As filed with the Securities and Exchange Commission on October 24, 2022

Registration No. 333-267821​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 1
to

2125 Biscayne Blvd
Suite 253
Miami, Florida 33137

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Office)

Brian Ferdinand, Chairman and Chief Executive Officer
CorpHousing Group Inc.
2125 Biscayne Blvd
Suite 253
Miami, Florida 33137
833-723-7368

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

David Alan Miller, Esq.
Brian L. Ross, Esq.
Graubard Miller
405 Lexington Avenue, 44th Floor
New York, New York 10174
Telephone: (212) 818-8800

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ☐

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ☒

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act of 1933, check the following box. ☐

If this form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act of 1933, check the following box. ☐

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

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 7(a)(2)(B) of the Securities Act. ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

 

 

 

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Terms of the Offering

Common stock offered by the Selling Stockholders:

This prospectus relates to the offer and sale of up to an aggregate of 4,191,490 shares of common stock by the Selling Stockholders from time to time.

Selling Stockholders:

Are those holders set forth in the section of this prospectus entitled “Selling Stockholders.”

Shares of common stock outstanding:

26,529,418 shares of common stock.

Use of proceeds:

We will not receive any proceeds from the sales of common stock by the Selling Stockholders pursuant to this prospectus. We may, however, receive up to $8,765,800 in aggregate gross proceeds from the exercise of the 2022 Investor Financing Warrants and 2022 Investor Financing Agent Warrants to the extent they are exercised for cash.

To the extent we sell common stock to the Selling Stockholders upon exercise of the 2022 Investor Financing Warrants or 2022 Investor Financing Agent Warrants, we intend to use any proceeds therefrom for general corporate purposes. See “Use of Proceeds” on page 36 of this prospectus.

Risk factors:

Investing in our securities involves a high degree of risk. See “Risk Factors” below and the other information included elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding to invest our securities.

Listing:

Our common stock is listed on Nasdaq under the symbol “CHG.”

Summary Risk Factors

An investment in our securities involves various risks that you should consider carefully before investing in us. Many of these risks are discussed in this prospectus under the heading “Risk Factors” beginning on page 9. If any of these risks occur, our business, financial condition, liquidity, results of operations, prospects and ability to make interest payments to our noteholders and distributions to our shareholders could be materially and adversely affected. In that case, the trading price of our securities could decline, and you may lose a portion or your entire investment. These risks include:

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the effects of COVID-19 on our historic and going forward operations and results;

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challenges we face as an early-stage company;

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recent net loses and negative cash flow caused by downturn in the travel industry generally;

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the limitations imposed on our ability to borrow as a result of the first priority lien existing on all of our assets with respect to the 2022 Investor Financing Notes, which liens shall remain in place until such notes are repaid or converted into shares of our preferred stock or common stock under the terms thereof;

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potential lack of availability of leasable properties on favorable economic and other terms;

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any inability to attract and retain qualified employees as we grow;

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any labor-related obligations that we have assumed in connection with the former Blakely NY Hotel, and may assume in the future in connection with our acquisition of portfolios of units in other hotels or other building serviced by organized or unionized labor;

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potential delays in identifying and addressing operating issues as a result of our decentralized management system;

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any inability to manage growth as and when we experience it;

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predict the impact the COVID-19 pandemic has had and will have on our business partners, property owners, and third-party vendors and service providers, and we may continue to be materially adversely impacted as a result of the impact of COVID on our business partners and vendors.

Our forecasts and projections are based upon assumptions, analyses and estimates developed by our management. If these assumptions, analyses or estimates prove to be incorrect or inaccurate, our actual results may differ materially from those forecasted or projected.

Our forecasts and projections, including projected revenues, margins, profitability, cash flows, revenue per accommodation unit, lease signing costs and occupancy rates, and our anticipated market opportunity, growth and penetration, are subject to significant uncertainty and are based on assumptions, analyses and estimates developed by our management, including with reference to third-party forecasts, any or all of which may prove to be incorrect or inaccurate. These include assumptions, analyses and estimates about future pricing and occupancy rates, our future acquisition of accommodation units, the timing of lease signings, building openings and development, local regulatory environments, the terms of future leases, and future costs, all of which are subject to a wide variety of business, regulatory and competitive risks and uncertainties. If these assumptions, analyses or estimates prove to be incorrect or inaccurate, our actual results may differ materially from those forecasted or projected, adversely affecting the value of our common stock.

We are an early-stage company with a limited operating history and we operate in a rapidly changing industry, which make it difficult to evaluate our current business and future prospects and may increase the risk of your investment.

We began our commercial operations in 2017. Our limited operating history may make it difficult to evaluate our current business and our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including in building our brand, acquiring scalable mass of accommodation units, and accurately forecasting our industry and planning and implementing our budgets. You should consider our business and prospects in light of the risks and difficulties we may encounter as an early-stage company.

We have incurred net losses and we may not be able to achieve profitability.

Although we operated on a cash flow positive basis prior to commencement of mandated travel shutdowns in March 2020, we incurred a net loss of $(4,615,725) in 2020, and a net loss of $(2,233,384) in 2021. Although we had net income of $2,181,842 for the six months ended June 30, 2022, we had a total stockholders’ deficit of $(9,446,581). Historically, we have invested significantly in efforts to grow our portfolio of leased properties, introduce new or enhanced offerings and features, increase our marketing efforts, expand our operations, hire additional employees, and enhance our technology platforms. Beginning in the second quarter of 2020, as a result of the COVID-19 pandemic, we took measures to reduce our fixed and variable costs. We have recently resumed making significant investments in our business, including acquiring new accommodation units, improving our technology platforms, including the introduction of our LuxUrban customer apps, and in growing our brands. These efforts may not succeed in increasing our revenue sufficiently to offset the expenses related to these investments. Additionally, incentivizing our personnel is an important part of our operations. We have granted and will grant options to purchase our common stock and other equity-based awards to our employees and certain non-employees. Stock-based compensation expense related to stock options and other equity awards will be a significant expense in our near and immediate term financial periods.

Without obtaining adequate capital funding or improving our financial performance, we may not be able to continue as a going concern.

The report of our independent registered public accounting firm for the year ended December 31, 2021 included herein contains an explanatory paragraph indicating that there is substantial doubt as to our ability to continue as a going concern as a result of recurring losses from operations and negative cash flows. This report does not take into account any proceeds we received in our IPO or any return to cash flow positive of our business as COVID-19 travel restrictions have eased. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which contemplate that we will continue to operate as a going concern. Our financial statements do not contain any adjustments that

 

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might result if we are unable to continue as a going concern. Our ability to continue as a going concern will be determined by our ability to fund our expansion plans and realize our business objectives. If we are unable to obtain adequate funding from this proposed offering or in the future, or if we are unable to grow our revenue substantially to achieve and sustain profitability, we may not be able to continue as a going concern.

Our EBITDA and free cash flow declined during COVID, and this decline could continue.

As a result of the COVID-19 pandemic and the resulting impact on the travel industry, our EBITDA and free cash flow turned negative in 2020 and 2021, and we may experience declines in EBITDA and free cash flow as long as the COVID-19 pandemic continues to materially adversely impact our business. We had EBITDA of $(4,037,956) and $(606,819) for the years ended December 31, 2020 and 2021, respectively, and EBITDA of $4,094,277 for the six months ended June 30, 2022. Our free cash flow (Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash) was $(14,528) and $1,106,486 for the years ended December 31, 2020 and 2021, respectively. Our free cash flow (Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash) was $(6,442) for the six months ended June 30, 2022. Other adverse developments in our business, including lower than anticipated revenue, higher than anticipated operating expenses, and net unfavorable changes in working capital, could hinder our ability to reverse the recent negative trend in our EBITDA and free cash flow.

The 2022 Investor Financing Notes are secured by a first priority lien on all of our assets, which will adversely affect our ability to secure additional debt and other financing until such time as the Notes are repaid or converted into shares of our preferred stock or common stock.

We have substantial indebtedness for borrowed money and a material portion of these obligations represented by our 2022 Investor Financing Notes are secured by a first priority lien on all of our assets. If we should default on such indebtedness, it is unlikely we will be able to continue to continue to operate. The existence of these liens will make it difficult for us to secure additional debt or other financing until such times as the 2022 Investor Financing Notes are repaid in full or converted into shares of our preferred stock or common stock. Should we require debt or asset-based financing while the 022 Investor Financing Notes are outstanding, we will be required to secure such debt on an unsecured basis, which we deemed highly unlikely to be able to do, or convert the 2022 Investor Financing Notes into preferred stock, which may not be desirable at the time of such proposed conversion. The existence of these first priority liens could have a negative effect on our growth to the extent it limits our ability to borrow. Following such time that the 2022 Investor Financing Notes are repaid in full or converted into shares of our preferred stock or common stock, the holders of such notes will continue to have a lien on the equity and assets of our special purpose vehicle, CorpHousing RSL Inc., as security against such holders’ rights to receive an aggregate share, typically 5% to 10% in the first five years of the relevant lease, and 1% thereafter, of the quarterly revenues generated by our New Properties. The revenue shares payable to such investors shall be paid quarterly in cash as described elsewhere in this prospectus. Accordingly, a portion of the cash flow and revenues from such accommodation units will not be available to us.

We may be unable to negotiate satisfactory leases or other arrangements for proposed new properties or renew or replace existing properties on satisfactory terms or at all.

Our business depends substantially on property owners and managers leasing to us properties that meet our brand criteria on lease terms that work within our business model. Competition for quality properties in desirable, often over-booked, locations can be intense. We may be unable to negotiate satisfactory leases or other arrangements to operate new properties, on board new properties in a timely manner, or renew or replace existing properties on satisfactory terms or at all. We typically lease our properties on one, three, five, six, ten, fifteen and twenty-year terms. The pricing terms under these leases thus become relatively fixed costs and we must achieve occupancy rates at rental prices that enable us to offset the lease, maintenance and operations costs of each property in order for such property to be profitable. Acquiring new units and building our portfolio of accommodations can be time consuming and requires the devotion of significant resources. Further, given the length of some of our leases, we may not have flexibility necessary to quickly adapt to changing consumer demands. We may not accurately predict future demand for our properties, market them in a manner that achieves desired occupancy rates, or set proper rental terms that ensure profitability of each property or profitability of our accommodations portfolio in its entirety.

 

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To ensure growth of our business, we must add new leases to our portfolio at a rate and on economic terms that equal or exceed leases for properties that we terminate or are terminated by the property owners.

From time to time, we may determine that one or more of our leased properties is not performing to our expectation and may elect to terminate the applicable leases early if allowed under the terms thereof. We may also experience breaches of the terms of the leases by the property owners and may elect to terminate the related leased based on such breaches. It is also possible that the owners of properties seek to terminate leases early on their terms in certain circumstances or as a result of our breach, which could include breaches rising from the actions of our guests or employees. It is also likely that a percentage of the leases for our leased properties will not be renewed by us or the property owner as the end of the then current lease term. Historically we have experienced losses of leases from time to time in the above-described circumstances and expect to lose leases from time to time in the future as part of our ordinary course of business. To continue to grow our company, we must add new lease properties to our portfolio faster than we lose leases and the terms of the new leases individually and in the aggregate must be at least as favorable or more favorable to use than the terms of the leases we lose to ensure our continued growth. We may not be able to add new leases in a manner that achieves this and any inability to effectively control churn of leases could adversely affect our business, financial condition and financial results.

Newly leased properties may generate revenue later than we estimate, and may be more difficult or expensive to integrate into our operations than expected.

When we execute leases for new properties, the landlord or developer may be unable or unwilling to deliver the property on the date initially projected, or we may encounter other unforeseen delays in preparing the property for initial guest bookings. Many newly leased properties may become available to us only after a considerable period of time, which increases the risk of unforeseen delays in making these units available to our guests. Later than expected property availability results in a delay in generating revenue from such properties, which could cause us to miss our financial forecasts. In addition, the success of any new property will depend on our ability to integrate it into existing operations, which is subject to uncertainties including potential difficulties in integrating guest-facing and back-office systems or in engaging third party vendors to service the properties. Newly leased properties could be more difficult or expensive to onboard, have undisclosed conditions that result in unanticipated expenses or claims against us for which we may have little or no effective recourse against the landlord, or otherwise may not provide their anticipated benefits.

We may experience margin compression in one or more cities in circumstances where our cost of acquiring leased properties rises or the market rates for short stay rentals declines.

We typically enter into relatively long-term leases with property owners for our lease properties. Accordingly, a large part of our costs for any such properties becomes relatively fixed. If the market rate for short-stay rentals declines in a city or nationwide as a result of numerous factors, including general economic factors outside of our control, we would experience margin compression with respect to our existing properties. Even when market rates for short-stay rentals remain stable, as we add new leases or renew existing leases, we may not be able to do so on terms that allow us to maintain previous margins for our properties in such locations. Any margin compression we experience could adversely affect our business, financial condition and financial results

From time to time we may have our access to our leased properties delayed or suspended, which will prevent us from renting such properties to potential guests.

Our access to properties that we have leased from property owners may be delayed or suspended from time to time for various reasons. For example, from time to time in our industry, guests stay beyond their short-stay rental term, effectively squatting in the property, preventing its further rental and requiring us to pursue costly and time consuming legal action to effect their removal. In other situations, property owners may desire or be required to remodel, remediate or maintain their properties in a manner requiring the restriction of access to same for a period of time, which could prevent the rental of units within such properties. We have also experienced, from time to time, delays in opening new properties, including properties in which accommodation units were pre-marketed prior to opening. Due to such delays resulting from renovation overruns, union issues and other factors beyond our control, we were unable to honor reservations for the dates we anticipated to bring certain properties online. Such delays required us to provide refunds,

 

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assist in relocation of guests for desired stay days, and incur operating costs without corresponding operating revenues. Future delays or suspensions on the rental of our accommodation units to potential guests would have an adverse effect on our business, operations and financial performance.

Adoption of new lease accounting standards may adversely affect our business and financial performance.

Public companies have been required to adopt certain new lease accountings standards, including FASB ASC 842. As a private company prior to our IPO, we were not required to opt into these standards and we did not. Following the consummation of our IPO, we became required to follow these standards. Had we been subject to these standards as a private company we may have experienced different net operating results and balance sheet results and other changes to our historic financial statements, as further discussed in this prospectus under “Management Discussion and Analysis of Financial Results and Operations — New Lease Accounting Standards.” Under these standards, companies that lease assets are required to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under these standards, we are required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depends on its classification as a finance or operating lease. However, unlike current GAAP — which requires only capital leases to be recognized on the balance sheet — the new standards require both types of leases to be recognized on the balance sheet. As a result of these requirements we could experience numerous adverse effects, including the decline of financial performance in future periods as compared to prior periods (despite equivalent or even better operations and operational performance), declines of our share price, the decline or removal of any credit rating that has been applied to our company or our debt, and a general reduction in our borrowing ability, which could compel us to change our lease terms with third parties in connection with our operations.

We expend resources relating to the preparation and repair of our leased properties, which may be higher than anticipated.

We typically devote resources to prepare and furnish a newly leased property and bring it onto our remote management platforms before renting the property to guests. We also expend resources to keep our leased properties in a safe and attractive condition. Although we attempt to have the landlord or developer bear the out-of-pocket opening costs, we are sometimes responsible for all or a portion of such costs. Even where landlords and developers are contractually responsible for some costs, they may dispute or fail to comply with their obligations. In addition, while the majority of our leases require landlords to bear responsibility for the repair and maintenance of building structures and systems, at times we may be responsible for some of these obligations, and in most cases, we are responsible for the repair and maintenance of damage caused by our guests. Our leases may also require that we return the space to the landlord at the end of the lease term in essentially the same condition it was delivered to us, which may require repair work. The costs associated with the preparation, maintenance, repair and return of our leased properties may be significant and may vary from our forecasts. We also periodically refurbish redecorate or install new amenities in our accommodation units to keep pace with the changing needs of guests and to maintain or enhance our brand and reputation. The costs of these actions may be more than we anticipate, may impair guests’ experiences in adjacent units, and may otherwise adversely affect our results of operations and financial condition.

We depend on landlords for certain maintenance and other significant obligations related to our leased properties, and any failures in this area could hurt our business.

We do not own any of the properties utilized in our business, and we manage and operate them under leases with third-party landlords. At some properties, our accommodation units comprise only a portion of the building and common areas and amenities are shared with other tenants or unit owners. We often have limited control over the common areas and amenities of buildings in which our units are located. In addition, we depend on landlords to deliver properties in a suitable condition and to perform important ongoing maintenance, repair and other activities with respect to common areas, amenities and building systems such as plumbing, elevators, electrical, fire and life safety. If these landlords do not fulfill their obligations or fail to maintain and operate their buildings appropriately, we could be subject to claims by our guests and other parties, and our business, reputation and guest relationships may suffer.

 

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Disputes and litigation relating to our leases can be expected to occur in the future, which may result in significant costs, damage to landlord relationships, slower than expected expansion, and lower revenues.

Our rights and responsibilities under our leases may be subject to interpretation, and will from time to time give rise to disagreements, which may include disagreements over the timing and amount of capital investments or improvements, operational and repair responsibilities, rights in circumstances of early termination and unwinding of lease obligations, liability to third parties, a party’s right to terminate a lease, and reimbursement for certain renovations and costs. We and our landlords may be unable to resolve such disagreements amicably and may seek resolution through litigation. To date, we have not had any material lease-related litigations in connection with our operations. Typically, we have settled claims without formal litigation, on favorable economic terms, and reflected all accrued settlement estimates on our financial statements. Disputes may be expensive to litigate, even if the outcome is ultimately in our favor. We cannot predict the outcome of any litigation. An adverse judgment, settlement, or court order in a proceeding could cause significant expenses and constraints for our business operations and expansion plans. Further, disputes with landlords that own numerous properties in a particular city or nationwide could harm our ability to lease properties form that landlord in the future or result in well-publicized negative publicity, which could hurt our reputation with other property owners, making it more difficult to secure leases on economically favorable terms or at all.

The long-term and fixed-cost nature of our leases may limit our operating flexibility and could adversely affect its liquidity and results of operations.

We currently lease all of our properties and are committed for the leases’ terms, generally without the right to terminate early. Our obligations to landlords under these agreements extend for years, while we do not have a corresponding source of guaranteed revenue because guests typically stay for less than a week at our properties. Our leases generally provide for fixed monthly payments that are not tied to occupancy rates or revenues, and typically contain minimum rental payment obligations. While we often seek to negotiate leases with lower minimum payments in return for a share of the property’s revenues, or other variable terms, we may be unsuccessful in securing variable or participating lease terms. If we are unable to maintain sufficient occupancy rates and pricing, our lease expenses may exceed our revenue and we may incur losses with respect to some or all of our properties. Leases require substantial time to negotiate and are typically multi-year commitments that can only be revised or terminated with the landlord’s consent. Accordingly, we have limited flexibility to rapidly alter our portfolio of properties and lease commitments in response to changing circumstances.

Our leases may be subject to termination before their scheduled expiration, which can be disruptive and costly.

Our leases may be subject to termination before they are scheduled to expire in certain circumstances, including the bankruptcy of a developer or other landlord, noncompliance with underlying covenants governing the property, or, under some agreements, failure to meet specified financial or performance criteria. Some leases also contain conditions to the landlord’s or our obligations, or permit the landlord to terminate before the scheduled expiration date, typically in the later years of the lease and/or upon payment of specified compensation to us. The termination of leases due to any of the foregoing events would eliminate our anticipated income and cash flows from the affected property, which could have a significant negative effect on its results of operations and liquidity.

Our business depends on attracting and retaining capable management and employees, and the loss of any key personnel could materially adversely affect our business, results of operations, and financial condition.

Our success depends in large part on our ability to attract and retain high-quality management and employees. Brian Ferdinand, our chief executive officer and chairman of the board, founded our company and has been instrumental in devising and implementing our strategies for growth and scaling our business. Our founder and other members of our senior management team, as well as other employees, may terminate their employment with us at any time, which could materially adversely affect our business, results of operations, and financial condition. As we continue to grow, we cannot guarantee that we will be able to attract and retain the personnel we need. Our business requires highly skilled real estate, financial, technical, data analytics, marketing, business development, and community support personnel, including executive-level employees, who are in high demand and are often subject to competing offers. Competition for qualified

 

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employees and executive-level employees is intense in our industry. The loss of qualified employees, or an inability to attract, retain, and motivate employees required for the planned expansion of our business would materially adversely affect our business, results of operations, and financial condition and impair our ability to grow.

