Casa Munras Hotel Partners L P 10QSB 2005 Q3 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

þ Quarterly report under Section 13 of 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2005

o 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	95-3235634
(State or other jurisdiction of incorporation or organization)	(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.       Yesþ Noo

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o

     Transitional Small Business Disclosure Format:       Yeso Noþ

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits
SIGNATURE
EXHIBIT 2.2
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, 2004 and should be read in connection therewith. The results of operations for the three and nine-month period ended September 30, 2005 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,
	2005			2004
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	175,734		$	14,385
Accounts receivable		179,648			84,082
Food and beverage inventories		18,570			20,378
Prepaid expenses		70,741			28,559
Total current assets		444,693			147,404
LAND, PROPERTY AND EQUIPMENT — at cost:
Building and improvements		6,430,119			6,406,728
Hotel furnishings and equipment		1,371,413			1,342,732
Restaurant furnishings and equipment		119,147			115,593
Less accumulated depreciation		(5,194,601	)		(5,018,201	)
		2,726,078			2,846,852
Land		700,000			700,000
Land, property and equipment — net		3,426,078			3,546,852
OTHER ASSETS:
Liquor license		40,000			40,000
Loan commitment fees — net		64,482			82,059
Escrow impound accounts		319,470			295,203
Total other assets		423,952			417,262
TOTAL	$	4,294,723		$	4,111,518
LIABILITIES AND PARTNERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable — trade	$	86,361		$	87,922
Accounts payable — related parties		46,661			188,308
Accounts payable — incentive management fees		208,690			91,663
Accrued salaries and wages		38,954			20,842
Accrued room tax		36,543			31,414
Accrued other		64,872			4,222
Current portion of long-term debt		167,584			158,210
Total current liabilities		649,665			582,581
LONG-TERM DEBT		5,935,913			6,062,798
Total liabilities		6,585,578			6,645,379
PARTNERS’ DEFICIT:
General Partner (45 units issued and outstanding)		(236,415	)		(238,845	)
Limited Partners (4,455 units issued and outstanding)		(2,054,440	)		(2,295,016	)
Total partners’ deficit		(2,290,855	)		(2,533,861	)
TOTAL	$	4,294,723		$	4,111,518

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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, 2005 AND 2004
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
REVENUES:
Room	$	1,456,533	$	1,228,761	$	2,911,458	$	2,598,873
Food and beverage		168,503		164,514		441,558		454,330
Lease		28,504		28,079		85,205		84,329
Telephone		3,974		4,901		10,152		13,168
Other		4,474		10,026		15,929		19,771
Total		1,661,988		1,436,281		3,464,302		3,170,471
OPERATING EXPENSES:
Rooms		357,528		326,953		904,588		795,655
Food and beverage		127,760		134,843		369,735		411,344
Interest		118,006		120,955		356,279		364,961
Administrative and general		122,080		115,347		307,115		322,531
Marketing		79,941		78,062		245,656		250,107
Depreciation and amortization		64,659		59,859		193,977		187,092
Repairs and maintenance		69,691		71,186		211,456		202,964
Energy cost		56,492		44,439		158,193		135,584
Management fees		154,122		123,641		254,770		218,199
Insurance		23,845		27,012		72,689		78,217
Partnership admin. and professional fees		13,012		6,469		77,389		60,438
Property taxes		22,285		22,593		61,596		62,219
Telephone		2,726		2,197		7,853		7,993
Total (including reimbursed costs and payments for services to related parties of $277,760 and $232,033 and $782,568 and $700,401 for the three and nine months ended September 30, 2005 and 2004, respectively)		1,212,147		1,133,556		3,221,296		3,097,304
NET INCOME	$	449,841	$	302,725	$	243,006	$	73,167

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, 2005 AND 2004
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
ALLOCATION OF NET INCOME:
General Partner (45 units outstanding)	$	4,498	$	3,027	$	2,430	$	732
Limited Partners (4,455 units outstanding)		445,343		299,698		240,576		72,435
Total	$	449,841	$	302,725	$	243,006	$	73,167
DISTRIBUTIONS TO PARTNERS	$	—	$	—	$	—	$	—
PER UNIT INFORMATION:
(based upon 4,500 total units outstanding):
Net income	$	99.96	$	67.27	$	54.00	$	16.26
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, 2005 AND 2004
(Unaudited)

	2005			2004
OPERATING ACTIVITIES:
Net income	$	243,006		$	73,167
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		193,977			187,092
Change in assets and liabilities:
Accounts receivable		(95,566	)		(164,514	)
Food and beverage inventories		1,808			(1,420	)
Prepaid expenses		(42,182	)		(19,434	)
Accounts payable and accrued expenses		57,710			203,773
Net cash provided by operating activities		358,753			278,664
INVESTING ACTIVITIES:
Acquisition of property and equipment		(55,626	)		(110,916	)
Impound escrow accounts		(24,267	)		(49,229	)
Net cash used in investing activities		(79,893	)		(160,145	)
FINANCING ACTIVITIES:
Payment of long-term debt		(117,511	)		(108,830	)
NET INCREASE IN CASH		161,349			9,689
CASH AT BEGINNING OF PERIOD		14,385			38,611
CASH AT END OF PERIOD	$	175,734		$	48,300
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest	$	356,279		$	364,961
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 ability of the Partnership to complete a sale of the Partnership’s hotel as proposed;

