| Nature of Operations and Basis of Presentation | 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION As of April 30, 2018, InnSuites
Hospitality Trust (the “Trust”, “we”, “us” or “our”) is a publicly traded company
with hotels IHT owns, hotels IHT manages, software IHT develops, software IHT sells, and online loyalty reward-based consumer travel
services. The Trust and its shareholders owns interests directly in and through a partnership interest, three hotels with an aggregate
of 424 suites in Arizona and New Mexico (the “Hotels”) operated under the federally trademarked name “InnSuites
Hotels” or “InnSuites”. The Trust and its shareholders owns interests directly in IBC Hospitality Technologies
and IVHTravel.com. Hotel Operations: Full service hotels often
contain upscale full-service facilities with a large volume of full service accommodations, on-site full-service restaurant(s),
and a variety of on-site amenities such as swimming pools, a health club, children’s activities, ballrooms and on-site conference
facilities. Moderate or limited service hotels are small to medium-sized hotel establishments that offer a limited amount of on-site
amenities. Most moderate or limited service establishments may still offer full service accommodations but lack leisure amenities
such as an on-site restaurant or a swimming pool. We consider our Tucson, Arizona hotel and our hotel located in Albuquerque, New
Mexico to be moderate or limited service establishments. IHT’s owned properties are limited service hotels. IHT provides
management services on a wide variety of hotels. The Trust is the sole general
partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned a 74.90% and 74.80%
interest in the Partnership as of April 30, 2018 and January 31, 2018, respectively. The Trust’s weighted average ownership
for the periods ended April 30, 2018 and 2017 was 74.80% and 72.11%. As of April 30, 2018, the Partnership owned a 51.01% interest
in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 12.79% interest in a Yuma, Arizona hotel property,
and a direct 21.15% interest in an InnSuites ® Under certain management
agreements, InnSuites Hotels Inc., our subsidiary, manages the Hotels’ daily operations. The Trust also provides the use
of the “InnSuites” trademark to the Hotels through wholly-owned InnSuites Hotels. All such expenses and reimbursements
between the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation. IBC Hospitality Technologies: InnDependent Boutique Collection
(“IBC”, “IBC Hotels”, “IBC Hospitality” or “IBC Hospitality Technologies”), a wholly-owned
subsidiary of InnSuites Hospitality Trust, has a network of approximately 2,000 unrelated hospitality properties with proprietary
software exclusive marketing distribution and services as well as brand-like cost savings solutions to independent boutique hotels
and alternative lodging (serviced apartments, B&B’s, villas and multi-unit ownership/management of luxury private residences).
Additionally, IBC provides software and solutions to a variety of branded hotels looking to increase direct bookings and receive
full guest information IBC’s patent-pending loyalty program allows consumers to book highly discounted travel when logged
in and shopping for lodging on www.ivhtravel.com. Our technology division
is broken into two business lines, International Vacation Hotels Travel (“IVH”) and IBC Hospitality Technologies. Each
of these divisions customer base is very different, and the services provided to each customer base ranges dramatically. Intellectual Property In order to provide our
business to business solutions thru IBC and our business to consumer solutions thru IVH, we use software, business processes and
proprietary information to carry out our business. These assets including related intellectual property rights, copyrights and
website domains are significant assets of our business. InnSuites Hospitality Trust relies on the combination of patent, copyright,
trade secret and trademark laws, confidentiality procedures and contractual provisions to protect these assets and we license software
and other intellectual property both to and from third parties. Intellectual property assets are considered a valuable part of
our business and have become a value-add portion of the services we provide. We consider our intellectual property assets a valuable
asset to our business and we renew appropriate registrations and regularly monitor potential infringements of these assets. The Trust has received
a proposed purchase and sale agreement for IBC. The agreement was received the week of June 11, 2018 from the Obasa Group of Companies,
a Canadian entity. The agreement would provide an initial capital infusion, with the balance of the purchase price to be carried
by the seller (IHT), over a 60-month period with interest. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION These consolidated financial
statements have been prepared by management in accordance with accounting principles in accordance with GAAP, and include all assets,
liabilities, revenues and expenses of the Trust and its wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated. Certain items have been reclassified to conform to the current fiscal year presentation. The Trust exercises
unilateral control over the Partnership and the entities listed below. Therefore, the financial statements of the Partnership and
the entities listed below are consolidated with the Trust, and all significant intercompany transactions and balances have been
eliminated.
