<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number 0-14956
VMS National Hotel Partners
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3370590
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
630 Dundee Road, Suite 220, Northbrook, Illinois 60062
- ------------------------------------------------ ----------------------
(Address of principal executive offices) (Zip Code)
(847)714-9600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
-------- ------
<PAGE> 2
ITEM 1. PART I
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 400,644 $ 475,668
------------ ------------
Total assets $ 400,644 $ 475,668
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES
Other accounts payable and accrued expenses:
Affiliates $ 12,236 $ 1,485
Nonaffiliates 35,000 41,591
------------ ------------
Total liabilities 47,236 43,076
------------ ------------
Partners' capital (deficit)
General Partners (688,750) (687,880)
Limited Partners:
Portfolio I - 514 Interests 645,525 708,004
Portfolio II - 135 Interests 396,633 412,468
------------ ------------
Total partners' capital (deficit) 353,408 432,592
------------ ------------
Total liabilities and partners' capital (deficit) $ 400,644 $ 475,668
============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-2-
<PAGE> 3
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PARTNERSHIP OPERATIONS 1998 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Interest on temporary investments 5,445 9,144
------------------ ------------------
Total partnership revenues 5,445 9,144
------------------ ------------------
Expenses:
Managing General Partners' fees 50,000 50,000
Professional, consulting and other fees:
Affiliates 24,485 17,096
Nonaffiliates 10,144 29,069
------------------ ------------------
Total partnership expenses 84,629 96,165
------------------ ------------------
Net loss $ (79,184) $ (87,021)
================== ==================
Net loss allocated to General Partners $ (870) $ (957)
================== ==================
Net loss allocated to Limited Partners $ (78,314) $ (86,064)
================== ==================
Net loss per Limited Partner interest
Portfolio I (514 Interests) $ (122) $ (134)
================== ==================
Portfolio II (135 Interests) $ (117) $ (129)
================== ==================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-3-
<PAGE> 4
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
VMS National
Hotel
Partners VMS National Hotel Portfolio I
----------- --------------------------------------------------------------------
Limited Partners
------------------------------------------
General General Subscription
Partners Partners Total Notes Net Total
------------ ------------ -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Partners' capital (deficit)
at January 1, 1998 $ (76,038) $ (484,947) $ 1,867,891 $(1,159,887) $ 708,004 $ 223,057
Net loss for the period $ (79) $ (631) $ (62,479) $ --- $ (62,479) $ (63,110)
----------- ----------- ------------ ----------- ---------- ---------
Partners' capital
(deficit)
at March 31, 1998 $ (76,117) $ (485,578) $ 1,805,412 $(1,159,887) $ 645,525 $ 159,947
=========== =========== ============ =========== ========== ========
<CAPTION>
VMS National Hotel Portfolio II
--------------------------------------------------------------------
Limited Partners
------------------------------------------
General Subscription Combined
Partners Total Notes Net Total Total
------------ ------------ -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Partners' capital (deficit)
at January 1, 1998 $ (126,895) $ 589,738 $ (177,270) $ 412,468 $ 285,573 $ 432,592
Net loss for the period $ (160) $ (15,835) $ --- (15,835) $ (15,995) (79,184)
------------ ----------- ------------ ----------- ---------- ---------
Partners' capital
(deficit)
at March 31, 1998 $ (127,055) $ 573,903 $ (177,270) $ 396,633 $ 269,578 $ 353,408
============ =========== ============ =========== ========== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-4-
<PAGE> 5
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (79,184) $ (87,021)
Adjustments to reconcile net loss to net
cash used in operating activities:
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and
accrued expenses 4,160 (90,275)
----------- -----------
Net cash used in operating activities and net
decrease in cash and cash equivalents (75,024) (177,296)
Cash and cash equivalents at beginning of period 475,668 847,399
----------- -----------
Cash and cash equivalents at end of period $ 400,644 $ 670,103
=========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-5-
<PAGE> 6
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. BASIS OF ACCOUNTING
The accompanying unaudited combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information, with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of the General Partner, all
adjustments necessary for fair presentation of the results of operations
for the three months ended March 31, 1998 and 1997, have been made to the
financial information furnished herein. For further information refer to
the combined financial statements and footnotes thereto included in the
Partnerships' annual report on Form 10-K for the year ended December 31,
1997.
