10-Q 1 q200193010q.txt 3RD QUARTER 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001. 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: 33-78866 ---------------------- MOA HOSPITALITY, INC. (Exact name of registrant as specified in its charter) Delaware 33-0166914 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ---------------------- 701 Lee Street, Suite 1000 Des Plaines, Illinois 60016 (847) 803-1200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------------- 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 Number of shares of Common Stock, $.01 par value outstanding as March 18, 2002: 800,000 INDEX TO FORM 10-Q Page Part I Financial Information Item 1. Financial Statements Condensed consolidated balance sheets - 2 September 30, 2001 (unaudited) and December 31, 2000. Condensed consolidated statements of operations - 3 Three months ended September 30, 2001 and 2000 and Nine months ended September 30, 2001 and 2000 (unaudited). Condensed consolidated statements of cash flows - 4 Nine months ended September 30, 2001 and 2000 (unaudited). Notes to condensed consolidated financial statements - 5 September 30, 2001 (unaudited). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General 8 Results of Operations 9 Liquidity and Capital Resources 15 Part II Other Information Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 PART I - FINANCIAL INFORMATION Item 1. Financial Statements MOA HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

See accompanying notes to condensed consolidated financial statements. MOA HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands except share data)

See accompanying notes to condensed consolidated financial statements. MOA HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)

See accompanying notes to condensed consolidated financial statements. MOA HOSPITALITY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 (Unaudited) 1. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in MOA Hospitality, Inc. and Subsidiaries' Annual Report on Form 10-K for the year ended December 31, 2000. The terms "MOA" and the "Company" mean MOA Hospitality, Inc. and its subsidiaries. Certain reclassifications of prior-period amounts have been made to conform with current-period presentation, which have not changed operations or stockholders' equity. 2. Divestitures and Leasing Activities In January through September 30, 2001, the Company leased an additional three, and re-leased two of its lodging facilities to third party operators under terms similar to previous operating leases executed by the Company. In January through September 30, 2001, the Company sold three of its lodging facilities. Two for approximately $5.5 million in cash for gain a of $1.8 million. The third was sold to a related party at fair market value for $8,000,000 resulting in a deferred gain of $3,260,000 and a note receivable of $7,150,000. The Company also sold its partnership interest in one lodging facility for $200,000. The Company also recognized a deferred gain of $1.7 million on one of it's lodging facilities sold in a prior year. In August 2001, a subsidiary of the Company purchased a vending company for $624,000 funded by $126,000 cash and assumed debt in the amount's as follows: $250,000, non interest bearing with three annual payments of $83,333, due August 24, 2002, August 24, 2003 and August 24, 2004; $134,000, due November 1, 2008, with monthly principal and interest payments of $2,168; $111,000, due April 1, 2007, with monthly principal and interest payments of $2,146 and $3,000, due July 1, 2002 with monthly principal and interest payments of $292. Subsequent to September 30, 2001 and prior to December 31, 2001, the Company re-leased one of its lodging facilities to a third party operator under terms similar to previous operating leases executed by the Company. Subsequent to September 30, 2001 and prior to December 31, 2001, the Company has sold two of its lodging facilities two a related party at fair market value for $9,840,000 resulting in a deferred gain of $2,238,000 and notes receivable of $8,480,000. Subsequent to December 31, 2001, the Company leased an additional two and re-leased one of its lodging facilities to third party operators under terms similar to previous operating leases executed by the Company. Subsequent to December 31, 2001, the Company sold one of its lodging facilities for approximately $2.2 million in cash for a loss of $696,000. 