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Nature of Operations and Basis of Presentation | 9 Months Ended
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Oct. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Nature of Operations and Basis of Presentation | 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION As of October 31, 2018, InnSuites Hospitality Trust (the “Trust”, “IHT”, “we”, “us” or “our”) is a publicly traded company with continuing operations of hotels IHT owns and manages.. The Trust and its shareholders owns interests directly in and through a partnership interest, three hotels with an aggregate of 260 suites in Arizona and New Mexico (the “Hotels”) operated under the federally trademarked name “InnSuites Hotels” or “InnSuites”. On July 31, 2018, the Trust entered into a sale agreement to sell its Yuma Hotel property which was closed on October 24, 2018. As a result, the Trust has restated the assets and liabilities of the Yuma Hotel operations reported in the accompanying condensed consolidated balance sheet at January 31, 2018 as discontinued operations and reported the Yuma Hotel operations as discontinued operations in the accompanying statement of operations for the three and nine month period ended October 31, 2018 and reclassified the results of operations for the prior year three and nine months period ended October 31, 2018 as discontinued operations in the accompanying statements of operations (see Note 10). Hotel Operations – Continuing Operations: Full service hotels often contain upscale full-service facilities with a large volume of full service accommodations, on-site full-service restaurant(s), and a variety of on-site amenities such as swimming pools, a health club, children’s activities, ballrooms and on-site conference facilities. Moderate or limited service hotels are small to medium-sized hotel establishments that offer a limited amount of on-site amenities. Most moderate or limited service establishments may still offer full service accommodations but lack leisure amenities such as an on-site restaurant or a swimming pool. We consider our Tucson, Arizona hotel and our hotel located in Albuquerque, New Mexico to be moderate or limited service establishments. IHT’s owned properties are limited service hotels. IHT provides management services on a wide variety of hotels. The Trust is the sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned a 75.89% and 74.80% interest in the Partnership as of October 31, 2018 and January 31, 2018, respectively. As of October 31, 2018, the Partnership owned a 51.01% interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 0% interest in a Yuma, Arizona hotel property (see Note 10), and a direct 20.33% interest in an InnSuites® hotel located in Albuquerque, New Mexico. Pursuant to ASC 205-20 Discontinued Operations, the Trust has determined that Yuma Hotel shall be reported in the accompanying condensed consolidated financial statements as discontinued operations (see Note 10). Under certain management agreements, InnSuites Hotels Inc., our subsidiary, manages the Hotels’ daily operations. The Trust also provides the use of the “InnSuites” trademark to the Hotels through wholly-owned InnSuites Hotels. All such expenses and reimbursements between the Trust, InnSuites Hotels and the Partnership have been eliminated in consolidation. IBC Hospitality Technologies – Discontinued Operations: InnDependent Boutique Collection (“IBC”, “IBC Hotels”, “IBC Hospitality” or “IBC Hospitality Technologies”), a wholly-owned subsidiary of InnSuites Hospitality Trust as of February 1, 2018 has been sold on August 1, 2018 (see Note 10), has a network of approximately 2,000 unrelated hospitality properties with proprietary software exclusive marketing distribution and services as well as brand-like cost savings solutions to independent boutique hotels and alternative lodging (serviced apartments, B&B’s, villas and multi-unit ownership/management of luxury private residences). Additionally, IBC provides software and solutions to a variety of branded hotels looking to increase direct bookings and receive full guest information IBC’s patent-pending loyalty program allows consumers to book highly discounted travel when logged in and shopping for lodging on www.ivhtravel.com. IVHTravel.com and its proprietary booking engine has over 1.1 million lodging choices globally and provides add-on capability for activities, rental car and cancellation protection with airfare on its roadmap in 2019. Pursuant to ASC 205-20 Discontinued Operations, the Trust has determined that IBC shall be reported in the accompanying condensed consolidated financial statements as discontinued operations (see Note 10). Intellectual Property In order to provide our previous business to business solutions thru IBC and our previous business to consumer solutions thru IVH, we used software, business processes and proprietary information to carry out our previous business. These assets including related intellectual property rights, copyrights and website domains were part of the sale to a third party on August 1, 2018 and have be reported in the accompanying condensed consolidated balance sheet at January 31, 2018 as assets held under discontinued operations (see Note 10). InnSuites Hospitality Trust relies on the combination of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect these assets and we license software and other intellectual property both to and from third parties. Intellectual property assets are considered a valuable part of our business and have become a value-add portion of the services we provide. We consider our intellectual property assets a valuable asset to our business and we renew appropriate registrations and regularly monitor potential infringements of these assets. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION These consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States of America (GAAP), and include all assets, liabilities, revenues and expenses of the Trust and its wholly-owned subsidiaries and consolidated variable interest entities. All material intercompany transactions and balances have been eliminated. The Trust exercises unilateral control over the Partnership and the entities listed below. Therefore, the financial statements of the Partnership and the entities listed below are consolidated with the Trust (through the indicated date sold, if applicable), and all significant intercompany transactions and balances have been eliminated.
