InnSuites Hospitality Trust(IHT) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of InnSuites Hospitality Trust, including balance sheets, statements of operations, shareholders' equity, and cash flows, with detailed notes on operations, accounting policies, and financial position for periods ending April 30, 2023, and January 31, 2023 Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a slight decrease in total assets and liabilities from January 31, 2023, to April 30, 2023, while total equity increased, with key changes including decreased cash and increased employee retention credit receivable Condensed Consolidated Balance Sheet Highlights | Metric | April 30, 2023 | January 31, 2023 | | :-------------------------------- | :------------- | :--------------- | | Total Assets | $17,006,688 | $17,019,972 | | Total Liabilities | $12,988,777 | $13,337,827 | | Total Equity | $4,017,911 | $3,682,145 | | Cash | $1,704,285 | $2,111,383 | | Employee Retention Credit Receivable | $2,104,746 | $1,753,955 | Condensed Consolidated Statements of Operations For the three months ended April 30, 2023, the company reported an increase in total revenue and a significant rise in consolidated net income and net income attributable to controlling interests compared to the same period in 2022 Condensed Consolidated Statements of Operations Highlights (Three Months Ended April 30) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------ | :------------- | :------------- | :------------- | :------- | | Total Revenue | $2,205,956 | $2,136,095 | $69,861 | 3.27% | | Operating Income | $186,280 | $145,140 | $41,140 | 28.34% | | Consolidated Net Income | $465,445 | $376,187 | $89,258 | 23.72% | | Net Income Attributable to Controlling Interests | $236,608 | $188,115 | $48,493 | 25.78% | | Net Income Per Share – Basic & Diluted | $0.03 | $0.02 | $0.01 | 50.00% | Condensed Consolidated Statements of Shareholders' Equity The statements of shareholders' equity show an increase in total equity from January 31, 2023, to April 30, 2023, driven by net income and shares issued for services, partially offset by distributions to non-controlling interests Shareholders' Equity Changes (Three Months Ended April 30, 2023) | Metric | Amount | | :-------------------------------- | :------------- | | Balance, January 31, 2023 | $3,682,145 | | Net Income | $465,445 | | Shares of Beneficial Interest Issued for Services Rendered | $19,760 | | Distribution to Non-Controlling Interests | $(149,439) | | Balance, April 30, 2023 | $4,017,911 | Condensed Consolidated Statements of Cash Flows Cash flows from operating activities decreased significantly, while cash used in investing activities also decreased; financing activities shifted from a net cash inflow in 2022 to a net cash outflow in 2023, resulting in a net decrease in cash and cash equivalents for the current period Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended April 30) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------ | :------------- | :------------- | :------------- | :------- | | Net Cash Provided By Operating Activities | $37,036 | $92,445 | $(55,409) | -59.94% | | Net Cash Used In Investing Activities | $(123,290) | $(160,332) | $37,042 | -23.10% | | Net Cash (Used In) Provided By Financing Activities | $(320,844) | $2,697,064 | $(3,017,908) | -111.89% | | Net (Decrease) Increase In Cash and Cash Equivalents | $(407,098) | $2,629,177 | $(3,036,275) | -115.48% | | Cash and Cash Equivalents at End of Period | $1,704,285 | $3,853,557 | $(2,149,272) | -55.77% | Notes to Condensed Consolidated Financial Statements These notes provide essential context and detailed breakdowns for the unaudited condensed consolidated financial statements, covering the company's business model, significant accounting policies, ownership structures, debt obligations, related party transactions, and recent events affecting its financial position and performance 1. Nature of Operations and Basis of Presentation InnSuites Hospitality Trust operates as an Ohio REIT, owning and managing two hotels in Arizona and New Mexico under both 'InnSuites' and 'Best Western' brands, holding a significant investment in UniGen Power Inc., and actively exploring strategic options while managing seasonal hotel operations - InnSuites Hospitality Trust (IHT) is a publicly traded unincorporated Ohio real estate investment trust (REIT) with two hotels in Arizona and New Mexico that it owns and manages under the 'InnSuites' and 'Best Western' brands[21] - The Trust holds a $1 million 6% convertible debenture in UniGen Power Inc. ('UniGen'), approximately $603,750 in UniGen's privately-held common stock, and warrants for future UniGen investments[21] - The Trust's principal cash sources are revenues from hotel room reservations and RRF Management fees, with liquidity also dependent on debt service, intercompany advances, and potential asset sales[30] - With approximately $1.7 million in cash and $2.25 million available from credit facilities, the Trust believes it has sufficient liquidity for the next twelve months and is analyzing strategic options like hotel sales or a merger[34] - Hotel operations are seasonal, with the Tucson, Arizona hotel experiencing highest occupancy in the first and fourth fiscal quarters, and the Albuquerque, New