NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF OCTOBER 31, 2021 AND JANUARY 31, 2021
AND
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 2021 AND 2020
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As
of October 31, 2021, InnSuites Hospitality Trust (the “Trust”, “IHT”, “we”, “us” or “our”)
is a publicly traded unincorporated Ohio real estate investment trust (REIT) with two hotels IHT has an ownership interest in and 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., (“UniGen”), approximately $273,000 in UniGen’s privately-held
common stock, and hold warrants to make further UniGen Investments in the future, as further discussed in Note 2 .
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 75.98% and 75.89% interest in the Partnership as of October 31, 2021 and January 31, 2021, respectively. The Trust’s weighted
average ownership for the nine months ended October 31, 2021 and 2020 was 75.89%. As of October 31, 2021, the Partnership owned a 51.01%
interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 21% interest in an InnSuites® hotel located
in Albuquerque, New Mexico.
RRF
Limited Partnership, a subsidiary, manages the Hotels’ daily operations under 2 management agreements, commencing May 1, 2021.
Prior to this, InnSuites Hotels Inc. (“IHI”), also a subsidiary, managed the Hotels’ daily operations through April
30, 2021, and no longer provides management services to the Hotels thereafter. The Trust also provides the use of the “InnSuites”
trademark to the Hotels. All expenses and reimbursements between the Trust, RRF 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, either 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 each Hotel. Each of the Hotels is being made available 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 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 unaudited condensed 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.
SCHEDULE OF ENTITY OWNERSHIP PERCENTAGE
|
|
|
IHT OWNERSHIP %
|
|
ENTITY
|
|
|
DIRECT
|
|
|
|
INDIRECT (i)
|
|
Albuquerque Suite Hospitality, LLC
|
|
|
21.00
|
%
|
|
|
-
|
|
Tucson Hospitality Properties, LLLP
|
|
|
-
|
|
|
|
51.01
|
%
|
RRF Limited Partnership
|
|
|
75.98
|
%
|
|
|
-
|
|
InnSuites Hotels Inc.
|
|
|
100.00
|
%
|
|
|
-
|
|
(i)
|
Tucson 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. Each Class A and Class B 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. On October
31, 2021 and January 31, 2021, 200,003
and 211,708
Class A Partnership units were issued and outstanding,
representing 1.51%
and 1.60%
of the total Partnership units, respectively. Additionally, as of October 31, 2021 and January 31, 2021, 2,974,038
Class B Partnership units were outstanding principally
owned by James Wirth, the Trust’s Chairman and Chief Executive Officer, and Mr. Wirth’s affiliates. If all the Class A and
B Partnership units were converted on October 31, 2021 and January 31, 2021, the limited partners in the Partnership would receive 3,174,041
and 3,885,946, respectively,
Shares of Beneficial Interest of the Trust. As of October 31, 2021, and January 31, 2021, the Trust owns 10,037,476
and 10,025,771,
respectively, general partner units in the Partnership, representing
75.98%
of the total Partnership units.
On
October 27, 2021, an investor converted 3,691 RRF units to 3,691 IHT shares of beneficial interest.
On
October 31, 2021, the total IHT Shares of Beneficial Interest are 9,037,738.
Total Class A and Class B RRF Limited Partnership units are 3,174,041.
The total diluted shares that are convertible one for one is 12,211,779.
LIQUIDITY
The
Trust’s principal source of cash to meet its cash requirements is revenues from hotel room reservations and from RRF
Management fees from the Tucson, Arizona and Albuquerque, New Mexico properties. 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 intercompany advances
and sale of assets. The Covid-19 Virus (the “Virus”) as of March 15, 2020, had previously disrupted the quarterly
distributions from both the Albuquerque and Tucson hotels. These quarterly distributions from both the Albuquerque and Tucson hotels
are projected to resume February 15, 2022.
As
of October 31, 2021, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount payable of approximately
$1,053,000. 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 automatically 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 October 31, 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 October 31, 2021.
With
approximately $1,152,000 of cash, as of October 31, 2021, the availability of approximately $800,000 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.
