UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT

 

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the fiscal year ended January 31, 2017.2019.
  
[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-7062

 

INNSUITES HOSPITALITY TRUST

(Exact name of registrant as specified in its charter)

 

Ohio 34-6647590

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

InnSuites Hotels Centre

16251730 E. Northern Avenue, Suite 105122

Phoenix, AZ

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

 

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

 

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

 

Title of Each Class Name of Exchange on Which Registered

Shares of Beneficial Interest,

without par value

 NYSE MKTAMERICAN

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Emerging growth company [  ]

 

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

 

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

 

Aggregate market value of Shares of Beneficial Interest held by non-affiliates of the registrant as of July 29, 2016,January 31, 2019, based upon the closing sales price of the registrant’s Shares of Beneficial Interest on that date, as reported on the NYSE MKT: $7,401,278AMERICAN: $6,416,908

 

Number of Shares of Beneficial Interest outstanding as of AprilJune 18, 2017: 9,639,6012019: 9,323,838

 

Documents incorporated by reference: None.

 

 

 

   
 

 

PART I

 

Item 1.BUSINESS

 

INTRODUCTION TO OUR BUSINESS

 

InnSuites Hospitality Trust (the “Trust”Trust) is headquartered in Phoenix, Arizona and is an unincorporated Ohio real estate investment trust formed on June 21, 1979; however, the1971. The Trust is not a real estate investment trust for federal taxation purposes.purposes, but is taxed as a C-corporation. The Trust, with its affiliates RRF Limited Partnership, a Delaware limited partnership (the “Partnership”Partnership), and InnSuites® Hotels, Inc., a Nevada corporation (“InnSuites Hotels”Hotels), owns interests in andtwo hotels, operates fourthree hotels, provides management services for a total of fivethree hotels, and provides trademark license services for a total of sixfive hotels. At January 31, 2017,2019, and currently, the Trust ownedowns a 72.11%74.80% sole general partner interest in the Partnership, which controlledcontrols a 51.01% interest in onethe InnSuites hotel located in Tucson, Arizona, and controlled a 51.33%direct 20.53% interest in onethe InnSuites hotel located in Ontario, California. We anticipate to sell one or more of our hotels by January 31, 2018.

The Trust also owned a direct 50.24% interest in one InnSuites hotel located in Yuma, Arizona and owned a direct 50.91% interest in one InnSuites® hotel located in Albuquerque, New Mexico (all four InnSuitesMexico. The Tucson and Albuquerque hotels are hereinaftersometimes referred to as the “Hotels”)Hotels. We anticipate selling one of the Hotels in the next twelve months, and the remaining Hotel within twelve months thereafter.

InnSuites Hotels LLC, a wholly-owned subsidiary of the Trust, provides management services for the two Hotels and one hotel located in Tempe, Arizona (the “Tempe Hotel”) that is owned by affiliates of James F. Wirth, the Trust’s Chairman and Chief Executive Officer. InnSuites Hotels also provides trademark and licensing services to the Hotels, one hotel owned by affiliates of Mr. Wirththe Tempe Hotel and onetwo unrelated hotel property. In addition, we provide additional services in our other business segment as reservations services for approximately 6,300 unrelated hotel properties, of which over 1,800 hotel properties are exclusive.properties. The Trust has approximately 150100 full-time employees and 50approximately 20 part-time employees.

 

The two Hotels have an aggregate of 574267 hotel suites and operate as moderate and full-service hotels that apply a value studio and two-room suite operating philosophy formulated in 1980 by Mr. Wirth. The Trust owns and operates hotels as studio and two-room suite hotels that offer services such as free hot breakfast buffets and complimentary afternoon social hours plus amenities, such as microwave ovens, refrigerators, and free high-speed hard wired and wireless Internet access and coffee makers in each studio or two-room suite.access.

 

The Trust believes that a significant opportunity for revenue growthit can sustain and profitability will arise from the skillful managementincrease cash flows by skillfully managing operations of the Trust’s Hotels orand managed hotel properties for both increased occupancy and rates. The Trust’s primary business objective is to maximize returns to its shareholders through increases in asset value and long-term total returns to shareholders.shareholders, and eventual profitable sale of assets. The Trust seeks to achieve this objective through participation in increased revenues from the Hotels as a result of intensive management and marketing of the InnSuites®InnSuites© hotels, and the “InnSuites Boutique Collection” brandsby selling real estste in the southwestern region of the United States.strong real estate market. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Future Positioning” for a more detailed discussion of the Trust’s strategic objectives.

 

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

 

In furtherance of our strategic plan, we have significantly expanded InnDependent Boutique Collection (“IBC Hotels”), a wholly owned subsidiary of InnSuites Hospitality Trust, which has a network of approximately 6,300 members of which over 1,800 are exclusive and representing 170 countries and over 2,000,000 rooms and suites. We believe this new hotel network provides independent hotel owners a competitive advantage against traditional franchised brands in their markets. The network provides a booking system and loyalty program. IBC Hotels charges various booking fees ranging from 10% - 30%, which we believe increases the independent hotel profits. Competitors of IBC Hotels can charge anywhere from a 30% to 50% booking fee. InnDependent InnCentives, IBC’s loyalty program, allows hoteliers to benefit from guests who frequently stay at IBC independent hotels. IBC Hotels is dedicated to providing guests with a unique, non-cookie cutter hotel experience in addition to providing value-added amenities and resort locations to its guests. IBC Hotels has an InnDependent InnCentives travel rewards program that provides a free stay at any worldwide IBC Hotel of the guests’ choice after booking 12 nights on IBC Hotels’ website. In addition, on January 8, 2016, IBC Hotels purchased substantially all of the assets of International Vacation Hotels, a technology company located in Dallas, Texas, which provides reservation services to over 600 independent international hotels. For more information about the acquisition of International Vacation Hotels, see Note 27 of our Consolidated Financial Statements - “Acquisition of International Vacation Hotels”.

MANAGEMENT AND LICENSING CONTRACTS

 

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

The Trust also provides the use of the “InnSuites” trademark to the Hotels and the hotel owned by affiliates of Mr. WirthTempe Hotel through the Trust’s wholly-owned subsidiary, InnSuites Hotels, at no additional charge.Inc., which is included in the management fee. The InnSuites trademark expires in January 2027.

 

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

MEMBERSHIP AGREEMENTS

 

InnSuites Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”Western) with respect to alleach of the two Hotels. In exchange for use of the Best Western name, trademark and reservation system, the Hotels payeach Hotel pays marketing and reservation fees to Best Western based on reservations received through the use of the Best Western reservation system, a marketing fee based upon the monthly room revenues, and the number of available suites at the Hotels. The agreements with Best Western have no specific expiration terms and may be cancelled by either party.are year-to-year. Best Western requires that the Hotels meet certain requirements for room quality, and the two Hotels are subject to removal from itsthe Best Western reservation system if these requirements are not met. TheDuring the past year, the two 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 $575,000$277,000 and $483,000$286,000, for fiscal years ended January 31, 20172019 and 2016,2018, respectively.

 

COMPETITION IN THE HOTEL INDUSTRY

 

The hotel industry is highly competitive. We expect the major challenge for the fiscal year ending January 31, 20182020 (“fiscal year 2018”2020”) to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate, which may affect our ability to increase room rates while maintaining market share. Each of the Hotels, experiencesand the Tempe Hotel faces competition primarily from other mid-market hotels located in its immediate vicinity, but also competes with hotel properties located in other geographic markets.markets, and increasingly from alternative lodging facilities, such as Airbnb. While none of the Hotels’ competitors dominate any of the Trust’stheir geographic markets, some of those competitors may have greater marketing and financial resources than the Trust.

 

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

 

The Trust has chosen to focus itsTrust’s hotel investments are located in the southwest region of the United States.Arizona and New Mexico. With the completed renovations at our Ontario, CaliforniaTucson, Arizona and Yuma, ArizonaAlbuquerque, New Mexico hotel properties, the Trust hasthose hotels have seen additional demand as supply has been steady in those respective markets. Either an increase in supply or a decline in demand could result in increased competition, which could have an adverse effect on the revenueoccupancy, room rates and revenues of our Hotels in their respective markets.

IBC Hotels provides a variety of brand-like hotel and technology services without the cost or hassle of a brand for a month-to-month agreement to independent hotels, which make up approximately one-half of the world’s hotels (not including B&Bs and rentals). These services include but are not limited to: web/mobile site presence, hotel app, booking engine, loyalty program along with strategic partnerships that provide metasite channels, fast-tracked financing, purchasing, IT services, training and education and integrations to a variety of service providers including rental cars and tours as well as property management and additional distribution.

While the travel landscape is competitive in itself, each one of the services provided by IBC Hotels has its own competitive landscape. Online travel agencies (OTAs) continue to fight for the unwashed customer looking for the occasional booking and hotels to push excess inventory. Brands have historically had solid demand due to their loyalty programs and consistent product offerings along with powerful education and training programs. Technology and tourism companies have powerfully operated in their segment without much cross-over. Independent hotels have historically had trouble getting financing and purchasing power without a large brand or management contract.

 

The Trust may also compete for investment opportunities with other entities that have greater financial resources. These entities also may generally accept more risk than the Trust can prudently manage. Competition may generally reduce the number of suitable future investment opportunities available to the Trust and increase the bargaining power of owners seeking to sell their properties.

REGULATION

 

The Trust is subject to numerous federal, state and local government laws and regulations affecting the hospitality industry, including usage, building and zoning requirements and the laws and regulations related to the preparation and sale of food and beverage such as health and liquor license laws. A violation of any of those laws and regulations or increased government regulation could require the Trust to make unplanned expenditures which may result in higher operating costs. In addition, the Trust’s success in expanding our hotel operations depends upon its ability to obtain necessary building permits and zoning variances from local authorities. Compliance with these laws is time intensive and costly and may reduce the Trust’s revenues and operating income.

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

 

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

 

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

 

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

 

SEASONALITY OF THE HOTEL BUSINESS

 

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

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

 

OTHER AVAILABLE INFORMATION

 

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

Item 1A.RISK FACTORS

 

Not required for smaller reporting companies.

 

Item 1B.UNRESOLVED STAFF COMMENTS

 

Not required for smaller reporting companies.

 

Item 2.PROPERTIES

 

The Trust maintains its administrative offices at the InnSuites Hotels Centre, at 16251730 E. Northern Avenue, Suite 105,122, Phoenix, Arizona 85020 in a space leased by the Trust from a third party. All of theThe two Hotels are operated as InnSuites®InnSuites Hotels, while alland both Hotels are also marketed as Best Western® Hotels. All of theThe Hotels operate in the following locations:

 

PROPERTY NUMBER OF SUITES  YEAR OF CONSTRUCTION / ADDITION MOST RECENT RENOVATION (1)  PERCENT OWNERSHIP BY THE TRUST 
InnSuites Hotel and Suites Airport Albuquerque Best Western Hotel  100   1975/1985 2005  50.91%(2)
               
InnSuites Hotel and Suites Tucson Oracle Best Western Hotel  158   1981/1983 2006  36.78%(3)
               
InnSuites Hotels and Suites Yuma Best Western Hotel  166   1982/1984 2016  50.24%(4)
               
InnSuites Hotels and Suites Ontario Airport Best Western Hotel  150   1990  2016  37.01%(5)
               
Total Suites  574           

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

 

(1) The Trust defines a renovation asIn the remodelingfiscal year ended January 31, 2019, we remodeled 100% of more than 20% of aeach property’s available suites. The Albuquerque Hotel added six additional suites in aduring the fiscal year.

(2)quarter ending April 30, 2018 by splitting several two-room suites into individual suites. The Trust owns a direct 50.91%20.53% interest in the InnSuites Hotel and Suites Airport Albuquerque Best Western Hotel.

(3) The Partnership owns a 51.01% interest in the InnSuites Hotel and Suites Tucson Oracle Best Western Hotel. The Trust owns a 72.11%74.94% general partner interest in the Partnership.

 

(4) The Trust holds a direct 50.24% ownership interest in the InnSuites Hotels and Suites Yuma Best Western Hotel.

(5) The Partnership owns a 51.33% interest in the InnSuites Hotels and Suites Ontario Airport Best Western Hotel. The Trust owns a 72.11% general partner interest in the Partnership.

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

 

See Note 1110 to the Trust’s Consolidated Financial Statements – “Mortgage Notes Payable” hereinbelow for a discussion of mortgages encumbering the Hotels.

 

See Note 2120 to the Trust’s Consolidated Financial Statements – “Commitments and Contingencies” for a discussion of the lease for our corporate headquarters and the non-cancellable ground lease to which our Albuquerque Hotel is subject.

 

Item 3.LEGAL PROCEEDINGS

 

The Trust is not a party to, nor are any of its properties subject to, any material litigation or environmental regulatory proceedings. See Note 2120 to Trust’s Consolidated Financial Statements – “Commitments and Contingencies”.

 

Item 4.MINE SAFETY DISCLOSURES

 

None.

Not Applicable.

PART II

 

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

 

The Trust’s Shares of Beneficial Interest are traded on the NYSE MKTAmerican under the symbol “IHT.” On April 19, 2016,June 4, 2019, the Trust had 8,817,8039,360,292 shares outstanding. As of April 24, 2016,June 4, 2019, there were 362339 holders of record of our Shares of Beneficial Interest, not including holders who hold their asset positions with banks and brokers.

 

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

 

Fiscal Year 2017 High  Low  Dividends 
Fiscal Year 2019 High Low Dividends 
              
First Quarter $2.56  $2.08   -  $1.82  $1.43   - 
                        
Second Quarter $3.09  $2.09   -  $2.35  $1.25  $0.01 
                        
Third Quarter $2.45  $2.10   -  $1.85  $1.28   - 
                        
Fourth Quarter $2.29  $2.03  $0.01  $1.80  $1.41  $0.01 
            
Fiscal Year 2018  High  Low  Dividends 
            
First Quarter $2.21  $1.71   - 
            
Second Quarter $2.20  $1.65  $0.01 
            
Third Quarter $2.00  $1.50   - 
            
Fourth Quarter $1.87  $1.50  $0.01 

 

Fiscal Year 2016 High  Low  Dividends 
          
First Quarter $3.27  $2.03   - 
             
Second Quarter $2.96  $2.21   - 
             
Third Quarter $3.10  $2.32   - 
             
Fourth Quarter $2.65  $2.08  $0.01 

The Trust intends to maintain a conservative dividend policy to facilitate the reduction of debt, and internal growth.currently has been paying $0.02 per share per fiscal year. In the fiscal years ended 2017January 31, 2018 and 2016,2017, the Trust paid dividends of $0.01 per share in each of the second and the fourth quarterquarters of each year.the fiscal years ended January 31, 2018 and 2019. The Trust has paid dividends each fiscal year since its inception in 1971, and the Trust expects comparable cash dividends will continue to be paid in the future.

 

On January 2, 2001, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 250,000 Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. On September 10, 2002, August 18, 2005 and September 10, 2007, the Board of Trustees approved the purchase of up to 350,000 additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Additionally, on January 5, 2009, September 15, 2009 and January 31, 2010, the Board of Trustees approved the purchase of up to 300,000, 250,000 and 350,000, respectively, additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the Trusts’ equity compensation plans/programs. During the fiscal year ended January 31, 2017,2019, the Trust acquired 30,227217,609 Shares of Beneficial Interest in open market transactions at an average price of $2.55$1.71 per share. The average price paid includes brokerage commissions. The Trust intends to continue repurchasing Shares of Beneficial Interest in compliance with applicable legal and NYSE MKTAMERICAN requirements. The Trust remains authorized to repurchase an additional 63,090444,508 Partnership units and/or Shares of Beneficial Interest pursuant to the publicly announced share repurchase program, which has no expiration date.

 

 6 
 

 

   Issuer Purchases of Equity Securities 
Period  Total Number of Shares Purchased  Average Price Paid per Share  Total Number of Shares Purchased as Part of Publicly Announced Plans  Maximum Number of Shares that May Yet Be Purchased Under the Plans 
              
November 1 - November 30, 2016   609  $3.06   609   75,898 
December 1 - December 31, 2016   8,259  $2.24   8,259   67,639 
January 1 - January 31, 2017   4,549  $2.71   4,549   63,090 
Total   13,417       13,417     

  Issuer Purchases of Equity Securities 
Period Total Number
of Shares Purchased
  Average
Price
Paid per
Share
  Total Number of
Shares Purchased as Part of Publicly Announced Plans
Maximum Number of Shares that May Yet Be Purchased Under the Plans 
February 1 - February 28, 2018  8,455  $1.79   8,455   653,662 
March 1 - March 31, 2018  141,148  $1.93   1,707   651,955 
April 1 - April 30, 2018  -  $-   -   651,955 
May 1 - May 31, 2018  16,827  $2.00   11,000   640,955 
June 1 - June 31, 2018  78,500  $2.75   8,000   632,955 
July 1 - July 31, 2018  26,524  $1.67   26,524   606,431 
August 1 - August 31, 2018  73,682  $1.62   73,682   532,749 
September 1 - September 30, 2018  38,189  $1.75   38,189   494,560 
October 1 - October 31, 2018  16,498  $1.70   16,498   478,062 
November 1- November 30, 2018  24,892  $1.74   24,892   453,170 
December 1- December 31, 2018  5,938  $1.83   5,938   447,232 
January 1 – January 31, 2019  2,724  $1.75   2,724   444,508 
Total  433,377       217,609     

 

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

 

See Note 2 to our Consolidated Financial Statements – “Summary of Significant Accounting Policies” for information related to grants of restricted shares made to members of our Board of Trustees during fiscal year 2017.2019. These grants were made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”Securities Act), pursuant to Section 4(a)(2).

 

For stock option grants during fiscal 2017,2019, see Note 2624 to our Consolidated Financial Statements - “Stock Options.”

 

For the issuance of Shares of Beneficial Interest by the Trust in connection with the acquisition of International Vacation Hotels, see Note 27 to our Consolidated Financial Statements – “Acquisition of International Vacation Hotels.” This issuance was made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

For the issuance of Shares of Beneficial Interest by the Trust to Rare Earth Financial, LLC, see Note 1817 to our Consolidated Financial Statements – “Other Related Party Transactions.” These issuances were made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

 

Item 6.SELECTED FINANCIAL DATA

 

Not required for smaller reporting companies.

 

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

 

OVERVIEW

Item 7A

GENERAL

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

 

We are engaged in the ownership and operation of hotel properties. At January 31, 2017,2019, the Trust had fourtwo moderate and full-service hotels in Tucson, Arizona and Albuquerque, New Mexico with 574267 hotel suites. Allsuites, and managed a third hotel in Tempe, Arizona. Both of our Hotels are branded through membership agreements with Best Western. All HotelsWestern, and both are trademarked as InnSuites Hotels. We are also involved in various operations incidental to the operation of hotels, such as the operation of restaurants and meeting/banquet room rentalsrentals.

At January 31, 2019, we owned, through our sole general partner’s interest in the Partnership, a direct 20.53% interest in the Albuquerque, New Mexico Hotel, and, together with the operation ofPartnership, owned a reservation system.51.01% interest in the Tucson, Arizona. Hotel. At January 31, 2018, we also owned a 50.24% direct interest in the InnSuites Yuma Hotel and Suites Best Western Yuma, Arizona hotel.

 

Our operations consist of twoone reportable segments, hotel ownership, whichsegment – Hotel Operations & Hotel Management Services. Hotel Operations derives its revenue from the operation of the Hotels and reservation services for approximately 6,300 unrelatedTrust’s two hotel properties with an aggregate of which over 1,800 hotel properties are exclusive. We provide267 suites in Arizona and New Mexico. Hotel management services, provides management services for the Trust’s two Hotels and two hotels owned by affiliatesa non-owned hotel in Tempe, Arizona. As part of James F. Wirth, the Trust’s Chairman and Chief Executive Officer. Weour management services, we also provide trademark and licensing services to the Hotels, one hotel owned by affiliates of Mr. Wirth and one unrelated hotel property.services.

Our results are significantly affected by occupancy and room rates at the Hotels, our ability to manage costs, changes in room rates, and changes in the number of available suites caused by acquisition andthe Trust’s disposition activities. Results are also significantly impacted by overall economic conditions and conditions in the travel industry. Unfavorable changes in these factors could negatively impact hotel room demand and pricing, which would reduce our profit margins on rented suites. Additionally, our ability to manage costs could be adversely impacted by significant increases in operating expenses, resulting in lower operating margins. Management expects greater demandmargins and steady supply to continue. However, eitherhigher hourly labor costs. Either a further increase in supply or a further decline in demand could result in increased competition, which could have an adverse effect on the rates and revenue of the Hotels in their respective markets.

Although weWe experienced stronger economic conditions during fiscal year 2017, we2019. We anticipate that a steadystrong economy will exist during 2018.all of fiscal 2020. We expect the major challenge for fiscal year 20182020 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate, which may affect our ability to increase room rates while maintaining market share. We believe that we have positioned the Hotels to remain competitive through selective refurbishment, by carryingoffering a relatively large number of two-room suites at each location, and by maintaining a robust complementary guest items and a free Internet access system.

 

Our strategic plan is to obtain the full benefit of our real estate equity, and to migrate our focusby marketing the Hotels at attractive current prices. In addition, the Trust is seeking a large private merger partner that may benefit from a hotel ownermerger that would afford that partner access to a hospitality service company by expanding our trademark license, management, reservation, and advertising services, through IBC Hotels.listing on the NYSE AMERICAN. For more information on our strategic plan, including information on our progress in disposing of our hotel properties, see “Future Positioning” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

In furtherance of our strategic plan, we have significantly expanded IBC Hotels, a wholly owned subsidiary of InnSuites Hospitality Trust, which provides services to approximately 6,300 properties. We believe this new hotel network provides independent hotel owners a competitive advantage against traditional franchised brands in their markets. The network provides a booking system and loyalty program. IBC Hotels charges a 10% booking fee, which we believe, increases the independent hotel’s profits. Competitors of IBC Hotels can charge anywhere from a 30% to 50% booking fee. InnDependent InnCentives, IBC’s loyalty program, allows hoteliers to benefit from guests who frequently stay at IBC independent hotels. In addition, on January 8, 2016, IBC Hotels and the Trust, purchased substantially all of the assets of International Vacation Hotels, a technology company located in Dallas, Texas which provides reservation services to over 600 independent international hotels. For more information about the acquisition of International Vacation Hotels, see Note 27 of our Consolidated Financial Statements - “Acquisition of International Vacation Hotels”.

DISPOSITION OF YUMA HOTEL

 

We are planning significant expansion of IBC Hotels during the next couple of fiscal years as we continue to expand and develop our production and sales and marketing efforts. Specifically, IBC Hotels’ product development roadmap includes integration of more hotel software systems to simply use and simplify adoption of our product by the hotels, improve retention with better onboarding techniques, grow digital marketing services capabilities and revenues and continue to develop our product to meet the needs of our hotel partners. We anticipate significant expansion of our sales and marketing efforts by hiring additional personnel, seek out partnerships and acquisitions to grow our hotel user base and further monetize our loyalty program and consumer site. In addition, we play to explore financial and strategic options for this division and have hired Viant Capital, an investment banker, to assist. We anticipate the IBC Hotels sales and marketing efforts to increase our revenues and decrease our consolidated net loss over the next couple of fiscal years. For each reservation, IBC Hotels receives a 10% transactional fee plus reimbursement of our credit card processing fees associated with the reservation. We cannot provide any assurance that our plans will be successful or in line with our expectations.

GENERAL

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

At January 31, 2017, we owned through our sole general partner’s interest in the Partnership a direct 50.91% interest in the Albuquerque, New Mexico Hotel, a through our sole general partner’s interest in the Partnership a direct 51.33% interest in the Ontario, California Hotel and a 50.24% direct interest in the Yuma, Arizona Hotel. At January 31, 2016, we owned through our sole general partner’s interest in the Partnership a direct 50.91% interest in the Albuquerque, New Mexico Hotel, and a 50.93% direct interest in the Yuma, Arizona Hotel. Additionally, at January 31, 2016, we, together with the Partnership, owned a 51.01% interest in a hotel located in Tucson, Arizona and a 51.71% interest in a hotel located in Ontario, California. We purchased 0 Partnership Class A units of our sole general partner interest during the years ended January 31, 2017 and 2016. OnEffective October 14, 2015,24, 2018, the Trust sold its Tucson St. Mary’sthe Yuma hotel to an unrelated third party for $16.05 million. With an estimated basis of approximately $9.7 million.$4.6 million, the sale resulted in the recognition of a significant profit after transactional costs. For more information about the disposition of the Tucson St. Mary’sYuma, Arizona hotel, see Note 2423 of our Consolidated Financial Statements - “Sale of Tucson Saint Mary’s Suite Hospitality Property”.“Discontinued Operations.

 

DISPOSITION OF IBC HOSPITALITY TECHNOLOGIES

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

On August 15, 2018, InnSuites Hotels, Inc., a wholly-owned subsidiary of InnSuites Hospitality Trust (“IHT”) entered into an Agreement to sell IBC Hotels, LLC to 102037739 Saskatchewan Ltd., a wholly-owned subsidiary of OBASA Capital Investments, Inc., an unrelated third party, for $3,000,000. The transaction closed, and closing funds of $250,000 were transferred to IHT, on August 16, 2018. The sale was made effective as of August 1, 2018. During the last fiscal year end January 31, 2018 IBC reported net losses of $2.38 million, including an impairment on goodwill, amortization of intangible assets and depreciation of fixed assets. For more information about the sale of our IBC Technology Segment, see Note 23 of our Consolidated Financial Statements - “Discontinued Operations”.

Our expenses consist primarily of property taxes, insurance, corporate overhead, interest on mortgage debt, professional fees, depreciation of the Hotels and hotel operating expenses. Hotel operating expenses consist primarily of payroll, guest and maintenance supplies, marketing and utilities expenses. Under the terms of its Partnership Agreement, the Partnership is required to reimburse us for all such expenses. Accordingly, management believes that a review of the historical performance of the operations of the Hotels, particularly with respect to occupancy, which is calculated as rooms sold divided by total rooms available, average daily rate (“ADR”ADR), calculated as total room revenue divided by number of rooms sold, and revenue per available room (“REVPAR”REVPAR), calculated as total room revenue divided by number of rooms available, is appropriate for understanding revenue from the Hotels. In fiscal year 2017,2019, as compared with fiscal 2018, occupancy increased 1.47%5.84% to 74.83%80.65% from 73.36%74.81% in the prior fiscal year. ADR increaseddecreased by $5.15$3.09 or 7.3%3.86% to $75.74$76.98 in fiscal year 20172019 from $70.59$80.07 in fiscal year 2016.2018. The increased occupancy and ADR resulted in an increase in REVPAR of $4.94$2.30 or 9.54%3.83% to $56.73$62.37 in fiscal year 20172019 from $51.79$60.07 in fiscal year 2016.2018. The increased occupancy, in spite of the decrease in ADR, reflect an improved product and increased rates reflect a continued strongerimproved economy which has allowed us to increase our rates while increasing our occupancy, especially in our Ontario, California and our Yuma, Arizona properties which were offset by a small decline in our Tucson, Arizona hotel property. We anticipate our Tucson, Arizona hotel property to reboundresulting in the fiscal year ending January 31, 2018 as it has already started to economically turnaroundincrease in February 2017 and March 2017.REVPAR. We anticipate in the next few fiscal yearsyear, with the completion of refurbishments in our Hotels, that steady demand will exist with a significant increase in hotel room supply resulting in additional pressure on the hotel industry to lower rates to maintain current occupancy levels.

 

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

 

 For the Twelve Months Ended  For the Twelve Months Ended 
 January 31,  January 31, 
 2017 2016  2019  2018 
Occupancy  74.83%  73.36%  80.65%  74.81%
Average Daily Rate (ADR) $75.74  $70.59  $76.98  $80.07 
Revenue Per Available Room (REVPAR) $56.73  $51.79  $62.37  $60.07 

 

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

 

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

 

 For a discussion of management and licensing agreements with certain related parties, see “Item 1 – Business – Management and Licensing Contracts.”
   
 For a discussion of guarantees of our mortgage notes payable by certain related parties, see Note 1110 to our Consolidated Financial Statements – “Mortgage Notes Payable.”
   
 For a discussion of our equity sales and restructuring agreements involving certain related parties, see Notes 3, 4, 5, 6 and 74 to our Consolidated Financial Statements – “Sale of Ownership Interests in Albuquerque Subsidiary,” and “Sale of Ownership Interests in Tucson Hospitality Properties Subsidiary,” “Sale of Ownership Interests in Ontario Hospitality Properties Subsidiary,” “Sale of Ownership Interests in Yuma Hospitality Properties Subsidiary,” and “Sale of Ownership Interests in Tucson Saint Mary’s Suite Hospitality”, respectively.
   
 For a discussion of other related party transactions, see Note 1817 to our Consolidated Financial Statements – “Other Related Party Transactions.”

 

 9 
 

 

Results of operations of the Trust for the fiscal year ended January 31, 20172019 compared to the fiscal year ended January 31, 2016.2018.

 

Overview

 

A summary of total Trust operating results for the fiscal years ended January 31, 20172019 and 20162018 is as follows:

 

  2017  2016  Change  % Change 
Total Revenues from Continuing Operations $13,215,633  $11,616,767  $1,598,866   13.8%
Operating Expenses from Continuing Operations  (15,304,143)  (12,295,071)  3,009,072   24.5%
Operating Loss from Continuing Operations  (2,088,510)  (678,304)  (1,410,206)  (207.9%)
Other Income  1,360   14,416   (13,056)  (90.6%)
Interest Expense from Continuing Operations  (731,145)  (730,158)  (987)  (0.1%)
Income Tax Benefit (Provision) from Continuing Operations  227,569   (96,963)  324,532   334.7%
Consolidated Net Loss from Continuing Operations  (2,590,726)  (1,491,009)  (1,099,717)  (73.8%)

  2019  2018  Change  % Change 
Total Revenues from Continuing Operations $6,168,965  $5,566,203  $602,762   11%
Operating Expenses from Continuing Operations  7,474,090   7,160,214   (313,876)  4%
Operating Loss from Continuing Operations  (1,305,125)  (1,594,012)  288,887   (18%)
Interest Income from Continuing Operations  108,652   105,000   3,652   3%
Interest Expense from Continuing Operations  381,310   332,533   48,777   15%
Income Tax Provision from Continuing Operations  (407,727)  (341,000)  (66,727)  20%
Consolidated Net Loss from Continuing Operations  (1,985,510)  (2,162,545)  177,035   (8%)

 

A summaryAs a result of operating results bythe sale of IBC (see Note 23), the Chief Operating Decision Maker (“CODM”), Mr. Wirth, CEO of the Trust, has determined that the Trust operations are comprised of one reportable segment, forHotel Operations & Corporate Overhead (continuing operations) segment that has ownership interest in three hotel properties with an aggregate of 267 suites in Arizona and New Mexico. The Trust has a concentration of assets in the fiscal years ended January 31, 2017southwest United States and 2016 isthe southern Arizona market. Prior to the sale of IBC, the Trust had previously determined that its operations were comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment, and the IBC Hospitality segment serving 2,000 unrelated hotel properties. In connection with the sale of IBC, the historical financial information presented in this Form 10-K reflects this change with IBC being reported as follows:discontinued operation.

 

  2017  2016       
  Hotel Operations & Corporate Overhead  Hotel Operations & Corporate Overhead  Change  % Change 
Total Revenue from Continuing Operations $12,548,903  $11,413,992  $1,134,911   9.9%
Operating Expenses from Continuing Operations  (13,474,467)  (11,805,762)  1,668,705   14.1%
Operating Loss from Continuing Operations  (925,564)  (391,770)  (533,794)  (136.3%)
Other Income  1,360   14,416   (13,056)  (90.6%)
Interest Expense from Continuing Operations  (704,177)  (866,576)  162,399   18.7%
Income Tax Benefit (Provision) from Continuing Operations  227,569   (96,963)  324,532   334.7%
Net Loss from Continuing Operations $(1,400,812) $(1,340,893) $(59,919)  (4.5%)

  2017  2016       
  IBC Developments  IBC Developments  Change  % Change 
Total Revenue $666,730  $202,775  $463,955   228.8%
Operating Expenses  (1,829,676)  (489,309)  1,340,367   273.9%
Operating Loss  (1,162,946)  (286,534)  (876,412)  (305.9%)
Interest Expense  (26,968)  (1,806)  (25,162)  (1393.2%)
Net Loss $(1,189,914) $(288,340) $(901,574)  (312.7%)

Our overall resultsThe Trust has its hotel investments in fiscal year 2017 were positively affectedthe southwest region of the United States. The CODM does not review assets by an increase in revenues and angeographical region; therefore, no income tax benefit which were reducedstatement or balance sheet information by an increase in operating expenses which included our growing IBC Hotels division and additional depreciation expenses incurred based on classification of our hotel properties from assets held for sale to continuing operations.geographical region is provided.

 

REVENUE – CONTINUING OPERATIONS:

Hotel Operations & Corporate Overhead Segment

 

For the twelve months ended January 31, 2017,2019, we had total revenue of approximately $12,549,000$6,169,000 compared to approximately $11,414,000$5,566,000 for the twelve months ended January 31, 2016,2018, an increase of approximately $1,135,000.$603,000. In the prior fiscal years endingended January 31, 20162018 and 2015,2017, we made significant improvements to our Yuma, Arizona and Tucson, Arizona properties which allowed us to increase rates with increased occupancy. For comparability purposes, the revenues do not include our Ontario, California and our Yuma, Arizona properties coupled with steady slightly improving local economieswhich were sold June 2, 2017 and October 24, 2018, respectively, and our IBC Technology Division which was offset by additional market pressuressold in Tucson, Arizona. August of 2018.

We realized a 9.8% net12.2% increase in room revenues during fiscal year 20172019 as room revenues were approximately $11,952,000$5,862,000 for the fiscal year ending January 31, 20172019 as compared to approximately $10,888,000$5,223,000 for the fiscal year ending January 31, 2016. Food2018. With additional hotel occupancy and change in our food and beverage offerings, our food and beverage revenue was steady atincreased by 138% to approximately $196,000$50,000 for fiscal year 20172019 as compared to approximately $181,000$21,000 during fiscal year 2016,2018, an increase of approximately $15,000 or approximately 8.2%.$29,000. During fiscal year 2018,2019, we expect improvements in occupancy, modest improvements in rates and steady food and beverage revenues. We also realized an approximate 34% increase14% decrease in management and trademark fee revenues during fiscal year 2017 as management and trademark revenues were2019 to approximately $296,000 during fiscal year 2017$172,000 as compared to approximately $222,000$200,000 during fiscal year 20162018. Management and trademark fee revenues increaseddecreased during fiscal year 20172019 as a result of increased revenues in the two hotels owned by affiliatessale of Mr. Wirth and onthe Yuma hotel. On May 1, 2016,2017, the Trust increaseincreased the management fees charged from 3% to 5%. In February 2017, one of the two hotels owned by affiliates of Mr. Wirth was sold to a third party so the management fees relating to the hotel property that was sold will not continue throughout the fiscal year ending January 31, 2018. During fiscal year 2018,2020, we expect management and trademark fee revenues to be relatively flat and comparable to fiscal year 20172019 management and trademark fee revenues. OtherWe realized an approximate 2% increase in other revenues were relatively flatfrom the hotel properties during fiscal year 2019 to approximately $85,000 as compared to approximately $83,000 during fiscal year 2018.

EXPENSES – CONTINUING OPERATIONS:

Total expenses net of interest expense and income tax provision was approximately $7,475,000 for the twelve months ended January 31, 2017 compared to the twelve months ended January 31, 2016.

IBC Development Segment

For the fiscal year ended January 31, 2017, we had total revenue of approximately $668,000 compared to approximately $203,000 for the fiscal year ended January 31, 2016,2019 reflecting an increase of approximately $465,000 or 228%. We have continued to make significant sales, marketing and technology investment in this segment. We anticipate strong growth in this segment over the next several fiscal years but can provide no assurance regarding such growth.

EXPENSES – CONTINUING OPERATIONS:

Hotel Operations & Corporate Overhead Segment

Total expenses, including interest expense net of the income tax benefit, of approximately $13,951.000 for the twelve months ended January 31, 2017 reflects an increase of approximately $1,182,000$315,000 compared to total expenses includingnet of interest expense and income tax provision of approximately $12,769,000$7,160,000 for the twelve months ended January 31, 2016.2018. The increase was primarily due to an increase in operating expenses due to increased occupancy at the hotel properties and depreciation expenses incurred at the properties.

 

Room expenses consisting of salaries and related employment taxes for property management, front office, housekeeping personnel, reservation fees and room supplies were approximately $3,680,000$1,941,000 for the fiscal year ended January 31, 20172019 compared to approximately $3,357,000$1,744,000 in the prior year period for an increase of approximately $323,000,$197,000, or 9.6%,11.38% increase in costs. Room expenses increased as occupancy at the hotels increased, and management elected to deep clean the hotel property rooms and additional expenses were incurred with the increased occupancy.

 

Food and beverage expenses included food and beverage costs, personnel and miscellaneous costs to provide banquet events. For the fiscal year ended January 31, 2017,2019, food and beverage expenses wereincreased approximately $286,000 as compared$41,000, or 132%, to approximately $312,000$72,000 for the fiscal year ended January 31, 2016, a savings of2019, compared to approximately $26,000, or 8.2%. These costs decreased slightly during$31,000 for the fiscal year 2017 as compared to fiscal year 2016, as management sourced itsended January 31, 2018. This increase is consistent with the 138% increase in food from cheaper vendors and in some cases, reevaluated the hotel property’s limited food offerings to provide a better, more efficient menu.beverage revenue.

 

Telecommunications expense, consisting of telephone and Internet costs, were relatively flatincreased 25% for the fiscal year ended January 31, 2017 at2019 which were approximately $25,000$4,000 as compared to the prior fiscal year ended January 31, 2016 at2018 which were approximately $24,000. Management anticipates this will be consistent for the fiscal year ending January 31, 2018.$3,000.

 

General and administrative expenses include overhead charges for management, accounting, shareholder and legal services. General and administrative expenses of approximately $3,264,000$2,334,000 for the twelve months ended January 31, 20172019, decreased approximately $251,000$300,000 from approximately $3,013,000$2,641,000 for the twelve months ended January 31, 20162018 primarily due to increased bad debt expenses, credit card expenses and professional fees at our hotel properties.reductions in corporate staff in support of fewer hotels.

Sales and marketing expense increased approximately $21,000,$186,000, or 2.3%47.1%, fromto approximately $937,000$581,000 for the twelve months ended January 31, 20172019 from approximately $916,000$395,000 for the twelve months ended January 31, 2016.2018. Management added some additional sales and marketing resources at our properties to increase the marketing exposure in the local community which resulted inleading to additional hotel room revenues.