3. Mortgage and Other Notes Payable In January through June 30, 2001 the Company was advanced $4.5 million on loans of $10.5 million for construction advances on two properties under construction. In June 2001, the Company refinanced $3,997,000 of debt with new loans of $3,425,000 at 8.84% due August 1, 2011, with monthly principal and interest payments of $30,464 secured by two properties located in East Syracuse, NY and Wilson, NC. In July 2001, the Company borrowed $1,000,000 at prime plus .5% due June 12, 2002. In July 2001, the Company borrowed $3,500,000 at 8.67% due September 1, 2011 with monthly principal and interest payments of $30,751 secured by one property in Milford, MA, which was used to pay off an existing construction loan with a balance of $2,877,000. In October 2001, the Company repurchased an additional $1.9 million of the 12% Senior Subordinated Notes from an affiliate at fair market value for a pre-tax gain of $431,000. 4. Income Taxes Income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of 34% to income before income taxes principally as a result of state income taxes. 5. Contingencies The Company is involved in various legal proceedings arising in the ordinary course of business. The Company does not believe that any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's business, results of operations or financial condition. 6. Segments As of September 30, 2001 the Company, directly and through subsidiaries, owned 115 lodging facilities in 38 states. The Company owns a 100% interest in all of its properties. The Company operates forty of its motels and leases seventy-five of its motels to third party tenants pursuant to operating leases. The Company separately evaluates the performance of each of its motels.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND AS SUCH, SPEAK ONLY AS OF THE DATE MADE. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED AT THE TIME OF THE FORWARD-LOOKING STATEMENTS ARE MADE, INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH THE FOLLOWING: GENERAL REAL ESTATE, TRAVEL AND NATIONAL AND INTERNATIONAL ECONOMIC CONDITIONS, INCLUDING THE SEVERITY AND DURATION OF THE DOWNTURN RESULTING FROM THE SEPTEMBER 11, 2001 TERRORIST ATTACKS ON NEW YORK AND WASHINGTON, D.C.;. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: THE COMPANY'S ABILITY TO OBTAIN FINANCING, COMPETITION, INTEREST RATE FLUCTUATIONS, OR GENERAL BUSINESS AND ECONOMIC CONDITIONS. THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONDENSED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS PRESENTED BELOW FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 HAVE BEEN PREPARED ON THE SAME BASIS AS THE INTERIM CONDENSED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS AND, IN THE OPINION OF THE COMPANY, INCLUDE ALL ADJUSTMENTS (CONSISTING ONLY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY TO PRESENT FAIRLY THE INFORMATION SET FORTH THEREIN. General MOA operates principally in the economy limited service segment of the lodging industry. As a result, its average room rates tend to be lower than the average room rates of full service lodging facilities. However, due to the limited nature of the public space and ancillary services provided by limited service motels, the Company's expenses tend to be lower than those of full service lodging facilities. The profitability of the lodging industry in general is significantly dependent upon room rental rates and occupancy rates. Due to the fixed nature of a relatively high portion of the Company's expenses, changes in either room rates or occupancy rates result in significant changes in the operating profit of the Company's motels. The United States lodging industry has experienced downward pressure on RevPAR and occupancy throughout 2001 due to the overall slowdown in the economy. Such pressure was substantially increased as a result of the September 11, 2001 terrorist attacks on New York and Washington D.C. On a same store basis, through the third quarter RevPAR and occupancy have decreased to $38.83 and 70.11%, respectively, for 2001 versus $39.49 and 71.21 % for 2000. For the period subsequent to September 11, 2001 through November 30, 2001, RevPar and occupancy have decreased to $39.36 and 69.23%. The Company is actively working with its managers and lessees to reduce operating and overhead expenses and has curtailed or postponed non-essential capital expenditure activities; however, there can be no assurance that the results of such efforts will be sufficient to enable the Company to continue meeting its obligations as they come due. Three Months Ended September 30, 2001 compared to the Three Months Ended September 30, 2000 The following chart presents certain historical operating results and statistics discussed herein and is being provided as a supplement to the condensed consolidated financial statements presented elsewhere herein.

