**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-K/A**

 

**FORANNUAL AND TRANSITION REPORTS**

**PURSUANTTO SECTIONS 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

| **ý**                                                                                                                                                                                                                                                                                                                                                   | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934**     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                         |                                                                                                     |
| **For the fiscal year ended January 31,  2004.**                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                         |                                                                                                     |
| **o**                                                                                                                                                                                                                                                                                                                                                        | **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  Incorporation or Organization)                     |   | (I.R.S. Employer Identification Number) |
|                                                                                |   |   |
| **InnSuites Hotels Centre, 1615 E. Northern  Avenue,  Suite 102, 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 Interest,  without par value |       | American Stock Exchange                  |

 

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 befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes ýNo o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K/A or any amendment to this Form 10-K/A. o

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2). Yes o  No ý

 

Aggregate market value of voting stock held by non-affiliates of theRegistrant as of July 31, 2003:  $2,686,711.

 

Number of shares of voting stock outstanding as of April 22, 2005:  8,906,429.

 

 

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EXPLANATORY NOTE

 

This Annual Report on Form 10-K/A is being filed as anamendment to the Annual Report on Form 10-K for the fiscal year ended January31, 2004 of InnSuites Hospitality Trust filed with the Securities and ExchangeCommission on April 30, 2004, and to the Annual Report on Form 10-K/A filedwith the Securities and Exchange Commission on June 1, 2004, for the purpose ofamending the Consolidated Statements of Operations presented under Part I, Item8 in order to apply SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets” and reclassifyas continuing operations the results for the Hotels previously reported indiscontinued operations for the fiscal years ended January 31, 2004, 2003 and2002 due to significant continuing involvement by the Trust in the operationsof those Hotels and since the Trust continues to receive cash flows from thoseHotels.

 

Corresponding changes have alsobeen made to “Item 6 – Selected Financial Data”, “Item 7 – Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and “Item9A – Controls and Procedures” to discuss and reflect the restatement.  In addition, we have filed updated consentsand certifications as exhibits to this Form 10-K/A.  The other Items are presented herein for easeof reference and have not been amended or updated to reflect events subsequentto the date of their initial filing with the Securities and ExchangeCommission.  Accordingly, this Form 10-K/Ashould be read in conjunction with our filings made with the Securities andExchange Commission subsequent to the filing of the original Form 10-K,including any amendments to those filings.

 

PART I

 

Item 1.        BUSINESS

 

INTRODUCTIONTO OUR BUSINESS

 

The discussion of our business is as of the date of thisfiling, unless otherwise noted.

 

InnSuites Hospitality Trust (the “Trust”) was organized in1971 and operates as an unincorporated Ohio real estate investment trust.  On January 31, 2004, the Trust owned a51.54% sole general partner interest in RRF Limited Partnership, a Delawarelimited partnership (the “Partnership”). On January 31, 2004, the Partnership owned eight InnSuites® hotelslocated in Arizona, New Mexico and southern California (all eight InnSuites®hotels are hereinafter referred to as the “Hotels”).  The Trust has 12 employees.

 

The Hotels feature 1,231 hotel suites and operate as moderateand full-service hotels which apply a value studio and two-room suite operatingphilosophy formulated in 1980 by James F. Wirth, current Chairman, Presidentand Chief Executive Officer of the Trust. The Trust owns and operates hotels as studio and two-room suite hotelsthat offer services such as free breakfast buffets and complementary afternoonsocial hours plus amenities, such as microwave ovens, refrigerators, free highspeed internet access and coffee makers in each studio or two-room suite.

 

Until February 1, 2004, the Trust elected to be taxed as areal estate investment trust (“REIT”), as that term is defined and used inSections 856-860 of the Internal Revenue Code of 1986, and the Regulationsthereunder (all as amended, the “Code”). As of February 1, 2004, the Trust is no longer a REIT, but instead willbe taxed as a C corporation under federal tax laws.  See Note 20 to the Trust’s ConsolidatedFinancial Statements – “Subsequent Events.” The Hotels are leased to InnSuites Hotels, Inc. (“InnSuites Hotels”)pursuant to leases which contain provisions for rent based on the revenues ofthe Hotels (the “Percentage Leases”) and which are eliminated uponconsolidation for the years ended January 31, 2004, 2003 and 2002.

 

As a REIT, through January 31, 2004, the Trust was prohibitedfrom operating its properties other than through an independent managementcompany or a taxable REIT subsidiary. Prior to February 1, 2001, InnSuites Hotels operated and managed all ofthe Hotels, with the assistance of InnSuites Innternational Hotels, Inc.(“InnSuites Innternational”), an entity owned by Mr. Wirth.  Pursuant to management agreements, InnSuitesHotels paid InnSuites Innternational an annual management fee of 2.5% of grossrevenues for property management services. Following the acquisition of InnSuites Hotels by the Trust effectiveFebruary 1, 2001, InnSuites Hotels operates and manages the Hotels withthe assistance of Suite Hospitality Management, Inc. (the “ManagementCompany”), an entity in which Mr. Wirth, until July 1, 2003, held a 9.8%ownership interest, pursuant to substantially the same terms as the InnSuitesInnternational management agreements.  Inexchange for its assumption of the prior management agreements, the ManagementCompany agreed to pay $911,320 to InnSuites Innternational in order forInnSuites Innternational to satisfy its liabilities.  See “Item 1 - Business - Acquisition ofInnSuites Hotels by the Trust” below. Effective February 1, 2003, the annual management fee charged by theManagement Company to InnSuites Hotels was reduced to 2.0% of gross roomrevenues.  This reduction will beeffective through January 31, 2005, when the annual management fee will returnto the level stated in the original management agreements.  On December 31, 2003, the Trust agreed toextend the current management agreements through January 31, 2008 in exchangefor the Management Company forgiving $183,248 of accrued but unpaid fees.  The Trust incurred management fee expensesrelated to these contracts of $440,530, $369,896 and $679,619 for the twelvemonths ended January 31, 2004, 2003 and 2002, respectively.  The Trust is currently in negotiations withthe Management Company to

 

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purchasethe management agreements.  Subsequent toyear-end, the Management Company purchased InnSuites Licensing Corp. (the“Licensing Corp.”).

 

InnSuites Hotels pays the Licensing Corp. an annual licensingfee of 2.0% of gross room revenues (1.0% for those hotel properties which alsocarry a third-party franchise (as discussed below), such as Best Western® orHoliday Inn®) for trademark and licensing services relating to the use of theInnSuites® name and marks.  These ratesare in effect until January 31, 2005, when the trademark and licensingfees will return to the levels stated in the original trademark and licensingservices agreements (2.5% and 1.25% of gross revenue, respectively).  On December 31, 2003, the Trust agreed toextend the trademark and licensing services agreements for the next two fiscalyears through January 31, 2007 in exchange for the Licensing Corp. forgiving$347,473 of accrued but unpaid fees.  TheManagement Company purchased the Licensing Corp. from Mr. and Mrs. Wirth onFebruary 2, 2004.  The Trust incurredlicensing fees of $301,007, $445,942 and $384,868 for the twelve months endedJanuary 31, 2004, 2003 and 2002, respectively.  The Trust is currently in negotiations withthe Licensing Corp. to purchase the licensing agreements and the InnSuites®name and marks.

 

InnSuites Hotels has entered into franchise arrangements withcertain third parties with respect to five of the Hotels, with four BestWestern hotels and one Holiday Inn hotel. In exchange for use of the Best Western name, trademark and reservationsystem, the participating Hotels pay fees to Best Western International basedon reservations received through the use of the Best Western system and thenumber of available suites at the participating Hotels.  The agreements with Best Western have nospecific expiration terms and are cancelable at the option of eitherparty.  Best Western requires that theparticipating Hotels meet certain requirements for room quality, and suchHotels are subject to removal from its reservation system if these requirementsare not met.  In exchange for use of theHoliday Inn name, trademark and reservation system, the participating Hotelspay fees based on gross room revenue. The agreement with Holiday Inn expires on June 30, 2006.  Holiday Inn requires that the participatingHotel meet certain requirements for room quality, and such Hotel is subject toremoval from its reservation system if these requirements are not met.  The Hotels with third-party franchiseagreements receive significant reservations through the Best Western andHoliday Inn reservation systems.  TheTrust incurred $628,521, $656,375 and $625,489 in total fees related to theseagreements for the twelve months ended January 31, 2004, 2003 and 2002, respectively.

 

HISTORICALOPERATIONS AND FORMATION TRANSACTIONS

 

On December 27, 1996, the Trust and HospitalityCorporation International (“HCI”), an Arizona corporation owned byMr. Wirth and his spouse, which controlled seven all-suite hotelproperties, 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”), executed a definitive Formation Agreement(the “Formation Agreement”) whereby, through a series of transactions, theInitial Hotels were combined with the Trust. At the 1997 Annual Meeting of Shareholders held on January 28,1998, the shareholders of the Trust approved the transactions contemplated bythe Formation Agreement (the “Formation Transactions”).

 

The Formation Agreement provided for the organization of thePartnership, of which the Trust would be the sole general partner, initiallyholding a 13.6% interest, with the former partners in the Initial Hotelsinvesting as limited partners, receiving a collective 86.4% interest, and forrestructuring the Trust into an “umbrella partnership REIT,” or “UPREIT.”  The Partnership acquired substantialinterests in six of the Initial Hotels. The seventh hotel, located in Scottsdale, Arizona, was acquired directlyby RRF Sub Corp., a then newly-formed Nevada corporation and wholly-ownedsubsidiary of the Trust.  RRF Sub Corp.subsequently contributed the Scottsdale, Arizona hotel to the Partnership inexchange for general

 

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partnershipinterests therein.  The Trust contributed$2,081,000 in cash to the Partnership to obtain its initial 13.6% sole generalpartner interest.

 

The Partnership has two outstanding classes of limitedpartnership interests, Class A and Class B, which are identical inall respects except that each Class A limited partnership unit isconvertible, at the option of the Class A holder, into one newly-issuedShare of Beneficial Interest of the Trust. Prior to February 1, 2004, no particular conversion of Class A limitedpartnership units was allowed, however, if a determination was made that suchconversion would cause the Trust to no longer qualify as a REIT under theCode.  A total of 2,174,931 Class Alimited partnership units were issued to the former partners in the InitialHotels, prior to February 1, 2004, Class B limited partnership units areconvertible only upon the approval of the Board of Trustees, provided that suchconversion would not cause the Trust to fail to qualify as a REIT.  A total of 4,017,361 Class B limitedpartnership units were issued to Mr. Wirth and certain of his affiliatesin order to satisfy ownership concentration limitations placed upon REITs bythe Code.  The Partnership Agreement ofthe Partnership subjects both general and limited partner units to certainrestrictions on transfer.

 

HOTELACQUISITIONS FOLLOWING THE FORMATION TRANSACTIONS

 

Following the Formation Transactions, the Partnershipacquired four additional all-suite hotels. First, effective as of February 1, 1998, the Partnership acquiredthe InnSuites Hotel Tucson St. Mary’s located in Tucson, Arizona.  The total consideration for the acquisitionwas $10,820,000 and was based upon an appraisal conducted by an independentthird party.  Mr. Wirth and hisspouse indirectly owned the Tucson St. Mary’s hotel property.  Second, on April 29, 1998, thePartnership acquired the Lafayette Hotel Ramada Inn & ConferenceCenter located in San Diego, California. The Partnership paid $5,148,000 for this hotel property based onarms-length negotiations with owners of that property.  Third, the Partnership acquired the InnSuitesHotel located in Buena Park, California, effective June 1, 1998.  The total consideration for the acquisitionwas $7,100,000 and was based upon an appraisal conducted by an independentthird party.  Mr. Wirth and StevenS. Robson indirectly owned the Buena Park hotel property at the time of suchacquisition.  Subsequent to thisacquisition, Mr. Robson was elected as a Trustee of the Trust by theshareholders of the Trust.  Fourth, thePartnership acquired the Best Western Airport Inn located in Albuquerque, NewMexico, effective August 30, 2000. The total consideration for the acquisition was $2,100,000 based onarms-length negotiations with the owners of that property.  The Trust believes that the greatestopportunities for revenue growth and profitability will arise from the skillfulmanagement of the Trust’s Hotels plus the skillful management and repositioningof current and future acquired hotel properties.  The Trust’s primary business objectives areto maximize returns to its shareholders through increases in asset value andcash flow available for distribution and to increase long-term total returns toshareholders.  The Trust seeks to achievethese objectives through (i) participation in increased revenues from theHotels through intensive management and marketing and (ii) selectiveacquisitions and expansion of the InnSuites Hotels in the southwestern regionof the United States.  At this time, theTrust does not plan to acquire any additional hotels.

 

SALEOF HOTEL PROPERTIES

 

OnMarch 21, 2003, the Trust sold its Scottsdale, Arizona property to Eldorado Resort, L.L.C.(“Eldorado”), an affiliate of Mr. Wirth, for its appraised and carrying valueof $3.1 million.  During fiscal year2003, the Trust recorded a loss on impairment of $590,000 on the property.  The property’s decrease in value wasdue to changes in the economic condition, and decreased prospects for futuredevelopment, in its immediate area.  Eldoradopaid for the hotel by assuming $1.1 million of the Trust’s notes payable

 

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to RareEarth Financial, L.L.C., (“Rare Earth Financial”), an affiliate of Mr. Wirth,assuming $500,000 of the Partnership’s notes payable to Capital ResourceLenders-I, L.L.C., an affiliate of Mr. Wirth, and paying the Trust’s term loanof $1,500,000 to the lender in full.

 

On August 21,2003, the Trust sold its Flagstaff, Arizona property to Flagstaff Grand CanyonResort, LLC (“Flagstaff Resort”), an affiliate of Mr. Wirth, for a cash paymentequal to its appraised value of $2,775,000. The Trust used the proceeds to fully satisfy its $1.5 million bank lineof credit and to reduce its notes payable to Rare Earth Financial by$1,275,000.  As of August 21, 2003, theTrust’s bank line of credit and bank term loan were fully satisfied.  The purchase price exceeded the carryingvalue of the property by $377,330, which was recorded as a capital contributionto the Partnership, and which resulted in a net increase in Shareholder equityin the amount of $192,080, net of minority interest.

 

On October 16, 2003, the Trust sold its Buena Park, California propertyto CVTI, LLC, an unrelated third party (“CVTI”), for $6.5 million.  The purchase price was satisfied with $6.3million in cash and a $200,000 promissory note issued by CVTI to theTrust.  The Trust subsequently assignedthe $200,000 promissory note to Rare Earth Financial to satisfy $200,000 of acertain note payable held by Rare Earth Financial.  The Trust used the cash proceeds to fullysatisfy the bank mortgage note on the property in the amount of $3,082,574, toreduce certain notes payable to Mr. Wirth and his affiliates and Mr. Robson inthe aggregate amount of $1.5 million and to reduce trade accounts payable.  In connection with this sale, the Trustrecorded a loss of $29,000.  During thesecond quarter of fiscal year 2004, the Trust recorded a loss on impairment of$328,976 related to the Buena Park property. The loss was recorded to reduce the asset’s carrying value to the salesprice.  The decrease in value was due toa slowdown in leisure travel to the southern California area caused by globalterror concerns and an overall sluggish economic environment.

 

The Tempe, Arizona and San Diego, California properties were soldsubsequent to year end.  See Note 19 tothe Trust’s Consolidated Financial Statements – “Hotel Properties Held for Saleand Sale of Hotel Properties” and Note 20 to the Trust’s Consolidated FinancialStatements – “Subsequent Events.”

 

ACQUISITIONOF INNSUITES HOTELS BY THE TRUST

 

In December 2000, InnSuites Hotels and the Trustestablished independent review groups to consider altering the structure of themanagement and operations of the Hotels pursuant to the provisions of the REITModernization Act.  EffectiveFebruary 1, 2001, the Trust acquired all of the issued and outstandingcommon and preferred equity stock of InnSuites Hotels for $11,531 in cashconsideration and the assumption of approximately $1.6 million of netliabilities.  Prior to the acquisition,InnSuites Hotels was owned 23% by Marc E. Berg, Executive Vice President,Secretary, Treasurer and Trustee of the Trust, 9.8% by InnSuitesInnternational, a wholly-owned affiliate of Mr. Wirth and his spouse, and67.2% by unrelated parties.

 

Following the acquisition, the management agreements relatingto the Hotels between InnSuites Hotels and InnSuites Innternational wereterminated effective January 31, 2001 and new management agreements wereentered into on substantially similar terms with the Management Company, 9.8%of which was owned by Mr. Wirth until July 1, 2003, when Mr. Wirth soldhis interest to the majority stockholder. There were no termination fees charged in connection with thecancellation of the old management agreements. In exchange for its assumption of the management agreements, theManagement Company agreed to pay $911,320 to InnSuites Innternational in order forInnSuites Innternational to satisfy its liabilities.  Effective February 1, 2001, the Partnership,InnSuites Hotels and the Management Company entered into an amendedIntercompany Agreement whereby, subject to certain terms and conditions, thePartnership granted InnSuites Hotels a right of first refusal to lease, and theManagement Company a right of first refusal to operate, any real propertyacquired by the Partnership.  In return,the Partnership was granted a right of first refusal to pursue opportunitiespresented to InnSuites

 

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Hotels orthe Management Company to purchase investments in real estate, hotelproperties, real estate mortgages, derivatives or entities that invest in anyof the foregoing.  To date, the Trust hasnot purchased or used derivatives.  Inconnection with the acquisition of InnSuites Hotels by the Trust, the ratestructures of the Percentage Leases for the Hotels were amended to reflectcurrent economic and market conditions and the employees of InnSuites Hotelsbecame employees of the Management Company. The acquisition of InnSuites Hotels by the Trust resulted in thefollowing benefits: (1) a more direct relationship between the Hotels andthe Trust, (2) the inclusion of InnSuites Hotels’ revenues in excess ofrequired rent payments in the Trust’s consolidated financial reports,(3) the elimination of potential conflicts of interest and (4) thereduction of certain administrative costs relative to the operation of theHotels and the administration of the Percentage Leases.

 

COMPETITIONIN THE HOTEL INDUSTRY

 

The hotel industry is highly competitive and competition hasintensified over the past three years due to the sluggish economy and a generalslow down in the travel and hospitality industries primarily due to thenegative impact of the threat of terrorism and the war with Iraq.  Each of the Hotels experiences competitionprimarily from other mid-market hotels located in its immediate vicinity, butalso competes with hotel properties located in other geographic markets.  While none of the Hotels’ competitorsdominate any of the Trust’s geographic markets, some of those competitors havegreater marketing and financial resources than the Trust and the Partnership.

 

A number of additional hotel property developments have beenannounced or have recently been completed by competitors in a number of theHotels’ markets, and additional hotel property developments may be built in thefuture.  Such hotel developments havehad, and could continue to have, an adverse effect on the revenue of the Hotelsin their respective markets.

 

The Trust has chosen to focus its hotel investments in thesouthwest region of the United States. The Trust has a concentration of assets in the metropolitan Phoenix andTucson, Arizona markets.  In the Phoenixand Tucson, Arizona and the Albuquerque, New Mexico markets, the supply ofhotel rooms has been increasing faster than the rate of demand.  Supply rates also generally increased fasterthan demand rates in the Yuma, Arizona market. The southern California market continues to support balanced supply anddemand rates.

 

The Trust may also compete for investment opportunities withother entities that have greater financial resources.  These entities also may generally accept morerisk than the Trust can prudently manage. Competition may generally reduce the number of suitable futureinvestment opportunities available to the Trust and increase the bargainingpower of owners seeking to sell their properties.

 

SEASONALITYOF THE HOTEL BUSINESS

 

The Hotels’ operations historically have been seasonal.  The five southern Arizona hotels experiencetheir highest occupancy in the first fiscal quarter and, to a lesser extent,the fourth fiscal quarter.  The secondfiscal quarter tends to be the lowest occupancy period at those five southernArizona hotels.  This seasonality patterncan be expected to cause fluctuations in the Trust’s quarterly revenues.  The three hotels located in California andNew Mexico historically experience their most profitable periods during thesecond and third fiscal quarters (the summer season), providing some balance tothe general seasonality of the hotel business. To the extent that cash flows from operations is insufficient during anyquarter, due to temporary or seasonal fluctuations in lease revenue, the Trustmay utilize other cash on hand or borrowings to make distributions to itsshareholders.  No assurance can be giventhat the Trust will make distributions in the future.

 

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FINANCIALINFORMATION

 

See “Item 6 - Selected Financial Data” herein forinformation regarding the Trust’s revenues, net losses, total assets, notes andadvances payable to banks and others and notes and advances payable to relatedparties.

 

OTHERAVAILABLE INFORMATION

 

We also make available, free of charge, on our Internetwebsite at www.innsuitestrust.com, our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments to reportsfiled or furnished pursuant to Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 as soon as reasonably practicable after we filesuch material with or furnish it to, the Securities and Exchange Commission.

 

Item 2.        PROPERTIES

 

The Trust maintains its administrative offices at theInnSuites Hotels Centre in Phoenix, Arizona. At January 31, 2004, the Partnership owned the eight Hotels.  All of the Hotels are operated as InnSuites®Hotels, while four are also marketed as Best Western® Hotels and one is alsomarketed as a Holiday Inn® Hotel and Suites. All of the Hotels are managed by the Management Company and operate inthe following locations:

 
| **PROPERTY**                                                         | ** ** | **NUMBER  OF  SUITES** | ** ** | **YEAR OF  CONSTRUCTION/  ADDITION** | ** ** | **MOST RECENT  RENOVATION (2)** |
|----------------------------------------------------------------------|------------|------------------------|------------|--------------------------------------|------------|---------------------------------|
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotel and Suites Airport  Albuquerque Best Western         |       | 101                    |       | 1975/1985                            |       | 2000                            |
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotel and Suites Phoenix Best  Western                     |       | 104                    |       | 1980                                 |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotels and Suites Tempe/Phoenix  Airport/South Mountain(1) |       | 160                    |       | 1982/1985                            |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotel and Suites Tucson,  Catalina Foothills Best Western  |       | 159                    |       | 1981/1983                            |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotels and Suites Yuma                                     |       | 166                    |       | 1982/1984                            |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| Holiday Inn Airport Hotel and  Suites/Ontario (an InnSuites Hotel)   |       | 150                    |       | 1990                                 |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotels and Suites Tucson St.  Mary’s                  |       | 260                    |       | 1960/1971                            |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| InnSuites Hotels and Suites San Diego(1)                             |       | 131                    |       | 1946/1989                            |       | 2003                            |
|                                                                 |       |                   |       |                                 |       |                            |
| Total suites                                                         |       | 1,231                  |       |                                 |       |                            |

 

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(1) The Tempe, Arizona and San Diego, California properties were soldsubsequent to year end.  See Note 19 tothe Trust’s Consolidated Financial Statements – “Hotel Properties Held for Saleand Sale of Hotel Properties” and Note 20 to the Trust’s Consolidated FinancialStatements – “Subsequent Events.”

(2) The Trust defines a renovation as the remodeling of more than 10%of a property’s available suites.

 

See “Item 7 – Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – General” herein for adiscussion of occupancy rates at the Hotels.

 

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See Note 5 to the Trust’s Consolidated Financial Statements –“Mortgage Notes Payable” herein for a discussion of mortgages encumbering theHotels.

 

Item 3.        LEGAL PROCEEDINGS

 

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

 

Item 4.        SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS

 

There were no matters submitted to a vote of security holdersduring the fiscal quarter ended January 31, 2004.

 

PART II

 

Item 5.        MARKET FOR THE TRUST’SSHARES AND RELATED SECURITY HOLDER MATTERS

 

The Trust’s Shares of Beneficial Interest are traded on theAmerican Stock Exchange under the symbol “IHT.” On April 28, 2004, the Trust had 2,291,649 shares outstanding and518 holders of record.

 

The following table sets forth, for the periods indicated,the high and low sales prices of the Trust’s Shares of Beneficial Interest, asquoted by the American Stock Exchange, as well as dividends declared thereon:

 
| **Fiscal Year 2004** | ** ** | **High** | ** ** | **Low** | ** ** | **Dividends** | ** ** |
|----------------------|------------|----------|------------|---------|------------|---------------|------------|
| First Quarter        |       | 1.80     |       | 1.30    |       | —        |       |
| Second Quarter       |       | 1.40     |       | 1.20    |       | —        |       |
| Third Quarter        |       | 1.70     |       | 1.15    |       | —        |       |
| Fourth Quarter       |       | 2.25     |       | 1.05    |       | .02           |       |

 
| **Fiscal Year 2003** | ** ** | **High** | ** ** | **Low** | ** ** | **Dividends** |   |
|----------------------|------------|----------|------------|---------|------------|---------------|--------|
| First Quarter        |       | 1.39     |       | 0.95    |       | —        |   |
| Second Quarter       |       | 2.60     |       | 1.25    |       | —        |   |
| Third Quarter        |       | 2.35     |       | 1.71    |       | —        |   |
| Fourth Quarter       |       | 2.00     |       | 1.15    |       | .01           |   |

 

The Trust intends to maintain a conservative dividend policyto facilitate reduction of debt and internal growth.  In fiscal years 2004 and 2003, the Trust paiddividends of $0.02 and $0.01 per share, respectively, in the fourth quarter ofeach year.  During fiscal year 2003, theTrust was restricted to a $0.01 per share dividend by the terms of its bankline of credit agreement.  There were nosuch restrictions on dividends during fiscal year 2004 due to the payment infull of the bank line of credit.

 

Item 6.        SELECTED FINANCIAL DATA

 

The following selected financial data of the Trust as of andfor the five fiscal years ended January 31, 2004, has been derived fromthe audited consolidated financial statements of the Trust.  The consolidated financial statements of theTrust as of and for the two fiscal years ended January 31, 2004  and 2003 were audited by McGladrey &Pullen, LLP, independent registered public accountants.  The consolidated financial statements of theTrust as of and for the fiscal year ended January 31, 2002 were audited

 

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by KPMGLLP, independent registered public accountants. All of the data should be read in conjunction with the respectiveconsolidated financial statements and related notes included herein.

 

The following selected financial data hasbeen restated to reflect reclassifications to the original Form 10-K that arefurther discussed in the Explanatory Note in the forepart of this Form 10-K/Aand in Note 21 in the Notes to the Consolidated Financial Statements includedin Item 8.

 
| ** **                                      | ** ** | **Year Ended January 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **2004**                        | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Total revenue                                   |       | $                               | 24,211,328 |   | $ | 26,940,473 |   | $ | 27,656,009 |   | $ | 9,727,206 |   | $ | 9,546,181 |   |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                 |       | $                               | (2,594,317 | ) | $ | (3,445,948 | ) | $ | (3,539,402 | ) | $ | (2,594,754 | ) | $ | (951,811 | ) |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Loss per share – basic and diluted         |       | $                               | (1.27      | ) | $ | (1.67 | ) | $ | (1.66 | ) | $ | (1.12 | ) | $ | (.40 | ) |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Cash dividends paid and declared per share      |       | $                               | 0.02       |   | $ | 0.01 |   | $ | 0.01 |   | $ | 0.03 |   | $ | 0.02 |   |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Total assets                                    |       | $                               | 47,961,594 |   | $ | 61,494,579 |   | $ | 64,264,516 |   | $ | 63,905,561 |   | $ | 65,305,519 |   |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Notes and advances payable to banks and  others |       | $                               | 31,974,992 |   | $ | 38,922,408 |   | $ | 38,598,106 |   | $ | 37,053,593 |   | $ | 35,776,662 |   |
|                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Notes and advances payable related parties      |       | $                               | 6,852,241  |   | $ | 9,901,153 |   | $ | 8,666,360 |   | $ | 7,471,707 |   | $ | 2,970,000 |   |

 

See “Item 1 - Business - Historical Operations andFormation Transactions, - Hotel Acquisitions Following the FormationTransactions, - Sale of Hotel Properties, and - Acquisition of InnSuites Hotelsby the Trust” herein for a discussion of the change in the nature of thebusiness of the Trust over the course of the years presented above.  As a result, the information presented aboveis not comparative from year to year.

