NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF APRIL 30, 2023, AND JANUARY 31, 2023
AND
FOR THE THREE MONTHS ENDED APRIL 30, 2023 AND 2022
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As
of April 30, 2023, InnSuites Hospitality Trust (the “Trust”, “IHT”, “we”, “us” or “our”)
is a publicly traded unincorporated Ohio real estate investment trust (REIT) with two hotels that IHT has an ownership interest in and
manages. The Trust and its shareholders directly in and through a Partnership, own interests in two hotels with an aggregate of 270 hotel
suites in Arizona and New Mexico. Both are operated under the federally trademarked name “InnSuites”, as well as operating
under the brand name “Best Western”. The Trust and its shareholders hold a $1 million 6% convertible debenture in UniGen
Power Inc., (“UniGen”), approximately $603,750 in UniGen’s privately-held common stock (510,000 shares), and hold warrants
to make further UniGen Investments in the future.
Hotel
Operations:
Our
Tucson, Arizona Hotel and our Hotel located in Albuquerque, New Mexico are moderate service hotels. Both hotels offer swimming pools,
fitness centers, business centers, and complimentary breakfast. In addition the Hotels offer social areas and modest conference facilities.
The Tucson hotel has “PJ’s” Pub and Café, as well.
The
Trust is the sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned
a 75.98% interest in the Partnership as of April 30, 2023 and January 31, 2023, respectively. The Trust’s weighted average ownership
for the three months ended April 30, 2023 and 2022 was 75.98% and 75.89%, respectively. As of April 30, 2023, the Partnership owned a
51.01% interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 21% interest in an InnSuites® hotel
located in Albuquerque, New Mexico.
RRF
Limited Partnership, a subsidiary, manages the Hotels’ daily operations under 2 management agreements. The Trust also provides
the use of the “InnSuites” trademark to the Hotels. All expenses and reimbursements between the Trust, RRF and the Partnership
have been eliminated in consolidation.
The
Trust classified the Hotels as operating assets, but these assets are available for sale. At this time, the Trust is unable to predict
when, and if, either of these will be sold. Neither the Tucson Hotel nor the Albuquerque Hotel is currently listed but the Trust is willing
to consider offers for each Hotel. Each of the Hotels is being made available at a price that management believes is reasonable in relation
to its current fair market value, earnings, profits, and replacement cost.
PRINCIPLES
OF CONSOLIDATION AND BASIS OF PRESENTATION
These
unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles in conformity
with accounting principles generally accepted in the United States of America (“GAAP”), and include all assets, liabilities,
revenues and expenses of the Trust and its subsidiaries, as listed in the table below. All material intercompany transactions and balances
have been eliminated. Certain items have been reclassified to conform to the current fiscal year presentation. The Trust exercises unilateral
control over the Partnership and the entities listed below. Therefore, the unaudited condensed financial statements of the Partnership
and the entities listed below are consolidated with the Trust, and all intercompany transactions and balances have been eliminated.
SCHEDULE
OF ENTITY OWNERSHIP PERCENTAGE
| | |
IHT OWNERSHIP % | |
| ENTITY | |
DIRECT | | |
INDIRECT (i) | |
| Albuquerque Suite Hospitality, LLC | |
| 21.00 | % | |
| - | |
| Tucson Hospitality Properties, LLLP | |
| - | | |
| 51.01 | % |
| RRF Limited Partnership | |
| 75.98 | % | |
| - | |
| (i) |
Tucson Indirect ownership is through the Partnership |
PARTNERSHIP
AGREEMENT
The
Partnership Agreement of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B.
Class A and Class B Partnership units are identical in all respects. On April 30, 2023 and January 31, 2023, 200,003 Class A Partnership
units were issued and outstanding, representing 1.51% of the total Partnership units, respectively. Additionally, as of April 30, 2023
and January 31, 2023, 2,974,038 Class B Partnership units were outstanding to and owned by James Wirth, the Trust’s Chairman and
Chief Executive Officer, and Mr. Wirth’s affiliates, representing 22.51% ownership in the Partnership. If all the Class A and B
Partnership units were converted on April 30, 2023 and January 31, 2023, the limited partners in the Partnership would receive 3,174,041
Shares of Beneficial Interest of the Trust. As of April 30, 2023, and January 31, 2023, the Trust owns 10,037,476 general partner units
in the Partnership, representing 75.98% of the total Partnership units.
LIQUIDITY
The
Trust’s principal source of cash to meet its cash requirements is revenues from hotel room reservations and from RRF Management
fees from the Tucson, Arizona and Albuquerque, New Mexico properties. The Trust’s liquidity, including our ability to make distributions
to its shareholders, will depend upon the ability of the Trust and the Partnership’s ability to generate sufficient cash flow from
hotel operations and to service debt, as well as to generate funds from repayment of intercompany advances and sale of assets. Disruption
of travel beginning March 15, 2020, had previously deferred the quarterly distributions from both the Albuquerque and Tucson hotels.
These quarterly distributions from both the Albuquerque and Tucson hotels resumed February 15, 2022.
At
a future date, the Trust may receive cash from hotel and energy operations and/or full or partial sale of one or both hotels, and/or
full or partial sale of its UniGen diversification investment.
As
of April 30, 2023, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount payable of approximately
$0. The Demand/Revolving Line of Credit/Promissory Note accrues interest at 7.0% per annum and requires interest only payments. The Demand/Revolving
Line of Credit/Promissory Note has a maximum borrowing capacity to $2,000,000, which is available through December 31, 2022, and automatically
renews annually. This is a two-way Line of Credit, with both the Trust and an Affiliate lender having access to draw on the credit amount
of up to $2,000,000 for either party.
As
of April 30, 2023, the Trust had three Revolving lines of Credit totaling $250,000 with the Republic Bank of Arizona. The lines had a
zero balance as of April 30, 2023.
With
approximately $1,704,000 of cash, as of April 30, 2023, the availability of $2,250,000 from the combined $2,000,000 Advance to Affiliate
credit facilities, and the $250,000 Revolving Lines of Credit with Republic Bank, the Trust believes that it has and will have enough
cash on hand to meet all of the financial obligations as they become due for twelve months from the date of filing this 10-Q. In addition,
management is analyzing strategic options available to the Trust, including the sale of one or both Hotel properties, or a possible merger.
However, such transactions may not be available on terms that are favorable to the Trust, or at all.
There
can be no assurance that the Trust will be successful selling properties, merging, or raising additional or replacement funds, or that
these funds may be available on terms that are favorable to it. If the Trust is unable to raise additional or replacement funds, it may
be required to sell or refinance certain of our assets to meet liquidity needs, which may not be on terms that are favorable.
BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Trust in accordance with GAAP for interim
financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and
Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for
complete financial statement presentation. However, the Trust believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary
for a fair presentation have been included.
