INNSUITES HOSPITALITY TRUST - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

Commission File Number 1-7062

INNSUITES HOSPITALITY TRUST

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

Emerging growth company [  ]

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

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

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

Number of Shares of Beneficial Interest outstanding as of June 18, 2019: 9,323,838

Documents incorporated by reference: None.

PART I

Item 1. BUSINESS

INTRODUCTION TO OUR BUSINESS

InnSuites Hospitality Trust (the “Trust”) is headquartered in Phoenix, Arizona and is an unincorporated Ohio real estate investment trust formed on June 21, 1971. The Trust is not a real estate investment trust for federal taxation purposes, but is taxed as a C-corporation. The Trust, with its affiliates RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and InnSuites® Hotels, Inc., a Nevada corporation (“InnSuites Hotels”), owns interests in two hotels, operates three hotels, provides management services for three hotels, and provides trademark license services for five hotels. At January 31, 2019, and currently, the Trust owns a 74.80% sole general partner interest in the Partnership, which controls a 51.01% interest in the InnSuites hotel located in Tucson, Arizona, and a direct 20.53% interest in the InnSuites hotel located in Albuquerque, New Mexico. The Tucson and Albuquerque hotels are sometimes referred to as the “Hotels”. We anticipate selling one of the Hotels in the next twelve months, and the remaining Hotel within twelve months thereafter.

InnSuites Hotels LLC, a wholly-owned subsidiary of the Trust, provides management services for the two Hotels and one hotel located in Tempe, Arizona (the “Tempe Hotel”) that is owned by affiliates of James F. Wirth, the Trust’s Chairman and Chief Executive Officer. InnSuites Hotels also provides trademark and licensing services to the Hotels, the Tempe Hotel and two unrelated hotel properties. The Trust has approximately 100 full-time employees and approximately 20 part-time employees.

The two Hotels have an aggregate of 267 hotel suites and operate as moderate and full-service hotels that apply a value studio and two-room suite operating philosophy formulated in 1980 by Mr. Wirth. The Trust owns and operates hotels as studio and two-room suite hotels that offer services such as free hot breakfast buffets and complimentary afternoon social hours plus amenities, such as microwave ovens, refrigerators, and free high-speed Internet access.

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

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

MANAGEMENT AND LICENSING CONTRACTS

The Trust directly manages the Hotels through the Trust’s wholly-owned subsidiary, InnSuites Hotels, Inc. Under the management agreements, InnSuites Hotels manages the daily operations of the two Hotels and the Tempe Hotel. All Trust managed Hotel expenses, revenues and reimbursements among the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation. The management fees for the Hotels and the Tempe Hotel 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 90-days written notice, or potentially sooner in the event the property changes ownership.

The Trust also provides the use of the “InnSuites” trademark to the Hotels and the Tempe Hotel through the Trust’s wholly-owned subsidiary, InnSuites Hotels, Inc., which is included in the management fee. The InnSuites trademark expires in January 2027.

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

MEMBERSHIP AGREEMENTS

InnSuites Hotels has entered into membership agreements with Best Western International, Inc. (“Best Western”) with respect to each of the two Hotels. In exchange for use of the Best Western name, trademark and reservation system, each Hotel pays marketing and reservation fees to Best Western based on reservations received through the use of the Best Western reservation system, a marketing fee based upon the monthly room revenues, and the number of available suites at the Hotels. The agreements with Best Western are year-to-year. Best Western requires that the Hotels meet certain requirements for room quality, and the two Hotels are subject to removal from the Best Western reservation system if these requirements are not met. During the past year, the two Hotels received significant reservations through the Best Western reservation system. Under these arrangements, fees paid for membership fees and reservations were approximately $277,000 and $286,000, for fiscal years ended January 31, 2019 and 2018, respectively.

COMPETITION IN THE HOTEL INDUSTRY

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

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

The Trust’s hotel investments are located in Arizona and New Mexico. With the completed renovations at our Tucson, Arizona and Albuquerque, New Mexico hotel properties, those hotels have seen additional demand as supply has been steady in those respective markets. Either an increase in supply or a decline in demand could result in increased competition, which could have an adverse effect on occupancy, room rates and revenues of our Hotels in their respective markets.