 

Item 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

The Trust is engaged in the ownership and operation of hotelproperties. At January 31, 2004, our system included eight moderate andfull-service hotels with 1,231 hotel suites. Certain of our Hotels are brandedthrough franchise agreements, which include four Best Western hotels and oneHoliday Inn hotel. All eight Hotels are trademarked as InnSuites Hotels. We arealso involved in various operations incidental to the operation of hotels, suchas the operation of restaurants and meeting/banquet room rentals.

 

Our operations consist of only one reportable segment, hotel ownership,which derives its revenue from the operation of the Hotels.

 

Our results are significantly affected by occupancy and room rates at the Hotels, our ability to manage costs, and changes in the number of available suites caused by acquisition and disposition

 

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activities.  Results are also impacted by overall economic conditions and conditions in the travel industry. Unfavorable changes in these factors could negatively impact hotel room demand and pricing which would reduce our profit margins on rented suites.  Additionally, our ability to manage costs could be adversely impacted by significant increases in operating expenses, resulting in lower operating margins.

 

We anticipate that improving economic conditions will create opportunities for the hospitality industry and our Company in fiscal year 2005.  Improving economic conditions are expected to result in increased business and leisure travel and support higher room rates, and therefore higher operating margins.  Challenges in fiscal year 2005 are expected to include continued competition for group business in the markets in which we operate and the Trust’s ability to increase room rates while maintaining market share. We will continue to focus on managing our costs, achieving increased daily rates in the markets where we operate and building occupancy.  We believe that our focus on customer service, adding more two-room suites and leveraging technology will enable us to remain competitive.

 

EffectiveFebruary 1, 2004, the Trust relinquished its REIT status. As of that date, anydistributions to its shareholders are not deductible for purposes of computingthe Trust’s taxable income and the Trust will be subject to income tax,including any applicable alternative minimum tax, on its taxable income atregular corporate rates, without offset for distributions of such income to itsshareholders.  See Note 20 to the Trust’sConsolidated Financial Statements – “Subsequent Events.”

 

RESTATEMENT OF FINANCIALSTATEMENTS

 

Subsequent tothe issuance of the Trust’s 2004 financial statements, we reviewed ouraccounting for discontinued operations in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”  We have determined that we have “significantcontinuing involvement” as that term is defined in SFAS No. 144, which precludesthe classification of our hotel properties held for sale as discontinuedoperations.  As a result, we haverestated our Consolidated Statements of Operations for the years ended January31, 2002, 2003 and 2004 and our Consolidated Statements of Operations for theinterim periods ended April and July in 2003 and 2004 and October 2002 and2003.

 

GENERAL

 

The following discussion should be read in conjunction withthe Trust’s consolidated financial statements and notes thereto.

 

The accounting policies that we believe are most critical andinvolve the most subjective judgments include our estimates and assumptions offuture revenue and expenditures used to project property cash flows.  Future cash flows are used in the valuationcalculation of our hotel properties to determine the recoverability (or impairment)of the carrying amounts in the event management is required to test the assetfor recoverability of its carrying value under Statement of FinancialAccounting Standards No. 144.  Ifthe carrying amount of an asset exceeds the estimated future cash flows overits estimated remaining life, the Trust recognizes an impairment expense toreduce the asset’s carrying value to its fair value.  Fair value is determined by either the mostcurrent third-party property appraisal, if available, or the present value offuture cash flows over the remaining life of the asset.  Our evaluation of future cash flows is basedon our historical experience and other factors, including certain economicconditions and committed future bookings. See “- Critical Accounting Policies and Estimates” below.

 

At January 31, 2004, the Trust owned a 51.54% interestin the Hotels through its sole general partner’s interest in thePartnership.  The Trust purchased 57,509,257,101 and 15,322 Partnership units during the years ended January 31,2004, 2003 and 2002, respectively.

 

The Partnership leases its hotel properties to InnSuitesHotels.  The corresponding rent expensefor InnSuites Hotels and rent revenue for the Partnership, as well as theresulting rent receivable and payable, eliminate in consolidation.  During the fourth quarter of fiscal year2004, the Partnership agreed to waive InnSuites Hotels accrued but unpaid rentin exchange for InnSuites Hotels extending its lease agreements one year.  The total amount waived was $3,134,130.  This transaction had a net effect ofincreasing the Trust’s stockholders equity by $1,518,834.

 

The expenses of the Trust consist primarily of propertytaxes, insurance, corporate overhead, interest on mortgage debt, professionalfees, depreciation of the Hotels, management and trademark fees to affiliatesand hotel operating expenses.  Under theterms of its Partnership Agreement, the Partnership

 

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is requiredto reimburse the Trust for all such expenses. Accordingly, management believes that a review of the historicalperformance of the operations of the Hotels, particularly with respect tooccupancy, average daily rate (“ADR”), calculated as total room revenue dividedby number of rooms sold, and revenue per available room (“REVPAR”), calculatedas total room revenue divided by number of rooms available, is appropriate forunderstanding revenue from the Percentage Leases.  ADR decreased by $0.32 to $66.27 in fiscalyear 2004 from $66.59 in fiscal year 2003. Occupancy increased 2.33% to 62.79% in fiscal year 2004 from 60.46% infiscal year 2003 primarily as a result of the reduction in available rooms dueto the conversion of studio suites into two-room executive suites at certain ofthe properties, as well as the sale of certain lower-occupancy properties.  This reduction in the number of suitesavailable, combined with the hotel sales, also resulted in an increase inREVPAR of $1.35 to $41.61 in fiscal year 2004 from $40.26 in fiscal year 2003.

 

The following table shows certain historical financial andother information for the periods indicated:

 
| ** **                          | ** ** | **For the Year Ended  January 31,** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|
| ** **                          | ** ** | **2004**                                 | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                |       |                                     |       |   |   |   |   |
| Occupancy                           |       | 62.79                                    | %          | 60.46 | % | 59.49 | % |
|                                |       |                                     |       |   |   |   |   |
| Average Daily Rate (ADR)            |       | $                                        | 66.27      |   | $ | 66.59 |   | $ | 66.57 |   |
|                                |       |                                     |       |   |   |   |   |   |   |   |
| Revenue Per Available Room (REVPAR) |       | $                                        | 41.61      |   | $ | 40.26 |   | $ | 39.62 |   |

 

No assurance can be given that the trends reflected in thisdata will continue or that occupancy, ADR and REVPAR will not decrease as aresult of changes in national or local economic or hospitality industryconditions.

 

The Trust enters into transactions with certain relatedparties from time to time.  Forinformation relating to such related party transactions see the following:

 

•              For a discussion of management, licensing and intercompanyagreements with certain related parties, see “Item 1 – Business – Introductionto Our Business, and – Acquisition of InnSuites Hotels by the Trust.”

 

•              For a discussion of acquisitions involving certain relatedparties, see “Item 1 – Business – Historical Operations and FormationTransactions, – Hotel Acquisitions Following the Formation Transactions, and –Acquisition of InnSuites Hotels by the Trust.”

 

•              For a discussion of the sales of the Trust’s Scottsdale andFlagstaff, Arizona hotels to a related party during fiscal year 2004, – see“Item 1 – Business – Sale of Hotel Properties” and Note 19 to the Trust’sConsolidated Financial Statements – “Hotel Properties Held for Sale and Sale ofHotel Properties.”

 

•              For a discussion of the sale of the Trust’s Tempe, Arizonahotel to a related party subsequent to year end, see Note 20 to theTrust’s Consolidated Financial Statements – “Subsequent Events.”

 

·              For a discussion of guarantees of the Trust’s mortgage notespayable by certain related parties, see Note 5 to the Trust’s ConsolidatedFinancial Statements – “Mortgage Notes Payable.”

 

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•              For a discussion of notes and advances payable by the Trustto certain related parties, see Note 7 to the Trust’s Consolidated FinancialStatements – “Notes and Advances Payable to Related Parties.”

 

•              For a discussion of the Trust’s employment agreement withMr. Wirth, see Note 12 to the Trust’s Consolidated Financial Statements –“Advisory Agreement/Employment Agreements.”

 

***Results of Operations ofthe Trust for the year ended January 31, 2004 compared to the year endedJanuary 31, 2003.***

 

*Overview*

 

Asummary of operating results for the fiscal years ended January 31, 2004 and2003 is:

 
| ** **                              | ** ** | **2004** | ** ** | **2003** | ** ** | **Change** | ** ** | **% Change** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|------------|------------|--------------|------------|
| Revenue                                 |       | $        | 24,211,328 |     | $          | 26,940,473 |       | $            | (2,729,145 | ) | -10.1 | % |
| Operating Loss                          |       | $        | (272,479   | )   | $          | (1,080,639 | )          | $            | 808,160    |   | 74.8 | % |
| Net Loss                                |       | $        | (2,594,317 | )        | $          | (3,445,948 | )          | $            | 851,631    |   | 24.7 | % |
| Loss Per Share – Basic and Diluted |       | $        | (1.27      | )        | $          | (1.67      | )          | $            | 0.40       |   | 24.0 | % |

 

The Trust’s overall results in both 2004 and 2003 wereadversely affected by the sluggish economic environment and reduced travel dueto the war in Iraq and other terror concerns. Decreased demand in both the leisure travel, particularly in southernCalifornia, and business travel markets resulted in declining revenues duringfiscal year 2004.

 

For the twelve months ended January 31, 2004, the Trusthad total revenue of $24.2 million compared to $26.9 million for thetwelve months ended January 31, 2003, a decrease of approximately $2.7million.  This decrease in total revenueis primarily due to fewer occupied rooms and the absence of revenue from theScottsdale, Arizona property due to its sale in the first quarter of fiscalyear 2004, and from the Flagstaff, Arizona and Buena Park, Californiaproperties, which were sold in the third quarter of fiscal year 2004.  Total expenses of $27.9 million for thetwelve months ended January 31, 2004 reflect a decrease of approximately $4.0million compared to total expenses of $31.9 million for the twelve monthsended January 31, 2003.  Thedecrease is primarily due to the impairment charge of $590,000 related to theScottsdale property in fiscal year 2003, reduced hotel expenses as a result ofreduced occupied rooms and the absence of expenses from the Scottsdale,Flagstaff and Buena Park properties due to their sale in fiscal year 2004.

 

Loss on impairment of hotel property was approximately$590,000 for the twelve months ended January 31, 2003.  This loss resulted from the write-down for animpairment of the Scottsdale, Arizona hotel property.  The operating performance of the Scottsdaleproperty during that period indicated that it significantly decreased in value,which required management to test the property for recoverability of book valueunder SFAS No. 121, “Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed Of.” Based on an appraisal of the property’s fair value, the hotel property’scarrying value was determined not to be recoverable.  The hotel property, including land, buildingsand improvements and furniture, fixtures and equipment, was written down by$590,000 to its fair value and new basis of $3.1 million.  The amount of impairment allocated to Sharesof Beneficial Interest was

 

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$294,000and the amount allocated to minority interest was $296,000.  The hotel property’s decrease in value wasdue to changes in the economic condition, and decreased prospects for futuredevelopment, in its immediate area.  Nosuch loss was recorded for the twelve months ended January 31, 2004.  During fiscal year 2004, the impairedproperty was sold to Scottsdale Eldorado Resort, LLC, an affiliate of Mr.Wirth, for $3.1 million.

 

General and administrative expenses include overhead chargesfor management, accounting, shareholder and legal services for the Trust.  In comparing general and administrativeexpenses for the twelve months ended January 31, 2004 and 2003, theseexpenses decreased $1.1 million, or 19.1%, to $4.7 million in fiscal year2004, from $5.8 million in fiscal year 2003.  This decrease was primarily due to $91,000 ofexpense related to the refinancing of the Tucson St. Mary’s and San Diegoproperties in fiscal year 2003, a decrease of $242,000 in trademark andmanagement fees in fiscal year 2004 due to amendments to the related contracts,and the absence of such expenses from the Scottsdale, Buena Park and Flagstaffproperties due to their sale during the first quarter of fiscal year 2004.

 

Total operating expenses for the twelve months endedJanuary 31, 2004 were $24.5 million, a decrease of approximately $3.5million, or 12.6%, from $28.0 million in the twelve months endedJanuary 31, 2003.  The decrease wasprimarily due to the impairment charge of $590,000 related to the Scottsdaleproperty in fiscal year 2003, reduced hotel expenses as a result of reducedrevenue and the absence of expenses from the Scottsdale, Buena Park andFlagstaff properties due to their sale in the first quarter of fiscal year2004.

 

Total interest expense for the twelve months ended January31, 2004 was $3.4 million, a decrease of $424,000, or 11.2%, from $3.8million in the twelve months ended January 31, 2003.  Interest on mortgage notes payable for thetwelve months ended January 31, 2004 was $2.8 million, a decrease of $165,000,or 5.6%, from $2.9 million in the twelve months ended January 31, 2003.Interest on notes payable to banks for the twelve months ended January 31, 2004was $54,000, a decrease of $111,000, or 67.4%, from $165,000 in the priorfiscal year, due to the Trust satisfying in full its term loan in March 2003and its line of credit in full in August 2003. Interest on notes payable to related parties decreased 21.4%, or$148,000, to $544,000 from $692,000 due to a decrease of $2.9 million innet borrowings from Mr. Wirth and his affiliates.

 

Real estate and personal property taxes, insurance and groundrent decreased $219,000, or 11.6%, to $1.7 million from $1.9 millionin comparing the twelve months ended January 31, 2004 and 2003,respectively.  Real estate and personalproperty taxes and property insurance decreased due to the sale of theScottsdale property in the first quarter of fiscal year 2004 and decreasedproperty tax assessments at certain hotels.

 

Hotel property depreciation for the twelve months endedJanuary 31, 2004 compared to 2003 decreased approximately $418,000, or 12.3%,to $3.0 million from $3.4 million, respectively.  The decrease was primarily due to the sale ofcertain hotel properties and the cessation of depreciation on hotel propertiesclassified as held for sale.

 

The Trust had a loss before minority interest of$3.6 million for the twelve months ended January 31, 2004, comparedto a loss before minority interest of $4.9 million in the prior year.  After deducting the loss allocated to theminority interest of $1.0 million, the Trust had a net loss attributable toShares of Beneficial Interest of approximately $2.6 million.  This represented a decrease in total net lossof approximately $852,000 attributable to Shares of Beneficial Interestcomparing the twelve months ended January 31, 2004 and 2003.  Basic and diluted net loss per share was$1.27 for the twelve months ended January 31, 2004, compared to $1.67 for2003.

 

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***Results of Operations ofthe Trust for the year ended January 31, 2003 compared to the year endedJanuary 31, 2002.***

 

*Overview*

 

Asummary of operating results for the fiscal years ended January 31, 2003 and2002 is:

 
| ** **                              | ** ** | **2003** | ** ** | **2002** | ** ** | **Change** | ** ** | **% Change** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|------------|------------|--------------|------------|
| Revenue                                 |       | $        | 26,940,473 |     | $          | 27,656,009 |       | $            | (715,536   | ) | 2.6 | % |
| Operating Loss                          |       | $        | (1,080,639 | )        | $          | (914,139   | )          | $            | (166,500   | )  | 18.2 | % |
| Net Loss                                |       | $        | (3,445,948 | )        | $          | (3,539,402 | )          | $            | 93,454     |   | 2.6 | % |
| Loss Per Share – Basic and Diluted |       | $        | (1.67      | )        | $          | (1.66      | )          | $            | (0.01      | ) | -0.6 | % |

 

The Trust’s overall results in both 2003 and 2002 wereadversely affected by the sluggish economic environment and reduced travel dueto terror concerns.  Decreased airlinetravel after the terrorist attacks of September 11, 2001 decreased overalldemand and reduced occupancy and ADR for both fiscal year 2003 and 2002.

 

For the twelve months ended January 31, 2003, the Trusthad total revenue of $26.9 million compared to $27.7 million for thetwelve months ended January 31, 2002, a decrease of approximately $716,000.  This decrease in total revenue is primarilydue to fewer occupied rooms caused by sluggish economic conditions, as well asthe general slow down in the travel and hospitality industries primarily due tothe negative impact of the threat of terrorism and the war with Iraq.  Total expenses of $31.8 million for thetwelve months ended January 31, 2003 reflect a decrease of approximately $489,000compared to total expenses of $32.3 million for the twelve months endedJanuary 31, 2002.  The decrease isprimarily due to the $1.6 million one-time charge for the acquisition of InnSuitesHotels incurred in fiscal year 2002, which was mostly offset by the $590,000loss on impairment recorded in fiscal year 2003, increase of $300,000 in baddebt expense in fiscal year 2003 and an increase of $339,000 depreciationexpense in fiscal year 2003.

 

Expenses incurred in acquiring InnSuites Hotels for the yearended January 31, 2002 relate to the one-time assumption of netliabilities of InnSuites Hotels that were associated with the acquisition.  Comparable costs were not incurred in fiscalyear 2003.

 

Loss on impairment of hotel property was approximately$590,000 for the twelve months ended January 31, 2003.  This loss resulted from the write-down for animpairment of the Scottsdale hotel property. The operating performance of the Scottsdale property during that periodindicated that the hotel property significantly decreased in value, whichrequired management to test the property for recoverability of book value underSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  Using management’s bestestimate of undiscounted future cash flows from the hotel, the hotel property’scarrying value was determined not to be recoverable.  The hotel property, including land, buildingsand improvements and furniture, fixtures and equipment, was written down by$590,000 to the hotel’s market value and new basis of $3.1 million.  The amount of impairment allocated to Sharesof Beneficial Interest was $294,000 and the amount allocated to minorityinterest was $296,000.  The property’sdecrease in value was due to changes in the economic condition, and decreasedprospects for future development, in its immediate area.  No such loss was recorded for the twelvemonths ended January 31, 2002. Subsequent to year end, the impairedproperty was sold to Scottsdale Eldorado Resort, LLC, an affiliate of Mr.Wirth, for $3.1 million.

 

General and administrative expenses include overhead chargesfor management, accounting, shareholder and legal services for the Trust.  In comparing general and administrativeexpenses for the twelve months ended January 31, 2003 and 2002, theseexpenses increased $131,000, or 2.3%, to $5.8 million in fiscal year 2003from $5.7 million in fiscal year 2002. This increase was primarily due to

 

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$91,000 of expense related to the refinancing of the TucsonSt. Mary’s and San Diego properties in fiscal year 2003 and Best Westernfranchise fees of $88,000 related to the Buena Park property in fiscal year2003.

 

Totaloperating expenses for the twelve months ended January 31, 2003 were $28.0million, a decrease of approximately $549,000 from $28.5 million in the twelvemonths ended January 31, 2002.  Thedecrease was primarily due to the one-time charge associated with theacquisition of InnSuites Hotels in fiscal year 2002, and was partially offsetby the impairment charge related to the Scottsdale property in fiscal year 2003discussed above.

 

Total interest expense was $3.8 million in both fiscalyear 2003 and fiscal year 2002.  Intereston mortgage notes payable of $2.9 million was consistent with the prioryear. Interest on notes payable to banks decreased by 56.9%, or $218,000, to$165,000 from $384,000 due to lower outstanding balances on the Trust’s line ofcredit and term loans.  Interest on notespayable to related parties increased 29.9%, or $159,000, to $692,000 from$533,000 due to an increase of $1.2 million in net borrowings fromMr. Wirth and his affiliates.

 

Real estate and personal property taxes, insurance and groundrent increased $131,000, or 7.4%, to $1.9 million from $1.8 millionin comparing the twelve months ended January 31, 2003 and 2002,respectively.  Real estate and personalproperty taxes and property insurance increased due to increased insurancepremiums and increased property tax assessments.

 

Hotel property depreciation for the twelve months endedJanuary 31, 2003 compared to 2002, increased approximately $339,000, or 11.1%,to $3.4 million from $3.1 million, respectively.  The increase resulted primarily from therecognition of depreciation in the fourth quarter on the Flagstaff property forthe prior fifteen months.  Recordingdepreciation ceased on this property between August 1, 2001 and October 31,2002 while it was classified for accounting purposes as “held for sale.”  When on November 1, 2002 the property wasreclassified for accounting purposes as “held and used,” the Trust begandepreciating the property again and had to take the fifteen months worth ofdepreciation that was suspended while the property was classified foraccounting purposes as “held for sale.”

 

The Trust had a loss before minority interest of$4.9 million for the twelve months ended January 31, 2003, comparedto a loss before minority interest of $4.7 million in the prior year.  After deducting the loss allocated to theminority interest of $1.4 million, the Trust had a net loss attributableto Shares of Beneficial Interest of approximately $3.4 million.  This represented a decrease in net loss ofapproximately $93,000 attributable to Shares of Beneficial Interest comparingthe twelve months ended January 31, 2003 and 2002.  Basic and diluted net loss per share was$1.67 for the twelve months ended January 31, 2003 compared to $1.66 for2002.  For the twelve months endedJanuary 31, 2002, the Trust recorded a net loss from extraordinary items of$322,000, of which approximately $156,000, or $0.07 per share, is attributableto Shares of Beneficial Interest.

 

LIQUIDITYAND CAPITAL RESOURCES

 

Overview

 

Net cash provided by or used in operating activitiestotaled $88,000, $1.1 million, and $(262,000) for the years ended January 31,2004, 2003 and 2002, respectively.  Thedecrease in 2004 as compared to 2003 was primarily due to the Trust’s effortsto reduce its liabilities, especially trade payables.  The increase in 2003 as compared to 2002 wasprimarily due to the Trust’s increased payable balances resulting from itsefforts to manage cash flows.

 

Net cash provided by or used in investing activitiestotaled $10.2 million, $(1.6) million, and $(2.4) million for the years endedJanuary 31, 2004, 2003 and 2002, respectively. The increase in 2004 as compared to 2003 was primarily due to the saleof certain Hotels during fiscal year 2004. The increase in 2003 as compared to 2002 was primarily due to reducedcapital refurbishment projects at the Hotels.

 

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Net cash provided by or used in financing activitiestotaled $(10.4) million, $513,000, and $2.5 million for the years ended January31, 2004, 2003 and 2002, respectively. The decrease in 2004 as compared to 2003 was primarily due to the saleof certain Hotels in fiscal year 2004, the proceeds of which the Trust used toreduce its debt balances to related parties and satisfy its mortgage notes onthese properties.  The decrease in 2003as compared to 2002 was primarily due to reduced borrowings in fiscal year 2003from Mr. Wirth and his affiliates.

 

As of January 31, 2004, the Trust had no cash onhand.  However, subsequent to year end,the sale of the San Diego, California property resulted in the Trust receiving$4.5 million in cash proceeds after satisfying its mortgage note.  The Trust’s projection of future cashreceipts includes certain cost-cutting measures and certain increases in hotelrevenues.  In addition, during fiscalyear 2004, the Trust sold its Scottsdale and Flagstaff, Arizona and Buena Park,California properties, which had a history of net operating losses and negativecash flows.  See Note 19 to theTrust’s Consolidated Financial Statements – “Hotel Properties Held for Sale andSale of Hotel Properties.”

 

The Trust received $12.2 million in proceeds for thesales of hotel properties in fiscal year 2004. The Trust used $3.0 million of these proceeds to satisfy a mortgage notepayable, $4.4 million to satisfy related party notes payable, $3.0 million tosatisfy bank notes payable and the remaining proceeds to fund operations.

 

Through its ownership interest in the Partnership and,effective February 1, 2001, InnSuites Hotels, the Trust has itsproportionate share of the benefits and obligations of the Partnership’sownership interests and InnSuites Hotels’ operational interests in theHotels.  The Trust’s principal source ofcash to meet its cash requirements, including distributions to itsshareholders, is its share of the Partnership’s cash flow.  The Partnership’s principal source of revenueis rent payments under the Percentage Leases. InnSuites Hotels’ obligations under the Percentage Leases are unsecuredand its ability to make rent payments to the Partnership under the PercentageLeases, and the Trust’s liquidity, including its ability to make distributionsto its shareholders, will depend upon the ability of InnSuites Hotels togenerate sufficient cash flow from hotel operations.

 

Historically, as a REIT, the Trust was required todistribute to its shareholders at least 90% of its taxable income, excludingnet capital gains.  The termination ofthe Trust’s status as a REIT, effective February 1, 2004, eliminated thisrequirement.  However, by relinquishingits status as a REIT, the Trust will become subject to the payment of incometaxes.  See Note 20 to the Trust’sConsolidated Financial Statements – “Subsequent Events.”

 

As of January 31, 2004, the Trust has no commitments forcapital expenditures beyond a 4% reserve for refurbishment and replacementsthat is set aside annually, as described below.

 

The Partnership continues to contribute to a CapitalExpenditures Fund (the “Fund”), from the rent paid under the Percentage Leases,an amount equal to 4% of InnSuites Hotels’ revenues from operation of theHotels.  The Fund applicable to the sixhotel properties for which a mortgage lender escrow exists is restricted by themortgage lenders.  As of January 31,2004, $136,790 was held in the Fund and is reported on the Trust’s ConsolidatedBalance Sheet as “Restricted Cash.”  TheFund is intended to be used for capital improvements to the Hotels andrefurbishment and replacement of furniture, fixtures and equipment, in additionto other uses of amounts in the Fund considered appropriate from time totime.  During the twelve months endedJanuary 31, 2004 and 2003, the Hotels spent approximately$1.8 million and $1.7 million, respectively, for capitalexpenditures.  The Trust considers themajority of these improvements to be revenue producing.  Therefore, these amounts have beencapitalized and are being depreciated over their estimated useful lives.  The Trust plans to spend approximately$800,000 for capital expenditures in fiscal year 2004.  InnSuites Hotels also spent

 

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approximately$1.8 million and $1.9 million during fiscal years 2004 and 2003,respectively, on repairs and maintenance and these amounts have been charged toexpense as incurred.

 

On February 2, 2004, the Trust purchased 433,036 Class Blimited partnership units in the Partnership from Mr. Wirth and his affiliatesfor the closing price of the Trust’s Shares of Beneficial Interest on that day,which was $2.25.  The Trust made adown-payment totaling $2,500 and issued five promissory notes totaling$971,831, which will be paid in monthly installments of principal and interestover 84 months.  The Trust repurchasedthese units to increase its sole general partner interest in the Partnership,and thereby receive a larger allocation of the Partnership’s equity.  This increased allocation of equity willenhance the Trust’s ability to regain compliance with American Stock Exchangelisting requirements.

 

The Trust has minimum debt payments of $2.8 million and$4.5 million due during fiscal years 2005 and 2006, respectively.  The sale of the Tempe, Arizona propertysubsequent to year end satisfied in full the mortgage note secured by thatproperty, which accounted for $1.6 million of the principal due in fiscal year2006, as well as $1.1 million and $1.5 million of the principal due toMr. Wirth and his affiliates in fiscal years 2005 and 2006,respectively.  See Note 19 to theTrust’s Consolidated Financial Statements – “Hotel Properties Held for Sale andSale of Hotel Properties” and Note 20 to the Trust’s Consolidated FinancialStatements – “Subsequent Events.”  TheTrust believes it can satisfy its remaining obligations during fiscal years2005 and 2006 using revenue generated by the Hotels’ operations.  If revenue generated from operations isinsufficient to meet the Trust’s obligations as they come due, payments andterms for obligations owed to Mr. Wirth and his affiliates in the amountsof $1.2 million and $1.7 million due in 2005 and 2006, respectively,may be renegotiated to extend the terms of these loans.  Mr. Wirth and/or his affiliates havealso demonstrated their willingness to modify the terms of existing obligationsand to create new obligations based on the cash needs of the Trust.  See Note 7 to the Trust’s ConsolidatedFinancial Statements - “Notes and Advances Payable to Related Parties.”