 

Repairs and maintenance expense slightly decreasedincreased by approximately $57,000$80,000, or 19.3%, from approximately $1,038,000$415,000 reported for the twelve months ended January 31, 20162018 compared withto approximately $981,000$495,000 for the twelve months ended January 31, 2017.2019. We completed significant property improvements at our Ontario, California and our Yuma,Tucson, Arizona propertiesproperty during the fiscal year ended January 31, 2016 which resulted in decreased repairs and maintenance expenses2019. We anticipate that this expense will decrease significantly during the fiscal year endedending January 31, 2017.2020 with the completion of the improvements. Management continues to complete repairs and maintenance initiatives to ensurealso believes the hotel product exceeds our guests’ satisfaction andimprovements which complies with the increasing Best Western standards.standards, leads to improved guest satisfaction and will drive additional revenue growth

 

Hospitality expense increased by approximately $75,000,$54,000, or 10.4%12.6%, from $725,000$429,000 for the twelve months ended January 31, 20162018 to approximately $800,000$483,000 for the twelve months ended January 31, 2017.2019. The increase was primarily due to the additional occupancy at the hotel properties and the additional product mix provided during the Hotels’ complimentary breakfast and happy hour required by Best Western.

 

Utility expenses increasedwere essentially flat, decreasing approximately $25,000$1,000 to approximately $807,000$362,000 reported for the twelve months ended January 31, 20172019 compared with approximately $782,000$363,000 for the twelve months ended January 31, 2016. Increased utility costs occurred as a result of increased occupancy levels at our hotel properties.2018.

 

Hotel property depreciation expense significantly increased as the hotel properties are reported within Continued Operations instead of Discontinued Operations – Assets Held for Sale. Hotel property depreciation expenses increased by approximately $1,149,000$127,000 from approximately $945,000$719,000 reported for the twelve months ended January 31, 20162018 compared withto approximately $2,094,000$846,000 for the twelve months ended January 31, 2017. In the fiscal year ending January 31, 2017, the Trust recaptured the2019. Increased depreciation not recognized while the hotel properties were in the Discontinued Operations – Assets Held for Sale reporting classification.

Real estate and personal property taxes, insurance and ground rent expense increased slightly by approximately $19,000, or 3.0%, from approximately $620,000 for the twelve months ended January 31, 2016 to approximately $639,000 for the twelve months ended January 31, 2017.

Interest expenses were flat at approximately $731,000 for the twelve months ended January 31, 2017 to approximately $730,000 for the twelve months ended January 31, 2016.

Income tax benefit was approximately $228,000 for the twelve months ended January 31, 2017, a change decrease of approximately $321,000resulted from the prior fiscal year income tax provision of approximately $97,000. Decrease inadditional capital expenditures associated with the income tax provision is dueTucson hotel improvements and, to a lesser extent, improvements at the overall increased consolidated net loss from continued operations net of sales of ownership interests in our properties. Sales of ownership interests in our properties for tax purposes are considered income but under generally accepted accounting principles (“GAAP”), they are considered an increase in the Trusts’ equity.

IBC Development Segment

General and administrative expenses include overhead charges for management, accounting, reservations support staff and hotel onboarding. General and administrative expenses of approximately $1,083,000 for the twelve months ended January 31, 2017 increased approximately $803,000 from approximately $280,000 for the twelve months ended January 31, 2016 primarily due to increased bad debt expenses, credit card expenses, support staff and hotel onboarding costs significantly increased.

Sales and marketing expense includes reservation acquisition expenses, consultants, internet advertising, tradeshows and sales commissions expenses which increased by approximately $446,000, from approximately $195,000 for the twelve months ended January 31, 2016 to approximately $641,000 for the twelve months ended January 31, 2017. As reservations income increases, sales and marketing expenses increase as reservation acquisitions expenses increased. In addition, Management added significant amount of sales and marketing resources.Albuquerque hotel.

REVENUE – DISCONTINUING OPERATIONS

 

Hotel Operations & Corporate Overhead Segment

 

Our Tucson St. Mary’sOn October 24, 2018, the Trust sold its Yuma, Arizona hotel was sold to an unrelated third party for approximately $16.05 million, which the Trust received in cash. Total gain on October 14, 2015.sale was approximately $9.6 million. For the twelve monthsfiscal year ended January 31, 2017, we2019, the Yuma, Arizon hotel had $0approximately $3,294,000 of totalrevenue consisting of approximately $3.2 million of room and other revenues compared toand approximately $5,206,000$28,000 of totalfood and beverage revenues. For the fiscal year ended January 31, 2018, the Yuma, Arizona hotel had approximately $4,125,000 of revenue, consisting of approximately $4.1 million in room and other revenues and approximately $42,000 of food and beverage revenues. We anticipated exceeding our room and food and beverage revenues for the fiscal year endingended January 31, 2016.2019 as compared to the fiscal year ended January 31, 2018 if we owned the hotel property for the entire fiscal year.

On June 2, 2017, the Trust sold its Ontario, California hotel to an unrelated third party, for approximately $17.5 million, which the Trust received in cash. Total gain on sale was approximately $11.4 million. For the fiscal year endingended January 31, 2016,2018, our Tucson St. Mary’sOntario, California hotel had approximately $2,172,000$1,471,000 of revenue consisting of approximately $1.4 million of room and other revenues and approximately $659,000$65,000 of food and beverage revenuesrevenues.

IBC Technology Segment

Our IBC Technologies Division was sold in August 2018, to an unrelated party for approximately $3.0 million, for which the Trust received $250,000 in cash, carried the balance of $2,750,000 in the form of a secured note. The transaction was dated as of July, 31, 2019. For the fiscal year ended January 31, 2019 we had total revenue of approximately $223,000 compared to approximately $1,112,000 for the fiscal year ended January 31, 2018. A decrease of $797,000 or 71.6%, based on (1) only six month of revenue in the current fiscal year and approximately $2,375,000(2) adoption of other income generated by the sale of the hotel.ASU No. 2014-09 (Topic 606) “Revenue from Contracts with Customers”.

 

EXPENSES – DISCONTINUING OPERATIONS

 

Hotel Operations & Corporate Overhead Segment

 

For the twelve months ended January 31, 2017,2019, we had approximately $36,000$2,808,000 of total expenses compared to approximately $3,376,000$5,003,000 of total expenses for the fiscal year ended January 31, 2016. For the fiscal year ending January 31, 2017, our Tucson St. Mary’s hotel incurred primarily general and administrative expenses. 2018.

For the fiscal year ended January 31, 2016,2019, our Tucson St. Mary’sYuma, Arizona hotel was owned and operated by the Trust for approximately 9 months and incurred normal routine operating expenses including approximately $977,000 rooms$1,262,000 of room expenses, approximately $546,000$36,000 food and beverage expenses, approximately $288,000$365,000 general and administrative expenses, approximately $159,000$177,000 of sales and marketing expenses, approximately $247,000$185,000 of repairs and maintenance expenses, approximately $183,000$168,000 of hospitality expenses, approximately $438,000$161,000 utilities, approximately $233,000$344,000 of depreciation, approximately $159,000$88,000 of property insurance and tax expenses.

In the fiscal year ended January 31, 2018, we had approximately $3,054,000 of total expenses for the Yuma, Arizona hotel which included approximately $989,000 rooms expenses, approximately $59,000 food and beverage expenses, approximately $360,000 of general and administrative expenses, approximately $352,000 of sales and marketing expenses, approximately $281,000 of repairs and maintenance expense, approximately $210,000 of hospitality expenses, approximately $202,000 of utility expenses, approximately $94,000 of property insurance and taxes expenses and approximately $468,000 of depreciation expense.

For the fiscal year ended January 31, 2018, our Ontario, California hotel was owned and operated by the Trust for approximately 4 months and incurred normal routine operating expenses including approximately $942,000 rooms expenses, approximately $66,000 food and beverage expenses, approximately $360,000 general and administrative expenses, approximately $123,000 of sales and marketing expenses, approximately $100,000 of repairs and maintenance expenses, approximately $122,000 of hospitality expenses, approximately $75,000 utilities, approximately $178,000 of depreciation, approximately $56,000 of taxes and insurance and approximately $138,000 interest.$129,000 interest

IBC Development Segment

Total expenses of approximately $892,000 for the twelve months ended January 31, 2019 decreased approximately $2,781,000 from approximately $3,668,024 for the twelve months ended January 31, 2018. Our IBC Technologies Division was sold in August 2018.

General and administrative expenses of approximately $402,000 for the twelve months ended January 31, 2019 decreased approximately $946,000 from approximately $1,348,000 for the twelve months ended January 31, 2018.

Sales and marketing expenses decreased by approximately $757,000, from approximately $1,049,000 for the twelve months ended January 31, 2018 to approximately $292,000 for the twelve months ended January 31, 2019.

Reservation acquisition costs for the twelve months ended January 31, 2018 were approximately $143,000, compared to $234,000 for the twelve months ended January 31, 2018, a decrease of approximately $91,000.

Depreciation expenses decreased by $54,000 to approximately $50,000 for the fiscal year ended January 31, 2019 as compared with approximately $104,000 for the fiscal year ended January 31, 2018.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview – Hotel Operations & Corporate Overhead and IBC Development Segments

 

Our principal source of cash to meet our cash requirements, including distributions to our shareholders, is our share of the Partnership’s cash flow, quarterly distributions from the Albuquerque, New Mexico and Yuma, Arizona properties and more recently, sales of non-controlling interests in certainthe sale of our Hotels.hotel property in Yuma, Arizona. The Partnership’s principal source of revenue is hotel operations for the one hotel property it owns (until its planned sale – as discussed previously) and quarterly distributions from thein Tucson, Arizona and Ontario, California properties.Arizona. Our liquidity, including our ability to make distributions to our shareholders, will depend upon our ability, and the Partnership’s ability, to generate sufficient cash flow from hotel operations and to service our debt.

 

Hotel operations are significantly affected by occupancy and room rates at the Hotels. We anticipate occupancy and ADR will be steadygrow during this coming year;year and capital improvements are expected to decrease from the prior year.

 

With approximately $568,000$2,647,000 of cash and short term investments as of January 31, 20172019 and the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note and the availability of our two available Advances to Affiliate credit facilities for a total of $1,000,000 maximum borrowing capacity, we believe that we will have enough cash on hand to meet all of our financial obligations as they become due for at least the next twelve months from the issuance date of the these consolidated financial statements. In addition, our management is analyzing other strategic options available to us, including the refinancing of another property or raising additional funds, through additional non-controlling interest sales;increasing borrowings at either, or both, the Albuquerque and Tucson hotels and using the funds generated to pay intercompany loans (1) due from the Tucson hotel to the Partnership of approximately $2.2 million, and (2) due from the Albuquerque hotel due to the Trust of approximately $1.1 million; however, such transactions may not be available on terms that are favorable to us, or at all.

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

 

We anticipate some additional new-build hotel supply during fiscal year 2018 up until the hotel supply inventory has been stabilized during fiscal year 2019. In fiscal year 2018,2020, and accordingly we anticipate additional pressure on revenues and operating margins. We expect the major challenge for the upcoming fiscal year 2018 to be the continuation of strong competition for corporate, leisure, group, and government business in the markets in which we operate, which may affect our ability to increase room rates while maintaining market share.

Net cash used in operating activities totaled approximately $871,000$1,799,000 during fiscal year 20172019 as compared to net cash used in operating activities of approximately $604,000$1,551,000 during the prior fiscal year. Consolidated net lossincome was approximately $2,627,000$11,106,000 for the year ended January 31, 20172019 as compared to consolidated net income for the fiscal year ended January 31, 20162018 of approximately $339,000.$6,808,000. Explanation of the differences between these fiscal years are explained above in the results of operations of the Trust.

 

Changes in the adjustments to reconcile net loss and net income for the years ended January 31, 20172019 and 2016,2018, respectively, consist primarily of hotel property depreciation, gain on disposal of assets, hotel property depreciation, and changes in assets and liabilities. Hotel property depreciation was approximately $2,094,000$1,245,000 during fiscal year 20172019 compared to approximately $1,178,000$1,469,000 during fiscal year 2016, an increase2018, a decrease of $916,000$224,000 as the Trust recognized the additionalless depreciation as one of the hotel properties was sold during the time the properties were reported as held for sale. During fiscal year 2016,2019. There was no amortization of intangibles during fiscal year 2019 compared to approximately $933,000 during fiscal year 2018, an decrease of $933,000 as all goodwill and intangibles in its technology division was written off in the Trust had a gain on disposal of assets of approximately $2,352,000 which increased the net cash used in operating activities.prior fiscal year.

 

Changes in assets and liabilities for accounts receivable, prepaid expenses and other assets and accounts payable and accrued expenses totaled approximately ($553,000)296,000) and approximately $99,000$547,000 for the fiscal years ended January 31, 20172019 and 2016,2018, respectively. This significant decrease in changes in assets and liabilities for the fiscal year ended January 31, 20172019 compared to the fiscal year ended January 31, 20162018 was due to increased accounts receivables generated bythe sale of the technology segment, IBC Hotels and prepaid expenses and other asset due to additional revenues.Hotels.

 

Net cash used inprovided by investing activities totaled approximately $903,000$8,372,000 for the year ended January 31, 20172019 compared to net cash provided by investing activities of approximately $654,000$4,475,000 for the year ended January 31, 2016.2018. The decreaseincrease in net cash provided by investing activities during fiscal year 20172019 was due to the cash received from the sale of our Tucson St. Mary’sYuma, Arizona hotel property offset by the purchaselending on advances to affiliates – related party of approximately $776,000 during the International Vacation Hotels (“IVH”) assets in fiscal year 2016.2019 as compared to approximately $1,956,000 for the fiscal year 2018. In addition, a significant decreaseincrease in net cash provided by investing activities occurred in fiscal year 20172019 as the collectionswe purchased approximately $896,000 of advances to affiliates – related party was approximately $2,231,000marketable securities in fiscal year 2017 as2019 and decreased by $1,842,000 our improvements and additions to hotel properties of approximately $937,000 during fiscal year 2019 compared to approximately $106,000$2,779,000 during fiscal year 2016 and lendings on advance decreased from approximately $1,077,000 to approximately $880,000 during fiscal year 2017.2018.

 

Net cash provided byused in financing activities totaled approximately $385,000 and $1,400,000$10,399,000 compared to net cash provided of $1,284,000 for the years ended January 31, 20172019 and 2016,2018, respectively. The significant decreaseincrease of approximately $1,015,000$11,546,000 was primarily due to a decreasean increases in paymentsdistributions to non-controlling interest holders, repurchase of treasury stock and decreases in net proceeds from sale of non-controlling ownership interest in subsidiaries and borrowings on notes payablespayable to banks, banks; offset by net increases in borrowing/payments on line of credit – related party, borrowings on line of credit – related party, payments on notes payable – related party, borrowings on notes payable – related party, payments on other notes payable, proceeds from sale of non-controlling ownership interestdecreases in subsidiary, sale of stock and distributions to non-controlling interest holders. The decreases were offset by increases in borrowings onnet borrowing/payments notes payable to banks, and increases in net borrowing/payments other notes payables.payable.

 

Principal payments on mortgage notes payables for continuing operations was approximately $492,000$102,000 and approximately $625,000$68,000 during the fiscal years ended January 31, 20172019 and 2016,2018, respectively. Payments on notes payable to banks was approximately $1,471,000$-0- and approximately $2,349,000$2,429,000 during the fiscal years ended January 31, 20172019 and 2016,2018, respectively as we paid off our mortgages on our Yuma, Arizona in the fiscal year ended January 31, 2019, and on our Ontario, California property in the fiscal year ended January 31, 2018, as those assets were sold. Borrowings on Mortgage Notes Payable was $-0- and $5,000,000 during the fiscal years ended January 31, 2019 and 2018, respectively. We refinanced our mortgage on one of our Tucson, Arizona properties asproperty in the property was sold.fiscal year ended January 31, 2018.

 

For the fiscal year ended January 31, 2017,2019, payments on line of credit – related party netted against borrowings on line of credit – related party was approximately $169,000$178,000 of net cash provided by financing activities as compared to approximately $248,000$143,000 of net cash used in in financing activities for the fiscal year ended January 31, 2016.2018.

Payments on notes payables – related party netted against borrowings on note payable – related party was approximately $18,000$306,000 and approximately $299,000$23,000 of net cash used inby financing activities during the fiscal years ended January 31, 20172019 and 2016,2018, respectively. During the fiscal year ended January 31, 2017, we continued to pay off American Express merchant processing loans.

Payments on other notes payables netted against borrowings on other note payable was approximately $518,000$330,000 and $594,000 of net cash provided and approximately ($471,000) of net cash used inby financing activities during the fiscal years ended January 31, 20172019 and 2016,2018, respectively. During the fiscal year ended January 31, 2017, we increased our debt to finance our operations.

 

Proceeds from sales of non-controlling ownership interests in subsidiaries decreased significantly by approximately $1,771,000$3,352,000 as sales of non-controlling ownership interest was approximately $1,826,000$102,000 for the fiscal year ended January 31, 2019 and approximately $3,454,000 for the year ended January 31, 2016 and approximately $55,000 for the year ended January 31, 2017.2018. During the fiscal year ended January 31, 2016,2018, we primarily sold additional non-controlling interests in our Yuma, HospitalityArizona and Tucson Saint Mary’s Suite HospitalityAlbuquerque, New Mexico property subsidiaries. In addition, weWe had sales of IHT stock of $3.0 million in the fiscal year ending January 31, 2016 and no sales of our IHT stock for the fiscal year ended January 31, 2017.

The Trust decided to hold back distributions to our Ontario, California non-controlling interest holders during2019 and had sales of IHT stock of $400,000 in the fiscal year endedending January 31, 2017 to facilitate completion of the Ontario, California hotel property refurbishment project and as a result, our distributions to non-controlling interest holders decreased by approximately $547,000. 2018.

During the fiscal year ended January 31, 2017,2019, our distributions to non-controlling interest holders was approximately $697,000$9,423,000 compared with approximately $1,244,000$5,758,000 for the fiscal year ended January 31, 2016.2018. The Trust provided additional distributions to the Yuma, Arizona and Ontario, California non-controlling interest holders after the sale of the Yuma, Arizona hotel property was sold.

 

We continue to contribute to a Capital Expenditures Fund (the “Fund”) an amount equal to 4% of the InnSuites Hotels’ revenues from operation of the Hotels. The Fund is restricted by the mortgage lender for one of our properties. As of January 31, 20172019 and 2016,2018, there were no monies held in these accounts reported on our Consolidated Balance Sheet as “Restricted Cash.” The Fund is intended to be used for capital improvements to the Hotels and refurbishment and replacement of furniture, fixtures and equipment. During the fiscal year ended January 31, 20172019 and 2016,2018, the Hotels spent approximately $2,255,000$937,000 and $2,126,000,$2,779,000, respectively, for capital expenditures. We consider the majority of these improvements to be revenue producing. Therefore, these amounts are capitalized and depreciated over their estimated useful lives. For fiscal year 20182020 capital expenditures, we plan on spending less on capital improvements as we have soldcompleted our oldest and largestproperty improvements at our Tuscon, Arizona hotel which required significant amounts of capital improvements and our Ontario, California property completed a renovation during the fiscal year ending January 31, 2016.2019. Repairs and maintenance were charged to expense as incurred and approximated $981,000$680,000 and $1,038,000$796,000 for fiscal years 20172019 and 2016,2018, respectively.

 

We have minimum debt payments, net of debt discounts, of approximately $3,204,000$1,754,000 and approximately $818,000$668,000 due during fiscal years 20182020 and 2019,2021, respectively. Minimum debt payments due during fiscal year 20172020 include approximately $511,000$115,000 of mortgage notes payable and approximately $1,603,000$238,000 of other notes payable to bank, approximately $145,000 notes payable – related party, approximately $379,000 lendings from affiliates – related party, and approximately $566,000 of secured promissory notes outstanding to unrelated third parties arising from the Shares of Beneficial Interest and Partnership unit repurchases and borrowings against our future credit card receivables.repurchases.

 

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

 

SALE OF OWNERSHIP INTERESTS IN ALBQUERQUE, ONTARIO, YUMA AND TUCSON SUBSIDIARIES

 

See Notes 3, 4, 5, 6, and 74 of the Trust’s Consolidated Financial Statements for a detailed discussion of the sale of ownership interests in the Trust’s subsidiaries.

COMPLIANCE WITH CONTINUED LISTING STANDARDS OF NYSE MKT

On September 19, 2014, the NYSE MKT notified the Trust that it was not in compliance with Section 1003(a)(i) of the NYSE MKT Company Guide since it reported Shareholders’ equity of less than $2.0 million at July 31, 2014 and had incurred losses in two of its three fiscal years ended January 31, 2014. The NYSE MKT previously accepted the Trust’s equity expansion compliance plan and granted the Trust an extension of time until December 29, 2015 to comply with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the NYSE MKT Company Guide.

On January 18, 2016, we received a letter from the NYSE MKT informing us that we are no longer out of compliance with the NYSE MKT continued listed standards. Specifically, we had resolved the continued listing deficiencies with respect to Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the NYSE MKT Company Guide. Our shareholders equity as of December 31, 2015 met the NYSE MKT’s minimum requirement of $6 million.AMERICAN

 

On January 19, 2017, the Trust received a letter from the NYSE MKTAMERICAN informing the Trust that the staff of the NYSE MKT’sAMERICAN’s Corporate Compliance Department had determined that the Trust is not in compliance with Section 1003(a)(iii) of the NYSE MKTAMERICAN Company Guide due to the Trust having stockholders’ equity of less than $6.0 million and net losses from continuing operations in its five most recent fiscal years ended January 31, 2016.2017.

The NYSE MKT’sAMERICAN’s letter informed the Trust that, to maintain its listing, it must submit a plan of compliance by February 20, 2017, addressing how it intends to regain compliance with the NYSE MKT’sAMERICAN’s continued listing standards within the maximum potential 18-month plan period available (the “Plan Period”Plan Period). Elements of the compliance plan may include the sale of one or more of its assets (management believes IHT hotels have a much lower book value than market value), sale of additional Trust stock at market value, sale of minority interest in specific hotel properties and/or anticipated continuation of the current operational upward current trends in hotel gross operating profits. As part of the plan of regaining compliance with the NYSE MKT’s continued listing standards, IBC Hotels, plans to explore financial and strategic options for the subsidiary and has hired Viant Capital, an investment banker, to assist. IHT continues to monitor its stockholders’ equity and is reviewing potential actions that can and are being taken to increase its stockholders’ equity and to maintain compliance with the NYSE MKT’s listing standards.

 

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

On January 11, 2018, the Trust received a letter from the NYSE MKTAmerican LLC informing us that the Trust thatis back in compliance with all of the NYSE MKT Regulation staff acceptedAmerican LLC continued listing standards set forth in Part 10 of the Trust’s Equity Enhancement Plan (the “Plan”) and granted a Plan Period throughNYSE American LLC Company Guide. Specifically, the Trust has resolved the continued listing deficiencies with respect to Section 1003(a)(iii) of the Company Guide reference in the Exchange’s letters dated January 19, 2018.2017. The NYSE MKT Regulation staffTrust’s shareholders equity as of January 31, 2018, October 31, 2017, and July 31, 2017 exceeded $8.2 million which met the minimum requirement of $6 million. The Trust will be subject to ongoing review the Trust periodically for compliance with the initiatives outlined in the Plan. Failure to make progress consistent with the Plan or to regain compliance with continued listing standards by the endNYSE American LLC requirements as part of the Plan Period could result in the Trust being delisted from the NYSE MKT.Exchange’s routine monitoring.

 

NON-GAAP FINANCIAL MEASURES

 

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

 

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

16

A reconciliation of Adjusted EBITDA to net loss attributable to controlling interests for the fiscal years ended January 31, 20172019 and 20162018 follows:

 

  Twelve Months Ended January 31, 
  2017  2016 
Net (loss) income attributable to controlling interests $(2,191,972) $432,116 
Add back:        
Depreciation from Continuing Operations  2,094,401   945,413 
Interest expense from Continuing Operations  731,145   730,158 
Taxes from Continuing Operations  (227,569)  96,963 
Less:        
Interest income from Continuing Operations  (1,360)  (14,416)
Adjusted EBITDA $404,645  $2,190,234 

  Twelve Months Ended January 31, 
  2019  2018 
Consolidated Net income (loss) $11,105,883  $6,807,901 
Add back:        
Depreciation from Continued Operations  845,693   719,231 
Goodwill Impairment from Continued Operations      500,000 
Intangible Amortization from Continued Operations      433,000 
Interest expense from Continued Operations  381,310   332,533 
Taxes from Continued Operations  407,727   341,000 
Less:        
Interest income from Continued Operations  (108,652)  (105,000)
Gain on Disposal of Discontinued Operations  (13,091,393)  (8,970,446)
Adjusted EBITDA $(350,780) $58,219 

 

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

 

A reconciliation of FFO to net income (loss) attributable to controlling interests for fiscal year ended January 31, 20172019 and 20162018 follows:

 

  Twelve Months Ended January 31, 
  2017  2016 
Net (loss) income attributable to controlling and non-controlling interests $(2,191,972) $432,116 
Add back:        
Depreciation from Continuing Operations  2,094,401   945,413 
Non-controlling interest from Continuing Operations  434,782   92,676 
FFO attributable to controlling and non-controlling interests $337,211  $1,470,205 

  Twelve Months Ended January 31, 
  2019  2018 
Net Income (loss) attributable to controlling interests $1,419,701  $1,397,601 
Add back:        
Depreciation  845,693   719,231 
Non-controlling interest  9,686,182   5,410,300 
Less:        
Gain on Disposal of Discontinued Operations  (13,573,418)  (11,445,879)
FFO $(1,621,842) $(3,918,747)

  

The Trust reported Consolidated Net Loss from continuing operations of approximately $1,986,000 for the fiscal year ended January 31, 2019 compared to Consolidated Net Loss of approximately $2,163,000 for the fiscal year ended January 31, 2018. Fiscal 2019 and 2018 Consolidated Net Income from continuing operations included non-cash depreciation, amortization and goodwill impairment of approximately $846,000 and $1,652,000, respectively. Fiscal 2019 Consolidated Net Loss from continuing operations before non-cash depreciation, amortization and impairment of goodwill and intangible assets was approximately $(1,184,000) as compared with $(510,314) for fiscal 2018. Fiscal 2019 Consolidated Net Revenues from continuing operations were approximately $6,169,000 as compared with fiscal 2018 Revenues of approximately $5,566,000. Fiscal 2019 Net Income Per Share was $1.14 as compared with fiscal 2018 Net Income Per Share of $0.71.

FUTURE POSITIONING

 

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

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

 

Hotel Property Book Value  Mortgage Balance  Listed Asking Price  

Book

Value

 

Mortgage

Balance

 

Listed

Asking Price

 
Albuquerque $1,439,369  $-  $5,950,000  $1,848,000  $-  $7,500,000 
Ontario  6,080,597   5,271,311   17,950,000 
Tucson Oracle  6,813,164   3,119,340   11,950,000   7,640,000   4,850,000   15,800,000 
Yuma  5,061,603   4,977,054   12,900,000 
 $19,394,733  $13,367,705  $48,750,000             
 $9,488,000  $4,850,000  $23,300,000 

 

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

 

On August 1, 2015, we finalized and committed to a plan to sell all ofover time our hotel properties, except for the Yuma hotel property.properties. We listed each of the properties with a local real estate hotel broker and we believe that each of the assets are being marketed at a price that is reasonable in relation to its current fair value. We believe that the plan to sell these assets will not likely be withdrawn. We are hopeful that the sale of these hotelour remaining two Hotel properties will occur within one yeartwo years, based on feedback received by our local hotel real estate property professional brokers and we have engaged hotel real estate brokers who specialize in the selling/buying hotel real estate properties for the sale of our Tucson and Albuquerque Hotel properties. We can provide no assurance that we will be able to sell anyeither or allboth of the hotelHotel properties on terms favorable to us or within our expected time frame, or at all.

 

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

On October 14, 2015, weJune 2, 2017, the Trust sold our Tucson St. Mary’sits Ontario, California hotel to an unrelated third party for approximately $9.7$17.5 million, which wethe Trust received in cash. We used $4.7$7.2 million of the proceeds to satisfy its mortgage note payable on the property, approximately $379,000$263,000 to reduce accruals and payables, and retained the remaining proceeds to fund future operations and capital improvements on our remaining hotels.

 

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

 

Our long-term strategic plan is to obtain the full benefit of our real estate equity and to migrate our focus frompursue a hotel ownermerger with another company, likely a private larger entity that seeks to a hospitality service company by expanding our trademark license, management, reservation, and advertising services, through InnDependent Boutique Collection (“IBC Hotels”), a wholly owned subsidiary ofgo public or list on the Trust. As of January 31, 2017, IBC Hotels provided services to approximately 6,300 hotels.

We are planning significant expansion of IBC Hotels during the next couple of fiscal years as continue to expand and develop our production and sales and marketing efforts. Specifically, IBC Hotels’ product development roadmap includes integration of more hotel software systems to simply use and simplify adoption of our product by the hotels, improve retention with better onboarding techniques, grow digital marketing services capabilities and revenues and continue to develop our product to meet the needs of our hotel partners. We anticipate significant expansion of our sales and marketing efforts by hiring additional personnel, seek out partnerships and acquisitions to grow our hotel user base and further monetize our loyalty program and consumer site. In addition, we plan to explore financial and strategic options for this division and have hired Viant Capital, an investment banker, to assist. We anticipate the IBC Hotels sales and marketing efforts to increase our revenues and decrease our consolidated net loss over the next couple of fiscal years. For each reservation, IBC Hotels receives a 10% transactional fee plus reimbursement of our credit card processing fees associated with the reservation. We cannot provide any assurance that our plans will be successful or in line with our expectations.

This plan is similar to strategies followed by internationally diversified hotel industry leaders, which over the last several years have reduced real estate holdings and concentrated on hospitality services. We began our long-term corporate strategy when we relinquished our REIT income tax status in January 2004, which had previously prevented us from providing management services to hotels. In June 2004, we acquired our trademark license and management agreements and began providing management, trademark and reservations services to our Hotels.NYSE AMERICAN Exchange.

SHARE REPURCHASE PROGRAM

 

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

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Asset Impairment

 

We believe that the policies we follow for the valuation of our hotel properties, which constitute the majority of our assets, are our most critical policies. The Financial Accounting Standards Board (“FASB”) has issued authoritative guidance related to the impairment or disposal of long-lived assets, codified in ASC Topic 360-10-35, which we apply to determine when it is necessary to test an asset for recoverability. On an events and circumstances basis, we review the carrying value of our hotel properties. We will record an impairment loss and reduce the carrying value of a property when anticipated undiscounted future cash flows and the current market value of the property do not support its carrying value. In cases where we do not expect to recover the carrying cost of hotel properties held for use, we will reduce the carrying value to the fair value of the hotel, as determined by a current appraisal or other acceptable valuation methods. We did not recognize ana hotel properties impairment loss in fiscal years 20172019 or 2016.2018. As of January 31, 2017,2019, our management does not believe that the carrying values of any of our hotel properties are impaired.

 

Sale of Hotel Assets

On August 1, 2015, the Trust finalized and committed to a plan to sell all the Hotel properties. As of May 1, 2016, theThe Trust has listed all the Hotel properties with a local real estate hotel broker,brokers, Effective October 24, 2018, the Trust sold the Yuma hotel to an unrelated third party for $16.05 million, and managementon June 2, 2017, the Trust sold its Ontario, California hotel to an unrelated third party for approximately $17.5 million. Management believes that each of the assets is being marketedour currently-owned Hotels are listed at a priceprices that is reasonable in relation to itstheir current fair value. The Trust believes that the plan to sell these assets will not be withdrawn. Through the Trust’s Form 10-Q for the quarter ended July 31, 20162017 filed with the SEC on September 14, 2016,2017, the Trust classified all the Hotel properties as Assets Held for Sale. As of October 31, 2016,2017, the Trust has decided to reclassify these assets back into operations as many of these assets have been marketed for sale for more than one year. At this time, the Trust is unable to predict when, and if, any of these Hotel properties will be sold and the Trust no longer deems a sale to be probable. The Trust continues to list these properties with local real estate hotel brokers and, we believe, that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. There have been no other material changes to our basis of presentation since October 31, 2016.2017.

 

For recentRevenue Recognition

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

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

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 pronouncements, see Note 1fee and a percentage of hotel room revenues for managing the daily operations of the Hotels and the one hotel owned by affiliates of Mr. Wirth.

We are required to our Consolidated Financial Statements – “Naturecollect certain taxes and fees from customers on behalf of Operationsgovernment agencies and Basis of Presentation”; under “Recently Issued Accounting Guidance”.remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in revenues. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

 

SEASONALITY

 

See Item 1 for related discussion of seasonality.

 

INFLATION

 

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

 

FORWARD-LOOKING STATEMENTS

 

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

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

 

 local, national or international, political economic and business conditions, including, without limitation, conditions that may, or may not continue to, affect public securities markets generally, the hospitality industry or the markets in which we operate or will operate;
   
 fluctuations in hotel occupancy rates;
   
 changes in room rental rates that may be charged by InnSuites Hotels in response to market rental rate changes or otherwise;

 
seasonality of our hotel operations business;
   
 our ability to sell any of our Hotels at market value, listed sale price or at all;
 interest rate fluctuations;
   
 changes in, or reinterpretations of, governmental regulations, including, but not limited to, environmental and other regulations, the ADA and federal income tax laws and regulations;
   
 competition;competition including supply and demand for hotel rooms and hotel properties;
   
 availability of credit or other financing;
   
 our ability to meet present and future debt service obligations;
   
 our ability to refinance or extend the maturity of indebtedness at, prior to, or after the time it matures;
   
 any changes in our financial condition or operating results due to acquisitions or dispositions of hotel properties;
   
 insufficient resources to pursue our current strategy;
   
 concentration of our investments in the InnSuites Hotels® brand;
   
 lossImplementation of membership contracts;tariffs that may affect trade and/or travel;
   
 the financial condition of franchises, brand membership companies and travel related companies;
   
 our ability to develop and maintain positive relations with “Best Western Plus” or “Best Western” and potential future franchises or brands;
   
 real estate and hospitality market conditions;
   
 hospitality industry factors;factors, including alternative lodging, such as Airbnb, and changing traveler tastes;
 our ability to carry out our strategy, including our strategy regarding IBC Hotels;a reverse merger;
   
 the Trust’s ability to remain listed on the NYSE MKT;American;
   
 effectiveness of the Trust’s software program;programs and overall software capabilities;
   
 the need to periodically repair and renovate our Hotels at a cost at or in excess of our standard 4% reserve;
   
 our ability to cost effectively integratedeal with any acquisitions with thedispositions of Trust assets in a timely manner;
   
 increases in the cost of labor, including mandated minimum wages by state or local governments;
increases in costs of energy, healthcare, insurance and other operating expenses as a result of changed or increased regulation or otherwise;
   
 terrorist attacks or other acts of war;
 outbreaks of communicable diseases attributed to our hotels or impacting the hotel industry in general;
   
 natural disasters, including adverse climate changes in the areas where we have or serve hotels;
   
 airline strikes;
   
 transportation and fuel price increases;
   
 adequacy of insurance coverage and increases in cost for health care coverage for employees and potential government regulation with respect to health care coverage;
   
 data breaches or cybercybersecurity attacks, including breaches impacting the integrity and security attacks;of employee and guest data; and
   
 loss of key personnel.personnel and uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act

 

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

 

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

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

INNSUITES HOSPITALITY TRUST

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

Report of Independent Registered Public Accounting Firm23
Consolidated Balance Sheets – January 31, 2017 and 201624
  
Consolidated Balance Sheets – January 31, 2019 and 201825
Consolidated Statements of Operations – Years Ended January 31, 20172019 and 201620182526
  
Consolidated Statements of Shareholders’ Equity – Years Ended January 31, 20172019 and 201620182627
  
Consolidated Statements of Cash Flows – Years Ended January 31, 20172019 and 201620182728
  
Notes to the Consolidated Financial Statements – Years Ended January 31, 20172019 and 201620182829

 

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

22

Report of Independent Registered Public Accounting Firm

 

The ShareholdersTo the shareholders and Boardthe board of Trusteestrustees of

InnSuites Hospitality Trust

Phoenix, AZ

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of InnSuites Hospitality Trust and subsidiaries (the “Trust”) as of January 31, 20172019 and 2016, and2018, the related consolidated statements of operations, shareholders’stockholders’ equity and cash flows for each of the two years in the two-year period ended January 31, 2017. 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of January 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

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

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InnSuites Hospitality Trust at January 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2017, in conformity with accounting principles generally accepted in the United States of America./s/ Hall & Company Certified Public Accountants & Consultants, Inc.

