NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF APRIL 30, 2021, AND JANUARY 31, 2021
AND
FOR THE THREE MONTHS ENDED APRIL 30, 2021 AND 2020
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As
of April 30, 2021, InnSuites Hospitality Trust (the “Trust”, “IHT”, “we”, “us” or “our”)
is a publicly traded unincorporated Ohio real estate investment trust (REIT) with hotels IHT owns and hotels IHT manages. The Trust and
its shareholders directly in and through a Partnership, own interests in two hotels with an aggregate of 270 hotel suites in Arizona
and New Mexico, both (the “Hotels”) operated under the federally trademarked name “InnSuites Hotels” or “InnSuites”
as well as operating under the brand name “Best Western”. The Trust and its shareholders hold a $1 million 6% convertible
debenture in UniGen Power Inc., (“UPI”), $60,000 in UPI’s privately-held common stock, and hold warrants to
make further UPI Investments in the future.
Hotel
Operations:
Our
Tucson, Arizona Hotel and our Hotel located in Albuquerque, New Mexico are limited service hotels. Both hotels offer swimming pools,
fitness centers, business centers, and complimentary breakfast. In addition, the Hotels offer social areas and modest conference facilities.
The
Trust is the sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned
a 75.89% interest in the Partnership as of April 30, 2021 and January 31, 2021, respectively. The Trust’s weighted average ownership
for the three months ended April 30, 2021 and 2020 was 75.89%. As of April 30, 2021, the Partnership owned a 51.01% interest in an InnSuites®
hotel located in Tucson, Arizona. The Trust owns a direct 20.67 % interest in an InnSuites® hotel located in Albuquerque, New Mexico.
InnSuites
Hotels Inc.(“IHI”), a subsidiary, manages the Hotels’ daily operations under 2 management agreements. The Trust also
provides the use of the “InnSuites” trademark to the Hotels through wholly-owned IHI. All expenses and reimbursements between
the Trust, IHI and the Partnership have been eliminated in consolidation.
The
Trust classified the Hotels as operating assets, but these assets are available for sale. At this time, the Trust is unable to predict
when, and if, any of these will be sold. Neither the Tucson Hotel nor the Albuquerque Hotel is currently listed but the Trust is willing
to consider offers for the Hotel. Each of the Hotels is being marketed at a price that management believes is reasonable in relation
to its current fair value.
PRINCIPLES
OF CONSOLIDATION AND BASIS OF PRESENTATION
These
unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles in conformity
with accounting principles generally accepted in the United States of America (“GAAP”), and include all assets, liabilities,
revenues and expenses of the Trust and its subsidiaries, as listed in the table below. 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 unaudited condensed financial statements of the Partnership
and the entities listed below are consolidated with the Trust, and all intercompany transactions and balances have been eliminated.
|
|
IHT OWNERSHIP %
|
|
ENTITY
|
|
DIRECT
|
|
|
INDIRECT (i)
|
|
Albuquerque Suite Hospitality, LLC
|
|
|
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 limited partner holding the units. 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, 2021 and January 31, 2021, 211,708 Class A Partnership units were issued
and outstanding, representing 1.60% of the total Partnership units, respectively. Additionally, as of April 30, 2021 and January 31,
2021, 2,974,038 Class B Partnership units were outstanding to and owned by James Wirth, the Trust’s Chairman and Chief Executive
Officer, and Mr. Wirth’s affiliates, representing 22.51% ownership in the Partnership. If all the Class A and B Partnership units
were converted on April 30, 2021 and January 31, 2021, the limited partners in the Partnership would receive 3,185,746 Shares of Beneficial
Interest of the Trust. As of April 30, 2021, and January 31, 2021, 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 quarterly distributions coming from
the Tucson Hotel and cash flow; and quarterly distributions and cash flow from the Albuquerque, New Mexico 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 well as to generate funds from repayment of loans
and sale of assets. The Covid-19 Virus (the “Virus”) as of May 15, 2020, had previously disrupted the quarterly distributions
from both the Albuquerque and Tucson hotels.
As
of April 30, 2021, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount payable of approximately
$990,000. 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 $2,000,000, which is available through December
31, 2021, and renews annually. This is a two-way Line of Credit, with both the Trust and an Affiliate lender having access to draw on
the credit amount of up to $2,000,000 for either party.
As
of April 30, 2021, the Trust had three Revolving lines of Credit totaling $250,000 with the Republic Bank of Arizona. The lines had a
zero balance as of April 30, 2021.