----------------------------------------------- (1) ADR represents room revenues divided by the total number of rooms occupied. (2) REVPAR represents total motel operating revenues divided by the total number of rooms available. (3) Net operating income margin represents net operating income divided by total motel operating revenues plus lease revenues plus vending revenues plus corporate other revenues. (4) Net motel revenue margin represents total motel operating revenues less motel operating expenses and marketing and royalty fees, divided by motel room revenues. (5) At September 30, 2001 and for the three months then ended, excludes amounts related to the seventy-five motels which are leased to third party tenants. Total revenues consist principally of motel operating revenues. Motel operating revenues are derived from room rentals and ancillary motel revenues such as charges to guests for food and beverage service, long distance telephone calls, and fax machine use. Lease revenues are derived from properties leased to third parties. Vending revenues are derived from vending machines used in the motels and also vending machines placed in non owned locations. Other revenues include interest income, and other miscellaneous income. Total revenues decreased to $18,025,000 for the three months ended September 30, 2001 from $21,333,000 for the three months ended September 30, 2000, a decrease of $3,308,000 or 15.5% primarily as a result of the leasing activity of the Company. As lessor of 75 motels at September 30, 2001 the Company records rental income and does not reflect the gross revenues and expenses of operating these motels. Motel revenues decreased to $13,653,000 for the three months ended September 30, 2001 from $17,458,000 for the three months ended September 30, 2000, a decrease of $3,805,000 or 21.8%. The motel revenues for motels owned during both periods decreased approximately $674,000, in addition there was a decrease of $3,131,000 in motel revenues for motels acquired and divested since July 1, 2000. Motel revenues for motels owned during both periods decreased by 4.8%. The decrease in motel revenues for motels owned during both periods was attributable principally to a decrease in the occupancy. The ADR for the motels owned during both periods decreased to $56.34 for the three months ended September 30, 2001 from $59.91 for the three months ended September 30, 2000, a decrease of $3.57 or 6%. Revenue per available room ("REVPAR") for motels owned during both periods decreased to $46.67 for the three months ended September 30, 2001 from $48.91 for the three months ended September 30, 2000, a decrease of $2.24 or 4.6%. The acquired and divested motels had an occupancy percentage of 51.61%, an ADR of $52.12 and REVPAR of $27.03 for the three months ended September 30, 2001. Motel operating expenses include payroll and related costs, utilities, repairs and maintenance, property taxes, insurance, linens and other operating supplies. Motel operating expenses decreased to $5,932,000 for the three months ended September 30, 2001 from $7,759,000 for the three months ended September 30, 2000, a net decrease of $1,827,000 or 23.5%. Motel operating expenses for motels acquired and divested since July 1, 2000 decreased to $123,000 for the three months ended September 30, 2001 from $2,159,000 for the three months ended September 30, 2000, a decrease of $2,036,000 or 94.3%. The decrease was partially offset by an increase of $209,000 or 3.7% in the costs of operating the motels owned during both periods. The cost of operating motels owned during both periods increased to $5,809,000 for the three months ended September 30, 2001 from $5,600,000 for the three months ended September 30, 2000. The increase in operating costs is principally due to increased labor and related costs and an increase in repairs and maintenance expenditures. Motel operating expenses as a percentage of motel revenues were held to 43.4% for the three months ended September 30, 2001 from 44.4% for the three months ended September 30, 2000. Motel operating expenses as a percentage of motel revenues for the motels owned in both periods increased to 43.7% for the three months ended September 30, 2001 from 40.1% for the three months ended September 30, 2000. Marketing and royalty fees include media advertising, billboard rental expense, advertising fund contributions and royalty charges paid to franchisors and other related marketing expenses. Marketing and royalty fees decreased to $965,000 for the three months ended September 30, 2001 from $1,188,000 for the three months ended September 30, 2000, a decrease of $223,000 or 18.8%. The marketing and royalty fees for motels owned during both periods decreased to $918,000 for the three months ended September 30, 2001 from $929,000 for the three months ended September 30, 2000, a decrease of $11,000 or 1.2%. For the motels owned during both periods, marketing and royalty fees as a percentage of room revenues increased to 7.4% for the three months ended September 30, 2001 from 7.1% for the three months ended September 30, 2000. The decrease in marketing and royalty fees for motels owned in both periods are principally due to less room revenues. Lease operations increased to $1,134,000 for the three months ended September 30, 2001 from $1,007,000 for the three months ended September 30, 2000, an increase of $127,000. There were 75 leased