 

Management believes that cash on hand, future cash receiptsfrom operations, proceeds from hotel sales and borrowings from affiliates infiscal year 2005 will be sufficient to meet the Trust’s obligations as theybecome due for the next twelve months.

 

The Trust may seek to negotiate additional credit facilitiesor issue debt instruments.  Any debtincurred 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 besubject to such other terms as the Trust considers prudent.

 

The Trust will acquire or develop additional hotels only assuitable opportunities arise, and the Trust will not undertake acquisition orredevelopment of properties unless adequate sources of financing areavailable.  Funds for future acquisitionsor development of hotels are expected to be derived, in whole or in part, fromborrowings or from the proceeds of additional issuances of Shares of BeneficialInterest or other securities.  However,there can be no assurance that the Trust will successfully acquire or developadditional hotels or that proceeds from borrowings or issuances of Shares ofBeneficial Interest will be available or in amounts and on terms sufficient toallow such transactions.

 

CONTINUED LISTING WITH THE AMERICAN STOCK EXCHANGE

 

On June 13, 2003, the Trust received a notice from the AmericanStock Exchange (“Amex”) indicating that the Trust failed to meet certain ofAmex’s continued listing standards as set forth under Section 1003(a) ofthe Amex Company Guide.  The Trust becamenon-compliant with Amex’s listing standards due to losses incurred in the mostrecent fiscal years.  These losses wereexacerbated by the terrorist attacks on September 11, 2001, the war inIraq during the spring of 2003, as well as the general slowdown in the economyand travel.

 

16

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In response to this notice, the Trust was given the opportunity tosubmit a plan to Amex to regain compliance with the continued listingstandards.  On August 26, 2003, Amexnotified the Trust that it accepted the Trust’s plan and granted the Trust anextension of time to November 2004 to regain compliance with the continued listingstandards.  The Trust will be subject to periodic review by Amexstaff during this extension period. Failure to make progress consistent with the plan or to regaincompliance with the continued listing standards by the end of the extensionperiod could result in the Trust being delisted from Amex.  If the Trust’s Shares of Beneficial Interestwere delisted from Amex, liquidity in the trading market for the Shares ofBeneficial Interest could be significantly decreased, which could reduce thetrading price of and increase the transaction costs of trading Shares ofBeneficial Interest.

 

As part of the Trust’s plan,the Trust has taken certain steps to reduce expenses and increase sales, whichhas positioned the Trust to improve its operating results.  In addition, the Trust recently sold threenon-strategic assets, its Scottsdale and Flagstaff, Arizona and Buena Park,California properties, allowing it to reduce operating losses and fully satisfyits bank term loan and bank line of credit. Subsequent to year end, the Trust sold its San Diego, California andTempe, Arizona properties.  Through thesale of these assets, equity-raising activities and performing certain servicesin-house, the Trust expects to improve its financial position and results of operations.  The Trust expects to regain compliance withAmex’s listing requirements by November 2004.

 

SHAREREPURCHASE PROGRAM

 

On January 2, 2001, the Board of Trustees of the Trustapproved a share repurchase program under Rule 10b-18 of the Securities ExchangeAct of 1934, as amended, for the purchase of up to 250,000 limited partnershipunits in the Partnership and/or Shares of Beneficial Interest in open market orprivately negotiated transactions. Additionally, on September 10, 2002, the Board of Trustees approvedthe purchase of up to 350,000 additional limited partnership units in thePartnership and/or Shares of Beneficial Interest in open market or privatelynegotiated transactions.  Acquired Sharesof Beneficial Interest are held in treasury and are available for futureacquisitions and financings and/or for awards granted under the Trust’s 1997Stock Incentive and Option Plan.  Duringfiscal year 2004, the Trust acquired 22,500 Shares of Beneficial Interest inopen market transactions at an average price of $1.29 per share, and 57,509limited partnership units in privately negotiated transactions at an averageprice of $1.53 per unit.  The Trustintends to continue repurchasing Shares of Beneficial Interest in compliancewith applicable legal and Amex requirements. The Trust is authorized to repurchase an additional 269,891 limitedpartnership units and/or Shares of Beneficial Interest pursuant to the sharerepurchase program.

 

OFF-BALANCESHEET FINANCINGS AND LIABILITIES

 

Other than lease commitments, legal contingencies incurred inthe normal course of business and employment contracts for key employees, theTrust does not have any off-balance sheet financing arrangements orliabilities.  The Trust does not have anymajority-owned subsidiaries that are not included in the consolidated financialstatements.  See “Item 7 – Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Accounting Matters” below for a discussion of new accounting interpretationswith respect to variable interest entities and the impact of suchinterpretations on the Trust.  See alsoNote 2 to the Trust’s Consolidated Financial Statements – “Summary ofSignificant Accounting Policies – Application of New Accounting Standards.”

 

17

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CONTRACTUALOBLIGATIONS

 

The following summarizes our contractual obligations atJanuary 31, 2004, and the effect such obligations are expected to have onour liquidity and cash flow in future periods:

 
| ** **                                                                                                             | ** ** | **PAYMENTS DUE BY PERIOD** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **CONTRACTUAL  OBLIGATIONS**                                                                                           | ** ** | **TOTAL**                  | ** ** | **LESS  THAN  1 YEAR** | ** ** | **1-3  YEARS** | ** ** | **3-5  YEARS** | ** ** | **THEREAFTER** | ** ** |
|                                                                                                                   |       |                       |       |   |   |   |   |   |   |   |   |
| Mortgage notes payable, notes payable to  banks, other notes payable and notes and advances payable to related parties |       | $                          | 38,827,233 |   | $ | 2,820,297 |   | $ | 8,059,451 |   | $ | 4,250,257 |   | $ | 23,697,228 |   |
|                                                                                                                   |       |                       |       |   |   |   |   |   |   |   |   |
| Operating leases                                                                                                       |       | 7,310,936                  |       | 188,290 |   | 376,580 |   | 376,580 |   | 6,369,486 |   |
|                                                                                                                   |       |                       |       |   |   |   |   |   |   |   |   |
| TOTAL                                                                                                                  |       | $                          | 46,138,169 |   | $ | 3,008,587 |   | $ | 8,436,031 |   | $ | 4,626,837 |   | $ | 30,066,714 |   |

 

InnSuites Hotels has agreements with theManagement Company for hotel management services and the Licensing Corp. forlicensing and trademark services.  TheManagement Company agreement expires on January 31, 2008 and the Licensing Corp.agreement expires on January 31, 2007. The fees payable under these agreements are based on Hotel revenue anddo not include any minimum payment provision.

 

InnSuites Hotels has entered into franchisearrangements with certain third parties for five of the hotel properties, withfour Best Western hotels and one Holiday Inn hotel.  These agreements provide for fees to be paidby InnSuites Hotels based on revenue and reservations received, and contain nominimum payment provisions.

 

CRITICALACCOUNTING POLICIES AND ESTIMATES

 

TheTrust believes that the policies it follows for the valuation of its hotelproperties, which constitute the majority of Trust assets, are its mostcritical policies.  The Trust appliesSFAS No. 144 to determine when it is necessary to test an asset forrecoverability.  On an events andcircumstances basis, the Trust reviews the carrying value of its hotelproperties both held for use and held for sale. The Trust will record an impairment loss and reduce the carrying valueof a property when anticipated undiscounted future cash flows and/or a currentappraisal of the property do not support its carrying value.  In cases where the Trust does not expect torecover the carrying cost of hotel properties held for use, it will reduce thecarrying value to the fair value of the hotel, as determined by a currentappraisal.  In cases where the Trust doesnot expect to recover the carrying cost of hotel properties held for sale, itwill reduce the carrying value to the sales price less costs to sell.  For the twelve months ended January 31, 2004and 2003, the Trust recorded impairment losses of $458,000 and $590,000,respectively.  The Trust did notrecognize impairment expense in fiscal year 2002.  As of January 31, 2004, the Trust managementdoes not believe that the carrying values of any of its hotel properties areimpaired.

 

ACCOUNTINGMATTERS

 

In January 2003, the Financial Accounting StandardsBoard issued FASB Interpretation No. 46, “Consolidation of VariableInterest Entities,” an Interpretation of Accounting Research BulletinNo. 51, “Consolidated Financial Statements,” which was subsequentlyamended by FIN 46R.  This Interpretationrequires an existing unconsolidated variable interest entity to be consolidatedby its primary beneficiary if the entity does not effectively disperse riskamong all parties involved or if other parties do not have significant capitalto finance activities without subordinated financial support from the primarybeneficiary.  The primary beneficiary isthe party that absorbs a majority of the entity’s expected losses, receives amajority of its expected residual returns, or both, as a result of holdingvariable interests, which are the ownership, contractual or other pecuniaryinterests in an entity.  This Interpretationis effective immediately for variable interest entities created afterDecember 31, 2003 and no later than the beginning of the first interim orannual reporting period ending after March 15, 2004 for interests invariable interest

 

18

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entitiesthat were acquired prior to February 1, 2003.  While management has not yet completed itsevaluation of the requirements of FIN 46R, management believes it isprobable the Trust will consolidate, or be required to provide certainadditional disclosures with respect to, the Management Company and theLicensing Corp. when FIN 46R becomes effective. Subsequent to year end, the Trust entered into negotiations to purchaseits management and trademark agreements from the Management Company and the LicensingCorp.

 

INFLATION

 

The Trust’s revenue is based on the underlying Hotelrevenue.  Therefore, the Trust reliesentirely on the performance of the Hotels and InnSuites Hotels’ ability toincrease revenue to keep pace with inflation. Operators of hotels in general, and InnSuites Hotels in particular, canchange room rates quickly, but competitive pressures may limit InnSuitesHotels’ ability to raise rates faster than inflation.

 

FORWARD-LOOKINGSTATEMENTS

 

Certain statements in this Form 10-K/A, including statementscontaining the phrases “believes,” “intends,” “expects,” “anticipates,”“predicted,” “will be,” “should be,” “looking ahead” or similar words,constitute “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934.  The Trust intends that suchforward-looking statements be subject to the safe harbors created by suchActs.  These forward-looking statementsinclude statements regarding the intent, belief or current expectations of theTrust, its Trustees or its officers in respect of (i) the declaration orpayment of dividends; (ii) the leasing, management or operation of theHotels; (iii) the adequacy of reserves for renovation and refurbishment;(iv) the Trust’s financing plans; (v) the Trust’s position regardinginvestments, acquisitions, developments, financings, conflicts of interest andother matters; (vi) the Trust’s continued listing on Amex; and (vii) trendsaffecting the Trust’s or any Hotel’s financial condition or results ofoperations.

 

These forward-looking statements reflect the Trust’s currentviews in respect of future events and financial performance, but are subject tomany uncertainties and factors relating to the operations and business environmentof the Hotels which may cause the actual results of the Trust to differmaterially from any future results expressed or implied by such forward-lookingstatements.  Examples of suchuncertainties include, but are not limited to:

 

•      fluctuations in hotel occupancyrates;

•      changes in room rental rates whichmay be charged by InnSuites Hotels in response to market rental rate changes orotherwise;

•      interest rate fluctuations;

•      changes in federal income tax lawsand regulations;

•      competition;

•      any changes in the Trust’s financialcondition or operating results due to acquisitions or dispositions of hotelproperties;

•      real estate and hospitality marketconditions;

•      hospitality industry factors;

•      terrorist attacks or other acts ofwar;

•      communicable diseases, such as SARS;

•      local or national economic andbusiness conditions, including, without limitation, conditions which may affectpublic securities markets generally, the hospitality industry or the markets inwhich the Trust operates or will operate; and

•      uncertainties the Trust mightencounter in changing from a REIT to a tax-paying entity.

 

19

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The Trust does not undertake any obligation to updatepublicly or revise any forward-looking statements whether as a result of newinformation, future events or otherwise. Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of1934, the qualifications set forth hereinabove are inapplicable to any forward-lookingstatements in this Form 10-K/A relating to the operations of the Partnership.

 

Item 7A.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Trust is exposed to interest rate risk primarily as aresult of its mortgage notes payable, notes payable to banks, other notes payableand notes and advances payable to related parties.  The proceeds from these loans were used tomaintain liquidity, fund capital expenditures and expand the Trust’s realestate investment portfolio and operations. The Trust’s interest rate risk management objective is to limit theimpact of interest rate changes on earnings and cash flow and to lower itsoverall borrowing costs.  To achieve itsobjectives, the Trust borrows using fixed rate debt, when possible.  The Trust could enter into derivative financialinstruments such as interest rate swaps, caps and treasury locks in order tomitigate its interest rate risk on a related financial instrument.  To date, the Trust has not entered into anysuch derivative transactions.

 

The Trust’s interest rate risk is monitored using a varietyof techniques.  The table below presentsthe principal amounts, weighted average interest rates, fair value and otherterms required, by year of expected maturity, in order to evaluate the expectedcash flow and sensitivity to interest rate changes.

 
| ** **                                       | ** ** | **Fiscal** | ** ** |
|--------------------------------------------------|------------|------------|------------|
| **Debt Type**                                    | ** ** | **2005**   | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair Value** | ** ** |
|                                             |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate debt (1)                              |       | $          | 1,252,020  |   | 2,677,994 |   | 1,184,803 |   | 1,283,363 |   | 1,378,631 |   | 19,823,633 |   | 27,600,444 |   | 29,543,012 |   |
|                                             |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average interest rate                            |       | 8.31       | %          | 8.31 | % | 8.29 | % | 8.28 | % | 8.27 | % | 8.25 | % | 8.29 | % | 7.00 | % |
|                                             |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate debt- related party (1)               |       | $          | 1,478,839  |   | 1,740,913 |   | 2,260,614 |   | 1,371,875 |   | — |   | — |   | 6,852,241 |   | 6,691,965 |   |
|                                             |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average interest rate                            |       | 7.00       | %          | 7.00 | % | 7.00 | % | 7.00 | % | — |   | — |   | 7.00 | % | 7.00 | % |
|                                             |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Variable rate debt (1)                           |       | $          | 89,429     |   | 94,973 |   | 100,154 |   | 105,617 |   | 110,772 |   | 3,873,603 |   | 4,374,548 |   | 4,374,548 |   |
|                                             |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate available on January 31, 2004 |       | 5.25       | %          | 5.25 | % | 5.25 | % | 5.25 | % | 5.25 | % | 5.25 | % | 5.25 | % | 5.25 | % |
|                                                  |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)   Thefair value of fixed rate debt and variable rate debt were determined based oncurrent rates offered for fixed rate debt and variable rate LIBOR debt withsimilar risks and maturities.

 

The table incorporates only those exposures that exist as ofJanuary 31, 2004 and does not consider those exposures or positions whichwould arise after that date.  Moreover,because firm commitments are not represented in the table above, theinformation presented therein has limited predictive value.  As a result, the Trust’s interest ratefluctuations will depend on the exposures that arise during any particular periodand future interest rates.

 

20

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Item 8.        FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA

 

INNSUITES HOSPITALITY TRUSTLIST OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

 

The following consolidated financial statements of InnSuitesHospitality Trust are included in Item 8:

 
|   | Independent Auditors’  Report – January 31, 2004 and 2003;                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                      |
|   | Independent  Auditors’ Report – January 31, 2002;                                                          |
|   |                                                                                                                      |
|   | Consolidated Balance Sheets  – January 31, 2004 and 2003;                                                       |
|   |                                                                                                                      |
|   | Consolidated  Statements of Operations – Years Ended January 31, 2004, 2003 and 2002;                           |
|   |                                                                                                                      |
|   | Consolidated Statements of  Shareholders’ (Deficit) Equity – Years Ended January 31, 2004, 2003 and  2002; |
|   |                                                                                                                      |
|   | Consolidated  Statements of Cash Flow – Years Ended January 31, 2004, 2003 and 2002;  and                       |
|   |                                                                                                                      |
|   | Notes to the  Consolidated Financial Statements – January 31, 2004, 2003 and 2002.                              |

 

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

 
|   | Schedule III  – Real Estate and Accumulated Depreciation. |
|--------|---------------------------------------------------------------------|
|   |                                                                |
|   | Schedule IV - Mortgage Loans on Real Estate.                        |

 

All other schedules are omitted, as the information is notrequired or is otherwise furnished.

 

21

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REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM 

 

Tothe Shareholders and Board of Trustees

InnSuitesHospitality Trust and Subsidiaries

Phoenix,Arizona

 

Wehave audited the accompanying consolidated balance sheet of InnSuitesHospitality Trust (the “Trust”) and Subsidiaries as of January 31, 2004 and2003 and the related consolidated statements of operation, shareholders’(deficit) equity and cash flows for the years then ended.  These financial statements are theresponsibility of the Trust’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of InnSuitesHospitality Trust and Subsidiaries as of January 31, 2004 and 2003 and theresults of their operations and their cash flows for the years then ended inconformity with U.S. generally accepted accounting principles.

 

As discussed in Note 21 to the consolidated financial statements, theTrust has restated its consolidated statements of operations for the yearsended January 31, 2004 and 2003.

 
| /s/  McGladrey & Pullen, LLP                                                                                                         |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |
| Phoenix, Arizona                                                                                                                         |
| March 12, 2004, except for  footnote 20 as to which the date is April 1, 2004 and footnote 21 as to which  the date is January 26, 2005. |

 

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REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

 

Tothe Shareholders and Board of Trustees

InnSuitesHospitality Trust and Subsidiaries

Phoenix,Arizona

 

Ouraudits were conducted in accordance with the standards of the Public Company AccountingOversight Board (United States) and were made for the purpose of forming anopinion on the basic consolidated financial statements taken as a whole.  The consolidated supplemental schedule III ispresented for purposes of complying with the Securities and ExchangeCommission’s rules and is not a part of the basic consolidated financialstatements.  This schedule has beensubjected to the auditing procedures applied in our audits of the basicconsolidated financial statements and, in our opinion, is fairly stated in allmaterial respects in relation to the basic consolidated financial statementstaken as a whole.

 
| /s/ McGladrey &  Pullen, LLP                                                                                                         |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |
| Phoenix, Arizona                                                                                                                         |
| March 12, 2004, except for  footnote 20 as to which the date is April 1, 2004 and footnote 21 as to which  the date is January 26, 2005. |

 

23

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REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

 

The Shareholders and TrusteesInnSuites Hospitality Trust:

 

We have audited the accompanying consolidated statement ofoperations, shareholders’ equity and cash flows of InnSuites Hospitality Trust(an Ohio real estate investment trust) and subsidiaries (the “Trust”) forthe year ended January 31, 2002.  Inconnection with our audit of the 2002 consolidated financial statements, wealso have audited the 2002 information in the accompanying financial statementschedule.  These consolidated financialstatements and financial statement schedule are the responsibility of theTrust’s management.  Our responsibilityis to express an opinion on these consolidated financial statements andfinancial statement schedule based on our audit.

 

We conducted our audit in accordance with auditing standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether 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 theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the consolidated financial statements ofInnSuites Hospitality Trust and subsidiaries, referred to above present fairly,in all material respects, the results of their operations and their cash flows,for the year ended January 31, 2002, in conformity with U.S. generallyaccepted accounting principles.  Also inour opinion, the 2002 information in the related financial statement schedule,when considered in relation to the basic 2002 consolidated financial statementstaken as a whole, presents fairly, in all material respects, the informationset forth therein.

 

As discussed in note 21 to the accompanying consolidatedfinancial statements, the Company has restated the consolidated statement ofoperations for the year ended January 31, 2002.

 
|                                                                  | /s/ KPMG LLP |   |
|-----------------------------------------------------------------------|--------------|--------|
| Phoenix, Arizona                                                      |
| April 30, 2002, except as to note 21  which is as of May 2, 2005 |

 

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INNSUITESHOSPITALITY TRUST AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                                                                         | ** ** | **January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                         | ** ** | **2004**             | ** ** | **2003** | ** ** |
| ASSETS                                                                                                                                                                             |       |                 |       |   |   |
| Hotel Properties, Net                                                                                                                                                              |       | $                    | 34,085,320 |   | $ | 56,388,265 |   |
| Hotel Properties Held for Sale                                                                                                                                                     |       | 11,733,371           |       | 3,100,000 |   |
| Cash and Cash Equivalents                                                                                                                                                          |       | —               |       | 88,519 |   |
| Restricted Cash                                                                                                                                                                    |       | 136,790              |       | 45,787 |   |
| Accounts Receivable, including $105,667 and  $23,917 from related parties, net of Allowance for Doubtful Accounts of $107,000  and $136,000, respectively                          |       | 906,124              |       | 596,665 |   |
| Prepaid Expenses and Other Assets                                                                                                                                                  |       | 1,099,989            |       | 1,275,343 |   |
| TOTAL ASSETS                                                                                                                                                                       |       | $                    | 47,961,594 |   | $ | 61,494,579 |   |
|                                                                                                                                                                               |       |                 |       |   |   |
| LIABILITIES AND SHAREHOLDERS’ DEFICIT                                                                                                                                         |       |                 |       |   |   |
|                                                                                                                                                                               |       |                 |       |   |   |
| LIABILITIES                                                                                                                                                                        |       |                 |       |   |   |
| Mortgage Notes  Payable                                                                                                                                                            |       | $                    | 31,805,715 |   | $ | 36,112,605 |   |
| Notes Payable to Banks                                                                                                                                                             |       | —               |       | 2,647,250 |   |
| Notes and Advances Payable to Related  Parties                                                                                                                                     |       | 6,852,241            |       | 9,901,153 |   |
| Other Notes Payable                                                                                                                                                                |       | 169,277              |       | 162,553 |   |
| Outstanding Checks in Excess of Cash  Balance                                                                                                                                      |       | 240,520              |       | — |   |
| Accounts Payable and Accrued Expenses,  including $640,612 and $1,086,116 accrued interest and payables to related  parties in 2004 and 2003, respectively                         |       | 3,105,351            |       | 3,903,274 |   |
|                                                                                                                                                                               |       |                 |       |   |   |
| TOTAL LIABILITIES                                                                                                                                                                  |       | 42,173,104           |       | 52,726,835 |   |
|                                                                                                                                                                               |       |                 |       |   |   |
| MINORITY INTEREST IN THE PARTNERSHIP                                                                                                                                               |       | 7,362,089            |       | 10,017,926 |   |
|                                                                                                                                                                               |       |                 |       |   |   |
| SHAREHOLDERS’ DEFICIT                                                                                                                                                         |       |                 |       |   |   |
| Shares of beneficial interest, without par  value; unlimited authorization; 2,048,701 and 1,997,601 shares issued and  outstanding at January 31, 2004 and 2003, respectively |       | 258,365              |       | 626,122 |   |
|                                                                                                                                                                               |       |                 |       |   |   |
| Treasury Stock; 844,636 and 855,736 shares,  held at January 31, 2004 and 2003, respectively                                                                                  |       | (1,831,964           | )          | (1,876,304 | ) |
|                                                                                                                                                                               |       |                 |       |   |   |
| TOTAL SHAREHOLDERS’ DEFICIT                                                                                                                                                   |       | (1,573,599           | )          | (1,250,182 | ) |
|                                                                                                                                                                               |       |                 |       |   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT                                                                                                                                   |       | $                    | 47,961,594 |   | $ | 61,494,579 |   |

 

See accompanying notes toconsolidated financial statements

 

25

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INNSUITESHOSPITALITY TRUST AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFOPERATIONS

 
| ** **                                                                                                                                                          | ** ** | **RESTATED (Note 21)  YEARS ENDED JANUARY 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                          | ** ** | **2004**                                        | ** ** | **2003** | ** ** | **2002** | ** ** |
| REVENUE                                                                                                                                                             | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Room                                                                                                                                                                |       | $                                               | 22,026,498 |   | $ | 24,434,186 |   | $ | 24,790,737 |   |
| Food and Beverage                                                                                                                                                   |       | 1,363,216                                       |       | 1,514,896 |   | 1,594,333 |   |
| Telecommunications                                                                                                                                                  |       | 154,231                                         |       | 186,936 |   | 256,172 |   |
| Other                                                                                                                                                               |       | 667,383                                         |       | 804,455 |   | 1,014,767 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
| TOTAL REVENUE                                                                                                                                                       |       | 24,211,328                                      |       | 26,940,473 |   | 27,656,009 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
| OPERATING EXPENSES                                                                                                                                                  |       |                                            |       |   |   |   |   |
| Room                                                                                                                                                                |       | 6,019,634                                       |       | 6,737,985 |   | 6,855,613 |   |
| Food and Beverage                                                                                                                                                   |       | 1,323,480                                       |       | 1,563,778 |   | 1,485,266 |   |
| Telecommunications                                                                                                                                                  |       | 311,408                                         |       | 310,682 |   | 359,775 |   |
| General and Administrative (includes  $741,537, $584,734 and $1,064,487 of management and licensing fees to related  parties for 2004, 2003 and 2002, respectively) |       | 4,703,160                                       |       | 5,809,698 |   | 5,678,504 |   |
| Sales and Marketing                                                                                                                                                 |       | 2,109,528                                       |       | 2,215,749 |   | 2,148,347 |   |
| Repairs and Maintenance                                                                                                                                             |       | 1,797,719                                       |       | 1,893,859 |   | 1,791,248 |   |
| Hospitality                                                                                                                                                         |       | 1,066,854                                       |       | 1,237,379 |   | 1,360,039 |   |
| Utilities                                                                                                                                                           |       | 1,686,040                                       |       | 1,929,179 |   | 1,972,060 |   |
| Hotel Property Depreciation                                                                                                                                         |       | 2,977,583                                       |       | 3,395,844 |   | 3,056,489 |   |
| Real Estate and Personal Property Taxes,  Insurance and Ground Rent                                                                                                 |       | 1,669,510                                       |       | 1,888,821 |   | 1,757,991 |   |
| Other                                                                                                                                                               |       | 360,490                                         |       | 448,451 |   | 496,334 |   |
| Expenses Incurred in Acquiring InnSuites  Hotels                                                                                                                    |       | —                                          |       | — |   | 1,608,482 |   |
| Loss on Impairment of Hotel Property                                                                                                                                |       | 458,401                                         |       | 589,687 |   | — |   |
| TOTAL OPERATING EXPENSES (includes  $7,389,988, $8,756,842 and $8,524,902 in contract labor expense to related  party for 2004, 2003 and 2002, respectively)        |       | 24,483,807                                      |       | 28,021,112 |   | 28,570,148 |   |
| OPERATING LOSS                                                                                                                                                      |       | (272,479                                        | )          | (1,080,639 | ) | (914,139 | ) |
| Interest Income                                                                                                                                                     |       | 981                                             |       | 1,453 |   | 9,326 |   |
| TOTAL INTEREST INCOME                                                                                                                                               |       | 981                                             |       | 1,453 |   | 9,326 |   |
| Interest on Mortgage Notes Payable                                                                                                                                  |       | 2,764,876                                       |       | 2,930,253 |   | 2,870,393 |   |
| Interest on Notes Payable to Banks                                                                                                                                  |       | 53,984                                          |       | 165,362 |   | 383,846 |   |
| Interest on Notes Payable and Advances  Payable to Related Parties                                                                                                  |       | 544,069                                         |       | 691,978 |   | 532,609 |   |
| Interest on Other Notes Payable                                                                                                                                     |       | 10,290                                          |       | 9,549 |   | 7,373 |   |
| TOTAL INTEREST EXPENSE                                                                                                                                              |       | 3,373,219                                       |       | 3,797,142 |   | 3,794,221 |   |
| LOSS BEFORE MINORITY INTEREST                                                                                                                                       |       | (3,644,717                                      | )          | (4,876,328 | ) | (4,699,034 | ) |
| LESS MINORITY INTEREST                                                                                                                                              |       | (1,050,400                                      | )          | (1,430,380 | ) | (1,159,632 | ) |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
| LOSS ATTRIBUTABLE TO SHARES OF BENEFICIAL  INTEREST                                                                                                                 |       | $                                               | (2,594,317 | ) | $ | (3,445,948 | ) | $ | (3,539,402 | ) |
| LOSS PER SHARE – Basic and Diluted                                                                                                                             |       | $                                               | (1.27      | ) | $ | (1.67 | ) | $ | (1.66 | ) |
| WEIGHTED AVERAGE NUMBER OF SHARES  OUTSTANDING – Basic and Diluted                                                                                             |       | 2,035,200                                       |       | 2,068,508 |   | 2,137,203 |   |
| CASH DIVIDENDS PER SHARE                                                                                                                                            |       | $                                               | .02        |   | $ | .01 |   | $ | .01 |   |