 

We have served as the Trust’s auditor since 2015

Irvine, CA

June 19, 2019

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

Hall & Company Certified Public Accountants & Consultants, Inc.
Irvine, CA
May 1, 2017

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

  JANUARY 31, 2017  JANUARY 31, 2016 
       
ASSETS        
Current Assets:        
Cash and Cash Equivalents $568,396  $1,955,534 
Accounts Receivable, including $1,783 and $20,693 from related parties and net of Allowance for Doubtful Accounts of $53,720 and $33,970  as of January 31, 2017 and January 31, 2016, respectively  718,917   250,470 
Advances to Affiliates - Related Party  -   972,184 
Notes Receivable - Related Party  -   5,761 
Prepaid Expenses and Other Current Assets  177,654   127,325 
Current Assets of Discontinued Operations  -   14,648 
Total Current Assets  1,464,967   3,325,922 
Property, Plant and Equipment, net  19,774,865   19,614,767 
Intangible Assets, net  433,000   500,000 
Goodwill  500,000   500,000 
TOTAL ASSETS $22,172,832  $23,940,689 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
         
LIABILITIES        
Current Liabilities:        
Accounts Payable and Accrued Expenses $2,163,900  $2,163,144 
Notes Payable - Related Party  145,000   - 
Lending From Affiliates - Related Party  379,167   - 
Current Portion of Mortgage Notes Payable, net of Discount of $8,012 as of January 31, 2017 and January 31, 2016, respectively  505,400   485,994 
Current Portion of Notes Payable to Banks, net of Discount of $39,796 and $14,700 as of January 31, 2017 and January 31, 2016, respectively  646,376   932,288 
Current Portion of Other Notes Payable  565,657   40,801 
Current Liabilities of Discontinued Operations  -   27,246 
Total Current Liabilities  4,405,500   3,649,473 
Mortgage Notes Payable, net of discount of $50,891 and $58,904 as of January 31, 2017 and January 31, 2016, respectively  12,803,402   13,306,598 
Notes Payable to Banks, net of discount of $2,316 and $0 as of January 31, 2017 and January 31, 2016, respectively  1,331,270   - 
Other Notes Payable  7,411   13,889 
TOTAL LIABILITIES  18,547,583   16,969,960 
         
COMMITMENTS AND CONTINGENCIES (SEE NOTE 8)        
         
SHAREHOLDERS' EQUITY        
Shares of Beneficial Interest, without par value, unlimited authorization; 18,292,601 and 17,406,846 shares issued and 9,665,328 and 8,791,500 shares outstanding at January 31, 2017 and January 31, 2016, respectively  16,794,132   18,769,849 
Treasury Stock, 8,645,573 and 8,615,346 shares held at cost at January 31, 2017 and January 31, 2016, respectively  (12,362,952)  (12,285,915)
TOTAL TRUST SHAREHOLDERS' EQUITY  4,431,180   6,483,934 
NON-CONTROLLING INTEREST  (805,931)  486,795 
TOTAL EQUITY  3,625,249   6,970,729 
TOTAL LIABILITIES AND EQUITY $22,172,832  $23,940,689 

  JANUARY 31, 2019  JANUARY 31, 2018 
       
ASSETS        
Current Assets:        
Cash and Cash Equivalents $749,075  $4,575,748 
Short-Term Investments – Available For Sale Securities  1,896,556   1,000,330 
Accounts Receivable, including approximately $79,000 and $11,000 from related parties and net of Allowance for Doubtful Accounts of approximately $3,000 and $1,000 as of January 31, 2019 and 2018, respectively  236,942   80,176 
Advances to Affiliates - Related Party  986,361   970,353 
Notes Receivable - Related Party  632,027   810,799 
Notes Receivable, current portion  229,167     
Prepaid Expenses and Other Current Assets  95,553   113,450 
Current Assets of Discontinued Operations  320,447   666,320 
Total Current Assets  5,146,128   8,217,176 
Property, Plant and Equipment, net  9,532,793   9,771,216 
Note Receivable  2,520,833   - 
Noncurrent assets of Discontinued Operations  -   5,240,535 
TOTAL ASSETS $17,199,754  $23,228,927 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
LIABILITIES        
Current Liabilities:        
Accounts Payable and Accrued Expenses $1,092,000  $1,841,519 
Current Portion of Notes Payable - Related Party  317,738   296,315 
Current Portion of Mortgage Notes Payable, net of Discount  115,106   253,096 
Current Portion of Notes Payable to Banks, net of Discount  9,300   - 
Current Portion of Other Notes Payable  1,229,069   1,059,348 
Current Liabilities of Discontinued Operations  546,803   753,037 
Total Current Liabilities  3,310,016   4,203,315 
Notes Payable - Related Party  166,677   494,258 
Mortgage Notes Payable, net of Discount  4,709,586   4,817,529 
Notes Payable to Banks, net of Discount  -   - 
Other Notes Payable  264,960   104,482 
Noncurrent Liabilities of Discontinued Operations, net of current portion  -   5,490,374 
TOTAL LIABILITIES  8,451,239   15,109,958 
         
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS’ EQUITY        
Shares of Beneficial Interest, without par value, unlimited authorization; 18,859,960 and 18,572,215 shares issued and 9,360,292 and 9,775,669 shares outstanding at January 31, 2019 and 2018, respectively  23,738,260   22,333,905 
Treasury Stock, 9,229,923 and 8,796,546 shares held at cost at January 31, 2019 and 2018, respectively  (13,517,833)  (12,662,996)
TOTAL TRUST SHAREHOLDERS’ EQUITY  10,220,427   9,670,909 
NON-CONTROLLING INTEREST  (1,471,912)  (1,551,940)
TOTAL EQUITY  8,748,515   8,118,969 
TOTAL LIABILITIES AND EQUITY $17,199,754  $23,228,927 

 

See accompanying notes to these consolidated financial statements

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

  YEARS ENDED 
  JANUARY 31, 
  2017  2016 
       
REVENUE        
Room $11,952,385  $10,887,997 
Food and Beverage  196,262   181,422 
Management and Trademark Fees  296,177   221,865 
Reservation and Convention  628,624   187,765 
Other  142,185   137,718 
TOTAL REVENUE  13,215,633   11,616,767 
         
OPERATING EXPENSES        
Room  3,679,725   3,356,932 
Food and Beverage  286,241   311,847 
Telecommunications  24,674   23,811 
General and Administrative  4,346,820   3,293,256 
Sales and Marketing  1,578,144   1,110,977 
Repairs and Maintenance  980,874   1,038,139 
Hospitality  800,032   724,994 
Utilities  806,981   781,666 
Depreciation  2,094,401   945,413 
Intangible Amortization  67,000   64,724 
Real Estate and Personal Property Taxes, Insurance and Ground Rent  639,251   620,489 
Other  -   22,823 
TOTAL OPERATING EXPENSES  15,304,143   12,295,071 
OPERATING LOSS  (2,088,510)  (678,304)
Interest Income  1,360   312 
Interest Income on Advances to Affiliates - Related Party  -   14,104 
TOTAL OTHER INCOME  1,360   14,416 
Interest on Mortgage Notes Payable  683,287   670,340 
Interest on Notes Payable to Banks  26,093   - 
Interest on Other Notes Payable  21,765   59,818 
Interest on Line of Credit - Related Party  -   - 
TOTAL INTEREST EXPENSE  731,145   730,158 
CONSOLIDATED NET LOSS BEFORE INCOME TAX BENEFIT (PROVISION)  (2,818,295)  (1,394,046)
Income Tax Benefit (Provision)  227,569   (96,963)
CONSOLIDATED NET LOSS FROM CONTINUING OPERATIONS $(2,590,726) $(1,491,009)
Discontinued Operations, Net of Non-Controlling Interest $(36,028) $(521,368)
Gain on Disposal of Discontinued Operations $-  $2,351,817 
CONSOLIDATED NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS $(36,028) $1,830,449 
CONSOLIDATED NET (LOSS) INCOME $(2,626,754) $339,440 
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST $(434,782) $(92,676)
NET (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS $(2,191,972) $432,116 
NET LOSS PER SHARE FROM CONTINUING OPERATIONS – BASIC $(0.27) $(0.18)
NET INCOME PER SHARE FROM DISCONTINUED OPERATIONS – BASIC $-  $0.22 
NET (LOSS) INCOME PER SHARE PER SHARE TOTAL - BASIC $(0.27) $0.04 
NET LOSS PER SHARE FROM CONTINUING OPERATIONS – DILUTED $(0.27) $(0.12)
NET INCOME PER SHARE FROM DISCONTINUED OPERATIONS – DILUTED $-  $0.15 
NET (LOSS) INCOME PER SHARE PER SHARE TOTAL - DILUTED $(0.27) $0.03 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC  9,682,668   8,269,827 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED  13,366,737   11,953,896 

  FOR THE YEARS ENDED 
  JANUARY 31, 
  2019  2018 
REVENUE      
Room $5,861,879  $5,222,746 
Food and Beverage  50,279   21,027 
Management and Trademark Fees  171,748   200,458 
Reservation and Convention  -   38,564 
Other  85,059   83,408 
TOTAL REVENUE  6,168,965   5,566,203 
         
OPERATING EXPENSES        
Room  1,940,530   1,743,766 
Food and Beverage  72,477   31,136 
Telecommunications  3,574   2,877 
General and Administrative  2,333,749   2,641,445 
Sales and Marketing  580,885   395,018 
Repairs and Maintenance  494,776   414,786 
Hospitality  483,486   429,028 
Utilities  361,874   362,648 
Depreciation  845,693   719,231 
Real Estate and Personal Property Taxes, Insurance and Ground Rent  357,045   394,838 
Other  -   25,441 
TOTAL OPERATING EXPENSES  7,474,090   7,160,214 
OPERATING LOSS  (1,305,125)  (1,594,012)
Interest Income  156   24,039 
Interest Income on Advances to Affiliates - Related Party  108,496   80,961 
TOTAL OTHER INCOME  108,652   105,000 
Interest on Mortgage Notes Payable  238,908   221,692 
Interest on Notes Payable to Banks  -   9,055 
Interest on Other Notes Payable  142,402   101,786 
TOTAL INTEREST EXPENSE  381,310   332,533 
CONSOLIDATED NET LOSS BEFORE INCOME TAX PROVISION AND DISCONTINUED OPERATIONS  (1,577,783)  (1,821,545)
Income Tax Provision  (407,727)  (341,000)
CONSOLIDATED NET LOSS FROM CONTINUING OPERATIONS $(1,985,510) $(2,162,545)
Discontinued Operations, Net of Non-Controlling Interest $(482,025) $(2,475,433)
Gain on Disposal of Discontinued Operations $13,573,418  $11,445,879 
CONSOLIDATED NET INCOME FROM DISCONTINUED OPERATIONS AND GAIN ON SALE OF DISCONTINUED OPERATIONS $13,091,393  $8,970,446 
CONSOLIDATED NET INCOME $11,105,883  $6,807,901 
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST $9,686,182  $5,410,300 
NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS $1,419,701  $1,397,601 
NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS – BASIC $(0.21) $(0.22)
NET INCOME (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS – BASIC $1.41  $0.93 
NET INCOME (LOSS) PER SHARE TOTAL – BASIC $1.20  $0.71 
NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS – DILUTED $(0.16) $(0.17)
NET INCOME (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS –  DILUTED $1.05  $0.69 
NET INCOME (LOSS) PER SHARE TOTAL – DILUTED $0.89  $0.52 
         
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC  9,283,081   9,612,139 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED  12,436,556   13,085,223 

 

See accompanying notes to these consolidated financial statements

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED JANUARY 31, 20172019 and 20162018

 

  Total Equity 
  Shares of Beneficial Interest  Treasury Stock  Trust Shareholders’  Non-Controlling    
  Shares  Amount  Shares  Amount  Equity  Interest  Amount 
Balance, January 31, 2015 8,265,102  $13,812,470  8,580,744  $(12,193,491)  $1,618,979  $1,346,248  $2,965,227 
Net Income  -   432,116   -   -   432,116   (92,676)  339,440 
Dividends      (88,177)          (88,177)  -   (88,177)
Purchase of Treasury Stock  (34,602)  -   34,602   (92,424)  (92,424)  -   (92,424)
Shares of Beneficial Interest Issued for Services Rendered  24,000   65,280   -   -   65,280   -   65,280 
Sale of Stock  447,873   2,999,999   -   -   2,999,999   -   2,999,999 
Stock Issued for Purchase of IVH Assets  89,127   200,000   -   -   200,000   -   200,000 
Sales of Ownership Interests in Subsidiary, net  -   -   -   -   -   1,825,580   1,825,580 
Distribution to Non-Controlling Interests  -   -   -   -   -   (1,244,196)  (1,244,196)
Reallocation of Non-Controlling Interests and Other  -   1,348,161   -   -   1,348,161   (1,348,161)  - 
Balance, January 31, 2016  8,791,500  $18,769,849   8,615,346  $(12,285,915) $6,483,934  $486,795  $6,970,729 
Net Loss  -   (2,191,972)  -   -   (2,191,972)  (434,782)  (2,626,754)
Dividends  -   (96,630)  -   -   (96,630)      (96,630)
Shares Issued from Cash Received in Prior Period  861,755   -   -   -   -   -   - 
Purchase of Treasury Stock  (30,227)  -   30,227   (77,037)  (77,037)  -   (77,037)
Shares of Beneficial Interest Issued for Services Rendered  42,300   97,265   -   -   97,265   -   97,265 
Sales of Ownership Interests in Subsidiary, net  -   -   -   -   -   55,000   55,000 
Distribution to Non-Controlling Interests  -   -   -   -   -   (697,324)  (697,324)
Reallocation of Non-Controlling Interests and Other  -   215,620   -   -   215,620   (215,620)  - 
Balance, January 31, 2017  9,665,328  $16,794,132   8,645,573  $(12,362,952) $4,431,180  $(805,931) $3,625,249 

  Total Equity 
  Shares of Beneficial Interest  Treasury Stock  Trust Shareholders’   Non-Controlling    
  Shares  Amount  Shares  Amount  Equity  Interest  Amount 
Balance, January 31, 2017  9,665,328   16,794,132   8,645,573   (12,362,952)  4,431,180   (805,931)  3,625,249 
Net Income  -   1,397,601   -   -   1,397,601   5,410,300   6,807,901 
Dividends  -   (197,512)  -   -   (197,512)      (197,512)
Purchase of Treasury Stock  (150,973)  -   150,973   (300,044)  (300,044)  -   (300,044)
Shares of Beneficial Interest Issued for Services Rendered  43,250   86,683   -   -   86,683   -   86,683 
Sale of Shares of Beneficial Interest  218,064   400,000   -   -   400,000   -   400,000 
Sales of Ownership Interests in Subsidiary, net  -   -   -   -   -   3,454,226   3,454,226 
Distribution to Non-Controlling Interests  -   -   -   -   -   (5,757,534)  (5,757,534)
Reallocation of Non-Controlling Interests and Other  -   3,853,001   -   -   3,853,001   (3,853,001)  - 
Balance, January 31, 2018  9,775,669  $22,333,905   8,796,546  $(12,662,996) $9,670,909  $(1,551,940) $8,118,969 
                             
Net Income  -   1,419,701   -   -   1,419,701   9,686,182   11,105,883 
Dividends  -   (195,575)  -   -   (195,575)  -   (195,575)
Purchase of Treasury Stock  (433,377)  -   433,377   (854,837)  (854,837)  -   (854,837)
Shares of Beneficial Interest Issued for Services Rendered  18,000   32,400   -   -   32,400   -   32,400 
Sales of Ownership Interests in Subsidiary, net  -   -   -   -   -   101,792   101,792 
Distribution to Non-Controlling Interests  -   -   -   -   -   (9,560,117)  (9,560,117)
Reallocation of Non-Controlling Interests and Other  -   147,829   -   -   147,829   (147,829)  - 
Balance, January 31, 2019  9,360,292  $23,738,260   9,229,923  $(13,517,833) $10,220,427  $(1,471,912) $8,748,515 

 

See accompanying notes to these consolidated financial statements

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

  YEARS ENDED 
  JANUARY 31, 
  2017  2016 
       
CASH FLOWS FROM OPERATING ACTIVITIES        
Consolidated Net (Loss) Income $(2,626,754) $339,440 
Adjustments to Reconcile Consolidated (Net Loss) Income to Net Cash Used In Operating Activities:        
Stock-Based Compensation  97,265   65,280 
Provision For (Recovery of) Uncollectible Receivables  19,750   (5,075)
Depreciation  2,094,401   1,178,074 
Amortization of Intangibles  67,000   - 
Amortization of Debt Discounts and Deferred Financing Fees  29,892   71,486 
Gain on Disposal of Assets  -   (2,351,817)
Changes in Assets and Liabilities:        
Accounts Receivable  (475,702)  214,460 
Prepaid Expenses and Other Assets  (50,329)  24,674 
Accounts Payable and Accrued Expenses  (26,489)  (140,381)
NET CASH USED IN OPERATING ACTIVITIES  (870,966)  (603,859)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Improvements and Additions to Hotel Properties  (2,254,499)  (2,125,736)
Cash Received From Sale of Hotel Property  -   4,550,567 
Purchase of IVH Assets  -   (800,000)
Lendings on Advances to Affiliates - Related Party  (879,650)  (1,077,184)
Collections on Advances to Affiliates - Related Party  2,231,001   106,236 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES  (903,148)  653,883 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Principal Payments on Mortgage Notes Payable  (491,806)  (624,543)
Payments on Notes Payable to Banks, net of financing costs  (1,470,570)  (2,348,964)
Borrowings on Notes Payable to Banks, net of financing costs  2,494,051   1,991,153 
Payments on Line of Credit - Related Party  (61,356)  (1,978,321)
Borrowings on Line of Credit - Related Party  230,000   1,730,270 
Payments on Notes Payable - Related Party  (701,113)  (1,726,664)
Borrowings on Notes Payable - Related Party  683,230   1,427,244 
Payments on Other Notes Payable  (36,622)  (470,980)
Borrowings on Other Notes Payable  555,000   - 
Payment of Dividends  (96,630)  (88,177)
Proceeds from Sale of Non-Controlling Ownership Interest in Subsidiary  55,000   1,825,580 
Sale of Stock  -   2,999,999 
Distributions to Non-Controlling Interest Holders  (697,324)  (1,244,196)
Repurchase of Treasury Stock  (77,037)  (92,424)
NET CASH PROVIDED BY FINANCING ACTIVITIES  384,823   1,399,977 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS  (1,389,291)  1,450,001 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR  1,957,687   507,686 
CASH AND CASH EQUIVALENTS AT END OF YEAR (i) $568,396  $1,957,687 

  FOR THE YEARS ENDED 
  JANUARY 31, 
  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITIES        
Consolidated Net Income $11,105,883  $6,807,901 
Adjustments to Reconcile Consolidated Net Income to Net Cash Used In Operating Activities:        
Stock-Based Compensation  32,400   86,683 
Recovery of Uncollectible Receivables  -   (25,157)
Depreciation  1,244,581   1,469,195 
Goodwill Impairment  -   500,000 
Amortization of Intangibles  -   433,000 
Amortization of Debt Discounts and Deferred Financing Fees  -   75,937 
Gain on Disposal of Assets  (13,573,418)  (11,445,879)
Changes in Assets and Liabilities:        
Cash in discontinued operations  -     
Accounts Receivable  133,382   399,966 
Prepaid Expenses and Other Assets  43,278   13,376 
Accrued Interest Income  (36,008)  - 
Accounts Payable and Accrued Expenses  (749,519)  133,920 
NET CASH USED IN OPERATING ACTIVITIES  (1,799,421)  (1,551,058)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Improvements and Additions to Hotel Properties  (936,784)  (2,778,817)
Purcahse of Marketable Securities  (896,226)  (1,000,000)
Cash Received From Sale of Hotel Property and IBC  10,184,766   9,603,610 
Lendings on Advances to Affiliates - Related Party  (776,008)  (1,956,061)
Collections on Advances to Affiliates - Related Party  796,008   606,541 
NET CASH PROVIDED BY INVESTING ACTIVITIES  8,371,756   4,475,273 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Principal Payments on Mortgage Notes Payable  (102,384)  (681,867)
Borrowings on Mortgage Notes Payable  -   5,000,000 
Payments on Notes Payable to Banks, net of financing costs      (2,428,962)
Borrowings on Notes Payable to Banks, net of financing costs  9,300   1,370,000 
Payments on Line of Credit - Related Party  (1,390,656)  (775,000)
Borrowings on Line of Credit - Related Party  1,569,428   632,384 
Payments on Notes Payable - Related Party  -   (2,022,792)
Borrowings on Notes Payable - Related Party  (306,158)  2,000,184 
Payments on Other Notes Payable  (195,313)  (43,195)
Borrowings on Other Notes Payable  525,512   633,956 
Payment of Dividends  (195,575)  (197,512)
Proceeds from Sale of Non-Controlling Ownership Interest in Subsidiary, net  101,792   3,454,226 
Sale of Shares of Beneficial Interest  -   400,000 
Distributions to Non-Controlling Interest Holders  (9,560,117)  (5,757,534)
Repurchase of Treasury Stock  (854,837)  (300,044)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES  (10,399,008)  1,283,844 
NET (DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS  (3,826,673)  4,208,058 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  4,575,748   568,396 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $749,075  $4,776,454*

 

(i) Including $2,153 of*  Cash balances include cash includedheld in Discontinued Operations as ofdiscontinued operations for the fiscal year ended January 31, 20162018

 

See accompanying notes to these consolidated financial statements

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED JANUARY 31, 20172019 AND 20162018

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

As of January 31, 2017,2019, InnSuites Hospitality Trust (the “Trust”, “we”, “us” or “our”) is a publicly traded company with hotels IHT owns and hotels IHT manages. The Trust and its shareholders own interests directly in and through a partnership interest, fourtwo hotels with an aggregate of 574267 suites in Arizona southern California and New Mexico (the “Hotels”). The Hotels operate operated under the tradefederally trademarked name “InnSuites Hotels.”Hotels” or “InnSuites.

Hotel Operations:

 

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

 

The Trust is the sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned a 72.11%74.94% and 74.80% interest in the Partnership as of January 31, 20172019 and 2016.2018. The Trust’s weighted average ownership for the years ended January 31, 20172019 and 20162018 was 72.11%74.94% and 72.53%. As of January 31, 2017,2019, the Partnership owned a 51.01% interest in an InnSuites® hotel located in Tucson, Arizona, and a 51.33% interest in an InnSuites® hotel located in Ontario, California.Arizona. The Trust owns a direct 50.24% interest in a Yuma, Arizona hotel property, and a direct 50.91%20.53% interest in an InnSuites® hotel located in Albuquerque, New Mexico.

 

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

 

On August 1, 2015, the Trust finalized and committed to a plan to sell all the hotel properties. As of May 1, 2016, the Trust listed all the Hotel properties with a local real estate hotel broker, and management believed that each of the assets was being marketed at a price that was reasonable in relation to its current fair value. The Trust believes that the plan to sell these assets will not be withdrawn. Through the Trust’s Form 10-Q for the quarter ended July 31, 2016 filed with the SEC on December 14, 2016, the Trust classified all the Hotel properties as Assets Held for Sale. As of October 31, 2016, the Trust has decided to reclassify these assets back into operations as many of these assets have been marketed for sale for more than one year. At this time, the Trust is unable to predict when, and if, any of these Hotel properties will be sold. The Trust continues to list these properties with local real estate hotel brokers and believes that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. On October 24, 2018, the Yuma Hospitality Properties LLLP (the “Yuma entity”) was sold to an unrelated third party for $16,050,000 (see Note 23).

IBC Technology Segment; IBC Hospitality Technologies:

In fiscal 2019 the Trust sold its wholly owned subsidiary, InnDependent Boutique Collection (“IBCIBC”, “IBC Hotels”, “IBC Hotels, LLC”, “IBC Hospitality” or “IBC Developments”Hospitality Technologies”), a wholly owned subsidiary of InnSuites Hospitality Trust, haswhich had a network of approximately 6,3002,000 unrelated hotel properties,hospitality properties; providing reservation services with proprietary software, plus exclusive marketing distribution and services. The sale occurred in August 2018, and the transaction date was July 2018.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

These consolidated financial statements have been prepared by management in accordance with accounting principles in accordance with GAAP, and include all assets, liabilities, revenues and expenses of which over 1,800 hotel properties are exclusivethe Trust and provides revenue generating servicesits wholly-owned subsidiaries. All material intercompany transactions and cost savings solutionsbalances have been eliminated. Certain items have been reclassified to independent boutique hotels. Duringconform to the current fiscal year ended January 31, 2014 IBC Hotels formed a marketing alliancepresentation. The Trust exercises unilateral control over the Partnership and the entities listed below. Therefore, the financial statements of the Partnership and the entities listed below are consolidated with the Independent Lodging Industry Association (“ILIA”). Included in the 1,800 exclusive hotel properties are approximately 500 exclusive hotels obtained when IBC Hotels purchased International Vacation Hotels (“IVH”) on January 8, 2016.Trust, and all significant intercompany transactions and balances have been eliminated.

IHT OWNERSHIP %
ENTITYDIRECTINDIRECT (i)
Albuquerque Suite Hospitality, LLC (see Note 6)20.53%-
Tucson Hospitality Properties, LLLP-51.01%
RRF Limited Partnership74.94%-
InnSuites Hotels Inc.100.00%-
(i)Indirect ownership is through the Partnership

 

PARTNERSHIP AGREEMENT

 

The Partnership Agreement of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B. Class A and Class B Partnership units are identical in all respects, except that each Class A Partnership unit is convertible into one newly-issued Share of Beneficial Interest of the Trust at any time at the option of the particular limited partner. The Class B Partnership units may only become convertible, each into one newly-issued Share of Beneficial Interest of the Trust, with the approval of the Board of Trustees, in its sole discretion. On January 31, 20172019 and 2016, 276,1312018, 211,708 and 235,812 Class A Partnership units were issued and outstanding, representing 2.09%1.72% and 1.85% of the total Partnership units, respectively. Additionally, as of both January 31, 20172019 and 2016, 3,407,9382018, 2,974,038 and 2,974,038 Class B Partnership units were outstanding to James Wirth, the Trust’s Chairman and Chief Executive Officer, and Mr. Wirth’s affiliates. If all of the Class A and B Partnership units were converted on January 31, 2017,2019, the limited partners in the Partnership would receive 3,684,0693,185,746 Shares of Beneficial Interest of the Trust. As of both January 31, 20172019, and 2016,2018, the Trust owns 9,527,448 general partner units in the Partnership, representing 72.11%74.94% and 74.80% of the total Partnership units, respectively.

LIQUIDITY

 

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

 

As of January 31, 2017,2019, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount payablereceivable of $145,000.approximately $632,000. The Demand/Revolving Line of Credit/Promissory Note accruedaccrues interest at 7.0% per annum and requires interest only payments. The Demand/Revolving Line of Credit/Promissory Note has a maximum borrowing capacity to $1,000,000, which is available through December 31, 2017.2019, and automatically renews year to year, unless either party gives six month advance notice to terminate. As of April 20, 2017,May 31, 2019, the outstanding net balance receivable on the Demand/Revolving Line of Credit/Promissory Note was $0.$632,000.

 

As of January 31, 2017,2018, the Trust had two available Advancesan Advance to Affiliate credit facilities each with a maximum borrowing capacity of $500,000 for a totalan aggregate maximum borrowing capacity of $1,000,000, which is available through June 30, 2017.December 31, 2019, and automatically renews year to year, unless either party gives six month advance notice to terminate. As of January 31, 2017,2019, the Trust had an amount payablereceivable of boththe Advances to Affiliate credit facilitiesfacility of approximately $379,000.

$762,000. As of June 18, 2019, the amount receivable from the Advance to Affiliate credit facility was approximately $562,000.

With approximately $568,000$2,645,000 of cash and short term investments, as of January 31, 2017,2019, the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note, the availability of approximately $1,470,000 of proceeds from the sale of non-controlling partnership units in the Yuma entity which have occurred in March 2017 and April 2017 (see Note 28 Subsequent Events) and the availability of the combined $621,000$1,000,000 Advance to Affiliate credit facilities, we believethe Trust believes that we will have enough cash on hand to meet all of ourits financial obligations as they become due for at least the next year. In addition, our management of the Trust is analyzing other strategic options available to us,it, including the refinancing of another property or raising additional funds through additional non-controlling interest sales; however, such transactions may not be available on terms that are favorable to us,the Trust, or at allall.

 

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

BASIS OF PRESENTATION

As sole general partner of the Partnership, the Trust exercises unilateral control over the Partnership, and the Trust owns all of the issued and outstanding classes of shares of InnSuites Hotels Inc. Therefore, the financial statements of the Partnership and InnSuites Hotels Inc. are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated.

 

SEASONALITY OF THE HOTEL BUSINESS

 

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

 

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

RECENTLY ISSUED ACCOUNTING GUIDANCE

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). Under generally accepted accounting principles (“GAAP”), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the Liquidation Basis of Accounting. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in ASU 2014-15 require additional disclosure of information about the relevant conditions and events. The amendments in ASU 2014-15 are effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Trust has adopted this guidance on its consolidated financial statements and we believe no material impact exists at this time.

In June 2014, FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic No. 718, “Compensation—Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (i) prospectively to all awards granted or modified after the effective date; or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Trust adopted this ASU during the first fiscal quarter of 2017 and evaluated the impact of the adoption of this guidance on its consolidated financial statements and we believe no material impact exists at this time.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). This will improve certain areas of consolidation guidance for reporting organizations that are required to evaluate whether to consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures. ASU 2015-02 simplified and improved GAAP by: eliminating the presumption that a general partner should consolidate a limited partnership, eliminating the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable Interest Entity (“VIE”) consolidation models from four to two (including the limited partnership consolidation model), and clarifying when fees paid to a decision maker should be a factor to include in the consolidation of VIEs. ASU 2015-02 is effective for periods beginning after December 15, 2015. The Trust has evaluated the impact of the adoption of this guidance on its consolidated financial statements and we believe no material impact exists at this time.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. The ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The ASU specifies that “issue costs shall be reported in the balance sheet as a direct deduction from the face amount of the note” and that “amortization of debt issue costs shall also be reported as interest expense.” According to the ASU’s Basis for Conclusions, debt issuance costs incurred before the associated funding is received (i.e., the debt liability) should be reported on the balance sheet as deferred charges until that debt liability amount is recorded. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For entities other than public business entities, the guidance is effective for fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. Early adoption is allowed for all entities for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). The Trust has adopted this ASU during the first fiscal quarter of 2017 and evaluated the impact of the adoption of this guidance on its consolidated financial statements and we believe no material impact exists at this time.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” a new standard which simplifies the accounting for share-based payment transactions. This guidance requires that excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the Consolidated Statements of Operations rather than additional paid-in capital. Additionally, the excess tax benefits will be classified along with other income tax cash flows as an operating activity, rather than a financing activity, on the Statement of Cash Flows. Further, the update allows an entity to make a policy election to recognize forfeitures as they occur or estimate the number of awards expected to be forfeited. It will be effective for us beginning in 2018 and should be applied prospectively, with certain cumulative effect adjustments. Early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosures of financial instruments including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU 2016-01 will become effective for the Company beginning interim period April 1, 2018. The Company is currently evaluating the guidance to determine the potential impact on its financial condition, results of operations, cash flows and financial statement disclosures.

In February 2016, the FASB issued ASU No. 2016-02 “Leases(“ASU 2016-02”),Leases (Topic 842).”. This new standard establishes a right-of-use (“ROU”) model that, which supersedes existing guidance on accounting for leases inLeases (Topic 840) and generally requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases, with terms longer than 12 months. Leases willincluding operating leases, to be classified as either finance or operating, with classification affecting the pattern of expense recognitionrecognized in the income statement.statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 isare to be applied using a modified retrospective approach and are effective for fiscal yearsreporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early2018; early adoption is permitted. A modified retrospectiveIn July 2018, the FASB issued ASU 2018-10 “Codification Improvements of Topic 842, Leases” and ASU No. 2018-11,“Leases (Topic 842):Targeted Improvements.” ASU 2018-11 provides companies another transition approachmethod in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The consideration in the contract is allocated to the lease and nonlease components on a relative standalone price basis (for lessees) or in accordance with the allocation guidance in the new revenue standard (for lessors). ASU 2018-11 also provides lessees with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component. If a lessee makes that accounting policy election, it is required to account for lessees for capitalthe nonlease components together with the associated lease component as a single lease component and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, withto provide certain disclosures. Lessors are not afforded a similar practical expedients available.expedient. The CompanyTrust is currentlystill evaluating the impact of the adoption of ASU 2016-02, 2018-10, and 2018-11, but believes it will have a material effect on our total assets and liabilities.

In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how the entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual or interim periods beginning after December 15, 2019. We are still in the process of completing our analysis on the impact this guidance will have on the consolidated financial statements.statements and related disclosures, we do not expect the impact to be material

 

TheIn June 2018, the FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

● ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) in May 2014. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.

● ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.

● ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”) in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.

● ASU No. 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 PursuantUpdate (“ASU”) 2018-07,Compensation – Stock Compensation (Topic 718) Improvements to Staff Announcements atNonemployee Share-Based Payment Accounting. This ASU expands the March 3, 2016 EITF Meeting (SEC Update)” (“ASU 2016-11”) in May 2016. ASU 2016-11 rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 EITF meeting. The SEC Staff is rescinding SEC Staff Observer comments that are codified in Topic 605 and Topic 932, effective upon adoptionscope of Topic 606.

718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606):Narrow-ScopeImprovements and Practical Expedients” (“ASU 2016-12”) in May 2016. ASU 2016-12 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance.

These ASUs will become effective for the Companyus beginning interim period February 1, 2018.2019, and early adoption is permitted. The Company is currently evaluating the impact of ASC 606, but at the current timeTrust does not know what impact the new standardanticipate that this ASU will have a material effect on revenue recognized and other accounting decisions in future periods, if any, nor what method of adoption will be selected if the impact is material.our consolidated financial statements.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

USE OF ESTIMATES

 

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

 

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

 

PROPERTY, PLANT AND EQUIPMENT AND HOTEL PROPERTIES

 

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

 

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

 

If the estimated undiscounted future cash flows over the asset’s estimated remaining life are greater than the asset’s carrying value, no impairment is recognized; however, if the carrying value of the asset exceeds the estimated undiscounted future cash flows, then the Trust would recognize an impairment expense to the extent the asset’s carrying value exceeds its fair value, if any. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. Long-lived assets evaluated for impairment are analyzed on a property-specific basis independent of the cash flows of other groups of assets. Evaluation of future cash flows is based on historical experience and other factors, including certain economic conditions and committed future bookings. Management impaired these assets during the fiscal year 2018, and has determined that no further impairment is required of long-lived assets existed duringfor the Trust’s fiscal yearsperiod ended January 31, 2017 and 2016.

INTANGIBLE ASSETS

Intangible assets with finite lives are amortized on a straight-line basis over the estimated useful lives, which range from 7 to 10 years. The useful life of the intangible asset is evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining useful life.2019.

BUSINESS COMBINATIONS

 

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

 

The Trust allocates the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. Such goodwill is not deductible for tax purposes and represents the value placed on entering new markets and expanding market share (see Note 27)8).

 

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

 

GOODWILL

 

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

The goodwillTrust’s Technology Segment (IBC Hotels LLC) in fiscal year ended January 31, 2019 determined that it was recorded as partmore likely than not that the fair value of IBC Hotels was less than its carrying value. Accordingly, management decided to write down the acquisitionentire amount of International Vacation Hotels that occurred on January 8, 2016 (see Note 27) and no impairment existedintangible assets, equaling $500,000 as of January 31, 2017.2018.

 

CASH AND CASH EQUIVALENTS

 

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

 

REVENUE RECOGNITION

 

Staff Accounting Bulletin (“SAB”) No. 104,Hotel and Operations

ASU 2014-09 (Topic 606), “Revenue Recognition” summarizes the SEC’s views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB No. 104 establishes the SEC’s view that itfrom Contracts with Customers” is not appropriateeffective for reporting periods after January 1, 2018. ASU 2014-09 requires entities to recognize revenue until allthrough the application of a five-step model, which includes identification of the following criteria are met: persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered;contract, identification of the seller’sperformance obligations, determination of the transaction price, allocation of the transaction price to the buyer is fixed or determinable;performance obligations and collectability is reasonably assured. Further, SAB No. 104 requires that both title andrecognition of revenue as the risks and rewards of ownership be transferred toentity satisfies the buyer before revenue can be recognized. We believe that our revenue recognition policies as described below are in compliance with SAB No. 104.performance obligations.

 

Revenues are primarily derived from the following 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.

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 two hotelsone hotel owned by affiliates of Mr. Wirth. In February 2017, one of the two hotels owned by affiliates of Mr. Wirth was sold to a third party and therefore, the management and trademark fees associated with that hotel will no longer continue. IBC Development revenues are recognized after services are rendered by the IBC member hotel.

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

 

IBC Technologies Segment – Discontinued Operations

This ASU became effective for the Trust beginning interim period February 1, 2018. Based on our policy, we recognizeevaluation of the new revenue when we believe that persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,recognition standard the seller’s price toTrust presents revenue on a net basis for the buyerfiscal years ended January 31, 2019 and 2018.

ASU 2014-09 (Topic 606), “Revenue from Contracts with Customers is fixed or determinable, and the collectability of our revenues are reasonably assured.effective for reporting periods after January 1, 2018.

International Vacation Hotels Travel (“IVH”) Transactional Business to Consumer (“B-to-C”) Revenues

IVH Collect - IVH will charge the guests in full on booking and remit the payments to the Hotel for all completed stays for rates contracted less the agreed upon commission.
Hotel Collect- the Hotel will charge the guests in full upon arrival and IVH will invoice the Hotel at the end of each month the agreed upon commission for the hotel guest stays completed.
Split- Guest pays deposit to IVH equal to the commission, provides credit card details and pays the balance to the Member upon arrival.

IBC Business to Business (“B-to-B”) Revenues

SaaS Revenue – SaaS revenues which include CRS and digital marketing services are billed on a monthly basis and paid for by the individual hotel properties the following month services are provided.
Digital Marketing revenues – Performance of professional services on a fixed price monthly basis.

 

ACCOUNTS RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable are carried at original amounts billed less an estimate made for doubtful accounts based on a review of outstanding amounts on a quarterly basis. Management generally records an allowance for doubtful accounts for 50% of balances over 90 days and 100% of balances over 120 days. Accounts receivable are written off when collection efforts have been exhausted and they are deemed uncollectible. Recoveries, if any, of receivables previously written off are recorded when received. The Trust does not charge interest on accounts receivable balances and these receivables are unsecured. The following is a reconciliation of the allowance for doubtful accounts for the fiscal years ended January 31, 2019 and 2018.

 

  Balance at the Beginning  Charged to     Balance at the End of 
Fiscal Year of Year (i)  Expense  Deductions  Year (i) 
2016 $39,045  $83,786  $(88,861) $33,970 
2017 $33,970  $127,114  $(107,364) $53,720 

Fiscal Year Balance at the Beginning of Year  Discontinued Operations Adjustment  Charged to Expense  Deductions  Balance at the End of Year 
                    
2019 $(28,564) $25,000      $(2,379) $(5,943)
2018 $53,720  $(19,750) $11,356  $(73,890) $(28,564)

STOCK-BASED COMPENSATION

 

We haveThe Trust has an employee equity incentive plan, which is described more fully in Note 22 - “Share-Based Payments.” For fiscal year 2017years 2019 and 2016,2018, the Trust has paid the annual fees due to its Trustees by issuing Shares of Beneficial Interest out of its authorized but unissued Shares of Beneficial Interest.Shares. Upon issuance, the Trust recognizes the shares as outstanding. The Trust recognizes expense related to the issuance based on the fair value of the shares upon the date of the restricted share grant and amortizes the expense equally over the period during which the shares vest to the Trustees.

 

During fiscal year 2017,2019, the Trust granted restricted stock awards of 24,000 Shares to members of the Board of Trustees, all of which vested in fiscal year 20172019 resulting in stock-based compensation of $51,840.$30,600. During fiscal year 2016,2018, the Trust granted restricted stock awards of 24,000 Shares to members of the Board of Trustees, all of which vested in fiscal year 20162018 resulting in stock-based compensation of $65,280.$55,560.

The following table summarizes restricted share activity during fiscal years 20172019 and 2016.2018.

 

 Restricted Shares  Restricted Shares 
 Shares Weighted-Average Per Share Grant Date Fair Value  Shares Price on date of grant 
Balance at January 31, 2015  -   - 
Balance at January 31, 2017  -   - 
Granted  24,000  $2.72   24,000  $2.31 
Vested  (24,000) $2.72   (24,000) $2.31 
Forfeited  -   -   -     
Balance of unvested awards at January 31, 2016  -   - 
Balance of unvested awards at January 31, 2018  -     
                
Granted  24,000  $2.16   24,000  $2.16 
Vested  (24,000) $2.16   (24,000) $2.16 
Forfeited  -   - 
Balance of unvested awards at January 31, 2017  -   - 
Balance of unvested awards at January 31, 2019  -     
  -     

 

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.

INCOME TAXES

 

The Trust is subject to federal and state corporate income taxes, and accounts for deferred taxes utilizing an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when it is determined to be more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.enactment (see Note 16).

 

DIVIDENDS AND DISTRIBUTIONS

 

In fiscal years 20172018 and 2016,2019, the Trust paid dividendsa dividend of $0.01 per share at end of the second fiscal quarter and at the end of the fourth fiscal quarter for a total dividend of $0.02 for the fiscal year in the fourth quarteramounts of each year, or total dividends of $96,630$195,575 and $88,177,$197,512, respectively. The Trust’s ability to pay dividends is largely dependent upon the operations of the Hotels.