Mexico hotel being most profitable in the second and third fiscal quarters, providing some balance[42] 2. Summary of Significant Accounting Policies This section details the critical accounting policies, including the use of estimates, depreciation of property and equipment, revenue recognition for hotel operations, and the valuation of the UniGen Power Inc. investment, also covering policies for accounts receivable, lease accounting, stock-based compensation, and fair value measurements - Management's preparation of financial statements requires significant estimates and assumptions, particularly for the estimated useful lives and recoverability of long-lived assets and their fair values[45][46] - Revenues are primarily derived from room rentals, food and beverage sales, and management/trademark fees, recognized as services are rendered and collectability is reasonably assured[54] - The Trust's investment in UniGen Power Inc. includes a $1,000,000 secured convertible debenture at 6% interest, convertible into 1,000,000 Class A shares, and warrants to purchase up to 1,500,000 additional shares, potentially leading to approximately 25% of UniGen's fully diluted equity[70][71][72] - As of April 30, 2023, IHT held 510,000 common shares of UniGen, purchased at a cost of $603,750, with management believing cost approximates fair value due to UniGen's R&D phase and no significant operational changes[77] - UniGen management reports progress on completing the UPI 1000TA first prototype, with engineering complete and capital raising underway, and an increased estimated market price for the product[77][78] 3. Ownership Interests in Albuquerque and Tucson Subsidiaries The Trust has sold non-controlling interests in its Albuquerque and Tucson hotel subsidiaries as part of an Equity Enhancement Plan, maintaining majority ownership in the Tucson entity, with these units structured into classes with differing priority distribution rights - The Trust sold non-controlling interests in Albuquerque Suite Hospitality, LLC and Tucson Hospitality Properties, LLLP for $10,000 per unit as part of its Equity Enhancement Plan to comply with NYSE American listing standards[82][83][85] - As of April 30, 2023, the Trust held a 21.50% ownership interest in the Albuquerque entity, and the Partnership held a 51.01% ownership interest in the Tucson entity[86][87] - Units in these entities are allocated to Class A, B, and C, with Class A (unrelated third parties) having priority for distributions over Class B (Trust/Partnership) and Class C (Mr. Wirth/affiliates)[82][85] 4. Variable Interest Entities Management has determined that the Albuquerque entity is a variable interest entity (VIE) with the Partnership as the primary beneficiary, based on the Partnership's and Trust's control over decisions and guarantees of financial obligations - The Partnership has determined the Albuquerque entity to be a variable interest entity (VIE), with the Partnership as the primary beneficiary, due to its ability to exercise control and guarantees of material financial obligations[89][90] - Both the Partnership and the Trust provided mortgage loan guarantees, enabling the properties to obtain necessary financing[91] 5. Property and Equipment This section provides a breakdown of the net book value of hotel properties and corporate property, plant, and equipment as of April 30, 2023, and January 31, 2023, after accounting for accumulated depreciation Property and Equipment, Net | Category | April 30, 2023 | January 31, 2023 | | :-------------------------- | :------------- | :--------------- | | Hotel properties, net | $7,108,524 | $7,166,199 | | Corporate PP&E, net | $41,076 | $43,289 | 6. Mortgage Notes Payable Details the mortgage notes payable for the Tucson and Albuquerque hotel properties, including their principal balances, interest rates, and guarantees, with the Tucson property's loan refinanced for $8.4 million and the Albuquerque property having a $1.4 million loan - Tucson Hospitality Properties LLLP refinanced a loan for $8.4 million at 4.99% interest, amortized over 25 years, and guaranteed by InnSuites Hospitality Trust and related parties[94] - As of April 30, 2023, the mortgage loan balance for Tucson was approximately $9,475,000, with monthly installments of $49,778[95] - Albuquerque Suites Hospitality, LLC has a $1.4 million loan with Republic Bank of Arizona, maturing December 2, 2029, with an initial interest rate of 4.90% and guaranteed by InnSuites Hospitality Trust[96] - As of April 30, 2023, the mortgage loan balance for Albuquerque was approximately $1,299,000, net of financing fees[96] 7. Notes Payable and Notes Receivable – Related Party The Trust maintains a Demand/Revolving Line of Credit/Promissory Note with Rare Earth Financial, LLC, a related party, with a 7.0% per annum interest rate and a maximum borrowing capacity of $2,000,000, and as of April 30, 2023, the Trust had a receivable balance of approximately $27,000 - The Trust has a Demand/Revolving Line of Credit/Promissory Note with Rare Earth Financial, LLC (wholly owned by Mr. Wirth and family members) at 7.0% per annum, with a maximum borrowing capacity of $2,000,000[98] - As of April 30, 2023, the Trust had an amount receivable of approximately $27,000 from this related