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

REGULATION

The Trust is subject to numerous federal, state and local government laws and regulations affecting the hospitality industry, including usage, building and zoning requirements and the laws and regulations related to the preparation and sale of food and beverage such as health and liquor license laws. A violation of any of those laws and regulations or increased government regulation could require the Trust to make unplanned expenditures which may result in higher operating costs. Compliance with these laws is time intensive and costly and may reduce the Trust’s revenues and operating income.

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

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

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

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

SEASONALITY OF THE HOTEL BUSINESS

The Hotels’ operations historically have been somewhat seasonal. The Tucson Hotel experiences its highest occupancy in the first fiscal quarter and, to a lesser extent, the fourth fiscal quarter. The second fiscal quarter tends to be the lowest occupancy period at the Tucson Hotel. 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 seasonal business.

OTHER AVAILABLE INFORMATION

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

Item 1A. RISK FACTORS

Not required for smaller reporting companies.

Item 1B. UNRESOLVED STAFF COMMENTS

Not required for smaller reporting companies.

Item 2. PROPERTIES

The Trust maintains its administrative offices at the InnSuites Hotels Centre, at 1730 E. Northern Avenue, Suite 122, Phoenix, Arizona 85020 in a space leased by the Trust from a third party. The two Hotels are operated as InnSuites Hotels, and both Hotels are also marketed as Best Western® Hotels. The Hotels operate in the following locations:

In the fiscal year ended January 31, 2019, we remodeled 100% of each property’s available suites. The Albuquerque Hotel added six additional suites during the fiscal quarter ending April 30, 2018 by splitting several two-room suites into individual suites. The Trust owns a direct 20.53% interest in the InnSuites Hotel and Suites Airport Albuquerque Best Western Hotel. The Partnership owns a 51.01% interest in the InnSuites Hotel and Suites Tucson Oracle Best Western Hotel. The Trust owns a 74.94% general partner interest in the Partnership.

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

See Note 10 to the Trust’s Consolidated Financial Statements – “Mortgage Notes Payable” below for a discussion of mortgages encumbering the Hotels.

See Note 20 to the Trust’s Consolidated Financial Statements – “Commitments and Contingencies” for a discussion of the lease for our corporate headquarters and the non-cancellable ground lease to which our Albuquerque Hotel is subject.

Item 3. LEGAL PROCEEDINGS

The Trust is not a party to, nor are any of its properties subject to, any material litigation or environmental regulatory proceedings. See Note 20 to Trust’s Consolidated Financial Statements – “Commitments and Contingencies”.

Item 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

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

The Trust’s Shares of Beneficial Interest are traded on the NYSE American under the symbol “IHT.” On June 4, 2019, the Trust had 9,360,292 shares outstanding. As of June 4, 2019, there were 339 holders of record of our Shares of Beneficial Interest, not including holders who hold their asset positions with banks and brokers.

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

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

On January 2, 2001, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 250,000 Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. On September 10, 2002, August 18, 2005 and September 10, 2007, the Board of Trustees approved the purchase of up to 350,000 additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Additionally, on January 5, 2009, September 15, 2009 and January 31, 2010, the Board of Trustees approved the purchase of up to 300,000, 250,000 and 350,000, respectively, additional Partnership units and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the Trusts’ equity compensation plans/programs. During the fiscal year ended January 31, 2019, the Trust acquired 217,609 Shares of Beneficial Interest in open market transactions at an average price of $1.71 per share. The average price paid includes brokerage commissions. The Trust intends to continue repurchasing Shares of Beneficial Interest in compliance with applicable legal and NYSE AMERICAN requirements. The Trust remains authorized to repurchase an additional 444,508 Partnership units and/or Shares of Beneficial Interest pursuant to the publicly announced share repurchase program, which has no expiration date.

