<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File No.: 33-11224-LA
Mission Valley Comfort Suites Ltd., A California Limited Partnership
(Name of small business issuer in its charter)
California 33-0213497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3725 Talbot Street #296, San Diego, California 92106
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (619) 294-9435
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interests
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. /x/ Yes / / No
State issuer's revenues for its most recent fiscal year: $1,112,678.
The aggregate market value of the voting securities held by non-
affiliates is not determinable as there is no established market and the
securities have only limited voting rights.
State the number of limited partnership interests outstanding as of
December 31, 1998: 5,900 interests held by 866 limited partners.
DOCUMENT INCORPORATED BY REFERENCE
Definitive Prospectus dated February 6, 1987, as supplemented
December 2, 1987, is incorporated by reference into Part III.
1
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PART I
Item 1. Business
Mission Valley Comfort Suites Ltd., A California Limited Partnership,
formerly Motels of America Series X, A California Limited
Partnership, (the Partnership) was formed on September 18, 1987
pursuant to the California Revised Uniform Limited Partnership Act.
As of December 31, 1998, the Partnership consisted of a general
partner, GHG Hospitality, Inc. (GHG), and 866 limited partners
owning 5,900 limited partnership interests. The limited partnership
interests sold at a public offering price of $1,000 each commencing
February 6, 1987 pursuant to a Registration Statement on Form S-18
under the Securities Act of 1933 (Registration 33-11224-LA). The
offering of $5,900,000 was fully subscribed and closed on March 21,
1988.
The Partnership was organized to lease a parcel of land in the Mission
Valley area of San Diego, California and build and operate thereon a
122-room Comfort Suites motel as a franchise of Choice International.
The land was leased from Colony Ventures Ltd., a nonaffiliated party,
by Motels of America, Inc. (MOA) and the former general partners in
November 1986, and was held for the benefit of the Partnership until
the Partnership had raised sufficient funds to build the motel. MOA
and the former general partners assigned the land lease to the
Partnership for their actual carrying costs. The motel was opened for
business in September 1988 under a twenty-year franchise agreement
with Choice International 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. Since January 1, 1990, the
motel has been operated pursuant to a management agreement with
GHG.
At the time of the public offering in 1987 and 1988, the Prospectus
stated that the general partner expected that the Partnership would
consider selling or refinancing the motel after operating it for a period
of approximately six to ten years. An informal survey conducted by
the general partner of a number of limited partners in early 1998
indicated that a substantial majority would like the motel to be sold.
For these reasons, the general partner decided in early 1998 to initiate
the process which could possibly result in a sale of the motel. On
March 3, 1998, the Partnership entered into an agreement with Hotel
Partners, Inc., a real estate broker specializing in hotel and motel
properties, to list the motel for sale.
On July 2, 1998, the Partnership sold its motel property and related
assets to Piyal, LLC (the Purchaser) for $5,000,000 in cash. The
Purchaser also assumed the Partnership's obligations under the land
lease. Net cash proceeds received by the Partnership from the sale
were $4,647,699 after deducting the payment of the first trust deed of
$188,965, sales commissions of $150,000 and net pro rations and other
closing costs of $13,336. The sale was approved by limited partners
holding a majority of the Partnership's limited partnership interests
pursuant to a Consent Solicitation Statement dated June 18,1998.
2
<PAGE>
The Partnership paid a liquidating distribution to the limited partners of
$4,446,371 ($753.62 per interest) on July 21, 1998. The Partnership
retained some cash to cover its remaining liabilities and any unexpected
claims. Any amount not needed for this purpose will be distributed to
the partners when management determines that all liabilities and
potential claims have been paid or provided for at which time
management intends to cause the Partnership to be dissolved. The
liquidation and dissolution of the Partnership was approved by limited
partners holding a majority of the Partnership's limited partnership
interests pursuant to a Consent Solicitation Statement dated June 18,
1998.
The Partnership has no employees.
Item 2. Property
The Partnership did not own any property as of December 31, 1998,
and the Partnership does not intend to acquire any property in the
future.
Prior to the July 2, 1998 sale of its motel property, the Partnership
owned the following property which it acquired in 1987 and 1988.