On May 10, 1996, the Operating Partnership and affiliated sub-partnerships
filed for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Northern District of Illinois.
This filing excludes Partnership I and Partnership II. Pursuant to the
Plan of Reorganization, the deeds to the remaining hotels were transferred
to the senior lender on September 26, 1996 in consideration for the
cancellation of the senior indebtedness (the "Transfer"). As a result of
the Transfer, the Partnerships no longer have a source of funds. A cash
reserve is being maintained for payment of the Partnerships' obligations
and contingencies.
2. RELATED PARTY TRANSACTIONS
Under the terms of the various Partnership Agreements, the Managing
General Partner and its affiliates are to provide management, financing
and other services to Portfolio I, Portfolio II and the Operating
Partnership in return for certain fees as follows:
<TABLE>
<CAPTION>
Fees paid and payable for the three months ended
March 31, 1998
Paid Payable
<S <C> <C>
Managing General Partner
Salary (1) $50,000 $ ---
Other services and costs (2) 13,734 12,236
---------- --------
$63,734 $12,236
========== ========
</TABLE>
(1) The Partnership Agreements specify the dollar amount of this
fee. The various Partnerships are obligated to incur in the
aggregate, $50,000 per year of salary fees in the future.
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<PAGE> 7
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
(2) These fees represent reimbursement for partnership accounting,
printing, legal department, data processing and travel and
communication expenses incurred by affiliates for the Managing
General Partner for operation of the Partnerships.
3. LITIGATION
Certain affiliates of the Partnerships, including the Managing General
Partner and certain officers and directors of such affiliates are parties
to certain pending legal proceedings as described in Form 10-K for the
year ended December 31, 1997 filed as of March 31, 1998 and certain other
proceedings. The adverse outcome of any one or more legal proceedings
against any one of the affiliates which provides financial support or
services to the Partnerships could have a materially adverse effect on the
present and future operations of the Partnerships. There can be no
assurance as to the outcome of any of the legal proceedings.
-7-
<PAGE> 8
PART I
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contain certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect management's current views with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainty.
On October 28, 1985, VMS National Hotel Portfolio I and II (the Partnerships)
commenced a private offering of $97,350,000 ("Offering") in Limited Partnership
interests pursuant to their respective Private Placement Memorandums. A total
of 649 units were offered and sold at $150,000 per unit. Subscribers for the
Units had the option to contribute partially in cash upon subscription with the
remaining purchase price payable in annual installments over a five year period
or on a basis other than the foregoing option, which was acceptable to the
Managing General Partner in its sole discretion. The Limited Partner selecting
to pay in the remaining purchase price of their units over a five year period
executed and delivered to the Partnerships full recourse notes payable. VMS
National Hotel Partners (the Operating Partnership), with proceeds of the
Offering and Debt borrowing, purchased 24 hotels from Holiday Inns, Inc.
On May 10, 1996, the Operating Partnership and affiliated sub-partnerships filed
for relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Northern District of Illinois. This filing excluded
Partnership I and Partnership II. Pursuant to the Plan of Reorganization, the
deeds to the remaining hotels were transferred to the senior lender on
September 26, 1996 in consideration for the cancellation of the related
indebtedness (the "Transfer").
In the short term, the Partnerships will continue to maintain a cash reserve for
the payment of the remaining Partnerships' obligations and contingent
liabilities. In the long term, the Partnerships will wind-up their affairs and
will distribute any remaining Partnerships' funds to their Limited Partners
after paying all Partnerships' expenses and the Partnerships will be dissolved
at that time. It is anticipated that the Partnerships will be dissolved sometime
within the next two years.
In the year 2000, many existing computer programs that use only two digits
(rather than four) to identify a year in the date field could fail or create
erroneous results if not corrected. This computer program flaw is expected to
affect virtually all companies and organizations. The Partnerships cannot
quantify the potential costs and uncertainties associated with this computer
program flaw at this time, but does not anticipate that the effect of this
computer program flaw on the operations of the Partnerships' will be
significant. However, the Partnerships may be required to spend time and
monetary resources addressing any necessary computer program changes.