With
approximately $1,559,000 of cash, as of April 30, 2021, the availability of $1,000,000 from the combined $2,000,000 Advance to
Affiliate credit facilities, and the $250,000 Revolving Lines of Credit with Republic Bank, the Trust believes that it has and will have
enough cash on hand to meet all of the financial obligations as they become due for twelve months from the date of filing this 10-Q.
In addition, management is analyzing other strategic options available to the Trust, including the sale or refinance of one or both Hotel
properties. 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 selling properties, 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.
BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Trust in accordance with GAAP for interim
financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and
Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for
complete financial statement presentation. However, the Trust believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary
for a fair presentation have been included.
Operating
results for the three months ended April 30, 2021 are not necessarily indicative of the results that may be expected for the year ending
January 31, 2022. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended January 31,
2021.
The
Trust has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission. Other
than those events disclosed indicating the Covid-19 Virus beginnings of recovery of economic and business activity, the Company is not
aware of any other significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that
would have a material impact on the Trust’s financial statements.
As
the general partner of the Partnership, the Trust exercises unilateral control over the Partnership. The Trust owns all 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 has been determined to be a
variable interest entity with the Partnership as the primary beneficiary (see Note 4 – “Variable Interest Entity”).
Therefore, the financial statements of Albuquerque Suite Hospitality, LLC, are consolidated with the Trust, and all significant intercompany
transactions and balances have been eliminated.
The
financial statements of the Partnership and Tucson Hospitality Properties, LLLP 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 Tucson Arizona Hotel historically experiences the highest occupancy
in the first fiscal quarter (the winter high season) and, to a lesser extent, the fourth fiscal quarter. The second fiscal quarter historically
tends to be the lowest occupancy period at this Arizona Hotel. This seasonality pattern can be expected to cause fluctuations in the
Trust’s quarterly revenues. The Hotel located in Albuquerque, New Mexico historically experiences its most profitable periods during
the second and third fiscal quarters (the summer high season), providing some balance to the general seasonality of the Trust’s
hotel business. The state of New Mexico remains under Covid related travel restrictions.
The
seasonal nature of the Trust’s business increases its vulnerability to risks such as travel disruptions, labor force shortages
and cash flow issues. Further, if an adverse event such as an actual or threatened virus pandemic, terrorist attack, international conflict,
data breach, regional economic downturn or poor weather should occur at either of its two hotels, the adverse impact to the Trust’s
revenues and profit could be significant.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE
OF ESTIMATES
The
preparation of the unaudited condensed consolidated 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 audited condensed 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, virus/pandemic, 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
AND EQUIPMENT
Furniture,
fixtures, building and improvements and hotel properties are stated at cost, except for land, and depreciated using the straight-line
method over estimated lives ranging up to 40 years for buildings and improvements, and 3 to 10 years for furniture, fixtures and equipment.
Land
is an indefinite-lived asset. The Trust tests its land for impairment annually, or whenever events or changes in circumstances indicates
an impairment may have occurred, by comparing its carrying value to its implied fair value.
For
tax purposes the Trust takes advantage of accelerated depreciation methods (MACRS) for new capital additions and improvements to its
Hotels.
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 has determined that no further impairment is required of long-lived assets
for the fiscal period ended April 30, 2021.
CASH
The Trust believes it places its cash only
with high credit quality financial institutions, although these balances periodically exceed federally insured limits.
REVENUE
RECOGNITION
Hotel
and Operations
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.
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.
Each
room night consumed by a guest with a cancellable reservation represents a contract whereby the Trust has a performance obligation to
provide the room night at an agreed upon price. For cancellable reservations, the Trust recognizes revenue as each performance obligation
(i.e., each room night) is met. Such contract is renewed if the guest continues their stay. For room nights consumed by a guest with
a non-cancellable reservation, the entire reservation period represents the contract term whereby the Trust has a performance obligation
to provide the room night or nights at an agreed upon price. For non-cancellable reservations, the Trust recognizes revenue over the
term of the performance period (i.e., the reservation period) as room nights are consumed. For these reservations, the room rate is typically
fixed over the reservation period. The Trust uses an output method based on performance completed to date (i.e., room nights consumed)
to determine the amount of revenue it recognizes on a daily basis if the length of a non-cancellable reservation exceeds one night since
consumption of room nights indicates when services are transferred to the guest. In certain instances, variable consideration may exist
with respect to the transaction price, such as discounts, coupons and price concessions made upon guest checkout.