party, compared to $0 at January 31, 2023[98] 8. Other Notes Payable This section outlines the Trust's other unsecured promissory notes outstanding to individual lenders, including a $200,000 note at 4.5% and a $270,000 loan at 4.5%, both extended to December 2024, with a $100,000 loan fully repaid in the first fiscal quarter of 2024 - The Trust has a $200,000 unsecured note payable with an individual lender, accruing interest at 4.5%, due on demand or in December 2024[100] - An unsecured loan totaling $270,000 with an individual investor at 4.5% interest, payable monthly, has been extended to December 2024[101] - A $100,000 unsecured loan at 4.0% interest was repaid in full during the first fiscal quarter of Fiscal Year 2024[102] 9. Minimum Debt Payments This table presents the scheduled minimum debt payments, net of debt discounts, for mortgage notes payable and other notes payable across future fiscal years, totaling approximately $9.9 million Scheduled Minimum Debt Payments (as of April 30, 2023) | FISCAL YEAR | MORTGAGES | OTHER NOTES PAYABLE | NOTES PAYABLE - RELATED PARTY | TOTAL | | :---------- | :---------- | :------------------ | :---------------------------- | :---------- | | 2024 | $223,680 | $470,000 | $- | $693,680 | | 2025 | $234,169 | $- | $- | $234,169 | | 2026 | $247,906 | $- | $- | $247,906 | | 2027 | $260,999 | $- | $- | $260,999 | | 2028 | $263,125 | $- | $- | $263,125 | | Thereafter | $8,200,945 | $- | $- | $8,200,945 | | Total | $9,430,824| $470,000 | $- | $9,900,824| 10. Description of Beneficial Interests Holders of the Trust's Shares of Beneficial Interest are entitled to dividends, ratable share in assets upon liquidation, and ordinary voting rights, with the Trust continuing its share repurchase program, having repurchased 15,795 shares in the prior year - Holders of the Trust's Shares of Beneficial Interest are entitled to receive dividends (if declared), share ratably in assets upon liquidation, and possess ordinary voting rights (one vote per share)[105] - For the three months ended April 30, 2022, the Trust repurchased 15,795 Shares of Beneficial Interest at an average price of $2.53 per share, and intends to continue its repurchase program[106] 11. Related Party Transactions This section details the significant ownership interests of Mr. Wirth and his affiliates in both the Trust and the Partnership, and outlines the management agreements for the hotels, including fees and an employment arrangement with a family member - As of April 30, 2023, Mr. Wirth and his affiliates held 22.51% of the total outstanding Partnership units and 70.29% of the total issued and outstanding Shares of Beneficial Interest in the Trust[108] - The Trust, through its wholly-owned subsidiary RRF Limited Partnership, manages the hotels' daily operations, charging management fees of 5% of room revenue and a monthly accounting fee of $2,000 per hotel[110] - An immediate family member of Mr. Wirth, Brian James Wirth, is employed part-time by the Trust to provide IT Technology support services, receiving a $37,000 annual salary[111] 12. Statements of Cash Flows, Supplemental Disclosures Supplemental cash flow information indicates that the Trust paid $88,000 in cash for interest during the three months ended April 30, 2023, a decrease from $118,000 in the prior year, with no cash paid for taxes in either period Cash Paid for Interest and Taxes (Three Months Ended April 30) | Metric | 2023 | 2022 | | :----- | :-------- | :-------- | | Interest | $88,000 | $118,000 | | Taxes | $0 | $0 | 13. Commitments and Contingencies The Trust has commitments including a 4% of the Tucson Oracle hotel's room revenue deposit for capital expenditures (though no restricted cash balance existed), and fees paid to Best Western for branding, with management believing ongoing legal matters will not materially impact the Trust's financial position - The Trust is obligated to deposit 4% of the Tucson Oracle hotel's room revenue into an escrow account for capital expenditures, though no cash balance existed in 'Restricted Cash' as of April 30, 2023[113] - Fees paid for Best Western membership and reservations were approximately $51,000 for the three months ended April 30, 2023, and $48,000 for the three months ended April 30, 2021[114] - Management believes the ultimate disposition of various claims and legal actions arising in the ordinary course of business will not have a material adverse effect on the Trust's consolidated financial position, results of operations, or liquidity[115][116] 14. Leases The Trust holds operating leases for its corporate offices and land in Albuquerque, and a finance lease for cable equipment in Tucson, with this section detailing lease costs, cash flow impacts, and the weighted-average remaining lease terms and discount rates for both operating and finance leases Lease Costs (Three Months Ended April 30, 2023) | Lease Type | Cost | | :----------- | :----- | | Operating Lease Cost | $22,660 | | Finance Lease Amortization of ROU assets | $13,874 | | Finance Lease Interest on lease obligations | $218 | Lease Obligations and Terms (as of April 30, 2023) | Metric | Operating Leases | Finance Leases | | :-------------------------------- | :--------------- | :------------- | | Lease Obligations, net | $2,271,681 | $12,812 | | Weighted average remaining lease term (years) | 34 | 1 | | Weighted average discount rate | 4.85% | 4.85% | 15. Share-Based Payments On May 31, 2022, the Board of Trustees approved a grant of 38,000 fully paid IHT restricted shares to officers, trustees, and key employees, with an aggregate fair value of approximately $79,040, vesting over one year - On May 31, 2022, the Trust's Board of Trustees approved a grant of 38,000 fully paid IHT restricted shares to Officers, Trustees, and Key Employees, with an aggregate grant date fair value of approximately $79,040, vesting over one year[127] 16. Notes Receivable The Trust holds a secured promissory note of $1,925,000 from the sale of its technology subsidiary, IBC Hotels LLC, with interest accruing at 3.75% per annum and a maturity date of June 1, 2024, with no interest or principal payments due or accrued through May 2023 - The Trust holds a secured promissory note of $1,925,000 from the sale of IBC Hospitality Technologies (IBC Hotels LLC), with interest accruing at 3.75% per annum and a maturity date of June 1, 2024[128] - No interest accrued through May 2023, and no payments on the note receivable (principal and interest) were due through May 2023[128] - The note is secured by a pledge of the Buyer's interest in IBC and a security interest in all assets of IBC[129] 17. Income Taxes The Trust, taxed as a C-Corporation, has deferred tax assets of $4.3 million and a deferred tax liability of $1.8 million, with a valuation allowance of approximately $2.6 million recognized against the net deferred tax asset - The Trust is taxed as a C-Corporation and has deferred tax assets of $4.3 million (including $1.4 million in net operating loss carryforwards and $2.9 million in syndications) and a deferred tax liability of $1.8 million as of January 31, 2023[131] - A valuation allowance of approximately $2.6 million has been determined against the net deferred tax asset[131] 18. COVID-19 Disclosure The negative impact of COVID-19 on the Trust's business, financial results, and liquidity has significantly diminished, with lodging demand and revenue levels believed to be fully recovered, and COVID-19 is no longer considered a major factor for Fiscal Year 2024 - The detrimental impact of COVID-19 on the Trust's business, financial results, and liquidity has significantly diminished, with lodging demand and revenue levels believed to be fully recovered[132][133][134] - COVID-19 is no longer considered a major factor for Fiscal Year 2024 (February 1, 2023, to January 31, 2024)[134] 19. Occupancy Tax No occupancy tax assessments have occurred since September 2020, and management has concluded that any discrepancy on prior reported periods is qualitatively immaterial - No occupancy tax assessments have transpired since September 2020, and management has assessed the materiality of the discrepancy on prior reported periods as qualitatively immaterial[135] 20. Employee Retention Tax Credit The Trust expects to receive approximately $2.7 million in Employee Retention Tax Refunds and Credits for calendar years 2020 and 2021 under the CARES Act and Consolidated Appropriations Act, with an additional 12% recognized for the quarter ended April 30, 2023 - The Trust expects to receive approximately $2.7 million in Employment Tax Refunds and Credits for calendar years 2020 and 2021 under the CARES Act and The Consolidated Appropriations Act[136][137] - An additional 12% of the total anticipated Tax Credit receivable was conservatively recognized for the quarter ended April 30, 2023[137] 21. Subsequent Events The Trust maintains its semi-annual dividend policy and has confirmed full compliance with NYSE-American listing standards, with hotel operations achieving record results for Fiscal Year 2023 and the first quarter of Fiscal Year 2024, showing significant increases in net income and EPS - The Trust maintains a conservative semi-annual dividend policy of $0.01 per share, totaling $0.02 per fiscal year, with the next dividend anticipated for July 31, 2023[138] - The Trust received communication on August 29, 2022, confirming full compliance with all NYSE-American Continued Listing Standards Equity Requirements[139] - Hotel operations achieved record results for Fiscal Year 2023 and the Fiscal First Quarter of 2024, with Net Income Attributable to Controlling Interests doubling by 106% to $523,171 in FY2023 and EPS increasing to $0.06[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Trust's financial condition and operating results, detailing its hotel operations, strategic diversification into clean energy, and plans for asset sales and potential mergers, including an analysis of financial performance, liquidity, and key accounting policies General and Forward-Looking Statements This subsection introduces the MD&A and highlights that forward-looking statements are subject to various uncertainties and factors, including virus pandemics, economic conditions, and investment risks, which could cause actual results to differ materially - Forward-looking statements are subject to many uncertainties and factors, including virus pandemics, inflation, economic recession, and investment risks, that may cause actual results to differ materially[142][143] - Key risks include fluctuations in hotel occupancy