Operating
results for the three months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the year ending
January 31, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended January 31,
2023.
The
Trust has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission. Other
than those events disclosed indicating the recovery of economic and business activity, the Company is not aware of any other significant
events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on
the Trust’s financial statements.
As
the general partner of the Partnership, the Trust exercises unilateral control over the Partnership. Therefore, the financial statements
of the Partnership are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated.
Under
Accounting Standards Codification (“ASC”) Topic 810-10-25, Albuquerque Suite Hospitality, LLC has been determined to be a
variable interest entity with the Partnership as the primary beneficiary (see Note 4 – “Variable Interest Entity”).
Therefore, the financial statements of Albuquerque Suite Hospitality, LLC, are consolidated with the Trust, and all significant intercompany
transactions and balances have been eliminated.
The
financial statements of the Partnership and Tucson Hospitality Properties, LLLP are consolidated with the Partnership and the Trust,
and all significant intercompany transactions and balances have been eliminated.
SEASONALITY
OF THE HOTEL BUSINESS
The
Hotels’ operations historically have been somewhat seasonal. The Tucson Arizona Hotel historically experiences the highest occupancy
in the first Fiscal Quarter (the winter high season) and, to a lesser extent, the fourth Fiscal Quarter. The second Fiscal Quarter (summer
low season) historically tends to be the lowest occupancy period at this Arizona Hotel. This seasonality pattern can be expected to cause
fluctuations in the Trust’s quarterly revenues. The Hotel located in Albuquerque, New Mexico historically experiences its most
profitable periods during the second and third Fiscal Quarters (the summer high season), providing some balance to the general seasonality
of the Trust’s hotel business.
The
seasonal nature of the Trust’s business increases its vulnerability to risks such as travel disruptions, labor force shortages
and cash flow issues. Further, if an adverse event such as an actual or threatened virus pandemic, terrorist attack, international conflict,
data breach, regional economic downturn or poor weather should occur at either of its two hotels, the adverse impact to the Trust’s
revenues and profit could be significant.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE
OF ESTIMATES
The
preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the
date of the audited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The
Trust’s operations are affected by numerous factors, including the economy, inflation, virus/pandemic, competition in the hotel
industry and the effect of the economy on the travel and hospitality industries. The Trust cannot predict if any of the above items will
have a significant impact in the future, nor can it predict what impact, if any, the occurrence of these or other events might have on
the Trust’s operations and cash flows. Significant estimates and assumptions made by management include, but are not limited to,
the estimated useful lives of long-lived assets and recoverability of long-lived assets and the fair values of the long-lived assets.
PROPERTY
AND EQUIPMENT
Furniture,
fixtures, building and improvements and hotel properties are stated at cost, except for land, and depreciated using the straight-line
method over estimated lives ranging up to 40 years for buildings and improvements, and 3 to 10 years for furniture, fixtures and equipment.
Land
is an indefinite-lived asset. The Trust tests its land for impairment annually, or whenever events or changes in circumstances indicates
an impairment may have occurred, by comparing its carrying value to its implied fair value.
For
tax purposes the Trust takes advantage of accelerated depreciation methods (MACRS) for new capital additions and improvements to its
Hotels.
Management
applies guidance ASC 360-10-35, to determine when it is required to test an asset for recoverability of its carrying value and whether,
or not, an impairment exists. Under ASC 360-10-35, the Trust is required to test a long-lived asset for impairment when there is an indicator
of impairment. Impairment indicators may include, but are not limited to, a drop in the performance of a long-lived asset, a decline
in the hospitality industry or a decline in the economy. If an indicator of potential impairment is present, then an assessment is performed
of whether the carrying amount of an asset exceeds its estimated undiscounted future cash flows over its estimated remaining life.
If
the estimated undiscounted future cash flows over the asset’s estimated remaining life are greater than the asset’s carrying
value, no impairment is recognized; however, if the carrying value of the asset exceeds the estimated undiscounted future cash flows,
then the Trust would recognize an impairment expense to the extent the asset’s carrying value exceeds its fair value, if any. The
estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ
from actual cash flows. Long-lived assets evaluated for impairment are analyzed on a property-specific basis independent of the cash
flows of other groups of assets. Evaluation of future cash flows is based on historical experience and other factors, including certain
economic conditions, and committed future bookings. Management has determined no impairment is required of long-lived assets for the
Fiscal Period ended April 30, 2023.
CASH
The
Trust believes it places its cash only with high credit quality financial institutions, although these balances periodically exceed federally
insured limits.
REVENUE
RECOGNITION
Hotel
and Operations
Revenues
are primarily derived from the sources below and are recognized as services are rendered and when collectability is reasonably assured.
Amounts received in advance of revenue recognition are considered deferred liabilities and are generally not significant.
Revenues
primarily consist of room rentals, food and beverage sales, management and trademark fees and other miscellaneous revenues from our properties.
Revenues are recorded when rooms are occupied and when food and beverage sales are delivered. Management and trademark fees include a
monthly accounting fee and a percentage of hotel room revenues for managing the daily operations of the Hotels.
Each
room night consumed by a guest with a cancelable reservation represents a contract whereby the Trust has a performance obligation to
provide the room night at an agreed upon price. For cancelable reservations, the Trust recognizes revenue as each performance obligation
(i.e., each room night) is met. Such contract is renewed if the guest continues their stay. For room nights consumed by a guest with
a non-cancelable reservation, the entire reservation period represents the contract term whereby the Trust has a performance obligation
to provide the room night or nights at an agreed upon price. For non-cancelable reservations, the Trust recognizes revenue over the term
of the performance period (i.e., the reservation period) as room nights are consumed. For these reservations, the room rate is typically
fixed over the reservation period. The Trust uses an output method based on performance completed to date (i.e., room nights consumed)
to determine the amount of revenue it recognizes on a daily basis if the length of a non-cancelable reservation exceeds one night since
consumption of room nights indicates when services are transferred to the guest. In certain instances, variable consideration may exist
with respect to the transaction price, such as discounts, coupons and price concessions made upon guest checkout.
In
evaluating its performance obligation, the Trust bundles the obligation to provide the guest the room itself with other obligations (such
as free Wi-Fi, complimentary breakfast, and high speed internet), as the other obligations are not distinct and separable because the
guest cannot benefit from the additional amenities without the consumed room night. The Trust’s obligation to provide the additional
items or services is not separately identifiable from the fundamental contractual obligation (i.e., providing the room and its contents).
The Trust has no performance obligations once a guest’s stay is complete.
We
are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable
governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and
fees and, therefore, they are not included in revenues. We record a liability when the amounts are collected and relieve the liability
when payments are made to the applicable taxing authority or other appropriate governmental agency.
