Mobile Infrastructure Corp: Form 10-Q for the period ended Sep 30, 2024

The following is a financial review and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our annual report on Form 10-K for the fiscal year ended December 31, 2023. Unless otherwise indicated, references in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to “MIC,” “we,” “us,” “our,” and the “Company” refer to Mobile Infrastructure Corporation and its consolidated subsidiaries prior to the closing of the Merger and to Mobile Infrastructure Corporation (f/k/a Fifth Wall Acquisition Corp. III) and its consolidated subsidiaries following the closing of the Merger, as the context requires. References in this Quarterly Report to “Legacy MIC” refer to Mobile Infrastructure Corporation and its consolidated subsidiaries prior to the closing of the Merger. References in this Quarterly Report to “FWAC” refer to Fifth Wall Acquisition Corp. III.

Forward-Looking Statements

Certain statements included in this Quarterly Report that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on operations and future prospects include, but are not limited to:

• increased fuel prices may adversely affect our operating environment and costs;
• we have a limited operating history which makes our future performance difficult to predict;
• we have a history of losses and we may not be able to achieve or sustain profitability in the future;
• we depend on our management team and the loss of key personnel could have a material adverse effect on our ability to conduct and manage our business;
• a material failure, inadequacy, interruption, or security failure of our technology networks and related systems could harm our business;
• our executive officers and certain members of our board of directors face or may face conflicts of interest related to their positions and interests in our affiliates, which could hinder our ability to implement our business strategy and generate returns to investors;
• our revenues have been and will continue to be significantly influenced by demand for parking facilities generally, and a decrease in such demand would likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio;
• we may be unable to grow our business by acquisitions of additional parking facilities;
• the risks related to our financial statements expressing doubt about our ability to continue as a going concern;
• our parking facilities face intense competition, which may adversely affect rental and fee income;
• we require scale to improve cash flow and earnings for investors;
• changing consumer preferences and legislation affecting our industry or related industries may lead to a decline in parking demand, which could have a material adverse impact on our business, financial condition, and results of operations;
• our investments in real estate will be subject to the risks typically associated with investing in real estate;
• uninsured losses or premiums for insurance coverage relating to real property may adversely affect our investor returns;
• our material weaknesses in our internal control over financial reporting could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner;
• we may not be able to access financing sources on attractive terms, or at all, which could adversely affect our ability to execute our business plan;
• if we cannot obtain sufficient capital on acceptable terms, our business and our ability to operate could be materially adversely impacted;
• we have debt, and may incur additional debt; if we are unable to comply with the financial covenants under the Credit Agreement (as defined herein), which could result in an event of default under the Credit Agreement and an acceleration of repayment;
• adverse judgments, settlements, or investigations resulting from legal proceedings in which we may be involved could reduce our profits, limit our ability to operate our business, or distract our officers from attending to our business;
• holders of our outstanding preferred stock have dividend, liquidation, and other rights that are senior to the rights of the holders of our common stock; and
• other risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” and in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, statements of belief and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, involve risks and are subject to change based on various factors, including those discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report.

Overview

Mobile Infrastructure Corporation (formerly known as Fifth Wall Acquisition Corp. III or “FWAC”) is a Maryland corporation. We focus on acquiring, owning and optimizing parking facilities and related infrastructure, including parking lots, parking garages and other parking structures throughout the United States. We target both parking garage and surface lot properties primarily in the top 50 U.S. Metropolitan Statistical Areas, with proximity to key demand drivers, such as commerce, events and venues, government and institutions, hospitality and multifamily central business districts. As of September 30, 2024, we own 41 parking facilities in 20 separate markets throughout the United States, with a total of approximately 15,300 parking spaces and approximately 5.2 million square feet. We also own approximately 0.2 million square feet of retail/commercial space adjacent to its parking facilities.

FWAC was a blank check, Cayman Islands exempted company, incorporated on February 19, 2021 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more business entities.

