LuxUrban Hotels (LUXH) 10-Q2024 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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)

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

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

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:

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 September 25, 2024, the registrant had 136,854,165 shares of common stock, $.00001 par value, outstanding.

Table of Contents

Part I - Financial Information

Item 1 - Financial Statements.

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

LUXURBAN HOTELS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDTIED)

See accompanying notes to condensed consolidated financial statements.

LUXURBAN HOTELS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LUXURBAN HOTELS INC.
June 30, 2024

1 - DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION

LuxUrban Hotels Inc. (LUXH) (“LuxUrban” or the “Company”) 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 and New Orleans 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, the Company 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 and as of the date of this Report the Company operates no residential units. 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 the Company 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. In connection with the foregoing, the Company de-platformed these properties from Wyndham’s systems and moved each hotel listing back under the Company’s control.

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

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 June 30, 2024, and December 31, 2023, was $11,264,558 and $4,404,216, respectively and is expected to be recognized as revenue within a one-year period.

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 six months ended June 30, 2024, the Company did not record a tax provision for income taxes as a result of net losses for the period. For the three and six months ended June 30, 2023, the Company recorded a tax provision of $1,893,039 and $2,015,200.

3 - 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 June 30, 2024 and December 31, 2023 were as follows:

At June 30, 2024 and December 31, 2023, supplemental balance sheet information related to leases were as follows:

At June 30, 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

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

4 - ACCOUNTS RECEIVABLES, PROCESSOR AND CHANNEL RETAINED FUNDS

As of June 30, 2024, we had $0 of channel retained funds, $0 of processor retained funds, and $826,000 of receivables from OTAs $1,480,000 in receivables from the City of New York and landlords and other receivables of $0. As of December 31, 2023, we 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).

5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses totaled $46,869,829 and $23,182,305 as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, the balance consisted of approximately $1,948,000 of accrued payroll and related liabilities, $3,489,000 of utilities fees, $18,652,000 of legal exposure, $7,660,000 in sales and other taxes, $2,707,000 of union liabilities, $1,955,000 for rent, $856,000 for interest expense, $297,000 for telephone and cable expense, $725,000 of insurance expense, $570,000 professional fees, $945,000 for repairs, maintenance and improvements, $307,000 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, $757,000 for commissions, and $215,000 for printing expense.

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 board of director fees, $71,000 of internet and software expense, and $42,000 of other miscellaneous items.

Of the legal exposure amounts accrued and noted above, 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 $18.6 million.

6 - 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.

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 June 30, 2024 and December 31, 2023, was $7,010 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:

7 - 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 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 June 30, 2024 and December 31, 2023, was $782,105 and $786,950, respectively.

Accrued interest at June 30, 2024 and December 31, 2023 was $14,289 and $27,644, respectively, and is 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 and EIDL loans payable

8 - SHORT-TERM BUSINESS FINANCING

The Company has from time to time entered into short-term factoring agreements related to future credit card receipts to fund operations. The Company is required to repay these financings in fixed daily payments until the balances are repaid. Fees associated with this financing have been recognized in interest expense in the accompanying consolidated statement of operations. As of June 30, 2024 and December 31, 2023, the outstanding balance on these merchant cash advances net of unamortized costs was $2,805,189 and $1,115,120, respectively, which are expected to be repaid within twelve months.

9 - LOANS PAYABLE

Loans payable consist of the following as of:

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

10 - 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, which was 8.25% as of June 30, 2024, plus 3.49%. The line matures in February 2029. Outstanding borrowings were $69,975 as of each of June 30, 2024 and December 31, 2023.

11 - 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 (“December 2022 Extension 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 “June 2022 Notes”) and warrants to purchase our common stock (“June 2022 Warrants”) under certain securities purchase agreements and loan agreements between us and Greenle, including the Securities Purchase Agreement dated as of June 30 2022, as amended by the letter agreement dated October 20, 2022, and the Loan Agreement dated as of November 23, 2022.

Under the December 2022 Extension Agreement, Greenle agreed to convert from time to time up to $3,000,000 aggregate principal amount of the June 2022 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 June 2022 Notes. Additionally, Greenle agreed that the payment date of certain of the June 2022 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 June 2022 Notes so converted. As of December 31, 2022, $300,000 of these notes was converted and the entire $3,000,000 of these notes was converted in January 2023. As part of this conversion, 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 Ferdinand, the market value of the shares of common stock so contributed was approximated $1.5 million.