 

NON-CONTROLLING INTEREST

 

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

 

INCOME (LOSS) INCOME PER SHARE

 

Basic and diluted income (loss) per Share of Beneficial Interest is computed based on the weighted-average number of Shares of Beneficial Interest and potentially dilutive securities outstanding during the period. Dilutive securities are limited to the Class A and Class B units of the Partnership, which are convertible into 3,684,0693,024,038 Shares of the Beneficial Interest, as discussed in Note 1.

For the fiscal years ended January 31, 20172019 and 2016,2018, 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 3,684,0693,185,746 and 3,473,085 in addition to the basic shares outstanding for fiscal years 20172019 and 2016,2018, respectively. These Shares of Beneficial Interest issuable upon conversion of the Class A and Class B Partnership units were dilutive during fiscal 20162018 and are included in the calculation of diluted earnings per share for that year below.

 

  For the Year Ended 
  January 31, 
  2016 
Net Loss attributable to controlling interest $432,116 
Plus: Net Loss attributable to non-controlling interests  (92,676)
Net Loss attributable to controlling interest after unit conversion $339,440 
     
Weighted average common shares outstanding  8,269,827 
Plus: Weighted average incremental shares resulting from unit conversion  3,684,069 
Weighted average common shares outstanding after unit conversion  11,953,896 
     
Diluted Loss Per Share $0.03 

DISCONTINUED OPERATIONS

Discontinued operations in the fiscal year ended January 31, 2016 primarily consists of the hotel’s operational revenues and expenses, and does not include the sale proceeds and profit from the sale of our Tucson St. Mary’s hotel. On August 1, 2015, the Trust finalized and committed to a plan to sell three Hotel properties. As of May 1, 2016, the Trust has listed the Hotel properties with a local real estate hotel broker, and management believes that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. The Trust believes that the plan to sell these assets will not be withdrawn. Through the Trust’s Form 10-Q for the quarter ended July 31, 2016 filed with the SEC on September 14, 2016, the Trust classified all the Hotel properties as Assets Held for Sale. As of October 31, 2016, the Trust has decided to reclassify these assets back into operations as many of these assets have been marketed for sale for more than one year. At this time, the Trust is unable to predict when, and if, any of these Hotel properties will be sold and the Trust no longer deems a sale to be probable. The Trust continues to list these properties with local real estate hotel brokers and, we believe, that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. There have been no other material changes to our basis of presentation since October 31, 2016.

  For the Year Ended 
  January 31, 
  2019  2018 
Net Income attributable to controlling interest $1,161,086  $1,397,601 
Plus: Net Income attributable to non-controlling interests  9,413,845   5,410,300 
Net Income $10,574,931  $6,807,901 
         
Weighted average common shares outstanding  9,283,081   9,612,139 
Plus: Weighted average incremental shares resulting from unit conversion  3,153,475   3,473,085 
Weighted average common shares outstanding after unit conversion  12,436,556   13,085,223 
         
Diluted Income Per Share $0.85  $0.52 

SEGMENT REPORTING

 

TheAs a result of the sale of IBC (see Note 23), the Chief Operating Decision Maker (“CODM”), Mr. Wirth, CEO of the Trust, has determined that the Trust operations are comprised of one reportable segment, Hotel Operations & Corporate Overhead (continuing operations) segment that has ownership interest in two hotel properties with an aggregate of 267 suites in Arizona and New Mexico. Prior to the sale of IBC, the Trust had previously determined that its operations arewere comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment, that has ownership interest in four hotel properties with an aggregate of 574 suites in Arizona, southern California and New Mexico, and the IBC DevelopmentsHospitality segment serving 6,3002,000 unrelated hotel properties. The Trust has a concentration of assets inIn connection with the southwest United States, and the southern Arizona market. On an overall basis, the Trust has elected to only put the costs directly attributable to the IBC Developments in that segment. Included in these costs are sales, marketing and technology development costs.

IBC Hotels was formed during the fiscal year ended January 31, 2014. Operating results became significant during the fiscal year ended January 31, 2015. IBC Hotels charges a 10% booking fee which, we believe, increases the independent hotel profits. Competitorssale of IBC, Hotels can charge anywhere from a 30% to 50% booking fee. InnDependent InnCentives, IBC’s loyalty program, allows hoteliers to benefit from guests who frequently stay atthe historical financial information presented in this Form 10-K reflects this change with IBC independent hotels. We are planning significant expansion of IBC Hotels during the next couple of fiscal yearsbeing reported as continue to expand and develop our production and sales and marketing efforts. Specifically, IBC Hotels’ product development roadmap includes integration of more hotel software systems to simply use and simplify adoption of our product by the hotels, improve retention with better onboarding techniques, grow digital marketing services capabilities and revenues and continue to develop our product to meet the needs of our hotel partners. We anticipate significant expansion of our sales and marketing efforts by hiring additional personnel, seek out partnerships and acquisitions to grow our hotel user base and further monetize our loyalty program and consumer site. In addition, we play to explore financial and strategic options for this division and have hired Viant Capital, an investment banker, to assist. We anticipate the IBC Hotels sales and marketing efforts to increase our revenues and decrease our consolidated net loss over the next couple of fiscal years. For each reservation, IBC Hotels receives a 10% transactional fee plus reimbursement of our credit card processing fees associated with the reservation. We cannot provide any assurance that our plans will be successful or in line with our expectations.

The Chief Operating Decision Maker (“CODM”), the Trust’s CEO, Mr. Wirth, does not see value in allocating costs for items not directly attributable to the IBC Developments segment for several reasons. The first is that the Trust’s base business is the Hotel Operations & Corporate Overhead segment, and the majority of the expenses of the Trust would continue even if the Trust was not in the reservation, hotel services and technology business. If the Trust were to allocate general expenses to the reservation business based on some allocation method (e.g., on sales), it would not improve the value of segment reporting, but it would only serve to make the results of the Hotel Operations & Corporate Overhead segment look better and give investors a false sense of the profitability of the Hotel Operations & Corporate Overhead segment without the IBC Developments segment. The CODM wants to understand the true investment in the reservation business and that result is delivered by allocating only costs directly associated with the IBC Developments segment. By retaining the remainder of costs not associated with the IBC Developments segment in the Hotel Operations & Corporate Overhead segment, the Trust is able to compare the Hotel Operations & Corporate Overhead segment to historical figures where the bulk of the business was only that segment of operations to gauge relative efficiency of the Hotel Operations & Corporate Overhead segment as compared to historical norms.discontinued operation.

 

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

 

ADVERTISING COSTS

 

Amounts incurred for advertising costs are expensed as incurred. Advertising expense totaled approximately $567,000$581,000 and $587,000$368,000 for the years ended January 31, 20172019 and 2016,2018, respectively.

CONCENTRATION OF CREDIT RISK

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

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

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

The Trust has no assets or liabilities that are carried at fair value on a recurring basis and had no fair value re-measurements during the years ended January 31, 20172019 and 2016.2018.

 

Due to their short maturities, the carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximatesapproximate fair value.value and are considered level 1 inputs. The fair value of mortgage notes payable, notes payable to banks and notes and advances payable to related parties is estimated by using the current rates which would be available for similar loans having the same remaining maturities and are based on level 3 inputs. See Note 19 – “Fair Value of Financial Instruments.”

37

 

3. SALE OF OWNERSHIP INTERESTS IN ALBUQUERQUE SUBSIDIARY

 

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

 

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

 

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

 

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

During the fiscal year ended January 31, 2017,2019, there were no15 Class A units of the Albuquerque entity sold.sold for total proceeds of $150,000, of which 13.5 came from the Trust at $10,000 per unit. As of January 31, 2017,2019, the Trust held a 50.91%20.70% ownership interest, or 279123.5 Class B units, in the Albuquerque entity, Mr. Wirth and his affiliates held a 0.18%0.17% interest, or 1 Class C unit, and other parties held a 48.91%79.13% interest, or 268477 Class A units. As ofDuring the fiscal year ended January 31, 2017,2019, the Albuquerque entity has made discretionary Priority Return payments to unrelated unit holders of approximately $142,000,$323,000, and to the Trust of approximately $146,000, and to Mr. Wirth and his affiliates of approximately $500. As of February 1, 2016, the$90,000. The Trust no longer accrues for these distributions as the preference period has expired.

 

4. SALE OF OWNERSHIP INTERESTS IN TUCSON HOSPITALITY PROPERTIES SUBSIDIARY

 

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

On October 1, 2013, the Partnership entered into an updated restructured limited partnership agreement with Rare Earth to allow for the sale of additional interest units in the Tucson entity for $10,000 per unit. Under the agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 160 (and potentially up to 200 if the overallotment is exercised) units. Under the terms of the updated restructuring agreement, the Partnership agreed to hold at least 50.1% of the outstanding limited partnership units in the Tucson entity, on a post-transaction basis, and intends to maintain this minimum ownership percentage through the purchase of units under this offering. The Board of Trustees approved this restructuring on September 14, 2013. The limited partnership interests in the Tucson entity are allocated to three classes with differing cumulative discretionary priority distribution rights through June 30, 2016.2017. Class A units are owned by unrelated third parties and have first priority for distributions. Class B units are owned by the Partnership and have second priority for distributions. Class C units are owned by Rare Earth or other affiliates of Mr. Wirth and have the lowest priority for distributions from the Tucson entity. Priority distributions of $700 per unit per year are cumulative until June 30, 2016; however, after June 30, 2016 Class A unit holders continue to hold a preference on distributions over Class B and Class C unit holders.

 

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

 

During the fiscal yearyears ended January 31, 2017,2019 and 2018, there were 3 Class Ano units of the Tucson entity sold by Rare Earth at $10,000 per unit to Class A unit holders.sold. As of January 31, 2017,2019, the Partnership held a 51.01% ownership interest, or 404 Class B units, in the Tucson entity, Mr. Wirth and his affiliates held a 0.38% interest, or approximately 3 Class C units, and other parties held a 48.61% interest, or approximately 385 Class A units. For the fiscal year ended January 31, 2017,2018, the Tucson entity made discretionary Priority Return payments to unrelated unit holders of approximately $201,000,$67,735 and to the Partnership of approximately $141,000 and to Rare Earth of approximately $2,000. As of February 1, 2016, the$70,700. The Trust no longer accrues for these distributions as the preference period has expired.

5. VARIABLE INTEREST ENTITY (VIE)

5. SALE OF OWNERSHIP INTERESTS IN ONTARIO HOSPITALITY PROPERTIES SUBSIDIARY

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

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

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

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

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

 

On February 29, 2012,15, 2017, the Trust and Partnership entered into a restructuring agreement with Rare Earth to allow for the sale of non-controlling interest units in Ontario Hospitality Properties, LP (the “Ontario entity”) for $10,000 per unit, which operates the Ontario hotel property, then wholly-owned by the Partnership. Under the agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 250 units, which represents approximately 49% of the outstanding partnership units in the Ontario entity, on a post-transaction basis, and the parties agreed to restructure the limited partnership agreement of the Ontario entity. The Board of Trustees approved this restructuring on February 1, 2012. Under the restructured limited partnership agreement, Rare Earth became a general partner of the Ontario entity along with the Trust and Partnership.

On March 1, 2014, the Trust and Partnership entered into an updated restructuring agreement with Rare Earth to allow for the sale of additional interest units in the OntarioYuma entity for $10,000 per unit. Under the updated restructuring agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 235 (and potentially up to 275 if the overallotment is exercised) units. Under the terms of the updated restructuring agreement, the Partnership agreed to hold at least 50.1% of the outstanding limited partnership units in the Ontario entity, on a post-transaction basis, and intends to maintain this minimum ownership percentage through the purchase of units under this offering. The Board of Trustees approved this restructuring on March 24, 2014. The limited partnership interests in the Ontario entity are allocated to three classes with differing cumulative discretionary priority distribution rights through March 31, 2017. Class A units are owned by unrelated third parties and have first priority for distributions. Class B units are owned by the Trust and have second priority for distributions.are restructuring the Yuma Partnership Interest from General Partner majority-owned to accredited investor majority-owned. Total interests outstanding will remain unchanged at 800 with Class C units are owned by Rare Earth or other affiliates of Mr. Wirth and have the lowest priority for distributions from the Albuquerque entity. Priority distributions of $700 per unit per year are cumulative until December 31, 2015; however, after March 31, 2017 Class A, unit holders continue to hold a preference on distributions over Class B and Class C unit holders.

If certain triggering events relatedLimited Liability Limited Partnership Interests (referred to collectively as “Interests”) restructured with the OntarioYuma entity occur priorpurchasing 300 existing IHT Class B Interests and reissuing 300 Class A units to accredited investors as Class A Interests causing the payment of all accumulated distributionsYuma entity to its members, such accumulated distributions will be paid out of any proceedsoffer and sell up to approximately 300 Class A (2017 series) Interests. Rare Earth, as a General Partner of the event before general distributionYuma entity, will coordinate the offering and sale of the proceeds to the members. In the event that funds generated from a triggering event are insufficient to pay the total amount of all such accumulated distributions owed to the members, all Class A members will participate pro rata inInterests to qualified third parties. Rare Earth and other Rare Earth affiliates may purchase Interests under the funds available for distribution to them untiloffering. The Trust paid in full, then Class B, and then Class C. After all investors have received their initial capital plus$240,000 as a 7% per annum simple return, any additional profits will be allocated 50%restructuring fee to Rare Earth with the remaining 50% allocated proportionately to all unit classes. Rare Earth also received a restructuring fee of $128,000, conditioned upon and arising from the sale of the first 100 units in the Ontario entity following the March 1, 2014 restructuring. The Trust has paid out $128,000 of the restructuring fee at January 31, 2015 and included the cost in the Sales of Ownership Interest in Subsidiary, net line of the accompany Consolidated Statements of Shareholders’ Equity. The Ontario entity is required to use its best efforts to pay the priority distributions. The Trust does not guarantee and is not otherwise obligated to pay the cumulative priority distributions. InnSuites Hotels will continue to provide management, licensing and reservation services to the Ontario, California property.

Duringduring the fiscal year ended January 31, 2017, there were 32 Class A units of the Ontario entity sold, of2018, which 28 were purchased from Rare Earth at $10,000 per unit, and of which 2 were purchased from the Partnership at $10,000 per unit. As of January 31, 2017, the Partnership held a 51.33% ownership interest, or 496 Class B units,was included in the Ontario entity, Mr. Wirth and his affiliates held a 0.21% interest through Rare Earth, or 2 Class C units, and other parties held a 48.46 % interest, or 468.25 Class A units. For the fiscal year ended January 31, 2017, the Ontario entity made discretionary Priority Return payments to unrelated unit holders of approximately $153,000, to the Partnership of approximately $174,000 and to Rare Earth of approximately $10,000.

6. SALE OF OWNERSHIP INTERESTS IN YUMA HOSPITALITY PROPERTIES SUBSIDIARY

On October 24, 2014, the Trust and Partnership entered into a restructuring agreement with Rare Earth to allow for the sale of non-controlling interest units in Yuma Hospitality Properties, Limited Partnership (the “Yuma entity”) for $10,000 per unit, which operates the Yuma hotel property, then wholly-owned by the Trust. Prior to the agreement there were 750 units outstanding and as a result of the agreement, an additional 50 units will be created for sale. Under the agreement, Rare Earth agreed to either purchase or bring in other investors to purchase up to 398 units, which represents approximately 49% of the outstanding partnership units in the Yuma entity, on a post-transaction basis, and the parties agreed to restructure the limited partnership agreement of the Yuma entity. The Board of Trustees approved this restructuring on October 24, 2014. Under the restructured limited partnership agreement, Rare Earth became a general partner of the Yuma entity along with the Trust and Partnership.

The limited partnership interests in the Yuma entity are allocated to three classes with differing cumulative discretionary priority distribution rights through January 31, 2020. Class A units are owned by unrelated third parties and have first priority for distributions. Class B units are owned by the Trust and have second priority for distributions. Class C units are owned by Rare Earth or other affiliates of Mr. Wirth and have the lowest priority for distributions from the Yuma entity. Priority distributions of $700 per unit per year are cumulative until January 31, 2020. After January 31, 2020, all Partnership Interests will share equally in all distributions.

If certain triggering events related to the Yuma entity occur prior to the payment of all accumulated distributions to its members, such accumulated distributions will be paid out of any proceeds of the event before general distribution of the proceeds to the members. In the event that funds generated from a triggering event are insufficient to pay the total amount of all such accumulated distributions owed to the members, all Class A members will participate pro rata in the funds available for distribution to them until paid in full, then Class B, and then Class C. After all investors have received their initial capital plus a 7% per annum simple return, any additional profits will be allocated 50% to Rare Earth, with the remaining 50% allocated proportionately to all unit classes. Rare Earth will receive a restructuring fee of $350,000, conditioned upon and arising from the sale of the first 150 units in the Yuma entity following the October 24, 2014 restructuring. The Trust has paid out $350,000 of the restructuring fee at January 31, 2016 and included the cost in the Sales of Ownership Interest in Subsidiary, net line of the accompany Consolidated Statements of Shareholders’ Equity. The Yuma entity is required to use its best efforts to pay the priority distributions. The Trust does not guarantee and is not otherwise obligated to pay the cumulative priority distributions. InnSuites Hotels will continue to provide management, licensing and reservation services to the Yuma, Arizona property.

During the fiscal year ended January 31, 2017, there were 9.50 Class A units, of which 4 were sold from the Trust, and of which 5.5 were purchased from the Partnership at $10,000 per unit. As of January 31, 2017, the Trust held a 50.24% ownership interest, or 401.90 Class B units, in the Yuma entity, Mr. Wirth and his affiliates held a 0.51% interest, or 4.1 Class C units, and other parties held a 49.25% interest, or 394 Class A units. For the fiscal year ending January 31, 2017, the Yuma entity made discretionary Priority Return payments to unrelated unit holders of approximately $206,000, to the Trust of approximately $211,000 and to Rare Earth of approximately $4,000.

In February 2017, the Trust started the process to sell 300 of its 401 Class B units to third party investors to further reduce IHT percentage ownership in the Yuma entity (see Note 28).

7. SALE OF OWNERSHIP INTERESTS IN TUCSON SAINT MARY’S SUITE HOSPITALITY

On April 24, 2015, the Trust and the Partnership entered into a restructuring agreement with Rare Earth to allow for the sale of non-controlling interest units for $10,000 per unit in the Tucson St. Mary’s entity for $10,000 per unit, which operated one of the Tucson, Arizona hotel properties, then wholly-owned by the Partnership. Under the agreement, the Partnership agreed to either purchase or bring in other investors to purchase up to 350 units, which represents approximately 50.07% of the outstanding partnership units, on a post-transaction basis, and the parties agreed to restructure the limited liability agreement of the Tucson St. Mary’s entity. The Board of Trustees approved this restructuring on April 24, 2015. Under the restructured limited liability agreement, the Partnership was confirmed as the Administrative Member of the Tucson St. Mary’s entity but Rare Earth could be elected in the future as Administrative Member without consent of the Partnership. All membership interests are entitled to receive priority distributions annually of $700 per $10,000 interest from May 15, 2015 through April 20, 2020. Priority distributions will be paid first to Class A interests, second to Class B interests, third to Class C interests and are cumulative. After April 30, 2020, all membership interests will be entitled to annual distributions of $700 per $10,000 interest, which will be cumulative. Subject to shareholder approval, the holders of Class A units may convert all of part of their investment at any time up to January 31, 2018 into 2,857 Shares of Beneficial Interest for each $10,000 interest subject to shareholder approval and other required approvals (“conversion feature”). Thereafter each $10,000 interest is convertible into 2,500 Shares of Beneficial Interest of the Trust. On May 30, 2015, the restructuring agreement was amended to clarify the requirement that the shareholders must approve the conversion feature which is not perfunctory.equity.

 

During the fiscal yearyears ended January 31, 2016, there were 64 Class A units sold2019 and 100 Class C units sold of the Tucson St. Mary’s entity for total proceeds of $640,000 attributable to Class A units sold and $1,000,000 attributable to Class C units sold. On October 14, 2015,January 31, 2018, neither the Trust sold its Tucson St. Mary’s hotel to an unrelated third partynor the Partnership have provided any implicit or explicit financial support for approximately $9.7 million, which they were not previously contracted. Both the Partnership and the Trust received approximately $4.6 million in cash, net. The Trust used $4.7 million of the proceedsprovided mortgage loan guarantees which allow our properties to satisfy its mortgage note payable on the property, approximately $379,000 to reduce accruals and payables, and retained the remaining proceeds to fund future operations and capital improvements. The Trust recognized a gain on the sale of property in the amount of approximately $2.4 million for the year ended January 31, 2016. As of January 31, 2017, the Partnership held a 100% ownership interest, or 88.5 Class B units, in the Tucson St. Mary’s entity.obtain new financing as needed.

8.6. PROPERTY, PLANT, AND EQUIPMENT AND HOTEL PROPERTIES

 

As of January 31, 20172019 and 2016,2018, hotel properties consisted of the following:

 

  2017  2016 
Land $4,438,079  $4,438,079 
Building and improvements  25,458,137   24,781,738 
Furniture, fixtures and equipment  6,521,257   5,317,036 
Total hotel properties  36,417,473   34,536,853 
Less accumulated depreciation  (17,022,739)  (15,226,820)
Hotel Properties in Service, net  19,394,734   19,310,033 
Construction in progress  -   18,000 
Hotel properties, net $19,394,734  $19,328,033 

  2019  2018(i) 
Land $2,500,000  $2,805,015 
Building and improvements  10,334,919   18,066,151 
Furniture, fixtures and equipment  3,860,574   5,621,820 
Total hotel properties  16,695,493   26,492,986 
Less accumulated depreciation  (7,312,869)  (12,124,650)
Hotel Properties in Service, net  9,382,625   14,368,336 
Construction in progress  43,657   76,683 
Hotel properties, net $9,426,282  $14,445,019 

(i) Includes discontinued operations

 

As of January 31, 20172019 and 2016,2018, corporate property, plant and equipment consisted of the following:

 

  2017  2016 
Land $7,005  $7,005 
Building and improvements  75,662   75,662 
Furniture, fixtures and equipment  852,332   645,657 
Total property, plant and equipment  934,999   728,324 
Less accumulated depreciation  (554,868)  (441,590)
Property, Plant and Equipment, net $380,131  $286,734 

  2019  2018 
Land $7,005  $7,005 
Building and improvements  75,662   75,662 
Furniture, fixtures and equipment  534,879   1,178,941 
Total property, plant and equipment  617,546   1,261,608 
Less accumulated depreciation  (511,035)  (694,876)
Property, Plant and Equipment, net $106,511  $566,732 

 

9.7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets are carried at historichistorical cost and are expected to be consumed within one year. As of January 31, 20172019, and 2016,2018, prepaid expenses and other current assets consisted of the following:

 

  2017  2016 
Prepaid Assets $48,922  $45,838 
Tax and Insurance Escrow  58,790   40,639 
Deposits  14,805   14,805 
Prepaid Insurance  8,130   8,130 
Prepaid Workman’s Compensation  43,054   17,903 
Miscellaneous Prepaid Expenses  3,953   10 
Total Prepaid Expenses and Current Assets $177,654  $127,325 

  2019  2018 
Prepaid Assets $-  $15,545 
Tax and Insurance Escrow  57,810   57,235 
Deposits  3,000   8,000 
Prepaid Insurance  5,000   7,417 
Prepaid Workman’s Compensation  21,459   7,617 
Miscellaneous Prepaid Expenses  8,284   17,636 
Total Prepaid Expenses and Current Assets $

95,553

  $

113,450

 

8. INTANGIBLE ASSETS, GOODWILL AND IMPAIRMENT

 

10.Intangible Assets

For the fiscal year ending January 31, 2019, the Trust has no intangible assets.

For the fiscal year ending January 31, 2018, intangible assets consisted of the following, all related to the IBC Technology segment which was sold in fiscal year 2019:

     Fiscal Year
January 31, 2018 Impairment
  Fiscal year
1/31/2018
Accumulated
     Useful Lives 
  Amount  Expense  Amortization  Net Amount  (years) 
Marketing Related Intangibles $100,000  $90,000  $10,000  $-   10 
Customer Base  400,000   343,000   57,000      -   7 
Total: $500,000  $433,000  $67,000  $-     

The Trust recorded amortization of intangibles of approximately $433,000 for the year ended January 31, 2018.

Goodwill

For the fiscal year ending January 31, 2019, the Trust has no goodwill.

The changes in the carrying value of the Trust’s goodwill for the year ended January 31, 2018 is as follows:

Beginning Balance January 31, 2017500,000
Impairment(500,000)
Ending Balance January 31, 2018$-

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

As of January 31, 20172019 and 2016,2018, accounts payable and accrued expenses consisted of the following:

 

  2017  2016 
Accounts Payable $1,025,749  $1,022,511 
Accrued Salaries and Wages  257,259   214,654 
Accrued Vacation  32,608   8,515 
Income Tax Payable  20,000   239,244 
Accrued Interest Payable  52,852   52,852 
Advanced Customer Deposits  144,978   128,422 
Accrued Property Taxes  190,533   206,467 
Accrued Land Lease  98,175   66,334 
Sales Tax Payable  163,772   239,244 
Accrued Other  177,974   12,147 
Total Accounts Payable and Accrued Expenses $2,163,900  $2,190,390 

11.

  2019(i)  2018(i) 
Accounts Payable $166,339  $741,917 
Accrued Salaries and Wages  251,773   271,739 
Accrued Vacation  28,780   38,957 
Income Tax Payable  631,130   340,169 
Accrued Interest Payable  4,857   26,565 
Advanced Customer Deposits  60,322   15,000 
Accrued Property Taxes  79,516   140,439 
Accrued Land Lease  161,856   130,015 
Sales Tax Payable  114,753   305,071 
Deferred Revenue  31,239   107,467 
Accrued Other  108,238   331,668 
Total Accounts Payable and Accrued Expenses $1,638,803  $2,449,007 

(i) Includes current liabilities of discontinued operations.

10. MORTGAGE NOTES PAYABLE

 

At January 31, 20172019 and 2016,2018, the Trust had mortgage notes payable outstanding with respect to each of the Hotels except the Albuquerque property. The mortgage notes payable have various repayment terms and have scheduled maturity dates ranging from August 2022 to November 2029.June 2042. Weighted average annual interest rates on the mortgage notes payable for the fiscal years ended January 31, 20172019 and 20162018 were 4.65%4.85% and 4.71%4.65%, respectively.

 

The following table summarizes the Trust’s mortgage notes payable, net of debt discounts, as of January 31:31, 2019:

 

  2017  2016 
Mortgage note payable, due in monthly installments of $36,835, including interest at Prime + 1.50% with a 4.75% floor per year (4.75% as of January 31, 2016), through August 22, 2024, plus a balloon payment of $3,585,591 in August 2024, secured by the Ontario property with a carrying value of $6.1 million at January 31, 2017.  5,233,046   5,408,942 
         
Mortgage note payable, due in monthly installments of $26,312, including interest at 4.19% per year, through November 18, 2029, secured by the Tucson Oracle property with a carrying value of $6.8 million at January 31, 2017.  3,112,112   3,290,657 
         
Mortgage note payable, due in monthly installments of $32,419, including interest at the prime rate plus one percentage point over the index, with a floor of 5.0% per year (5% per year as of January 31, 2015), through August 1, 2022 plus a balloon payment of $4,112,498 in September 2022, secured by the Yuma property with a carrying value of $5.1 million at January 31, 2017.  4,963,644   5,092,993 
         
Totals: $13,308,802  $13,792,592 

The mortgage note payable secured by the Yuma hotel property is recourse to the Trust as a full guarantor. None of the other mortgage notes are recourse to the Partnership or the Trust.

  2019  2018 
Mortgage note payable, due in monthly installments of $28,493, including interest at 4.69% per year, through June 19, 2042, secured by the Tucson Oracle property with a carrying value of $7.6 million at January 31, 2019.  4,824,692   4,927,076 
         
Mortgage note payable, due in monthly installments of $32,419, including interest at the prime rate plus one percentage point over the index, with a floor of 5.0% per year (5% per year as of January 31, 2015), through August 1, 2022 plus a balloon payment of $4,112,498 in September 2022, secured by the Yuma property. The Yuma property was sold on October 24, 2018.  -   4,827,259 
Totals: $4,824,692  $9,754,335 

 

On August 24, 2012, the Yuma entityJune 29, 2017, Tucson Oracle entered into a $5,500,000$5.0 million Business Loan Agreement (“Tucson Loan”) as a first mortgage loancredit facility with 1stKS State Bank Yuma to refinance the then existing term debt.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 mortgage loan calls forTucson Loan has a 10 year maturity date andof June 19, 2042. The Tucson Loan has an initial interest rate of the Wall Street Journal Prime Rate plus one percentage point, with a floor of 5.0% per year. Prepayment fees exist for refinancing this debt with another lender until the maturity date. As of January 31, 2017, the mortgage loan balance was approximately $4,977,000, net of a discount of approximately $13,000.

On August 22, 2014, the Ontario entity, a subsidiary of the Trust, entered into a $5,700,000 mortgage loan with Arizona Bank & Trust (the “AZB&T Agreement”) to refinance the then existing term debt. The AZB&T Agreement calls for a 10 year maturity date and an interest rate of 4.75% per annum fixed4.69% for the first five years and thenthereafter a variable at Wall Street Journal Prime + 1.50% with a 4.75% floor for the remaining 5 years of the term. Prepayment fees exist for refinancing this debt with another lender in the first three years. As of January 31, 2017, the mortgage loan balance was approximately $5,271,000, net of a discount of approximately $38,000.

On November 24, 2014, the Tucson Oracle entity entered into a $3,500,000 mortgage loan with Kansas State Bank of Manhattanrate equal to acquire the land associated with this property, re-finance the existing Tucson hotel loan first deed of trust and pay off other existing debt. This new loan lowered the interest rate for this property’s mortgage from 8.0% to 4.19% per annum. The $3,500,000 commercial real estate loan has a 15 year term with a 4.19% per annum fixed interest rate for five years, and adjusts annually based upon the Weekly Average Yield of the US Treasury Securities,+ 2.0% with a 4.19% floor. The loan closed simultaneous to the land purchase.floor of 4.69% and no prepayment penalty. This credit facility is guaranteed by InnSuites Hospitality Trust, RRF Limited Partnership, Rare Earth the Partnership, the Trust,Financial, LLC, James F. Wirth and Gail J. Wirth and the Wirth Family Trust dated July 14, 2006 and James and Gail Wirth are joint guarantors.2016. As of January 31, 2017,2019, the mortgage loan balance was approximately $3,119,000,$4,825,000, net of a discount of approximately $7,000.$5,000.

 

See Note 1514 – “Minimum Debt Payments” for scheduled minimum payments on the mortgage notes payable.

12.11. NOTES PAYABLE TO BANKS

On September 20, 2016, the Albuquerque entity entered into a $524,160 business loan, including $20,160 of loan fees which are classified as debt discount and amortized to interest expense over the term of the loan using the effective interest rate method, with American Express Bank, FSB (the “Albuquerque Merchant Agreement”) with a maturity date of September 19, 2017. The Albuquerque Merchant Agreement includes a loan fee of 4% of the original principal balance of the loan with acceleration provisions upon default. The business loan is secured and paid back with 14% of the Albuquerque American Express, VISA, MasterCard and Discover merchant receipts received during the loan period. As of January 31, 2017, the business loan balance was approximately $285,000, net of a discount of approximately $10,000.

On October 17, 2016, the Yuma entity, a subsidiary of the Trust, entered into a $520,000 business loan, including $20,000 of loan fees which are classified as debt discount and amortized to interest expense over the term of the loan using the effective interest rate method, with American Express Bank, FSB (the “Yuma Merchant Agreement”) with a maturity date of October 16, 2017. The Yuma Merchant Agreement includes a loan fee of 4% of the original principal balance of the loan with acceleration provisions upon default. The business loan is secured and paid back with 22% of the Yuma American Express, VISA, MasterCard and Discover merchant receipts received during the loan period. As of January 31, 2017, the business loan balance was approximately $316,000, net of a discount of approximately $13,000.

On December 19, 2016, Tucson Hospitality Properties LLLP, a subsidiary of the Trust, entered into a $438,880 business loan, including $16,880 of loan fees, with American Express Bank, FSB (the “Tucson Oracle Merchant Agreement”) with a maturity date of December 18, 2017. The Tucson Oracle Merchant Agreement included a loan fee of 4% of the original principal balance of the loan with acceleration provisions upon default. The business loan is secured and paid back with 15% of the Tucson Oracle American Express, VISA and MasterCard merchant receipts received during the loan period. As of January 31, 2017, the business loan balance was approximately $393,000, net of a discount of approximately $14,000.

On July 7, 2015, the Trust’s revolving bank line of credit agreement, with a credit limit of $600,000, was changed to a four-year non-revolving note payable. The non-revolving note payable has a variable interest rate of Wall Street Journal Prime Rate plus a margin of 1% with a floor rate of 5.5%, maturing on July 3, 2019 and monthly payments of $13,978.08. The line is secured by a junior security interest in the Yuma, Arizona property and the Trust’s trade receivables. As of January 31, 2017, the non-revolving note payable balance was approximately $391,000.

 

On January 8, 2016, in connection with the acquisition of substantially all of the assets of International Vacation Hotels, the Trust entered into a $400,000 business loan with Laurence Holdings Limited, an Ontario, Canada corporation, with a maturity date of February 1, 2019 pursuant to the terms of the Security Agreement and Promissory Note (the “Laurence Holdings Agreement”). The Laurence Holdings Agreement required the funds be used for the purchase of International Vacation Hotels assets. The Laurence Holdings Agreement provides for interest- onlyinterest-only payments for the first three months of the term and principal and interest payments for the remaining portion of the loan. The Laurence Holdings Agreement sets an interest rate of 8% per annum with no prepayment penalty. As ofThis loan was paid in full during the fiscal year ended January 31, 2017,2019. Due to the businesssale of the IBC Technology Segment (IBC Hotels LLC), the loan was classified at January 31, 2018 and recorded under liabilities of discontinued operations in the accompanying consolidated balance was approximately $285,000, net of a discount of approximately $5,000.sheet (see note 23).

 

On May 3, 2016, the Trust and11, 2017, Yuma Hospitality Properties, Limited Partnership, a subsidiary of the TrustLLLP entered into a $350,000 one-year line$850,000 Promissory Note Agreement (“Yuma Loan Agreement”) as a credit facility to replenish funds for the hotel remodel with 1st Bank of Yuma Arizona Bank & Trust with a maturity date of September 1, 2022. The Yuma Loan Agreement had an initial interest rate of 5.50% with a variable rate adjustment equal to the Wall Street Journal Prime Rate plus 1.50% with a floor of 5.50% and no prepayment penalty. This credit with RepublicBank AZ, N.A. (the “RepublicBank AZ Agreement”). The Republic Bank AZ agreement includes acceleration provisions upon default. The funds may be used for working capital and isfacility was guaranteed by James Wirth,InnSuites Hospitality Trust. This loan was paid in full upon the Trust’s Chairmansale of the Yuma hotel, and CEO, Gail Wirth, the Trust’s Chairman and CEO’s spouse and the Wirth Family Trust Dated July 14, 2006. As ofwas classified at January 31, 2017,2018 and recorded under liabilities of discontinued operations in the line of creditaccompanying consolidated balance was $350,000.

44

sheet (see note 23).

 

13.12. LINES OF CREDIT – RELATED PARTY

On January 1, 2012, Tucson Hospitality Properties LLLP, a subsidiary of the Trust, entered into a $1,000,000 Demand/Revolving Line of Credit/Promissory Note or Note Receivable with Rare Earth, depending on whether amounts are due to or due from Rare Earth. The Demand/Revolving Line of Credit/Promissory Note or Note Receivable bore interest at 7.0% per annum, was interest only quarterly and was amended on July 1, 2014 to extend the maturity date to March 31, 2015, and increased the maximum borrowing capacity from $1,000,000 to $1,400,000. The Demand/Revolving Line of Credit/Promissory Note or Note Receivable was further amended on October 27, 2014 to increase the maximum borrowing capacity from $1,400,000 to $2,000,000. As of January 31, 2017, the Demand/Revolving Line of Credit/Promissory Note or Note Receivable has been paid in full and was closed. No prepayment penalty existed on the Demand/Revolving Line of Credit/Promissory Note or Note Receivable.

 

On December 1, 2014, the Trust entered into a $1,000,000 net maximum Demand/Revolving Line of Credit/Promissory Note with Rare Earth.Earth Financial, LLC, an entity which is wholly owned by Mr. Wirth and his family members. The Demand/Revolving Line of Credit/Promissory Note, as amended on June 19, 2017, bears interest at 7.0% per annum for both a payable and receivable, is interest only quarterly and matures on December 31, 2017.June 30, 2019. No prepayment penalty exists on the Demand/Revolving Line of Credit/Promissory Note. The balance fluctuates significantly through the period with the highest payable balance being $145,000 during the fiscal year ended January 31, 2017.period. The Demand/Revolving Line of Credit/Promissory Note has a net maximum borrowingborrowing/lending capacity of $1,000,000. Related partyAs of January 31, 2019 and January 31, 2018, the Trust had a an amount receivable of approximately $632,000, including accrued interest expense or income forand $811,000, respectively. During the Demand/Revolving Line of Credit/Promissory Note for the fiscal yearstwelve months period ended January 31, 2017 was $28,9112019, the Trust advanced approximately $1,391,000, received approximately $1,569,000 in repayments and accrued approximately $102,000 of expense, and for the fiscal year ended January 31, 2016 was $7,618 of expense and $5,761 ofinterest income.

 

The above Demand/Revolving Line of Credit/Promissory Notes are presented together as one line item on the balance sheet and totaled a payable of $145,000, and a receivable of $5,761 at January 31, 2017 and 2016, respectively, all of which is considered a current receivable and liability.

14.13. OTHER NOTES PAYABLE

 

As of January 31, 20172019 the Trust had approximately $18,000$499,000 in promissory notes outstanding to unrelated third parties arising from the repurchase of 13,16282,588 Class A Partnership units in privately negotiated transactions and the repurchase of 266,894 Shares of Beneficial Interest in privately negotiated transactions. These promissory notes bear interest at 7% per year and are due in varying monthly payments through June 2019. July 2020.

As of January 31, 2016,2018 the Trust had $54,690approximately $959,000 in promissory notes outstanding to unrelated third parties arising from the repurchase of 75,62991,259 Class A Partnership units in privately negotiated transactionsUnits and the repurchase of 68,265524,930 IHT Shares of Beneficial Interest in privately negotiated transactions. These promissory notes bear interest at 7% per year and requireare due in varying monthly payments through June 2019.July 2020.

 

As of January 31, 2016,2019, the Trust had $555,000 consistinga $200,000 note payable with an individual lender. The promissory note is payable on demand or on July 31, 2020, whichever occurs first. The loan accrues interest at 7% and interest only payments shall be made monthly and are due on the first of three notes payables to three separate individuals.

the following month. The Trust may pay all of part of this note without any repayment penalties

On June 20, 2016, the Trust and the Partnership together entered into aan unsecured loan of $80,000 with Guy C. Hayden III (“Hayden Loan”). The Hayden loan is due on June 20, 2019 or on demand, whichever occurs first. The Hayden loan accrues interest at 7% and interest only payments shall be made monthly and are due on the first of the following month. The Trust and Partnership may pay all of part of these notes without any repayment penalties. On March 1, 2017, the Trust and the Partnership together added an additional $36,960 to the Hayden Loan. On May 30, 2017, the Trust and the Partnership together added an additional $63,040 to the Hayden Loan. On July 18, 2017 the Trust and Partnership together added an additional $90,000 to the Hayden Loan. The total principal amount of the Hayden Loan is $270,000 as of January 31, 2019.