properties with an asset value of $122,035,000 at September 30, 2000 compared with 75 leased properties with an asset value of $117,244,000 at September 30, 2001. Vending operations increased to ($6,000) for the three months ended September 30, 2001 from ($103,000) for the three months ended September 30, 2000, an increase of $97,000. Corporate general and administrative expenses are segregated by the Company into three separate areas: Management Company Operations, Construction/Acquisition and Divestiture Division and Vending general and administrative. Included in the Management Company Operations, which is the division responsible for the motel operations, are the costs associated with training, marketing, purchasing, administrative support, property related legal and accounting costs. The major components of these costs are salaries, wages and related expenses, travel, rent and other administrative expenses. The general and administrative expenses for the Management Company Operations decreased $177,000 to $944,000 for the three months ended September 30, 2001 from $1,121,000 for the three months ended September 30, 2000, a decrease of 15.8%. The general and administrative expenses associated with Construction/Acquisition and Divestiture Division decreased $146,000 from $230,000 for the three months ended September 30, 2000 to $84,000 for the three months ended September 30, 2001. Vending general and administrative expenses increased $237,000 to $349,000 for the three months ended September 30, 2001 from $112,000 for the three months ended September 30, 2000, primarily due to the increased personnel in preparation of expansion. As a percentage of total motel operating revenues, Management Company Operations general and administrative expenses were 6.7% for the three months ended September 30, 2001 and 6.4% for the three months ended September 30, 2000. Depreciation and amortization decreased to $3,422,000 for the three months ended September 30, 2001 from $3,826,000 for the three months ended September 30, 2000, a net decrease of $407,000 or 10.6%. Net operating income decreased to $5,356,000 for the three months ended September 30, 2001 from $6,641,000 for the three months ended September 30, 2000, a decrease of $1,285,000 or 19.3%. Net operating income as a percent of total revenues was 29.7% for the three months ended September 30, 2001 as compared to 31.1% for the three months ended September 30, 2000. Interest expense decreased to $5,142,000 for the three months ended September 30, 2001 from $6,180,000 for the three months ended September 30, 2000, a decrease of $1,217,000. The decrease in interest expense is reflective of the lower average amount of outstanding borrowings during the third quarter of 2001 as compared to the third quarter 2000. Gain (loss) on sale of properties amounted to $820,000 for the three months ended September 30, 2001 compared to ($67,000) for the respective period in 2000. For the quarter ended September 30, 2001, one property which was currently leased was sold for $1.9 million in cash for a gain of $820,000. Net income increased to $631,000 for the three months ended September 30, 2001 from $219,000 for the three months ended September 30, 2000. Nine Months Ended September 30, 2001 Compared to the Nine Months Ended September 30, 2000 The following chart presents certain historical operating results and statistics discussed herein and is being provided as a supplement to the condensed consolidated financial statements presented elsewhere herein.

------------------------------------------------ (1) ADR represents room revenues divided by the total number of rooms occupied. (2) REVPAR represents total motel operating revenues divided by the total number of rooms available. (3) Net operating income margin represents net operating income divided by total motel operating revenues plus lease revenues plus vending revenues plus corporate other revenues. (4) Net motel revenue margin represents total motel operating revenues less motel operating expenses and marketing and royalty fees, divided by motel room revenues. (5) At September 30, 2001 and for the six months then ended, excludes amounts related to the seventy-five motels which are leased to third party tenants. Total revenues decreased $9,855,000 to $47,923,000 for the nine months ended September 30, 2001 from $57,778,000 for the nine months ended September 30, 2000 or 17.1% primarily as a result of the leasing and sales activities of the Company. As lessor of 75 motels at September 30, 2001 the Company records rental income and does not reflect the gross revenues and expenses of operating these motels. Motel revenues decreased to $35,845,000 for the nine months ended September 30, 2001 from $47,442,000 for the nine months ended September 30, 2000, a decrease of $11,597,000 or 24.4%. The motel room revenues for motels owned during both periods decreased approximately $647,000 or 2.1%. There also was a decrease of $10,569,000 for acquired and divested motels, since January 1, 2000. The ADR for the motels owned during both periods remained flat for the nine months ended September 30, 2001 compared with the nine months ended September 30, 2000. The occupancy percentage decreased from 71.21% for the nine months ended September 30, 2000 to 70.11% for the nine months ended September 30, 2001. The REVPAR for motels owned during both periods decreased to $38.83 for the nine