In April 2024, we secured from Greenle a waiver on the restrictions contained in its financing agreements with our company that prohibit our sale 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 our common stock by our company below the Trigger Price terminates in November 2024. This waiver permitted us 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 our 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 we 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 our company through November 6, 2024 in excess of 15 million shares at prices below the Trigger Price. To date, we have been required to issue the Greenle an aggregate of 23,628,324 shares of common stock in connection the foregoing rights and obligations as a result of private placements and underwritten public offerings of our common stock.

On November 17, 2023, the Company entered into a financing agreement with THA Holdings LLC (“THA”), an entity controlled and operated by Ferdinand, pursuant to which the Company agreed to issue to THA an unsecured, advancing term promissory note (the “November 2023 Note”). Under the November 2023 Note, the Company would have been able to borrow up to an aggregate principal amount of $10,000,000 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 THA. On December 3, 2023, the Company and THA mutually agreed to cancel the November 2023 Note as a result of the Company’s desire to engage in the Wyndham relationship and its related financing resources. The amount of proceeds, less taxes, resulting from sales of common stock prior to the cancelation in the amount of $311,234 was contributed 100% to the Company by THA. This was recorded as a contribution by the founder in the accompanying consolidated statement of changes in equity.

During the six months ended June 30, 2024 and year ended December of 2023, we amortized $351,000 and paid $1,350,000, respectively to Ferdinand under the terms of the previously disclosed Guarantee Trust agreement as part of his personal guarantees on the Wyndham agreements and related advances to our company thereunder and other leases. At June 30, 2024 and December 31, 2023, $341,250 and $1,023,750, respectively, of this payment was classified as prepaid. During the three and six months ended June 30, 2024, $341,250 and $692,250, respectively, was expensed.

In April 2024, the Company and Ferdinand entered into a consulting agreement pursuant to which Ferdinand agreed, among other things, to oversee the day-to-day management of our company’s acquisition and long-term lease acquisition activities and to assist our then newly appointed chief executive officer in his assumption of that role. In consideration for the services provided by Ferdinand, we agreed to pay Ferdinand a monthly consulting fee of $50,000. Pursuant to a subsequent modification of the consulting agreement in May 2024, it was agreed that all amounts payable to Ferdinand under such consulting agreement through its term (approximately $1.8 million) would be satisfied through the issuance of 5,692,600 shares of common stock upon the increase in the number of shares of common stock issuable under our 2022 equity incentive plan to 15,000,000 shares.

In May 2024, in order to provide for available authorized shares to consummate a public offering of shares of common stock, we entered into an exchange agreement (the “May 2024 Exchange Agreement”) with Ferdinand, pursuant to which he relinquished 7,500,000 shares of common stock that he beneficially owned through THA (the “May 2024 Exchange Agreement Shares”) in exchange for a warrant to acquire 7,500,000 shares of our common stock with an exercise price of $0.01 per share (the “May 2024 Exchange Agreement Warrant”). In June 2024, in order to provide for available authorized shares to consummate a private placement in June 2024, we entered into an exchange agreement (the “June 2024 Exchange Agreement”) with Ferdinand, pursuant to which Ferdinand relinquished an aggregate of 11,804,872 shares of common stock that he beneficially owned individually or through THA (the “June 2024 Exchange Agreement Shares”) in exchange for warrants to acquire an aggregate of 11,804,872 shares of our common stock with an exercise price of $0.01 per share (the “June 2024 Exchange Agreement Warrants” and collectively with the May 2024 Exchange Warrants, the “Exchange Warrants”)).

In July 2024, the Company entered into amended and restated promissory notes with THA Family II LLC and other parties affiliated with Ferdinand, which replaced existing promissory notes evidencing amounts loaned to our company to support letters of credit with respect to certain of our hotels. These notes extend the maturity dates by 24 months of up to an aggregate of $3.1 million principal amount currently owed by our company and bear interest at 14% interest, with interest being payable monthly commencing August 1, 2024, and monthly payments evolving into payments of principal and interest in accordance with an amortization schedule commencing seven months from the July 2024 date of the notes. These notes were subsequently converted in the notes sold to investors in our debt and warrant private placement consummated August 2024.