 

On December 5, 2016, the Trust and the Partnership together entered into eight unsecured loans for a total of $425,000 with varying principal amounts ranging from $25,000 to $100,000 with H. W. Hayes Trust (“Hayes Loans”). The Trust and the Partnership together also entered into two unsecured on-demand $25,000 loans for a total of $50,000 with Lita M. Sweitzer (“Sweitzer Loans”). On March 20, 2017, the Trust and Partnership added an additional $50,000 to the Sweitzer Loans. The total principal amount of the Hayes Loans and the Sweitzer Loans is $475,000.$525,000 as of January 31, 2019. The Hayes Loans and the Sweitzer Loans are due on June 20, 2019 or on demand, whichever occurs first. The Hayes Loans requires from a 0-120 day notification of the demand to repay the loans prior to June 20, 2019. Both the Hayes Loans and the Sweitzer Loans accrue interest at 7.0% per year on the unpaid balance and interest only payments shall be made monthly and are due on the first of the following month. The Trust and Partnership may pay all or part of these notes without any repayment penalties.

15.

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

14. MINIMUM DEBT PAYMENTS

 

Scheduled minimum payments of debt, net of debt discounts, as of January 31, 20172019 are as follows in the respective fiscal years indicated:

FISCAL YEAR MORTGAGES  NOTES PAYABLE TO BANK  NOTES PAYABLE - RELATED PARTY  LENDING FROM AFFILIATES - RELATED PARTY  OTHER NOTES PAYABLE  TOTAL 
                   
2018 $511,483  $1,602,687  $145,000  $379,167  $565,737  $3,204,074 
2019  536,327   276,946   -   -   5,106   818,379 
2020  562,368   98,013   -   -   2,225   662,606 
2021  588,066   -   -   -   -   588,066 
2022  588,066   -   -   -   -   588,066 
Thereafter  10,522,492   -   -   -   -   10,522,492 
      $-                 
  $13,308,802  $1,977,646  $145,000  $379,167  $573,068  $16,383,683 

FISCAL YEAR MORTGAGES  NOTES PAYABLE RELATED PARTIES  OTHER NOTES PAYABLE  TOTAL 
             
2020  115,000   318,000   1,229,069   1,662,069 
2021  119,000   166,000   216,000   501,000 
2022  127,000       49,000   176,000 
2023  130,000           130,000 
2024  135,000           135,000 
Thereafter  4,199,000           4,199,000 
                 
  $4,825,000  $484,000  $1,494,069  $6,803,069 

 

16.15. DESCRIPTION OF BENEFICIAL INTERESTS

 

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

 

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

Additionally, on June 19, 2017, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 750,000 Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the InnSuites Hospitality Trust 1997 Stock Incentive and Option Plan.

For the years ended January 31, 20172019 and 2016,2018, the Trust repurchased 30,227433,377 and 34,602150,973 Shares of Beneficial Interest at an average price of $2.55$1.71 and $2.67$1.99 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 MKTAMERICAN requirements. The Trust remains authorized to repurchase an additional 63,090445,694 Partnership units and/or Shares of Beneficial Interest pursuant to the publicly announced share repurchase program, which has no expiration date. Repurchased Shares of Beneficial Interest are accounted for as treasury stock in the Trust’s Consolidated Statements of Shareholders’ Equity.

 

17.16. FEDERAL INCOME TAXES

 

The Trust and subsidiaries have income tax net operating loss carryforwards of approximately $4.4 million at January 31, 2019. In 2005, the Trust had an ownership change within the meaning of Internal Revenue Code Section 382. However, the Trust determined that such ownership change would not have a material impact on the future use of the net operating losses.

The Trust

Total and subsidiaries have federal net operating loss carryforwards of approximately $10.9 milliondeferred income tax assets at January 31,            2017, having expiration dates ranging from fiscal years 2019 to 2033.

 

Total and net deferred income tax assets at January 31, 2017 2016 
 2019 2018 
     
Net operating loss carryforwards $4,040,000  $2,795,000  $705,000  $2,763,000 
Bad debt allowance  (18,000)  (13,000)  3,000   (22,000)
Accrued expenses  84,000   76,000   2,000   89,000 
Syndications  5,179,000   5,128,000   2,923,000   5,179,000 
Prepaid insurance  30,000   23,000 
Prepaid Insurance  -   30,000 
Alternative minimum tax credit  91,000   91,000   51,000   91,000 
Total deferred income tax assets  9,406,000   8,100,000 
Total deferred tax asset  3,684,000   8,130,000 
                
Deferred income tax liability associated with book/tax differences in hotel properties  (2,459,000)  (2,598,000)
Deferred income tax liability associated with book/tax  (1,570,000)  (2,884,000)
Net deferred income tax asset  6,947,000   5,502,000   2,114,000   5,246,000 
Valuation allowance  (6,947,000)  (5,502,000)  (2,114,000)  (5,246,000)
Net deferred income tax asset $-  $- 
 $-  $- 

Income taxes for the year ended January 31,            

 

  2019  2018 
       
Current income tax provision (benefit)  -   335,000 
Deferred income tax provision (benefit)  (3,132,000)  (1,701,000)
Change in valuation allowance  3,132,000   1,701,000 
Net income tax expense (benefit)  -   335,000 

Income taxes for the year ended January 31, 2017  2016
Current income tax provision (benefit)  (227,000)  96,000
Deferred income tax provision  -   -
Net income tax provision (benefit)  (227,000)  96,000

 

The differences between the statutory and effective tax rates are as follows for the year ended January 31, 2017: 2019:

 

Federal statutory rates $(878,000)  (34%)
State income taxes  (196,000)  (8%)
Change in valuation allowance  1,445,000   56%
True-ups to prior year return  (593,000)  (23%)
Other  (5,000)  -%
Effective rate $(227,000)  (9%)

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

 

The differences between the statutory and effective tax rates are as follows for the year ended January 31, 2016:

Federal statutory rates $(112,000)  (34%)
State income taxes  (25,000)  (7%)
Change in valuation allowance  1,270,000   67%
True-ups to prior year return  (1,016,000)  (33%)
Other  (21,000)  1%
Effective rate $96,000   (6%)

The true-ups to prior year return related primarily to the sale of syndication units in the Trust’s subsidiaries which are treated as equity transactions in the Trust’s financial statements but are taxed as capital gain transactions and total $75,000. The Trust’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Trust had no accrued interest or penalties at January 31, 2017 and 2016.2018:

 

18.

  2018
  Amount  Percent 
       
Federal statutory rates $1,604,000   34%
State income taxes  576,000   12%
Change in valuation allowance  (1,701,000)  (36)%
True-up to prior year returns  (240,000)  (5)%
Other  96,000   2%
Effective rate $335,000   7%

17. OTHER RELATED PARTY TRANSACTIONS

 

As of January 31, 20172019 and 2016,2018, Mr. Wirth and his affiliates held 3,407,9382,974,038 and 3,064,038 Class B Partnership units, which represented 25.8%23.35% and 23.86% of the total outstanding Partnership units.units, respectively. As of January 31, 20172019 and 2016,2018, Mr. Wirth and his affiliates held 6,939,4295,881,683 and 6,175,205,6,939,429, respectively, Shares of Beneficial Interest in the Trust, which represented 71.93%62.84% and 70.24%,70.99% respectively, of the total issued and outstanding Shares of Beneficial Interest.

As of January 31, 20172019 and 2016,2018, the Trust owned 72.11%74.90% and 74.80% of the Partnership.Partnership, respectively. As of January 31, 2017,2019, the Partnership owned a 51.01% interest in the InnSuites® hotel located in Tucson, Arizona and a 51.48% interest in an InnSuites® hotel located in Ontario, California.Tucson. The Trust also owned a direct 50.27% interest in one InnSuites® hotel located in Yuma, Arizona and owned a direct 50.91%22.83% interest in one InnSuites® hotel located in Albuquerque, New Mexico.

 

The Trust directly manages the Hotels through the Trust’s wholly-owned subsidiary, InnSuites Hotels Inc. Under the management agreements, InnSuites Hotels Inc. manages the daily operations of the Hotels and the two hotelshotel owned by affiliates of Mr. Wirth. Revenues and reimbursements among the Trust, InnSuites Hotels Inc. and the Partnership have been eliminated in consolidation. The management fees for the Hotels and the two hotels owned by affiliates of Mr. Wirth are set at 3.0%5.0% of room revenue and a monthly accounting fee of $2,000 per hotel. As of May 1, 2016, management fees increased to 5.0% of room revenues. These agreements have no expiration date and may be cancelled by either party with 90-days written notice or 30-days written notice in the event the property changes ownership. During the years ended January 31, 2019 and 2018, the Trust recognized approximately $165,000 and approximately $200,000, respectively of revenue.

 

On October 7, 2015, pursuant to a Securities Purchase Agreement, theThe Tucson Oracle property has an unsecured demand/revolving line of credit/promissory note as described in Note 13 – Lines of Credit - Related Party. The Trust issued 440,000 Shareshas an unsecured demand/revolving line of Beneficial Interestcredit/promissory note as described in Note 13 – Lines of the Trust, at a purchase price of $2.50 per Share, for gross aggregate proceeds of $1,100,000 to the Trust. Rare Earth Financial, LLC (“Rare Earth”), whose managing member is James F. Wirth, the Chairman and Chief Executive Officer of the Trust, purchased 200,000 of the 440,000 Shares of Beneficial Interest of the Trust on the same terms and conditions as the other purchasers. Rare Earth is wholly owned by Mr. Wirth and his family members, including Pamela Barnhill, Vice Chairperson and President of the Trust. The transaction was approved by the Board of Trustees and the Audit Committee of the Trust. The issuance of the Shares of Beneficial Interest by the Trust was made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).Credit - Related Party.

 

On November 30, 2015, pursuant to a Securities Purchase Agreement,During the Trust issued 704,225 Shares of Beneficial Interest to Rare Earth at a purchase price of $2.13 per share, for proceeds of $1,499,999.25 to the Trust. The transaction was approved by the Board of Trustees and the Audit Committee of the Trust. The issuance of the Shares of Beneficial Interest by the Trust to Rare Earth was made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

On December 22, 2015, pursuant to a Securities Purchase Agreement, the Trust issued 21,929 Shares of Beneficial Interest to Rare Earth at a purchase price of $2.28 per share, for proceeds of $49,998.12 to the Trust. The transaction was approved by the Board of Trustees and the Audit Committee of the Trust. The issuance of the Shares of Beneficial Interest by the Trust to Rare Earth was made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

On January 28, 2016, pursuant to a Securities Purchase Agreement, the Trust issued 60,000 Shares of Benefitic Interest to Rare Earth at a purchase price of $2,50 per share, for proceeds of $ 150,000 to the Trust. The transaction was approved by the Board of Trustees and the Audit Committee of the Turst. The issuance of the Shares of Beneficial Interest by the Trust to Rare Earth was made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

On July 23, 2013, the Trust entered into a Corporate Card Agreement (“Corporate Purchase Cards”) with American Express Travel Related Services Company, Inc. The Corporate Card Agreement distributed a total of nine purchase cards - one to each of the four respective Hotels, one to the Trust, and one to each of the two respective hotels owned by affiliates of James F. Wirth. The Corporate Purchase Cards, with a total limit of $50,000, includes insignificant annual fees and $0 of interest per annum. Payments are due monthly. The Corporate Card Agreement may be cancelled by either party with 30-days written notice. Pamela J. Barnhill, the Trust’s President and Vice Chairperson and daughter of Mr. Wirth, initiated the nine purchase cards. As offiscal years ended January 31, 20172019 and 2016, the Trust’s portion of the Corporate Purchase Cards balance was approximately $115,000 and $86,000, respectively.

As of January 31, 2017 and 2016,2018, the Trust paid Berg Investment Advisors $0$6,000 and $3,000,$42,500, respectively, for additional consultative services rendered by Mr. Marc Berg, the Trust’s Executive Vice President.

 

On September 25, 2013, the Trust entered into a revenue sharing agreement with Independent Lodging Industry Association (“ILIA”). In 2014, the Trust President, Ms. Pamela Barnhill, became President of ILIA. The revenue sharing agreement states that of the 10% IBC fees collected from ILIA hotels, 3% will be remitted back to ILIA from February, 2015 through June, 2015, 2% will be remitted back to ILIA from July, 2015 through December, 2015, and 1% will be remitted back to ILIA from January, 2016 through June, 2016. As of January 31, 2017 and 2016 no fees have been remitted or accrued related to the ILIA revenue sharing agreement.

Besides Pamela Barnhill,former Vice Chairperson and President of the Trust, resigned in June, 2019, and is the daughter of Mr. Wirth, the Trust’s Chairman and Chief Executive Officer,Officer. Ms. Barnhill’s total compensation was $74,471 and $169,931 for the fiscal years ended January 31, 2019 and 2018, respectively. The Trust also employs two otheranother immediate family membersmember of Mr. Wirth who provideprovides technology and administrative support services to the Trust, with each receiving a $47,500 yearlyannual salary.

 

During the fiscal years ended January 31, 2019 and 2018, Rare Earth received restructuring fees of $-0- and $440,000, respectively, relating to the syndications of our Albuquerque, New Mexico and Yuma, Arizona (sold October 2018) hotel properties.

On December 22, 2015, the Trust provided Advances to Affiliate – Related Party in the amount of $500,000 to Tempe/Phoenix Airport Resort LLC. Mr. Wirth, individually and thru one of his affiliates owns approximately 42% Tempe/Phoenix Airport Resort LLC. The note has a due date of June 30, 2019 and accrues interest of 7.0%. During the fiscal year ended January 31, 2019, the Trust received $102,000 interest income from Tempe/Phoenix Airport Resort LLC, respectively. As of January 31, 2016, Rare Earth received2019, the Advances from Affiliate – Related Party balance was $950,353 from Tempe/Phoenix Airport Resort LLC. As of January 31, 2018, the Lending from Affiliate – Related Party balance $ $970,353 from Tempe/Phoenix Airport Resort LLC.

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the estimated fair values of the Trust’s debt instruments and the associated carrying value recognized in the accompanying consolidated balance sheets at January 31, 2019 and 2018:

  2019  2018 
  Carrying
Amount
  Fair Value  Carrying
Amount
  Fair Value 
Mortgage notes payable $4,824,692  $3,141,032  $9,752,596  $8,164,897 
Notes payable to banks $9,300  $9,300  $952,213  $952,213 
Other notes payable $1,494,030  $1,494,030  $1,954,405  $1,954,405 

19. SUPPLEMENTAL CASH FLOW DISCLOSURES

  2019  2018 
Cash paid for interest $634,337  $539,072 
         

Notes Payables - IHT Shares of Beneficial

Interest and Partnership Units repurchases

 $1,677,572  $1,141,756 

20. COMMITMENTS AND CONTINGENCIES

Leases:

The 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. Total expense associated with the non-cancelable ground lease for the fiscal years ended January 31, 2019 and 2018 was approximately $152,000 and $150,000, respectively.

On August 4, 2017, the Trust entered into a restructuringfive 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 $350,000, conditioned upon$12,000, $8,000, $6,000, $4,000 and arising from the sale$2,000 for years 1 - 5 of the first 150 unitslease term.

Future minimum lease payments under these non-cancelable ground lease and office lease are as follows:

Fiscal Year Ending   
FY 2020 $167,225 
FY 2021  170,448 
FY 2022  173,864 
FY 2023  144,565 
FY 2024  113,508 
Thereafter  5,359,805 
  $6,129,414 

Restricted Cash:

The Trust is obligated under a loan agreement relating to the Tucson Oracle property to deposit 4% of the individual hotel’s room revenue into an escrow account to be used for capital expenditures. The escrow funds applicable to the Tucson Oracle property for which a mortgage lender escrow exists is reported on the Trust’s Consolidated Balance Sheet as “Restricted Cash.” Since a $0 cash balance existed in Restricted Cash for the Yuma entity followingfiscal years 2019 and 2018, Restricted Cash line was omitted on the October 24, 2014 restructuring (see Note 6).Trust’s Consolidated Balance Sheet.

Membership Agreements:

 

InnSuites Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) for fourboth of the hotel properties. In exchange for use of the Best Western name, trademark and reservation system, all Hotels pay fees to Best Western based on reservations received through the use of the Best Western reservation system and the number of available suites at the Hotels. The agreements with Best Western have no specific expiration terms and may be cancelled by either party. Best Western requires that the hotels meet certain requirements for room quality, and the Hotels are subject to removal from its reservation system if these requirements are not met. The Hotels with third-party membership agreements received significant reservations through the Best Western reservation system. Under these arrangements, fees paid for membership fees and reservations were approximately $575,000$276,000 and $483,000$286,000 for fiscal years ended January 31, 20172019 and 2016, respectively.

On December 22, 2015, the Trust provided Advances to Affiliate – Related Party each in the amount of $500,000 to Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC. Mr. Wirth, individually and thru one of his affiliates owns approximately 32% and 42%, respectively, of Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC. Both notes have a due date of June 30, 2017 and accrue interest of 7.0%. During the fiscal year ended January 31, 2016, the Trust received $3,696 and $3,489 interest income from Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC, respectively. As of January 31, 2017, the Lending from Affiliate – Related Party balance was $19,483 and $359,684 from Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC, respectively. As of January 31, 2016, the Advances to Affiliate – Related Party receivable balance was $473,696 and $498,488 from Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort, LLC, respectively.

19. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the estimated fair values of the Trust’s debt instruments and the associated carrying value recognized in the accompanying consolidated balance sheets at January 31, 2017 and 2016:

  2017  2016 
  Carrying Amount  Fair Value  Carrying Amount  Fair Value 
Mortgage notes payable $13,367,706  $13,473,018  $13,792,592  $13,909,744 
Notes payable to banks $2,019,758  $2,019,758  $932,289  $932,289 
Other notes payable $18,069  $18,195  $54,691  $60,963 

20. SUPPLEMENTAL CASH FLOW DISCLOSURES

  2017  2016 
Cash paid for interest $743,932  $906,340 
         
Cash paid for income taxes $-  $57,719 
         
Purchase of IVH with issuance of shares of beneficial interest $-  $200,000 
         
Payment of mortgage directly from proceeds from sale of the Tucson St. Mary's Property $-  $4,712,611 

21. COMMITMENTS AND CONTINGENCIES

Leases:

The 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. Total expense associated with the non-cancelable ground lease for the fiscal years ended January 31, 2017 and 2016 was $147,587 and $137,716, respectively

During 2010, the Trust entered into a five-year office lease for its corporate headquarters. On April 30, 2014, the lease was extended for 36 months and expires in 2017 and has been extended on a month-to-month basis. The Trust recorded $30,271 and $29,206 of general and administrative expense related to the lease during fiscal years 2017 and 2016, respectively. The lease included a base rent charge of $31,994 for the first lease year beginning in fiscal year 2014, with annual increases to a final year base rent of $34,120 for lease year ending in fiscal year 2017. The Trust has the option to cancel the lease after each lease year for penalties of four months’ rent after the first year with the penalty decreasing by one month’s rent each successive lease year. It is the Trust’s intention to remain in the office for the duration of the lease period, as extended.

Future minimum lease payments under these non-cancelable ground lease and office lease are as follows:

Fiscal Year Ending   
2018  128,000 
2019  114,000 
2020  114,000 
2021  114,000 
2022  114,000 
Thereafter  5,473,000 
Total $6,057,000 

Restricted Cash:

The Trust is obligated under a loan agreement relating to the Tucson Oracle property to deposit 4% of the individual hotel’s room revenue into an escrow account to be used for capital expenditures. The escrow funds applicable to the Tucson Oracle property for which a mortgage lender escrow exists is reported on the Trust’s Consolidated Balance Sheet as “Restricted Cash.” Since a $0 cash balance existed in Restricted Cash for the fiscal years 2017 and 2016, 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 four of the hotel properties. In exchange for use of the Best Western name, trademark and reservation system, all Hotels pay fees to Best Western based on reservations received through the use of the Best Western reservation system and the number of available suites at the Hotels. The agreements with Best Western have no specific expiration terms and may be cancelled by either party. Best Western requires that the hotels meet certain requirements for room quality, and the Hotels are subject to removal from its reservation system if these requirements are not met. The Hotels with third-party membership agreements received significant reservations through the Best Western reservation system. Under these arrangements, fees paid for membership fees and reservations were approximately $575,000 and $483,000 for fiscal years ended January 31, 2017 and 2016,2018, respectively.

 

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

 

Litigation:

 

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

 

Indemnification:

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

22. SHARE-BASED PAYMENTS

The Trust compensates its non-employee Trustees for their services through grants of restricted Shares. The aggregate grant date fair value of these Shares was $32,400. These restricted Shares vested in equal monthly amounts during fiscal year 2019. As of January 31, 2019, Messrs. Kutasi, Chase and did not hold any unvested Shares

 

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

Cash and Equity Bonuses

Fiscal 2017– Short-Term Cash and Equity Bonus Program

To provide incentive to get hotel operations off to a strong start for the then-current fiscal year starting February 1, 2016, on February 22, 2016, the Committee adopted an incentive bonus program for the Executives based on the targeted gross operating profit of approximately $402,000 and approximately $395,000 (i.e., total revenues less operating expenses) (the “Target GOP”) for February 2016 and March 2016, the first two months of the fiscal year. The program provided that if the Target GOP were achieved or exceeded, each Executive would be entitled to a bonus consisting of cash and Shares of Beneficial Interest of the Trust in the amounts set forth below:

Executive Officer Cash Equity
Pamela J. Barnhill $10,000 10,000 Shares of Beneficial Interest
Marc E. Berg $2,500 2,500 Shares of Beneficial Interest
Adam B. Remis $5,000 5,000 Shares of Beneficial Interest

In February 2016 and March 2016, the Target GOP were achieved and each of the Executives received the cash and equity bonuses listed above.

Fiscal 2017– Full Year Cash and Equity Bonus Program

On February 22, 2016, the Committee adopted an incentive bonus program for the Executives for the fiscal year ended January 31, 2017 (the “2017 Fiscal Year Bonus Program”). Under the 2017 Fiscal Year Bonus Program, an Executive were to be entitled to receive a bonus consisting of cash and Shares of Beneficial Interest of the Trust up to the maximum amount set forth below upon the achievement by the Executive of performance-based objectives, which included revenue, gross operating profit and strategy for the hotel and IBC/IVH divisions and/or at the discretion of the Committee.

Executive Officer Cash Equity
Pamela J. Barnhill $25,000 10,000 Shares of Beneficial Interest
Marc E. Berg $5,000 2,500 Shares of Beneficial Interest
Adam B. Remis $10,000 5,000 Shares of Beneficial Interest

Fiscal 2017– Payouts Under Short-Term and Full Year Cash and Equity Bonus Programs

On January 24, 2017, the Compensation Committee exercised negative discretion, based on the Trust’s financial condition and its limited cash flow in fiscal 2017, and the Compensation Committee and the Board of Trustees approved the following payouts for the Executives based on the performance of the Trust and the Executives. The payouts were accrued as of January 31, 2017 and paid to the Executives in February 2017.

Executive Cash Equity
Pamela J. Barnhill $5,000 3,000 Shares of Beneficial Interest
Marc E. Berg $1,000 750 Shares of Beneficial Interest
Adam B. Remis $2,000 1,500 Shares of Beneficial Interest

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

 

There were no options granted in fiscal year 20172019 or 2016,2018, and no options were outstanding as of January 31, 20172019 and 2016.2018. The Plan currently has 1,000,000 options available to grant. See Note 2624 for additional information on stock options. The Plan also permits the Trust to award stock appreciation rights, none of which, as of January 31, 2017,2019, have been issued.

 

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

 

23.22. SEGMENT REPORTING

As a result of the sale of IBC (see Note 23), the Chief Operating Decision Maker (“CODM”), Mr. Wirth, CEO of the Trust, has determined that the Trust operations are comprised of one reportable segment, Hotel Operations & Corporate Overhead (continuing operations) segment that has ownership interest in two hotel properties with an aggregate of 267 suites in Arizona and New Mexico. Prior to the sale of IBC, the Trust had previously determined that its operations were comprised of two reportable segments, a Hotel Operations & Corporate Overhead segment, and the IBC Hospitality segment serving 2,000 unrelated hotel properties. In connection with the sale of IBC, the historical financial information presented in this Form 10-K reflects this change with IBC being reported as discontinued operation.

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

 

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

 

Information relative23. DISCONTINUED OPERATIONS

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

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

 

BALANCE SHEET JANUARY 31, 2017 
  Hotel Operations & Corporate Overhead  IBC Developments  Total 
Total Assets $20,708,359  $1,464,473  $22,172,832 
Total Liabilities  15,280,624   3,266,959   18,547,583 
Fixed Assets, Net  19,552,396   222,469   19,774,865 

STATEMENT OF OPERATIONS TWELVE MONTHS ENDED JANUARY 31, 2017 
CONTINUING OPERATIONS Hotel Operations & Corporate Overhead  IBC Developments  Total 
Total Revenue $12,548,903  $666,730  $13,215,633 
Loss From Operations  (925,564)  (1,162,946)  (2,088,510)

BALANCE SHEET JANUARY 31, 2016 
  Hotel Operations & Corporate Overhead  IBC Developments  Total 
Total Assets $22,728,621  $1,212,068  $23,940,689 
Total Liabilities  15,145,321   1,824,639   16,969,960 
Fixed Assets, Net  19,479,148   135,619   19,614,767 

STATEMENT OF OPERATIONS TWELVE MONTHS ENDED JANUARY 31, 2016 
CONTINUING OPERATIONS Hotel Operations & Corporate Overhead  IBC Developments  Total 
Total Revenue $11,413,992  $202,775  $11,616,767 
Loss From Operations  (391,770)  (286,534)  (678,304)
1.$250,000 at closing, which was received on August 14, 2018;
2.A secured promissory note in the principal amount of $2,750,000 with interest to be accrued at 3.75% per annum, recorded in the accompanying condensed balance sheet in continuing operations. Interest shall accrue for the first 10 months (starting August 2018), thereafter for month 11 and 12 principal and interest payments of 50% ($25,632 per month), then the remaining amount to be amortized over 59 months (payments of $52,054 per month) with maturity in June 2024. Future payments on this note are shown in the table below.

 

24. SALE OF TUCSON SAINT MARY’S SUITE HOSPITALITY PROPERTY

FISCAL YEAR    
2020  $229,167 
2021   550,000 
2022   550,000 
2023   550,000 
2024   550,000 
Thereafter   320,833 
   $2,750,000 

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.

 

On October 14, 2015,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.

IHT has agreed to provide continuing working capital support for a period of six months in the amount of approximately $100,000 over a six month period to IBC for transitional purposes. 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. During the fiscal year ended January 31, 2019 IHT had provided $100,000 to IBC.

As a result of the sale, the Trust sold its Tucson St. Mary’s hotel to an unrelated third party for approximately $9.7 million, which the Trust received approximately $4.6 million in cash. The Trust used $4.7 million of the proceeds to satisfy its mortgage note payable on the property, approximately $379,000 to reduce accruals and payables, and retained the remaining proceeds to fund future operations and capital improvements. The Trust recognizedrecorded a gain on sale of approximately $2,394,000, net of taxes of $0. The gain is determined by the sales prices of approximately $3,000,000 less the estimated book value of the assets sold and liabilities assigned of approximately $431,000 and costs associated with the sale of approximately $325,000.

Default

If Buyer has not paid two or more payments on the note as scheduled, or if Buyer has not satisfied any other provisions in the note, IHT may give Buyer notice of default. If Buyer fails to cure the default within 30 days after notice (a) on or before February 5, 2020, then 75% of the issued and outstanding IBC interest shall be transferred to IHT, and (b) on or after February 5, 2020, then 51% of the issued and outstanding interest of the Company shall be transferred to IHT. Currently there has been no default.

Debt/Working Capital adjustment

On or before the sixty calendar days following the effective date (August 1, 2018) Buyer prepared and delivered to IHT a written statement (closing statement) setting forth a calculation of the aggregate amount of (i) all indebtedness, (ii) working capital of IBC as of the close of business on the last business day immediately preceding the effective date (closing net working capital) , and (iii) a proposed adjustment to the principal amount of the note payable, calculated as follows:

If the closing new working capital is between $0 and negative $100,000, the purchase price shall not be adjusted;
If the closing working capital is less then negative $100,000, the principal amount of the note shall be decreased in amount equal to the amount by which the closing net working capital is greater than negative $100,000; and
If the closing working capital is greater than $0, the principal amount of the note shall be increased in an amount equal to the closing working capital.

There were no working capital adjustments to the sale price at the conclusion of the 60 day adjustment period.

Office Lease/Contracts

IHT will maintain an existing reservation center contract with IBC requiring IHT to make payments of $7,500 per month for a minimum of 6 months after closing. There is no maximum period, and the obligation may be cancelled after six months. As of February 1, 2019 the payment was reduced to $6,500, and further reduced to $5,500 going forward as of March 1, 2019 by mutual agreement.

IHT will continue to rent office space to IBC on the same terms and conditions as in effect currently on a month to month basis at a monthly rent of approximately $2,500, terminable by either IHT or IBC on a 30-day prior written notice.

Indemnification

IHT has agreed to indemnify and hold harmless the Buyer from and against any and all losses suffered, sustained or incurred by any Buyer indemnified party, resulting from, arising in connection with or related to (i) any breach of a representation or warranty made by IHT, (ii) any breach of a seller fundamental representation by IHT, (iii) any breach of any covenant made by IHT in this agreement, certification or writing delivered pursuant to the agreement, (iv) any claims or liabilities under, related to or in connection with any person status as a security holder of the company prior to closing, or (v) any transaction expense or indebtedness not accounted for in the final determination of the purchase price.

Incentive Bonus

On September 4, 2018, the Board approved to pay a $15,000 bonus to the daughter of the CEO, and who was then the Chief Operating Officer, in connection with the sale of IBC. The CEO’s daughter is now employed by the Company that acquired IBC. In addition, the Board approved to pay a $10,000 bonus to the Executive Vice President of the Trust in connection with the sale of IBC. These bonuses will be paid upon receipt of the monthly payments to be received in connection with the note receivable described above starting in September 2019 at $1,000 per month.

The Trust also paid the former CFO a $5,000 compensation bonus related to the sale of IBC.

52

Sale of Yuma Property

On July 31, 2018, IHT entered into a purchase and sale agreement to sell its Innsuites Yuma Hotel and Suites Best Western (Yuma), together with certain furniture, fixtures, equipment, operating supplies and other ancillary items pertaining to the daily operations to an unrelated third party. The sale was completed on October 24, 2018. The sales price, as revised, was approximately $16.05 million, of which the net proceeds (net of mortgage payoff, commissions and closing costs) received by the IHT was approximately $9.93 million

The Trust recorded a gain on sale of approximately $11,080,000, net of estimated tax of approximately $381,000. The gain was determined by the sale price less the estimated book value other assets sold of approximately $4,589,000. In connection with the sale of the Yuma property the related mortgage note payable in the amount of approximately $2.4 million for$5,560,000 at the year ended January 31, 2016. For the twelve months ended January 31, 2016, Tucson St. Mary’s had approximately $2,855,000time of revenue, and approximately $3,376,000 of operating expenses. As of January 31, 2016, Tucson St. Mary’s had approximately $14,648 of current assets consisting primarily of cash and receivables, and approximately $27,000 of current liabilities consisting of accounts payables and accrued expenses. During the twelve months ended January 31, 2016, and January 31, 2015, depreciation/amortization and capital expenses were approximately $233,000 and $341,000, respectively. In addition, there were no significant non-cash operating and investing activities during such period. See our Note 7 – “Sale of Ownership Interests in Tucson St Mary’s Suite Hospitality” for information about investing activities during the year ended January 31, 2016 for the Tucson St Mary’s hotel.

25. DISCONTINUED OPERATIONS

The Trust has recognized the sale of the Tucson St. Mary’s hotel as discontinued operations. After the sale of this asset, the Trust incurred some additional minor expenses which are presented below. Discontinued operations for the fiscal years ended January 31, 2017 and 2016 primarily consists of the Tucson St. Mary’s hotel operational revenues and expenses and does not include the sale proceeds and profit from the sale of our Tucson St. Mary’s hotel. Historical results of the Tucson St. Mary’s hotel has been adjusted for comparability purposes and exclude any corporate general and administrative expenses.

On August 1, 2015, the Trust finalized and committed to a plan to sell all the Hotel properties. As of May 1, 2016, the Trust has listed all the Hotel properties with a local real estate hotel broker, and management believes that each of the assets is being marketed at a price that is reasonablewas paid in relation to its current fair value. The Trust believes that the plan to sell these assets will not be withdrawn. Through the Trust’s Form 10-Q for the quarter ended July 31, 2016 filed with the SEC on September 14, 2016, the Trust classified all the Hotel properties as Assets Held for Sale. As of October 31, 2016, the Trust has decided to reclassify these assets back into operations as many of these assets have been marketed for sale for more than one year. At this time, the Trust is unable to predict when, and if, any of these Hotel properties will be sold and the Trust no longer deems a sale to be probable. The Trust continues to list these properties with local real estate hotel brokers and, we believe, that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. There have been no other material changes to our basis of presentation since October 31, 2016.full.

 

The following financial information presentstables list the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations for the fiscal yearsyear ended January 31, 20172019 and January 31, 2016 as well as2018 and the consolidated statements ofdiscontinued operations for the fiscal yearsyear ended January 31, 20172019 and January 31, 2016.2018.

 

   DISCONTINUED OPERATIONS 
   JANUARY 31, 2017   JANUARY 31, 2016 
         
ASSETS        
Current Assets:        
Cash and Cash Equivalents $-  $2,153 
Accounts Receivable  -   12,495 
Total Current Assets of Discontinued Operations  -   14,648 
TOTAL ASSETS OF DISCONTINUED OPERATIONS $-  $14,648 
         
LIABILITIES        
         
LIABILITIES        
Current Liabilities:        
Accounts Payable and Accrued Expenses $-  $27,246 
Total Current Liabilities of Discontinued Operations  -   27,246 
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS $-  $27,246 

DISCONTINUED OPERATIONS

  DISCONTINUED OPERATIONS 
  YEARS ENDED 
  JANUARY 31, 
  2017  2016 
       
REVENUE        
Room $-  $2,172,153 
Food and Beverage  -   658,881 
Other  -   23,611 
TOTAL REVENUE  -   2,854,645 
         
OPERATING EXPENSES        
Room  -   977,299 
Food and Beverage  -   545,575 
Telecommunications  -   1,947 
General and Administrative  36,028   288,274 
Sales and Marketing  -   158,594 
Repairs and Maintenance  -   246,591 
Hospitality  -   182,872 
Utilities  -   438,164 
Hotel Property Depreciation  -   232,661 
Real Estate and Personal Property Taxes, Insurance and Ground Rent  -   159,284 
Other  -   6,528 
TOTAL OPERATING EXPENSES  36,028   3,237,789 
OPERATING LOSS  (36,028)  (383,144)
Interest on Mortgage Notes Payable  -   106,119 
Interest on Notes Payable to Banks  -   32,105 
TOTAL INTEREST EXPENSE  -   138,224 
CONSOLIDATED NET LOSS BEFORE DISCONTINUED OPERATIONS, NET OF NON-CONTROLLING INTEREST $(36,028) $(521,368)

  YEARS ENDED 
  JANUARY 31, 
  2017  2016 
       
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE $(2,153) $2,174,626 
         
NET CASH USED IN INVESTING ACTIVITIES FROM DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE $-  $(3,422,911)

 

26.

  JANUARY 31, 2019  JANUARY 31, 2018 
ASSETS        
Current Assets:        
Cash and Cash Equivalents $305,835   200,705 
Accounts Receivable  932   414,787 
Prepaid Expenses and Other Current Assets  13,680   50,828 
Current Portion of Notes Receivable        
Total Current Assets of Discontinued Operations  320,447   666,320 
Noncurrent assets of Discontinued Operations  -     
Property, Plant and Equipment, net  -   5,240,535 
TOTAL ASSETS OF DISCONTINUED OPERATIONS $320,447   5,906,855 
         
LIABILITIES        
         
LIABILITIES        
Current Liabilities:        
Accounts Payable and Accrued Expenses $546,803   607,488 
Current Portion of Notes Payable to Banks, net of Discount  -   145,549 
Total Current Liabilities of Discontinued Operations  546,803 �� 753,037 
Noncurrent Liabilities of Discontinued Operations        
Mortgage Notes Payable, net of Discount  -   4,677,444 
Notes Payable to Banks, net of Discount  -   812,930 
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS $546,803   6,243,411 

  FOR THE YEARS ENDED 
  JANUARY 31, 
  2019  2018 
REVENUE      
Room $3,225,783  $5,455,777 
Food and Beverage  27,569   106,919 
Reservation and Convention  173,399   1,051,454 
Other  41,057   32,985 
TOTAL REVENUE  3,467,808   6,647,135 
         
OPERATING EXPENSES        
Room  1,261,875   1,930,833 
Food and Beverage  35,592   125,559 
Telecommunications  21,803   34,268 
General and Administrative  766,475   1,987,723 
Sales and Marketing  469,457   1,524,621 
Reservation Acquisition Costs  142,842   234,000 
Repairs and Maintenance  185,148   381,356 
Hospitality  167,874   332,493 
Utilities  160,641   277,020 
Depreciation  393,581   749,964 
Intangible Amortization  -   933,000 
Real Estate and Personal Property Taxes, Insurance and Ground Rent  88,344   149,550 
Other  -   10,297 
TOTAL OPERATING EXPENSES  3,693,632   8,670,684 
OPERATING LOSS  (225,824)  (2,023,548)
Interest Income  -   961 
TOTAL OTHER INCOME  -   961 
Interest on Mortgage Notes Payable  214,811   402,611 
Interest on Notes Payable to Banks  41,390   50,236 
TOTAL INTEREST EXPENSE  256,201   452,847 
CONSOLIDATED NET LOSS OF DISCONTINUED OPERATIONS $(482,025) $(2,475,434)

24. 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 purpose of the 2015 Plan and the awards described below is to promote the interests of the Trust and its shareholders by providing certain employees and members of the Board of Trustees, who are largely responsible for the management and growth of the subsidiary of the Trust, IBC Hotels, LLC, with incentives and rewards to encourage them to continue in the service of the Trust.