In
evaluating its performance obligation, the Trust bundles the obligation to provide the guest the room itself with other obligations (such
as free Wi-Fi, complimentary breakfast, access to on-site laundry facilities and parking), as the other obligations are not distinct
and separable because the guest cannot benefit from the additional amenities without the consumed room night. The Trust’s obligation
to provide the additional items or services is not separately identifiable from the fundamental contractual obligation (i.e., providing
the room and its contents). The Trust has no performance obligations once a guest’s stay is complete.
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 derived from guest stays and other reservations at the Hotels. 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 due and 100% of balances over 120 days due. 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. There is $0 in the allowance for doubtful accounts for the three months ended April 30, 2021 and the fiscal year ended
January 31, 2021.
INCOME
TAX RECEIVABLE
The
Trust amended its corporate tax returns for the year ended January 31, 2019. Such amendments resulted in a refund of approximately $294,000,
of which the Trust received approximately $175,000 in August 2020. The remaining refund of approximately $120,000 was reduced by approximately
$52,000 as a result of taxes owed and accrued from prior periods. The Trust received approximately $68,000 in
March 2021.
LEASE
ACCOUNTING
The
Trust determines, at the inception of a contract, if the arrangement is a lease and whether it meets the classification criteria for
a finance or operating lease. ROU assets represent the Trust’s right to use an underlying asset during the lease term and lease
liabilities represent the Trust’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are
recognized at commencement date based on the present value of fixed lease payments over the lease term. ROU assets also include any advance
lease payments and exclude lease incentives. As most of the Trust’s operating leases do not provide an implicit rate, the Trust
uses its incremental borrowing rate based on information available at commencement date in determining the present value of lease payments.
Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Operating
fixed lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term (see Note 14).
TRUSTEE
STOCK-BASED COMPENSATION
The Trust has an employee equity incentive plan,
which is described more fully in Note 15 - “Share-Based Payments.” The three independent members of the Board of Trustees
each earn 6,000 IHT Shares per year, and during the current quarter ended April 30, 2021, each Trustee received 10,000
shares because of the performance of the Unigen investment as later discussed in Note 2. All shares vest over one year from date of grant.
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.
In
addition, 3,000 IHT Restricted Shares were issued to each of the Trust’s three accountants, and 2,000 restricted IHT Shares
to each of the three IHT employees. The shares vest through the end of the period ending July 31, 2021.
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.
NET
LOSS PER SHARE
Basic
and diluted net 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 3,185,746 Shares of the Beneficial Interest, as discussed in Note 1.
For
the three months ended April 30, 2021 and 2020, 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 in addition to the basic shares outstanding for the three months ended April
30, 2021 and 2020, respectively. These Shares of Beneficial Interest issuable upon conversion of the Class A and Class B Partnership
units were anti-dilutive during the three months ended April 30, 2021 and 2020 and are excluded in the calculation of diluted earnings
per share for those periods.
ADVERTISING
COSTS
Amounts
incurred for advertising costs are expensed as incurred. Advertising expense for continuing operations totaled approximately $45,000
and $60,000 for the three months ended April 30, 2021 and 2020 respectively, and is reported in the consolidated Statement of Operations.
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 various 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.
|
The
Trust has assets that are carried at fair value on a recurring basis, including stock and warrants in a 3rd party private
company on the unaudited condensed consolidated balance sheet.
Due
to their short maturities, the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate 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.
CONVERTIBLE
NOTE RECEIVABLE 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”) at an annual interest rate of 6%. The Debentures are convertible into Class A shares of UniGen Common Stock
at an initial conversion rate of $1.00 per share.
UniGen
issued the Trust common stock purchase warrants (the “Debenture Warrants”) to purchase up to 1,000,000 shares of Class A
Common Stock. The Debenture Warrants are exercisable at an exercise price of $1.00 per share of Class A Common Stock. Subsequent
to January 31, 2021, UniGen issued an additional 300,000 warrants at $2.25.
UniGen,
also, issued the Trust additional common stock purchase warrants (“Additional Warrants”) to purchase up to 200,000 shares
of Class A Common Stock. The Additional Warrants are exercisable at an exercise price of $2.25 per share of Class A Common Stock.
IHT may fund a $500,000 line of credit to be repaid in the form of UniGen stock at a rate of $1 per share. The total of all stock ownership
upon conversion is 1 million shares and if all stock warrants available but not outstanding are exercised, these would total to
3 million Unigen shares.