In May 2024, the company sold common stock in an underwritten public offering at $0.25 per share. Elan Blutinger, nonexecutive chairman of the board purchased 400,000 common shares in the offering.

In July 2024, the company sold stock in an underwritten public offering at $0.17 per share. Mr. Blutinger, purchased 294,116 common shares, Patrick McNamee, a director of our company, purchased 735,294 common shares, Kimberly Schaefer, a director of our company, purchased 117,647 common shares, Leonard Toboroff, a director of our company purchased 147,058 common shares, Robert Arigo, our chief executive officer, purchased 176,470 common shares and Michael James, our chief financial officer, purchased 352,941 common shares in the offering.

In August 2024, subsequent to period end, the Company issued in a private placement (the “August 2024 Note and Warrants Debt Offering”) 18% senior secured convertible notes (“August 2024 Notes”) and common stock purchase warrants (“August 2024 Warrants”). Mr. Blutinger purchased $100,000 of these securities, Mr. McNamee, purchased $100,000 of these securities, and Mr. James, purchased $20,000 of these securities.

Related Party Loans Payable

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

12 - 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.

13 - 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 six months ended each of June 30, 2024 and June 30, 2023. 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.

14 - STOCK OPTIONS, RESTRICTED STOCK UNITS, RIGHTS AND WARRANTS

Options

During the six months ended June 30, 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 six months ended June 30, 2024:

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 $146,743 and $299,082 for the three and six months ended June 30, 2024. The Company recognized stock option expense of $204,814 and $372,387 for the three and six months ended June 30, 2023, respectively. Unamortized option expense as of June 30, 2024, for all options outstanding amounted to $936,070. These costs are expected to be recognized over a weighted average period of 2.5 years.

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 $204,814 and $372,387 for the three and six months ended June 30, 2023. Unamortized option expense as of June 30, 2023, for all options outstanding amounted to $1,393,537. These costs are expected to be recognized over a weighted average period of 2.1 years.

A summary of the status of the Company’s nonvested options as of June 30, 2024, is presented below:

Restricted Stock

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.

During the three months ended June 2024, we entered into agreements to issue an aggregate of up to 3,072,000 restricted shares with certain officers and directors as set forth in the table immediately below, with the issuances of such shares having been subject to an increase in our authorized capital stock and shares available under our 2022 equity incentive plan, which were effected in July 8, 2024, and the shares thereafter issued.

As of June 30, 2024, there was $166,500 of unrecognized compensation cost related to unvested restricted shares.

Rights and Warrants

On February 16, 2024, the Company entered into a letter agreement with Greenle Alpha and Greenle Beta as 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.

On May 23, 2024, the exercise price of the Warrants held by Greenle have been reduced from $2.50 to $0.25. Except as described above, the Warrants remain unchanged.

On May 23, 2024, the Company issued warrants to purchase up to 2,104,500 shares of the Company’s common stock to the underwriter of the public offering, Roth LLC (“Roth”), with an exercise price of $0.275. These warrants are exercisable for five years and expire in May 2029.

On June 27, 2024, in connection with a private placement of common stock, the Company issued rights to purchase up to 8,000,000 shares of the Company’s common stock with an exercise price of $0.25. These rights are exercisable subject to downward price adjustments for certain issuance by the Company below $0.25 during the period commencing six months after the closing and ending on the 18-month anniversary of the closing. The Purchaser was granted customary registration rights. All of these rights were subsequently terminated as part of the holder’s election to convert the purchase price-value of the shares purchased by it into notes and warrants in our August 2024 Note and Warrant Debt Placement.

On June 27, 2024, the Company issued warrants to purchase up to 480,000 shares of the Company’s common stock to the underwriter of the private placement offering, Alexander Capital, L.P. (“Alexander”), with an exercise price of $0.275. These warrants are exercisable for five years and expire in June 2029.

The following table summarizes warrant and right activity for the six months ended June 30, 2024:

During the six months ended June 30, 2024, 1,450,000 shares were issued from the exercise of warrants.

15 - 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.

In May and June 2024, Greenle elected to receive 6,740,000 shares from the May 2023 Revenue Share Exchange Agreement.

16 - WYNDHAM AGREEMENTS

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.

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.

