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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 September 30, 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
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(Exact name of registrant as specified in its charter)
Illinois 36-3370590
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
630 Dundee Road, Suite 220, Northbrook, Illinois 60062
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(Address of principal executive offices) (Zip Code)
(847)714-9600
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(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 .
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
SEPTEMBER 30, 1998 DECEMBER 31, 1998
------------------ -----------------
Cash and cash equivalents 256,430 475,668
------------------ -----------------
Total assets 256,430 475,668
================== =================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES
Other accounts payable and accrued expenses:
Affiliates 3,623 1,485
Nonaffiliates - 41,591
------------------ -----------------
Total liabilities 3,623 43,076
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Partners' capital (deficit)
General Partners (689,856) (687,880)
Limited Partners:
Portfolio I - 514 Interests 566,148 708,004
Portfolio II - 135 Interests 376,515 412,468
------------------ -----------------
Total partners' capital (deficit) 252,807 432,592
------------------ -----------------
Total liabilities and partners' capital (deficit) 256,430 475,668
================== =================
The accompanying notes are an integral part of the combined financial
statements.
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VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
PARTNERSHIP OPERATIONS 1998 1997
------------ ------------
Revenues:
Litigation settlement $ - $ -
Interest on temporary investments 3,432 7,787
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Total partnership revenues 3,432 7,787
------------ ------------
Expenses:
Managing General Partners' fees - -
Professional, consulting and other fees:
Affiliates 11,491 18,573
Nonaffiliates 6,676 46,255
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Total partnership expenses 18,167 64,828
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Net loss $ (14,735) $ (57,041)
============ ============
Net loss allocated to General Partners $ (163) $ (628)
============ ============
Net loss allocated to Limited Partners $ (14,572) $ (56,413)
============ ============
Net loss per Limited Partner interest
Portfolio I (514 Interests) $ (23) $ (87)
============ ============
Portfolio II (135 Interests) $ (22) $ (84)
============ ============
The accompanying notes are an integral part of the combined financial
statements.
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VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
PARTNERSHIP OPERATIONS 1998 1997
------------ ------------
Revenues:
Litigation settlement $ 71,000 $ -
Interest on temporary investments 13,408 25,222
------------ ------------
Total partnership revenues 84,408 25,222
------------ ------------
Expenses:
Managing General Partners' fees 50,000 50,000
Professional, consulting and other fees:
Affiliates 58,387 49,652
Nonaffiliates 155,806 130,340
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Total partnership expenses 264,193 229,992
------------ ------------
Net loss $ (179,785) $ (204,770)
============ ============
Net loss allocated to General Partners $ (1,976) $ (2,251)
============ ============
Net loss allocated to Limited Partners $ (177,809) $ (202,519)
============ ============
Net loss per Limited Partner interest
Portfolio I (514 Interests) $ (276) $ (314)
============ ============
Portfolio II (135 Interests) $ (266) $ (303)
============ ============
The accompanying notes are an integral part of the combined financial
statements.
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VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
VMS NATIONAL
HOTEL
PARTNERS VMS NATIONAL HOTEL PORTFOLIO I
--------------- ---------------------------------------------------------------
LIMITED PARTNERS
------------------------------------------
GENERAL GENERAL SUBSCRIPTION
PARTNERS PARTNERS TOTAL NOTES NET TOTAL
--------------- --------- ------- -------------- -------- -------
Partners' capital (deficit)
at January 1, 1998 $ (76,038) $(484,947) $ 1,887,891 $ (1,159,887) $708,004 $223,057
Net loss for the period (180) (1,433) (141,856) - (141,856) (143,289)
----------- --------- ----------- ------------ -------- --------
Partners' capital (deficit)
at September 30, 1998 $ (76,218) $(486,380) $ 1,726,035 $ (1,159,887) $566,148 $ 79,765
=========== ========= =========== ============ ======== ========
VMS NATIONAL HOTEL PORTFOLIO II
------------------------------------------------------------------------------
LIMITED PARTNERS
------------------------------------------
GENERAL SUBSCRIPTION Combined
PARTNERS TOTAL NOTES NET TOTAL Total
--------- ------- -------------- -------- -------- ------------
Partners' capital (deficit)
at January 1, 1998 $ (126,895) $ 589,738 $ (177,270) $ 412,468 $ 285,573 $ 432,592
Net loss for the period (383) (35,963) - (35,953) (36,316) (179,785)
---------- --------- ----------- ------------ --------- --------
Partners' capital (deficit)
at September 30, 1998 $ (127,258) $ 653,785 $ (177,270) $ 376,515 $ 249,257 $ 252,807
========== ========= =========== ============ ========= ===========
The accompanying notes are in integral part of the combined financial statement.