and room rates, seasonality, the ability to sell hotels, interest rate fluctuations, and changes in governmental regulations[143] Overview The Trust is engaged in hotel ownership and management, operating two moderate-service hotels, with a strategic plan involving selling these hotel properties, expanding its UniGen clean energy investment, and pursuing a reverse merger with a private entity to gain a NYSE American listing - The Trust owns and operates two moderate-service hotels in Tucson, Arizona, and Albuquerque, New Mexico, with 270 suites, branded as InnSuites Hotels and Suites and Best Western[146] - The strategic plan is to obtain full market value for the two hotels (over the next 12-36 months), benefit from the UniGen diversification investment, and pursue a reverse merger with a larger private entity seeking a NYSE American listing[152][153] - The Trust has invested $1 million in UniGen Power, Inc. convertible debentures and acquired warrants to purchase an additional 2 million UniGen shares, potentially resulting in up to 25% ownership[153] Hotel Operations Performance For the three months ended April 30, 2023, combined hotel operations showed an increase in occupancy and Revenue Per Available Room (REVPAR), despite a slight decrease in Average Daily Rate (ADR) compared to the prior year Combined Hotel Performance (Three Months Ended April 30) | Metric | 2023 | 2022 | Change | %-Incr/Decr | | :----- | :-------- | :-------- | :-------- | :---------- | | Occupancy | 88.17% | 82.02% | 6.15% | 7.50% | | ADR | $102.79 | $105.45 | $(2.66) | -2.52% | | REVPAR | $90.64 | $86.50 | $4.14 | 4.79% | Results of Operations (Trailing Twelve Months) For the fiscal twelve months ended April 30, 2023, total revenues saw a modest increase, while operating expenses rose more significantly, leading to an operating loss, and consolidated net income decreased compared to the prior year, despite a substantial increase in employee retention benefits Operating Results (Fiscal Twelve Months Trailing Ended April 30) | Metric | FY 2023/2024 | FY 2022/2023 | Change | % Change | | :---------------------- | :----------- | :----------- | :---------- | :------- | | Total Revenues | $7,215,548 | $7,146,769 | $68,779 | 1% | | Operating Expenses | $7,471,743 | $7,098,385 | $373,358 | 5% | | Operating (Loss) Income | $(256,195) | $48,384 | $(304,579) | 630% | | Consolidated Net Income | $826,309 | $1,758,761 | $(932,452) | 53% | Results of Operations (Three Months Ended April 30) For the three months ended April 30, 2023, the Trust experienced a 3% increase in total revenue and a 24% increase in consolidated net income, driven by recovery in demand and prior refurbishments, while operating expenses remained relatively flat year-over-year, with some categories increasing due to higher occupancy and staffing, and others decreasing due to cost savings or reduced marketing focus Revenue Analysis Total revenue increased by 3% for the first fiscal quarter, primarily due to the recovery of demand post-COVID-19 and benefits from prior hotel refurbishments, with room and food and beverage revenues also seeing increases Revenue Highlights (Three Months Ended April 30) | Metric | 2023 | 2022 | Change | % Change | | :-------------------- | :------------- | :------------- | :------------- | :------- | | Total Revenues | $2,205,956 | $2,136,095 | $69,861 | 3% | | Room Revenues | ~$2.18 million | ~$2.08 million | ~$0.10 million | 4% | | Food and Beverage Revenue | ~$18,000 | ~$16,000 | ~$2,000 | 11% | | Consolidated Net Income | ~$465,000 | ~$376,000 | ~$89,000 | 24% | | EPS (Consolidated Net Income) | $0.03 | $0.02 | $0.01 | 50% | Expense Analysis Total expenses, net of interest, remained relatively flat year-over-year, increasing by 1%, with room expenses rising due to higher occupancy, food and beverage expenses decreasing due to cost savings, general and administrative expenses increasing due to corporate staffing, and sales and marketing decreasing due to reduced focus - Total expenses, net of interest expense, increased by approximately $0 million, or 1%, remaining close to flat year over year at approximately $2.0 million for the three months ended April 30, 2023[169] - Room expenses increased by approximately $63,000, or 11%, to $630,000 due to increased occupancy at the hotels[170] - Food and beverage expenses decreased by approximately $8,000, or 15%, to $48,000 due to cost savings initiatives[171] - General and administrative expenses increased by approximately $18,000 to $620,000, primarily due to higher corporate staffing in support of hotels and property sales efforts[172] - Sales and marketing expense decreased by approximately $53,000, or 35%, to $97,000 due to decreased focus on sales and marketing following the rebound in hotel occupancy[173] - Hospitality expense increased by approximately $43,000, or 55%, to $120,000, primarily due to expanding complimentary breakfast and social hour offerings[175] - Real estate and personal property taxes, insurance, and ground rent expenses decreased by approximately $30,000, or 21%, to $114,000, resulting from changes in insurance policies and decreased personal property valuations[178] Liquidity and Capital Resources The Trust's liquidity is primarily derived from hotel management fees and distributions, supplemented