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 de-platformed these properties from Wyndham’s systems and moved each hotel listing back under the Company’s control. 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 June 30, 2024, we recorded the Development Incentive Advances made to us by Wyndham 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 six months ended June 30, 2024.

In May 2024, Wyndham filed a complaint against the Company in the Superior Court of New Jersey Law Division: Morris County for damages in the principal sum of $18,330,471 due and owing together with interest, attorneys’ fees and cost of suit. We intend to defend this suit and raise all available defenses and counterclaims available to the Company.

17 - 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 June 30, 2024 Balance Sheet and expects to do so until October 26, 2024.

During the three and six months ended June 30, 2024, the Company paid $238,992 and $477,984 in aggregate dividends on its outstanding Series A Preferred Stock.

18 - 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 six months ended June 30, 2024

For the six months ended June 30, 2023

19 - SUBSEQUENT EVENTS

Capital Raises

On July 15, 2024, the Company issued in an underwritten public offering 30,000,000 common shares of the Company’s common stock at $0.17 raising gross proceeds of $5,100,000, after fees the Company netted $4,567,000. On July 15, 2024, the Company issued warrants to purchase up to 306,000 shares of the Company’s common stock to the underwriter of the public offering, Alexander, with an exercise price of $0.187. These warrants are exercisable for five years and expire in July 2029. On July 18,2024, Alexander exercised the over-allotment to acquire an additional 4,500,000 common shares of the Company’s common stock at $0.17 raising gross proceeds of $765,000, after fees the Company netted $703,800. On July 18, 2024 the Company issued warrants to purchase up to 270,000 shares of the Company’s common stock to the underwriter of the public offering, Alexander, with an exercise price of $0.187. These warrants are exercisable for five years and expire in July 2029.

On July 30, 2024, the Company issued in another underwritten public offering 11,573,333 common shares of the Company’s common stock at $0.15 raising gross proceeds of $1,736,000, after fees the Company netted $1,530,800. On July 30, 2024, the Company issued warrants to purchase up to 694,400 shares of the Company’s common stock to the underwriter of the public offering, Alexander LLC (“Alexander”), with an exercise price of $0.165. These warrants are exercisable for five years and expire in July 2029.

In August 2024, the Company issued in a private placement (the “August 2024 Note and Warrants Debt Offering”) 18% senior secured convertible notes (“August 2024 Notes”) and common stock purchase warrants (“August 2024 Warrants”) raising gross proceeds of $4,122,000, after fees the Company netted approximately $3,836,000.

Under the terms of the August 2024 Note and Warrants Debt Offering, certain equity investors and holders of promissory notes evidencing existing borrowed money obligations of the Company, including THA and the investor in our June 2024 private placement, were entitled to convert such equity and debt into the August 2024 Note and Warrant Debt offering. As a result of these conversions to date, the Company will issue an additional aggregate of $2.8 million principal amount of August 2024 Notes and August 2024 Warrants.

The August 2024 Notes bear interest at 18%, are secured by substantially all of the assets of the Company under the terms of a guarantee and security agreement dated as of August 13, 2024 (“Security Agreement”), and were sold to certain accredited investors in a private offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The principal of the Augst 2024 Notes shall be repaid in twenty-four (24) equal monthly installments commencing on August 13, 2025 and continuing on the same day of each month thereafter until the principal amount is paid in full, with all principal and interest due thereon to be paid on or prior to August 13, 2027, unless the Notes are previously converted into common stock or preferred stock as described below. The August 2024 Notes are senior debt of the Company, and subject to the terms and conditions of the Notes, the Company shall not issue any debt senior to the August 204 Notes while any August 2024 Notes remain outstanding without the consent of a majority of the then outstanding principal amount of the Notes.

The August 2024 Warrants have a five-year term from the date of the initial closing of the Debt Placement and shall become exercisable commencing on the date of the earliest to occur of (a) shareholder approval of the Reverse Split (as defined below) and the Nasdaq Compliance Waiver (as defined below) and (b) the 91^st day after the initial closing of the Debt Placement. The August 2024 Warrants shall entitle. the purchaser to purchase up to that number of shares of common stock determined by dividing the principal amount of the Note purchased by the purchaser by 110% of the average VWAP of the common stock for the three consecutive trading days immediately following the date the Company files its Quarterly Report on Form 10-Q for the six months ended June 30, 2024, not to exceed $0.15 (“Three-Day VWAP”). The per-share exercise price of the August 2024 Warrants shall be equal to the Three-Day VWAP (as may be adjusted from time to time in accordance with the terms of the August 2024 Notes, including as a result of the Reverse Split).