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

See Note 2 to our Consolidated Financial Statements – “Summary of Significant Accounting Policies” for information related to grants of restricted shares made to members of our Board of Trustees during fiscal year 2019. These grants were made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2).

For stock option grants during fiscal 2019, see Note 24 to our Consolidated Financial Statements - “Stock Options.”

For the issuance of Shares of Beneficial Interest by the Trust to Rare Earth Financial, LLC, see Note 17 to our Consolidated Financial Statements – “Other Related Party Transactions.” These issuances were made in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2).

Item 6. SELECTED FINANCIAL DATA

Not required for smaller reporting companies.

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

Item 7A

GENERAL

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

We are engaged in the ownership and operation of hotel properties. At January 31, 2019, the Trust had two moderate and full-service hotels in Tucson, Arizona and Albuquerque, New Mexico with 267 hotel suites, and managed a third hotel in Tempe, Arizona. Both of our Hotels are branded through membership agreements with Best Western, and both are trademarked as InnSuites Hotels. We are also involved in various operations incidental to the operation of hotels, such as the operation of restaurants and meeting/banquet room rentals.

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

Our operations consist of one reportable segment – Hotel Operations & Hotel Management Services. Hotel Operations derives its revenue from the operation of the Trust’s two hotel properties with an aggregate of 267 suites in Arizona and New Mexico. Hotel management services, provides management services for the Trust’s two Hotels and a non-owned hotel in Tempe, Arizona. As part of our management services, we also provide trademark and licensing services.

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

We experienced stronger economic conditions during fiscal year 2019. We anticipate that a strong economy will exist during all of fiscal 2020. We expect the major challenge for fiscal year 2020 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate, which may affect our ability to increase room rates while maintaining market share. We believe that we have positioned the Hotels to remain competitive through refurbishment, by offering a relatively large number of two-room suites at each location, and by maintaining a robust complementary guest items and a free Internet access system.

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

DISPOSITION OF YUMA HOTEL

Effective October 24, 2018, the Trust sold the Yuma hotel to an unrelated third party for $16.05 million. With an estimated basis of approximately $4.6 million, the sale resulted in the recognition of a significant profit after transactional costs. For more information about the disposition of the Yuma, Arizona hotel, see Note 23 of our Consolidated Financial Statements - “Discontinued Operations.

DISPOSITION OF IBC HOSPITALITY TECHNOLOGIES

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

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

Our expenses consist primarily of property taxes, insurance, corporate overhead, interest on mortgage debt, professional fees, depreciation of the Hotels and hotel operating expenses. Hotel operating expenses consist primarily of payroll, guest and maintenance supplies, marketing and utilities expenses. Under the terms of its Partnership Agreement, the Partnership is required to reimburse us for all such expenses. Accordingly, management believes that a review of the historical performance of the operations of the Hotels, particularly with respect to occupancy, which is calculated as rooms sold divided by total rooms available, average daily rate (“ADR”), calculated as total room revenue divided by number of rooms sold, and revenue per available room (“REVPAR”), calculated as total room revenue divided by number of rooms available, is appropriate for understanding revenue from the Hotels. In fiscal year 2019, as compared with fiscal 2018, occupancy increased 5.84% to 80.65% from 74.81% in the prior fiscal year. ADR decreased by $3.09 or 3.86% to $76.98 in fiscal year 2019 from $80.07 in fiscal year 2018. The increased occupancy and ADR resulted in an increase in REVPAR of $2.30 or 3.83% to $62.37 in fiscal year 2019 from $60.07 in fiscal year 2018. The increased occupancy, in spite of the decrease in ADR, reflect an improved product and improved economy resulting in the increase in REVPAR. We anticipate in the next fiscal year, with the completion of refurbishments in our Hotels, that steady demand will exist with a significant increase in hotel room supply resulting in additional pressure on the hotel industry to lower rates to maintain current occupancy levels.

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

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

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

Results of operations of the Trust for the fiscal year ended January 31, 2019 compared to the fiscal year ended January 31, 2018.