Management is also analyzing other strategic options available to the Trust, including the sale of one or both Hotel properties, and/or
refinance. 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 or issue additional stock 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 Generally Accepted
Accounting Principles (“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
of 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 nine months ended October 31, 2021 are not necessarily indicative of the results that may be expected for the Fiscal
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 Fiscal 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, the Trust 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
sole general partner of the Partnership, the Trust exercises unilateral control over the Partnership. 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 has been determined to be a
variable interest entity with the Trust 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 (summer),
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
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 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 unaudited 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 October 31, 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.
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 as of October 31, 2021 and 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 payroll taxes the IRS believed were 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. Right-of-use (“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. 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.
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.
During the three month period ended October 31,
2021, the Trust retired 9,613,138 of treasury shares at a cost of $13,936,972.
NET
INCOME/(LOSS) PER SHARE
Basic
and diluted net income/(loss) per Share of Beneficial Interest is computed based on the weighted-average number of Shares of Beneficial
Interest and potentially dilutive securities outstanding during the period. Dilutive securities are limited to the Class A and Class
B units of the Partnership, which are convertible into 3,174,041 Shares of the Beneficial Interest, as discussed in Note 1.
For
the nine months ended October 31, 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 3,174,041 and 3,185,746 in addition to the basic shares outstanding for the three
months ended October 31, 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 October 31, 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 $39,000
and $59,000 for the three months ended October 31, 2021 and 2020 respectively, and $154,000 and $233,000 for the nine months ended October
31, 2021 and 2020, respectively.
CONCENTRATION
OF CREDIT RISK
Credit
risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. Financial
instruments that potentially subject the Trust to a concentration of credit risk consist primarily of cash and cash equivalents. Management’s
assessment of the Trust’s credit risk for cash and cash equivalents is low as cash and cash equivalents are held in financial institutions
believed to be credit worthy. The Trust limits its exposure to credit loss by placing its cash with 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 warrants in a 3rd party private company recorded
in investments on the unaudited 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, COMMON STOCK AND WARRANTS 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% (approximately $15,000 per quarter). The Debentures are convertible into 1,000,000
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.
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. In
February 2021, UniGen separately issued an additional 300,000 warrants at $2.25.
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. 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 $2.6
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 October 31, 2021 is $0.
The
total of all stock ownership upon conversion of the note receivable is 1 million
shares and if all stock warrants available but not outstanding are exercised, these would total to 3 million UniGen shares,
which amounts to approximately 25%
of fully diluted UniGen equity.
On
the Trust’s balance sheet, the investment of the $1,000,000 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 issued with the note receivable was based on Black-Scholes pricing model based on the following inputs:
SCHEDULE OF WARRANTS VALUATION ASSUMPTIONS
Debenture
Warrants
Type of option
|
|
Call option
|
|
Stock price
|
|
$
|
2.25
|
|
Exercise (Strike) price
|
|
$
|
1.00
|
|
Time to maturity (years)
|
|
|
2.0
|
|
Annualized risk-free rate
|
|
|
1.630
|
%
|
Annualized volatility
|
|
|
27.43
|
%
|
Additional
Warrants
Type of option
|
|
Call option
|
|
Stock price
|
|
$
|
2.25
|
|
Exercise (Strike) price
|
|
$
|
2.25
|
|
Time to maturity (years)
|
|
|
2.0
|
|
Annualized risk-free rate
|
|
|
1.630
|
%
|
Annualized volatility
|
|
|
27.43
|
%
|
If
all notes are converted and all available but not outstanding warrants exercised, IHT would hold up to approximately 25% of UniGen fully
diluted equity ownership. Subsequent to October 31, 2021, no activity has occurred with this line of credit and thus no draws have been
taken.
During
the year ended January 31, 2021, the Trust reinvested $60,000 of interest income to exercise 60,000 warrants for 60,000 shares of common
stock in UniGen.
During
the nine months ended October 31, 2021, the Trust reinvested $45,000
of interest income to exercise 45,000 warrants
for 45,000 shares
of common stock in UniGen. Additionally, the Trust exercised 75,000
warrants for a total of $168,750
for 75,000
shares of common stock in UniGen.
The Trust has committed to exercise an additional
75,000 warrants for $168,750 on December 31, 2021.
As
of October 31, 2021, IHT held 180,000
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 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 all 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. Upon sale of 250
Class A Interests, total interests outstanding
changed 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. 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 nine months ending October 31, 2021 and 2020, the Trust purchased 2 units, and sold
1 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.
