement” and collectively with the Purchase Agreements, the Greenle Agreements, the February 2023 Revenue Shares Agreement, the May 2023 Letter Agreement and the June 2023 Letter Agreement, the “Agreements”). |
On August 31, 2023, we entered into a further agreement with Greenle (the “August 31, 2023 Letter Agreement”) to amend the 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 common stock is issued with an outside date of 18 months from the date of the August 31, 2023 Letter Agreement. Pursuant to the August 31, 2023 Letter Agreement, the Company extended its existing registration rights obligations such that it is obligated to register the resale by Greenle of (i) the shares of Common Stock issued or issuable pursuant to the February 2023 Revenue Share Agreement, the May 2023 Letter Agreement and the August 2023 Letter Agreement and (ii) the shares of Common Stock underlying all outstanding warrants to purchase shares of Common Stock beneficially owned by Greenle (including the warrants to be issued pursuant to the August 31, 2023 Letter Agreement) within one year after the date of each respective issuance of Common Stock; provided, however, that, whether or not any such shares of Common Stock have been issued, as consideration for Greenle’s execution of the August 31, 2023 Warrant Letter Agreement, the Company will use its best efforts to cause all such registration statements to become effective within eighteen months of the date of the August 31, 2023 Letter Agreement.