ACCOUNTS
RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts
receivable are derived from guest stays and other reservations at the Hotels. Accounts receivable are carried at original amounts billed
less an estimate made for doubtful accounts based on a review of outstanding amounts on a quarterly basis. Management generally records
an allowance for doubtful accounts for 50% of balances over 90 days due and 100% of balances over 120 days due. Accounts receivable are
written off when collection efforts have been exhausted and they are deemed uncollectible. Recoveries, if any, of receivables previously
written off are recorded when received. The Trust does not charge interest on accounts receivable balances and these receivables are
unsecured. There is $0 in the allowance for doubtful accounts for the three months ended April 30, 2023 and the Fiscal Year ended January
31, 2023.
LEASE
ACCOUNTING
The
Trust determines, at the inception of a contract, if the arrangement is a lease and whether it meets the classification criteria for
a finance or operating lease. ROU assets represent the Trust’s right to use an underlying asset during the lease term and lease
liabilities represent the Trust’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are
recognized at commencement date based on the present value of fixed lease payments over the lease term. ROU assets also include any advance
lease payments and exclude lease incentives. As most of the Trust’s operating leases do not provide an implicit rate, the Trust
uses its incremental borrowing rate based on information available at commencement date in determining the present value of lease payments.
Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Operating
fixed lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term (see Note 14).
TRUSTEE
STOCK-BASED COMPENSATION
The
Trust has an employee equity incentive plan, which is described more fully in Note 15 - “Share-Based Payments.” The three
independent members of the Board of Trustees each earn 6,000 IHT fully paid restricted Shares per year. All shares vest over one year
from date of grant. The Trust has paid the annual fees due to its Trustees by issuing Shares of Beneficial Interest out of its authorized
but unissued Shares. Upon issuance, the Trust recognizes the shares as outstanding. The Trust recognizes expense related to the issuance
based on the fair value of the shares upon the date of the restricted share grant and amortizes the expense equally over the period during
which the shares vest to the Trustees. From time to time, the Trustees and key employees receive one-time fully paid restricted share
grants, as well.
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.
InnSuites Hospitality Trust continues its Company Stock Buyback Plan allowed within the NYSE American limitations.
NET
INCOME PER SHARE
Basic
and diluted net income per Share of Beneficial Interest is computed based on the weighted-average number of Shares of Beneficial Interest
and potentially dilutive securities outstanding during the period. Dilutive securities are limited to the Class A and Class B units of
the Partnership, which are convertible into 3,174,041 Shares of the Beneficial Interest, as discussed in Note 1.
For
the three months ended April 30, 2023 and 2022, there were Class A and Class B Partnership units outstanding, which are convertible into
Shares of Beneficial Interest of the Trust. Assuming conversion at the beginning of each period, the aggregate weighted-average of these
Shares of Beneficial Interest would have been 3,174,041 in addition to the basic shares outstanding for the three months ended April
30, 2023 and 2022, respectively. These Shares of Beneficial Interest issuable upon conversion of the Class A and Class B Partnership
units were anti-dilutive during the three months ended April 30, 2023 and 2022 and are excluded in the calculation of diluted earnings
per share for those periods.
ADVERTISING
COSTS
Amounts
incurred for advertising costs are expensed as incurred. Advertising expense for continuing operations totaled approximately $82,000
and $109,000 for the three months ended April 30, 2023 and 2022 respectively, and is reported in the consolidated Statement of Operations.
CONCENTRATION
OF CREDIT RISK
Credit
risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. Financial
instruments that potentially subject the Trust to a concentration of credit risk consist primarily of cash and cash equivalents. Management’s
assessment of the Trust’s credit risk for cash and cash equivalents is low as cash and cash equivalents are held in financial institutions
believed to be credit worthy. The Trust limits its exposure to credit loss by placing its cash with various major financial institutions
and invests only in short-term obligations.
While
the Trust is exposed to credit losses due to the non-performance of its counterparties, the Trust considers the risk of this remote.
The Trust estimates its maximum credit risk for accounts receivable at the amount recorded on the balance sheet.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
For
disclosure purposes, fair value is determined by using available market information and appropriate valuation methodologies. Fair value
is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants in the principal or most advantageous market for the asset or liability. The fair value framework
specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable.
The fair value hierarchy levels are as follows:
| |
● |
Level 1 – Valuation
techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical
to the assets or liabilities being measured. |
| |
● |
Level 2 – Valuation
techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the
assets or liabilities being measured and / or quoted prices for assets or liabilities that are identical or similar to the assets
or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets are level 2 valuation techniques. |
| |
|
|
| |
● |
Level 3 – Valuation
techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation
technique inputs that reflect a company’s own judgments about the assumptions that market participants would use in pricing
an asset or liability. |
The
Trust has assets that are carried at fair value on a recurring basis, including stock and warrants in a 3rd party private
company on the unaudited condensed consolidated balance sheet.
Due
to their short maturities, the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value. The fair value of mortgage notes payable, notes payable to banks and notes and advances payable to related parties
is estimated by using the current rates which would be available for similar loans having the same remaining maturities and are based
on level 3 inputs.
CONVERTIBLE
NOTE RECEIVABLE, COMMON STOCK AND WARRANTS IN UNIGEN POWER, INC.
On
December 16, 2019 the Trust entered into a Convertible Debenture Purchase Agreement with UniGen Power Inc. (“UniGen”).
The
Trust purchased secured convertible debentures (“Debentures”) in the aggregate amount of $1,000,000 (the “Loan Amount”)
at an annual interest rate of 6% (approximately $15,000 per quarter). The Debentures are convertible into 1,000,000 Class A shares of
UniGen Common Stock at an initial conversion rate of $1.00 per share.
UniGen
issued the Trust common stock purchase warrants (the “Debenture Warrants”) to purchase up to 1,000,000 shares of Class A
Common Stock. The Debenture Warrants are exercisable at an exercise price of $1.00 per share of Class A Common Stock.
UniGen
also issued the Trust additional common stock purchase warrants (“Additional Warrants”) to purchase up to 500,000 shares
of UniGen Class A Common Stock. The Additional Warrants are exercisable at an exercise price of $2.25 per share of Class A Common Stock.
IHT
may fund at IHT’s sole discretion a $500,000 line of credit at the option of IHT convertible into 500,000 shares of UniGen stock
at $1 per share.
The
total of all stock ownership upon conversion of the note receivable is 1 million shares and if all stock warrants available but not outstanding
are exercised, these could total approximately 3 million UniGen shares, which amounts to approximately 25% of fully diluted UniGen equity.
On
the Trust’s balance sheet, the investment of the $1,000,000 consists of approximately $700,000 in note receivables and approximately
$300,000 as the fair value of the warrant issued with the Trust’s investment in UniGen. The value of the premium related to the
fair value of the warrants will accrete over the life of the debentures.