IHT OWNERSHIP %
ENTITY DIRECT INDIRECT (i)
Albuquerque Suite Hospitality, LLC (see Note 6) 20.58 % -
Tucson Hospitality Properties, LLLP - 51.01 %
Ontario Hospitality Properties, LLLP (sold in June, 2017) 99.60 % -
Yuma Hospitality Properties, LLLP (see Note 6) 12.79 % -
Tucson Saint Mary’s Hospitality LLC - 83.66 %
RRF Limited Partnership 74.90 % -
InnSuites Hotels Inc. 100.00 % -
IBC Hotels, LLC (including dba International Vacation Hotels) 99.90 % 0.10 %
(i) Indirect ownership is through the Partnership PARTNERSHIP AGREEMENT The Partnership Agreement
of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B. Class A and Class
B Partnership units are identical in all respects, except that each Class A Partnership unit is convertible into one newly-issued
Share of Beneficial Interest of the Trust at any time at the option of the particular limited partner. The Class B Partnership
units may only become convertible, each into one newly-issued Share of Beneficial Interest of the Trust, with the approval of the
Board of Trustees, in its sole discretion. On April 30, 2018 and January 31, 2018, 218,374 and 250,093 Class A Partnership units
were issued and outstanding, representing 1.72% and 1.95% of the total Partnership units, respectively. Additionally, as of April
30, 2018 and January 31, 2018, 2,974,038 Class B Partnership units were outstanding to James Wirth, the Trust’s Chairman
and Chief Executive Officer, and Mr. Wirth’s affiliates. If all of the Class A and B Partnership units were converted on
April 30, 2018 and January 31, 2018, the limited partners in the Partnership would receive 3,192,412 and 3,314,131 Shares of Beneficial
Interest of the Trust. As of April 30, 2018 and January 31, 2018, the Trust owns 9,527,448 general partner units in the Partnership,
representing 74.90% and 74.80% of the total Partnership units, respectively. LIQUIDITY Our principal source of
cash to meet our cash requirements, including distributions to our shareholders, is our share of the Partnership’s cash flow,
quarterly distributions from the Albuquerque, New Mexico and Yuma, Arizona properties and more recently, sales of non-controlling
interests in certain of our Hotels. The Partnership’s principal source of cash flow is quarterly distributions from the Tucson,
Arizona properties. Our liquidity, including our ability to make distributions to our shareholders, will depend upon our ability
and the Partnership’s ability to generate sufficient cash flow from hotel operations and to service our debt. As of April 30, 2018, the
Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount receivable of approximately $811,000.
The Demand/Revolving Line of Credit/Promissory Note accrues interest at 7.0% per annum and requires interest only payments. The
Demand/Revolving Line of Credit/Promissory Note has a maximum borrowing capacity to $1,000,000, which is available through December
31, 2018. As of June 15, 2018, the outstanding net balance receivable on the Demand/Revolving Line of Credit/Promissory Note was
$811,000. As of January 31, 2018,
the Trust had an Advance to Affiliate credit facilities with an aggregate maximum borrowing capacity of $1,000,000, which is available
through June 30, 2018. As of April 30, 2018, the Trust had an amount receivable of the Advances to Affiliate credit facility of
approximately $840,000. As of June 15, 2018, the amount receivable from the Advance to Affiliate credit facility was approximately
$840,000. With approximately $5,557,000
of cash and short term investments, as of April 30, 2018, the availability of a $1,000,000 related party Demand/Revolving Line
of Credit/Promissory Note, and the availability of the combined $1,000,000 Advance to Affiliate credit facilities, we believe that
we will have enough cash on hand to meet all of our financial obligations as they become due for at least the next year. In addition,
our management is analyzing other strategic options available to us, including the refinancing of another property or raising additional
funds through additional non-controlling interest sales; however, such transactions may not be available on terms that are favorable
to us, or at all There can be no assurance
that we will be successful in obtaining extensions, refinancing debt or raising additional or replacement funds, or that these
funds may be available on terms that are favorable to us. If we are unable to raise additional or replacement funds, we may be
required to sell certain of our assets to meet our liquidity needs, which may not be on terms that are favorable. BASIS OF PRESENTATION The condensed consolidated
balance sheet as of January 31, 2018, which has been derived from audited consolidated financial statements, and these unaudited
condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). Certain information related to the Trust’s organization, significant accounting policies
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies followed in the preparation
of these unaudited condensed consolidated financial statements are consistent with those followed in the Trust’s annual consolidated
financial statements for the year ended January 31, 2018, as filed on Form 10-K. In the opinion of management, these unaudited
condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments,
necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations
and disclosures herein are adequate when read in conjunction with the Trust’s Form 10-K for the year ended January 31, 2018. As sole general partner
of the Partnership, the Trust exercises unilateral control over the Partnership, and the Trust owns all of the issued and outstanding
classes of shares of InnSuites Hotels Inc. Therefore, the financial statements of the Partnership and InnSuites Hotels Inc. are
consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated. Under Accounting Standards Codification (“ASC”)
Topic 810-10-25, Albuquerque Suite Hospitality, LLC and Yuma Hospitality Properties LLLP have been determined to be variable interest
entities with the Partnership as the primary beneficiary (see Note 7 – “Variable Interest Entity”). Therefore,
the financial statements of Albuquerque Suite Hospitality, LLC and Yuma Hospitality Properties, LLP are consolidated with the Partnership
and the Trust, and all significant intercompany transactions and balances have been eliminated. SEASONALITY OF THE HOTEL BUSINESS The Hotels’ operations
historically have been somewhat seasonal. The southern Arizona hotels experience their highest occupancy in the first fiscal quarter
and, to a lesser extent, the fourth fiscal quarter. The second fiscal quarter tends to be the lowest occupancy period at the southern
Arizona hotels. This seasonality pattern can be expected to cause fluctuations in the Trust’s quarterly revenues. The hotel
located in New Mexico historically experience their most profitable periods during the second and third fiscal quarters (the summer
season), providing some balance to the general seasonality of the Trust’s hotel business. The seasonal nature of
the Trust’s business increases its vulnerability to risks such as labor force shortages and cash flow issues. Further, if
an adverse event such as an actual or threatened terrorist attack, international conflict, data breach, regional economic downturn
or poor weather conditions should occur during the first or fourth fiscal quarters, the adverse impact to the Trust’s revenues
could likely be greater as a result of its southern Arizona seasonal business. RECENTLY ISSUED ACCOUNTING GUIDANCE ● In March 2016,
the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting,” a new standard which simplifies the accounting for share-based payment transactions. This guidance requires
that excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the Consolidated Statements of
Operations rather than additional paid-in capital. Additionally, the excess tax benefits will be classified along with other income
tax cash flows as an operating activity, rather than a financing activity, on the Statement of Cash Flows. Further, the update
allows an entity to make a policy election to recognize forfeitures as they occur or estimate the number of awards expected to
be forfeited. It will be effective for us beginning in February 2018 and should be applied prospectively, with certain cumulative
effect adjustments. Early adoption is permitted. The Trust has adopted this guidance on its consolidated financial statements and
we believe no material impact exists at this time. ● In February 2016,
the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This new standard establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. The Trust is currently evaluating the impact of the adoption
of ASU 2016-02 on the Trust’s consolidated financial statements. ● In May 2014, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2014-09.
“Revenue from Contracts with Customers.” This new standard will replace the existing revenue recognition guidance in
GAAP. The core principle of the ASU is the recognition of revenue for the transfer of goods and services equal to the amount an
entity expects to receive for those goods and services. This ASU requires additional disclosures about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changes
in those estimates. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contacts with Customers: Deferral of the Effective
Date” that delayed the effective date of ASU 2014-09 by one year to February 1, 2018, as the Trust’s annual reporting
period is after December 15, 2017. The Trust has evaluated
the impact of the new standard on its financial results based on an inventory of the Trust’s current contacts with customers.
The Trust has obtained an understanding of the new standard and starting February 1, 2018, the Trust changed its accounting policy
to record prepaid reservations on a net basis. Upon adoption of the new standard, for the Trust there is no effect on retained
earnings. The Trust will continue
to evaluate the impact of ASU No. 2014-09 on our financial results with the adoption of the standard on February 1, 2018, including
its internal processes and control environment for new requirements under the new standard. The standard allows for both retrospective
and of adoption. The Trust has adopted the modified retrospective method. This ASU has become effective
for the Trust beginning interim period February 1, 2018. Based on our evaluation of the new revenue recognition standard the Trust
presents revenue on a net basis for the period ending April 30, 2018. |