months ended September 30, 2001 from $39.49 for the nine months ended September 30, 2000, a decrease of $.66 or 1.7%. Motel operating expenses include payroll and related costs, utilities, repairs and maintenance, property taxes, insurance, linens and other operating supplies. Motel operating expenses decreased to $18,530,000 for the nine months ended September 30, 2001 from $25,530,000 for the nine months ended September 30, 2000, a net decrease of $7,000,000 or 27.4%. The cost of operating motels owned during both periods increased to $16,496,000 for the nine months ended September 30, 2001 from $15,745,000 for the nine months ended September 30, 2000, an increase of $751,000 or 4.8%. Motel operating expenses for motels acquired and divested since January 1, 2000 decreased to $2,034,000 for the nine months ended September 30, 2001 from $9,785,000 for the nine months ended September 30, 2000. Motel operating expenses as a percentage of motel revenues decreased to 51.7% for the nine months ended September 30, 2001 from 53.8% for the nine months ended September 30, 2000. Motel operating expenses as a percentage of motel revenues for the motels owned in both periods increased to 50.2% for the nine months ended September 30, 2001 from 46.9.% for the nine months ended September 30, 2000. Marketing and royalty fees include media advertising, billboard rental expense, advertising fund contributions and royalty charges paid to franchisers and other related marketing expenses. Marketing and royalty fees decreased to $2,549,000 for the nine months ended September 30, 2001 from $3,380,000 for the nine months ended September 30, 2000, a decrease of $831,000 or 24.6%. The marketing and royalty fees for motels owned during both periods increased to $2,325,000 for the nine months ended September 30, 2001 from $2,295,000 for the nine months ended September 30, 2000, an increase of $30,000 or 1.3%. For the motels owned during both periods, marketing and royalty fees as a percentage of room revenues increased to 7.7% for the nine months ended September 30, 2001 from 7.4% for the nine months ended September 30, 2000, an increase of 4%. The decrease in marketing and royalty fees is attributable to a reduction in franchise fees due to the decline in room revenues on which most such fees are based and a reduction in rates for certain contractual franchise fees due to the number of motels either sold or leased subsequent to September 30, 2000. Marketing and royalty fees for motels acquired and divested since January 1, 2000 decreased to $224,000 for the nine months ended September 30, 2001 from $1,085,000 for the nine months ended September 30, 2000. Lease operations increased to $3,248,000 for the nine months ended September 30, 2001 from $2,948,000 for the nine months ended September 30, 2000, an increase of $300,000, which results from an increase to 75 leased properties with an asset value of $117,244,000 at September 30, 2001 compared with 75 leased properties with an asset value of $122,035,000 at September 30, 2000. Vending operations increased to ($241,000) for the nine months ended September 30, 2001 from ($142,000) for the nine months ended September 30, 2000, an increase of $99,000. Corporate general and administrative expenses are segregated by the Company into three separate areas: Management Company Operations, Construction and Development and Vending general and administrative. Included in the Management Company Operations, which is the division responsible for the motel operations, are the costs associated with training, marketing, purchasing, administrative support, property related legal and accounting costs. The major components of these costs are salaries, wages and related expenses, travel, rent and other administrative expenses. The general and administrative expenses for the Management Operations increased $117,000 to $3,500,000 for the nine months ended September 30, 2001 from $3,383,000 for the nine months ended September 30, 2000, an increase of 3.5%. This is due primarily to discounts given on notes receivable paid off during the first nine months of 2001. The general and administrative expenses associated with Construction and Development decreased $381,000 from $607,000 for the nine months ended September 30, 2000 to $226,000 for the nine months ended September 30, 2001. Vending general and administrative expenses increased $607,000 to $926,000 for the nine months ended September 30, 2001 from $319,000 for the nine months ended September 30, 2000. As a percentage of total motel operating revenues, Management Operations general and administrative expenses was 9.8% for the nine months ended September 30, 2001 and 7.1% for the nine months ended September 30, 2000. Depreciation and amortization decreased to $10,649,000 for the nine months ended September 30, 2001 from $10,988,000 for the nine months ended September 30, 2000, a net decrease of $339,000 or 3.1%. Net operating income decreased to $9,568,000 for the nine months ended September 30, 2001 from $12,500,000 for the nine months ended September 30, 2000, a decrease of $2,932,000 or 23.5%. This is a result of an increase in management company operations expenses of $117,000 and in an increase of $607,000 in vending G&A and a reduction in revenues. Net motel revenues for motels acquired and divested since January 1, 2000 decreased $1,701,000. Net operating income as a percent of total revenues