The Board of Trustees of the Trust approved a Nonqualified Stock Option Agreement (“2015 Plan Agreement”) to be used for all stock option awards. The 2015 Plan Agreement provides the grantee a four-year option to purchase a set number of Shares of Beneficial Interest of the Trust at an exercise price of $3.50 per share, exercisable to the extent the stock options vest and GAAP pre-tax profits of IBC Hotels, LLC are greater than or equal to the performance objectives described in the 2015 Plan agreement. For purposes of the 2015 Plan Agreement, a “Tranche” is the number of Shares for which the Stock Option has vested on a particular vesting date. The 2015 Plan Agreement has the following vesting schedule:

TrancheShares for which the Stock
Option is Vested
Vesting Date
A1/35/17/2016
B1/32nd anniversary of the Date of Grant
C1/33rd anniversary of the Date of Grant

Stock options will become immediately vested in full if, prior to a vesting date (i) the grantee ceases to be employed by the Trust or its subsidiaries by reason of death or disability or (ii) a change of control occurs while the grantee is employed by the Trust or any of its subsidiaries. Vested tranches become exercisable as set forth below to the extent that the GAAP pre-tax profit of IBC Hotels LLC is greater than or equal to the performance objective for the applicable performance period, as described below.

Performance Period Performance Objective  Exercisable
(Fiscal Year Ending) (GAAP pre-tax profit of IBC Hotels LLC)  Tranche(s)
1/31/2016 $60,000  A
1/31/2017 $200,000  A and B
1/31/2018 $400,000  A, B, and C

On February 5, 2015, the Board of Trustees of the Trust granted to Pamela Barnhill, President, Vice Chairperson of the Board of Trustees and Chief Operating Officer of the Trust and IBC Hotels Founder and President, pursuant to the 2015 Plan and 2015 Plan Agreement, an option to purchase of 1,000,000 Shares of Beneficial Interest of the Trust. On April 24, 2015, the Board of Trustees of the Trust granted to James Wirth, Chairman of the Board of Trustees and Chief Executive Officer of the Trust, Marc Berg, Executive Vice President and Trustee and Adam Remis, Chief Financial Officer of the Trust, pursuant to the Trust’s 2015 Plan and 2015 Plan Agreement, each an option of the Trust to purchase 60,000 Shares of Beneficial Interest of the Trust. On April 24, 2015, the Board of Trustees of the Trust also granted to each of our Trustees who are expected to continue to serve on the Board of Trustees through the vesting period, an option to purchase 10,000 Shares of Beneficial Interest of the Trust and also granted to key operational staff options to purchase Shares of Beneficial Interest. The number of options granted to each key operational staff was based on InnSuites employment history and their direct IBC Hotels involvement. A total of 1,434,500 stock options were granted during the first quarter of fiscal year 2016 subject to shareholder approval which has not occurred yet and may not occur depending upon management evaluation of the accounting and legal implications of the 2015 Plan. Consistent with ASC 718-10-55-10, compensation cost associated with issuance of these options has not been recognized and are not considered outstanding as shareholder approval is not perfunctory.Our executive officers did not actually receive any shares pursuant to their stock option grants as we determined that the cost of the stock options would have been too high to the Trust due to required accounting charges and worked with our executive officers to rescind the grants, with all of our executive officers voluntarily surrendering their stock options to the Trust, without any consideration, in fiscal year 2017.

On April 24, 2015, pursuant to the 2015 Plan (which has since been terminated), the Board of Trustees granted to each of our [non-employee] Trustees who were expected to continue to serve on the Board of Trustees through the vesting period (that is, all Trustees listed in the table above other than Mr. Pelegrin), options to purchase 10,000 Shares of Beneficial Interest of the Trust. Vesting terms depended upon successful completion of performance goals over a three-year period. The options were subject to shareholder approval of the 2015 Plan. The Trustee Compensation Table does not include these options. As described above, our Trustees did not actually receive any shares pursuant to these stock option grants, as we determined that the cost of the stock options would have been too high to the Trust due to required accounting charges, and our Compensation Committee rescinded the grants (without any consideration to our Trustees) in fiscal year 2017. The aggregate grant date fair value of these options was not computed in accordance with FASB ASC Topic 718 for the purposes of the Trustee Compensation Table due to unreasonable efforts and expense. Consistent with ASC 718-10-55-10, compensation cost associated with issuance of these options has not been recognized as shareholder approval is not perfunctory. The Option Awards were issued to a few Trust employees and were valued as $0 as each award required shareholder approval. After issuance, the shareholder approval was deemed not perfunctory and each of the Trust employees rescinded their awards and therefore Option Award amounts are not included in the Trustee Compensation table listed above.

 

The Board of Trustees of the Trust has decided to terminate the 2015 Plan. Management believes that a new plan needs to be created to act as a financial incentive to the Trusts employees. 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.

 

27. ACQUISITION OF INTERNATIONAL VACATION HOTELS

On January 8, 2016 (the “Closing Date”), the Trust and IBC Hotels purchased the tangible and intangible assets excluding cash, receivables, prepaid booking/expenses, accrued expenses, and an automobile from Vacation Technologies International, Inc., a Texas Corporation, dba International Vacation Hotels (“International Vacation Hotels”). Assets purchased primarily consist of hotel revenue booking contracts, websites and other key business intangible assets. Under the terms of the Asset Purchase Agreement, at the Closing Date, the Trust paid total of $1.0 million of consideration to the seller consisting of $800,000 cash and $200,000 of the Trust’s Shares of Beneficial Interest based on the average closing price of such securities on the NYSE MKT for the 30 calendar days immediately preceding the closing date of January 8, 2016, which resulted in the issuance of 89,127 of the Trust’s Shares of Beneficial Interest.

On January 8, 2016, the Trust entered into a $400,000 business loan with Laurence Holdings Limited, an Ontario, Canada Corporation, with a maturity date of February 1, 2019, pursuant to the terms of the Security Agreement and Promissory Note (“Agreement”). The agreement requires the funds be used for the purchase of International Vacation Hotels’ assets. The agreement provides interest only payments for the first 3 months of the term and principal and interest payments for the remaining portion of the loan. The agreement sets an interest rate of 8% per annum with no prepayment penalty.

The fair values of acquired assets and liabilities are based on preliminary cash flow projections and other assumptions. The preliminary fair values of acquired intangible assets were determined using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. The transaction has been accounted for as a business combination under the acquisition method of accounting. Tangible assets acquired were considered worthless and therefore were not separately valued. Accordingly, the identifiable intangible assets acquired have been recorded at fair value, with the remaining purchase price recorded as goodwill.

The fair values of assets acquired at the transaction date are summarized below:

Marketing Related Intangibles $100,000 
Customer Base  400,000 
Total identifiable intangible assets  500,000 
     
Goodwill  500,000 
     
Total acquired assets $1,000,000 

Expected and future amortization expenses is approximately $67,000 for the next five fiscal years.

International Vacation Hotels provides hotel technology services to 600 + independent hotel properties worldwide primarily in Africa, Caribbean and Asia markets. Most of the value in International Vacation Hotels is included in the exclusive long-term automatic renewed contracts. This business relationship is contractual in nature and meets the separability criterion and as a result is considered an identifiable intangible asset recognized separately from goodwill. The value of the business relationship is included in goodwill under US GAAP. Goodwill is calculated as the difference between the fair value of the consideration transferred and the values assigned to the identifiable tangible assets acquired and liabilities assumed. The acquired goodwill presented in the above table reflects the estimated goodwill from the preliminary purchase price allocation.

The establishment of the fair value of the consideration for a merger, and the allocation to identifiable intangible assets, requires the extensive use of accounting estimates and management judgment. The fair values assigned to the assets acquired assumed were based on estimates and assumptions.

Supplemental Pro Forma Information for Acquisition of International Vacation Hotels (unaudited)

The following unaudited supplemental pro forma information for the year ended January 31, 2016, assumes the acquisition of International Vacation Hotels had occurred as of February 1, 2016 and 2015, giving effect to purchase accounting adjustments such as amortization of intangible assets. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had International Vacation Hotels been operated as part of the Trust since February 1, 2016 and 2015.

  Year Ended
January 31, 2016
 
  As Reported  Pro Forma
(unaudited)
 
Revenues $11,616,767  $12,616,499 
Consolidated Net Loss $339,440  $468,513 
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST $(92,676) $(92,676)
NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS $432,116  $432,116 
NET LOSS PER SHARE FROM CONTINUING OPERATIONS – BASIC $(0.18) $(0.18)
NET INCOME PER SHARE FROM DISCONTINUED OPERATIONS – BASIC $0.22  $0.22 
NET LOSS PER SHARE PER SHARE TOTAL - BASIC $0.04  $0.04 
NET LOSS PER SHARE FROM CONTINUING OPERATIONS – DILUTED $(0.12) $(0.12)
NET INCOME PER SHARE FROM DISCONTINUED OPERATIONS – DILUTED $0.15  $0.15 
NET LOSS PER SHARE PER SHARE TOTAL - DILUTED $0.03  $0.03 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC  8,269,827   8,269,827 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED  11,953,896   11,953,896 

Intangible Assets

Amortizable intangible assets consist of the following:

  January 31, 2017       
  Amount  Accumulated Amortization  Net Amount  Useful Lives
(years)
 
Marketing Related Intangibles $100,000  $10,000  $90,000   10 
Customer Base  400,000   57,000   343,000   7 
Total: $500,000  $67,000  $433,000     

Thes Trust recorded amortization expense of $67,000 for the year ended January 31, 2017.

Goodwill

There were no changes in the carrying value of the Trust’s goodwill for the year ended January 31, 2017.

28.25. SUBSEQUENT EVENTS

 

On February 15, 2017,May 30, 2019 the Trust’s Board of Trustees approved a one cent semi-annual dividend, payable on July 31, 2019, on shares held of record a July 19, 2019. This continues the Trust’s recent practice of paying total annual dividends of two cents per share, payable one cent each semi-annually on July 31 and January 31. This dividend continues 49 consecutive uninterrupted fiscal years during which the Trust has paid annual dividends, since the formation of the Trust and Partnership entered into a restructuring agreement includedthe initial listing of its shares on the New York Stock Exchange in Exhibit 10.11971.

The Trust’s listing of the SEC Form 8-K Current Event filedAlbuquerque Hotel for sale for $7.5 million expired on February 21, 2017April 30, 2019. The Trust continues to entertain offers at this asking price, but decided not to relist the property at this time because management perceives that year-over-year increases in operating revenues and anticipated profits have occurred, which could command a higher listing price.

Effective May 31, 2019, the Trust listed the Tucson Hotel for sale at a price of $15.8 million with Rare Earth to allowa real estate broker who successfully sold four other InnSuites hotels in the past three years. The Trust set forth this price as the asking price for the sale of non-controlling partnership unitsTucson Hotel in Yuma Hospitality Properties LP (“Yuma”) for $10,000 per unit, which operates the Yuma InnSuites Best Western Hotel & Suites hotel property, a 166 unit hotel in Yuma, Arizona (the “Property”). Rare Earth and IHT are restructuring the Yuma Partnership Interest from General Partner majority-owned to accredited investor majority-owned. Total interests outstanding will remain unchanged at 800 with Class A, Class B and Class C Limited Liability Limited Partnership Interests (referred to collectively as “Interests”) restructured with the Yuma Partnership purchasing 300 existing IHT Class B Interests and reissuing 300 Class A units to accredited investors as Class A Interests causing Yuma to offer and sell up to approximately 300 Class A (2017 series) Interests. Rare Earth, as a General Partner of Yuma, will coordinate the offering and sale of Class A Interests to qualified third parties. Rare Earth and other Rare Earth affiliates may purchase Interests under the offering. This restructuring is part of the Trust’s Equity Enhancement Plan to comply with Section 1003(a)(iii) of the NYSE MKT Company Guide. From February 1, 2017 – April 25, 2017, the Trust has sold approximately $1,470,000 of non-controlling partnership units in Yuma. As of the filing of thisits current Annual Report on Form 10-K, no shares were issued related to the sale of these units.and management believes that that year-over-year increases in operating revenues and anticipated profits support this as a listing price.

On February 28, 2017, the Trust entered into a Securities Purchase Agreement (the “Agreement”) for the sale of 111,111 Shares of Beneficial Interest of the Trust, at a purchase price of $1.80 per Share, for the aggregate proceeds of $200,000 to the Trust. Pursuant to the Agreement, Rare Earth, whose managing member is James F. Wirth, the Chairman and Chief Executive Officer of the Trust, purchased 55,556 Shares of Beneficial Interest of the Trust and a Charles E Strickland purchase the remaining 55,555 Shares of Beneficial Interest. Rare Earth is wholly owned by Mr. Wirth and his family members, including Pamela Barnhill, Vice Chairperson and President of the Trust. On February 28, 2017, the closing price of Shares of Beneficial Interest of the Trust on the NYSE MKT was $1.80 per Share. The Trust’s Board and Audit Committee of the Trust approved this offering as

As part of the Trust’s NYSE Equity Enhancement Plan. As ofbusiness strategy, and as described in the filing of thisTrust’s current Annual Report on Form 10-K, no shares were issued relatedmanagement is actively seeking a larger company that is not listed on the NYSE AMERICAN as a potential partner for a reverse merger. The Trust has begun limited discussions with potential candidates.

On May 30, 2019, the Trust’s Board of Trustees set a date of July 24, 2019 for the Annual Shareholder meeting, to be held at 11:00 AM MST at the Trust’s corporate office:  1730 East Northern Ave, Suite 122, Phoenix, AZ 85020. Shareholders of record of the Trust on June 24, 2019 will be entitled to vote at the meeting.

Subsequent to the salefiscal year ended January 31, 2019 the Trust repurchased 36,454 Shares of these units.

We have evaluated subsequent events throughBeneficial Interest on the filing dateopen market for a total cash repurchase price of this Form 10-K and determined that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosures in the notes thereto, other than as disclosed above.approximately $36,000.

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

Item 9A.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of January 31, 2017.2019.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)and for the assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the Exchange Act. supervision of the Company’s Principal Executive Officer and Principal Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that we determined to be material weaknesses, as follows:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
We have not properly implemented comprehensive entity-level internal controls;
We have not properly implemented adequate system and manual controls;
We do not have sufficient segregation of duties;
We lack sufficient personnel with appropriate training and expertise in accounting principles generally accepted in the United States; and
We had not implemented appropriate information technology controls related to access rights for certain financial spreadsheets that are relevant to the preparation of the consolidated financial statements and our system of internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management hasAssessment of Internal Control over Financial Reporting

Our management assessed the effectiveness of our internal control over financial reporting as of January 31, 2017 based on2019. In making this assessment, management used the criteria established in Internal Control-Integrated Framework 2013 (“Framework”) issuedset forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on ourmanagement’s assessment, using those COSO Framework, our management concluded that at January 31, 2017 the Trust’sabove material weaknesses have not been remediated and, accordingly, our internal control over financial reporting were effective.was not effective as of January 31, 2019.

 

Changes in Internal Control over Financial ReportingManagement’s Remediation Initiatives

 

ManagementIn an effort to remediate the identified material weakness and other deficiencies and enhance the Company’s internal control over financial reporting, the Company made attempts to increase its technical accounting expertise by hiring a new Chief Financial Officer and Corporate Controller with public company reporting experience to assist with the Company’s technical accounting and internal control issues.The departure in December 2018 of the newly hired Chief Financial Officer, who was not replaced, has made this attempt non-effective.

We need to take appropriate and reasonable steps to make necessary improvements to our internal control over financial reporting, which will require management to support the hiring of sufficient personnel with appropriate training and expertise in accounting principles generally accepted in the United States. This increase to staffing will allow us to make the necessary improvements, including:

Continuing to improve the control environment through (i) being staffed with sufficient number of personnel to address segregation of duties issues, ineffective controls and to perform control monitoring activities, (ii) increasing the level of GAAP knowledge by retaining additional technical accountants, (iii) implementing formal process to account for non-standard transactions, and (iv) implementing and formalizing management oversight of financial reporting at regular intervals;
Continuing to update the documentation of our internal control processes, including implementing formal risk assessment processes and entity level controls;
Implementing control activities that address relevant risks and assure that all transactions are subject to such control activities; Ensure systems that impact financial information and disclosures have effective information technology controls;
Implementing plan to increase oversight and review of ad hoc spreadsheets while also working to reduce their use; and
We are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting functions.

We believe that the remediation measures described above will strengthen our internal control over financial reporting and remediate the material weaknesses we have identified. We expect these remediation efforts will be implemented throughout fiscal year 2020.

Despite the material weaknesses reported above, our management believes that our consolidated financial statements included in this Annual Report on Form 10-K for the fiscal year ended January 31, 20172019 fairly present in all material respects our financial position,condition, results of operations and cash flows for the periods presented.presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report.

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during our most recently completed fiscal yearquarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have had significant turn over in our accounting department within the last 12 months, which includes turnover at our Chief Financial Officer and Chief Operating Officer positions.

 

Item 9B.OTHER INFORMATION

 

None.

PART III

 

Item 10.TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Trustees and Executive Officers

 

The following table sets forth information about our Trustees and executive officers. The information concerning our Trustees and executive officers set forth below is based in part on information received from the respective Trustees and executive officers and in part on our records. The information below sets forth the name, age, term of office, outside directorships and principal business experience for each Trustee and executive officer of the Trust and includes the specific experience, qualifications, attributes and skills that led to the conclusion that each Trustee should serve on our Board of Trustees, in light of the Trust’s business and structure.

 

Trustees

Whose Terms Expire in

2021

Marc E. Berg

Vice Chairman, Executive Vice President, Secretary and Treasurer of the Trust since February 10, 1999. Vice President – Acquisitions and Dispositionsof the Trust from December 16, 1998 to February 10, 1999. Consultant to InnSuites Hotels, a subsidiary of the Trust, since 1989.

Prior to InnSuites, Mr. Berg was a wealth manager at Valley National Bank where his portfolio consisted of over half a billion dollars in equities, bonds and fixed income securities. Mr. Berg also worked at Young, Smith and Peacock, an investment banking firm, in public finance.

Mr. Berg has been qualified as a Registered Investment Advisor with the SEC and holds both an MBA (Finance) degree from the WP Carey Business School at Arizona State University as well as a Masters in International Management from the Thunderbird Graduate School of International Management. His undergraduate degree was a BSBA from American University in Washington, D.C.

Mr. Berg has in-depth familiarity with the operations of the Trust and extensive experience in property acquisitions. In addition, Mr. Berg has served on our Board for over 20 years. Age: 66.

January 30, 1998

Jessie Ronnie (“JR”) Chase (1)(2)(3)(6)

Owner of Park Avenue Investments, a real estate investment firm since 2000. From 1993 – 2003, Mr. Chase provided investor and management expertise to InnSuites Hotels, a subsidiary of the Trust.

With over 35 years of real estate investment and hospitality experience, including experience managing a variety of real estate assets, Mr. Chase brings to our Board wide-ranging and in-depth experience in hotel management companies, technology and operations. Age: 68.

December 22, 2015

Name 

Principal Occupations During Past Five Years, Age as of April 15, 2017 June 9, 2019

and Directorships Held

 

Trustee

Since

Trustees Whose Terms Expire in 2020
Steven S. Robson(1)(2)(3)(5)

Owner of Scott Homes, residential real estate developers. Age: 63.

Mr. Robson has strategic leadership and residential real estate development experience as well as experience in negotiating complex transactions and maintaining mission, vision and values. In addition, Mr. Robson has served on our Board for more nearly 20 years.

June 16, 1998
     
Trustees Whose Terms Expire in 2019    
     

Leslie (Les) T. Kutasi(1)(2)(3)(4)

 

 

Founder and President of Trend-Tex International, a multi-line textile sales and marketing company, since 2000. In 1996, Mr. Kutasi founded Pacesetter Fabrics, LLC, a start-up textile importer and converter, and served as its Chief Executive Officer until 2000. Prior to that, he served as President of California Textile Sales from 1990 to 1996 and Director of Sales of Lorber Industries from 1988 to 1989.1996. Mr. Kutasi has been a member of WorldYoung Presidents Organization Inc. (WPO Arizona)(Arizona) since 2006. Age: 66.68.

 

Mr. Kutasi has more than 35 years of residential real estate and investment experience that is valuable to our Board.

 

January 31, 2013

 

James F. Wirth

 

 

Chairman and Chief Executive Officer of the Trust since January 30, 1998, also serving as President of the Trust until February 1, 2012. Manager and primary owner (together with his affiliates) of Rare Earth Financial, L.L.C. and affiliated entities, owners and operators of hotels, since 1980. Age: 71.73.

 

Mr. Wirth has significant real estate and hotel industry experience and extensive experience with the Trust. He alsoholds an MBA from Carnegie Mellon University, Tepper School of Business. Mr. Wirth has a significant investment in our Shares, which we believe provides him with a strong incentive to advance shareholder interests. In addition, Mr. Wirth has served on our Board for nearlymore than 20 years.

 

January 30, 1998

 

 

Trustees Whose Terms Expire in 2018

1 Member of the Audit Committee.

2 Member of the Compensation Committee.

3 Member of the Governance and Nominating Committee.

4 Chair of the Audit Committee.

5 Chair of the Compensation Committee.

6 Chair of the Governance and Nominating Committee.

Other Executive Officers

Marc E. Berg

Executive Vice President, Secretary and Treasurer of the Trust since February 10, 1999. Vice President – Acquisitions of the Trust from December 16, 1998 to February 10, 1999. Consultant to InnSuites Hotels, a subsidiary of the Trust, since 1989.

 

Prior to InnSuites, Mr. Berg was a wealth manager at Valley National Bank where his portfolio consisted of over half a billion dollars in equities, bonds and fixed income securities. Mr. Berg also worked at Young, Smith and Peacock, an Investment Banking firm in Public Finance.

Mr. Berg has been qualified as a US Trustee in Chapter 11 cases, a Registered Investment Advisor with the SEC and holds both an MBA (Finance) degree from the WP Carey Business School at Arizona State University as well as a Masters in International Management from the Thunderbird Graduate School of International Management. His undergraduate degree was a BSBA from American University in Washington, D.C.

Mr. Berg has in-depth familiarity with the operations of the Trust and extensive experience in property acquisitions. In addition, Mr. Berg has served on our Board for nearly 20 years. Age: 64.

January 30, 1998

Jessie Ronnie (“JR”) Chase (3)Craig Miller

 

PresidentDirector of Finance, Controller and owner of Park Avenue Investments, a real estate investment firm since 2000. From 1993 – 2003, Mr. Chase provided investor and management expertise to InnSuites Hotels, a subsidiary of the Trust.

With over 35 years of real estate investment and hospitality experience, including experience managing a variety of real estate assets, Mr. Chase brings to our Board wide-ranging and in-depth experience in hotel management companies, technology and operations. Age: 66.

December 22, 2015

Trustees Whose Terms Expire in 2017

Pamela J. Barnhill

Vice Chairperson of the Board of Trustees since March 24, 2014 and President and Chief OperatingPrincipal Accounting Officer of the Trust since February 1, 2012. Ms. Barnhill joined the Trust in 2002 as General Manager and progressed with the Trust through roles in revenue management, operations, sales and trademark licensing. Prior to joining the Trust, Ms. Barnhill’s career included roles with Motorola Semiconductor, Franchise Finance Corporation of America (FFCA) and Pittiglio, Rabin, Todd & McGrath (PRTM) Management Consulting. She has served as a Board Member for the Independent Lodging Industry Association since 2011. She earned a Masters of Business Administration (MBA) from Carnegie Mellon University, and a Bachelor of Arts in Economics and Mathematics cum laude with honors from the University of Arizona. Age: 42.

Ms. Barnhill has extensive knowledge and expertise in sales, marketing and our operations. As President of the Trust and leading the IBC Hotels efforts, Ms. Barnhill brings a unique perspective to our Board of Trustees.

March 24, 2014

Cynthia Ketcherside

(1)(2)(3)(6)

Ms. Ketcherside has more than 25 years of executive management experience. Experience evolved from sales and marketing management positions into the position as President and Chief Executive Officer of Ms. Ketcherside’s family business, in which role she oversaw the operations and negotiated the sale of the business to a national company. Since September 2011, Ms. Ketcherside has served asJanuary 9, 2019. Previously Mr. Miller was Director of Business Development for Vantage Mobility International, a manufacturer of wheelchair van conversions. Prior to Vantage Mobility International, Ms. Ketcherside was the Executive DirectorFinance and Chief Executive Officer of notMYkid, a non-profit organization. From January 2005 – February 2010, Ms. Ketcherside was Managing Director of JC’s Glass, a family business which was sold to IGD Industries – Safelite. Age: 58.

Ms. Ketcherside’s salesController, and marketing expertise is valuable to us, particularly with regard to IBC Hotels.

March 24, 2014

Steven S. Robson(1)(2)(3)(5)

Owner of Scott Homes, residential real estate developers. Age: 61.

Mr. Robson has strategic leadership and residential real estate development experienceserves as well as experience in negotiating complex transactions and maintaining mission, vision and values. In addition, Mr. Robson has served on our Board for more nearly 20 years.

June 16, 1998

1Member of the Audit Committee.
2Member of the Compensation Committee.
3Member of the Governance and Nominating Committee.
4Chair of the Audit Committee.
5Chair of the Compensation Committee.
6Chair of the Governance and Nominating Committee.

Other Executive Officers

Adam B. Remis,

MSIM, CPA, CISA

(interim) Chief Financial Officer of the Trust since March 18, 2013.from June 14, 2018 to July 23, 2018.

For more than five years prior to joining the Trust in May 2018, Mr. RemisMiller was Managing Member of Southwest CFO Services LLC, providing interim and fractional CFO services, as well as financial and operational consulting, to a variety of businesses. He has over 2030 years of combinedexperience in finance, accounting, audit, taxenterprise resources planning and technology consulting experience. His clients have included Palm, Pioneer North America, Meritage Homes, Mesa Airlines, Choice Hotelstax.

Mr. Miller holds a bachelor’s degree in commerce from Santa Clara University, and InnSuites. From September 2008 to March 2013, Mr. RemisMasters’ degrees in Business Administration and Accounting and Financial Management from Keller Graduate School of Management. He has served as Senior Manager at Khalsa McBrearty Accountancy, LP, where he managed financial audit and tax compliance engagements. From April 2006a mentor to September 2008, he served as Director of Technology – Internal Audit at American Express, leading a team of auditors to review information systems and technology infrastructure controls, and from 2002 to April 2006, Mr. Remis was Engagement Manager at Jefferson Wells, where he managed Sarbanes-Oxley engagements. Prior to that, he was at Deloitte & Touche. Mr. Remis has a Master of Science in Information Management from Arizona State UniversityUniversity’s Entrepreneurship and a Bachelor of Science degree in Quantitative Economic Decision Sciences from the University of California, San Diego. In February 1997, Mr. Remis became a CPA and was admitted to practice in the State of Arizona. He also holds a Certified Information Systems Auditor (CISA) certification from the Information Systems Audit and Controls Association (“ISACA”). Mr. Remis has previously served as President of the local Arizona chapter of ISACA and continues to serve as a member of its Board of Directors.innovation programs since 2011. Age: 49.65.

Ms. Barnhill, our Vice-Chairperson of the Board, President and Chief Operating Officer, is Mr. Wirth’s daughter. There are no other family relationships that require disclosure pursuant to the SEC’s rules, and none of our Trustees or executive officers were nominated, elected or appointed to their positions pursuant to any arrangement or understanding between them and any other person.

 

We request that all of our Trustees attend our Annual Meetings of Shareholders. All Trustees were present at the 20162019 Annual Meeting of Shareholders. All incumbent Trustees attended 100%Attendance was high, with a maximum of one trustee missing for each of the meetings held by the Board of Trustees and the Committees on which the Trustee served during fiscal year 2017.2019. In addition, the independent Trustees meet at least annually in executive session without the presence of non-independent Trustees and management.

 

Trustee Nominations and Qualifications

 

The Governance and Nominating Committee expects to identify nominees to serve as our Trustees primarily by accepting and considering the suggestions and nominee recommendations made by members of the Board of Trustees and our management and shareholders. Nominees for Trustees are evaluated based on their character, judgment, independence, financial or business acumen, diversity of experience, ability to represent and act on behalf of all of our shareholders, and the needs of the Board of Trustees. In accordance with its charter, the Governance and Nominating Committee discusses diversity of experience as one of many factors in identifying nominees for Trustee, but does not have a policy of assessing diversity with respect to any particular qualities or attributes. TwoAll of the current Trustees are men, due to the departure of two women but theduring fiscal 2019. The Governance and Nominating Committee has not identified any specific attributes that the Committee would desire to diversify on the Board. In general, before evaluating any nominee, the Governance and Nominating Committee first determines the need for additional Trustees to fill vacancies or expand the size of the Board of Trustees and the likelihood that a nominee can satisfy the evaluation criteria. The Governance and Nominating Committee would expect to re-nominate incumbent Trustees who have served well on the Board of Trustees and express an interest in continuing to serve. Our Board of Trustees is satisfied that the backgrounds and qualifications of our Trustees, considered as a group, provide a mix of experience, knowledge and abilities that allows our Board to fulfill its responsibilities.

The Governance and Nominating Committee will consider shareholder recommendations for Trustee nominees. A shareholder who wishes to suggest a Trustee nominee for consideration by the Governance and Nominating Committee should send a resume of the nominee’s business experience and background to Ms. Ketcherside,Mr. Ronnie Chase, Chairperson of the Governance and Nominating Committee, InnSuites Hospitality Trust, 16251730 E. Northern Avenue, Suite 105,122, Phoenix, Arizona 85020. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is a “Shareholder-Board of Trustees Nominee.”

Leadership Structure of the Board of Trustees

 

Mr. Wirth, our Chief Executive Officer, currently serves as Chairman of the Board, and Ms. Barnhill, our President and Chief Operating Officer, serves as Vice Chairperson of the Board. Our Second Amended and Restated Declaration of Trust, as amended, provides that the Trustees shall annually elect a Chairman who shall be the principal officer of the Trust. Mr. Wirth has served as Chairman of our Board of Trustees and our Chief Executive Officer since January 30, 1998. Our Board of Trustees has determined that the Trust has been well-served by this structure of combined Chairman and Chief Executive Officer positions and that this structure facilitates strong and clear leadership, with a single person setting the tone of the organization and having the ultimate responsibility for all of the Trust’s operating and strategic functions, thus providing unified leadership and direction for the Board of Trustees and the Trust’s executive management. Our Chairman also has a significant investment in our Shares, which we believe provides him with a strong incentive to advance shareholder interests.

 

As a result of the Board’s ongoing efforts around Board succession planning and effectiveness, in March 2014, the Board appointed Ms. Barnhill to the newly created position of Vice Chairperson of the Board. In this role, Ms. Barnhill presides over Board meetings in the event that the Chairman is not present. Ms. Barnhill also participates in the Board and committee agenda review process, as well as in the Board’s efforts regarding overall Board effectiveness and Board succession planning. As President and Chief Operating Officer of the Trust and leading the IBC Hotels efforts, Ms. Barnhill brings a unique perspective to the Board. We recognize that our Board leadership structure is somewhat unique but we believe that it is the right structure for the Trust at this time.

The Trust does not have a lead independent Trustee, but receives strong leadership from all of its members. Our Board Committees consist of only independent members, and our independent Trustees meet at least annually in executive session without the presence of non-independent Trustees and management. In addition, our Trustees take active and substantial roles in the activities of our Board of Trustees at the full Board meetings. Our Trustees are able to propose items for Board meeting agendas, and the Board’s meetings include time for discussion of items not on the formal agenda. Our Board believes that this open structure, as compared to a system in which there is a designated lead independent trustee, facilitates a greater sense of responsibility among our Trustees and facilitates active and effective oversight by the independent Trustees of the Trust’s operations and strategic initiatives, including any risks.

 

The Board’s Role in Risk Oversight

 

Our management devotes significant attention to risk management, and our Board of Trustees is engaged in the oversight of this activity, both at the full Board and at the Board Committee level. The Board’s role in risk oversight does not affect the Board’s leadership structure. However, our Board’s leadership structure supports such risk oversight by combining the Chairman position with the Chief Executive Officer position (the person with primary corporate responsibility for risk management).

 

Our Board’s role in the Trust’s risk oversight process includes receiving reports from members of senior management on areas of material risk to the Trust, including operational, financial, legal and regulatory and strategic risks. The Board of Trustees requires management to report to the full Board (or an appropriate Committee) on a variety of matters at regular meetings of the Board and on an as-needed basis, including the performance and operations of the Trust and other matters relating to risk management. The Audit Committee also receives regular reports from the Trust’s independent registered public accounting firm on internal control and financial reporting matters. In addition, pursuant to its charter, the Audit Committee is tasked with reviewing with the Trust’s counsel major litigation risks as well as compliance with applicable laws and regulations, discussing with management its procedures for monitoring compliance with the Trust’s code of conduct, and discussing significant financial risk exposures and the steps management has taken to monitor, control and report such exposures. These reviews are conducted in conjunction with the Board’s risk oversight function and enable the Board to review and assess any material risks facing the Trust.

 

Our Board also works to oversee risk through its consideration and authorization of significant matters, such as major strategic, operational and financial initiatives and its oversight of management’s implementation of those initiatives. The Board periodically reviews with management its strategies, techniques, policies and procedures designed to manage these risks. Under the overall supervision of our Board, management has implemented a variety of processes, procedures and controls to address these risks.

 

Communications with the Board of Trustees

 

Shareholders and other interested parties who wish to communicate with the Board of Trustees or any individual member thereof may do so by writing to the Secretary, InnSuites Hospitality Trust, 16251730 E. Northern Avenue, Suite 105,122, Phoenix, Arizona 85020. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is an “Interested Party-Board of Trustees Communication.” The Secretary will review all such correspondence and regularly forward to the Board of Trustees a log and summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board of Trustees or Committees thereof or that he otherwise determines requires their attention. Trustees may at any time review a log of all correspondence received by us that is addressed to members of the Board of Trustees and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our accounting department and handled in accordance with procedures established by the Audit Committee for such matters.

Date of 20172019 Annual Meeting of Shareholders and Shareholder Proposals

 

We expect that the 20172019 Annual Meeting will be held in the last fiscal quarter ending January 31, 2018.late July 2019. Therefore, the deadline for submitting shareholder proposals for inclusion in our proxy statement and form of proxy for the 20172019 Annual Meeting will be on or before August 18, 2017, unless the date of the 2017 Annual Meeting changes by more than 30 days from the date of the 2016 Annual Meeting, inJune 10, 2019, which case the deadline will bewe believe is a reasonable timedeadline for submission before we begin the printing and mailing of our proxy materials for the 20172019 Annual Meeting. A shareholder who wishes to present a proposal at the 20172019 Annual Meeting, but does not wish to have that proposal included in our proxy statement and form of proxy relating to that meeting, will need to notify us of the proposal before NovemberJune 1, 2017, unless the date of the 2017 Annual Meeting changes by more than 30 days from the 2016 Annual Meeting date, in which case we must receive a notice of the proposal a reasonable time before we send our proxy materials for the 2017 Annual Meeting.2019. When the date for the 20172019 Annual Meeting is set, we will announce updated shareholder proposal deadlines. If notice of the proposal is not received by us by that date, then the proposal will be deemed untimely and we will have the right to exercise discretionary voting authority and vote proxies returned to us with respect to that proposal.

 

Shareholders should submit their proposals to InnSuites Hospitality Trust, 16251730 E. Northern Avenue, Suite 105,122, Phoenix, Arizona 85020, Attention: Mr. Marc Berg, Secretary.

 

Audit Committee Information and Audit Committee Financial Expert

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent auditors, including reviewing the scope and results of audit and non-audit services. The Audit Committee also reviews internal accounting controls and assesses the independence of our auditors. In addition, the Audit Committee has established procedures for the receipt, retention and treatment of any complaints received by us regarding accounting, internal controls or auditing matters and the confidential, anonymous submission by our employees of any concerns regarding accounting or auditing matters. The Audit Committee has the authority to engage independent counsel and other advisors as it deems necessary to carry out its duties. The Audit Committee met four (4) times during fiscal year 2017.2019.

 

All members of the Audit Committee are “independent,” as such term is defined by the SEC’s rules and the NYSE MKT’sAmerican listing standards. The Board of Trustees has determined that Mr. Kutasi, a member of our Audit Committee, qualifies as an “audit committee financial expert” under applicable SEC rules. We have posted our Amended and Restated Audit Committee Charter on our Internet website at www.innsuitestrust.com. Information on our website is not part of this Amendment.

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Audit Committee Report

 

The Audit Committee of the Board of Trustees has reviewed and discussed the audited consolidated financial statements included in the Trust’s Annual Report on Form 10-K for the fiscal years ended January 31, 20172019 and 20162018 with the management of the Trust. In addition, the Audit Committee has discussed with Hall & Company Certified Public Accountants and Consultants, Inc. (“Hall & Company”), the independent registered public accounting firm of the Trust, the matters required to be discussed under Public Company Accounting Oversight Board Auditing Standard No. 1301,Communications with Audit Committees. The Audit Committee has also received and reviewed the written disclosures and the letter from Hall & Company required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, and has discussed with Hall & Company its independence from the Trust, including the compatibility of any non-audit services with Hall & Company’s independence. The Audit Committee has also pre-approved the fees to be charged to the Trust by its independent auditors for audit services.

 

Based on the foregoing, the Audit Committee recommended that such audited consolidated financial statements be included in the Trust’s Annual Report for the fiscal year ended January 31, 2017.2019.

 

By the Audit Committee of the Board of Trustees:

 

Les T. Kutasi, Chairman

Steven S. Robson

Cynthia KetchersideRonnie Chase

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Code of Ethics for Senior Financial Officers

 

We have adopted a Code of Ethics that applies to our Chief Executive Officer and Chief Financial Officer and persons performing similar functions. We have posted our Code of Ethics for Senior Financial Officers on our website at www.innsuitestrust.com. We intend to satisfy all SEC and NYSE MKTAMERICAN disclosure requirements regarding any amendment to, or waiver of, the Code of Ethics relating to our Chief Executive Officer and Chief Financial Officer and persons performing similar functions, by posting such information on our website unless the NYSE MKTAMERICAN requires a Form 8-K. In addition, we have adopted a Code of Conduct and Ethics that applies to all of our employees, officers and Trustees. It is also available on our website at www.innsuitestrust.com.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our Trustees, executive officers and beneficial holders of more than 10% of our Shares to file with the SEC initial reports of ownership and reports of subsequent changes in ownership. The SEC has established specific due dates for these reports, and we are required to disclose any late filings or failures to file during the last fiscal year.

 

One Section 16(a) report was inadvertently filed untimely: Mr. Berg’s Form 4 filed on May 17, 2016 reporting a purchase on May 10, 2016.

Based solely on our review of the copies of such forms (and amendments thereto) furnished to us and written representations from reporting persons that no additional reports were required, we believe that all our Trustees, executive officers and holders of more than 10% of the Shares complied with all Section 16(a) filing requirements during the fiscal year ended January 31, 2017,2019, except as set forth above.

Item 11.EXECUTIVE COMPENSATION

 

Executive Compensation Overview

 

The following overview relates to the compensation of our executive officers listed in the Summary Compensation Table set forth below during fiscal year 2017.2019. Our executive officers are James F. Wirth, Chairman of the Board, President and Chief Executive Officer, Pamela J. Barnhill, President, Chief Operating Officer, Vice Chairperson, and Trustee, Marc E. Berg, Vice Chairman, Executive Vice President, Secretary, and Treasurer, and Trustee, and Adam B. Remis,Craig Miller, Chief FinancialAccounting Officer (referred to below as our “executive officers”executive officers).