On August 25, 2023 (the “Closing Date”), we consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger”), as amended by the First Amendment to the Agreement and Plan of Merger, by and among FWAC, Queen Merger Corp. I, a Maryland corporation and wholly-owned subsidiary of FWAC, and Legacy MIC. As part of the Merger, FWAC was converted to a Maryland corporation and changed its name to Mobile Infrastructure Corporation.

In connection with the Merger, Mobile Infra Operating Partnership, L.P., a Maryland limited partnership (the “Operating Partnership”), converted from a Maryland limited partnership to a Delaware limited liability company, Mobile Infra Operating Company, LLC (following the conversion, the “Operating Company”). In connection with the conversion, each outstanding unit of partnership interest of the Operating Partnership was converted automatically, on a one-for-one basis, into an equal number of identical membership units of the Operating Company. The Company is a member of the Operating Company and owns substantially all of its assets and conducts substantially all of its operations through the Operating Company. The Operating Company is managed by a board of directors, one appointed by the Company and one appointed by the other members of the Operating Company. Currently, the two directors of the Operating Company are Manuel Chavez, III, our Chief Executive Officer and a director, and Stephanie Hogue, our President and a director. The Company owns approximately 70.0% of the Common Units of the Operating Company. The remaining Common Units are held by certain of our executive officers and directors (directly or indirectly) and outside investors.

Trends and Other Factors Affecting our Business

Various trends and other factors affect or have affected our operating results, including but not limited to the general market conditions, the strength of the broader U.S. economy and the trajectory of activity of consumers with regard to their use of the parking facilities, fuel prices, inflation trends and interest rates.

Return to Work

The return to normalized movement following the COVID-19 pandemic is relatively uneven among markets and industries, which has impacted the performance of our assets, as many of our properties are located in urban centers, near government buildings, entertainment centers, or hotels. While the employment level in the United States has nearly returned to 2019 levels, many companies continue to deploy a work-from-home or hybrid remote strategy for employees. We anticipate that a hybrid work structure for traditional central business district office workers will be the normalized state going-forward. This has impacted the performance of many of our assets that have office exposure and underscores the importance of a multi-key demand driver strategy in repositioning current and/or acquiring new assets.

Managed Property Revenue Contracts

In 2024, 29 of our 41 assets converted to management contracts. We believe asset management contracts provide the opportunity for net operating income ("NOI") growth through more transparent and controlled expense management, and will reduce the revenue variability associated with the timing of payments for contract parking agreements. In addition, the move to management contracts properly aligns the incentives and rewards for revenue growth between the third-party operator and the company. This change is also expected to result in better revenue linearity compared to revenue recognition in our lease agreements, in which lease payments are based on cash collections from operators. Overall, the conversion to contracts also provides enhanced visibility on the performance of the portfolio within our financial results. Our intent is to convert the remaining assets to asset management contracts by the end of 2027.

Results of Operations for the Three Months Ended September 30, 2024 (dollars in thousands):

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Total revenues

The increase in total revenues for the three months ended September 30, 2024 compared to the same period in 2023 is due primarily to 29 of our 41 assets converting to management contracts in 2024, as noted above. The change to management contracts results in us recognizing revenue from all parking transactions at those locations. Under the previous lease agreements, we only received a portion of the revenue after a certain threshold was reached.

(1) Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.

Property operating expense

The increase in property operating expense for the three months ended September 30, 2024 compared to the same period in 2023 is due primarily to 29 of our 41 assets converting to management contracts in 2024, as noted above. The change to management contracts results in higher reflected operating expenses as revenues under the previous lease agreements were calculated based on collections reduced by certain costs, whereas these costs are now recorded as property operating expense under management contracts.

General and administrative

The $1.5 million decrease in general and administrative expenses during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 is primarily attributable to the cancellation of executive LTIP Units for $1.4 million in the third quarter of 2023.

