Casa Munras Hotel Partners L P 10QSB 2004 Q3 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

[X] Quarterly report under Section 13 of 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

[  ] Transition report under Section 13 of 15(d) of the Exchange Act

For the transition period from                   to                   

Commission file number 0-8901

CASA MUNRAS HOTEL PARTNERS, L.P.

(Exact name of small business issuer as specified in its charter)

California
(State or other jurisdiction of
incorporation or organization) 95-3235634
(I.R.S. Employer
Identification No.)

8885 Rio San Diego Drive, Suite 220, San Diego, California 92108
(Address of principal executive offices)

(619) 297-4040
(Issuer’s telephone number, including Area Code)

     Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [  ]

     Transitional Small Business Disclosure Format: Yes [  ] No [X]

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
	Item 1. Financial Statements
		BALANCE SHEETS
		STATEMENTS OF OPERATIONS
		STATEMENTS OF CASH FLOWS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Controls and Procedures
PART II – OTHER INFORMATION
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT 31
EXHIBIT 32

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

          The accompanying unaudited financial statements of Casa Munras Hotel Partners, L.P. (the “Partnership”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, these statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the General Partner of the Registrant, all adjustments necessary for a fair presentation have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2003 and should be read in connection therewith. The results of operations for the three and nine-month period ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year.

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CASA MUNRAS HOTEL PARTNERS, L.P.
(A Limited Partnership)

BALANCE SHEETS

	September 30,			December 31,
	2004			2003
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	48,300		$	38,611
Accounts receivable		199,510			34,996
Food and beverage inventories		20,766			19,346
Prepaid expenses		57,724			38,290
Total current assets		326,300			131,243
LAND, PROPERTY AND EQUIPMENT — at cost:
Building and improvements		6,399,076			6,541,528
Hotel furnishings and equipment		1,335,283			2,391,079
Restaurant furnishings and equipment		113,620			136,914
Less accumulated depreciation		(4,947,554	)		(6,110,497	)
		2,900,425			2,959,024
Land		700,000			700,000
Land, property and equipment — net		3,600,425			3,659,024
OTHER ASSETS:
Liquor license		40,000			40,000
Loan commitment fees — net		87,918			105,495
Escrow impound accounts		327,349			278,120
Total other assets		455,267			423,615
TOTAL	$	4,381,992		$	4,213,882
LIABILITIES AND PARTNERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable — trade	$	118,576		$	82,362
Accounts payable — related parties		163,403			110,100
Accounts payable — incentive management fees		91,918			—
Accrued salaries and wages		18,637			47,437
Accrued room tax		33,773			27,214
Accrued other		53,310			8,731
Current portion of long-term debt		155,203			146,521
Total current liabilities		634,820			422,365
LONG-TERM DEBT		6,103,496			6,221,008
Total liabilities		6,738,316			6,643,373
PARTNERS’ DEFICIT:
General Partner (45 units issued and outstanding)		(237,069	)		(237,801	)
Limited Partners (4,455 units issued and outstanding)		(2,119,255	)		(2,191,690	)
Total partners’ deficit		(2,356,324	)		(2,429,491	)
TOTAL	$	4,381,992		$	4,213,882

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CASA MUNRAS HOTEL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
REVENUES:
Room	$	1,228,761	$	1,222,911	$	2,598,873	$	2,561,689
Food and beverage		164,514		190,444		454,330		507,519
Lease		28,079		27,018		84,329		78,664
Other		10,026		4,102		19,771		12,441
Telephone		4,901		7,556		13,168		18,526
Total		1,436,281		1,452,031		3,170,471		3,178,839
OPERATING EXPENSES:
Rooms		326,953		315,655		795,655		835,287
Food and beverage		134,843		175,654		411,344		476,659
Interest		120,955		123,687		364,961		373,002
Administrative and general		115,347		123,767		322,531		322,065
Marketing		78,062		107,164		250,107		272,129
Management fees		123,641		118,578		218,199		203,374
Repairs and maintenance		71,186		59,968		202,964		206,763
Depreciation and amortization		59,859		76,359		187,092		229,077
Energy cost		44,439		48,809		135,584		136,878
Insurance		27,012		24,134		78,217		73,976
Property taxes		22,593		21,967		62,219		59,913
Partnership admin. and professional fees		6,469		15,866		60,438		58,539
Telephone		2,197		3,566		7,993		9,970
Total (including reimbursed costs and payments for services to related parties of $232,033 and $240,253 and $700,402 and $670,299 for the three and nine months ended September 30, 2004 and 2003, respectively)		1,133,556		1,215,174		3,097,304		3,257,632
NET INCOME (LOSS)	$	302,725	$	236,857	$	73,167	$	(78,793	)