If we fail to secure the services of dedicated employees located at or near our properties, our business, results of operations, and financial condition would be materially adversely affected.

The quality of our properties and our people are the two principal drivers of our business. Our business depends on providing desirable accommodations at good values to our guests, and operating and maintaining our properties through dedicated employees located at or near the properties, and those employees providing guest experiences that encourage guests to book our accommodations again (and recommend our properties to others). Our ability to attract and retain the necessary personnel to service our guests and supervise our properties can be effected by many circumstances beyond our control, including the prevailing labor market and continued COVID restrictions and mandates. The competition for securing desired lease terms on quality properties and the personnel to service these properties can be intense. An inability to continue to hire and retain qualified people to service our properties, could materially harm our business, financial performance and financial condition.

We rely on the efforts of our management team, including our Chief Executive Officer, and the loss of services of any of our key employees could harm our business.

As a relatively young company, we have a management team of limited size. We depend on the efforts of our management team individually, and as a team, to oversee our business and implementation of our growth strategies. The loss of the services of any member of our team could have adverse effects on our business, particularly the loss of our Chief Executive Officer, Brian Ferdinand.

We have a senior executive who, based on his prior and current affiliations with the US military, maybe be called into service with limited notice.

David Gurfein, our Chief Operating Officer, has in the past been, and in the future could be, subject to immediate deployment based on geopolitical, national security or the risk to American assets and lives in foreign jurisdictions. As a relatively young company, we do not have significant bandwidth at the senior management level. The loss of a senior executive upon short notice would require our remaining senior management to assume his duties until such time as he returns from deployment, or we are able to hire additional qualified personnel, and could place other strains on our other resources, adversely impacting our operations and financial performance.

We operate and manage our properties on a decentralized, remote basis and rely on our employees at each location to make timely and proper decisions regarding day to day issues that may arise.

We have a decentralized management system that relies on our employees located in each of our cities where we offer accommodations. While we believe that providing our employees with general discretion on the day-to-day management of our properties communicates our trust and the value we place in our employees, it also distances our executive management from immediate on-the-ground issues that may occur at properties. Accordingly, it is important that we properly vet our employees and hire people dedicated to our mission of providing guest experiences that exceed their expectations. We will not always be successful in hiring qualified personnel and competition for qualified personnel is highly competitive within our industry. If the people we hire do not prove dedicated to our mission and the values that our brands represent, our guests’ experiences could be less than we desire, which could materially harm our brand and reputation and in turn, our business, results of operations and financial condition.

If we fail to convert first time guests into recurring guests and attract new, first-time guests, our business, results of operations, and financial condition would be materially adversely affected.

Our growth depends on creating repeat business by providing guests with excellent service, attracting new guests by garnering good online reviews and word of mouth recommendations from existing guests, and building a recognized, respected and trusted brand. We must provide timely responses to inquiries from guests, offer a variety of desirable and differentiated accommodations in desired locations at competitive

 

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prices that meet or exceed the expectations of guests, and we must deliver exceptional hospitality to our guests. If our platform or the third-party platforms through which our properties are marketed are not easy to navigate, or our listings are not marketed and displayed effectively to potential guests using such platforms, we will be ineffective in booking guests in meaningful numbers, which would materially adversely affect our business, results of operations, and financial condition.

The majority of our revenues have historically been generated from bookings through third-party booking websites.

Historically, more than 90% of our revenues have been generated from bookings of our accommodations made by guests through third-party booking portals such as Booking.com, VRBO, Airbnb, and Expedia. A key element of our strategy will be to drive traffic to and book guests through our own online portal at Corphousinggroup.com to better control bookings and the guest experience. There can be no assurance, however, that we will be able to successfully drive potential guest traffic to our websites. Our reliance on third-party booking portals subjects us to the risk of having our access to such portals limited or eliminated as a result of competitive decisions by such providers. Our use of third-party booking portals reduces our profits generated from bookings as we are required to pay fees and commissions to third-party portal operators. An inability to post our bookings on third-party portals or increases in the fees and commission payable to third-party portal operators could materially harm our business ,results of operations and financial condition.

A critical factor in attracting visitors to our own websites is how prominently we are displayed in response to search queries. Accordingly, we utilize search engine marketing as a means to provide a significant portion of our visitor acquisition. Search engine marketing includes both paid visitor acquisition on a cost-per-click basis and visitor acquisition on an unpaid basis, often referred to as organic search. The various search engine providers, such as Google and Bing, employ proprietary algorithms and other methods for determining which websites are displayed for a given search query and how highly websites rank.

Search engine providers may also launch new features to enhance search results, which may negatively affect the number of visitors to our websites. Search engine algorithms and other methods that determine the display and ranking of results may change from time to time, generally without public announcement or detailed explanation. Therefore, the success of our search engine optimization strategy depends, in part, on our ability to anticipate and respond to such changes in a timely and effective manner through website and content development, which we may not be able to do.

We may be unable to effectively manage our growth.

Since our inception, we have experienced rapid growth. As our operations have expanded, we have grown our portfolio to 1,037 units that are in current operation in eight U.S. cities. As of the date of this prospectus, we had 107 full-time employees and independent contractors. Our business is becoming increasingly complex, especially in light of the continued rapid evolution of our industry and e-commerce, our relatively limited operating history, our need to implement new technologies and utilize big data for our operations, and our reliance on multiple websites and employees located in numerous cities throughout the United States. This complexity and our rapid growth have demanded, and will continue to demand, substantial resources and attention from our management. We expect to continue to increase headcount and to hire more specialized personnel in the future as we grow our business. We will need to continue to hire, train and manage additional property managers and employees, qualified website developers, software engineers, client and account services personnel, and sales and marketing staff and improve and maintain our technology to properly manage our growth. If our new hires perform poorly, if we are unsuccessful in hiring, training, managing and integrating these new employees or if we are not successful in retaining our existing employees, our business may be harmed.

Any continued decline or disruption in the travel and hospitality industries or economic downturn would materially adversely affect our business, results of operations, and financial condition.

In addition to the COVID-19 pandemic, other events beyond our control, such as unusual or extreme weather or natural disasters, such as earthquakes, hurricanes, fires, tsunamis, floods, severe weather, droughts, and volcanic eruptions, and travel-related health concerns, including other pandemics and epidemics, restrictions related to travel, trade or immigration policies, wars, terrorist attacks, sources of political

 

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uncertainty, political unrest, protests, violence in connection with political or social events, foreign policy changes, regional hostilities, imposition of taxes or surcharges by regulatory authorities, changes in regulations, policies, or conditions related to sustainability, including climate change, work stoppages, labor unrest or travel-related accidents can disrupt travel globally or otherwise result in declines in travel demand. Because these events or concerns, and the full impact of their effects, are largely unpredictable, they can dramatically and suddenly affect travel behavior by consumers, and therefore demand for our platform and services, which would materially adversely affect our business, results of operations, and financial condition.

We also cannot predict the effects that the wider adoption by businesses of remote working protocols during COVID-19 pandemic will have going forward. It is possible that many businesses believe that continuing these protocols are beneficial in terms of production and cost and many employees may demand continuance at some level of these protocols, all of which could diminish business travel. Our financial performance is also subject to general global economic conditions and their impact on levels of discretionary spending. Some of the factors that have an impact on discretionary spending include unemployment rates, business and consumer debt, fluctuations in exchange rates, taxation, energy prices, interest rates, consumer confidence, tariffs, and other macroeconomic factors.

The business and industry in which we participate are highly competitive, and we may be unable to compete successfully with our current or future competitors.

We operate in a highly competitive environment and we face significant competition in securing properties on attractive lease terms, hiring and retaining qualified personnel, and attracting guests. We compete to secure long-term leases for properties in neighborhoods that are highly desirable for business and leisure travelers and which offer leasing economics that work within our business model. The supply of available properties and the leasing terms therefor can fluctuate materially and we are in regular competition with a growing number of leisure and business travel services to secure these properties. We compete to attract, engage, and retain guests at our properties. Guests have a range of options to find and book spaces, hotel rooms, serviced apartments, and other accommodations and experiences, both online and offline. We compete for guests based on many factors, including unique inventory and availability of listings, the value and all-in cost of our offerings relative to other options, our brand, ease of use of our platform, the third-party platforms through which are properties may be booked, the relevance and personalization of search results, the trust and safety of our properties and platforms, and community support. We compete to hire and retain qualified personnel in the numerous cities in which we operate. Competition for all levels of employees has become increasingly tight and the effort and expense involved in attracting and retaining employees is likely to increase.

We face competition from companies similar to ours, such as Sonder, Kasa, The Guild, and Frontdesk, among numerous other established and emerging companies. We believe that our competitors also include traditional hotels, such as Marriott and Hilton, vacation rental platforms, such as Airbnb and VRBO, and vacation platforms such as Booking Holdings (including the brands Booking.com, KAYAK, Priceline.com, and Agoda.com), Expedia Group (including the brands Expedia, VRBO, HomeAway, Hotels.com, Orbitz, and Travelocity), and Trip.com Group. As we seek to drive consumers directly to our own booking platforms, we also will face competition from Internet search engines, such as Google, including its travel search products, Baidu, and other regional search engines.

Our competitors utilize similar aspects of our business model, which could affect our ability to differentiate our offerings from competitors. Increased competition could result in reduced demand for our properties from guests, slow our growth, and materially adversely affect our business, results of operations, and financial condition. Many of our current and potential competitors enjoy substantial competitive advantages over us, such as greater name and brand recognition, longer operating histories, larger marketing budgets, and loyalty programs, as well as substantially greater financial, technical, and other resources. In addition, our current or potential competitors have access to larger user bases and/or inventory for accommodations, and may provide multiple travel products, including flights. As a result, our competitors may be able to provide consumers with a better or more complete product experience and respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or guest requirements or preferences.

 

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Unfavorable changes in, or interpretations of, government regulations of the evolving vacation rental industry could harm our operating results.

Our growing portfolio of accommodation units are comprised of leased units in multi-family dwellings and, increasingly, units in entire hotels we lease on a long-term basis. In many cases, the multi-family dwellings are located in residentially zoned areas of our operating cities. Our hotel units are located in commercially zoned areas. In many cases, the cities in which we operate have evolving regulations that limit or prohibit the short-stay rental of units located in residential communities; these municipalities often require short-stay rentals in residential areas to be for a minimum of 30 days. Conversely, hotel units enjoy the benefits of commercial zoning, allowing for short-stay rentals of any length, even as a short as one day. An integral part of our growth strategy is to increase the number of hotel units comprising our total accommodation unit portfolio. As commercially zoned buildings are not subject to local short-stay length regulation, as we increase our hotel-based units, we will be able to offer a larger portion of our accommodation portfolio with maximum flexibility in terms of stay length and more readily ensure compliance of our total units portfolio with any regulations applicable to residential area accommodations. As of June 30, 2022, approximately 10% of our accommodation units are subject to short-stay minimum requirements, while approximately 90% are not. We cannot be certain, however, that we will be able to continue to increase the percentage of hotel rooms comprising our total portfolio. Accommodation units that are located in residential areas will remain subject to the regulations applicable to buildings in these areas and we will need to ensure compliance with all applicable regulations. While our booking platforms are programmed with the type of location of the units being marketed (i.e., residential area or commercial area), and designed to prohibit stay lengths that violate applicable regulations, we cannot be certain that errors will not occur or that zoning changes will not occur ahead of our ability to properly re-identify such units in the programming of our platforms. In the event we breach regulations applicable to our operations with respect to a property, including length-of-stay regulations, typically applicable to accommodation units offered in residentially zone areas, we could face fines from local and state regulatory agencies, and could also be found in breach of the applicable lease, providing the landlord grounds for termination.

We operate in jurisdictions which have various regulatory requirements that can affect our operations or regulate the rental activity of property owners and managers. Since we began our operations in 2017, there have been, and continue to be, regulatory developments that affect the short stay rental industry and the ability of companies to list those rentals online. As noted, some municipalities have adopted ordinances that limit the ability of property owners to rent properties in residentially zoned area for fewer than 30 consecutive days and other cities have introduced or may introduce similar regulations. Some cities also have fair housing or other laws governing the way properties may be rented, which they assert apply to short stay and vacation rentals. Many homeowners, condominium and neighborhood associations have adopted rules that prohibit or restrict short-term rentals. These and other similar developments could reduce our ability to operate our business as intended. In some cities, we operate portfolios of hotel rooms under applicable commercial zoning and hotel regulations, which allow us to offer overnight rentals and rentals shorter than 30 days. These rules may also change over time to limit our ability to do so.

Cities, such as New York City, have been diligent in the implementation and enforcement of short-stay rental regulations to ensure the safety of its residential communities and housing availability and affordability. Although our lease terms with landlords typically provide that ownership of, and responsibility for, the properties remains with the landlords, we generally are obligated to indemnify landlords for any violations that may be caused by our activities or those of our guests. This would include any commercial activity deemed in violation of existing or future zoning laws, buildings codes, housing maintenance codes, multiple dwelling laws, and administrative codes, as well as any specific laws, regulations or prohibitions relating to length of rental or number of concurrent guests in a unit. In the past, we have been required to indemnify against or pay directly civil penalties with respect to units that allegedly violated such rules and regulations and have also, from time to time, ended our leasing of certain units in order to come into compliance with applicable law. From time to time we have allowed guests to rent with an understanding that they intended to vacate the property in less than 30 days, and our leases allowed them to terminate on the exit date with no further financial penalties to such guests. From time to time, we have also been subject to fines with respect to guest stays in excess of 30 days, and were required to challenge such fines. It is possible that we will be subject to more material actions by state and city agencies from time to time. Although, to date, we have not been a party to any such material actions, companies such as Airbnb have been involved in lawsuits with

 

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New York City with respect to sub 30-day rental units offered through their platform and their data and record keeping relating to the hosts of the properties made available through their platform. We expect to be subject to actions, penalties and information requests from time to time in jurisdictions in which we operate, such as New York City. Fines, damages and costs of any such actions could be material and we cannot be sure that our operating flexibility will allow us to promptly replace any units we surrender to comply with any requirements with units that meet such requirements.

Compliance with laws and regulations of different jurisdictions imposing different standards and requirements is very burdensome for businesses like ours. Our business efficiencies and economies of scale depend on generally uniform treatment of owners, managers and travelers across all jurisdictions in which we operate. Compliance requirements that vary significantly from jurisdiction to jurisdiction impose an added cost to our business and increased liability for compliance deficiencies. In addition, laws or regulations that could harm our business could be adopted, or reinterpreted in a manner that affects our activities, by the U.S. government, state governments, and regulatory agencies or by foreign governments or agencies, including but not limited to the regulation of personal and consumer information and real estate licensing requirements. Violations or new interpretations of these laws or regulations may result in penalties, negatively impact our operations and damage our reputation and business. It may be difficult or impossible for us to investigate or evaluate laws or regulations in all cities, countries, and regions. The application of existing laws and regulations to our business and lease properties can be unclear and may be difficult for us to understand and apply such governance. Even as we take measures to rely more heavily on commercially zoned units, and to comply with regulation in the residentially areas zoned where we operate, such regulation is subject to change, as governments or government agencies seek to apply legacy systems of laws or adopt new laws to new online business models in the travel and accommodations industries, including ours. Uncertain and unclear application of such laws and regulations to our activity and our properties and business could reduce supply and demand for our accommodations offerings and services, increase the costs of compliance with such laws and regulations, and increase the threat of litigation or enforcement actions related to our business, any or all of which would materially adversely affect our business, results of operations, and financial condition.

From time to time our units have been occupied by person that unlawfully overstay their lease or otherwise occupy such units illegally, making these units unrentable during such occupancy and forcing us to incur significant expense as we seek legal remedies to take possession of the units.

In 2020, in addition to travel related restrictions and shutdowns, as a protective measure for renters facing hardship during the COVID-19 pandemic, New York City implemented unprecedented eviction moratoriums. As a result, we have experienced, and continue to experience, violations of short-term rental regulations caused by subtenants who illegally occupy some of our units beyond their rental term (i.e., “squatters”), and, in some cases, illegally “sublease” our units to others. In these circumstances, we take 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, to date we have received limited relief. Illegal tenants continue to occupy several units in our New York City portfolio which, in turn, has led to such properties’ landlords incurring fines with the New York’s Department of Buildings (DOB) and the New York’s Office of Special Enforcement (OSE), which regulates short-term rentals. We have been unable to utilize these units in our operations and have not generated any revenues from these units while “squatters” continue to occupy our units (and this is reflected in our financial statements included in this prospectus for the relevant periods). It is possible that we could be held liable for the actions and activities of these illegal tenants. We continue to pursue legal options to have these “squatters” evicted.

Uncertainty in the application of taxes to our business could increase our tax liabilities and may discourage property owners from leasing to us or guests form staying at our accommodation offerings.

We are subject to a variety of taxes and tax collection obligations in the United States (federal, state, and local) and, as if we expand internationally as intended, we will become subject to such obligations in numerous foreign jurisdictions. A number of jurisdictions have proposed or implemented new tax laws or interpreted existing laws to explicitly apply various taxes to businesses in the short stay rental industry. Laws and regulations relating to taxes as applied to our business, vary greatly among jurisdictions, and it is difficult or impossible to predict how such laws and regulations will be applied. The application of indirect

 

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taxes, such as lodging taxes, hotel, sales and use tax, privilege taxes, excise taxes, VAT, goods and services tax, harmonized sales taxes, business tax, and gross receipt taxes (together, “indirect taxes”) to e-commerce activities such as ours and to our guests is a complex and evolving issue. Some of such tax laws or regulations hold us responsible for the reporting, collection, and payment of such taxes, and such laws could be applied to us for transactions conducted in the past as well as transactions in the future. Many of the statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and e-commerce. New or revised foreign, federal, state, or local tax regulations may subject our business to additional indirect, income, and other taxes, and depending upon the jurisdiction could subject us to significant monetary penalties and fines for non-payment of taxes. An increasing number of jurisdictions are also considering adopting or have adopted laws or administrative practices that impose new tax measures, including digital platform revenue-based taxes, targeting online sharing platforms and online marketplaces, and new obligations to collect income taxes, sales, consumption, value added, or other taxes on digital platforms. We may recognize additional tax expenses and be subject to additional tax liabilities, and our business, results of operations, and financial condition could be materially adversely affected by additional taxes of this nature or additional taxes or penalties resulting from our failure to comply with any reporting, collection, and payment obligations. We accrue a reserve for such taxes when the likelihood is probable that such taxes apply to us, and upon examination or audit, such reserves may be insufficient. New or revised taxes and, in particular, the taxes described above and similar taxes would likely increase the price paid by guests, our lease costs and other costs of doing business, discourage property owners from leasing to us and guests from renting our accommodation offerings , and lead to a decline in revenue, and materially adversely affect our business, results of operations, and financial condition.

We failed to collect and remit certain state and local taxes and will be required to pay same, together with interest and penalties.

As part of our compliance review, we determined that certain state and local tax payments for short-term stays below prescribed tax regulation cutoffs had not been properly collected and applied, either directly by us or the platforms through which customers reservation and payments are made. We have reserved $866,409 to cover such payments on our financial statements for the six-month period ended June 30, 2022. We have taken action that we believe will prevent reoccurrence of this in the future.

Our quarterly financial results are subject to fluctuations. As a result, we could fail to meet or exceed our projections or the expectations of analysts or investors, which could cause our stock price to decline.

Our revenue, expenses, operating results and cash flows have fluctuated from quarter to quarter in the past and are likely to continue to do so in the future. These fluctuations are due to, or may result from, many factors, some of which are outside of our control and many of which are difficult to predict, including:

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changes in cash flow due to the seasonal nature of our listing renewals and new property acquisitions;

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changes by major online search engine companies in their search algorithms, our ability to adapt to these changes and the increased costs of adapting to these changes, which could cause us to spend more on marketing or cause our offerings to cease appearing in natural search results completely;

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advertising costs for paid search keywords that we deem relevant to our business and the success and costs of our broad reach and online advertising and marketing initiatives;

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costs related to acquisitions or licensing of, or investments in, products, services, technologies or other businesses and our ability to successfully integrate and manage these acquisitions;

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the amount and timing of operating expenses and capital expenditures related to the expansion of our operations and infrastructure;

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the timing of revenue and expenses related to the development or acquisition and integration of technologies, products or businesses;

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the timing and success of changes in our pricing or services;

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the introduction and performance of new products or services;

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the introduction of new products or services by our competitors;

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our ability to keep our websites operating without technical difficulties or service interruptions;

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declines or disruptions in the travel industry, particularly in regions where we generate substantial revenue;

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economic instability and fluctuations in exchange rates;

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changes in the timing of holidays or other vacation events;

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new accounting pronouncements and changes in accounting standards or practices, particularly any affecting the recognition of listing revenue or accounting for mergers and acquisitions; and

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new laws or regulations, or new interpretations of or changes in existing laws or regulations, that harm our business models or restrict the Internet, e-commerce, online payments, or online communications.