The
value of the warrants issued with the note receivable was based on Black-Scholes pricing model based on the following inputs:
Debenture
Warrants
SCHEDULE
OF WARRANTS VALUATION ASSUMPTIONS
| Type of option | |
Call option | |
| Stock price | |
$ | 2.25 | |
| Exercise (Strike) price | |
$ | 1.00 | |
| Time to maturity (years) | |
| 2.0 | |
| Annualized risk-free rate | |
| 1.630 | % |
| Annualized volatility | |
| 27.43 | % |
Additional
Warrants
| Type of option | |
Call option | |
| Stock price | |
$ | 2.25 | |
| Exercise (Strike) price | |
$ | 2.25 | |
| Time to maturity (years) | |
| 3.0 | |
| Annualized risk-free rate | |
| 1.630 | % |
| Annualized volatility | |
| 27.43 | % |
If
all notes are converted and all available but not outstanding warrants exercised, IHT could hold up to approximately 25% of UniGen fully
diluted equity ownership. Subsequent to January 31, 2023, no activity has occurred with this line of credit and thus no draws have been
taken.
During
the year ended January 31, 2023, the Trust reinvested $60,000 of interest income to exercise 60,000 warrants for 60,000 shares of common
stock in UniGen. Additionally, the Trust exercised 161,250 warrants for a total of $255,000 for 161,250 shares of common stock in UniGen.
During
the first Fiscal Quarter (February 1, 2023 to April 30, 2023), three months ended April 30, 2023, the Trust reinvested $15,000 of interest
income to exercise 15,000 warrants for 15,000 shares of common stock in UniGen.
As
of April 30, 2023, IHT held 510,000 common shares of UniGen, purchased at a cost of $603,750. Management believes recording the investment
at cost approximates fair value since there have been no significant changes in the operations of UniGen and UniGen’s projects
are still in the R&D phase.
UniGen
Power Inc. management reports progress on several fronts of the InnSuites Hospitality Trust (IHT) efficient clean energy innovation diversification
investment including the following:
1.
Despite travel and supply chain disruptions including “reshoring” of a portion of UniGen parts, UniGen management continues
to make progress on completing the UPI 1000TA first prototype to be assembled in the coming months. In early 2023, with prototype engineering
complete, UniGen paused engineering to raise additional capital with strong initial interest.
2.
Due to global travel and economic events, an increasingly unreliable American power grid, increasing demand for electric vehicles, inflation,
and supply chain pressures, the UniGen marketing team estimates product’s market has grown, and has increased the MSP planned power
plant price. The initial order for thirty units was recently reaffirmed.
3.
UniGen raised approximately $1.3 million in new capital in 2022 through early existing UniGen warrant exercises. Additional warrant exercises
by IHT and other investors are expected to raise additional capital in 2023.
James
Wirth (President) and Marc Berg (Executive Vice President) both lack significant control. They have two of the six Board of Directors
seats or 33% and were elected in December 2019 to serve on the board of UNIGEN to closely monitor and assist in the success of this potentially
power industry disruptive relatively clean energy generation innovation.
The
Trust has valued UniGen investment as a level 3 fair value measurement, for the following reasons: The investment does not qualify for
level 1 since there are no identical actively traded instruments or level 2 identical or similar unobservable markets.
3.
OWNERSHIP INTERESTS IN ALBQUERQUE AND TUCSON SUBSIDIARIES
The
Trust has sold non-controlling interests in certain subsidiaries, including Albuquerque Suite Hospitality, LLC (the “Albuquerque
entity”) and Tucson Hospitality Properties, LLLP (the “Tucson entity, which sales are described in detail in our Annual Report
on Form 10-K filed on May 1, 2023 with the Securities and Exchange Commissions. Generally, interests have sold for $10,000 per unit with
a two-unit minimum subscription. The Trust maintains at least 50.1% of the units in one of the entities and intends to maintain this
minimum ownership percentage. Generally, the units in the each of the entities are allocated to three classes with differing cumulative
discretionary priority distribution rights through a certain time period. Class A units are owned by unrelated third parties and have
priority for distributions. Class B units are owned by the Trust and have second priority for distributions. Class C units are owned
by Rare Earth or other affiliates of Mr. Wirth and have the lowest priority for distributions. Priority distributions of $700 per unit
per year are cumulative until a certain date; however, after that date, generally Class A unit holders continue to hold a preference
on distributions over Class B and Class C unit holders. The Trust does not accrue for these distributions as the preference periods have
expired.
On
February 15, 2017, the Trust and Partnership entered into a restructuring agreement with Rare Earth Financial, LLC (“REF”)
to allow for the sale of non-controlling partnership units in Albuquerque Suite Hospitality LLC (“Albuquerque”) for $10,000
per unit, which operates the Best Western InnSuites Albuquerque Hotel and Suites Airport hotel property, a 112 unit hotel in Albuquerque,
New Mexico (the “Property”). This restructuring is part of the Trust’s Equity Enhancement Plan to comply with Section
1003(a)(iii) of the NYSE American Company Guide. For the three months ending April 30, 2023 and 2022, the Trust sold 0 units for $10,000
per unit, respectively.
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, 2017. Class A units are owned by unrelated third parties and have 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. The Trust does not accrue for these distributions as the preference periods have
expired.
For the Albuquerque entity, three Class
A units were sold back to the Trust during the Fiscal Year ended January 31, 2023 for $30,000.
As of April 30, 2023 and January 31, 2023, respectively, the Trust held a 21.50%
ownership interest, or 129
Class B units, in the Albuquerque entity, Mr. Wirth and his affiliates held a 0.17% interest, or 1
Class C units, and other parties held a 78.33%
interest, or 470
Class A units.
For the Tucson entity, as of April 30, 2023 and January 31, 2023, respectively, the Partnership held a 51.01% ownership
interest, or 404 Class B units, in the Tucson, Mr. Wirth and his affiliates held a 0.38% interest, or 3 Class C units, and other parties
held a 48.61% interest, or 385 Class A units.
4.
VARIABLE INTEREST ENTITIES
Management
evaluates the Trust’s explicit and implicit variable interests to determine if they have any interests in variable interest entities
(“VIEs”). Variable interests are contractual, ownership, or other pecuniary interests in an entity whose value changes with
changes in the fair value of the entity’s net assets, exclusive of variable interests. Explicit variable interests are those which
directly absorb the variability of a VIE and can include contractual interests such as loans or guarantees as well as equity investments.
An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing of variability indirectly,
such as through related party arrangements or implicit guarantees. The analysis includes consideration of the design of the entity, its
organizational structure, including decision making ability over the activities that most significantly impact the VIE’s economic
performance. GAAP requires a reporting entity to consolidate a VIE when the reporting entity has a variable interest, or combination
of variable interest, that provides it with a controlling financial interest in the VIE. The entity that consolidates a VIE is referred
to as the primary beneficiary of that VIE.