On
the Trust’s balance sheet, the investment of the $1,000,000 made in the current fiscal year consists of approximately $700,000
in note receivables and approximately $300,000 as the fair value of the warrant issued with the Trust’s investment in UniGen. The
value of the premium related to the fair value of the warrants will accrete over the life of the debentures.
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)
|
|
|
3.0
|
|
Annualized risk-free rate
|
|
|
1.630
|
%
|
Annualized volatility
|
|
|
27.43
|
%
|
UniGen
has also agreed to allow IHT to fund a $500,000 line of credit at the option of IHT convertible into 500,000 shares of UniGen stock at
$1 per share. Upon full subscription of the UniGen 2021 $2 million syndication in February 2021, UniGen granted IHT an additional 300,000
warrants at $2.25 per share granted by Unigen. The balance on this line of credit as of April 30, 2021 is $0.
If
all notes are converted and all available but not outstanding warrants exercised, IHT would hold up to approximately 25% of UniGen Ownership.
Subsequent to April 30, 2021, no activity has occurred with this line of credit and thus no draws have been taken.
During
the Fiscal Quarter ended April 30, 2021, 0 warrants were exercised for $0 and in return the Trust received 0 shares of UniGen. As of
April 30, 2021, IHT held 60,000 common shares of UniGen. Management believes recording the investment at cost approximates fair
value since there have been no significant changes in the operations of Unigen and UniGen’s projects are still in the R&D
phase.
The
Trust has valued Unigen investment as a level 3 fair value measurement, for the following reasons: The investment does not qualify
for level 1 since there are no identical actively traded instruments or level 2 identical or similar unobservable markets.
3.
SALE OF OWNERSHIP INTERESTS IN ALBQUERQUE AND TUCSON SUBSIDIARIES
The
Trust has sold non-controlling interests in certain subsidiaries, including Albuquerque Suite Hospitality, LLC (the “Albuquerque
entity”) and Tucson Hospitality Properties, LLLP (the “Tucson entity, which sales are described in detail in our Annual Report
on Form 10-K filed on May 14, 2021 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
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. The Trust does not accrue for these distributions as the preference periods have
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 112 unit hotel in Albuquerque, New Mexico (the “Property”). REF and IHT restructured 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
Albuquerque, 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. For the three months ending April 30, 2021 and 2020, the Trust sold
0 units and 1 unit for $10,000 per unit, respectively.
4.
VARIABLE INTEREST ENTITIES
Management
evaluates the Trust’s explicit and implicit variable interests to determine if they have any interests in variable interest entities
(“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 is a variable interest entity 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 hotel, including.
b)
The Partnership, Trust and their related parties have maintained, as a group, a controlling ownership interest in the Albuquerque hotel,
with the largest ownership belonging to the Trust.
c)
The Partnership, Trust and their related parties have maintained control over the decisions which most impact the financial performance
of the Albuquerque hotel, including providing the personnel to operate the property daily.
During
the three months ended April 30, 2021 and the fiscal year ended January 31, 2021, 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.
5.
PROPERTY AND EQUIPMENT
As
of April 30, 2021, and January 31, 2021, hotel properties consisted of the following:
HOTEL SEGMENT
|
|
|
|
|
|
|
|
|
April 30, 2021
|
|
|
January 31, 2021
|
|
Land
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
Building and improvements
|
|
|
10,525,394
|
|
|
|
10,531,947
|
|
Furniture, fixtures and equipment
|
|
|
4,206,791
|
|
|
|
4,058,682
|
|
Total property and equipment
|
|
|
17,232,185
|
|
|
|
17,090,629
|
|
Less accumulated depreciation
|
|
|
(9,207,659
|
)
|
|
|
(8,961,498
|
)
|
Property and Equipment, net
|
|
$
|
8,024,526
|
|
|
$
|
8,129,131
|
|
As
of April 30, 2021, and January 31, 2021, corporate property, plant, and equipment consisted of the following:
CORPORATE SEGMENT
|
|
|
|
|
|
|
|
|
April 30, 2021
|
|
|
January 31, 2021
|
|
Land
|
|
$
|
7,005
|
|
|
$
|
7,005
|
|
Building and improvements
|
|
|
75,662
|
|
|
|
75,662
|
|
Furniture, fixtures and equipment
|
|
|
84,000
|
|
|
|
166,122
|
|
Total property and equipment
|
|
|
166,667
|
|
|
|
248,789
|
|
Less accumulated depreciation
|
|
|
(126,929
|
)
|
|
|
(188,070
|
)
|
Property and Equipment, net
|
|
$
|
39,738
|
|
|
$
|
60,719
|
|
6.