Preferred Series 2 - issuance expense

As part of accounting for the reverse capitalization in 2023, we evaluated the Series 2 Preferred Stock arrangement and determined the fair value of the Series 2 Preferred Stock at the time of the transaction of $66.7 million ($4.84 per share) exceeded the implied conversion rate based on a total of 13,787,464 shares of common stock being issued on December 31, 2023 in return for $46 million in proceeds. As a result, the excess in fair value was treated as non-cash compensation and was recorded as Preferred Series 2 issuance expense on the Consolidated Statements of Operations.

Organizational, offering and other costs

The decrease in organizational, offering and other costs during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 is primarily attributable to transaction costs associated with the Merger that were allocated to the 1,900,000 FWAC Class B Shares that converted to common stock and which are subject to an earn-out structure (the “Earn-Out Shares”) under terms outlined in the Second Amended and Restated Sponsor Agreement.

Impairment

During the three months ended September 30, 2023 the Company recorded approximately $8.7 million of asset impairment charges related to assets impacted by delayed return-to-work trends or other reductions of demand-drivers impacting these assets.

Interest expense

The decrease in interest expense of approximately $0.3 million during the three months ended September 30, 2024 compared to the same period in the prior year is primarily attributable to the repayment of $9.9 million of mortgage loans in the third quarter of 2023 and the paydowns of $15.0 million and $5.0 million on the Revolving Credit Facility in the third quarter of 2023 and 2024, respectively. This was partially offset by increases in interest rates on the Revolving Credit Facility compared to the prior year and additional interest expense on the Line of Credit entered into in the third quarter of 2024.

Other income, net

The decrease in other income of approximately $0.7 million during the three months ended September 30, 2024 compared to the same period in the prior year is primarily attributable to a gain from a settlement agreement entered into on September 6, 2023.

Change in the fair value of the Earn-Out liability

In connection with the Merger, in August 2023 we recognized a liability for Earn-Out Shares which may vest if certain hurdles are met regarding share price. Changes to the fair value of the liability during the period are reflected in earnings.

Results of Operations for the Nine Months Ended September 30, 2024 (dollars in thousands):

Total revenues

The increase in total revenues for the nine months ended September 30, 2024 compared to the same period in 2023 is due primarily to 29 of our 41 assets converting to management contracts in 2024, as noted above. The change to management contracts results in us recognizing revenue from all parking transactions at those locations. Under the previous lease agreements, we only received a portion of the revenue after a certain threshold was reached.

Property taxes

The increase in property taxes for the nine months ended September 30, 2024 compared to the same period in 2023 is due primarily to increases in estimated property tax assessments recognized in 2024.

Property operating expense

The increase in property operating expense for the nine months ended September 30, 2024 compared to the same period in 2023 is due primarily to 29 of our 41 assets converting to management contracts in 2024, as noted above. The change to management contracts results in higher reflected operating expenses as revenues under the previous lease agreements were calculated based on collections reduced by certain costs, whereas these costs are now recorded as property operating expense under management contracts.

General and administrative

The $0.6 million decrease in general and administrative expenses during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily attributable to the cancellation of executive LTIP Units for $1.4 million in the third quarter of 2023, partially offset by non-cash compensation cost for awards granted in 2024 and an increase in payroll and technology expenses.

Preferred Series 2 - issuance expense

As part of accounting for the reverse capitalization in 2023, we evaluated the Series 2 Preferred Stock arrangement and determined the fair value of the Series 2 Preferred Stock at the time of the transaction of $66.7 million ($4.84 per share) exceeded the implied conversion rate based on a total of 13,787,464 shares of common stock being issued on December 31, 2023 in return for $46 million in proceeds. As a result, the excess in fair value was treated as non-cash compensation and was recorded as Preferred Series 2 issuance expense on the Consolidated Statements of Operations.

Professional fees

Professional fees increased by approximately $0.2 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily attributable to additional professional service fees and costs associated with being publicly traded on the NYSE American.