by available credit lines; while cash from operating activities decreased, the Trust believes it has sufficient funds for the next 12 months, with financing activities seeing a significant decrease due to prior year mortgage refinancing, and the Trust plans to manage debt and pursue asset sales - Principal cash sources include monthly management fees from hotels, distributions from hotel operations, intercompany loan repayments, and potential future real estate hotel sales[179] - With approximately $1.7 million in cash and $2.25 million available from credit facilities, the Trust believes it has sufficient liquidity to meet financial obligations for at least the next twelve months[181] Cash Flow Summary (Three Months Ended April 30) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------ | :------------- | :------------- | :------------- | :------- | | Net Cash Provided By Operating Activities | $37,000 | $92,000 | $(55,000) | -59.78% | | Net Cash Used In Investing Activities | $(123,000) | $(160,000) | $37,000 | -23.13% | | Net Cash (Used In) Provided By Financing Activities | $(321,000) | $2,697,000 | $(3,018,000) | -111.89% | - Minimum debt payments for Fiscal Year 2024 are approximately $693,000, including $223,000 in mortgage notes payable and $470,000 in other notes payable[196] Competition in the Hotel Industry The hotel industry remains competitive, and while recent renovations at the Trust's properties are expected to drive demand, potential increases in supply or declines in demand could adversely affect revenues, leading the Trust to actively diversify away from hotel investments and explore a reverse merger - The hotel industry is competitive, and while the Trust's completed renovations are expected to drive incremental demand, increased supply or declining demand could adversely affect occupancy, room rates, and revenues[198][200] - The Trust may not invest further in hotels, instead diversifying into investments like UniGen Power, Inc., and seeking further diversification through a reverse merger with a larger non-public entity[201] Critical Accounting Policies and Estimates This section outlines the Trust's critical accounting policies, focusing on asset impairment and revenue recognition, with management assessing the valuation of hotel properties and planning to sell the remaining two hotels within 12-36 months, believing their estimated market asking prices are reasonable Asset Impairment The Trust applies ASC Topic 360-10-35 to test long-lived assets for impairment, comparing carrying value to estimated undiscounted future cash flows, with no impairment loss recognized for the three months ended April 30, 2023, or 2022, and management believing no hotel properties are impaired - The Trust applies ASC Topic 360-10-35 to test long-lived assets for impairment when indicators are present, comparing the carrying amount to estimated undiscounted future cash flows[204] - No hotel properties impairment loss was recognized for the three months ended April 30, 2023, or 2022, and management does not believe the carrying values of any hotel properties are impaired[204] Sale of Hotel Assets Management believes its currently owned hotels are valued reasonably at fair market value and plans to sell the two remaining hotel properties within 12-36 months, with an estimated market asking price of $28,000,000 for both - Management believes its currently owned hotels are valued at prices reasonable in relation to their current fair market value and plans to sell the two remaining hotel properties within 12-36 months[205] Estimated Market Asking Price for Hotel Properties | Hotel Property | Book Value | Mortgage Balance | Estimated Market Asking Price | | :------------- | :---------- | :--------------- | :---------------------------- | | Albuquerque | $1,004,720 | $1,239,614 | $9,500,000 | | Tucson Oracle | $6,103,804 | $8,191,210 | $18,500,000 | | Total | $7,108,524| $9,430,824 | $28,000,000 | Revenue Recognition Revenues are primarily derived from room rentals, food and beverage sales, and management/trademark fees, recognized as services are rendered, with performance obligations for room nights met daily for cancelable reservations or over the reservation period for non-cancelable ones, bundling amenities with the room - Revenues primarily consist of room rentals, food and beverage sales, management and trademark fees, recognized as services are rendered and when collectability is reasonably assured[207] - For cancelable reservations, revenue is recognized as each room night is met; for non-cancelable reservations, revenue is recognized over the reservation period as room nights are consumed, bundling amenities with the room itself[208][209] Compliance with Continued Listing Standards of NYSE American The Trust's Management received communication from the NYSE-American on August 29, 2022, confirming full compliance with all of the Continued Listing Standards Equity Requirements - The Trust received communication from the NYSE-American on August 29, 2022, indicating full compliance with all of the Continued Listing Standards Equity Requirements[211] Non-GAAP Financial Measures This section provides reconciliations for non-GAAP financial measures, Adjusted EBITDA and Funds From Operations (FFO), which are