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Fluctuations in our quarterly operating results may, particularly if unforeseen, cause us to miss any projections we may have provided or may lead analysts or investors to change their long-term models for valuing our common stock. In addition, such fluctuations may cause us to face short-term liquidity issues, impact our ability to retain or attract key personnel or cause other unanticipated issues. Any of these effects could cause our stock price to decline. As a result of the potential variations in our quarterly revenue and operating results, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful and the results of any one quarter should not be relied upon as an indication of future performance.

Maintaining and enhancing our brand and reputation is critical to our growth, and negative publicity could damage our brand and thereby harm our ability to compete effectively, and could materially adversely affect our business, results of operations, and financial condition.

Our brand and our reputation are among our most important assets. Maintaining and enhancing our brand and reputation are critical to our ability to attract property owners, guests, and employees, to compete effectively, to preserve and deepen the engagement of our existing guests and employees, to maintain and improve our standing in the communities where we operate, including our standing with community leaders and regulatory bodies, and to mitigate legislative or regulatory scrutiny, litigation, and government investigations. We are heavily dependent on the perceptions of our guests to help make word-of-mouth recommendations that contribute to our growth. Any incident, whether actual or rumored to have occurred, involving the safety or security of our properties, guests, or other members of the public, fraudulent transactions, or incidents that are mistakenly attributed to us, and any media coverage resulting therefrom, could create a negative public perception of our business, which would adversely impact our ability to secure property leases and attract guests. Any resulting damage to our brand or reputation could materially adversely affect our business, results of operations, and financial condition.

The actions of property owners or guests are often not within our control and may undermine the safety or the public perception of the safety of our properties.

While we have systems in place to do general reviews our property owners and guests, we cannot be certain that any such persons will not commit actions that can cause harm or negative publicity. Although our properties are fully supervised by our employees, we cannot directly control the actions of the property owners from which we lease our accommodation units or the guests that stay there. Malevolent, negligent or criminal actions by property owners or guests could cause harm to other guests, our employees and our properties. Any perception that our properties are not safe could materially harm our reputation and ability to attract guests and create repeat business. Our identity verification processes rely on, among other things, information provided by property owners and guests, and our ability to validate that information and the effectiveness of third-party service providers that support our verification processes may be limited. In addition, we do not currently and may not in the future require users to re-verify their identity following their successful completion of the initial verification process. Certain verification processes, including legacy verification processes on which we previously relied, may be less reliable than others. There can be no assurances that these measures we take can or will significantly reduce harmful activity at our properties. In the event of adverse actions occurring at one of our properties, we could face civil claims and regulatory or other investigations. While we recognize that we need to continue to build trust and invest in innovations

 

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that will support trust when it comes to our policies and procedures to protect our guests and properties, and the communities in which we operate, we may not be successful in doing so.

We rely on numerous third parties for integral parts of our operations and any inability to maintain or replace these third party providers or transition these services to our own internal operations on economically reasonable terms could have an adverse effect on our operations.

We provide accommodations that we lease from third-party property owners and, in addition to our own employees, utilize third-party services for the cleaning and maintenance of these properties. In addition to our own booking website, we utilize third-party online portals for guest booking and reservation. We also use third-party security systems, property monitoring systems and data analytic software services in addition to our own data analysis processing and software. We use both internally developed systems and third-party systems for our operations, including transaction and payment processing, and financial and accounting systems. Any inability to maintain our relationships with these service providers on economically reasonable terms, or any inability by these service providers to provide their services to us at a level that is commercially reasonable and dependable could have an adverse effect on our operations. As we grow, we will likely increase our internal capabilities and decrease our reliance on third-party suppliers, but we may not be successful in this regard. As we grow our business, we will need to significantly upgrade and expand our transaction and payment processing systems, financial and accounting systems, and other infrastructure. We may not be able to upgrade our systems and infrastructure to accommodate such growth in a timely manner, and depending on the systems affected, our transaction and payment processing, and financial and accounting systems could be impacted for a meaningful amount of time, which could materially adversely affect our business, results of operations, and financial condition.

Our business also depends on the performance and reliability of the Internet, mobile, telecommunications network operators, and other infrastructures that are not under our control. As consumers increasingly turn to mobile devices, we also become dependent on consumers’ access to the Internet through mobile carriers and their systems. Disruptions in Internet access, whether generally, in a specific region or otherwise, could materially adversely affect our business, results of operations, and financial condition.

In June 2022, we migrated our main property management system (PMS) from Hostfully to HostAway. During a 72-hour period following the transition to our new technology platform, technical difficulties resulted in certain double bookings. The vast majority of these double booking reservations were not charged and we worked with third-party marketing and reservation channels to relocate and refund any adversely effected guests. Any similar future events could be more severe and could have an adverse impact on our operations, reputation and financial results.

We do not control the operation, physical security, or data security of any of our third-party providers. Despite our efforts to use commercially reasonable diligence in the selection and retention of such third-party providers, such efforts may be insufficient or inadequate to prevent or remediate such risks. Our third-party providers, including our cloud computing providers and our payment processing partners, may be subject to intrusions, computer viruses, denial-of-service attacks, sabotage, acts of vandalism, acts of terrorism, and other misconduct. They are vulnerable to damage or interruption from power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes, and similar events, and they may be subject to financial, legal, regulatory, and labor issues, each of which may impose additional costs or requirements on us or prevent these third parties from providing services to us or our customers on our behalf. In addition, these third parties may breach their agreements with us, disagree with our interpretation of contract terms or applicable laws and regulations, refuse to continue or renew these agreements on commercially reasonable terms or at all, fail to or refuse to process transactions or provide other services adequately, take actions that degrade the functionality of our platform and services, increase prices, impose additional costs or requirements on us or our customers, or give preferential treatment to our competitors. If we are unable to procure alternatives in a timely and efficient manner and on acceptable terms, or at all, we may be subject to business disruptions, losses, or costs to remediate any of these deficiencies. Our systems currently do not provide complete redundancy of data storage or processing or payment processing. Although we are in the process of developing a comprehensive business continuity and disaster recovery plans for all of our operations, there is no guarantee that such plans will be effective. The occurrence of any of the above events could result in reputational damage, legal or regulatory proceedings, or other adverse consequences, which could materially adversely affect our business, results of operations, and financial condition.

 

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We are subject to risks associated with the employment of hospitality personnel, particularly at locations that employ unionized labor, and the use of third-party guest services contractors.

Our hospitality employees and other guest services personnel are critical to our ability to add properties, maintain our units, enhance the guest experience, and attract and retain guests. If our relationship with employees in any city or at any key property, or within our central guest services function, deteriorates for any reason, our reputation, guest relationships and results of operations may suffer, and we may incur costs to replace and retrain additional personnel or third-party contractors. As we grow, we also may face difficulty in attracting and hiring additional qualified personnel in these areas. In addition, many of the guest services representatives and housekeepers who provide services to our company and guests are employees of third-party agencies or the hotels from which we lease room portfolios on a long-term basis. We do not control such third-party agencies and accordingly, do not directly control the policies, practices or relationships between such agencies and their employees. Our business and reputation could be harmed in the event of any dispute between such agencies and their employees, of if such employees do not provide services that meet our or our guests’ standards and expectations. Labor costs (both direct and through third-party agency fees) are a significant component of our operating expenses, and any increase in the cost of wages, benefits or other employee-related costs could cause our results of operations and cash flow to be lower than anticipated. Certain cities have also adopted re-hiring ordinances and other requirements with respect to hotel and other hospitality employees, and these and other employment regulations may increase our costs and impair our operations.

Like other businesses in the hospitality industry, we may be adversely affected by organized labor activity. A portion of our employees are currently represented by labor unions and/or covered by collective bargaining agreements. Union, worker council or other organized labor activity may occur at other locations. We cannot predict the outcome of any labor-related proposal or other organized labor activity. Increased unionization of our workforce or other collective labor action, new labor legislation or changes in regulations could be costly, reduce our staffing flexibility or otherwise disrupt our operations, and reduce our profitability. From time to time, hospitality operations may be disrupted because of strikes, lockouts, public demonstrations or other negative actions and publicity involving employees and third-party contractors.

We may also incur increased legal costs and indirect labor costs because of disputes involving our workforce. The resolution of labor disputes or new or renegotiated labor contracts could lead to increased labor costs, which are a significant component of our operating costs, either by increases in wages or benefits or by changes in work rules that raise operating costs. Labor disputes and disruptions may also occur within landlords’ workforces at buildings we occupy, which could harm our guests’ experience and reduce bookings at the affected property.

We will rely increasingly on our own websites for the marketing of our properties, which marketing efforts are becoming increasingly regulated.

We will increasingly use performance marketing products offered by search engines and social media platforms to distribute paid advertisements as we seek to drive traffic to our own websites and decrease our reliance on third party booking portals. Traffic to our own websites will also come through direct or unpaid channels, which include brand marketing and search engine optimization. A critical factor in attracting guests to our accommodation offerings is how prominently listings are displayed in response to search queries for key search terms. Competitors regularly bid on the same keywords, driving up the costs of securing same. Over time, our strategy will be to build the recognition of our brand to increase its use by consumers as a search term and decrease reliance on generic search terms, thereby driving down costs in this regard. If we are not able to effectively increase our traffic growth without increases in spend on performance marketing, we may need to increase our performance marketing spend in the future, including in response to increased spend on performance marketing from our competitors, and our business, results of operations, and financial condition could be materially adversely affected.

The technology that powers performance marketing is increasingly subject to strict regulation, and as a result, our business. For example, we rely on the placement and use of “cookies” — text files stored on a user’s web browser or device — to support tailored marketing to consumers. Many countries have adopted, or are in the process of adopting, regulations governing the use of cookies and similar technologies, and individuals may be required to “opt-in” to the placement of cookies used for purposes of marketing. If

 

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regulators start to enforce the strict approach, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs, and subject us to additional liabilities. Widespread adoption of regulations that significantly restrict our ability to use performance marketing technology could adversely affect our ability to market effectively to current and prospective guests, and thus materially adversely affect our business, results of operations, and financial condition.

Our level of indebtedness could materially adversely affect our financial condition.

As of June 30, 2022, we had aggregate indebtedness of approximately $10.0 million. Our indebtedness could materially adversely affect our business by:

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increasing our vulnerability to general adverse economic and industry conditions;

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requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, product development efforts, and other general corporate purposes;

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limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

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exposing us to the risk of increased interest rates as our borrowings are, and may in the future be, at variable interest rates.

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The occurrence of any one of these events could have a material adverse effect on our business, results of operations, and financial condition, and ability to satisfy our obligations under our credit agreements.

If we fail to comply with federal, state, and foreign laws relating to privacy and data protection, we may face potentially significant liability, negative publicity, an erosion of trust, and increased regulation could materially adversely affect our business, results of operations, and financial condition.

Privacy and data protection laws, rules, and regulations are complex, and their interpretation is rapidly evolving, making implementation and enforcement, and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent. Compliance with such laws may require changes to our data collection, use, transfer, disclosure, other processing, and certain other related business practices and may thereby increase compliance costs or have other material adverse effects on our business. As part of guest registration and business processes, we collect and use personal data, such as names, dates of birth, email addresses, phone numbers, and identity verification information (for example, government issued identification or passport), as well as credit card or other financial information that guests provide to us. The laws of many states and countries require businesses that maintain such personal data to implement reasonable measures to keep such information secure and otherwise restrict the ways in which such information can be collected and used. Many of these laws impose stringent data protection requirements with significant penalties, and the risk of civil litigation, for noncompliance.

Any failure or perceived failure by us to comply with privacy and data protection policies, enforcement notices and/or assessment notices (for a compulsory audit), laws, rules, and regulations could result in proceedings or actions against us by individuals, consumer rights groups, government agencies, or others. We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, and diversion of internal resources. We could incur significant costs in investigating and defending such claims and, if found liable, pay significant damages or fines or be required to make changes to our business. Further, these proceedings and any subsequent adverse outcomes may subject us to significant negative publicity, and an erosion of trust. If any of these events were to occur, our business, results of operations, and financial condition could be materially adversely affected.

If we fail to prevent data security breaches, there may be damage to our brand and reputation, material financial penalties, and legal liability, along with a decline in use of our platform, which would materially adversely affect our business, results of operations, and financial condition.

There are risks of security breaches both on and off our systems as we increase the types of technology we use to operate our business, including mobile apps and third-party payment processing providers, and as

 

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we collaborate with third parties that may need to process our guest data or have access to our infrastructure. The evolution of technology systems introduces ever more complex security risks that are difficult to predict and defend against. An increasing number of companies, including those with significant online operations, have recently disclosed breaches of their security, some of which involved sophisticated tactics and techniques allegedly attributable to criminal enterprises or nation-state actors. While we take significant measures to guard against the type of activity that can lead to data breaches, the techniques used by bad actors to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are unknown until launched against a target. As such, we may be unable to anticipate these tactics and techniques or to implement adequate preventative measures. Any circumvention of our security measures, or those of our third party service providers, could result in the misappropriation of confidential or proprietary information, interrupt our operations, result in financial loss, damage our computers or those of our guests, or otherwise cause damage to our reputation and business.

The coverage afforded under our insurance policies may be inadequate for the needs of our business or our third-party insurers may be unable or unwilling to meet our coverage requirements, which could materially adversely affect our business, results of operations, and financial condition.

We maintain insurance on our properties and operations of the types and in the amount of coverages our management determines to be prudent and necessary and are self-insured in terms that management believes presents risks that are too low to justify insurance expenditures. Our business, results of operations, and financial condition would be materially adversely affected if (i) cost per claim, premiums or the number of claims significantly exceeds our expectations; (ii) we experience a claim in excess of our coverage limits; (iii) our insurance providers become insolvent or otherwise fail to pay on our insurance claims; (iv) we experience a claim for which coverage is not provided or for which we are self-insured; or (v) the number of claims under our deductibles or self-insured retentions differs from historic averages. Premiums will likely increase over time and we may have difficulty in obtaining appropriate policy limits and levels of coverage at a reasonable cost and with reasonable terms and conditions. Our costs for obtaining these policies will continue to increase as our business grows and continues to evolve. Furthermore, as our business continues to develop and diversify, we may experience difficulty in obtaining insurance coverage for new and evolving offerings and tiers, which could require us to incur greater costs and materially adversely affect our business, results of operations, and financial condition. Additionally, if we fail to comply with insurance regulatory requirements in the regions where we operate, or other regulations governing insurance coverage, our brand, reputation, business, results of operations, and financial condition could be materially adversely affected.

If we are unable to adapt to changes in technology and the evolving demands of our guests, our business, results of operations, and financial condition could be materially adversely affected.

The industries in which we compete are characterized by rapidly changing technology, evolving industry standards, consolidation, frequent new offering announcements, introductions, and enhancements, and changing consumer demands and preferences. In 2018, we began making incremental investments in upgrading our technology platform to a service-oriented architecture, improving data management, and increasing our service reliability. Our future success will depend on our ability to adapt our platforms and services to evolving industry standards and local preferences, and to continually innovate and improve the performance, features, and reliability of our platform and services in response to competitive offerings and the evolving demands of guests. Our future success will also depend on our ability to adapt to emerging technologies such as tokenization, cryptocurrencies, new authentication technologies, such as biometrics, distributed ledger and blockchain technologies, artificial intelligence, virtual and augmented reality, and cloud technologies. As a result, we intend to continue to spend significant resources maintaining, developing, and enhancing our technologies and platform; however, these efforts may be more costly than expected and may not be successful. For example, we may not make the appropriate investments in new technologies, which could materially adversely affect our business, results of operations, and financial condition. Further, technological innovation often results in unintended consequences such as bugs, vulnerabilities, and other system failures. Any such bug, vulnerability, or failure, especially in connection with a significant technical implementation or change, could result in lost business, harm to our brand or reputation, consumer complaints, and other adverse consequences, any of which could materially adversely affect our business, results of operations, and financial condition.

 

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We are subject to payment-related fraud and an increase in or failure to deal effectively with fraud, fraudulent activities, fictitious transactions, or illegal transactions would materially adversely affect our business, results of operations, and financial condition.

We process a significant volume and dollar value of transactions on a daily basis. If we do not fulfill our obligations to guests, there are fictitious listings or fraudulent bookings for our accommodations, or there are account takeovers, we may incur losses from claims by guests, and these losses could be substantial. Such instances have and can lead to the reversal of payments received by us for such bookings, referred to as a “chargeback.” Our ability to detect and combat fraudulent schemes, which have become increasingly common and sophisticated, could be adversely impacted by the adoption of new payment methods, the emergence and innovation of new technology platforms, including mobile and other devices, and our growth in certain regions, including in regions with a history of elevated fraudulent activity. We expect that technically knowledgeable criminals will continue to attempt to circumvent anti-fraud systems. In addition, the payment card networks have rules around acceptable chargeback ratios. If we are unable to effectively combat fictitious listings and fraudulent bookings on our platform, or there is fraud committed on a third-party booking site related to our guests or properties, combat the use of fraudulent or stolen credit cards, or otherwise maintain or lower our current levels of charge-backs, we may be subject to fines and higher transaction fees or be unable to continue to accept card payments because payment card networks have revoked our access to their networks, any of which would materially adversely impact our business, results of operations, and financial condition.

Any payments platform used by us in connection with our offerings is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing laws, rules, regulations, policies, legal interpretations, and regulatory guidance could materially adversely affect our business, results of operations, and financial condition.

Payment platforms are subject to various laws, rules, regulations, policies, legal interpretations, and regulatory guidance, including those governing: cross-border and domestic money transmission and funds transfers; stored value and prepaid access; foreign exchange; privacy, data protection, and cybersecurity; banking secrecy; payment services (including payment processing and settlement services); consumer protection; economic and trade sanctions; anti-corruption and anti-bribery; and anti-money laundering and counter-terrorist financing. As we expand our operations and migrate guests to our own booking platforms, we will become increasingly subject to these laws and regulations. In addition, because we facilitate bookings through third-party payment processors worldwide, one or more jurisdictions may claim that we or our customers are required to comply with their laws. Laws regulating payments platform outside of the United States often impose different, more specific, or even conflicting obligations on the operators thereof, as well as broader liability. For example, certain transactions that may be permissible in a local jurisdiction may be prohibited by regulations of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) or U.S. anti-money laundering or counter-terrorist financing regulations. Any failure or perceived failure to comply with existing or new laws and regulations, including the ones described in this risk factor, or orders of any governmental authority, including changes to or expansion of their interpretations, may subject our services providers and possibly us to significant fines, penalties, criminal and civil lawsuits, forfeiture of significant assets, enforcement actions in one or more jurisdictions, result in additional compliance and licensure requirements, and increased regulatory scrutiny of our business.

We are subject to payment network rules and any material modification of our payment card acceptance privileges could have a material adverse effect on our business, results of operations, and financial condition.

The loss of our credit and debit card acceptance privileges or the significant modification of the terms under which we obtain card acceptance privileges would significantly limit our business model since a vast majority of our guests pay using credit or debit cards. We are required by our payment processors to comply with payment card network operating rules, including the Payment Card Industry Data Security Standards (the “PCI DSS”). Under the PCI DSS, we are required to adopt and implement internal controls over the use, storage, and transmission of card data to help prevent credit card fraud. If we fail to comply with the rules and regulations adopted by the payment card networks, including the PCI DSS, we would be in breach of our contractual obligations to payment processors and merchant banks. Such failure to comply may damage our relationship with payment card networks, subject us to restrictions, fines, penalties, damages, and civil

 

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liability, and could eventually prevent us from processing or accepting payment cards, which would have a material adverse effect on our business, results of operations, and financial condition.