Organizational, offering and other costs

The decrease in organizational, offering and other costs during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily attributable to transaction costs associated with the Merger that were allocated to the 1,900,000 Earn-Out Shares under terms outlined in the Second Amended and Restated Sponsor Agreement.

Impairment

During the nine months ended September 30, 2024, we impaired approximately $0.2 million of our real estate assets as a result of a planned disposition of a property.

During the nine months ended September 30, 2023 we recorded approximately $8.7 million of asset impairment charges related to assets impacted by delayed return-to-work trends or other reductions of demand-drivers impacting these assets.

Interest expense

The decrease in interest expense of approximately $1.5 million during the nine months ended September 30, 2024 compared to the same period in the prior year is primarily attributable to the repayment of $9.9 million of mortgage loans in the third quarter of 2023 and the paydowns of $15.0 million and $5.0 million on the Revolving Credit Facility in the third quarter of 2023 and 2024, respectively. This was partially offset by increases in interest rates on the Revolving Credit Facility compared to the prior year and additional interest expense on the Line of Credit entered into in the third quarter of 2024.

(Loss) Gain on sale of real estate

In February 2024, we disposed of our Cincinnati Race Street location for $3.15 million, resulting in a loss on sale of real estate of approximately $0.1 million. In July 2024, we sold one parking lot in Clarksburg, West Virginia for approximately $0.5 million, resulting in an immaterial loss on sale of real estate.

In February 2023, we sold a parking lot located in Wildwood, New Jersey for $1.5 million, resulting in a gain on sale of real estate of approximately $0.7 million. We received net proceeds of approximately $0.3 million after the repayment of the outstanding mortgage loan, interest and transaction costs.

Other income, net

The decrease in other income of approximately $0.9 million during the nine months ended September 30, 2024 compared to the same period in the prior year is primarily attributable to a gain from a settlement agreement entered into on September 6, 2023.

Change in the fair value of the Earn-Out liability

In connection with the Merger, in August 2023 we recognized a liability for Earn-Out Shares which may vest if certain hurdles are met regarding share price. Changes to the fair value of the liability during the period are reflected in earnings.

Non-GAAP Measures

Net Operating Income

NOI is presented as a supplemental measure of our performance. We believe that NOI provides useful information to investors regarding our results of operations, as it highlights operating trends such as pricing and demand for our portfolio at the property level as opposed to the corporate level. NOI is calculated as total revenues less property operating expenses and property taxes. We use NOI internally in evaluating property performance, measuring property operating trends, and valuing properties in our portfolio. Other real estate companies may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other real estate companies. NOI should not be viewed as an alternative measure of our financial performance as it does not reflect the impact of general and administrative expenses, depreciation and amortization, interest expense, other income and expenses, or the level of capital expenditures necessary to maintain the operating performance of our properties that could materially impact our results from operations.

The following table presents our NOI as well as a reconciliation of NOI to Net Loss, the most directly comparable financial measure under U.S. GAAP reported in our consolidated financial statements, for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

EBITDA and Adjusted EBITDA

Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) reflects net income (loss) excluding the impact of the following items: interest expense, depreciation and amortization, and the provision for income taxes, for all periods presented. When applicable, Adjusted EBITDA also excludes certain recurring and non-recurring items from EBITDA, including, but not limited to gains or losses from disposition of real estate assets, impairment write-downs of depreciable property, non-cash changes in the fair value of the Earn-Out liability, merger-related charges and other expenses, gains or losses on settlements, and stock-based compensation expense.

Our use of EBITDA and Adjusted EBITDA facilitates comparison with results from other companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels, and credit ratings. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. EBITDA and Adjusted EBITDA also exclude depreciation and amortization expense because differences in types, use, and costs of assets can result in considerable variability in depreciation and amortization expense among companies. We exclude stock-based compensation expense in all periods presented to address the considerable variability among companies in recording compensation expense because companies use stock-based payment awards differently, both in the type and quantity of awards granted. We use EBITDA and Adjusted EBITDA as measures of operating performance which allow us to compare earnings and evaluate debt leverage and fixed cost coverage.