was 20.0% for the nine months ended September 30, 2001 as compared to 21.6% for the nine months ended September 30, 2000. Interest expense decreased to $15,651,000 for the nine months ended September 30, 2001 from $19,025,000 for the nine months ended September 30, 2000, a decrease of $3,374,000. The decrease in interest expense is reflective of the lower average amount of outstanding borrowings during the nine months ending September 30, 2001 as compared to the nine months ending September 30, 2000. Gain on sale of properties amounted to $3,479,000 for the nine months ended September 30, 2001 compared to $1,017,000 for the period ended September 30, 2000. In six unrelated transactions, six properties were sold for $7.9 million in cash and $6.5 million in notes receivable, also a vacant parcel of land was sold for cost during the nine months ended September 30, 2000. For the nine months ended September 30, 2001, two properties were sold for $5.5 million in cash and one other property recognized a deferred gain of $1.7 million. Net loss increased to $1,603,000 for the nine months ended September 30, 2001 from a net loss of $1,116,000 for the nine months ended September 30, 2000 primarily as a result of a decrease of $2,932,000 in net operating income. Liquidity and Capital Resources The Company's primary uses of its capital resources include debt service, capital expenditures and working capital. In addition, on a discretionary basis, the Company utilizes its capital resources for the development and acquisition of motel properties. The Company's debt service requirements consist of the obligation to make interest and principal payments on its outstanding indebtedness. In January through September 30, 2001 the Company was advanced $4.5 million on loans of $10.5 million for construction advances on two properties under construction. In June 2001, the Company refinanced $3,997,000 of debt with new loans of $3,425,000 at 8.84% due August 1, 2011, with monthly principal and interest payments of $30,464 secured by two properties located in East Syracuse, NY and Wilson, NC. In July 2001, the Company borrowed $1,000,000 at prime plus .5% due June 12, 2002. In July 2001, the Company borrowed $3,500,000 at 8.67% due September 1, 2011 with monthly principal and interest payments of $30,751 secured by one property in Milford, MA, which was used to pay off an existing construction loan with a balance of $2,877,000. In August 2001, a subsidiary of the Company purchased a vending company and assumed debt in the amount of $250,000, non interest bearing with three annual payments of $83,333, due August 24, 2002, August 24, 2003 and August 24, 2004, $134,000, due November 1, 2008, with monthly principal and interest payments of $2,168 and $111,000, due April 1, 2007, with monthly principal and interest payments of $2,146. In October 2001, the Company repurchased an additional $1.9 million of the 12% Senior Subordinated Notes from an affiliate at fair market value for a pre-tax gain of $431,000. The Company's capital expenditure requirements principally include capital improvements and refurbishment of its lodging facilities as part of its ongoing operating strategy to provide well-maintained facilities. The Company made capital expenditures (exclusive of acquisitions and development of properties) of $2,398,000 and $3,909,000 for the nine months ended September 30, 2001 and 2000, respectively. In addition, as of September 30, 2001, the Company had $664,000 of cash restricted for future refurbishment of motel properties, in accordance with certain debt agreements. Management is not aware of any unusual required level of future capital expenditures necessary to maintain its existing properties. For the nine months ended September 30, 2001, cash and cash equivalents increased $3,851,000. This increase consisted of $10,288,000 of funds provided by investing activities and $13,331,000 of funds used in financing activities and $6,894,000 of funds provided by operations. Net investing activities of $10,228,000 include: $4,992,000 of cash utilized for motel development and $2,398,000 expended on refurbishment of existing properties, offset by $17,014,000 of cash provided from the sale of investment properties and collections on mortgage and other notes receivable and a change in cash restricted for refurbishment of $664,000. Cash used in financing activities includes: $25,724,000 of cash utilized to repay indebtedness; and $490,000 of cash used for deferred financing costs and other items offset by $12,883,000 from proceeds from notes payable. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in various legal proceedings arising in the ordinary course of business. The Company does not believe that any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's business, results of operations or financial condition. See Note 5 of the Notes to the Condensed Consolidated Financial Statements. Item 2. Changes in Securities Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Not Applicable (b) Reports on Form 8-K: Not Applicable SIGNATURES Pursuant to the requirements 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. MOA HOSPITALITY, INC. March 18, 2002 By: /s/ Kurt M. Mueller ----------------------- Kurt M. Mueller President and Chief Financial Officer March 18, 2002 By: /s/ Blane P. Evans ----------------------- Blane P. Evans Secretary and Treasurer

MOA HOSPITALITY INC 10-Q