We rely on third-party payment service providers to process payments made by guests. If these third-party payment service providers become unavailable or we are subject to increased fees, our business, results of operations, and financial condition could be materially adversely affected.

We rely on a number of third-party payment service providers, including payment card networks, banks, payment processors, and payment gateways, to link us to payment card and bank clearing networks to process payments made by our guests. We have agreements with these providers, some of whom are the sole providers of their particular service. If these companies become unwilling or unable to provide these services to us on acceptable terms or at all, our business may be disrupted, we would need to find an alternate payment service provider, and we may not be able to secure similar terms or replace such payment service provider in an acceptable time frame. If we are forced to migrate to other third-party payment service providers for any reason, the transition would require significant time and management resources, and may not be as effective, efficient, or well-received by our guests. Any of the foregoing could cause us to incur significant losses, which could materially adversely affect our business, results of operations, and financial condition.

In March 2022, as a result of a significant increase in processing volumes, some of our credit card processors put the Company on credit review. As a result of this review, we were required to immediately increase our reserves at these processors. As a result of this requirement, our working capital (less reserved cash for letters of credit and credit card processors) declined.

The failure to successfully execute and integrate acquisitions could materially adversely affect our business, results of operations, and financial condition.

As part of our growth strategy we may acquire other companies or portfolios of accommodation assets from time to time. We may expend significant cash or incur substantial debt to finance such acquisitions, which indebtedness could result in restrictions on our business and significant use of available cash to make payments of interest and principal. In addition, we may finance acquisitions by issuing equity or convertible debt securities, which could result in further dilution to our existing stockholders. We may enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations could result in diversion of management time and significant out-of-pocket costs. If we fail to evaluate and execute acquisitions successfully, our business, results of operations, and financial condition could be materially adversely affected.

In addition, we may not be successful in integrating acquisitions or the businesses we acquire may not perform as well as we expect. While our acquisitions to date have not caused major disruptions in our business, any future failure to manage and successfully integrate acquired businesses could materially adversely affect our business, results of operations, and financial condition. Acquisitions involve numerous risks, including the following:

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difficulties in integrating and managing the combined operations, technology platforms, or offerings of the acquired companies and realizing the anticipated economic, operational, and other benefits in a timely manner, which could result in substantial costs and delays, and failure to execute on the intended strategy and synergies;

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failure of the acquired businesses to achieve anticipated revenue, earnings, or cash flow;

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diversion of management’s attention or other resources from our existing business;

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our inability to maintain the key customers, business relationships, suppliers, and brand potential of acquired businesses;

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uncertainty of entry into businesses or geographies in which we have limited or no prior experience or in which competitors have stronger positions;

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unanticipated costs associated with pursuing acquisitions or greater than expected costs in integrating the acquired businesses;

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responsibility for the liabilities of acquired businesses, including those that were not disclosed to us or exceed our estimates, such as liabilities arising out of the failure to maintain effective data protection

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and privacy controls, and liabilities arising out of the failure to comply with applicable laws and regulations, including tax laws;

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difficulties in or costs associated with assigning or transferring to us or our subsidiaries the acquired companies’ intellectual property or its licenses to third-party intellectual property;

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inability to maintain our culture and values, ethical standards, controls, procedures, and policies;

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challenges in integrating the workforce of acquired companies and the potential loss of key employees of the acquired companies;

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challenges in integrating and auditing the financial statements of acquired companies that have not historically prepared financial statements in accordance with GAAP; and

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potential accounting charges to the extent goodwill and intangible assets recorded in connection with an acquisition, such as trademarks, customer relationships, or intellectual property, are later determined to be impaired and written down in value.

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If we do not adequately protect our intellectual property and our data, our business, results of operations, and financial condition could be materially adversely affected.

We hold certain intellectual property rights related to our brand and certain content and design elements of our business, including big data analytics and related algorithms. We rely on a combination of trademark and trade secret laws, international treaties, our terms of service, other contractual provisions, user policies, restrictions on disclosure, technological measures, and confidentiality and inventions assignment agreements with our employees and consultants to protect our intellectual property assets from infringement and misappropriation. Effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. There can be no assurance that others will not offer technologies, products, services, features, or concepts that are substantially similar to ours and compete with our business, or copy or otherwise obtain, disclose and/or use our brand, content, design elements, creative, editorial, and entertainment assets, or other proprietary information without authorization. Our intellectual property assets and rights are essential to our business. If the protection of our proprietary rights and data is inadequate to prevent unauthorized use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our technologies, offerings, or features or methods of operations. Even if we do detect violations or misappropriations and decide to enforce our rights, litigation may be necessary to enforce our rights, and any enforcement efforts we undertake could be time-consuming and expensive, could divert our management’s attention, and may result in a court determining that certain of our intellectual property rights are unenforceable. If we fail to protect our intellectual property and data in a cost-effective and meaningful manner, our competitive standing could be harmed; our guests, other consumers, and corporate and community partners could devalue the content of our platform; and our brand, reputation, business, results of operations, and financial condition could be materially adversely affected.

As we expand our operations to locations outside of the United States, we will become subject additional risks.

We intend to grow our operations in part by expanding our operations in a number of jurisdictions outside of the United States. Laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses, or our failure to adapt our practices, systems, processes, and business models effectively to the traveler and supplier preferences (as well as the regulatory and tax landscapes) of each country into which we expand, could slow our growth, or prevent our ability to compete effectively in certain markets. For example, to compete in certain international markets we may have to adopt locally preferred payment methods, which could increase our costs and instances of fraud. In addition to the other risks described in this prospectus, our company’s international operations would be subject to numerous other risks, including:

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Exposure to local economic or political instability and threatened or actual acts of terrorism;

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Compliance with U.S. and non-U.S. regulatory laws and requirements relating to anti-corruption, antitrust or competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws, health and safety, information reporting and advertising and promotions;

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Weaker enforcement of our company’s contractual and intellectual property rights;

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Lower levels of credit card usage and increased payment and fraud risk;

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Longer payment cycles, and difficulties in collecting accounts receivable;

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Preferences by local populations for local providers;

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Restrictions on, or adverse tax and other consequences related to the repatriation of cash, the withdrawal of non-U.S. investments, cash balances and earnings, as well as restrictions on our company’s ability to invest in our company’s operations in certain countries;

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Changes to trade policy or agreements that limit our company’s ability to offer, or adversely affect demand for, our company’s products and services;

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Our company’s ability to support technologies or marketing channels that may be prevalent in a particular international market and used by local competitors, but are not scalable for an international company offering services in many markets around the world; and

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Uncertainty regarding liability for services and content, including uncertainty as a result of local laws and lack of precedent.

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Our chief executive officer entered into an offer of settlement with the Securities and Exchange Commission in connection with his role in another public company.

Brian Ferdinand, our chief executive officer, entered into an Offer of Settlement with the Securities and Exchange Commission on April 22, 2020, in connection with allegations that he, as a board member of Liquid Holdings Group Inc., (a) reviewed a Form 10-Q and signed a Form 10-K for the fiscal year 2013 that failed to disclose material facts of Liquid’s reliance on a related party entity (a principal customer of Liquid and a company of which Mr. Ferdinand was an owner), and from which Liquid received material subscription fees, and (b) failed to file required Forms 4 and amendments to Schedule 13D to reflect material. changes to his ownership in Liquid’s shares of common stock, causing Liquid to violate Section 13(a), 13(d)(2) and 16(a) of the Exchange Act and related rules thereof. Mr. Ferdinand consented, without admitting or denying any findings, to a cease and desist order from any alleged secondary violations of Section 17(a)(2) of the Securities Act and 13(a) of the Exchange Act, which are non-scienter provisions in which negligence is sufficient to establish liability for causing a primary violation; and Section 13(d)(2) and Section 16(a) of the Exchange Act, which are personal security reporting provisions under which strict liability is sufficient to establish a violation. As a result of the settlement, Mr. Ferdinand was also required to pay a fine of $115,000.

Risks Related to Being a Public Company

The management team of our company has limited experience managing a public company.

We completed our IPO in August 2022. Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. If our company’s management team is unable to efficiently manage our transition to being a public company and comply with the attendant regulatory oversight and reporting obligations under the federal securities laws, it could adversely affect our company’s businesses, results of operations and financial condition.

The requirements of being a public company may strain our company’s resources and distract its management, which could make it difficult to manage its businesses.

As a public company our company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the Sarbanes-Oxley Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Compliance with these rules and regulations significantly increases our historical legal and accounting costs, making some of our company’s activities more difficult, time-consuming, or costly, and increasing demand on our company’s systems and resources. The Exchange Act requires that our company file annual, quarterly, and current reports with respect to our businesses, financial condition, and results of operations. In addition, our company is continuing to

 

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establish and strengthen the corporate infrastructure necessary for operating as a public company, which may divert its management’s attention from implementing our company’s growth strategy, which could delay or slow the implementation of our company’s business strategies, and in turn negatively impact our company’s financial condition and results of operations.

During our operations prior to our IPO as a private company our internal controls over financial reporting had historically had material weaknesses, and as a public company going forward, may not be effective, and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our company’s businesses and reputation.

As a public company, our company is required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require the management of a public company to certify financial and other information in our company’s quarterly and annual reports. In addition, the management of our company is required to conduct an annual assessment and provide an annual management report on the effectiveness of our company’s controls over financial reporting and disclose any material weaknesses in such controls. However, for as long as our company is an “emerging growth company” under the JOBS Act, its independent registered public accounting firm will not be required to attest to the effectiveness of our company’s internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Our company could remain an emerging growth company for up to five years. After the date our company is no longer an “emerging growth company,” its independent registered public accounting firm will only be required to attest to the effectiveness of its internal controls over financial reporting depending on its market capitalization. Even if management concludes that our company’s internal controls over financial reporting are effective, its independent registered public accounting firm may still decline to attest to management’s assessment, or may issue a report that is qualified if it is not satisfied with our company’s controls or the level at which its controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from our auditors. In addition, in connection with the implementation of the necessary procedures and practices related to internal controls over financial reporting, our company may identify deficiencies that it may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could impair our company’s ability to grow its revenue, cause investors to lose confidence in the accuracy and completeness of our company’s financial reports, and other information, which may have a negative effect on the trading price of its common stock.

Prior to our recent IPO, we operated as a private, closely held company that was funded primarily by our principals with no third-party investment. As a private company we did not undertake annual audits of our financial statements in the ordinary course, and have not been subject to the rules and regulations that now apply to us following consummation of our IPO, including those relating to internal controls and periodic reporting. In connection with the recent audits of our financial statements, we have identified material weaknesses in our internal control over financial reporting with respect to our periodic and annual financial close processes. As historically constituted, our human resources, processes and systems did not enable us to produce accurate financial statements on a timely basis. While we deem this type of material weakness typical in a closely held, private company, in preparation of becoming a public company, we implemented a remediation plan which included the hiring of additional, qualified financial and accounting personnel, and engagement of specialized external resources, including the outsourcing of a portion of our accounting department functions to a qualified accounting firm. Additionally, we have formed an audit committee of independent directors in connection with our IPO. Our remediation plan also included adopting other entity-level controls, properly segregating duties among appropriate personnel, education and training of applicable management and financial personnel, and improvements in the process and system used to monitor and track the effectiveness of underlying business process controls.

If our company fails to maintain effective internal controls over financial reporting, its ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect on our company’s businesses and stock price.

To maintain and improve the effectiveness of our company’s (i) disclosure controls and procedures, and its (ii) internal control over financial reporting, our company has expended significant resources, including accounting-related costs and significant management oversight. We anticipate that the requirements of these rules and regulations will continue to increase our company’s legal, accounting and financial compliance

 

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costs, cause the performance of some activities more difficult, time consuming and costly, and place significant strain on our company’s personnel, systems and resources. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our company’s operating results or cause it to fail to meet its reporting obligations under the Exchange Act. The failure to develop or maintain effective internal controls over financial reporting can result in a restatement of our company’s financial statements for prior periods and could subject our company to investigations by the SEC and/or other regulatory scrutiny and sanctions. Any failure to implement and maintain effective internal control over financial reporting could adversely affect the results of management evaluations, and in turn, the audits of our company’s internal control over financial reporting that its independent public accounting firm is required to include in our company’s periodic reports filed with the SEC. In addition, if our company is unable to continue to meet these requirements, our company may be unable to remain listed on Nasdaq.

If securities or industry analysts do not publish or cease publishing research or reports about our company, its businesses, or its market, or if they adversely change their recommendations regarding our company’s shares, or if our company’s results of operations do not meet their expectations, our company’s share prices and trading volume could decline.

The trading market for our common stock may be influenced by the research and reports that industry or securities analysts publish about our company, businesses, market and competitors. Our company does not have any control over these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading prices and trading volumes of our securities would likely be negatively impacted. In the event analysts initiate coverage, and one or more of these analysts cease coverage of our company or fail to publish reports on our company regularly, our company could lose visibility in the financial markets, which in turn could cause share prices or trading volume to decline. If one or more of the analysts who may cover our company were to downgrade our company’s stock or provide more favorable relative recommendations about our competitors, or if our results of operations do not meet their expectations, the prices or trading volumes of our shares would likely decline.

Our company’s certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between our company and its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with our company or its directors, officers, or employees.

Our certificate of incorporation provides that, unless our company consents in writing to the selection of an alternative forum, the sole and exclusive forum, to the fullest extent permitted by law, for (a) derivative actions or proceedings brought on our company’s behalf, (b) actions asserting a claim of breach of a fiduciary duty owed by any of its directors, officers, employees or agents or its stockholders, (c) any action asserting a claim against our company’s or any director or officer arising pursuant to any provision of the DGCL, (d) any action to interpret, apply, enforce or determine the validity of our company’s certificate of incorporation or bylaws, or (e) any other action asserting a claim that is governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware or federal court located within the State of Delaware if the Court of Chancery does not have jurisdiction, in all cases subject to the court’s having jurisdiction over indispensable parties named as defendants. A complaint asserting a cause of action under the Securities Act of 1933, as amended, may be brought in state or federal court. With respect to the Exchange Act, only claims brought derivatively under the Exchange Act would be subject to the forum selection clause described above. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and bylaws has been challenged in legal proceedings, and it is possible that, in connection with any action, a court could find the choice of forum provisions contained in our company’s certificate of incorporation and bylaws to be inapplicable or unenforceable in such action. Our board of directors believes these provisions benefit our company and stockholders by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against our company’s or its directors and officers. Alternatively, if a court were to find the choice of forum provision contained in our company’s certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, our company may incur additional costs associated with resolving such action in other jurisdictions, which could harm our company’s businesses,

 

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financial condition, and operating results. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this exclusive forum provision but will not be deemed to have waived our company’s compliance with the federal securities laws and the rules and regulations thereunder.

Certain provisions in our certificate of incorporation and bylaws will limit your ability as a stockholder to influence corporate matters and could discourage others from pursuing any change of control transactions that stockholders of our company may view as beneficial.

Our certificate of incorporation and bylaws include a number of governance provisions including the following:

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a provision that eliminates the right of stockholders to call special meetings, and provides that special meetings of our stockholders may be called only by the board of directors of our company; and

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a provision that requires advance notice of stockholder nominations for the election of directors, and of stockholder proposals of other business, and that such advance notice must be given in the manner and to the extent set forth in the in our bylaws.

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These and other provisions limit our stockholders’ ability to influence our company’s operations and may have the effect of discouraging others from pursuing any change of control transactions that stockholders may view as beneficial.

Our company’s ability to raise capital in the future could become impaired; and our stockholders bear the risk of our company’s future offerings reducing the market prices of our securities and dilution to such stockholders’ interests.

In the future, our company may need to raise additional funds through the issuance of new equity securities, debt, or a combination of both. However, the lapse or waiver of any lock up restrictions or any sale or perception of a possible sale by our stockholders, and any related decline in the market price of our common stock, could impair our ability to raise capital. If adequate funds are not available on acceptable terms, and our company is not able to raise additional funds through the issuance of new equity securities, we may be unable to fund our capital requirements. If our company issues new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, our stockholders will experience additional dilution when option holders exercise their right to purchase common stock under our equity incentive plans, when restricted stock awards vest and settle, when we issue equity awards to our employees under our equity incentive plans, or when we otherwise issue additional equity. Should we require additional funding, we cannot be sure that it will be available to us on reasonable terms, or at all. If we cannot raise additional funds when we need them, our ability to continue to support our business and to respond to business challenges would be significantly limited, and our business, results of operations, and financial condition would be materially adversely affected. The ability to issue securities in any future offering will also depend on market conditions and other factors beyond our control, and accordingly, we cannot predict or estimate the amount, timing, or nature of our company’s future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

Our chairman and chief executive officer effectively controls our company.

Our chairman and chief executive officer, Brian Ferdinand, has control over the majority of the outstanding voting power as represented by our outstanding common stock. Further, our bylaws provide that any member of our board may be removed with or without cause by the majority of our outstanding voting power, thus Mr. Ferdinand exerts significant control over our board. This concentration of ownership and decision making may make it more difficult for other stockholders to effect substantial changes in our

 

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company and may also have the effect of delaying, preventing or expediting, as the case may be, a change in control of our company.

We are a “controlled company” within the meaning of the rules of Nasdaq and, as a result, will qualify for exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Mr. Ferdinand, our Chief Executive Officer beneficially owns approximately 63.5% of the voting power of our outstanding capital stock. As a result, we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

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the requirement that a majority of the board of directors consist of independent directors;

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the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

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the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

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the requirement for an annual performance evaluation of our nominating and corporate governance and compensation committees.

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We do not intend to rely on these exemptions. However, as long as we remain a “controlled company,” we may elect in the future to take advantage of any of these exemptions. As a result of any such election, our board of directors may not have a majority of independent directors, our compensation committee may not consist entirely of independent directors, and our directors may not be nominated or selected by independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

We currently do not plan to pay any dividends on our common stock.

The payment of cash dividends on our common stock in the future will be dependent upon our revenue and earnings, if any, capital requirements and general financial condition, as well as the limitations on dividends and distributions under any lending agreement we may enter into the future, and the laws and regulations of the State of Delaware, and will be within the discretion of our board of directors. As a result, any gain you may realize on our common stock may result solely from the appreciation of such shares.

If our shares become subject to the SEC’s penny stock rules, broker-dealers may have trouble in completing customer transactions and trading activity in our securities may be adversely affected.

If at any time our shares become subject to the “penny stock” rules promulgated under the Exchange Act our securities could be adversely affected. Typically, securities trading under a market price of $5.00 per share and that do not meet certain exceptions, such as national market listing or annual revenue criteria, are subject to the penny stock rules. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

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make a special written suitability determination for the purchaser;

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receive the purchaser’s written agreement to the transaction prior to sale;

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provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and

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obtain a signed and dated acknowledgement from the purchaser demonstrating that the purchaser has received the required risk disclosure documents before a transaction in a “penny stock” can be completed.

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If our shares become subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our shares may be depressed, and you may find it more difficult to sell our securities.

 

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Nasdaq could delist our common stock from quotation on its exchange, which could limit investors’ ability to sell and purchase our shares and subject us to additional trading restrictions.

Our common stock is listed on the Nasdaq Capital Market, a national securities exchange. If our common stock is delisted from Nasdaq and not listed on another national securities exchange at any time after the date hereof, we could face significant material adverse consequences, including:

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a limited availability of market quotations for our common stock;

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reduced liquidity with respect to our common stock;

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a determination that our common stock is “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;

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a limited amount of news and analyst coverage for our company; and

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a decreased ability to issue additional securities or obtain additional financing in the future.

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Our issuance of additional capital stock in connection with financings, acquisitions, investments, our 2022 Plan, our outstanding warrants, the 2022 Investor Financing Notes, or otherwise will dilute all other stockholders.

We may need to raise additional capital through equity and debt financings in order to fund our operations. If we raise capital through equity financings in the future, that will result in dilution to all other stockholders. We have granted and expect to grant in the future equity awards to employees, directors, and consultants under our 2022 Plan. We also have outstanding warrants (including the Underwriter’s Warrants issued in our IPO, the 2022 Investor Financing Warrants and the 2022 Investor Financing Agent Warrants), which shall require us to issue shares of our common stock upon exercise. Our 2022 Investor Financing Notes are convertible at the option of the holders thereof into shares of our common stock. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per-share value of our common stock to decline.

Future sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could materially and adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. The shares of common stock offered by the Selling Stockholders in this offering will be freely tradable, without restriction, in the public market. See the section entitled “Shares Eligible for Future Trading” for a more detailed description of the restrictions on selling shares of our common stock.