Continued

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CASA MUNRAS HOTEL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
ALLOCATION OF NET INCOME (LOSS):
General Partner (45 units outstanding)	$	3,027	$	2,369	$	732	$	(788	)
Limited Partners (4,455 units outstanding)		299,698		234,488		72,435		(78,005	)
Total	$	302,725	$	236,857	$	73,167	$	(78,793	)
DISTRIBUTIONS TO PARTNERS	$	—	$	—	$	—	$	—
PER UNIT INFORMATION:
(based upon 4,500 total units outstanding):
Net income (loss)	$	67.27	$	52.63	$	16.26	$	(17.51	)
Distributions	$	—	$	—	$	—	$	—

Concluded

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CASA MUNRAS HOTEL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)

	2004			2003
OPERATING ACTIVITIES:
Net income (loss)	$	73,167		$	(78,793	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		187,092			229,077
Change in assets and liabilities:
Accounts receivable		(164,514	)		(61,558	)
Food and beverage inventories		(1,420	)		776
Prepaid expenses		(19,434	)		(3,975	)
Accounts payable and accrued expenses		203,773			(36,078	)
Net cash provided by operating activities		278,664			49,449
INVESTING ACTIVITIES:
Acquisition of property and equipment		(110,916	)		(103,219	)
Impound escrow accounts		(49,229	)		73,657
Net cash used in investing activities		(160,145	)		(29,562	)
FINANCING ACTIVITIES:
Payment of long-term debt		(108,830	)		(100,789	)
NET INCREASE (DECREASE) IN CASH		9,689			(80,902	)
CASH AT BEGINNING OF PERIOD		38,611			219,528
CASH AT END OF PERIOD	$	48,300		$	138,626
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest	$	364,961		$	373,002
Cash paid during the period for taxes	$	1,600		$	1,600

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward Looking Statements

          The Partnership may from time to time make written or oral “forward-looking statements”, including statements contained in the Partnership’s filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-QSB and the exhibits hereto and thereto), in its reports to Partners and in other communications by the Partnership, which are made in good faith by the Partnership pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

          These forward-looking statements include statements with respect to the Partnership’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Partnership’s control). The words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause the Partnership’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements:

• The strength of the United States economy in general and the strength of the local economy in which the Partnership conducts its operations;

• The timely development of and acceptance of new services of the Partnership and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services;

• The willingness of users to substitute competitors’ services for the Partnership’s services;

• The impact of changes in laws and regulations (including laws concerning taxes and securities);

• Technology changes;

• Changes in consumer spending and saving habits;

• Our ability to pay down our debt;

• Our ability to hire and retain qualified personnel; and

• The success of the Partnership at managing the risks involved in the foregoing.

          The foregoing list of important factors is not exclusive. Additional discussion of factors affecting the Partnership’s business is contained in the Partnership’s periodic filings with the Securities and Exchange Commission. The Partnership does not undertake and expressly disclaims any intent or obligation, to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Partnership.

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Results of Operations for the Three and Nine Months Ended September 30, 2004 and 2003

          For the three and nine months ended September 30, 2004 as compared to the same period of the prior year, occupancy rates at the Registrant’s hotel were 65% and 51% versus 68% and 52% and average room rates were $124.46 and $111.29 versus $117.96 and $108.98, resulting in an increase in room revenue totaling $5,850 and $37,184 for the three and nine months ended September 30, 2004 as compared to the comparable period in 2003. Food and beverage revenues decreased $25,930 and $53,189 for the three and nine months ended September 30, 2004 as compared to 2003.

          The decrease in occupancy percentages for 2004 and 2003 are primarily due to reduced summer leisure and business travel, but at higher average room rates. Occupancy also continues to be impacted by the continued economic recession and resulting intensified competition among hotels in the San Francisco/Monterey Bay area. This area of the country has been more severely impacted by the effects of September 11, 2001 and reduced foreign travel than other parts of the United States. Additionally, the effects of the dot.com slowdown, for which the region is noted, have reduced business travel to the region and have resulted in job cutbacks in the area resulting in reduced business travel.

          Food and beverage revenues are primarily influenced by the number of hotel guests. Management of the hotel facility, effective June 2004, has reduced the hours of operations of the restaurant and lounge located at the hotel. The adjustments were made as guests of the hotel have increasingly been using the large number of restaurant and lounge facilities available to guests in the Monterey Bay area, whose primary business is food and beverage operations. The reduced hours of operations have resulted in decreased revenues, but have had positive impact on food and beverage department profitability due to reduced operating costs. Food and beverage operating expenses totaled $134,843 and $411,344 as compared to $175,654 and $476,659 for the three and nine months ended September 30, 2004 as compared to 2003 or a decrease of $40,811 and $65,315, respectively.