Overview

A summary of total Trust operating results for the fiscal years ended January 31, 2019 and 2018 is as follows:

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

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

REVENUE – CONTINUING OPERATIONS:

For the twelve months ended January 31, 2019, we had total revenue of approximately $6,169,000 compared to approximately $5,566,000 for the twelve months ended January 31, 2018, an increase of approximately $603,000. In the prior fiscal years ended January 31, 2018 and 2017, we made significant improvements to our Yuma, Arizona and Tucson, Arizona properties which allowed us to increase rates with increased occupancy. For comparability purposes, the revenues do not include our Ontario, California and Yuma, Arizona properties which were sold June 2, 2017 and October 24, 2018, respectively, and our IBC Technology Division which was sold in August of 2018.

We realized a 12.2% increase in room revenues during fiscal year 2019 as room revenues were approximately $5,862,000 for the fiscal year ending January 31, 2019 as compared to approximately $5,223,000 for the fiscal year ending January 31, 2018. With additional hotel occupancy and change in our food and beverage offerings, our food and beverage revenue increased by 138% to approximately $50,000 for fiscal year 2019 as compared to approximately $21,000 during fiscal year 2018, an increase of approximately $29,000. During fiscal year 2019, we expect improvements in occupancy, modest improvements in rates and steady food and beverage revenues. We also realized an approximate 14% decrease in management and trademark fee revenues during fiscal year 2019 to approximately $172,000 as compared to approximately $200,000 during fiscal year 2018. Management and trademark fee revenues decreased during fiscal year 2019 as a result of the sale of the Yuma hotel. On May 1, 2017, the Trust increased the management fees charged from 3% to 5%. During fiscal year 2020, we expect management and trademark fee revenues to be relatively flat and comparable to fiscal year 2019 management and trademark fee revenues. We realized an approximate 2% increase in other revenues from the hotel properties during fiscal year 2019 to approximately $85,000 as compared to approximately $83,000 during fiscal year 2018.

EXPENSES – CONTINUING OPERATIONS:

Total expenses net of interest expense and income tax provision was approximately $7,475,000 for the twelve months ended January 31, 2019 reflecting an increase of approximately $315,000 compared to total expenses net of interest expense and income tax provision of approximately $7,160,000 for the twelve months ended January 31, 2018. The increase was primarily due to an increase in operating expenses due to increased occupancy at the hotel properties.

Room expenses consisting of salaries and related employment taxes for property management, front office, housekeeping personnel, reservation fees and room supplies were approximately $1,941,000 for the fiscal year ended January 31, 2019 compared to approximately $1,744,000 in the prior year period for an increase of approximately $197,000, or 11.38% increase in costs. Room expenses increased as occupancy at the hotels increased, and additional expenses were incurred with the increased occupancy.

Food and beverage expenses included food and beverage costs, personnel and miscellaneous costs to provide banquet events. For the fiscal year ended January 31, 2019, food and beverage expenses increased approximately $41,000, or 132%, to approximately $72,000 for the fiscal year ended January 31, 2019, compared to approximately $31,000 for the fiscal year ended January 31, 2018. This increase is consistent with the 138% increase in food and beverage revenue.

Telecommunications expense, consisting of telephone and Internet costs, increased 25% for the fiscal year ended January 31, 2019 which were approximately $4,000 as compared to the prior fiscal year ended January 31, 2018 which were approximately $3,000.

General and administrative expenses include overhead charges for management, accounting, shareholder and legal services. General and administrative expenses of approximately $2,334,000 for the twelve months ended January 31, 2019, decreased approximately $300,000 from approximately $2,641,000 for the twelve months ended January 31, 2018 primarily due to reductions in corporate staff in support of fewer hotels.

Sales and marketing expense increased approximately $186,000, or 47.1%, to approximately $581,000 for the twelve months ended January 31, 2019 from approximately $395,000 for the twelve months ended January 31, 2018. Management added additional sales and marketing resources at our properties to increase the marketing exposure in the local community leading to additional hotel room revenues.