 

Seeaccompanying notes toconsolidated financial statements

 

26

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INNSUITES HOSPITALITY TRUST ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’(DEFICIT) EQUITYFOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002

 
| BALANCE, JANUARY 31, 2001                                                          |   | $          | 5,037,907  |   |
|------------------------------------------------------------------------------------|--------|------------|------------|--------|
| Stock Compensation                                                                 |   | 26,258     |       |
| Net Loss Attributable to Shares of  Beneficial Interest                            |   | (3,539,402 | )          |
| Dividends                                                                          |   | (21,479    | )          |
| Purchase of Treasury Stock                                                         |   | (80,621    | )          |
| Reallocation of Minority Interest                                                  |   | 104,153    |       |
|                                                                               |   |       |       |
| BALANCE, JANUARY 31, 2002                                                          |   | 1,526,816  |       |
| Net Loss Attributable to Shares of  Beneficial Interest                            |   | (3,445,948 | )          |
| Dividends                                                                          |   | (20,010    | )          |
| Purchase of Treasury Stock                                                         |   | (382,135   | )          |
| Issuance of Shares of Beneficial Interest  for Compensation                        |   | 80,858     |       |
| Related Party Fees Forgiven                                                        |   | 534,599    |       |
| Related Party Debt Forgiven                                                        |   | 529,046    |       |
| Reallocation of Minority Interest                                                  |   | (73,408    | )          |
|                                                                               |   |       |       |
| BALANCE, JANUARY 31, 2003                                                          |   | (1,250,182 | )          |
| Net Loss Attributable to Shares of  Beneficial Interest                            |   | (2,594,317 | )          |
| Dividends                                                                          |   | (40,986    | )          |
| Purchase of Treasury Stock                                                         |   | (29,095    | )          |
| Issuance of Shares of Beneficial Interest                                          |   | 99,680     |       |
| Related Party Fees Forgiven                                                        |   | 530,721    |       |
| Accrued Rent Forgiven by the Partnership                                           |   | 1,518,834  |       |
| Proceeds from Sale of Hotel Property to  Related Party in Excess of Carrying Value |   | 192,910    |       |
| Distribution to Minority Interest Holders                                          |   | (128,049   | )          |
| Reallocation of Minority Interest                                                  |   | 126,885    |       |
|                                                                               |   |       |       |
| BALANCE, JANUARY 31, 2004                                                          |   | $          | (1,573,599 | )      |

 

See accompanying notes toconsolidated financial statements

 

27

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INNSUITES HOSPITALITY TRUST AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOW

 
| ** **                                                                                                                                | ** ** | **YEARS ENDED JANUARY 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| CASH FLOW FROM OPERATING ACTIVITIES                                                                                                       |       |                        |       |   |   |   |   |
| Net Loss Attributable to Shares of  Beneficial Interest                                                                                   |       | $                           | (2,594,317 | ) | (3,445,948 | ) | (3,539,402 | ) |
| Adjustments to Reconcile Net Loss Attributable  to Shares of Beneficial Interest to Net Cash Provided by (Used in) Operating  Activities: |       |                        |       |   |   |   |   |
| Stock Compensation Expense                                                                                                                |       | —                      |       | — |   | 26,258 |   |
| Expenses Incurred in Acquiring InnSuites  Hotels                                                                                          |       | —                      |       | — |   | 1,608,482 |   |
| Impairment of Hotel Property                                                                                                              |       | 458,401                     |       | 589,687 |   | — |   |
| Provision for Uncollectible Receivables                                                                                                   |       | 198,448                     |       | 375,209 |   | — |   |
| Minority Interest                                                                                                                         |       | (1,050,400                  | )          | (1,430,380 | ) | (1,159,632 | ) |
| Hotel Property Depreciation                                                                                                               |       | 2,977,583                   |       | 3,395,844 |   | 3,056,489 |   |
| Loss on Disposal Sale of Hotel Property                                                                                                   |       | 124,310                     |       | 66,401 |   | 45,866 |   |
| Amortization of Deferred Loan Fees                                                                                                        |       | 49,036                      |       | 54,209 |   | 54,690 |   |
| Capital Contribution from Waived Management  and Licensing Fee Expense                                                                    |       | 530,721                     |       | 534,599 |   | — |   |
| Changes in Assets and Liabilities:                                                                                                        |       |                        |       |   |   |   |   |
| Decrease (Increase) in Prepaid Expenses and  Other Assets                                                                                 |       | 126,318                     |       | (61,844 | ) | (608,104 | ) |
| (Increase) Decrease in Accounts Receivable                                                                                                |       | (507,907                    | )          | (5,999 | ) | 207,846 |   |
| (Decrease) Increase in Accounts Payable and  Accrued Expenses                                                                             |       | (224,509                    | )          | 1,058,596 |   | 45,852 |   |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| NET CASH PROVIDED BY (USED IN) OPERATING  ACTIVITIES                                                                                      |       | 87,684                      |       | 1,130,374 |   | (261,655 | ) |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| CASH FLOW FROM INVESTING ACTIVITIES                                                                                                       |       |                        |       |   |   |   |   |
| Acquisition of InnSuites Hotels                                                                                                           |       | —                      |       | — |   | (11,531 | ) |
| Cash Acquired from InnSuites Hotels                                                                                                       |       | —                      |       | — |   | 85,294 |   |
| Sale of Hotel Properties                                                                                                                  |       | 12,150,503                  |       | — |   | — |   |
| Improvements and Additions to Hotel  Properties                                                                                           |       | (1,863,893                  | )          | (1,684,244 | ) | (2,366,932 | ) |
| Change in Restricted Cash                                                                                                                 |       | (91,003                     | )          | 129,193 |   | (88,599 | ) |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| NET CASH PROVIDED BY (USED IN) INVESTING  ACTIVITIES                                                                                      |       | 10,195,607                  |       | (1,555,051 | ) | (2,381,768 | ) |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| CASH FLOW FROM FINANCING ACTIVITIES                                                                                                       |       |                        |       |   |   |   |   |
| Principal Payments on Mortgage Notes  Payable                                                                                             |       | (4,306,890                  | )          | (1,226,308 | ) | (1,184,779 | ) |
| Refinancing of Mortgage Notes Payable                                                                                                     |       | —                      |       | 2,136,844 |   | 5,658,276 |   |
| Borrowings on Mortgage Notes Payable                                                                                                      |       | —                      |       | — |   | 5,100,000 |   |
| Payments on Notes Payable to Banks                                                                                                        |       | (3,087,250                  | )          | (677,750 | ) | (11,300,000 | ) |
| Borrowings on Notes Payable to Banks                                                                                                      |       | 440,000                     |       | — |   | 3,325,000 |   |
| Repurchase of Partnership Units                                                                                                           |       | (337                        | )          | (2,788 | ) | (30,060 | ) |
| Repurchase of Treasury Stock                                                                                                              |       | (29,095                     | )          | (73,066 | ) | (80,621 | ) |
| Payment of Dividends                                                                                                                      |       | (40,986                     | )          | (20,010 | ) | (21,479 | ) |
| Distributions to Minority Interest Holders                                                                                                |       | —                      |       | — |   | (68,480 | ) |
| Payments on Notes and Advances Payable to  Related Parties                                                                                |       | (4,773,927                  | )          | (227,068 | ) | (1,737,847 | ) |
| Borrowings on Notes and Advances Payable to  Related Parties                                                                              |       | 1,507,750                   |       | 668,826 |   | 2,932,500 |   |
| Borrowings on Other Notes Payable                                                                                                         |       | —                      |       | — |   | 25,838 |   |
| Payments on Other Notes Payable                                                                                                           |       | (81,075                     | )          | (65,484 | ) | (79,822 | ) |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| NET CASH (USED IN) PROVIDED BY FINANCING  ACTIVITIES                                                                                      |       | (10,371,810                 | )          | 513,196 |   | 2,538,526 |   |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH  EQUIVALENTS                                                                                     |       | (88,519                     | )          | 88,519 |   | (104,897 | ) |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  YEAR                                                                                           |       | 88,519                      |       | — |   | 104,897 |   |
|                                                                                                                                      |       |                        |       |   |   |   |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                                                                                  |       | $                           | —     |   | $ | 88,519 |   | $ | — |   |
|                                                                                                                                           |            |                             |            |  |  |  |  |  |  |  |

 

See accompanying notes toconsolidated financial statements

 

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INNSUITES HOSPITALITY TRUST ANDSUBSIDIARIESNOTES TO CONSOLIDATED FINANCIALSTATEMENTSAS OF AND FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002

 

## 1.  NATURE OF OPERATIONS AND BASIS OFPRESENTATION

##  

InnSuites Hospitality Trust (the “Trust”) owns, as of January31, 2004, through a partnership interest, eight hotels with an aggregate of1,231 suites in Arizona, southern California and New Mexico (the“Hotels”).  The Hotels operate asInnSuites Hotels.

 

Prior to February 1, 2004, the Trust operated as a self-managedand self-administered “umbrella partnership real estate investment trust(“REIT”),” with operations through an operating partnership, RRF LimitedPartnership, a Delaware limited partnership (the “Partnership”).  Effective February 1, 2004, the Trustterminated its election to be taxed as a REIT. See Note 20 — “Subsequent Events.”  The Trust is the sole general partner of the Partnership and owned51.54% and 50.80% of the Partnership as of January 31, 2004 and 2003,respectively. The Trust’s weighted average ownership for the years endedJanuary 31, 2004, 2003 and 2002 was 51.12%, 49.80% and 48.45%,respectively.  The Partnership owns thehotel properties and incurs the related expenses.  The Hotels are leased to InnSuites Hotels, Inc.(“InnSuites Hotels”), a wholly-owned subsidiary of the Trust.  InnSuites Hotels holds the franchiseagreement for each Hotel and operates the Hotels.  InnSuites Hotels contracted with SuiteHospitality Management, Inc. (the “Management Company”) for certain propertymanagement services and employment services as of February 1, 2001.  The Management Company was previously owned9.8% by the James F. Wirth, Chairman, President and Chief Executive Officer ofthe Trust, until July 2, 2003.

 

InnSuites Hotels also contracts with InnSuites LicensingCorp. (the “Licensing Corp.”), an entity owned by the Management Company sinceFebruary 2, 2004 and previously owned by Mr. Wirth, for certain trademark andlicensing services.

 

As a REIT, through January 31, 2004, the Trust was prohibitedfrom operating its properties other than through an independent managementcompany or a taxable REIT subsidiary. Prior to February 1, 2001, InnSuites Hotels operated and managedall of the Hotels, with the assistance of InnSuites Innternational Hotels, Inc.(“InnSuites Innternational”), an entity owned by Mr. Wirth.  Pursuant to management contracts, InnSuitesHotels paid InnSuites Innternational an annual management fee of 2.5% of grossrevenues for property management services. Following the acquisition of InnSuites Hotels by the Trust effectiveFebruary 1, 2001, InnSuites Hotels operates and manages the Hotels withthe assistance of the Management Company, an entity in which Mr. Wirthpreviously had a 9.8% ownership interest, pursuant to substantially the sameterms as the InnSuites Innternational management agreements.  There were no termination fees charged inconnection with the cancellation of the old management agreements.  In exchange for its assumption of themanagement agreements, the Management Company agreed to pay $911,320 toInnSuites Innternational in order for InnSuites Innternational to satisfy itsliabilities.  Effective February 1, 2003,the annual management fee charged by the Management Company to InnSuites Hotelswas reduced to 2.0% of gross room revenues. This reduction will be effective through January 31, 2005, when theannual management fee will return to the level stated in the originalagreement.  On December 31, 2003, theTrust agreed to extend the current management agreements through January 31,2008 in exchange for the Management Company forgiving $183,248 of accrued butunpaid fees.

 

InnSuites Hotels pays the Licensing Corp. an annual licensingfee of 2.5% of gross revenues (1.25% for those hotel properties which alsocarry a third-party franchise, such as Best Western® or Holiday Inn®) fortrademark and licensing services relating to the use of the InnSuites® name andmarks.  The trademark and licensingservices agreements were modified on November 1, 2002 to reduce the annuallicensing fee to 2.0% of gross room revenues (1.0% for those properties whichalso carry a third-party franchise). The modification is in effect until January 31, 2005, when thetrademark and licensing fees will return to the levels stated in the originalagreement.  On December 31, 2003,the Trust

 

29

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agreed to extend the trademark and licensing servicesagreements through January 31, 2007 in exchange for the Licensing Corp.forgiving $347,473 of accrued but unpaid fees.

 

PARTNERSHIPAGREEMENT

 

The Partnership Agreement of the Partnership provides for theissuance of two classes of limited partnership units, Class A andClass B.  Class A and Class Blimited partnership units are identical in all respects, except that eachClass A limited partnership unit shall be convertible into onenewly-issued Share of Beneficial Interest of the Trust, at any time at theoption of the particular limited partner, if the Trust determines that suchconversion would not cause the Trust to fail to qualify as a REIT.  The Class B limited partnership unitsmay only become convertible with the approval of the Board of Trustees, in itssole discretion.  As of January 31,2004, 1,401,475 Class A limited partnership units were issued andoutstanding representing 10.6% of the total partnership units.  Additionally, as of January 31, 2004,5,000,974 Class B limited partnership units were outstanding toMr. Wirth and his affiliates, in lieu of the issuance of Class Alimited partnership units representing 37.9% of the total partnership units.  If all of the Class A and B limitedpartnership units were converted, the limited partners in the Partnership wouldreceive 6,402,449 Shares of Beneficial Interest of the Trust.  As of January 31, 2004, the Trust owns6,809,068 general partner units in the Partnership, representing 51.5% of thetotal partnership units.

 

BASISOF PRESENTATION

 

As sole general partner of the Partnership, the Trustexercises unilateral control over the Partnership, and the Trust owns all ofthe issued and outstanding classes of shares of InnSuites Hotels. Therefore,the financial statements of the Partnership and InnSuites Hotels areconsolidated with the Trust, and all significant intercompany transactions andbalances have been eliminated.

 

## 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

##  

USEOF ESTIMATES

 

The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.

 

The Trust’s operations are affected by numerous factors,including the economy, competition in the hotel industry and the effect of theeconomy on the travel and hospitality industries.  The Trust cannot predict if any of the aboveitems will have a significant impact in the future, nor can it predict whatimpact, if any, the occurrence of these or other events might have on theTrust’s operations and cash flows. Significant estimates and assumptions made by management are used for,but not limited to, the estimated useful lives of long-lived assets andestimates of future cash flows used to test a long-lived asset forrecoverability, the fair values of the long-lived assets and therealization of net operating losses.

 

HOTELPROPERTIES

 

Hotel properties are stated at cost and are depreciated usingthe straight-line method over estimated lives ranging from 5 to 40 yearsfor buildings and improvements and 3 to 15 years for furniture and equipment.

 

The Trust adopted SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” in accounting for its hotelproperties effective the beginning of fiscal year 2003 and previously

 

30

----

 

applied SFAS No. 121 in accounting for its hotelproperties in fiscal year 2002. Properties held for sale at the beginning of fiscal year 2003 continuedto be accounted for under SFAS No. 121. The adoption of SFAS No. 144 had no significant effect on thefinancial statements.

 

Management applies SFAS No. 144 to determine when it isrequired to test an asset for recoverability of its carrying value.  If the carrying amount of an asset exceedsthe estimated undiscounted future cash flows over its estimated remaining life,the Trust recognizes an impairment expense to reduce the asset’s carrying valueto its fair value.  The estimated futurecash flows are based upon, among other things, assumptions about expectedfuture operating performance, and may differ from actual cash flows.  Long-lived assets evaluated forimpairment are analyzed on a property-specific basis independent of the cashflows of other groups of assets.  If thesum of the projected undiscounted cash flows (excluding interest) is less thanthe carrying value of the assets, the assets will be written down to theestimated fair value in the period in which the determination is made.  The Trust determines the estimated usefullives of its assets based on the expected future economic benefit of the assetand its ability to hold such assets. Fair value is determined by the most current third-party propertyappraisal, if available.  Evaluation offuture cash flows is based on historical experience and other factors,including certain economic conditions and committed future bookings.  Management has determined that no additionalimpairment of long-lived assets currently exists beyond the amountsrecognized.

 

During fiscal year 2004, events and circumstances indicatedthat certain of the Trust’s properties held in use should be evaluated forimpairment.  However, the Trust obtainedupdated third-party appraisals of the properties which indicated that thevalues of the properties exceeded their carrying values.  However, it is possible that future changesin the economic climate or real estate markets may adversely impact the fairvalues of the hotel properties, resulting in the need for the Trust torecognize an impairment expense to adjust the carrying value of thoseproperties to their fair values.

 

Gains and losses on sales of properties are recognized at thetime of sale or deferred to the extent required by GAAP.

 

The Trust will classify a hotel property as “held for sale”in the period (generally not to exceed one year) in which (1) it has made thedecision to actively seek a buyer of the property and/or (2) a bindingagreement to purchase the property has been signed under which the buyer hascommitted a significant amount of refundable cash and no significant financingcontingencies exist which could cause the transaction not to be completed in atimely manner.  If these criteria aremet, the Trust will record an impairment loss if the fair value less the coststo sell is lower than the carrying amount of the hotel and will cease recordingdepreciation.

 

CASHAND CASH EQUIVALENTS

 

The Trust considers all highly liquid short-terminvestments with original maturities of three months or less to be cashequivalents.

 

REVENUERECOGNITION

 

Room, food and beverage, telecommunications and other revenueare recognized as earned as services are provided and items are sold.

 

RECEIVABLES

 

Accounts receivable are carried at original amounts less anestimate made for doubtful receivables based on a review of outstanding amountson a quarterly basis.  Management recordsan allowance for doubtful accounts for 50% of the balances over 90 days and100% of the balances over

 

31

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120 days.  Accounts receivables are written off whendeemed uncollectible.  Recoveries, ifany, of receivables previously written off are recorded when received.  The Trust does not charge interest onaccounts receivable balances.

 

STOCK-BASEDCOMPENSATION

 

The Trust applies the provisions of Accounting PrinciplesBoard (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, andprovides pro forma net income (loss) disclosures for employee stock optiongrants as if the fair-value-based method defined in Statement of FinancialAccounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation,had been applied.  In accordance with APBOpinion No. 25, compensation expense is recorded over the vesting period onlyif the current estimated market price on the underlying stock on the date anoption is granted exceeds the exercise price.

 

No compensation cost has been recognized for options grantedto employees for the years ended January 31, 2004, 2003 and 2002.  The following pro forma information presentspro forma net loss information as if compensation expense had been recognizedfor stock options as determined under the fair-value-based method prescribed bySFAS No. 123 using the Black-Scholes options pricing model:

 
| ** **                                   | ** ** | **Years ended January 31** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **2004**                        | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net loss:                                    |       |                            |       |   |   |   |   |
| As reported                                  |       | $                               | (2,594,317 | ) | $ | (3,445,948 | ) | $ | (3,539,402 | ) |
|                                         |       |                            |       |   |   |   |   |
| Pro forma stock compensation expense         |       | $                               | (175       | ) | $ | (14,024 | ) | $ | (21,047 | ) |
|                                         |       |                            |       |   |   |   |   |
| Pro forma                                    |       | $                               | (2,594,492 | ) | $ | (3,459,972 | ) | $ | (3,560,449 | ) |
|                                         |       |                            |       |   |   |   |   |
| Net loss per share – basic and diluted: |       |                            |       |   |   |   |   |
| As reported                                  |       | $                               | (1.27      | ) | $ | (1.67 | ) | $ | (1.66 | ) |
|                                         |       |                            |       |   |   |   |   |
| Pro forma                                    |       | $                               | (1.27      | ) | $ | (1.67 | ) | $ | (1.67 | ) |

 

No stock options were issued during the fiscal yearsended January 31, 2004, 2003 and 2002.

 

INCOMETAXES

 

Prior to February 1, 2004, the Trust elected to be taxed as aREIT under Sections 856 through 860 of the U.S. Internal Revenue Code (the“Code”).  To qualify as a REIT, the Trustwas required to meet a number of organizational and operational requirements,including a requirement that it currently distribute at least 90% of itsadjusted taxable income to its shareholders. As a REIT, the Trust was not subject to federal corporate income tax onthat portion of its net income that was distributed to shareholders.

 

Prior to February 1, 2004, the Trust accounted for deferredtaxes utilizing a liability method whereby deferred tax assets were recognizedfor deductible temporary differences and deferred tax liabilities wererecognized for taxable temporary differences. Temporary differences were the differences between the reported amountsof assets and liabilities and their tax bases. Deferred tax assets were reduced by a valuation allowance when it wasdetermined to be more likely than not that some portion or

 

32

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all of thedeferred tax assets would not be realized. Deferred tax assets and liabilities were adjusted for the effects ofchanges in tax laws and rates on the date of enactment.

 

EffectiveFebruary 1, 2004, the Trust relinquished its REIT status. As of that date, anydistributions to its shareholders are not deductible for purposes of computingthe Trust’s taxable income and the Trust will be subject to income tax,including any applicable alternative minimum tax, on its taxable income atregular corporate rates, without offset for distributions of such income to itsshareholders.  See Note 20 – “SubsequentEvents.”

 

DIVIDENDSAND DISTRIBUTIONS

 

The Trust expects to pay dividends.  The Trust’s ability to pay dividends islargely dependent upon its receipt of distributions from the Partnership.

 

MINORITYINTEREST

 

The Trust accounts for minority interest in accordance withEITF Issue No. 94-2 “Treatment of Minority Interests in Certain RealEstate Investments” and EITF Issue No. 95-7 “Implementation IssuesRelated to the Treatment of Minority Interest in Certain Real Estate InvestmentTrusts.”

 

Minority interest in the Partnership represents the limitedpartners’ proportionate share of the capital and earnings of thePartnership.  Income or loss is allocatedto the minority interest based on its weighted average ownership percentage inthe Partnership throughout the period, and capital is allocated based on itsownership percentage at year-end. Any difference is recorded as a reallocation of minority interest as acomponent of shareholders’ equity.

 

LOSSPER SHARE

 

Basic and diluted loss per Share of Beneficial Interest havebeen computed based on the weighted-average number of Shares ofBeneficial Interest and potentially dilutive securities outstanding during theperiods.

 

For the twelve months ended January 31, 2004, 2003 and2002, there were Class A and Class B limited partnership unitsoutstanding, which are convertible into Shares of Beneficial Interest of theTrust.  Assuming conversion at thebeginning of each period, the aggregate weighted-average of these Sharesof Beneficial Interest would have been 6,457,165, 6,673,808 and 6,810,436 inaddition to the basic shares outstanding for fiscal year 2004, 2003 and 2002,respectively.  These Shares of BeneficialInterest issuable upon conversion of the Class A and Class B limited partnershipunits are anti-dilutive due to the losses for each of the aforementionedyears.  Therefore, they have not beenincluded in the number of issued and outstanding Shares of Beneficial Interestused in the calculation of diluted earnings per share.

 

For the twelve months ended January 31, 2004, 2003 and2002, 246,000, 253,200 and 272,300 stock options, respectively, are notincluded in the computation of diluted earnings per share as their inclusionwould have an antidilutive effect because of losses and the fact that theoption exercise prices are greater than the average market price of the Trust’sShares of Beneficial Interest.

 

FAIRVALUE OF FINANCIAL INSTRUMENTS

 

For disclosure purposes, fair value is determined by usingavailable market information and appropriate valuation methodologies.  Due to their short maturities, cash and cashequivalents are carried at cost, which reasonably approximates fair value.

 

33

----

 

The fair value of mortgage notes payable, notes payable tobanks and notes and advances payable to related parties is estimated by usingthe current rates which would be available for similar loans having the sameremaining maturities.  The carrying valueof accounts payable and accrued expenses and other notes payable approximatesfair value, due to their short-term nature.  See Note 14 – “Fair Value of FinancialInstruments.”

 

SEGMENTREPORTING

 

The Trust views its operations as one operating businesssegment, a real estate investment trust that owns eight hotel properties withan aggregate of 1,231 suites in Arizona, southern California and New Mexico.

 

SALESAND MARKETING EXPENSES

 

Amounts incurred for sales and marketing are expensed asincurred.  Sales and marketing expensetotaled approximately $2,110,000, $2,216,000 and $2,148,000 for the years endedJanuary 31, 2004, 2003, and 2002, respectively.

 

PENDINGACCOUNTING PRONOUNCEMENTS

 

In January 2003, the Financial Accounting StandardsBoard issued FASB Interpretation No. 46, “Consolidation of VariableInterest Entities,” (“FIN 46”), an interpretation of Accounting ResearchBulletin No. 51, “Consolidated Financial Statement,” FIN 46 wassubsequently amended by FIN 46R.  ThisInterpretation requires an existing unconsolidated variable interest entity tobe consolidated by their primary beneficiary if the entity does not effectivelydisperse risk among all parties involved or if other parties do not havesignificant capital to finance activities without subordinated financialsupport from the primary beneficiary. The primary beneficiary is the party that absorbs a majority of theentity’s expected losses, receives a majority of its expected residual returns,or both, as a result of holding variable interests, which are the ownership,contractual or other pecuniary interests in an entity.  This Interpretation is effective immediatelyfor variable interest entities created after December 31, 2003 and nolater than the beginning of the first interim or annual reporting period endingafter March 15, 2004 for interests in variable interest entities that wereacquired prior to February 1, 2003. While management has not yet completed its evaluation of therequirements of FIN 46R, management believes it is probable the Trust willconsolidate, or be required to provide certain additional disclosures withrespect to, the Management Company and the Licensing Corp. when FIN 46R becomeseffective.  On an aggregate basis,unaudited financial statements of the Management Company and the LicensingCorp. for the year ended January 31, 2004 included the following:

 
| Gross revenue                 |   | $         | 9,182,544 |   |
|-------------------------------|--------|-----------|-----------|--------|
| Net income                    |   | 411,572   |      |
| Assets, primarily receivables |   | 358,239   |      |
| Liabilities, primarily debt   |   | 1,247,716 |      |
| Deficit                       |   | (889,477  | )         |

 

The Trust recognized expense totaling $440,530, $369,896 and$679,619 for management fees to the Management Company for the years endedJanuary 31, 2004, 2003 and 2002, respectively, and $7,389,988, $8,756,842and $8,524,902 for leased labor services provided by the Management Company forthe years ended January 31, 2004, 2003 and 2002, respectively.  The Trust also recognized expense totaling$301,007, $214,838 and $384,868 for licensing fees to the Licensing Corp. forthe years ended January 31, 2004, 2003 and 2002, respectively.

 

34

----

 

When FIN 46R becomes effective, the net amount that may beadded to the Trust’s balance sheet may be reported either as a cumulativeeffect of an accounting change adjustment presented as of the beginning of thethen-current financial statements or by restating previously issued financialstatements with a cumulative effect adjustment presented as of the beginning ofthe first year restated.  Since the Trustis not required to restate its financial statements, it does not intend to doso.

 

RECLASSIFICATIONS

 

Certain prior year balances on the balance sheet andstatement of operations have been reclassified to conform to current yearpresentation with no effect on net loss or total shareholders’ (deficit)equity.  In January 2003, SFASNo. 145 “Rescission of SFAS No. 4, 44, 64, and Amendment of SFASNo. 13 and Technical Corrections” became effective.  SFAS No. 145 prevents gains or losses onthe extinguishment of debt not meeting the criteria of APB No. 30 frombeing treated as an extraordinary item. We adopted SFAS No. 145 in February 2003, and as a result, thecharge of $322,153 recorded in fiscal year 2002 as an extraordinary losshas been reclassified to general and administrative expenses.