used to evaluate the Trust's operating performance, with Adjusted EBITDA remaining relatively stable while FFO increased for the three months ended April 30, 2023, compared to 2022 Adjusted EBITDA (Three Months Ended April 30) | Metric | 2023 | 2022 | | :----- | :-------- | :-------- | | Adjusted EBITDA | $477,000 | $479,000 | Funds From Operations (FFO) (Three Months Ended April 30) | Metric | 2023 | 2022 | | :----- | :-------- | :-------- | | FFO | $634,000 | $548,000 | Future Positioning The Trust's long-term strategic plan involves actively seeking buyers for its two remaining hotel properties at market value, benefiting from its UniGen Power, Inc. clean energy investment, and pursuing a reverse merger with a larger private entity to achieve a NYSE American listing - The Board of Trustees continues to actively seek buyers for the two remaining hotel properties (Tucson and Albuquerque) at market value, listed on www.suitehotelsrealty.com[217](index=217&type=chunk) - The long-term strategic plan is to obtain the full benefit of real estate equity, benefit from the UniGen Power, Inc. clean energy operation diversified investment, and pursue a merger with another company, likely a private larger entity seeking a NYSE American listing[222] Share Repurchase Program The Trust's stock and unit Repurchase Program was highly successful during Fiscal Year 2023, and the company plans to continue and accelerate these buybacks in the current Fiscal Year 2024 - The stock and unit Repurchase Program was highly successful during Fiscal Year 2023 (February 1, 2022, to January 31, 2023), and the Trust plans to continue and accelerate these buybacks in the current Fiscal Year 2024[223] Off-Balance Sheet Arrangements The Trust confirms that it does not have any off-balance sheet financing arrangements or liabilities, nor any majority-owned or controlled subsidiaries not included in its consolidated financial statements - The Trust does not have any off-balance sheet financing arrangements or liabilities, nor any majority-owned or controlled subsidiaries not included in its consolidated financial statements[224] Seasonality The Trust's hotel operations are seasonal, with the Tucson hotel's highest occupancy in the first and fourth fiscal quarters and the Albuquerque hotel's most profitable periods in the second and third fiscal quarters, which increases vulnerability to risks like travel disruptions and labor shortages - The Tucson Arizona Hotel historically experiences the highest occupancy in the first and fourth fiscal quarters, while the Albuquerque, New Mexico hotel is most profitable during the second and third fiscal quarters, providing some balance to the overall seasonality[225] - The seasonal nature of the business increases its vulnerability to risks such as travel disruptions, labor force shortages, and cash flow issues[226] Inflation The Trust relies on hotel performance and its ability to increase revenue to keep pace with inflation, noting that while room rates can be adjusted quickly, competitive pressures may limit the pace of increases, and substantial rate increases were implemented in Fiscal Year 2023 to offset rising expenses - The Trust relies on hotel performance and its ability to increase revenue to keep pace with inflation, noting that competitive pressures may limit the speed at which room rates can be raised[227] - During Fiscal Year 2023, InnSuites experienced substantial increases in rates to offset inflationary increases in labor and other expenses[227] Investment in UniGen Power, Inc. The Trust's $1 million diversification investment in UniGen Power, Inc., a clean energy generation company, includes secured convertible debentures and warrants, potentially leading to 25% equity ownership, with UniGen having completed prototype design engineering and raising capital, and IHT monitoring progress through board representation - The Trust's $1 million diversification investment in UniGen Power Inc. includes secured convertible debentures (6% annual interest) and warrants to purchase up to 3 million shares, potentially amounting to approximately 25% of UniGen's fully diluted equity[228][229][232] - UniGen has completed prototype design engineering for the UPI 1000TA engine and is currently focused on raising additional capital, with IHT potentially participating through warrant exercise[235][236] - Simulated tests indicate the UPI 1000TA engine is approximately 33% more fuel efficient than initially estimated and will emit only about 25% of the maximum emissions allowed by CARB[237] - James Wirth (IHT President) and Marc Berg (IHT Executive Vice President) serve on UniGen's board to monitor and assist in the success of this high-risk, high-potential clean energy innovation[236][239] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not required for smaller reporting companies - Quantitative and qualitative disclosures about market risk are not required for smaller reporting companies[241] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the disclosure controls and procedures were fully effective as of April 30, 2023, and the internal control over financial reporting was also assessed as fully effective based on COSO criteria, with ongoing remediation initiatives to strengthen accounting staff and internal