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EX-32.2 - INNSUITES HOSPITALITY TRUSTex32-2.htm
EX-32.1 - INNSUITES HOSPITALITY TRUSTex32-1.htm
EX-31.2 - INNSUITES HOSPITALITY TRUSTex31-2.htm
EX-31.1 - INNSUITES HOSPITALITY TRUSTex31-1.htm
EX-23 - INNSUITES HOSPITALITY TRUSTex23.htm
EX-21 - INNSUITES HOSPITALITY TRUSTex21.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended January 31, 2020.
   
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-7062

 

INNSUITES HOSPITALITY TRUST

(Exact name of registrant as specified in its charter)

 

Ohio   34-6647590

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

InnSuites Hotels Centre

1730 E. Northern Avenue, Suite 122

Phoenix, AZ

  85020
(Address of principal executive offices)   (ZIP code)

 

Registrant’s telephone number, including area code: (602) 944-1500

 

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

 

Title of Each Class   Name of Exchange on Which Registered

Shares of Beneficial Interest,

without par value

  NYSE AMERICAN

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer  [  ]
   
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Aggregate market value of Shares of Beneficial Interest held by non-affiliates of the registrant as of July 31, 2019, based upon the closing sales price of the registrant’s Shares of Beneficial Interest on that date, as reported on the NYSE AMERICAN: $5,876,683 

 

Number of Shares of Beneficial Interest outstanding as of August 12, 2020: 9,145,008

 

Documents incorporated by reference: None.

 

 

 

 
 

 

PART I

 

Item 1. BUSINESS

 

INTRODUCTION TO OUR BUSINESS

 

InnSuites Hospitality Trust (the “Trust”) is headquartered in Phoenix, Arizona and is an unincorporated Ohio real estate investment trust formed on June 21, 1971. The Trust is not a real estate investment trust for federal taxation purposes, but is taxed as a C-corporation. The Trust, with its affiliates RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and InnSuites® Hotels, Inc., a Nevada corporation (“InnSuites Hotels”), owns interests in two hotels, operates and provides management services for three hotels, and provides trademark license services. At January 31, 2020, and currently, the Trust owns a 75.89% sole general partner interest in the Partnership, which controls a 51.01% interest in the InnSuites hotel located in Tucson, Arizona, and a direct 20.33% interest in the InnSuites hotel located in Albuquerque, New Mexico. The Tucson and Albuquerque hotels are sometimes referred to as the “Hotels”. We anticipate selling one or both of the Hotels in the next twenty-four (24) months.

 

InnSuites Hotels Inc., a wholly-owned subsidiary of the Trust, provides management services for the two Trust Hotels and one hotel located in Tempe, Arizona (the “Tempe Hotel”) that is owned by affiliates of James F. Wirth, the Trust’s Chairman and Chief Executive Officer. InnSuites Hotels also provides trademark and licensing services to the Tempe Hotel. The Trust has approximately 120 full-time employees and approximately 20 part-time employees.

 

The two Hotels have an aggregate of 270 hotel suites and operate as moderate -service hotels that apply a value studio and two-room suite operating philosophy formulated in 1980 by Mr. Wirth. The Trust hotels offer services such as free hot breakfast buffets and complimentary afternoon social hours plus amenities, such as microwave ovens, refrigerators, and free high-speed Internet access.

 

For the fiscal year ahead, February 1, 2020 through January 31, 2021 the Trust’s operations are focused on recovery from the impact of the corona virus (COVID-19) pandemic, and the severe impact on the travel and hospitality industries which took place after February 1, 2020. The Trust’s primary business objective is to maximize returns to its shareholders through increases in asset value and long-term total returns to shareholders, including profitable sale of assets and growth of investments. The Trust seeks to achieve this objective through intensive management and marketing of the InnSuites© hotels, and by selling hotel real estate at market prices well above book values and benefitting from diversified investments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Future Positioning” for a more detailed discussion of the Trust’s strategic objectives.

 

The Trust has a single class of Shares of Beneficial Interest, without par value, that are traded on the NYSE AMERICAN under the symbol “IHT.” The Partnership has two outstanding classes of limited partnership interests, Class A and Class B, which are identical in all respects. However, each Class A Partnership unit is convertible, at the option of the Class A holder, into one newly-issued Share of Beneficial Interest of the Trust and each Class B Partnership unit is convertible, upon approval of the Board of Trustees of the Trust, into one newly-issued Share of Beneficial Interest of the Trust. The Partnership Agreement of the Partnership subjects both general and limited partner units to certain restrictions on transfer.

 

MANAGEMENT AND LICENSING CONTRACTS

 

The Trust directly manages the Hotels through the Trust’s wholly-owned subsidiary, InnSuites Hotels, Inc. Under the management agreements, InnSuites Hotels manages the daily operations of the both Trust Hotels and the Tempe Hotel. All Trust managed Hotel expenses, revenues and reimbursements among the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation. The management fees for the Hotels and the Tempe Hotel are 5% of room revenue and a monthly accounting fee of $2,000 per hotel. These agreements have no expiration dates, but may be cancelled by either party with 90-days written notice, or potentially sooner in the event the property changes ownership.

 

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The Trust also provides the use of the “InnSuites” trademark to the Hotels and the Tempe Hotel through the Trust’s wholly-owned subsidiary, InnSuites Hotels, Inc., which is included in the management fee. The InnSuites trademark expires in January 2027.

 

These revenues are included in the management and trademark fees revenues in the consolidated statement of operations of our financial statements.

 

MEMBERSHIP AGREEMENTS

 

InnSuites Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) with respect to each of the two Hotels. In exchange for use of the Best Western name, trademark and reservation system, each Hotel pays marketing and reservation fees to Best Western based on reservations received through the use of the Best Western reservation system, a marketing fee based upon the monthly room revenues, and the number of available suites at the Hotels. The agreements with Best Western are year-to-year. Best Western requires that the Hotels meet certain requirements for room quality, and the two Hotels are subject to removal from the Best Western reservation system if these requirements are not met. During the past year, the two Hotels received significant reservations through the Best Western reservation system. Under these arrangements, fees paid for membership fees and reservations were approximately $171,000 and $277,000, for fiscal years ended January 31, 2020 and 2019, respectively.

 

COMPETITION IN THE HOTEL INDUSTRY

 

The hotel industry is highly competitive. We expect the major challenge for the fiscal year ending January 31, 2021 (“fiscal year 2021”) to be the economic recovery from the Coronavirus (COVID-19) pandemic during the spring of 2020. The drastic impact of COVID-19 to the hospitality industry has resulted in severely reduced occupancy and significant reduction in room rates. Continued competition for reduced demand in corporate, leisure, group and government business in the markets in which we operate, will affect our ability to maintain room rates and maintain market share. Each of the Hotels, and the Tempe Hotel faces competition primarily from other mid-market hotels located in its immediate vicinity, but also competes with hotel properties located in other geographic markets, and increasingly from alternative lodging facilities, such as Airbnb. While none of the Hotels’ competitors dominate any of their geographic markets, some of those competitors may have greater marketing and financial resources than the Trust.

 

Certain additional hotel property refurbishments have recently been completed by competitors in both of the Hotels’ markets, and additional hotel property developments may be built in the future. Such hotel developments could have an adverse effect on the revenue of our Hotels in their respective markets.

 

The Trust’s hotel investments are located in Arizona and New Mexico. With the completed renovations at our Tucson, Arizona and Albuquerque, New Mexico hotel properties, those hotels have seen additional demand during the fiscal year ended January 31, 2020, as supply had been steady in those respective markets. Either an increase in supply or a decline in demand could result in increased competition, which could have an adverse effect on occupancy, room rates and revenues of our Hotels in their respective markets. The hotels have experienced a decrease in demand due to impact of the COVID-19 virus and the related restrictions and reduction of travel after February 1, 2020.

 

The Trust may not invest further in hotels, but rather diversify into investments including the $1 million investment made by the Trust in December 2019 in the innovative UPI efficient clean energy power generation company. The Trust may continue to seek further diversification through a reverse merger with a larger non-public entity.

 

REGULATION

 

The Trust is subject to numerous federal, state and local government laws and regulations affecting the hospitality industry, including usage, building and zoning requirements and the laws and regulations related to the preparation and sale of food and beverage such as health and liquor license laws. A violation of any of those laws and regulations or increased government regulation could require the Trust to make unplanned expenditures which may result in higher operating costs. Compliance with these laws is time intensive and costly and may reduce the Trust’s revenues and operating income.

 

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Under the Americans with Disabilities Act of 1990 (the “ADA”), all public accommodations are required to meet certain readily achievable federal requirements related to access and use by disabled persons. In addition to ADA work completed to date, the Trust may be required to remove additional access barriers or make unplanned, substantial modifications to its Hotels to comply with the ADA or to comply with other changes in governmental rules and regulations, or become subject to claims, fines and damage awards, any of which could reduce the number of total available rooms, increase operating costs and have a negative impact on the Trust’s results of operations.

 

Our hotel properties are subject to various federal, state and local environmental laws that impose liability for contamination. Under these laws, governmental entities have the authority to require us, as the current or former owner of the property, to perform or pay for the clean-up of contamination (including swimming pool chemicals or hazardous substances or biological waste) at or emanating from the property and to pay for natural resource damage arising from contamination. These laws often impose liability without regard to whether the owner or operator knew of or caused the contamination. Such liability can be joint and several, so that each covered person can be responsible for all of the costs involved, even if more than one person may have been responsible for the contamination. We can also be liable to private parties for costs of remediation, personal injury, death and/or property damage resulting from contamination at or emanating from our hotel properties. Moreover, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.

 

The Trust is also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. There are frequent proposals under consideration, at the federal and state levels, to increase the minimum wage. Additional increases to the state or federal minimum wage rate, and employee benefit costs including health care or other costs associated with employees could increase expenses and result in lower operating margins.

 

The Trust collects and maintains information relating to its guests for various business purposes, including maintaining guest preferences to enhance the Trust’s customer service and for marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations. Compliance with applicable privacy regulations may further increase the Trust’s operating costs and/or adversely impact its ability to service its guests and market its products, properties and services to its guests. In addition, non-compliance with applicable privacy regulations by the Trust (or in some circumstances non-compliance by third parties engaged by the Trust) could result in fines or restrictions on its use or transfer of data.

 

SEASONALITY OF THE HOTEL BUSINESS

 

The Hotels’ operations historically have been somewhat seasonal. The Tucson Hotel experiences its highest occupancy in the first fiscal quarter and, to a lesser extent, the fourth fiscal quarter (the winter season). The second fiscal quarter tends to be the lowest occupancy period at the Tucson Hotel. This seasonality pattern can be expected to cause fluctuations in the Trust’s quarterly revenues. The hotel located in New Mexico historically experience their most profitable periods during the second and third fiscal quarters (the summer season), providing balance to the general seasonality of the Trust’s hotel business.

 

The seasonal nature of the Trust’s business increases its vulnerability to risks such as labor force shortages and cash flow issues. Further, if an adverse event such as an actual or threatened terrorist attack, viral outbreak or pandemic, international conflict, data breach, regional economic downturn or poor weather conditions should occur during the first or fourth fiscal quarters, the adverse impact to the Trust’s revenues could likely be greater as a result of its seasonal business.

 

OTHER AVAILABLE INFORMATION

 

We also make available, free of charge, on our Internet website at www.innsuitestrust.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). Information on our Internet website shall not be deemed incorporated into, or be part of, this report.

 

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Item 1A. RISK FACTORS

 

Not required for smaller reporting companies.

 

Item 1B. UNRESOLVED STAFF COMMENTS

 

Not required for smaller reporting companies.

 

Item 2. PROPERTIES

 

The Trust maintains its administrative offices at the InnSuites Hotels Centre, at 1730 E. Northern Avenue, Suite 122, Phoenix, Arizona 85020 in a space leased by the Trust from a third party. The two Hotels are operated as InnSuites Hotels, and both Hotels are also marketed as Best Western® Hotels. The Hotels operate in the following locations:

 

  Best Western InnSuites Tucson Foothills Hotel & Suites. 6201 N Oracle Rd., Tucson, AZ 85704
  Best Western InnSuites Albuquerque Airport Hotel & Suites. 2400 Yale Boulevard SE, Albuquerque, NM 87106

 

In the fiscal year ended January 31, 2019, we remodeled 100% of each property’s available suites and public areas. The Albuquerque Hotel added six additional suites during the fiscal quarter ending April 30, 2018 by splitting several two-room suites into individual suites. The Trust owns a direct 20.33% interest in the InnSuites Hotel and Suites Airport Albuquerque Best Western Hotel. The Partnership owns a 51.01% interest in the InnSuites Hotel and Suites Tucson Oracle Best Western Hotel. The Trust owns a 75.89% general partner interest in the Partnership.

 

See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – General” below for a discussion of occupancy rates at the Hotels.

 

See Note 10 to the Trust’s Consolidated Financial Statements – “Mortgage Notes Payable” below for a discussion of mortgages encumbering the Hotels.

 

See Note 20 to the Trust’s Consolidated Financial Statements – “Commitments and Contingencies” for a discussion of the lease for our corporate headquarters and the non-cancellable ground lease to which our Albuquerque Hotel is subject.

 

Item 3. LEGAL PROCEEDINGS

 

The Trust is not a party to, nor are any of its properties subject to, any material litigation or environmental regulatory proceedings. See Note 20 to Trust’s Consolidated Financial Statements – “Commitments and Contingencies”.

 

Item 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

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PART II

 

Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Trust’s Shares of Beneficial Interest are traded on the NYSE American under the symbol “IHT.” On June 4, 2019, the Trust had 9,360,292 shares outstanding. As of June 4, 2019, there were 339 holders of record of our Shares of Beneficial Interest, not including holders who hold their asset positions with banks and brokers.

 

The following table sets forth, for the periods indicated, the high and low sales prices of the Trust’s Shares of Beneficial Interest, as reported on the NYSE American, as well as dividends declared thereon:

 

Fiscal Year 2020   High     Low     Dividends  
First Quarter   $ 1.95     $ 1.59       -  
                         
Second Quarter   $ 1.68     $ 1.36     $ 0.01  
                         
Third Quarter   $ 1.69     $ 1.44       -  
                         
Fourth Quarter   $ 1.62     $ 1.47     $ 0.01  

 

Fiscal Year 2019   High     Low     Dividends  
First Quarter   $ 1.82     $ 1.43       -  
                         
Second Quarter   $ 2.35     $ 1.25     $ 0.01  
                         
Third Quarter   $ 1.85     $ 1.28       -  
                         
Fourth Quarter   $ 1.80     $ 1.41     $ 0.01  

 

The Trust intends to maintain a conservative dividend policy to facilitate the reduction of debt, and currently is, and has, been paying $0.02 per share per fiscal year. In the fiscal years ended January 31, 2019 and 2020, the Trust paid dividends of $0.01 per share in each of the second and the fourth quarters. The Trust has paid dividends each fiscal year since its inception in 1971. The Trust has approved to pay the scheduled $0.01 dividend payable on July 31, 2020.

 

On January 2, 2001, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 250,000 Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. On September 10, 2002, August 18, 2005 and September 10, 2007, the Board of Trustees approved the purchase of up to 350,000 additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Additionally, on January 5, 2009, September 15, 2009 and January 31, 2010, the Board of Trustees approved the purchase of up to 300,000, 250,000 and 350,000, respectively, additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the Trusts’ equity compensation plans/programs. During the fiscal year ended January 31, 2020, the Trust acquired 71,543 Shares of Beneficial Interest in open market transactions at an average price of $1.71 per share. The average price paid includes brokerage commissions. The Trust intends to continue repurchasing Shares of Beneficial Interest in compliance with applicable legal and NYSE AMERICAN requirements. The Trust remains authorized to repurchase an additional 372,965 Partnership units and/or Shares of Beneficial Interest pursuant to the publicly announced share repurchase program, which has no expiration date.

 

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See Part III, Item 12 for information about our equity compensation plans.

 

See Note 2 to our Consolidated Financial Statements – “Summary of Significant Accounting Policies” for information related to grants of restricted shares made to members of our Board of Trustees during fiscal year 2020. These grants were made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2).

 

For stock option grants during fiscal 2020, see Note 24 to our Consolidated Financial Statements - “Stock Options.”

 

For the issuance of Shares of Beneficial Interest by the Trust to Rare Earth Financial, LLC, see Note 17 to our Consolidated Financial Statements – “Other Related Party Transactions.” These issuances were made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

 

Item 6. SELECTED FINANCIAL DATA

 

Not required for smaller reporting companies.

 

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Item 7A

 

GENERAL

 

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.