|  | IHT OWNERSHIP % |
ENTITY |  | DIRECT |  |  | INDIRECT (i) |
Albuquerque Suite Hospitality, LLC (see Note 6) |  |  | 20.33 | % |  |  | - |
Tucson Hospitality Properties, LLLP |  |  | - |  |  |  | 51.01 | %
Ontario Hospitality Properties, LLLP (sold in June, 2017) |  |  | 99.60 | % |  |  | - |
Yuma Hospitality Properties, LLLP (sold October 2018, Note 6 and 10) |  |  | 12.79 | % |  |  | - |
Tucson Saint Mary’s Hospitality LLC |  |  | - |  |  |  | 83.66 | %
RRF Limited Partnership (“RRF”) |  |  | 75.89 | % |  |  | - |
InnSuites Hotels Inc. |  |  | 100.00 | % |  |  | - |
IBC Hotels, LLC (including dba International Vacation Hotels) (Sold August 1, 2018) |  |  | 99.90 | % |  |  | 0.10 | %
(i) Indirect ownership is through the Partnership |  |  |  |  |
PARTNERSHIP AGREEMENT The Partnership Agreement of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B. Class A and Class B Partnership units are identical in all respects, except that each Class A Partnership unit is convertible into one newly-issued Share of Beneficial Interest of the Trust at any time at the option of the particular limited partner. The Class B Partnership units may only become convertible, each into one newly-issued Share of Beneficial Interest of the Trust, with the approval of the Board of Trustees, in its sole discretion. On October 31, 2018 and January 31, 2018, 211,708 and 235,812 Class A Partnership units were issued and outstanding, representing 1.60% and 1.76% of the total Partnership units, respectively. Additionally, as of October 31, 2018 and January 31, 2018, 2,974,038 Class B Partnership units were outstanding to James Wirth, the Trust’s Chairman and Chief Executive Officer, and Mr. Wirth’s affiliates. If all of the Class A and B Partnership units were converted on October 31, 2018 and January 31, 2018, the limited partners in the Partnership would receive 3,185,746 and 3,209,850 Shares of Beneficial Interest of the Trust. As of October 31, 2018 and January 31, 2018, the Trust owns 10,025,771 and 10,001,667 general partner units in the Partnership, representing 75.89% and 75.70% of the total Partnership units, respectively. LIQUIDITY Our principal source of cash to meet our cash requirements, including distributions to our shareholders, is our share of the Partnership’s cash flow, quarterly distributions from the Albuquerque, New Mexico and Yuma, Arizona properties and more recently, sales of non-controlling interests in certain of our Hotels. The Partnership’s principal source of cash flow is quarterly distributions from the Tucson, Arizona properties. Our liquidity, including our ability to make distributions to our shareholders, will depend upon our ability and the Partnership’s ability to generate sufficient cash flow from hotel operations and to service our debt. With approximately $2,000,000 of cash and cash equivalent (including short term investments maturing thru January 2019), as of October 31, 2018, the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note, and the availability of the combined $1,000,000 Advance to Affiliate credit facilities, we believe that we will have enough cash on hand to meet all of our financial obligations as they become due for at least the next year. In addition, our management is analyzing other strategic options available to us, including the refinancing of another property or raising additional funds through additional non-controlling interest sales; however, such transactions may not be available on terms that are favorable to us, or at all. There can be no assurance that we will be successful in obtaining extensions, refinancing debt or raising additional or replacement funds, or that these funds may be available on terms that are favorable to us. If we are unable to raise additional or replacement funds, we may be required to sell certain of our assets to meet our liquidity needs, which may not be on terms that are favorable. Please see related party footnote at Note 4 regarding additional liquidity items. BASIS OF PRESENTATION The condensed consolidated balance sheet as of January 31, 2018, which has been derived from audited consolidated financial statements, and these unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information related to the Trust’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in the Trust’s annual consolidated financial statements for the year ended January 31, 2018, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the Trust’s Form 10-K for the year ended January 31, 2018. As sole general partner of the Partnership, the Trust exercises unilateral control over the Partnership, and the Trust owns all of the issued and outstanding classes of shares of InnSuites Hotels Inc. Therefore, the financial statements of the Partnership and InnSuites Hotels Inc. are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated. Under Accounting Standards Codification (“ASC”) Topic 810-10-25, Albuquerque Suite Hospitality, LLC and Yuma Hospitality Properties LLLP have been determined to be variable interest entities with the Partnership as the primary beneficiary (see Note 7 – “Variable Interest Entity”). Therefore, the financial statements of Albuquerque Suite Hospitality, LLC and Yuma Hospitality Properties, LLP are consolidated with the Partnership and the Trust, and all significant intercompany transactions and balances have been eliminated. On August 1, 2018, the Trust sold its interest in its wholly-owned subsidiary IBC Hospitality Technologies and IVHTravel.com. As a result of the sale, the Trust has reported the operations of IBC as of July 31, 2018 and restated prior year January 31, 2018 as discontinued operations in the accompanying condensed balance sheet, statement of operations and cash flows (see Note 10). On July 31, 2018, the Trust entered into a sale agreement to