Repairs and maintenance expense increased by approximately $80,000, or 19.3%, from approximately $415,000 reported for the twelve months ended January 31, 2018 compared to approximately $495,000 for the twelve months ended January 31, 2019. We completed property improvements at our Tucson, Arizona property during the fiscal year ended January 31, 2019. We anticipate that this expense will decrease significantly during the fiscal year ending January 31, 2020 with the completion of the improvements. Management also believes the improvements which complies with the increasing Best Western standards, leads to improved guest satisfaction and will drive additional revenue growth

Hospitality expense increased by approximately $54,000, or 12.6%, from $429,000 for the twelve months ended January 31, 2018 to approximately $483,000 for the twelve months ended January 31, 2019. The increase was primarily due to the additional occupancy at the hotel properties and the additional product mix provided during the Hotels’ complimentary breakfast and happy hour required by Best Western.

Utility expenses were essentially flat, decreasing approximately $1,000 to approximately $362,000 reported for the twelve months ended January 31, 2019 compared with approximately $363,000 for the twelve months ended January 31, 2018.

Hotel property depreciation expenses increased by approximately $127,000 from approximately $719,000 reported for the twelve months ended January 31, 2018 compared to approximately $846,000 for the twelve months ended January 31, 2019. Increased depreciation resulted from the additional capital expenditures associated with the Tucson hotel improvements and, to a lesser extent, improvements at the Albuquerque hotel.

REVENUE – DISCONTINUING OPERATIONS

Hotel Operations & Corporate Overhead Segment

On October 24, 2018, the Trust sold its Yuma, Arizona hotel to an unrelated third party for approximately $16.05 million, which the Trust received in cash. Total gain on sale was approximately $9.6 million. For the fiscal year ended January 31, 2019, the Yuma, Arizon hotel had approximately $3,294,000 of revenue consisting of approximately $3.2 million of room and other revenues and approximately $28,000 of food and beverage revenues. For the fiscal year ended January 31, 2018, the Yuma, Arizona hotel had approximately $4,125,000 of revenue, consisting of approximately $4.1 million in room and other revenues and approximately $42,000 of food and beverage revenues. We anticipated exceeding our room and food and beverage revenues for the fiscal year ended January 31, 2019 as compared to the fiscal year ended January 31, 2018 if we owned the hotel property for the entire fiscal year.

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

IBC Technology Segment

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

EXPENSES – DISCONTINUING OPERATIONS

Hotel Operations & Corporate Overhead Segment

For the twelve months ended January 31, 2019, we had approximately $2,808,000 of total expenses compared to approximately $5,003,000 of total expenses for the fiscal year ended January 31, 2018.

For the fiscal year ended January 31, 2019, our Yuma, Arizona hotel was owned and operated by the Trust for approximately 9 months and incurred normal routine operating expenses including approximately $1,262,000 of room expenses, approximately $36,000 food and beverage expenses, approximately $365,000 general and administrative expenses, approximately $177,000 of sales and marketing expenses, approximately $185,000 of repairs and maintenance expenses, approximately $168,000 of hospitality expenses, approximately $161,000 utilities, approximately $344,000 of depreciation, approximately $88,000 of property insurance and tax expenses.

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

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

IBC Development Segment

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

Overview – Hotel Operations & Corporate Overhead

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 properties and the sale of our hotel property in Yuma, Arizona. The Partnership’s principal source of revenue is hotel operations for the one hotel property it owns in Tucson, Arizona. Our liquidity, including our ability to make distributions to our shareholders, will depend upon our ability, and the Partnership’s ability, to generate sufficient cash flow from hotel operations and to service our debt.

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

With approximately $2,647,000 of cash and short term investments as of January 31, 2019 and the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note and the availability of our two available Advances to Affiliate credit facilities for a total of $1,000,000 maximum borrowing capacity, we believe that we will have enough cash on hand to meet all of our financial obligations as they become due for at least the next twelve months from the issuance date of the these consolidated financial statements. In addition, our management is analyzing other strategic options available to us, including raising additional funds, increasing borrowings at either, or both, the Albuquerque and Tucson hotels and using the funds generated to pay intercompany loans (1) due from the Tucson hotel to the Partnership of approximately $2.2 million, and (2) due from the Albuquerque hotel due to the Trust of approximately $1.1 million; however, such transactions may not be available on terms that are favorable to us, or at all.