 

We are engaged in the ownership and operation of hotel properties. At January 31, 2020, the Trust had two moderate -service hotels in Tucson, Arizona and Albuquerque, New Mexico with 270 hotel suites, and managed a third hotel in Tempe, Arizona. Both of our Hotels are branded through membership agreements with Best Western, and both are trademarked as InnSuites Hotels. We are also involved in various operations incidental to the operation of hotels, such as the operation of limited service restaurants and bars, and meeting/banquet room rentals.

 

At January 31, 2020, we owned, through our sole general partner’s interest in the Partnership, a direct 20.33% interest in the Albuquerque, New Mexico Hotel, and, together with the Partnership, owned a 51.01% interest in the Tucson, Arizona. Hotel.

 

Our operations consist of one reportable segment – Hotel Operations & Hotel Management Services. Hotel Operations derives its revenue from the operation of the Trust’s two hotel properties with an aggregate of 270 suites in Arizona and New Mexico. Hotel management services, provides management services for the Trust’s two Hotels and a non-owned hotel in Tempe, Arizona. As part of our management services, we also provide trademark and licensing services.

 

Our results are significantly affected by the overall economy and travel, occupancy and room rates at the Hotels, our ability to manage costs, changes in room rates, and changes in the number of available suites caused by the Trust’s disposition activities. Results are also significantly impacted by overall economic conditions and conditions in the travel industry. Unfavorable changes in these factors, such as the virus-related travel slowdown in the fiscal year starting February 1, 2020, can and have negatively impacted hotel room demand and pricing, which reduces our profit margins. Additionally, our ability to manage costs could be adversely impacted by significant increases in operating expenses, resulting in lower operating margins and higher hourly labor costs. Either a further increase in supply or a further decline in demand could result in increased competition, which could have an adverse effect on the rates and revenue of the Hotels in their respective markets.

 

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We experienced strong economic conditions during fiscal year 2020. We anticipate that a weak travel and hospitality industry for most of the fiscal year ending January 31, 2021 due to the COVID-19 related decline in travel. We expect the major challenge for fiscal year 2021 to be the recovery of the travel industry, and our Hotel’s occupancy levels, followed by room rates. We believe that we have positioned the Hotels to remain competitive through our now completed refurbishment(s), by offering a relatively large number of two-room suites at each location, and by maintaining robust complementary guest items, including complimentary breakfast and free Internet access.

 

Our strategic plan is to continue to obtain the full benefit of our real estate equity, by marketing the remaining two Hotels over the next 24 months. In addition, the Trust is seeking a larger private reverse merger partner that may benefit from a merger that would afford that partner access to our listing on the NYSE AMERICAN. In the process of reviewing merger opportunities in the fiscal year ended January 31, 2020, the Trust identified and invested $1 million in Unigen Power, Inc. (“Unigen”, or “UPI), a innovative efficient clean energy power generation company For more information on our strategic plan, including information on our progress in disposing of our hotel properties, see “Future Positioning” in this Management Discussion and Analysis of Financial Condition and Results of Operations.

 

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Our expenses consist primarily of property taxes, insurance, corporate overhead, interest on mortgage debt, professional fees, depreciation of the Hotels and hotel operating expenses. Hotel operating expenses consist primarily of payroll, guest and maintenance supplies, marketing and utilities expenses. Under the terms of its Partnership Agreement, the Partnership is required to reimburse us for all such expenses. Accordingly, management believes that a review of the historical performance of the operations of the Hotels, particularly with respect to occupancy, which is calculated as rooms sold divided by total rooms available, average daily rate (“ADR”), calculated as total room revenue divided by number of rooms sold, and revenue per available room (“REVPAR”), calculated as total room revenue divided by number of rooms available, is appropriate for understanding revenue from the Hotels. In fiscal year 2020, as compared with fiscal 2019, occupancy decreased 0.20% to 80.45% from 80.65% in the prior fiscal year. ADR increased by $4.20, or 5.46%, to $81.18 in fiscal year 2020 from $76.98 in fiscal year 2019. The flat/slightly decreased occupancy and increased ADR resulted in an increase in REVPAR of $2.94, or 4.71%, to $65.31 in fiscal year 2020 from $62.37 in fiscal year 2019. The increased in ADR and REVPAR reflect an improved product and improved economy.

 

For the fiscal year ending January 31, 2021, we anticipate reduced occupancy and to a lesser extent lower rates (ADR), resulting in reduced REVPAR all due to the COVID-19 virus-related travel/hospitality slowdown. We expect some offsetting benefit from the expected forgiveness of debt related to the Small Business Administration (SBA) Payroll Protection Program (PPP) loans.

 

The following table shows certain historical financial and other information for the periods indicated:

 

    For the Twelve Months Ended  
Albuquerque   January 31,  
    2020     2019     change     %-Incr/decr  
Occupancy     88.04 %     87.71 %     0.33 %     0.37 %
Average Daily Rate (ADR)   $ 81.20     $ 75.28     $ 5.92       7.86 %
Revenue Per Available Room (REVPAR)   $ 71.49     $ 66.03     $ 5.46       8.26 %

 

    For the Twelve Months Ended  
Tucson   January 31,  
    2020     2019     change     %-Incr/decr  
Occupancy     74.69 %     76.38 %     -1.69 %     -2.21 %
Average Daily Rate (ADR)   $ 80.38     $ 75.88     $ 4.51       5.94 %
Revenue Per Available Room (REVPAR)   $ 60.04     $ 57.96     $ 2.08       3.60 %

 

    For the Twelve Months Ended  
Combined   January 31,  
    2020     2019     change     %-Incr/decr  
Occupancy     80.45 %     80.65 %   -0.20 %     -0.25 %
Average Daily Rate (ADR)   $ 81.18     $ 76.98     $ 4.20       5.46 %
Revenue Per Available Room (REVPAR)   $ 65.31     $ 62.37     $ 2.94       4.71 %

 

No assurance can be given that occupancy, ADR and REVPAR will not increase or decrease as a result of changes in national or local economic or hospitality industry conditions.

 

We enter into transactions with certain related parties from time to time. For information relating to such related party transactions see the following:

 

  For a discussion of management and licensing agreements with certain related parties, see “Item 1 – Business – Management and Licensing Contracts.”
     
  For a discussion of guarantees of our mortgage notes payable by certain related parties, see Note 10 to our Consolidated Financial Statements – “Mortgage Notes Payable.”
     
  For a discussion of our equity sales and restructuring agreements involving certain related parties, see Notes 3, and 4 to our Consolidated Financial Statements – “Sale of Ownership Interests in Albuquerque Subsidiary,” and “Sale of Ownership Interests in Tucson Hospitality Properties Subsidiary,” respectively.
     
  For a discussion of other related party transactions, see Note 17 to our Consolidated Financial Statements – “Other Related Party Transactions.”

 

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Results of operations of the Trust for the fiscal year ended January 31, 2020 compared to the fiscal year ended January 31, 2019.

 

Overview

 

A summary of total Trust operating results for the fiscal years ended January 31, 2020 and 2019 is as follows:

 

   2020   2019   Change   % Change 
Total Revenues from Continuing Operations  $6,568,171   $6,168,965   $399,206    6%
Operating Expenses from Continuing Operations   8,420,980    7,474,089    (946,891)   (13)%
Operating Loss from Continuing Operations   (1,852,809)   (1,305,125)   (547,684)   (42)%
Interest Income from Continuing Operations   146,645    108,652    37,993    35%
Interest Expense from Continuing Operations   (566,682)   (381,310)   (185,372)   49%
Income Tax Benefit (Provision) from Continuing Operations   294,402    (407,727)   702,129    (172)%
Consolidated Net Loss from Continuing Operations   (1,978,444)   (1,985,510)   7,066    0%

  

As a result of the sale of IBC (see Note 25), the Chief Operating Decision Maker (“CODM”), Mr. Wirth, CEO of the Trust, has determined that the Trust operations are comprised of one reportable segment, Hotel Operations & Corporate Overhead (continuing operations) segment that has ownership interest in two hotel properties with an aggregate of 270 suites in Arizona and New Mexico. The Trust has a concentration of assets in the southwest United States and the southern Arizona market. Prior to the sale of IBC, the Trust had previously determined that its operations were comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment, and the IBC Hospitality segment serving 2,000 unrelated hotel properties. In connection with the sale of IBC, the historical financial information presented in this Form 10-K reflects this change with IBC being reported as discontinued operation.

 

The Trust has its hotel investments in the southwest region of the United States. The CODM does not review assets by geographical region; therefore, no income statement or balance sheet information by geographical region is provided.

 

REVENUE – CONTINUING OPERATIONS:

 

For the twelve months ended January 31, 2020, we had total revenue of approximately $6,568,000 compared to approximately $6,169,000 for the twelve months ended January 31, 2019, a increase of approximately $399,000, or 6.5%. In the prior fiscal years ended January 31, 2019 and 2018, we made significant improvements to our Tucson, Arizona property which allowed us to increase rates with increased occupancy. For comparability purposes, the current fiscal year revenues do not include our Yuma, Arizona properties which was sold on October 24, 2018, and our IBC Technology Division which was sold in August of 2018.

 

We realized a 7.1% increase in room revenues during fiscal year 2020 as room revenues were approximately $6,278,000 for the fiscal year ending January 31, 2020 as compared to approximately $5,862,000 for the fiscal year ending January 31, 2019. With changes in our food and beverage offerings, our food and beverage revenue increased by 36.0% to approximately $68,000 for fiscal year 2020 as compared to approximately $50,000 during fiscal year 2019, an increase of approximately $18,000. - We also realized an approximate 1.2% decrease in management and trademark fee revenues during fiscal year 2020 to approximately $170,000 as compared to approximately $172,000 during fiscal year 2019. Management and trademark fee revenues decreased during fiscal year 2020 as a result of the loss of management fees due to the sale of the Yuma hotel, offset by higher fees from the remaining hotels. Management fees remained unchanged year on year at 5%. During fiscal year 2021, we expect management and trademark fee revenues to be lower when compared to fiscal year 2020 management and trademark fee revenues, on reduced revenues. We realized an approximate 40% decrease in other revenues from the hotel properties during fiscal year 2020 to approximately $51,000 as compared to approximately $85,000 during fiscal year 2019.

 

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EXPENSES – CONTINUING OPERATIONS:

 

Total expenses before interest expense and income tax provision was approximately $8,421,000 for the twelve months ended January 31, 2020 reflecting an increase of approximately $947,000 compared to total expenses before interest expense and income tax provision of approximately $7,474,000 for the twelve months ended January 31, 2019. The increase was primarily due to an increase in operating expenses for the $825,000 impairment of the IBC/Obasa Note Receivable and the effects of the adoption of ASC-842 lease accounting pronouncement in 2019. Specific expense comparisons to the prior fiscal year are detailed in the following categories.

 

Room expenses consisting of salaries and related employment taxes for property management, front office, housekeeping personnel, reservation fees and room supplies were approximately $2,033,000 for the fiscal year ended January 31, 2020 compared to approximately $1,941,000 in the prior year period for an increase of approximately $92,000, or 4.7% increase. Room expenses increased as occupancy at the hotels increased, and additional expenses were incurred with the increased occupancy

 

Food and beverage expenses included food and beverage costs, personnel and miscellaneous costs to provide banquet events. For the fiscal year ended January 31, 2020, food and beverage expenses increased approximately $37,000, or 51.4%, to approximately $109,000 for the fiscal year ended January 31, 2020, compared to approximately $72,000 for the fiscal year ended January 31, 2018. This increase is consistent with the 36% increase in food and beverage revenue and additional costs associated with our improved food and beverage offerings.

 

Telecommunications expense, consisting of telephone and Internet costs, were classified as general and administrative expense for the fiscal year ended January 31, 2020, as compared to the prior fiscal year ended January 31, 2019 which were approximately $3,000.

 

General and administrative expenses include overhead charges for management, accounting, shareholder and legal services. General and administrative expenses of approximately $2,998,000 for the twelve months ended January 31, 2020, increasing approximately $664,000 from approximately $2,334,000 for the twelve months ended January 31, 2019 primarily due to the impairment of the Obasa/IBC Note Receivable of $825,000, offset by cost reductions in staffing at the corporate headquarters.

 

Sales and marketing expense decreased approximately $11,000, or 18.9%, to approximately $570,000 for the twelve months ended January 31, 2020 from approximately $581,000 for the twelve months ended January 31, 2019.

 

Repairs and maintenance expense decreased by approximately $92,000, or 18.6%, from approximately $495,000 reported for the twelve months ended January 31, 2019 compared to approximately $403,000 for the twelve months ended January 31, 2020. Having completed property improvements at our Tucson, Arizona property during the fiscal year ended January 31, 2019, our repair and maintenance expense in the current year was significantly lower. Management believes the improvements, which complies with the increasing Best Western standards, has led to improved guest satisfaction and driven revenue growth

 

Hospitality expense increased by approximately $27,000, or 5.6%, from $483,000 for the twelve months ended January 31, 2019 to approximately $510,000 for the twelve months ended January 31, 2020. The increase was primarily due to the additional product mix provided during the Hotels’ complimentary breakfast and happy hour required by Best Western.

 

Utility expenses increased by $21,000, or 5.8% to approximately $383,000 000 for the twelve months ended January 31, 2020 from approximately $362,000 for the twelve months ended January 31, 2019. Utility increases were consistent with, and in support of, our higher revenues.

 

Hotel property depreciation expenses increased by approximately $57,000, or 6.7%, from approximately $845,000 reported for the twelve months ended January 31, 2019 compared to approximately $902,000 for the twelve months ended January 31, 2020. Increased depreciation resulted from the additional capital expenditures associated with the Tucson hotel improvements and, to a lesser extent, improvements at the Albuquerque hotel, made during the fiscal year ended January 31, 2019.

 

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REVENUE – DISCONTINUING OPERATIONS

 

Hotel Operations & Corporate Overhead Segment

 

On October 24, 2018, the Trust sold its Yuma, Arizona hotel to an unrelated third party for approximately $16.05 million, which the Trust received in cash. Total gain on sale was approximately $9.6 million. For the fiscal year ended January 31, 2019, the Yuma, Arizona hotel had approximately $3,294,000 of revenue consisting of approximately $3.2 million of room and other revenues and approximately $28,000 of food and beverage revenues. For the fiscal year ended January 31, 2018, the Yuma, Arizona hotel had approximately $4,125,000 of revenue, consisting of approximately $4.1 million in room and other revenues and approximately $42,000 of food and beverage revenues Since the Yuma hotel was sold in the fiscal year ended January 31, 2019, no revenue exists for the current fiscal year .

 

IBC Technology Segment

 

Our IBC Technologies Division was sold effective July 31, 2018, to an unrelated party for approximately $3.0 million, for which the Trust received $250,000 in cash, carried the balance of $2,750,000 in the form of a secured note. For the fiscal year ended January 31, 2019 we had total IBC revenue of approximately $223,000. There is no revenue for the current fiscal year.

 

Hotel Operations & Corporate Overhead Segment

 

For the twelve months ended January 31, 2019, IBC had approximately $2,808,000 of total expenses. There are no expenses for IBC in the current fiscal year ended January 31, 2020

 

For the fiscal year ended January 31, 2019, our Yuma, Arizona hotel was owned and operated by the Trust for approximately 9 months and incurred normal routine operating expenses including approximately $1,262,000 of room expenses, approximately $36,000 food and beverage expenses, approximately $365,000 general and administrative expenses, approximately $177,000 of sales and marketing expenses, approximately $185,000 of repairs and maintenance expenses, approximately $168,000 of hospitality expenses, approximately $161,000 utilities, approximately $344,000 of depreciation, approximately $88,000 of property insurance and tax expenses. There are no expenses for the Yuma, Arizona hotel for the fiscal year ended January 31, 2020.

 

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IBC Technology Segment

 

Total expenses of approximately $892,000 for the twelve months ended January 31, 2019 were approximately for the twelve months ended January 31, 2018. Our IBC Technologies Division was sold in August 2018.

 

For the fiscal year ended January 31, 2019, our IBC Development Segment was owned and operated by the Trust for approximately 7 months and incurred normal routine operating expenses including approximately $402,000 of general and administrative expenses, of approximately $292,000 of sales and marketing expenses, approximately $143,000 of reservation acquisition costs, and approximately $50,000 of depreciation expense

 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview – Hotel Operations & Corporate Overhead

 

Our principal source of cash to meet our cash requirements, including distributions to our shareholders, is our share of the Partnership’s cash flow, quarterly distributions from the Albuquerque, New Mexico property and sales of our hotel properties. The Partnership’s principal source of revenue is hotel operations and distributions for the one hotel property it owns in Tucson, Arizona. Our liquidity, including our ability to make distributions to our shareholders, will depend upon our ability, and the Partnership’s ability, to generate sufficient cash flow from hotel operations and to service our debt.

