<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

         (Mark One)

         [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                 EXCHANGE ACT OF 1934

         For the fiscal year ended January 31, 1999.

         [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                 SECURITIES EXCHANGE ACT OF 1934

         For the transition period from          to         .
                                        --------    --------

                           Commission File No. 1-7062
                                              ---------


                           InnSuites Hospitality Trust
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

               Ohio                                            34-6647590
------------------------------------------              ---------------------
(State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                          Identification Number)

InnSuites Hotels Centre, 1625 E. Northern Avenue,
            Suite 201, Phoenix, Arizona                               85020
---------------------------------------------------------           ----------
   (Address of Principal Executive Offices)                         (ZIP Code)

Registrant's Telephone Number, including area code    (602) 944-1500
                                                     ------------------

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

Title of Each Class                     Name of Exchange on Which Registered
--------------------                    ------------------------------------
Shares of Beneficial                            American Stock Exchange
Interest, without 
par value


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


         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 / /


                      [Cover Continued on Following Page ]


<PAGE>   2



                      [Cover Continued From Previous Page]

         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. [X]

Aggregate market value of voting stock held by non-affiliates of the Registrant
as of May 12, 1999: $3,872,864.

Number of shares of voting stock outstanding as of May 12, 1999: 2,341,374


                       DOCUMENTS INCORPORATED BY REFERENCE

                  Portions of the Proxy Statement for the July 12, 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.


                                      -2-
<PAGE>   3



                                     PART I
                                    ---------


Item 1.  BUSINESS.
         ---------

Introduction to Our Business

         InnSuites Hospitality Trust (formerly known as Realty ReFund Trust)(the
"Trust") was organized in 1971 and operates as an unincorporated Ohio real
estate investment trust. On January 31, 1999, the Trust owned, through RRF Sub  
Corp., a wholly-owned subsidiary, an InnSuites(R) hotel located in Scottsdale,  
Arizona and an 17% sole general partner interest in RRF Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"). Events subsequent
to January 31, 1999 have increased the Trust's general partner interest in the
Operating Partnership to approximately 42%. The Operating Partnership, on
January 31, 1999, owned or controlled interests, directly or indirectly, in
nine InnSuites(R) hotels located in Arizona and southern California (all ten
InnSuites(R) hotels are hereinafter referred to as the "Hotels"). The Trust
employs five people.

         The Hotels feature 1,665 hotel suites and operate as moderate- and
full-service hotels which apply an operating philosophy formulated in 1980 by
James F. Wirth, current Chairman, President and Chief Executive Officer of the
Trust. Initially, the Trust attempts to acquire under-performing hotel
properties below replacement cost. Through intensive refurbishment and
management programs, the Trust repositions the acquired hotels as studio and
two-room suite hotels that offer services such as free breakfast buffets,
complementary afternoon social hours and well-appointed kitchen areas.

         The Trust has elected to be taxed as a real estate investment trust
("REIT"), as that term is defined and used in Sections 856-860 of the Internal
Revenue Code of 1986, and the Regulations thereunder (all as amended, the
"Code"). In order to maintain its REIT tax status, the Trust has affiliated with
certain other hotel hospitality companies. Through one such affiliation, RRF Sub
Corp. and the Operating Partnership lease the Hotels to InnSuites Hotels, Inc.
(the "Initial Lessee"). The Initial Lessee pays rent to RRF Sub Corp. and the
Operating Partnership pursuant to lease agreements providing for periodic rental
payments based primarily upon the revenues of the Hotels ("Percentage Leases").
The Trust obtains income from cash distributions made by RRF Sub Corp. and the
Operating Partnership and those distributions largely depend upon those
entities' earnings under the Percentage Leases.

         Further affiliations involve managing the Hotels and licensing the
InnSuites brand. The Initial Lessee currently operates and manages all of the
Hotels, with the assistance of InnSuites Innternational Hotels, Inc. (the
"Management Company"). Pursuant to management contracts, the Initial Lessee pays
the Management Company an annual management fee of 2.5% of gross room and other
revenues for property management services. The Initial Lessee pays InnSuites
Licensing Corp. an annual licensing fee of 2.5% of gross room and other revenues
(1.25% for those hotel properties which also carry a third-party franchise, such
as Best Western(R) or Holiday Inn(R)) for trademark and licensing services
relating to the use of the InnSuites(R) name and marks.



                                      -3-
<PAGE>   4

Historical Operations and The Formation Transactions

         Until January 31, 1998, the Trust specialized in wrap-around mortgage
lending, whereby the Trust offered borrowers a total mortgage loan (the
wrap-around loan), the principal amount of which equaled the balance outstanding
on an existing prior mortgage loan on the borrower's property, plus an
additional amount supplied by the Trust, on existing income-producing
commercial, industrial and multi-unit residential real property. The Trust
originated no new mortgage loans since the fiscal year ended January 31, 1995
and the final two outstanding mortgage loans receivable matured and were fully
paid and canceled during the fiscal year ended January 31, 1998.

         In August 1996, the Trust began to evaluate a combination with
Hospitality Corporation International ("HCI"), an Arizona corporation owned by
James F. Wirth and his wife, which controlled seven all-suite hotel properties,
comprising 1,036 hotel studio and two-room suites, in Tucson, Phoenix,
Scottsdale, Tempe, Flagstaff and Yuma, Arizona and in Ontario, California (the
"Initial Hotels"). HCI proposed a series of transactions resulting in a
combination of the Initial Hotels with the Trust.

         In late October 1996, the Trust and HCI reached a preliminary agreement
as to the framework of the proposed transactions, culminating in the execution
of a definitive Formation Agreement on December 27, 1996 (the "Formation
Agreement"). The execution of the Formation Agreement was ratified and approved
by the Trustees and by HCI's Board of Directors on February 14, 1997, at which
time the Trust announced the proposed transaction to the public. At the 1997
annual shareholders' meeting held on January 28, 1998, the shareholders of the
Trust approved the terms and execution of the Formation Agreement.

         The Formation Agreement provided for the organization of the Operating
Partnership, of which the Trust would be the sole general partner, initially
holding a 13.6% interest, with the former partners in the Initial Hotels
investing as limited partners, receiving a collective 86.4% interest, and for   
restructuring the Trust into an "umbrella partnership REIT", or "UPREIT". The
Operating Partnership acquired substantial interests in six of the Initial
Hotels. The seventh hotel was acquired directly by RRF Sub Corp., a
newly-formed Nevada corporation and wholly-owned subsidiary of the Trust. The
Trust contributed $2,081,000 in cash to the Operating Partnership to obtain its
initial 13.6% sole general partner interest.

         In accordance with the terms of the Formation Agreement, the previous
Trustees and executive officers of the Trust resigned effective January 30,
1998. James F. Wirth, Gregory D. Bruhn, Marc E. Berg, Mark J. Nasca, Lee J.
Flory and Edward G. Hill were appointed the new Trustees of the Trust effective
January 30, 1998. Mr. Wirth was also appointed Chairman, President and Chief
Executive Officer and Mr. Bruhn was also appointed Executive Vice President,
Chief Financial Officer, Treasurer and Secretary of the Trust.

         The Operating Partnership has two outstanding classes of limited
partnership interests, Class A and Class B, identical in all respects except
that each Class A limited partnership unit is convertible, at the option of the 
Class A holder, into one newly-issued Share of Beneficial Interest of the
Trust. No particular conversion will be allowed, however, if a determination is
made that such conversion would cause the Trust to no longer qualify as a REIT 



                                      -4-
<PAGE>   5

under the Code. A total of 2,174,931 Class A limited partnership units were
issued to the former partners in the Initial Hotels. Class B limited
partnership units may be converted only upon the approval of the Board of       
Trustees, provided that such conversion would not cause the Trust to fail to
qualify as a REIT. A total of 4,017,361 Class B limited partnership units were
issued to Mr. Wirth and certain of his affiliates in order to satisfy ownership
concentration limitations placed upon REITs by the Code. The Partnership
Agreement of the Operating Partnership subjects both general and limited
partner units to restrictions on transfer.

         In addition to the restructuring, the Trust's investment advisor,
Mid-America ReaFund Advisors, Inc. ("MARA"), which was owned by the Trust's
former Co-Chief Executive Officers, Messrs. Krause and Berick, was acquired by
Mr. Wirth and his wife. MARA provided investment advisory and consulting
services to and administered the day-to-day investment operations of the
Operating Partnership and the Trust under the supervision of the Trustees
pursuant to an Advisory Agreement executed between the Operating Partnership and
MARA. The Advisory Agreement was terminated as of January 1, 1999. See "Advisory
Agreement and MARA" below.

         Certain other formation transactions occurred, as contemplated by the
Formation Agreement. The Trust, through its wholly-owned subsidiary, RRF Sub
Corp., executed an Agreement of Merger, dated as of January 30, 1998, pursuant
to which RRF Sub Corp. merged into and with Buenaventura Properties, Inc.       
("BPI"), an Arizona corporation owned by Mr. Wirth and his wife. By virtue of
the merger, the 1,000,000 shares of issued and outstanding BPI common stock
were converted into the right to receive 647,231 Shares of Beneficial Interest
of the Trust with an approximate aggregate value of $3,074,348, representing
the independently appraised value of the InnSuites Hotels Scottsdale/El Dorado
Park Resort.

Hotel Acquisitions following the Formation Transactions

         Following the Formation Transactions, the Operating Partnership
acquired three additional all-suite hotels. First, effective as of February 1,
1998, the Operating Partnership acquired the InnSuites Hotels Tucson St. Mary's
located in Tucson, Arizona. The total consideration for the acquisition was
$10,820,000 and was based upon an appraisal conducted by an independent third
party. Mr. Wirth and his wife indirectly owned the Tucson St. Mary's hotel
property. Second, on April 29, 1998, the Operating Partnership acquired the
Lafayette Hotel Ramada Inn & Conference Center located in San Diego, California.
The Operating Partnership paid $5,148,000 for this hotel property based on
arms-length negotiations with the owners of that property. Third, the Operating
Partnership acquired the InnSuites Hotel located in Buena



                                      -5-
<PAGE>   6

Park, California, effective June 1, 1998. The total consideration for the
acquisition was $7,100,000 and was based upon an appraisal conducted by an
independent third party. James F. Wirth and Steven S. Robson indirectly owned
the Buena Park hotel property. Subsequent to this acquisition, Mr. Robson was
elected as a Trustee of the Trust by the shareholders of the Trust.

         The Trust believes that the greatest opportunities for revenue growth
and profitability will arise from the skillful management and repositioning of
current and future acquired hotel properties. The Trust's primary business
objectives are to maximize current returns to its shareholders through increases
in cash flow available for distribution and to increase long-term total returns
to shareholders. The Trust will seek to achieve these objectives through (i)
participation in increased revenues from the Hotels pursuant to the Percentage
Leases by intensive management and marketing, and (ii) selective acquisitions
and expansion of the InnSuites Hotels system in California and in the
southwestern United States.

Competition in the Hotel Industry

         The hotel industry is highly competitive. Each of the Hotels
experiences competition primarily from other mid-market hotels in its immediate
vicinity, but also competes with other hotel properties in other geographic
markets. While none of the Hotels' competitors dominate any of the Trust's
geographic markets, some of those competitors have substantially greater        
marketing and financial resources than the Trust and the Operating Partnership.
A number of additional hotel property developments have been announced or have
recently been completed by competitors in a number 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
revenues of the Hotels in such competitive markets.

         The Trust has chosen to focus its initial hotel investments in Arizona
and southern California. Particularly, the Trust has a concentration of assets
in the metropolitan Phoenix, Arizona market. In the Phoenix, Arizona market,
hotel room supply is increasing faster than the rate of demand. Supply rates are
also generally increasing faster than demand rates in the Flagstaff, Tucson and
Yuma, Arizona and Ontario, California markets. The Buena Park and San Diego,
California markets continue to support balanced supply and demand.

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


Seasonality of the Hotel Business

         The hotel business is seasonal in nature. The six 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 those six southern Arizona hotels. This
seasonality pattern can be expected to cause significant fluctuations in the
Trust's quarterly lease revenue under the Percentage Leases. The hotels located
in northern Arizona and California 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 hotel business.


Advisory Agreement and MARA

         The Operating Partnership was a party to an Advisory Agreement with
MARA pursuant to which the Operating Partnership received certain investment


                                      -6-
<PAGE>   7

advisory and administrative services regarding the day-to-day investment
operations of the Hotels and pursuant to which MARA was responsible for
providing the Operating Partnership and the Trust with a continuing and
suitable investment program. The Advisory Agreement was terminated as of
January 1, 1999. To terminate the Advisory Agreement the Operating Partnership
paid $256,000 ($225,000 repayment of principal plus $31,500 of accrued  
interest) and on February 1, 2000 is obligated to pay $240,750 ($225,000
repayment of principal plus $15,750 of accrued interest) to satisfy two
promissory notes which were originally issued by Mr. Wirth and his wife when    
they acquired MARA in January 1998. Additionally, the Operating Partnership
issued 67,000 Class B limited partnership units to MARA and MARA forgave
$85,331 in net liabilities in exchange for the termination of the Advisory
Agreement. These amounts were recorded as one-time fourth quarter charges of the
Operating Partnership.

         Pursuant to the Advisory Agreement, MARA received, subject to certain
limitations, (a) a monthly fee equal to 1/12th of 1% of the appraised value of
the total assets of the Operating Partnership during the next preceding month;
(b) 15% of the commitment fees received by the Operating Partnership for any
stand-by or gap commitment relating to a mortgage loan which is not closed; and
(c) an incentive fee equal to 10% of the amount, if any, by which the net
profits of the Operating Partnership exceed 8% of the monthly average net worth
of the Operating Partnership for the year, plus 10% of the net realized capital
gains of the Operating Partnership for such year less accumulated net realized
capital loss. MARA was required to refund to the Operating Partnership the
amount, if any, by which the operating expenses of the Operating Partnership in
any fiscal year exceed the lesser of (x) 1 1/2% of the appraised value of the
total assets of the Operating Partnership for such fiscal year or (y) 25% of the
net income of the Operating Partnership for such fiscal year. For the twelve
months ended January 31, 1999, the Operating Partnership paid MARA $364,041 for
advisory and management services pursuant to the Advisory Agreement.

Financial Information

         See "Item 6 -- Selected Financial Data" herein for information
regarding the Trust's revenues, net income (loss) and total assets.

Item 2.  PROPERTIES.
         -----------

         The Trust maintains its headquarters at the InnSuites Hotels Centre in
Phoenix, Arizona. The Trust directly owns no real property. At January 31, 1999,
the Operating Partnership owned or controlled interests in nine hotels and the
Trust, through its wholly-owned subsidiary, RRF Sub Corp., owned one hotel
located in Scottsdale, Arizona. All of the Hotels are operated as InnSuites(R)
Hotels, while three are also marketed as Best Western(R) hotels and one is also
marketed as a Holiday Inn(R) Hotel and Suites. All of the Hotels are managed by
the Management Company and operate in the following locations:


                                      -7-
<PAGE>   8

<TABLE>
<CAPTION>
                                                    NUMBER       YEAR OF CONSTRUCTION/     MOST RECENT
PROPERTY                                           OF SUITES           ADDITION            RENOVATION
--------                                           ---------     -------------------       -----------
<S>                                                <C>           <C>                      <C>
InnSuites Hotels
Phoenix Best Western.................................  123                    1980               1996

InnSuites Hotels Tempe/
Phoenix Airport/South Mountain.......................  170                 1982/1985             1996

InnSuites Hotels Tucson,
Catalina Foothills Best Western .....................  159                 1981/1983             1996

InnSuites Hotels
Yuma Best Western....................................  166                 1982/1984             1996

Holiday Inn Airport Hotel and
Suites/Ontario(an InnSuites Hotel) ..................  150                    1990               1996

InnSuites Hotels Flagstaff/
Grand Canyon.........................................  134                 1966/1972             1997

InnSuites Hotels Scottsdale/
El Dorado Park Resort ...............................  134                    1980               1996

InnSuites Hotels Tucson St. Mary's...................  297                 1960/1971             1997

InnSuites Hotels San Diego...........................  147                 1946/1989             1998

InnSuites Hotels Buena Park..........................  185                 1972/1980             1998
                                                       ---

Total suites                                          1665
</TABLE>



Item 3.  LEGAL PROCEEDINGS.
         ------------------

         The Trust is not a party, nor are its properties subject to, any
material litigation or environmental regulatory proceedings.



Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         ----------------------------------------------------

         There were no matters submitted to a vote of security holders during
the fourth fiscal quarter ended January 31, 1999.

                                   PART II
                                   -------

Item 5.  MARKET FOR THE TRUST'S SHARES AND RELATED SECURITY HOLDER MATTERS.
         ------------------------------------------------------------------

         Until February 23, 1999, the Trust's Shares of Beneficial Interest were
traded on the New York Stock Exchange under the symbol "IHT". Since April 7,
1999, the Trust's Shares of Beneficial Interest have been traded on the American
Stock Exchange under the symbol "IHT". On May 12, 1999, the Trust had 2,341,374
shares outstanding and 638 holders of record.