MORTGAGE NOTES PAYABLE
On
April 30, 2021 and January 31, 2021, the Trust had a mortgage note payable outstanding with respect to the Tucson Hotel. The mortgage
note payable has a scheduled maturity date in June 2042. The weighted average annual interest rates on mortgage notes payable as of April
30, 2021 and January 31, 2021 were 4.69%, respectively.
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 April 30, 2021, and January 31, 2021, the mortgage loan balance was approximately $4,551,000 and $4,583,000, respectively. The mortgage
note payable is due in monthly installments of $28,493.
On
December 2, 2019, Albuquerque 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 4.90% and no prepayment penalty. This credit facility is guaranteed by InnSuites Hospitality Trust. As of April
30, 2021, the mortgage loan balance was approximately $1,328,000, net of financing fees of approximately $16,000.
See
Note 9 – “Minimum Debt Payments” for scheduled minimum payments on the mortgage notes payable.
7.
NOTES PAYABLE AND NOTES RECEIVABLE – RELATED PARTY
On
December 1, 2014, the Trust entered a 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, interest is due quarterly, matures on August 24, 2021, and
renews annually each calendar year. No prepayment penalty exists on the Demand/Revolving Line of Credit/Promissory Note. The balance
fluctuates significantly through the period. On December 30, 2020, the Demand/Revolving Line of Credit/Promissory Note was extended and
increased to the current level of $2,000,000. As of April 30, 2021, and January 31, 2021, the Trust had an amount payable of approximately
$990,000 and $1,595,000, respectively. During the three months ended April 30, 2021 and 2020, the Trust accrued approximately $20,000
and $0, respectively, of interest income.
8.
OTHER NOTES PAYABLE
As
of April 30, 2021, the Trust had approximately $40,000 in promissory notes outstanding to unrelated third parties arising from the repurchase
of 146,124 Class A Partnership units in privately negotiated transactions. These promissory notes bear interest at 7% per year and are
due in varying monthly payments through January 2023.
As
of April 30, 2021, the Trust had a $200,000 unsecured note payable with an individual lender. The promissory note is payable on demand,
or on December 31, 2022, whichever occurs first. The loan accrues interest at 4.5% 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 April 30, 2021.
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 4.5% interest only, with similar terms to June 30, 2021. The loans have been subsequently extended to December 2022. The Trust may
pay all or part of this note without any repayment penalties. The total principal amount of the Hayden Loans is $270,000 as of April
30, 2021.
On
March 20, 2017, the Trust and Partnership entered multiple, unsecured loans to Lisa Sweitzer Hayes (“Sweitzer Loans”), totaling
$100,000. As of July 1, 2019, these loans were consolidated and extended at 4.0% interest only, with similar terms to June 30, 2021.
The loans have been subsequently extended to December 2022. The total principal amount of the Sweitzer Loans is $100,000 as of April
30, 2021.
As
a result of the Covid-19 Virus Pandemic, and the subsequent Legislation passed within the CARES Act of 2020, the Trust applied for and
received Small Business Administration (“SBA”) loans through the Paycheck Protection Program (“PPP”). Loans in
the amount of approximately $229,000, $188,000, and $87,000, for Tucson, Albuquerque, InnSuites Hospitality, respectively, were granted
and received. The lender of all three of the PPP Loans has confirmed that all three loans have met all the requirements necessary to
qualify and be eligible for full and complete forgiveness in early 2021, based upon the SBA criteria for PPP loan forgiveness, subject
to and pending the forgiveness application.
As
of January 31, 2021 the PPP Loan in other income received by the Trust was fully forgiven in the amount of approximately $87,000 recorded
in other income in the statement of operations. The PPP loan received by Tucson for $228,602 was forgiven in March 2021. The remaining
Albuquerque Hotel loan forgiveness for $187,686 was completed in March 2021. The forgiveness was recognized as income for GAAP
Financial Statement purposes, and is tax free for tax purposes.
On
March 5, 2021, the Albuquerque hotel received another PPP Loan in the amount of $253,253. On March 15, 2021, the Tucson hotel received
an additional PPP Loan in the amount of $297,601. Management expects but cannot guarantee these additional PPP Loans received by the
Tucson and Albuquerque hotels, because of the Covid-19 Virus Pandemic, to be fully forgiven on or before January 31, 2022, based upon
SBA guidelines.