 

Hotel operations are significantly affected by occupancy and room rates at the Hotels. Due to the impact of the COVID-19 virus on the travel and hospitality industries, and the economy in general, we are anticipating significantly lower occupancy and ADR during this coming year and capital improvements are expected to decrease from the prior year, especially in our first fiscal quarter February 1, 2020 through April 30, 2020. We expect only modest recovery in our second fiscal quarter (May-July, 2020) with continuing improvement during the remainder of the fiscal year ending January 31, 2021, as the travel and hospitality industries, and overall economy, rebound.

 

With approximately $1,200,000 of cash and short term investments as of January 31, 2020 and the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note and the availability of our two available Advances to Affiliate credit facilities for a total of $1,000,000 maximum borrowing capacity, we believe that we will have enough cash on hand to meet all of our financial obligations as they become due for at least the next twelve months from the issuance date of the these consolidated financial statements. In addition, our management is analyzing other strategic options available to us, including raising additional funds, increasing borrowings at either, or both, the Albuquerque and Tucson hotels and using the funds generated to pay intercompany loans due from the Tucson hotel to the Partnership of approximately $3.7 million; however, such transactions may not be available on terms that are favorable to us, or at all.

 

There can be no assurance that we will be successful in refinancing debt or raising additional or replacement funds, or that these funds may be available on terms that are favorable to us. If we are unable to raise additional or replacement funds, we may be required to sell certain of our assets to meet our liquidity needs, which may not be on terms that are favorable.

 

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Net cash used in operating activities totaled approximately $953,000 during fiscal year 2020 as compared to approximately $1,799,000 used in the prior fiscal year. Consolidated net income was approximately $(1,978,000) for the fiscal year ended January 31, 2020 as compared to consolidated net income for the fiscal year ended January 31, 2019 of approximately $11,106,000. Explanation of the differences between these fiscal years are explained above in the results of operations of the Trust.

 

Changes in the adjustments to reconcile net loss and net income for the years ended January 31, 2020 and 2019, respectively, consist primarily of gain on disposal of assets, hotel property depreciation, and changes in assets and liabilities. Hotel property depreciation was approximately $902,000 during fiscal year 2020 compared to approximately $1,245,000 during fiscal year 2019, a decrease of $343,000 as the Trust recognized less depreciation as one of the hotel properties was sold during the fiscal year 2019. There was no amortization of intangibles during fiscal years 2020 or 2019.

 

Changes in assets and liabilities for accounts receivable, prepaid expenses and other assets and accounts payable and accrued expenses totaled approximately $91,000 and approximately $(296,000) for the fiscal years ended January 31, 2020 and 2019, respectively. This increase in changes in assets and liabilities for the fiscal year ended January 31, 2020 compared to the fiscal year ended January 31, 2019 was due to decreases in accounts payables and accrued liabilities.

 

Net cash provided by investing activities totaled approximately $1,305,000 for the year ended January 31, 2020 compared to net cash provided by investing activities of approximately $8,372,000 for the year ended January 31, 2019. The decrease in net cash provided by investing activities during fiscal year 2020 was due to (1) the Yuma hotel sale in the prior year; and there were no hotels sold in the current year, (2) the $1.0 million investments in UniGen Power Inc. [UPI], (3) offset by the lending on advances to affiliates – related party of approximately $75,000 during the fiscal year 2020 as compared to approximately $776,000 for the fiscal year 2019.

 

Net cash provided by financing activities totaled approximately $99,000 compared to net cash used of $10,399,000 for the years ended January 31, 2020 and 2019, respectively. The significant decrease of approximately $10,498,000 was primarily due to decreases in distributions to non-controlling interest holders, decreases in repurchase of treasury stock; and increases in collection online of credit – related party,

 

Principal payments on mortgage notes payables for continuing operations was approximately $120,000 and $102,000 during the fiscal years ended January 31, 2020 and 2019, respectively. Payments on notes payable to banks was approximately $170,000 and approximately $-0- during the fiscal years ended January 31, 2020 and 2019, respectively as we paid off our mortgages on our Yuma, Arizona property in the fiscal year ended January 31, 2019, as that asset was sold. Borrowings on Mortgage Notes Payable was $1,400,000 and $-0- during the fiscal years ended January 31, 2020 and 2019, respectively due to refinancing our Albuquerque, New Mexico property in the fiscal year ended January 31, 2020.

 

For the fiscal year ended January 31, 2020, payments on line of credit – related party netted against borrowings on line of credit – related party was approximately $-0- of net cash provided by financing activities as compared to approximately $178,000 of net cash provided by financing activities for the fiscal year ended January 31, 2019.

 

Payments on notes payables – related party netted against borrowings on note payable – related party was approximately $323,000 and $306,000 of net cash used by financing activities during the fiscal years ended January 31, 2020 and 2019, respectively.

 

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Payments on other notes payables netted against borrowings on other note payable was approximately $614,000 and $330,00 of net cash provided by financing activities during the fiscal years ended January 31, 2020 and 2019, respectively.

 

Proceeds from sales of non-controlling ownership interests in subsidiaries decreased by approximately $102,000 as sales of non-controlling ownership interest was approximately $-0- for the fiscal year ended January 31, 2020 and approximately $102,000 for the year ended January 31, 2019. We had no sales of our IHT stock for the fiscal years ended January 31, 2020 and January 31, 2019.

 

During the fiscal year ended January 31, 2020, our distributions to non-controlling interest holders was approximately $521,000 compared with approximately $9,560,117 for the fiscal year ended January 31, 2019.

 

We continue to contribute to a Capital Expenditures Fund (the “Fund”) an amount equal to 4% of the InnSuites Hotels’ revenues from operation of the Hotels. The Fund is restricted by the mortgage lender for one of our properties. As of January 31, 2020 and 2019, there were no monies held in these accounts reported on our Consolidated Balance Sheet as “Restricted Cash.” The Fund is intended to be used for capital improvements to the Hotels and refurbishment and replacement of furniture, fixtures and equipment. During the fiscal year ended January 31, 2020 and 2019, the Hotels spent approximately $251,000 and $937,000, respectively, for capital expenditures. We consider the majority of these improvements to be revenue producing. Therefore, these amounts are capitalized and depreciated over their estimated useful lives. For fiscal year 2021 capital expenditures, we plan on spending less on capital improvements as we have completed our property improvements at our Tucson, Arizona and Albuquerque, New Mexico hotels. Repairs and maintenance were charged to expense as incurred and approximated $403,000 and $680,000 for fiscal years 2020 and 2019, respectively.

 

We have minimum debt payments, net of debt discounts, of approximately $1,754,000 and approximately $668,000 due during fiscal years 2020 and 2021, respectively. Minimum debt payments due during fiscal year 2021 include approximately $161,000 of mortgage notes payable, approximately $167,000 of other notes payable secured promissory notes outstanding to related parties and approximately $807,000 of other notes payable secured promissory notes outstanding to unrelated third parties arising from the Shares of Beneficial Interest and Partnership unit repurchases.

 

We may seek to negotiate additional credit facilities or issue debt instruments. Any debt incurred or issued by us may be secured or unsecured, long-term, medium-term or short-term, bear interest at a fixed or variable rate and be subject to such other terms as we consider prudent.

 

SALE OF OWNERSHIP INTERESTS IN ALBQUERQUE, AND TUCSON SUBSIDIARIES

 

See Notes 3, and 4 of the Trust’s Consolidated Financial Statements for a detailed discussion of the sale of ownership interests in the Trust’s subsidiaries.

 

COMPLIANCE WITH CONTINUED LISTING STANDARDS OF NYSE AMERICAN

 

On January 19, 2017, the Trust received a letter from the NYSE AMERICAN informing the Trust that the staff of the NYSE AMERICAN’s Corporate Compliance Department had determined that the Trust is not in compliance with Section 1003(a)(iii) of the NYSE AMERICAN Company Guide due to the Trust having stockholders’ equity of less than $6.0 million and net losses from continuing operations in its five most recent fiscal years ended January 31, 2017.

 

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The NYSE AMERICAN’s letter informed the Trust that, to maintain its listing, it must submit a plan of compliance by February 20, 2017, addressing how it intends to regain compliance with the NYSE AMERICAN’s continued listing standards within the maximum potential 18-month plan period available (the “Plan Period”). Elements of the compliance plan may include the sale of one or more of its assets (management believes IHT hotels have a much lower book value than market value), sale of additional Trust stock at market value, sale of minority interest in specific hotel properties and/or anticipated continuation of the current operational upward current trends in hotel gross operating profits.

 

On June 2, 2017, the Trust sold its Ontario, California hotel to an unrelated third party for approximately $17.5 million, which the Trust received in cash. The Trust has recognized a gain of approximately $11.4 million on its consolidated statement of operations for the fiscal year ended January 31, 2018. As of January 31, 2018, the Trust Shareholders’ Equity was approximately $8.2 million exceeding the minimum requirements of the NYSE American Company Guide.

 

On January 11, 2018, the Trust received a letter from the NYSE American LLC informing us that the Trust is back in compliance with all the NYSE American LLC continued listing standards set forth in Part 10 of the NYSE American LLC Company Guide. Specifically, the Trust has resolved the continued listing deficiencies with respect to Section 1003(a)(iii) of the Company Guide reference in the Exchange’s letters dated January 19, 2017. The Trust’s shareholders equity as of January 31, 2018, October 31, 2017, and July 31, 2017 exceeded $8.2 million which met the minimum requirement of $6 million. The Trust will be subject to ongoing review for compliance with NYSE American LLC requirements as part of the Exchange’s routine monitoring.

 

On July 1, 2020 the Trust received a letter from the NYSE American LLC informing the Trust of noncompliance with the NYSE American continued listing standards, being subject to the procedures and requirements set forth in Section 1007 of the NYSE American Company Guide. The Trust had failed to timely issue its Form 10-K for the fiscal year ended January 31, 2020.

 

NON-GAAP FINANCIAL MEASURES

 

The following non-GAAP presentations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and funds from operations (“FFO”) are made to assist our investors in evaluating our operating performance.

 

Adjusted EBITDA is defined as earnings before interest expense, amortization of loan costs, interest income, income taxes, depreciation and amortization, and non-controlling interests in the Trust. We present Adjusted EBITDA because we believe these measurements (a) more accurately reflect the ongoing performance of our hotel assets and other investments, (b) provide more useful information to investors as indicators of our ability to meet our future debt payments and working capital requirements, and (c) provide an overall evaluation of our financial condition. Adjusted EBITDA as calculated by us may not be comparable to Adjusted EBITDA reported by other companies that do not define Adjusted EBITDA exactly as we define the term. Adjusted EBITDA does not represent cash generated from operating activities determined in accordance with GAAP and should not be considered as an alternative to (a) GAAP net income or loss as an indication of our financial performance or (b) GAAP cash flows from operating activities as a measure of our liquidity.

 

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A reconciliation of Adjusted EBITDA to net loss attributable to controlling interests for the fiscal years ended January 31, 2020 and 2019 follows:

 

   Twelve Months Ended January 31, 
   2020   2019 
Net loss attributable to controlling interests  $(1,742,000)  $1,420,000 
Add back:          
Depreciation   902,000    846,000 
Interest expense   567,000    381,000 
Taxes   -    407,727 
Less:          
Tax benefit   (294,000)     
Interest Income   (147,000)   (109,000)
Adjusted EBITDA  $(714,000)  $2,945,727 

 

FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts (“NAREIT”), which is net income (loss) attributable to common shareholders, computed in accordance with GAAP, excluding gains or losses on sales of properties, asset impairment adjustments, and extraordinary items as defined by GAAP, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated joint ventures and non-controlling interests in the operating partnership. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. The Trust is an unincorporated Ohio real estate investment trust; however, the Trust is not a real estate investment trust for federal taxation purposes. Management uses this measurement to compare itself to REITs with similar depreciable assets. We consider FFO to be an appropriate measure of our ongoing normalized operating performance. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other companies that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO does not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to (a) GAAP net income or loss as an indication of our financial performance or (b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO should be considered along with our net income or loss and cash flows reported in the consolidated financial statements.

 

A reconciliation of FFO to net income (loss) attributable to controlling interests for fiscal year ended January 31, 2020 and 2019 follows:

 

   Twelve Months Ended January 31, 
   2020   2019 
Net loss attributable to controlling interests  $(1,742,000)  $1,420,000 
Add back:          
Depreciation   902,000    846,000 
Non-controlling interest   (237,000)   9,686,000 
Less:          
Gain on Disposal of Discontinued Operations   -    (13,573,000)
FFO  $(1,077,000)  $(1,621,000)

 

The Trust reported Consolidated Net Loss from continuing operations of approximately $1,978,000 for the fiscal year ended January 31, 2020 compared to Consolidated Net Loss from continuing operations of approximately $1,986,000 for the fiscal year ended January 31, 2019. Fiscal 2020 and 2019 Consolidated Net Income from continuing operations included non-cash depreciation, amortization and current year one-time $825,000 note receivable impairment, of approximately $1,840,000 and $846,000, respectively. Fiscal 2020 Consolidated Net Loss from continuing operations before non-cash depreciation, amortization and impairment notes receivable was approximately $(138,000) as compared with $(1,184,000) for fiscal 2019. Fiscal 2020 Consolidated Net Revenues from continuing operations were approximately $6,568,000 as compared with fiscal 2019 Revenues of approximately $6,169,000. Fiscal 2020 Net Income Per Share was $(0.21) as compared with fiscal 2019 Net Income Per Share of $1.20.

 

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FUTURE POSITIONING

 

In viewing the hotel industry cycles, the Board of Trustees determined that 2008 may have been the high point of the current hotel industry cycle and further determined it was appropriate to actively seek buyers for our properties. We engaged the services of several hotel brokers and began independently advertising our Hotels for sale. We sold the Ontario hotel in June 2017, and the Yuma Hotel in October 2018. We continue to independently advertise and list our Hotels for sale, including on our website (www.suitehotelsrealty.com).

 

The table below provides book values, mortgage balances and listed asking price for the Hotels.

 

Hotel Property  Book Value   Mortgage Balance   Listed Asking Price 
Albuquerque  $1,642,000   $1,396,690    7,995,000 
Tucson Oracle   7,253,000    4,708,978    16,600,000 
                
   $8,895,000   $6,105,668   $24,595,000 

 

The listed asking price is the amount at which we would sell each of the Hotels and is adjusted to reflect recent hotel sales in the Hotels’ areas of operation and current earnings of each of the Hotels. The listed asking price is not based on appraisals of the properties.

 

On August 1, 2015, we finalized and committed to a plan to sell over time our hotel properties. We listed each of the properties with a local real estate hotel broker and we believe that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. We plan to sell our remaining two Hotel properties within two years, based on feedback received by our local hotel real estate property professional brokers and we have engaged hotel real estate brokers who specialize in the selling/buying hotel real estate properties for the sale of our Tucson and Albuquerque Hotel properties. We can provide no assurance that we will be able to sell either or both Hotel properties on terms favorable to us or within our expected time frame, or at all.

 

Effective October 24, 2018, the Trust sold the Yuma hotel to an unrelated third party for $16.05 million. With an estimated basis of approximately $4.6 million, the sale resulted in the recognition of a significant profit after transactional costs.

 

Although we believe it is probable, we may be unable to realize the listed sales price for the individual Hotel properties, or to sell them at all. However, we believe that the listed values are reasonable based on local market conditions and comparable sales. Changes in market conditions have in part resulted, and may in the future result, in our changing one or all the listed asking prices.

 

Our long-term strategic plan is to obtain the full benefit of our real estate equity and to pursue a merger with another company, likely a private larger entity that seeks to go public or list on the NYSE AMERICAN Exchange.

 

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SHARE REPURCHASE PROGRAM

 

For information on the Trust’s Share Repurchase Program, see Part II, Item 5. “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

 

OFF-BALANCE SHEET ARRANGEMENTS

 

Other than lease commitments and legal contingencies incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned or controlled subsidiaries that are not included in our consolidated financial statements.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Asset Impairment

 

We believe that the policies we follow for the valuation of our hotel properties, which constitute the majority of our assets, are our most critical policies. The Financial Accounting Standards Board (“FASB”) has issued authoritative guidance related to the impairment or disposal of long-lived assets, codified in ASC Topic 360-10-35, which we apply to determine when it is necessary to test an asset for recoverability. On an events and circumstances basis, we review the carrying value of our hotel properties. We will record an impairment loss and reduce the carrying value of a property when anticipated undiscounted future cash flows and the current market value of the property do not support its carrying value. In cases where we do not expect to recover the carrying cost of hotel properties held for use, we will reduce the carrying value to the fair value of the hotel, as determined by a current appraisal or other acceptable valuation methods. We did not recognize a hotel properties impairment loss in fiscal years 2020 or 2019. As of January 31, 2020, our management does not believe that the carrying values of any of our hotel properties are impaired. The Trust did take a reserve for bad debt as of January 31, 2020 reflecting its concern with the collectability of the Obasa note receivable, related to the sale of the IBC technology segment.