 

## 3.  HOTEL PROPERTIES

##  

As of January 31 of the respective years, hotel properties,and hotel properties held for sale, consisted of the following:

 
| ** **                        | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|
|                              |       |       |       |       |       |
| Land                              |       | $          | 3,182,368  |       | $          | 5,315,026 |   |
| Building and improvements         |       | 34,274,136 |       | 53,687,448 |       |
| Furniture, fixtures and equipment |       | 6,748,816  |       | 10,087,057 |       |
|                              |       |       |       |       |       |
| Total hotel properties            |       | 44,205,320 |       | 69,089,531 |       |
| Less accumulated depreciation     |       | 10,120,000 |       | 12,701,266 |       |
|                              |       |       |       |       |       |
| Hotel properties, net             |       | $          | 34,085,320 |       | $          | 56,388,265 |   |
| Hotel properties, held for sale   |       | $          | 11,733,371 |       | $          | 3,100,000 |   |

 

## 4.  ACQUISITIONS

##  

In December 2000, InnSuites Hotels and the Trustestablished independent review groups to consider altering the currentstructure of the management and operations of the Hotels pursuant to theprovisions of the REIT Modernization Act. Effective February 1, 2001, the Trust acquired all of the issuedand outstanding common and preferred equity stock of InnSuites Hotels for$11,531 in cash consideration and the assumption of approximately$1.6 million of net liabilities. Prior to the acquisition, InnSuites Hotels was owned 23% by Marc E.Berg, Executive Vice President, Secretary, Treasurer and Trustee of the Trust,9.8% by InnSuites Innternational Hotels, Inc., a wholly-owned affiliateof Mr. Wirth and his spouse, and 67.2% by unrelated parties.

 

Following the acquisition, the management contracts relatingto the Hotels between InnSuites Hotels and InnSuites Innternational Hotels,Inc. were terminated effective January 31, 2001 and new managementcontracts were entered into on substantially similar terms with the ManagementCompany, 9.8% of which was owned by Mr. Wirth prior to July 1, 2003, whenMr. Wirth sold his interest to the majority stockholder.  There were no termination fees charged inconnection with the cancellation of the old management contracts.  In exchange for its assumption of themanagement agreements, the

 

35

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ManagementCompany agreed to pay $911,320 to InnSuites Innternational in order forInnSuites Innternational to satisfy its liabilities.  Effective February 1, 2001, the Partnership,InnSuites Hotels and the Management Company entered into an amendedIntercompany Agreement whereby, subject to certain terms and conditions, thePartnership granted InnSuites Hotels a right of first refusal to lease, and theManagement Company a right of first refusal to operate, any real propertyacquired by the Partnership.  In return,the Partnership was granted a right of first refusal to pursue opportunitiespresented to InnSuites Hotels or the Management Company to purchase investmentsin real estate, hotel properties, real estate mortgages, derivatives orentities that invest in any of the foregoing. To date, the Trust has not purchased or used derivatives.  In connection with the acquisition ofInnSuites Hotels by the Trust, the rate structures of the Percentage Leases forthe Hotels were amended to reflect current economic and market conditions andthe employees of InnSuites Hotels became employees of the Management Company.  The acquisition of InnSuites Hotels by theTrust resulted in the following benefits: (1) a more direct relationshipbetween the Hotels and the Trust, (2) the inclusion of InnSuites Hotels’revenues in excess of required rent payments in the Trust’s consolidatedfinancial reports, (3) the elimination of potential conflicts of interestand (4) the reduction of certain administrative costs relative to theoperation of the Hotels and the administration of the Percentage Leases.

 

## 5.  MORTGAGE NOTES PAYABLE

##  

At January 31, 2004, the Trust had mortgage notespayable outstanding with respect to each of the Hotels.  The mortgage notes payable have variousrepayment terms and have scheduled maturity dates ranging from January 1, 2006to May 1, 2016.  Weighted averageinterest rates on the mortgage notes payable for the years endedJanuary 31, 2004, 2003 and 2002 were 7.72%, 8.33% and 8.13%, respectively.

 

## Thefollowing table summarized the Trust’s mortgage notes payable as of January 31:

##  

| ** **                                                                                                                                                                                                                                            | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| Mortgage note payable, due in monthly installments  of $38,196, including interest at 8% per year, through July 23, 2009, secured  by the San Diego property with a carrying value of $4.9 million at January  31, 2004.                              |       | $         | 4,813,525  |      | $          | 4,878,637 |   |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |   |   |
| Mortgage note payable, due in variable  monthly installments, including interest at prime rate plus 1.0% per year,  through July 29, 2009, secured by the Tucson St. Mary’s property with a  carrying value of $9.7 million at January 31, 2004. |       | 4,374,542 |       | 4,459,983 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, due in monthly  installments of $48,738, including interest at 8% per year, through April 27,  2016, secured by the Tucson Oracle property with a carrying value of $5.5  million at January 31, 2004.                         |       | 4,576,229 |       | 4,785,798 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, due in monthly  installments of $71,141, including interest at 8.28% per year, through May  11, 2011, secured by the Ontario property with a carrying value of $7.7  million at January 31, 2004.                              |       | 8,711,653 |       | 8,828,766 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, due in monthly  installments of $15,858, including interest at 8.875% per year, through  September 1, 2015, secured by the Albuquerque property with a carrying value  of $2.1 million at January 31, 2004.                    |       | 1,379,904 |       | 1,444,580 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, due in monthly installments  of $42,886, including interest at 8.25% per year, through April 1, 2014,  secured by the Northern Phoenix property with a carrying value of $3.2  million at January 31, 2004.                    |       | 3,523,469 |       | 3,737,720 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, due in monthly installments  of $41,168, including interest at 9.25% per year, through August 1, 2011,  secured by the Yuma property with a carrying value of $5.8 million at January  31, 2004.                               |       | 2,685,306 |       | 2,919,051 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, due in monthly  installments of $27,573, including interest at 8.5% per year, through January  1, 2006, secured by the Tempe property with a carrying value of $6.8 million  at January 31, 2004.                              |       | 1,741,087 |       | 1,915,818 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Mortgage note payable, paid in full upon  the sale of the Buena Park property which occurred on October 16, 2003.                                                                                                                                     |       | —    |       | 3,142,252 |       |
|                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Totals                                                                                                                                                                                                                                                |       | $         | 31,805,715 |      | $          | 36,112,605 |   |

 

36

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Mr. Wirth and certain of his affiliates have guaranteed$5,845,475 of the mortgage notes payable. The net book value of properties securing the mortgage notes payable atJanuary 31, 2004 and 2003 was $45,747,000 and $53,869,622,respectively.  See Note 9 – “Minimum DebtPayments” for scheduled minimum payments.

 

## 6.  NOTES PAYABLE TO BANKS

##  

On July 11, 2001, the Trust obtained a bank term loan in theamount of $1,825,000 secured by its Scottsdale property and a $1,500,000 bankline of credit secured by its Flagstaff property.  On March 21, 2003, in connection with thesale of the Scottsdale property to Scottsdale Eldorado Resort, L.L.C.(“Eldorado”), an affiliate of Mr. Wirth, the $1,500,000 balance of the bankterm loan was fully satisfied.  On August21, 2003, in connection with the sale of its Flagstaff property to FlagstaffGrand Canyon Resort, LLC, an affiliate of Mr. Wirth, the Trust fully satisfiedthe bank line of credit. There is no amount available at January 31, 2004 underthis bank line of Credit See Note 19 – “Hotel Properties Held for Sale andSale of Hotel Properties.”

 

## 7.  NOTES AND ADVANCES PAYABLE TO RELATED PARTIES

##  

Notes and advances payable to related parties consist offunds provided by Mr. Wirth, certain of his affiliates and other relatedparties to permit the Trust to repurchase additional general partnership unitsin the Partnership and to fund working capital and capital improvement needs.The aggregate amounts outstanding to related parties were approximately$6.9 million and $9.9 million as of January 31, 2004 andJanuary 31, 2003, respectively. The notes and advances payable to relatedparties are as follows as of January 31 of the respective years:

 

37

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| ** **                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| Note payable to Steve Robson, Trustee of  the Trust, bearing interest at 7% per annum, secured by Class A limited  partnership units in the Partnership, and due in monthly principal and  interest payments of $25,000 through December, 2004.                                                                                                                                            |       | $         | 239,667    |      | $          | 553,449 |   |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |   |   |
| Unsecured notes payable to Rare Earth  Financial, LLC, an affiliate of Mr. Wirth, bearing interest at 7% per annum,  and due in a one-time installment of $514,500 on February 15, 2004.  Paid in full during February 2004.                                                                                                                                                          |       | 514,500   |       | —    |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Unsecured note payable to Rare Earth  Financial, L.L.C., an affiliate of Mr. Wirth, bearing interest at 7% per  annum.  A principal payment of $500,000  is due on March 15, 2004.  The  remaining unpaid principal balance and accrued interest is due on  March 15, 2005.                                                                                       |       | 2,000,000 |       | 2,000,000 |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Rare Earth Financial,  L.L.C., an affiliate of Mr. Wirth, bearing interest at 7% per annum,  secured by the Partnership’s equity in Baseline Hospitality Properties LP,  and due in monthly principal and interest payments of $13,860 through July  2006.  During fiscal year 2004,  $136,290 of accrued interest was added to the principal balance. |       | 2,072,893 |       | 1,947,000 |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Rare Earth Financial,  L.L.C., an affiliate of Mr. Wirth, bearing interest at 7% per annum,  secured by the Partnership’s equity in Baseline Hospitality Properties LP, and  due in monthly principal and interest payments of $9,179 through July  2007.  During fiscal year 2004,  $263,014 of accrued interest was added to the principal balance.  |       | 1,379,646 |       | 3,802,500 |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Hulsey Hotels Corporation,  an affiliate of Mr. Wirth, bearing interest at 7% per annum, secured by  Class B limited partnership units in the Partnership, and due in monthly  principal and interest payments of $10,488 through March 2007.                                                                                                                         |       | 356,550   |       | 438,000   |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Mr. Wirth, bearing interest  at 7% per annum, secured by Shares of Beneficial Interest in the Trust, and  due in monthly installments of $5,508 through March 2007.                                                                                                                                                                                                        |       | 187,230   |       | 230,000   |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Unsecured note payable to Mr. Wirth,  bearing interest at 7% per annum, and due in monthly installments of $2,993  through March 2007.                                                                                                                                                                                                                                                     |       | 101,755   |       | 125,000   |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Mr. Wirth, paid in full  during fiscal year 2004.                                                                                                                                                                                                                                                                                                                          |       | —    |       | 282,454   |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Capital Resource Lenders-I,  L.L.C., an affiliate of Mr. Wirth, paid in full during fiscal year 2004 in  connection with the sale of the Scottsdale property.                                                                                                                                                                                                              |       | —    |       | 412,750   |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Note payable to Fort Worth/Dallas Suite  Hospitality Partnership, an affiliate of Mr. Wirth, paid in full during  fiscal year 2004.                                                                                                                                                                                                                                                        |       | —    |       | 110,000   |       |
|                                                                                                                                                                                                                                                                                                                                                                                       |       |      |       |      |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                     |       | $         | 6,852,241  |      | $          | 9,901,153 |   |

 

38

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During the second and third quarters of fiscal year 2004, theTrust issued five promissory notes in the amount of $208,000, $75,000,$200,000, $110,000 and $60,000 to Rare Earth Development Company, an affiliateof Mr. Wirth, all of which were paid in full in the third quarter of fiscalyear 2004 utilizing a portion of the cash proceeds from the sale of the BuenaPark property.

 

During the second quarter of fiscal year 2004, the Trustissued a promissory note in the amount of $225,000 to Rare Earth Financial,L.L.C., an affiliate of Mr. Wirth, which was paid in full in the third quarterof fiscal year 2004 utilizing a portion of the cash proceeds from the sale ofthe Buena Park property.

 

The Trust paid interest on related party notes toMr. Wirth and his affiliates in the amounts of $205,101, $28,373 and$222,047 for the twelve months ended January 31, 2004, 2003 and 2002,respectively.  The Trust incurred interestexpense on related party notes to Mr. Wirth and his affiliates in theamounts of $515,214, $623,522 and $495,995 for the twelve months endedJanuary 31, 2004, 2003 and 2002, respectively.

 

## 8.  OTHER NOTES PAYABLE

##  

As of January 31, 2004, the Trust had $169,277 insecured promissory notes outstanding to unrelated third parties arising fromthe repurchase of 104,542 Class A limited partnership units in thePartnership and the repurchase of 40,500 Shares of Beneficial Interest inprivately negotiated transactions.  Thepromissory notes bear interest at 7% per year and are due in varying monthlypayments through January 2008.  Therepurchased Class A limited partnership units and Shares of Beneficial Interestsecure the notes.  As of January 31,2003, the Trust had outstanding $162,553 in secured promissory notes tounrelated third parties arising from the repurchase of certain limitedpartnership units and Shares of Beneficial Interest.

 

39

----

 

## 9.  MINIMUM DEBT PAYMENTS

##  

Scheduled minimum payments of debt as of January 31,2004 are as follows in the respective fiscal years indicated:

 
| **FISCAL YEAR ENDED** | ** ** | **AMOUNT** | ** ** |
|-----------------------|------------|------------|------------|
| 2005                  |       | $          | 2,820,297  |   |
| 2006                  |       | 4,513,880  |       |
| 2007                  |       | 3,545,571  |       |
| 2008                  |       | 2,760,855  |       |
| 2009                  |       | 1,489,402  |       |
| Thereafter            |       | 23,697,228 |       |
|                  |       |       |       |
|                  |       | $          | 38,827,233 |   |

 

## 10.  DESCRIPTION OF CAPITAL STOCK

##  

Holders of the Trust’s Shares of Beneficial Interest areentitled to receive dividends when and if declared by the Board of Trustees ofthe Trust out of funds legally available therefor.  The holders of Shares of Beneficial Interest,upon any liquidation, dissolution or winding-down of the Trust, areentitled to share ratably in any assets remaining after payment in full of allliabilities of the Trust.  The Shares ofBeneficial Interest possess ordinary voting rights, each share entitling theholder thereof to one vote.  Holders ofShares of Beneficial Interest do not have cumulative voting rights in theelection of Trustees and do not have preemptive rights.

 

On January 2, 2001, the Board of Trustees approved ashare repurchase program under Rule 10b-18 of the SecuritiesExchange Act of 1934, as amended, for the purchase of up to 250,000 limitedpartnership units in the Partnership and/or Shares of Beneficial Interest inopen market or privately negotiated transactions. Additionally, onSeptember 10, 2002, the Board of Trustees approved the purchase of up to350,000 additional limited partnership units in the Partnership and/or Sharesof Beneficial Interest in open market or privately negotiatedtransactions.  Acquired Shares ofBeneficial Interest are held in treasury and are available for futureacquisitions and financings and/or for awards granted under the Trust’s 1997Stock Incentive and Option Plan.  Duringfiscal year 2004, the Trust acquired 22,500 Shares of Beneficial Interest inopen market transactions at an average price of $1.29 per share and 57,509limited partnership units in privately negotiated transactions at an averageprice of $1.53 per unit.  The Trustintends to continue repurchasing Shares of Beneficial Interest in compliancewith applicable legal and American Stock Exchange requirements.  The Trust is authorized to repurchase anadditional 269,891 limited partnership units and/or Shares of Beneficial Interestpursuant to the share repurchase program.

 

For the years ended January 31, 2004, 2003 and 2002, theTrust repurchased 22,500, 191,343 and 49,150 Shares of Beneficial Interest atan average price of $1.29, $2.00 and $1.64 per share, respectively.  Repurchased Shares of Beneficial Interest areaccounted for as treasury stock in the Trust’s Consolidated Statements ofShareholders’ (Deficit) Equity.

 

40

----

 

## 11.  FEDERAL INCOME TAXES

##  

The Trust has an income tax net operating loss carryforward ofapproximately $21.1 million at January 31, 2004.  The quarterly allocation of cash dividendspaid per Share of Beneficial Interest and the characterization of dividends as eitherordinary income or return of capital for an individual shareholder’s income taxpurposes were as follows:

 
| ** **      | ** ** | **CALENDAR 2003**    | ** ** | **CALENDAR 2002**      | ** ** | **CALENDAR 2001** | ** ** |
|-----------------|------------|----------------------|------------|------------------------|------------|-------------------|------------|
| **Month  Paid** | ** ** | **Ordinary  Income** | ** ** | **Return of  Capital** | ** ** | **Total  Paid**   | ** ** | **Ordinary  Income** | ** ** | **Return of  Capital** | ** ** | **Total  Paid** | ** ** | **Ordinary  Income** | ** ** | **Return of  Capital** | ** ** | **Total  Paid** | ** ** |
|            |       |                 |       |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| January         |       | —               |       | $                      | .01        |              | $          | .01 |   | — |   | $ | .01 |   | $ | .01 |   | — |   | — |   | — |   |
| May             |       | —               |       | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | — |   |
| July            |       | —               |       | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | — |   |
| October         |       | —               |       | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total           |       | —               |       | $                      | .01        |              | $          | .01 |   | — |   | $ | .01 |   | $ | .01 |   | — |   | — |   | — |   |

 

The tax status of distributions to shareholders in calendar2004 will be dependent on the level of the Trust’s earnings in that year.  If certain changes in the Trust’s ownershipshould occur, there could be an annual limitation on the amount ofcarryforwards that can be utilized, which could potentially impair the abilityto utilize the full amount of the carryforwards.

 

The total dividends per Share of Beneficial Interestapplicable to operating results for the years ended January 31, 2004, 2003and 2002, amounted to $0.02 per share, $0.01 per share and $0.01 per share,respectively.

 

41

----

 

The Trust has federal and state net operating losscarryforwards which are estimated to expire as follows:

 
| ** ** | ** ** | **Amount**  | ** ** |
|------------|------------|-------------|------------|
| **Year**   |       | **Federal** | ** ** | **State** |   |
| 2006       |       | $           | —     |   | $ | 189,269 |   |
| 2007       |       | —      |       | 1,311,779 |   |
| 2008       |       | 4,476,203   |       | 1,166,687 |   |
| 2012       |       | 5,056,761   |       | — |   |
| 2013       |       | —      |       | 252,410 |   |
| 2018       |       | 3,883,556   |       | — |   |
| 2019       |       | 1,163,799   |       | — |   |
| 2020       |       | 1,979,025   |       | — |   |
| 2021       |       | 250,847     |       | — |   |
| 2022       |       | 1,580,590   |       | — |   |
| 2023       |       | 1,671,294   |       | — |   |
| 2024       |       | 1,255,660   |       | — |   |
|       |       | $           | 21,317,735 |   | $ | 2,920,145 |   |

##  

## TheTrust has deferred tax assets related to the net operating loss ofapproximately $7,425,000 and $6,825,000 as of January 31, 2004 and January 31,2003, respectively, which were offset by 100% valuation allowances.

##  

## InnSuitesHotels has a net operating loss carryforward of $1.6 million which expires in2021.  For the years ended January 31,2004 and 2003, InnSuites Hotels did not record any income tax expense orliability provision since InnSuites Hotels incurred a net loss during eachfiscal year.  Deferred tax assets relatedto the net operating loss of approximately $640,000 and $560,000, as of January31, 2004 and January 31, 2003, respectively, were offset by 100% valuationallowances.

##  

## Inaddition to the net operating losses carryforward, there are other deferred taxassets which are fully allowed for at January 31, 2004 and January 31,2003.  EffectiveFebruary 1, 2004, the Trust relinquished its REIT status. As of that date, anydistributions to its shareholders are not deductible for purposes of computingthe Trust’s taxable income and the Trust will be subject to income tax,including any applicable alternative minimum tax, on its taxable income atregular corporate rates, without offset for distributions of such income to itsshareholders.

##  

## 12.  ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS

##  

Mr. Wirth has an employment agreement with the Trustthat expires in December 2007.  Theemployment agreement provides that Mr. Wirth received no compensation fromthe Trust as long as a previously enforceable advisory agreement was ineffect.  However, pursuant to the termsof the employment agreement, since the Advisor (as defined in the advisoryagreement) no longer provides services to the Partnership or the Trust,Mr. Wirth is to be compensated at an amount up to the same annual basis asthe Advisor would have been compensated under the terms of the advisoryagreement had it remained in effect. Mr. Wirth is currently being compensated, however, at a lesser rateof $126,000 a year.

 

42

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## 13.  OTHER RELATED PARTY TRANSACTIONS

##  

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

 

The Initial Hotels were acquired by the Partnership fromentities in which Mr. Wirth and his affiliates had substantial ownershipinterests.  Mr. Wirth and hisaffiliates received 4,017,361 Class B limited partnership units and647,231 Shares of Beneficial Interest in the Trust in exchange for theirinterests in the Initial Hotels.  As ofJanuary 31, 2004 and 2003, Mr. Wirth and his affiliates held5,000,974 Class B limited partnership units, which represented 37.9% ofthe total outstanding partnership units. As of January 31, 2004 and 2003, Mr. Wirth and his affiliatesheld 455,000 Shares of Beneficial Interest in the Trust, which represented22.2% of the total issued and outstanding Shares of Beneficial Interest.

 

During the fourth quarter of fiscal year 2004, thePartnership forgave $3,134,130 of rent accrued but unpaid by InnSuites Hotels,which had a net effect of increasing the Trust’s Shareholders’ Equity by$1,518,834.

 

At January 31, 2004 and 2003, the Trust owned a 51.54%interest and 50.80% interest, respectively, in the Hotels through its solegeneral partner’s interest in the Partnership.

 

## 14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

##  

The carrying amounts and fair values of the Trust’ssignificant financial instruments at January 31, 2004 and 2003 are asfollows:

 
| ** **                                     | ** ** | **2004**             | ** ** | **2003**        | ** ** |
|------------------------------------------------|------------|----------------------|------------|-----------------|------------|
| ** **                                     | ** ** | **CARRYING  AMOUNT** | ** ** | **FAIR  VALUE** | ** ** | **CARRYING  AMOUNT** | ** ** | **FAIR  VALUE** | ** ** |
| Mortgage notes payable                         |       | $                    | 31,805,715 |            | $          | 33,747,000 |   | $ | 36,112,605 |   | $ | 36,216,000 |   |
|                                           |       |                 |       |            |       |   |   |   |   |
| Notes payable to banks                         |       | —               |       | —          |       | 2,647,250 |   | 2,647,000 |   |
|                                           |       |                 |       |            |       |   |   |   |   |
| Notes and advances payable to related  parties |       | 6,852,241            |       | 6,644,000       |       | 9,901,153 |   | 9,473,000 |   |
|                                           |       |                 |       |            |       |   |   |   |   |
| Other notes payable                            |       | 169,277              |       | 170,000         |       | 162,553 |   | 162,000 |   |
|                                                |            |                      |            |                 |            |  |  |  |  |  |  |  |  |

 

43

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## 15.  SUPPLEMENTAL CASH FLOW DISCLOSURES

 
| ** **                                                                          | ** ** | **2004** | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|-------------------------------------------------------------------------------------|------------|----------|------------|-----------|------------|-----------|------------|
| Cash paid for interest                                                              |       | $        | 3,030,616  |      | $          | 3,069,003 |       | $ | 3,480,116 |   |
|                                                                                |       |     |       |      |       |      |       |
| Promissory notes issued by the Trust to  acquire Class A limited partnership units  |       | 87,800   |       | 79,000    |       | 25,838    |       |
|                                                                                |       |     |       |      |       |      |       |
| Promissory notes issued by the Trust to  acquire Shares of Beneficial Interest      |       | —   |       | 433,000   |       | —    |       |
|                                                                                |       |     |       |      |       |      |       |
| Promissory notes issued by the Trust to  acquire Class B limited partnership units  |       | —   |       | 438,000   |       | —    |       |
|                                                                                |       |     |       |      |       |      |       |
| Shares issued to Trustees and Officers in  exchange for services                    |       | 43,680   |       | 80,858    |       | —    |       |
|                                                                                |       |     |       |      |       |      |       |
| Mortgage notes payable refinanced                                                   |       | —   |       | 7,263,156 |       | —    |       |
|                                                                                |       |     |       |      |       |      |       |
| Accrued interest forgiven by related party                                          |       | —   |       | 670,629   |       | —    |       |
|                                                                                |       |     |       |      |       |      |       |
| Accrued interest reclassified to principal  due on notes payable to related parties |       | 417,264  |       | —    |       | —    |       |
|                                                                                |       |     |       |      |       |      |       |
| Promissory notes assigned to satisfy notes  payable to related parties              |       | 200,000  |       | —    |       | —    |       |
|                                                                                     |            |          |            |           |            |           |            |  |  |  |

 

The acquisition of InnSuites Hotels in fiscal year 2002resulted in the following changes in assets and liabilities, and expenserecognition:

 
| Increase in cash and cash equivalents              |   | $          | (85,294 | ) |
|----------------------------------------------------|--------|------------|---------|---|
| Increase in accounts receivable                    |   | (1,173,721 | )       |
| Increase in prepaid expenses and other  assets     |   | (223,221   | )       |
| Increase in accounts payable and accrued  expenses |   | 2,447,353  |    |
| Increase in loans payable to Trust                 |   | 631,834    |    |
| Expense incurred in acquiring InnSuites  Hotels    |   | (1,608,482 | )       |
|                                               |   |       |    |
| Net cash paid for acquisition                      |   | $          | (11,531 | ) |

 

The Trust issued 40,000, 16,610 and 59,000 Shares ofBeneficial Interest during the years ended January 31, 2004, 2003 and2002, respectively, in exchange for Class A limited partnershipunits.  The issued Shares of BeneficialInterest were valued at $56,000, $23,254 and $104,000, respectively.

 

44

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## 16.  COMMITMENTS AND CONTINGENCIES

##  

Two of the Hotels are subject to non-cancelable groundleases expiring in 2050 and 2033.  Totalexpense associated with the non-cancelable ground leases for the fiscal yearsended January 31, 2004, 2003 and 2002 was $188,290, $186,850 and $178,665,respectively, plus a variable component based on gross revenues of eachproperty that totaled approximately $74,000, $82,000 and $75,000, respectively.

 

Future minimum lease payments under these non-cancelableground leases are as follows:

 

| **Fiscal Year Ending** | ** ** | ** ** | ** ** |
|------------------------|------------|------------|------------|
| 2005                   |       | $          | 188,290    |   |
| 2006                   |       | 188,290    |       |
| 2007                   |       | 188,290    |       |
| 2008                   |       | 188,290    |       |
| 2009                   |       | 188,290    |       |
| Thereafter             |       | 6,369,486  |       |
|                   |       |       |       |
| Total                  |       | $          | 7,310,936  |   |

 

InnSuites Hotels has agreements with the Management Companyfor hotel management services and the Licensing Corp. for licensing andtrademark services.  The ManagementCompany agreement expires on January 31, 2008 and the Licensing Corp. agreementexpires on January 31, 2007.  Thefees payable under these agreements are based on Hotel revenue and do notinclude any minimum payment provisions.

 

All fees charged by the Management Company and the LicensingCorp, except those waived, have been accrued by the Trust.  The Trust expects any suspension of feesduring fiscal year 2005 to increase cash available to the Trust.

 

The Trust is obligated to make funds available to the Hotelsfor capital expenditures (the “ Fund”), as determined in accordance with thePercentage Leases.  The Fund applicableto the six hotel properties for which a mortgage lender escrow exists isrestricted by the mortgage lenders and is reported on the Trust’s ConsolidatedBalance Sheet as “Restricted Cash.”  Theamounts obligated under the Fund are 4% of the individual Hotels’ totalrevenue.

 

InnSuites Hotels has entered into franchise arrangements withcertain third parties for five of the hotel properties, with four Best Westernhotels and one Holiday Inn hotel.  Theseagreements provide for fees to be paid by InnSuites Hotels based on revenue andreservations received, and contain no minimum payment provisions.