          Operating expenses totaled $1,133,556 and $3,097,304 and $1,215,174 and $3,257,632 for the three and nine months ended September 30, 2004 and 2003, respectively. The principal reasons for the decrease in operating expenses in 2004 as compared to 2003 were lower food and beverage operating expenses due to decreased food and beverage covers served in the restaurant and lounge which expenses are directly affected by covers served and reduced food and beverage operating expenses due to reduced hours of operations in the third quarter 2003 as compared to 2003 and reduced depreciation and amortization in 2004 as compared to 2003.

Recent Accounting Pronouncements

          In 2003, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation Transition and Disclosure,” SFAS No. 149, “Amendment of Statement

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133 on Derivative Instruments and Hedging Activities,” and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” The Partnership’s adoption of these SFAS’s in 2003 did not have any impact on the financial condition, results of operations or cash flows.

               In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statement,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies, as amended, to special purpose interest entities created after December 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first year or interim period beginning after June 15, 2003. The adoption of the provisions of FIN 46 had no impact on the Partnership’s financial conditions, results of operations or cash flows.

Liquidity and Capital Resources

          The Registrant’s primary source of cash is revenues from the operation and leasing of the hotel facility. The Registrant’s primary uses of cash are to fund hotel operating expenses, payments on the first mortgage, renovations and to pay distributions to Partners.

          During the nine months ended September 30, 2004, the Registrant provided $278,664 in net cash flow for operating activities. Reductions in long-term debt totaled $108,830 and impound escrow accounts increased $49,229 during the first nine months of 2004.

          Acquisition of property and equipment during the nine months ended September 30, 2004 totaled $110,916. It is estimated that approximately $50,000 more will be expended in the remainder of calendar 2004 for ongoing renovations of existing assets.

          There were no distributions accrued in the fourth quarter of 2003. No distributions were declared or paid for the nine months ended September 30, 2004.

          During the nine months ended September 30, 2004 and 2003 and the years ended December 31, 2003 and 2002, the Partnership had net income (losses) of $73,167 and ($78,793) and ($315,650) and ($283,676), respectively. As of September 30, 2004, December 31, 2003 and 2002, partners’ deficit totaled $2,356,324 and $2,429,491, respectively.

          The operations of the Partnership for the three and nine months ended September 30, 2004 continued to be adversely affected for the following reasons:

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• The national and regional negative impact on the technology, computer and dot.com industry, which industries represent a substantial portion of businesses in the San Francisco/Monterey Bay area.

• The negative impact on the world, national and regional economies due to the uncertain events of the war with Iraq.

• The negative impact on senior citizen travel due to the significant downturn in the international and United States stock markets, resulting in substantially reduced stock portfolios.

          While all of the above factors have negatively impacted the Casa Munras, management is of the opinion that the Partnership’s cash requirements for 2004 will be met by cash flow generated from operations. Additionally, while the General Partner has no obligation to fund any cash flow deficiencies of the Partnership as described in Note 1 of the Notes to Financial Statements to the Registrant’s Form 10-KSB for the calendar year ended December 31, 2003, the General Partner, via cash advances or via advances from Westland, has agreed to provide continuing support to the Partnership for the twelve month period ending December 31, 2004 should cash flow from operations not be sufficient to meet the Partnership’s obligations.

          The General Partner intends, to the extent cash from operations is available and such distributions are permitted under the first mortgage payable, to continue making cash distributions to the Partners at amounts approximating the Registrant’s net income.

Item 3.  Controls and Procedures

          The Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Partnership’s reports filed pursuant to the Securities Exchange Act of 1934 are recorded, processed, and summarized and reported within the time periods specified in the rules and forms promulgated under such Act, and that such information is accumulated and communicated to the Partnership’s management, including the Managing Member of the General Partner who performs the functions of the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

          During the 90-day period prior to the filing date of this report, the Managing Member of the General Partner who performs the functions of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based upon, and as of the date of that evaluation, the Managing Member of the General Partner who performs the functions of the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Registrant files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

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          There have been no significant changes in the Registrant’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Registrant carried out its evaluation. There were no significant deficiencies or material weakness identified in the evaluation and therefore, no corrective actions were taken.

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PART II – OTHER INFORMATION

Item 5.  Other Information

          The Managing Member of the General Partner who performs the functions of the Chief Executive Officer and Chief Financial Officer of the Registrant have certified that the Quarterly Report of the Registrant on Form 10-QSB for the quarterly period ended September 30, 2004 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. (ss) 78m or (ss) 78o(d)) and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits:

31	Certification pursuant to Rule 13a-14(a)
32	Certification pursuant to Rule 13a-14(b)

(b) Reports on Form 8-K:

None

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SIGNATURE

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CASA MUNRAS HOTEL PARTNERS, L.P.
CASA MUNRAS GP, LLC General Partner
By:	/s/ JOHN F. ROTHMAN
	John F. Rothman, Managing Member

Dated: November 10, 2004

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