 

Sale of Hotel Assets

 

On August 1, 2015, the Trust finalized and committed to a plan to sell Hotel properties. The Trust listed Hotel properties with real estate hotel brokers, Effective October 24, 2018, the Trust sold the Yuma hotel to an unrelated third party for $16.05 million, and on June 2, 2017, the Trust sold its Ontario, California hotel to an unrelated third party for approximately $17.5 million. Management believes that our currently-owned Hotels are listed at prices that is reasonable in relation to their current fair value. The Trust believes that the plan to sell these assets will not be withdrawn. At this time, the Trust is unable to predict when, and if, either of its two Hotel properties will be sold. The Trust has listed the Tucson hotel with local real estate hotel brokers and, we believe, that both the Tucson and Albuquerque hotels are being marketed at a price that is reasonable in relation to its current fair value.

 

Revenue Recognition

 

ASU 2014-09 (Topic 606), “Revenue from Contracts with Customers” is effective for reporting period after January 1, 2018. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.

 

Revenues are primarily derived from the following sources and are recognized as services are rendered and when collectability is reasonably assured. Amounts received in advance of revenue recognition are considered deferred liabilities.

 

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Revenues primarily consist of room rentals, food and beverage sales, management and trademark fees and other miscellaneous revenues from our properties. Revenues are recorded when rooms are occupied and when food and beverage sales are delivered. Management and trademark fees from non-affiliated hotels include a monthly accounting fee and a percentage of hotel room revenues for managing the daily operations of the Hotels and the one hotel owned by affiliates of Mr. Wirth.

 

We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in revenues. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

 

SEASONALITY

 

See Item 1 for related discussion of seasonality.

 

INFLATION

 

We rely entirely on the performance of the Hotels and InnSuites Hotels’ ability to increase revenue to keep pace with inflation. Operators of hotels in general, and InnSuites Hotels in particular, can change room rates quickly, but competitive pressures may limit InnSuites Hotels’ ability to raise rates as fast as or faster than inflation

 

FORWARD-LOOKING STATEMENTS

 

Certain statements in this Form 10-K, including statements containing the phrases “believes,” “intends,” “expects,” “anticipates,” “predicts,” “projects,” “will be,” “should be,” “looking ahead,” “may” or similar words, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend that such forward-looking statements be subject to the safe harbors created by such Acts. These forward-looking statements include statements regarding our intent, belief or current expectations, those of our Board of Trustees or our officers in respect of (i) the declaration or payment of dividends; (ii) the leasing, management or operation of the Hotels; (iii) the adequacy of reserves for renovation and refurbishment; (iv) our financing plans; (v) our position regarding investments, dispositions, developments, financings, conflicts of interest and other matters; (vi) plans and progress regarding a reverse merger; (vii) our plans and expectations regarding future sales of hotel properties; and (viii) trends affecting our or any Hotel’s financial condition or results of operations.

 

These forward-looking statements reflect our current views in respect of future events and financial performance, but are subject to many uncertainties and factors relating to the operations and business environment of the Hotels that may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties include, but are not limited to:

 

  local, national or international, political economic and business conditions, including, without limitation, conditions that may, or may continue to, affect public securities markets generally, the hospitality industry or the markets in which we operate or will operate;
     
  fluctuations in hotel occupancy rates;
     
  changes in room rental rates that may be charged by InnSuites Hotels in response to market rental rate changes or otherwise;
     
  seasonality of our hotel operations business;
     
  our ability to sell any of our Hotels at market value, listed sale price or at all;

 

20

 

 

  interest rate fluctuations;
     
  changes in, or reinterpretations of, governmental regulations, including, but not limited to, environmental and other regulations, the ADA and federal income tax laws and regulations;
     
  competition including supply and demand for hotel rooms and hotel properties;
     
  availability of credit or other financing;
     
  our ability to meet present and future debt service obligations;
     
  our ability to refinance or extend the maturity of indebtedness at, prior to, or after the time it matures;
     
  any changes in our financial condition or operating results due to acquisitions or dispositions of hotel properties;
     
  insufficient resources to pursue our current strategy;
     
  concentration of our investments in the InnSuites Hotels® brand;
     
  Implementation of tariffs that may affect trade and/or travel;
     
  the financial condition of franchises, brand membership companies and travel related companies;
     
  ability to develop and maintain positive relations with “Best Western Plus” or “Best Western” and potential future franchises or brands;
     
  real estate and hospitality market conditions;
     
  hospitality industry factors, including alternative lodging, such as Airbnb, and changing traveler tastes;
     
  our ability to carry out our strategy, including our strategy regarding a reverse merger;
     
  the Trust’s ability to remain listed on the NYSE American;
     
  effectiveness of the Trust’s software programs and overall software capabilities;
     
  the need to periodically repair and renovate our Hotels at a cost at or in excess of our standard 4% reserve;
     
  our ability to cost effectively deal with any dispositions of Trust assets in a timely manner;
     
  increases in the cost of labor, including mandated minimum wages by state or local governments;
     
  increases in costs of energy, healthcare, insurance and other operating expenses as a result of changed or increased regulation or otherwise;
     
  terrorist attacks or other acts of war;

 

21

 

 

  outbreaks of communicable diseases attributed to our hotels or impacting the hotel industry in general;
     
  natural disasters, including adverse climate changes in the areas where we have or serve hotels;
     
  airline strikes;
     
  transportation and fuel price increases;
     
  adequacy of insurance coverage and increases in cost for health care coverage for employees and potential government regulation with respect to health care coverage;
     
  data breaches or cybersecurity attacks, including breaches impacting the integrity and security of employee and guest data; and
     
  loss of key personnel and uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act

 

We do not undertake any obligation to update publicly or revise any forward-looking statements whether as a result of new information, future events or otherwise except as may be required by law. Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of 1934, as amended, the qualifications set forth hereinabove are inapplicable to any forward-looking statements in this Form 10-K relating to the operations of the Partnership.

 

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

All other schedules are omitted, as the information is not required or is otherwise furnished.

 

22

 

 

INNSUITES HOSPITALITY TRUST

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

 

The following consolidated financial statements of InnSuites Hospitality Trust are included in Item 8:

 

Report of Independent Registered Public Accounting Firm 24
   
Consolidated Balance Sheets – January 31, 2020 and 2019 25
   
Consolidated Statements of Operations – Years Ended January 31, 2020 and 2019 26
   
Consolidated Statements of Shareholders’ Equity – Years Ended January 31, 2020 and 2019 27
   
Consolidated Statements of Cash Flows – Years Ended January 31, 2020 and 2019 28
   
Notes to the Consolidated Financial Statements – Years Ended January 31, 2020 and 2019 29

 

All other schedules are omitted, as the information is not required or is otherwise furnished.

 

23

 

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and the board of trustees of InnSuites Hospitality Trust

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of InnSuites Hospitality Trust and subsidiaries (the “Trust”) as of January 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the year ended January 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of January 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the year ended January 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Hall & Company Certified Public Accountants & Consultants, Inc.

 

We have served as the Trust’s auditor since 2015

 

Irvine, CA

 

August 14, 2020

 

24

 

 

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   JANUARY 31, 2020   JANUARY 31, 2019 
ASSETS          
Current Assets:          
Cash and Cash Equivalents  $1,200,528   $749,075 
Short-Term Investments – Available For Sale Securities   -    1,896,556 
Accounts Receivable, including approximately $375,000 and $79,000 from related parties, and net of Allowance for Doubtful Accounts of approximately $15,000 and $3,000 as of January 31, 2020 and 2019, respectively   585,226    236,942 
Income Tax Receivable   294,402    - 
Advances to Affiliates - Related Party   1,000,000    986,361 
Notes Receivable - Related Party   -    632,027 
Current Portion of Note Receivable (net)   91,667    229,167 
Prepaid Expenses and Other Current Assets   77,806    95,553 
Current Assets of Discontinued Operations   -    320,447 
Total Current Assets   3,249,629    5,146,128 
Property, Plant and Equipment, net   8,983,323    9,532,793 
Note Receivable (net)   1,833,333    2,520,833 
Operating Lease – Right of Use   2,197,364    - 
Finance Lease – Right of Use   131,806    - 
Investments   600,000    - 
TOTAL ASSETS  $16,995,455   $17,199,754 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
LIABILITIES          
Current Liabilities:          
Accounts Payable and Accrued Expenses  $1,384,971   $1,092,000 
Current Portion of Notes Payable - Related Party   161,440    317,738 
Current Portion of Mortgage Notes Payable, net of Discount   160,849    115,106 
Current Portion of Notes Payable to Banks, net of Discount   17,100    9,300 
Current Portion of Other Notes Payable   806,712    1,229,069 
Current Portion of Operating Lease Liability   168,780    - 
Current Portion of Finance Lease Liability   31,123    - 
Current Liabilities of Discontinued Operations   -    546,803 
Total Current Liabilities   2,730,975    3,310,016 
Notes Payable - Related Party   -    166,677 
Mortgage Notes Payable, net of Discount   5,944,819    4,709,586 
Other Notes Payable   73,491    264,960 
Operating Lease Liability, net of current portion   2,252,964    - 
Finance Lease Liability, net of current portion   75,396    - 
TOTAL LIABILITIES   11,077,645    8,451,239 
           
COMMITMENTS AND CONTINGENCIES          
           
SHAREHOLDERS’ EQUITY          
Shares of Beneficial Interest, without par value, unlimited authorization; 18,607,960 and 18,859,960 shares issued and 9,273,299 and 9,360,292 shares outstanding at January 31, 2020 and 2019, respectively   21,837,048    23,738,260 
Treasury Stock, 9,334,916 and 9,229,923 shares held at cost at January 31, 2020 and 2019, respectively   (13,689,533)   (13,517,833)
TOTAL TRUST SHAREHOLDERS’ EQUITY   8,147,515    10,220,427 
NON-CONTROLLING INTEREST   (2,229,705)   (1,471,912)
TOTAL EQUITY   5,917,810    8,748,515 
TOTAL LIABILITIES AND EQUITY  $16,995,455   $17,199,754 

 

See accompanying notes to these consolidated financial statements

 

25

 

 

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   FOR THE YEARS ENDED 
   JANUARY 31, 
   2020   2019 
REVENUE          
Room  $6,277,805   $5,861,879 
Food and Beverage   68,163    50,279 
Management and Trademark Fees   170,234    171,748 
Other   51,969    85,059 
TOTAL REVENUE   6,568,171    6,168,965 
           
OPERATING EXPENSES          
Room   2,033,154    1,940,530 
Food and Beverage   108,840    72,477 
Telecommunications   395    3,574 
General and Administrative   2,173,203    2,333,749 
Sales and Marketing   569,921    580,885 
Repairs and Maintenance   403,147    494,776 
Hospitality   509,555    483,486 
Utilities   382,560    361,874 
Depreciation   901,664    845,693 
Impairment of Note Receivable   825,000      
Real Estate and Personal Property Taxes, Insurance and Ground Rent   492,461    357,045 
Other   21,080    - 
TOTAL OPERATING EXPENSES   8,420,980    7,474,089 
OPERATING LOSS   (1,852,809)   (1,305,125)
Interest Income   146,645    156 
Interest Income on Advances to Affiliates - Related Party   -    108,496 
TOTAL OTHER INCOME   146,645    108,652 
Interest on Mortgage Notes Payable   244,079    238,908 
Interest on Notes Payable to Banks   -    - 
Interest on Other Notes Payable   322,603    142,402 
TOTAL INTEREST EXPENSE   566,682    381,310 
CONSOLIDATED NET LOSS BEFORE INCOME TAX BENEFIT (PROVISION) AND DISCONTINUED OPERATIONS   (2,272,846)   (1,577,783)
Income Tax Benefit (Provision)   294,402    (407,727)
CONSOLIDATED NET LOSS FROM CONTINUING OPERATIONS  $(1,978,444)  $(1,985,510)
Discontinued Operations, Net of Non-Controlling Interest  $-   $(482,025)
Gain on Disposal of Discontinued Operations  $-   $13,573,418 
CONSOLIDATED NET INCOME FROM DISCONTINUED OPERATIONS  $-   $13,091,393 
CONSOLIDATED NET (LOSS) INCOME  $(1,978,444)  $11,105,883 
LESS: NET (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST  $(236,756)  $9,686,182 
NET (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS  $(1,741,688)  $1,419,701 
NET LOSS PER SHARE FROM CONTINUING OPERATIONS – BASIC & DILUTED  $(0.21)  $(0.21)
NET INCOME PER SHARE FROM DISCONTINUED OPERATIONS – BASIC & DILUTED  $-   $1.41 
NET (LOSS) INCOME PER SHARE TOTAL – BASIC & DILUTED  $(0.21)  $1.20 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC & DILUTED   9,324,530    9,283,081 

 

See accompanying notes to these consolidated financial statements

 

26

 

 

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED JANUARY 31, 2020 and 2019

 

   Shares of Beneficial Interest   Treasury Stock   Trust Shareholders’   Non-Controlling   Total 
   Shares   Amount   Shares   Amount   Equity   Interest   Equity 
Balance, January 31, 2018   9,775,669   $22,333,905    8,796,546   $(12,662,996)  $9,670,909   $(1,551,940)  $8,118,969 
Net Income   -    1,419,701    -    -    1,419,701    9,686,182    11,105,883 
Dividends   -    (195,575)   -    -    (195,575)   -    (195,575)
Purchase of Treasury Stock   (433,377)   -    433,377    (854,837)   (854,837)   -    (854,837)
Shares of Beneficial Interest Issued for Services Rendered   18,000    32,400    -    -    32,400    -    32,400 
Sales of Ownership Interests in Subsidiary, net   -    -    -    -    -    101,792    101,792 
Distribution to Non-Controlling Interests   -    -    -    -    -    (9,560,117)   (9,560,117)
Reallocation of Non-Controlling Interests and Other   -    147,829    -    -    147,829    (147,829)   - 
Balance, January 31, 2019   9,360,292  $23,738,260    9,229,923  $(13,517,833)  $10,220,427   $(1,471,912)  $8,748,515 
                                    
Net (Loss)        (1,741,688)   -    -    (1,741,688)   (236,756)   (1,978,444)
Dividends        (191,924)   -    -    (191,924)   -    (191,924)
Purchase of Treasury Stock   (104,993)   -    104,993    (171,700)   (171,700)   -    (171,700)
Shares of Beneficial Interest Issued for Services Rendered   18,000    32,400    -    -    32,400    -    32,400 
Sales of Ownership Interests in Subsidiary, net        -    -    -    -    -    - 
Distribution to Non-Controlling Interests        -    -    -    -    (521,037)   (521,037)
Reallocation of Non-Controlling Interests and Other        -    -    -    -    -    - 
Balance, January 31, 2020   9,273,299   $21,837,048    9,334,916   $(13,689,533)  $8,147,515   $(2,229,705)  $5,917,810 

 

See accompanying notes to these consolidated financial statements

 

27

 

 

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   FOR THE YEARS ENDED 
   JANUARY 31, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Consolidated Net (Loss) Income  $(1,978,444)  $11,105,883 
Adjustments to Reconcile Consolidated Net (Loss) Income to Net Cash Used In Operating Activities:          
Note Receivable Impairment   825,000    - 
Stock-Based Compensation   32,400    32,400 
Depreciation   901,664    1,244,581 
Gain on Disposals on Assets   -    (13,573,418)
Changes in Assets and Liabilities:          
Accounts Receivable   (348,284)   133,382 
Income Tax Receivable   (294,402)   - 
Prepaid Expenses and Other Assets   17,747    43,278 
Accrued Interest Income   -    (36,008)
Accounts Payable and Accrued Expenses   (108,448)   (749,519)
NET CASH USED IN OPERATING ACTIVITIES   (952,767)   (1,799,421)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Improvements and Additions to Hotel Properties   (324,445)   (936,784)
Investments in Unigen   (253,593)   - 
Redemption (Purchases) of Marketable Securities   1,896,556    (896,226)
Cash Received From Sale of Hotel Property and IBC   -    10,184,766 
Lendings on Advances to Affiliates - Related Party   (75,000)   (776,008)
Collections on Advances to Affiliates - Related Party   61,361    796,008 
NET CASH PROVIDED BY INVESTING ACTIVITIES   1,304,879    8,371,756 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Principal Payments on Mortgage Notes Payable   (119,024)   (102,384)
Borrowings on Mortgage Notes Payable   1,400,000    - 
Payments on Notes Payable to Banks, net of financing costs   (170,200)   - 
Borrowings on Notes Payable to Banks, net of financing costs   178,000    9,300 
Payments on Line of Credit - Related Party   -    (1,390,656)
Borrowings on Line of Credit - Related Party   -    1,569,428 
Lendings on Notes Receivable - Related Party   (256,000)   - 
Collections on Notes Receivable - Related Party   888,027    - 
Borrowings on Note Payable - Related Party   -    (306,158)
Payments on Notes Payable - Related Party   (322,975)   - 
Payments on Other Notes Payable   (664,826)   (195,313)
Borrowings on Other Notes Payable   51,000    525,512 
Payment of Dividends   (191,924)   (195,575)
Proceeds from Sale of Non-Controlling Ownership Interest in Subsidiary, net   -    101,792 
Distributions to Non-Controlling Interest Holders   (521,037)   (9,560,117)
Repurchase of Treasury Stock   (171,700)   (854,837)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   99,341    (10,399,008)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   451,453    (3,826,673)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   749,075    4,575,748 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $1,200,528   $749,075 

 

See accompanying notes to these consolidated financial statements

 

28

 

 

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED JANUARY 31, 2019 AND 2018

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

As of January 31, 2020, InnSuites Hospitality Trust (the “Trust”, “we”, “us” or “our”) is a publicly traded company with hotels IHT owns and hotels IHT manages. The Trust and its shareholders own interests directly in and through a partnership interest, two hotels with an aggregate of 270 suites in Arizona and New Mexico (the “Hotels”) operated under the federally trademarked name “InnSuites Hotels” or “InnSuites.

