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 June 30, 1998 Commission File 0-9218
SUPER 8 MOTELS II, LTD
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94 - 2574309
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 J Street
Sacramento, California 95814
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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 __
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
INDEX
Financial Statements: PAGE
Balance Sheet - June 30, 1998 and September 30, 1997 2
Statement of Operations - Nine Months Ended
June 30, 1998 and 1997 3
Statement of Changes in Partners' Equity -
Nine Months Ended June 30, 1998 and 1997 4
Statement of Cash Flows - Nine Months Ended
June 30, 1998 and 1997 5
Notes to Financial Statements 6
Management Discussion and Analysis 7 - 8
Other Information and Signatures 9 - 11
Super 8 Motels II, Ltd.
(A California Limited Partnership)
Balance Sheet
June 30, 1998 and September 30, 1997
6/30/98 9/30/97
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ASSETS
Current Assets:
Cash and temporary investments $ 283,390 $ 459,098
Accounts receivable 4,711 17,937
Prepaid expenses 6,139 9,017
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Total current assets 294,240 486,052
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Property and Equipment:
Capital improvements 34,947 34,947
Buildings 1,845,878 1,845,878
Furniture and equipment 533,444 524,159
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2,414,269 2,404,984
Accumulated depreciation (1,895,924) (1,834,078
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Property and equipment, net 518,345 570,906
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Other Assets: 22,434 10,818
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Total Assets $ 835,019 $ 1,067,776
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LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 94,588 $ 108,806
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Total current liabilities 94,588 108,806
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Total liabilities 94,588 108,806
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Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 48,883 49,493
Limited Partners 691,548 909,477
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Total partners' equity 740,431 958,970
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Total Liabilities and Partners' Equity $ 835,019 $ 1,067,776
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The accompanying notes are an integral part of the financial statements.
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Super 8 Motels II, Ltd.
(A California Limited Partnership)
Statement of Operations
Nine Months Ended June 30, 1998 and 1997
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
6/30/98 6/30/98 6/30/97 6/30/97
---------- ---------- ---------- ----------
Income:
Guest room $ 229,389 $ 608,806 $ 267,559 $ 663,042
Telephone and vending 2,437 8,705 3,379 10,931
Interest 2,293 9,090 2,856 12,907
Other 808 1,998 3,481 4,611
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Total Income 234,927 628,599 277,275 691,491
---------- ---------- ---------- ----------
Expenses:
Motel operating expenses
(Note 2) 171,311 539,484 170,488 488,030
General and administrative (43,764) 85,385 2,520 37,394
Depreciation and amortization 21,475 64,769 22,915 67,569
---------- ---------- ---------- ----------
Total Expenses 149,022 689,638 195,923 592,993
---------- ---------- ---------- ----------
Net Income (Loss) $ 85,905 $ (61,039) $ 81,352 $ 98,498
========== ========== ========== ==========
Net Income (Loss) Allocable
to General Partners $859 ($610) $814 $985
========== ========== ========== ==========
Net Income (Loss) Allocable
to Limited Partners $85,046 ($60,429) $80,538 $97,513
========== ========== ========== ==========
Net Income (Loss)
per Partnership Unit $12.15 ($8.63) $11.51 $13.93
========== ========== ========== ==========
Distribution to Limited
Partners per
Partnership Unit $7.50 $15.00 $5.00 $53.00
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
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Super 8 Motels II, Ltd.
(A California Limited Partnership)
Statement of Partners' Equity
For the Nine Months Ended June 30, 1998 and 1997
6/30/98 6/30/97
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General Partners:
Balance, beginning of year $ 49,493 $ 47,359
Net income (loss) (610) 985
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Balance, End of period 48,883 48,344
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Limited Partners:
Balance, beginning of year 909,477 1,121,712
Net income (loss) (60,429) 97,513
Distributions to Limited Partners (157,500) (371,000)
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Balance, End of Period 691,548 848,225
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Total Partners' Equity $ 740,431 $ 896,569
========== ==========
The accompanying notes are an integral part of the financial statements.
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Super 8 Motels II, Ltd.