Property name and address Property description
---------------------------- --------------------------
Comfort Suites A 122-room "suites only" motel on
631 Camino del Rio South approximately 1.83 acres of land,
San Diego, CA 92108 subject to a 60-year lease expiring
in 2046.
Item 3. Legal Proceedings
The Partnership is a defendant in a complaint filed on July 23, 1998 in
Superior Court of San Diego County by Isabel Callahan and Roberta
Callahan Webster. The plaintiffs are seeking compensatory damages
of an unspecified amount related to injuries they claim to have received
as a result of separate slip and fall accidents while staying at the
Partnership's motel. The claim is being defended by the Partnership's
insurance carrier and management believes that any loss related to this
claim will be fully covered by insurance and, therefore, will not have
an effect on the financial position of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
On June 18, 1998, a Consent Solicitation Statement was submitted to
the limited partners to approve (i) the sale of substantially all of the
assets of the Partnership and (ii) the complete termination and
liquidation of the Partnership resulting in cash distributions to the
limited partners.
3
<PAGE>
On July 2, 1998, the general partner announced that the results of the
consent solicitation were as follows:
<TABLE>
<CAPTION>
Limited Percent
Partnership to
Interests Total
<S>
Sale of substantially all assets:
<C> <C>
Voted for:
Consent card returned 3,630 61.50%
Consent card not returned by deadline
- deemed to be "voted for" 2,243 38.01
_________ _________
Total voted for 5,873 99.54
Voted against 23 .39
Abstained 4 .07
</TABLE>
<TABLE>
<CAPTION>
<S>
Termination and liquidation of Partnership:
<C> <C>
Voted for:
Consent card returned 3,634 61.60%
Consent card not returned by deadline
- deemed to be "voted for" 2,243 38.01
_________ ________
Total voted for 5,877 99.61
Voted against 23 0.39
Abstained 0 0.00
</TABLE>
PART II
Item 5. Market for Limited Partnership Interests and Related
Partner Matters
There is no public trading market for the Partnership's limited
partnership interests. There were approximately 866 holders of the
Partnership's 5,900 limited partnership interests as of December 31,
1998. Cash distributions to holders of limited partnership interests
totaled $4,577,141 ($775.79 per interest) in 1998 and $193,500
($32.80 per interest) in 1997.
4
<PAGE>
Item 6. 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.
At the time of the public offering in 1987 and 1988, the Prospectus
stated that the general partner expected that the Partnership would
consider selling or refinancing the motel after operating it for a period
of approximately six to ten years. An informal survey conducted by
the general partner of a number of limited partners in early 1998
indicated that a substantial majority would like the motel to be sold.
For these reasons, the general partner decided in early 1998 to initiate
the process which could possibly result in a sale of the motel. On
March 3, 1998, the Partnership entered into an agreement with Hotel
Partners, Inc., a real estate broker specializing in hotel and motel
properties, to list the motel for sale.
On July 2, 1998, the Partnership sold its motel property and related
assets to Piyal, LLC (the Purchaser) for $5,000,000 in cash. The
Purchaser also assumed the Partnership's obligations under the land
lease. Net cash proceeds received by the Partnership from the sale
were $4,647,699 after deducting the payment of the first trust deed of
$188,965, sales commissions of $150,000 and net pro rations and other
closing costs of $13,336. The sale was approved by limited partners
holding a majority of the Partnership's limited partnership interests
pursuant to a Consent Solicitation Statement dated June 18,1998.
The Partnership paid a liquidating distribution to the limited partners of
$4,446,371 ($753.62 per interest) on July 21, 1998. The Partnership
retained some cash to cover its remaining liabilities and any unexpected
claims. Any amount not needed for this purpose will be distributed to
the partners when management determines that all liabilities and
potential claims have been paid or provided for at which time
management intends to cause the Partnership to be dissolved. The
liquidation and dissolution of the Partnership was approved by limited
partners holding a majority of the Partnership's limited partnership
interests pursuant to a Consent Solicitation Statement dated June 18,
1998.
Accrued expenses as of December 31, 1998, includes estimated costs
of $66,133 to administer the affairs of the Partnership from January 1,
1999 until the final liquidation and dissolution.
5
<PAGE>
The deferred rent liability represented 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 were based on the lesser of
the increase in the Consumer Price Index or 5%, and there was no
minimum annual increase. Consequently, rent expense was recognized
based on the amount due each month rather than on the straight-line
basis. In addition, the deferred rent liability accrued prior to April 1,
1993 was credited to income on a straight-line basis over the remaining
term of the lease. The lease was assumed by the Purchaser in
connection with the sale of the motel. The deferred rent liability,
which had a balance of $1,439,082 as of July 2, 1998, was eliminated
and is included in the gain on disposal of discontinued operations.
Results of Operations:
All of the Partnership's operations are related to the motel business
which was sold on July 2, 1998. Income from discontinued operations
was $162,320 in 1998 and $129,950 in 1997. Gain on disposal of
discontinued operations was $2,668,165 in 1998. Net income was
$2,830,485 in 1998 and $129,950 in 1997. Total revenues were
$1,112,678 in 1998 and $2,040,601 in 1997. The property operated at
an occupancy of 71.68% in 1998 and 73.87% in 1997. The average
daily room rate was $65.73 in 1998 and $59.73 in 1997.
Total revenues and operating expenses decreased in 1998 compared to
1997 because the motel was operated by the Partnership for
approximately six months in 1998 compared to twelve months in 1997.
Gain on disposal of discontinued operations of $2,668,165 in 1998 is
comprised of a gain of $1,365,117 on the sale of the motel and related
assets, a gain of $1,439,082 related to the elimination of the deferred
rent liability, costs of $15,325 associated with obtaining the consent of
limited partners to sell the motel and liquidate and dissolve the
Partnership, and estimated expenses of $120,709 to administer the
affairs of the Partnership from the date of the sale until the final
liquidation and dissolution. Approximately $54,576 of the estimated
expenses were incurred in 1998.
In 1997, the Partnership incurred costs of $108,403 associated with a
proposal to reorganize the Partnership into a real estate investment
trust (REIT). The efforts were discontinued when management and the
proposed sponsor of the REIT were unable to negotiate mutually
acceptable terms and conditions for a reorganization.
The effect of current operations on liquidity was net cash provided by
operating activities of $138,405 in 1998 and $343,146 in 1997 and net
cash provided by the sale of motel and related assets of $4,647,699
6
<PAGE>
in 1998. The cash was used primarily for cash distributions to partners
which were $4,591,672 in 1998 and $215,000 in 1997, payments of long-term
debt prior to the sale which were $18,116 in 1998 and $29,830 in 1997, and
investment property expenditures prior to the sale which were $44,772 in
1998 and $27,185 in 1997.
Year 2000 Issues:
Many existing computer programs use only two digits to identify a
year in the date field. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.
Based on the sale of substantially all of the Partnership's assets and the
cessation of substantially all of the Partnership's operations,
management believes that the Year 2000 issues will not have a material
effect on the Partnership.
7
<PAGE>
Item 7. Financial Statements and Supplementary Data
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
I N D E X
Pages
Independent Auditor's Report 9
Balance Sheets, December 31, 1998 and 1997 10-11
Statements of Operations, Years Ended December 31, 1998 and 1997 12
Statements of Partners' Capital, Years Ended December 31, 1998
and 1997 13-14
Statements of Cash Flows, Years Ended December 31, 1998
and 1997 15
Notes to Financial Statements 16-24
8
<PAGE>
Independent Auditor's Report
The Partners
Mission Valley Comfort Suites Ltd.,
A California Limited Partnership
We have audited the balance sheets of Mission Valley
Comfort Suites Ltd., A California Limited Partnership, as of
December 31, 1998 and 1997, and the related statements of operations,
partners' capital, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Mission
Valley Comfort Suites Ltd., A California Limited Partnership, as of
December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally
accepted accounting principles.
As more fully discussed in Note 1, the Partnership sold
substantially all of its assets and paid a liquidating distribution to its
limited partners in 1998.
/s/ Levitz, Zacks, Ciceric, CPAs
San Diego, California
January 15, 1999
9
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION> ASSETS
1998 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalent $256,005 $146,672
Accounts receivable -0- 14,255
Operating supplies -0- 15,011
Prepaid expense -0- 36,150
Due from affiliate 15,234 -0-
------------- -----------
Total current assets 271,239 212,088
------------- -----------
Investment property, at cost:
Building and improvements -0- 4,617,037
Furniture, fixtures and equipment -0- 1,225,209
------------- ------------
-0- 5,842,246
Less accumulated depreciation -0- 2,357,571
------------- ------------
Investment property, net -0- 3,484,675
------------- ------------
Franchise fees, net -0- 26,667
------------- -----------
Total assets $271,239 $3,723,430
============ ============
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
1998 1997
<S> <C> <C>
Current Liabilities:
Accounts payable $ -0- $24,136
Accrued expenses 66,133 17,030
Due to affiliate -0- 28,629
Guest deposits -0- 26,344
Current portion of long-term debt -0- 9,891
------------ ----------
Total current liabilities 66,133 106,030
Long-term debt, less current portion -0- 197,190
Deferred rent liability -0- 1,453,917
------------ -----------
Total liabilities 66,133 1,757,137
------------ -----------
Partners' Capital:
General partner:
Capital contributions 31,210 31,210
Cumulative net income (loss) 192,461 (101,786)
Cumulative cash distributions (223,671) (209,140)
------------ -----------
-0- (279,716)
------------ -----------
Limited partners (5,900 interests):
Capital contributions,net of offering costs 5,117,287 5,117,287
Cumulative net income (loss) 1,620,168 (916,070)
Cumulative cash distributions (6,532,349) (1,955,208)
------------ ------------
205,106 2,246,009
------------ ------------
Total partners' capital 205,106 1,966,293
------------ ------------
Total liabilities and partners' capital $271,239 $3,723,430
============ ============
</TABLE>
11
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statements of Operations
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION> 1998 1997
<S> <C> <C>
Discontinued Operations:
Revenues:
Room revenues $1,040,372 $1,964,912
Phone revenues 14,726 34,090
Interest income 19,091 3,227
Other 38,489 38,372
------------ ------------
Total revenues 1,112,678 2,040,601
------------ ------------
Expenses:
Property operating expenses 353,582 660,221
Land rent 116,355 228,411
Depreciation 101,377 194,475
Royalties and chain-affiliated advertising 89,164 151,056
General and administrative 71,508 165,599
Management fees 64,230 122,243
Repairs and maintenance 44,778 76,470
Marketing 43,679 77,207
Real estate taxes 35,572 66,817
Property and liability insurance 18,873 38,553
Interest 9,990 18,696
Amortization 1,250 2,500
REIT proposal costs -0- 108,403
------------ ------------
Total expenses 950,358 1,910,651
------------ ------------
Income from discontinued operations 162,320 129,950
Gain on disposal of discontinued operations 2,668,165 -0-
----------- -------------
Net income $ 2,830,485 $ 129,950
============ =============
Net income per interest:
Income from discontinued operations $ 24.76 $ 19.82
Gain on disposal of discontinued operations 405.11 -0-
--------- ----------
Net income per interest $ 429.87 $ 19.82
======== ========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statements of Partners' Capital
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
General Partner
Cumulative Cumulative
Capital Net Income Cash
Contributions (Loss) Distributions Total
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $31,210 $(114,781) $(187,640) $(271,211)
Net income, year ended
December 31, 1997 -0- 12,995 -0- 12,995
Cash distributions
($32.80 per interest) -0- -0- (21,500) (21,500)
---------- ---------- ----------- ----------
Balance, December 31, 1997 31,210 (101,786) (209,140) (279,716)
Net income, year ended
December 31, 1998 -0- 294,247 -0- 294,247
Cash distributions
($775.79 per interest) -0- -0- (14,531) (14,531)
---------- ----------- ---------- ----------
Balance, December 31, 1998 $31,210 $192,461 $(223,671) $ -0-
========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Limited Partners
Cumulative Cumulative Total
Capital Net Income Cash Partners'
Contributions (Loss) Distributions Total Capital
<C> <C> <C> <C> <C>
$5,117,287 $(1,033,025) $(1,761,708) $2,322,554 $2,051,343
-0- 116,955 -0- 116,955 129,950
-0- -0- (193,500) (193,500) (215,000)
__________ ___________ ___________ _________ ________
5,117,287 (916,070) (1,955,208) 2,246,009 1,966,293
-0- 2,536,238 -0- 2,536,238 2,830,485
-0- -0- (4,577,141) (4,577,141) (4,591,672)
___________ ___________ ___________ ___________ __________
$5,117,287 $1,620,168 $(6,532,349) $ 205,106 $ 205,106
========== ========== ============ =========== ==========
</TABLE>
14
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statements of Cash Flows
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $2,830,485 $ 129,950
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 102,627 196,975
Gain on disposal of discontinued operations (2,668,165) -0-
Post-measurement date expenses paid (54,576) -0-
Expenses pro rated in escrow 3,210 -0-
(Increase) decrease in:
Accounts receivable 14,255 24,542
Operating supplies, net of effects of sale 627 529
Prepaid expenses 36,150 (13,728)
Due from affiliate (15,234) 4,848
Increase (decrease) in:
Accounts payable (24,136) (17,680)
Accrued expenses (17,030) 3,850
Due to affiliate (28,629) 17,189
Guest deposits (26,344) 26,344
Deferred rent liability, net of effects of sale (14,835) (29,673)
---------- ---------
Net cash provided by operating activities 138,405 343,146
---------- ---------
Cash flows from investing activities:
Sale of motel and related assets 4,647,699 -0-
Costs related to sale of motel and related assets (22,211) -0-
Investment property expenditures (44,772) (27,185)
---------- ---------
Net cash provided by (used in) investing activities 4,580,716 (27,185)
---------- ---------
Cash flows from financing activities:
Cash distributions to partners (4,591,672) (215,000)
Payments of long-term debt (18,116) (29,830)
----------- ---------
Net cash used in financing activities (4,609,788) (244,830)
----------- ---------
Net increase in cash and cash equivalents 109,333 71,131
Cash and cash equivalents, beginning of year 146,672 75,541
----------- ---------
Cash and cash equivalents, end of year $256,005 $146,672
=========== =========
Supplemental disclosure of cash flow information:
Interest paid $(8,688) $(18,696)
========== =========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
Years Ended December 31, 1998 and 1997
Note 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
Partnership consists of a general partner which owns a 10% interest
and 866 limited partners which collectively own a 90% interest. The
purpose of the Partnership was to construct, own, and operate a 122-
room "suites only" motel in San Diego, California under a franchise
agreement with Choice International. The motel was opened in
September 1988.
On July 2, 1998, the Partnership sold its motel property and related
assets to Piyal, LLC (the Purchaser) for $5,000,000 in cash. The sale
was approved by limited partners holding a majority of the
Partnership's limited partnership interests pursuant to a Consent
Solicitation Statement dated June 18, 1998.
The Partnership paid a liquidating distribution to the limited partners of
$4,446,371 ($753.62 per interest) on July 21, 1998. The Partnership
retained some cash to cover its remaining liabilities and any unexpected
claims. Any amount not needed for this purpose will be distributed to
the partners when management determines that all liabilities and
potential claims have been paid or provided for at which time
management intends to cause the Partnership to be dissolved. The
liquidation and dissolution of the Partnership was approved by limited
partners holding a majority of the Partnership's limited partnership
interests pursuant to a Consent Solicitation Statement dated June 18,
1998.
The following is a summary of the Partnership's significant accounting
policies:
Discontinued Operations
All of the Partnership's operations are related to the motel business
which was sold on July 2, 1998. Accordingly, all of the revenues and
expenses of the Partnership prior to the sale have been presented as
discontinued operations in the accompanying statements of operations.
Gain on disposal of discontinued operations is net of estimated
expenses of $120,709 to administer the affairs of the Partnership until
its final liquidation and termination. Approximately $54,576 of the
estimated expenses were incurred in 1998. This estimate could change
in the next year due to unforeseen circumstances.
16
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Note 1. THE PARTNERSHIP AND A SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 repairs 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 which expires in 2008.
Advertising
Advertising costs are expensed as incurred. Advertising expense was
$56,709 for the year ended December 31, 1998 and $113,658 for the
year ended December 31, 1997.
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 amount allocated to limited
partners pursuant to the partnership agreement divided by 5,900
limited partner interests outstanding throughout the year.
17
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Note 1. THE PARTNERSHIP AND A SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Note 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.
Note 3. FRANCHISE AGREEMENT
The Partnership entered into a twenty-year franchise agreement
expiring in 2008 with Choice International 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.
The franchise agreement was terminated in connection with the sale of
the motel.
18
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Note 4. LONG-TERM DEBT
The Partnership had a note payable which was due in monthly
payments 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 than scheduled
and reduce interest expense over the term of the note. The note was
secured by a trust deed on the Partnership's motel. The fair value of
long-term debt approximated its carrying amount based on borrowing
rates available to the Partnership for loans with similar terms.
The note, which had a balance of $188,965 as of July 2, 1998, was
paid in full in connection with the sale of the motel.
Note 5. LEASE
The Partnership leased the land underlying its motel under an operating
lease which expires 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 is no minimum annual increase.
Consequently, rent expense was recognized based on the amount due
each month rather than on the straight-line basis. In addition, the
deferred rent liability accrued prior to April 1, 1993 was 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 Purchaser in connection with the sale of
the motel. The deferred rent liability, which had a balance of
$1,439,082 as of July 2, 1998, was eliminated and is included in the
gain on disposal of discontinued operations.
19
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Note 6. RELATED PARTY TRANSACTIONS
The motel is 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 agreement expires upon the termination or dissolution of the
Partnership or upon three months' written notice from the general
partner.
The Partnership has 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, Grosvenor Management Services, Inc. (GMS),
allocate to the Partnership certain marketing, accounting, and
maintenance salaries and certain other expenses directly related to the
operations of the Partnership.
Fees, reimbursements, salaries, and other expenses paid to GHG and
GMS and included in total expenses for the years ended December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Management fees $64,230 $122,243
Reimbursement for partnership administration
expenses 36,953 37,547
Salaries and other allocated expenses 49,105 113,263
----------- -----------
$150,288 $273,053
=========== ===========
</TABLE>
In addition, all motel staff are employed by GMS. The Partnership
reimbursed GMS $234,146 in 1998 and $375,625 in 1997, including a
one percent processing fee, for the wages of these employees.
20
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Note 7. NET INCOME PER INTEREST
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Income from discontinued operations $162,320 129,950
Less amount allocated to general partner (16,232) (12,995)
----------- ---------
Income from discontinued operations allocated
to limited partners 146,088 116,955
Limited partner interests outstanding throughout
the year 5,900 5,900
---------- ----------
Income from discontinued operations per interest $24.76 $19.82
========== ==========
Gain on disposal of discontinued operations $2,668,165 $ -
Less amount allocated to general partner (278,015) -
----------- ---------
Gain on disposal of discontinued operations
allocated to limited partners 2,390,150 -
Limited partner interests outstanding throughout
the year 5,900 -
----------- ---------
Gain on disposal of discontinued operations
per interest $ 405.11 $ --
========= ========
</TABLE>
21
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Note 8. SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Net cash provided by the sale of motel and related assets in 1998 was
as follows:
<TABLE>
<CAPTION>
<S> <C>
Sale price $5,000,000
Less payments directly from escrow account:
Long-term debt (188,965)
Sale commission (150,000)
Net pro rations and other closing costs (13,336)
------------
$4,647,699
============
</TABLE>
22
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 9. Directors and Executive Officers of the Registrant
The general partner has general responsibility and ultimate authority in
all matters affecting the business of the Partnership.
The general partner and its directors and executive officers as of
December 31, 1998 are as follows:
GHG HOSPITALITY, INC. (GHG) was incorporated in November
1989 under the laws of the state of Delaware. GHG was elected as
general partner effective January 1, 1990.
J. MARK GROSVENOR, 51, is President and a Director of GHG.
From 1976 to 1988, he served as chief executive officer of Nite Lite
Inns, a California corporation, which owned Grosvenor Enterprises, a
California limited partnership, which owns Grosvenor Inn. In 1984,
he acquired Medallion Foods, Inc., a food processing company,
located in Newport, Arkansas. Mr. Grosvenor graduated from San
Diego State University with a bachelor's degree in business and
finance.
STEPHEN D. BURCHETT, 39, is Vice President of GHG. From
1984 to 1991 he worked in private business law practice in San Diego,
California with Schall, Boudreau & Gore and Kaufman, Lorber, Grady
& Farley. Mr. Burchett graduated from California State University
Fullerton in 1981 with a bachelor's degree in finance and from the
University of Santa Clara School of Law in 1984 with a juris
doctorate.
SYLVIA MELLOR CLARK, 54, is Controller of GHG. In 1978, she
joined Grosvenor Industries, Inc., where she is controller and a
director. Prior to joining Grosvenor Industries, Inc., she operated her
own accounting firm from 1976 to 1978. Ms. Clark graduated from
San Diego State University and National University.
Item 10. Executive Compensation
The Partnership has not paid and does not propose to pay any executive
compensation to the general partner or any of its affiliates (except as
described in Item 12 below). There are no compensatory plans or
arrangements regarding termination of employment or change of
control.
23
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Item 11. Security Ownership of Certain Beneficial Owners and
Management
(a) No person or group is known to the Partnership to be
the beneficial owner of more than 5% of the outstanding limited
partnership interests in the Partnership.
(b) The general partner does not directly or indirectly own
any limited partnership interests in the Partnership. The general
partner does not possess a right to acquire beneficial ownership of
limited partnership interests in the Partnership.
(c) There are no arrangements, known to the Partnership,
which may result in a change in control of the Partnership.
Item 12. Certain Relationships and Related Transactions
The motel is operated pursuant to a management agreement with GHG.
The agreement provides for the payment of monthly management fees
of 6% of gross revenues.
The Partnership has 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, Grosvenor Management Services, Inc. (GMS),
allocate to the Partnership certain marketing, accounting, and
maintenance salaries and other expenses directly related to the
operation of the Partnership.
Fees, reimbursements, salaries, and other expenses paid to GHG and
GMS and included in total expenses for the years ended December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Management fees $64,230 $122,243
Reimbursement for partnership administration
expenses 36,953 37,547
Salaries and other allocated expenses 49,105 113,263
---------- ----------
$150,288 $273,053
========== ==========
</TABLE>
In addition, all motel employees are paid by GMS. The Partnership
reimbursed GMS $234,146 in 1998 and $375,625 in 1997, including a
one percent processing fee, for the wages of these employees.
24
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Years Ended December 31, 1998 and 1997
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this
report:
1. Financial Statements (see Index to Financial
Statements filed with this annual report).
2. Exhibits:
3-A. The Prospectus of the Partnership dated
February 6, 1987, as supplemented December
2, 1987, as filed with the Commission, is
hereby incorporated herein by reference.
3-B. Agreement of Limited Partnership set forth as
Exhibit B to the Prospectus, as filed with the
Commission, is incorporated herein by
reference.
3-C. Amendment to Agreement of Limited
Partnership dated January 1, 1990, as filed
with the Commission, is incorporated herein
by reference.
(b) No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
No annual report or proxy material for the fiscal year 1998 has been
sent to the limited partners of the Partnership. An annual report will
be sent to the limited partners subsequent to this filing and the
Partnership has incorporated such reports in this filing.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant 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
(SIGNATURE) /s/ J. Mark Grosvenor
(NAME AND TITLE) J. MARK GROSVENOR, President and Director of GHG
(DATE) March 26, 1999
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(REGISTRANT) MISSION VALLEY COMFORT SUITES, LTD.
A California Limited Partnership
By: GHG Hospitality, Inc.
Corporate General Partner
(SIGNATURE) /s/ J. Mark Grosvenor
(NAME AND TITLE) J. MARK GROSVENOR, President and Director of GHG
(DATE) March 26, 1999
(SIGNATURE) /s/ Stephen D. Burchett
(NAME AND TITLE) STEPHEN D. BURCHETT, Vice President of GHG
(DATE) March 26, 1999
(SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) SYLVIA MELLOR CLARK, Controller of GHG
(DATE) March 26, 1999
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 256,005
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 271,239
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 271,239
<CURRENT-LIABILITIES> 66,133
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 271,239
<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> 2,830,485
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,830,485
<EPS-PRIMARY> 429.87
<EPS-DILUTED> 429.87
</TABLE>