The
Partnership has determined that the Albuquerque entity is a variable interest entity with the Partnership as the primary beneficiary
with the ability to exercise control, as determined under the guidance of ASC Topic 810-10-25. In its determination, management considered
the following qualitative and quantitative factors:
a)
The Partnership, Trust, and their related parties, which share common ownership and management, have guaranteed material financial obligations
of the Albuquerque hotel.
b)
The Partnership, Trust and their related parties have maintained, as a group, a controlling ownership interest in the Albuquerque hotel,
with the largest ownership belonging to the Trust.
c)
The Partnership, Trust and their related parties have maintained control over the decisions which most impact the financial performance
of the Albuquerque hotel, including providing the personnel to operate the property daily.
During
the three months ended April 30, 2023 and the Fiscal Year ended January 31, 2023, neither the Trust nor the Partnership have provided
any implicit or explicit financial support for which they were not previously contracted. Both the Partnership and the Trust provided
mortgage loan guarantees which allowed our properties to obtain financing as needed.
5.
PROPERTY AND EQUIPMENT
As
of April 30, 2023, and January 31, 2023, hotel properties consisted of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| HOTEL SEGMENT | |
| | |
| |
| | |
April 30, 2023 | | |
January 31, 2023 | |
| Land | |
$ | 2,500,000 | | |
$ | 2,500,000 | |
| Building and improvements | |
| 10,779,013 | | |
| 10,762,859 | |
| Furniture, fixtures and equipment | |
| 4,338,645 | | |
| 4,261,400 | |
| Total hotel properties | |
| 17,617,658 | | |
| 17,524,259 | |
| Total property, plant and equipment | |
| 17,617,658 | | |
| 17,524,259 | |
| Less accumulated depreciation | |
| (10,509,134 | ) | |
| (10,358,060 | ) |
| Hotel properties, net | |
| 7,108,524 | | |
| 7,166,199 | |
| Property, Plant and equipment, net | |
| 7,108,524 | | |
| 7,166,199 | |
As
of April 30, 2023, and January 31, 2023, corporate property, plant, and equipment consisted of the following:
| CORPORATE PP&E | |
| | |
| |
| | |
April 30, 2023 | | |
January 31, 2023 | |
| Land | |
$ | 7,005 | | |
$ | 7,005 | |
| Building and improvements | |
| 75,662 | | |
| 75,662 | |
| Furniture, fixtures and equipment | |
| 392,878 | | |
| 392,878 | |
| Total property, plant and equipment | |
| 475,545 | | |
| 475,545 | |
| Less accumulated depreciation | |
| (434,469 | ) | |
| (432,256 | ) |
| Property, Plant and Equipment, net | |
$ | 41,076 | | |
$ | 43,289 | |
6.
MORTGAGE NOTES PAYABLE
On
March 29, 2022 Tucson Hospitality Properties LLLP, 51% owned by RRF Limited partnership, a subsidiary of InnSuites Hospitality Trust,
funded a new loan for $8.4 million to refinance it’s relatively low $ 4.5 million first position debt along with $ 3.8 million
in inter-company advances from IHT and RRF used to complete the Best Western Product Improvement Plan (“PIP”) refurbishment
of the Hotel at an interest rate of 4.99% financed on a 25 year amortization with no prepayment penalty and no balloon. This credit facility
is guaranteed by InnSuites Hospitality Trust, RRF Limited Partnership, Rare Earth Financial, LLC, James F. Wirth and Gail J. Wirth, and
the Wirth Family Trust dated July 14, 2016.
As
of April 30, 2023, and January 31, 2023, the mortgage loan balance was approximately $9,475,000 and $9,431,000, respectively. The mortgage
note payable is due in monthly installments of $49,778.
On
December 2, 2019, Albuquerque Suites Hospitality, LLC entered into a $1.4 million Business Loan Agreement (“Albuquerque Loan”)
as a first mortgage credit facility with Republic Bank of Arizona. The Albuquerque Loan has a maturity date of December 2, 2029. The
Albuquerque Loan has an initial interest rate of 4.90% for the first five years and thereafter a variable rate equal to the US Treasury
+ 3.5% with a floor of 4.90% and no prepayment penalty. This credit facility is guaranteed by InnSuites Hospitality Trust. As of April
30, 2023, the mortgage loan balance was approximately $1,299,000, net of financing fees of approximately $14,000. The mortgage note payable
is due in monthly installments of approximately $12,095 per month.
See
Note 9 – “Minimum Debt Payments” for scheduled minimum payments on the mortgage notes payable.
7.
NOTES PAYABLE AND NOTES RECEIVABLE – RELATED PARTY
On
December 1, 2014, the Trust entered a Demand/Revolving Line of Credit/Promissory Note with Rare Earth Financial, LLC, an entity which
is wholly owned by Mr. Wirth and his family members. The Demand/Revolving Line of Credit/Promissory Note, as amended on June 19, 2017,
bears interest at 7.0%
per annum for both a payable and receivable, interest is due quarterly, matures on December 31, 2023, and automatically renews annually
each calendar year. No prepayment penalty exists on the Demand/Revolving Line of Credit/Promissory Note. The balance fluctuates significantly
through the period. On December 30, 2020, the Demand/Revolving Line of Credit/Promissory Note was extended and increased to the current
level of $2,000,000.
As of April 30, 2023, and January 31, 2023, the Trust had an amount receivable of approximately $27,000
and $0, respectively. During the three
months ended April 30, 2023 and 2022, the Trust accrued approximately $0,
respectively, of interest expense.
8.
OTHER NOTES PAYABLE
As
of April 30, 2023, the Trust had approximately $0 in promissory notes outstanding to unrelated third parties arising from the repurchase
of 0 Class A Partnership units in privately negotiated transactions. These promissory notes bear interest at 7% per year and are due
in varying monthly payments through January 2023.
As
of April 30, 2023, the Trust had a $200,000 unsecured note payable with an individual lender. The promissory note is payable on demand,
or in December 2024, whichever occurs first. The loan accrues interest at 4.5% and interest only payments shall be made monthly. The
Trust may pay all of part of this note without any repayment penalties. The total principal amount of this loan is $200,000 as of April
30, 2023.
On
July 1, 2019, the Trust and the Partnership together entered into an unsecured loan totaling $270,000 with an individual investor at
4.5%, interest only, payable monthly. The loan has been subsequently extended to December 2024. The Trust may pay all or part of this
note without any repayment penalties. The total principal amount of this loan is $270,000 as of April 30, 2023.
On
July 1, 2019, the Trust and Partnership together entered into an unsecured loan, totaling $100,000 with an individual investor at 4.0%
interest only, payable monthly. The loan has been subsequently extended to December 2022. The total principal amount of this loan is
$0 as of April 30, 2023. As expected this loan was repaid in full during the first Fiscal Quarter of Fiscal Year 2024.
