NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF APRIL 30, 2018 AND JANUARY 31, 2018
AND
FOR THE THREE MONTHS ENDED APRIL 30, 2018 AND 2017
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As
of April 30, 2018, InnSuites Hospitality Trust (the “Trust”, “we”, “us” or “our”)
is a publicly traded company with hotels IHT owns, hotels IHT manages, software IHT develops, software IHT sells, and online loyalty
reward-based consumer travel services. The Trust and its shareholders owns interests directly in and through a partnership interest,
three hotels with an aggregate of 424 suites in Arizona and New Mexico (the “Hotels”) operated under the federally
trademarked name “InnSuites Hotels” or “InnSuites”. The Trust and its shareholders owns interests directly
in IBC Hospitality Technologies and IVHTravel.com.
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. We consider our Tucson, Arizona hotel and our hotel
located in Albuquerque, New Mexico to be moderate or limited service establishments. IHT’s owned properties are 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 74.90% and 74.80% interest in the Partnership as of April 30, 2018 and January 31, 2018, respectively. The Trust’s
weighted average ownership for the periods ended April 30, 2018 and 2017 was 74.80% and 72.11%. As of April 30, 2018, the Partnership
owned a 51.01% interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 12.79% interest in a Yuma,
Arizona hotel property, and a direct 21.15% interest in an InnSuites
®
hotel located in Albuquerque, New Mexico.
Under
certain management agreements, InnSuites Hotels Inc., our 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.
IBC
Hospitality Technologies:
InnDependent
Boutique Collection (“IBC”, “IBC Hotels”, “IBC Hospitality” or “IBC Hospitality Technologies”),
a wholly-owned subsidiary of InnSuites Hospitality Trust, has a network of approximately 2,000 unrelated hospitality properties
with proprietary software exclusive marketing distribution and services as well as brand-like cost savings solutions to independent
boutique hotels and alternative lodging (serviced apartments, B&B’s, villas and multi-unit ownership/management of luxury
private residences). Additionally, IBC provides software and solutions to a variety of branded hotels looking to increase direct
bookings and receive full guest information IBC’s patent-pending loyalty program allows consumers to book highly discounted
travel when logged in and shopping for lodging on
www.ivhtravel.com.
IVHTravel.com and its proprietary booking engine has
over 1.1 million lodging choices globally and provides add-on capability for activities, rental car and cancellation protection
with airfare on its roadmap in 2019.
Our
technology division is broken into two business lines, International Vacation Hotels Travel (“IVH”) and IBC Hospitality
Technologies. Each of these divisions customer base is very different, and the services provided to each customer base ranges
dramatically.
Intellectual
Property
In
order to provide our business to business solutions thru IBC and our business to consumer solutions thru IVH, we use software,
business processes and proprietary information to carry out our business. These assets including related intellectual property
rights, copyrights and website domains are significant assets of our business. InnSuites Hospitality Trust relies on the combination
of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect these
assets and we license software and other intellectual property both to and from third parties. Intellectual property assets are
considered a valuable part of our business and have become a value-add portion of the services we provide. We consider our intellectual
property assets a valuable asset to our business and we renew appropriate registrations and regularly monitor potential infringements
of these assets.
The
Trust has received a proposed purchase and sale agreement for IBC. The agreement was received the week of June 11, 2018 from the
Obasa Group of Companies, a Canadian entity. The agreement would provide an initial capital infusion, with the balance of the
purchase price to be carried by the seller (IHT), over a 60-month period with interest.
PRINCIPLES
OF CONSOLIDATION AND BASIS OF PRESENTATION
These
consolidated financial statements have been prepared by management in accordance with accounting principles in accordance with
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)
|
|
|
20.58
|
%
|
|
|
-
|
|
Tucson Hospitality Properties, LLLP
|
|
|
-
|
|
|
|
51.01
|
%
|
Ontario Hospitality Properties, LLLP (sold in June, 2017)
|
|
|
99.60
|
%
|
|
|
-
|
|
Yuma Hospitality Properties, LLLP (see Note 6)
|
|
|
12.79
|
%
|
|
|
-
|
|
Tucson Saint Mary’s Hospitality LLC
|
|
|
-
|
|
|
|
83.66
|
%
|
RRF Limited Partnership
|
|
|
74.90
|
%
|
|
|
-
|
|
InnSuites Hotels Inc.
|
|
|
100.00
|
%
|
|
|
-
|
|
IBC Hotels, LLC (including dba International Vacation Hotels)
|
|
|
99.90
|
%
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
(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 April 30, 2018 and January 31, 2018, 218,374 and 250,093 Class
A Partnership units were issued and outstanding, representing 1.72% and 1.95% of the total Partnership units, respectively. Additionally,
as of April 30, 2018 and January 31, 2018, 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 April 30, 2018 and January 31, 2018, the limited partners in the Partnership would receive 3,192,412 and 3,314,131 Shares of
Beneficial Interest of the Trust. As of April 30, 2018 and January 31, 2018, the Trust owns 9,527,448 general partner units in
the Partnership, representing 74.90% and 74.80% of the total Partnership units, respectively.
LIQUIDITY
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 and Yuma, Arizona properties 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 properties. 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.
As
of April 30, 2018, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount receivable of
approximately $811,000. 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 December 31, 2018. As of June 15, 2018, the outstanding net balance receivable on the Demand/Revolving Line of Credit/Promissory
Note was $811,000.
As
of January 31, 2018, 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, 2018. As of April 30, 2018, the Trust had an amount receivable of the Advances to Affiliate
credit facility of approximately $840,000. As of June 15, 2018, the amount receivable from the Advance to Affiliate credit facility
was approximately $840,000.
With
approximately $5,557,000 of cash and short term investments, as of April 30, 2018, 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,
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 year. In addition, our management is analyzing other strategic options available to us, including the refinancing of another
property or raising additional funds through additional non-controlling interest sales; 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 obtaining extensions, 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.
BASIS
OF PRESENTATION
The
condensed consolidated balance sheet as of January 31, 2018, which has been derived from audited consolidated financial statements,
and these unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). Certain information related to the Trust’s organization, significant
accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies
followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed
in the Trust’s annual consolidated financial statements for the year ended January 31, 2018, as filed on Form 10-K. In the
opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting
only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for
the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the Trust’s
Form 10-K for the year ended January 31, 2018.
As
sole general partner of the Partnership, the Trust exercises unilateral control over the Partnership, and the Trust owns all of
the issued and outstanding classes of shares of InnSuites Hotels Inc. Therefore, the financial statements of the Partnership and
InnSuites Hotels Inc. are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated.
Under
Accounting Standards Codification (“ASC”) Topic 810-10-25, Albuquerque Suite Hospitality, LLC and Yuma Hospitality
Properties LLLP have been determined to be variable interest entities with the Partnership as the primary beneficiary (see Note
7 – “Variable Interest Entity”). Therefore, the financial statements of Albuquerque Suite Hospitality, LLC and
Yuma Hospitality Properties, LLP are consolidated with the Partnership and the Trust, and all significant intercompany transactions
and balances have been eliminated.
SEASONALITY
OF THE HOTEL BUSINESS
The
Hotels’ operations historically have been somewhat seasonal. The southern Arizona hotels experience their 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 southern Arizona hotels. 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 March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting,” a new standard which simplifies the accounting for share-based payment transactions. This
guidance requires that excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the Consolidated
Statements of Operations rather than additional paid-in capital. Additionally, the excess tax benefits will be classified along
with other income tax cash flows as an operating activity, rather than a financing activity, on the Statement of Cash Flows. Further,
the update allows an entity to make a policy election to recognize forfeitures as they occur or estimate the number of awards
expected to be forfeited. It will be effective for us beginning in February 2018 and should be applied prospectively, with certain
cumulative effect adjustments. Early adoption is permitted. The Trust has adopted this guidance on its consolidated financial
statements and we believe no material impact exists at this time.
●
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This new standard establishes a right-of-use
(“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases
with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the
pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain practical expedients available. The Trust is currently evaluating the
impact of the adoption of ASU 2016-02 on the Trust’s consolidated financial statements.
●
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”)
No. 2014-09. “Revenue from Contracts with Customers.” This new standard will replace the existing revenue recognition
guidance in GAAP. The core principle of the ASU is the recognition of revenue for the transfer of goods and services equal to
the amount an entity expects to receive for those goods and services. This ASU requires additional disclosures about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and
estimates and changes in those estimates. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contacts with Customers:
Deferral of the Effective Date” that delayed the effective date of ASU 2014-09 by one year to February 1, 2018, as the Trust’s
annual reporting period is after December 15, 2017.
The
Trust has evaluated the impact of the new standard on its financial results based on an inventory of the Trust’s current
contacts with customers. The Trust has obtained an understanding of the new standard and starting February 1, 2018, the Trust
changed its accounting policy to record prepaid reservations on a net basis. Upon adoption of the new standard, for the Trust
there is no effect on retained earnings.
The
Trust will continue to evaluate the impact of ASU No. 2014-09 on our financial results with the adoption of the standard on February
1, 2018, including its internal processes and control environment for new requirements under the new standard. The standard allows
for both retrospective and of adoption. The Trust has adopted the modified retrospective method.
This
ASU has become effective for the Trust beginning interim period February 1, 2018. Based on our evaluation of the new revenue recognition
standard the Trust presents revenue on a net basis for the period ending April 30, 2018.
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 of long-lived assets and recoverability of long-lived assets and the fair values of the long-lived assets.
PROPERTY,
PLANT AND EQUIPMENT AND HOTEL PROPERTIES
Furniture,
fixtures, building improvements and hotel properties are stated at cost and are 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 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 period ending
April 30, 2018.
Management
applies guidance ASC 350-40 Intangibles – Computer Software Developed or Obtained for Internal Use, to determine whether
it should capitalize internal use software developed for our IBC Technologies division. Under ASC 350-40, Management determined
that some of the internal-use software can possible be capitalized during the application development stage of development. The
application development stage of development includes software configuration, software interfaces and coding. Management has capitalized
internally developed software that meets the application development stage of development. Internally developed software is capitalized
over the estimated useful life, which is 5 years.
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.
Hotel
and Operations:
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.
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.
IBC
Technologies Division
This
ASU will have become effective for the Trust beginning interim period February 1, 2018. Based on our evaluation of the new revenue
recognition standard the Trust presents revenue on a net basis for the period ending April 30, 2018.
ASU
2014-09 (Topic 606), “Revenue from Contracts with Customers) is effective for reporting period after January 1, 2018.
●
|
International
Vacation Hotels Travel (“IVH”) Transactional Business to Consumer (“B-to-C”)
Revenues
|
|
●
|
IVH
Collect
- IVH will charge the guests in full on booking and remit the payments to
the Hotel for all completed stays for rates contracted less the agreed upon commission.
Wire and ACH fees will be paid by the Hotel as applicable.
|
|
●
|
When
credit card remittances are received:
|
|
●
|
The
amount due to the property recorded as a payable to the property, including credit card fees;
|
|
●
|
If
the arrival is confirmed in the current period … revenue is recognized;
|
|
●
|
If
the arrival is beyond the current period, the revenue is deferred until arrival is confirmed, then recognized in that period;
|
|
●
|
If
the booking is cancelled, property’s policy dictates and varies by property.
|
|
|
●
|
Refundable
portion is returned to the credit card holder of record on the original booking;
|
|
|
●
|
If
a non-refundable portion exists, that is remitted to the property less contracted commission and credit card fees.
|
|
●
|
Hotel
Collect
- the Hotel will charge the guests in full upon arrival and IVH will invoice
the Hotel at the end of each month the agreed upon commission for the hotel guest stays
completed.
|
|
●
|
Upon
notification/confirmation of arrival the property is billed, A/R created, and revenue
recognized
|
|
●
|
Split
- Guest pays deposit to IVH equal to the commission, provides credit card details
and pays the balance to the Member upon arrival.
|
|
●
|
When
credit card remittances are received:
|
|
●
|
If
the arrival is confirmed in the current period … revenue is recognized,
|
|
●
|
If
the arrival is beyond the current period, the revenue is deferred until arrival is confirmed, then recognized in that period,
|
|
●
|
If
the booking is cancelled, property’s policy dictates and varies by property.
|
|
|
●
|
Refundable
portion of the deposit amount (if any) is returned to the credit card holder of record on the original booking;
|
|
|
●
|
If
a non-refundable portion exists, that is remitted to the property less contracted commission and credit card fees.
|
●
|
IBC
Business to Business (“B-to-B”) Revenues
|
|
●
|
SaaS
Revenue – SaaS revenues which include CRS and digital marketing services are billed on a monthly basis and paid for
by the individual hotel properties the following month services are provided.
|
|
●
|
Revenues
are accrued/recognized in the month as earned, billed the following month.
|
|
●
|
Pass-thru
Reservations – IBC Hospitality Technologies receives a monthly fee to property to provide a CRS and Booking engine to
each of our member hotels.
|
|
●
|
Revenues
are accrued/recognized in the month as earned, billed the following month.
|
|
●
|
Digital
Marketing revenues – Performance of professional services on a fixed price monthly basis.
|
|
●
|
Billed
at first of month and recognized in current month.
|
(LOSS)
INCOME PER SHARE
Basic
and diluted (loss) income 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 3,192,412 Shares of the Beneficial Interest, as discussed in Note
1.
For
the periods ended April 30, 2018 and 2017, 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 3,192,412 and 3,684,069 in addition to the basic shares outstanding for
the periods ended April 30, 2018 and 2017, respectively. These Shares of Beneficial Interest issuable upon conversion of the Class
A and Class B Partnership units were dilutive during the periods ended April 30, 2018 and 2017, and are excluded in the calculation
of diluted loss per share for these periods as their effected would be anti-dilutive.
SEGMENT
REPORTING
The
Trust determined that its operations are comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment
that has ownership interest in three hotel properties with an aggregate of 424 suites in Arizona and New Mexico, and the IBC Hospitality
segment serving 2,000 unrelated hotel properties. The Trust has a concentration of assets in the southwest United States and the
southern Arizona market. Historical financial information presented in this Form 10-K reflects this change. On an overall basis,
the Trust has elected to only put the costs directly attributable to the IBC Hospitality segment in that segment. Included in
these costs are salaries, employee taxes and benefits, sales, marketing and technology development costs.
IBC
Hotels, LLC was formed during the fiscal year ended January 31, 2014. IBC Hotels, LLC charges a 10% - 20% booking fee which, we
believe, increases the independent hotel net profits through lower guest acquisition costs and full guest information for lower
lifetime average acquisition cost. Competitors of IBC Hotels can charge anywhere from a 15% to 50% booking fee. InnDependent InnCentives,
IBC’s loyalty program, allows hoteliers to benefit from guests who frequently stay at IBC independent hotels. We are actively
looking for investors to purchase all or part of IBC Hotels and we are looking to continue to expand IBC Hotels in the future
as we concentrate our sales and marketing efforts towards consumers, but can provide no assurance that we will be successful.
The
Chief Operating Decision Maker (“CODM”), the Trust’s CEO, Mr. Wirth, does not see value in allocating costs
for items not directly attributable to the IBC Hospitality segment for several reasons. The first is that the Trust’s base
business is the Hotel Operations & Corporate Overhead segment, and the majority of the expenses of the Trust would continue
even if the Trust was not in the reservation business. If the Trust were to allocate general expenses to the reservation business
based on some allocation method (e.g., on sales), it would not improve the value of segment reporting, but it would only serve
to make the results of the Hotel Operations & Corporate Overhead segment look better and give investors an unfounded sense
of the profitability of the Hotel Operations & Corporate Overhead segment without the IBC Hospitality segment. The CODM wants
to understand the true investment in the reservation business and that result is delivered by allocating only costs directly associated
with the IBC Hospitality segment. By retaining the remainder of costs not associated with the IBC Hospitality segment in the Hotel
Operations & Corporate Overhead segment, the Trust is able to compare the Hotel Operations & Corporate Overhead segment
to historical figures where the bulk of the business was only that segment of operations to gauge relative efficiency of the Hotel
Operations & Corporate Overhead segment as compared to historical norms.
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.
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.
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.
|
The
Trust has $2 million invested in Level 1 short-term bonds during the period ended April 30, 2018, and had no other assets or liabilities
carried at fair value on a recurring basis and had no fair value re-measurements during the period ended April 30, 2017.
Due
to their short maturities, the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value. 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.
STOCK-BASED COMPENSATION
TRUSTEE
STOCK COMPENSATION
For
the three months ended April 30, 2018, the Trust recognized expenses of $8,100 related to stock-based compensation. The Trust
issued 18,000 restricted shares with a total market value of $32,400 in the first fiscal quarter of fiscal year 2019 as compensation
to its three outside Trustees for fiscal year 2019. On a monthly basis through January 31, 2019, these shares vest at a rate of
approximately 500 shares for each outside Trustee.
The
following table summarizes restricted share activity during the three months ended April 30, 2018:
|
|
Restricted Shares
|
|
|
|
Shares
|
|
|
Weighted-Average
Per Share Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
Balance of unvested awards at January 31, 2018
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
18,000
|
|
|
$
|
2.16
|
|
Vested
|
|
|
(4,500
|
)
|
|
$
|
2.16
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance of unvested awards at April 30, 2018
|
|
|
13,500
|
|
|
$
|
2.16
|
|
4.
RELATED PARTY TRANSACTIONS
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, 2019. 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 April 30, 2018 and January 31, 2018, the Trust had a related party Demand/Revolving Line of Credit/Promissory
Note with an amount receivable of approximately $811,000, respectively. As of June 15, 2018, the outstanding net balance receivable
on the Demand/Revolving Line of Credit/Promissory Note was approximately $811,000.
As
of January 31, 2017, the Trust had an available Affiliate credit facility with a maximum borrowing/lending capacity of $500,000
to Tempe/Phoenix Airport Resort LLC. On June 19, 2017, the Board changed the terms of Tempe/Phoenix Airport Resort LLC Affiliate
credit facilities by increasing the borrowing capacity to $1,000,000 and changed the Maturity Date from June 30, 2017 to June
30, 2019, bears interest at 7.0% per annum for both a payable and receivable. On June 19, 2017, the Board terminated the Phoenix
Northern Resort, LLC Affiliate credit facility. As of April 30, 2018 and January 31, 2018, the Trust had an amount receivable
of approximately $840,000 and $970,000, respectively. As of June 15, 2018, the outstanding net balance receivable on the available
Affiliate credit facility was approximately $840,000.
As
of April 30, 2018 and January 31, 2018, Mr. Wirth and his affiliates held 2,974,038 and 3,064,038 Class B Partnership units, which
represented 25.38% and 23.86% of the total outstanding Partnership units. As of April 30, 2018 and January 31, 2018, Mr. Wirth
and his affiliates held 7,048,462 and 6,939,429 respectively, Shares of Beneficial Interest in the Trust, which represented 73.09%
and 70.99%, respectively, of the total issued and outstanding Shares of Beneficial Interest. For the three months ended April
30, 2018, Mr. Wirth’s affiliates paid the Trust $60,928 for management and licensing fees.
Besides
Ms. Pamela Barnhill, the Trust also employs one immediate family member of Mr. Wirth who provides technology and administrative
support services to the Trust, receiving a $60,000 yearly salary.
On
February 28, 2017, the Trust entered into a Securities Purchase Agreement to sell a total of 111,111 Shares of Beneficial Interest
of the Trust, at a sale price of $1.80 per Share for the Aggregate proceeds of $200,000 to the Trust. Pursuant to the Security
Purchase Agreement, Rare Earth purchased 55,556 Shares of Beneficial Interest of the Trust and one non-affiliated individual purchased
55,555 Shares of Beneficial Interest of the Trust. These shares are included in the Shares of Beneficial Interest, issued and
outstanding, however issuance is pending certain administrative matters.
See
Notes 3, 4, 5, 11 and 27 to our Consolidated Financial Statements – “Sale of Ownership Interests in Albuquerque Subsidiary,”
“Sale of Ownership Interests in Tucson Hospitality Properties Subsidiary,” “Sale of Ownership Interests in Yuma
Hospitality Properties Subsidiary,” “Other Related Party Transactions,” and “Subsequent Events,”
respectively, in our Form 10-K Annual Report filed with the SEC on May 16, 2018 and below in Note 6 – “Sale of Ownership
Interests in Subsidiaries” for further description of the Trust’s related party transactions.
5.
NOTES PAYABLE
On
August 24, 2012, the Yuma entity entered into a $5,500,000 mortgage loan with 1
st
Bank Yuma to refinance the then existing
term debt. The mortgage loan calls for a 10 year maturity date and an interest rate of the Wall Street Journal Prime Rate plus
one percentage point, with a floor of 5.0% per year. Prepayment fees exist for refinancing this debt with another lender until
the maturity date. As of April 30, 2018, the mortgage loan balance was approximately $4,793,000, net of a discount of approximately
$10,000.
On
January 8, 2016, in connection with the acquisition of substantially all of the assets of International Vacation Hotels, the Trust
entered into a $400,000 business loan with Laurence Holdings Limited, an Ontario, Canada corporation, with a maturity date of
February 1, 2019 pursuant to the terms of the Security Agreement and Promissory Note (the “Laurence Holdings Agreement”).
The Laurence Holdings Agreement required the funds be used for the purchase of International Vacation Hotels assets. The Laurence
Holdings Agreement provides for interest- only payments for the first three months of the term and principal and interest payments
for the remaining portion of the loan. The Laurence Holdings Agreement sets an interest rate of 8% per annum with no prepayment
penalty. As of April 30, 2018, the business loan balance was approximately $83,000, net of a discount of approximately $2,000.
On
May 11, 2017, Yuma Hospitality Properties, LLLP entered into a $850,000 Promissory Note Agreement (“Yuma Loan Agreement”)
as a credit facility to replenish funds for the hotel remodel with 1
st
Bank of Yuma Arizona Bank & Trust with a
maturity date of September 1, 2022. The Yuma Loan Agreement has an initial interest rate of 5.50% with a variable rate adjustment
equal to the Wall Street Journal Prime Rate plus 1.50% with a floor of 5.50% and no prepayment penalty. This credit facility is
guaranteed by InnSuites Hospitality Trust. As of April 30, 2018, the Promissory Note balance was approximately $824,000, net of
a discount of approximately $6,000.
On
June 29, 2017, Tucson Hospitality Properties, LLLP, a subsidiary of InnSuites Hospitality Trust, 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
April 30, 2018, the Tucson Loan was approximately $4,899,000, net of a discount of approximately $5,000.
Scheduled
minimum payments of debt, net of debt discounts, as of April 30, 2018 are as follows in the respective fiscal years indicated:
FISCAL YEAR
|
|
MORTGAGES
|
|
|
NOTES PAYABLE
TO BANK
|
|
|
OTHER NOTES PAYABLE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2019
|
|
$
|
190,401
|
|
|
$
|
97,715
|
|
|
$
|
1,112,333
|
|
|
$
|
1,400,449
|
|
2020
|
|
|
267,441
|
|
|
|
21,625
|
|
|
|
158,136
|
|
|
|
447,202
|
|
2021
|
|
|
278,588
|
|
|
|
22,868
|
|
|
|
140,491
|
|
|
|
441,947
|
|
2022
|
|
|
295,336
|
|
|
|
22,552
|
|
|
|
15,734
|
|
|
|
333,622
|
|
2023
|
|
|
4,333,180
|
|
|
|
741,570
|
|
|
|
-
|
|
|
|
5,074,750
|
|
Thereafter
|
|
|
4,327,629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,327,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,692,575
|
|
|
$
|
906,330
|
|
|
$
|
1,426,694
|
|
|
$
|
12,025,599
|
|
6.
SALE OF OWNERSHIP INTERESTS IN SUBSIDIARIES
The
Trust has sold non-controlling interests in certain subsidiaries, including Albuquerque Suite Hospitality, LLC (the “Albuquerque
entity”), Tucson Hospitality Properties, LP (the “Tucson entity”), Ontario Hospitality Properties, LP (the “Ontario
entity”), and Yuma Hospitality Properties, Limited Partnership (the “Yuma entity”), which sales are described
in detail in our Annual Report on Form 10-K filed on May 1, 2017 with the Securities and Exchange Commissions. Generally, interests
have sold for $10,000 per unit with a two-unit minimum subscription. The Trust maintains at least 50.1% of the units in one of
the entities and intends to maintain this minimum ownership percentage. Generally, the units in the each of the entities are allocated
to three classes with differing cumulative discretionary priority distribution rights through a certain time period. 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. Priority distributions of $700 per unit per year are cumulative until a certain date; however, after
that date, generally Class A unit holders continue to hold a preference on distributions over Class B and Class C unit holders.
As of February 1, 2017, the Trust no longer accrues for these distributions as the preference period generally has expired.
On
February 15, 2017, the Trust and Partnership entered into a restructuring agreement with Rare Earth Financial, LLC (“REF”)
to allow for the sale of non-controlling partnership units in Albuquerque Suite Hospitality LLC (“Albuquerque”) for
$10,000 per unit, which operates the Best Western InnSuites Albuquerque Hotel and Suites Airport hotel property, a 100 unit hotel
in Albuquerque, New Mexico (the “Property”). REF and IHT are restructuring the Albuquerque 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. REF, as a General Partner of Yuma, will coordinate
the offering and sale of Class A Interests to qualified third parties. REF and other REF Affiliates may purchase Interests under
the offering. This restructuring is part of the Trust’s Equity Enhancement Plan to comply with Section 1003(a)(iii) of the
NYSE American Company Guide.
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. This restructuring is part of the
Trust’s Equity Enhancement Plan to comply with Section 1003(a)(iii) of the NYSE American Company Guide.
During
the three months ended April 30, 2018, there were 13.50 Class A units sold for $135,000 ($10,000/unit), of which 13.50 came from
the Trust’s Class B units, and no C units of the Albuquerque entity sold. As of April 30, 2018 and January 31, 2018, the
Trust held a 20.58% and 22.83% ownership interest, or 123.50 and 137 Class B units, in the Albuquerque entity, Mr. Wirth and his
affiliates held a 0.17% interest, or 1 Class C unit, and other third parties held a 79.25% interest, or 475.50 Class A units.
As of February 1, 2017, the Trust no longer accrues for these distributions as the preference period generally has expired.
During
the three months ended April 30, 2018, there were no Class A, B or C units of the Tucson entity sold. As of April 30, 2018 and
January 31, 2018, 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 3 Class C units, and other parties held a 48.6% interest, or 385 Class A units. As of
February 1, 2017, the Trust no longer accrues for these distributions as the preference period generally has expired.
During
the three months ended April 30, 2018, there were no Class A, B or C units of the Yuma entity sold. As of April 30, 2018, the
Trust held a 12.79% ownership interest, or 102.30 Class B units, in the Yuma entity, Mr. Wirth and his affiliates held a 0.63%
interest, or 5 Class C units, and other parties held a 86.59% interest, or 692.70 Class A units. As of February 1, 2017, the Trust
no longer accrues for these distributions as the preference period generally has expired. During the three months ended April
30, 2018, the priority distributions were paid for the three months ended January 31, 2018, and no priority distributions were
accrued for the three months ended April 30, 2018.
7.
VARIABLE INTEREST ENTITIES
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 Yuma and Albuquerque entities are 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 Yuma entity and Albuquerque, including its mortgage note payable and distribution obligations, which based
on the capital structure of the Yuma entity, management believes could potentially be significant.
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 Yuma entity, including providing the personnel to operate the property on a daily basis.
During
the fiscal quarter ended October 31, 2017, 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
allowed our properties to obtain new financing as needed.
8.
STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES
The
Trust paid $177,313 and $205,036 in cash for interest for the three months ended April 30, 2018 and 2017, respectively for continuing
operations. No cash was paid for taxes for the three months ended April 30, 2018 and 2017.
9.
COMMITMENTS AND CONTINGENCIES
The
Albuquerque Hotel is subject to a non-cancelable ground lease that expires in 2058. Total expense associated with the non-cancelable
ground lease for the three months ended April 30, 2018 and 2017 was approximately $38,000 and $37,000, respectively.
On
August 4, 2017, the Trust entered into a five year office lease agreement with Northpoint Properties for a commercial office lease
at 1730 E Northern Ave, Suite 122, Phoenix, Arizona 85020 commencing on September 1, 2017. Base monthly rent of $4,100 increases
6% on a yearly basis. No rent is due for October 2018 and October 2022 months. The Trust also agreed to pay electricity and applicable
sales tax. The office lease agreement provides early termination with a 90-day notification with an early termination fee of $12,000,
$8,000, $6,000, $4,000 and $2,000 for years 1 – 5 of the lease term, respectively.
Future
minimum lease payments under the non-cancelable ground leases are as follows:
Fiscal Year Ending
|
|
|
|
Remainder of FY 2019
|
|
|
123,507
|
|
FY 2020
|
|
|
167,225
|
|
FY 2021
|
|
|
170,448
|
|
FY 2022
|
|
|
173,864
|
|
FY 2023
|
|
|
144,565
|
|
Thereafter
|
|
|
5,473,313
|
|
Total
|
|
|
6,252,922
|
|
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 are not reported on the Trust’s Consolidated Balance Sheet as “Restricted
Cash” as the balance was $0 as of April 30, 2018 and January 31, 2018.
InnSuites
Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) with respect
to all three of the Hotels. In exchange for use of the Best Western name, trademark and reservation system, the participating
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 participating Hotels. The agreements with Best Western have no specific expiration terms and
may be cancelled by either party. Best Western requires that the participating 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 $63,000 and $62,000 for the three months ended April 30, 2018
and 2017, respectively.
The
nature of the operations of the Hotels exposes them in most cases 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.
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:
We
have 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 our best interests. These agreements
require us, 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. We 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, we have not incurred any payments for these
obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets.
10.
SEGMENT REPORTING
The
Trust determined that its reportable segments are the Hotel Operations & Corporate Overhead and IBC Hospitality 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.
Information
relative to the Trust’s reportable segments for operations, for which there is no intersegment revenues, is as follows:
CONSOLIDATED BALANCE SHEET
|
|
PERIOD ENDED APRIL 30, 2018
|
|
|
|
Hotel Operations & Corporate Overhead
|
|
|
IBC Developments
|
|
|
Total
|
|
Total Assets
|
|
$
|
21,599,845
|
|
|
$
|
976,940
|
|
|
$
|
22,576,785
|
|
Total Liabilities
|
|
|
10,690,893
|
|
|
|
4,491,073
|
|
|
|
15,181,966
|
|
Fixed Assets, Net
|
|
|
14,352,396
|
|
|
|
425,321
|
|
|
|
14,777,717
|
|
CONSOLIDATED BALANCE SHEET
|
|
YEAR ENDED JANUARY 31, 2018
|
|
|
|
Hotel Operations & Corporate Overhead
|
|
|
IBC Developments
|
|
|
Total
|
|
Total Assets
|
|
$
|
22,201,935
|
|
|
$
|
876,137
|
|
|
$
|
23,078,072
|
|
Total Liabilities
|
|
|
9,897,562
|
|
|
|
5,061,541
|
|
|
|
14,959,103
|
|
Fixed Assets, Net
|
|
|
14,586,879
|
|
|
|
424,872
|
|
|
|
15,011,751
|
|
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
THREE MONTHS ENDED APRIL 30, 2018
|
|
|
|
Hotel Operations & Corporate Overhead
|
|
|
IBC Hospitality
|
|
|
Total
|
|
Total Revenue
|
|
$
|
3,130,320
|
|
|
$
|
344,960
|
|
|
$
|
3,475,280
|
|
Operating Income (Loss)
|
|
|
429,592
|
|
|
|
(545,872
|
)
|
|
|
(116,280
|
)
|
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
THREE MONTHS ENDED APRIL 30, 2017
|
|
|
|
Hotel Operations & Corporate Overhead
|
|
|
IBC Hospitality
|
|
|
Total
|
|
Total Revenue
|
|
$
|
2,809,592
|
|
|
$
|
244,209
|
|
|
$
|
3,053,801
|
|
Operating Income (Loss)
|
|
|
383,230
|
|
|
|
(314,668
|
)
|
|
|
68,562
|
|
11.
SUBSEQUENT EVENTS
The
Trust has received a proposed purchase and sale agreement for IBC. The agreement was received the week of June 11, 2018 from the
Obasa Group of Companies, a Canadian entity. The agreement would provide initial capital infusion, with the balance of the purchase
price to be carried by the seller (IHT), over a 60-month period with interest.
On
June 1, 2018 the Trust entered into a Note Payable with an investor for $177,000. The Note Payable has a maturity date of May
31, 2021 and is related to the sale of 60,000 shares of IHT Stock. The note payable is due in equal payments with 7% interest
per annum. No prepayment penalty exists.
We
currently have our Yuma, Arizona property listed with a specific hotel sale broker. An offering memorandum was issued the week
of June 11, 2018, and was widely circulated.
The
Trust declared a dividend on June 19, 2018, of $0.01 per share payable on July 31, 2018 to shareholders of record as of July 16,
2018, continuing an uninterrupted 48-year history of annual dividends.
As
reported in IHT’s current report on form 8-K filed June 15, 2018, the IHT Board elected James Wirth founder, Chairman and
CEO to the additional position of IHT President to further streamline operations. In addition, the Board promoted Craig Miller,
Director of Finance, to the position of CFO.