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 nine months ended October 31, 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 October 31, 2021, and January 31, 2021, hotel properties consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
HOTEL SEGMENT
|
|
|
|
|
|
|
|
|
October 31, 2021
|
|
|
January 31, 2021
|
|
Land
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
Building and improvements
|
|
|
10,572,712
|
|
|
|
10,531,947
|
|
Furniture, fixtures and equipment
|
|
|
4,105,774
|
|
|
|
4,058,681
|
|
Total property and equipment
|
|
|
17,178,486
|
|
|
|
17,090,628
|
|
Less accumulated depreciation
|
|
|
(9,532,621
|
)
|
|
|
(8,961,498
|
)
|
Property and Equipment, net
|
|
$
|
7,645,865
|
|
|
$
|
8,129,130
|
|
As
of October 31, 2021, and January 31, 2021, corporate property, plant, and equipment consisted of the following:
CORPORATE SEGMENT
|
|
|
|
|
|
|
|
|
October 31, 2021
|
|
|
January 31, 2021
|
|
Land
|
|
$
|
7,005
|
|
|
$
|
7,005
|
|
Building and improvements
|
|
|
75,662
|
|
|
|
75,662
|
|
Furniture, fixtures and equipment
|
|
|
402,878
|
|
|
|
540,014
|
|
Total property and equipment
|
|
|
485,545
|
|
|
|
622,681
|
|
Less accumulated depreciation
|
|
|
(421,246
|
)
|
|
|
(561,961
|
)
|
Property and Equipment, net
|
|
$
|
64,299
|
|
|
$
|
60,720
|
|
6.
MORTGAGE NOTES PAYABLE
On
October 31, 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. Weighted average annual interest rates on mortgage notes payable as of October
31, 2021 and January 31, 2021 were 4.69%.
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
October 14, 2016. As of October 31, 2021, and January 31, 2021, the mortgage loan balance was approximately $4,493,000 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 October
31, 2021, the mortgage loan balance was approximately $1,321,000, net of financing fees of approximately $15,000.
See
Note 9 – “Minimum Debt Payments” for scheduled minimum payments on the mortgage notes payable.
7.
RELATED PARTY NOTES
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 December
31, 2021, and automatically 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 October 31, 2021, and January 31, 2021, the Trust had an amount payable of approximately $1,053,000
and $1,595,000,
respectively. During the Nine months ended October 31, 2021 and 2020, the Trust accrued approximately $57,000
and $0,
respectively, of interest expense.
8.
OTHER NOTES PAYABLE
As
of October 31, 2021, the Trust had approximately $24,000 in promissory notes outstanding to unrelated third parties arising from the
repurchase of 94,130 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 October 31, 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 $197,750 as of October 31, 2021.
On
June 20, 2016, March 1 2017, May 30, 2018, and October 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 October 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 approximately
$267,000 as of October 31, 2021.
On
March 20, 2017, the Trust and Partnership entered multiple, unsecured loans to Lisa Sweitzer Hayes (“Sweitzer Loans”), totaling
$100,000. As of October 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 $98,000 as of October
31, 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.
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.
