SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Period ended March 31, 1998 Commission File 0-9218
SUPER 8 MOTELS II, LTD
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94 - 2574309
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 J Street
Sacramento, California 95814
-------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number,
including area code (916) 442 - 9183
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes XX No __
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
INDEX
Financial Statements: PAGE
Balance Sheet - March 31, 1998 and September 30, 1997 2
Statement of Operations - Six Months Ended
March 31, 1998 and 1997 3
Statement of Changes in Partners' Equity -
Six Months Ended March 31, 1998 and 1997 4
Statement of Cash Flows - Six Months Ended
March 31, 1998 and 1997 5
Notes to Financial Statements 6
Management Discussion and Analysis 7 - 8
Other Information and Signatures 9 - 11
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Balance Sheet
March 31, 1998 and September 30, 1997
3/31/98 9/30/97
---------- ----------
ASSETS
Cash and temporary investments $ 292,672 $ 459,098
Accounts receivable 11,995 17,937
Prepaid expenses 3,450 9,017
---------- ----------
Total current assets 308,117 486,052
---------- ----------
Property and Equipment:
Capital improvements 34,947 34,947
Buildings 1,845,878 1,845,878
Furniture and equipment 526,802 524,159
---------- ----------
2,407,627 2,404,984
Accumulated depreciation (1,874,449) (1,834,078)
---------- ----------
Property and equipment, net 533,178 570,906
---------- ----------
Other Assets: 10,818 10,818
---------- ----------
Total Assets $ 852,113 $ 1,067,776
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 145,086 $ 108,806
---------- ----------
Total current liabilities 145,086 108,806
---------- ----------
Total liabilities 145,086 108,806
---------- ----------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 48,024 49,493
Limited Partners 659,003 909,477
---------- ----------
Total partners' equity 707,027 958,970
---------- ----------
Total Liabilities and Partners' Equity $ 852,113 $ 1,067,776
========== ==========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Statement of Operations
For the Six Months Ended March 31, 1998 and 1997
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
3/31/98 3/31/98 3/31/97 3/31/97
--------- --------- --------- ---------
Income:
Guest room $ 178,484 $ 379,417 $ 190,620 $ 395,483
Telephone and vending 3,025 6,268 3,312 7,552
Interest 2,888 6,797 4,551 10,051
Other 698 1,190 606 1,130
--------- --------- --------- ---------
Total Income 185,095 393,672 199,089 414,216
--------- --------- --------- ---------
Expenses:
Motel operating expenses
(Note 2) 176,430 368,172 159,019 317,542
General and administrative 96,277 129,149 8,685 34,874
Depreciation and amortization 21,713 43,294 22,498 44,654
--------- --------- --------- ---------
Total Expenses 294,420 540,615 190,202 397,070
--------- --------- --------- ---------
Net Income (Loss) $ (109,325) $ (146,943) $ 8,887 $ 17,146
========= ========= ========= =========
Net Income (Loss) Allocable
to General Partners ($1,093) ($1,469) $89 $171
========= ========= ========= =========
Net Income (Loss) Allocable
to Limited Partners ($108,232) ($145,474) $8,798 $16,975
========= ========= ========= =========
Net Income (Loss)
per Partnership Unit ($15.46) ($20.78) $1.26 $2.43
========= ========= ========= =========
Distribution to Limited Partners
per Partnership Unit $7.50 $15.00 $45.00 $48.00
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Statement of Partners' Equity
For the Six Months Ended March 31, 1998 and 1997
3/31/98 3/31/97
--------- ---------
General Partners:
Balance, beginning of year $ 49,493 $ 47,359
Net income (loss) (1,469) 171
--------- ---------
Balance, End of period 48,024 47,530
--------- ---------
Limited Partners:
Balance, beginning of year 909,477 1,121,712
Net income (loss) (145,474) 16,975
Distributions to Limited Partners (105,000) (336,000)
--------- ---------
Balance, End of Period 659,003 802,687
--------- ---------
Total Partners' Equity $ 707,027 $ 850,217
========= =========
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Statement of Cash Flows
For the Six Months Ended March 31, 1998 and 1997
3/31/98 3/31/97
--------- ---------
Cash Flows from Operating Activities:
Received from motel revenues $ 392,802 $ 396,925
Expended for motel operations and
general and administrative expenses (454,649) (364,391)
Interest received 6,812 9,894
--------- ---------
Net Cash Provided (Used) by Operating Activities (55,035) 42,428
--------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (6,391) (14,695)
Proceeds from sale of land - 500
--------- ---------
Net Cash Provided (Used) by Investing Activities (6,391) (14,195)
--------- ---------
Cash Flows from Financing Activities:
Distributions to limited partners (105,000) (336,000)
--------- ---------
Net Cash Provided (Used) by Financing Activities (105,000) (336,000)
--------- ---------
Net Decrease in Cash and Temporary Investments (166,426) (307,767)
Cash and Temporary Investments:
Beginning of period 459,098 614,405
--------- ---------
End of period $ 292,672 $ 306,638
========= =========
Reconciliation of Net Income (Loss) to Net Cash Provided (Used) by
Operating Activities:
Net Income (Loss) $ (146,943) $ 17,146
--------- ---------
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 43,294 44,654
(Gain) loss on disposition of property and equipment 825 331
(Increase) decrease in accounts receivable 5,942 (7,397)
(Increase) decrease in prepaid expenses 5,567 16,606
(Increase) decrease in other assets - (7,143)
Increase (decrease) in accounts payable 36,280 (21,769)
--------- ---------
Total Adjustments 91,908 25,282
--------- ---------
Net Cash Provided (Used) by Operating Activities $ (55,035) $ 42,428
========= =========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Six Months Ended March 31, 1998 and 1997
Note 1:
The attached interim financial statements include all adjustments which are, in
the opinion of Management, necessary to a fair statement of the results for the
period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended September 30, 1997 for a complete
disclosure of significant accounting policies and Practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid to the General Partners or affiliates for the
period.