sell its Yuma Hotel property which was closed on October 24, 2018. As a result, the Trust has restated the assets and liabilities of the Yuma Hotel operations reported in the accompanying condensed consolidated balance sheet at January 31, 2018 as discontinued operations and reported the Yuma Hotel operations as discontinued operations in the accompanying statement of operations for the three and nine month period ended October 31, 2018 and reclassified the results of operations for the prior year three and nine months period ended October 31, 2017 as discontinued operations in the accompanying statements of operations (see Note 10). CORRECTION OF ERROR The management of Innsuites Hospitality Trust determined, after discussions with our independent registered public accounting firm, that based on a review of the Company’s accounting for certain revenue and expense transactions related to our former subsidiary IBC during the first quarter period ended April 2018 were not properly accounted for and the related revenues previously reported were misstated. In addition, certain liabilities were incorrectly recorded during the first quarter April 2018. During the first quarter period ended April 30, 2018, we improperly recognized revenue and liabilities related to certain pass through transactions which did not belong to IBC. As a result of our analysis, we have concluded that these revenues, expenses and liabilities should not have been recorded. Accordingly, the revenue balances for IBC have been restated as follows: Revenue as reported was approximately $345,000; Revenue as adjusted is approximately $131,000; Revenue was overstated by approximately $214,000. In addition, expenses as reported were approximately $890,000; Expenses as adjusted is approximately $728,000; as a result, expenses were overstated by approximately $162,000. As a result, operating loss for IBC as restated is approximately $598,000 and as reported was approximately $546,000. Management believes the restatements had no material impact on our reported net loss per share of $0.03. On August 1, 2018, IBC has been sold and the current and historical financial information has been presented as discontinued operations in the accompanying condensed balance sheets and statements of operations. SEASONALITY OF THE HOTEL BUSINESS The Hotels’ operations historically have been somewhat seasonal. The southern Arizona hotels experience their highest occupancy in the first fiscal quarter and, to a lesser extent, the fourth fiscal quarter. The second fiscal quarter tends to be the lowest occupancy period at the Arizona 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 southern Arizona seasonal business. Reclassifications Certain amounts in previously issued financial statements have been reclassified to conform to the presentation following the sale of IBC and the Yuma Hotel, which includes the reclassification of the combined financial position and results of operations of IBC and the Yuma Hotel as discontinued operations (see Note 10) for all periods presented. Discontinued Operations Pursuant to ASC 205-20 Discontinued Operations, in determining whether a group of assets that is disposed (or to be disposed) should be presented as a discontinued operation, we analyze whether the group of assets being disposed represents a component of the Company; that is, whether it had historic operations and cash flows that were clearly distinguished, both operationally and for financial reporting purposes. In addition, we consider whether the disposal represents a strategic shift that has or will have a major effect on our operations and financial results. The results of discontinued operations, as well as any gain or loss on the disposal, if applicable, are aggregated and separately presented in our condensed consolidated statements of operations, net of income taxes. The historical financial position of discontinued operations are aggregated and separately presented in our accompanying condensed consolidated balance sheets. RECENTLY ISSUED ACCOUNTING GUIDANCE Accounting Standards Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. In July 2018, the FASB issued ASU 2018-10 “Codification Improvements of Topic 842, Leases” and ASU No. 2018-11,“Leases (Topic 842): Targeted Improvements.” ASU 2018-11 provides companies another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The consideration in the contract is allocated to the lease and nonlease components on a relative standalone price basis (for lessees) or in accordance with the allocation guidance in the new revenue standard (for lessors). ASU 2018-11 also provides lessees with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component. If a lessee makes that accounting policy election, it is required to account for the nonlease components together with the associated lease component as a single lease component and to provide certain disclosures. Lessors are not afforded a similar practical expedient. The Trust is evaluating the effect ASU 2016-02, 2018-10 and 2018-11 will have on its consolidated financial statements and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time. In June 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this ASU will become effective for us beginning February 1, 2019, and early adoption is permitted. We do not anticipate that this ASU will have a material effect on our consolidated financial statements. In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after December 15, 2019, and interim periods within that reporting period. While we are still in the process of completing our analysis on the impact this guidance will have on the consolidated financial statements and related disclosures, we do not expect the impact to be material.

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