See
Note 9 – “Minimum Debt Payments” for scheduled minimum payments on the debt liabilities.
9.
MINIMUM DEBT PAYMENTS
Scheduled
minimum payments of debt, net of debt discounts, as of April 30, 2021 are approximately as follows in the respective fiscal years indicated:
FISCAL YEAR
|
|
MORTGAGES
|
|
|
OTHER NOTES PAYABLE
|
|
|
NOTES PAYABLE - RELATED PARTY
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
|
126,519
|
|
|
|
26,447
|
|
|
|
-
|
|
|
|
152,966
|
|
2023
|
|
|
174,956
|
|
|
|
583,857
|
|
|
|
990,000
|
|
|
|
1,748,813
|
|
2245
|
|
|
217,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
217,255
|
|
2025
|
|
|
190,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,932
|
|
2026
|
|
|
201,594
|
|
|
|
550,854
|
|
|
|
|
|
|
|
752,448
|
|
2027
|
|
|
212,034
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,034
|
|
Thereafter
|
|
$
|
4,755,589
|
|
|
|
|
|
|
|
|
|
|
$
|
4,755,589
|
|
|
|
$
|
5,878,879
|
|
|
$
|
1,161,158
|
|
|
$
|
990,000
|
|
|
$
|
8,030,037
|
|
10.
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. 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.
For the three months ended April 30, 2021 and 2020, the Trust repurchased
0 and 17,074 Shares of Beneficial Interest at an average price of $0 and $1.21 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.
11.
RELATED PARTY TRANSACTIONS
As
of April 30, 2021, and January 31, 2021, Mr. Wirth and his affiliates held 2,974,038 Class B Partnership units, which represented 22.51%
of the total outstanding Partnership units, respectively. As of April 30, 2021, and January 31, 2021, Mr. Wirth and his affiliates held
5,876,683 and 5,881,683 Shares of Beneficial Interest in the Trust, respectively, which represented 61.42% respectively, of the total
issued and outstanding Shares of Beneficial Interest.
As
of April 30, 2021, and January 31, 2021, the Trust owned 75.89% of the Partnership, respectively. As of April 30, 2021, the Partnership
owned a 51.01% interest in the InnSuites® hotel located in Tucson. The Trust also owned a direct 20.67% 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 two Hotels. Revenues and reimbursements among the Trust, InnSuites Hotels Inc.
and the Partnership have been eliminated in consolidation. The management fees for the Hotels are set at 5.0% of room 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 30-days written
notice. For the three months ended April 30, 2021, the Trust recognized approximately $0 of hotel management revenue.
The
Trust employs an immediate family member of Mr. Wirth, Brian James Wirth, who provides technology support services to the Trust, receiving
a $62,000 annual salary.
12.
STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES
The
Trust paid $84,000 and $88,000 in cash for interest for the three months ended April 30, 2021 and 2020, respectively for operations.
The amounts related to Notes Payables - IHT Shares of Beneficial Interest and Partnership Units repurchases amounted to $0 and $21,000,
respectively, for the three months ended April 30, 2021 and 2020. Cash paid for taxes for the three months ended April 30, 2021 and 2020
was $0, respectively.
13.
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 as of April 30, 2021 and January 31, 2021, Restricted Cash line was omitted on the Trust’s Consolidated
Balance Sheet.
Membership
Agreements:
InnSuites
Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) for both 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 $30,822 and $41,000 for the three months ended April
30, 2021 and 2020, respectively. These costs include fees for the Albuquerque and Tucson hotels in 2020. These fees are included in room
operating expenses on the unaudited condensed consolidated statements of operations for Albuquerque and Tucson.
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.
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.
Indemnification:
The
Trust has entered into indemnification agreements with all 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.
See
Note 14 – Leases, for discussion on lease payment commitments.
14.
LEASES
The
Trust has operating leases for its corporate offices in Phoenix, Arizona, land leased in Albuquerque, New Mexico, and a cable equipment
finance lease in Tucson, Arizona. The Trust’s corporate office lease includes options to extend or terminate the leases and the
Trust includes these options in the lease term when it is reasonably certain to exercise that option. All leases are non-cancelable.
Operating
Leases
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.