                                      -8-
<PAGE>   9

         The following table sets forth, for the periods indicated, the high and
low sales prices of the Trust's shares of beneficial interest, as quoted by the
New York Stock Exchange, as well as dividends declared thereon:

<TABLE>
<CAPTION>
     Fiscal Year 1999                                                  High           Low       Dividends
     ----------------                                                  ----           ---       ---------
<S>                                                                   <C>             <C>       <C>
         First Quarter                                                 4 3/8          4 1/16       --
         Second Quarter                                                5 3/8          4 1/4        --
         Third Quarter                                                 5 1/2          3 13/16     .10
         Fourth Quarter                                                3 15/16        2 15/16      --

<CAPTION>
     Fiscal Year 1998                                                  High           Low       Dividends
     ----------------                                                  ----           ---       ---------
<S>                                                                    <C>            <C>       <C>
         First Quarter                                                 5 3/8          4 1/2        .10
         Second Quarter                                                4 7/8          4 3/8        .05
         Third Quarter                                                   5            4 5/8         --
         Fourth Quarter                                                4 11/16        4 1/4         --
</TABLE>


         The Trust intends to maintain a conservative dividend policy to
facilitate internal growth prior to issuing additional equity. Once the Trust
secures the proceeds of the issuance of additional equity, a review of its
dividend policy is planned.


Item 6.  SELECTED FINANCIAL DATA.
         ------------------------

         The following selected financial data of the Trust for the five 
fiscal years ended January 31, 1999, has been derived from the audited
financial statements of the Trust. The financial statements of the Trust for
the four fiscal years ended January 31, 1998 were audited by Arthur Andersen    
LLP, independent public accountants. The financial statements of the Trust for
the fiscal year ended January 31, 1999 were audited by KPMG LLP, independent
public accountants. All of the data should be read in conjunction with the
respective financial statements and related notes included herein.


<TABLE>
<CAPTION>
                             1999              1998           1997         1996         1995

<S>                       <C>                <C>           <C>         <C>           <C>       
Total revenues            $ 9,909,758        $ 1,421,979    $3,915,506   $ 5,430,006   $ 6,592,051

Net income (loss)         $  (193,071)       $  (573,509)   $ (888,365)  $(7,554,351)  $   670,945

Earnings (loss)
per share-basic
and diluted               $      (.10)       $      (.56)   $     (.87)  $     (7.40)  $       .66

Cash dividends
paid and declared
per share                 $       .10        $       .15    $      .40   $       .50   $       .80

Total assets              $67,804,770        $43,619,639    $6,416,123   $24,555,330   $45,165,356

Bank and other
borrowings                $36,924,834        $22,428,880    $2,300,000   $10,795,000   $16,810,000
</TABLE>


                                      -9-
<PAGE>   10

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

Overview

         On January 31, 1998, the Trust contributed $2,081,000 to the Operating
Partnership in exchange for a 13.6% general partner interest therein. The Trust 
is the sole general partner of the Operating Partnership. The Operating         
Partnership issued limited partnership interests representing 86.4% of the
Operating Partnership to acquire six hotel properties from various entities. In
addition, through RRF Sub Corp., the Trust issued 647,231 Shares of Beneficial
Interest in exchange for all of the outstanding shares of a corporation
controlled by James F. Wirth and his wife which owned the InnSuites Hotels
Scottsdale/El Dorado Park Resort located in Scottsdale, Arizona. Effective
February 1, 1998, the Operating Partnership acquired 100% of the ownership
interests in the InnSuites Hotels Tucson St. Mary's located in Tucson, Arizona
for $10,820,000. The Operating Partnership assumed $7,803,000 in mortgage debt
and other obligations and issued 669,933 Class B limited partnership units to
James F. Wirth and his wife (of which 28,800 units were subsequently paid to
third parties as advisory fees), who each owned a 50% equity ownership interest
in the InnSuites Hotels Tucson St. Mary's. On April 29, 1998, the Operating
Partnership acquired the InnSuites Hotels San Diego for $5,148,000. The
Operating Partnership invested $1,448,000 in cash (of which $1,348,000 was
drawn under a credit facility) and became obligated for $3,700,000 in seller
financing in the form of two promissory notes secured by mortgage trust deeds
on the property. Effective June 1, 1998, the Operating Partnership acquired
100% of the ownership interests of the InnSuites Hotels Buena Park/Anaheim for
$7,100,000. The Operating Partnership assumed $4,116,754 in mortgage debt and
other obligations and issued 681,739 limited partnership units to James F.
Wirth and Steven S. Robson (of which 13,304 units were subsequently paid to a
third party as an advisory fee), who each held a 50% equity ownership interest
in the InnSuites Hotels Buena Park/Anaheim. On August 11, 1998, the Trust
satisfied a $2.65 million participating mortgage obligation related to the
Ontario Hospitality Properties Limited Partnership and caused the Operating
Partnership to issue 133,492 Class B Units in the Operating Partnership to
James F. Wirth and his affiliates for their respective interests.

         Having completed the acquisitions of the Hotels and having satisfied
the Ontario participating mortgage, at January 31, 1999 the Trust held a 17%
interest in nine of the Hotels through its sole general partner interest in the
Operating Partnership and 100% of the Scottsdale hotel through RRF Sub Corp. In
order for the Trust to qualify as a REIT, neither the Trust nor the Operating
Partnership can operate the Hotels. Therefore, each of the Hotels is leased to
the Initial Lessee pursuant to a Percentage Lease. Each Percentage Lease
obligates the Initial Lessee to pay rent equal to the greater of the minimum
rent or a percentage rent based on the gross revenues of each of the Hotels. The
Initial Lessee is owned 9.8% by the Management Company, an entity owned by Mr.
Wirth and his wife. The Trust's principal source of revenue is lease payments
pursuant to the Percentage Leases. The Initial Lessee's ability to make payments
to the Operating Partnership pursuant to the Percentage Leases is dependent
primarily upon the operations of the Hotels. Therefore, management believes that
a discussion of the pro forma operating results of the Initial Lessee and the
historical operating results of the Hotels are important to an understanding of
the business of the Trust. The following discusses (i) the historical results of
the Trust for the years ended January 31, 1999 and January 31, 1998; (ii) the
Trust's pro forma results of operations for the years ended January 31, 1998 and
January 31, 1999; (iii) the Initial Lessee's pro forma results of operations for
the years 



                                      -10-
<PAGE>   11

ended December 31, 1997 and December 31, 1998; and (iv) the historical results
of the Hotels for the years ended December 31, 1996, 1997 and 1998.


General

         Results of operations are best explained by three key performance
indicators: occupancy, average daily rate (calculated as total room revenue
divided by number of rooms sold) (known as "ADR"), and revenue per available
room (calculated as total room revenue divided by number of rooms available)
(known as "REVPAR"). Increases in REVPAR attributable to increases in occupancy
are accompanied by increases in most categories of variable operating costs.
Increases in REVPAR attributable to increases in ADR are accompanied by
increases in limited categories of operating costs, such as management fees and
franchise and license fees.


Pro Forma Results of Operations for the Consolidated Company

         The following table sets forth key indicators for all of the Hotels
combined (which includes the hotels under renovation), and are useful in
understanding the underlying changes in the percentage rent for the Trust during
the pro forma years ended January 31, 1997, 1998 and 1999.


<TABLE>
<CAPTION>
                                                              ALL HOTELS
                                                           (INCLUDES HOTELS
                                                           UNDER RENOVATION)
                                                        YEAR ENDED JANUARY 31,
                                                        ----------------------
      KEY FACTORS(1)                             1999            1998              1997
      --------------                           --------        --------         ---------
<S>                                               <C>          <C>              <C>  
      Occupancy                                   67.3%           61.4%            60.6%
      Average Daily Rate (ADR)                  $66.77          $66.21           $63.88
      Revenue Per Available 
      Suite (REVPAR)                            $44.93          $40.65           $38.70
</TABLE>

(1)      No assurance can be given that the trends reflected in this data will
         continue or that Occupancy, ADR and REVPAR will not decrease as a
         result of changes in national or local economic or hospitality industry
         conditions. 

Results of Operations of the Trust for the years ended January 31, 1999 and 
January 31, 1998

         During the fiscal year ended January 31, 1998, the Trust terminated its
previous wrap-around mortgage business and disposed of its final real estate
asset, an office building in Chicago which was sold in the third quarter        
of fiscal 1998. As a result of a change in investment focus, the Trust
indirectly acquired the seven initial InnSuites Hotels on January 31, 1998.

         Results of operations for the Trust for the fiscal year ended January
31, 1999 reflected one full-year of operations of the Initial Hotels, plus      
additional full- or partial-year operations of the three hotels acquired during
fiscal 1999. 


                                      -11-
<PAGE>   12

Total revenue of the Trust for the twelve months ended January 31, 1999 was
$9,909,758 in its first full-year of operations. Of this revenue, rent revenue
from the ten hotels totaled $9,886,008. Included in this amount was rent
revenue attributable to the Scottsdale hotel of $699,997. Interest income for
the period was $23,750.

         For the fiscal year ended January 31, 1998, the Trust reported a loss
of $(573,509) or $(.56) per share. For the fiscal year ended January 31, 1999,
the Trust reported a loss of $(193,071) or $(.10) per share.

         While the revenues of the Trust increased significantly from $1,421,979
for the fiscal year ended January 31, 1998 to $9,909,758 for the fiscal year
ended January 31, 1999, the Trust reported a net loss of $(193,071). That total
net loss, however, was reduced from a net loss of $(573,509) in fiscal 1998. 
The results for the fiscal year ended January 31, 1999 included multiple
fourth quarter charges, resulting from the recognition of a provision for
uncollectable receivables ($900,000), net charge necessary to terminate the
advisory agreement between the Operating Partnership and MARA ($499,000), and
the recognition of expenses relating to stock options ($184,000). In addition,
unusual legal and professional fees are included in fiscal 1999 expenses.
Without the aforementioned fourth quarter charges, the Trust's earnings per
share for the fiscal year ended January 31, 1999 would have improved by $.16 per
share to a net income of $.06 per share for the year.

Pro Forma Results of the Trust

         The unaudited pro forma financial information set forth below for the
Trust is presented as if the Hotels had been acquired as of February 1, 1997. 
The pro forma financial information is not necessarily indicative of what 
actual results of operations of the Trust would have been assuming the 
Hotels had been acquired as of February 1, 1997, nor does it purport to 
represent the results of operations for future periods.


                                      -12-
<PAGE>   13

<TABLE>
<CAPTION>
                                                             PRO FORMA
                                                             YEAR ENDED
                                                             JANUARY 31,
                                                        1998              1999
                                                   ------------      ------------
                                                     (UNAUDITED, IN THOUSANDS)
<S>                                                <C>               <C>         
Percentage Lease Revenue ....................      $      9,929      $     10,409
Interest Income .............................                55                24
                                                   ------------      ------------
         Total Revenues .....................             9,984            10,433
                                                   ------------      ------------
Interest Expense on Mortgage and Other
         Notes Payable ......................      $      2,536      $      2,958
Depreciation and Amortization ...............             2,512             2,364
General and Administrative ..................             1,429             4,001
Real Estate and Personal Property Taxes and
         Casualty Insurance and Ground Rent .             1,133             1,269
Minority Interest ...........................             2,115                27
                                                   ------------      ------------
         Total Expenses and Minority Interest             9,725            10,619
                                                   ------------      ------------
Net Income Attributable to Shares of
         Beneficial Interest ................      $        259      $       (186)
                                                   ============      ============
Net Income Per Share-basic and diluted ......      $        .25      $       (.10)
                                                   ============      ============
</TABLE>


         For the year ended January 31, 1999, the Trust had pro forma revenues
of $10.4 million from the Percentage Leases that would have been in place at
the Hotels. The Trust had $24,000 in interest income compared to $55,000 in     
interest income from mortgage investments in 1998 due to loan repayments during
fiscal 1999. Expenses included interest expense related to the mortgage notes 
payable, notes payable to banks and notes payable to affiliated parties.
Interest expense increased by $420,000 in fiscal 1999 compared to fiscal 1998
due to refinancing costs of capital improvements and the acquisition of new
properties.  Net income to shareholders (after minority interest) decreased to
a pro forma $(186,000) from $259,000 due to increased general and
administrative expenses such as legal and accounting fees and charges relating
to allowances for uncollectable rent receivable, the termination of an advisory
agreement with MARA, and charges for stock option grants.

         For the year ended January 31, 1998, the Trust had pro forma revenues
of $9.9 million  from the Percentage Leases that would have been in place at the
Hotels. The Trust also had $55,000 in interest income from mortgage notes which
were repaid during the fiscal year. Expenses included interest expense related 
to the mortgage notes and a note payable to an affiliated party.

Pro Forma Results of Operations of Lessee

         The unaudited pro forma financial information set forth below for the
Initial Lessee is presented as if the acquisition of the Hotels and the
beginning of the relevant lease years had occurred on January 1, 1997. The pro
forma financial information is not necessarily indicative of what actual results
of operations of the Initial Lessee would have been assuming the acquisition of
the Hotels had occurred on January 1, 1997, nor does it purport to represent the
results of operations for future periods.



                                      -13-
<PAGE>   14



                                      -14-
<PAGE>   15

                                     LESSEE

              PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

                    (UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                1997         1998
                                              PRO FORMA    PRO FORMA
                                               LESSEE        LESSEE
                                             ----------   -----------
<S>                                           <C>           <C>     
REVENUES:
Room revenue                                  $ 23,901      $ 25,259
Food and beverage revenue                        1,463         1,299
Other revenue                                      898         1,664
                                              --------      --------
         Total Revenues                         26,262        28,222
                                              --------      --------

EXPENSES:
Departmental expenses of Hotels:
         Room                                    7,345         8,966
         Food and beverage                       1,614         1,147
General and administrative                       1,114         2,854
Advertising and promotion                        1,165         2,116
Utilities                                        1,489         1,626
Management fees                                    958           667
Franchisor royalties and other charges             836           797
Repairs and maintenance                          3,540         1,894
Real estate and personal property taxes,
         insurance, and ground rent                106           106
Interest expense                                     -           -
Depreciation and amortization                        -           -
Percentage Lease payments                        9,161        10,342
                                              --------      --------
         Total Expenses                         27,328        30,515
                                              --------      --------
PRO FORMA INCOME (LOSS)BEFORE
         EXTRAORDINARY ITEMS                  $ (1,066)     $ (2,293)
                                              ========      ========
</TABLE>

         For the year ended December 31, 1998, the Lessee had pro forma total
revenues of $28.2 million compared to $26.3 million for the year ended
December 31, 1997, an increase of $1.9 million (7.5%). This was due to increases
in occupancy from 61.4% for the twelve months ended January 31, 1998 to 67.3%
for the twelve months ended January 31, 1999 and an increase in ADR from $66.21
to $66.77 for the same respective periods. Total expenses increased $3.2 million
from $27.3 million in the year ended December 31, 1997 to $30.5 million in the
year ended December 31, 1998. The decreases in expenses shown above were
consistent with the change in the ownership structure after the formation
transactions, with the underlying ownership companies having holdings of
property, furniture, fixtures and equipment. The increases in expenses shown
above were consistent with the additional hotels and increased occupancy
described above. The increases in advertising and promotion and percentage lease
payments were due to enhancement of the "Suite Concept" and the execution of the
long term leases with the Trust. Room costs and overhead were high due to the
ongoing multi-year refurbishment program of the existing and newly acquired
Hotels. The larger increase in expenses ($3.2 million) as compared to the
$1.9 million increase in revenues resulted in a $2.3 million loss in the year
ended December 31, 1998 as compared to the $1.0 million loss for the year ended
December 31, 1997.

         Mr. and Mrs. Wirth's management and trademark corporations have agreed
to subordinate their receipt of management fees and trademark fees from the
Initial Lessee, to the extent that Flagstaff has not generated sufficient
operating cash flow to meet its $250,000 minimum annual rent payment in 1999,
2000 and 2001. The elimination of the maintenance expense associated with
refurbishment and Mr. Wirth's subsidy of Flagstaff should enable the Initial 
Lessee to generate a positive cash flow.


                                      -15-
<PAGE>   16


Results of Operations of the Hotels

         The following table sets forth certain combined historical financial
information for the Hotels, as a percentage of revenues, for the periods
indicated.

<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                        --------------------------------------
                                           1998           1997           1996
                                        --------       --------       --------
<S>                                   <C>           <C>            <C>
FINANCIAL DATA
Room revenue .....................        89.2%          94.4%          96.1%
Food and beverage revenue ........         4.7            2.6            1.1
Other revenue ....................         6.1            3.0            2.8
                                      --------       --------       --------
         Total revenue ...........       100.0          100.0          100.0
                                      --------       --------       --------
Departmental and other expenses ..        71.1           68.8           70.1
Real estate and personal property
         taxes, insurance and rent         0.4            0.4            4.8
Depreciation and amortization ....          --             --            6.3
Percentage Rent ..................        36.6           34.9             --
Interest expense .................          --             --            8.6
                                      --------       --------       --------
Income before extraordinary items         (8.1)          (4.1)          10.2
Extraordinary item-gain on early 
         extinguishment of debt ..          --             --            1.7
                                      --------       --------       --------
Net income .......................        (8.1)%         (4.1)%         11.9%
                                      ========       ========       ========

</TABLE>

Comparison of the year ended December 31, 1998 with 1997

         Room revenues increased $1.4 million, or 5.7% from 1997 to 1998. This
was driven by increases in ADR at almost all of the Hotels, along with an
increase in occupancy. These increases were attributable to the general
improvement in the business travel and tourism industries, lack of any
significant new competition in the markets where the Hotels operate and the
InnSuites' refurbishment program. The gains in revenue were attributable to
increases in occupancy and room rates during this period. The continuation of
InnSuites' focus on maximizing REVPAR by focusing on increasing ADR while
improving Occupancy during this period had a significant effect on revenues.

         Departmental and other expenses grew by $2.0 million, or 2.3%, between
the years because of increased occupancy. These costs increased as a percentage
of revenues from 68.8% in 1997 to 71.1% in 1998, as expenses were controlled in
operations in room costs, general and administration, and management fees. As
previously mentioned, promotion and advertising costs grew faster than
revenues, primarily to integrate the new Hotels which represented a 60%
increase in the InnSuites System based on the number of suites. Depreciation,
amortization, property taxes and interest were not considered in 1998 due to
changes in the ownership structure after the formation transactions.


         Net income decreased $1.2 million due to the transition of the acquired

                                      -16-
<PAGE>   17

Hotels to the InnSuites System and the refurbishment of the Hotels.

EBITA declined $1.3 million due to costs associated the acquisitions of the
Tucson St. Mary's, Buena Park and San Diego hotel properties.

Comparison of the year ended December 31, 1997 with 1996

         Room revenues increased $1.19 million, or 6.7%, from 1996 to 1997. As
can be seen by the growth of REVPAR, revenues as reported were driven by
increases in ADR which occurred at almost all of the Hotels, along with an
increase in occupancy. This was attributable in part to the general improvement
in the business travel and tourism industries, lack of any new competition in
the markets where the Hotels operate and InnSuites' refurbishment program which
was substantially completed at the existing Hotels. The continuation of
InnSuites' focus on maximizing REVPAR by focusing on increasing ADR while
maintaining stable occupancy during this period had a significant effect on
revenues.

         Departmental and other expenses increased by $1.96 million or 15.3%
between the years, primarily because of an increase in maintenance expenses
associated with the refurbishment program, the expansion of food service,
increases in payroll costs, and general inflationary pressures. These costs
increased slightly as a percentage of revenues from 70.1% in 1996 to 73.2% in
1997, as expenses grew faster than revenues, in particular, payroll costs.
Depreciation and amortization expense increased slightly between 1996 and 1997.

         Interest expense increased $.28 million in 1997 compared to 1996 due to
refinancing costs of capital improvements.

         Income before extraordinary items decreased $.54 million primarily due
to increased expenses discussed above.

         The gain on early extinguishment of debt of $0.3 million recorded in
May 1996 related to the extinguishment of debt at the Flagstaff property. No
gain or loss from the extinguishment of debt were recognized in 1997.

         EBITDA declined $.18 million or 3.8% from 1996 to 1997. This was 
attributable to increases in expenses during the periods.


Liquidity and Capital Resources

         The Trust, through its ownership interest in the Operating Partnership,
will have its proportionate share of the benefits and obligations of the
Operating Partnership's ownership interests in the Hotels. The Trust's principal
sources of cash to meet its cash requirements, including distributions to its
shareholders, will be its share of the Operating Partnership's cash flow. The
Operating Partnership's principal source of revenue will be rent payments under
the Percentage Leases. The Initial Lessee's obligations under the Percentage
Leases are unsecured and its ability to make rent payments to the Operating
Partnership under the Percentage Leases, and the Trust's liquidity, including
its ability to make distributions to its shareholders, will depend upon the
ability of the Initial Lessee to generate sufficient cash flow from hotel
operations. During the fourth quarter of fiscal 1999, the Trust recorded a
$900,000 charge to operations as a provision for bad debts. This charge reflects
the Trust's assessment of the collectibility of its receivables which primarily
consists of rent receivable from the Initial Lessee, based on an evaluation of
the Initial Lessee's future cash flows.



                                      -17-
<PAGE>   18

         Beyond the 4% reserve for refurbishment and replacements set aside
annually, an additional $140,000 for the Nova Front Desk Systems to be
installed in 1999 in response to potential computer systems problems associated
with the Year 2000, and $450,000 in anticipated refurbishing costs at the
recently acquired InnSuites Hotels San Diego, the Trust has no present
commitments for extraordinary capital expenditures.

         The Trust intends to acquire and develop additional hotels and expects
to incur indebtedness to fund those acquisitions and developments. The Trust may
also incur indebtedness to meet distribution requirements imposed on a REIT
under the Internal Revenue Code to the extent that working capital and cash 
flow from the Trust's investments are insufficient to make the required 
distributions. The terms of the line of credit discussed below permit 
borrowings for that purpose, but impose certain limitations on the Trust's 
ability to engage in other borrowings.

         On April 16, 1998, the Trust obtained a $12 million Credit Facility
from Pacific Century Bank to assist it in its funding of the acquisition and
development of additional hotels and for certain other business purposes.
Borrowings under the Credit Facility are secured by first mortgages on three of
the Hotels. The Trust has drawn $11.3 million from its line of credit, which
charges interest at a variable interest rate. By its terms, the Credit Facility
will expire in approximately two years, subject to renewal. The terms of the
Credit Facility require the Trust to maintain a net worth of not less than $15
million and, as of the end of each fiscal quarter, maintain a debt to net worth
ratio of not greater than 1.50 to 1.0, a net operating income to debt service
ratio of not less than 1.25 to 1.0, and a net operating income to debt service
ratio of not less than 1.30 to 1.0. The Trust may prepay the Credit Facility,
subject to a prepayment penalty of $250 plus a yield-maintenance penalty.
During the term of the Credit Facility the Trust may not further encumber its
collateral, sell its collateral, change the nature of its business, or 
unreasonably suspend its business. The Trust obtained waivers for certain debt
covenant violations occurring as of January 31, 1999. These waivers are ongoing
and management has commenced negotiating with those banks to modify such
covenants.

         The Trust may seek to increase the amount of its Credit Facility,
negotiate additional credit facilities, or issue debt instruments. Any debt
incurred or issued by the Trust 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 the Trust considers prudent.

         The Trust will acquire or develop additional hotels only as suitable
opportunities arise, and the Trust will not undertake acquisition or
redevelopment of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Credit Facility or other
borrowings or from the proceeds of additional issuances of Shares of Beneficial
Interest or other securities. There is no agreement or understanding to invest 
in any other properties, and there can be no assurance that the Trust will
successfully acquire or develop additional hotels.

         The Operating Partnership will contribute to a Capital Expenditures
Fund on a continuing basis, from the rent paid under the Percentage Leases, an
amount equal to 4% of the Initial Lessee's revenues from operation of the
Hotels. The Capital Expenditures Fund is intended to be used for capital
improvements to the Hotels and refurbishment and replacement of furniture,
fixtures and equipment, in addition to other uses of amounts in the Fund
considered appropriate from time to time. The Operating Partnership anticipates
making similar arrangements with respect to future hotels that it may acquire or
develop. During the fiscal year ended January 31, 1999, the Hotels spent
approximately $2.3 million for capital expenditures, excluding hotel
acquisitions. The Trust considers the majority of these improvements to 



                                      -18-
<PAGE>   19

be revenue producing and therefore these amounts have been capitalized and are
being depreciated over their estimated useful lives. The Hotels also spent $6.7
million during the period from January 1, 1996 through December 31, 1998 on
repairs and maintenance and these amounts have been charged to expense as
incurred.


Inflation

         The Trust's revenues initially will be based on the Percentage Leases
which will result in changes in the Trust's revenues based on changes in the
underlying Hotel revenues. Therefore, the Trust initially will be relying
entirely on the performance of the Hotels and the Initial Lessee's ability to
increase revenues to keep pace with inflation. Operators of hotels in general,
and the Initial Lessee in particular, can change room rates quickly, but
competitive pressures may limit the Initial Lessee's ability to raise rates
faster than inflation.

         The Trust's largest fixed expense is the depreciation of the investment
in Hotel properties. The Trust's variable expenses, which are subject to
inflation, represented approximately 40.1% of pro forma revenues in fiscal 1999.
These variable expenses (general and administrative costs, as well as real
estate and personal property taxes, property and casualty insurance and ground 
rent) are expected to grow with the general rate of inflation.


Seasonality

         The Hotels' operations historically have been seasonal. The six
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 those six southern Arizona
hotels. This seasonality pattern can be expected to cause fluctuations in the
Trust's quarterly lease revenue under the Percentage Leases. To the extent that
cash flow from operations is insufficient during any quarter, because of
temporary or seasonal fluctuations in lease revenue, the Trust may utilize other
cash on hand or borrowings to make distributions to its shareholders. No
assurance can be given that the Trust will make distributions in the future.


Year 2000 Compliance

         The Year 2000 problem is the result of computer programs having been
written using two digits instead of four digits to define the applicable year.
Any of the Trust's computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could potentially result in a system failure or miscalculations, causing
disruptions of operations and normal business activity.

         The Trust has upgraded its computer accounting programs and is
completing the installation of a new property management system along with
necessary hardware. These new systems have been warranted to be Year 2000
compliant. The Company has estimated the total cost which will be incurred in
connection with these installations to be approximately $400,000, which will be
capitalized and amortized over seven years. To date, the Trust has spent
$260,000 toward the completion of these installations and anticipates completing
the project by September 1999. The Company believes that such costs will not
result in a material adverse effect on its financial condition or results of
operations.



                                      -19-
<PAGE>   20

         While these new systems represent virtually all of the Trust's computer
systems, the Trust cannot predict the effect of the Year 2000 problem on
vendors, customers and other entities with which the Trust transacts business,
and there can be no assurance that the effect of the Year 2000 problem on such
entities will not adversely affect the Trust's operations.

         In the event of any failure of any of the Trust's computer systems, the
Trust intends to perform necessary functions without the aid of the affected
computer systems until any Year 2000 problems are resolved.

Forward-Looking Statements

         Certain statements in this Annual Report constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Trust intends that such
forward-looking statements be subject to the safe harbors created by such Acts.
Those forward-looking statements include statements regarding the intent,
belief or current expectations of the Trust, its Trustees or 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) the Trust's financing plans; (v) the Trust's
position regarding investments, acquisitions, financings, conflicts of interest
and other matters; (vi) the Trust's continued qualification as a REIT; and
(vii) trends affecting the Trust's or any Hotel's financial condition or
results of operations. The words and phrases "looking ahead", "we are
confident", "should be", "will be", "predicted", "believe", "expect",
"anticipate" and similar expressions identify forward-looking statements.

         These forward-looking statements reflect the Trust's 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 which may cause the actual results of the Trust 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, fluctuations in
hotel occupancy rates; changes in room rental rates which may be charged by the
Initial Lessee in response to market rental rate changes or otherwise; interest
rate fluctuations; changes in Federal income tax laws and regulations;
competition; any changes in the Trust's financial condition or operating results
due to acquisitions or dispositions of hotel properties; real estate and
hospitality market conditions; hospitality industry factors; and local or
national economic and business conditions, including, without limitation,
conditions which may affect public securities markets generally, the hospitality
industry, or the markets in which the Trust operates. The Trust does not
undertake any obligation to update publicly or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Pursuant to Section 21E(b)(2)(E) of the Exchange Act, the qualifications set
forth hereinabove are inapplicable to any forward-looking statements in this
Annual Report relating to the operations of the Operating Partnership.



Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
         --------------------------------------------


                                      -20-
<PAGE>   21

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


The Board of Directors
InnSuites Hotels, Inc:

We have audited the accompanying balance sheets of InnSuites Hotels System, the
predecessor, as defined in Note 1 to the financial statements, as of December
31, 1997 and January 30, 1998 and InnSuites Hotels, Inc., as of December 31,
1998, and the related statements of operations, equity and cash flows for each
of the two years in the period ended December 31, 1997 and the thirty days ended
January 30, 1998 and the eleven months ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InnSuites Hotels System as of
December 31, 1997 and January 30, 1998 and InnSuites Hotels, Inc., as of
December 31, 1998, and the results of their operations, equity and cash flows
for each of the two years in the period ended December 31, 1997 and the thirty
days ended January 30, 1998 and the eleven months ended December 31, 1998, in
conformity with generally accepted accounting principles.

MICHAEL MAASTRICHT, CPA


May 6, 1999
Phoenix, Arizona


                                      -21-
<PAGE>   22

                             INNSUITES HOTELS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              Predecessor
                                               ---------------------------------------
                                                     As of                As of               As of
                                               December 31, 1997    January 30, 1998    December 31, 1998
                                               -------------------  ------------------ ---------------------
<S>                                               <C>                  <C>                  <C>
ASSETS
INVESTMENT IN HOTEL PROPERTIES, at cost:
   Land                                           $     3,439,738            3,439,738               -   
   Buildings and improvements                          24,831,670           24,831,670               -   
   Furniture and equipment                             10,845,586           10,958,829               -   
                                                  ---------------      ---------------      ---------------
                                                       39,116,994           39,230,237               -    
   Less - Accumulated depreciation                     12,184,479           12,322,787               -   
                                                  ---------------      ---------------      ---------------
   Net investment in hotel properties                  26,932,515           26,907,450               -   

Cash and cash equivalents                                 129,871              322,095              178,863
Accounts receivable                                       571,301              591,869              407,432
Payments on behalf of RRFLP                                -                    -                    -
Loans to affiliates                                        -                    -                     5,000
Inventories                                               415,575              397,807              649,916
Other assets                                              295,440              121,691              213,237
Cash held in escrow                                       296,099              297,811               -   
Deferred expenses, net                                    252,430              248,227               -   
                                                  ---------------      ---------------      ---------------
                                                  $    28,893,231           28,886,950            1,454,448
                                                  ===============      ===============      ===============

LIABILITIES AND COMBINED EQUITY
Mortgage notes payable                            $    17,776,627           17,709,589               -   
Accounts payable
    Trade                                                 678,637              621,073            1,169,138
    Affiliates                                          1,260,601            1,699,601               -
    Bank overdrafts                                       121,052              409,196              146,363
Partner's capital repurchase payable                      275,366              218,063               -   
Lines of credit                                           131,000              155,000               -   
Percentage rent payable                                    -                    -                   482,013
Capital lease obligation                                   22,437               20,226               -   
Land lease payable                                         80,441               88,286               -   
Participation investors contingent liability            2,646,627            2,646,627               -   
Accrued expenses and other liabilities                    867,267            1,622,317              847,657
                                                  ---------------      ---------------      ---------------
                                                       23,860,055           25,189,978            2,645,170
EQUITY                                                  5,033,176            3,696,972           (1,190,722)
                                                  ---------------      ---------------      ---------------
                                                  $    28,893,231           28,886,950            1,454,448
                                                  ===============      ===============      ===============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>   23

                            INNSUITES HOTELS, INC.
                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                   Predecessor
                                               -----------------------------------------------
                                                                                                      Eleven Months
                                                                                                          Ended
                                                        December 31,                January 31,        December 31,
                                                   1996              1997              1998               1998
                                               ------------      ------------      ------------       ------------
<S>                                            <C>              <C>                <C>               <C>       
Revenue from hotel operations:
    Room revenue                               $ 17,613,618        18,800,566         1,833,441         22,184,056
    Food and beverage revenue                       197,064           519,440            61,623          1,169,312
    Other revenue                                   513,143           828,022            60,999          1,513,413
                                               ------------      ------------      ------------       ------------
        Total revenues                           18,323,825        20,148,028         1,956,063         24,866,781

Expenses:
    Department expenses:
        Rooms                                     4,629,652         5,610,906           667,892          7,748,489
        Food and beverage                           487,367           462,514            84,590            943,327
    General and administrative                    3,305,161         3,925,820         1,393,290          3,795,975
    Advertising and promotion                       919,887         1,415,732            76,619          1,893,117
    Utilities                                       894,121           933,994            90,416          1,431,429
    Repairs and maintenance                       2,621,472         2,473,074           233,804          1,391,274
    Real estate, personal property taxes,
        and insurance                               876,816           911,870            79,518
    Percentage rent                                    --                --                              9,160,058
    Interest expense                              1,569,850         1,853,800           137,580               --
    Depreciation                                  1,147,326         1,225,898           110,155               --
Land lease                                             --                --              13,678               --
                                               ------------      ------------      ------------       ------------
        Total expenses                           16,451,652        18,813,608         2,887,542         26,363,669

Income before extraordinary items                 1,872,173         1,334,420          (931,479)        (1,496,888)
Extraordinary Items
Gain on early extinguishment of debt                307,000              --                --                 --
                                               ------------      ------------      ------------       ------------
Net income (loss)                              $  2,179,173         1,334,420          (931,479)        (1,496,888)
                                               ============      ============      ============       ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


<PAGE>   24

                            INNSUITES HOTELS, INC.
                             STATEMENT OF EQUITY

<TABLE>
<CAPTION>
                               GENERAL       LIMITED
             Predecessor       PARTNERS'     PARTNERS'      COMMON       RETAINED       COMBINED
                               CAPITAL       CAPITAL       STOCK (1)     EARNINGS       EQUITY
                              ----------    ----------    ----------    ----------    ----------
<S>                           <C>           <C>          <C>            <C>           <C>
BALANCE, December 31, 1996    $   56,032     8,049,434       205,000        96,734     8,407,200

NET INCOME                       117,283     1,829,275                    (612,138)    1,334,420

DISTRIBUTIONS                   (217,138)   (2,699,213)                 (1,950,000)   (4,866,351)

PARTNERS' CAPITAL PURCHASES                    157,907                                   157,907
                              ----------    ----------    ----------    ----------    ----------

BALANCE, December 31, 1997       (43,823)    7,337,403       205,000    (2,465,404)    5,033,176

NET INCOME                       (46,304)     (722,215)                   (162,960)     (931,479)

DISTRIBUTIONS                    (23,211)     (338,814)                    (42,700)     (404,725)
                              ----------    ----------    ----------    ----------    ----------

BALANCE, January 30, 1998     $ (113,338)    6,276,374       205,000    (2,671,064)    3,696,972
                              ==========    ==========    ==========    ==========    ==========
</TABLE>

(1)  Hulsey Hotels Corporation - Common stock, no par value, 1,000,000 shares
     authorized, 1,000,000 issued and outstanding

(1)  Buenaventura Properties, Inc. - Common stock, no par value, 10,000,000
     shares authorized, 1,000,000 issued and outstanding



             The Company
<TABLE>
<CAPTION>
                                  PREFERRED           COMMON            RETAINED           COMBINED
                                  STOCK (1)          STOCK (2)          EARNINGS            EQUITY
                                ------------       ------------       ------------       ------------
<S>                             <C>                <C>                <C>                <C>
BALANCE, January 31, 1998       $    250,000              1,000              1,621            252,621
ISSUANCE OF COMMON STOCK                                 53,545                                53,545
NET LOSS                                                                (1,496,888)        (1,496,888)
                                ------------       ------------       ------------       ------------


BALANCE, December 31, 1998      $    250,000             54,545         (1,495,267)        (1,190,722)
                                ============       ============       ============       ============
</TABLE>


(1) Preferred stock, $1 par value, 100 shares authorized, 100 issued and
outstanding. 

(2) Common stock, no par value, 100,000 shares authorized, 54,545
issued and outstanding.


   The accompanying notes are an integral part of these financial statements.


<PAGE>   25

                            INNSUITES HOTELS, INC.
                           STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                 Predecessor
                                                                --------------------------------------------
                                                                                                 One month      Eleven months
                                                                         Year Ended                Ended          Ended
                                                                December 31,     December 31,    January 31,    December 31,
                                                                    1996            1997            1998            1998
                                                                ------------    ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                           $  2,179,173       1,334,420        (931,479)     (1,496,888)
    Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation and amortization                           1,175,804       1,264,424         114,361               -
   Gain on early extinguishment of debt                             (307,000)              -               -             
    (Increase) decrease in:
           Accounts receivable                                        56,431        (226,419)        (20,568)        402,627
           Inventories                                               (17,610)        (68,323)         17,768        (156,268)
           Cash held in escrow                                             -         (30,039)         (1,712)              -
           Other assets                                             (231,090)        581,474         173,749         (52,922)
           Payments on behalf of RRFLP                                     -               -               -        (683,694)
    Increase (decrease) in:
           Accounts payable                                           38,764         321,975         (57,564)        198,960
           Accrued expenses                                         (251,944)        737,618         791,045          34,818
           Percentage rent payable                                         -               -               -       1,765,227
                                                                ------------    ------------    ------------    ------------
           Net cash provided by operating activities               2,642,528       3,915,130          85,600          11,860

CASH FLOWS FROM INVESTING ACTIVITIES
           Purchase of furniture, fixtures, and equipment           (753,741)       (361,705)       (113,243)              -
           Guest room refurbishing                                (1,250,000)       (565,471)              -               -
           Capitalization of partners' capital                             -        (742,576)              -               -
                                                                ------------    ------------    ------------    ------------
           Net cash used by investing activities                  (2,003,741)     (1,669,752)       (113,243)              -

CASH FLOWS FROM FINANCING ACTIVITIES
           Payment of mortgage notes payable                      (1,612,687)       (612,092)        (60,147)              -
           Refinancing of mortgage notes payable                           -      (5,017,226)              -               -
           Payment of loans from affiliates                          500,353         678,456         439,000        (355,000)
           Increase of mortgage notes payable                        990,000       7,000,000               -               -
           Increase in bank overdrafts                                     -               -         288,144         146,363
           Purchases of partners' capital                                  -        (157,907)        (57,303)              -
           Distributions                                            (969,375)     (4,866,351)              -               -
           Distribution of REIT shares                                     -               -        (404,725)              -
           Line of credit                                                             (6,728)         24,000               -
           Loan fees                                                (251,711)        (29,000)              -               -
           Capital lease obligations                                       -         (24,838)         (9,102)              -
           Other                                                     (31,715)        291,382               -               -
           Capitalization of common stock                            200,000               -               -          53,545
                                                                ------------    ------------    ------------    ------------
           Net cash (used) provided by financing activities       (1,175,135)     (2,744,304)        219,867        (155,092)

Net change in cash and cash equivalents                             (536,348)       (498,926)        192,224        (143,233)

Cash and cash equivalents at beginning of year                     1,165,145         628,797         129,871         322,095
                                                                ------------    ------------    ------------    ------------

Cash and cash equivalents at end of year                        $    628,797         129,871         322,095         178,863
                                                                ============    ============    ============    ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


<PAGE>   26

                             INNSUITES HOTELS, INC.
                          Notes to Financial Statements


1.       BASIS OF PRESENTATION:

The InnSuites Hotels System consists of the following full-service hotels:

<TABLE>
<CAPTION>
                                                                                   NUMBER OF
       PROPERTY NAME                                          LOCATION              SUITES
       -------------                                          --------             ---------
<S>                                                           <C>                  <C>
       InnSuites Tempe/Airport ("Tempe")                      Tempe, Arizona          170

       InnSuites Scottsdale ("Scottsdale")                    Scottsdale, Arizona     134

       InnSuites Flagstaff Grand Canyon ("Flagstaff")         Flagstaff, Arizona      134

       InnSuites Phoenix Best Western ("Phoenix")             Phoenix, Arizona        123

       InnSuites Tucson Best Western ("Tucson")               Tucson, Arizona         159

       InnSuites Yuma Best Western ("Yuma")                   Yuma, Arizona           166

       Holiday Inn Airport InnSuites Ontario ("Ontario")      Ontario, California     150

       InnSuites Tucson Saint Mary's ("St. Mary's")           Tucson, Arizona         297

       InnSuites San Diego ("San Diego")                      San Diego, California   147

       InnSuites Buena Park ("Buena Park")                    Buena Park, California  185
                                                                                      ---

                                                                Total suites        1,665
                                                                                    =====
</TABLE>

InnSuites Innternational Hotels, Inc. ("InnSuites") and its affiliates, officers
and employees were involved in the development of each of the above hotels,
except Flagstaff, St. Mary's, San Diego, and Buena Park which were purchased
January 1, 1996, February 1, 1998, April 30, 1998 and May 31, 1998,
respectively, and have managed all of the InnSuites Hotels since their
respective inceptions or purchase. The hotels with three exceptions were owned
by partnerships ("InnSuites Partnerships") in which the shareholders of
InnSuites and certain officers of InnSuites (collectively, InnSuites Affiliates)
had significant direct and indirect ownership interests. Flagstaff and
Scottsdale were owned by corporations controlled by principals of InnSuites. San
Diego was purchased from a third party. The partnerships and corporations were
referred to collectively as the InnSuites System Entities ("predecessors").


<PAGE>   27



                             INNSUITES HOTELS, INC.
                          Notes to Financial Statements

As of December 31, 1997, prior to the Formation Transaction, the InnSuites
Entities were owned as follows:


<TABLE>
<CAPTION>
                                                                      ENTITY INTEREST
                                                                      ---------------
                                                                 INNSUITES           THIRD
                                                                 AFFILIATES          PARTY
                                                                 ----------          -----
<S>                                                              <C>               <C>
       InnSuites Tempe/Airport                                       46%               54%
       InnSuites Scottsdale                                         100%                0%
       InnSuites Flagstaff Grand Canyon                             100%                0%
       InnSuites Phoenix Best Western                                96%                4%
       InnSuites Tucson Best Western                                 28%               72%
       InnSuites Yuma Best Western                                   33%               67%
       Holiday Inn Airport InnSuites Ontario                        100%                0%
       InnSuites Tucson Saint Mary's                                100%                0%
       InnSuites San Diego                                            0%              100%
       InnSuites Buena Park                                          50%               50%
</TABLE>

InnSuites Hospitality Trust (formerly Realty ReFund Trust) is an unincorporated
Ohio real estate investment trust (the "REIT") which agreed to acquire equity
interests in existing hotel properties on January 31, 1998 (the "formation
transaction") and to consider selectively the purchase or development of        
additional hotels. The REIT acquired the general partnership interest,
representing a 13.6% equity interest in RRF Limited Partnership (the
"Partnership"), as of January 31, 1998. The partners and shareholders of the
entities owning the InnSuites Hotels contributed their respective partnership
and corporate interests to the Partnership, or a subsidiary of the REIT in
exchange for cash, partnership interests or REIT stock on January 31, 1998. All
of the InnSuites Hotels were leased to InnSuites Hotels, Inc. ("the Company")
(formerly Realty Hotel Lessee Corp.)(the InnSuites Lessee) pursuant to
operating leases (see Percentage Leases) which contain provisions for rent
based on the revenues of the InnSuites Hotels. The Lessee is an affiliate of
InnSuites.

Management believes that these combined financial statements of the predecessor
result in a more meaningful presentation of the InnSuites Hotel System
businesses acquired by the Partnership or REIT and thus appropriately reflect
the historical financial positions and results of operations of the predecessor
of the Lessee. All significant intercompany balances and transactions have been
eliminated.

Effective with the Formation Transaction on January 31, 1998 the REIT purchased
substantially all of the assets and liabilities of the predecessors. Subsequent
activity of those assets and liabilities are reflected in the financial
statements of the REIT which are presented elsewhere in this document. The
financial statements of the Company (InnSuites Lessee), shown here, reflect the
operations of the hotel operators since formation. Subsequent footnotes apply to
the predecessor, the Company or both, as indicated.


<PAGE>   28



                             INNSUITES HOTELS, INC.
                          Notes to Financial Statements

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounting Periods

For annual reporting purposes, all of the InnSuites System Entities, the
predecessor and the Lessee Company have been included in the accompanying
financial statements based on a December 31 year-end.

Hotel Properties

Hotel properties were stated at cost. Depreciation was computed using primarily
the straight-line method based upon estimated useful lives, 40 years for
building and improvements, 7 years for furniture and equipment.

The management of the Company reviews the hotel properties for impairment when
events or changes in circumstance indicate the carrying amounts of the hotel
properties may not be recoverable. When such conditions exist, management
estimates the future cash flows from operations and disposition of the hotel
properties. If the estimated undiscounted future cash flows from operations and
disposition of the hotel properties are less than the carrying amount of the
asset, an adjustment to reduce the carrying amount to the related hotel
property's estimated fair market value would be recorded and an impairment loss
would be recognized. No such impairment losses have been recognized.

Deferred Expenses

Deferred expenses of the predecessor consisted principally of deferred loan
costs. Deferred loan costs were amortized over the terms of the related loan
agreements. The amortization of deferred loan costs of $42,187, $37,925, and
$4,203 for the years ended December 31, 1996, 1997 and the month ended January
30, 1998 are included in interest expense in the accompanying predecessor
statements of operations. Accumulated amortization of deferred expenses was
$258,673 at December 31, 1997 and $262,876 at January 30, 1998.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk
consist primarily of trade receivables. Credit evaluations of guest's accounts
are performed regularly. The receivables are unsecured.

Revenue Recognition

Revenue is recognized as earned. Ongoing credit evaluations are performed and
credit losses


<PAGE>   29



                             INNSUITES HOTELS, INC.
                          Notes to Financial Statements

are charged off when deemed to be uncollectible. Such losses have been minimal
and within management's expectations.

Income Taxes

The predecessors were not subject to federal or state income taxes; however,
they filed informational income tax returns and the partners and stockholders
took income or loss of the InnSuites Partnerships and S-Corporations into
consideration when filing their respective tax returns. The Company has a net
operating loss for the year ended December 31, 1998, therefore, there is no
provision or liability for income taxes.

Management's Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Maintenance and Repairs

Maintenance and repairs of the predecessor were charged to operations as
incurred; major renewals and betterments were capitalized. The hotel properties
had scheduled guest room refurbishing programs, the cost of which was expensed
as incurred by the predecessor. Upon the sale or disposition of a fixed asset,
the asset and related accumulated depreciation were removed from the accounts,
and the gain or loss was included in the determination of net income or loss.

Advertising and Promotion

The cost of advertising and promotion is expensed as incurred which approximates
the time such advertising takes place. There are no capitalized advertising
costs.

Cash and Cash Equivalents

All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents. Management believes
that the fair value of cash equivalents approximates carrying value due to the
relatively short maturity of these instruments.


<PAGE>   30



                             INNSUITES HOTELS, INC.
                          Notes to Financial Statements

Inventories

Inventories consisting primarily of linen, food, and beverages and gift store
merchandise are stated at the lower of first-in, first-out cost or market.

Cash Held in Escrow

Cash held in escrow by the predecessor consisted of amounts for real estate
taxes and property insurance remitted to the lenders which hold the mortgages on
the hotel properties and amounts deposited for the replacement of hotel real and
personal property pursuant to the terms of certain mortgage and franchise
agreements.


3.       MORTGAGE NOTES PAYABLE AND OTHER DEBT

All debt of the predecessor was assumed by the REIT at the formation
transaction. The predecessor's mortgage notes payable consisted of six notes
secured by hotel properties. As of January 31, 1998 the notes ranged from
$886,000 to $3,835,000 with interest rates from 8.5% to 9.75% and maturities
dates ranging from February 1998 to August 2011. Interest paid on the notes,
including interest on several lines of credit, was $1,527,663, $1,815,875 and
$105,952 in the years ended December 31, 1996 and 1997, and one month ended
January 31, 1998.


4.       DEBT EXTINGUISHMENT

In 1996 Flagstaff refinanced its existing mortgage indebtedness, realizing a net
extraordinary gain of $112,780 and an extraordinary gain related to the
forgiveness debt of $194,220 due to a related party.


5.       RELATED PARTY TRANSACTIONS

A substantial portion of the predecessor hotels' management functions were
performed by two related management companies for a fee computed as specified in
each hotel's management agreement. The management fee was based on a percentage
of hotel revenues of 4.5%. In addition, the management companies had trademark
agreements with the hotels, excluding Ontario which operated under licensing
with Holiday Inns, for which the fees were .5% of revenues. They also operated
an advertising trust to which the hotels contributed 1% of revenues. Certain
properties paid different rates or no fees during certain periods.


<PAGE>   31



                             INNSUITES HOTELS, INC.
                          Notes to Financial Statements

For the eleven months ended December 31, 1998 InnSuites holds a management
agreement for which fees are 2.5% of hotel revenues and InnSuites Licensing
Corporation holds trademark agreements for which fees are from 1.25% to 2.5% of
hotel revenues. The hotels pay advertising trust fees for purposes of
centralized advertising programs to InnSuites, generally based on 1.5% of hotel
revenues. The payable to affiliates represents amounts due primarily for working
capital advances. There are no terms or covenants connected with the advances.

The hotels paid fees to InnSuites affiliates for these services as follows:

<TABLE>
<CAPTION>
                                                                    Predecessor                       Eleven
                                                 ----------------------------------------------    Months Ended
                                                         December 31,               January 30,    December 31,
                                                   1996               1997             1998            1998
                                                 ---------           -------        -----------    ------------
<S>                                              <C>                 <C>            <C>            <C>
       Management fees                           $ 840,518           902,938          90,051          650,688

       Trademark license fees                       80,596            81,935           9,785          485,563

       Advertising trust fees                      189,231           201,296          16,594          380,819
</TABLE>


6.       COMMITMENTS AND CONTINGENCIES:

Claims and Legal Matters

Certain of the hotels are involved in claims and legal matters incidental to
their business. In the opinion of management, the ultimate resolution of these
matters will not have a material impact on the financial position or the results
of operations of the hotels.

Trademark License Agreements

Under the terms of hotel trademark license agreements, monthly payments for
trademark royalties and reservation and advertising services are due from the
hotels. Fees are computed based upon a percentage of total revenues. At December
31, 1998, the trademark royalty fees are payable by the hotels from 1.25% to
2.5% of revenues to InnSuites affiliates while the fees for advertising services
are 1.5% of revenues. The franchise agreements expire in 2000. The Best Western
and Holiday Inn hotels have additional franchise agreements in which fees
generally approximate 3% of revenues for Best Western and 9% for Holiday Inn.


<PAGE>   32



                             INNSUITES HOTELS, INC.
                         Notes to Financial Statements

Percentage Lease Agreements

The Percentage Leases have noncancellable terms which expire on January 31,
2008, subject to earlier termination on the occurrence of certain contingencies,
as defined. The rent due under each Percentage Lease is the greater of minimum
rent, as defined, or percentage rent. Percentage rent applicable to room and
other hotel revenue is calculated by multiplying fixed percentages by the total
amounts of such gross revenues in excess of specified threshold amounts. Both
the minimum rent and the revenue thresholds used in computing percentage rents
are subject to annual adjustments beginning January 1, 1999, based on the United
States Consumer Price Index ("CPI"). Percentage rent applicable to food and
beverage revenues is calculated as 5% of such revenues over a minimum threshold.

Future minimum rentals (ignoring the CPI) to be received by the Partnership from
the Lessee pursuant to the Percentage Lease follows:

<TABLE>
<CAPTION>
             January 31
             ----------
<S>                                         <C>
                2000                        $   6,850,000
                2001                            6,850,000
                2002                            6,850,000
                2003                            6,850,000
                2004                            6,850,000
                Thereafter                     27,400,000
                                               ----------
                                             $ 61,650,000
                                             ============
</TABLE>


7.       FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1997, January 30, 1998 and December 31, 1998. Considerable
judgement is necessary to interpret market data and develop estimated fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts which could be realized on disposition of the
financial instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.


8.       CERTAIN PREDECESSOR MATTERS

On January 31, 1998 the InnSuites System Entities were acquired by RRF Limited
Partnership, the general partner of which is InnSuites Hospitality Trust,       
an unincorporated Ohio real estate investment trust ("REIT"). In accordance
with the acquisition agreements the InnSuites System


<PAGE>   33



                             INNSUITES HOTELS, INC.
                         Notes to Financial Statements

Entities were responsible for certain preacquisition costs, primarily
professional fees, which were not reimbursed by the REIT and were not a part of
the purchase price. These costs of $445,414 in 1997 and $651,198 in January 1998
were expensed and included in professional services. As part of the acquisition
the InnSuites System Entities purchased for $950,000 certain shares from the
REIT's prior owners. It then distributed $404,725 in shares to the partners of
the Partnership and $545,275 in shares to employees which is included in general
and administrative expense in 1997 and January 1998 wages and salaries. The
participation investors contingent liability of $2,647,000 consisting of
$1,950,000 in original loan participation units plus approximately $700,000 of
interest accrued during the construction period was assumed by the REIT at the
formation date. Prior to the formation transactions, certain partners of the
partnerships that previously owned the InnSuites System Entities sold their
interests therein in exchange for notes. These notes were payable over 2 years.
At January 30, 1998 $218,000 principal amounts of such notes was outstanding.
Certain expense items in the predecessor financial statements have been
reclassified to conform to the Company's presentation.



<PAGE>   34


                           INNSUITES HOSPITALITY TRUST
                    LIST OF FINANCIAL STATEMENTS AND SCHEDULE


The following financial statements of InnSuites Hospitality Trust, formerly
         Realty ReFund Trust, are included in Item 8:

       KPMG LLP Independent Auditors' Report;

       Arthur Andersen LLP Report of Independent Public Accountants;

       Consolidated Balance Sheets - January 31, 1999 and 1998;

       Consolidated Statements of Operations - For the Years Ended January 31,
1999, 1998 and 1997;

       Consolidated Statements of Shareholders' Equity - For the Years Ended
January 31, 1999, 1998 and 1997;

       Consolidated Statements of Cash Flows - For the Years Ended January 31,
1999, 1998 and 1997; and

       Notes to the Consolidated Financial Statements - January 31, 1999, 1998
and 1997.


The following financial statement schedule of InnSuites Hospitality Trust is
included in Item 14(a)1:

       Schedule III - Real Estate and Accumulated Depreciation.

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

                                      -23-
<PAGE>   35



                          INDEPENDENT AUDITORS' REPORT

To the Shareholders and Trustees,
InnSuites Hospitality Trust

We have audited the accompanying consolidated balance sheet of InnSuites
Hospitality Trust, and subsidiary as of January 31, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. In connection with our audit of the consolidated financial
statements, we also audited the accompanying financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InnSuites
Hospitality Trust as of January 31, 1999, and the results of their operations
and their cash flows for year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.


                                    KPMG LLP


Phoenix, Arizona
May 14, 1999




                                      -24-
<PAGE>   36

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Trustees,
InnSuites Hospitality Trust

We have audited the accompanying consolidated balance sheets of InnSuites
Hospitality Trust (formerly, Realty ReFund Trust) (an Ohio unincorporated
business trust) and subsidiaries as of January 31, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended January 31, 1998 and 1997. These financial statements referred
to below are the responsibility of the Trust's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InnSuites Hospitality Trust,
formally Realty ReFund Trust, as of January 31, 1998, and the results of their
operations and their cash flows for years ended January 31, 1998 and 1997 in
conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP


Cleveland, Ohio
May 13, 1998.



                                      -25-
<PAGE>   37

                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                     JANUARY 31
                                                                                     ----------
                                                                                1999              1998
                                                                                ----              ----
<S>                                                                          <C>               <C>       
                                                  ASSETS
HOTEL PROPERTIES, net                                                        $65,509,187       41,241,241
CASH AND CASH EQUIVALENTS                                                        420,935        2,378,398
RENT RECEIVABLE FROM AFFILIATE, net of $900,000 allowance                        788,179            -   
INTEREST RECEIVABLE AND OTHER ASSETS                                           1,086,469            -
                                                                             -----------      -----------
TOTAL ASSETS                                                                 $67,804,770       43,619,639
                                                                             ===========      ===========


                                   LIABILITIES AND SHAREHOLDERS' EQUITY

MORTGAGE NOTES PAYABLE                                                       $23,161,052       17,709,589
NOTES PAYABLE TO BANKS                                                        11,300,000          155,000
OTHER NOTES PAYABLE                                                              450,000        2,864,690
ADVANCES PAYABLE TO RELATED PARTIES                                            2,013,782        1,699,601
DUE TO LESSEE                                                                      -              944,234
ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                          2,188,709          572,031
MINORITY INTEREST IN PARTNERSHIP                                              20,621,900       14,075,523

SHAREHOLDERS' EQUITY:
  Shares of beneficial interest without par value; unlimited
         authorization; 2,286,951 and 1,667,817  shares issued
         and outstanding in 1999 and 1998, respectively                        8,069,327        5,598,971
                                                                             -----------      -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $67,804,770       43,619,639
                                                                             ===========      ===========
</TABLE>

COMMITMENTS AND CONTINGENCIES (notes 7, 8, 9, 10, 13, 14, 20 and 21)



                            See accompanying notes to
                        consolidated financial statements

                                      -26-
<PAGE>   38



                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             YEARS ENDED JANUARY 31,
                                                                     1999               1998               1997
                                                                     ----               ----               ----
<S>                                                            <C>                <C>               <C>
REVENUES:
  Rent revenue from affiliate                                  $  9,886,008              -                  -  
  Interest income from loans receivable                               -                  -              1,077,757
  Interest income from loan receivable from related party             -                  -                560,139
  Rental revenue from real estate held for sale                       -              1,367,366          2,277,610
  Interest income                                                    23,750             54,613              -  
                                                               ------------       ------------       ------------
                                                                  9,909,758          1,421,979          3,915,506
                                                               ------------       ------------       ------------

EXPENSES:
  Real estate depreciation                                        2,196,797              -                  -  
  Real estate, personal property taxes, insurance
    and ground rent                                               1,221,255              -                  -  
  General and administrative                                      2,748,623              -                  -  
  Provision for write-down of loan receivable
    from related party                                                -                  -                111,498
  Provision for write-down of real estate held for sale               -                                 1,085,000
  Loss on sale of real estate                                         -                 35,620              -  
  Loss on termination of advisory agreement                         780,746              -                  -  
  Interest on loans underlying wraparound mortgages                   -                  -                150,184
  Interest on loan underlying wraparound
    mortgage to related party                                         -                  -                 89,223
  Interest on mortgage notes payable                              1,944,541              -                  -  
  Loan fee amortization                                              39,346              -                  -  
  Interest on notes payable to bank                                 608,052              -                381,368
  Interest on note payable to related party                         204,145            118,082            332,308
  Fees to related party investment advisor                          364,041              -                169,961
  Legal expense to related party                                      2,400             84,000             56,000
  Operating expenses of real estate held for sale                     -              1,379,389          2,085,807
  Amortization of tenant improvements and
    deferred leasing commissions                                      -                 21,724             43,080
  Other operating expenses                                            -                356,673            299,442
                                                               ------------       ------------       ------------
                                                                 10,109,946          1,995,488          4,803,871
                                                               ------------       ------------       ------------

LOSS BEFORE MINORITY INTEREST                                      (200,188)          (573,509)          (888,365)
                                                               ------------       ------------       ------------
                                                                
LESS: MINORITY INTEREST                                              (7,117)             -                  -  
                                                               ------------       ------------       ------------
NET LOSS                                                       $   (193,071)          (573,509)          (888,365)
                                                               ============       ============       ============
NET LOSS PER SHARE - (Basic and Diluted)                       $       (.10)              (.56)              (.87)
                                                               ============       ============       ============
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING - (Basic and Diluted)                               1,921,902          1,022,359          1,020,586

CASH DIVIDENDS PER SHARE:
  Paid                                                                 $.10                .15                .30
  Declared                                                              .00                .00                .10
                                                                       ----               ----                ---
                                                                       $.10                .15                .40
                                                                       ====               ====                ===
</TABLE>


                            See accompanying notes to
                        consolidated financial statements

                                      -27-

<PAGE>   39

                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997

<TABLE>
<S>                                                       <C>
BALANCE, JANUARY 31, 1996                                    $4,547,819
Net loss                                                      (888,365)
Dividends                                                     (408,234)
                                                             ----------
BALANCE, JANUARY 31, 1997                                     3,251,220
Net loss                                                      (573,509)
Issuance of shares                                            3,074,348
Dividends                                                     (153,088)
                                                             ----------
BALANCE, JANUARY 31, 1998                                     5,598,971
Debt converted to equity                                      2,646,690
Stock option plan                                               183,518
Net loss                                                      (193,071)
Dividends                                                     (166,781)
                                                             ----------
BALANCE, JANUARY 31, 1999                                    $8,069,327
                                                             ==========
</TABLE>

                            See accompanying notes to
                        consolidated financial statements

                                      -28-
<PAGE>   40

                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED JANUARY 31
                                                                         1999               1998               1997
                                                                         ----               ----               ----
<S>                                                                 <C>                    <C>                <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                         $   (193,071)          (573,509)          (888,365)
   Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
   Stock compensation expense                                            183,518
   Non-cash portion of loss on termination of advisory agreement         498,669              -                  -  
   Provision for uncollectible receivable from related party             900,000                               111,498
   Provision for write-down of real estate held for sale                   -                  -              1,085,000
   Minority interest                                                      (7,117)             -                  -  
   Real estate depreciation                                            2,196,797              -                  -   
   Amortization of tenant improvements and deferred
       leasing commissions                                                 -                 21,724             43,080
   Amortization of deferred loan fees                                     39,346                               (15,000)
   Increase in rent receivable                                        (1,473,539)             -                  -  
   (Increase) decrease in interest receivable and other assets          (905,613)           263,280            392,587
   Decrease in due to Lessee                                            (944,234)             -                  -  
   Decrease in accounts payable and accrued expenses                  (1,136,115)          (676,274)          (600,158)
                                                                    ------------       ------------       ------------
       Net cash used in operating activities                            (841,359)          (964,779)           128,642
                                                                    ------------       ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Principal collected on mortgage loans  receivable                       -                  -             14,569,483
   Principal payments on mortgage notes payable                            -                  -             (4,991,421)
   Improvements and additions to hotel properties                     (2,277,890)             -                  -  
   Acquisition of hotel                                               (1,448,000)             -                  -  
   Borrowings on mortgage notes payable                                    -                  -                  -  
   Payments on other notes payable                                         -                  -                  -  
   Borrowings on other notes payable                                       -                  -  
Payment of transaction costs                                               -               (334,854)             -  
Proceeds from sale of real estate, net                                     -              5,599,122              -  
Purchase of fee interest in land                                           -                  -               (287,758)
                                                                    ------------       ------------       ------------
       Net cash provided by (used in) investing activities            (3,725,890)         5,264,268          9,290,304
                                                                    ------------       ------------       ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Principle payments on mortgage notes payable                      (19,388,537)             -                  -
   Borrowings on mortgage notes payable                               11,705,374              -                  -
   Payments on other notes payable                                      (218,000)             -                  -
   Bank borrowings                                                    11,300,000              -                625,000
   Bank repayments                                                      (155,000)             -             (6,920,000)
   Payment of dividends                                                 (166,781)          (153,088)          (408,234)
   Distributions to minority interest holders                           (781,451)             -                  -  
   Advances from related parties                                       1,235,628              -                  -  
   Principal payments on advances payable to  related parties           (921,447)        (2,300,000)        (2,200,000)
                                                                    ------------       ------------       ------------
       Net cash provided by (used in) financing activities             2,609,786         (2,453,088)        (8,903,234)
                                                                    ------------       ------------       ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (1,957,463)         1,846,401            515,712
CASH AND CASH EQUIVALENTS AT BEGINNING
   OF YEAR                                                             2,378,398            531,997             16,285
                                                                    ------------       ------------       ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                            $    420,935          2,378,398            531,997
                                                                    ============       ============       ============
</TABLE>

                            See accompanying notes to
                        consolidated financial statements


                                      -29-
<PAGE>   41


                 INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       JANUARY 31, 1999, 1998 AND 1997


1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION:

InnSuites Hospitality Trust (the Trust, or the Company) owns, directly or
indirectly, ten hotels with 1,665 suites in Arizona and southern California.
The hotels operate as InnSuites Hotels.

Prior to the fiscal year ended January 31,1999, the Trust, formerly known as
Realty ReFund Trust, specialized in mortgage financing as its investment
vehicle, refinancing existing income producing commercial, industrial and
multi-unit residential real property by supplementing or replacing existing
financing. The primary refinancing technique, which the Trust employed, was
wrap-around mortgage lending.

On January 31, 1998, the Trust contributed $2,081,000 to RRF Limited Partnership
(the Partnership); a Delaware limited partnership, in exchange for a 13.6%
general partnership interest therein. The Trust is the sole general partner of
the Partnership. The Partnership issued limited partnership interests
representing 86.4% of the Partnership to acquire six hotel properties from
various entities. In addition, in order to acquire a seventh hotel property,
through a wholly-owned subsidiary, RRF Sub Corp., the Trust issued 647,231
shares of beneficial interest in exchange for all of the outstanding shares of
Buenaventura Properties, Inc. (BPI), which owned a hotel located in Scottsdale,
Arizona. These seven hotels are referred to as the Initial Hotels. The Initial
Hotels, together with the hotels described in Note 4, are referred to herein as
the Hotels. The Hotels are leased to InnSuites Hotels, Inc., formerly known as
Realty Hotel Lessee Corp. (the Lessee) pursuant to leases which contain
provisions for rent based on the revenues of the Hotels (the Percentage Leases).
Each Percentage Lease obligates the Lessee to pay rent equal to the greater of
the minimum rent (Base Rent) or a percentage rent based on the gross revenues of
each Hotel. The Lessee holds the franchise agreement for each Hotel. The Lessee
is owned 9.8% by InnSuites Innternational Hotels, Inc., an entity owned by James
F. Wirth, Chairman, President and Chief Executive Officer of the Trust (Wirth)
and his spouse.

At January 31, 1999 the Trust's general partnership interest in the Partnership
was 17.2%.


PARTNERSHIP AGREEMENT

The Partnership Agreement provides for the issuance of two classes of limited
partnership units, Class A and Class B. Such classes are identical in all
respects, except that each Class A limited partnership unit in the Partnership
shall be convertible into a like number of shares of beneficial interest of the
Trust, at any time at the option of the particular limited partner, if the Trust
determines that such conversion would not cause the Trust to fail to qualify as
a REIT. As of January 31, 1999, a total of 2,586,883 Class A limited partnership
units were issued and outstanding. Additionally, 39,046 Class A limited
partnership units were reserved for issuance to those partners who did not
accept the formation exchange offer. As of January 31, 1999, a total of
5,246,364 Class B limited partnership units were outstanding to Wirth and his
affiliates, in lieu of the issuance of Class A limited partnership units. If all
of the Class A limited partnership units outstanding at January 31, 1999, were
to be converted, the limited partners in the Partnership would hold 2,586,883
shares of beneficial interest of the Trust. The Class B limited partnership
units may only become convertible with the approval of the Board of Trustees, in
its sole discretion.


BASIS OF PRESENTATION

As sole general partner, the Trust exercises unilateral control over the
Partnership. Therefore, the financial statements of the Partnership are 
consolidated with the Trust and its wholly owned subsidiary. All significant 
intercompany transactions and balances have been eliminated.



                                      -30-
<PAGE>   42

                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

HOTEL PROPERTIES

Hotel properties are stated at cost and are depreciated using the straight-line
method over estimated lives of 40 years for buildings and improvements and seven
years for furniture and equipment.

In accounting for the acquisitions of the Initial Hotels discussed in Note 1,
purchase accounting was applied. The historical carrying values of the assets
and liabilities of BPI were adjusted to their respective fair values based upon
the aggregate fair market value of shares of beneficial interest issued to
acquire the outstanding shares of BPI. The Trust's purchase of its 13.6% general
partnership interest in the Partnership and the Partnership's acquisition of
interests in the Initial Hotels from third parties resulted in adjustments to 
the historical net carrying values of such hotel properties in amounts equal to
34% of the difference between the fair values and the historical net carrying
values of the respective hotel properties. The Partnership's acquisition of
interests in the Initial Hotels other than BPI held by Wirth and his affiliates
did not result in purchase accounting adjustments to historical net carrying
values as such transaction were between entities under common control. Hotels
purchased subsequent to January 31, 1998 have been recorded at fair value.

In the first quarter of fiscal 1997, the Trust adopted FAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Pursuant to this standard, long-lived assets to be disposed of are to be
reported at the lower of carrying amount or fair value less costs to sell.
Long-lived assets to be disposed of shall not be depreciated while being held 
for disposal. The Trust's real estate held for sale was within the scope of 
FAS No. 121. As the Trust established a $3,000,000 valuation allowance at 
January 31, 1997 to reduce the carrying value of the real estate held for sale 
to its estimated net realizable value, adoption of FAS No. 121 did not have a 
material impact on the Trust's financial position or results of operations 
except that no depreciation expense was recorded on the real estate held for 
sale during fiscal 1998.


REVENUE RECOGNITION

In May 1998, the Financial Accounting Standards Board's Emerging Issues Task
Force issued EITF number 98-9 "Accounting for Contingent Rent in Interim
Periods" (EITF 98-9). EITF 98-9 provides that a lessor shall defer recognition
of contingent rental income in interim periods until specified targets that
trigger the contingent income are met. In July 1998, the Task Force issued
transition guidance stating that the consensus could be applied on a prospective
basis or in a manner similar to a change in accounting principle. Effective
August 1, 1998, the Company amended its percentage lease agreements to eliminate
the annualization of interim hotel revenue. During the third quarter of fiscal
1999, accounting for contingent rent under EITF 98-9 was rescinded; the Trust
believes that eliminating annualization of hotel revenue will provide for
recognition of Percentage Rent more consistently with the generation of revenue
from the Hotels.



                                      -31-
<PAGE>   43

                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997



ALLOWANCE FOR UNCOLLECTED RECEIVABLES

Financial instruments, which potentially subject the Trust to credit risk,
primarily consist of rent receivable from an affiliate. The Trust periodically
accesses the collectability of its receivables based on its evaluation of the
Lessee's future cash flow available for payment. As a result, during the fourth
quarter of fiscal 1999, the Trust recorded a $900,000 charge to operations as a
provision for bad debt, which is reflected in the accompanying consolidated
statements of operations.


INVESTMENTS IN WRAP-AROUND MORTGAGES AND RELATED UNDERLYING LOANS

In a wrap-around mortgage structure, the principal amount secured by the
mortgage note held by the Trust was equal to the outstanding balance under the
prior mortgage loan plus the amount of funds advanced by the Trust. The notes
held by the Trust were subordinate to the underlying prior indebtedness. The
Trust agreed with the borrower to make principal and interest payments to the
holder of the existing prior mortgage, but only to the extent scheduled payments
were received from the borrower and no other default existed. Generally, the
Trust had the right to pay off the prior indebtedness and succeed to its
priority.

In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 114, "Accounting by Creditors for
Impairment of a Loan." This standard allows a creditor to measure the impairment
of a loan based on the fair value of the collateral if a loan is collateral
dependent. FAS No. 118 "Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures," issued in October 1994, amended FAS No. 114 to
allow a creditor to use existing methods for recognizing interest income on
impaired loans. The Trust adopted the provisions of FAS Nos. 114 and 118 in
fiscal 1996. See Note 5 for a discussion of the impairment of the Trust's loan
on the Toledo, Ohio property.


DIVIDEND AND DISTRIBUTIONS

The Trust expects to pay dividends which are largely dependent upon the receipt
of distributions from the Partnership.


MINORITY INTEREST

Minority interest in the Partnership represents the limited partners'
proportionate share of the equity in the Partnership. Income or loss is
allocated to minority interest based on the weighted average limited partnership
percentage ownership throughout the period.


                                      -32-
<PAGE>   44


                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


FAIR VALUE OF FINANCIAL INSTRUMENTS

For disclosure purposes, fair value is determined by using available market
information and appropriate valuation methodologies. Cash and cash equivalents,
due to their short maturities, are carried at amounts that reasonably
approximate fair value.

For mortgage notes payable, notes payable to banks, other note payables and
advances to related parties, the fair value is estimated by discounting the
future cash flows using the current rates which would be available for similar
loans having the same remaining maturities.


EARNINGS (LOSS) PER SHARE

In February 1997, FAS No. 128, "Earnings per Share" was issued which eliminated
the concept of common stock equivalents and replaces "primary" and "fully
diluted" earnings per share with "basic" and "diluted" earnings per share.
Basic and diluted earnings per share have been computed based on the
weighted-average number of shares outstanding during the periods.

For the fiscal year ended January 31, 1999, there were Class A partnership
units outstanding which are convertible to Shares of beneficial interest of the
Trust. Assuming conversion, the weighted-average of these Shares of Beneficial
Interest would be 2,510,216. These shares are anti-dilutive due to the loss for
fiscal 1999. For fiscal 1998 and 1997, there were no dilutive or anti-dilutive 
securities.

THE STOCK-BASED COMPENSATION 

The Trust accounts for its stock option plan in accordance with the provisions
of SFAS No. 123 "Accounting for Stock-based Compensation" which permits
entities to recognize as expense over the vesting period, the fair value of all
stock based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to apply the provision of APB Opinion No. 25 "Accounting for
Stock Issued to Employees and Related Operations" and provide pro-forma net
income and pro-forma earnings per share and disclosures for employee stock
option grants as if the fair-value based method defined in SFAS No. 123 had
been applied. The Trust has elected to apply the  provisions of APB Opinion No.
25.


CASH AND CASH EQUIVALENTS

The Trust considers all highly liquid short term investments with original
maturities of three months or less to be cash equivalents. 


INCOME TAXES

The Trust has elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code. If the Trust qualifies for taxation as a REIT, the
Trust generally will not be subject to Federal corporate income tax on that
portion of its net income that is currently distributed to shareholders.
Accordingly, no provision for income taxes has been included in the accompanying
consolidated financial statements. For federal income tax purposes, the cash 
distributions paid to shareholders may be characterized as ordinary income, 
return of capital or capital gains. 


USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.


                                      -33-
<PAGE>   45


                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                         JANUARY 31, 1999, 1998 AND 1997


In July 1995, the Trust established a valuation allowance of $5,000,000 on its
investment in the Toledo, Ohio wraparound mortgage loan. The loan was retired in
fiscal 1997 and an additional loss of $111,000 was recorded.

In the fourth quarter of fiscal 1996, the Trust established a valuation
allowance of $3,000,000 to write-down the Chicago real estate held for sale to
its estimated net realizable value. The Trust recorded an additional valuation
allowance of $1,085,000 at January 31, 1997 to further reduce the real estate
held for sale to its estimated net realizable value. The building was sold
during fiscal 1998.


3. HOTEL PROPERTIES

Hotel properties as of January 31, 1999 and 1998 consist of the following:

<TABLE>
<CAPTION>
                                       1999             1998
<S>                                <C>                <C>      
Land                               $ 5,685,590        3,439,738
Building and improvements           54,331,878       31,395,305
Furniture and equipment              7,688,516        6,406,198
                                   -----------      -----------
                                    67,705,984       41,241,241
Less accumulated depreciation        2,196,797            -
                                   -----------      -----------
                                   $65,509,187       41,241,241
                                   ===========      ===========
</TABLE>

Seven of the hotels are located in Arizona and three of the hotels are located
in California and are subject to Percentage Leases as described in Note 12.


4. ACQUISITIONS

Effective February 1, 1998, the Partnership acquired 100% of the ownership
interests in the Tucson St. Mary's Hotel and Resort for $10,820,000. The
Partnership issued 699,933 Class B limited partnership units to Wirth, and his
spouse, who each held a 50% equity ownership interest in the Tucson St. Mary's
hotel. Effective April 29, 1998, the Trust acquired a hotel property located in
San Diego, California for an aggregate consideration of $5,148,000, which was
funded with cash, proceeds from the Trust's credit facility and two promissory
notes secured by mortgage trust deeds on the property.

Effective June 1, 1998, the Partnership acquired 100% of the ownership of the
InnSuites Hotels Buena Park for $7,100,000. The Partnership assumed $4,116,754
in mortgage debt and other obligations and issued 627,377 limited partnership
units to Wirth and Steve S. Robson (of which 13,034 units were subsequently paid
to a third party as an advisory fee), who each held a 50% equity ownership
interest in the Buena Park hotel. Mr. Robson is a Trustee of the Trust. Wirth
and his affiliates also received an additional 53,681 Class B limited
partnership units as payment for debt owed to Wirth and his affiliates at time
of acquisition.

All of the aforementioned acquisitions have been accounted for as purchases.


                                      -34-
<PAGE>   46

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


5. LOAN IMPAIRMENT

In July 1995, the Trust recorded a $5,000,000 loss provision on its investment
in the Toledo, Ohio wraparound mortgage loan. The owner of the property was
pursuing, among other things, the sale of the property. As the Trust's loan was
made on a nonrecourse basis, the Trust had written down its investment to
reflect the estimated sale price of the property and the estimated net proceeds
to be received by the Trust as repayment of its loan as of January 31, 1996.

The commercial building that secured the loan was owned by a partnership of
which a corporation owned by the former Chairman of the Trust was the general
partner. The building was sold by the partnership in fiscal 1997. In connection
with that sale, the Trust was released by the new owner from any claims or
liabilities relating to that property, and the Trust released its rights to any
obligations from the partnership. As a result, in the fourth quarter of fiscal
1997, the Trust recorded a $111,000 loss provision on the Toledo, Ohio loan
based on its final actual net realized value.


6. REAL ESTATE HELD FOR SALE

In July 1992, the Trust accepted title in lieu of foreclosure on a commercial
building in Chicago, Illinois. At the time of title acceptance, the Trust
recorded a provision to write down its investment to estimated net realizable
value as it was the Trust's intention to sell the real estate. The carrying
value of the investment increased as a result of considerable investment in
building and tenant improvements.

Based on both market conditions for similar commercial property in Chicago and
the operating performance of the property, the Trust recorded a $3,000,000
provision in the fourth quarter of fiscal 1996 to reduce the carrying value of
the property to its then estimated net realizable value. The amount of the
write-down was based upon the Trust's best estimate at January 31, 1996 of the
amount of net proceeds which would be realized upon sale of the real estate in
the near term future.

In the fourth quarter of fiscal 1997, the Trust entered into a contract to sell
the Chicago building for $6,000,000. Accordingly, the Trust recorded an
additional provision of $1,085,000 to reduce the carrying value of the real
estate held for sale to its estimated net realizable value based upon a pending
contract price and estimated costs associated with the potential sale.

In the third quarter of fiscal 1998, the Trust sold the Chicago building and
received approximately $6,000,000 before consideration of closing and other
costs related to the sale. A loss of approximately $36,000 was recorded as a
result of the sale.


7. MORTGAGE NOTES PAYABLE

At January 31, 1999, the Trust had mortgage notes payable outstanding with
respect to seven of the Hotels. The mortgage notes payable have various
repayment terms and have scheduled maturity dates ranging from April 2001 to
August 2011. Interest rates on the mortgage notes at January 31, 1999 range from
7.6% to 10.25%. At January 31, 1999, two of the Hotels were not in compliance
with certain debt covenants; however, the Trust obtained waivers from each of 
the lenders indicating that the respective loans would not be called as a result
of defaults occurring through January 31, 1999. Management is currently in the 
process of revising these loan agreements to ensure on-going compliance.



                                      -35-
<PAGE>   47

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                         JANUARY 31, 1999, 1998 AND 1997


At January 31, 1998, the Trust had mortgage notes payable outstanding with
respect to six of the Initial Hotels. The mortgage notes payable have various
repayment terms and have scheduled maturity dates ranging from fiscal 1999 to
2012. Interest rates on the mortgage notes at January 31, 1998 ranged from 8.50%
to 9.75%.

A portion of the mortgage notes payable are guaranteed by Wirth and certain of
his affiliates. The net book value of properties securing the mortgage notes
payable at January 31, 1999 and 1998 was $49,258,778 and $35,179,000,
respectively.

Scheduled minimum payments of mortgage notes payable as of January 31, 1999 are
as follows:

<TABLE>
<CAPTION>
                 FISCAL YEAR ENDED                          AMOUNT
                 -----------------                        --------
<S>                                                    <C>
                       2000                               $2,319,172
                       2001                                2,723,066
                       2002                                  922,686
                       2003                                1,005,861
                       2004                                1,096,576
                    Thereafter                            15,093,691
                                                         -----------
                                                         $23,161,052
                                                         ===========
</TABLE>

8. NOTES PAYABLE TO BANKS

During the first quarter of fiscal 1999, The Trust established a $12,000,000
revolving line of credit with Pacific Century Bank. The credit facility
requires, among other things, the Trust to maintain a minimum net worth, a
specified coverage ratio of EBITDA to debt service, and a specified coverage
ratio of EBITDA to debt service and fixed charges. Further, the Trust is
required to maintain its franchise agreement at each of the hotel properties and
to maintain its REIT status. At January 31, 1999, the Trust was not in
compliance with certain debt requirements associated with the line of credit;
however, the Trust obtained a waiver from the lender indicating that the line
would not be called. Management is currently in the process of revising these
covenants to ensure on-going compliance.

In accordance with the line of credit agreement, the Trust may choose interest
rates based on 1) Base Rate, as defined plus .5 basis points 2) Treasury Bill
Rate plus 2.75 basis points or 3) LIBOR Rate plus 2.75 basis points and
requires quarterly interest-only payments payable quarterly. The  line of
credit is secured by the Scottsdale, Flagstaff, and Tucson Oracle hotel
properties. The net book value of properties securing the line of credit 
totaled $16,250,409 at January 31, 1999. Borrowings under this line of credit 
at January 31, 1999 amounted to $11,300,000 and bear interest based on the 
LIBOR Rate plus 2.75 basis points (7.59% at January 31, 1999). The total 
principal balance is due April 2002.

At January 31, 1998, the Trust had various lines of credit totaling $350,000
with outstanding balances totaling $155,000 at interest rates floating with the
banks' respective reference rates plus 1.5% to 3.0%.




                                      -36-
<PAGE>   48

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                         JANUARY 31, 1999, 1998 AND 1997


9. OTHER NOTES PAYABLE

In connection with the termination of an advisory agreement between the
Partnership and Mid-America ReaFund Advisors, Inc. (the Advisor), as further
described at Note 14, the Trust assumed the Advisor's outstanding debt totaling
$450,000. The note bears interest at 7% and matures January 30, 2000. As of 
January 31, 1999, the Trust had not made the first principal payment of 
$225,000 and was in default; however, the Trust obtained a waiver from the 
parties whereby the loan would not be called. In April 1999, the Trust made the
first principal payment on the loan.

For the Ontario hotel, loan participation investors' rights to repayment were
converted into the right to receive forty-five percent of the profits from any
future sale of that hotel property, over a fixed base amount of approximately
$4,100,000 and after payment of all outstanding liabilities. Other notes payable
at January 31, 1998 include a contingent liability of $2,647,000 which
represents the participants' original investment plus certain accrued interest
and management's estimate of the potential liability upon a future sale of the
hotel property. The balance consists of the original $1,950,000 of loan
participation units subscribed to by investors, plus $745,000 of accrued but
unpaid interest during the construction period, as defined. On August 11, 1998,
the Trust satisfied its $2,647,000 participating mortgage obligation related
to the Ontario hotel through the issuance of 423,687 shares of beneficial
interest to former partners of Ontario Hospitality Properties Limited
Partnership and 133,492 Class B limited partnership units in the Partnership to
Wirth and his affiliates for their respective interests.

Prior to the Formation Transactions, certain partners of the partnerships that
previously owned the Initial Hotels sold their interests therein in exchange for
notes. These notes are payable over 2 years. At January 31, 1998, $218,000 in
principal amounts of such notes remain outstanding. During fiscal 1999, the
notes were paid in full.


10. ADVANCES PAYABLE TO RELATED PARTIES

Advances payable to related parties consists of funds provided to fund working
capital and capital improvement needs. The aggregate amounts outstanding were
approximately $2,014,000 and $1,700,000 as of January 31, 1999 and 1998,
respectively.

In March 1993, the Trust sold a $5,000,000 secured note to the former Chairman
of the Trust, at par. The note bore interest at the prime lending rate and had a
stated maturity date of August 1994. The Trust exercised its option to extend
the maturity of the note. Pursuant to the terms of the note, the Trust made
scheduled principal payments of $500,000 for each of the years ended January 31,
1997 and 1996. In addition, $1,700,000 of the proceeds from the repayment of the
Fort Worth, Texas loan was utilized to reduce the note. The remaining $2,300,000
of the note was retired with proceeds from the sale of the Chicago property.


                                      -37-
<PAGE>   49

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                         JANUARY 31, 1999, 1998 AND 1997


11. DESCRIPTION OF CAPITAL STOCK

Holders of the Trust's shares of beneficial interest are entitled to receive
dividends when, and if declared by the Board of Trustees of the Trust out of
funds legally available therefor. The holders of shares of beneficial interest,
upon any liquidation, dissolution or winding-up of the Trust, are entitled to
share ratably in any assets remaining after payment in full of all liabilities
of the Trust. The shares of beneficial interest possess ordinary voting rights,
each share entitling the holder thereof to one vote. Holders of shares of
beneficial interest do not have cumulative voting rights in the election of
directors and do not have preemptive rights.


12. PERCENTAGE LEASE AGREEMENTS

As previously stated, effective August 1, 1998, the Company amended its
Percentage Leases modifying the interim calculations of percentage rent and the
expiration dates of the agreements. The Percentage Leases have non-cancelable
terms, which expire on January 31, 2008, subject to earlier termination on the
occurrence of certain contingencies, as defined. The rent due under each
Percentage Lease is the greater of minimum rent, as defined, or percentage rent.
Percentage rent applicable to room and other hotel revenue varies by lease and
is calculated on a quarterly basis by multiplying fixed percentages by the
actual quarterly amounts of such gross revenues in excess of specified threshold
amounts. Both the minimum rent and the revenue thresholds used in computing
percentage rents are subject to annual adjustments beginning January 1, 1999,
based on increases in the United States Consumer Price Index. Percentage rent
applicable to food and beverage revenues is calculated as 5% of such revenue
over a minimum threshold.

Future minimum rentals (ignoring CPI increases) to be received by the Trust from
the Lessee pursuant to the Percentage Leases for each of the next five years and
in total thereafter are as follows:

<TABLE>
<S>                                               <C>
               2000                                   $6,850,000
               2001                                    6,850,000
               2002                                    6,850,000
               2003                                    6,850,000
               2004                                    6,850,000
          Thereafter                                  27,400,000
                                                     -----------
                                                     $61,650,000
                                                     ===========
</TABLE>

The Trust earned $9,886,008 in rent revenue during fiscal 1999 of which
$3,324,933 was in excess of base rent. No percentage rent was earned in fiscal
1998 or 1997 from the Initial Hotels.

13. FEDERAL INCOME TAXES

No provision for current or deferred income taxes has been made by the Trust.
The Trust has elected to be a real estate investment trust (REIT) and is        
therefore subject to the requirements of Sections 856 to 860 of the Internal
Revenue Code, all of the requirements of which management believes have been
met for the years ended January 31, 1999 and 1998. As a REIT, the Trust
normally distributes 95% of its taxable income to its shareholders. For the     
years ended January 31, 1999 and 1998, the Trust had a taxable income (loss) of 
approximately $1,800,000, before consideration of net operating loss carry-     
forward and ($4,000,000), respectively. In fiscal 1998, the primary difference
between the timing of book provisions for write downs and when such amounts are
allowed as deductions for Federal income tax purposes is attributable to the
foreclosure property described in Note 5. In fiscal 1998, the net tax
deductions related to such property were $3,570,000 that related primarily to
amounts that had been expensed in previous years for book purposes. In fiscal
1999, the primary differences between book loss and taxable income primarily
relate to a provision for bad debts which is not deductible for tax purposes 
and excess book depreciation over tax depreciation.



                                      -38-
<PAGE>   50

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                         JANUARY 31, 1999, 1998 AND 1997


The total dividends per share applicable to operating results for the years
ended January 31, 1999 and 1998, amounted to $.10 per share and $.15 per share,
respectively.

An income tax net operating loss of approximately $13,533,000 of which
$4,476,000, originated in fiscal 1993, $5,057,000 originated in fiscal 1997, and
$4,000,000 originated in fiscal 1998. Net operating loss carryforwards expire
beginning in fiscal 2008 and ending in fiscal 2013. During fiscal 1999, the
Trust utilized approximately $1,800,000 in net operating loss carryforwards. The
quarterly allocation of cash dividends paid per share and the characterization
of dividends as either ordinary income or return of capital for individual
shareholders' income tax purposes were as follows:

<TABLE>
<CAPTION>
                     CALENDAR 1998                    CALENDAR 1997                    CALENDAR 1996
                     -------------                    -------------                    -------------
              Ordinary   Return    Total       Ordinary   Return    Total       Ordinary   Return    Total
Month Paid     Income  of Capital  Paid         Income  of Capital  Paid         Income  of Capital  Paid
----------     ------  ----------  ----         ------  ----------  ----         ------  ----------  ----
<S>              <C>    <C>       <C>             <C>       <C>      <C>           <C>        <C>      <C>
March            $ -         -        -             -       .10      .10             -        .10      .10
June               -         -        -             -       .05      .05             -        .10      .10
September          -       .10      .10             -         -        -             -        .10      .10
December           -         -        -             -         -        -             -        .10      .10
                 ---       ---      ---           ---       ---      ---           ---        ---      ---
                 $ -       .10      .10             -       .15      .15             -        .40      .40
                 ===       ===      ===           ===       ===      ===           ===        ===      ===
</TABLE>

The tax status of distributions to shareholders in calendar 1999 will be
dependent on the level of the Trust's earnings in that year. If taxable income
of the Trust exceeds dividends paid in calendar 1999, such dividends will
represent ordinary income to the recipients irrespective of the net operating
loss carryforward.


14. ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS

On January 31, 1998, Wirth and his spouse purchased the stock of the Advisor
which provided the administration of the day-to-day investment operations of the
Trust and the Partnership. The Advisor was formerly owned by the former Chairman
and President of the Trust. Under the terms of an advisory agreement between the
Partnership and the Advisor, the Advisor received, subject to certain
limitations, a monthly fee equal to 1/12 of 1% of invested assets, as defined in
the advisory agreement, and an annual incentive fee equal to (a) 10% of the
amount by which the net income of the Partnership exceeded 8% of the average net
worth for the year and (b) 10% of any net realized capital gains less
accumulated net realized capital losses, as defined. For any fiscal year in
which operating expenses of the Partnership exceeded certain thresholds
specified in the advisory agreement, the Advisor was required to refund to the
Partnership the amount of such excess. For fiscal year 1997, operating expenses
exceeded the specified thresholds by approximately $6,000. There was no fee to
the Advisor during fiscal year 1998 due to the reduction in the Trust's
investment in mortgage loans. During fiscal 1999, the Advisor received
approximately $364,000 in fees.

Effective January 1, 1999, the Partnership terminated its agreement with the
Advisor in exchange for the Trust's assumption of $450,000 of outstanding notes,
the issuance of 67,000 Class B limited partnership units valued at $2 per unit
and the forgiveness of $85,331 in net liabilities. As a result, the Trust
recorded a net $498,669 charge to operations resulting from $780,746 loss on
termination of advisory agreement offset by $282,077 of forgiven fees to related
party investment advisor.



                                      -39-
<PAGE>   51


                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997



Wirth has an employment agreement with the Trust which expires in December 2007.
The employment agreement provides that Wirth received no compensation from the
Trust as long as the advisory agreement was in effect. However, pursuant to the
terms of the employment agreement, since the Advisor no longer provide services
to the Partnership or the Trust, Wirth will be compensated, an amount up to the
same annual basis as the Advisor would have been compensated under the terms of
the advisory agreement had it remained in effect. Wirth is currently being
compensated, however, at a lesser rate of $110,000 a year.

Certain employment agreements with the former Chairman and President of the
Trust were terminated at January 30, 1998.


15. OTHER RELATED PARTY TRANSACTIONS

The Partnership is responsible for all expenses incurred by the Trust in
accordance with the Partnership Agreement.

Wirth is a 9.8% indirect shareholder of the Lessee. At January 31, 1998, the
Trust had a payable to the Lessee of $944,000 primarily for the reimbursement of
costs and expenses incurred on behalf of the Trust.

The Initial Hotels were acquired by the Partnership from entities in which Wirth
and his affiliates had substantial ownership interests. Wirth and his affiliates
received 4,017,361 Class B limited partnership units and 647,231 shares of
beneficial interest in the Trust in exchange for their interests in the Initial
Hotels.

The Trust recorded provisions of approximately $2,400, $84,000 and $56,000 in
fiscal years 1999, 1998 and 1997, respectively, for legal services provided by a
law firm of which the former President of the Trust and another former Trustee
are principals.

The Toledo, Ohio loan investment was secured by a commercial building owned by a
partnership of which the former Chairman of the Trust was the general partner.
In September 1996, the Toledo, Ohio loan investment was converted from a
wraparound mortgage loan to a junior mortgage loan. Accordingly, the Trust's
loan the receivable from related party and loan payable underlying mortgage to
related party were reduced by approximately $2,741,000, representing the balance
of the underlying mortgage loan at the time the status of Toledo loan was
changed. In addition, a principal prepayment of $600,000 was received and
approximately $401,000 of escrow funds held by the Trust was applied against the
mortgage loan receivable balance. The remaining portion ($111,498) of the loan
was written off in the fourth quarter of fiscal 1997.

For the year ended January 31, 1997, the Trust earned approximately $560,000 of
interest income on this loan. The Trust incurred interest expense of
approximately $89,000 in connection with the related underlying loan payable for
the year ended January 31, 1997.


                                      -40-
<PAGE>   52

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Trust's significant financial
instruments at January 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                1999                                 1998
                                                ----                                 ----
                                       CARRYING        FAIR                CARRYING           FAIR
                                        AMOUNT         VALUE                AMOUNT          VALUE
                                        ------         -----                ------          -----
<S>                                   <C>           <C>                   <C>            <C>       
Mortgage notes payable                23,161,052    23,279,651            17,709,589     18,103,824
Notes payable to banks                11,300,000    11,300,000               155,000        155,000
Other notes payable                      450,000       450,000             2,864,690      2,864,690
Advances payable to
     related parties                   2,013,782     2,013,782             1,699,601      1,699,601
</TABLE>

17. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES

In connection with the formation of the Partnership as of January 31, 1998,     
approximately $24,899,000 of historical net book value in hotel properties was
contributed to the Partnership in exchange for Partnership units and the
Partnership assumed approximately $16,844,000 of debt.

As of January 31, 1998, the Trust acquired all of the outstanding shares of BPI
in exchange for 647,231 shares of beneficial interest having an aggregate value
of $3,074,000.

In connection with the acquisition of the Buena Park hotel during the second    
quarter of fiscal 1999, approximately $4,544,000 of historical net book value
in hotel properties was contributed to the Partnership in exchange for
partnership units and the Partnership assumed approximately $4,103,000 of debt
and other obligations. 

During the second quarter of fiscal 1999, several non-exchanging partners from
the formation exchange offer exchanged their interests in the hotels for        
interests in the Partnership. The fair value in excess of the historical net
carrying values of the respective hotels resulted in a write-up of $1,033,573.

In connection with the acquisition of the San Diego hotel, $3,700,000 of the
purchase price was satisfied through promissory notes payable to the sellers.


                                      -41-
<PAGE>   53


                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


As described in Note 9, the Trust satisfied its $2,647,000 participating
mortgage obligation related to the Ontario hotel through the issuance of 423,687
shares of beneficial interest to former partners of Ontario Hospitality
Properties Limited Partnership and 133,492 Class B limited partnership units in
the Partnership to Wirth and his affiliates for their respective interests.

Interest paid amounted to $2,395,000, $118,000 and $995,000 for fiscal years
1999, 1998 and 1997, respectively.

18. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The pro forma financial information set forth below is presented as if the
Formation Transactions and the acquisitions of the hotels discussed in Note 4
had been consummated and leased as of February 1, 1997. The pro forma financial
information is not necessarily indicative of what actual results of operations
of the Company would have been assuming the formation transactions and the
acquisitions had been consummated and all the Hotels had been leased as of
February 1, 1997, nor does it purport to represent the results of operations for
future periods.

<TABLE>
<CAPTION>
                                                      (UNAUDITED, IN THOUSANDS)
                                                             YEAR ENDED
                                                             JANUARY 31,
                                                             -----------
                                                       1999           1998
                                                       ----           ----

<S>                                                 <C>              <C>  
RENT REVENUE FROM AFFILIATE                          $10,409          9,929
INTEREST INCOME                                            24             55
                                                     --------       --------
    TOTAL REVENUE                                      10,433          9,984
                                                     --------       --------

INTEREST EXPENSE ON MORTGAGE AND OTHER
  NOTES PAYABLE                                         2,958          2,536
ADVISORY FEE TO RELATED PARTY ADVISOR                     381            627
DEPRECIATION AND AMORTIZATION                           2,364          2,512
GENERAL AND ADMINISTRATIVE                              3,620            802
REAL ESTATE AND PERSONAL PROPERTY TAXES AND
  CASUALTY INSURANCE AND GROUND RENT                    1,269          1,133
MINORITY INTEREST                                          27          2,115
                                                     --------       --------
      TOTAL EXPENSES AND MINORITY INTEREST             10,619          9,725
                                                     --------       --------
NET INCOME ATTRIBUTABLE TO SHARES OF
  BENEFICIAL INTEREST                                   $(186)           259
                                                     ========       ========
NET INCOME (LOSS) PER SHARE (basic and diluted)         $(.10)           .25
                                                     ========       ========
</TABLE>


                                      -42-
<PAGE>   54

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


19. SUBSEQUENT EVENTS

Certain investors converted 40,842 Class A limited partnership units in the
Partnership into shares of beneficial interest.

Effective March 15, 1999 Wirth made an unsecured loan to the Trust of
$2 million, bearing interest at 7% per year. Interest only payments are due
annually beginning March 15, 2000. The unpaid principal balance and accrued
interest is due on March 15, 2004. The Trust is using the proceeds to purchase
general partnership units in the Partnership.

Effective March 30, 1999, the Trust mortgage on the North Phoenix property was
refinanced and an additional $1.75 million was borrowed. The original mortgage
note was restructured to match the terms of the refinanced note, which bears
interest at 8.25% and matures on April 1, 2014. Monthly principal and interest
payments began on April 1, 1999.

Effective April 2, 1999, the Trust contributed the Scottsdale property to the
Partnership in exchange for 1,600,000 general partnership units.

On April 2, 1999, the Partnership loaned the Trust approximately $2,615,000.
Annual interest only payments are due in March of each year and are based on a
7% interest rate. The unpaid principal balance is due on April 2, 2006, its
maturity. The Trust is using the proceeds to purchase general partnership units
in the Partnership.

The net effect of all of the above subsequent transactions increased the Trust's
ownership percentage in the Partnership to 42%.



20. COMMITMENTS AND CONTINGENCIES

One of the Hotels is subject to a non-cancelable lease expiring December 31,
2051. Total expense for the fiscal year ended January 31, 1999 was $70,000.
Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
              Fiscal Year Ended
<S>                                     <C>
                  2000                      $70,000
                  2001                       75,000
                  2002                       75,000
                  2003                       75,000
                  2004                       75,000
              Thereafter                  3,755,000
                                         ----------
                                         $4,125,000
                                         ==========
</TABLE>



                                      -43-
<PAGE>   55

                 INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                       JANUARY 31, 1999, 1998 AND 1997


The Trust is obligated to make funds available to the Hotels for capital
expenditures (the Reserve Fund), as determined in accordance with the
Participating Leases. The Reserve Funds have not been recorded on the books and
records of the Trust as such amounts are capitalized as incurred. The amount
obligated under the Reserve Funds is 4% of the individual Hotel's total
revenues.

The nature of the operations of the Hotels exposes them to risks of claims and
litigation in the normal course of their business. Although the outcome of these
matters can not be determined, management does not expect that the ultimate
resolution of these matters will have a material adverse effect on the financial
position, operations or liquidity of the Hotels.

The Trust is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Trust's consolidated financial position, results of operations or liquidity.


21. STOCK OPTION PLAN

During fiscal 1999, the shareholders of the Trust adopted the 1997 Stock        
Incentive and Option Plan (the Plan) at the annual shareholder meeting.
Pursuant to the Plan, the Compensation Committee, may grant options to the
Trustees, Trust officers, other key employees, consultants, advisors, and
similar employees of the Trust's subsidiaries and affiliates. The number of
options that may be granted is limited to 10% of the total Common Stock and
Units (Class A and Class B) as of the first day of such year.

On June 22, 1998, 405,400 options were granted under the Plan with an exercise
price of $4.31. Each option


                                      -44-
<PAGE>   56

                  INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                        JANUARY 31, 1999, 1998 AND 1997


is convertible into one share of beneficial interest. The per share compensation
value of the stock options is $1.26 using the Black-Scholes options-pricing
model with the following weighted-average assumptions used: no dividend yield,
expected volatility of 37.5%, risk-free interest rate of 5% and expected life
of 2.5 years.

As the stock options were granted for non-employees of the Trust, the options
are regarded as compensation to contractors and the Trust may not apply APB     
Opinion 25 in accounting for the compensation cost. In applying SFAS No. 123,   
total compensation expense using the Black-Scholes fair value is $510,804. The
Trust recognized $183,518 of compensation expense for the options in the
current year.

Stock option activity during the 1999 fiscal year is as follows:

<TABLE>
<CAPTION>
                                                   NUMBER OF                WEIGHTED-AVERAGE
                                                   OPTIONS                   EXERCISE PRICE
                                                   -------                   --------------
<S>                                                <C>                       <C>
              Balance at January 31, 1998              -                            -
              Granted                                405,400                     $4.31
              Exercised                                -                            -
              Forfeited                               15,300                      4.31
              Expired                                  -                            -
              Balance at January 31, 1999            390,100
</TABLE>

As of January 31, 1999, no options were exercised and the entire balance of the
390,100 options remains outstanding.


                                      -45-
<PAGE>   57

                 INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                       JANUARY 31, 1999, 1998 AND 1997


22. QUARTERLY RESULTS (UNAUDITED)

The following is an unaudited summary of the results of operations, by quarter,
for the fiscal years ended January 31, 1999 and 1998. Management believes that
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such interim results have been included. The results of
operations for any interim period are not necessarily indicative of those for
the entire fiscal year.


<TABLE>
<CAPTION>
                                                            QUARTER ENDED
                                                            -------------
FISCAL 1999                           APRIL 30         JULY 31        OCTOBER 31       JANUARY 31
-----------                           --------         -------        ----------       ----------

<S>                                   <C>              <C>             <C>             <C>      
Total revenues                        $3,782,584       2,021,597       2,936,504       1,169,073
                                      ==========      ==========      ==========      ==========
Total revenues less interest
    expense on mortgage loans
    and operating expenses,
    and amortization expense
    of real estate held for sale      $3,154,072       1,565,900       2,483,259         761,986
                                      ==========      ==========      ==========      ==========
Net income (loss)                     $  435,169         (99,816)         45,425        (573,849)
                                      ==========      ==========      ==========      ==========
Income (loss) per share-
    basic and diluted                     $  .26            (.06)            .02            (.27)
                                          ======          ======          ======          ======
Dividends declared per  share             $  .00             .00             .10             .00
                                          ======          ======          ======          ======
</TABLE>


<TABLE>
<CAPTION>
                                                             QUARTER ENDED                     
                                                             -------------                     
FISCAL 1998                             APRIL 30         JULY 31       OCTOBER 31      JANUARY 31
-----------                             --------         -------       ----------      ----------
<S>                                     <C>              <C>             <C>              <C>     
Total revenues                          $558,933         545,926         262,507          54,613  
                                        ========        ========        ========        ========  
Total revenues less interest                                                                      
    expense on mortgage loans                                                                     
    and operating expenses,                                                                       
    and amortization expense                                                                      
    of real estate held for sale        $ 14,423          55,036        (127,379)       (187,447) 
                                        ========        ========        ========        ========  
Net loss                                $(90,973)        (48,889)       (246,200)       (187,447) 
                                        ========        ========        ========        ========  
Loss per share -                                                                                  
    basic and diluted                     $ (.09)           (.05)           (.24)           (.18) 
                                          ======          ======          ======          ======  
Dividends declared per  share             $  .05             .00             .00             .00  
                                          ======          ======          ======          ======  
</TABLE>



                                      -46-
<PAGE>   58
<TABLE>
                                                                    SCHEDULE III


                   INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF JANUARY 31, 1999

<CAPTION>
                                                                                         Cost
                                                                                      Capitalized             Gross Amounts at      
                                                     Initial Cost                    Subsequent to            Which Carried at      
                                                       to Trust                       Acquisition             Close of Period       
                                               ----------------------------  ----------------------------  -------------------------
                                                             Buildings and                  Building and              Buildings and 
                                Encumbrances     Land        Improvements        Land       Improvements    Land       Improvements 
                                -------------- ----------------------------  ----------------------------  -------------------------

<S>                                <C>           <C>            <C>           <C>                <C>       <C>           <C>        
InnSuites Hotels
     Phoenix Best Western
      Phoenix, Arizona             $ 2,709,223   $ 418,219      $ 2,969,640   $         -        $ 28,451  $ 418,219     $ 2,998,091

InnSuites Hotels
   Tempe/Phoenix
   Airport/South
   Mountain
   Tempe, Arizona                    2,483,903     686,806        6,580,276             -          98,233    686,806       6,678,509

InnSuites Hotels Tucson,
   Catalina Foothills Best
   Western Tucson, Arizona   (B)             -           -        5,891,258             -          72,580          -       5,963,838

InnSuites Hotels Yuma Best
   Western
   Yuma, Arizona                     3,665,601     251,649        5,478,057             -         136,411    251,649       5,614,468

Holiday Inn Airport
   Ontario Hotel and Suites
   Ontario, California               3,566,809   1,633,064        5,450,872             -          71,228  1,633,064       5,522,100

InnSuites Hotels
   Flagstaff/Grand Canyon
   Flagstaff, Arizona       (B)              -     100,000        1,915,664             -         233,193    100,000       2,148,857

InnSuites Hotels
   Tucson St. Mary's
   Tucson, Arizona                   3,947,644     900,000        8,964,608             -         244,586    900,000       9,209,194

Buena Park Suite Hospitality
   Buena Park Suites
   Buena Park, California            3,368,778     645,852        5,775,026             -         203,120    645,852       5,978,146

InnSuites Hotels
   San Diego Hospitality
   San Diego, California             3,419,094     700,000        3,972,785             -          86,512    700,000       4,059,297

InnSuites Hotels Scottsdale/
   El Dorado Park Resort
   Scottsdale, Arizona     (B)               -     350,000        6,074,398             -          84,980    350,000       6,159,378
                                -------------- ----------------------------  ----------------------------  -------------------------
                                  $ 23,161,052 $ 5,685,590     $ 53,072,584   $         -    $  1,259,294  5,685,590    $ 54,331,878
                                ============== ============================  ============================  =========================
</TABLE>
<TABLE>
<CAPTION>
                                
                                                                Net
                                                             Book Value
                                                              Land and                               Depreciation
                                --------------               Buildings                                in Income
                                   Total       Accumulated       and         Date of      Date of    Statement is
                                    (A)       Depreciation  Improvements  Construction  Acquisition    Computed
                                ---------------------------------------------------------------------------------
                                                                                                
<S>                               <C>              <C>        <C>             <C>          <C>       <C>     
InnSuites Hotels
     Phoenix Best Western
      Phoenix, Arizona            $ 3,416,310      $ 74,597   $ 3,341,713     1980         1998        40 years

InnSuites Hotels
   Tempe/Phoenix
   Airport/South
   Mountain
   Tempe, Arizona                   7,365,315       165,735     7,199,580     1982         1998        40 years

InnSuites Hotels Tucson,
   Catalina Foothills Best
   Western Tucson, Arizona   (B)    5,963,838       148,189     5,815,649     1981         1998        40 years

InnSuites Hotels Yuma Best
   Western
   Yuma, Arizona                    5,866,117       136,571     5,729,546     1982         1998        40 years

Holiday Inn Airport
   Ontario Hotel and Suites
   Ontario, California              7,155,164       137,162     7,018,002     1990         1998        40 years

InnSuites Hotels
   Flagstaff/Grand Canyon
   Flagstaff, Arizona       (B)     2,248,857        49,423     2,199,434     1996         1998        40 years

InnSuites Hotels
   Tucson St. Mary's
   Tucson, Arizona                 10,109,194       277,173     9,832,021     1960         1998        40 years

Buena Park Suite Hospitality
   Buena Park Suites
   Buena Park, California           6,623,998        89,647     6,534,351     1972         1998        40 years

InnSuites Hotels
   San Diego Hospitality
   San Diego, California            4,759,297        75,301     4,683,996     1946         1998        40 years

InnSuites Hotels Scottsdale/
   El Dorado Park Resort
   Scottsdale, Arizona     (B)      6,509,378       152,988     6,356,390     1980         1998        40 years
                                ------------------------------------------
                                 $ 60,017,468   $ 1,306,786  $ 58,710,682
                                ==========================================
</TABLE>


   (A) Aggregate cost for federal income tax purposes at January 31, 1999 is as
       follows:

                                  Land                           $    5,566,892
                                  Buildings and improvements         20,463,791
                                                                  -------------
                                                                 $   26,030,683
                                                                  -------------

   (B) These properties secure the $12M Trust and Partnership line of credit.

       Reconciliation of Real Estate:

                Balance at January 31, 1998            $  34,835,043
                Acquisitions of Hotel Properties          23,923,131
                Improvement to Hotel Properties            1,259,294
                                                       -------------
                Balance at January 31, 1998            $  60,017,468
                                                       =============

All acquisitions of hotel properties, other than approximately $1,448,000 in
cash paid in connection with the purchase of the Buena Park Property, were
acquired through the exchange of limited partnership units in the Partnership.

       Reconciliation of Accumulated Depreciation:

                Balance at January 31, 1998            $      --
                Depreciation                               1,306,786
                                                       -------------
                Balance at January 31, 1999            $   1,306,786
                                                       =============
<PAGE>   59



Item 9.    CHANGES IN ACCOUNTANTS.
           -----------------------

     The Trust incorporates herein by reference its Current Report on Form 8-K,
dated and filed with the Securities and Exchange Commission on March 25, 1999,
relating to the resignation of Arthur Andersen LLP as the Trust's independent
accountants, and its Current Report on Form 8-K, dated and filed with the
Securities and Exchange Commission on April 22, 1999, relating to the
appointment of KPMG LLP as the the Trust's independent accountants. 


                                    PART III
                                    ---------


Item 10.  TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST.
          ---------------------------------------------

Trustees of the Trust

         The Trust incorporates herein by reference the information appearing
under the caption "Election of Trustees" in the Trust's definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or about
June 1, 1999.





                                      -48-
<PAGE>   60

Executive Officers of the Trust

     The name, age (as of January 31, 1999), business experience during the past
five years, and offices presently held by each of the Trust's executive officers
are reported below. The Trust's By-Laws provide that officers shall hold office
until their successors are duly elected and qualified and that any officer may
be removed from office at any time by the Trust's Trustees.

     JAMES F. WIRTH: Age 52 ; Chairman, President and Chief Executive Officer of
the Trust since January 30, 1998. Chairman of InnSuites Innternational Hotels,
Inc., Hospitality Corporation International and affiliated entities, owners and
operators of hotels, since 1980. Chairman and President of Rare Earth
Development Company, a real estate investment company, since 1973.

     MARC E. BERG: Age 46; Executive Vice President, Secretary and Treasurer of
the Trust since February 10, 1999. Vice President - Acquisitions for the Trust
from December 16, 1998 to February 10, 1999. Trustee since January 30, 1998.
Consultant to InnSuites Hotels system and self-employed as a registered
investment advisor since 1985.


Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires the Trust's 
executive officers and Trustees, and persons who beneficially own more than 10% 
of its outstanding Shares of Beneficial Interest, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. The Trust
has not received any reports from Dan Z. Bochner, who the Trust believes held
beneficial ownership of in excess of 10% of the Trust's outstanding Shares of
Beneficial Interest during the fiscal year ended January 31, 1999, and has no
information regarding whether Mr. Bochner was required to file Forms 4 or a 
Form 5 in respect of the fiscal year ended January 31, 1999.


Item 11.  EXECUTIVE COMPENSATION.
          -----------------------

     The Trust incorporates herein by reference the information appearing under
the caption "Compensation of Trustees and Executive Officers" in the Trust's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about June 1, 1999.


                                      -49-
<PAGE>   61

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
          ---------------------------------------------------------------

     The Trust incorporates herein by reference the information appearing under
the caption "Ownership of Common Shares" in the Trust's definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or about
June 1, 1999.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          -----------------------------------------------

     The Trust incorporates herein by reference the information appearing under
the caption "Certain Transactions" in the Trust's definitive Proxy Statement to
be filed with the Securities and Exchange Commission on or about June 1, 1999.



                                     PART IV
                                     -------

                   Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                   ON FORM 8-K.
                   -------------------------------------------------------------
Exhibits
--------

3(a)               Second Amended and Restated Declaration of Trust
                   (incorporated by reference to Annex A of the Registrant's
                   definitive 1998 Proxy Statement, filed with the Securities
                   and Exchange Commission on May 15, 1998).

10(a)              First Amended and Restated Agreement of Limited Partnership
                   of RRF Limited Partnership dated January 31, 1998
                   (incorporated by reference to Exhibit 10.1 of the
                   Registrant's Registration Statement on Form S-2 filed with
                   the Securities and Exchange Commission on September 8, 1998).

10(b)*             Employment Agreement dated as of January 31, 1998, between
                   the Trust and James F. Wirth. (incorporated by reference to
                   Exhibit 10(b) of the Registrant's Annual Report on Form 10-K
                   for the fiscal year ended January 31, 1998, filed with the
                   Securities and Exchange Commission on May 18, 1998).

10(c)              Formation Agreement among the Trust; MARA; Alan M. Krause;
                   James H. Berick; Hospitality Corporation International;
                   InnSuites Hotels, L.L.C.; James F. Wirth; Tucson Hospitality
                   Properties, Ltd.; Yuma Hospitality Properties, Ltd.; Baseline
                   Hospitality Properties, Ltd.; Northern Phoenix Investment
                   Limited Partnership; Ontario Hospitality Properties Limited
                   Partnership; Hulsey Hotels Corporation; and Buenaventura
                   Properties, Inc. (incorporated by reference to Exhibit 2.1 of
                   the Registrant's Current Report on Form 8-K dated and filed
                   with the Securities and Exchange Commission on February 17,
                   1998).



                                      -50-
<PAGE>   62

10(d)              Contribution Agreement dated as of February 1, 1998, among
                   James F. Wirth, Gail J. Wirth and RRF Limited Partnership
                   (incorporated by reference to Exhibit 2.1 of the Registrant's
                   Current Report on Form 8-K dated and filed with the
                   Securities and Exchange Commission on March 16, 1998).

10(e)              Agreement of Purchase and Sale and Joint Escrow Instructions
                   dated March 20, 1998, between Lafayette Hotel, LLC and RRF
                   Limited Partnership (incorporated by reference to Exhibit 2.1
                   of the Registrant's Current Report on Form 8-K dated and
                   filed with the Securities and Exchange Commission on May 14,
                   1998).

10(f)              Contribution Agreement dated as of June 1, 1998, among James
                   F. Wirth, Steven S. Robson and RRF Limited Partnership
                   (incorporated by reference to Exhibit 2.1 of the Registrant's
                   Current Report on Form 8-K, filed with the Securities and
                   Exchange Commission on September 2, 1998).

10(g)              Consent Agreement dated as of January 31, 1999, among RRF
                   Limited Partnership, James F. Wirth, Gail J. Wirth, Alan M.
                   Krause and James H. Berick.

10(h)              Continuing Guaranty dated as of January 31, 1999, by RRF
                   Limited Partnership.

21                 Subsidiaries of the Registrant (incorporated by reference to
                   Exhibit 21 of the Registrant's Annual Report on Form 10-K for
                   the fiscal year ended January 31, 1998, filed with the
                   Securities and Exchange Commission on May 18, 1998).

27**               Financial Data Schedule.

99.1               Form of Percentage Lease (incorporated by reference to
                   Exhibit 99.1 of the Registrant's Registration Statement on
                   Form S-2 filed with the Securities and Exchange Commission on
                   September 8, 1998).


*  Management contract or compensatory plan or arrangement required to be filed
   as an exhibit hereto.

** Filed only in electronic format pursuant to Item 601(b)(27) of
         Regulation S-K.


Financial Statement Schedules
-------------------------------
Not Applicable.


Forms 8-K
---------

               No Current Reports on Form 8-K were filed by the Trust during the
fourth fiscal quarter ended January 31, 1999.



                                      -51-
<PAGE>   63

                                   SIGNATURES
                                   ----------

                  Pursuant to the requirements of Section 13 or 15(d) of
Securities Exchange Act of 1934, the Trust has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                            INNSUITES HOSPITALITY TRUST

Dated: May 17, 1999                         By:  /s/ James F. Wirth
                                                 -----------------------------
                                                 James F. Wirth, Chairman,
                                                 President and Chief Executive 
                                                 Officer (Principal Executive
                                                 Officer)

Dated: May 17, 1999                         By:  /s/ Marc E. Berg
                                                 -----------------------------
                                                 Marc E. Berg, Executive Vice
                                                 President, Secretary and 
                                                 Treasurer (Principal
                                                 Accounting Officer)

                  Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Trust and in the capacities and on the dates indicated.

                                            /s/ James F. Wirth
Dated: May 17, 1999                         -----------------------------
                                            James F. Wirth, Trustee, Chairman,
                                            President, and Chief Executive 
                                            Officer

                                            /s/ Marc E. Berg
Dated: May 17, 1999                         -----------------------------
                                            Marc E. Berg, Trustee, Executive
                                            Vice President, Secretary, and 
                                            Treasurer

                                            /s/ Lee J. Flory
Dated: May 17, 1999                         -----------------------------
                                            Lee J. Flory, Trustee

                                            /S/ Edward G. Hill
Dated: May 17, 1999                         -----------------------------
                                            Edward G. Hill, Trustee


                                      -52-
<PAGE>   64

Index of Exhibits
-----------------

Exhibit Number

3(a)               Second Amended and Restated Declaration of Trust
                   (incorporated by reference to Annex A of the Registrant's
                   definitive 1998 Proxy Statement, filed with the Securities
                   and Exchange Commission on May 15, 1998).

10(a)              First Amended and Restated Agreement of Limited Partnership
                   dated January 31, 1998 (incorporated by reference to Exhibit
                   10.1 of the Registrant's Registration Statement on Form S-2
                   filed with the Securities and Exchange Commission on
                   September 8, 1998).


10(b)*             Employment Agreement dated as of January 31, 1998, between
                   the Trust and James F. Wirth. (incorporated by reference to
                   Exhibit 10(b) of the Registrant's Annual Report on Form 10-K
                   for the fiscal year ended January 31, 1998, filed with the
                   Securities and Exchange Commission on May 18, 1998).

10(c)              Formation Agreement among the Trust; MARA; Alan M. Krause;
                   James H. Berick; Hospitality Corporation International;
                   InnSuites Hotels, L.L.C.; James F. Wirth; Tucson Hospitality
                   Properties, Ltd.; Yuma Hospitality Properties, Ltd.; Baseline
                   Hospitality Properties, Ltd.; Northern Phoenix Investment
                   Limited Partnership; Ontario Hospitality Properties Limited
                   Partnership; Hulsey Hotels Corporation; and Buenaventura
                   Properties, Inc. (incorporated by reference to Exhibit 2.1 of
                   the Registrant's Form 8-K dated and filed with the Securities
                   and Exchange Commission on February 17, 1998).

10(d)              Contribution Agreement dated as of February 1, 1998, between
                   James F. Wirth, Gail J. Wirth and RRF Limited Partnership
                   (incorporated by reference to Exhibit 2.1 of the Registrant's
                   Form 8-K dated and filed with the Securities and Exchange
                   Commission on March 16, 1998).

10(e)              Agreement of Purchase and Sale and Joint Escrow Instructions
                   dated March 20, 1998, between Lafayette Hotel, LLC and RRF
                   Limited Partnership (incorporated by reference to Exhibit 2.1
                   of the Registrant's Form 8-K dated and filed with the
                   Securities and Exchange Commission on May 14, 1998).

10(f)              Contribution Agreement dated as of June 1, 1998, among James
                   F. Wirth, Steven S. Robson and RRF Limited Partnership
                   (incorporated by reference to Exhibit 2.1 of the Registrant's
                   Current Report on Form 8-K, filed with the Securities and
                   Exchange Commission on September 2, 1998).

10(g)              Consent Agreement dated as of January 31, 1999, among RRF
                   Limited Partnership, James F. Wirth, Gail J. Wirth, Alan M.
                   Krause and James H. Berick.

10(h)              Continuing Guaranty dated as of January 31, 1999, by RRF
                   Limited Partnership.




                                      -53-
<PAGE>   65

21                 


                   Subsidiaries of the Registrant (incorporated by reference to
                   Exhibit 21 of the Registrant's Annual Report on Form 10-K for
                   the fiscal year ended January 31, 1998 filed with the
                   Securities and Exchange Commission on May 18, 1998).

27**               Financial Data Schedule.

99.1               Form of Percentage Lease (incorporated by reference to
                   Exhibit 99.1 of the Registrant's Registration Statement on
                   Form S-2 filed with the Securities and Exchange Commission on
                   September 8, 1998).




*  Management contract or compensatory plan or arrangement required to be filed
   as an exhibit hereto.

** Filed only in electronic format pursuant to Item 601(b)(27) of
         Regulation S-K.


                                      -54-