• 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, 2005 and 2004

     For the three and nine months ended September 30, 2005 as compared to the same period of the prior year, occupancy rates at the Registrant’s hotel were 76% and 57% versus 65% and 51% and average room rates were $124.82 and $112.77 versus $124.46 and $111.29, resulting in an increase in room revenue totaling $227,772 and $312,585 for the three and nine months ended September 30, 2005 as compared to the comparable period in 2004. Food and beverage revenues increased (decreased) $3,989 and $(12,772) for the three and nine months ended September 30, 2005 as compared to 2004.

     The increase in occupancy percentages for 2005 as compared to 2004 is the result of increased tour business in 2005 as compared to 2004 and marketing efforts, in particular the impact of regional promotional mailings.

     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 for the first six months ended June 30, 2005 as compared to 2004, but have had positive impact on food and beverage department profitability due to reduced operating costs.

     Operating expenses totaled $1,212,147 and $3,221,296 and $1,133,556 and $3,097,304 for the three and nine months ended September 30, 2005 and 2004, respectively. The principal reasons for the increase in operating expenses in 2005 as compared to 2004 were increased occupancy resulting in increased housekeeping labor and other rooms related expenses, higher energy costs due to increased rates and increased management fees due to increased revenue and profitability partially offset by a decrease in food and beverage expense due to reductions in the hours of operation of the food and beverage operations resulting in reduced labor costs and fewer food and beverage operating expenses due to decreased food and beverage meals served in the restaurant and lounge which expenses are directly affected by meals served.

Recent Accounting Pronouncements

     In 2004 and 2005, the United States Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 151 — “Inventory Costs”, SFAS No. 152 — “Accounting for Real Estate Time Sharing Transactions”, SFAS No. 153 — “Exchange of Nonmonetary Assets” and SFAS No. 154 — “Accounting Changes and Error Corrections.” Adoption of these SFAS’s in calendar 2005 will not have any impact on the Company’s financial condition, results of operations or cash flows.

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Liquidity and Capital Resources

     The Registrant has announced its intention to sell its principal asset, the Casa Munras Garden Hotel (the “Hotel”). The Registrant solicited the consent of its Limited Partners of record as of October 1, 2005 holding a majority in interest of the Partnership’s Units of Limited Partnership to the following proposals:

(i)	to approve the sale by the Partnership (the “Sale”) of the Hotel, to a newly formed affiliate (the “Primary Buyer”) of Larkspur Hotels, LLC, at a purchase price of $13.9 million (less certain adjustments) pursuant to a Purchase Agreement dated as of August 11, 2005 among the Partnership and certain of its affiliates and the Primary Buyer (the “Purchase Agreement”);
(ii)	in the event the Purchase Agreement with the Primary Buyer is terminated for any reason prior to the consummation of the Sale, to approve the Sale of the Hotel instead to Lotus Hospitality, Inc. (“Lotus” or the “Backup Buyer”) as the backup purchaser pursuant to a Conditional Agreement for the Purchase and Sale of Real Estate (the “Conditional Agreement”) dated as of August 15, 2005, at the same price and upon substantially the same terms as those contained in the Purchase Agreement as if Lotus were the Primary Buyer thereunder (except that certain time periods would differ and certain other conforming and minor changes would be made); and
(iii)	upon completion of the Sale to either the Primary Buyer or the Backup Buyer, the liquidation, dissolution and termination of the Partnership and distribution of the Partnership’s assets in accordance with the terms of the Partnership’s Certificate and Agreement of Limited Partnership currently in effect.

     The Limited Partners approved the solicitation as a unified proposal (the “Proposal”). The General Partner expects that the proposed Sale will be completed in November 2005. Upon completion of the Sale of the Hotel, the General Partner intends to proceed to complete the liquidation, dissolution and termination of the Partnership. The Sale is subject to certain conditions, however, so no assurance can be given if or when the Sale will occur. The Sale of the Hotel would result in a change of accounting by the Registrant to the liquidation basis of accounting. Proceeds from the Sale would be used to defease the existing loan on the Property, to pay the costs of the transaction and then for distribution to the Partners.

     Aside from the proposed Sale of the Hotel, the Registrant’s primary source of cash is revenues from the operation and leasing of the hotel facility. The Registrant’s

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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, 2005, the Registrant provided $358,753 in net cash flow for operating activities. Reductions in long-term debt totaled $117,511 and impound escrow accounts increased $24,267 during the first nine months of 2005.