The market price of our common stock may be volatile and may decline regardless of our operating performance, and you may lose all or part of your investments.

The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

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overall performance of the equity markets and/or publicly listed technology companies;

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actual or anticipated fluctuations in our net revenue or other operating metrics;

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changes in the financial projections we provide to the public or our failure to meet these projections;

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failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors;

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the economy as a whole and market conditions in our industry;

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political and economic stability in countries in which we operate;

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•

rumors and market speculation involving us or other companies in our industry;

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announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

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lawsuits threatened or filed against us;

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recruitment or departure of key personnel;

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other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; and

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the expiration of contractual lock-up or market standoff agreements.

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A possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to price volatility in our common stock.

Speculation on the price of our common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of our common stock. Those repurchases may in turn, dramatically increase the price of our common stock until investors with short exposure are able to purchase additional common stock to cover their short position. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our common stock and once investors purchase the shares of common stock necessary to cover their short position the price of our common stock may decline.

We may be subject to securities litigation, which is expensive and could divert our management’s attention.

The market price of our shares may be volatile, and in the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital and surplus requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. Our ability to pay dividends may also be restricted by the terms of any future credit agreement or any future debt, or preferred equity securities of us or our subsidiaries.

 

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An integral part of our operations is to secure longer-term leases with economic terms that allow us to make a profit on each accommodations unit individually and on our portfolio of units in the aggregate at projected rental and occupancy rates. In this regard we use proprietary data analytics to select and dynamically price our accommodations offerings. We continually focus on profit margins, by both increasing revenue and minimizing costs, in order to maintain flexibility to invest in acquiring more accommodations units as they become available on attractive terms. This flexibility also enables us, we believe, to out price our competitors while providing comparable or better accommodations and experiences to our guests.

As of the date of this prospectus, we operated in eight cities:

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Boston;

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Denver;

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Los Angeles;

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Miami Beach;

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New York;

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Seattle;

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New Orleans;

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Washington, D.C.

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We utilize our own and third-party technology across the spectrum of our operations and the guest experience, including

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Our proprietary data analytics for property selection;

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Our proprietary data systems for revenue management and dynamic pricing;

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global sales distribution across dozens of direct-to-consumer and B2B third-party sales pipelines;

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third-party AI guest background and security screening and verification; and

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integrated proprietary and third-party technologies to manage our operations remotely, including internal employee communications, property surveillance and analysis.

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Key Drivers

Supply Growth

A key driver of our expected revenue growth will be our ability to continue signing leases for hotel properties on compelling commercial terms. In late 2020 and early 2021, we sought to take advantage of the supply glut of short-stay accommodations presented by the Covid-19 pandemic to rapidly grow our portfolio. As 2021 progressed and the country began to emerge from the pandemic, we sought to bring newly acquired units “online” to scale our business in an environment of rising occupancy rates and ADR, which ensured added units would be accretive to growth from the start. As part of our growth strategy, we will continue to seek additional leases for units to increase our portfolio.

Guest Attraction

Another key driver of our expected revenue growth is our ability to continue attracting new guests through various channels. We source demand from a variety of channels, including Online Travel Agencies (“OTAs”), such as Booking.com, Expedia, and Airbnb, as well as directly through our own booking sites and LuxUrban app. Bookings made through OTAs incur channel fees, requiring us to pay a certain percentage of the revenue booked on the OTA in order to compensate the OTA for its listing services. In general, direct bookings are more financially advantageous to us as they do not incur channel fees.

Service

Our “Hero Division” is our primary service component, which is operated in a service-oriented, guest-centric, manner with each team member trained, and expected to adhere to the provision of high-quality guest experiences.

 

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Operational Efficiency

We maximize operational efficiency by maintaining only a nominal physical headquarters and leveraging technology to oversee and communicate with our property-based team members (Heroes). Each is supported by the entire organization and given authority to act as a host/concierge to provide exceptional experiences for our guests. Each of Our Heroes act as resident manager to protect and maintain value for our property owners, and as a business development representative to identify ways to increase profit margins for our company. While our units which are distributed across the United States, within each city, they are clustered in close proximity to one another to enhance and expedite effective execution of ground operations.

Pricing

To compete with other providers and attract guests, we must provide our accommodations at pricing points that are perceived by our guests as providing value. This is a function of the quality of the accommodations, the location, the then-current demand for such accommodations, and the pricing of accommodations available from our competitors. Because we strive to incur minimal corporate overhead by operating with only nominal physical corporate headquarters and on an asset-light basis (with our only material assets being our leases and intellectual properties) we believe we are able to provide a similar quality product for less than our competitors or provide a better quality product for the same price, while remaining profitable. We closely monitor the economics of our units to ensure the price, referred to as Average Daily Rate (ADR), is highly competitive in order to drive high occupancy rates.

Marketing

To continue to drive growth we will need to further build our brand and invest in direct-to-consumer marketing and enhanced Search Engine Optimization (SEO) and social media advertising to increase direct bookings. We will also invest in building business-to-business relationships within the travel industry. These relationships diversify our sales. Our existing B2B relationships were excellent sources of additional revenue streams during the pandemic, when we experienced lower occupancy levels and pricing pressure.

Technology

We will need to continually invest in technology to ensure we provide guests with the latest technology-based amenities and to regularly enhance the safety and management of our properties. We also will continue to develop and invest in data and analytics to better select our properties and provide dynamic pricing. We also intend to invest in technology to enhance our direct-to-consumer marketing via our own mobile apps, a customer relationship management (CRM) database and system to support a loyalty program and drive repeat business, and a learning management system (LMS) to enhance initial and continuing training of our personnel. We are also presently studying a variety of energy management technologies which will make it possible to not only monitor energy consumption with the utmost accuracy, but adjust and optimize energy consumption in response to real-time consumption patterns.

 

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on the effectiveness of COVID-19 prevention (vaccination and continued social distancing) and treatment, infection rates, and governmental responses in the cities and countries in which we operate.

As shown in the table below, we saw Occupancy Rates and RevPAR drop dramatically throughout 2020, with Occupancy Rates dropping by approximately 23% and RevPAR by approximately 35% year over year from 2019 to 2020. In 2021 and 2022, Occupancy Rates and RevPAR rebounded in part, increasing by approximately 18% and 11%, respectively for the full years 2021 and 0% and 13%, respectively for the six months ended June 30, 2022. We expect to see these metrics continue to increase toward pre-Covid results over time, unless new material shutdowns and travel restrictions are put into place.

The COVID-19 pandemic transformed how society works, connects, and travels, while at the same time creating incredible challenges, particularly for the hospitality industry. In early March 2020, we began to experience the early effects of the COVID-19 pandemic. As the world locked down, we acted to reduce costs and bolster revenues to mitigate the impacts of the COVID-19 pandemic. As part of our COVID-19 response strategy, we:

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Utilized relief clauses contained in many of our leases and further negotiated additional rent concessions and deferrals with real estate owners. These efforts provided us with meaningful rent savings compared to its initial 2020 budget;

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focused efforts on increasing existing sources of demand and generating new sources of demand during the COVID-19 pandemic; and

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kept our doors open to serve guests ensuring there stay was clean and safe;

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Despite travel restrictions, guests continued to utilize our inventory. At the height of COVID-19 lockdowns, many consumers turned to us, including people social distancing from roommates and family members, those who were stranded away from home, and guests taking “staycations” or a change of scenery. We also hosted nurses and other healthcare professionals working in cities away from home or who simply needed to be nearer to their hospitals and health care facilities.

Notwithstanding the foregoing, the extent and duration of the impact of the COVID-19 pandemic over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the introduction and spread of new variants of the virus, including, for example, the Delta and Omicron variant.

Regulations Governing Short-Term Rentals

We launched our New York City operations in late 2019. Cities, such as New York, have been diligent in the implementation and enforcement of short-stay rental regulations to ensure the safety of its 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 in New York City and only operate properties that are not subject to these short-stay regulations. In conjunction

 

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with this divestiture, we have worked with New York City’s DOB and OSE 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 acquisition of long-term leases for hotels and other buildings 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 seek to complete the wind-down of our non-performing, residential area-located apartment inventory by the end of the third quarter of 2022. We plan to operate and maintain our accommodation units portfolio at a ratio of between 85% to 95% of commercially zoned hotel room inventory and 5% to 15%% residential area-located apartment inventory. As of the date of this prospectus, our accommodation units portfolio is comprised of over 90% hotel units that are not subject to short-stay length regulations or contractual provisions and the balance apartment units that are subject to such restrictions. Our portfolio growth strategy involves (a) adding, almost exclusively, commercially zoned properties that are not subject to short-stay length regulations and (b) divesting older 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 immaterial to our operations.

Local Tax Compliance and Monitoring

As part of our compliance review, we determined that certain state and local tax payments for short-term stays below prescribed tax regulation cutoffs had not been properly collected and applied, either directly by us or the platforms through which customers reservation and payments are made. We are working with state and local tax authorities to pay all applicable taxes, penalties, and interest. We have reserved amounts to cover such payments on our financial statements for the years ended December 31, 2020 and December 31, 2021 and the six months ended June 30, 2022. We estimate that total payment obligations for these amounts will approximate $866,409. To properly scale our business in a compliant manner, we have implemented a leading tax compliance, filing, and reporting platform into our operations. As a result of these efforts, all tax collection is automated across the entire scope of our operations and portfolios.

 

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EBITDA is defined as net income or loss before the impact of interest, taxes and depreciation and amortization. EBITDA is a key measure of our financial performance and measures our efficiency and operating cash flow before financing costs, taxes and working capital needs. We utilize EBITDA because it provides us with an operating metric closely tied to the operations of the business.

 

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Net Rental Revenue

The increase in net rental revenue of 158% for the six months ended June 30, 2022 to $19,300,763 as compared to $7,488,895 for the six months ended June 30, 2021 was a result of the increase in units available to rent from 423 at June 30, 2021 2020 to 584 at June 30, 2022 as well as better occupancy and ADRs over this period.

Cost of Revenue

For the six months ended June 30, 2022, the principal component responsible for the increase in our cost of revenue was rental expenses for our units available to rent, which increased by $6,010,351 or 76%, from $7,920,531 in the six months ended June 30, 2021, to $13,930,882 in the six months ended June 30, 2022, as a result of the increase in size of our rental unit’s portfolio period over period as well as related increases in furniture rentals, cleaning costs, utilities, cable / WIFI costs and credit card processing fees.

Gross Profit (Loss)

The increase in our gross profit margins of $5,801,517 to $5,369,881 or approximately 1344% for the six months ended June 30, 2022 as compared to a negative gross margin of ($431,636) for the six months ended June 30, 2021 is primarily attributable to a reduction in Covid-19 government related travel restrictions and shutdowns that reduced our occupancy rates during the period.

Total Operating Costs

Total operating costs incurred for the six months ended June 30, 2022 increased by approximately 38 % to $1,865,527 as compared to $1,348,862 for the six months ended June 30, 2021. Operating costs include contracted services, selling and administrative expenses, professional fees, and software fees all of which increased over these periods primarily attributable to the operation of additional units.

Total Other Expenses

Total other expense, for the six months ended June 30, 2022 was $572,812 as compared to $659,540 for the six months ended June 30, 2021. These expenses are primarily due to interest and financing costs related to borrowings for working capital.

 

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Year Ended December 31, 2021 as compared to Year Ended December 31, 2020

Net Rental Revenue

The increase in net rental revenue of 158% for the year ended December 31, 2021 to $21,379,913 as compared to $8,273,859 for the year ended December 31, 2020 was a result of the increase in units available to rent from 330 at December 31, 2020 to 462 at December 31, 2021 as well as better occupancy and ADRs over this period.

Cost of Revenue

For the year ended December 31, 2021, the principal component responsible for the increase in our cost of revenue was rental expenses for our units available to rent, which increased by $8,036,510 or 72%, from $11,232,643 in the year ended December 31, 2020, to $19,269,153 in the year ended December 31, 2021, as a result of the increase in size of our rental unit’s portfolio period over period. As a result of the increase in size of our rental units portfolio period over period, we had other expense, including contracted services fees, which increased by approximately $586,645, or 59%, during the year ended December 31, 2021, as compared to the year ended December 31, 2020, furniture rental fees, which increased by approximately $539,842, or 73%, during the year ended December 31, 2021, as compared to the year ended December 31, 2020, and cleaning fees, which increased by approximately $1,247,752, or 131%, as compared to the year ended December 31, 2020. Additionally, we had an processing fees period over period of approximately, $794,423, or 294%. Our processing fees increased due to higher processing volumes and increased rates charged by our processors. Cable and WIFI fees increased by approximately $293,747, or 144%, period over period.

Gross Profit (Loss)

The increase in our gross profit margins of $5,069,544 to $2,110,760 or approximately 171% for the year ended December 31, 2021 as compared to ($2,958,784) for the year ended December 31, 2020 is primarily attributable to a reduction in Covid-19 government related travel restrictions and shutdowns that reduced our occupancy rates during the three months ended December 31, 2020. We also benefited from non-recurring landlord concessions received as a result of the monumental disruptions caused by COVID in 2020 and 2021.

Total Operating Costs

Total operating costs incurred for the year ended December 31, 2021 increased by approximately 157% to $2,844,637 as compared to $1,107,240 for the year ended December 31, 2020. Operating costs include contracted services, selling and administrative expenses, professional fees, and software fees. During the year ended December 31, 2021 and 2020, our largest operating cost was contracted services of $1,771,004 and $521,993, respectively. The increase in total operating costs from 2020 to 2021 is primarily attributable to the operation of additional units during the period. Selling and administrative expenses increased for the year

 

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ended December 31, 2021 to $551,241 as compared to $351,774 for the year ended December 31, 2020 due to additional overhead costs. Professional legal and accounting fees increased for the year ended December 31, 2021 to $164,632 as compared to $61,512 for the year ended December 31, 2020 as a result of increased lease review and business operations. Software fees increased for the year ended December 31, 2021 to $329,952 as compared to $171,961 for the year ended December 31, 2020 as a result of increased unit counts resulting in additional revenue management and sales distribution software needs.

Total Other Revenue (Expense)

Total other revenue (expense), for the year ended December 31, 2021 was $(1,499,507) as compared to ($549,701) for the year ended December 31, 2020. These expenses are due to interest and financing costs related to borrowings for working capital.

 

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capital through the sale of equity or debt securities or through asset-related sales transactions. We cannot be certain that any such transactions will be available to us on commercially reasonable terms or at all as and when required.

As noted below, from time to time, affiliates of our company have made other loans to our company to fund working capital requirements as required and such parties have advised that they will continue to provide funding as necessary through the consummation of our IPO.

Historically, we have operated as a private, closely held company, with our operating capital requirements funded by a combination of related party loans, cash flows from operations, and third-party high-interest merchant cash advances. For the year ended December 31, 2021, we incurred a net loss of ($2,233,384). However, for the six months ended June 30, 2022, we achieved a net income of $2,181,842. Components of the 2021 loss included what we believe are non-ordinary course expenses arising from cancelations due to the COVID-19 pandemic. Prior to the pandemic, for the year ended December 31, 2019, we had aggregate refunds and allowances of $917,084, or 14% of revenue. The following table summarizes the increases in refunds post the pandemic.

We believe that the pandemic and the required shutdown and growth in traveler caution resulting in materially reduced numbers of travelers, especially in cities, which is where we operate our accommodation units. During periods following the pandemic in which Covid infection and hospitalization rates decreased we experienced measurable improvement in our occupancy rates and reductions in our cancellation rates. Accordingly, we believe our rates of refunds and allowances will normalize over time to at or slightly above 2019 levels as the pandemic recedes and provided that new material shutdowns and travel restrictions are not implemented.

We record cash collected prior to stays as “rents received in advance” on our balance sheet as a liability. These collections are either recognized as revenue when guests stay at our properties or refunded in accordance to our cancelation policies. In addition, a portion of our “processor retained funds” on our balance sheet is related to refunds as processors, under certain situations, get involved in customer refunds. As processors retain funds related to customer refunds, this can delay the actual refund as the processor wants to ensure we have not refunded the customer (avoiding double refunds). The recent increase in both of these accounts in partially related to the exit of some apartment units. In addition, we incurred a greater amount of relocation expenses related to this exit, which we expect to continue into the third quarter of 2022.

Credit Facilities

We do not have any institutional credit facilities in place. Since formation we have funded our operations and growth through capital contributions by founding equity holders, loans from affiliates of our company, third-party investor financings, and our initial Public offering consummated in August 2022.

2022 Insider Bridge Financing

In a private placement consummated on April 8, 2022 (“2022 Insider Bridge Financing”) we issued promissory notes (“2022 Insider Bridge Notes”) to certain of our officers and directors having an aggregate principal amount of $1.33 million, together with warrants to purchase an aggregate of 320,000 shares of our common stock at a per-share exercise price of $4.20. All of the 2022 Insider Bridge Notes were converted at the closing of our IPO into an aggregate of 426,667 shares of our common stock.

2022 Investor Financings

In 2022 we consummated a series of private placements of notes and warrants as described in the section of this prospectus entitled “Prospectus summary — Recent Developments — 2022 Investor Financings.”

As of the date of this prospectus, we have received $7,500,000 aggregate gross proceeds under the 2022 Investor Financings, after giving effect to the original issue discount. In connection with our IPO, we repaid

 

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an aggregate principal amount of $2.2 million of the First 2022 Investor Financing Notes ($2.5 million inclusive on prepayment penalty). As of the date of this prospectus and giving effect to the September 2022 Investor Financing, we have an aggregate of approximately $6,500,000 principal amount of September 2022 Investor Notes and Prior Notes outstanding.

Outstanding Insider Financing

In May 2022, SuperLuxMia LLC, an entity controlled by our founder, chairman and chief executive officer, Brian Ferdinand, provided $568,000 in financing to our company for general operating expenses relating to the launch of our Marriott Herald Square property. This loan is evidenced by an unsecured, 24-month note, bearing interest at 6% per annum, with interest payable at maturity. We may prepay this note at any time without prepayment penalty, subject to the terms of our other existing debt.

In June 2022, Mr. Ferdinand personally provided us with an additional $750,000 of financing via a credit facility for operating expenses relating to the launch of certain of our newer properties, including the Astor Hotel and 1000 29th Street. This loan is evidenced by an unsecured, 24-month note, bearing interest at 6% per annum, with interest payable at maturity. We may prepay this note at any time without prepayment penalty, subject to the terms of our other existing debt. In October 2021, we issued a promissory note (the “October 2021 Note”) to THA Family II LLC, an affiliate of our chief executive officer, in the principal amount of $2 million. As part of the note purchase we also issued warrants to purchase 250,000 shares of our common stock at an exercise price of $4.20. The October 2021 Note has a maturity date of April 15, 2023, and bears interest at the rate of 6% per annum, with such interest payable monthly in arrears in cash. At the close of our IPO $1.0 mm of principal balance of this note converted into 312,500 shares of our stock and remaining balance was repaid.

In November 2021, we issued a promissory note (the “November 2021 Note”) to EBOL Holdings LLC, an entity controlled by a holder of more than 5% of our common stock, in the principal amount of $500,000. As part of the note purchase we also issued the investor warrants (“EBOL Warrants”) to purchase 125,000 shares of our common stock at an exercise price of $4.20 per share. The November 2021 Note had a maturity date of May 15, 2023. At the closing of our IPO, $200,000 of the November 2021 Note was repaid, with $300,000 unpaid principal (and accrued interest thereon) remaining outstanding as of the date of this prospectus.

Cash Flows from Operating Activities

During the six months ended June 30, 2021, we incurred a net loss of $2,440,038 that was increased by a net increase in operating assets and liabilities of $1,868,389 for a total of $571,649 in net cash used by operating activities. During the six months ended June 30, 2022, we achieved a net income of $2,181,842 that was increased by a net increase in rents received in advance of $2,251,152 and a net increase in operating lease liability of $1,202,902 and decreased by processor retained funds of $4,559,397, accounts payable and accrued liabilities of $1,091,687, deferred rent of $951,185 and other smaller items for a total of $406,284 in net cash used by operating activities.

Cash Flow from Financing Activities

During the six months ended June 30, 2021, net cash provided in financing activities of $579,006 included net proceeds from loans of $1,583,705, reduced by distributions, net of contributions, totaling $954,699. During the six months ended June 30, 2022, net cash provided by financing activities of $1,101,267 included loans proceeds of $2,374,332, offset by payments on merchant cash advances of $810,519 and deferred offering costs of $462,546.