The following table presents our calculation of EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

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Liquidity and Capital Resources

Sources and Uses of Cash

Aside from standard operating expenses, we expect our principal cash demands in both the short term and long term to be for:

• principal and interest payments on our outstanding indebtedness;
• capital expenditures;
• redemption and dividend payments on the Series A Preferred Stock and Series 1 Preferred Stock;
• funding of our share repurchase program; and
• acquisitions of assets.

Our principal source of funds will be rental income and managed property revenue at our parking facilities as well as existing cash on hand as a result of the Merger, the Preferred PIPE Investment and the Line of Credit. We also may sell properties that we own or place mortgages on properties that we own to raise capital.

Debt

We have $111.1 million of debt due within twelve months of the date of the issuance of the Quarterly Report which is comprised of $53.3 million related to the Revolving Credit Facility (as defined herein), $23.6 million related to the Line of Credit (as defined herein) and $34.2 million of notes payable. We do not currently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts and interest due upon maturity. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

We are currently analyzing financial and strategic alternatives in order to satisfy these debt maturities. While there can be no assurance that we will satisfy the debt prior to or at maturity, management has determined it is probable that it will be able to address the notes payable maturities by refinancing the notes payable and/or selling the real estate investments and utilizing the sales proceeds to satisfy the related notes payable.

With respect to the Revolving Credit Facility, we are evaluating several refinancing options supported by current term sheets received from multiple lenders. We expect to execute on available options in 2024. We are also evaluating refinancing options for the Line of Credit and expect to refinance prior to maturity. However, the finalization of the refinancing under these options are not fully within our control and therefore cannot be deemed probable and thus our plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. See Note B — Summary of Significant Accounting Policies in Part I, Item 1 Notes to the Consolidated Financial Statements of this Quarterly Report for further discussion.

During 2023 and the nine months ended September 30, 2024, we have taken steps to both extend and ladder maturities in our debt profile, including:

• In September 2023, we paid approximately $9.9 million to Vestin Realty Mortgage II, Inc. ("Vestin"), which represented payment in full of five notes held by Vestin.
• In February 2024, we refinanced $5.5 million of notes payable maturing in March 2024 with a 5-year note for $5.9 million.
• In March 2024, we executed the Third Amendment to the Credit Agreement, which provided extension options through June 2025 with increased interest rate spreads above SOFR at each extension. In April 2024, we executed the first extension option, which extended the maturity through October 2024. In October 2024, we executed the second extension option which extends the maturity through April 1, 2025 with an interest rate spread above SOFR of 3.5%. We intend to pursue additional refinancing options related to the Credit Agreement and our near-term maturities.
• In September 2024, we entered into a $40.4 million Line of Credit, maturing in September 2025 (the “Line of Credit”). Borrowings under the Line of Credit will accrue interest at a rate of 15.0% per annum, with interest payable in arrears at maturity or upon repayment of any principal amount borrowed under the Line of Credit. The proceeds from the Line of Credit (after payment of related legal fees) are only to be used for redemption payments on the Series A Preferred Stock and Series 1 Preferred Stock, unpaid dividends on the Series A Preferred Stock and Series 1 Preferred Stock accrued prior to the closing date of the Line of Credit, funding of the share repurchase program, and a $5.0 million paydown on the Revolving Credit Facility.

Certain lenders may require reserves related to capital improvements, insurance, and excess cash. These lender-required reserves make up the majority of our restricted cash amounts as of September 30, 2024.

Capital Expenditures

Existing capital expenditure activities expected to be completed in the near-term for general maintenance are expected to cost approximately $0.1 million.