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

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

Net cash used in operating activities totaled approximately $1,799,000 during fiscal year 2019 as compared to approximately $1,551,000 during the prior fiscal year. Consolidated net income was approximately $11,106,000 for the year ended January 31, 2019 as compared to consolidated net income for the fiscal year ended January 31, 2018 of approximately $6,808,000. Explanation of the differences between these fiscal years are explained above in the results of operations of the Trust.

Changes in the adjustments to reconcile net loss and net income for the years ended January 31, 2019 and 2018, respectively, consist primarily of gain on disposal of assets, hotel property depreciation, and changes in assets and liabilities. Hotel property depreciation was approximately $1,245,000 during fiscal year 2019 compared to approximately $1,469,000 during fiscal year 2018, a decrease of $224,000 as the Trust recognized less depreciation as one of the hotel properties was sold during the fiscal year 2019. There was no amortization of intangibles during fiscal year 2019 compared to approximately $933,000 during fiscal year 2018, an decrease of $933,000 as all goodwill and intangibles in its technology division was written off in the prior fiscal year.

Changes in assets and liabilities for accounts receivable, prepaid expenses and other assets and accounts payable and accrued expenses totaled approximately ($296,000) and approximately $547,000 for the fiscal years ended January 31, 2019 and 2018, respectively. This significant decrease in changes in assets and liabilities for the fiscal year ended January 31, 2019 compared to the fiscal year ended January 31, 2018 was due to the sale of the technology segment, IBC Hotels.

Net cash provided by investing activities totaled approximately $8,372,000 for the year ended January 31, 2019 compared to net cash provided by investing activities of approximately $4,475,000 for the year ended January 31, 2018. The increase in net cash provided by investing activities during fiscal year 2019 was due to the cash received from the sale of our Yuma, Arizona hotel property offset by the lending on advances to affiliates – related party of approximately $776,000 during the fiscal year 2019 as compared to approximately $1,956,000 for the fiscal year 2018. In addition, a significant increase in net cash provided by investing activities occurred in fiscal year 2019 as we purchased approximately $896,000 of marketable securities in fiscal year 2019 and decreased by $1,842,000 our improvements and additions to hotel properties of approximately $937,000 during fiscal year 2019 compared to approximately $2,779,000 during fiscal year 2018.

Net cash used in financing activities totaled approximately $10,399,000 compared to net cash provided of $1,284,000 for the years ended January 31, 2019 and 2018, respectively. The significant increase of approximately $11,546,000 was primarily due to an increases in distributions to non-controlling interest holders, repurchase of treasury stock and decreases in net proceeds from sale of non-controlling ownership interest in subsidiaries and borrowings on notes payable to banks; offset by net increases in borrowing/payments on line of credit – related party, decreases in net borrowing/payments notes payable to banks, and increases in net borrowing/payments other notes payable.

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

For the fiscal year ended January 31, 2019, payments on line of credit – related party netted against borrowings on line of credit – related party was approximately $178,000 of net cash provided by financing activities as compared to approximately $143,000 of net cash used in in financing activities for the fiscal year ended January 31, 2018.

Payments on notes payables – related party netted against borrowings on note payable – related party was approximately $306,000 and $23,000 of net cash used by financing activities during the fiscal years ended January 31, 2019 and 2018, respectively.

Payments on other notes payables netted against borrowings on other note payable was approximately $330,000 and $594,000 of net cash provided by financing activities during the fiscal years ended January 31, 2019 and 2018, respectively.

Proceeds from sales of non-controlling ownership interests in subsidiaries decreased significantly by approximately $3,352,000 as sales of non-controlling ownership interest was approximately $102,000 for the fiscal year ended January 31, 2019 and approximately $3,454,000 for the year ended January 31, 2018. During the fiscal year ended January 31, 2018, we primarily sold additional non-controlling interests in our Yuma, Arizona and Albuquerque, New Mexico property subsidiaries. We had no sales of our IHT stock for the fiscal year ended January 31, 2019 and had sales of IHT stock of $400,000 in the fiscal year ending January 31, 2018.

