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Discontinued Operations and Assets Held for Sale | 6 Months Ended
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Jul. 31, 2018
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations and Assets Held for Sale | 10. Discontinued Operations and Assets Held for Sale Discontinued operations Discontinued operations during the six months period ended July 31, 2018 consist of the operations from the IBC subsidiary. On August 15, 2018 Innsuites Hospitality Trust (IHT) entered into a final sale agreement for its subsidiary IBC Hotels LLC (IBC) with an effective sale date as of August 1, 2018 to a third party buyer (Buyer). The third-party purchaser hired IHT’s former Chief Operating Officer, who is a family member of IHT’s CEO. The sale price was $3,000,000 to be paid to IHT as follows:
| 1. | $250,000 at closing, which was received on August 14, 2018;
| 2. | A secured promissory note in the principal amount of $2,750,000 with interest to be accrued at 3.75% per annum. Interest shall accrue for the first 10 months (starting August 2018), thereafter for month 11 and 12 principal and interest payments of 50% ($25,632 per month), then the remaining amount to be amortized over 59 months (payments of $52,054 per month) with maturity in June 2024.
Note is secured by (1) pledge of the Buyer’s interest, 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 after effective date IBC closes an equity transaction with net proceeds to IBC in excess of $2,500,000, IBC/Buyer shall pay to IHT an amount equal to (a) 50% of the net proceeds received by IBC and (b) 50% of the sum of the unpaid balance of the note and accrued interest accrued but unpaid interest thereon, as the date of receipt of the net proceeds by IBC. IHT has agreed to provide continuing working capital support for a period of six months in the amount of approximately $37,500 per month to IBC for transitional purposes. IHT has no managerial control nor does IHT have the ability to direct the operations or capital requirements of IBC as of August 1, 2018. IHT has no rights to any benefits or losses from IBC as of August 1, 2018. Default If Buyer has not paid two or more payments on the note as scheduled, or if Buyer has not made any other provisions in the note, IHT may give Buyer notice of default. If Buyer fails to cure the default within 30 days after notice (a) on or before February 5, 2020, then 75% of the issued and outstanding IBC interest shall be transferred to IHT, and (b) on or after February 5, 2020, then 51% of the issued and outstanding interest of the Company shall be transferred to IHT. Debt/Working Capital adjustment On or before the sixty calendar days following the effective date (August 1, 2018) Buyer shall prepare and deliver to IHT a written statement (closing statement) setting forth a calculation of the aggregate amount of (i) all indebtedness, (ii) working capital of IBC as of the close of business on the last business day immediately preceding the effective date (closing net working capital) , and (iii) a proposed adjustment to the principal amount of the note payable, calculated as follows:
| ● | If the closing new working capital is between $0 and negative $100,000, the purchase price shall not be adjusted;
| ● | If the closing working capital is less then negative $100,000, the principal amount of the note shall be deceased in amount equal to the amount by which the closing net working capital is greater than negative $100,000; and
| ● | Of the closing working capital is greater than $0, the principal amount of the note shall be increased in an amount equal to the closing working capital.