 

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Indemnification Agreements

In the ordinary course of business, we include limited indemnification provisions under certain agreements with parties with which we have commercial relations of varying scope and terms.

Under these contracts, we may indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with breach of the agreements, or intellectual property infringement claims made by a third party, including claims by a third party with respect to our domain names, trademarks, logos and other branding elements to the extent that such marks are applicable to its performance under the subject agreement. It is not possible to determine the maximum potential loss under these indemnification provisions due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.

To date, no significant costs have been incurred, either individually or collectively, in connection with any indemnification provisions.

In addition, we have entered into indemnification agreements with our directors, executive officers and certain other employees that require us among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, executive officers, or employees.

(1)

Operating lease obligations primarily represent the initial contracted term for leases of our revenue generating apartment and hotel units, not including any future optional renewal periods.

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Third-Party Payment Processors

We utilize third-party payment processors to process guest transactions via credit card. Over 95% of our reservations are processed through credit card transactions in which we pay a processing fee between 3% to 6.5% of the transaction amount. As we have has grown and evolved, from time to time, we have had short-term difficulty in securing and maintaining the necessary processing relationships. As of the date of this prospectus, we maintain satisfactory relationships with all necessary third-party payment processors. As noted in our financial statements, we maintain significant cash under “Processor retained funds” on our balance sheet as of June 30, 2022. These reserved funds are cash reserves held back by our processors to offset chargebacks and refunds due to guests. These reserves are intended to provide protection for both our guests and credit card processor with respect to cancellations and refunds. As part of our growth strategy, the large majority of our accommodation units are rented on a nonrefundable basis, in order to minimize cancellation and refund exposures.

 

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Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

Our revenue is derived primarily from the rental of units to our guests. We recognize 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 sales, 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 we expect to receive in exchange for the promised goods and services. We recognize any refunds and allowances as a reduction of rental income in the consolidated statements of operations.

Prior to the pandemic, the vast majority of our reservations had been non-refundable based on strict non-refund policies that were part of our terms of use, and the terms of use of the third-channel listing sites utilized by us. During the pandemic, third-party sales channels, as well as credit card companies and processors, enacted force majeure circumstances outside the policies originally stated on the websites on which we sold inventory. As a user of these third party sites, we became bound by these changed policies, even for booking made under the original policies. This resulted in abnormal, and pandemic-related, refund rates. In response to these requirements, we adopted more flexible cancelation policies, resulting in refunds on booked stays that were originally booked under non-refundable terms.

Current and future reservations for most of our accommodation units require prepayment upfront. Approximately 70% of our reservations require full prepayment at the time the reservation is placed, with the remaining 30% charged at check-in. Payments are processed through third-party credit card processors and marketing and reservation channels. We typically offer both a refundable and nonrefundable rates on each accommodation unit, with approximately 50% of bookings, on average, choosing the nonrefundable rate. As we are required to only reserve 10% of prepayments under our third-party processor agreements, nonrefundable booking prepayments provide us with operating cash flow. Any advanced reservation, irrespective of when charged, is taken as revenue in the period in which the stay happens, if in a future period is reflected in deferred revenue, and if cancelled is not ultimately realized as revenue.

Refunds are treated as a reduction of our net revenue and are taken in the period of which the cancelation or refund occurred. We have multiple refund policies in place across different sales channels, which vary by price. Some require a deposit at the time of booking, which would be forfeited in part or whole in the event of cancelation through varying periods of time prior to check-in. Some of our policies require full prepayment at time of booking (but allow for a full refund if booking is cancelled within required parameters). Some of our bookings are on nonrefundable basis, in which cancellations results in forfeiture of entire amount. In connection with some of our bookings, the third party sales channel handles payments, cancelations, and the refunds to guests. As of the date of this prospectus, we have moved most of our larger units offerings to non-refundable cancelation policies.

With respect to bookings for our accommodation units made through third-party booking platforms, in the event a refund is required to be made to a customer, under the terms of our agreements with such third-party platforms, we are required to make the refund to the customer (to the extent we have received the

 

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proceeds through the platform). If we fail to make any required refund, the customer’s recourse is against the third-party booking platform, and in turn, we are required to reimburse the booking platform. Within this structure, the (a) customer is protected, and (b) the booking party bears the credit risk with respect to the customer.

We account 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. We 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 December 31, 2021 and June 30, 2022, was $1,819,943 and $4,071,095 respectively, and is expected to be recognized as revenue within a one-year period.

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.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. On December 31, 2021 and 2020 and June 30, 2022, we did not have any cash equivalents.

Fair Value of Financial Instruments

The carrying amount of cash, prepaid expenses and other assets, accounts payable and accrued expenses, and rents received in advance approximate their fair values as of the respective balance sheet dates because of their short term natures.

Advertising

Advertising and marketing costs are expensed as incurred and are included in General and Administrative Expenses in the accompanying consolidated statements of operations.

Commissions

We pay commissions to third-party sales channels to handle the marketing, reservations, collections, and other rental processes for most of our units and are included in cost of sales on the consolidated statement of operations.

Deferred Rent

We entered into several operating lease agreements, some of which contain provisions for future rent increases. In accordance with GAAP, we record monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent, which is reflected as a separate line in long-term liabilities in the accompanying consolidated balance sheets. We adopted Topic 842 effective January 1, 2022.

Income Taxes

In accordance with GAAP, we follow the guidance in FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in our financial statements and prescribe a recognition threshold and measurement attribute for the financial statement

 

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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.

We did not have unrecognized tax benefits as of December 31, 2021 and 2020 and June 30, 2022 and do not expect this to change significantly over the next 12 months. We will recognize interest and penalties accrued on any unrecognized tax benefits as a component of provision for income taxes.

In January 2022, our company converted into a C corporation. As we have realized an income for the six months ended June 30, 2022, we have made a provision for income taxes in our financial statements for the period ending June 30, 2022.

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 our responsibility to remit, we record the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority.

Paycheck Protection Program Loan (“PPP”)

As disclosed in Note 3 to our financial statements included in this prospectus, we have 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 long-term 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 we are 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.

Income Taxes

We are subject to income taxes in the jurisdictions in which we operate.

We account 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 carryforwards.

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.

We are subject to the continuous examination of its income tax returns by tax authorities that may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.

Stock-Based Compensation

Stock-based compensation expense attributable to equity awards granted to employees will be measured at the grant date based on the fair value of the award. Through June 30, 2022, there was no stock-based compensation. From January 1, 2022 through June 30, 2022, we granted contingent options to purchase an aggregate of 2,644,000 shares of our common stock to our officers and other employees under the 2022 Performance Equity Plan. All options were not effective until consummation of the IPO in August 2022 and accordingly, were not deemed effectively granted and outstanding prior to June 30, 2022 and not recorded for the six-month period ended June 30, 2022. All options became effective on August 15, 2022 upon consummation of our IPO and will be reflected in our financial statement for the nine months ended September 30, 2022. All options are subject to vesting, in all cases in three equal annual installments commencing on the first anniversary of the date of consummation of our IPO, other than options to purchase 500,000 shares granted to our President and Chief Operating Officer, which vest in equal installments if

 

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and only if certain prescribed revenue levels are attained by our company during the option period. All options are exercisable at a per-share exercise price of $4.00.

Stock-based compensation expense will be recognized on a straight-line basis over the requisite service period for awards that vest, which is generally the period from the grant date to the end of the vesting period.

We will estimate the fair value of stock option awards granted using the Black-Scholes-Merton option pricing model.

This model requires various significant judgmental assumptions in order to derive a fair value determination for each type of award, including the fair value of our common stock, the expected term, expected volatility, expected dividend yield, and risk-free interest rate.

These assumptions used in the Black-Scholes-Merton option-pricing model are estimated as follows:

•

Expected term. We estimate the expected term based on the simplified method, which defines the expected term as the average of the contractual term and the vesting period.

​

•

Risk-free interest rate. The risk-free interest rate is based on the yield curve of a zero coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award.

​

•

Expected volatility. We estimate the volatility of its common stock on the date of grant based on the average historical stock price volatility of comparable publicly traded companies due to the lack of sufficient historical data for our common stock price.

​

•

Expected dividend yield. Expected dividend yield is zero, as we have not paid and do not anticipate paying dividends on its common stock.

​

All grants of stock options will have an exercise price equal to or greater than the fair value of our common stock on the date of grant. We will account for forfeitures as they occur.

Internal Control over Financial Reporting

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Under standards established by the Public Company Accounting Oversight Board, or PCAOB, a deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. The PCAOB defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis.

Prior to our IPO consummated on August 11, 2022, we operated as a private, closely held company that was funded by our principals with no third-party investment. As a private company we did not undertake annual audits of our financial statements in the ordinary course, and have not been subject to the rules and regulations that now apply to us following our IPO, including those relating to internal controls and periodic reporting. In connection with our recent audits of our financial statements, we have identified material weaknesses in our internal control over financial reporting with respect to our periodic and annual financial close processes. As historically constituted, our human resources, processes and systems did not enable us to produce accurate financial statements on a timely basis. While we deem this type of material weakness typical in a closely held, private company, in preparation of becoming a public company, we commenced a remediation plan which will include the hiring of additional, qualified financial and accounting personnel, and engagement of specialized external resources, including the outsourcing of a portion of our accounting department functions to a qualified accounting firm. We also have formed an audit committee of independent directors in connection with our IPO. As part of our remediation plan, we also are in the process of adopting other entity-level controls, which includes properly segregating duties among appropriate personnel, education and training of applicable management and financial personnel, and improvements

 

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in the process and system used to monitor and track the effectiveness of underlying business process controls. Full implementation of this plan will require time and the devotion of material resources.

Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, and subsequent related updates to lease accounting (collectively “Topic 842”), which requires lessees to recognize right-of-use assets, representing their right to use the underlying asset for the lease term, and lease liabilities on the balance sheet for all leases with terms greater than 12 months. The guidance also modifies the classification criteria and the accounting for sales-type and direct financing leases by lessors. Additionally, the guidance requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases.

Topic 842 is effective and was implemented for our company beginning January 1, 2022. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply.

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Emerging Growth Company Status

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards.

The Company, will remain an emerging growth company until the earliest of

(i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter,

(ii) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation),

(iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or

(iv) December 31, 2027.

 

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BUSINESS

General

We utilize a long-term lease, asset-light business model to acquire and manage a growing portfolio of short-term rental properties in major metropolitan cities. Our future growth focuses primarily on seeking to create “win-win” opportunities for owners of dislocated hotels, including those impacted by COVID-19 travel restrictions, while providing us with favorable operating margins. We operate these properties in a cost-effective manner by leveraging technology to identify, acquire, manage, and market them in our operating cities to business and vacation travelers through dozens of third-party sales and distribution channels, and our own online portal. Guests at our properties are provided Heroic Service™ under our consumer brands, including LuxUrban. Our Heroic Service™ provides guests a hassle-free experience which exceeds their expectations with “Heroes” who respond to any issue in a timely, thoughtful, and thorough manner.

We believe the combination of available quality properties on favorable terms, our existing operational and revenue management expertise, and the re-emergence of global travel, provides us with an unprecedented opportunity to rapidly accelerate our growth and capture more of the short-term rental market.

We seek to offer short-stay travelers a better way to vacation or conduct business on the road by offering our portfolio of high-quality accommodations units in desirable locations. Our company offers travelers what we believe is a better combination of accommodations and service than they can get from available alternatives. Typical chain hotel offerings can be impersonal and bland, home share hosts can be unreliable and often provide little to no guest support or services, and boutique hotels are often priced far beyond the value they deliver. We offer short-stay travelers a variety of accommodations in styles and sizes that deliver in the key areas (such as location and safety) which we believe are important to all travelers — from leisure vacationers to on-the-road professionals — all with highly attentive service, from booking to stay to checkout.

Our operating strategies also address the issues faced by many property owners, helping ensure profitability of property owner units, and protecting the integrity and value of their properties. We believe that we provide a quick and convenient way for property owners to increase occupancy, lock in occupancy rates, and secure predictable returns on their investment by entering into one, three, five, six, ten, fifteen

or twenty-year leases with such owners for portfolios of multiple units at a time. In many of our leases we are provided with an early termination provision after 12 or 24 months if a particular property is not meeting our standards or projected return on investment. At the same time we endeavor to maintain the value of property owners’ investments by ensuring each unit we lease is consistently cleaned and inspected, needed repairs are quickly reported and made, and maintenance is supervised and properly addressed.

Our acquisition initiatives include leasing portfolios of unreserved rooms at hotels or leasing entire portfolios of rooms at closed hotels, and then marketing these room portfolios under our brands, including LuxUrban. We also are exploring attractive lease acquisition opportunities in circumstances where owners are converting formerly commercial buildings into residential and rental units. Our principal operating goal is to provide travelers with access to quality alternative accommodations that meet their broad travel accommodations criteria, while providing benefits to the property owners from which we lease our portfolio units. As of the date of this prospectus, we operate 1,037 accommodation units across eight cities in the United States.

We believe that we are well-positioned to accelerate our growth by exploiting key advantages that we believe we have over many competitors. Unlike many start-ups, we have focused on generating monthly positive cash flow. From the launch of our commercial operations in 2017 until the 2020 nationwide travel halts and shutdowns due to the COVID-19 pandemic, we generated positive cash flow annually, notwithstanding that the benefit we provide to unit owners shifts the risks of vacancies to us. Our accumulated positive cash flow enabled us to operate through the pandemic and, recently, return to positive current cash flow. We believe our approach will allow us to seize opportunities and address challenges as they arise in the future.

We also believe that most significant competitors in the travel rental industry waste capital on large and unnecessary physical corporate headquarters and attempt to minimize expenses at the tactical level by

 

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replacing the “personal touch” with technology. Conversely, we operate with relatively small amounts of corporate overhead compared to many competitors in the industry. We have nominal physical corporate headquarters. All strategic and operational leadership, planning, coordination, and management is done almost entirely on a remote and virtual basis. We maintain very few assets as our properties are leased rather than owned, and we utilize what we believe is a highly effective and efficient virtual remote property management system. By not carrying burdensome corporate overhead expenses, we are able to reduce our costs of goods sold and increase profit margins. This affords us the flexibility to invest in acquiring more leased units and other real estate that will generate revenue as opposed to being a cost center. We believe that this approach also enables us to out-price competitors with a comparable or better product while attracting and investing in the best talent for our management and operating teams.

The Travel Accommodations Market

Travel accommodations are the lodgings rented by travelers for the purpose of overnight and longer stays. Travelers can choose from among the various types of travel accommodations available, including hotels, hostels, resorts, vacation rentals, and others. According to “Travel Accommodation Market Outlook — 2026” published by Allied Market Research (“AMR”), the global travel accommodation market size was $632.8 billion in 2018, and is projected to reach $893 billion by 2026.

AMR estimates that:

•

450 million people worldwide use vacation rentals, paying average nightly rates of $186 for a single traveler and $978 for a family;

​

•

53% of all travel is booked online;

​

•

71% of travelers with children chose vacation rentals as opposed to hotels in order to be able to cook meals;

​

•

83% of travelers prefer vacations near water;

​

•

74% of travelers prefer to be located near coastline;

​

•

59% of travelers review rating websites and online forums before booking; and

​

•

31% of travelers use family and friend recommendations for planning vacations.

​

Projected travel plans in 2022 indicate a robust travel accommodations market. According to AMR:

•

71% of people intend to book a vacation rental within 18 months; and

​

•

64% of Americans and 66% of Europeans indicated mandatory Covid-19 vaccinations for flights would have no impact on travel plans.

​

Accommodation can be booked through various sources, which include online travel agencies, hotel websites, booking agents, and direct booking portals. The global travel accommodation travel market is segmented into type, application, price point, and mode of booking.

 

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By type, the traditional hotels segment in travel accommodation market garnered the largest share in 2018, due to innovation and advancements in the hospitality sector along with increase in tourism. However, the vacation rentals segment is anticipated to grow at the highest rate during the forecast period, owing to increase in preference for budget-friendly accommodations by millennial travelers.

Based on price point, the mid-range accommodations are highly preferred by leisure travelers, since these accommodations offer a combination of customer services and low rates. Consumers today have an increased preference for spending on experiences as compared to products, which has led to rise in demand for mid-range accommodations. Leisure travel is projected to be the fastest growing travel segment in the coming years.

 

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Our Opportunity

We believe that most travelers select their travel accommodations based on the following criteria:

•

location

​

•

safety

​

•

cleanliness

​

•

quality of service

​

•

convenience

​

•

aesthetic

​

•

value

​

Depending upon the individual traveler and the purpose for travel (i.e., vacation or business), travelers may prioritize some criteria higher than others. It is our experience, however, that few travelers will dismiss any of the foregoing criteria entirely when selecting accommodations and assessing their overall experience.

We believe that currently there are limited accommodation offerings that satisfy all of the above criteria. In many cities, including in the 2021 Covid environment, demand has outpaced the supply of hotel rooms, and, for many travelers seeking to stay for more than a day or two, a hotel room does not satisfy all of their needs (such as value and convenience).

Individual property owners are satisfying some of this consumer demand by marketing their properties as alternative accommodations, short-term rentals, or vacation rentals through online platforms such as Airbnb and VRBO. Yet, we believe that relatively few of these accommodations satisfy the full spectrum of travelers’ criteria outlined above.

Individual property owners generally cannot meet travelers’ desire for quality service, ensure that their properties receive professional-level cleaning, or guarantee their accommodations are operated in compliance with health and safety laws and rules. A recent study conducted by TripAdvisor found that 92% of travelers said cleanliness is the most important factor in selecting accommodations, with 79% of this group also noting that they find it important that the properties publicly display documentation relating to compliance with government safety standards.

We also believe that travelers staying at private properties rented from individual and smaller operators through many online platforms are subject to higher risks of property damage and personal safety issues.

 

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According to a 2021 article by Bloomberg Businessweek, entitled “Airbnb Is Spending Millions of Dollars to Make Nightmares Go Away,” Airbnb spends an average of approximately $50 million annually on payouts to hosts and guests, including on legal settlements related to property damage. The same article quotes former Airbnb safety agents who state that Airbnb handles thousands of allegations of sexual assault annually.

Our company offers short-stay rentals that meet all the key criteria for leisure and business travelers, while also providing property owners’ predictable occupancy rates and care and protection of their properties.

Our Solution for Travelers

CorpHousing provides vacation and business travelers with accommodations as an alternative to hotels, motels and Airbnb-type properties that satisfy all of the criteria that are most important to travelers.

Location

In building our accommodations portfolios, we identify and acquire units located in the heart of often over-booked, well-traveled, cities in quality neighborhoods near business centers, universities, convention centers, hospitals, and annual events.

Safety

We conduct extensive identity verification and background checks on each of our HeroesTM (i.e., our screened and trained team members). Our Heroes reside in or near each building. Our Heroes:

•

monitor building security and safety

​

•

ensure there is a person maintaining control of each building

​

•

hand keys directly to guests in person when they check in

​

•

providing immediate reporting and response to any security or safety issue that may arise.

​

Cleanliness

We ensure that each unit is thoroughly cleaned after every stay and provide additional cleaning materials for guests to use during their stays. We also provide COVID-related safety items such as masks, gloves, hand sanitize, and handy-wipes.

Quality of Service

We constantly strive to provide guests with exceptional service via our Heroic Service program. Under our program, we employ and train employees and concierges who live near or on-site, and consistently offer “Heroic Service” — which is our branded service that endeavors to provide quests with 24/7 service and hospitality that exceeds their expectations.

Convenience

We ensure guests are afforded all the comfort and convenience of staying at home, including large spaces, amenities (e.g., pool, gym, business center), and easy access to the local community and local experiences. Additionally, we provide fully stocked kitchens and the ability to buy and store groceries, so guests do not feel as though they are “held captive” by having to dine at expensive in-hotel restaurants.

Aesthetics

CorpHousing provides well-maintained and aesthetically pleasing furnishings, decorations, linens and towels in each unit.

Value

By maintaining a very lean corporate structure with minimum overhead, we provide guests with exceptional value for the price compared to many hotels, motels and private units available through other online platforms.