Franchise Fees $ 7,594
Upon the sale of the Ontario Motel property in February, 1990, management felt
that the payment of the property management fees and partnership management fees
became remote. Therefore, no property management fees or partnership management
fees have been accrued.
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods Reported:
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
3/31/98 3/31/98 3/31/97 3/31/97
--------- --------- --------- ---------
Salaries and related costs $ 54,698 $ 110,413 $ 48,218 $ 96,968
Rent 25,194 50,388 23,349 46,713
Franchise and advertising fees 8,924 18,985 9,536 19,793
Utilities 17,549 35,018 16,056 32,719
Allocated costs,
Mainly indirect salaries 24,881 51,718 22,055 46,602
Replacements and renovations 5,260 16,371 1,538 5,278
Other operating expenses 39,924 85,279 38,267 69,469
--------- --------- --------- ---------
Total motel operating expenses $ 176,430 $ 368,172 $ 159,019 $ 317,542
========= ========= ========= =========
The following additional material contingencies are required to be restated in
interim reports under Federal securities law: None.
6
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
MARCH 31, 1998
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Partnership's current assets of $308,117 exceeded its
current liabilities of $145,086 thereby providing an operating reserve of
$163,031. The Partnership distributed $280,000 in accumulated reserves as a
special distribution in March 1997. The normal quarterly distribution is
expected to be around $7.50 per unit.
The Partnership has equity in its Santa Rosa motel that could provide security
for a loan against the property. The total annual cash flow for the Santa Rosa
property has been positive in recent years. This annual positive cash flow would
support a modest loan.
The Partnership has no material commitments for capital expenditures.
Expenditures for replacements and renovations during the first six months of the
fiscal year which will end on September 30, 1998 were $22,761 or 6.0% of room
revenues. Included in these expenditures was $7,995 for exterior painting,
$6,521 for guest room carpet and vinyl, $3,899 for a replacement lamps and
$1,919 for replacement televisions. During the fiscal year ending September 30,
1998, the Partnership anticipates parking lot repairs to be paid from the cash
reserves.
RESULTS OF OPERATIONS
The following is a comparison of operating results for the six month periods
ended March 31, 1998 and March 31, 1997.
Total revenues decreased $20,544 or 5.0% during the first six months of fiscal
year ending September 30, 1998 as compared to the corresponding period of the
previous fiscal year. Guest room revenue decreased $16,066 or 4.1% during the
period covered by this report as compared to the previous fiscal year. The
Partnership's motel experienced a decrease in its occupancy rate from 52.8% in
the previous fiscal year compared to 45.6% in the current fiscal year. This
performance decrease was partially offset by an increase in average daily room
rate from $41.12 in the corresponding six month period of the previous fiscal
year as compared to $45.71 during the six month period ended March 31, 1998. The
motel experienced decreased occupancy in the leisure and corporate market
segments with partially offsetting improved occupancy in the discount segment.
Total expenses for the six month period ended March 31, 1998 increased $143,545
or 36.2% from those incurred in the corresponding period of the previous fiscal
year. The increased expenditures are due primarily to increases in the minimum
wage laws and to legal, appraisal and other costs associated with the potential
liquidation of the partnership.
7
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
MARCH 31, 1997 (Continued)
FUTURE TRENDS
In the previous fiscal year ended September 30, 1997, the Santa Rosa lodging
market recovered after its poor performance over the previous three years. The
General Partners expect the motel to achieve guest room rental income at no more
than that received during the previous fiscal year. The Partnership's economic
performance will be dependent on the trends in the Santa Rosa and nearby markets
on the Highway 101 corridor. The Partnership's expenses are subject to cost
inflation.
As discussed in more detail in the following section labeled "Legal
Proceedings," the General Partners have agreed to offer the motels for sale and
to present any offer that equal or exceeds 75% of the appraised value for the
approval of the limited partners.