During the fiscal year ended January 31, 2019, our distributions to non-controlling interest holders was approximately $9,423,000 compared with approximately $5,758,000 for the fiscal year ended January 31, 2018. The Trust provided additional distributions to the Yuma, Arizona and Ontario, California non-controlling interest holders after the sale of the Yuma, Arizona hotel property was sold.

We continue to contribute to a Capital Expenditures Fund (the “Fund”) an amount equal to 4% of the InnSuites Hotels’ revenues from operation of the Hotels. The Fund is restricted by the mortgage lender for one of our properties. As of January 31, 2019 and 2018, there were no monies held in these accounts reported on our Consolidated Balance Sheet as “Restricted Cash.” The Fund is intended to be used for capital improvements to the Hotels and refurbishment and replacement of furniture, fixtures and equipment. During the fiscal year ended January 31, 2019 and 2018, the Hotels spent approximately $937,000 and $2,779,000, respectively, for capital expenditures. We consider the majority of these improvements to be revenue producing. Therefore, these amounts are capitalized and depreciated over their estimated useful lives. For fiscal year 2020 capital expenditures, we plan on spending less on capital improvements as we have completed our property improvements at our Tuscon, Arizona hotel which required significant amounts of capital improvements during the fiscal year ending January 31, 2019. Repairs and maintenance were charged to expense as incurred and approximated $680,000 and $796,000 for fiscal years 2019 and 2018, respectively.

We have minimum debt payments, net of debt discounts, of approximately $1,754,000 and approximately $668,000 due during fiscal years 2020 and 2021, respectively. Minimum debt payments due during fiscal year 2020 include approximately $115,000 of mortgage notes payable and approximately $238,000 of other notes payable secured promissory notes outstanding to unrelated third parties arising from the Shares of Beneficial Interest and Partnership unit repurchases.

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

SALE OF OWNERSHIP INTERESTS IN ALBQUERQUE, AND TUCSON SUBSIDIARIES

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

COMPLIANCE WITH CONTINUED LISTING STANDARDS OF NYSE AMERICAN

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

The NYSE AMERICAN’s letter informed the Trust that, to maintain its listing, it must submit a plan of compliance by February 20, 2017, addressing how it intends to regain compliance with the NYSE AMERICAN’s continued listing standards within the maximum potential 18-month plan period available (the “Plan Period”). Elements of the compliance plan may include the sale of one or more of its assets (management believes IHT hotels have a much lower book value than market value), sale of additional Trust stock at market value, sale of minority interest in specific hotel properties and/or anticipated continuation of the current operational upward current trends in hotel gross operating profits.

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

On January 11, 2018, the Trust received a letter from the NYSE American LLC informing us that the Trust is back in compliance with all of the NYSE American LLC continued listing standards set forth in Part 10 of the NYSE American LLC Company Guide. Specifically, the Trust has resolved the continued listing deficiencies with respect to Section 1003(a)(iii) of the Company Guide reference in the Exchange’s letters dated January 19, 2017. The Trust’s shareholders equity as of January 31, 2018, October 31, 2017, and July 31, 2017 exceeded $8.2 million which met the minimum requirement of $6 million. The Trust will be subject to ongoing review for compliance with NYSE American LLC requirements as part of the Exchange’s routine monitoring.

NON-GAAP FINANCIAL MEASURES

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

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

A reconciliation of Adjusted EBITDA to net loss attributable to controlling interests for the fiscal years ended January 31, 2019 and 2018 follows:

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

A reconciliation of FFO to net income (loss) attributable to controlling interests for fiscal year ended January 31, 2019 and 2018 follows:

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

FUTURE POSITIONING

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

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

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

On August 1, 2015, we finalized and committed to a plan to sell over time our hotel properties. We listed each of the properties with a local real estate hotel broker and we believe that each of the assets are being marketed at a price that is reasonable in relation to its current fair value. We plan to sell our remaining two Hotel properties within two years, based on feedback received by our local hotel real estate property professional brokers and we have engaged hotel real estate brokers who specialize in the selling/buying hotel real estate properties for the sale of our Tucson and Albuquerque Hotel properties. We can provide no assurance that we will be able to sell either or both of the Hotel properties on terms favorable to us or within our expected time frame, or at all.