Asset Acquisitions

Our future acquisitions or development of properties cannot be accurately projected because such acquisitions or development activities depend upon available opportunities that come to our attention and upon our ability to successfully acquire, develop, finance and lease such properties. However, we have identified a pipeline of acquisition opportunities that we believe is bespoke and actionable, while being largely off-market and unavailable to our competitors. As of September 30, 2024, we have identified and are evaluating several parking facilities as potential acquisition targets. However, we are unlikely to acquire additional parking facilities until more favorable financial market conditions are realized.

Distributions and redemptions

In September 2024, we paid all accrued and unpaid dividends for the past dividend periods on the Series A Preferred Stock and Series 1 Preferred Stock. Additionally, on September 11, 2024, we declared payment of the September monthly dividend, which was paid on October 14, 2024 to the respective holders of record of the Series A Preferred Stock and the Series 1 Preferred Stock as of the close of business on September 29, 2024. On October 28, 2024, we declared payment of the October monthly dividend, which is payable on November 12, 2024 to the respective holders of record of the Series A Preferred Stock and the Series 1 Preferred Stock as of the close of business on October 28, 2024. The payment of future dividends is subject to the Board’s discretion and will be determined by the Board based on the Company’s financial condition and such other considerations as the Board deems relevant. Additionally, in September 2024, we began electing to redeem shares of Series A Preferred Stock and Series 1 Preferred Stock for cash rather than converting to common stock. Proceeds from the Line of Credit are used to pay the stated value of the shares redeemed for cash as well as the unpaid dividends accrued prior to closing of the Line of Credit.

In March 2018, we suspended the payment of distributions on our common stock. There can be no assurance that cash distributions to our common stockholders will be resumed in the future. The actual amount and timing of distributions, if any, will be determined by our Board in its discretion and typically will depend on various factors that our Board deems relevant. We do not currently, and may not in the future, generate sufficient cash flow from operations to fully fund distributions. We do not currently anticipate that we will be able to resume the payment of distributions. However, if distributions do resume, all or a portion of the distributions may be paid from other sources, such as cash flows from equity offerings, financing activities, borrowings, or by way of waiver or deferral of fees. We have not established any limit on the extent to which distributions could be funded from these other sources.

Share repurchase program

In September 2024, the Board authorized a share repurchase program of up to $10 million of shares of our outstanding common stock. Repurchases may be made from time to time through open-market purchases or privately negotiated transactions. Proceeds from the Line of Credit are used to fund the share repurchase program.

Warrants

As a result of the Merger, our previously outstanding warrant became a warrant to purchase 2,553,192 shares of our common stock at an exercise price of $7.83 per share, exercisable as of the date of the Closing (the “Common Stock Warrants”). As of the Closing Date, FWAC, Legacy MIC, and Color Up entered into a Warrant Assumption and Amendment Agreement (the “Warrant Assumption and Amendment Agreement”) to the Warrant Agreement, whereby the Company assumed the Common Stock Warrants remaining outstanding and unexpired at that time, and such Common Stock Warrants became the common stock warrants of the Company. On August 29, 2023, the Company and Color Up entered into the Amended and Restated Warrant Agreement pursuant to which the Warrant Agreement was amended and restated to reflect the effects of the Merger and permit Color Up to exercise the Common Stock Warrants on a cashless basis at Color Up’s option. Subsequently, Color Up distributed the entirety of the Common Stock Warrants to HSCP Strategic III, LP, an entity controlled by Mr. Osher, and Bombe Asset Management, LLC, an entity owned and controlled by Mr. Chavez and Ms. Hogue.

While exercise of the Common Stock Warrants is a potential source of cash, we do not currently believe this is a likely event and therefore do not use this assumption in our operating plans.

Sources and Uses of Cash

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

Comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023:

Cash flows from operating activities

The cash used in operating activities for the nine months ended September 30, 2024 was primarily attributable to payment of certain general and administrative and professional fees, settlement of liabilities and changes in working capital, which offset the benefit of changes in NOI for the period.