Under the terms of the August 2024 Note and Warrant Debt Placement, the Company is obligated to file a preliminary proxy statement for purposes of calling a special meeting of the Company’s shareholders to seek approval of certain prescribed proposals. These proposals include an amendment to the Company’s certificate of incorporation to effect a reverse stock split (“Reverse Split”) of the Company’s outstanding common stock in the range of one share-for-30 shares to one share-for-70 shares, the specific split ratio to be determined within such range in the discretion of the Company’s board of directors (based on market conditions, Nasdaq requirements and advice of counsel and investment banker). In connection with the Reverse Split, the number of authorized shares of the Company’s common stock would be maintained at 200,000,000 shares, preferred stock would be maintained at 20,000,0000 shares, and the shares authorized under the Company’s existing 2022 incentive plan would remain at 8,000,000 shares. The proposals also will include approval of the transactions under the SPA (“Nasdaq Compliance Waiver”) with respect to issuances or deemed issuances of common stock (including upon exercise of the Note Warrants or conversion of the Notes) in aggregate excess of 19.99% of the outstanding Common Stock at less than the Minimum Price (as defined in applicable Nasdaq regulations) as required to comply with Nasdaq regulations. The Company is obligated to use commercially reasonable efforts to respond to any SEC comments to the preliminary proxy statement as filed and clear same with the SEC and then promptly file a definitive proxy statement and mail same to stockholders and hold such special meeting as soon as practicable.

Under the terms of the August 2024 Note and Warrant Debt Placement, promptly following the end of the offering, the Company will use commercially reasonable efforts to commence and consummate an underwritten initial public offering of a newly created series of preferred stock (the “New Preferred Stock”) the final terms of which are not yet determined and shall be based on requirements under the SPA and market conditions for the sale of such preferred stock (the “New Preferred Stock Public Offering”). The Company, working with one or more underwriters, will use commercially reasonable efforts to consummate the offering and obtain approval of listing of the New Preferred Stock on the Nasdaq Capital Market within 90 days of the date the Debt Placement ends.

The outstanding principal of the August 2024 Notes (and at the Company’s election, any accrued and unpaid Interest thereon) shall automatically convert into shares of validly issued, fully paid and non-assessable New Preferred Stock at a conversion price of $25.00 per share, upon the latest to occur of the following events: (a) the completion of the New Preferred Stock Public Offering, (b) the approval of the New Preferred Stock for listing on Nasdaq or other national exchange, (c) the effectiveness of a resale registration statement covering the resale of the New Preferred Stock issuable upon conversion of the Notes, and (d) the approval by the Company’s shareholders of the Reverse Split and Nasdaq Compliance Waiver.

From time to time, on and after the earlier of (a) both the completion of the Reverse Split and shareholder approval of the Nasdaq Compliance Waiver and (b) the 91^st day after the initial Closing of the Debt Placement, and prior to conversion of the Notes into New Preferred Stock, the holders of the Notes have the right to convert, in whole or in part, principal and interest thereunder into shares of common stock. The per-share conversion price shall be equal to 110% of the average VWAP of the Company’s common stock for the three consecutive trading days immediately following the date the Company files its Quarterly Report on Form 10-Q for the six months ended June 30, 2024, not to exceed $0.15 (as may be adjusted from time to time in accordance with the terms of the Notes, including as a result of the Reverse Split).