Both of these loans were forgiven in July, 2021. The forgiveness was recognized as other income for GAAP Financial Statement purposes,
and is also tax free for tax purposes, similar to the aforementioned PPP loans from 2020 above, 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 October 31, 2021 are approximately as follows in the respective fiscal years indicated:
SCHEDULED OF MINIMUM PAYMENTS OF DEBT
FISCAL YEAR
|
|
MORTGAGES
|
|
|
OTHER NOTES PAYABLE
|
|
|
NOTES PAYABLE - RELATED PARTY
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
$
|
42,432
|
|
|
|
21,507
|
|
|
|
-
|
|
|
$
|
63,939
|
|
2023
|
|
|
174,956
|
|
|
|
560,375
|
|
|
|
1,052,547
|
|
|
|
1,787,878
|
|
2024
|
|
|
217,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
217,255
|
|
2025
|
|
|
190,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,932
|
|
2026
|
|
|
201,594
|
|
|
|
-
|
|
|
|
-
|
|
|
|
201,594
|
|
2027
|
|
|
212,034
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,034
|
|
Thereafter
|
|
|
4,760,007
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,760,007
|
|
|
|
$
|
5,799,210
|
|
|
$
|
581,882
|
|
|
$
|
1,052,547
|
|
|
$
|
7,433,639
|
|
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. During the 9 months ended October 31, 2021 and 2020, the Trust declared and paid
$95,877
and $95,924 of dividends, respectively. 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 October 31, 2021 and 2020, the Trust repurchased 23,775
and 34,680
Shares of Beneficial Interest at an average price
of $3.72 and
$1.21 per
share, respectively. For the nine months ended October 31, 2021 and 2020, the Trust repurchased 23,775 and 233,569 Shares of Beneficial
Interest at an average price of $3.72 and $1.06 per share, respectively. The average price paid includes brokerage commissions. Management
believes the market price of IHT Stock does not reflect its full potential based on real estate values at current market prices, which
exceeds book value, and based on the potential of the UniGen clean energy diversification investment. Accordingly, 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 October 31, 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 October 31, 2021 and January 31, 2021, Mr. Wirth and his affiliates held
5,876,683
Shares of Beneficial Interest in the Trust, which
represented 65.02%
and 64.88%
respectively, of the total issued and outstanding Shares of Beneficial Interest.
As
of October 31, 2021 and January 31, 2021, the Trust owned 75.98% and 75.89% of the Partnership, respectively. As of October 31, 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 Tucson Hotel through the Trust’s wholly owned subsidiary, RRF Limited Partnership. Under the management
agreements, RRF manages the daily operations of the two Hotels. Revenues and reimbursements among the Trust, RRF, 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.
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 when working full-time, and $37,000 annual salary when working 60% of the time, which he is currently doing.
12.
STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES
The
Trust paid $241,000 and
$182,00 in
cash for interest for the nine months ended October 31, 2021 and 2020, respectively for operations. The amounts related to Notes Payables
- IHT Shares of Beneficial Interest and Partnership Units repurchases amounted to $20,000
and $130,000,
respectively, for the nine months ended October 31, 2021 and 2020. No
cash was paid for taxes for the nine months ended
October 31, 2021 and 2020.
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 October 31, 2021 and January 31, 2021, Restricted Cash line was omitted on the Trust’s Consolidated
Balance Sheet.
Membership
Agreements:
The
Tucson and Albuquerque Hotels have 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, both 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 annually by either party. Best Western
requires that the hotels meet certain requirements for room quality. The two Best Western Hotels receive significant reservations through
the Best Western reservation system, and through Online Travel Agent (OTA) reservations systems, Expedia and Booking.com. Under these
arrangements, fees paid for membership fees and reservations were approximately $69,000 and $41,000 for the nine months ended October
31, 2021 and 2020, respectively. These fees are included in room operating expenses on the unaudited condensed consolidated statements
of operations for Albuquerque and Tucson.
Litigation:
The
Trust and/or its hotel affiliates, are 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
unaudited condensed 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 unaudited condensed 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 Trustee 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 Trustee 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 July 2022. 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 $2,000 for year 5 of the lease term, which expires
August 31, 2022.
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 nine months ended October 31, 2021:
SCHEDULE OF LEASE COSTS
|
|
Nine
Months Ended
|
|
|
|
October
31, 2021
|
|
Operating
Lease Costs:
|
|
|
|
|
Operating
lease cost*
|
|
|
150,260
|
|
*
|
|
Short term lease
costs were immaterial.