controls Evaluation of Disclosure Controls and Procedures As of April 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were fully effective, acknowledging that control systems provide reasonable, not absolute, assurance - As of April 30, 2023, the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) concluded that the disclosure controls and procedures were fully effective[242] - Control systems, regardless of design, can only provide reasonable, not absolute, assurance that objectives are met, due to inherent limitations and resource constraints[243] Management's Report on Internal Control Over Financial Reporting Management is responsible for internal control over financial reporting and assessed its effectiveness as fully effective as of April 30, 2023, based on the COSO Internal Control - Integrated Framework (2013) - Management assessed the effectiveness of internal control over financial reporting as fully effective as of April 30, 2023, using the criteria set forth by COSO in Internal Control - Integrated Framework (2013)[246] Management's Remediation Initiatives The Trust has enhanced its internal control over financial reporting by increasing technical accounting expertise through a seasoned CFO, promoting a Corporate Controller, and employing two full-time Staff Accountants, with ongoing efforts including improving the control environment, updating documentation, and implementing robust control activities - The Trust increased its technical accounting expertise by promoting its Corporate Controller and employing two full-time Staff Accountants, along with strengthening the Chief Financial Officer (CFO) position, to assist with technical accounting and internal control issues[247][252] - Remediation efforts include improving the control environment, updating internal control process documentation, implementing control activities for relevant risks, and enhancing supervisory procedures[248][252] Changes in Internal Control over Financial Reporting During the three months ended April 30, 2023, there were continued positive changes in internal control over financial reporting, with new staffing additions expected to enhance stability, technical accounting, and internal control issues - Continued positive changes in internal control over financial reporting occurred during the three months ended April 30, 2023, with new staffing additions expected to assist with stability, technical accounting, and internal control issues[251] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Trust reports no legal proceedings for the period - There are no legal proceedings to report[255] Item 1A. Risk Factors The impact of COVID-19 on the Trust's business, financial results, and liquidity has significantly diminished, with lodging demand and revenue levels believed to be fully recovered, and COVID-19 is no longer considered a major risk factor for Fiscal Year 2024 - The impact of COVID-19 on the Trust's business, financial results, and liquidity has significantly diminished, with lodging demand and revenue levels believed to be nearly fully recovered[256][257] - COVID-19 is no longer considered a major factor for Fiscal Year 2024 (February 1, 2023, to January 31, 2024)[257] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Holders of the Trust's Shares of Beneficial Interest are entitled to dividends, liquidation rights, and voting rights, with the Trust repurchasing 15,795 shares in the prior year, believing its share price does not reflect full value, and acquiring 0 Shares in open market transactions during the current quarter - Holders of the Trust's Shares of Beneficial Interest are entitled to receive dividends (if declared), share ratably in assets upon liquidation, and possess ordinary voting rights[258] - For the three months ended April 30, 2022, the Trust repurchased 15,795 Shares of Beneficial Interest at an average price of $2.53 per share, believing the share price does not recognize the Trust's full value[259] - During the three months ended April 30, 2023, the Trust acquired 0 Shares of Beneficial Interest in open market transactions[259] Item 3. Defaults Upon Senior Securities The Trust reports no defaults upon senior securities - There are no defaults upon senior securities[261] Item 4. Mine Safety Disclosures The Trust reports no mine safety disclosures - There are no mine safety disclosures[262] Item 5. Other Information The Trust reports no other information for the period - There is no other information to report[263] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including Section 302 and 906 Certifications by the Chief Executive Officer and Chief Financial Officer, as well as various Inline XBRL Exhibits - Exhibits include Section 302 Certifications by the Chief Executive Officer and Chief Financial Officer, Section 906 Certification, and various Inline XBRL Exhibits (Instance, Schema, Calculation, Labels, Presentation, and Definition Linkbase Documents)[264] Signatures The report is duly signed on behalf of InnSuites Hospitality Trust by James F. Wirth, Chairman and Chief Executive Officer, and Sylvin R. Lange, Chief Financial Officer, on June 14, 2023 - The report was signed on June 14, 2023, by James F. Wirth, Chairman and Chief Executive Officer, and Sylvin R. Lange, Chief Financial Officer[267]