(A California Limited Partnership)
Statement of Cash Flows
For the Nine Months Ended June 30, 1998 and 1997
6/30/98 6/30/97
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Cash Flows from Operating Activities:
Received from motel revenues $ 631,390 $ 671,817
Expended for motel operations and
general and administrative expenses (647,000) (530,286)
Interest received 10,435 14,011
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Net Cash Provided (Used) by Operating Activities (5,175) 155,542
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Cash Flows from Investing Activities:
Purchases of property and equipment (13,033) (33,591)
Proceeds from sale of land - 500
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Net Cash Provided (Used) by Investing Activities (13,033) (33,091)
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Cash Flows from Financing Activities:
Distributions to limited partners (157,500) (371,000)
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Net Cash Provided (Used) by Financing Activities (157,500) (371,000)
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Net Increase (Decrease) in Cash and
Temporary Investments (175,708) (248,549)
Cash and Temporary Investments:
Beginning of period 459,098 614,405
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End of period $ 283,390 $ 365,856
========== ==========
Reconciliation of Net Income (Loss) to Net Cash Provided (Used) by
Operating Activities:
Net Income (Loss) $ (61,039 $ 98,498
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Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 64,769 67,569
(Gain) loss on disposition of property
and equipment 825 331
(Increase) decrease in accounts receivable 13,226 (5,663)
(Increase) decrease in prepaid expenses 2,878 14,742
(Increase) decrease in other assets (11,616) (7,143)
Increase (decrease) in accounts payable (14,218) (12,792)
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Total Adjustments 55,864 57,044
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Net Cash Provided (Used) by Operating Activities$ (5,175) $ 155,542
========== ==========
The accompanying notes are an integral part of the financial statements.
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Super 8 Motels II, Ltd.
(A California Limited Partnership)
Notes to Financial Statements
Nine Months Ended June 30, 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 $12,182
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 Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
6/30/98 6/30/98 6/30/97 6/30/97
---------- ---------- ---------- ----------
Salaries and related costs $ 59,715 $ 170,128 $ 52,494 $ 149,462
Rent 25,194 75,583 23,349 70,062
Franchise and advertising fees 11,469 30,455 13,375 33,168
Utilities 13,664 48,683 18,909 51,628
Allocated costs,
mainly indirect salaries 23,877 75,595 22,157 68,759
Replacements and renovations (579) 15,792 941 6,219
Other operating expenses 37,971 123,248 39,263 108,732
--------- --------- --------- ---------
Total motel operating expenses $ 171,311 $ 539,484 $ 170,488 $ 488,030
========= ========= ========= =========
The following additional material contingencies are required to be restated in
interim reports under federal securities law: None.
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SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Partnership's current assets of $294,240 exceeded its
current liabilities of $94,588 thereby providing an operating reserve of
$199,652. 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 nine months of
the fiscal year which will end on September 30, 1998 were $28,825 or 4.7% of
room revenues. Included in these expenditures was $7,995 for exterior painting,
$8,368 for guest room carpet and vinyl, $4,665 for a replacement lamps and
$3,015 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 nine month periods
ended June 30, 1998 and June 30, 1997.
Total revenues decreased $62,892 or 9.1% during the first nine months of fiscal
year ending September 30, 1998 as compared to the previous fiscal year. Guest
room revenue decreased $54,236 or 8.2% 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 54.4% in the previous fiscal year compared
to 47.0% in the current fiscal year. This performance decrease was partially
offset by an increase in average daily room rate from $43.82 in the
corresponding nine month period of the previous fiscal year as compared to
$47.49 during the nine month period ended June 30, 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 nine month period ended June 30, 1998 increased $96,645
or 16.3% from those incurred in the corresponding period of the previous fiscal
year. The increased expenditures are due primarily to increases in the minimum
wage and to legal, appraisal and other costs associated with the potential
liquidation of the partnership.
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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
and possibly less 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.
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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.
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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
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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.
8-13-98 By /S/ Philip B. Grotewohl
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Date Philip B. Grotewohl,
Chairman of Grotewohl Management
Services, Inc.,
Managing General Partner
8-13-98 By /S/ Philip B. Grotewohl
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Date Philip B. Grotewohl,
Chief executive officer,
chief financial officer,
chief accounting officer
and sole director of
Grotewohl Management Services, Inc.,
Managing General Partner
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