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

On June 2, 2017, the Trust sold its Ontario, California hotel to an unrelated third party for approximately $17.5 million, which the Trust received in cash. We used $7.2 million of the proceeds to satisfy its mortgage note payable on the property, approximately $263,000 to reduce accruals and payables, and retained the remaining proceeds to fund future operations and capital improvements on our remaining hotels.

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

Our long-term strategic plan is to obtain the full benefit of our real estate equity and to pursue a merger with another company, likely a private larger entity that seeks to go public or list on the NYSE AMERICAN Exchange.

SHARE REPURCHASE PROGRAM

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Asset Impairment

We believe that the policies we follow for the valuation of our hotel properties, which constitute the majority of our assets, are our most critical policies. The Financial Accounting Standards Board (“FASB”) has issued authoritative guidance related to the impairment or disposal of long-lived assets, codified in ASC Topic 360-10-35, which we apply to determine when it is necessary to test an asset for recoverability. On an events and circumstances basis, we review the carrying value of our hotel properties. We will record an impairment loss and reduce the carrying value of a property when anticipated undiscounted future cash flows and the current market value of the property do not support its carrying value. In cases where we do not expect to recover the carrying cost of hotel properties held for use, we will reduce the carrying value to the fair value of the hotel, as determined by a current appraisal or other acceptable valuation methods. We did not recognize a hotel properties impairment loss in fiscal years 2019 or 2018. As of January 31, 2019, our management does not believe that the carrying values of any of our hotel properties are impaired.

Sale of Hotel Assets

On August 1, 2015, the Trust finalized and committed to a plan to sell Hotel properties. The Trust listed Hotel properties with real estate hotel brokers, Effective October 24, 2018, the Trust sold the Yuma hotel to an unrelated third party for $16.05 million, and on June 2, 2017, the Trust sold its Ontario, California hotel to an unrelated third party for approximately $17.5 million. Management believes that our currently-owned Hotels are listed at prices that is reasonable in relation to their 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, 2017 filed with the SEC on September 14, 2017, the Trust classified all the Hotel properties as Assets Held for Sale. As of October 31, 2017, the Trust has decided to reclassify these assets back into operations as many of these assets have been marketed for sale for more than one year. At this time, the Trust is unable to predict when, and if, any of these Hotel properties will be sold and the Trust no longer deems a sale to be probable. The Trust continues to list these properties with local real estate hotel brokers and, we believe, that each of the assets is being marketed at a price that is reasonable in relation to its current fair value. There have been no other material changes to our basis of presentation since October 31, 2017.

Revenue Recognition

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

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

Revenues primarily consist of room rentals, food and beverage sales, management and trademark fees and other miscellaneous revenues from our properties. Revenues are recorded when rooms are occupied and when food and beverage sales are delivered. Management and trademark fees from non-affiliated hotels include a monthly accounting fee and a percentage of hotel room revenues for managing the daily operations of the Hotels and the one hotel owned by affiliates of Mr. Wirth.

We are required to 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.

SEASONALITY

See Item 1 for related discussion of seasonality.

INFLATION

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

FORWARD-LOOKING STATEMENTS

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

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

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

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

INNSUITES HOSPITALITY TRUST

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

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

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

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of trustees of InnSuites Hospitality Trust

Opinion on the Financial Statements

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

Basis for Opinion

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

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no opinion.

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

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

We have served as the Trust’s auditor since 2015

Irvine, CA

June 19, 2019

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to these consolidated financial statements

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to these consolidated financial statements

INNSUITES HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED JANUARY 31, 2019 and 2018