In the opinion of management, these financial statements reflect all adjustments
which were necessary to a fair statement of results for the interim periods
presented. All adjustments are of a normal recurring nature.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 27, 1997 a complaint was filed in the United States District Court,
Eastern District of California by the registrant, the Managing General Partner,
and four other limited partnerships (together with the registrant, the
"Partnerships") as to which the Managing General Partner serves as general
partner (i.e., Super 8 Motels, Ltd., Super 8 Motels III, Ltd., Super 8 Economy
Lodging IV, Ltd. and Famous Host Lodging V, L.P.), as plaintiffs. The complaint
named as defendants Everest/Madison Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties, LLC, Everest Partners, LLC, Everest Properties II, LLC,
Everest Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre
Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron,
Ronald J. Kravit, and Stephen P. Enquist ( the "Everest Defendants"). The
factual basis underlying the plaintiffs' causes of actions pertained to tender
offers directed by certain of the defendants to limited partners of the
Partnerships, and to indications of interest made by certain of the defendants
in purchasing the property of the Partnerships. The complaint requested the
following relief: (i) a declaration that each of the defendants had violated
Sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations promulgated by the Securities and
Exchange Commission thereunder; (ii) a declaration that certain of the
defendants had violated Section 15(a) of the Exchange Act and the rules and
regulations thereunder; (iii) an order permanently enjoining the defendants from
(a) soliciting tenders of or accepting for purchase securities of the
Partnerships, (b) exercising any voting rights attendant to the securities
already acquired, (c) soliciting proxies, and (d) violating Sections 13 or 14 of
the Exchange Act or the rules and regulations promulgated thereunder; (iv) an
order enjoining certain of the defendants from violating Section 15(a) of the
Exchange Act and the rules and regulations promulgated thereunder; (v) an order
directing certain of the defendants to offer to each person who sold securities
to such defendants the right to rescind such sale; and (vi) a declaration that
the Partnerships need not provide to the defendants a list of limited partners
in the Partnerships or any other information respecting the Partnerships which
is not publicly available.
On October 28, 1997 a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC, as plaintiffs, against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnerships, as
nominal defendants. The factual basis underlying the causes of action pertained
to the receipt by the defendants of franchise fees and reimbursement of
expenses, the indications of interest made by the plaintiffs in purchasing the
properties of the nominal defendants, and the alleged refusal of the defendants
to provide information required by the terms of the Partnerships' partnership
agreements and California law. The complaint requested the following relief: (i)
a declaration that the action has a proper derivative action; (ii) an order
requiring the defendants to discharge their fiduciary duties to the Partnerships
and to enjoin them from breaching their fiduciary duties; (iii) disgorgement of
certain profits; (iv) appointment of a receiver; and (v) an award for damages in
an amount to be determined.
9
<PAGE>
PART II. OTHER INFORMATION (Continued)
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, among other things, the General Partner has agreed to proceed with
the marketing for sale of the properties of the Partnerships, if by June 30,
1998, it receives an offer to purchase one or more properties for a cash price
equal to 75% or more of the appraised value. In addition, the General Partner
has agreed to submit the offer for approval to the limited partners as required
by the partnership agreements and applicable law. The General Partner has also
agreed that upon the sale of one or more properties, to distribute promptly the
proceeds of the sale after payment of payables and retention of reserves to pay
anticipated expenses. The Everest Defendants agreed not to generally solicit the
acquisition of any additional units of the Partnerships without first filing
necessary documents with the SEC. Under the terms of the settlement agreement,
the Partnerships have agreed to reimburse the Everest Defendants for certain
costs not to exceed $60,000, to be allocated among the Partnerships. Of this
amount, the Partnership will pay approximately $12,000 during the year covered
by this report.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matter to the Vote of Security Holders
None
Item 5. Other Information
See Notes to Financial Statements
Item 6. Exhibits and Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUPER 8 MOTELS II, Ltd.
4-30-98 By /S/ Philip B. Grotewohl
------- -------------------------
Date Philip B. Grotewohl,
Chairman of Grotewohl
Management Services, Inc.,
Managing General Partner
4-30-98 By /S/ Philip B. Grotewohl
------- -------------------------
Date Philip B. Grotewohl,
Chief executive officer,
chief financial officer,
chief accounting officer
and sole director of
Grotewohl Management
Services, Inc., Managing
General Partner
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 292,672
<SECURITIES> 0
<RECEIVABLES> 11,995
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 308,117
<PP&E> 2,407,627
<DEPRECIATION> 1,874,449
<TOTAL-ASSETS> 852,113
<CURRENT-LIABILITIES> 145,086
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 707,027
<TOTAL-LIABILITY-AND-EQUITY> 852,113
<SALES> 385,685
<TOTAL-REVENUES> 393,672
<CGS> 368,172
<TOTAL-COSTS> 368,172
<OTHER-EXPENSES> 172,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (146,943)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,943)
<EPS-PRIMARY> (20.78)
<EPS-DILUTED> (20.78)
</TABLE>