See
Note 9 – “Minimum Debt Payments” for scheduled minimum payments on the debt liabilities.
9.
MINIMUM DEBT PAYMENTS
Scheduled
minimum payments of debt, net of debt discounts, as of April 30, 2023 are approximately as follows in the respective Fiscal Years indicated:
SCHEDULE
OF MINIMUM PAYMENTS OF DEBT
| FISCAL YEAR | |
MORTGAGES | | |
OTHER NOTES PAYABLE | | |
NOTES PAYABLE - RELATED PARTY | | |
TOTAL | |
| | |
| | |
| | |
| | |
| |
| 2024 | |
| 223,680 | | |
| 470,000 | | |
| - | | |
| 693,680 | |
| 2025 | |
| 234,169 | | |
| - | | |
| - | | |
| 234,169 | |
| 2026 | |
| 247,906 | | |
| - | | |
| - | | |
| 247,906 | |
| 2027 | |
| 260,999 | | |
| - | | |
| - | | |
| 260,999 | |
| 2028 | |
| 263,125 | | |
| - | | |
| - | | |
| 263,125 | |
| Thereafter | |
| 8,200,945 | | |
| - | | |
| | | |
| 8,200,945 | |
| | |
$ | 9,430,824 | | |
$ | 470,000 | | |
$ | - | | |
$ | 9,900,824 | |
10.
DESCRIPTION OF BENEFICIAL INTERESTS
Holders
of the Trust’s Shares of Beneficial Interest are entitled to receive dividends when and if declared by the Board of Trustees of
the Trust out of funds legally available. The holders of Shares of Beneficial Interest, upon any liquidation, dissolution or winding-down
of the Trust, are entitled to share ratably in any assets remaining after payment in full of all liabilities of the Trust. The Shares
of Beneficial Interest possess ordinary voting rights, each share entitling the holder thereof to one vote. Holders of Shares of Beneficial
Interest do not have cumulative voting rights in the election of Trustees and do not have preemptive rights.
For
the three months ended April 30, 2023 and 2022, the Trust repurchased 0 and 15,795
Shares of Beneficial Interest at an average price of $0 and $2.53
per share, respectively. The average price paid includes brokerage commissions. The Trust intends to continue repurchasing Shares
of Beneficial Interest in compliance with applicable legal and NYSE AMERICAN requirements.
11.
RELATED PARTY TRANSACTIONS
As
of April 30, 2023, and January 31, 2023, Mr. Wirth and his affiliates held 2,974,038
Class B Partnership units, which represented
22.51%
of the total outstanding Partnership units, respectively. As of April 30, 2023, and January 31, 2023, Mr. Wirth and his affiliates held
6,228,296
Shares of Beneficial Interest in the Trust, which
represented 70.29% and 69.12%
respectively, of the total issued and outstanding Shares of Beneficial Interest.
As
of April 30, 2023, and January 31, 2023, the Trust owned 75.98% of the Partnership, respectively. As of April 30, 2023, the Partnership
owned a 51.01% interest in the InnSuites® hotel located in Tucson. The Trust also owned a direct 21.50% interest in one InnSuites®
hotel located in Albuquerque, New Mexico.
The
Trust directly manages the Hotels through the Trust’s wholly-owned subsidiary, RRF Limited Partnership. Under the management agreements,
RRF manages the daily operations of both Trust Hotels. All Trust managed Hotel expenses, revenues and reimbursements among the Trust,
and the Partnership have been eliminated in consolidation. The management fees for the Hotels are 5% of room revenue and a monthly accounting
fee of $2,000 per hotel. These agreements have no expiration dates but may be cancelled by either party with 30-days written notice,
or potentially sooner in the event the property changes ownership.
The
Trust employs part time, an immediate family member of Mr. Wirth, Brian James Wirth, who provides part time IT Technology support services
to the Trust, receiving a $37,000 annual salary.
12.
STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES
The
Trust paid $88,000 and $118,000 in cash for interest for the three months ended April 30, 2023 and 2022, respectively for operations.
The amounts related to Notes Payables - IHT Shares of Beneficial Interest and Partnership Units repurchases amounted to $0 for the three
months ended April 30, 2023 and 2022, respectively. Cash paid for taxes for the three months ended April 30, 2023 and 2022 was $0, respectively.
13.
COMMITMENTS AND CONTINGENCIES
Restricted
Cash:
The
Trust is obligated under a loan agreement relating to the Tucson Oracle property to deposit 4% of the individual hotel’s room revenue
into an escrow account to be used for capital expenditures. The escrow funds applicable to the Tucson Oracle property for which a mortgage
lender escrow exists is reported on the Trust’s Consolidated Balance Sheet as “Restricted Cash.” Since a $0 cash balance
existed in Restricted Cash as of April 30, 2023 and January 31, 2023, Restricted Cash line was omitted on the Trust’s Consolidated
Balance Sheet.
Membership
Agreements:
InnSuites
Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) for both hotel properties.
In exchange for use of the Best Western name, trademark and reservation system, all Hotels pay fees to Best Western based on reservations
received through the use of the Best Western reservation system and the number of available suites at the Hotels. The agreements with
Best Western have no specific expiration terms and may be cancelled by either party. Best Western requires that the hotels meet certain
requirements for room quality, and the Hotels are subject to removal from its reservation system if these requirements are not met. The
Hotels with third-party membership agreements received significant reservations through the Best Western reservation system. Under these
arrangements, fees paid for membership fees and reservations were approximately $51,000 and $48,000
for the three months ended April 30, 2023 and 2021, respectively. These costs include fees for the Albuquerque and Tucson
hotels in 2022. These fees are included in room operating expenses on the unaudited condensed consolidated statements of operations for
Albuquerque and Tucson.
Litigation:
The
Trust is involved from time to time in various other claims and legal actions arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Trust’s consolidated financial
position, results of operations or liquidity.
The
nature of the operations of the Hotels exposes them to risks of claims and litigation in the normal course of their business. Although
the outcome of these matters cannot be determined and is covered by insurance, management does not expect that the ultimate resolution
of these matters will have a material adverse effect on the consolidated financial position, results of operations or liquidity of the
Trust.
Indemnification:
The
Trust has entered into indemnification agreements with all our executive officers and Trustees. The agreements provide for indemnification
against all liabilities and expenses reasonably incurred by an officer or Trustee in connection with the defense or disposition of any
suit or other proceeding, in which he or she may be involved or with which he or she may be threatened, while in office or thereafter,
because of his or her position at the Trust. There is no indemnification for any matter as to which an officer or Trustee is adjudicated
to have acted in bad faith, with willful misconduct or reckless disregard of his or her duties, with gross negligence, or not in good
faith in the reasonable belief that his or her action was in the Trust’s best interests. These agreements require the Trust, among
other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments,
fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s
status or service as our director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent
or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual
with respect to which the individual may be entitled to indemnification by us. The Trust may advance payments in connection with indemnification
under the agreements. The level of indemnification is to the full extent of the net equity based on appraised and/or market value of
the Trust. Historically, the Trust has not incurred any payments for these obligations and, therefore, no liabilities have been recorded
for these indemnities in the accompanying consolidated balance sheets.