 

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•

Investing in personnel to be the front-line interface with guests (rather than supplanting the personal touch with technology as many of our competitors do) and investing in technology to replace physical corporate infrastructure (such as large corporate headquarters) and minimize corporate overhead;

​

•

Extending the guest-friendly cancellation policies adopted during the Covid pandemic into normal operations, which we believe send an important message to guests and will increase brand loyalty and increase popularity of our offerings;

​

•

Improving our technology platforms, including development of proprietary company-owned technologies, to further improve our ability to help guests find our quality accommodations at high- value price points, enhance data and guest safety, and provide highly rated guest and landlord experiences; and

​

•

Leveraging competitive advantages that we believe we have over many of our peer competitors.

​

Competitive Advantages

We believe we are well-positioned to accelerate our growth by exploiting key advantages that we believe we have over many competitors, including:

Positive cash flow emphasis since inception

Unlike many start-ups, we have focused on generating positive cash flow since inception. From the launch of our commercial operations in 2017 until the 2020 nationwide travel halts and shutdowns due to the Covid pandemic, we generated positive cash flow annually. This cash flow positive approach enabled us to operate through the pandemic and return to current cash flow positive and we believe will allow us to adapt to both opportunities and challenges as they arise in the future.

Lean operating and asset costs

We believe that most significant competitors in the travel rental industry waste capital on large and unnecessary physical corporate headquarters and attempt to minimize expenses at the tactical level by replacing the “personal touch” with technology, We believe in the opposite approach.

We operate with relatively small amounts of corporate overhead compared to many competitors in the industry. CorpHousing has no physical corporate headquarters. All strategic and operational leadership, planning, coordination, and management is done on a remote and virtual basis.

We maintain very few assets as our properties are leased rather than owned, and utilize what we believe is a highly effective and efficient virtual remote property management system. By not carrying burdensome corporate overhead expenses, we are able to reduce our costs of goods sold and increase profit margins. This affords us the flexibility to invest in acquiring more leased units and other real estate that will generate revenue as opposed to being a cost center. This approach also enables us to out-price competitors with a comparable or better product while attracting and investing in the best talent.

Decentralized Servant Leadership

Most companies employ a traditional, centralized control, overly restrictive, management style. We believe this hinders continuous improvement and impedes truly exceptional guest service.

We train, and encourage, each team member, from CEO to our most junior employee, to think and act as a “Servant Leader.” The employee must be ready, willing, and able to address issues, problem solve, and facilitate success for others whenever and wherever necessary. To instill and enhance “Servant Leadership” throughout our company, our management personnel:

•

set the example by providing support for each team member;

​

•

delegate authority to the most junior competent person;

​

•

empower team members to act;

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•

decentralize decision making to expedite action;

​

•

foster transparent multi-direction communication;

​

•

encourage initiative by team members; and

​

•

focus on problem solving, not blame assignment

​

By delegating tactical leadership and decision-making authority to the most junior competent team members for day-to-day operations and guest interactions, as opposed to maintaining centralized control at, and direction from, a remote corporate headquarters which is detached from the situation on the ground, we not only expedite problem solving and enhance the guest experience, but also work more effectively and efficiently throughout a distributed organizational structure.

While our junior personnel are given a tremendous amount of authority, it does not relieve our senior leaders of the responsibility for results. CHG’s senior leaders and executive officers maintain situational awareness and stand ready to step in to address issues as required. However, it has been our continued experience that, with the proper training of each carefully selected team member, the necessity for senior leadership to step in is rare and becomes less frequent as junior personnel gain more and experience.

Technological flexibility

CorpHousing leverages the latest technology across the spectrum of the guest experience, including our proprietary:

•

big data analytics for property selection; and

​

•

advanced data science for revenue management and dynamic pricing. We also utilize proprietary and third-party software applications for:

​

•

global sales distribution across dozens of direct to consumer and B2B sales pipelines;

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•

background and security screening/verification;

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•

internal and external communication security and retention; and

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•

customer-centric technology to facilitate convenience and access to information.

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Diverse leadership experience

Our founders and management team provide us with deep real estate and financial knowledge, broad leadership, hospitality and operational experience, and technology and data analysis expertise. This team includes, Brian Ferdinand, our Chairman of the Board and Chief Executive Officer, who has more than 15 years’ experience in real estate management and transactions, David Gurfein, our President and Chief Operating Officer, who has 25 years of service and leadership experience as a United States Marine, Jimmie Chatmon, our Executive Vice President and a director, who has more than six years’ experience in short-term rental industry and advanced revenue management, Shanoop Kothari, our chief financial officer, who has 25 years’ experience in finance, accounting, banking and capital markets, and Leonard Toboroff, a director, who has more than 60 years’ experience in private equity and consumer goods and service industries.

Unit Portfolios and Profitability

Our Units

Most of our units include:

•

WIFI services;

​

•

bathrooms with plush towels, soap, shampoo, and lotions; and

​

•

bedrooms with high-quality linens, blankets, and replacements in the closet.

​

Given the complexity of short-stay regulations in the cities in which we operate, we seek to operate and maintain our accommodation units portfolio at a ratio of between 85% to 95% of commercially zoned hotel

 

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room inventory and 5% to 15% residential area-located apartment inventory. As of the date of this prospectus, our accommodation units portfolio is comprised of over 90% hotel units located in commercially zoned areas and not subject to short-stay length regulations or contractual provisions and the balance apartment units subject to such regulations. We estimate that more than 90% of our revenues are now generated by accommodation units located in properties that are not subject to any short-stay length regulation or contractual or lease provisions.

As our portfolio growth strategy involves (a) adding, almost exclusively, commercially zoned properties that are not subject to short-stay length regulations and (b) divesting older leases for residential area properties, we expect the vast majority of our revenues to be generated through properties allowing for guest stays of any length desired.

As of the date of this prospectus, we operated 1,037 accommodation units across the following eight cities in the United States:

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Boston

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Denver

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Los Angeles

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Miami Beach

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New Orleans

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NYC

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Seattle

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Washington D.C

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We also plan to launch international operations prior to the end of 2022 and are currently evaluating London and Paris for launch of our first commercial international operations.

Our portfolio growth strategy involves (a) acquiring new leases for quality properties in hotels and other commercially zoned buildings in desirable locations and (b) divesting older leases for accommodation units located in residential areas. As part of our unwinding of residential area located building, we have divested leases covering approximately 32 buildings, while still increasing our overall accommodation unit count. By focusing on securing leases for hotels in our portfolio growth, we minimize the number of our properties that are subject to municipal short-stay requirements, and create higher concentrations of accommodation units in single buildings, providing us with greater operating efficiencies and ease of property management.

Our principal leases typically consist of 5, 6, 10, and 15-year leases across the portfolio, with monthly rent charges ranging from approximately $1,200 to $10,000 per unit. Most of our longer-term leases require us to maintain and insure the properties, and pay all applicable real estate taxes. We also typically are required to indemnify the landlord of each building for acts and omission by our company, our employees and our tenants. The buildings for which we hold leases typically consist of 3 and 4 star hotel properties, residential apartment units, and apartment buildings zoned for commercial use.

In addition to the foregoing, our principal leases (none of which are subject to any short-stay length regulations or contractual requirements) typically include the material terms or substantively similar terms to those in the following examples:

 

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(1)

A triple net lease, also known as an NNN Lease, is a lease in which the tenant agrees to pay its pro-rata share of all expenses associated with property maintenance, taxes, and insurance, in addition to a predetermined base rental rate.

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We believe the lease terms for each of these properties conservatively work within our model of securing properties on terms that provide robust margins based on our anticipated occupancy rate and room rental rates. As part of our growth strategy, we will continue to seek additional leases for units to increase our portfolio. These acquisitions will likely include long-term lease rights to entire hotels, as we avail ourselves of opportunities created by downturns in the hotel and travel markets that resulted from the pandemic.

All of the foregoing letters of intent are nonbinding. We will be required to negotiate and execute definitive documentation for the described leases. The acquisition of long-term lease rights to entire hotels, such as those described above is an important part of our accommodation units acquisition strategy to avail ourselves of opportunities created by the current hotel and travel market. We believe the lease terms for each of these properties conservatively work within our model of securing properties on terms that provide robust margins based on our anticipated occupancy rate and room rental rates.

 

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Price

Because we operate with minimal corporate overhead and highly efficient management systems, CorpHousing is able to provide a similar quality product for less than it costs our competitors or we are able provide a better quality product for the same price it would cost competitors to provide a lesser quality product. We believe we can provide guests with comparable accommodations at a price to consumer that is often 30% to 40% less than that offered by our competitors.

We closely monitor the economics of our units to ensure the price, referred to as Average Daily Rate (ADR), is highly competitive so as to drive high occupancy rates which together exceed our revenue to expenses break-even point. Below is a general example of monthly expenses relating to one of our units and break-even occupancy rates as associated with potential ADRs.

Revenue Sharing Arrangements

As additional consideration to the investor in the 2022 Investor Financings, under the terms of the securities purchase agreements, we granted revenue participation rights to the investor. Under this arrangement, we entered into leases for certain of our properties financed through such financings through our wholly owned special purpose entity, CorpHousing RSL LLC (“CRSL”) and granted a lien to such investor in all of our membership interests in CRSL as security for all revenue sharing payments. The investor is entitled to receive an aggregate share, typically 5% to 10% in the first five years of the relevant lease, and 1% thereafter, of the quarterly revenues generated by us through each such property through certain prescribed periods — typically, the initial term of the subject lease relating to such property (typically 15 years, plus any prescribed extension thereof). In the event we terminate a lease for one or more of the New Properties prior to the end of the prescribed term for any reason, we are obligated to provide the investors continued revenue sharing rights in a substantially similar property within our portfolio. From time to time, we may determine to enter into similar revenue sharing arrangements or joint ventures with respect to our properties.

Sales and Marketing

We market our accommodations based on the promise of “Heroic ServiceTM for guests staying at our exceptionally located, appointed and maintained units. We offer upscale, fully appointed, accommodations, available on the guest’s timeline, in exclusive neighborhoods in the United States. Currently, we market our accommodation units through our own online platform and numerous third party channels. The company plans to launch international operations in 2022 and is currently evaluating certain non-US cities for launch of our first commercial international operations.

Online Platforms

We presently use dozens of third-party booking channels, which have historically generated more than 90% of our sales. Part of our strategy will be to migrate away from these channels to our own booking platforms in order to reduce commission we pay to third parties and drive better margins. Our main third-party booking channels include, Marriott, Booking, Expedia, VRBO, Airbnb, and Direct Bookings.

We continually strive to create repeat business from returning guests and encourage returning guests to book through our company booking portals. We also intend to drive a greater percentage of our bookings towards our own booking portals publicizing our LuxUrban brand through event promotions and sponsorships and by partnering with other businesses and non-profit organizations which have strong brand recognition.

Marriott — Homes & Villas

Recently, after intensive evaluation and assessment of online ratings, reviews, and feedback, Marriott — Homes & Villas selected a few of the best performing vacation rental providers with which to partner. In April 2021, we entered into an agreement with Marriott — Homes & Villas pursuant to which we are permitted to list our units on their exclusive Bonvoy Rewards site. This site allows Marriott’s Bonvoy Reward members to book accommodations using reward points. CorpHousing recently placed 81 of our units on the Bonvoy Rewards site and are monitoring and evaluating the efficacy of this relationship.

 

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B2B Sales

We utilize numerous B2B sales partners that connect to our application programming interface (API) in order to see our availability and prices in real time and book these units or, alternatively, which contact us directly to book units. Our HeroesTM in each of our cities handle the direct B2B sales requests for their respective city.

Future Marketing and Sales Operations

We will increase our marketing efforts to enhance awareness of our CorpHousing and LuxUrban brands, and to promote our accommodations and services through digital advertising, a loyalty program, email newsletters, search engine optimization, and social media outreach.

Service

We believe our Heroic Service is:

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key to providing guests with an exceptional experience;

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the foundation of ensuring our leased properties are maintained to the highest standards;

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critical to our overall success;

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important to the building of our brand; and

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a significant differentiator between us and competitors.

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We operate in a distributed, service-oriented, guest-centric, manner which is structured around elevating and supporting each guest-facing Hero. Each Hero is responsible for serving as a host-concierge, providing exceptional experiences for guests; a resident manager, maintaining the value of the properties for its owners; and a business development representative, continuously focusing on ways to maximize profits for our company.

While the Heroic Service objectives are primarily applicable to our guests, each team member strives to adapt and achieve as many as possible, as appropriate, with each person with whom they come in contact, including property owners, business partners, and fellow team members, to build trust and enhance relationships.

Each team member is trained and expected to adhere to these guidelines. Each team member must be service-oriented, guest-centric, engaging, polite, friendly, exceptionally patient, and must be willing to go above and beyond with their words and actions to generate exceptional and memorable experiences for guests, business partners, and other team members.

Each CorpHousing team member strives to accomplish our company’s desired “end state” for each guest, business partner, and other team members with the following key goals:

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A stay at our accommodations should be easy and without burden placed on the guest.

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The stay should be better than what guests have experienced before at competitors offerings.

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The stay should compel the guest to give our company the highest reviews and ratings on online websites and by word of mouth.

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Our accommodations should be a part of what our guests positively remember about their travel.

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We strive to have our guests recommend our accommodations to friends and family.

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Everything we do has the objective of making each guest a repeat guest in the future.

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Technology

We have developed, purchased and tailored various technology for our operations. Our use of technology and continuing implementation of additional technologies is an important part of ensuring efficient operations, the provision of high quality guest experiences and reduction of operation costs. A key

 

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component of our growth strategy will be to leverage the latest technology across the spectrum of our guests’ experience — from the quality of the accommodations to the pricing thereof to the guests’ safety and enjoyment of the properties.

Property Selection

We use our proprietary big data analytics to identify neighborhoods and specific properties for acquisition. We use this data to identify in-demand locations that are underserved by supply and to identify the specific property characteristics desired by typical travelers to that location. We also use our data analytics for determining lease economics and other terms of our leases.

Commercial Zoning Prioritization

An important part of our growth strategy is to increases the percentage of our portfolio that comprised of units located in hotels and other commercially zoned buildings. As commercially zoned buildings are not typically subject to local short-stay length regulation (e.g. NYC prohibits stays of less than 30 days in many residential zones), we will be able to offer a larger number of our units for stays as short as one day, providing us with maximum booking. Accordingly, in our property selection during the past year, we have focused almost exclusively on securing long-term leases for units in hotels and other commercially zoned buildings.

Revenue Management and Pricing

We use our proprietary data science and algorithms to manage revenue and create dynamic pricing for our accommodation units. Using our technology we strive to maximize occupancy rates through attractive pricing and target marketing to potential guests.

Marketing and Sales

We use our corporate website as a marketing tool to reinforce our reputation when partnering with and acquiring units from leading development firms, commercial real estate advisors, real estate investors, property managers and property owners.

We use our consumer-focused website as a marketing and direct sales tool for our accommodations. It provides information about the units and affords guests an opportunity to book stays directly from the web site.

CorpHousing uses a third-party, end-to-end property management platform. By streamlining the workflow and simplifying daily operational needs of the business, this platform allows us to:

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Manage incoming requests in one booking pipeline

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Sync with dynamic pricing to maximize revenue

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Avoid double bookings with a central calendar

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Manage payments including pre-auth and security deposit

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Direct bookings site

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Communicate with guests through email and SMS

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Upsell services

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Coordinate guest check-ins and check-outs.

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For pricing management, we currently use third-party dynamic pricing tools which enable us to manage prices and availability easily with data-driven insights and automation capabilities. These tools use dynamic pricing models and apply the discount/multipliers based on market supply and demand, seasonal and day-of-week trends, special events and holiday predictions, and the number of days left to book. We also have developed our own proprietary software with an algorithm that assists us in assessing supply and

 

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demand and recommending pricing at a unit-by-unit level. The algorithm evaluates the performance of each unit type and, depending on such performance, the algorithm suggests marketing changes for each unit type.

Security

We use various third-party technologies that provide us with an AI-based, customizable, screening tool to assist in mitigating risk, enabling safe and secure stays for guests, and protecting owners’ property from damage by verifying guest identities and that meet our criteria for use of our units. These technologies include vertically integrated hardware and software solutions for door access to our units, which allows us to remotely manage doors, and the people that have access to our units, including maintenance staff and deliveries. We also use a third-party system that enables CorpHousing to manage and control other property areas including garages and amenities.

Operations

We use proprietary and third-party technologies for our operations. These technologies enable us to operate efficiently and creates a data-rich environment for our management team and on-site personnel.

We utilize third-party technology to provide guests with complete digital reference to information covering arrival times, unit information (such as Wi-Fi passwords and thermostat instructions), and local area restaurant and food shopping guides and activities.

CorpHousing uses third-party noise monitoring systems to quickly identify noise issues, property damage, and false complaints. The systems provide us with intelligent insight into all of our properties.

We use a third-party platform that enables us to maintain quality, safety, and cleanliness across our properties by facilitating coordination, communication, and verification of detailed work, and delivering measurable regarding cleaning management.

CorpHousing also utilized numerous third party technologies for communications with guests and team members.

 

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companies attempted to continue day-to-day operations through restrictions and layoffs, others simply did not survive. Examples of the impact of Covid-19 include the following:

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According to reports by CNBC, Airbnb, the largest online marketplace for short-term lodging, survived the pandemic by laying of 1,900 people (25% of their workforce).

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According to Business Insider, Sonder, the largest alternative accommodation lodging host on Airbnb, has survived the pandemic by laying off 400 people (33% of their workforce).

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According to its website and public statements, Lyric, an alternative accommodation host, has survived the pandemic by changing its business from hosting alternative accommodations to becoming a software development company that will produce IT pricing and analytic platforms.

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Stay Alfred, a well-known alternative accommodation host founded in 2010, and operating as many as 2,500 units at its peak, did not survive the pandemic.

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Effects on CorpHousing

Despite COVID-19 ravaging the hospitality industry, CorpHousing has weathered the storm, continued business operations and retained all of our employees. We have been able to do this because our operating model does not overextend our company financially, and requires minimal corporate overhead. Importantly, our remote operating and management systems, which have been an integral part of our business strategy, proved to be well-suited for a transition to operating virtually in the Covid environment.

As an important part of our strategy is building portfolios of units located near city centers and major hospitals, we also were able to quickly adapt to changing realities as the Covid pandemic emerged. CorpHousing provided accommodations for first responders, medical professionals, and health care workers who were either working long hours and would choose not to commute or who chose to quarantine outside their own homes in order not to risk exposing their families to COVID-19.

Post-Covid Pandemic Trends

According to propertymanagement.com, the 2019 (pre-Covid) vacation rental industry exceeded projections by $29 billion. As lockdowns went into effect during 2020, travel cancellations rose 534%. However, by late May 2020, online searches for vacation information were 100% higher than in 2019. According to Statista, a German company specializing in market and consumer data, the foregoing indicates that travelers are eager for a return to vacation travel. Statista also noted trends indicating that travelers now have greater interest in traveling domestically, and further projecting that 79% of all vacation rental revenues will be generated through online sales by 2025, with more than 62.8 million vacation rental users (with the largest segment being in the United States). AirDNA projects that short-term rental revenues in the United States will increase by 42% during the next four years.

 

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In additional to well-known, large hotel chains, there are a. growing number of short-stay accommodation specialist companies similar to ours, such as AvantStay, Sextant Stays, Kasa and Sonder. Some of these have had several rounds of financing and have built larger portfolios of units than ours.

Intellectual Property

We have filed for eight trademarks, including “CorpHousing Group,” “CorpHousing,” and “LuxUrban.” We intend to use these and other trademarks in building our brand, proprietary corporate philosophies in creating our operations and guests experiences, and certain proprietary technology, applications and data bases and know how in our operations. As a result, our success depends in part on our ability to operate without infringing upon the proprietary rights of others, and to prevent others from infringing upon our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. trademark and copyright applications, nondisclosure and assignment of invention agreements with employees, and enforcing our rights as applicable. We also rely on trade secrets, know-how, and continuing technological innovation and may rely on licensing opportunities to develop and maintain our proprietary position. We believe there is a nonoperating company using the name “CorpHousing” which was formed after the date of our formation and which has not conducted any material commercial business. We are in the process of making a cease and desist demand on the entity to the extent same is still in legal existence.

Regulation

We must ensure regulatory compliance in our operations across numerous jurisdictions.

