| Nature of Operations and Basis of Presentation | 1. NATURE OF OPERATIONS AND BASIS OF
PRESENTATION As of April 30,
2017, InnSuites Hospitality Trust (the “Trust”, “we” or “our”) owns interests directly in and
through a partnership interest, four hotels with an aggregate of 574 suites in Arizona, southern California and New Mexico (the
“Hotels”). The Hotels operate under the trade name “InnSuites Hotels.” Full service hotels
often contain upscale full-service facilities with a large volume of full service accommodations, on-site full service restaurant(s),
and a variety of on-site amenities such as swimming pools, a health club, children’s activities, ballrooms and on-site conference
facilities. Moderate or limited service hotels are small to medium-sized hotel establishments that offer a limited amount of on-site
amenities. Most moderate or limited service establishments may still offer full service accommodations but lack leisure amenities
such as an on-site restaurant or a swimming pool. We consider our Tucson, Arizona hotel and our hotel located in Albuquerque, New
Mexico to be moderate or limited service establishments. All of our other properties are full service hotels. The Trust is the
sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned a 72.11%
interest in the Partnership as of April 30, 2017 and January 31, 2017, respectively. The Trust’s weighted average ownership
for the three month period ended April 30, 2017 and 2016 was 72.11%. As of April 30, 2017, 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.
As of April 30, 2017, the Trust owns a direct 32.11% interest in a Yuma, Arizona hotel property (see Note 7), and a direct 50.91%
interest in an InnSuites® hotel located in Albuquerque, New Mexico. Under certain management
agreements, InnSuites Hotels Inc., our subsidiary, manages the Hotels’ daily operations. The Trust also provides the use
of the “InnSuites” trademark to the Hotels through wholly-owned InnSuites Hotels. All such expenses and reimbursements
between the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation. InnDependent Boutique
Collection (“IBC Hotels” or “IBC Developments”), a wholly owned subsidiary of InnSuites Hospitality Trust,
has a network of approximately 6,300 unrelated hotel properties, of which over 1,800 hotel properties are exclusive and provides
revenue generating services and cost savings solutions to independent boutique hotels. During the fiscal year ended January 31,
2014 IBC Hotels formed a marketing alliance 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. 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 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. 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 June 2, 2017, the Ontario Hospitality Properties LLLP was sold to an unrelated third party for $17,500,000 (see
Note 11). PARTNERSHIP AGREEMENT The Partnership
Agreement of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B. Class
A and Class B Partnership units are identical in all respects, except that each Class A Partnership unit is convertible into one
newly-issued Share of Beneficial Interest of the Trust at any time at the option of the particular limited partner. The Class B
Partnership units may only become convertible, each into one newly-issued Share of Beneficial Interest of the Trust, with the approval
of the Board of Trustees, in its sole discretion. On April 30, 2017 and January 31, 2017, 276,131 Class A Partnership units were
issued and outstanding, representing 2.09% of the total Partnership units, respectively. Additionally, as of both April 30, 2017
and January 31, 2017, 3,407,938 Class B Partnership units were outstanding to James Wirth, the Trust’s Chairman and Chief
Executive Officer, and Mr. Wirth’s affiliates. If all of the Class A and B Partnership units were converted on April 30,
2017, the limited partners in the Partnership would receive 3,684,069 Shares of Beneficial Interest of the Trust. As of April 30,
2017 and January 31, 2017, the Trust owns 9,527,448 general partner units in the Partnership, representing 72.11% of the total
Partnership units, respectively. LIQUIDITY Our principal source
of cash to meet our cash requirements, including distributions to our shareholders, is our share of the Partnership’s cash
flow, quarterly distributions from the Albuquerque, New Mexico and Yuma, Arizona properties and more recently, sales of non-controlling
interests in certain of our Hotels. The Partnership’s principal source of cash flow is quarterly distributions from the Tucson,
Arizona. Our Ontario, California property was sold on June 2, 2017 and will no longer provide quarterly distributions. However,
the Trust received net proceeds of approximately $9.6 million in the sale. Our liquidity, including our ability to make distributions
to our shareholders, will depend upon our ability and the Partnership’s ability to generate sufficient cash flow from hotel
operations and to service our debt. As of April 30,
2017 and January 31, 2017, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount payable
of $2,384 and $145,000, respectively. The Demand/Revolving Line of Credit/Promissory Note accrued 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. As of June 7, 2017, the outstanding net balance receivable on the Demand/Revolving
Line of Credit/Promissory Note was $547,616. As of April 30,
2017 and January 31, 2017, the Trust had two available Advances to Affiliate credit facilities each with a maximum borrowing capacity
of $500,000 for a total maximum borrowing capacity of $1,000,000, which is available through June 30, 2017. The Trust anticipates
these credit facilities to be extended and available well after June 30, 2017. As of April 30, 2017 and January 31, 2017, the Trust
had an amount payable of both credit facilities of approximately $101,000 and $379,000, respectively. With approximately
$468,000 of cash, as of April 30, 2017, the availability of approximately $4.9 million from the net proceeds after paying our debt
and our non-controlling investors from the sale of our Ontario, California property on June 2, 2017 (see Note 11 Subsequent Events),
the availability of a $998,000 related party Demand/Revolving Line of Credit/Promissory Note and the availability of the combined
$899,000 Advance to Affiliate credit facilities, we believe that we will have enough cash on hand to meet all of our financial
obligations as they become due for at least the next year. In addition, our management is analyzing other strategic options available
to us, including the refinancing of another property or raising additional funds through additional non-controlling interest sales;
however, such transactions may not be available on terms that are favorable to us, or at all. There can be no
assurance that we will be successful in obtaining extensions, refinancing debt or raising additional or replacement funds, or that
these funds may be available on terms that are favorable to us. If we are unable to raise additional or replacement funds, we may
be required to sell certain of our assets to meet our liquidity needs, which may not be on terms that are favorable. BASIS OF PRESENTATION The condensed consolidated
balance sheet as of January 31, 2017, which has been derived from audited consolidated financial statements, and these unaudited
condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). Certain information related to the Trust’s organization, significant accounting policies
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies followed in the preparation
of these unaudited condensed consolidated financial statements are consistent with those followed in the Trust’s annual consolidated
financial statements for the year ended January 31, 2017, as filed on Form 10-K. In the opinion of management, these unaudited
condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments,
necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations
and disclosures herein are adequate when read in conjunction with the Trust’s Form 10-K for the year ended January 31, 2017. As sole general
partner of the Partnership, the Trust exercises unilateral control over the Partnership, and the Trust owns all of the issued and
outstanding classes of shares of InnSuites Hotels Inc. Therefore, the financial statements of the Partnership and InnSuites Hotels
Inc. are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated. Under Accounting
Standards Codification (“ASC”) Topic 810-10-25, Albuquerque Suite Hospitality, LLC has been determined to be a variable
interest entity with the Partnership as the primary beneficiary (see Note 7 – “Variable Interest Entity”). Therefore,
the financial statements of Albuquerque Suite Hospitality, LLC are consolidated with the Partnership and the Trust, and all significant
intercompany transactions and balances have been eliminated. SEASONALITY OF THE HOTEL BUSINESS The Hotels’
operations historically have been somewhat seasonal. The 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 hotels 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 adopted this guidance on April 30, 2017, such adoption did not have a material impact
on its consolidated financial statements. 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 Trust for the fiscal
year ending January 31, 2018. The Trust 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 (Topic 842).”. This new standard establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. The Trust is currently evaluating the impact of the adoption
of ASU 2016-02 on the consolidated financial statements The FASB issued
the following accounting standard updates related to Topic 606, Revenue Contracts with Customers: ● In May 2014,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2014-09.
“Revenue from Contracts with Customers.” This new standard will replace the existing revenue recognition guidance in
U.S. GAAP. The core principle of the ASU is the recognition of revenue for the transfer of goods and services equal to the amount
an entity expects to receive for those goods and services. This ASU requires additional disclosures about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changes
in those estimates. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contacts with Customers: Deferral of the Effective
Date” that delayed the effective date of ASU 2014-09 by one year to January 1, 2018, as the Company’s annual reporting
period after December 15, 2017. The Trust has continued
to analyze the impact of the new standard on its financial results based on an inventory of the Trust’s current contacts
with customers. The Trust has obtained an understanding of the new standard currently believes that I will retain much of the same
accounting treatment as used to recognized revenue under current standards. Revenue on a significant portion of its contracts is
currently recognized under percentage of completion accounting, applying a cost-to-cost method. Under the new standard, the Trust
will continue to recognize revenue on these contracts using a cost-to-cost method based on the continuous transfer of control of
the customer over time. Transfer of control in the Trust’s contacts is demonstrated by creating a customized asset for customers,
in conjunction with contact terms which provide the right to receive payment for goods and services. In addition, the
standard may generally cause issuers to accelerate revenue recognition in contracts which were previously limited by software revenue
recognition rules. While the Trust may have contacts, which fall under these rules in the current standard, it has not historically
deferred significant amounts of revenue under these rules as many arrangements are single-element software arrangements or sales
if software with a tangible product which falls out of the scope of the current software rules. Based on the contracts currently
in place, the Trust does not anticipate a significant acceleration of revenue upon applying the new standard to its current contacts
under these fact patterns. The Trust continues
to evaluate the impact of ASU No. 2014-09 on our financial results and prepare for the adoption of the standard on February 1,
2018 including readying its internal processes and control environment for new requirements, particularly around enhanced disclosures,
under the new standard. The standard allows for both retrospective and modified retrospective methods of adoption. The Trust is
in the process of determining the method of adoption it will elect and the impact on our consolidated financial statements and
footnote disclosures, and will provide enhanced disclosures as we continue our assessment. ● 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 Pursuant to Staff Announcements at 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 adoption of Topic 606. ● ASU No.
2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements 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. ● ASU No.
2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (ASU 2016-17”)
in October 2016. ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the single decision maker of a
variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are
under common control with the reporting entity when determining whether it is the primary beneficiation of that VIE. The primary
beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the
VIE. ASU 2017-04 is effective for public companies that file with the SEC for annual or any interim beginning after December 15,
2017. The Trust has adopted this ASU for the fiscal year ending January 31, 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. ● ASU No.
2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU
2017-04”) in January 2017. ASU 2017-04 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. ASU 2017-04 allows companies
to measure goodwill impairment as the excess of the reporting unit’s carrying value over its fair value. ASU 2017-04 is effective
for public companies that file with the SEC for annual or any interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. The Trust is in the process of determining the impact on our consolidated financial statements and footnote
disclosures, and will provide enhanced disclosures as we continue our assessment. These ASUs will
become effective for the Trust beginning interim period February 1, 2018. The Trust is currently evaluating the impact of ASU
606, but at the current time does not know what impact the new standard will have 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. |