 

Overview of the Compensation Committee

 

The Compensation Committee of the Board of Trustees currently consists of three independent Trustees. The Committee sets the principles and strategies that serve to guide the design of the compensation programs for our executive officers. The Committee annually evaluates the performance of our executive officers. Taking into consideration the factors set forth below, the Committee then approves their compensation levels, including any bonuses. The Committee does not use an independent compensation consultant to assist it with its responsibilities. The Committee does consider input from the Chief Executive Officer when determining compensation for the other executive officers.

Compensation Philosophy and Objectives

 

Under the supervision of the Compensation Committee, we have developed and implemented compensation policies, plans and programs that seek to enhance our ability to recruit and retain qualified management and other personnel. In developing and implementing compensation policies and procedures, the Compensation Committee seeks to provide rewards for the long-term value of an individual’s contribution to the Trust. The Compensation Committee seeks to develop policies and procedures that offer both recurring and non-recurring, and both financial and non-financial, incentives.

 

Compensation for our executive officers has two main monetary components, salary and bonus, as well as a benefits component. A base salary is a fixed compensation component subject to annual adjustment and review, if appropriate, that is designed to attract, retain, and motivate our executive officers and to align their compensation with market practices. As discussed below, for fiscal year 2017,2019, the bonus component consisted of cash and share bonuses that were intended to incentivize performance, as described below.

 

Our compensation program does not rely to any significant extent on broad-based benefits or perquisites. The benefits offered to our executive officers are those that are offered to all of our full-time employees. We do not offer our executive officers any perquisites.

 

Our management and the Compensation Committee work in a cooperative fashion. Management advises the Compensation Committee on compensation developments, compensation packages and our overall compensation program. The Compensation Committee then reviews, modifies, if necessary, and approves the compensation packages for our executive officers.

 

Elements of Compensation

 

In setting the compensation for each executive officer, the Compensation Committee considers (i) the responsibility and authority of each position relative to other positions within the Trust, (ii) the individual performance of each executive officer, (iii) the experience and skills of the executive officer, and (iv) the importance of the executive officer to the Trust.

 

Base Salary

 

We pay base salaries to our executive officers in order to provide a level of assured compensation reflecting an estimate of the value in the employment market of the executive officer’s skills, the demands of his or her position and the relative size of the Trust. In establishing base salaries for our executive officers, the Compensation Committee considers our overall performance and the performance of each individual executive officer, as well as market forces and other general factors believed to be relevant, including time between salary increases, promotion, expansion of responsibilities, advancement potential, and the execution of special or difficult projects. Additionally, the Compensation Committee takes into account the relative salaries of the executive officers and determines what it believes are appropriate compensation level distinctions between and among the executive officers, including between the Chief Executive Officer and the Chief Financial Officer and among the other executive officers. Although the Compensation Committee considers our financial performance, there is no specific relationship between achieving, or failing to achieve, budgeted estimates, the performance of our Shares or our financial performance and the annual salaries determined by the Compensation Committee for any of our executive officers. No specific weight is attributed to any of the factors considered by the Compensation Committee; the Compensation Committee considers all factors and makes a subjective determination based upon the experience of its members and the recommendations of our management.

On February 22, 2016, in recognition of their contributions to the Trust and market conditions, the Compensation Committee approved an increase in the annual base salaries of our executives other than Mr. Wirth (individually, an “Executive” and collectively, the “Executives”). The salary increases were effective as of February 1, 2016. Specifically, the Compensation Committee increased Ms. Barnhill’s annual base salary from $120,000 to $150,000, Mr. Berg’s annual base salary from $98,000 to $102,000, and Mr. Remis’s annual base salary from $139,000 to $147,500. These salary increases were the first increases since February 23, 2013 for Ms. Barnhill and March 15, 2008 for Mr. Berg. Mr. Remis’s annual base salary when he started with the Trust was $139,000. During fiscal year 2017 and 2016, Mr. Berg voluntarily reduced his salary to $65,910 and $60,308, respectively, in both cases by reducing the number of hours worked per year.

 

As Mr. Wirth holds a significant ownership stake in the Trust, the Compensation Committee did not increase his salary or provide him with additional incentives. Based upon a review of Mr. Wirth’s performance and upon the recommendation of the Compensation Committee, for fiscal years 20172019 and 2016,2018, Mr. Wirth’s annual base salary remained set at $153,000. The Compensation Committee did not rely on any particular set of financial or non-financial factors, measures or criteria when determining the compensation offered to Mr. Wirth. The Compensation Committee did consider Mr. Wirth’s substantial Share ownership when setting his base salary. During fiscal years in 2017 and 2016, Mr. Wirth voluntarily reduced his salary to $123,577 and $71,538, respectively, in both cases by reducing the number of hours worked per year.

Cash and Equity Bonuses

 

Fiscal 2017– Short-Term Cash and Equity Bonus Program2019Bonuses

 

To provide incentive to get hotel operations off to a strong start for the then-current fiscal year starting February 1, 2016, on February 22, 2016, the Committee adopted an incentive bonus program for the Executives based on the targeted gross operating profit of approximately $402,000 and approximately $395,000 (i.e., total revenues less operating expenses) (the “Target GOP”) for February 2016 and March 2016, the first two months of the fiscal year. The program provided that if the Target GOP were achieved or exceeded, each Executive would be entitled to a bonus consisting of cash and Shares of Beneficial Interest of the Trust in the amounts set forth below:

Executive Officer Cash  Equity
Pamela J. Barnhill $10,000  10,000 Shares of Beneficial Interest
Marc E. Berg $2,500  2,500 Shares of Beneficial Interest
Adam B. Remis $5,000  5,000 Shares of Beneficial Interest

In February 2016 and March 2016, the Target GOP were achieved and each of the Executives received the cash and equity bonuses listed above.

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Fiscal 2017–2019– Full Year Cash and Equity Bonus Program

On February 22, 2016, the Committee also adopted an incentive bonus program for the Executives for the fiscal year ended January 31, 2017 (the “2017 Fiscal Year Bonus Program”). Under the 2017 Fiscal Year Bonus Program, an Executive were to be entitled to receive a bonus consisting of cash and Shares of Beneficial Interest of the Trust up to the maximum amount set forth below upon the achievement by the Executive of performance-based objectives, which included revenue, gross operating profit and strategy for the hotel and IBC/IVH divisions and/or at the discretion of the Committee.

Executive Officer Cash  Equity
Pamela J. Barnhill $25,000  10,000 Shares of Beneficial Interest
Marc E. Berg $5,000  2,500 Shares of Beneficial Interest
Adam B. Remis $10,000  5,000 Shares of Beneficial Interest

Fiscal 2017– Payouts Under Short-Term and Full Year Cash and Equity Bonus Programs

 

On January 24, 2017, the Compensation Committee exercised negative discretion, based on the Trust’s financial condition and its limited cash flow in fiscal 2017, and the Compensation Committee and the Board of Trustees approved the following payouts for the Executives based on the performance of the Trust and the Executives. The payouts were accrued as of January 31, 2017 and paid to the Executives in February 2017.

Executive Cash  Equity
Pamela J. Barnhill $5,000  3,000 Shares of Beneficial Interest
Marc E. Berg $1,000  750 Shares of Beneficial Interest
Adam B. Remis $2,000  1,500 Shares of Beneficial Interest

Fiscal29, 2018, Bonuses

Fiscal 2018– Short-Term Cash and Equity Bonus Program

On January 24, 2017, the Compensation Committee and the Board, with the advice from Mr. Wirth, our Chairman and Chief Executive Officer, authorized the following additional bonuses for the Executives, up to the maximum amounts listed below, which may be earned based on the growth and financial developments of IBC Hotels during the period from February 1, 2017 through May 31, 2017 and the Trust’s cash availability, with such bonuses, if any, to be paid before January 31, 2018.

Executive Cash  Equity
Pamela J. Barnhill $5,000  3,000 Shares of Beneficial Interest
Marc E. Berg $1,000  750 Shares of Beneficial Interest
Adam B. Remis $2,000  1,500 Shares of Beneficial Interest

In addition, the Compensation Committee and the Board, with the advice from Mr. Wirth, our Chairman and Chief Executive Officer, also authorized the following bonuses for the Executives, up to the maximum amounts listed below, which may be earned based on the IBC Hotels division growth and financial developments during the period from June 1, 2017 through December 31, 2017 and the Trust’s cash availability, with such bonuses, if any, to be paid before January 31, 2018.

Executive Cash  Equity
Pamela J. Barnhill $10,000  4,000 Shares of Beneficial Interest
Marc E. Berg $2,000  1,000 Shares of Beneficial Interest
Adam B. Remis $4,000  2,000 Shares of Beneficial Interest

Fiscal 2018– Full Year Cash and Equity Bonus Program

On January 24, 2017, the Compensation Committee also adopted an incentive bonus program for the Executives for the full fiscal year endingended January 31, 20182019 (the “2018“2019 Fiscal Year Bonus Program”). Under the 20182019 Fiscal Year Bonus Program, an Executive will be entitled to receive a bonus consisting of cash and Shares of Beneficial Interest of the Trust, up to the maximum amounts set forth below, upon the achievement by the Executive of performance-based on objectives which will be established by March 31, 2017.was based on exceeding budgeted revenues and net income in both the hotel operations and technology division.

Executive Cash  Equity
Pamela J. Barnhill $25,000  10,000 Shares of Beneficial Interest
Marc E. Berg $5,000  2,500 Shares of Beneficial Interest
Adam B. Remis $10,000  5,000 Shares of Beneficial Interest

Executive Cash  Equity
Pamela J. Barnhill $25,000  None
Marc E. Berg $5,000  None
Adam B. Remis $8,000  None

 

[The bonuses discussed above are discretionary.]

 

The amounts paid in the fiscal year ending January 31, 2019 are shown below.

Executive Cash 
Pamela J. Barnhill $-0- 
Marc E. Berg $2,000 
Adam B. Remis $4,000 

Fiscal 2018-2019–2019 – IBC Bonuses

IBC Hotels Inc.,On September 4, 2018, the Board approved to pay a wholly owned subsidiary$15,000 bonus to the daughter of the CEO, and who is the former Chief Operating Officer, in connection with the sale of IBC. The CEO’s daughter is now employed by the Company that acquired IBC. In addition, the Board approved to pay a $10,000 bonus to the Executive Vice President of the Trust plans to explore financial and strategic options for the subsidiary and has engaged an investment banker to assist. There is no assurance that any transaction will be completed.

In the event of the sale, capital infusion, or a liquidity event involving substantially all the stock and/or assets of IBC, our technology division, by January 31, 2019, at the meetings held on January 24, 2017, the Compensation Committee and the Board of Trustees authorized the following bonuses (“IBC Bonuses”) to the Executives:

Ms. Barnhill will be entitled to receive an amount equal to 10% of the gross sale or transfer price over and above the initial value of IBC of $3,000,000 (the “Starting Value”) or 10% of the capital raised.
Mr. Berg will be entitled to receive a bonus of 10% of the amount paid to Ms. Barnhill.
Mr. Remis will be entitled to receive a bonus of 25% of the amount paid to Ms. Barnhill or similar amount. The Compensation Committee has expressly reserved the right to award to Mr. Remis an amount in the range of 20% to 40% of the amount paid to Ms. Barnhill.

In addition, if Ms. Barnhill procures the purchaser or investor for IBC or otherwise is a key contributor in connection with the sale of IBC, Ms. BarnhillIBC. These bonuses will be entitled to an additional IBC Bonus of 3%paid upon receipt of the gross sale. Pursuantmonthly payments to be received in connection with the note receivable described above starting in September 2019 at $1,000 per month.

The Trust also paid the former CFO a $5,000 compensation bonus related to the IBC Bonus Agreement, Ms. Barnhill is required to identify in writing to Mr. Wirth, or Chairman and Chief Executive Officer, the purchasers induced by her to make an offer to IBC prior to due diligence. For those purchasers or investors for whom Ms. Barnhill asserts she is a key contributor, Ms. Barnhill is similarly required to state in writing to Mr. Wirth, our Chairman and Chief Executive Officer, prior to the Closing Date that she is a key contributor.

Pursuant to the IBC Bonus Agreement, (i) upon completion of any cash transaction, IBC are payable to the Executives in a cash lump sum; (ii) IBC Bonuses are payable in stock if the sale is an exchange for stock; and (iii) IBC Bonuses are payable as a combination of cash and stock in the event of a sale or liquidity event involving both cash and stock, with the configuration of such combination to be in the reasonable discretion of Ms. Barnhill (with Barnhill deciding for all Executives).

Subject to the terms of their bonus agreement, the Executives will be entitled to receive IBC Bonuses if the Executives remain in the continuous employ of the Trust until the date of consummation of a sale, capital infusion and/or liquidity event (the “Closing Date”) and (ii) such sale, capital infusion and/or liquidity event occurs prior to the IBC Bonus program termination date of January 31, 2019. If an Executive’s employment with the Trust terminates without cause prior to the Closing Date and/or a sale or liquidity event does not occur before January 31, 2019, the Executive will not be entitled to receive an IBC Bonus.

Under the IBC bonus agreement, “termination without cause” means termination by the Trust other than because of: (i) willful refusal by the Executive to follow lawful directives of the President the Company or the Board of Trustees, which are consistent with the scope and nature of the Executive’s duties and responsibilities; (ii) the Executive’s conviction of, or plea of guilty or nolo contendere to, a felony or of any crime involving moral turpitude, fraud or embezzlement; (iii) the Executive’s gross negligence or willful misconduct resulting in a material loss to the Trust or any of its subsidiaries, or material damage to the reputation of the Trust or any of its subsidiaries; (iv) any material breach by the Executive of any one or more of the covenants contained in any proprietary interest protection, confidentiality, non-competition or non-solicitation agreement with the Trust; or (v) any violation of any statutory or common law duty of loyalty to the Trust or any of its subsidiaries.

The Executive’s IBC Bonus is subject to a clawback if the Executive fails to disclose any prior business dealings or relationships with the acquiring entity of IBC. This provision is intended to prevent the Executives from self-dealing or undermining the value of IBC.

 

Fiscal 20172019 - Performance-Based Cash Bonuses

 

Our executive officers are eligible to receive cash bonuses under the General Manager Bonus Plan equal to 15% of the aggregate cash bonuses received by the general managers of all of our hotels, regardless of region. The general managers receive a bonus based on the achievement of budgeted gross operating profit (total revenues less operating expenses) (“GOP”) at their hotel on a quarterly and annual basis. Under the plan, if the hotel’s actual quarterly and annual GOP exceeds the budgeted GOP, each general manager is eligible for a potential maximum annual bonus of $20,000, consisting of a potential maximum quarterly bonus of $2,000 per quarter and a potential maximum year-end bonus of $12,000, a potential maximum year-end bonus of $12,000,$11,000, a risk management bonus of $1,000 and a discretionary excellent property score inspection bonus from Best Western of $1,000.

Quarterly General Manager GOP Bonus Potential:

 

Percentage of Budgeted Quarterly GOP Achieved Cash Bonus 
Less than 95% $0 
95% $500 
98% $1,000 
102% $1,500 
106% or more $2,000 

 

Year-End General Manager GOP Bonus Potential:

 

Percentage of Budgeted Annual GOP Achieved Cash Bonus  Cash Bonus 
Less than 95% $0  $0 
95% $1,000  $1,000 
98% $2,000  $2,000 
102% $5,000  $5,000 
106% $9,000  $9,000 
108% or more $12,000  $11,000 

 

In fiscal year 2017,2019, each of our executive officers received an annual cash bonus equal to 15% of the aggregate cash bonuses received by the general managers of all of our hotels, regardless of region. The general manager aggregate cash bonuses for fiscal year 20172019 were as follows:

 

Period GM Aggregate Cash Bonus 
    
First Quarter $6,500 
Second Quarter $4,000 
Third Quarter $3,900 
Fourth Quarter $3,500 
Year End $25,000 
Period GM Aggregate Cash Bonus 
    
First Quarter – Fiscal Year 2019 $3,800 
Second Quarter – Fiscal Year2019 $8,000 
Third Quarter – Fiscal Year 2019 $6,000 
Fourth Quarter – Fiscal Year 2019 $1,250 
Year End – Fiscal Year 2018 $16,250 

 

Accordingly, each of our executive officers received a cash bonus of $6,435$5,108 for fiscal year 2016 but $4,275 was paid during fiscal year 2017 to each officer.

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Fiscal Year 2016 – Performance-Based Stock Options2019.

 

Effective February 5, 2015, our Board of Trustees adopted, subject to shareholder approval, the InnSuites Hospitality Trust 2015 Equity Incentive Plan (the “2015 Plan”), under which up to 1,600,000 Shares of Beneficial Interest of the Trust were authorized to be issued pursuant to grants of stock options and other awards. The purpose of the 2015 Plan and the awards described below was to promote the interests of the Trust and its shareholders by providing certain employees and members of the Board of Trustees, who are largely responsible for the management and growth of the subsidiary of the Trust, IBC Hotels, LLC (“IBC Hotels”), with incentives and rewards to encourage them to continue in the service of the Trust.

Our executive officers did not actually receive any shares pursuant to the stock option grants described below, as we determined that the cost of the stock options would have been too high to the Trust due to required accounting charges and worked with our executive officers to rescind the grants, with all of our executive officers voluntarily surrendering their stock options to the Trust, without any consideration, in fiscal year 2017.

On February 5, 2015, pursuant to the 2015 Plan, our Board of Trustees granted to Ms. Barnhill four-year options to purchase 1,000,000 Shares of Beneficial Interest of the Trust at an exercise price of $3.50 per Share, which were to be exercisable to the extent the options vested and GAAP pre-tax profits of IBC Hotels were greater than or equal to the performance objectives described in Ms. Barnhill’s stock option agreement and set forth below. The Compensation Committee determined to grant these options to Ms. Barnhill as she was leading our IBC Hotels efforts and if our stock price significantly exceeded the exercise price, we believed that it would be based on the IBC Hotels success. The options were to vest in one-third instalments on May 17, 2016, February 5, 2017 and February 5, 2018, subject to the achievement of performance objectives of the GAAP pre-tax profits of IBC Hotels being equal to or in excess of $60,000 for the fiscal year ended January 31, 2016, $200,000 for the fiscal year ending January 31, 2017, and $400,000 for the fiscal year ending January 31, 2018. The options were subject to shareholder approval of the 2015 Plan.

On April 24, 2015, pursuant to the 2015 Plan, our Board of Trustees granted to each of Mr. Wirth, Mr. Berg, and Mr. Remis four-year options to purchase of 60,000 Shares of Beneficial Interest of the Trust at an exercise price of $3.50 per Share, which were to be exercisable to the extent the options vested and GAAP pre-tax profits of IBC Hotels were greater than or equal to the performance objectives described above and in the respective stock option agreements. The Compensation Committee based the number of options granted to each of these executive officers on the combination of their length of employment with us and their direct involvement in IBC Hotels. These options had the same terms as Ms. Barnhill’s option described above and were subject to shareholder approval of the 2015 Plan.

The 2015 Plan was terminated and not presented for shareholder approval, as we determined that the cost of the stock options would have been too high to the Trust due to required accounting charges, and all the option awards described above were cancelled, as described above.

Benefits and Other Compensation

 

We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life insurance and a 401(k) plan. We also have a mandatory matching contribution for our 401(k) plan. We do not have a pension plan. Our executive officers are eligible to participate in all of our employee benefit plans, in each case on the same basis as our other employees. See Note 26 – “Stock Options” for additional information about our Stock Options.

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Fiscal Year 20172019 Summary Compensation Table

 

The table below shows individual compensation information paid to our executive officers for our fiscal years ended January 31, 20172019 and 2016:2018:

 

Name and Fiscal Year Ending  Salary  Discretionary Bonus  Non-Equity Incentive Plan Compensation  All Other Compensation  Total 
Principal Position(1) Explanation Jan. 31,  ($)  ($) (4) (5)  ($)(6)  ($)(1) (2)(3)  ($) 
                   
James F. Wirth,  2016   71,538   0   6,435   9,728   87,701 
Chief Executive Officer  2017   123,577   0   5,720   4,589   133,886 
Adam B. Remis,  2016   139,000   0   6,435   500   145,935 
Chief Financial Officer  2017   147,500   33,320   5,720   500   187,040 
Marc E. Berg,  2016   60,308   28,750   6,435   7,500   102,993 
Executive Vice President  2017   65,910   19,910   5,720   1,200   92,740 
Pamela J. Barnhill,  2016   120,000   0   6,435   7,455   133,890 
Vice Chairperson, President and Chief Operating Officer  2017   150,000   50,800   5,720   9,131   215,651 

Name and Fiscal  Salary  Discretionary Bonus  Non-Equity Incentive Plan Compensation (5)  All Other Compensation  Total 
Principal Position(1) Year  ($)  ($) (4) (5)  ($) (6) ($) (1) (2) (3)  ($) 
                         
James F. Wirth,  2018   124,165       5,435       129,600 
Chief Executive Officer  2019   154,178       5,745   500   160,423 
                         
Adam B. Remis,  2018   147,500   33,320   5,720   500   187,040 
Chief Financial Officer (former)  2019   85,681   4,000   2,875   500   93,056 
                         
V. George Moore  2018   -               - 
Chief Financial Officer (former)  2019   48,462       1,700   500   50,662 
                         
Craig S. Miller  2018   -               - 
Controller & Principal Accounting Officer  2019   69,389       1,150   800   71,339 
                         
Marc E. Berg,  2018   82,437   10,620   5,435   1,200   99,692 
Executive Vice President  2019   65,073   23,500   5,745   7,200   101,518 
                         
Pamela J. Barnhill,  2018   150,000   5,080   5,720   9,131   169,931 
President & COO ( former)  2019   70,526   2,875   570   500   74,471 

 

(1) Matching contributions made under our 401(k) plan to our executive officers with a maximum of $500 per calendar year are included in all other compensation.

 

(2) Ms. Barnhill and Mr. Wirth were the account name holder for the Trust’s corporate purchase cards as described in the “Certain Transactions – Guarantees” section below. The corporate purchase cards provide American Express Membership Rewards to Ms. Barnhill and Mr. Wirth. The use of these corporate purchase cards was discontinued for the fiscal year ended January 31, 2019. For the fiscal yearsyear ended January 31, 2017 and 2016,2018 Ms. Barnhill received 696,811 and 324,463703,909 American Express Membership Rewards, respectively, with an estimated value of $6,968 and $3,245 respectively,$7,039 which amounts are included in all other compensation. ForNo amounts are included for the fiscal yearsyear ended January 31, 2017 and 2016, Mr. Wirth received 458,939 and 97,278 American Express Membership Rewards, respectively, with an estimated value of $4,589 and $9,728 respectively, which amounts are included in all other compensation.2019.

 

(3) In addition to the employer 401(k) match provided to all eligible Trust employees, Mr. Berg through his Berg Investment Advisors company was compensated $10,000$6,000 for additional consultative services rendered by Mr. Marc Berg, the Trust’s Executive Vice PresidentPresident. Mr. Berg and Mr. Miller receive a monthly travel expense reimbursement of which $7,000 was paid during fiscal year 2015$100. Mr. Remis, Mr. Moore and $3,000 was paid during fiscal year 2016.

(4) DuringMs. Barnhill received a monthly travel expense reimbursement of $100 for the months they were employed. For the fiscal year ending January 31, 2017,2019 Mr. Berg, Mr. Miller, Mr. Remis, Mr. Moore and Ms Barnhill received $1,200, $800, $500, $500, and $500, respectively. For the fiscal year ending January 31, 2018 Ms. Barnhill and Mr. Berg, received $1,200 in expense reimbursement and Mr. Remis received $9,500$500.

(4) For the fiscal year ending January 31, 2019 Mr. Berg received a discretionary bonus approved by the Compensation Committee for additional professional services rendered overteam of $30,000, related to his efforts resulting in the sale of the Yuma property, of which $21,000 was paid, and beyond his normal scope$9,000 was accrued during the fiscal year ended January 31, 2019. The balance of duties.$9,000 was will be paid during the fiscal year ending January 31, 2020.

 

(5) During fiscal year ending January 31, 2017,2018, Mr. Wirth, Mr. Berg, Ms. Barnhill, Mr. Berg and Mr. Remis received a discretionary bonusexecutive bonuses of $10,000, $2,500$2,875, $5,375 $2,875 and $5,000 respectively and issuance of 10,000, 2,500 and 5,000 shares of beneficial interest valued at $2.50 per share which was paid to each Executive prior to January 31, 2017. In addition, for the fiscal year ending January 31, 2017, Ms. Barnhill, Mr. Berg and Mr. Remis received a discretionary bonus of $3,000, $750 and $1,500 respectively and issuance of 5,000, 1,000 and 2,000 shares of beneficial interest valued at $2.16 per share which has been accrued and wasn’t paid as of January 31, 2017.$6,875, respectively.

 

(6) During fiscal year ending January 31, 2017 and 2016,2019 Mr. Wirth, Mr. Berg, Mr. Miller, Mr. Moore and Ms. Barnhill received Non-Equity Incentive Plan Compensation consisting of Fiscal 2019 – Performance Based Cash Bonuses of $2,780, $2,870, $1,150, $1,700 and $570, respectively. During fiscal year ending January 31, 2018 Mr. Wirth, Mr. Berg, Ms. Barnhill and Mr. Remis received Non-Equity Incentive Plan Compensation consisting of Fiscal 20172018 – Performance Based Cash Bonuses of $6,435 and $5,720, respectively.

$5,435 each.

During fiscal year 20172019 and 2016,2018, we did not grant any stock options or any other equity-based awards. None of our executive officers owned any stock options, or had any outstanding unvested Shares, as of January 31, 20172018 and 2016. A total of 1,434,500 stock options were granted during the first quarter of fiscal year 2016 subject to shareholder approval which has not occurred yet and may not occur depending upon Managements’ evaluation of the accounting and legal implications of the 2015 Plan.2019. Consistent with ASC 718-10-55-10, compensation cost associated with issuance of these options has not been recognized as shareholder approval is not perfunctory. For stock option grants during fiscal year 20162018 and additional information about our stock option plan, see Note 2624 to our Consolidated Financial Statements - “Stock Options.”

 

74

Additionally, refer Note 23 of our Consolidated Financial Statements - Share Based Payments, and the section on Fiscal Year 2019 Trustee Compensation, contained in Item11, for information on shares issued to our independent trustees from shareholder equity.

 

Indemnification Agreements

 

We have entered into indemnification agreements with all of our executive officers and Trustees. The agreements provide for indemnification against all liabilities and expenses reasonably incurred by an officer or Trustee in connection with the defense or disposition of any suit or other proceeding, in which he or she may be involved or with which he or she may be threatened, while in office or thereafter, because of his or her position at the Trust. There is no indemnification for any matter as to which an officer or Trustee is adjudicated to have acted in bad faith, with willful misconduct or reckless disregard of his or her duties, with gross negligence, or not in good faith in the reasonable belief that his or her action was in our best interests. We may advance payments in connection with indemnification under the agreements. The level of indemnification is to the full extent of the net equity based on appraised and/or market value of the Trust.

 

Potential Payments Upon Change in Control

 

We do not have employment agreements with our executive officers. UponHowever, our 2017 Equity Incentive Plan (the “2017 Plan”) provides that the Compensation Committee of the Board of Trustees, in its sole discretion, may take such actions, if any, as it deems necessary or desirable with respect to any award that is outstanding as of the date of the consummation of the change in control. Such actions may include, without limitation: (a) the acceleration of the vesting, settlement and/or exercisability of an award; (b) the payment of a cash amount in exchange for the cancellation of an award; (c) the cancellation of stock options and/or SARs without payment therefor if the fair market value of a share on the date of the change in control our 1997 Stock Incentivedoes not exceed the exercise price per share of the applicable award; and/or (d) the issuance of substitute awards that substantially preserve the value, rights and Optionbenefits of any affected awards.

For purposes of the 2017 Plan, subject to exceptions set forth in the 2017 Plan, a “change in control” generally includes (a) the acquisition of more than 50% of the Trust’s Shares; (b) the incumbent board of trustees ceasing to constitute a majority of the board of trustees; (c) a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Trust; and (d) approval by the shareholders of the Trust of a complete liquidation or dissolution of the Trust. The full definition of “change in control” is set forth in the 2017 Plan.

When an award is granted under the 2017 Plan, the Compensation Committee establishes the terms and conditions of that award, which are contained in an award agreement. The form of stock option award agreement under the 2017 Plan provides for the acceleration of vesting of restricted Shares. However,unvested stock options to immediately vest in full and become exercisable if a change in control had occurred on January 31, 2017, noneoccurs while the participant is employed by the Trust or a subsidiary. In addition, the form of our executive officers would have received any payment under the Plan uponrestricted share agreement for non-employee Trustee awards provides that unvested restricted shares held by a Trustee will immediately vest in full if, prior to a vesting date, a change in control because none hadof the Trust occurs while the participant is serving as a Trustee.

A participant’s award agreement under the 2017 Plan may also contain specific provisions governing the vesting or forfeiture of an award upon a termination of the participant’s service to the Trust or a subsidiary. The form of stock option award agreement generally provides that unvested stock options will become immediately vested in full if, prior to a vesting date, the participant ceases to be employed by the Trust and its subsidiaries by reason of death or disability. Unvested stock options will be forfeited automatically if the participant ceases to be employed by the Trust and its subsidiaries prior to an applicable vesting date. In addition, the form of stock option award agreement provides for the termination of stock options, to the extent not previously exercised or forfeited, on the earliest of the following dates: (i) one year after the termination of the participant’s employment by the Trust and its subsidiaries due to death or disability; (ii) three months after the termination of the participant’s employment with the Trust and its subsidiaries for any awards outstandingreason other than for death, disability or cause; (iii) immediately upon termination of employment, if the participant’s employment is terminated by the Company and its subsidiaries for cause; or (iv) midnight on the tenth anniversary of the date of grant. Unless otherwise provided in the applicable award agreement or in an another written agreement with the participant, “cause”, as a reason for termination of a participant’s employment generally includes (a) the participant’s willful refusal to follow lawful directives of the Trust which are consistent with the scope and nature of the participant’s duties and responsibilities; (b) conviction of, or plea of guilty or nolo contendere to, a felony or any crime involving moral turpitude, fraud or embezzlement; (c) gross negligence or willful misconduct resulting in a material loss to the Trust or any of its subsidiaries or material damage to the reputation of the Trust or any of its subsidiaries; (d) material breach of any one or more of the covenants contained in any proprietary interest protection, confidentiality, non-competition or non-solicitation agreement between the participant and the Trust or a subsidiary; or (e) violation of any statutory or common law duty of loyalty to the Trust or any of its subsidiaries.

The form of restricted share agreement for non-employee Trustees generally provides that unvested restricted shares will become immediately vested in full if, prior to a vesting date, the participant dies or a change in control occurs while the participant is serving as a Trustee. Any unvested restricted shares will be forfeited automatically if the participant ceases to serve as a Trustee prior to an applicable vesting date.

 

Fiscal Year 20172019 Trustee Compensation

We compensate our non-employee Trustees for their services through grants of restricted Shares. The aggregate grant date fair value of these Shares is shown in the table above. These restricted Shares vested in equal monthly amounts during our fiscal year 2019. As of January 31, 2019, Messrs. Kutasi, Chase and Robson did not hold any unvested Shares. As compensation for our fiscal year 2019, on February 01, 2019, we issued 6,000 additional restricted Shares (with the aggregate grant date fair value of $10,140 (per grant) to each of Messrs. Kutasi, Chase and Robson.

We do not pay our Trustees an annual cash retainer, per meeting fees or additional compensation for serving on a Committee or as a Committee Chair.

 

The table below shows individual compensation information for our non-employee Trustees for our fiscal year ended January 31, 2017.2019. Compensation information for Messrs. Wirth and Berg and Ms. Barnhill, who do not receive additional compensation for their service as Trustees, is included in the Summary Compensation Table above:

 

Name Fees Earned or Paid
in Cash ($)
 Stock Awards
($)(1)
 Total ($)  Fees Earned or Paid
in Cash ($)
 Stock Awards ($)(1) Total ($) 
Cynthia Ketcherside $0  $13,980  $13,980 
       
Leslie T. Kutasi $0  $13,980  $13,980  $     0  $

10,800

  $

10,800

 
Steven S. Robson $0  $13,980  $13,980  $0  $

10,800

  $

10,800

 
JR Chase $0  $13,980  $13,980  $0  $

10,800

  $

10,800

 

 

 

 (1)The dollar amounts shown in the Stock Awards column reflect the aggregate grant date fair value of restricted Shares computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718. For a discussion of assumptions we made in valuing restricted Shares, see Note 2, “Summary of Significant Accounting Policies – Stock-Based Compensation,” in the notes to our consolidated financial statements contained in our Annual Reports on Form 10-K for the fiscal years ended January 31, 20172019 and 2016.2018. The Stock Awards were based on a stock price of $2.33$1.80 which was the closing price of the Trust’s Shares of Beneficial Interest as of February 9, 2016 which was when theFebruaru 1, 2018. The Board of Trustees met on February 1, 2018 and approved the payment.

We compensate our non-employee Trustees for their services through grants of restricted Shares. The aggregate grant date fair value of these Shares is shown in the table above. These restricted Shares vested in equal monthly amounts during our fiscal year 2017. As of January 31, 2017, Messrs. Kutasi, Chase and Robson and Ms. Ketcherside did not hold any unvested Shares. As compensation for our fiscal year 2016, on February 5, 2015, we issued 6,000 additional restricted Shares (with the aggregate grant date fair value of $16,320 per grant) to each of Messrs. Kutasi and Robson and Ms. Ketcherside, and 3,000 additional restricted Shares (with the aggregate grant fair value of $8,040 per grant) to Mr. Pelegrin, which Shares will vest in equal monthly amounts during our fiscal year ending on January 31, 2016. During our compensation committee meeting on December 22, 2015, Mr. Pelegrin was awarded an additional 2,343 Shares and Mr. Chase was awarded 657 Shares for their service to the Board for the remaining part of fiscal year 2016.

We do not pay our Trustees an annual cash retainer, per meeting fees or additional compensation for serving on a Committee or as a Committee Chair.

Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

 

Ownership of Shares

 

The following table shows the persons who were known to us to be beneficial owners of more than five percent of our outstanding Shares of Beneficial Interest, together with the number of Shares of Beneficial Interest owned beneficially by each Trustee and executive officer, and the Trustees and executive officers as a group. The percentages in the table are based on 9,639,6019,360,292 Shares of Beneficial Interest issued and outstanding as of April 18, 2017.June 4, 2019. Unless otherwise specified, each person has sole voting and investment power of the Shares of Beneficial Interest that he or she beneficially owns.

 

Greater-than-Five-Percent Beneficial Owners and

Beneficial Ownership of Trustees, and Executive Officers

 

Trustees and

Executive Officers

 Shares
Beneficially Owned(1)
  Percentage of
Outstanding Shares
 
James F. Wirth(2)  6,715,567   69.7%
Pamela J. Barnhill(3)  276,534   2.9%
Marc E. Berg  63,505   * 
Cynthia Ketcherside  23,145   * 
Leslie T. Kutasi  30,000   * 
JR Chase  6,657   * 
Adam B. Remis  6,500   * 
Steven S. Robson  308,723   3%
Trustees and Executive Officers as a group (eight persons)  7,430,631   77%

Beneficial Ownership of Trustees, and Executive Officers

Trustees and

Executive Officers

 

Shares

Beneficially Owned (1)

  

Percentage of

Outstanding Shares

 
James F. Wirth (2)  5,876,683   61.27%
Pamela J. Barnhill (3)  29,098   * 
Marc E. Berg  42,750   * 
Craig S. Miller  -   * 
JR Chase  24,657   * 
Leslie T. Kutasi  42,000   * 
Steven S. Robson  127,200   1.33%
Trustees and Executive Officers as a group (eight persons)  6,142,388   64.04%

 

*Less than one percent (1.0%).
(1)Pursuant to the SEC’s rules, “beneficial ownership” includes Shares that may be acquired within 60 days following April 26, 2017.May 1, 2018. However, none of the individuals listed in the table had the right to acquire any Shares within the 60-day period.
(2)

All Shares are owned jointly by Mr. Wirth and his spouse and/or by Rare Earth Financial, LLC, except for 1,738,476for1,530,341 Shares that are voted separately by Mr. Wirth and 1,239,078 Shares that are voted separately by Mrs. Wirth. Mr. Wirth has pledged 1,466,153, and Mrs. Wirth has pledged 300,000 of these Shares as security.

Mr. Wirth, his spouse and children own directly and indirectly all 3,407,9382,974,038 issued and outstanding Class B limited partnership units in the Partnership, the conversion of which is restricted and permitted only at the discretion of our Board of Trustees. Mr. Wirth’s business address is 16251730 E. Northern Avenue, Suite 105,122, Phoenix, Arizona 85020.

(3)Includes 24,098 Shares held by minor children.

 

The following table provides information about our equity compensation plans (other than qualified employee benefits plans and plans available to shareholders on a pro rata basis) as of January 31, 2017:2018:

 

Equity Compensation Plan Information

 

Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)  Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)  

Number of Securities

Remaining

Available for Future

Issuance Under Equity

Compensation Plans

(Excluding Securities

Reflected in Column (a))

(c)

 
          
Equity compensation plans approved by security holders  0  $N/A     590,850 
             
Equity compensation plans not approved by security holders  None   None     None 

Plan Category Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
  Weighted
Average Exercise
Price of Outstanding
Options, Warrants
and Rights
  Number of
Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities Reflected
in Column
 
       
Equity compensation plans approved by security holders  0  $N/A   1,000,000 
             
Equity compensation plans not approved by security holders  None   None   None 

 

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE

 

Independence of Trustees

 

The Board of Trustees has determined that a majority of the Trustees, Messrs. Kutasi, Chase and Robson and Ms. Ketcherside are “independent,” as defined by the NYSE MKT’sAMERICAN’s listing standards, for purposes of serving on the Board of Trustees and each committee of which they are members. Messrs. Berg and Wirth and Ms. Barnhill are executive officers of the Trust and, therefore, are not “independent.” All members of the Audit Committee, the Compensation Committee and the Governance and Nominating Committee are “independent,” as such term is defined by the SEC rules and NYSE MKT’sAMERICAN’s listing standards. Our independent Trustees meet at least annually in executive session without the presence of non-independent Trustees and management. Except as described under “Certain Transactions” below, there were no transactions, relationships or arrangements in fiscal year 20172018 that required review by the Board for purposes of determining Trustee independence.

 

Certain Transactions

 

Management and Licensing Agreements

 

The Trust directly manages the Hotels through the Trust’s wholly-owned subsidiary, InnSuites Hotels. Under the management agreements, InnSuites Hotels manages the daily operations of the Hotels and the three hotelsone hotel owned by affiliates of Mr. Wirth. All Trust managed Hotel expenses, revenues and reimbursements among the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation. The management fees for the Hotels and the three hotelsone hotel owned by Mr. Wirth are 3%5% of room revenue and a monthly accounting fee of $2,000 per hotel. On May 1, 2016, the management fees increased to 5% of room revenues. These agreements have no expiration date and may be cancelled by either party with 90-days written notice in the event the property changes ownership. In fiscal years 20172019 and 2016,2018, InnSuites Hotels received aggregate fees of $228,177approximately $178,000 and $221,865,$166,000, respectively, for management of the three hotelsone hotel owned by affiliates of Mr. Wirth. The Trust charges management fees to related parties.