From the date hereof until the date that is the later of (a) the date on which no August 2024 Notes are outstanding and (b) the 18-month anniversary of the initial closing of the Debt Placement, upon any issuance by the Company or any of its subsidiaries of (1) common stock or common stock equivalents, (2) indebtedness or (3) a combination of units thereof, in each case for cash and not as part of any ordinary course of business operations or as part of any underwritten public offering or other exempt issuance (a “Subsequent Private Financing”), each Purchaser shall have the right to participate in such Subsequent Private Financing in an amount up to an amount equal to the principal of the Notes purchased by such Purchaser in the Debt Placement or if the amount of the Subsequent Private Financing is less than the aggregate principal amounts of all Notes purchased in the Debt Placement by all purchasers, such purchaser’s pro rata portion based on such purchaser’s principal amount of the Notes originally purchased in the Debt Placement as compared to the principal amount of all Notes purchased in the Debt Placement by all purchasers, on the same terms, conditions and price provided for in the Subsequent Private Financing.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On June 11, 2024, the Company received a notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that for the prior 30 consecutive business days (through June 10, 2024), the closing bid price of the Company’s common stock had been below the minimum of $1 per share required for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter stated that the Company would be afforded 180 calendar days (until December 9, 2024) to regain compliance. In order to regain compliance, the closing bid price of the Company’s common stock must be at least $1 for a minimum of ten consecutive business days. The notification letter also stated that, in the event the Company does not regain compliance within the initial 180-day period, the Company may be eligible for an additional 180-day period. If the Company is not eligible for the additional 180-day period, or if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, the Nasdaq Listing Qualifications Department will provide notice after the end of the initial 180-day period that the Company’s securities will be subject to delisting.

On June 28, 2024, the Company received a notice from the Staff stating that for the prior 30 consecutive business days (through June 27, 2024), the closing market value of listed securities (MVLS) of the Company’s common stock and preferred stock had been below the minimum of $35 million required for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). The notice stated that the Company would be afforded 180 calendar days (until December 26, 2024) to regain compliance. In order to regain compliance, the closing MVLS of the Company’s securities must be at least $35 million for a minimum of ten consecutive business days. If the Company does not regain compliance within the 180-day period, the securities will be subject to delisting.

On August 20, 2024, the Company received a written notice from the Staff stating that the Company was not in compliance with Listing Rule 5250(c)(1) of Nasdaq’s continued listing standards because the Company did not timely file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (the “Quarterly Report”, such noncompliance with Listing Rule 5250(c)(1) the “Filing Delinquency”). The notice stated that under Nasdaq rules, the Company has 60 calendar days (or until Monday, October 21, 2024) to submit a plan to regain compliance. If Nasdaq were to accept the Company’s plan, Nasdaq could grant an exception of up to 180 calendar days from the Quarterly Report’s original due date, which 180 day period would end on February 18, 2025, to regain compliance, and that the Company could regain compliance by filing the Quarterly Report with the SEC and any other subsequent reports that are required to be filed during the cure period.

On August 23, 2024, the Company received a determination letter (the “Letter”) from of the Staff, indicating that in light of the Company’s bid price deficiency under to Nasdaq Listing Rule 5550(a)(2), and the Staff’s determination that, as of August 22, 2024, the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days and therefore the Company is subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the “Low Priced Stocks Rule”), the Staff had determined to delist the Company’s securities from The Nasdaq Capital Market (the “Determination”), and that the Company may appeal the Determination to a Nasdaq hearings panel (“Hearing Panel”) pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

The Letter further noted that, in light of the Determination, the Filing Delinquency had become an additional basis for delisting pursuant to Listing Rule 5810(d)(2), and, as such, the Company should address this concern before a Hearings Panel if it appeals the Staff’s determination, rather than proceeding as stated in the August 20, 2024 notice.

The Letter stated that unless the Company requested an appeal of the Determination by August 30, 2024, trading of the Company’s common stock and preferred stock will be suspended at the opening of business on September 4, 2024, and a Form 25-NSE will be filed with the SEC, which will remove the Company’s securities from listing and registration on Nasdaq. The Company has appealed this determination and a hearing will occur in October 2024.

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”).

On August 20, 2024, the Company filed a Form 10-Q/A for the period ended March 31, 2024, with the Securities and Exchange Commission that restated the Form 10-Q for the same period previously filed on May 13, 2024. The financial information set forth herein gives effect to this restatement.

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:

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. During 2024, we have engaged in a sweeping program to improve our company’s management and operations, which we call “LuxUrban 2.0.” These efforts have included adding hotel and financing veterans throughout our management team and board of directors, the elimination from our operations of non-performing hotels properties, and initiatives to reduce operating overhead. Although continued material effort is required, as our company operates in the third quarter and enters the fourth quarter of 2024, we believe LuxUrban 2.0 is beginning to produce the intended benefits. We also continue to explore capital raising transactions, as well as strategic initiatives to improve the company, including potential joint ventures and other transactions, although there can be no certainty that any such transactions will occur.