 

Hotel Operations:

 

Full service hotels often contain upscale full-service facilities with a large volume of full service accommodations, on-site full-service restaurant(s), and a variety of on-site amenities such as swimming pools, a health club, children’s activities, ballrooms and on-site conference facilities. Moderate or limited service hotels are small to medium-sized hotel establishments that offer a limited amount of on-site amenities. Most moderate or limited service establishments may still offer full service accommodations but lack leisure amenities such as an on-site restaurant or a swimming pool. The Trust considers its Tucson, Arizona hotel and our hotel located in Albuquerque, New Mexico to be moderate or limited service hotels. IHT provides management services on a wide variety of hotels.

 

The Trust is the sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned a 74.94% and 74.80% interest in the Partnership as of January 31, 2020 and 2019. The Trust’s weighted average ownership for the years ended January 31, 2020 and 2019 was 75.89% and 72.53%. As of January 31, 2019, the Partnership owned a 51.01% interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 20.33% interest in an InnSuites® hotel located in Albuquerque, New Mexico.

 

Under certain management agreements, InnSuites Hotels Inc., a subsidiary, manages the Hotels’ daily operations. The Trust also provides the use of the “InnSuites” trademark to the Hotels through wholly-owned InnSuites Hotels. All such expenses and reimbursements between the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation.

 

On August 1, 2015, the Trust finalized and committed to a plan to sell all the hotel properties. As of May 1, 2016, the Trust listed all the Hotel properties with a local real estate hotel broker, and management believed that each of the assets was being marketed at a price that was reasonable in relation to its current fair value. The Trust believes that the plan to sell these assets will not be withdrawn. Through the Trust’s Form 10-Q for the quarter ended July 31, 2016 filed with the SEC on December 14, 2016, the Trust classified all the Hotel properties as Assets Held for Sale. As of October 31, 2016, the Trust has decided to reclassify these assets back into operations as many of these assets have been marketed for sale for more than one year. At this time, the Trust is unable to predict when, and if, any of these Hotel properties will be sold. The Trust continues to list these properties with local real estate hotel brokers and believes that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. On October 24, 2018, the Yuma Hospitality Properties LLLP (the “Yuma entity”) was sold to an unrelated third party for $16,050,000 (see Note 25).

 

IBC Technology Segment; IBC Hospitality Technologies:

 

In fiscal 2019 the Trust sold its wholly owned subsidiary, InnDependent Boutique Collection (“IBC”, “IBC Hotels”, “IBC Hotels, LLC”, “IBC Hospitality” or “IBC Hospitality Technologies”), which had a network of approximately 2,000 unrelated hospitality properties; providing reservation services with proprietary software, plus exclusive marketing distribution and services. The sale occurred in August 2018, and the transaction date was July 2018.

 

29

 

 

 

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

These consolidated financial statements have been prepared by management in accordance with accounting principles in accordance with Generally Accepted Accounting Principles (GAAP), and include all assets, liabilities, revenues and expenses of the Trust and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. Certain items have been reclassified to conform to the current fiscal year presentation. The Trust exercises unilateral control over the Partnership and the entities listed below. Therefore, the financial statements of the Partnership and the entities listed below are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated.

 

    IHT OWNERSHIP %  
ENTITY   DIRECT     INDIRECT (i)  
Albuquerque Suite Hospitality, LLC (see Note 6)     20.33 %     -  
Tucson Hospitality Properties, LLLP     -       51.01 %
RRF Limited Partnership     75.89 %     -  
InnSuites Hotels Inc.     100.00 %     -  
                 
(i) Indirect ownership is through the Partnership                

 

PARTNERSHIP AGREEMENT

 

The Partnership Agreement of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B. Class A and Class B Partnership units are identical in all respects, except that each Class A Partnership unit is convertible into one newly-issued Share of Beneficial Interest of the Trust at any time at the option of the particular limited partner. The Class B Partnership units may only become convertible, each into one newly-issued Share of Beneficial Interest of the Trust, with the approval of the Board of Trustees, in its sole discretion. On both January 31, 2020 and 2019, 211,708 Class A Partnership units were issued and outstanding, representing 1.66% of the total Partnership units. Additionally, as of both January 31, 2020 and 2019, 2,974,038 Class B Partnership units were outstanding to James Wirth, the Trust’s Chairman and Chief Executive Officer, and Mr. Wirth’s affiliates. If all of the Class A and B Partnership units were converted on January 31, 2020, the limited partners in the Partnership would receive 3,185,746 Shares of Beneficial Interest of the Trust. As of both January 31, 2020, and 2019, the Trust owns 10,025,771 general partner units in the Partnership, representing 75.89% of the total Partnership units.

 

LIQUIDITY

 

The Trust’s principal source of cash to meet its cash requirements, including distributions to its shareholders, is our share of the Partnership’s cash flow, quarterly distributions from the Albuquerque, New Mexico property and more recently, sales of non-controlling interests in certain of our Hotels. The Partnership’s principal source of cash flow is quarterly distributions from the Tucson, Arizona property. The Trust’s liquidity, including our ability to make distributions to its shareholders, will depend upon the ability of the Trust and the Partnership’s ability to generate sufficient cash flow from hotel operations and to service debt.

 

As of January 31, 2020, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount receivable of approximately $-0-. The Demand/Revolving Line of Credit/Promissory Note accrues interest at 7.0% per annum and requires interest only payments. The Demand/Revolving Line of Credit/Promissory Note has a maximum borrowing capacity to $1,000,000, which is available through June 30, 2021, and automatically renews year to year, unless either party gives six month advance notice to terminate. As of August 1, 2020, the outstanding net balance receivable on the Demand/Revolving Line of Credit/Promissory Note was $-0-.

 

As of January 31, 2020, the Trust had an Advance to Affiliate credit facilities with an aggregate maximum borrowing capacity of $1,000,000, which is available through June 30, 2021, and automatically renews year to year, unless either party gives six month advance notice to terminate. As of January 31, 2020, the Trust had an amount receivable of the Advances to Affiliate credit facility of approximately $1,000,000. As of August 1, 2020, the amount receivable from the Advance to Affiliate credit facility was approximately $1,000,000.

 

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With approximately $1,225,000 of cash and short term investments, as of January 31, 2020, the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note, and the availability of the combined $1,000,000 Advance to Affiliate credit facilities, $250,000 of available line of credit facilities with our banks,the Trust believes that we will have enough cash on hand to meet all of its financial obligations as they become due for at least the next year. In addition, management of the Trust is analyzing other strategic options available to it, including the refinancing of the Tucson property or raising additional funds through additional non-controlling interest sales; however, such transactions may not be available on terms that are favorable to the Trust, or at all.

 

There can be no assurance that the Trust will be successful in obtaining extensions, refinancing debt or raising additional or replacement funds, or that these funds may be available on terms that are favorable to it. If the Trust is unable to raise additional or replacement funds, it may be required to sell certain of our assets to meet liquidity needs, which may not be on terms that are favorable.

 

SEASONALITY OF THE HOTEL BUSINESS

 

The Hotels’ operations historically have been somewhat seasonal. The Tucson Hotel experience its highest occupancy in the first fiscal quarter and, to a lesser extent, the fourth fiscal quarter. The second fiscal quarter tends to be the lowest occupancy period at the Tucson Hotel. This seasonality pattern can be expected to cause fluctuations in the Trust’s quarterly revenues. The hotel located in New Mexico historically experience their most profitable periods during the second and third fiscal quarters (the summer season), providing some balance to the general seasonality of the Trust’s hotel business.

 

The seasonal nature of the Trust’s business increases its vulnerability to risks such as labor force shortages and cash flow issues. Further, if an adverse event such as an actual or threatened terrorist attack, international conflict, data breach, regional economic downturn or poor weather conditions should occur during the first or fourth fiscal quarters, the adverse impact to the Trust’s revenues could likely be greater as a result of its southern Arizona seasonal business.

 

RECENTLY ISSUED ACCOUNTING GUIDANCE

 

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. In July 2018, the FASB issued ASU 2018-10 “Codification Improvements of Topic 842, Leases” and ASU No. 2018-11,“Leases (Topic 842): Targeted Improvements.” ASU 2018-11 provides companies another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The consideration in the contract is allocated to the lease and nonlease components on a relative standalone price basis (for lessees) or in accordance with the allocation guidance in the new revenue standard (for lessors). ASU 2018-11 also provides lessees with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component. If a lessee makes that accounting policy election, it is required to account for the nonlease components together with the associated lease component as a single lease component and to provide certain disclosures. Lessors are not afforded a similar practical expedient. The Trust implemented ASU 2016-02 during the fiscal year ended January 31, 2020 and is reflected in our financial statements.

 

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In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how the entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual or interim periods beginning after December 15, 2019. The Trust currently has no intangible assets.

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this ASU became effective for us beginning February 1, 2019. Adoption by the Trust did not have a material effect on our consolidated financial statements.

 

On Dec. 18, 2019, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of generally accepted accounting principles (GAAP) without compromising information provided to users of financial statements. ASU 2019-12 is effective for fiscal years (and interim periods within those fiscal years) beginning after Dec. 15, 2020. The Trust is evaluating the impact of ASU-2019-12, but currently believes it will not have a material effect on our consolidated financial statements.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The Trust’s operations are affected by numerous factors, including the economy, competition in the hotel industry and the effect of the economy on the travel and hospitality industries. The Trust cannot predict if any of the above items will have a significant impact in the future, nor can it predict what impact, if any, the occurrence of these or other events might have on the Trust’s operations and cash flows. Significant estimates and assumptions made by management include, but are not limited to, the estimated useful lives, the recoverability of long-lived assets, the fair values of the long-lived assets, the fair value of right of use assets and lease liabilities, and the collectability of Notes Receivable.

 

PROPERTY, PLANT AND EQUIPMENT AND HOTEL PROPERTIES

 

Furniture, fixtures, building improvements and hotel properties are stated at cost and depreciated using the straight-line method over estimated lives ranging up to 40 years for buildings and 3 to 10 years for furniture and equipment.

 

Management applies guidance ASC 360-10-35, to determine when it is required to test an asset for recoverability of its carrying value and whether, or not, an impairment exists. Under ASC 360-10-35, the Trust is required to test a long-lived asset for impairment when there is an indicator of impairment. Impairment indicators may include, but are not limited to, a drop in the performance of a long-lived asset, a decline in the hospitality industry or a decline in the economy. If an indicator of potential impairment is present, then an assessment is performed of whether the carrying amount of an asset exceeds its estimated undiscounted future cash flows over its estimated remaining life.

 

If the estimated undiscounted future cash flows over the asset’s estimated remaining life are greater than the asset’s carrying value, no impairment is recognized; however, if the carrying value of the asset exceeds the estimated undiscounted future cash flows, then the Trust would recognize an impairment expense to the extent the asset’s carrying value exceeds its fair value, if any. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. Long-lived assets evaluated for impairment are analyzed on a property-specific basis independent of the cash flows of other groups of assets. Evaluation of future cash flows is based on historical experience and other factors, including certain economic conditions and committed future bookings. Management impaired these assets during the fiscal year 2018, and has determined that no further impairment is required of long-lived assets for the fiscal periods ended January 31, 2019 and January 31, 2020.

 

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BUSINESS COMBINATIONS

 

The Trust accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The final purchase price may be adjusted up to one year from the date of the acquisition. Identifying the fair value of the tangible and intangible assets and liabilities requires the use of estimates by management and was based upon currently available data.

 

The Trust allocates the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. Such goodwill is not deductible for tax purposes and represents the value placed on entering new markets and expanding market share (see Note 8).

 

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, included changes from events after the acquisition date, such as changes in our estimate of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated statements of operations, financial position and cash flows in the period of the change in the estimate.

 

GOODWILL

 

The Trust will test goodwill for impairment annually, as applicable, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Trust determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, the Trust must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgements in the future and require an adjustment to the recorded balances.

 

CASH AND CASH EQUIVALENTS

 

The Trust considers all highly liquid short-term investments with maturities of three months or less at the time of purchase to be cash equivalents. The Trust believes it places its cash and cash equivalents only with high credit quality financial institutions, although these balances may periodically exceed federally insured limits.

 

REVENUE RECOGNITION

 

Hotel and Operations

 

ASU 2014-09 (Topic 606), “Revenue from Contracts with Customers” is effective for reporting periods after January 1, 2018. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.

 

Revenues are primarily derived from the sources below and are recognized as services are rendered and when collectability is reasonably assured. Amounts received in advance of revenue recognition are considered deferred liabilities, and are generally not significant.

 

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Revenues primarily consist of room rentals, food and beverage sales, management and trademark fees and other miscellaneous revenues from our properties. Revenues are recorded when rooms are occupied and when food and beverage sales are delivered. Management and trademark fees from non-affiliated hotels include a monthly accounting fee and a percentage of hotel room revenues for managing the daily operations of the Hotels and the one hotel owned by affiliates of Mr. Wirth.

 

We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in revenues. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

 

ACCOUNTS RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable are carried at original amounts billed less an estimate made for doubtful accounts based on a review of outstanding amounts on a quarterly basis. Management generally records an allowance for doubtful accounts for 50% of balances over 90 days and 100% of balances over 120 days. Accounts receivable are written off when collection efforts have been exhausted and they are deemed uncollectible. Recoveries, if any, of receivables previously written off are recorded when received. The Trust does not charge interest on accounts receivable balances and these receivables are unsecured. The following is a reconciliation of the allowance for doubtful accounts for the fiscal years ended January 31, 2020 and 2019.

 

Fiscal Year   Balance at the Beginning of Period     Discontinued Operations Adjustment     Charged to Expense     Deductions     Balance at the End of Period  
                               
2020   $ (5,943 )   $ -     $ (13,223 )   $ 4,377     $ (14,789 )
2019   $ (28,564 )   $ 25,000     $ -     $ (2,379 )   $ (5,943 )

 

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STOCK-BASED COMPENSATION

 

The Trust has an employee equity incentive plan, which is described more fully in Note 24 - “Share-Based Payments.” For fiscal years 2020 and 2019, the Trust has paid the annual fees due to its Trustees by issuing Shares of Beneficial Interest out of its authorized but unissued Shares. Upon issuance, the Trust recognizes the shares as outstanding. The Trust recognizes expense related to the issuance based on the fair value of the shares upon the date of the restricted share grant and amortizes the expense equally over the period during which the shares vest to the Trustees.

 

During fiscal year 2020, the Trust granted restricted stock awards of 18,000 Shares to members of the Board of Trustees, all of which vested in fiscal year 2020 resulting in stock-based compensation of $32,400. During fiscal year 2019, the Trust granted restricted stock awards of 18,000 Shares to members of the Board of Trustees, all of which vested in fiscal year 2019 resulting in stock-based compensation of $32,400.