Office Lease/Contracts IHT will maintain an existing reservation center contract with IBC requiring IHT to make payments of $7,500 per month for a minimum of 6 months after closing. IHT will continue to rent office space to IBC on the same terms and conditions as in effect currently on a month to month basis at a monthly rent of approximately $2,500, terminable by either IHT or IBC on a 30-day prior written notice. Indemnification IHT has agreed to indemnify and hold harmless the Buyer from and against any and all losses suffered, sustained or incurred by any Buyer indemnified party, resulting from, arising in connection with or related to (i) any breach of a representation or warranty made by IHT, (ii) any breach of a seller fundamental representation by IHT, (iii) any breach of any covenant made by IHT in this agreement, certification or writing delivered pursuant to the agreement, (iv) any claims or liabilities under, related to or in connection with any person status as a security holder of the company prior to closing, or (v) any transaction expense or indebtedness not accounted for in the final determination of the purchase price. Assets Held For Sale On July 31, 2018, IHT entered into a purchase and sale agreement to sell its Innsuites Yuma Hotel and Suites Best Western (Yuma), together with certain furniture, fixtures, equipment, operating supplies and other ancillary items pertaining to the daily operations to a third party. The sales price is $16.25 million, with an earnest money deposit of $200,000 which was deposited into escrow in August 2018. The remainder will be paid in cash at close of sale. The buyer has approximately 90 days to perform its due diligence with the transaction expected to close sometime in late October 2018. As a result of the pending sale, the Trust has reclassified the Yuma Hotel operations as assets and liabilities held for sale as of July 31, 2018 and restated January 31, 2018 financial information for comparable purposes. The following tables lists the assets of discontinued operations and held for sale and liabilities of discontinued operations and held for sale as of the July 31, 2018 and January 31, 2018 and the discontinued operations for IBC for the three and six months period ended July 31, 2018 and IBC and Ontario for the and three and six months period July 31, 2017
DISCONTINUED OPERATIONS & HELD FOR SALE
|  | JULY 31, 2018 |
|  | Total |  |  | Yuma |  |  | IBC |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 215,445 |  |  |  | 218,643 |  |  |  | (3,198 | )
Accounts Receivable |  |  | 136,363 |  |  |  | 44,893 |  |  |  | 91,470 |
Prepaid Expenses and Other Current Assets |  |  | 74,449 |  |  |  | 13,680 |  |  |  | 60,769 |
Total Current Assets of Discontinued Operations |  |  | 426,257 |  |  |  | 277,216 |  |  |  | 149,041 |
Property, Plant and Equipment, net |  |  | 5,144,983 |  |  |  | 4,665,764 |  |  |  | 479,219 |
TOTAL ASSETS OF DISCONTINUED OPERATIONS AND HELD FOR SALE |  | $ | 5,571,240 |  |  |  | 4,942,980 |  |  |  | 628,260 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts Payable and Accrued Expenses |  | $ | 402,869 |  |  |  | 201,990 |  |  |  | 200,879 |
Current Portion of Mortgage Notes Payable |  |  | 168,875 |  |  |  | 168,875 |  |  |  |  |
Total Current Liabilities of Discontinued Operations |  |  | 571,744 |  |  |  | 370,865 |  |  |  | 200,879 |
Mortgage Notes Payable |  |  | 5,413,382 |  |  |  | 5,413,382 |  |  |  |  |
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS AND HELD FOR SALE |  | $ | 5,985,126 |  |  |  | 5,784,247 |  |  |  | 200,879 |
DISCONTINUED OPERATIONS & HELD FOR SALE
|  | JANUARY 31, 2018 |
|  | Total |  |  | Yuma |  |  | IBC |  |  | Ontario |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 200,705 |  |  |  | 178,317 |  |  |  | 22,388 |  |  |  |  |
Accounts Receivable |  |  | 265,377 |  |  |  | 70,139 |  |  |  | 195,238 |  |  |  |  |
Prepaid Expenses and Other Current Assets |  |  | 25,447 |  |  |  | 10,803 |  |  |  | 14,644 |  |  |  |  |
Total Current Assets of Discontinued Operations |  |  | 491,529 |  |  |  | 259,259 |  |  |  | 232,270 |  |  |  | - |
Property, Plant and Equipment, net |  |  | 5,240,535 |  |  |  | 4,815,664 |  |  |  | 424,871 |  |  |  |  |