RESULTS OF OPERATIONS
Partnership revenues for the three months ended March 31, 1998 decreased by
$3,699 from the same period in 1997. The decrease is due in total to the
reduction in interest income attributed to
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<PAGE> 9
PART I
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
the reduction in the Partnership's cash and cash equivalents.
Partnership expenses for the three months ended March 31, 1998 decreased by
$11,536 from the same period in 1997. The decrease is due to the reduction in
professional, consulting and other fees due to the reduction in the
Partnerships' activities which is the result of the Transfer.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Transfer in 1996, the Partnerships no longer have a source
of funds. A cash reserve is being maintained for payment of the Partnerships'
obligations and contingencies.
As shown on the Combined Statements of Cash Flows, cash and cash equivalents
decreased $75,024 from December 31, 1997 to March 31, 1998. The decrease is
primarily the result of payments for Partnership obligations.
In the short term, the Partnerships will continue to maintain a cash reserve for
the payment of the remaining Partnerships' obligations and contingent
liabilities. In the long term, the Partnerships will wind-up their affairs and
will distribute any remaining Partnership' funds to their Limited Partners
after paying all Partnerships' expenses and the Partnerships will be dissolved
at that time. It is anticipated that the Partnerships will be dissolved
sometime within the next two years.
RECENT DEVELOPMENTS - VMS REALTY PARTNERS AND AFFILIATES
There have been no material developments or changes from the Recent Developments
- - VMS Realty Partners and Affiliates disclosed in Part I, Item 1 of the
Partnerships' report on Form 10-K for the year ended December 31, 1997.
-9-
<PAGE> 10
PART II
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
1. LEGAL PROCEEDINGS
There have been no material developments or changes from Part I, Item 3 of the
Partnerships' report on Form 10-K for the year ended December 31, 1997.
ITEMS 2 THROUGH 4
Items 2 through 6 are omitted because of the absence of conditions under which
they are required.
-10-
<PAGE> 11
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VMS National Hotel Partners
(Registrant)
By: VMS National Hotel Portfolio I
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
By: /s/ Joel A. Stone Date: May 11, 1998
--------------------------------------------
Joel A. Stone, President
By: /s/ Thomas A. Gatti Date: May 11, 1998
--------------------------------------------
Thomas A. Gatti, Senior Vice President
and Principal Accounting Officer
By: VMS Realty Investment, Ltd.
Executive Committee
By: /s/ Joel A. Stone Date: May 11, 1998
--------------------------------------------
Joel A. Stone, Executive Committee Member
By: /s/ Joel A. Stone Date: May 11, 1998
--------------------------------------------
Joel A. Stone, as attorney in fact for
Peter R. Morris, Executive Committee Member
By: /s/ David Allen Date: May 11, 1998
--------------------------------------------
David Allen, as attorney in fact for Robert
D. Van Kampen, Executive Committee Member
-11-
<PAGE> 12
SIGNATURES (Continued)
By: VMS National Hotel Portfolio II
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
By: /s/ Joel A. Stone Date: May 11, 1998
--------------------------------------------
Joel A. Stone, President
By: /s/ Thomas A. Gatti Date: May 11, 1998
--------------------------------------------
Thomas A. Gatti, Senior Vice President
and Principal Accounting Officer
By: VMS Realty Investment, Ltd.
Executive Committee
By: /s/ Joel A. Stone Date: May 11, 1998
--------------------------------------------
Joel A. Stone, Executive Committee Member
By: /s/ Joel A. Stone Date: May 11, 1998
--------------------------------------------
Joel A. Stone, as attorney in fact for
Peter R. Morris, Executive Committee Member
By: /s/ David Allen Date: May 11, 1998
--------------------------------------------
David Allen, as attorney in fact for Robert
D. Van Kampen, Executive Committee Member
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VMS NATIONAL
HOTEL PORTFOLIO I, VMS NATIONAL HOTEL PORTFOLIO II, VMS NATIONAL HOTEL PARTNERS
1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 400,644
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 400,644
<CURRENT-LIABILITIES> 47,236
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 353,408
<TOTAL-LIABILITY-AND-EQUITY> 400,644
<SALES> 0
<TOTAL-REVENUES> 5,445
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 84,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (79,184)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (79,184)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79,184)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