|
Supplemental
cash flow information is as follows:
SCHEDULE OF CASH FLOW INFORMATION
|
|
Nine Months Ended
|
|
|
|
October 31, 2021
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
64,762
|
|
|
|
|
|
|
Lease obligations:
|
|
|
|
|
Operating leases, net
|
|
$
|
2,326,160
|
|
Long-term obligations
|
|
$
|
2,273,740
|
|
Weighted
average remaining lease terms and discount rates were as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES
Weighted average remaining lease term (years)
|
|
October 31, 2021
|
|
Operating leases
|
|
|
37
|
|
|
|
|
|
|
Weighted average discount rate Operating leases
|
|
|
4.85
|
%
|
The
aggregate future lease payments for Operating Lease Liability as of October 31, 2021 are as follows:
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASE AND FINANCE LEASE
For
the Years Ending October 31,
|
|
|
|
2022
|
|
$
|
43,557
|
|
2023
|
|
|
148,348
|
|
2024
|
|
|
112,116
|
|
2025
|
|
|
112,116
|
|
2026
|
|
|
112,116
|
|
Thereafter
|
|
|
5,039,195
|
|
Total
minimum lease payments
|
|
$
|
5,567,448
|
|
Less:
amount representing interest
|
|
|
3,241,288
|
|
Total
present value of minimum payments
|
|
|
2,326,160
|
|
Less:
current portion
|
|
$
|
52,420
|
|
Long
term portion of operating lease liability
|
|
|
2,273,740
|
|
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 nine months ended October 31, 2021:
SCHEDULE OF LEASE COSTS
|
|
Nine Months Ended
|
|
|
|
October 31, 2021
|
|
Finance Lease Costs:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
20,812
|
|
Interest on lease obligations
|
|
|
2,576
|
|
Supplemental
cash flow information is as follows:
SCHEDULE OF CASH FLOW INFORMATION
|
|
Nine Months Ended
|
|
|
|
October 31, 2021
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
20,811
|
|
|
|
|
|
|
Lease obligations:
|
|
|
|
|
Finance leases, net
|
|
$
|
59,209
|
|
Long-term obligations
|
|
$
|
30,321
|
|
Weighted
average remaining lease terms and discount rates were as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES
Weighted average remaining lease term (years)
|
|
October 31, 2021
|
|
Finance leases
|
|
|
2
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.85
|
%
|
Finance leases
|
|
|
|
|
The
aggregate future lease payments for Finance Lease Liability as of October 31, 2021 are as follows:
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASE AND FINANCE LEASE
For the Years Ending October 31,
|
|
|
|
2022
|
|
|
7,781
|
|
2023
|
|
|
31,123
|
|
2024
|
|
|
23,343
|
|
Total minimum lease payments
|
|
$
|
62,247
|
|
Less: amount representing interest
|
|
|
3,038
|
|
Total present value of minimum payments
|
|
|
59,209
|
|
Less: current portion
|
|
$
|
28,888
|
|
Long term portion of finance lease liability
|
|
|
30,321
|
|
15.
SHARE-BASED PAYMENTS
The
Trust compensates its three independent non-employee Trustees for their services through grants of restricted Shares. The aggregate grant
date fair value of these Shares was $187,110, for the Fiscal Year ending January 31, 2021. These restricted 48,000 shares, (16,000 each
to the three Independent Trustees), vest in equal monthly amounts in the current 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, for a total of 15,000 Shares. The aggregate grant date fair value of these Shares was $44,550. These 15,000
shares vested in equal monthly amounts in the current fiscal year 2022.
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 sale agreement was later amended due
to the effects of Covid-19, on October 20, 2021, as further described below. As a part of the amended sale agreement, the Trust
received a secured promissory note in the principal amount of $1,925,000
with interest to be accrued at 3.75%
per annum, which is recorded in the accompanying condensed balance sheet in continuing operations.
|
●
|
No
interest accrued through May 2023, and no payments on the note receivable including principal and interest until the recently extended
time period through May 2023.
|
|
|
|
|
●
|
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 or pre-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.
|
SCHEDULE OF FUTURE PAYMENTS OF DEBT
FISCAL YEAR
|
|
|
|
2023
|
|
$
|
250,000
|
|
2024
|
|
|
1,675,000
|
|
Total
|
|
$
|
1,925,000
|
|
As
of October 31, 2021, management evaluated the carrying value of the note determined no further impairment is needed at this time. This
is detailed further with an extension to May 2023, which allows time for IBC to benefit from the current rebound in the travel and hotel
industries currently being experienced.
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 decided to terminate the 2015 Plan effective October 31, 2016. 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/or has set up a reserve subject to full resolution. 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 October 31, 2021. We have evaluated
the net deferred tax asset and determined that it is 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
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 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 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 on travel or transportation, or 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 initially dramatically reduced travel and demand for hotel rooms, which
has impacted our business, operations, and financial results. We believe that since April 2021, lodging demand and revenue level are
now in a recovery stage.