TOTAL ASSETS OF DISCONTINUED OPERATIONS AND HELD FOR SALE |  | $ | 5,732,064 |  |  |  | 5,074,923 |  |  |  | 657,141 |  |  |  | - |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts Payable and Accrued Expenses |  | $ | 607,941 |  |  |  | 269,242 |  |  |  | 251,723 |  |  |  | 86,976 |
Current Portion of Mortgage Notes Payable |  |  | 289,098 |  |  |  | 165,239 |  |  |  | 123,859 |  |  |  |  |
Total Current Liabilities of Discontinued Operations |  |  | 897,039 |  |  |  | 434,481 |  |  |  | 375,582 |  |  |  | 86,976 |
Mortgage Notes Payable |  |  | 5,490,374 |  |  |  | 5,490,374 |  |  |  |  |  |  |  |  |
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS AND HELD FOR SALE |  | $ | 6,387,413 |  |  |  | 5,924,855 |  |  |  | 375,582 |  |  |  | 86,976 |
|  | FOR THE SIX MONTHS ENDED |  |  |  |
|  | JULY 31, |  |  |  |
|  | 2018 |  |  | 2017 |  |  | 2017 |
|  |  |  |  |  |  |  | Ontario |  |  | IBC |
REVENUE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reservation and Convention |  | $ | 265,679 |  |  | $ | 1,992,267 |  |  | $ | 1,470,743 |  |  | $ | 521,524 |
TOTAL REVENUE |  |  | 265,679 |  |  |  | 1,992,267 |  |  |  | 1,470,743 |  |  |  | 521,524 |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Room |  |  |  |  |  |  | 936,647 |  |  |  | 939,663 |  |  |  | (3,016 | )
Food and Beverage |  |  |  |  |  |  | 66,152 |  |  |  | 66,152 |  |  |  | - |
General and Administrative |  |  | 406,921 |  |  |  | 802,811 |  |  |  | 256,986 |  |  |  | 545,825 |
Sales and Marketing |  |  | 347,610 |  |  |  | 611,755 |  |  |  | 123,299 |  |  |  | 488,456 |
Reservation Acquisition Costs |  |  | 142,842 |  |  |  | - |  |  |  | - |  |  |  | - |
Depreciation |  |  | 51,008 |  |  |  | 227,525 |  |  |  | 177,824 |  |  |  | 49,701 |
Other |  |  |  |  |  |  | 390,337 |  |  |  | 356,837 |  |  |  | 33,500 |
TOTAL OPERATING EXPENSES |  |  | 948,382 |  |  |  | 3,035,227 |  |  |  | 1,920,761 |  |  |  | 1,114,466 |
OPERATING LOSS |  |  | (682,702 | ) |  |  | (1,042,959 | ) |  |  | (450,018 | ) |  |  | (592,941 | )
Interest on Notes Payable to Banks |  |  | 3,725 |  |  |  | 137,994 |  |  |  | 127,254 |  |  |  | 10,740 |
TOTAL INTEREST EXPENSE |  |  | 3,725 |  |  |  | 137,994 |  |  |  | 127,254 |  |  |  | 10,740 |
CONSOLIDATED NET LOSS OF DISCONTINUED OPERATIONS AND HELD FOR SALE |  | $ | (686,427 | ) |  | $ | (1,180,953 | ) |  | $ | (577,272 | ) |  | $ | (603,681 | )
|  | FOR THE THREE MONTHS ENDED |  |  |  |
|  | JULY 31, |  |  |  |
|  | 2018 |  |  | 2017 |  |  | 2017 |
|  |  |  |  |  |  |  | Ontario |  |  | IBC |
REVENUE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reservation and Convention |  | $ | 135,498 |  |  | $ | 662,699 |  |  | $ | 372,485 |  |  | $ | 290,214 |
TOTAL REVENUE |  |  | 135,498 |  |  |  | 662,699 |  |  |  | 372,485 |  |  |  | 290,214 |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Room |  |  |  |  |  |  | 644,224 |  |  |  | 645,177 |  |  |  | (953 | )
Food and Beverage |  |  |  |  |  |  | 17,707 |  |  |  | 17,707 |  |  |  | - |
General and Administrative |  |  | 179,241 |  |  |  | 446,158 |  |  |  | 115,581 |  |  |  | 330,577 |
Sales and Marketing |  |  | 96,634 |  |  |  | 312,749 |  |  |  | 63,996 |  |  |  | 248,753 |
Reservation Acquisition Costs |  |  | (46,735 | ) |  |  | - |  |  |  | - |  |  |  | - |
Depreciation |  |  | (7,043 | ) |  |  | 95,922 |  |  |  | 52,684 |  |  |  | 43,238 |
Other |  |  |  |  |  |  | 167,960 |  |  |  | 162,978 |  |  |  | 4,982 |
TOTAL OPERATING EXPENSES |  |  | 222,097 |  |  |  | 1,684,721 |  |  |  | 1,058,123 |  |  |  | 626,598 |
OPERATING LOSS |  |  | (86,599 | ) |  |  | (1,022,021 | ) |  |  | (685,638 | ) |  |  | (336,383 | )
Interest (net) |  |  | 1,173 |  |  |  | 62,905 |  |  |  | 62,905 |  |  |  | - |
TOTAL INTEREST EXPENSE |  |  | 1,173 |  |  |  | 62,905 |  |  |  | 62,905 |  |  |  | - |
CONSOLIDATED NET LOSS OF DISCONTINUED OPERATIONS AND HELD FOR SALE |  | $ | (87,772 | ) |  | $ | (1,084,926 | ) |  | $ | (748,543 | ) |  | $ | (336,383 | )

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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