     Acquisition of property and equipment during the nine months ended September 30, 2005 totaled $55,626. It is estimated that minor, if any, amounts of capital will be expended in the remainder of calendar 2005 for ongoing renovations of existing assets due to the pending possible Sale of the property.

     There were no distributions accrued in the fourth quarter of 2004. No distributions were declared for the first, second, or third quarter of 2005.

     Management is of the opinion that the Partnership’s cash requirements for the balance of 2005 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, 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, 2005 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, to restore the program of paying cash distributions to the Partners at amounts approximating the Registrant’s net income, should the Proposal not be consummated.

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

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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.

     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 1. Legal Proceedings

     On November 3, 2005, Casa Munras Hotel, LLC, an affiliate of Larkspur Hotels, LLC, filed a complaint in the Superior Court of the State of California for the County of Monterey alleging breach of contract in connection with a purchase agreement for the sale of the Partnership’s principal asset, the Casa Munras Garden Hotel (the “Hotel”), to the plaintiff. The complaint seeks specific performance of the sale of the Hotel to the plaintiff and includes a lis pendens, as well as unspecified damages. The Partnership believes the plaintiff’s claims are without merit, but, to avoid a costly litigation, the Partnership and the plaintiff have negotiated a resolution of the litigation. The Partnership and the Hotel have negotiated an amendment to the purchase agreement that clarifies the closing date timing and procedures and provides that the plaintiff will deposit the balance of the purchase price for the Hotel into escrow prior to the Partnership committing to the defeasance of the existing loan on the Hotel and the related expenditure of fees. The Partnership has also agreed not to accept additional proposals for competing transactions for the sale of the Hotel. As part of the agreement, the plaintiff has deposited into the escrow for the sale of the Hotel a request for dismissal of the action with prejudice, together with irrevocable instructions to file the request for dismissal of the lawsuit concurrently with the closing of the sale of the Hotel to plaintiff. The plaintiff has also executed a release of its claims. If the sale of the Hotel fails to close, however, the request for dismissal will not be filed and the release will be null and void. In that event, the Partnership would defend the suit vigorously.

Item 4. Submission of Matters to a Vote of Security Holders

     (c) A definitive Consent Solicitation Statement as filed with the Securities and Exchange Commission on October 11, 2005 was circulated to the Partnership’s Limited Partners of record as of October 1, 2005 soliciting the consent of Limited Partners holding a majority in interest of the Partnership’s Units of Limited Partnership (“Units”) to the Sale of the Hotel and subsequent liquidation, dissolution and termination of the Partnership. The proposals, which were voted upon as part of a unified proposal, are as follows:

(i) to approve the sale by the Partnership (the “Sale”) of the Hotel, to a newly formed affiliate (the “Primary Buyer”) of Larkspur Hotels, LLC, at a purchase price of $13.9 million (less certain adjustments) pursuant to a Purchase Agreement dated as of August 11, 2005 among the Partnership and certain of its affiliates and the Primary Buyer (the “Purchase Agreement”);

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(ii)

in the event the Purchase Agreement with the Primary Buyer is terminated for any reason prior to the consummation of the Sale, to approve the Sale of the Hotel instead to Lotus Hospitality, Inc. (“Lotus” or the “Backup Buyer”) as the backup purchaser pursuant to a Conditional Agreement for the Purchase and Sale of Real Estate (the “Conditional Agreement”) dated as of August 15, 2005, at the same price and upon substantially the same terms as those contained in the Purchase Agreement as if Lotus were the Primary Buyer thereunder (except that certain time periods would differ and certain other conforming and minor changes would be made); and

(iii)

upon completion of the Sale to either the Primary Buyer or the Backup Buyer, the liquidation, dissolution and termination of the Partnership and distribution of the Partnership’s assets in accordance with the terms of the Partnership’s Certificate and Agreement of Limited Partnership currently in effect.

The vote in favor of the proposal exceeded majority in interest of the Units, or 2,228 Units of a total of 4,455 Units.

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, 2005 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

          (a) Exhibits:

2.1 Purchase Agreement dated August 11, 2005 among Registrant, Casa Munras GP, LLC, John F. Rothman, Maxine Young and Casa Munras Hotel, LLC.¹

2.2 First Amendment dated November 8, 2005 to Purchase Agreement dated August 11, 2005 among Registrant, Casa Munras

¹ Attached as Exhibit 99.2 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on August 17, 2005 and hereby incorporated by reference herein. Schedules will be provided upon request of the Commission.

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GP, LLC, John F. Rothman, Maxine Young and Casa Munras Hotel, LLC

2.3 Conditional Agreement dated August 15, 2005 for the Purchase and Sale of Real Property between Registrant and Lotus Hospitality, Inc.²

10.1 Please refer to Exhibit 2.1 hereunder.

10.2 Please refer to Exhibit 2.2 hereunder.

10.3 Please refer to Exhibit 2.3 hereunder.

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

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

² Attached as Exhibit 99.3 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on August 17, 2005 and hereby incorporated by reference herein.

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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 11, 2005

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