The
Company’s Albuquerque Hotel is subject to non-cancelable ground lease. The Albuquerque Hotel non-cancelable ground lease was extended
on January 14, 2014 and expires in 2058.
The
following table presents the Company’s lease costs for the three months ended April 30, 2021:
|
|
Three Months Ended
|
|
|
|
April 30, 2021
|
|
Operating Lease Costs:
|
|
|
|
|
Operating lease cost*
|
|
|
60,082
|
|
*
Short term lease costs were immaterial.
Supplemental
cash flow information is as follows:
|
|
Three Months Ended
|
|
|
|
April 30, 2021
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
42,678
|
|
|
|
|
|
|
Lease obligations:
|
|
|
|
|
Operating leases, net
|
|
$
|
2,355,275
|
|
Long-term obligations
|
|
$
|
2,295,144
|
|
Weighted
average remaining lease terms and discount rates were as follows:
Weighted average remaining lease term (years)
|
|
April 30, 2021
|
|
Operating leases
|
|
|
37
|
|
|
|
|
|
|
Weighted average discount rate
Operating leases
|
|
|
4.85
|
%
|
The
aggregate future lease payments for Operating Lease Liability as of April 30, 2021 are as follows:
For the Years Ending April 30,
|
|
|
|
2022
|
|
$
|
129,499
|
|
2023
|
|
|
148,348
|
|
2024
|
|
|
112,116
|
|
2025
|
|
|
112,116
|
|
2026
|
|
|
112,116
|
|
Thereafter
|
|
|
5,039,196
|
|
Total minimum lease payments
|
|
$
|
5,653,391
|
|
Less: amount representing interest
|
|
|
3,298,116
|
|
Total present value of minimum payments
|
|
|
2,355,275
|
|
Less: current portion
|
|
$
|
60,131
|
|
Long term portion of operating lease liability
|
|
|
2,295,144
|
|
Finance
Leases
The
Company’s Tucson Oracle Hotel is subject to non-cancelable cable lease. The Tucson Oracle Hotel non-cancelable cable lease expires
in 2023.
The
following table presents the Company’s lease costs for the three months ended April 30, 2021:
|
|
Three Months Ended
|
|
|
|
April 30, 2021
|
|
Finance Lease Costs:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
6,937
|
|
Interest on lease obligations
|
|
|
942
|
|
Supplemental
cash flow information is as follows:
|
|
Three Months Ended
|
|
|
|
April 30, 2021
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
7,781
|
|
|
|
|
|
|
Lease obligations:
|
|
|
|
|
Finance leases, net
|
|
$
|
73,138
|
|
Long-term obligations
|
|
$
|
44,940
|
|
Weighted
average remaining lease terms and discount rates were as follows:
Weighted average remaining lease term (years)
|
|
April 30, 2021
|
|
Finance leases
|
|
|
2.5
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.85
|
%
|
Finance leases
|
|
|
|
|
The
aggregate future lease payments for Finance Lease Liability as of April 30, 2021 are as follows:
For the Years Ending April 30,
|
|
|
|
2022
|
|
|
23,343
|
|
2023
|
|
|
31,123
|
|
2024
|
|
|
23,343
|
|
Total minimum lease payments
|
|
$
|
77,809
|
|
Less: amount representing interest
|
|
|
4,671
|
|
Total present value of minimum payments
|
|
|
73,138
|
|
Less: current portion
|
|
$
|
28,198
|
|
Long term portion of finance lease liability
|
|
|
44,940
|
|
15.
SHARE-BASED PAYMENTS
The Trust compensates its three non-employee Trustees
for their services through grants of restricted Shares. The aggregate grant date fair value of these Shares was $71,280. These
restricted 48,000 shares, (16,000 each to the three Independent Trustees), vest in equal monthly amounts over one year
during fiscal year 2022.
In addition, 3,000 IHT restricted shares were
issued to each of the Trust’s three accountants, and 2,000 restricted IHT Shares to each of three IHT employees. The aggregate
grant date fair value of these Shares was $22,275. These 15,000 shares vest in equal monthly amounts over six months through July 31,
2021.
See
Note 2 – “Summary of Significant Accounting Policies” for information related to grants of restricted shares under
“Stock-Based Compensation.”
16.
NOTES RECEIVEABLE
Sale
of IBC Hospitality Technologies; IBC Hotels LLC (IBC)
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). The payment terms to the sale agreement were
later amended on December 7, 2020, as further described below. 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.
|
●
|
No
interest accrued through November 2021.
|
|
●
|
Payments
on the note receivable include principal and interest beginning in November 2021
|
|
|
|
|
●
|
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.
|
|
|
|
|
●
|
The
note matures on June 1, 2024
|
|
|
|
|
●
|
Future
payments on this note are shown in the table below.
|
FISCAL YEAR
|
|
|
|
2022
|
|
|
137,500
|
|
2023
|
|
|
550,000
|
|
2024
|
|
|
550,000
|
|
2025
|
|
|
550,000
|
|
Thereafter
|
|
|
965,500
|
|
|
|
$
|
2,750,000
|
|
Impairment
|
|
|
(825,000
|
)
|
|
|
$
|
1,925,000
|
|
Less: current portion of note receivable
|
|
$
|
137,500
|
|
Long term portion of note receivable
|
|
$
|
1,787,500
|
|
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.
|
|
●
|
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.
|
As
of April 30, 2021, management evaluated the carrying value of the note and the impairment taken to date and determined no further impairment
is needed at this time.
IHT
has no managerial control nor does IHT have the ability to direct the operations or capital requirements of IBC as of August 1, 2018.
IHT has no rights to any benefits or losses from IBC as of August 1, 2018.
17.
STOCK OPTIONS
Effective
February 5, 2015, the Board of Trustees of the Trust adopted the 2015 Equity Incentive Plan (“2015 Plan”), subject to shareholder
approval, under which up to 1,600,000 Shares of Beneficial Interest of the Trust are authorized to be issued pursuant to grant of stock
options, stock appreciation rights, restricted shares, restricted share units or other awards.
The
Board of Trustees of the Trust has decided to terminate the 2015 Plan. Effective October 31, 2016, it has been determined that the Shareholders
will not approve the 2015 Plan and the proposed grants have been rescinded. During the 2017 Annual Meeting of Shareholders, the IHT Shareholders
approved the InnSuites Hospitality Trust 2017 Equity Incentive Plan (“2017 Plan”). Management has not granted any options
under the 2017 Plan.
18.
INCOME TAXES
The
Trust is taxed as a C-Corporation. The Trust’s practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. The Trust has received various IRS and state tax jurisdiction notices which the Trust in the process of responding
to in which management believes the notices are without merit and expect full remediation of all tax notices. The Trust and subsidiaries
have deferred tax assets of $4.3 million which includes cumulative net operating loss carryforwards of $1.3 million and syndications
of $2.9 million, and deferred tax liability associated with book/tax differences of $1.5 million as of April 30, 2021. We have evaluated
the net deferred tax asset and determined that it is not more likely than not we will receive full benefit from the net operating loss
carryforwards. Therefore, we have determined a valuation allowance of approximately $2.8 million.
19.
COVID-19 DISCLOSURE
COVID-19
has had a material detrimental impact on our business, financial results and liquidity, in Fiscal Year 2021, ended January 31, 2021.
More recent developments in the U.S., lead IHT Management to believe the severe adverse effects of the Virus on Fiscal Year 2021 on IHT
and the entire hotel and travel industry will be significantly reduced as the economy recovers, and travel recovers in the current Fiscal
Year 2022, (February 1, 2021 to January 31, 2022).
The
global spread of COVID-19 has been and continues to be a complex and rapidly evolving situation, with governments, public institutions
and other organizations imposing or recommending, and business and individuals implementing, at various times and to varying degrees,
restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation,
limitations on the size of gatherings, closures of or occupancy or other operating limitations on work facilities, schools, public buildings
and business, cancellation of events, including sporting events, conferences and meetings, and quarantines and lock-downs. COVID-19 and
its consequences have dramatically reduced travel and demand for hotel rooms, which has and will continue to impact our business, operations,
and financial results. We believe that lodging demand and revenue level are now in a recovery stage.
20.
SUBSEQUENT EVENTS
On May 5, 2021, the Trust received $15,000 in
additional interest income in cash, as a result of the Trust’s investment in UniGen. This additional amount was used to exercise
15,000 warrants for 15,000 shares of common stock in UniGen.
The Trust intends to maintain its current conservative dividend policy. The Trust currently is, and has, been
paying two semiannual dividends each Fiscal Year totaling $0.02 per share per Fiscal Year. In the Fiscal Years ended January 31, 2020
and 2021, the Trust paid dividends of $0.01 per share 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 will pay the scheduled semiannual $0.01 dividend payable on July
31, 2021.