See
Note 14 – Leases, for discussion on lease payment commitments.
14.
LEASES
The
Trust has operating leases for its corporate offices in Phoenix, Arizona and land leased in Albuquerque, New Mexico, and a cable equipment
finance lease in Tucson, Arizona. The Trust’s corporate office lease is month to month. All leases are non-cancelable.
Operating
Leases
The
Trust holds a month to month office lease agreement with Northpoint Properties for a commercial office lease at 1730 E Northern Ave,
Suite 122, Phoenix, Arizona 85020. Base monthly rent is $4,318. The Trust also pays electricity and applicable sales tax.
The
Trust’s Albuquerque Hotel is subject to non-cancelable ground lease. The Albuquerque Hotel non-cancelable ground lease was extended
on January 14, 2014 and expires in 2058.
The
following table presents the Trust’s lease costs for the three months ended April 30, 2023:
SCHEDULE OF LEASE COSTS
| | |
Three Months Ended | |
| | |
April 30, 2023 | |
| Operating Lease Costs: | |
| | |
| Operating lease cost* | |
| 22,660 | |
| |
* |
Short term lease costs
were immaterial. |
Supplemental
cash flow information is as follows:
SCHEDULE OF CASH FLOW INFORMATION
| | |
Three Months Ended | |
| | |
April 30, 2023 | |
| | |
| |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| Operating cash flows from operating leases | |
$ | (1,530 | ) |
| | |
| | |
| Lease obligations: | |
| | |
| Operating leases, net | |
$ | 2,271,681 | |
| Long-term obligations | |
$ | 2,247,067 | |
Weighted
average remaining lease terms and discount rates were as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES
| Weighted average remaining lease term (years) | |
April 30, 2023 | |
| Operating leases | |
| 34 | |
| | |
| | |
| Weighted average discount rate Operating leases | |
| 4.85 | % |
The
aggregate future lease payments for Operating Lease Liability as of April 30, 2023 are as follows:
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASE
| For the Years Ending April 30, | |
| |
| 2024 | |
$ | 100,757 | |
| 2025 | |
| 134,355 | |
| 2026 | |
| 134,367 | |
| 2027 | |
| 134,379 | |
| 2028 | |
| 134,391 | |
| Thereafter | |
| 4,125,252 | |
| Total minimum lease payments | |
$ | 4,763,501 | |
| Less: amount representing interest | |
| 2,491,820 | |
| Total present value of minimum payments | |
| 2,271,681 | |
| Less: current portion | |
$ | 24,614 | |
| Long term portion of operating lease liability | |
| 2,247,067 | |
Finance
Leases
The
Company’s Tucson Oracle Hotel is subject to non-cancelable cable lease. The Tucson Oracle Hotel non-cancelable cable lease expires
in 2023.
The
following table presents the Company’s lease costs for the three months ended April 30, 2023:
SCHEDULE OF LEASE COSTS
| | |
Three Months Ended | |
| | |
April 30, 2023 | |
| Finance Lease Costs: | |
| | |
| Amortization of right-of-use assets | |
$ | 13,874 | |
| Interest on lease obligations | |
| 218 | |
Supplemental
cash flow information is as follows:
SCHEDULE OF CASH FLOW INFORMATION
| | |
Three Months Ended | |
| | |
April 30, 2023 | |
| | |
| |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| Operating cash flows from finance leases | |
$ | (815 | ) |
| | |
| | |
| Lease obligations: | |
| | |
| Finance leases, net | |
$ | 12,812 | |
| Long-term obligations | |
$ | 0 | |
Weighted
average remaining lease terms and discount rates were as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES
| Weighted average remaining lease term (years) | |
April 30, 2023 | |
| Finance leases | |
| 1 | |
| | |
| | |
| Weighted average discount rate | |
| 4.85 | % |
| Finance leases | |
| | |
The
aggregate future lease payments for Finance Lease Liability as of April 30, 2023 are as follows:
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR FINANCE LEASE
| | |
| |
| For the Years Ending January 31, | |
| |
| 2024 | |
| 13,030 | |
| Total minimum lease payments | |
$ | 13,030 | |
| Less: amount representing interest | |
| 218 | |
| Total present value of minimum payments | |
| 12,812 | |
| Less: current portion | |
$ | 12,812 | |
| Long term portion of finance lease liability | |
| 0 | |
15.
SHARE-BASED PAYMENTS
On
May 31, 2022, the Trust’s Board of Trustees approved a grant to issue Officers, Trustees, and Key Employees totaling 38,000 fully
paid IHT restricted shares. The aggregate grant date fair value of these Shares was approximately $79,040. These shares partially vested
on December 31, 2022, and May 31, 2023, in two equal amounts.
See
Note 2 – “Summary of Significant Accounting Policies” for information related to grants of restricted shares under
“Stock-Based Compensation.”
16.
NOTES RECEIVEABLE
Sale
of IBC Hospitality Technologies; IBC Hotels LLC (IBC)
On
August 15, 2018 InnSuites Hospitality Trust (IHT) entered into a final sale agreement of its technology subsidiary, IBC Hotels LLC (IBC),
to an unrelated third-party buyer (Buyer). As a part of the amended sale agreement, the Trust received a secured promissory note adjusted
to the principal amount of $1,925,000 with interest to be accrued at 3.75% per annum, which is recorded in the accompanying consolidated
balance sheet in continuing operations.
| |
● |
No interest accrued through
May 2023, and no payments on the note receivable including principal and interest based on the extended time period are due through
May 2023. |
| |
● |
Note is secured by (1)
pledge of the Buyer’s interest in IBC, and (2) a security interest in all assets of IBC, provided IHT shall agree to subordinate
such equity interest to commercially reasonable debt financing upon request. |
| |
|
|
| |
● |
If IBC closes an equity
transaction with net proceeds to IBC in excess of $2,500,000, IBC/Buyer shall pay or pre-pay to IHT an amount equal to (a) 50% of
the net proceeds received by IBC and (b) 50% of the sum of the unpaid balance of the note and accrued interest accrued but unpaid
interest thereon, as the date of receipt of the net proceeds by IBC. |
| |
|
|
| |
● |
The note matures on June
1, 2024 |
| |
|
|
| |
● |
Future payments on this
note are shown in the table below. |
SCHEDULE
OF FUTURE PAYMENTS OF DEBT
| | |
| |
| FISCAL YEAR | |
| |
| 2023 | |
$ | 250,000 | |
| 2024 | |
| 1,675,000 | |
| Total | |
$ | 1,925,000 | |
| |
● |
Management’s evaluation
of the current financial position of the Buyer, based on unaudited financial statements provided. |
| |
● |
Management’s best,
conservative valuation of IBC’s assets, and their marketability, in the case of a default by the Buyer. |
| |
● |
The current and future
impact of the COVID-19 pandemic, on the travel and hospitality industry, in which IBC’s reservation and booking technology
operates. |
As
of April 30, 2023, management evaluated the carrying value of the note determined no further impairment is needed at this time.