We currently have a portfolio of hotel rooms in New York and New Orleans, 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 Report, we have 1,056 hotel rooms available for rent through our portfolio. We have been reducing our domestic operations and U.S.-based portfolio of available hotel rooms over the past nine months, focusing only on properties that we believe can generate on positive cash flow.

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 six month ended June 30, 2024 and more than 85% of revenue during the six months ended June 30, 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. Robert Arigo was appointed as chief executive officer, bringing to us extensive experience from the hotel industry. Michael James was appointed as chief financial officer, bringing to us extensive financial experience. 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 actively refining our portfolio of hotels that provide short-term accommodations for guests at average nightly and occupancy rates that will exceed unit operating costs. 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 13 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.

During 2024 we have been modifying our portfolio of hotels towards the goal of achieving positive cash flow from our properties. To this end, the Company has recently exited several hotels that had a history of negative cash flow. Our main focus is currently on the New York hotel market.

In prior quarters, including the second quarter of 2024, we did not generate sufficient cash to pay our operating expenses. As a result, we were required to go to the capital markets in May, June, July and August 2024 to raise capital through the sale of equity and debt in order to continue operations. At the same time, we experienced significant decline in our stock price, making these capital raises relatively more expensive and dilutive. Legacy operations and results have resulted in the accumulation of significant liabilities. While we believe we are close to achieving positive cash flow on a monthly basis from going forward operations, legacy liabilities will continue to place significant strains on our company and will require us to secure additional capital funding, continue to engage in material cost cutting efforts, and continue to take measures to focus and improve our operational efficiencies. If we are unable to continue improvements to our business and operations while also securing additional financings, our ability to continue as a going concern is in doubt. Potential financings could continue to include materially dilutive equity financings and debt financings. There can be no assurance then necessary capital financings will be available to us on commercially reasonable terms or at all.

The Company anticipates that the fourth quarter will have a positive impact on the Company’s overall operating results and conditions, as the New York hotel market is historically strongest during the fourth quarter and the Company anticipates being able to generate revenues at higher daily room rates.

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 June 30, 2024, we leased nine (9) properties with 1,056 units available for rent. In March 2024 through June of 2024, we surrendered three 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. Although we have been able to negotiate terms for the surrender of certain of our units, the surrender of these properties have and could continue to expose the Company to potential claims by landlords.

Our portfolio of properties as of June 30, 2024 (as adjusted for the surrender of certain properties mentioned above) was as follows:

Due to the triple-net structure of our leases, we are typically responsible for the interior maintenance of our properties, and the landlord is responsible for the exterior maintenance and roof.

As a matter of course, from time to time we become, and are currently, involved in disputes with landlords for certain hotel properties. The complexity of each lease for each of our hotels requires us to be diligent with respect to the terms of each lease, including deposit requirements, deliverables, and management and maintenance terms, among other terms and covenants. A dispute under a lease can range from minor issues to issues that could give rise to claims of default by us or the landlord under the lease. Currently, we have defaults across certain properties totaling 719 keys, all of which we believe are in the process of being cured. In the event we are unable to cure our default under a lease, an event of default could ultimately be declared by the landlord thereunder, with the landlord then having remedies that include the right to terminate the lease. Where landlords have breached and have not cured, we may be required to litigate to protect our rights under one or more leases, which could divert management attention from our regular operations and could be costly to our company without any guarantee of success in the action.

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. Our make-ready efforts include, but are not limited to, minor repairs or property updates, hiring appropriate property-level staff, installation of utility, Wi-Fi, Internet and cable services, and listing the property on the OTA channels we utilize. We anticipate that in the near future, we will also utilize surety bonds for the funding of lease deposit requirements.

We lease entire properties, which could include food service, gyms, or store fronts. We currently, and in the future plan to, in most cases, sublease food services and hotel-based store fronts to generate additional income. We believe these items are noncore to our operations.

Our average deposits (including letters of credit) by city as of June 30, 2024, as adjusted for the surrender of certain properties in the six months ended June 30, 2024 (as discussed above), were as follows:

Revenue Management

We use third-party 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 the technology to both maximize occupancy rates through attractive pricing and increase cash flow in advance of potential guest stays.

Property Operations

When we lease a new property, we typically streamline operations from the manner in which the property was managed by the prior operator by taking numerous measures, including but not limited to: