<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB - Quarterly or Transitional Report
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
// TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period
from to
Commission File Number 33-11224-LA
Mission Valley Comfort Suites Ltd., A California Limited Partnership
(Exact name of small business issuer as specified in its charter)
California 33-0213497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number
1466 9th Avenue, San Diego, CA 92101
(Address of principal executive offices)
(619) 699-6100
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the last 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /x/ No / /
State the number of limited partnership interests outstanding as of the latest
practicable date: 5,900
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of September 30, 1998 and December 31, 1997.
Statement of Operations for the three and nine month periods ended September
30, 1998 and September 30, 1997.
Statement of Cash Flows for the three and nine month periods ended September
30, 1998 and September 30, 1997.
Notes to Financial Statements.
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
September 30, 1998 and December 31, 1997
(Unaudited)
(Part 1 of 2)
<TABLE>
<CAPTION>
September 30 December 31,
ASSETS 1998 1997
--------- ---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 283,541 $ 146,672
Accounts receivable 867 14,255
Operating supplies 0 15,011
Prepaid expenses 19,678 36,150
----------- -----------
Total current assets 304,086 212,088
Investment property, at cost:
Building and improvements 0 4,617,037
Furniture, fixtures & equipment 0 1,225,209
------------ ------------
0 5,842,246
Less accumulated depreciation 0 2,357,571
------------ -------------
Total investment property, net
of accumulated depreciation 0 3,484,675
Franchise fees, net (note 2) 0 26,667
------------- --------------
$ 304,086 $ 3,723,430
========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 1
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
September 30, 1998 and December 31, 1997
(Unaudited)
(Part 2 of 2)
<TABLE>
<CAPTION>
LIABILITIES AND September 30, 1998 December 31, 1997
PARTNER'S CAPITAL ACCOUNTS ----------------- -----------------
--------------------------
<S> <C> <C>
Current liabilities:
Current portion on long-term debt $ 0 $ 9,891
Accounts payable and accrued expenses 11,135 67,510
Due to Affiliates (note 4) 11,547 28,629
---------- ----------
Total current liabilities 22,682 106,030
---------- ----------
Long-term debt, less current portion 0 197,190
Deferred rent liability (note 6) 0 1,453,917
---------- ----------
Total liabilities 22,682 1,757,137
---------- ----------
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings 192,462 (101,786)
Cumulative cash distributions (223,672) (209,140)
----------- ------------
0 (279,716)
----------- ------------
Limited partners:
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net earnings 1,696,465 ( 916,070)
Cumulative cash distributions (6,532,348) (1,955,208)
------------ -------------
281,404 2,246,009
------------ -------------
Total partners' capital accounts 281,404 1,966,293
------------ -------------
$ 304,086 $3,723,430
============= =============
</TABLE>
See accompanying notes to financial statements
Page 2
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
Three Months and Nine Months Ended
September 30, 1998 and September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income (Loss) from
Continuing Operations $ 0 $ 0 $ 0 $ 0
Income (Loss) from Discontinued
Operations $ (38,126) $ 73,170 $ 108,111 $ 177,551
Gain on disposal of Discontinued
Operations $2,798,671 $ 0 $2,798,671 $ 0
------------ ----------- ------------ -----------
Net Earnings (Loss) $2,760,545 $ 73,170 $2,906,782 $ 177,551
========== =========== ============ ===========
Net earnings per limited
partnership interest $421.10 $ 11.16 $443.41 $27.08
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months and Nine Months Ended
September 30, 1998 and September 30, 1997
(Unaudited)
(Part 1 of 2)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,760,545 $ 73,170 $2,906,782 $177,551
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization (1,511) 49,325 101,115 147,297
Gain on Sale of Hotel (2,798,671) 0 (2,798,671) 0
Expenses paid from escrow 24,235 0 24,235 0
Expenses refunded from escrow (21,020) 0 (21,020) 0
(Increase) decrease in:
Accounts receivable 18,805 (10,773) 13,388 16,126
Operating supplies 1,574 (2,153) 627 (1,965)
Prepaid expenses 1,038 19,943 16,472 3,922
Increase (decrease) in:
Accounts payable and accrued
expenses (68,105) 47,043 (56,375) 58,279
Due to/from Affiliates (24,436) (4,279) (17,082) (5,498)
Deferred rent liability 0 (7,418) (14,835) (22,254)
Net cash provided by (used in)---------- ---------- --------- ---------
operating activities (107,548) 164,858 154,634 373,458
---------- ---------- --------- ---------
Cash flows from investing activities:
Investment property expenditures 0 (11,469) (44,772) (21,862)
Sale of Hotel 4,647,699 0 4,647,699 0
Expenses related to sale of hotel paid
outside of escrow (10,902) 0 (10,902) 0
----------- ---------- ---------- ----------
Net cash used in investing
activities 4,636,797 (11,469) 4,592,025 (21,862)
------------ ---------- ---------- ----------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable 0 (8,618) (18,116) (21,039)
Cash distributions to partners (4,561,673) 0 (4,591,673) (65,000)
Net cash provided by (used in) ------------ ---------- ----------- ----------
financing activities (4,561,673) (8,618) (4,609,789) (86,039)
------------- ---------- ----------- ----------
Net increase in cash
and cash equivalents (32,417) 144,772 136,870 265,557
Cash and cash equivalents
beginning of period 315,959 196,326 146,672 75,541
------------ ----------- ----------- ---------
Cash and cash equivalents,
end of period 283,541 341,098 283,541 341,098
========= ======== ======== =======
</TABLE>
See accompanying notes to financial statements
Page 4
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months and Nine Months Ended
September 30, 1998 and September 30, 1997
(Unaudited)
(Part 2 of 2)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
1998 1997 1998 1997
------- ------- ------- --------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid 1,639 4,635 10,028 14,234
======== ======== ======== =======
Supplemental schedule of non-cash investing and financing activities:
Sale of Hotel 5,000,000 0 5,000,000 0
Note payable (188,965) 0 (188,965) 0
Commission (150,000) 0 (150,000) 0
Other (13,336) 0 (13,336) 0
------------- ---------- ------------ -----------
Cash flow from
Sale of Hotel 4,647,699 0 4,647,699 0
========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
September 30, 1998
Readers of this quarterly report should refer to the partnership audited
financial statements andannual report Form 10-KSB (File No. 33-11224-LA) for the
period ended December 31, 1997, as certain footnote disclosures which would
substantially duplicate those contained in such financial reports have been
omitted from this report.
1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mission Valley Comfort Suites Ltd., A California Limited Partnership (the
Partnership), (formerly Motels of America Series X), a California Limited
Partnership, was formed on September 18, 1987 pursuant to the California Revised
Uniform Limited Partnership Act. The purpose of the Partnership is to
construct, own, and operate a 122-room "suites only" motel under a franchise
agreement with Choice Hotels International, Inc. The motel was opened in
September 1988. As more fully discussed in Note 8, the motel was sold on
July 2, 1998. The following is a summary of the Partnership's significant
accounting policies:
Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Investment Property
Investment property is recorded at cost. Depreciation is computed using the
straight-line method based on estimated useful lives of 5 to 35 years.
Maintenance and repair costs are expensed as incurred, while significant
improvements, replacements, and major renovations are capitalized.
Franchise Fees
Franchise fees are amortized over the 20-year life of the franchise agreement.
Income Taxes
No provision for income taxes has been made as any liability for such taxes
would be that of the partners rather than the Partnership.
Net Income per Interest
Net income per interest is based upon the 90% allocated to limited partners
divided by 5,900 limited partner interests outstanding throughout the year.
(Continued)
Page 6
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
2. PARTNERSHIP AGREEMENT
Net income or loss and cash distributions from operations of the Partnership
are allocated 90% to the limited partners and 10% to the general partner.
Profits from the sale or other disposition of Partnership property are to be
allocated to the general partner until its capital account equals zero;
thereafter, to the limited partners until their capital accounts equal their
capital contributions reduced by prior distributions of cash from sale or
refinancing plus an amount equal to a cumulative but not compounded annual 8%
return thereon which cumulative return shall be reduced (but not below zero) by
the aggregate amount of prior distributions of cash available for distribution;
thereafter, gain shall be allocated 15% to the general partner and 85% to the
limited
partners. Loss from sale shall be allocated 1% to the general partner and 99%
to the limited partners.
3. FRANCHISE AGREEMENT
The Partnership entered into a twenty-year franchise agreement with Choice
Hotels International, Inc. to provide the Partnership with consultation in the
areas of design, construction and operation of the motel. The agreement
required the payment of initial franchise fees of $50,000 and requires ongoing
royalty and chain-affiliated advertising fees based on a percentage of gross
room revenues.
After the sale of the motel on July 2, 1998 (see Note 8), the partnership
notified Choice Hotels International (Choice) that it was electing to
terminate the franchise agreement. Under the terms of the franchise
agreement, the partnership may be liable to Choice for certain fees and other
costs resulting from the sale of the motel and the election to terminate the
franchise agreement. The buyer is presently negotiating with Choice regarding
a possible new franchise agreement, and the buyer has agreed to indemnify the
partnership for any and all claims made by Choice related to the sale of the
motel and the election to terminate the franchise agreement.
4. RELATED PARTY TRANSACTIONS
The motel was operated pursuant to a management agreement with GHG
Hospitality, Inc. (GHG), the general partner. The agreement provides for the
payment of monthly management fees of 6% of gross revenues.
The Partnership agreed to reimburse GHG for certain expenses related to
services performed in maintaining the books and administering the affairs of the
Partnership.
GHG and an affiliate, GMS Management Services, Inc. (GMS), formerly Grosvenor
Management Services, Inc., allocate to the Partnership certain marketing,
accounting, and maintenance salaries and certain other expenses directly related
to the operation of the Partnership.
(Continued)
Page 7
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
4. RELATED PARTY TRANSACTIONS (Continued)
Fees and reimbursements for partnership administration expenses paid to GHG
and GMS for the three months and the nine months ended September 30, 1998 and
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/98 9/30/97 9/30/98 9/30/97
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Management Fees $ 0 $39,448 $64,342 $98,613
Reimbursement for partnership
administration expenses $ 9,237 $ 9,387 $27,715 $28,160
Salaries and other
allocated expenses $ 16,845 $30,594 $51,667 $74,601
</TABLE>
In addition, all motel employees are paid by GMS. For the nine months ended
September 30, 1998, the Partnership reimbursed GMS $223,800. for the wages of
these employees which includes a one percent processing fee.
At September 30, 1998, $11,547. was due to GHG and GMS relating to
reimbursement for these operating expenses.
5. LONG-TERM DEBT
The Partnership had a note payable which is due in monthly installments of
$2,175, including 8% interest, through April 2013. In March 1997, The
Partnership voluntarily began making monthly payments of $4,350 in order to
retire the note earlier that scheduled and reduce interest expense
over the term of the note. The note was secured by a trust deed on the
Partnership's motel.
(Continued)
Page 8
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
LONG TERM DEBT (continued)
Long term debt was paid in full in connection with the sale of the motel on
July 2, 1998 (see Note 8).
6. LEASE
The Partnership leased the land underlying its motel under an operating lease
which expired in 2046. Prior to April 1, 1993, rents were subject to annual
increases based on the greater of 2-1/2% or the increase in the Consumer Price
Index. The total minimum rentals over the life of the lease, including the
effects of the 2-1/2% minimum annual increases, were being recognized on
the straight-line basis as required by generally accepted accounting principles.
Effective April 1,1993, the lease was amended to lower the rent payment to
$20,000 per month. Rents were still subject to annual increases based on the
increase in the Consumer Price Index, but the maximum annual increase was 5%
and there was no minimum annual increase. The rent payment was $21,744.
per month at the date of sale of July 1, 1998 As a result of the amendment to
the lease agreement, a deferred rent liability of $1,594,894, which was
incurred prior to April 1, 1993, was being credited to income on a straight-line
basis over the remaining term of the lease. The Partnership was required to
pay real estate taxes, insurance, and maintenance for the leased land and
improvements thereon.
The lease was assumed by the buyer in connection with the sale of the motel on
July 2, 1998 (see Note 8).
7. ADJUSTMENTS
In the opinion of the general partner, all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation have been made
to the accompanying figures as of and for the nine months ended September 30,
1998.
(Continued)
Page 9
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
8. SALE OF HOTEL
On July 2, 1998 after obtaining a majority approval of the limited partners
holding a majority of the Partnership's limited partner interests, the motel
was sold for $5,000,000. in cash. The sale resulted in a gain of $2,798,671.
for financial statement purposes. Net cash proceeds from the sale were
$4,647,699. after deducting the payment of the first trust deed on the motel
and closing costs. In July 1998, the Partnership paid a liquidating
distribution of $4,446,371.($753.62 per limited partner interest) and an
operating distribution of $115,301. ($17.59 per limited partner interest).
The partnership will remain in existence through the remainder of the year and
will be required to continue to file quarterly reports with the SEC. Once any
contingent and unexpected claims have been satisfied the partnership can be
dissolved. The general partner hopes to accomplish this dissolution by the
end of March, 1999 when the partnership will be mailing the final K-1's
reporting the sale but there is no guaranty this will occur by this date. At
the time of the dissolution the partnership will pay the second and final
liquidating distribution of any remaining funds held and the Partnership will
be dissolved.
(Continued)
Page 10
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition:
On February 6, 1987, the Partnership commenced its public offering pursuant to
its Prospectus. On March 21, 1988, the Partnership completed the public
offering. The Partnership received $5,117,287 (net of offering costs of
$782,713) from the sale of limited partnership interests. These funds were
available for investment in property, to pay legal fees and other costs
related to the investments, to pay operating expenses, and for working capital.
The majority of the proceeds were used to acquire and construct the property
identified in Item 2 above.
As a result of cost overruns related to the acquisition and construction of
the motel, the Partnership borrowed $200,000 from the party that is the lessor
under its land lease. In 1993, the note was amended to add accrued interest of
$60,000 to the principal balance so that the new balance was $260,000. The
note was payable in monthly installments of $2,175, including interest
at 8%, over a 20-year period. The note was secured by a trust deed on the
Partnership's motel. In March 1997, the Partnership voluntarily began making
monthly payments of $4,350 in order to retire the note earlier than scheduled
and reduce interest expense over the term of the note. The note was paid in
full with the sale of the motel on July 2, 1998 (see Note 8).
The deferred rent liability represents amounts accrued under the Partnership's
land lease prior to April 1, 1993. Under the original land lease, annual rent
increases were based on the greater of 2-1/2% or the increase in the Consumer
Price Index. The Partnership was required by generally accepted accounting
principles to record rent expense and a deferred rent liability based on
projecting the 2-1/2% minimum annual rent increase over the 60-year term of
the lease. Effective April 1, 1993, the land lease was amended. Under the
amended land lease, annual rent increases are based on the lesser of the
increase in the Consumer Price Index or 5%, and there is no minium
annual increase. The lease was assumed by the buyer in connection with the
sale of the motel on July 2, 1998 (see Note 8).
Based on an informal survey of a sample of limited partners conducted by the
general partner, now that the partnership is nearing its 10th year, the
majority of the limited partners surveyed wanted the motel to be sold and the
partnership dissolved. Consequently, the hotel brokerage firm of Hotel Partners
International was engaged by the partnership to market the hotel for sale to
qualified buyers at the highest and best selling price. The initial listing
price was $5,000,000. Marketing packages were sent out to hundreds of potential
buyers and the level of interest was high. (Continued)
Page 11
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In June 1998 the Partnership entered into a Hotel Purchase and Sale Agreement
with Piyal, LLC whereby Piyal would purchase the motel from the Partnership
for $5,000,000. (the purchase price). The Purchase Price was payable in cash
at Closing. The Purchase was subjected to a downward adjustment of $3,333.
per day if the limited partners' approval was not received by July 2, 1998.
On July 2, 1998 after receiving a majority approval of the limited partners
the motel was sold to Piyal, LLC (an entity controlled by Tarsadia Hotels) for
$5,000,000. Since the investors promptly returned their votes approving the
sale prior to the deadline, there was no reduction in the selling price. This
selling price exceeded the last appraised value of the motel ($4 million) as
well as the hotel broker's opinion of value ($4.4 to $4.6 million).
The proceeds of sale were used to pay: the loan owed to the ground lessor;
broker's commissions; closing costs; and room taxes for June 1998. The net
proceeds less a reserve of $300,000. were disbursed on 7/24/98 in the amount
of $753.62 per unit, totaling $4,446,371. In addition an operating distribution
of $115,301. was paid.
The partnership will remain in existence through the remainder of the year and
will be required to continue to file quarterly reports with the SEC. Once any
contingent and unexpected claims have been satisfied the partnership can be
dissolved. The general partner hopes to accomplish this dissolution by the
end of March, 1999 when the partnership will be mailing the final K-1's
reporting the sale but there is no guaranty this will occur by this date. At
the time of the dissolution the partnership will pay the second and final
liquidating distribution of any remaining funds held.
(Continued)
Page 12
<PAGE>
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.
(REGISTRANT) Mission Valley Comfort Suites Ltd.,
A California Limited Partnership
By: GHG Hospitality, Inc.
Corporate General Partner
By:(SIGNATURE) /s/ Stephen D. Burchett
(NAME AND TITLE) Stephen D. Burchett, Vice President
(DATE) November 10, 1998
By:(SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Sylvia Mellor Clark, Controller
(DATE) November 10, 1998
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 283,541
<SECURITIES> 0
<RECEIVABLES> 867
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 304,086
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 304,086
<CURRENT-LIABILITIES> 22,682
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 304,086
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 108,111
<EXTRAORDINARY> 2,798,671
<CHANGES> 0
<NET-INCOME> 2,906,782
<EPS-PRIMARY> 443.41
<EPS-DILUTED> 443.41
</TABLE>