Cash flows from investing activities

The cash used in investing activities during the nine months ended September 30, 2024 was primarily attributable to capital expenditures and proceeds on the sale of one parking asset in July 2024 partially offset by payments on sale of one parking asset in February 2024 as the sale was financed with a note receivable. The cash used in investing activities during the nine months ended September 30, 2023 was primarily attributable to routine and strategic capital expenditures partially offset by proceeds from the sale of one parking asset in February 2023.

Cash flows from financing activities

The cash used in financing activities during the nine months ended September 30, 2024 was primarily attributable to the proceeds from the Line of Credit, payments on the Revolving Credit Facility and refinancing of certain notes payable and related loan fees, as well as distribution and redemption payments on the Series 1 Preferred Stock and Series A Preferred Stock. The cash provided by financing activities during the nine months ended September 30, 2023 was primarily attributable to the Merger and the PIPE investment. The proceeds from the Merger were then used to fund the $15.0 million paydown of the Revolving Credit Facility, payment of transaction costs, and pay-off of certain of mortgage loans.

Seasonality and Quarterly Results

Certain demand drivers of our business are subject to seasonal fluctuations, specifically those impacted by sports seasons, concerts and theaters. Some of our locations may also see fluctuations in demand due to inclement weather, especially in our Midwest markets. These factors are unique to each location and we expect the fluctuations will primarily impact transient parking revenues while contract parking revenues will remain relatively stable. Due to these seasonality factors, and other factors described herein, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Critical Accounting Policies

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 22, 2024, contains a description of our critical accounting policies and estimates, including those relating to merger accounting, real estate investments and acquisitions. There have been no significant changes to our critical accounting policies during 2024.

We are a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and are not required to provide the information under this item.

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, prior to filing this Quarterly Report. Based on this evaluation, our principal executive and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective because of the material weaknesses in internal control over financial reporting described below.

(b) Material Weaknesses

As previously described in Part II, Item 9A of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we identified a material weaknesses in our internal controls over financial reporting related to (i) the lack of appropriate segregation of duties within the accounting and finance groups and (ii) the ineffective design, implementation, and operation of controls relevant to the financial reporting process, specifically related to the documentation of the review of controls.

In addition, during the current quarter ended September 30, 2024 we identified a material weakness associated with the calculation and review of noncontrolling interest as a result of the immaterial misstatement identified and corrected in the current quarter, as described in Note P to our financial statements.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

(c) Remediation Plan

Our remediation efforts are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. Remediation of the identified material weaknesses and strengthening our internal control environment will require substantial effort throughout 2024 and beyond. While we believe the steps taken to date and those planned for implementation will improve our internal controls over financial reporting, we have not completed all remediation efforts. The planned remediation activities highlight our commitment to remediating our identified material weaknesses and remain largely unchanged through the date of filing this Quarterly Report.

The following remedial actions have been identified and initiated as of September 30, 2024:

• We hired a Chief Financial Officer who has experience in remediating material weaknesses in internal controls and enhancing control environments.
• We will continue to train accounting resources to ensure they have the requisite levels of expertise.
• We will enhance our processes and controls related to the calculation of noncontrolling interest and allocation of equity between noncontrolling interest and equity
• We will reallocate responsibilities across the finance organization to allow for the appropriate segregation of duties to be applied.
• We will re-evaluate the permissions of user roles within our accounting system in order to establish more appropriate segregation of duties.
• We will continue to enhance our internal control documentation for key controls to ensure the appropriate assignment of preparers and reviewers and the establishment of policies and procedures that would require control performers to document the execution of controls with the appropriate level of precision and supporting evidence.

As we continue to evaluate our internal control over financial reporting, we may determine that additional or different measures to address control deficiencies or modifications to our remediation plan are necessary. The material weaknesses cannot be considered remediated until the applicable controls are fully implemented, have operated for a sufficient period of time and management has concluded that these controls are operating effectively through testing.

