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Notes Receivable | 12 Months Ended
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Jan. 31, 2020
Notes Receivable |
Notes Receivable | 6. NOTES RECEIVABLE On August 15, 2018 Innsuites Hospitality Trust (IHT) entered into a final sale agreement for its technology subsidiary, IBC Hotels LLC (IBC), with an effective sale date as of August 1, 2018 to an unrelated third party buyer (Buyer). As a part of the sale, the Trust received a secured promissory note in the principal amount of $2,750,000 with interest to be accrued at 3.75% per annum, which is recorded in the accompanying condensed balance sheet in continuing operations, net of impairment of $825,000 as described below.
| ● | The initial terms stated that interest accrues 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.
| ● | The terms of the note was amended and modified, to extend the payment schedule, as follows:
| ○ | “Each Payment Date set forth in the note, but not the Maturity Date, shall be extended to a date that is one (1) year, four (4) months and twenty-five (25) days after the date originally set forth in the note. For example, the first payment, which was originally schedule as due on July 5, 2019 shall be due on November 30, 2020.”
| ● | All other terms of the note remained unchanged, including:
| ○ | Note is secured by (1) pledge of the Buyer’s interest in IBC, and (2) a security interest in all assets of IBC, provided IHT shall agree to subordinate such equity interest to commercially reasonable debt financing upon request.
| ○ | If 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.
| ● | Future payments on this note are shown in the table below.
FISCAL YEAR |  |  |
2021 |  |  | 91,667 |
2022 |  |  | 550,000 |
2023 |  |  | 550,000 |
2024 |  |  | 550,000 |
2025 |  |  | 550,000 |
Thereafter |  |  | 458,333 |
|  | $ | 2,750,000 |
Impairment |  |  | (825,000 | )
|  | $ | 1,925,000 |
As of January 31, 2020, the Trust evaluated the carrying value of the note of $2,750,000 for potential impairment. After review, an impairment of $825,000, or 30%, was taken against the note. Factors for the impairment included, but were not limited to:
| ● | Management’s evaluation of the current financial position of the Buyer, based on unaudited financial statements provided.
| ● | A lack of substantial quantitative data, showing the impact of the recently executed digital advertising agreement between the Buyer and Google.
| ● | Management’s best, conservative valuation of IBC’s assets, and their marketability, in the case of a default by the Buyer.
| ● | The current and future impact of the COVID-19 pandemic, on the travel and hospitality industry, in which IBC’s reservation and booking technology operates.

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