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VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---------------- ------------------
OPERATING ACTIVITIES
Net loss (179,785) (204,770)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Decrease in accounts payable and accrued expenses (39,453) (94,540)
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Net cash used in operating activities and net decrease in cash and cash equivalents (219,238) (299,310)
Cash and cash equivalents at beginning of period 475,668 847,399
---------------- ------------------
Cash and cash equivalents at end of period 256,430 548,089
================ ==================
The accompanying notes are an integral part of the combined financial
statements.
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VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 nine months ended September 30, 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:
Fees paid and payable for the nine months ended
September 30, 1998
-----------------------------------------------
Paid Payable
Managing General Partner
Salary (1) $ 50,000 $ ---
Other services and costs (2) 56,249 3,623
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$106,249 $ 3,623
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(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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VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 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.
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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").
The Partnerships will continue to maintain a cash reserve for the payment of the
remaining Partnerships' obligations and contingent liabilities and 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 nine months ended September 30, 1998 had a net
increase of $59,186 from the same period in 1997. The increase is primarily due
to the collection of $71,000 regarding a legal settlement, and a decrease of
$11,814 in Interest on temporary investments attributed to the reduction in the
Partnership's Cash and cash equivalents which is the result of the Transfer.
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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
Partnership expenses for the nine months ended September 30, 1998 had an
increase of $34,201 from the same period in 1997. The increase is primarily due
to an increase in Professional, consulting and other fees relating to legal fees
in conjunction with a discovery procedure, and fees associated with defending an
erroneous tax assessment from a state taxing authority.
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 $219,238 from December 31, 1997 to September 30, 1998. The decrease is
primarily the result of payments for Partnership obligations.
The Partnerships will continue to maintain a cash reserve for the payment of the
remaining Partnerships' obligations and contingent liabilities and will be
dissolved sometime within the next year.
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.
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PART II - OTHER INFORMATION
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
ITEM 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, except
for the following:
In re: VMS National Hotel Partners et al., Debtor - NAHOP Partners, L.P. and VMS
National Hotel Partners, Plaintiffs, v. Associated Business Telephone System,
Corp., Defendant, Chapter 11 Case No. 96B12185, Adv. Pro. No. 98A00150 (U.S.
Bankruptcy Court for the Northern District of Illinois, Eastern Division (the
"Bankruptcy Court")). This adversary proceeding was commenced in the Bankruptcy
Court on January 23, 1998. VMS National Hotel Partners and Associated Business
Telephone System, Corp. ("ABTS") were parties to a certain Zero Plus Agreement
pursuant to which ABTS was to provide VMS National Hotel Partners with certain
telephone services. VMS National Hotel Partners believes that the Zero Plus
Agreement was terminated, pursuant to the VMS National Hotel Partners Bankruptcy
Plan which was confirmed by the bankruptcy court on July 24, 1996, effective
upon the transfer by VMS National Hotel Partners of its properties to NAHOP
Partners, L.P. on September 25, 1996. ABTS subsequently brought an action in New
Jersey State Court alleging that the Zero Plus Agreement was improperly
terminated. Although VMS National Hotel Partners is not a party to ABTS' New
Jersey state action, NAHOP Partners, L.P. has advised VMS National Hotel
Partners of the New Jersey action and stated that it was VMS National Hotel
Partners' responsibility to terminate the Zero Plus Agreement. VMS National
Hotel Partners has therefore brought this action for, among other things,
declaratory relief in the bankruptcy court. This action was settled and
dismissed with no financial impact to the Partnership.
ITEMS 2 THROUGH 6
Items 2 through 6 are omitted because of the absence of conditions under which
they are required.
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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: November 11, 1998
---------------------------------
Joel A. Stone, President
By: /s/ Thomas A. Gatti Date: November 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: November 11, 1998
---------------------------------
Joel A. Stone, Executive Committee Member
By: /s/ Joel A. Stone Date: November 11, 1998
---------------------------------
Joel A. Stone, as attorney in fact for
Peter R. Morris, Executive Committee Member
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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: November 11, 1998
---------------------------------
Joel A. Stone, President
By: /s/ Thomas A. Gatti Date: November 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: November 11, 1998
---------------------------------
Joel A. Stone, Executive Committee Member
By: /s/ Joel A. Stone Date: November 11, 1998
---------------------------------
Joel A. Stone, as attorney in fact for
Peter R. Morris, Executive Committee Member
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