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 March 31, 1999
/ / 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)
PMB 296, 3725 Talbot Street, San Diego, CA 92106
(Address of principal executive offices)
(619) 294-9435
(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
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of March 31, 1999 and December 31, 1998.
Statement of Operations for the three month period ended March 31, 1999
and March 31, 1998.
Statement of Cash Flows for the three month period ended March 31, 1999
and March 31, 1998.
Notes to Financial Statements.
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
March 31, 1999 and December 31, 1998
(Unaudited)
(Part 1 of 2)
March 31, December 31,
ASSETS 1999 1998
-------- ----------- ------------
Current Assets:
Cash and cash equivalents $ 234,899 $ 256,005
Accounts receivable 0 0
Operating supplies 0 0
Prepaid expenses 0 0
Due from Affiliates (Note 4) 14,030 15,234
----------- -----------
Total current assets 248,929 271,239
Investment property, at cost:
Building and improvements 0 0
Furniture, fixtures & equipment 0 0
----------- -----------
0 0
Less accumulated depreciation 0 0
------------ -----------
Total investment property, net
of accumulated depreciation 0 0
Franchise fees, net (note 3) 0 0
----------- -----------
$ 248,929 $ 271,239
=========== ===========
See accompanying notes to financial statements.
Page 1
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
March 31, 1999 and December 31, 1998
(Unaudited)
(Part 2 of 2)
LIABILITIES AND March 31, 1999 Dec 31, 1998
PARTNER'S CAPITAL ACCOUNTS -------------- ---------------
- ---------------------------
Current liabilities:
Accounts payable and accrued expenses 41.817 66,133
Due to Affiliates (note 4) 0 0
---------- ----------
Total current liabilities 41,817 66,133
---------- ----------
Long-term debt (Note 5) 0 0
Deferred rent liability (note 6) 0 0
----------- ------------
Total liabilities 41,817 66,133
----------- ------------
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings 192,461 192,461
Cumulative cash distributions (223,671) (223,671)
------------- ----------
0 0
------------- ----------
Limited partners:
Capital contributions,net of
offering costs 5,117,287 5,117,287
Cumulative net earnings 1,622,173 1,620,168
Cumulative cash distributions (6,532,349) (6,532,349)
------------- --------------
207,112 205,106
------------- --------------
Total partners' capital accounts 207,112 205,106
------------- --------------
$ 248,929 $ 271,239
============ ==============
See accompanying notes to financial statements.
Page 2
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
Three Months Ended
March 31, 1999 and March 31, 1998
(Unaudited)
THREE MONTHS ENDED
March 31,
1999 1998
----- ----
Revenues:
Income from Discontinued operations $ 0 $ 43,368
Interest Income 2,009 916
----------- ------------
2,009 44,284
----------- ------------
Net Earnings $ 2,009 $ 44,284
=========== ============
Net earnings per limited
partnership interest $ .34 $ 6.76
======== ========
See accompanying notes to financial statements.
Page 3
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months Ended
March 31, 1999 and March 31, 1998
(Unaudited)
THREE MONTHS ENDED
March 31,
1999 1998
--------- --------
Cash flows from operating activities:
Net earnings (loss) $ 2,009 $ 44,284
Adjustments to reconcile net income to cash:
Depreciation and amortization 0 51,318
Increase) decrease in:
Accounts receivable 0 (34,842)
Operating supplies 0 (2,576)
Prepaid expenses 0 (6,675)
Increase (decrease) in:
Accounts payable and accrued expenses (24,317) 11,949
Due to/from Affiliates 1,203 (17,913)
Deferred rent liability 0 (7,417)
Net cash provided by (used in) ---------- ----------
operating activities (21,106) 38,128
---------- ----------
Cash flows from investing activities:
Investment property expenditures 0 (44,772)
---------- ----------
Net cash used in investing activities 0 (44,772)
---------- ----------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable 0 (8,967)
Cash distributions to partners 0 0
Net cash provided by (used in) ---------- ----------
financing activities 0 0
---------- -----------
Net decrease in cash and cash equivalents (21,106) (15,611)
Cash and cash equivalents, beginning of year 256,005 146,672
---------- -----------
Cash and cash equivalents, end of year $ 234,899 $131,061
========== ===========
See accompanying notes to financial statements.
Page 4
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
Readers of this quarterly report should refer to the partnership audited
financial statements and annual report Form 10-KSB (File No. 33-11224-
LA) for the period ended December 31, 1998, as certain footnote
disclosures which would substantially duplicate those contained in such
financial reports have been omitted from this report.
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.
Page 5
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
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 and $24,316 were incurred in the three
months ended March 31, 1999. $41,817 of these expenses remain unpaid
at March 31, 1999. This estimate could change in the next year due to
unforeseen circumstances.
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.
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.
Page 6
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
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.
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.
Page 7
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
Note 4. 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 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, 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.
At March 31, 1999, $14,030 is due from GHG and GMS relating to
reimbursement for these operating expenses.
Note 5. LONG-TERM DEBT
The Partnership had a note payable which was 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.
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.
Page 8
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
Note 6. 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 was included in the 1998 gain on
disposal of discontinued operations.
Note 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 three months ended
March 31, 1999.
Page 9
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
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.
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.
Page 10
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
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. At the date of this report,
management estimates that the final distribution will be paid to the limited
partners before or during the third quarter of 1999.
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 March 31, 1999, includes costs of $41,817 to
administer the affairs of the Partnership until the final liquidation and
dissolution, which as of the date of this report management estimates to be
before or during the third quarter of 1999.
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 was included in the 1998 gain on
disposal of discontinued operations.
Page 11
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
Results of Operations:
All of the Partnership's operations are related to the motel business which
was sold on July 2, 1998.
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. Management estimates that this final liquidation and
dissolution will occur before or during the third quarter of 1999.
Approximately $41,817 of the estimated expenses were unpaid at March 31, 1999.
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.
Page 12
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1999
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 TILE) Stephen D. Burchett, Vice President
(DATE) May 12, 1999
By (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE ) Sylvia Mellor Clark, Controller
(DATE) May 12, 1999
Page 13