 

The following table summarizes restricted share activity during fiscal years 2019 and 2020.

 

   Restricted Shares 
   Shares   Price on date of grant 
Balance at January 31, 2018  -   - 
Granted   18,000   $1.80 
Vested   (18,000)  $1.80 
Forfeited   -      
Balance of unvested awards at January 31, 2019   -      
           
Granted   18,000   $1.35 
Vested   (18,000)  $1.35 
Balance of unvested awards at January 31, 2020   -      
    -      

 

TREASURY STOCK

 

Treasury stock is carried at cost, including any brokerage commissions paid to repurchase the shares. Any shares issued from treasury stock are removed at cost, with the difference between cost and fair value at the time of issuance recorded against Shares of Beneficial Interest.

 

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INCOME TAXES

 

The Trust is subject to federal and state corporate income taxes, and accounts for deferred taxes utilizing an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when it is determined to be more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment (see Note 18).

 

DIVIDENDS AND DISTRIBUTIONS

 

In fiscal years 2020 and 2019, the Trust paid a dividend of $0.01 per share at end of the second fiscal quarter and at the end of the fourth fiscal quarter for a total dividend of $0.02 for the fiscal year in the amounts of $191,924 and $195,575, respectively. The Trust’s ability to pay dividends is largely dependent upon the operations of the Hotels.

 

NON-CONTROLLING INTEREST

 

Non-controlling interest in the Trust represents the limited partners’ proportionate share of the capital and earnings of the Partnership. Income or loss is allocated to the non-controlling interest based on a weighted average ownership percentage in the entities throughout the period, and capital is allocated based on the ownership percentage at year-end. Any difference between the weighted average and point-in-time allocations is presented as a reallocation of non-controlling interest as a component of shareholders’ equity.

 

INCOME (LOSS) PER SHARE

 

Basic and diluted income (loss) per Share of Beneficial Interest is computed based on the weighted-average number of Shares of Beneficial Interest and potentially dilutive securities outstanding during the period. Dilutive securities are limited to the Class A and Class B units of the Partnership, which are convertible into 3,024,038 Shares of the Beneficial Interest, as discussed in Note 1.

 

For the fiscal years ended January 31, 2020 and 2019, there were Class A and Class B Partnership units outstanding, which are convertible into Shares of Beneficial Interest of the Trust. Assuming conversion at the beginning of each period, the aggregate weighted-average of these Shares of Beneficial Interest would have been 3,185,746 and 3,473,085 in addition to the basic shares outstanding for fiscal years 2020 and 2019, respectively. These Shares of Beneficial Interest issuable upon conversion of the Class A and Class B Partnership units were dilutive during fiscal 2019 and are included in the calculation of diluted earnings per share for that year below.

 

   For the Twelve Months Ended 
   January 31, 2019 
Net (Loss) Income attributable to controlling interest  $1,419,701 
Plus: Net Income attributable to non-controlling interests   9,686,182 
Net (Loss) Income  $11,105,883 
      
Weighted average common shares outstanding   9,283,081 
Plus: Weighted average incremental shares resulting from unit conversion   3,153,475 
Weighted average common shares outstanding after unit conversion   12,436,556 
      
Diluted Income Per Share  $0.89 

 

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SEGMENT REPORTING

 

As a result of the sale of IBC (see Note 25), the Chief Operating Decision Maker (“CODM”), Mr. Wirth, CEO of the Trust, has determined that the Trust operations are comprised of one reportable segment, Hotel Operations & Corporate Overhead (continuing operations) segment that has ownership interest in two hotel properties with an aggregate of 270 suites in Arizona and New Mexico. Prior to the sale of IBC, the Trust had previously determined that its operations were comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment, and the IBC Hospitality segment serving 2,000 unrelated hotel properties. In connection with the sale of IBC, the historical financial information presented in this Form 10-K reflects this change with IBC being reported as discontinued operation.

 

The Trust has chosen to focus its hotel investments in the southwest region of the United States. The CODM does not review assets by geographical region; therefore, no income statement or balance sheet information by geographical region is provided.

 

ADVERTISING COSTS

 

Amounts incurred for advertising costs are expensed as incurred. Advertising expense totaled approximately $344,000 and $581,000 for the years ended January 31, 2020 and 2019, respectively.

 

CONCENTRATION OF CREDIT RISK

 

Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Trust to a concentration of credit risk consist primarily of cash and cash equivalents. Management’s assessment of the Trust’s credit risk for cash and cash equivalents is low as cash and cash equivalents are held in financial institutions believed to be credit worthy. The Trust limits its exposure to credit loss by placing its cash with major financial institutions and invests only in short-term obligations.

 

While the Trust is exposed to credit losses due to the non-performance of its counterparties, the Trust considers the risk of this remote. The Trust estimates its maximum credit risk for accounts receivable at the amount recorded on the balance sheet.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

For disclosure purposes, fair value is determined by using available market information and appropriate valuation methodologies. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. The fair value framework specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The fair value hierarchy levels are as follows:

 

  Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.
     
  Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and / or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are level 2 valuation techniques.
     
  Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect a company’s own judgments about the assumptions that market participants would use in pricing an asset or liability.

 

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The Trust has no assets or liabilities that are carried at fair value on a recurring basis and had no fair value re-measurements during the years ended January 31, 2020 and 2019.

 

Due to their short maturities, the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value and are considered level 1 inputs. The fair value of mortgage notes payable, notes payable to banks and notes and advances payable to related parties is estimated by using the current rates which would be available for similar loans having the same remaining maturities and are based on level 3 inputs.

 

3. SALE OF OWNERSHIP INTERESTS IN ALBUQUERQUE SUBSIDIARY

 

On July 22, 2010, the Board of Trustees unanimously approved, with Mr. Wirth abstaining, for the Partnership to enter into an agreement with Rare Earth Financial, LLC (“Rare Earth”), an affiliate of Mr. Wirth, to sell units in Albuquerque Suite Hospitality, LLC (the “Albuquerque entity”), which owns and operates the Albuquerque, New Mexico hotel property. Under the agreement, Rare Earth agreed to either purchase or bring in other investors to purchase at least 49% of the membership interests in the Albuquerque entity and the parties agreed to restructure the operating agreement of the Albuquerque entity. A total of 400 units were available for sale for $10,000 per unit, with a two-unit minimum subscription. On September 24, 2010, the parties revised the Amended and Restated Operating Agreement to name Rare Earth as the administrative member of the Albuquerque entity in charge of the day-to-day management.

 

On December 9, 2013, the Trust entered into an updated restructuring agreement with Rare Earth to allow for the sale of additional interest units in the Albuquerque entity for $10,000 per unit. Under the updated restructuring agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 150 (and potentially up to 190 if the overallotment is exercised) units. Under the terms of the updated restructuring agreement, the Trust agreed to hold at least 50.1% of the outstanding units in the Albuquerque entity, on a post-transaction basis, and intends to maintain this minimum ownership percentage through the purchase of units under this offering. The Board of Trustees approved this restructuring on December 9, 2013. The units in the Albuquerque entity are allocated to three classes with differing cumulative discretionary priority distribution rights through December 31, 2015. Class A units are owned by unrelated third parties and have first priority for distributions. Class B units are owned by the Trust and have second priority for distributions. Class C units are owned by Rare Earth or other affiliates of Mr. Wirth and have the lowest priority for distributions from the Albuquerque entity. Priority distributions of $700 per unit per year were cumulative until December 31, 2015; however, after December 31, 2015 Class A unit holders continue to hold a preference on distributions over Class B and Class C unit holders.

 

If certain triggering events related to the Albuquerque entity occur prior to the payment of all accumulated distributions to its members, such accumulated distributions will be paid out of any proceeds of the event before general distribution of the proceeds to the members. In the event that funds generated from a triggering event are insufficient to pay the total amount of all such accumulated distributions owed to the members, all Class A members will participate pro rata in the funds available for distribution to them until paid in full, then Class B, and then Class C. After all investors have received their initial capital plus a 7% per annum simple return, any additional profits will be allocated 50% to Rare Earth, with the remaining 50% allocated proportionately to all unit classes. Rare Earth received a restructuring fee of $128,000, conditioned upon and arising from the sale of the first 100 units in the Albuquerque entity following the December 31, 2013 restructuring. The Albuquerque entity plans to use its best efforts to pay the discretionary priority distributions. The Trust does not guarantee and is not otherwise obligated to pay the cumulative discretionary priority distributions. InnSuites Hotels will continue to provide management, licensing and reservation services to the Albuquerque, New Mexico property.

 

On February 15, 2017, the Trust and Partnership entered into a restructuring agreement with Rare Earth to allow for the sale of non-controlling partnership units in the Albuquerque entity for $10,000 per unit. Rare Earth and the Trust have restructured the Albuquerque Entity Membership Interest by creating 250 additional Class A membership interests from General Member majority-owned to accredited investor member-owned. In the event of sale of 250 Class A Interests, total interests outstanding will change from 550 to 600 with Class A, Class B and Class C Limited Liability Company Interests (referred to collectively as “Interests”) restructured with IHT selling approximately 200 Class B Interests to accredited investors as Class A Interest. Rare Earth, as a General Partner of the Albuquerque entity, will coordinate the offering and sale of Class A Interests to qualified third parties. Rare Earth and other Rare Earth affiliates may purchase Interests under the offering. As part of this offering, Rare Earth was paid $200,000 for a restructuring fee which was recorded in Equity.

 

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During the fiscal year ended January 31, 2019, there were 15 Class A units of the Albuquerque entity sold for total proceeds of $150,000, of which 13.5 came from the Trust at $10,000 per unit. No Class A units were sold during the fiscal year ended January 3, 2020. As of January 31, 2020, the Trust held a 20.33% ownership interest, or 123.50 Class B units, in the Albuquerque entity, Mr. Wirth and his affiliates held a 0.17% interest, or 1 Class C unit, and other parties held a 79.30% interest, or 477 Class A units. During the fiscal year ended January 31, 2019, the Albuquerque entity has made discretionary Priority Return payments to unrelated unit holders of approximately $251,000, and to the Trust of approximately $63,000. The Trust no longer accrues for these distributions as the preference period has expired.

 

4. SALE OF OWNERSHIP INTERESTS IN TUCSON HOSPITALITY PROPERTIES SUBSIDIARY

 

On February 17, 2011, the Partnership entered into a restructuring agreement with Rare Earth to allow for the sale of non-controlling interest units in Tucson Hospitality Properties, LP (the “Tucson entity”), which operates the Tucson Oracle hotel property, then wholly-owned by the Partnership. Under the agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 250 units, which represents approximately 41% of the outstanding limited partnership units in the Tucson entity, on a post-transaction basis, and the parties agreed to restructure the limited partnership agreement of the Tucson entity. The Board of Trustees approved this restructuring on January 31, 2011.

 

On October 1, 2013, the Partnership entered into an updated restructured limited partnership agreement with Rare Earth to allow for the sale of additional interest units in the Tucson entity for $10,000 per unit. Under the agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 160 (and potentially up to 200 if the overallotment is exercised) units. Under the terms of the updated restructuring agreement, the Partnership agreed to hold at least 50.1% of the outstanding limited partnership units in the Tucson entity, on a post-transaction basis, and intends to maintain this minimum ownership percentage through the purchase of units under this offering. The Board of Trustees approved this restructuring on September 14, 2013. The limited partnership interests in the Tucson entity are allocated to three classes with differing cumulative discretionary priority distribution rights through June 30, 2017. Class A units are owned by unrelated third parties and have first priority for distributions. Class B units are owned by the Partnership and have second priority for distributions. Class C units are owned by Rare Earth or other affiliates of Mr. Wirth and have the lowest priority for distributions from the Tucson entity. Priority distributions of $700 per unit per year are cumulative until June 30, 2016; however, after June 30, 2016 Class A unit holders continue to hold a preference on distributions over Class B and Class C unit holders.

 

If certain triggering events related to the Tucson entity occur prior to the payment of all accumulated distributions to its members, such accumulated distributions will be paid out of any proceeds of the event before general distribution of the proceeds to the members. In the event that funds generated from a triggering event are insufficient to pay the total amount of all such accumulated distributions owed to the members, all Class A members will participate pro rata in the funds available for distribution to them until paid in full, then Class B, and then Class C. After all investors have received their initial capital plus a 7% per annum simple return, any additional profits will be allocated 50% to Rare Earth, with the remaining 50% allocated proportionately to all unit classes. Rare Earth also received a restructuring fee of $128,000, conditioned upon and arising from the sale of the first 100 units in the Tucson entity following the October 1, 2013 restructuring. The Tucson entity plans to use its best efforts to pay the discretionary priority distributions. The Trust does not guarantee and is not otherwise obligated to pay the cumulative discretionary priority distributions. InnSuites Hotels will continue to provide management, licensing and reservation services to the Tucson, Arizona property

 

During the fiscal years ended January 31, 2020 and 2019, there were no units of the Tucson entity sold. As of January 31, 2020, the Partnership held a 51.01% ownership interest, or 404 Class B units, in the Tucson entity, Mr. Wirth and his affiliates held a 0.38% interest, or approximately 3 Class C units, and other parties held a 48.61% interest, or approximately 385 Class A units. For the fiscal year ended January 31, 2020, the Tucson entity made discretionary Priority Return payments to unrelated unit holders of approximately $270,000 and to the Partnership of approximately $283,000. The Trust no longer accrues for these distributions as the preference period has expired.

 

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5. VARIABLE INTEREST ENTITY (VIE)

 

Management evaluates the Trust’s explicit and implicit variable interests to determine if they have any variable interests in VIEs. Variable interests are contractual, ownership, or other pecuniary interests in an entity whose value changes with changes in the fair value of the entity’s net assets, exclusive of variable interests. Explicit variable interests are those which directly absorb the variability of a VIE and can include contractual interests such as loans or guarantees as well as equity investments. An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing of variability indirectly, such as through related party arrangements or implicit guarantees. The analysis includes consideration of the design of the entity, its organizational structure, including decision making ability over the activities that most significantly impact the VIE’s economic performance. GAAP requires a reporting entity to consolidate a VIE when the reporting entity has a variable interest, or combination of variable interest, that provides it with a controlling financial interest in the VIE. The entity that consolidates a VIE is referred to as the primary beneficiary of that VIE.

 

The Partnership has determined that the Albuquerque entity and the Yuma entity, prior to its sale on October 24, 2018, were variable interest entities with the Partnership as the primary beneficiary with the ability to exercise control, as determined under the guidance of ASC Topic 810-10-25. In its determination, management considered the following qualitative and quantitative factors:

 

a) The Partnership, Trust and their related parties, which share common ownership and management, have guaranteed material financial obligations of the Albuquerque and Yuma entities, including its distribution obligations.

 

b) The Partnership, Trust and their related parties have maintained, as a group, a controlling ownership interest in the Albuquerque entity and Yuma, with the largest ownership belonging to the Partnership.

 

c) The Partnership, Trust and their related parties have maintained control over the decisions which most impact the financial performance of the Albuquerque and Yuma entities, including providing the personnel to operate the property on a daily basis.

 

On February 15, 2017, the Trust and Partnership entered into a restructuring agreement with Rare Earth to allow for the sale of non-controlling partnership units in the Yuma entity for $10,000 per unit. Rare Earth and the Trust are restructuring the Yuma Partnership Interest from General Partner majority-owned to accredited investor majority-owned. Total interests outstanding will remain unchanged at 800 with Class A, Class B and Class C Limited Liability Limited Partnership Interests (referred to collectively as “Interests”) restructured with the Yuma entity purchasing 300 existing IHT Class B Interests and reissuing 300 Class A units to accredited investors as Class A Interests causing the Yuma entity to offer and sell up to approximately 300 Class A (2017 series) Interests. Rare Earth, as a General Partner of the Yuma entity, will coordinate the offering and sale of Class A Interests to qualified third parties. Rare Earth and other Rare Earth affiliates may purchase Interests under the offering. The Trust paid $240,000 as a restructuring fee to Rare Earth during the fiscal year ended January 31, 2018, which was included in equity.

 

During the fiscal years ended January 31, 2020 and January 31, 2019, neither the Trust nor the Partnership have provided any implicit or explicit financial support for which they were not previously contracted. Both the Partnership and the Trust provided mortgage loan guarantees which allow our properties to obtain new financing as needed.

 

The following table includes assets that can only be used to settle the liabilities of Albuquerque Suites Hospitality LLC (Albuquerque Hotel) and the creditors have no recourse to the Trust. These assts and liabilities, with the exception of the investment in a privately held entity and amounts due to affiliate, which are eliminated upon consolidation with the Trust, are included in the accompanying consolidated balance sheets.