IHT
has no managerial control nor does IHT have the ability to direct the operations or capital requirements of IBC as of August 1, 2018.
IHT has no rights to any benefits or losses from IBC as of August 1, 2018.
17.
INCOME TAXES
The
Trust is taxed as a C-Corporation. The Trust’s practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. The Trust has from time to time received various IRS and state tax jurisdiction notices which the Trust is in
the process of responding to in which management believes the notices are without merit and expect full remediation of all tax notices.
The Trust and subsidiaries have deferred tax assets of $4.3 million which includes cumulative net operating loss carryforwards of $1.4
million and syndications of $2.9 million, and deferred tax liability associated with book/tax differences of $1.8 million as of January
31, 2023. We have evaluated the net deferred tax asset and determined that it is more likely than not we will receive full benefit from
the net operating loss carryforwards. Therefore, we have determined a valuation allowance of approximately $2.6 million.
18.
COVID-19 DISCLOSURE
COVID-19
had a material detrimental impact on our business, financial results and liquidity, in Fiscal Year 2021, ended January 31, 2021.
COVID-19
and its consequences had dramatically reduced travel and demand for hotel rooms, in Fiscal Year 2021. We believe that lodging demand
and revenue level have now significantly recovered.
In
Fiscal Year 2022, ended January 31, 2022, and Fiscal Year 2023, starting February 1, 2022 and ending January 31, 2023, InnSuites and
the travel industry showed a significant rebound. The start of Fiscal Year 2024, starting February 1, 2023 and ending January 31, 2024,
has shown no ill effects from the pandemic whatsoever.
COVID-19
and its consequences previously reduced travel and demand for hotel rooms, which previously had an adverse impact our business, operations,
and financial results. We believe that lodging demand and revenue level has now rebounded to ful recovery. The extent to which COVID-19
currently impacts our business, operations, and financial results, including the duration and magnitude of such effects, is diminished.
The negative impact COVID-19 had on global and regional economies and economic activity, including the duration and magnitude of its
impact on consumer discretionary spending has been reduced significantly, and its short and longer-term impact on the demand for travel,
transient and group business, and levels of consumer confidence is no longer considered a major factor for Fiscal Year 2024, (February
1, 2023 to January 31, 2024).
19.
OCCUPANCY TAX
No
occupancy tax assessments have transpired since September 2020. Management has assessed the materiality of the discrepancy on prior reported
periods and has concluded it is qualitatively immaterial to the readers of our Consolidated Financial Statements.
20.
EMPLOYEE RETENTION TAX CREDIT
The
Trust in in the process of working to review Economic Relief through a Credit allowed for Entities that suffered financial hardship during
the Covid-19 Pandemic, under the CARES (The Coronavirus Aid, Relief, and Economic Security) Act (2020), and The Consolidated Appropriations
Act (2021). Both provided fast and direct economic assistance for American workers, families, small businesses, and industries, by the
U.S. Department of the Treasury along with Congress. This Credit was available for all Entities impacted by the Virus and who paid Employment
Taxes, while trying to remain solvent and viable. It is a fully refundable tax credit for Eligible Employers that paid employees to carry
on a trade or business that was partially or fully suspended during any calendar year 2020; or that experienced significant decline in
gross receipts during any calendar quarter in 2020, due to COVID-19.
As
a result of both legislative acts, the Trust will be receiving a net of approximately $2.7
million in a combination of Employment Tax Refunds and Credits, for the two calendar years 2020, and 2021, respectively. As a
result, the
Trust conservatively placed an amount equal to approximately 12% of this total as a Tax Credit Receivable and Tax Refund on the
Balance Sheet and Income statement, respectively, for the year ended January 31, 2023. The Trust has further conservatively
recognized an additional 12% approximately of the total anticipated Tax Credit receivable for the Quarter ended April 30,
2023.
21.
SUBSEQUENT EVENTS
The
Trust intends to maintain its current conservative dividend policy. The Trust currently is, and has, been paying two semi-annual dividends
each Fiscal Year totaling $0.02 per share per Fiscal Year. In the Fiscal Years ended January 31, 2023 and 2022, the Trust paid dividends
of $0.01 per share per share in each of the second and the fourth quarters. The Trust has paid dividends each Fiscal Year since its inception
in 1971. The Trust paid the scheduled semi-annual $0.01 dividend payable on July 29, 2022, as well as February 1, 2023, and is once again
anticipated for July 31, 2023.
The
Trust’s Management received communication from the NYSE-American on August 29, 2022, indicating IHT is fully compliant with all
of the Continued Listing Standards Equity Requirements set forth in Part 10 of the NYSE American Company Guide, of the NYSE-American.
Subsequent
to the Fiscal Year ended January 31, 2023 the Trust repurchased 622 Shares of Beneficial Interest on the open market for a total cash
repurchase price of approximately $1,029.
Hotel
Operation results of the Albuquerque Hotel and the Tucson Hotel both achieved record results for the Fiscal Year ended January 31, 2023.
Increased record results are expected for the two hotels, during Fiscal Year 2024, ending January 31, 2024. IHT reported a strong annual
improvement of results in Fiscal Year 2023, (February 1, 2022, to January 31, 2023), with Net Income Attributable to Controlling Interests
doubling, increasing by 106%, to $523,171 as compared to $254,144. Earnings Per Share based on this Net Income Attributable to Controlling
Interest amount was $0.06, also more than doubling, up $0.03 from the prior year of $0.03. Total Revenues increased to approximately
$7.5 million, which is an approximate increase of 11% from the same prior Fiscal Year total of $6.7 million. Consolidated Net Income
before non-cash depreciation expense was $1,439,437 for the Fiscal Year ended January 31, 2023. IHT hotel operations have contributed
to a solid start in the 2024 Fiscal First Quarter, with both the Tucson Hotel and Albuquerque Hotel achieving record results for the
combined months of February, March, and April 2023 of the current Fiscal Year. These are all positive signs for InnSuites, as progress
continues heading in the right direction as the Travel Industry, and InnSuites Hospitality Trust (IHT) specifically, continue to rebound
and thrive.