(d) Changes in Internal Control over Financial Reporting

Except for the changes related to our remediation efforts described above, there was no change in our internal control over financial reporting that occurred during the third quarter of 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 22, 2024, except as set forth below.

Risks Related to Financial, Tax and Accounting Issues

Our financial condition has raised substantial doubt as to our ability to continue as a going concern; we may not have sufficient capital as and when needed.

We have incurred net losses since our inception and anticipate net losses for the near future. We have $111.1 million of debt due within twelve months of the date of the issuance of the Quarterly Report which is comprised of $53.3 million related to the Revolving Credit Facility (as defined herein), $23.6 million related to the Line of Credit (as defined herein) and $34.2 million of notes payable. We do not currently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts and interest due upon maturity. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

We are currently analyzing financial and strategic alternatives in order to satisfy these debt maturities. While there can be no assurance that we will satisfy the debt prior to or at maturity, management has determined it is probable that it will be able to address the notes payable maturities by refinancing the notes payable and/or selling the real estate investments and utilizing the sales proceeds to satisfy the related notes payable.

With respect to the Revolving Credit Facility, we are evaluating several refinancing options supported by current term sheets received from multiple lenders. We expect to execute on available options in 2024. We are also evaluating refinancing options for the Line of Credit and expect to refinance prior to maturity. However, the finalization of the refinancing under these options are not fully within our control and therefore cannot be deemed probable and thus our plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

In addition, we may not have sufficient cash resources or access to capital as and when needed, which may materially adversely affect our business, financial conditions, results of operations, share price of our Common Stock and may cause us to significantly modify our operational plans to continue as a going concern.

We identified material weaknesses in our internal control over financial reporting, and we may identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations. These material weaknesses could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we conclude that a material weakness occurred or is occurring, we expect to evaluate and pursue steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.

Our management identified a material weakness in our internal control over financial reporting associated with the calculation and review of noncontrolling interest as a result of the immaterial misstatement identified and corrected in the current fiscal quarter ended September 30, 2024. The immaterial error was identified and corrected in the current fiscal quarter ended September 30, 2024, as described in Note P to our financial statements.

Our management had also identified material weaknesses in our internal control over financial reporting in connection with its assessment as of and for the fiscal year ended December 31, 2023. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) the lack of appropriate segregation of duties within the accounting and finance groups and (ii) the ineffective design, implementation, and operation of controls relevant to the financial reporting process, specifically related to the documentation of the review of controls.

We have identified and implemented, and continue to implement, certain remediation efforts to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures. These remediation efforts are ongoing. The following remedial actions have been identified and initiated as of September 30, 2024:

• We hired a Chief Financial Officer who has experience in remediating material weaknesses in internal controls and enhancing control environments.
• We will continue to train accounting resources to ensure they have the requisite levels of expertise.
• We will enhance our processes and controls related to the calculation of noncontrolling interest and allocation of equity between noncontrolling interest and equity.
• We will reallocate responsibilities across the finance organization to allow for the appropriate segregation of duties to be applied.
• We will re-evaluate the permissions of user roles within our accounting system in order to establish more appropriate segregation of duties.
• We will continue to enhance our internal control documentation for key controls to ensure the appropriate assignment of preparers and reviewers and the establishment of policies and procedures that would require control performers to document the execution of controls with the appropriate level of precision and supporting evidence.

As we continue to evaluate and work to improve its internal control over financial reporting our management may determine that additional or different measures to address control deficiencies or modifications to the remediation plan are necessary. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

Any failure to maintain such internal control could adversely impact our ability to report our financial position and results of operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the NYSE American, the SEC, or other regulatory authorities. Additionally, failure to timely file required Exchange Act reports will cause us to be ineligible to utilize short-form registration statements on Form S-3, which may impair our ability to obtain capital in a timely fashion to execute our business strategies or issue shares of Common Stock to effect an acquisition. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Common Stock and may result in a material adverse effect on our business.

We can give no assurance that any additional material weaknesses or resulting restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.