 

  January 31, 
   2020   2019 
Assets        
Cash  $21,359   $81,027 
Accounts Receivable   23,355    77,956 
Prepaid Expenses and Deposits   19,688    12,063 
           
Hotel Properties, Net   1,641,582    1,801,357 
Operating Lease -Right of Use   2,085,984    - 
           
Total Assets  $3,791,968   $1,972,403 
           
Liabilities          
Accounts Payable  $135,165   $94,261 
Accrued Expenses and Other   278,071    421,814 
Due to Affiliate   15,000    1,361,999 
Operating Lease Liability (ASC 842)   2,263,467      
Mortgage Notes Payable   1,396,690      
Total Liabilities  $4,088,392   $1,878,074 
           
Equity   (296,424)   94,329 
           
Liabilities & Equity  $3,791,968   $1,972,403 

 

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6. NOTES RECEIVABLE

 

On August 15, 2018 Innsuites Hospitality Trust (IHT) entered into a final sale agreement for its technology subsidiary, IBC Hotels LLC (IBC), with an effective sale date as of August 1, 2018 to an unrelated third party buyer (Buyer). As a part of the sale, the Trust received a secured promissory note in the principal amount of $2,750,000 with interest to be accrued at 3.75% per annum, which is recorded in the accompanying condensed balance sheet in continuing operations, net of impairment of $825,000 as described below.

 

The initial terms stated that interest accrues for the first 10 months (starting August 2018); thereafter for month 11 and 12, principal and interest payments of 50% ($25,632 per month); then the remaining amount to be amortized over 59 months (payments of $52,054 per month) with maturity in June 2024.
   
The terms of the note was amended and modified, to extend the payment schedule, as follows:

 

“Each Payment Date set forth in the note, but not the Maturity Date, shall be extended to a date that is one (1) year, four (4) months and twenty-five (25) days after the date originally set forth in the note. For example, the first payment, which was originally schedule as due on July 5, 2019 shall be due on November 30, 2020.”

 

All other terms of the note remained unchanged, including:

 

Note is secured by (1) pledge of the Buyer’s interest in IBC, and (2) a security interest in all assets of IBC, provided IHT shall agree to subordinate such equity interest to commercially reasonable debt financing upon request.
   
If after effective date IBC closes an equity transaction with net proceeds to IBC in excess of $2,500,000, IBC/Buyer shall pay to IHT an amount equal to (a) 50% of the net proceeds received by IBC and (b) 50% of the sum of the unpaid balance of the note and accrued interest accrued but unpaid interest thereon, as the date of receipt of the net proceeds by IBC.

 

Future payments on this note are shown in the table below.

 

FISCAL YEAR    
2021   91,667 
2022   550,000 
2023   550,000 
2024   550,000 
2025   550,000 
Thereafter   458,333 
   $2,750,000 
Impairment   (825,000)
   $1,925,000 

 

As of January 31, 2020, the Trust evaluated the carrying value of the note of $2,750,000 for potential impairment. After review, an impairment of $825,000, or 30%, was taken against the note. Factors for the impairment included, but were not limited to:

 

Management’s evaluation of the current financial position of the Buyer, based on unaudited financial statements provided.
A lack of substantial quantitative data, showing the impact of the recently executed digital advertising agreement between the Buyer and Google.
Management’s best, conservative valuation of IBC’s assets, and their marketability, in the case of a default by the Buyer.
The current and future impact of the COVID-19 pandemic, on the travel and hospitality industry, in which IBC’s reservation and booking technology operates.

 

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7. INVESTMENT IN UNIGEN POWER, INC.

 

On December 16, 2019 the Trust entered into a Convertible Debenture Purchase Agreement with UniGen Power Inc. (“UPI” or “UniGen”).

 

The Trust purchased secured convertible debentures (“Debentures”) in the aggregate amount of $1,000,000 (the “Loan Amount”) (the “Loan”). The Debentures are convertible into Class A shares of UniGen Common Stock at an initial conversion rate of $1.00 per share. The Loan is structured into two (2) payments of $600,000 and $400,00. The first payment of $600,000 was made by the Trust at closing on December 16, 2020 and the second payment was made on February 3, 2020.

 

UniGen issued the Trust common stock purchase warrants (the “Debenture Warrants”) to purchase up to 1,000,000 shares of Class A Common Stock (600,000 issued at January 31, 2020). The Debenture Warrants are exercisable at an exercise price of $1.00 per share of Class A Common Stock.

 

UniGen, also, issued the Trust additional common stock purchase warrants (“Additional Warrants”) to purchase up to 200,000 shares of Class A Common Stock (120,000 issued at January 31, 2020). The Additional Warrants are exercisable at an exercise price of $2.25 per share of Class A Common Stock.

 

On the Trust’s balance sheet, the investment of the $600,000 made in the current fiscal year is shown at approximately $254,000, and the value of the warrants of approximately $346,000. The value of the premium will accrete over the life of the debentures. The second payment of $400,000 was made on February 3, 2020.

 

The value of the warrants was based on Black-Scholes pricing model based on the following inputs:

 

Debenture Warrants

 

Type of option  Call option 
Stock price  $2.25 
Exercise (Strike) price  $1.00 
Time to maturity (years)   2.0 
Annualized risk-free rate   1.630%
Annualized volatility   27.43%

 

Additional Warrants

 

Type of option  Call option 
Stock price  $2.25 
Exercise (Strike) price  $2.25 
Time to maturity (years)   2.0 
Annualized risk-free rate   1.630%
Annualized volatility   27.43%

 

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8. PROPERTY, PLANT, AND EQUIPMENT AND HOTEL PROPERTIES

 

As of January 31, 2020 and 2019, hotel properties consisted of the following:

 

   January 31, 2020   January 31, 2019 
Land  $2,500,000   $2,500,000 
Building and improvements   10,495,465    10,334,919 
Furniture, fixtures and equipment   4,021,890    3,860,574 
Total hotel properties   17,017,356    16,695,493 
Less accumulated depreciation   (8,155,224)   (7,312,869)
Hotel Properties in Service, net   8,862,132    9,382,625 
Construction in progress   40,965    43,657 
Hotel properties, net  $8,903,097   $9,426,282 

 

As of January 31, 2020 and 2019, corporate property, plant and equipment consisted of the following:

 

    January 31, 2020     January 31, 2019  
Land   $ 7,005     $ 7,005  
Building and improvements     75,662       75,662  
Furniture, fixtures and equipment     160,987       534,879  
Total property, plant and equipment     243,654       617,546  
Less accumulated depreciation     (163,428 )     (511,035 )
Property, Plant and Equipment, net   $ 80,226     $ 106,511  

 

9. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets are carried at historical cost and are expected to be consumed within one year. As of January 31, 2020, and 2019, prepaid expenses and other current assets consisted of the following:

 

   January 31, 2020   January 31, 2019 
Tax and Insurance Escrow  $57,752   $57,810 
Deposits   5,000    3,000 
Prepaid Insurance   (59)   5,000 
Prepaid Workman’s Compensation   6,754    21,459 
Miscellaneous Prepaid Expenses   8,359    8,284 
Total Prepaid Expenses and Current Assets  $77,806   $95,553 

 

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10. INTANGIBLE ASSETS, GOODWILL AND IMPAIRMENT

 

Intangible Assets

 

For the fiscal years ending January 31, 2020 and 2019, the Trust has no intangible assets.

 

Goodwill

 

For the fiscal years ending January 31, 2020 and 2019, the Trust has no goodwill.

 

11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

As of January 31, 2020 and 2019, accounts payable and accrued expenses consisted of the following:

 

   January 31, 2020   January 31, 2019 (i) 
Accounts Payable  $421,281   $166,339 
Accrued Salaries and Wages   89,448    251,773 
Accrued Vacation   8,472    28,780 
Income Tax Payable   146,666    631,130 
Accrued Interest Payable   -    4,857 
Advanced Deposits   59,194    60,322 
Accrued Property Taxes   32,766    79,516 
Accrued Land Lease   -    161,856 
Sales Tax Payable   382,779    114,753 
Deferred Revenue   -    31,239 
Accrued Other   244,365    108,238 
Total Accounts Payable and Accrued Expenses  $1,384,971   $1,638,803 

 

(i)Includes discontinued operations

 

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12. MORTGAGE NOTES PAYABLE

 

At January 31, 2020 and 2019, the Trust had mortgage notes payable outstanding with respect to each of the Hotels except the Albuquerque property. The mortgage notes payable have various repayment terms and have scheduled maturity dates ranging from August 2022 to June 2042. Weighted average annual interest rates on the mortgage notes payable for the fiscal years ended January 31, 2019 and 2018 were 4.85% and 4.65%, respectively.

 

The following table summarizes the Trust’s mortgage notes payable, net of debt discounts, as of January 31, 2020:

 

    2020     2019  
Mortgage note payable, due in monthly installments of $28,493, including interest at 4.69% per year, through June 19, 2042, secured by the Tucson Oracle property with a carrying value of $7.2 million at January 31, 2020.     4,708,979       4,824,692  
                 
Mortgage note payable, due in monthly installments of $9,218, including interest at 4.90% per year, through December 2, 2029, secured by the Albuquerque property with a carrying value of $1.6 million at January 31, 2020.   $ 1,396,690     $ -  
                 
Totals:   $ 6,105,668     $ 4,824,692  

On June 29, 2017, Tucson Oracle entered into a $5.0 million Business Loan Agreement (“Tucson Loan”) as a first mortgage credit facility with KS State Bank to refinance the existing first mortgage credit facility with an approximate payoff balance of $3.045 million which will allow Tucson Hospitality Properties, LLLP to be reimbursed for prior and future hotel improvements. The Tucson Loan has a maturity date of June 19, 2042. The Tucson Loan has an initial interest rate of 4.69% for the first five years and thereafter a variable rate equal to the US Treasury + 2.0% with a floor of 4.69% and no prepayment penalty. This credit facility is guaranteed by InnSuites Hospitality Trust, RRF Limited Partnership, Rare Earth Financial, LLC, James F. Wirth and Gail J. Wirth and the Wirth Family Trust dated July 14, 2016. As of January 31, 2020, the mortgage loan balance was approximately $4,709,000, net of a discount of approximately $5,000.

 

On December 2, 2019, Albuqureque Suites Hospitality, LLC entered into a $1.4 million Business Loan Agreement (“Albuquerque Loan”) as a first mortgage credit facility with Republic Bank of Arizona The Albuquerque Loan has a maturity date of December 2, 2029. The Albuquerque Loan has an initial interest rate of 4.90% for the first five years and thereafter a variable rate equal to the US Treasury + 3.5% with a floor of 4.69% and no prepayment penalty. This credit facility is guaranteed by InnSuites Hospitality Trust. As of January 31, 2020, the mortgage loan balance was approximately $1,397,000.

 

See Note 16 – “Minimum Debt Payments” for scheduled minimum payments on the mortgage notes payable.

 

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13. NOTES PAYABLE TO BANKS

 

On October 17, 2017 the Trust entered into a Business Loan Agreement with Republic Bank of Arizona for a revolving line of credit for $150,000. The loan has a variable rate as the published rate in the Wall Street Journal, and matures in August, 2021. The balance as of January 31, 2020 and 2019 was $17,100 and $-0-, respectively.

 

On October 17, 2017 Albuquerque Suite Hospitality LLC (the Albuquerque Hotel) entered into a Business Loan Agreement with Republic Bank of Arizona for a revolving line of credit for $50,000. The loan has a variable rate as the published rate in the Wall Street Journal, and matures in October, 2022. The balance as of January 31, 2020 and 2019 was $-0- and $-0-, respectively.

 

On October 17, 2017 Tucson Hospitality Properties LLLP (the Tucson Hotel) entered into a Business Loan Agreement for a revolving line of credit for $50,000. The loan has a variable rate as the published rate in the Wall Street Journal, and matures in October, 2022. The balance as of January 31, 2020 and 2019 was $-0- and $-0-, respectively.

 

14. LINES OF CREDIT – RELATED PARTY

 

On December 1, 2014, the Trust entered into a $1,000,000 net maximum Demand/Revolving Line of Credit/Promissory Note with Rare Earth Financial, LLC, an entity which is wholly owned by Mr. Wirth and his family members. The Demand/Revolving Line of Credit/Promissory Note, as amended on June 19, 2017, bears interest at 7.0% per annum for both a payable and receivable, is interest only quarterly and matures on June 30, 2021, and renews annually. No prepayment penalty exists on the Demand/Revolving Line of Credit/Promissory Note. The balance fluctuates significantly through the period. The Demand/Revolving Line of Credit/Promissory Note has a net maximum borrowing/lending capacity of $1,000,000. As of January 31, 2020 and January 31, 2019, the Trust had an amount receivable of approximately $-0-, including accrued interest and $632,000, respectively. During the twelve months period ended January 31, 2020, the Trust advanced approximately $256,000, received approximately $888,000 in repayments and accrued approximately $21,000 of interest income.

 

As of January 31, 2020, the Trust had an Advance to Affiliate credit facilities with an aggregate maximum borrowing capacity of $1,000,000, which is available through June 30, 2021, and automatically renews year to year, unless either party gives six-month advance notice to terminate. As of January 31, 2020, the Trust had an amount receivable of the Advances to Affiliate credit facility of approximately $1,000,000. As of August 1, 2020, the amount receivable from the Advance to Affiliate credit facility was approximately $1,000,000, which is due from Tempe/Phoenix Airport Resort LLC.

 

15. OTHER NOTES PAYABLE

 

As of January 31, 2020 the Trust had approximately $310,000 in promissory notes outstanding to unrelated third parties arising from the repurchase of 57,732 Class A Partnership units in privately negotiated transactions and the repurchase of 297,898 Shares of Beneficial Interest in privately negotiated transactions. These promissory notes bear interest at 7% per year and are due in varying monthly payments through August 2021.

 

As of January 31, 2019 the Trust had approximately $499,000 in promissory notes outstanding to unrelated third parties arising from the repurchase of 82,588 Class A Partnership units in privately negotiated transactions and the repurchase of 266,894 Shares of Beneficial Interest in privately negotiated transactions.

 

As of January 31, 2019, the Trust had a $200,000 unsecured note payable with an individual lender. The promissory note is payable on demand, or on June 30, 2021, whichever occurs first. The loan accrues interest at 4.0% and interest only payments shall be made monthly and are due on the first of the following month. The Trust may pay all of part of this note without any repayment penalties. The total principal amount of this loan is $200,000 as of January 31, 2020.

 

On June 20, 2016, March 1 2017, May 30, 2018, and July 18, 2018 the Trust and the Partnership together entered into multiple unsecured loans totaling $270,000 with Guy C. Hayden III (“Hayden Loans”). As of July 1, 2019 these loans were consolidated and extended at 4.0% interest only, with similar terms to June 30, 2021. The Trust may pay all or part of this note without any repayment penalties. The total principal amount of the Hayes Loans is $270,000 as of January 31, 2020.

 

On December 5, 2016, the Trust and the Partnership together entered into eight unsecured loans for a total of $425,000 with H. W. Hayes Trust (“Hayes Loans”). The Hayes Loans were paid in full at maturity on July 1, 2019.

 

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On March 20, 2017, the Trust and Partnership entered into multiple, unsecured loans to Marriott Sweitzer Hayes (“Sweitzer Loans”), totaling $100,000. As of July 1, 2019 these loans were consolidated and extended at 4.5% interest only, with similar terms to June 30, 2021. The total principal amount of the Sweitzer Loans is $100,000 as of January 31, 2020.

 

See Note 14 – “Minimum Debt Payments” for scheduled minimum payments on the mortgage notes payable.

 

16. MINIMUM DEBT PAYMENTS

 

Scheduled minimum payments of debt, as of January 31, 2020 are as follows in the respective fiscal years indicated:

 

FISCAL YEAR  MORTGAGES   NOTES PAYABLE RELATED PARTIES   NOTES PAYABLE TO BANKS   OTHER NOTES PAYABLE   TOTAL 
                     
                     
2021   160,849    161,440    17,100    806,712    1,146,101 
2022   170,856    -         59,205    230,061 
2023   176,852    -         14,286    191,138 
2024   219,151    -              219,151 
2025   192,828    -              192,828 
2026   203,490    -              203,490 
Thereafter   4,981,642    -              4,981,642 
                          
   $6,105,668   $161,440   $17,100   $880,203   $7,164,411 

 

17. LEASES

 

The Company has operating leases and finance leases for corporate offices, land, and certain hotel equipment. These leases have remaining lease terms of 2 to 38 years. Neither operating lease for corporate office space or land have options to extend.