 

The nature of the operations of the Hotels exposes them torisks of claims and litigation in the normal course of their business.  Although the outcome of these matters cannotbe determined, management does not expect that the ultimate resolution of thesematters will have a material adverse effect on the consolidated financialposition, results of operations or liquidity of the Trust.

 

The Trust is involved from time to time in various otherclaims and legal actions arising in the ordinary course of business.  In the opinion of management, the ultimatedisposition of these matters will not have a material adverse effect on theTrust’s consolidated financial position, results of operations or liquidity.

 

45

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## 17.  STOCK OPTION PLAN

##  

During fiscal year 1999, the shareholders of the Trustadopted the 1997 Stock Incentive and Option Plan (the “Plan”).  Pursuant to the Plan, the CompensationCommittee may grant options to the Trustees, officers, other key employees,consultants, advisors and similar employees of the Trust and certain of itssubsidiaries and affiliates.  The numberof options that may be granted in a year is limited to 10% of the total Sharesof Beneficial Interest and limited partnership units in the Partnership(Class A and Class B) outstanding as of the first day of such year.

 

Generally, granted options expire 10 years from the date ofgrant, are exercisable during the optionee’s lifetime only by the recipient andare non-transferable.  Unexercisedoptions held by employees of the Trust generally terminate on the date theindividual ceases to be an employee of the Trust.

 

There were no options granted in fiscal year 2004, 2003 or2002.  All outstanding options vested inJuly 2003.  The Plan currently has506,800 options available to grant.

 

The Plan also permits the Trust to award stock appreciationrights, none of which, as of January 31, 2004, have been issued.

 

The following table summarizes the stock option activityduring fiscal years 2004, 2003 and 2002, and provides information about thestock options outstanding at January 31, 2004:

 

| ** **                         | ** ** | **Number of Options** | ** ** | **Weighted–  Average  Exercise Price** | ** ** |
|------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|
| Stock Option Activity              |       |                  |       |                                        |       |
|                               |       |                  |       |                                        |       |
| Outstanding, January 31, 2001 |       | 344,100               |       | $                                           | 2.50       |   |
| Granted                            |       | —                |       | —                                      |       |
| Forfeited                          |       | (71,800               | )          | 2.50                                        |       |
| Exercised                          |       | —                |       | —                                      |       |
|                               |       |                  |       |                                        |       |
| Outstanding, January 31, 2002 |       | 272,300               |       | $                                           | 2.50       |   |
| Granted                            |       | —                |       | —                                      |       |
| Forfeited                          |       | (19,100               | )          | 2.50                                        |       |
| Exercised                          |       | —                |       | —                                      |       |
|                               |       |                  |       |                                        |       |
| Outstanding, January 31, 2003 |       | 253,200               |       | $                                           | 2.50       |   |
| Granted                            |       | —                |       | —                                      |       |
| Forfeited                          |       | (7,200                | )          | 2.50                                        |       |
| Exercised                          |       | —                |       | —                                      |       |
|                               |       |                  |       |                                        |       |
| Outstanding, January 31, 2004 |       | 246,000               |       | $                                           | 2.50       |   |

 

| **Stock Option Information**                | ** ** | **January 31, 2004** | ** ** |
|---------------------------------------------|------------|---------------------------|------------|
|                                        |       |                      |       |
| Options exercisable                         |       | 246,000                   |       |
| Weighted Average Exercise Price             |       | $                         | 2.50       |   |
| Weighted Average Remaining Contractual Life |       | 4.65                      |       |
|                                             |            |                           |            |  |

 

46

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For stock options granted to non-employees of theTrust, compensation was recognized over the respective vesting period basedupon the fair value of the options as calculated using the Black-Scholespricing model.  During the year endedJanuary 31, 2000, the Trust granted 28,200 stock options to non-employees.  The Trust did not grant any stock options tonon-employees during fiscal years 2004, 2003, 2002, or 2001.  The fiscal year 2000 grants resulted in therecognition of compensation expense of approximately $26,000 for the year endedJanuary 31, 2002.  There was noequity-related compensation expense recorded during the years ended January 31,2004 and 2003.

 

## 18.  QUARTERLY RESULTS (UNAUDITED)

##  

The following is a summary of the results of operations, byquarter, for the fiscal years ended January 31, 2004 and 2003.  Management believes that all adjustments(consisting of normal recurring accruals) necessary for a fair presentation ofsuch interim results have been included. The results of operations for any interim period are not necessarilyindicative of those for the entire fiscal year.

 
| **FISCAL 2004**                                                               | ** ** | **APRIL 30** | ** ** | **JULY 31** | ** ** | **OCTOBER 31** | ** ** | **JANUARY 31** | ** ** | **FISCAL 2004** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|-------------|------------|----------------|------------|----------------|------------|-----------------|------------|
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Total revenue                                                                 |       | $            | 7,626,138  |        | 5,763,954  |           | 5,412,679  |           | 5,408,557  |            | $          | 24,211,328 |   |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Total revenue less interest expense on  mortgage loans and operating expenses |       | $            | 120,434    |        | (1,466,219 | )              | (837,767   | )              | (853,803   | )               | $          | (3,037,355 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Net income (loss)                                                             |       | $            | 147,099    |        | (1,004,921 | )              | (950,622   | )              | (782,470   | )               | $          | (2,594,317 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Income (loss) per share – basic                                          |       | $            | .07        |        | (.50       | )              | (.46       | )              | (.38       | )               | $          | (1.27 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Income (loss) per share – diluted                                        |       | $            | (.01       | )           | (.50       | )              | (.46       | )              | (.38       | )               | $          | (1.27 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Dividends declared per share                                                  |       | $            | —     |        | —     |           | —     |           | .02        |            | $          | .02 |   |

 

 
| **FISCAL 2003**                                                               | ** ** | **APRIL 30** | ** ** | **JULY 31** | ** ** | **OCTOBER 31** | ** ** | **JANUARY 31** | ** ** | **FISCAL 2003** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|-------------|------------|----------------|------------|----------------|------------|-----------------|------------|
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Total revenue                                                                 |       | $            | 8,256,553  |        | 6,661,704  |           | 6,122,555  |           | 5,899,661  |            | $          | 26,940,473 |   |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Total revenue less interest expense on  mortgage loans and operating expenses |       | $            | 765,565    |        | (895,229   | )              | (1,193,481 | )              | (2,687,747 | )               | $          | (4,010,892 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Net income (loss)                                                             |       | $            | 618,422    |        | (730,999   | )              | (977,581   | )              | (2,389,310 | )               | $          | (3,445,948 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Income (loss) per share – basic                                          |       | $            | .29        |        | (.34       | )              | (.49       | )              | (1.35      | )               | $          | (1.67 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Income (loss) per share – diluted                                        |       | $            | .06        |        | (.34       | )              | (.49       | )              | (1.35      | )               | $          | (1.67 | ) |
|                                                                          |       |         |       |        |       |           |       |           |       |            |       |
| Dividends declared per share                                                  |       | $            | —     |        | —     |           | —     |           | .01        |            | $          | .01 |   |

 

47

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## 19.  HOTEL PROPERTIES HELD FOR SALE AND SALE OFHOTEL PROPERTIES

##  

Depreciation expense that would have been taken on hotel propertiesheld for sale for the twelve months ended January 31, 2002 wasapproximately $160,000.

 

Apurchase agreement was entered into on February 25, 2003 between thePartnership and Lennar Homes of California, Inc., an unaffiliated third party(“Lennar Homes”), for the purchase by Lennar Homes of the San Diego, Californiaproperty for $9,600,000. Lennar Homes deposited $185,000 into an escrow accounton February 25, 2003, which amount was fully-refundable at the time.  Pursuant to the terms of the purchaseagreement, two non-refundable payments totaling $20,000 in the aggregate werereleased to the Partnership from the escrow account during the quarter endedApril 30, 2003.  On June 6, 2003, theremaining $165,000 in the escrow account was released to the Partnership, whichamount is also non-refundable, except in the event of a condemnation of theproperty. On June 6, 2003, when the total escrow funds of $185,000 becamenon-refundable, except in the case of condemnation, the Trust reclassified theproperty for accounting purposes from “held and used” to “held for sale.”  As of January 31, 2004, $235,000 of totalescrow funds have become non-refundable. The Trust does not expect to incur a loss on this sale.

 

The Trust has entered into a purchase agreement withTempe/Phoenix Airport Resort LLC (“Tempe Resort”), an affiliate of Mr. Wirth,to sell the property for its appraised value of $6.8 million.  During the fourth quarter of fiscal year2004, the Trust recognized an impairment expense of $129,000 to reduce thehotel’s carrying value to the sales price. The decrease in value was due to increased competition in the Tempe areadue to a greater supply of hotel rooms. The Trust has reclassified its Tempe, Arizona property for accountingpurposes from “held and used” to “held for sale” at the end of the thirdquarter of fiscal year 2004.  SeeNote 20 – “Subsequent Events.”

 

OnMarch 21, 2003, the Trust sold its Scottsdale, Arizona property to EldoradoResort, L.L.C. (“Eldorado”), an affiliate of Mr. Wirth, for its appraised and carrying value of $3.1million.  During fiscal year 2003, theTrust recorded a loss on impairment of $590,000 on the property.  The property’s decrease in value wasdue to changes in the economic condition, and decreased prospects for futuredevelopment, in its immediate area.  Eldorado paid for the hotel by assuming $1.1million of the Trust’s notes payable to Rare Earth Financial, L.L.C., anaffiliate of Mr. Wirth, assuming $500,000 of the Partnership’s notes payable toCapital Resource Lenders-I, L.L.C., an affiliate of Mr. Wirth, and paying theTrust’s term loan of $1,500,000 to the lender in full.  See Note 20 — “SubsequentEvents.”

 

On August 21, 2003, the Trust sold its Flagstaff, Arizona property toFlagstaff Grand Canyon Resort, LLC (“Flagstaff Resort”), an affiliate ofMr. Wirth, for a cash payment equal to its appraised value of$2,775,000.  The Trust used the proceedsto fully satisfy its $1.5 million bank line of credit and to reduce its notespayable to Rare Earth Financial by $1,275,000. As of August 21, 2003, the Trust’s bank line of credit and bank termloan were fully satisfied.  The salesprice exceeded the property’s carrying value by $377,330, which was recorded asa capital contribution to the Partnership, and which resulted in a net increasein Shareholder equity in the amount of $192,080, net of minority interest.

 

OnOctober 16, 2003, the Trust sold its Buena Park, California property to CVTI,LLC, an unrelated third party (“CVTI”), for $6.5 million.  The purchase price was satisfied with $6.3million in cash and a $200,000 promissory note issued by CVTI to theTrust.  The Trust subsequently assignedthe $200,000 promissory note to Rare Earth Financial to satisfy $200,000 of a certainnote payable held by Rare Earth Financial. The Trust used the cash proceeds to fully satisfy the bank mortgage noteon the property in the amount of $3,082,574, to reduce certain notes payable toMr. Wirth and his affiliates and Mr. Robson in the aggregate amount of $1.5million and to reduce trade accounts payable. In connection with this sale, the Trust recorded a loss of $29,000.  During the second quarter of fiscal year2004, the Trust recorded a loss on impairment of $328,976 related to the BuenaPark property.  The loss was

 

48

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recordedto reduce the asset’s carrying value to the sales price.  The decrease in value was due to a slowdownin leisure travel to the Southern California area caused by global terrorconcerns and an overall sluggish economic environment.

 

## 20.  SUBSEQUENT EVENTS

##  

## OnMarch 25, 2004, the Trust sold its Tempe, Arizona property to Tempe/PhoenixAirport Resort LLC, an affiliate of Mr. Wirth, for $6.8 million, its appraisedvalue.  Tempe/Phoenix Airport Resort LLC satisfiedthe purchase price by assuming $5.1 million of the Trust’s notes payable to Mr.Wirth and his affiliates and assuming the $1.7 million mortgage note secured bythe property.

##  

## OnApril 1, 2004, the Trust sold its San Diego, California property to a thirdparty for $9.7 million, which was paid in cash. The Trust used $4.8 million of the proceeds to satisfy its mortgage notepayable on the property.  The Trust used$1.1 million of the remaining proceeds from the sale to satisfy related partynotes payable, $700,000 to reduce trade payable and retained the remainingproceeds for future operations and capital improvements.

##  

## OnFebruary 2, 2004, the Trust purchased 433,036 Class B limited partnership unitsin the Partnership from affiliates of Mr. Wirth at a purchase price equal tothe closing price of the Trust’s Shares of Beneficial Interest on thatdate.  The Trust made a down payment of$2,500 and issued five promissory

 

49

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## notes, each bearing interest at7% per annum, totaling $974,332.  Thenotes will be amortized over 84 months, with periodic principal and interestpayments equal to $14,668 commencing on March 2, 2004.

##  

EffectiveFebruary 1, 2004, the Trust relinquished its REIT status. As of that date, anydistributions to its shareholders are not deductible for purposes of computingthe Trust’s taxable income and the Trust will be subject to income tax,including any applicable alternative minimum tax, on its taxable income atregular corporate rates, without offset for distributions of such income to itsshareholders.

 

As aREIT, the Trust was required to distribute at least 90% of its net taxableincome annually in order to maintain its REIT qualification. No suchminimum-distribution requirements apply to the Trust beginning onFebruary 1, 2004.

 

Withthe relinquishment of the Trust’s REIT status, the Trust will be taxed underthe general rules applicable to C corporations.  Consequently, the Trust could pay up to 35%of its taxable income in federal taxes and also pay applicable statetaxes.  As a C corporation, the Trust’sdistributions in respect of its Shares of Beneficial Interest will be taxed asdividends to the extent of the Trust’s current and accumulated earnings andprofits.  Distributions in excess of theTrust’s current and accumulated profits will be taxed to a shareholder as areturn of capital to the extent of the shareholder’s tax basis in his Shares ofBeneficial Interest, and the amount of a distribution in excess of the shareholder’stax basis will be taxed as a capital gain (a long term capital gain if theshareholder has held the Shares of Beneficial Interest for more than oneyear).  Under the Jobs and Growth TaxRelief Reconciliation Act of 2003, the maximum federal income tax rateapplicable to dividends and long term capital gains derived from a stockinvestment is 15%.  On the other hand,distributions to corporate shareholders may be eligible for the dividendsreceived deduction, subject to certain limitations in the Internal RevenueCode, whereas distributions from REITs are not eligible for thedividends-received deduction.

 

50

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21.   RESTATEMENTS

 

ApplyingSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,” the results ofoperations for the Hotels reported in discontinued operations for the fiscalyears ended January 31, 2004, 2003 and 2002 were reclassified to continuingoperations due to significant continuing involvement by the Trust in the operationsof those Hotels and since the Trust continues to receive cash flows from thoseHotels.

 

Following are tables that present certainfinancial information for the fiscal years ended January 31, 2004, 2003 and2002, as reported, adjustments thereto and as restated.

 

Forthe Fiscal Year Ended January 31, 2004

 
| ** **                                                         | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|--------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| REVENUE                                                            |       |            |       |            |       |            |       |
| Room                                                               |       | $               | 15,963,373 |            | $          | 6,063,125       |       | $ | 22,026,498 |   |
| Food and Beverage                                                  |       | 1,271,756       |       | 91,460          |       | 1,363,216       |       |
| Telecommunications                                                 |       | 113,288         |       | 40,943          |       | 154,231         |       |
| Other                                                              |       | 411,827         |       | 255,556         |       | 667,383         |       |
| TOTAL REVENUE                                                      |       | 17,760,244      |       | 6,451,084       |       | 24,211,328      |       |
| OPERATING EXPENSES                                                 |       |            |       |            |       |            |       |
| Room                                                               |       | 4,111,480       |       | 1,908,154       |       | 6,019,634       |       |
| Food and Beverage                                                  |       | 1,181,246       |       | 142,234         |       | 1,323,480       |       |
| Telecommunications                                                 |       | 225,089         |       | 86,319          |       | 311,408         |       |
| General and Administrative                                         |       | 3,697,986       |       | 1,005,174       |       | 4,703,160       |       |
| Sales and Marketing                                                |       | 1,671,689       |       | 437,839         |       | 2,109,528       |       |
| Repairs and Maintenance                                            |       | 1,171,956       |       | 625,763         |       | 1,797,719       |       |
| Hospitality                                                        |       | 688,288         |       | 378,566         |       | 1,066,854       |       |
| Utilities                                                          |       | 1,187,088       |       | 498,952         |       | 1,686,040       |       |
| Hotel Property Depreciation Real Estate and  Personal Property     |       | 2,285,218       |       | 692,365         |       | 2,977,583       |       |
| Taxes, Insurance and Ground Rent                                   |       | 1,246,662       |       | 422,848         |       | 1,669,510       |       |
| Other                                                              |       | 229,367         |       | 131,123         |       | 360,490         |       |
| Expenses Incurred in Acquiring InnSuites  Hotels                   |       | —          |       | —          |       | —          |       |
| Loss on Impairment of Hotel Property                               |       | —          |       | 458,401         |       | 458,401         |       |
| TOTAL OPERATING EXPENSES                                           |       | 17,696,069      |       | 6,787,738       |       | 24,483,807      |       |
| OPERATING INCOME (LOSS)                                            |       | 64,175          |       | (336,654        | )          | (272,479        | )          |
| Interest Income                                                    |       | 289             |       | 692             |       | 981             |       |
| TOTAL INTEREST INCOME                                              |       | 289             |       | 692             |       | 981             |       |
| Interest on Mortgage Notes Payable                                 |       | 2,064,186       |       | 700,690         |       | 2,764,876       |       |
| Interest on Notes Payable to Banks                                 |       | 52,810          |       | 1,174           |       | 53,984          |       |
| Interest on Notes Payable and Advances  Payable to Related Parties |       | 544,069         |       | —          |       | 544,069         |       |
| Interest on Other Notes Payable                                    |       | 10,290          |       | —          |       | 10,290          |       |
| TOTAL INTEREST EXPENSE                                             |       | 2,671,355       |       | 701,864         |       | 3,373,219       |       |
| LOSS BEFORE MINORITY INTEREST                                      |       | (2,606,891      | )          | (1,037,826      | )          | (3,644,717      | )          |
| LESS MINORITY INTEREST                                             |       | (773,258        | )          | (277,142        | )          | (1,050,400      | )          |
| LOSS FROM CONTINUING OPERATIONS                                    |       | (1,833,633      | )          | (760,684        | )          | (2,594,317      | )          |
| Loss from Discontinued Operations, Net of  Minority Interest       |       | (502,671        | )          | 502,671         |       | —          |       |
| Loss on Impairment of Hotel Property, Net  of Minority Interest    |       | (243,358        | )          | 243,358         |       | —          |       |
| Loss on Disposition of Hotels, Net of  Minority Interest           |       | (14,655         | )          | 14,655          |       | —          |       |
| LOSS ATTRIBUTABLE TO SHARES OF BENEFICIAL  INTEREST                |       | $               | (2,594,317 | )               | $          | —          |       | $ | (2,594,317 | ) |
| LOSS PER SHARE - Basic and Diluted                                 |       | —          |       | —          |       | —          |       |
| NET LOSS FROM CONTINUING OPERATIONS                                |       | $               | (0.90      | )               | $          | (0.37           | )          | $ | (1.27 | ) |
| LOSS FROM DISCONTINUED OPERATIONS                                  |       | $               | 0.37       | )               | $          | 0.37            |       | $ | — |   |
| NET LOSS ATTRIBUTABLE TO SHARES OF  BENEFICIAL INTEREST            |       | $               | (1.27      | )               | $          | 0.00            |       | $ | (1.27 | ) |

 

For the Fiscal Year Ended January 31, 2003

 
| ** **                                                          | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|---------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| REVENUE                                                             |       |            |       |            |       |            |       |
| Room                                                                |       | $               | 16,883,931 |            | $          | 7,550,255       |       | $ | 24,434,186 |   |
| Food and Beverage                                                   |       | 1,383,997       |       | 130,899         |       | 1,514,896       |       |
| Telecommunications                                                  |       | 132,428         |       | 54,508          |       | 186,936         |       |
| Other                                                               |       | 527,155         |       | 277,300         |       | 804,455         |       |
| TOTAL REVENUE                                                       |       | 18,927,511      |       | 8,012,962       |       | 26,940,473      |       |
| OPERATING EXPENSES                                                  |       |            |       |            |       |            |       |
| Room                                                                |       | 4,316,261       |       | 2,421,724       |       | 6,737,985       |       |
| Food and Beverage                                                   |       | 1,412,847       |       | 150,931         |       | 1,563,778       |       |
| Telecommunications                                                  |       | 220,306         |       | 90,376          |       | 310,682         |       |
| General and Administrative                                          |       | 4,367,070       |       | 1,442,628       |       | 5,809,698       |       |
| Sales and Marketing                                                 |       | 1,682,563       |       | 533,186         |       | 2,215,749       |       |
| Repairs and Maintenance                                             |       | 1,222,895       |       | 670,964         |       | 1,893,859       |       |
| Hospitality                                                         |       | 753,971         |       | 483,408         |       | 1,237,379       |       |
| Utilities                                                           |       | 1,364,119       |       | 565,060         |       | 1,929,179       |       |
| Hotel Property Depreciation                                         |       | 2,091,619       |       | 1,304,225       |       | 3,395,844       |       |
| Real Estate and Personal Property Taxes,  Insurance and Ground Rent |       | 1,403,789       |       | 485,032         |       | 1,888,821       |       |
| Other                                                               |       | 282,129         |       | 166,322         |       | 448,451         |       |
| Loss on Impairment of Hotel Property                                |       | 589,687         |       | —          |       | 589,687         |       |
| TOTAL OPERATING EXPENSES                                            |       | 19,707,256      |       | 8,313,856       |       | 28,021,112      |       |
| OPERATING INCOME (LOSS)                                             |       | (779,745        | )          | (300,894        | )          | (1,080,639      | )          |
| Interest Income                                                     |       | 433             |       | 1,020           |       | 1,453           |       |
| TOTAL INTEREST INCOME                                               |       | 433             |       | 1,020           |       | 1,453           |       |
| Interest on Mortgage Notes Payable                                  |       | 2,173,999       |       | 756,254         |       | 2,930,253       |       |
| Interest on Notes Payable to Banks                                  |       | 163,762         |       | 1,600           |       | 165,362         |       |
| Interest on Notes Payable and Advances  Payable to Related Parties  |       | 691,978         |       | —          |       | 691,978         |       |
| Interest on Other Notes Payable                                     |       | 9,549           |       | —          |       | 9,549           |       |
| TOTAL INTEREST EXPENSE                                              |       | 3,039,288       |       | 757,854         |       | 3,797,142       |       |
| LOSS BEFORE MINORITY INTEREST                                       |       | (3,818,600      | )          | (1,057,728      | )          | (4,876,328      | )          |
| LESS MINORITY INTEREST                                              |       | (1,063,940      | )          | (366,440        | )          | (1,430,380      | )          |
| LOSS FROM CONTINUING OPERATIONS                                     |       | (2,754,660      | )          | (691,288        | )          | (3,445,948      | )          |
| Loss from Discontinued Operations, Net of  Minority Interest        |       | (691,288        | )          | 691,288         |       | —          |       |
| LOSS ATTRIBUTABLE TO SHARES OF BENEFICIAL  INTEREST                 |       | $               | (3,445,948 | )               | $          | —          |       | $ | (3,445,948 | ) |
| LOSS PER SHARE - Basic and Diluted                                  |       |            |       |            |       |            |       |
| NET LOSS FROM CONTINUING OPERATIONS                                 |       | $               | (1.33      | )               | $          | (0.34           | )          | $ | (1.67 | ) |
| LOSS FROM DISCONTINUED OPERATIONS                                   |       | $               | (0.34      | )               | $          | 0.34            |       | $ | — |   |
| NET LOSS ATTRIBUTABLE TO SHARES OF  BENEFICIAL INTEREST             |       | $               | (1.67      | )               | $          | 0.00            |       | $ | (1.67 | ) |

 

 For the Fiscal Year Ended January 31, 2002

 
| ** **                                                          | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|---------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| REVENUE                                                             |       |            |       |            |       |            |       |
| Room                                                                |       | $               | 16,735,937 |            | $          | 8,054,800       |       | $ | 24,790,737 |   |
| Food and Beverage                                                   |       | 1,442,860       |       | 151,473         |       | 1,594,333       |       |
| Telecommunications                                                  |       | 176,522         |       | 79,650          |       | 256,172         |       |
| Other                                                               |       | 682,301         |       | 332,466         |       | 1,014,767       |       |
| TOTAL REVENUE                                                       |       | 19,037,620      |       | 8,618,389       |       | 27,656,009      |       |
| OPERATING EXPENSES                                                  |       |            |       |            |       |            |       |
| Room                                                                |       | 4,212,891       |       | 2,642,722       |       | 6,855,613       |       |
| Food and Beverage                                                   |       | 1,343,183       |       | 142,083         |       | 1,485,266       |       |
| Telecommunications                                                  |       | 243,881         |       | 115,894         |       | 359,775         |       |
| General and Administrative                                          |       | 4,525,318       |       | 1,153,186       |       | 5,678,504       |       |
| Sales and Marketing                                                 |       | 1,503,472       |       | 644,875         |       | 2,148,347       |       |
| Repairs and Maintenance                                             |       | 1,120,257       |       | 670,991         |       | 1,791,248       |       |
| Hospitality                                                         |       | 801,946         |       | 558,093         |       | 1,360,039       |       |
| Utilities                                                           |       | 1,293,352       |       | 678,708         |       | 1,972,060       |       |
| Hotel Property Depreciation                                         |       | 2,008,476       |       | 1,048,013       |       | 3,056,489       |       |
| Real Estate and Personal Property Taxes,  Insurance and Ground Rent |       | 1,326,193       |       | 431,798         |       | 1,757,991       |       |
| Other                                                               |       | 295,090         |       | 201,244         |       | 496,334         |       |
| Expenses Incurred in Acquiring InnSuites  Hotels                    |       | 1,608,482       |       | —          |       | 1,608,482       |       |
| Loss on Impairment of Hotel Property                                |       | —          |       | —          |       | —          |       |
| TOTAL OPERATING EXPENSES                                            |       | 20,282,541      |       | 8,287,607       |       | 28,570,148      |       |
| OPERATING INCOME (LOSS)                                             |       | (1,244,921      | )          | 330,782         |       | (914,139        | )          |
| Interest Income                                                     |       | 4,976           |       | 4,350           |       | 9,326           |       |
| TOTAL INTEREST INCOME                                               |       | 4,976           |       | 4,350           |       | 9,326           |       |
| Interest on Mortgage Notes Payable                                  |       | 2,026,274       |       | 844,119         |       | 2,870,393       |       |
| Interest on Notes Payable to Banks                                  |       | 383,846         |       | —          |       | 383,846         |       |
| Interest on Notes Payable and Advances  Payable to Related Parties  |       | 532,609         |       | —          |       | 532,609         |       |
| Interest on Other Notes Payable                                     |       | 7,373           |       | —          |       | 7,373           |       |
| TOTAL INTEREST EXPENSE                                              |       | 2,950,102       |       | 844,119         |       | 3,794,221       |       |
| LOSS BEFORE MINORITY INTEREST                                       |       | (4,190,047      | )          | (508,987        | )          | (4,699,034      | )          |
| LESS MINORITY INTEREST                                              |       | (942,000        | )          | (217,632        | )          | (1,159,632      | )          |
| LOSS FROM CONTINUING OPERATIONS                                     |       | (3,248,047      | )          | (291,355        | )          | (3,539,402      | )          |
| Loss from Discontinued Operations, Net of  Minority Interest        |       | (291,355        | )          | 291,355         |       | —          |       |
| LOSS ATTRIBUTABLE TO SHARES OF BENEFICIAL  INTEREST                 |       | $               | (3,539,402 | )               | $          | —          |       | $ | (3,539,402 | ) |
| LOSS PER SHARE - Basic and Diluted                                  |       |            |       |            |       |            |       |
| NET LOSS FROM CONTINUING OPERATIONS                                 |       | $               | (1.52      | )               | $          | (0.14           | )          | $ | (1.66 | ) |
| LOSS FROM DISCONTINUED OPERATIONS                                   |       | $               | (0.14      | )               | $          | .14             |       | $ | — |   |
| NET LOSS ATTRIBUTABLE TO SHARES OF  BENEFICIAL INTEREST             |       | $               | (1.66      | )               | $          | 0.00            |       | $ | (1.66 | ) |