 

The Trust also provides the use of the “InnSuites” trademark to the Hotels and the additional hotel owned by affiliates of Mr. Wirth through the Trust’s wholly-owned subsidiary, InnSuites Hotels, at no additional charge.

 

Restructuring Agreements

 

For information about the restructuring agreements forAlbuquerque Suite Hospitality, Tucson Hospitality Properties Ontario Hospitality Properties,and Yuma Hospitality Properties, and Tucson Saint Mary’s Suite Hospitality,see Notes 3, 4, 5, 6, 7 and 284 of our Consolidated Financial Statements.

Financing Arrangements and Guarantees

On January 1, 2012, Tucson Hospitality Properties LLLP, a subsidiary of the Trust, entered into a $1,000,000 Demand/Revolving Line of Credit/Promissory Note or Note Receivable with Rare Earth, depending on whether amounts are due to or due from Rare Earth. The Demand/Revolving Line of Credit/Promissory Note or Note Receivable bore interest at 7.0% per annum, was interest only quarterly and was amended on July 1, 2014 to extend the maturity date to March 31, 2015, and increased the maximum borrowing capacity from $1,000,000 to $1,400,000. The Demand/Revolving Line of Credit/Promissory Note or Note Receivable was further amended on October 27, 2014 to increase the maximum borrowing capacity from $1,400,000 to $2,000,000. As of January 31, 2016, the Demand/Revolving Line of Credit/Promissory Note or Note Receivable has been paid in full and was closed. No prepayment penalty existed on the Demand/Revolving Line of Credit/Promissory Note or Note Receivable.

 

On December 1, 2014, the Trust entered into a $1,000,000 net maximum Demand/Revolving Line of Credit/Promissory Note with Rare Earth.Earth Financial. The Demand/Revolving Line of Credit/Promissory Note bears interest at 7.0% per annum, is interest only quarterly and matures on December 31, 2017.June30, 2019. No prepayment penalty exists on the Demand/Revolving Line of Credit/Promissory Note. The balance fluctuates significantly through the period with the highest payable balance being $714,270$630,000 during the fiscal year ended January 31, 2016.2018. The Demand/Revolving Line of Credit/Promissory Note has a net maximum borrowing capacity of $1,000,000. Related party interest expense or income for the Demand/Revolving Line of Credit/Promissory Note for the fiscal yearsyear ended January 31, 20172019 was $28,911$0 of expense and approximately $102,000 of revenue, and for the fiscal year ended January 31, 20162018 was $7,618$4,768 of expense and $5,761$16,353 of income.revenue.

The above Demand/Revolving Line of Credit/Promissory Notes are presented together as one line item on the balance sheet and totaled a payablereceivable of $145,000$632,027 and $810,799, at January 31, 20172019 and a receivable of $5,761 at January 31, 2016,2018, respectively, all of which is considered a current liability and receivable.

On May 21, 2014, Tucson Hospitality Properties LLLP, a subsidiary of the Trust, entered into a $447,100 business loan, including $25,307 of loan fees, with American Express Bank, FSB (the “Tucson Oracle Merchant Agreement”) with a maturity date of May 21, 2015. The Tucson Oracle Merchant Agreement included a loan fee of 6% of the original principal balance of the loan with acceleration provisions upon default. The business loan was secured and paid back with 15% of the Tucson Oracle American Express, VISA and MasterCard merchant receipts received during the loan period. As of January 31, 2016, the business loan balance has been paid in full.

On July 24, 2014, Tucson Saint Mary’s Suite Hospitality LLC, a subsidiary of the Trust, entered into a $451,560 business loan, including $25,560 of loan fees, with American Express Bank, FSB (the “St. Mary’s Merchant Agreement”) with a maturity date of July 24, 2015. The St. Mary’s Merchant Agreement included a loan fee of 6% of the original principal balance of the loan with acceleration provisions upon default. The business loan was secured and paid back with 17% of the St. Mary’s American Express, VISA, MasterCard and Discover merchant receipts received during the loan period. As of January 31, 2016, the business loan balance has been paid in full.

On August 19, 2014, Ontario Hospitality Properties, LP (“Ontario entity”), a subsidiary of the Trust, entered into a $477,000 business loan, including $27,000 of loan fees, with American Express Bank, FSB (the “Ontario Merchant Agreement”) with a maturity date of September 19, 2015. The Ontario Merchant Agreement included a loan fee of 6% of the original principal balance of the loan with acceleration provisions upon default. The business loan was secured and paid back with 27% of the Ontario American Express, VISA, MasterCard and Discover merchant receipts received during the loan period. As of January 31, 2016, the business loan has been paid in full.

On September 16, 2014, Yuma Hospitality Properties Limited Partnership, a subsidiary of the Trust, entered into a $415,520 business loan, including $23,250 of loan fees, with American Express Bank, FSB (the “Yuma Merchant Agreement”) with a maturity date of September 16, 2015. The Yuma Merchant Agreement included a loan fee of 6% of the original principal balance of the loan with acceleration provisions upon default. The business loan was secured and paid back with 22% of the Yuma American Express, VISA, MasterCard and Discover merchant receipts received during the loan period. As of January 31, 2016, the business loan balance has been paid in full.

On October 24, 2014, Albuquerque Suite Hospitality, LLC, a subsidiary of the Trust, entered into a $318,000 business loan, including $18,000 of loan fees, with American Express Bank, FSB (the “Albuquerque Merchant Agreement”) with an maturity date of October 24, 2015. This loan was paid off in full on November 20, 2015. The Albuquerque Merchant Agreement included a loan fee of 6% of the original principal balance of the loan with acceleration provisions upon default. The business loan was secured and paid back with 14% of the Albuquerque American Express, VISA, MasterCard and Discover merchant receipts received during the loan period. As of January 31, 2016, the business loan balance has been paid in full.

On July 7, 2015, the Trust’s revolving bank line of credit agreement, with a credit limit of $600,000, was changed to a four year non-revolving note payable. The non-revolving note payable has a variable interest rate of Wall Street Journal Prime Rate plus a margin of 1% with a floor rate of 5.5%, maturing on July 3, 2019 and monthly payments of $13,978.08. The line is secured by a junior security interest in the Yuma, Arizona property and the Trust’s trade receivables. As of January 31, 2017 and 2016, the non-revolving note payable balance was approximately $391,000 and $532,000, respectively.

On December 22, 2015, the Trust provided Advances to Affiliate – Related Party each in the amount of $500,000 to Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC. Mr. Wirth, individually and thru one of his affiliates owns approximately 32% and 42%, respectively, of Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC. Both notes have a due date of June 30, 2017 and accrue interest of 7.0%. During the fiscal year ended January 31, 2016, the Trust received $3,696 and $3,489 interest income from Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC, respectively. As of January 31, 2017, the Advances Lending to Affiliate – Related Party balance was $19,483 and $359,684 from Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort LLC, respectively. As of January 31, 2016, the Advances to Affiliate – Related Party receivable balance was $473,696 and $498,488 from Phoenix Northern Resort, LLC and Tempe/Phoenix Airport Resort, LLC, respectively.”

On January 8, 2016, in connection with the acquisition of substantially all of the assets of International Vacation Hotels (“IVH”), the Trust entered into a $400,000 business loan with Laurence Holdings Limited, an Ontario, Canada Corporation with a maturity date of February 1, 2019 pursuant to the terms of the Security Agreement and Promissory Note (“Agreement”). The Agreement requires the funds be used for the purchase of IVH assets. The agreement provides interest only payments for the first 3 months of the term and principal and interest payments for the remaining portion of the loan. The Agreement sets an interest rate of 8% per annum with no prepayment penalty. As of January 31, 2017 and 2016, the business loan balance was approximately $285,000, respectively.

On May 3, 2016, the Trust and Yuma Hospitality Properties Limited Partnership, a subsidiary of the Trust entered into a $350,000 one-year line of credit with RepublicBank AZ, N.A. (the ” LOC Agreement”). The LOC Agreement includes acceleration provisions upon default. The funds may be used for working capital and is guaranteed by James Wirth, the Trust’s Chairman and CEO, Gail Wirth, the Trust’s Chairman and CEO’s spouse and the Wirth Family Trust Dated July 14, 2006. As of January 31, 2017, the balance was approximately $350,000.

 

On June 20, 2016, the Trust and the Partnership together entered into aan unsecured loan of $80,000 with Guy C. Hayden III (“Hayden Loan”). The Hayden loan is due on June 20, 2019 or on demand, whichever occurs first. The Hayden loan accrues interest at 7% and interest only payments shall be made monthly and are due on the first of the following month. The Trust and Partnership may pay all of part of these notes without any repayment penalties.

On September 20, 2016, Albuquerque Suite Hospitality LLC, a subsidiaryMarch 1, 2017, the Trust and the Partnership together added an additional $36,960 to the Hayden Loan. On May 30, 2017, the Trust and the Partnership together added an additional $63,040 to the Hayden Loan. On July 18, 2017 the Trust and Partnership together added an additional $90,000 to the Hayden Loan. The total principal amount of the Trust entered into a $504,000 credit card advance financing business loan with American Express Bank, FSB (the ” AMEX Agreement”) with a maturity date of September 19, 2017. The AEMX Agreement includes acceleration provisions upon default and a loan fee/interest of 4% for a total repayment amount of $524,160. The funds may be used for working capital. AsHayden Loan is $270,000 as of January 31, 2017, the balance was approximately $285,000.

On October 17, 2016, Yuma Hospitality Properties Limited Partnership, a subsidiary of the Trust entered into a $500,000 credit card advance financing business loan with American Express Bank, FSB (the “Yuma AMEX Agreement”) with a maturity date of 365 days after the disbursement of the initial loan. The Yuma AMEX Agreement includes acceleration provisions upon default and a loan fee/interest of 4% for a total repayment amount of $520,000. The funds may be used for working capital. As of January 31, 2017, the balance was approximately $316,000.2019.

 

On December 5, 2016, the Trust and the Partnership together entered into eight unsecured loans for a total of $425,000 with varying principal amounts ranging from $25,000 to $100,000 with H. W. Hayes Trust (“Hayes Loans”). The Trust and the Partnership together also entered into two unsecured on-demand $25,000 loans for a total of $50,000 with Lita M. Sweitzer (“Sweitzer Loans”). On March 20, 2017, the Trust and Partnership added an additional $50,000 to the Sweitzer Loans. The total principal amount of the Hayes Loans and the Sweitzer Loans is $475,000.$525,000 as of January 31, 2019. The Hayes Loans and the Sweitzer Loans are due on June 20, 2019 or on demand, whichever occurs first. The Hayes Loans requires from a 0-120 day notification of the demand to repay the loans prior to June 20, 2019. Both the Hayes Loans and the Sweitzer Loans accrue interest at 7.0% per year on the unpaid balance and interest only payments shall be made monthly and are due on the first of the following month. The Trust and Partnership may pay all or part of these notes without any repayment penalties. As of January 31, 2017, the balance was approximately $555,000.

On December 19, 2016, Tucson Hospitality Properties LLLP, a subsidiary of the Trust entered into a $422,000 credit card advance financing business loan with American Express Bank, FSB (the “Tucson AMEX Agreement”) with a maturity date of 365 days after the disbursement of the initial loan. The Tucson AMEX Agreement includes acceleration provisions upon default and a loan fee/interest of 4% for a total repayment amount of $438,880. The funds may be used for working capital. As of January 31, 2017, the balance was approximately $393,000.

 

Other Related Party Transactions

 

As of January 31, 20172018 and 2016,2019, the Trust paid Berg Investment Advisors $0$6,000 and $3,000,$0, respectively, for additional consultative services including successfully negotiating refinances of our properties or sale of hotel properties which were rendered by Mr. Marc Berg, the Trust’s Executive Vice President.

 

Besides Pamela Barnhill, Vice Chairperson of the Board of Trustees and President and Chief Operating Officer of the Trust and daughter of Mr.James Wirth, the Trust’s Chairman and Chief Executive Officer, the Trust also employs twoone other immediate family membersmember of Mr. Wirth, who provideprovides technology and administrative support services to the Trust, with each receivingTrust. He received a $47,500 salary in fiscal 2018, and currently receives a yearly salary.salary of $36,000.

 

Compensation Information

 

For information regarding compensation of our executive officers, see Item 11 of this Form 10-K.

Review, Approval or Ratification of Transactions with Related Parties

 

On December 10, 2013, the Board of Trustees adopted a Related Party Transactions Policy, which established procedures for reviewing transactions between us and our Trustees and executive officers, their immediate family members, entities with which they have a position or relationship, and persons known to us to be the beneficial owner of more than 5% of our Shares of Beneficial Interest. These procedures help us evaluate whether any related person transaction could impair the independence of a Trustee or presents a conflict of interest on the part of a Trustee or executive officer. First, the related party transaction is presented to our executive management, including our Chief Financial Officer. Our Chief Financial Officer then discusses the transaction with our outside counsel, as needed. Lastly, the Audit Committee and the members of the Board of Trustees who do not have an interest in the transaction review the transaction and, if they approve, pass a resolution authorizing the transaction. In determining whether to approve a Related Party Transaction, the Audit Committee and the members of the Board of Trustees consider whether the terms of the related party transaction are fair to the Trust on the same basis as would apply if the transaction did not involve a related party; whether there are business reasons for the Trust to enter into the related party transaction; whether the related party transaction would impair the independence of the outside Trustee and whether the related party transaction would present an improper conflict of interest for any Trustee or executive officer of the Trust, taking into account the size of the transaction, the overall financial position of the trustee, executive officer or related party, the direct or indirect nature of the Trustee’s, executive officer’s or other related party interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Audit Committee and members of the Board of Trustees deem relevant. Our Related Party Transactions Policy is available in the Corporate Governance portion of our website at www.innsuitestrust.com.

 

Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

On August 31, 2015, the Trust notified Semple, Marchal & Cooper LLP (“Semple”) that the Trust had selected another independent public accounting firm effective immediately. The Audit Committee and the Board of Trustees were unanimous in their decision.

On August 31, 2015, the Trust appointed Hartley Moore CPA Accountancy Corporation (“Hartley Moore”) as the Trust’s new independent registered public accounting firm.

Effective February 16, 2016, the audit partners at Hartley Moore Accountancy Corporation joined Hall & Company, Inc. and Hartley Moore Accountancy Corporation resigned as the independent registered public accounting firm of the Trust, effective February 15, 2016. The Trust appointed Hall & Company, Inc. as our independent registered public accounting firm for the year ended January 31, 2016 and Hall & Company, Inc. has audited our consolidated financial statements for the years ended January 31, 2017 and 2016.

 

The following table presents aggregate fees for the fiscal years ended January 31, 2017,2019, and 2016,2018, for professional services rendered by Hall & Company, Inc. and Hartley Moore Accountancy Corporation:Inc:

 

 Hall & Hall & Hartley  
 Company Company Moore Semple 
 2017 2016 2016 2016  2019 2018 
Audit Fees (1) $77,122  $-  $33,080  $93,069  $88,500  $80,000 
Tax Fees (2)  -   -   -   - 
Tax Fees  -   - 
Other Fees  -   -   -��  -   -   - 
Total $77,122  $-  $33,080  $93,069  $88,500  $80,000 

 

 (1)“Audit Fees” represent fees for professional services provided in connection with the audit of our annual financial statements, review of financial statements included in our quarterly reports and related services normally provide in connection with statutory and regulatory filings and engagements.
(2)No tax fees were incurred by Hall & Company, Hartley Moore and Semple as the Trust self-prepares its own tax returns.

 

The Board of Trustees has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s independence. There were no fees billed by or paid to our independent registered public accounting firm during the fiscal years ended January 31, 20172019 and 20162018 for tax compliance, tax advice or tax planning services or for financial information systems design and implementation services. The Trust has decided to retain Hall & Company to perform the tax return preparation, for tax year 2019, for all entities within the Trust.

 

Policy on Pre-Approval of Audit and Permitted Non-Audit Services

 

The Audit Committee pre-approves all fees for services performed by our independent auditors, currently Hall & Company, Inc. Unless a type of service our independent auditors provided received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. Since May 6, 2003, the effective date of the SEC’s rules requiring Audit Committee pre-approval of audit and non-audit services performed by our independent auditors, all of the services provided by our independent auditors were approved in accordance with these policies and procedures.

PART IV

 

Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

 (a)(3)Exhibit List

 

See the Exhibit Index, which is incorporated herein by reference.

 

Item 16.FORM 10-K SUMMARY

 

None.

Financial Statements and Schedules

Financial Statements of InnSuites Hospitality Trust
Report of Independent Registered Public Accounting Firm23
Consolidated Balance Sheets – January 31, 2017 and 201624
Consolidated Statements of Operations – Years Ended January 31, 2017 and 201625
Consolidated Statements of Shareholders’ Equity – Years Ended January 31, 2017 and 201626
Consolidated Statements of Cash Flows – Years Ended January 31, 2017 and 201627
Notes to the Consolidated Financial Statements – Years Ended January 31, 2017 and 201628

Exhibit

Number

 Exhibit
2.1 Real Estate Purchase Agreement, effective July 1, 2015, by and between Tucson Saint Mary’s Suite Hospitality, LLC, as Seller, and Lee & J Hospitality, Inc., as Buyer (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 8, 2015).
   
2.2 Real Estate Purchase Agreement, dated November 3, 2015, by and between Ontario Hospitality Properties LLLP, as Seller, and Bong Choi and/or Assignee, as Buyer (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 13, 2015).
   
2.3 Asset Purchase Agreement, dated January 6, 2016, by and between Vacation Technologies International, Inc. d/b/a International Vacation Hotels, as Seller, and InnSuites Hospitality Trust and IBC Hotels, LLC, as Buyer (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 11, 2016).
   
3.1 Second Amended and Restated Declaration of Trust of InnSuites Hospitality Trust, dated June 16, 1998, as further amended on July 12, 1999 (incorporated by reference to Exhibit 3.1 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2005, filed with the Securities and Exchange Commission on May 16, 2005).
   
10.1 Second Amended and Restated Agreement of Limited Partnership of RRF Limited Partnership, dated March 24, 2014 (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 26, 2014).
   
10.2* Form of Indemnification Agreement between InnSuites Hospitality Trust and each Trustee and executive officer (incorporated by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended January 31, 2006, filed with the Securities and Exchange Commission on May 12, 2006).
   
10.3* InnSuites Hospitality Trust 1997 Stock Incentive and Option Plan (incorporated by reference to Exhibit 4(a) of the Registrant’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on September 18, 2000).

83

Exhibit NumberExhibit
   
10.4* Employment Offer Letter from InnSuites Hospitality Trust to Adam B. Remis, dated March 2, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 18, 2013).
   
10.5* InnSuites Hospitality Trust 20152017 Equity Incentive Plan adopted by the Board of Trustees on February 5, 2015, subject to shareholder approval (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2015)January 31, 2018).
   
10.6* Form of Nonqualified Stock Option Form Agreement by and betweenunder the InnSuites Hospitality Trust and Stock Option recipient2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.424.3 of the Registrant’s Annual ReportRegistration Statement on Form 10-K for the fiscal year ended January 31, 2015,S-8, filed with the Securities and Exchange Commission on April 30, 2015)January 31, 2018).
   
10.7* Nonqualified Stock OptionForm of Restricted Share Agreement dated as of February 5, 2015, by and betweenunder the InnSuites Hospitality Trust and Pamela Barnhill2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.394.4 of the Registrant’s Annual ReportRegistration Statement on Form 10-K for the fiscal year ended January 31, 2015,S-8, filed with the Securities and Exchange Commission on April 30, 2015)January 31, 2018).
   
10.8 Revolving Bank Line of Credit/Promissory Note, dated November 23, 2010, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2010, filed with the Securities and Exchange Commission on December 9, 2010).
Exhibit

Number

 Exhibit
10.9 Revolving Bank Line of Credit Business Loan Agreement, dated November 23, 2010, by and between InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2010, filed with the Securities and Exchange Commission on December 9, 2010).
   
10.10 Change in Terms Agreement, dated May 12, 2011, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and James F. Wirth, as Guarantor, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011, filed with the Securities and Exchange Commission on June 3, 2011).
   
10.11 Change in Terms Agreement, dated May 25, 2012, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and James F. Wirth, as Guarantor, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended January 31, 2012, filed with the Securities and Exchange Commission on May 30, 2012).

84

ExhibitNumberExhibit
   
10.12 Change in Terms Agreement, dated June 22, 2012, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and James F. Wirth, as Guarantor, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 25, 2012).
   
10.13 Addendum, dated August 27, 2012, to Business Loan Agreement, dated November 23, 2010, by and between InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2012, filed with the Securities and Exchange Commission on September 14, 2012).
   
10.14 Change in Terms Agreement, dated September 14, 2012, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and James F. Wirth, as Guarantor, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2012, filed with the Securities and Exchange Commission on December 17, 2012).
   
10.15 Change in Terms Agreement, dated June 11, 2013, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2013, filed with the Securities and Exchange Commission on September 11, 2013).
   
10.16 Change in Terms Agreement, dated June 23, 2014, executed by InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 26, 2014).
   
10.17 Change in Terms Agreement, dated June 15, 2015, by and between InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and RRF Limited Partnership, as Borrowers, and RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 19, 2015).
Exhibit

Number

 Exhibit
10.18 Change in Terms Agreement and Disbursement Request and Authorization, dated July 7, 2015, by and between InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership, and RRF Limited Partnership, as Borrowers, and RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 8, 2015).
   
10.19 Business Loan Agreement, dated August 24, 2012, by and between Yuma Hospitality Properties Limited Partnership, as Borrower, and 1st Bank Yuma, as Lender, guaranteed by InnSuites Hospitality Trust (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2012, filed with the Securities and Exchange Commission on December 17, 2012).

Exhibit NumberExhibit
   
10.20 Business Loan and Security Agreement, dated November 25, 2013, by and between Yuma Hospitality Properties Limited Partnership, as Borrower, and American Express Bank FSB, as Lender (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2013, filed with the Securities and Exchange Commission on December 6, 2013).
10.21Promissory Note, dated as of August 24, 2012, issued by Yuma Hospitality Properties Limited Partnership, as Borrower, in favor of 1st Bank Yuma, as Lender (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2012, filed with the Securities and Exchange Commission on December 17, 2012).
   
10.2210.21 Business Loan and Security Agreement, dated September 24, 2013, by and between Ontario Hospitality Properties, LLLP, as Borrower, and American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2013, filed with the Securities and Exchange Commission on December 6, 2013).
10.23Albuquerque Suite Hospitality LLC Restructuring Agreement, dated August 30, 2010, by and among RRF Limited Partnership, Rare Earth Financial, LLC, InnSuites Hospitality Trust, James F. Wirth, and Albuquerque Suite Hospitality LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2010, filed with the Securities and Exchange Commission on September 3, 2010).
   
10.2410.22 Addendum to Albuquerque Suite Hospitality LLC Amended Restructuring Agreement, dated December 9, 2013, by and among RRF Limited Partnership, Rare Earth Financial, LLC, InnSuites Hospitality Trust, James F. Wirth, and Albuquerque Suite Hospitality LLC (incorporated by reference to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2016, filed with the Securities and Exchange Commission on April 29, 2016).
   
10.2510.23 Tucson Hospitality Properties LP Restructuring Agreement, dated February 17, 2011, by and among Rare Earth Financial, LLC, RRF Limited Partnership, InnSuites Hospitality Trust, Tucson Hospitality Properties LP, and James F. Wirth (incorporated by reference to Exhibit 10.8 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011, filed with the Securities and Exchange Commission on April 29, 2011).
   
10.2610.24 Tucson Hospitality Properties LLLP Updated Restructuring Agreement, dated as of October 1, 2013, by and among Rare Earth Financial, LLC, RRF Limited Partnership, InnSuites Hospitality Trust, and Tucson Hospitality Properties LLLP (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2013, filed with Securities and Exchange Commission on December 6, 2013).
   
10.2710.25 Amended and Restated Limited Partnership Agreement of Ontario Hospitality Properties, LLLP, dated January 31, 2011, by and among RRF-LP LLC I, as Limited Partner, RRF, Limited Partnership and Rare Earth Financial, L.L.C.,LLC, as General Partners, and Ontario Hospitality Properties, LLLP, as the Partnership (incorporated by reference to Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2012, filed with the Securities and Exchange Commission on April 30, 2012).

Exhibit

Number

 Exhibit
10.26 
10.28Partnership Interests Purchase Agreement, dated as of January 31, 2014, by and between InnSuites Hospitality Trust, as Buyer, and Suite Hotels, LLC, as Seller (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 26, 2014).
10.29Business Loan and Security Agreement, dated May 21, 2014, executed by Tucson Hospitality Properties, LLLP, as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 30, 2014).
10.30Addendum #1, dated July 1, 2014, to the Demand/Revolving Line of Credit/Promissory Note, dated January 1, 2012, by and between Tucson Hospitality Properties, LLLP and Rare Earth Financial, LLC (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2014, filed with the Securities and Exchange Commission on September 9, 2014).
10.31Addendum #2, dated October 27, 2014, to the Demand/Revolving Line of Credit/Promissory Note, dated January 1, 2012, by and between Tucson Hospitality Properties, LLLP and Rare Earth Financial, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 30, 2014).
10.32Business Loan and Security Agreement, dated July 24, 2014, executed by Tucson Saint Mary’s Suite Hospitality L.L.C., as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 30, 2014).
10.33Business Loan and Security Agreement, dated August 19, 2014, executed by Ontario Hospitality Properties Limited Partnership, as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2014).
10.34Business Loan Agreement and Promissory Note, dated August 22, 2014, by and between Ontario Hospitality Properties, LLLP, as Borrower, and Arizona Bank & Trust, as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2014).
   
10.3510.27 Business Loan and Security Agreement, dated September 16, 2014, executed by Yuma Hospitality Properties Limited Partnership, as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 22, 2014).
10.36Agreement for Purchase and Sale and Escrow Instructions, dated October 15, 2014, by and between Tucson Hospitality Properties, LLLP and Joseph R. Cesare and Hugh M. Caldwell, Jr., acting in his capacity as Trustee of Trust B under the Hugh M. and SallyAnn Caldwell Trust (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 21, 2014).
   
10.3710.28 Business Loan and Security Agreement, dated October 24, 2014, executed by Albuquerque Suite Hospitality L.L.C., as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 30, 2014).

87

Exhibit NumberExhibit
10.38Deed of Trust, dated November 18, 2014, by and among Tucson Hospitality Properties, LLLP, as Trustor, and Kansas State Bank of Manhattan, as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 26, 2014).
   
10.3910.29 Promissory Note, dated November 18, 2014, executed by Tucson Hospitality Properties, LLLP, as Borrower, in favor of Kansas State Bank of Manhattan, as Lender (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 26, 2014).
   
10.4010.30 Yuma Hospitality Properties LLLP Restructuring Agreement, dated October 24, 2014, by and among Rare Earth Financial, LLC, InnSuites Hospitality Trust, Yuma Hospitality Properties Limited Partnership and James F. Wirth (incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014, filed with the Securities and Exchange Commission on December 10, 2014).
   
10.4110.31 Promissory Demand Note, dated December 29, 2014, executed by InnSuites Hospitality Trust and RRF Limited Partnership, as Borrowers, in favor of Guy C. Hayden, III, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 5, 2015).
10.42Change in Terms Agreement and Acknowledgement byGuarantor, dated February 26, 2015, by and between Tucson Saint Mary’s Suite Hospitality L.L.C. and Hanmi Bank (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 3, 2015).
   
10.4310.32 Change in Terms Agreement and Acknowledgement by Guarantor, dated May 28, 2015, by and between Tucson Saint Mary’s Suite Hospitality, L.L.C. and Hanmi Bank (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 3, 2015).
10.44Change in Terms Agreement and Acknowledgement by Guarantor, dated August 11, 2015, by and between Tucson Saint Mary’s Suite Hospitality, L.L.C. and Hanmi Bank (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2015).
10.45Demand/Revolving Line of Credit/Promissory Note, dated December 1, 2014, executed by InnSuites Hospitality Trust and its affiliates, as Borrowers, in favor of Rare Earth Financial, LLC and its affiliates, as Lenders (incorporated by reference to Exhibit 10.41 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, filed with the Securities and Exchange Commission on April 30, 2015).
   
10.4610.33 Amended Tucson Saint Mary’s Hospitality LLC Restructuring Agreement, dated April 24, 2015 and amended May 30, 2015, by and among InnSuites Hospitality Trust, RRF Limited Partnership, Rare Earth Financial, LLC and Tucson Saint Mary’s Suite Hospitality LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 3, 2015).

Exhibit NumberExhibit
   
10.4710.34 Termination Agreement, dated April 24, 2015, by and between InnSuites Hospitality Trust and Suite Hotels, LLC (incorporated by reference to Exhibit 10.44 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, filed with the Securities and Exchange Commission on April 30, 2015).
10.48Securities Purchase Agreement, dated October 7, 2015, by and between InnSuites Hospitality Trust and the purchasers identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 27, 2015).
   
10.4910.35 Securities Purchase Agreement, dated November 30, 2015, by and between InnSuites Hospitality Trust and Rare Earth Financial, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 3, 2015).
Exhibit

Number

 Exhibit
10.5010.36 Securities Purchase Agreement, dated December 22, 2015, by and between InnSuites Hospitality Trust and Charles Strickland (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2015).
   
10.5110.37 Securities Purchase Agreement, dated December 22, 2015, by and between InnSuites Hospitality Trust and Rare Earth Financial, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2015).
   
10.5210.38 Line of Credit/Promissory Note, dated December 22, 2015, by and between InnSuites Hospitality Trust, as Lender, and Tempe/Phoenix Airport Resort, LLC, as Borrower, and Line of Credit/Promissory Note, dated December 22, 2015, by and between InnSuites Hospitality Trust, as Lender, and Phoenix Northern Resort LLC, as Borrower (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2015).
   
10.5310.39 Security Agreement and Promissory Note, dated January 8, 2016, executed by Pamela Barnhill, as Trustee of InnSuites Hospitality Trust, and IBC Hotels, LLC, as Borrowers, in favor of Laurence Holdings Limited, as Lender and Secured Party (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 11, 2016).
   
10.5410.40 Securities Purchase Agreement, dated January 28, 2016, by and between InnSuites Hospitality Trust and Guy Hayden, III and Rare Earth Financial, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 2, 2016).
10.55Termination of Real Estate Purchase Agreement, dated November 3, 2015, executed by Bong Choi and/or Assignee, as Buyer, and Ontario Hospitality Properties LLLP, as Seller (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 25, 2016).

89

Exhibit NumberExhibit
   
10.5610.41 Business Loan and Promissory Note, dated May 3, 2016, executed by InnSuites Hospitality Trust and Yuma Hospitality Properties Limited Partnership, as Borrower, in favor of RepublicBankAz, N.A., as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 4, 2016).
   
10.5710.42 Business Loan and Security Agreement, dated September 20, 2016, executed by Albuquerque Suite Hospitality L.L.C., as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 23, 2016).
   
10.5810.43 Business Loan and Security Agreement, dated October 17, 2016, executed by Yuma Hospitality Properties Limited Partnership, as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 18, 2016).
   
10.5910.44 Eight Promissory Demand Notes, dated December 5, 2016, executed by InnSuites Hospitality Trust and RRF Limited Partnership, as Borrower, in favor of H. W. Hayes Trust, as Lender, and two Promissory Demand Notes, dated December 5, 2016, executed by InnSuites Hospitality Trust and RRF Limited Partnership, as Borrower, in favor of Lita M. Sweitzer, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 8, 2016).
   
10.6010.45 Business Loan and Security Agreement, dated December 19, 2016, executed by Tucson Hospitality Properties, LLLP, as Borrower, in favor of American Express Bank, FSB, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 21, 2016).
Exhibit

Number

 Exhibit
10.6110.46 IBC Bonus Agreement, dated February 15, 2017, by and between InnSuites Hospitality Trust, Pamela Barnhill, Adam Remis and Marc Berg (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 21, 2017).
   
10.6210.47 Amended Yuma Hospitality Properties LLLP Restructuring Agreement, dated February 15, 2017, by and among Rare Earth Financial LLC, InnSuites Hospitality Trust and Yuma Hospitality Properties Limited Partnership (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017).
10.48Securities Purchase Agreement, dated February 28, 2017, by and between InnSuites Hospitality Trust and Charles Strickland and Rare Earth Financial, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 6, 2017).
   
16.110.49 Letter from Semple, Marchal & Cooper, LLP,Securities Purchase Agreement, dated August 31, 2015, regarding a change in certifying accountantMay 4, 2017, by and among InnSuites Hospitality Trust, Rare Earth Financial, LLC and Charles E. Strickland (incorporated by reference to Exhibit 16.110.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2017).
10.50Purchase and Sale Agreement, effective May 9, 2017, by and between Minkum Investment Group, LLC or Assignee, as Seller, and Ontario Hospitality Properties, LLLP, as Buyer (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2017).
10.51Change in Terms Agreement, dated May 11, 2017, executive by Ontario Hospitality Properties, LLLP as Borrower, in favor of Arizona Bank & Trust, as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-k filed with the Securities and Exchange Commission on May 15, 2017).
10.52Promissory Note, dated May 9, 2017, executed by Yuma Hospitality Properties, LLLP as Borrower, in favor of 1st Bank of Yuma, as Lender (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 11, 2017).
10.53Albuquerque Suite Hospitality Restructuring Agreement – Second Addendum, dated June 19, 2017, executed by InnSuites Hospitality Trust, as Majority Owner, and Rare Earth Financial, LLC, Administrative Member (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on June 22, 2017).
10.54Line of Credit / Promissory Note Change in Terms Agreement, dated June 19, 2017, executed by Tempe/Phoenix Airport Resort, LLC, as Borrower, in favor of InnSuites Hospitality Trust, as Lender (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on June 22, 2017).
10.55Demand / Revolving Line of Credit / Promissory Note Change in Terms Agreement, dated June 19, 2017, executed by Rare Earth Financial, LLC. as Borrower, in favor of InnSuites Hospitality Trust, as Lender (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on June 22, 2017).
10.56Line of Credit / Promissory Note Change in Terms Agreement, dated June 19, 2017, executed by Phoenix Northern Resort, LLC, as Borrower, in favor of InnSuites Hospitality Trust, as Lender (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on June 22, 2017).
10.57Business Loan Agreement, dated June 29, 2017, executed by Tucson Hospitality Properties, LLLP, as Borrower, in favor of KS State Bank, as Lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2017).
Exhibit

Number

Exhibit
10.58Securities Purchase Agreement, dated July 10, 2017, by and between InnSuites Hospitality Trust and three individuals and Assignment of Partnership Interest Agreements, dated July 10, 2017, by and between RRF Limited Partnership and five individuals (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 10-K filed with the Securities and Exchange Commission on July 13, 2017).
10.59Three Promissory Note Agreements, dated July 10, 2017, by and between InnSuites Hospitality Trust and three individuals and Five Promissory Note Agreements, dated July 10, 2017, by and between RRF Limited Partnership and five individuals (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 13, 2017).
10.60Revolving Line of Credit – Promissory Demand Note, dated July 18, 2017, by and between InnSuites Hospitality Trust and RRF Limited Partnership and Chinita Hayden, as Lender, and Promissory Demand Note – Amendment # 1, dated July 18, 2017, between RRF Limited Partnership and Guy Hayden, III, as Lender (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2017).
10.61Promissory Note, dated August 24, 2017, executed by InnSuites Hospitality Trust, as Borrower, in favor of RepublicBankAz, N.A., as Lender (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2015)5, 2017).
   
16.210.62 Letter from Hartley Moore Accountancy Corporation,Business Loan Agreement, dated February 15, 2016, regarding change in independent registered public accounting firmOctober 31, 2017, by and between Yuma Hospitality Properties LLLP, as the Borrower, and Republic Bank of Arizona, as the Lender (incorporated herein by reference to Exhibit 16.110.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 19, 2016)November 2, 2017).

Exhibit NumberExhibit
   
10.63Business Loan Agreement, dated October 31, 2017, by and between Tucson Hospitality Properties LLLP, as the Borrower, and Republic Bank of Arizona, as the Lender (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2017).
10.64Business Loan Agreement, dated October 31, 2017, by and between Albuquerque Suite Hospitality LLC, as the Borrower, and Republic Bank of Arizona, as the Lender (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2017).
10.65Purchase and Sale Agreement by and between 102037739 LTD and InnSuites Hotels, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 21, 2018).
10.66Purchase and Sale Agreement, effective July 31, 2018, executed by Palm Springs Inn, LLC or Assignee, as Buyer, and Yuma Hospitality Properties, LLLP as Seller (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2018).
Exhibit

Number

Exhibit
21 Subsidiaries of the Registrant.
23Consent of Hall & Company Certified Public Accountants & Consultants, Inc.
   
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Chief FinancialPrincipal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1** Certification of Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2** Certification of Chief FinancialPrincipal Accounting Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
   
101 XBRL Exhibits
   
101.INS XBRL Instance Document.
   
101.SCH XBRL Schema Document.
   
101.CAL XBRL Calculation Linkbase Document.
   
101.LAB XBRL Labels Linkbase Document.
   
101.PRE XBRL Presentation Linkbase Document.
   
101.DEF XBRL Definition Linkbase Document.

 

 

* Management contract or compensatory plan or arrangement.

** Furnished herewith (not filed)

*Management contract or compensatory plan or arrangement.
**Furnished herewith (not filed)

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, as amended, the Trust has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 INNSUITES HOSPITALITY TRUST
  
Dated: May 1, 2017June 19, 2019By:/s/ James F. Wirth
  

James F. Wirth, Chairman and

Chief Executive Officer

(Principal Executive Officer)

   
Dated: May 1, 2017June 19, 2019By:/s/ Adam B. RemisCraig Miller
  

Adam B. Remis,Craig Miller, Controller and Chief FinancialAccounting Officer

(Principal Financial and Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Trust and in the capacities and on the dates indicated.

 

Dated: May 1, 2017June 19, 2019By:/s/ James F. Wirth
  

James F. Wirth, Chairman and

Chief Executive Officer

(Principal Executive Officer)

   
Dated: May 1, 2017June 19, 2019By:/s/ Adam B. RemisCraig Miller
  

Adam B. Remis,Craig Miller, Controller and Chief FinancialAccounting Officer

(Principal Financial and Accounting Officer)

   
Dated: May 1, 2017June 19, 2019By:/s/ Marc E. Berg
  Marc E. Berg, Trustee
   
Dated: May 1, 2017June 19, 2019By:/s/ Steven S. Robson
  Steven S. Robson, Trustee
   
Dated: May 1, 2017June 19, 2019By:/s/ Les Kutasi
  Les Kutasi, Trustee
   
Dated: May 1, 2017June 19, 2019By:/s/ JR Chase
  JR Chase, Trustee
Dated: May 1, 2017By:/s/ Cynthia Ketcherside
Cynthia Ketcherside, Trustee
Dated: May 1, 2017By:/s/ Pamela Barnhill
Pamela Barnhill, Trustee