 

The Company’s lease costs recognized in the Consolidated Statement of Income consist of the following:

 

   Fiscal Year Ended January 31, 2020 
Operating lease cost  $2,225,113 
      
Finance lease cost:     
Amortization of right-of-use assets   27,749 
Interest on lease obligations   5,835 

 

Other lease information is as follows:

 

   Fiscal Year Ended January 31, 2020 
     
Cash paid for amounts included in measurement of lease obligations:     
Operating cash flows from operating leases  $165,573 
Operating cash flows from finance leases   31,123 
      
Right of use assets obtained in exchange for lease liabilities     
Operating leases  $2,274,551 
Finance leases   104,058 
      
Weighted-average remaining lease term - operating leases   37.7 years 
Weighted-average remaining lease term - finance leases   3.75 years 
Weighted-average discount rate - operating leases   4.85%
Weighted-average discount rate - finance leases   4.85%

 

The aggregate annual lease obligations at January 31, 2020 are as follows:

 

Fiscal Year  Operating Leases   Finance Leases 
2021  $168,780   $31,123 
2022   172,177    31,123 
2023   148,348    31,123 
2024   112,116    23,343 
2025   112,116      
Thereafter   5,151,311      
Total undiscounted lease obligations   5,864,848    116,713 
           
Less imputed interest   (3,443,105)   (10,194.49)
Net lease obligations  $2,421,744   $106,518 

 

As of January 31, 2019, prior to the adoption of ASC 842, future minimum lease payments under operating leases having initial or non-cancellable lease terms in excess of one year were as follows:

 

Years ending January 31,  Operating Leases   Finance Leases 
2020   200,817    31,123 
2021   200,817    31,123 
2022   200,817    31,123 
2023   182,328    31,123 
2024   145,348    23,343 
Thereafter   5,051,449    - 
           
Total future minimum lease payments   5,981,578    147,836 

 

18. DESCRIPTION OF BENEFICIAL INTERESTS

 

Holders of the Trust’s Shares of Beneficial Interest are entitled to receive dividends when and if declared by the Board of Trustees of the Trust out of funds legally available therefore. The holders of Shares of Beneficial Interest, upon any liquidation, dissolution or winding-down of the Trust, are entitled to share ratably in any assets remaining after payment in full of all liabilities of the Trust. The Shares of Beneficial Interest possess ordinary voting rights, each share entitling the holder thereof to one vote. Holders of Shares of Beneficial Interest do not have cumulative voting rights in the election of Trustees and do not have preemptive rights.

 

On January 2, 2001, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 250,000 Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. On September 10, 2002, August 18, 2005 and September 10, 2007, the Board of Trustees approved the purchase of up to 350,000 additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Additionally, on January 5, 2009, September 15, 2009 and January 31, 2010, the Board of Trustees approved the purchase of up to 300,000, 250,000 and 350,000, respectively, of additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the Trust’s equity compensation plans/programs. Additionally, on June 19, 2017, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 750,000 Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the InnSuites Hospitality Trust 1997 Stock Incentive and Option Plan.

 

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For the years ended January 31, 2020 and 2019, the Trust repurchased 104,993 and 433,377 Shares of Beneficial Interest at an average price of $1.64 and $1.67 per share, respectively. The average price paid includes brokerage commissions. The Trust intends to continue repurchasing Shares of Beneficial Interest in compliance with applicable legal and NYSE AMERICAN requirements. The Trust remains authorized to repurchase an additional 372,965 Partnership units and/or Shares of Beneficial Interest pursuant to the publicly announced share repurchase program, which has no expiration date. Repurchased Shares of Beneficial Interest are accounted for as treasury stock in the Trust’s Consolidated Statements of Shareholders’ Equity.

 

19. FEDERAL INCOME TAXES

 

The Trust and subsidiaries have income tax net operating loss carryforwards of approximately $4.6 million at January 31, 2020. In 2005, the Trust had an ownership change within the meaning of Internal Revenue Code Section 382. However, the Trust determined that such ownership change would not have a material impact on the future use of the net operating losses.

 

The Trust amended the federal and state income tax returns for tax years 2017 and 2018, resulting in a recalculation of the net operating loss carry-forward. The impact of the amended returns are reflected in the below data.

 

Total and net deferred income tax assets at January 31,

 

 

   2020   2019 
         
Net operating loss carryforwards  $1,075,000   $705,000 
Bad debt allowance   4,000    3,000 
Accrued expenses   (4,000)   2,000 
Syndications   2,923,000    2,923,000 
Prepaid Insurance   -    - 
Alternative minimum tax credit   51,000    51,000 
Total deferred tax asse   4,049,000    3,684,000 
           
Deferred income tax liability associated with book/tax   (1,551,000)   (1,570,000)
Net deferred income tax asset   2,498,000    2,114,000 
Valuation allowance   (2,498,000)   (2,114,000)
   $-   $- 

 

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Income taxes for the year ended January 31,

  

   2020   2019 
         
Current income tax provision (benefit)   (294,402)   - 
Deferred income tax provision (benefit)   384,298    (3,132,000)
Change in valuation allowance   (384,298)   3,132,000 
Net income tax expense (benefit)   (294,402)   - 

 

The differences between the statutory and effective tax rates are as follows for the year ended January 31, 2020:

  

   2020 
   Amount   Percent 
         
Federal statutory rates  $(477,000)   21%
State income taxes   (120,000)   5%
Change in valuation allowance   384,300    -17%
True-up to prior year returns   (81,700)   4%
Effective rate  $(294,400)    13%

 

The differences between the statutory and effective tax rates are as follows for the year ended January 31, 2019:

 

   2019 
   Amount   Percent 
         
Federal statutory rates  $208,000    21%
State income taxes   50,000    5%
Change in valuation allowance   (3,132,000)   -316%
True-up to prior year returns   2,872,000    290%
Other   2,000    0%
Effective rate  $-    0%

 

20. OTHER RELATED PARTY TRANSACTIONS

 

As of January 31, 2020 and 2019, Mr. Wirth and his affiliates held 2,974,038 Class B Partnership units, which represented 23.35% of the total outstanding Partnership units. As of January 31, 2020 and 2019, Mr. Wirth and his affiliates held 5,876,683 and 5,881,683 respectively, Shares of Beneficial Interest in the Trust, which represented 61.32% and 62.84% respectively, of the total issued and outstanding Shares of Beneficial Interest.

 

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As of January 31, 2020 and 2019, the Trust owned 75.89% and 74.90% of the Partnership, respectively. As of January 31, 2020, the Partnership owned a 51.01% interest in the InnSuites® hotel located in Tucson. The Trust also owned a direct 20.33% interest in one InnSuites® hotel located in Albuquerque, New Mexico.

 

The Trust directly manages the Hotels through the Trust’s wholly-owned subsidiary, InnSuites Hotels Inc. Under the management agreements, InnSuites Hotels Inc. manages the daily operations of the Hotels and the hotel owned by affiliates of Mr. Wirth. Revenues and reimbursements among the Trust, InnSuites Hotels Inc. and the Partnership have been eliminated in consolidation. The management fees for the Hotels and the two hotels owned by affiliates of Mr. Wirth are set at 5% of revenue and a monthly accounting fee of $2,000 per hotel. These agreements have no expiration date and may be cancelled by either party with 90-days written notice or 30-days written notice in the event the property changes ownership. During the years ended January 31, 2020 and 2019, the Trust recognized approximately $127,000 and $165,000, respectively of revenue.

 

During the fiscal years ended January 31, 2020 and 2019, the Trust paid Berg Investment Advisors $6,000 for additional consultative services rendered by Mr. Marc Berg, the Trust’s Executive Vice President.

 

Pamela Barnhill, former Vice Chairperson and President of the Trust, resigned in June, 2019, and is the daughter of Mr. Wirth, the Trust’s Chairman and Chief Executive Officer. Ms. Barnhill’s total compensation was $74,471 for the fiscal year ended January 31, 2019. The Trust also employs another immediate family member of Mr. Wirth who provides technology support services to the Trust, receiving a $35,000 annual salary.

 

As of January 31, 2020, the Trust had an Advance to Affiliate credit facilities with an aggregate maximum borrowing capacity of $1,000,000, which is available through June 30, 2021, and automatically renews year to year, unless either party gives six-month advance notice to terminate. Mr. Wirth, individually and thru one of his affiliates owns approximately 42% Tempe/Phoenix Airport Resort LLC. During the fiscal year ended January 31, 2020, the Trust received approximately $62,000 of interest income from Tempe/Phoenix Airport Resort LLC. As of January 31, 2020, the Trust had an amount receivable of the Advances to Affiliate credit facility of approximately $1,000,000. As of August 1, 2020, the amount receivable from the Advance to Affiliate credit facility was approximately $1,000,000, which is due from Tempe/Phoenix Airport Resort LLC.

 

As of January 31, 2020 and January 31, 2019, the Trust had approximately $161,000 and $484,000 in promissory notes, respectively, to Mr. Wirth, family members of Mr. Wirth, and Mr. Berg, the Executive Vice President of the Trust. The promissory notes arose from the repurchase of 433,900 Class B partnership units from Mr. Wirth and family members, and 40,000 Shares of Beneficial Interest from Mr. Berg. Payments totaled approximately $323,000 and approximately $306,000 during fiscal years ended January 31, 2020 and 2019, respectively.

 

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following table presents the estimated fair values of the Trust’s debt instruments, based on rates currently available to the Trust for bank loans with similar terms and average maturities, and the associated carrying value recognized in the accompanying consolidated balance sheets at January 31, 2020 and 2019:

 

   2020   2019 
   Carrying Amount   Fair Value   Carrying Amount   Fair Value 
Mortgage notes payable  $6,105,668   $4,000,906   $4,824,692   $3,141,032 
Notes payable to banks  $17,100   $17,100   $9,300   $9,300 
Other notes payable  $1,203,080   $1,203,080   $1,494,030   $1,494,030 

 

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22. SUPPLEMENTAL CASH FLOW DISCLOSURES

 

   2020   2019 
Cash paid for interest  $109,000   $634,337 
           
Notes Payables - IHT Shares of Beneficial Interest and Partnership Units repurchases  $51,000   $1,677,572 
           
Deferred rent reclasified to ROU Asset  $171,344   $- 

 

23. COMMITMENTS AND CONTINGENCIES

 

Restricted Cash:

 

The Trust is obligated under a loan agreement relating to the Tucson Oracle property to deposit 4% of the individual hotel’s room revenue into an escrow account to be used for capital expenditures. The escrow funds applicable to the Tucson Oracle property for which a mortgage lender escrow exists is reported on the Trust’s Consolidated Balance Sheet as “Restricted Cash.” Since a $0 cash balance existed in Restricted Cash for the fiscal years 2019 and 2018, Restricted Cash line was omitted on the Trust’s Consolidated Balance Sheet.

 

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Membership Agreements:

 

InnSuites Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) for both of the hotel properties. In exchange for use of the Best Western name, trademark and reservation system, all Hotels pay fees to Best Western based on reservations received through the use of the Best Western reservation system and the number of available suites at the Hotels. The agreements with Best Western have no specific expiration terms and may be cancelled by either party. Best Western requires that the hotels meet certain requirements for room quality, and the Hotels are subject to removal from its reservation system if these requirements are not met. The Hotels with third-party membership agreements received significant reservations through the Best Western reservation system. Under these arrangements, fees paid for membership fees and reservations were approximately $171,000 and $276,000 for fiscal years ended January 31, 2020 and 2019, respectively.

 

The nature of the operations of the Hotels exposes them to risks of claims and litigation in the normal course of their business. Although the outcome of these matters cannot be determined and is covered by insurance, management does not expect that the ultimate resolution of these matters will have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Trust.

 

Litigation:

 

The Trust is involved from time to time in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Trust’s consolidated financial position, results of operations or liquidity.

 

Indemnification:

 

The Trust has entered into indemnification agreements with all of our executive officers and Trustees. The agreements provide for indemnification against all liabilities and expenses reasonably incurred by an officer or Trustee in connection with the defense or disposition of any suit or other proceeding, in which he or she may be involved or with which he or she may be threatened, while in office or thereafter, because of his or her position at the Trust. There is no indemnification for any matter as to which an officer or Trustee is adjudicated to have acted in bad faith, with willful misconduct or reckless disregard of his or her duties, with gross negligence, or not in good faith in the reasonable belief that his or her action was in the Trust’s best interests. These agreements require the Trust, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as our director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by us. The Trust may advance payments in connection with indemnification under the agreements. The level of indemnification is to the full extent of the net equity based on appraised and/or market value of the Trust. Historically, the Trust has not incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets.

 

24. SHARE-BASED PAYMENTS

 

The Trust compensates its non-employee Trustees for their services through grants of restricted Shares. The aggregate grant date fair value of these Shares was $32,400. These restricted Shares vested in equal monthly amounts during fiscal year 2020. As of January 31, 2020, Messrs. Kutasi, Chase and did not hold any unvested Shares

 

During fiscal year 1999, the shareholders of the Trust adopted the 1997 Stock Incentive and Option Plan (the “Plan”). Pursuant to the Plan, the Compensation Committee may grant options to the Trustees, officers, other key employees, consultants, advisors and similar employees of the Trust and certain of its subsidiaries and affiliates. The number of options that may be granted in a year is limited to 10% of the total Shares of Beneficial Interest and Partnership units in the Partnership (Class A and Class B) outstanding as of the first day of such year.

 

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Generally, granted options expire 10 years from the date of grant, are exercisable during the optionee’s lifetime only by the recipient and are non-transferable. Unexercised options held by employees of the Trust generally terminate on the date the individual ceases to be an employee of the Trust.

 

There were no options granted in fiscal year 2020 or 2019, and no options were outstanding as of January 31, 2020 and 2019. The Plan currently has 1,000,000 options available to grant. See Note 24 for additional information on stock options. The Plan also permits the Trust to award stock appreciation rights, none of which, as of January 31, 2020, have been issued.

 

See Note 2 – “Summary of Significant Accounting Policies” for information related to grants of restricted shares under “Stock-Based Compensation.”

 

25. SEGMENT REPORTING

 

As a result of the sale of IBC (see Note 23), the Chief Operating Decision Maker (“CODM”), Mr. Wirth, CEO of the Trust, has determined that the Trust operations are comprised of one reportable segment, Hotel Operations & Corporate Overhead (continuing operations) segment that has ownership interest in two hotel properties with an aggregate of 270 suites in Arizona and New Mexico. Prior to the sale of IBC, the Trust had previously determined that its operations were comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment, and the IBC Hospitality segment serving 2,000 unrelated hotel properties. In connection with the sale of IBC, the historical financial information presented in this Form 10-K reflects this change with IBC being reported as discontinued operation.

 

The Trust’s investments in the southwest region of the United States. The CODM does not review assets by geographical region; therefore, no income statement or balance sheet information by geographical region is provided.

 

The Trust determined its reportable segments are the Hotel Operations and IBC Developments segments. Reportable segments are determined based on discrete financial information reviewed by the Trust’s CODM. The Trust organizes and reviews operations based on products and services, and currently there are no operating segments that are aggregated. The Trust performs an annual analysis of its reportable segments.

 

26. DISCONTINUED OPERATIONS

 

Sale of IBC Hospitality Technologies; IBC Hotels LLC (IBC)

 

There were no discontinued operations for the fiscal year ended January 31, 2020.

 

Discontinued operations during the fiscal year ended January 31, 2019 consist of the operations from the IBC Technology Segment (IBC Hotels LLC). On August 15, 2018 Innsuites Hospitality Trust (IHT) entered into a final sale agreement for its subsidiary IBC Hotels LLC (IBC) with an effective sale date as of August 1, 2018 to a unrelated third party buyer (Buyer). The buyer hired IHT’s former Chief Operating Officer, who is a family member of IHT’s CEO. The sale price was $3,000,000, to be paid to IHT as follows:

 

  1. $250,000 at closing, which was received on August 14, 2018;
     
  2. A secured promissory note in the principal amount of $2,750,000 with interest to be accrued at 3.75% per annum, recorded in the accompanying condensed balance sheet in continuing operations. Interest shall accrue for the first 10 months (starting August 2018), thereafter for month 11 and 12 principal and interest payments of 50% ($25,632 per month), then the remaining amount to be amortized over 59 months (payments of $52,054 per month) with maturity in June 2024. Future payments on this note are shown in the table below.

 

FISCAL YEAR    
2021   91,667 
2022   550,000 
2023   550,000 
2024   550,000 
2025   550,000 
Thereafter   458,333