 

51

----

 

SCHEDULE III

 

INNSUITES HOSPITALITY TRUST AND SUBSIDIARYREAL ESTATE AND ACCUMULATED DEPRECIATIONAS OF JANUARY 31, 2004

 
| ** **                              | ** ** | **Initial  Cost  to Tenant** | ** ** | **Cost  Capitalized  Subsequent to  Acquisition** | ** ** | **Gross Amounts at  Which Carried at  Close of Period** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                              | ** ** | **Encumbrances**             | ** ** | **Land**                                          | ** ** | **Building and  Improvements**                          | ** ** | **Land** | ** ** | **Building and  Improvements** | ** ** | **Land** | ** ** | **Building and  Improvements** | ** ** |
|                                    |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| InnSuites Hotel and Suites              |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Phoenix Best Western                    |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Phoenix, Arizona                        |       | $                            | 3,523,469  |                                              | $          | 418,219                                                 |       | $ | 2,922,884 |   | $ | — |   | $ | 32,764 |   | $ | 418,219 |   | $ | 2,955,648 |   |
| InnSuites Hotels and Suites             |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Tempe/Phoenix Airport/South Mountain    |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Tempe, Arizona                          |       | 1,741,087                    |       | 686,806                                           |       | 6,548,348                                               |       | (12,828 | ) | (904,512 | ) | 673,978 |   | 5,643,836 |   |
| InnSuites Hotel and Suites              |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Tucson, Catalina Foothills Best Western |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Tucson, Arizona                         |       | 4,576,229                    |       | —                                            |       | 4,220,820                                               |       | — |   | 2,031,452 |   | — |   | 6,252,272 |   |
| InnSuites Hotels and Suites             |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Yuma                                    |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Yuma, Arizona                           |       | 2,685,306                    |       | 251,649                                           |       | 4,983,292                                               |       | — |   | 1,214,524 |   | 251,649 |   | 6,197,816 |   |
| Holiday Inn                             |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Airport Ontario Hotel and Suites        |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Ontario, California                     |       | 8,711,653                    |       | 1,633,064                                         |       | 5,450,872                                               |       | — |   | 1,520,459 |   | 1,633,064 |   | 6,971,331 |   |
| InnSuites Hotels and Suites             |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Tucson St. Mary’s                  |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Tucson, Arizona                         |       | 4,374,542                    |       | 900,000                                           |       | 9,166,549                                               |       | (20,564 | ) | 549,676 |   | 879,436 |   | 9,716,225 |   |
| InnSuites Hotels and Suites             |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| San Diego Hospitality                   |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| San Diego, California                   |       | 4,813,525                    |       | 700,000                                           |       | 3,972,785                                               |       | — |   | 377,906 |   | 700,000 |   | 3,733,442 |   |
| InnSuites Hotels and Suites             |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Albuquerque Airport Best Western        |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Albuquerque, New Mexico                 |       | 1,379,904                    |       | —                                            |       | 1,903,970                                               |       | — |   | 276,874 |   | — |   | 2,180,844 |   |
|                                    |       |                         |       |                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
|                                    |       | $                            | 31,805,715 |                                              | $          | 4,589,738                                               |       | $ | 39,169,520 |   | $ | (33,392 | ) | $ | 5,099,143 |   | $ | 4,556,346 |   | $ | 43,651,414 |   |

 

52

----

 
| ** **                              | ** ** | **Total  (A)** | ** ** | **Accumulated  Depreciation** | ** ** | **Net  Book Value  Land and  Buildings  and Improvements** | ** ** | **Date of  Construction** | ** ** | **Date of  Acquisition** | ** ** | **Depreciation  in Income  Statement is  Computed** | ** ** |
|-----------------------------------------|------------|----------------|------------|-------------------------------|------------|------------------------------------------------------------|------------|---------------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotel and Suites              |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Phoenix Best Western                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Phoenix, Arizona                        |       | $              | 3,373,867  |                          | $          | 518,090                                                    |       | $                         | 2,855,777  |                     | 1980       |                                                | 1998       |   | 5-40 years |   |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotels and Suites             |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Tempe/Phoenix Airport/South Mountain    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Tempe, Arizona                          |       | 6,317,814      |       | —                        |       | 6,317,814                                                  |       | 1982                      |       | 1998                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotel and Suites              |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Tucson, Catalina Foothills Best Western |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Tucson, Arizona                         |       | 6,252,272      |       | 1,034,594                     |       | 5,217,678                                                  |       | 1981                      |       | 1998                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotels and Suites             |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Yuma                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Yuma, Arizona                           |       | 6,449,465      |       | 1,037,087                     |       | 5,412,378                                                  |       | 1982                      |       | 1998                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Holiday Inn                             |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Airport Ontario Hotel and Suites        |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Ontario, California                     |       | 8,604,395      |       | 1,464,180                     |       | 7,140,215                                                  |       | 1990                      |       | 1998                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotels and Suites             |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Tucson St. Mary’s                  |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Tucson, Arizona                         |       | 10,595,661     |       | 1,481,383                     |       | 9,114,278                                                  |       | 1960                      |       | 1998                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotels and Suites             |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| San Diego Hospitality                   |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| San Diego, California                   |       | 4,433,442      |       | —                        |       | 4,433,442                                                  |       | 1946                      |       | 1998                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| InnSuites Hotels and Suites             |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Albuquerque Airport Best Western        |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
| Albuquerque, New Mexico                 |       | 2,180,844      |       | 366,210                       |       | 1,814,634                                                  |       | 1975                      |       | 2000                     |       | 5-40 years                                          |       |
|                                    |       |           |       |                          |       |                                                       |       |                      |       |                     |       |                                                |       |
|                                    |       | $              | 48,207,760 |                          | $          | 5,901,544                                                  |       | $                         | 42,306,216 |                     |       |                                                |       |   |   |   |

 

(See accompanyingindependent auditors report.)

 

(A)          Aggregate cost for federal income taxpurposes at January 31, 2004 and 2003 are as follows:

 
|                       |   | **2003**   | ** ** | **2004**   |       |
|----------------------------|--------|------------|------------|------------|------------|
| Land                       |   | $          | 4,638,585  |       | 3,542,733  |   |
| Buildings and improvements |   | 35,269,919 |       | 25,999,097 |       |
|                       |   | $          | 39,908,504 |       | 29,541,830 |   |
|                            |        |            |            |            |            |  |  |

 

53

----

 
| Reconciliation of Real Estate:   |   |        |       |
|----------------------------------|--------|-------------|------------|
|                             |   |        |       |
| Balance at January 31, 2002 |   | $           | 61,590,960 |   |
| Impairment of Hotel Property     |   | (567,798    | )          |
| Improvement to Hotel Properties  |   | 727,620     |       |
|                             |   |        |       |
| Balance at January 31, 2003 |   | $           | 61,750,782 |   |
| Impairment of Hotel Properties   |   | (2,827,457  | )          |
| Sale of Hotel Properties         |   | (10,986,348 | )          |
| Improvement to Hotel Properties  |   | 888,032     |       |
|                             |   |        |       |
| Balance at January 31, 2004 |   | $           | 48,825,009 |   |

 

SCHEDULE IV

 

MORTGAGES LOANS ON REAL ESTATE

 
| **Description**                                              | ** ** | **Interest Rate**                         | ** ** | **Maturity Date** | ** ** | **Periodic Payment Term**                                                     | ** ** | **Face Amount of Mortgages** | ** ** | **1/31/04 Carrying Amount** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------|------------|-------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                                         |       |                                      |       |              |       |                                                                          |       |                         |       |                        |       |
| Mortgage Note Secured by Albuquerque, NM property            |       | 8.875                                     | %          | 9/1/2015          |       | 180  monthly installments                                                     |       | $                            | 1,575,000  |                        | $          | 1,379,904 |   |
| Mortgage Note Secured by Phoenix, AZ property                |       | 8.250                                     | %          | 4/1/2014          |       | 180  monthly installments                                                     |       | $                            | 4,420,596  |                        | $          | 3,523,469 |   |
| Mortgage Note Secured by Tempe, AZ property                  |       | 8.500                                     | %          | 1/1/2006          |       | 120  monthly installments, with balloon payment of $1,361,852 due at maturity |       | $                            | 2,800,000  |                        | $          | 1,741,087 |   |
| Mortgage Note Secured by Ontario, CA property                |       | 8.280                                     | %          | 5/11/2011         |       | 300  monthly installments, with balloon payment of $7,498,458 due at maturity |       | $                            | 9,000,000  |                        | $          | 8,711,653 |   |
| Mortgage Note Secured by San Diego, CA property              |       | 8.000                                     | %          | 7/23/2009         |       | 300  monthly installments, with balloon payment of $4,354,576 due at maturity |       | $                            | 4,900,000  |                        | $          | 4,813,525 |   |
| Mortgage Note Secured by Yuma, AZ property                   |       | 9.250                                     | %          | 8/1/2011          |       | 180  monthly installments                                                     |       | $                            | 4,000,000  |                        | $          | 2,685,306 |   |
| Mortgage Note Secured by Tucson St. Mary’s, AZ property |       | Prime  rate plus 1% (5.25% as of 1/31/04) |       | 7/29/2009         |       | 300  monthly installments                                                     |       | $                            | 4,500,000  |                        | $          | 4,374,542 |   |
| Mortgage Note Secured by Tucson Oracle, AZ property          |       | 8.000                                     | %          | 4/27/2016         |       | 180  monthly installments                                                     |       | $                            | 5,100,000  |                        | $          | 4,576,229 |   |
|                                                         |       |                                      |       |              |       |                                                                          |       |                         |       |                        |       |
|                                                         |       |                                      |       |              |       |                                                                          |       | $                            | 36,295,596 |                        | $          | 31,805,715 |   |

 

**Mortgage Note Reconciliation**

 
| Balance at January 31, 2002 |   |                       |   | 35,202,069 |       |
|-----------------------------|--------|----------------------------|--------|------------|------------|
|                        |   |                       |   |       |       |
| Additions during period:    |   |                       |   |       |       |
|                        |   | New mortgage  loans        |   | 9,400,000  |       |
|                        |   |                       |   |       |       |
| Deductions during period:   |   |                       |   |       |       |
|                        |   | Principal  payments        |   | (1,226,308 | )          |
|                        |   | Refinanced  mortgage loans |   | (7,263,156 | )          |
|                        |   |                       |   |       |       |
| Balance at January 31, 2003 |   |                       |   | 36,112,605 |       |
|                        |   |                       |   |       |       |
| Additions during period:    |   |                       |   |       |       |
|                        |   | New mortgage  loans        |   | —     |       |
|                        |   |                       |   |       |       |
| Deductions during period:   |   |                       |   |       |       |
|                        |   | Principal  payments        |   | (4,306,890 | )          |
|                        |   | Refinanced  mortgage loans |   | —     |       |
|                        |   |                       |   |       |       |
| Balance at January 31, 2004 |   |                       |   | $          | 31,805,715 |   |
|                             |        |                            |        |            |            |  |

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE.

 

The Trusteeshave selected McGladrey & Pullen, LLP as independent auditors to examinethe books, records and accounts of the Trust for the fiscal year ending January31, 2005.  McGladrey & Pullen werethe independent auditors of the Trust for the fiscal years ended January 31,2004 and 2003, and is considered by the Trustees to be well qualified.

 

Representativesof McGladrey & Pullen are expected to be present at the 2004 AnnualMeeting, will have the opportunity to make a statement if they desire to do soand are expected to be available to respond to appropriate questions.

 

On January 6,2003, the Trust engaged McGladrey & Pullen, LLP to act as the Trust’sprincipal independent accountant to audit the Trust’s financial statements,replacing KPMG LLP which was dismissed as the Trust’s principal independentaccountant on the same date.  Thedecision to change independent auditors was recommended and approved by the AuditCommittee of the Board of Trustees of the Trust.  The Trust reported this change in independentauditors in a Current Report on Form 8-K filed with the Securities and ExchangeCommission on January 13, 2003.

 

The reports ofKPMG on the Trust’s financial statements for the fiscal years ended January 31,2002 and 2001 did not contain an adverse opinion or a disclaimer of opinion andwere not qualified or modified as to uncertainty, audit scope or accountingprinciples.  In connection with theaudits of the Trust’s financial statements for the fiscal years ended January31, 2002 and 2001, and in the subsequent interim period through January 6,2003, there were no disagreements with KPMG on any matter of accountingprinciples or practices, financial statement disclosure or auditing scope andprocedure which, if not resolved to the satisfaction of KPMG, would have causedKPMG to make reference to the matter in its report.

 

In connectionwith the audits of the Trust’s financial statements for the fiscal years endedJanuary 31, 2002 and 2001, and in the subsequent interim period through January6, 2003, there were no “reportable events” as that term is defined in Item304(a)(1)(v) of Regulation S-K.

 

During thefiscal years ended January 31, 2002 and 2001, and in the subsequent interimperiod through January 6, 2003, the Trust did not consult with McGladrey &Pullen regarding the application of accounting principles to a specifiedtransaction, either completed or proposed, the type of audit opinion that mightbe rendered on the Trust’s financial statements or any of the matters describedin the immediately preceding paragraphs.

 

Item 9A.  CONTROLS ANDPROCEDURES

 

Asof the end of the period covered by this report, the Trust conducted anevaluation, under the supervision and with the participation of the principalexecutive officer and principal financial officer, of the Trust’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934). Based on this evaluation, the principalexecutive officer and principal financial officer concluded that the Trust’sdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by the Trust in reports that it files or submits underthe Securities Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms. There was no change in the Trust’s internal controlover financial reporting during the Trust’s most recently completed fiscal yearthat has materially affected, or is reasonably likely to materially affect, theTrust’s internal control over financial reporting.

 

The Trust is filing this Annual Report on Form 10-K/A for the purposeof amending its Consolidated Statements of Operations presented under Part I,Item 8, and other related Items described in the Explanatory Note in theforepart of this Form 10-K/A, in order to properly apply SFAS No. 144,"Accounting for the Impairment or Disposal of Long-Lived Assets" andreclassify as continuing operations the results for the Hotels previouslyreported in discontinued operations for the fiscal years ended January 31,2004, 2003 and 2002 due to significant continuing involvement by the Trust inthe operations of those Hotels and since the Trust continues to receive cashflows from those Hotels.

 

In connectionwith the restatement and the filing of this Form 10-K/A, the Trust’smanagement, with the participation of the Trust’s Chief Executive Officer andChief Financial Officer, re-evaluated the effectiveness of the Trust’sdisclosure controls and procedures as of the end of the period covered by thisreport.  Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures as of the end of the period covered by thisreport were effective as of the end of the period covered by this report.  The Trust also has evaluated its internalcontrol over financial reporting with respect to the proper application offinancial accounting standards.

 

PART III

 

ITEM 10.  TRUSTEES AND EXECUTIVE OFFICERS OF THETRUST

 

**Nominees,Trustees and Executive Officers**

 

The informationconcerning the Trustees and executive officers of the Trust set forth in thefollowing table is based in part on information received from the respectiveTrustees and executive officers and in part on the Trust’s records.  The following table sets forth the name, age,term of office and principal business experience for each Trustee, nominee forTrustee and executive officer of the Trust, as applicable.

 
| **Name**                                  | ** ** | **Principal Occupations  During Past Five Years,  Age as of May 21, 2004  And Directorships Held**                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Trustee  Since** |
|-------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|
| ** **                                | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | ** **         |
| **Nominee Whose Term  Expires in 2005**   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| ** **                                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| Stephen A.  McConnell(1),(2),(3),(4)      |       | President of Solano Ventures since 1991, an investment fund devoted  to small and mid-sized companies.   Chairman of G-L Industries, L.L.C. since 1998, a Salt Lake City-based  manufacturer of wood glue-lam beams used in the construction industry.  Chairman of Mallco Lumber & Building  Materials, Inc., a wholesale distributor of lumber and doors from 1991 to  1997.  Member of the Board of Directors  of Vodavi Technology, Inc., Mobil Mini, Inc., Capital Title Group, Inc., and  Miracor Diagnostics, Inc.  Age 51. |       | February 3, 2004   |
|                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| **Nominees  for Terms  Expiring in 2007** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| ** **                                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| James F.  Wirth(1)                        |       | Chairman,  President and Chief Executive Officer of the Trust since January 30,  1998.  President and owner of Suite  Hotels LLC and affiliated entities, owners and operators of hotels, since  1980.  President of Rare Earth  Development Company, a real estate investment company owned by Mr. Wirth,  since 1973.  Age:  58.                                                                                                                                                                                                     |       | January 30, 1998   |
|                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| Peter A.  Thoma(2),(3),(4)                |       | Owner and  operator of A&T Verleigh, Hamburg, Germany, a hospitality service and  rental company, since 1997.  Owner and  operator of Thoma Zeltsysteme, Hamburg, Germany, an import and sales company,  since 1997.  Age:  38.                                                                                                                                                                                                                                                                                                         |       | April 13, 1999     |
|                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| **Trustee  Whose Term  Expires in 2005**  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| ** **                                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| Steven S.  Robson(2),(3),(4)              |       | President of  Robson Communities, Inc. and Scott Homes and Scott Multifamily, Inc.,  residential real estate developers, since 1979.  Age:   48.                                                                                                                                                                                                                                                                                                                                                                                                 |       | June 16, 1998      |
|                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| **Trustee  Whose Term  Expires in 2006**  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| ** **                                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |               |
| Marc E. Berg(1)                           |       | Executive  Vice President, Secretary and Treasurer of the Trust since February 10,  1999.  Vice President – Acquisitions of  the Trust from December 16, 1998 to February 10, 1999.  Consultant to InnSuites Hotels since  1989.  Self-employed as a Registered  Investment Advisor since 1985.   Age:  51.                                                                                                                                                                                                        |       | January 30, 1998   |
|                                           |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |            |                    |  |  |

 

----

(1) Member of the Executive Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

(4) Member of the Governance and Nominating Committee.

 
| **Other Executive Officers** |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Anthony B.  Waters           |   | Chief  Financial Officer of the Trust since February 29, 2000.  Controller of the Trust from June 17,  1999 to February 29, 2000.  Accountant  and auditor with Michael Maastricht, CPA from June 16, 1998 to June 15, 1999,  performing audits for InnSuites Hotels, Inc.   Self-employed, concentrating in computerized accounting and  information systems, from 1990 to June 1998.   Age:  57. |

 

The Board of Trustees of theTrust has determined that Mr. McConnell, a member of the Trust’s AuditCommittee, qualifies as a “financial expert” under applicable SEC rules, andthat Mr. McConnell is “independent,” as such term is defined by Securities andExchange Commission rules and Amex listing standards.

 

**Section16(a) Beneficial Ownership Reporting Compliance**

 

Based on Trustrecords and information, and upon representations from the reporting persons,the Trust believes that all Securities and Exchange Commission filingrequirements applicable to Trustees, executive officers and beneficial ownersof more than 10% of a registered class of equity securities of the Trust underSection 16(a) of the Securities Exchange Act of 1934, as amended, for thefiscal year ended January 31, 2004, were complied with, except that an initial filing on Form 3 byMr. Stephen McConnell was inadvertently filed late by the Trust on his behalf.

 

**Code of Ethics for Senior Financial Officers**

 

The Trust hasadopted a Code of Ethics that applies to its Chief Executive Officer, ChiefFinancial Officer and principal accounting officer and persons performingsimilar functions.  The Trust has postedits Code of Ethics on its website at www.innsuitestrust.com.  The Trust intends to satisfy all SEC and Amexdisclosure requirements regarding any amendment to, or waiver of, the Code ofEthics relating to its Chief Executive Officer, Chief Financial Officer andprincipal accounting officer, and persons performing similar functions, byposting such information on its website and making any necessary filings withthe SEC.  In addition, the Trust hasadopted a Code of Conduct and Ethics that applies to all of its employees,officers and Trustees.  It is alsoavailable on the Trust’s website at www.innsuitestrust.com.

 

ITEM 11.  EXECUTIVE COMPENSATION

 

During fiscal year 2005, the Trust will issue9,600 Shares to each Trustee, other than Messrs. Wirth and Berg, ascompensation for services rendered as a Trustee of the Trust during fiscal year2004.  During fiscal year 2006, the Trustintends to issue 9,600 Shares to each Trustee, other than Messrs. Wirth andBerg, as Trustee compensation for services rendered during fiscal year 2005.

 

SUMMARY COMPENSATION TABLE

 

The table below shows individual compensationinformation for the Trust’s Chief Executive Officer and any other executiveofficer whose total annual salary and bonus for the fiscal year endedJanuary 31, 2004 exceeded $100,000.

 
| **Name and Principal Position** | ** ** | **Fiscal Year** | ** ** | **Annual Salary** | ** ** | **Restricted  Stock Awards** | ** ** |
|---------------------------------|------------|-----------------|------------|-------------------|------------|------------------------------|------------|
|                            |       |            |       |              |       |                         |       |
| James F. Wirth                  |       | 2004            |       | $                 | 95,231     | (2)                          | —     |   |
| President and Chief             |       | 2003            |       | 95,936            | (3)        | —                       |       |
| Executive Officer (1)           |       | 2002            |       | 90,940            | (4)        | —                       |       |
|                            |       |            |       |              |       |                         |       |
| Anthony B. Waters               |       | 2004            |       | $                 | 126,000    |                         | $          | 6,240 | (6) |
| Chief Financial Officer         |       | 2003            |       | 129,392           |       |                         |       |
|                            |       | 2002            |       | 121,477           | (5)        |                         |       |
|                                 |            |                 |            |                   |            |                              |            |  |  |

 

----

(1)           The terms of Mr.Wirth’s Employment Agreement are summarized below.  See “Item 13 - Certain Relationships andRelated Transactions - Employment Agreement with Mr. Wirth.”

(2)           Although Mr. Wirth’sannual salary for fiscal year 2004 was set at $130,000, Mr. Wirth agreed to asalary reduction that resulted in an annual salary of $95,231 for fiscal year2004.

(3)           Although Mr. Wirth’sannual salary for fiscal year 2003 was set at $126,000, Mr. Wirth agreed to asalary reduction that resulted in an annual salary of $95,936 for fiscal year2003.

(4)           During fiscal year2002, Mr. Wirth was paid $90,940 and agreed to defer the payment of anadditional $20,923 until a future date mutually agreeable to Mr. Wirth and theTrust.  The deferred salary payment of$20,923 was waived and forfeited by Mr. Wirth during fiscal year 2003.

(5)           During fiscal year2002, Mr. Waters was paid $117,115 and agreed to defer the payment of anadditional $4,362 until March 31, 2002. In March 2002, Mr. Waters was paid the deferred salary payment of$4,362.

(6)           Represents the fairmarket value of 4,800 Shares issued to Mr. Waters as a bonus on June 30, 2003.

 

**AggregatedOption Exercises In Fiscal Year 2004 and**

**FiscalYear-End Option Values**

 
| **Name**          | ** ** | **Shares  Acquired On  Exercise (#)** | ** ** | **Value  Realized ($)** | ** ** | **Number of Securities  Underlying  Unexercised Options  At Fiscal Year-End (#)  Exercisable/  Unexercisable** | ** ** | **Value of Unexercised  In-The-Money  Options At Fiscal  year-End ($)  Exercisable/  Unexercisable** | ** ** |
|-------------------|------------|---------------------------------------|------------|-------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
|              |       |                                  |       |                    |       |                                                                                                           |       |                                                                                                 |       |
| James F. Wirth    |       | N/A                                   |       | N/A                     |       | 50,000/0                                                                                                       |       | N/A                                                                                                  | *          |
|              |       |                                  |       |                    |       |                                                                                                           |       |                                                                                                 |       |
| Anthony B. Waters |       | N/A                                   |       | N/A                     |       | 20,000/0                                                                                                       |       | N/A                                                                                                  | *          |

 

----

*As of May 21, 2004, none of the options held by suchindividual were in-the-money.

 

54

----

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT

 

The Trust incorporates herein by reference the informationappearing under the caption “Ownership of Shares” in the Trust’s definitiveProxy Statement to be filed with the Securities and Exchange Commission by May30, 2004.

 

The following table provides information about the Trust’sequity compensation plans (other than qualified employee benefits plans andplans available to shareholders on a pro rata basis) as of January 31,2004:

 

**EquityCompensation Plan Information**

 
| **Plan Category**                                           | ** ** | **Number of Securities to  be Issued Upon Exercise  of Outstanding Options,  Warrants and Rights** | ** ** | **Weighted – Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** ** | **Number of Securities  Available for Future  Issuance Under Equity  Compensation Plans  (Excluding Securities  Reflected in Column (a))** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                        |       |                                                                                               |       |                                                                                      |       |                                                                                                                                            |       |
| Equity compensation plans approved by security  holders     |       | 246,000                                                                                            |       | $ 2.50                                                                               |       | 506,800                                                                                                                                         |       |
|                                                        |       |                                                                                               |       |                                                                                      |       |                                                                                                                                            |       |
| Equity compensation plans not approved by  security holders |       | None                                                                                               |       | None                                                                                      |       | None                                                                                                                                            |       |

 

The following table sets forth information as ofMay 21, 2004 in respect of any persons known to the Trust to be the beneficialowner of more than 5% of the Shares and the number of Shares owned beneficiallyby each Trustee, nominee and executive officer, and the Trustees, nominees andexecutive officers as a group.

 

**Five Percent Beneficial Owners andBeneficial Ownership of Trustees, Nominees and Executive Officers**

 
| **Name**                                                            | ** ** | **Shares  Beneficially Owned** | ** ** | **Percentage of Outstanding  Shares** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------------|------------|
| **5% Beneficial Owners**                                            |       |                           |       |                                  |       |
| ** **                                                          |       |                           |       |                                  |       |
| Mason E. Andersen (1)                                               |       | 218,606                        |       | 9.38                                  | %          |
| Dan Z. Bochner (2)                                                  |       | 238,383                        |       | 10.22                                 | %          |
| Lee J. Flory (3)                                                    |       | 184,416                        |       | 7.47                                  | %          |
|                                                                |       |                           |       |                                  |       |
| **Trustees, Nominees and  Executive Officers**                      |       |                           |       |                                  |       |
|                                                                |       |                           |       |                                  |       |
| James F. Wirth (4)                                                  |       | 660,563                        |       | 27.74                                 | %          |
| Marc E. Berg  (5)                                                   |       | 86,225                         |       | 3.65                                  | %          |
| Steven S. Robson (6)                                                |       | 203,923                        |       | 8.67                                  | %          |
| Peter A. Thoma (7)                                                  |       | 49,100                         |       | 2.09                                  | %          |
| Stephen A. McConnell                                                |       | 3,400                          |       |                                  | *          |
| Anthony B. Waters (8)                                               |       | 29,800                         |       |                                  | *          |
|                                                                |       |                           |       |                                  |       |
| Trustees, Nominees and Executive Officers  as a group (six persons) |       | 1,033,011                      |       | 41.80                                 | %          |

 

 

----

(1)   Consists of 170,000 Shares heldby the Andersen Trust dated August 27, 1980 and 48,606 Shares held by theAnderson Charitable Remainder UniTrust. Mr. Andersen and his spouse are co-trustees and income beneficiaries ofboth Trusts.  The address forMr. Andersen is 3024 West Sahuaro Drive, Phoenix, Arizona 85029.

 

(2)   Pursuant to Amendment No. 2 toSchedule 13-D, dated December 30, 1996, filed with the Securities and ExchangeCommission on December 31, 1996 by Mr. Bochner. The address for Mr. Bochner is P.O. Box 10809, Beverly Hills,California 90213.

 

(3)   Consists of 118,344 Class Alimited partnership units in the Partnership that are convertible at any time,at the option of the holder thereof, into Shares, 20,000 Shares that may beacquired within 60 days of June 3, 2004 pursuant to the exercise of stockoptions and 46,072 Shares.  The addressfor Mr. Flory is 716 South 6th Avenue, La Grange, Illinois  60525.

 

(4)   Consists of 50,000 Shares thatmay be acquired within 60 days of June 3, 2004 pursuant to the exercise ofstock options and 610,563 Shares.  TheseShares are owned jointly by Mr. Wirth and his spouse.  Mr. Wirth and his spouse also own all4,467,938 issued and outstanding Class B limited partnership units in thePartnership, the conversion of which is restricted and permitted only at thediscretion of the Board of Trustees of the Trust.  The address for Mr. Wirth is 1615 E. NorthernAvenue, Suite 102, Phoenix, Arizona 85020.

 

(5)   Consists of 30,000 Shares thatmay be acquired within 60 days of June 3, 2004 pursuant to the exercise ofstock options and 56,225 Shares.  Theaddress for Mr. Berg is 1615 E. Northern Avenue, Suite 102, Phoenix, Arizona85020.

 

(6)   Consists of 20,000 Shares thatmay be acquired within 60 days of June 3, 2004 pursuant to the exercise ofstock options and 183,923 Shares.

 

(7)   Consists of 20,000 Shares thatmay be acquired within 60 days of June 3, 2004 pursuant to the exercise ofstock options and 29,100 Shares.

 

(8)   Consists of 20,000 Shares thatmay be acquired within 60 days of June 3, 2004 pursuant to the exercise ofstock options and 9,800 Shares.

 

*              Lessthan one percent (1.0%).

 

The following table provides information about theTrust’s equity compensation plans (other than qualified employee benefits plansand plans available to shareholders on a pro rata basis) as of January 31,2004:

 

**Equity Compensation Plan Information**

 
| **Plan Category**                                           | ** ** | **Number of Securities to  be Issued Upon Exercise  of Outstanding Options,  Warrants and Rights** | ** ** | **Weighted – Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** ** | **Number of Securities  Available for Future  Issuance Under Equity**

**Compensation Plans  (Excluding Securities  Reflected in Column (a))** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                        |       |                                                                                               |       |                                                                                      |       |                                                                                                                                                |       |
| Equity compensation plans approved by  security holders     |       | 246,000                                                                                            |       | $ 2.50                                                                               |       | 506,800                                                                                                                                             |       |
|                                                        |       |                                                                                               |       |                                                                                      |       |                                                                                                                                                |       |
| Equity compensation plans not approved by  security holders |       | None                                                                                               |       | None                                                                                      |       | None                                                                                                                                                |       |

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS

 

**Employment Agreement with Mr. Wirth**

 

James F. Wirth, Chairman, President and ChiefExecutive Officer of the Trust, has an Employment Agreement with the Trustexpiring in December 2007.  Pursuant tothe terms of the Employment Agreement, upon the termination of the AdvisoryAgreement with Mid-America ReaFund Advisors, Inc. (“MARA”), a company owned byMr. Wirth and his spouse, which termination occurred effective January 1, 1999,Mr. Wirth is to receive, each year through 2007, up to the amount MARAwould have received for advisory and management services under the AdvisoryAgreement, but in no event will his compensation exceed $160,000 per year.  Based upon a review of the performance of theTrust and upon the recommendation of the Compensation Committee, during fiscalyear 2004, Mr. Wirth’s was paid an annual salary equal to $95,231, whichis less than he is entitled to receive under the terms of his EmploymentAgreement.  Mr. Wirth’s annual salary forfiscal year 2004 has been set at $130,000. The Compensation Committee does not rely on any particular set offinancial or non-financial factors, measures or criteria when determining thecompensation offered to Mr. Wirth.

 

**Acquisition of InnSuites Hotels by the Trust**

 

Effective February 1, 2001, the Trust acquiredall of the issued and outstanding common and preferred equity stock ofInnSuites Hotels, Inc. (“InnSuites Hotels”) for $11,531 in cash considerationand the assumption of approximately $1.6 million of net liabilities.  Prior to the acquisition, InnSuites Hotelswas owned 23% by Marc E. Berg, Executive Vice President, Secretary, Treasurerand Trustee of the Trust, 9.8% by InnSuites Innternational Hotels, Inc.(“InnSuites Innternational”), an entity owned by Mr. Wirth, and 67.2% byunrelated parties.

 

Following the acquisition of InnSuites Hotels by theTrust, the management agreements relating to the Hotels between InnSuitesHotels and InnSuites Innternational were terminated, and new managementagreements were entered into on substantially similar terms with SuiteHospitality Management, Inc. (the “Management Company”), 9.8% of which wasowned by Mr. Wirth until July 1, 2003, when Mr. Wirth sold his interest tothe majority stockholder.  There were notermination fees charged in connection with the cancellation of the oldmanagement agreements.  In exchange forits assumption of the management agreements, the Management Company agreed topay $911,320 to InnSuites Innternational in order for InnSuites Innternationalto satisfy its liabilities.  EffectiveFebruary 1, 2001, RRF Limited Partnership, the Trust’s operating partnership(the "Partnership”), InnSuites Hotels and the Management Company enteredinto an amended Intercompany Agreement whereby, subject to certain terms andconditions, the Partnership granted InnSuites Hotels a right of first refusalto lease, and the Management Company a right of first refusal to operate, anyreal property acquired by the Partnership. In return, the Partnership was granted a right of first refusal topursue opportunities presented to InnSuites Hotels or the Management Company topurchase investments in real estate, hotel properties, real estate mortgages,derivatives or entities that invest in any of the foregoing.  In connection with the acquisition ofInnSuites Hotels by the Trust, the rate structures of the Percentage Leases forthe Hotels were amended to reflect current economic and market conditions, andthe employees of InnSuites Hotels became employees of the Management Company.

 

**Transferof Interest in Suite Hospitality Management, Inc.**

 

EffectiveJuly 1, 2003, Mr. Wirth transferred his entire 9.8% interest in the ManagementCompany to the majority stockholder in exchange for $98.00 cash consideration.  Following the transfer, all of the issued andoutstanding capital stock of the Management Company is owned by the stockholderwho purchased Mr. Wirth’s shares.

 

**Purchase of Class B Units from Mr. Wirth**

 

On February 2, 2004, the Trust purchased 433,036 Class Blimited partnership units in the Partnership from Mr. Wirth and his affiliatesfor the closing price of the Trust’s Shares of Beneficial Interest on that day,which was $2.25 per Share.  The Trustmade a down-payment totaling $2,500 and issued five promissory notes totaling$971,831, which will be paid in monthly installments of principal and interestover 84 months.  The Trust repurchasedthese Class B limited partnership units to increase its sole general partnerinterest in the Partnership, and thereby receive a larger allocation of thePartnership’s equity.  This increasedallocation of equity will enhance the Trust’s ability to regain compliance withAmex listing standards.

 

**Acquisition of InnSuites Licensing Corp. by Suite Hospitality Management,Inc.**

 

EffectiveFebruary 2, 2004, the Management Company, an entity in which Mr. Wirthpreviously owned a 9.8% interest, acquired all of the issued and outstandingcapital stock of InnSuites Licensing Corp. (the “Licensing Corp.”), an entitythen owned by Mr. Wirth and his spouse. In exchange for the stock of the Licensing Corp., Mr. Wirth and hisspouse received 55,563 Shares that were held by the Management Company.  The Licensing Corp. will operate as awholly-owned subsidiary of the Management Company.  Agreements for the provision of trademark andlicense services by Licensing Corp. to InnSuites Hotels continued after thistransfer, as described below in “Item 13 - Certain Relationships and RelatedTransactions - Management of Hotel Properties and Licensing Agreements.”

 

**Managementof Hotel Properties and Licensing Agreements**

 

Mr. Wirth has derived benefits from themanagement of the Trust’s hotel properties by the Management Company, an entityin which Mr. Wirth previously had a 9.8% interest.  See “Item 13 - Certain Relationships andRelated Transactions - Transfer of Interest in Suite Hospitality Management,Inc.” above.  In addition, Mr. Wirth hasderived benefits from the license agreements with the Licensing Corp., anentity formerly owned by Mr. Wirth and his spouse.   See “Item 13 - Certain Relationships andRelated Transactions - Acquisition of InnSuites Licensing Corp. by SuiteHospitality Management, Inc.” above.

 

As a REIT,through January 31, 2004, the Trust was prohibited from operating itsproperties other than through an independent management company or a taxableREIT subsidiary.  Until February 1, 2004,the Trust elected to be taxed as a REIT, as that term is defined and used inSections 856-860 of the Internal Revenue Code of 1986, and the Regulationsthereunder.  As of February 1, 2004, theTrust is no longer a REIT, but instead will be taxed as a C corporation underfederal tax laws.  See Note 21 tothe Trust’s Consolidated Financial Statements – “Subsequent Events.”

 

Prior toFebruary 1, 2001, InnSuites Hotels operated and managed all of the Hotels, withthe assistance of InnSuites Innternational. Pursuant to management agreements, InnSuites Hotels paid InnSuitesInnternational an annual management fee of 2.5% of gross revenues for propertymanagement services.  Following theacquisition of InnSuites Hotels by the Trust effective February 1, 2001,InnSuites Hotels operates and manages the Hotels with the assistance of theManagement Company, an entity in which Mr. Wirth, until July 1, 2003, helda 9.8% ownership interest, pursuant to substantially the same terms as theInnSuites Innternational management agreements. Effective February 1, 2003, the annual management fee charged by theManagement Company to InnSuites Hotels under the current management agreementswas reduced to 2.0% of gross room revenues. This reduction will be effective through January 31, 2005, when theannual management fee will return to the level originally stated in the currentmanagement agreements.  On December 31,2003, the Trust agreed to extend the current management agreements throughJanuary 31, 2008, in exchange for the Management Company forgiving $183,248 ofaccrued but unpaid fees.  EffectiveFebruary 2, 2004, the Management Company purchased Licensing Corp.  See “Item 13 - Certain Relationships andRelated Transactions - Acquisition of InnSuites Licensing Corp. by SuiteHospitality Management, Inc.” above.

 

InnSuitesHotels pays Licensing Corp. an annual licensing fee of 2.0% of gross roomrevenues (1.0% for those hotel properties which also carry a third-partyfranchise (as discussed below), such as Best Western® or Holiday Inn®) fortrademark and licensing services relating to the use of the InnSuites® name andmarks.  These rates are in effect untilJanuary 31, 2005, when the trademark and licensing fees will return to thelevels originally stated in the current trademark and licensing servicesagreements (2.5% and 1.25% of gross revenue, respectively).  On December 31, 2003, the Trust agreed to extendthe current trademark and licensing services agreements through January 31,2007, in exchange for the Licensing Corp. forgiving $347,473 of accrued butunpaid fees.  Effective February 2, 2004,the Management Company purchased Licensing Corp.  See “Item 13 - Certain Relationships andRelated Transactions - Acquisition of InnSuites Licensing Corp. by SuiteHospitality Management, Inc.” above.

 

**Sale of Scottsdale, Arizona Property**

 

On March 21, 2003, the Trust sold its Scottsdale, Arizonaproperty to Eldorado Resort, L.L.C.(“Eldorado”), an affiliate of Mr. Wirth, forits appraised and carrying value of $3.1 million.  Eldorado paid for the hotel by assuming$1.1 million of the Trust’s notes payable to Rare Earth Financial, L.L.C.(“Rare Earth Financial”), an affiliate of Mr. Wirth, assuming $500,000 of thePartnership’s notes payable to Capital Resource Lenders-I, L.L.C., an affiliateof Mr. Wirth, and paying the Trust’s term loan of $1,500,000 to the lender infull.

 

**Sale of Flagstaff, Arizona Property**

 

On August 21,2003, the Trust sold its Flagstaff, Arizona property to Flagstaff Grand CanyonResort, LLC, an affiliate of Mr. Wirth, for a cash payment equal to itsappraised value of $2,775,000.  The Trustused the proceeds to fully satisfy its $1.5 million bank line of credit and toreduce its notes payable to Rare Earth Financial by $1,275,000.  In connection with the sale of the Flagstaffproperty, affiliates of Mr. Wirth that held certain promissory notes issued bythe Trust and the Partnership released their security interests in theFlagstaff property.

 

**Sale ofBuena Park, California Property**

 

On October 16, 2003,the Trust sold its Buena Park, California property to CVTI, LLC, an unrelatedthird party (“CVTI”), for $6.5 million.  The purchase price was satisfiedwith $6.3 million in cash and a $200,000 promissory note issued by CVTI to theTrust.  The Trust subsequently assigned the $200,000 promissory note toRare Earth Financial to satisfy $200,000 of a certain note payable held by RareEarth Financial.  The Trust used the cash proceeds to fully satisfy thebank mortgage note on the property in the amount of $3,082,574, to reducecertain notes payable to Mr. Wirth and his affiliates and to Mr. Steven S.Robson in the aggregate amount of $1.5 million, and to reduce trade accountspayable.

 

**Sale ofTempe, Arizona Property**

 

## On March 25, 2004, the Trustsold its Tempe, Arizona property to Tempe/Phoenix Airport Resort LLC, anaffiliate of Mr. Wirth, for $6.8 million, its appraised value.  Tempe/Phoenix Airport Resort LLC satisfiedthe purchase price by assuming $5.1 million of the Trust’s notes payable to Mr.Wirth and his affiliates and assuming the $1.7 million mortgage note secured bythe property.

##  

**Sale of San Diego, California Property**

 

On April 1,2004, the Partnership sold its San Diego, California property to an unrelatedthird party for $9.7 million, which was paid in cash.  The Trust used $4.8 million of the proceedsto satisfy its mortgage note payable on the property.  The Trust used $1.1 million of the remainingproceeds from the sale to satisfy related party notes payable, $700,000 toreduce trade payables and retained the remaining proceeds for future operationsand capital improvements.

 

**RelatedParty Loans and Advances to the Trust**

 

Notes and advancespayable to related parties consist of funds provided by Mr. Wirth, certainof his affiliates and other related parties to permit the Trust to repurchaseadditional general partnership units in the Partnership and to fund workingcapital and capital improvement needs. The aggregate amount outstanding torelated parties was approximately $6.9 million as of January 31,2004.

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **Amount Payable as of  January 31, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Note payable  to Steve Robson, Trustee of the Trust, bearing interest at 7% per annum,  secured by Class A limited partnership units in the Partnership, and due in  monthly principal and interest payments of $25,000 through December, 2004.                                                                                                                                             |       | $                                          | 239,667    |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Unsecured  notes payable to Rare Earth Financial, LLC, an affiliate of Mr. Wirth,  bearing interest at 7% per annum, and due in a one-time installment of  $514,500 on February 15, 2004.  Paid in  full during February 2004.                                                                                                                                                         |       | 514,500                                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Unsecured  note payable to Rare Earth Financial, L.L.C., an affiliate of Mr. Wirth,  bearing interest at 7% per annum.  A  principal payment of $500,000 is due on March 15, 2004.  The remaining unpaid principal balance and  accrued interest is due on March 15, 2005.                                                                                         |       | 2,000,000                                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Note payable  to Rare Earth Financial, L.L.C., an affiliate of Mr. Wirth, bearing  interest at 7% per annum, secured by the Partnership’s equity in Baseline  Hospitality Properties LP, and due in monthly principal and interest payments  of $13,860 through July 2006.  During  fiscal year 2004, $136,290 of accrued interest was added to the  principal balance. |       | 2,072,893                                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Note payable  to Rare Earth Financial, L.L.C., an affiliate of Mr. Wirth, bearing  interest at 7% per annum, secured by the Partnership’s equity in Baseline  Hospitality Properties LP, and due in monthly principal and interest payments  of $9,179 through July 2007.  During  fiscal year 2004, $263,014 of accrued interest was added to the  principal balance.  |       | 1,379,646                                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Note payable  to Hulsey Hotels Corporation, an affiliate of Mr. Wirth, bearing  interest at 7% per annum, secured by Class B limited partnership units in the  Partnership, and due in monthly principal and interest payments of $10,488  through March 2007.                                                                                                                         |       | 356,550                                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Note payable  to Mr. Wirth, bearing interest at 7% per annum, secured by Shares of Beneficial  Interest in the Trust, and due in monthly installments of $5,508 through  March 2007.                                                                                                                                                                                                        |       | 187,230                                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Unsecured  note payable to Mr. Wirth, bearing interest at 7% per annum, and due in  monthly installments of $2,993 through March 2007.                                                                                                                                                                                                                                                      |       | 101,755                                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                                       |       |
| Total:                                                                                                                                                                                                                                                                                                                                                                                      |       | $                                          | 6,852,241  |   |

 

During thesecond and third quarters of fiscal year 2004, the Trust issued five promissorynotes in the amount of $208,000, $75,000, $200,000, $110,000 and $60,000 toRare Earth Development Company, an affiliate of Mr. Wirth, all of which werepaid in full in the third quarter of fiscal year 2004 utilizing a portion ofthe cash proceeds from the sale of the Buena Park property.

 

During thesecond quarter of fiscal year 2004, the Trust issued a promissory note in theamount of $225,000 to Rare Earth Financial, L.L.C., an affiliate of Mr. Wirth,which was paid in full in the third quarter of fiscal year 2004 utilizing aportion of the cash proceeds from the sale of the Buena Park property.

 

On February2, 2004, the Trust purchased 433,036 Class B limited partnership units in thePartnership from affiliates of Wirth for the closing price of the Trust’sShares of Beneficial Interest on that day, which was $2.25.  The Trust made a down-payment totaling $2,500and issued five promissory notes, each of which is secured by the applicablepurchased Class B limited partnership units, bears interest at 7% per annum andwill be paid in monthly installments of principal and interest over 84months.  Four of the promissory noteswere issued to affiliates of Wirth in the aggregate principal amount of$414,331 and remain outstanding.  Thefifth promissory note was issued to an affiliate of Wirth in the principalamount of $557,500 and was fully paid during April 2004.

 

The Trust paidinterest on related party notes to Mr. Wirth and his affiliates in theamounts of $205,101, $28,373 and $222,047 for the twelve months endedJanuary 31, 2004, 2003 and 2002, respectively.  The Trust incurred interest expense onrelated party notes to Mr. Wirth and his affiliates in the amounts of$515,214, $623,522 and $495,995 for the twelve months ended January 31,2004, 2003 and 2002, respectively.

 

All relatedparty transactions are subject to appropriate review and oversight by the AuditCommittee of the Board of Trustees.

 

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

**Audit Fees**

 

The aggregatefees for professional services rendered by McGladrey & Pullen for the auditof the Trust’s annual financial statements for the fiscal year ended January31, 2004 and January 31, 2003 were $134,463 and $90,275,respectively.  The aggregate fees forprofessional services rendered by McGladrey & Pullen for reviewing theinterim financial statements included in the Trust’s quarterly reports onForm 10-Q filed during the fiscal year ended January 31, 2004 were $27,000and the aggregate fees for professional services rendered by KPMG for reviewingthe interim financial statements included in the Trust’s quarterly reports onForm 10-Q filed during the fiscal year ended January 31, 2003 were $34,000.

 

**Audit-Related Fees**

 

The aggregate fees paid to McGladrey &Pullen for audit-related services, such as comfort letters, consents andassistance with and review of documents filed with the Securities and ExchangeCommission, were $7,081 and $0 for the fiscal years ended January 31, 2004 andJanuary 31, 2003, respectively.  Theaggregate fees paid to KPMG for audit-related services, such as review serviceswere $6,000 for the fiscal year ended January 31, 2003.  The Audit Committee pre-approved allaudit-related fees billed for the fiscal year ended January 31, 2004.

 

**Tax Fees**

 

The aggregate fees paid to McGladrey &Pullen for tax compliance, tax advice and tax planning for the fiscal yearsended January 31, 2004 and January 31, 2003 were $74,690 and $67,130,respectively.  The aggregate fees paid toKPMG for tax compliance, tax advice and tax planning for the fiscal year endedJanuary 31, 2003 were $0.  The AuditCommittee pre-approved all tax fees billed for the fiscal year ended January31, 2004.

 

**All Other Fees**

 

The aggregate fees for all other servicesrendered by McGladrey & Pullen during the fiscal years ended January 31,2004 and January 31, 2003 were $750 and $4,770, respectively.  The aggregate fees for all other servicesrendered by KPMG during the fiscal year ended January 31, 2003 were$2,250.  These fees represent amountspaid for the issuance of consents.  TheAudit Committee pre-approved all other fees billed for the fiscal year endedJanuary 31, 2004.

 

The Audit Committee of the Trust has consideredwhether the provision of these services, other than the audit of the Trust’sannual financial statements, is compatible with McGladrey & Pullen and KPMGmaintaining their respective independence from the Trust.

 

The Audit Committee pre-approves all fees forservices performed by McGladrey & Pullen, including audit and non-auditservices.  Unless a type of serviceMcGladrey & Pullen provides has received general pre-approval, it willrequire specific pre-approval by the Audit Committee.  Any proposed services exceeding pre-approvedcost levels will require specific pre-approval by the Audit Committee.  The term of any pre-approval is 12 monthsfrom the date of pre-approval, unless the Audit Committee specifically providesfor a different period.

 

Since May 6,2003, the effective date of SEC rules requiring Audit Committee pre-approval ofaudit and non-audit services performed by the Trust’s independent auditors, allof the services provided by McGladrey & Pullen have been approved in accordancewith the policies and procedures described above.

 

 

55

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PART IV

 

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULESAND REPORTS ON FORM 8-K

 
| (a)(1) and  (2) | Financial  Statements and Schedules                                 |
|----------------------|---------------------------------------------------------------------|
|                 |                                                                |   |
|                 | Financial  Statements/Schedules of InnSuites Hospitality Trust |
|                 |                                                                |   |
|                 | 1.                                                                  | Reports of  Independent Certified Public Accountants |
|                 | 2.                                                                  | Consolidated  Balance Sheets at January 31, 2004 and 2003 |
|                 | 3.                                                                  | Consolidated  Statements of Operations for the years ended January 31, 2004, 2003 and  2002 |
|                 | 4.                                                                  | Consolidated  Statements of Shareholders’ (Deficit) Equity for the years ended  January 31, 2004, 2003 and 2002 |
|                 | 5.                                                                  | Consolidated  Statements of Cash Flows for the years ended January 31, 2004, 2003 and  2002 |
|                 | 6.                                                                  | Notes to  Consolidated Financial Statements for the years ended January 31, 2004,  2003 and 2002 |
|                 | 7.                                                                  | Schedule III  – Real Estate and Accumulated Depreciation |
|                 | 8.                                                                  | Schedule IV  – Mortgage Loans on Real Estate |
|                 | ** **                                                          | ** ** |
| (a)(3)               | ** **                                                          | Exhibit List |
| ** **           | ** **                                                          | ** ** |
| **Exhibit No.** | ** **                                                          | **Exhibit** |
| 3.1                  |                                                                | Second Amended and Restated Declaration of Trust dated June 16,  1999, as further amended on July 12, 1999 (incorporated by reference to  Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended July 31, 1999, filed with the Securities and Exchange  Commission on September 14, 1999). |
|                 |                                                                |   |
| 10.1                 |                                                                | 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). |
|                 |                                                                |   |
| 10.2*                |                                                                | Employment Agreement dated as of January 31, 1998, between  InnSuites Hospitality 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). |
|                 |                                                                |   |
| 10.3**               |                                                                | Indemnity Agreement by and among InnSuites Hospitality Trust, James  F. Wirth, Marc E. Berg, Steven S. Robson, Stephen A. McConnell, Peter A.  Thoma, and Anthony B. Waters. |
|                      |                                                                     |  |  |

 

56

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| 10.4   |   | Promissory Note dated July 27, 2000 by RRF Limited Partnership  in favor of Steve S. Robson (incorporated by reference to Exhibit 10.13  of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  July 31, 2000, filed with the Securities and Exchange Commission on  September 14, 2000).             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.5   |   | Promissory Note dated July 25, 2002 by InnSuites Hospitality  Trust in favor of Hulsey Hotels Corporation (incorporated by reference to  Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended July 31, 2002, filed with the Securities and Exchange  Commission on September 6, 2002). |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.6** |   | Promissory Note dated February 2, 2004 by InnSuties Hospitality Trust  in favor of Pamela Wirth Barnhill                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.7** |   | Promissory Note dated February 2, 2004 by InnSuties Hospitality Trust  in favor of Brian Wirth.                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.8** |   | Promissory Note dated February 2, 2004 by InnSuties Hospitality Trust  in favor of Christopher Wirth.                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.9** |   | Promissory Note dated February 2, 2004 by InnSuties Hospitality Trust  in favor of Eric Wirth.                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 14**   |   | Code of Ethics for Senior Financial Officers.                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 21**   |   | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 23.1+  |   | Consent of McGladrey & Pullen, LLP, Independent Registered Public  Accounting Firm.                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 23.2+  |   | Consent of KPMG LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 31.1+  |   | Certification of Chief Executive Officer pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 31.2+  |   | Certification of Chief Financial Officer pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 32.1+  |   | Certification of Chief Executive Officer required by Section 906  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 32.2+  |   | Certification of Chief Financial Officer required by Section 906  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| 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).                                                                                                                            |

 

----

*            Managementcontract or compensatory plan or arrangement.

**     Previously filed.

+            Filed herewith.

 

(b)           Reportson Form 8-K

 

None.

 

57

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SIGNATURES

 

Pursuant to the requirements of Section 13 or15(d) of Securities Exchange Act of 1934, the Trust has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
|                     | INNSUITES HOSPITALITY TRUST |
|--------------------------|-----------------------------|
|                     |                        |
|                     |                        |
| Dated:  May 4, 2005 | By:                         | /s/  James F. Wirth |
|                     |                        | James F. Wirth, Chairman,  President and Chief Executive Officer  (Principal Executive Officer) |
|                     |                        |   |
|                     |                        |   |
| Dated:  May 4, 2005 | By:                         | /s/  Anthony B. Waters |
|                     |                        | Anthony B. Waters, Chief Financial Officer  (Principal Financial Officer) |

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Trust and in thecapacities and on the dates indicated.

 
| Dated:  May 4, 2005 | By:    | /s/  James F. Wirth                                                                       |
|--------------------------|--------|------------------------------------------------------------------------------------------------|
|                     |   | James F. Wirth, Chairman  President and Chief Executive Officer  (Principal Executive Officer) |
|                     |   |                                                                                           |
|                     |   |                                                                                           |
| Dated:  May 4, 2005 | By:    | /s/  Anthony B. Waters                                                                    |
|                     |   | Anthony B. Waters, Chief Financial Officer  (Principal Financial Officer)                      |
|                     |   |                                                                                           |
|                     |   |                                                                                           |
| Dated:  May 4, 2005 | By:    | /s/  Marc E. Berg                                                                         |
|                     |   | Marc E. Berg, Trustee                                                                          |
|                     |   |                                                                                           |
|                     |   |                                                                                           |
| Dated:  May 4, 2005 | By:    | /s/  Steven S. Robson                                                                     |
|                     |   | Steven S. Robson, Trustee                                                                      |
|                     |   |                                                                                           |
|                     |   |                                                                                           |
| Dated:  May 4, 2005 | By:    | /s/  Peter A. Thoma                                                                       |
|                     |   | Peter A. Thoma, Trustee                                                                        |
|                     |   |                                                                                           |
|                     |   |                                                                                           |
| Dated:  May 4, 2005 | By:    | /s/  Mason E. Anderson                                                                    |
|                     |   | Mason E. Anderson, Trustee                                                                     |

 

58

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