Property and Accommodations Regulation

Our business is subject to U.S. federal, state and local and foreign laws and regulations that vary widely by city, country and property type. In many cities, local regulations affect our company’s ability to offer accommodations for specified durations or in residential neighborhoods. Hospitality and transient accommodations operations are also subject to compliance with the U.S. Americans with Disabilities Act and other laws and regulations relating to accessibility, and to laws, regulations and standards in other areas such as zoning and land use, licensing, permitting and registrations, fire and life safety, environmental and other property condition matters, staffing and employee training, cleaning protocols and other COVID-19 requirements, and property “star” ratings where required. Additionally, our real estate owners are also responsible for their own compliance with laws, including with respect to their employees, property maintenance and operations, environmental laws and other matters.

When signing leases in a new market, we engage local legal counsel to help identify relevant regulatory requirements. This research includes analysis on licensing and zoning, building code, accessibility and operations requirements, fire and life safety regulations, tax compliance, and local employment laws. Every leased property has unique characteristics, requiring further due diligence and regulatory analysis before each new lease signing.

We monitor regulatory changes in each existing market on an ongoing basis. To facilitate our growth and compliance work in each city, we attempt to establish relationships with local regulatory agencies, elected officials, business and community groups to build trust and improve understanding of our business model.

Our growing portfolio of accommodation units are comprised of leased units in multi-family dwellings and, increasingly, units in entire hotels we lease on a long-term basis. In many cases, the mutli-family dwellings are located in residentially zoned areas of our operating cities. Our hotel units are located in commercially zoned areas. In many cases, the cities in which we operate have evolving regulations that limit or prohibit the short-stay rental of units located in residential communities; these municipalities often require short-stay rentals in residential areas to be for a minimum of 30 days. Conversely, hotel units enjoy the benefits of commercial zoning, allowing for short-stay rentals of any length, even as a short as one day. An integral part of our growth strategy is to increase the number of hotel units comprising our total accommodation unit portfolio. As commercially zoned buildings are not subject to local short-stay length regulation, as we increase our hotel-based units, we will be able to offer a larger portion of our accommodation portfolio with maximum flexibility in terms of stay length and more readily ensure compliance with any regulations applicable to residential area accommodations. We also continuously refine our booking platforms and

 

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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.

Privacy and Data Protection Regulation

In processing travel transactions and information about guests and their stays, we receive and stores a large volume of personally identifiable data. The collection, storage, processing, transfer, use, disclosure and protection of this information are increasingly subject to legislation and regulations in numerous jurisdictions around the world, such as the European Union’s General Data Protection Regulation (“GDPR”) and variations and implementations of that regulation in the member states of the European Union, as

well as privacy and data protection laws and regulations in various U.S. States and other jurisdictions, such as the California Consumer Privacy Act (as amended by the California Privacy Rights Act), the Canadian Personal Information Protection and Electronic Documents Act (“PIPEDA”), and the UK General Data Protection Regulation and UK Data Protection Act. We have implemented a variety of technical and organizational security measures and other procedures and protocols to protect data, including data pertaining to guests and employees, and we are engaged in an ongoing process of evaluating and considering additional steps to comply with the California Consumer Privacy Act, GDPR, PIPEDA, the UK General Data Protection Regulation, and UK Data Protection Act.

Employment

We are also subject to laws governing its relationship with employees, including laws governing wages and hours, benefits, immigration, workplace safety and health, and hotel-specific ordinances.

Other Regulation

Our business is subject to various other laws and regulations, involving matters such as income tax and other taxes, consumer protection, online messaging, advertising and marketing, the U.S. Foreign Corrupt Practices Act and other laws governing bribery and other corrupt business activities, and regulations aimed at preventing money laundering or prohibiting business activities with specified countries or persons. As we expand into additional markets, we will be subject to additional laws and regulations.

The regulatory environment in each market is often complex and evolving, and can be subject to significant change. Some relevant laws and regulations are inconsistent and ambiguous, and could be interpreted by regulators and courts in ways that could adversely affect our business, results of operations, and financial condition. Moreover, certain laws and regulations have not historically been applied to businesses such as ours, which often makes their application to our business uncertain.

Uncertainty

Short-term rental regulations differ greatly by state and city, and they can be difficult to ascertain, accurately interpret and apply. There is no one-size fits all approach in the United States. Additionally, the rules and regulations are in a constants state of change due to the massive and on-going shift in how governments, at all levels, assess and address short-term rental platforms. Presently, the wide variety of complex, evolving, and sometimes inconsistent and ambiguous Federal, state, and local laws, regulations, and/or rules that affect the short-term rental business may adversely impact our operations and our ability, or willingness, to lease units from property owners in certain jurisdictions. Violation of the various laws, regulations, and rules that apply to us or may, in time, evolve to apply to us, could result in significant liability to us, including fines and other penalties, which could have a material adverse effect on our business, results of operations, and financial condition.

Human Capital

Our future success is dependent in part on our continued ability to attract, hire and retain qualified personnel. Therefore, investing, developing and maintaining human capital is critical to our success. The Company strives to provide its employees with a safe and healthy workplace. As of the date of this prospectus,

 

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we had 107 full-time employees and independent contractors. None of our employees or contractors are covered by collective bargaining agreements.

We are an equal opportunity employer and it is our company’s policy to recruit, hire, train and promote personnel in all job classifications, without regard to race, religion, color, national origin, sex or age. We are committed to inclusivity and diversity across our entire operation and to fostering a culture where everyone feels empowered to do their best work. Cultivating a diverse and inclusive workplace helps us embrace different perspectives, talents and experiences. We believe achieving a culture of integrity and transparency starts with leadership and encourages every employee to work in support of our company’s goals. Continuous employee engagement helps us understand our employees’ perspectives and identify areas for additional focus.

As a result of our lease for the former Blakely NY Hotel, a portion of our employees are currently represented by labor unions and/or covered by collective bargaining agreements. We may in the future acquire additional portfolios of units in other hotels or other building serviced by organized or unionized labor. In addition, union, worker council or other organized labor activity may occur at other locations we already lease. We currently have obligations relating to the Blakely NY Hotel, through Blakely LLC, under a Collective Bargaining Agreement with UNITE HERE Local 26 (which we assumed under an Assignment Agreement, dated as of December 10, 2021). Obligations of the Blakely NY Hotel include, without limitation, enhanced severance benefits that, in certain circumstances, may have to be paid upon termination of employment of hotel employees who are members of the union known as UNITE HERE. We cannot predict the outcome of any labor-related proposal or other organized labor activity. Increased unionization of our workforce or other collective labor action, new labor legislation or changes in regulations could be costly, reduce our staffing flexibility or otherwise disrupt our operations, and reduce our profitability.

While we have not experienced any labor disputes or work stoppages to date, from time to time, hospitality operations may be disrupted because of strikes, lockouts, public demonstrations or other negative actions and publicity involving employees and third-party contractors. We may also incur increased legal costs and indirect labor costs because of disputes involving our workforce.

Facilities

We maintain nominal corporate headquarters in Miami Florida, where we lease office space. We believe that our corporate space is adequate for our immediate needs and that we will be able to obtain additional or substitute space, as needed, on commercially reasonable terms.

 

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hotels and other commercially zoned buildings. As commercially zoned buildings are not typically subject to local short-stay length regulation (e.g. NYC’s stay-length requirement of 30 days in residential zones), we will be able to offer a larger number of our units for stays as short as one day, providing us with maximum booking flexibility.

Although, we may potentially face legal actions, penalties, and information requests related to guest stay lengths from time to time in jurisdictions in which we operate, such as New York City, we are proactively growing our business in compliance with law. As part of our operating strategy, we have conducted a thorough inspection of our New York City inventory to ensure all listings are for 30-day minimums when and where required, in compliance with New York City’s current laws. In connection with this strategy, we have, or are in the process of, surrendering back to landlords certain units, which we have determined cannot be operated in compliance with existing law in a profitable manner, and have replaced these units in our portfolio with hotel units and units in buildings licensed for short-stay rentals. We have also made sure all of our online listings on third party sales channels are in compliance with New York State’s and New York City’s laws. To ensure that our business and marketing strategies comply with the regulations that may apply to our business, which vary by city, our operations and legal compliance are supervised by our Chief Compliance Officer and other personnel, who work with local counsels as well directly with regulators and agencies in our cities. In conjunction with these divestitures, we have worked with New York City’s DOB and OSE to settle any past short-term stay violations, with any settlement expected by management to be nonmaterial.

As our business has grown, 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 seek to complete the wind-down of our non-performing, residential area-located apartment inventory by the end of the third quarter of 2022. We plan to operate and maintain our accommodation units portfolio at a ratio of between 85% to 95% of commercially zoned hotel room inventory and 5% to 15%% residential area-located apartment inventory. As of the date of this prospectus, our accommodation units portfolio is comprised of over 90% hotel units that are not subject to short-stay length regulations or contractual provisions and the balance apartment units that are subject to such restrictions. Our portfolio growth strategy involves (a) adding, almost exclusively, commercially zoned properties that are not subject to short-stay length regulations and (b) divesting older 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 immaterial to our operations.

 

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Underwriter’s Warrants

We issued to Maxim, the representative of the underwriters of our IPO, warrants (“Underwriter’s Warrants”) to purchase 135,000 shares of our common stock as additional consideration to the underwriters for the IPO. The Underwriter’s Warrants are exercisable at $4.40 per share and are exercisable beginning February 15, 2023 through August 15, 2027 and contain customary “cashless” exercise and registration rights provisions. The warrants shall not be exercisable until February 11, 2023.

Private Warrants

In connection with a bridge financing in October 2021 we issued THA Holdings LLC, an affiliate of Brian Ferdinand, our Chairman and CEO, warrants (the “THA Warrants”) to purchase up to 250,000 shares of our common stock. The THA Warrants are exercisable at any time through August 16, 2027 at $4.00 per share.

In connection with a bridge financing in November 2021 we issued EBOL Holdings LLC, an affiliate of Edward Rogers, our Head of Property Acquisitions, warrants (the “EBOL Warrants”) to purchase up to 125,000 shares of our common stock. The EBOL Warrants are exercisable at any time through August 16, 2027 at $4.00 per share.

In connection with a bridge financing provided to us in 2022 by certain of our officers and directors and affiliates thereof, we issued warrants (“2022 Insider Bridge Warrants”) to purchase up to an aggregate of 320,000 shares of our common stock. The 2022 Insider Bridge Warrants are exercisable at any time through August 16, 2027 at $4.20 per share.

Holders of these private warrants have customary cashless exercise rights and piggyback registration rights. All such registration rights were waived in connection with the registration statement of which this prospectus is a part. The warrant holders do not have the rights or privileges of holders of shares of common stock and any voting rights until they exercise their warrants and receive shares of common stock. No fractional shares will be issued upon exercise of these private warrants. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued to the warrant holder.

There is no public market for these private warrants and none is expected to develop.

2022 Investor Financing Notes, 2022 Investor Financing Warrants and 2022 Investor Financing Agent Warrants

In 2022, we have sold to an investor the 2022 Investor Financing Notes and 2022 Investor Financing Warrants, and issued to Maxim, as agent in certain of such transactions, the 2022 Investor Financing Agent Warrants, as described above in “Prospectus Summary — Recent Developments — 2022 Investor Financings.”

Preferred Stock

No shares of preferred stock will be issued or outstanding immediately after the offering contemplated by this prospectus. Our Amended Charter will authorize our board of directors to establish one or more series of preferred stock. Unless required by law or any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by the holders of our common stock. Our board of directors will have the discretion to determine, without stockholder approval and with respect to any series of preferred stock, the powers (including voting powers), preferences, and relative, participating, optional, or other special rights, and the qualifications, limitations, or restrictions thereof, including, without limitation:

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the designation of the series;

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the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding);

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whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;

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the dates at which dividends, if any, will be payable;

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the redemption or repurchase rights and price or prices, if any, for shares of the series;

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the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;

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the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution, or winding-up of our affairs;

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whether the shares of the series will be convertible into shares of any other class or series, or any other security, of us or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices, or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;

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restrictions on the issuance of shares of the same series or of any other class or series; and

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the voting rights, if any, of the holders of the series.

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We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium over the market price of the shares of our common stock. Additionally, the issuance of preferred stock may adversely affect the rights of holders of our common stock by restricting dividends on our common stock, diluting the voting power of our common stock or subordinating the liquidation rights of our common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock. We have no current plan for the issuance of any shares of preferred stock.

2022 Performance Equity Plan

Summary of the 2022 Plan

The following is summary of the principal features of our 2022 Plan. The summary is qualified in its entirety by reference to the full text of the 2022 Plan.

Purpose

The purpose of the 2022 Plan is to enable us to offer its employees, officers, directors, and consultants whose past, present and/or potential future contributions to our company have been, are, or will be important to its success, an opportunity to acquire a proprietary interest in our company. The various types of incentive awards that may be provided under the plan are intended to enable us to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.

Administration

The 2022 Plan is administered by the Board or by a committee of the Board. In this summary, references to the “committee” are to the committee administering the plan or, if no such committee is designated, the Board. The committee will be comprised solely of “non-employee” directors, as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Presently, the 2022 Plan is administered by the compensation committee. Subject to the provisions of the plan, the committee determines, among other things, the persons to whom from time-to-time awards may be granted, the specific type of awards to be granted, the number of shares subject to each award, share prices, any restrictions or limitations on the awards, and any vesting, exchange, surrender, cancellation, acceleration, termination, exercise, or forfeiture provisions related to the awards.

 

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shares of common stock or arranges to have the appropriate number of shares otherwise issuable upon exercise withheld to cover the withholding tax liability associated with the stock option exercise, the shares surrendered by the holder or withheld by the Company will not be available for future award grants under the plan.

Under the 2022 Plan, in the event of a change in the number of shares of Company common stock as a result of a dividend on shares of common stock payable in shares of common stock, common stock forward split or reverse split or other extraordinary or unusual event that results in a change in the shares of common stock as a whole, the committee shall determine whether such change equitably requires an adjustment in the terms of any award in order to prevent dilution or enlargement of the benefits available under the plan or the aggregate number of shares reserved for issuance under the plan.

Eligibility

We may grant awards under the 2022 Plan to employees, officers, directors, and consultants who are deemed to have rendered, or to be able to render, significant services to the Company and who are deemed to have contributed, or to have the potential to contribute, to its success. An incentive stock option may be granted under the plan only to a person who, at the time of the grant, is an employee of the Company or its subsidiaries.

Certain Anti-Takeover Provisions of our Certificate of Incorporation and By-Laws

Special Meeting of Stockholders

Our bylaws provide that special meetings of our stockholders may be called only by a majority vote of our board of directors, or by our chairman and chief executive officer or by our secretary at the request in writing of stockholders owning a majority of the voting power of our issued and outstanding capital stock.

Advance Notice Requirements for Stockholder Proposals and Director Nominations

Our bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be delivered to our principal executive offices not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the scheduled date of the annual meeting of stockholders. In the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting of stockholders is given, a stockholder’s notice shall be timely if delivered to our principal executive offices not later than the 10th day following the day on which public announcement of the date of our annual meeting of stockholders is first made or sent by us. Our bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.

Removal and Appointment of Directors

Our entire board of directors or any individual director may be removed from office with or without cause by a majority vote of the holders of the voting power of outstanding voting power of the shares then entitled to vote at an election of directors. In such case, new directors may be elected by the stockholders then holding a majority of our voting power. Our chairman and chief executive officer controls the substantial majority of our voting power and therefore will be able to unilaterally exercise the foregoing rights.

Exclusive Forum Selection

Article Eleventh of our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of

 

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the Delaware General Corporation Law or our charter documents, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or if the Court of Chancery does not have jurisdiction, another state court located within the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. While this provision is intended to include all actions, excluding any arising under the Securities Act of 1933, the Exchange Act of 1934 and any other claim for which the federal courts have exclusive jurisdiction, there is uncertainty as to whether a court would enforce this provision.

Limitation on Directors’ Liability and Indemnification

Our certificate of incorporation provides that no director of ours will be personally liable to us or any of our stockholders for monetary damages arising from the director’s breach of fiduciary duty as a director. However, this does not apply with respect to any action in which the director would be liable under Section 174 of the DGCL nor does it apply with respect to any liability in which the director (i) breached his duty of loyalty to us or our stockholders; (ii) did not act in good faith or, in failing to act, did not act in good faith; (iii) acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law; or (iv) derived an improper personal benefit. This provision could have the effect of reducing the likelihood of derivative litigation against our directors and may discourage or deter our stockholders or management from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders.

Our certificate of incorporation and bylaws provide that all directors and officers shall be entitled to be indemnified by such company to the fullest extent permitted by law. The certificate of incorporation provides that we may indemnify to the fullest extent permitted by law all employees. Our bylaws provide that, if authorized by our board of directors, we may indemnify any other person whom it has the power to indemnify under section 145 of the DGCL. We have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our certificate of incorporation and bylaws. We also maintain directors’ and officers’ liability insurance.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or person controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

Anti-Takeover Provisions

Provisions of the DGCL and our certificate of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in improved terms for our stockholders.

Delaware Anti-Takeover Statute.

We are subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates,

 

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owns (or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

Amendments to Our Certificate of Incorporation.

Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote thereon and a majority of the outstanding stock of each class entitled to vote thereon is required to amend a corporation’s certificate of incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would:

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increase or decrease the aggregate number of authorized shares of such class;

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increase or decrease the par value of the shares of such class; or

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alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely.

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If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class of our capital stock so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for the purposes of this provision.

 

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Independent

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Brian Ferdinand was the Co-Founder and Manager of both Corphousing LLC prior to its conversion into a C corporation in January 2022 and has been the Chief Executive Officer and Chairman of the Board of our company since that date. Prior to founding our company in 2017, Mr. Ferdinand was Chief Operating Officer and a partner at VacationRentals LLC, a provider of loyalty-branded, hotel-alternative accommodations, and prior to that, from 2011 through 2014, Mr. Ferdinand served as a member of the Board of Directors and Head of Corporate Strategy at Liquid Holdings, Inc. (“Liquid”), a designer and operator of fintech-based brokerage order execution platforms and services. Liquid filed for bankruptcy Chapter11 protection in January 2016. From 2002 through 2011, Mr. Ferdinand served as Managing Director and partner at ECHOTrade LLC, a proprietary trading firm, where he oversaw that company’s expansion from 30 to nearly 1000 licensed traders working in offices throughout the United States and internationally in JBO partnership with Merrill Lynch and Bank of America. Mr. Ferdinand entered into an Offer of Settlement with the Securities and Exchange Commission on April 22, 2020, in connection with allegations that he, as a board member of Liquid Holdings Group Inc., (a) reviewed a Form 10-Q and signed a Form 10-K for the fiscal year 2013 that failed to disclose material facts of Liquid’s reliance on a related party entity (a principal customer of Liquid and a company of which Mr. Ferdinand was an owner) and from which Liquid received material subscription fees, and (b) failed to file required Forms 4 and amendments to Schedule 13D to reflect material changes to his ownership in Liquid’s shares of common stock, causing Liquid to violate Section 13(a), 13(d)(2) and 16(a) of the Exchange Act and related rules thereof. Mr. Ferdinand consented, without admitting or denying any findings, to a cease and desist order from any alleged secondary violations of Section 17(a)(2) of the Securities Act and 13(a) of the Exchange Act, which are non-scienter provisions in which negligence is sufficient to establish liability for causing a primary violation; and Section 13(d)(2) and Section 16(a) of the Exchange Act, which are personal security reporting provisions under which strict liability is sufficient to establish a violation. As a result of the settlement, Mr. Ferdinand was also required to pay a fine of $115,000.

David H. Gurfein has been as our President and Chief Operations Officer since June 2021, our President of Operations from May 2019 to June 2021, and an Advisor to our CEO from November 2017 to May 2019. Since April 2018, Mr. Gurfein has also served as Chief Executive Officer of United American Patriots, a non-profit 501(c)(3) organization that focuses on service members individuals rights. From June 2012 to June 2017, Mr. Gurfein was President of True Health & Wholeness, a Health and Fitness Company. He was a Managing Partner and Senior Vice President for Business Development at Holden International, a business development and consultancy company, from July 2010 to June 2012. Mr. Gurfein served in the U.S. Marine Corps from September 1982 to November 2007, enlisting as a private and retiring as a Lieutenant Colonel. Mr. Gurfein holds an M.B.A. from Harvard Business School and a B.S. from Syracuse University.

 

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