NEW YORK (Reuters) - Cash-strapped WeWork, the office-sharing company that is trying to negotiate a financial lifeline, has a new problem that may prove costly. It has closed about 2,300 phone booths at some of its 223 sites in the United States and Canada after it says it discovered elevated levels of formaldehyde.

FILE PHOTO: A WeWork logo is seen outside its offices in San Francisco, California, U.S. September 30, 2019. REUTERS/Kate Munsch/File Photo

The company, which abandoned plans for an initial public offering last month after investors questioned its mounting losses and the way it was being run, said in an email to its tenants on Monday that the chemical could pose a cancer-risk if there is long-term exposure.

After a tenant complained of odor and eye irritation, WeWork began testing and based on the results took 1,600 phone booths out of service, the company said in the email to tenants, which it calls members.

An additional 700 booths are closed while more testing is conducted, it said. All the phone booths closed were installed over the past several months, WeWork said.

“The safety and well-being of our members is our top priority and we are working to remedy this situation as quickly as possible,” WeWork said in a statement.

More costs are the last thing needed at the company, which some analysts say is fast running out of cash. WeWork declined to comment on the cost of testing and replacing the booths.

It is currently in talks for a multi-billion dollar rescue deal that could lead to its largest shareholder, Japan's SoftBank Group Corp 9984.T, taking control, two people familiar with the matter said. WeWork is also talking to JPMorgan Chase JPM.N over a possible debt package, they said.

WeWork declined to identify the manufacturer of the phone booths.

“Long-term exposure to formaldehyde, such as that experienced by workers in jobs who experience high concentrations over many years, has been associated with certain types of cancers,” WeWork told tenants in the email.

In 1987, the U.S. Environmental Protection Agency classified formaldehyde as a probable human carcinogen under conditions of unusually high or prolonged exposure. Some studies since then suggested that formaldehyde exposure is associated with certain types of cancer, according to the National Cancer Institute.

A tenant, who did not wish to be identified, said she was worried about the risk of cancer as she had spent hundreds of hours inside phone booths at a San Francisco WeWork that has the problem.

Phone booths are popular in WeWork’s open-plan offices as they provide privacy and noise reduction, the tenant said.