Item 2. PROPERTIES
Barstow
On May 10, 1984, the Partnership entered into a long-term lease of 3.05 acres of unimproved land located on East Main Street in Barstow, California. The leasehold is located within a 15-acre parcel which was developed as a lodging, restaurant, retail and theater complex known as "Barstow Station Too!". The Barstow hotel is the only hotel or motel included in the complex. The original term of the lease is for 50 years with lessee's option to renew for three additional 10-year periods.
The Barstow hotel, which consists of 148 guestrooms, was placed in service on December 31, 1985, at which date 96 guestrooms were available for occupancy. The remaining 52 guestrooms became available for occupancy on March 15, 1986.
On June 15, 1987 the Partnership commenced operation of a family restaurant and cocktail lounge immediately adjacent to the Barstow hotel. The Partnership leases the restaurant facility from Fred Rosenberg, the lessor of the hotel site.
On May 30, 1990, the Partnership entered into a written agreement with the lessor for the amendment of the hotel and restaurant facility leases. The restaurant facility lease term was extended from January 1, 1991 to December 31, 2010; however, the Partnership has the option of terminating the lease after January 1, 2001 if the Partnership should terminate its license to operate the hotel as a franchise of Holiday Inns, Inc. Additional rent for the hotel site and restaurant facility was changed so as to be the amount by which 9% of the combined annual gross sales from the hotel and restaurant facility exceeds the combined annual minimum rent ($275,556 as of December 31, 1997; $280,116 as of December 31, 1998) under the hotel site and restaurant facility leases.
The leases provide that the improvements constructed by the Partnership on the leased premises will remain the property of the Partnership during the lease term but that upon expiration of the leases, title to any such improvements will pass to the lessor.
In 1998, the Partnership incurred a total of $294,417 in rent expense for its Barstow hotel site and restaurant facility. See Item 3
Item 3. LEGAL PROCEEDINGS
Fred Rosenberg, d.b.a. Barstow Station, Too!, the Partnership's landlord (the "Lessor" ) has served upon the Partnership a Demand for Arbitration, dated September 24, 1998. In the demand, the Lessor has asked for (i) a declaration that the Partnership is in violation of the lease in that the Partnership's restaurant is not open for lunch (the Lessor alleging that this practice is not customary for businesses of like character in Barstow and that the lease requires the Partnership to operate the restaurant in such alleged customary fashion) and that the meeting and banquet rooms are not being operated for lunch; and (ii) damages in an amount to be proved but believed to be at least $250,000. On October 23, 1998 the Partnership transmitted its answer to the demand and the Partnership and the Managing General Partner transmitted a counterclaim praying for a dismissal of the Lessor's demand, compensatory damages for the Lessor's breach of the implied covenant of good faith and fair dealing contained in the lease, a declaration that no violation of the lease has occurred, and damages equal to reasonable attorneys' fees and costs. The counterclaim alleges that the Lessor breached his implied covenant of good faith and fair dealing by leasing nearby property to the Sizzler Restaurant and Taco Bell, and that the changes in operating policies were dictated by changes economic circumstances since the lease was executed more than 14 years ago and by the Lessor's actions in leasing nearby property to direct competitors.
The arbitration proceeding is scheduled to commence on April 12, 1999 in San Bernardino County, California.
Item 4.
Item 4 above.
The Partnership's restaurant at the Barstow Holiday Inn experienced a $49,471 or 27.2% increase in its net loss during the fiscal year ended December 31, 1997 as compared to the previous fiscal year. There was an effort to increase restaurant sales, but the costs rose faster than revenue.
Other Financial Information
In 1996 the computers used by the Partnership at the Managing General Partner's offices in Sacramento were updated. In the process of updating its hardware and software, the Managing General Partner eliminated any potential Year 2000 problem with respect to such computers. Similarly, the Managing General Partner does not anticipate any material Year 2000 problem with the computers at the motel. The Managing General Partner has not investigated and does not know whether any Year 2000 problem may arise from its third party vendors. Because the motel is a "budget" motel, the Partnership's most significant vendors are its utility providers and banks. To the extent banking services, utility services and other goods and services are unavailable as a result of Year 2000 problems with the computer systems of such vendors or otherwise, the ability of the Partnership to conduct business at its motel would be compromised. No contingency plans have been developed in this regard.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at pages through.
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
FAMOUS HOST LODGING V, L. P.
SACRAMENTO, CALIFORNIA
DECEMBER 31, 1998
Item 8: Financial Statements
FAMOUS HOST LODGING V, L. P.
INDEX OF FINANCIAL STATEMENTS
Pages
Report of Independent Certified Public Accountants
Balance Sheets, December 31, 1998 and 1997
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Statements of Partners' Equity for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended to December 31, 1998, 1997 and 1996
Notes to Financial Statements to
Note: All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules or because the information required is included in the financial statements or notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners Famous Host Lodging V, L. P.
We have audited the accompanying balance sheets of Famous Host Lodging V, L. P., a California limited partnership, as of December 31, 1998 and 1997, and the related statements of operations, partners' equity, and cash flows for each of the years in the three year period ended December 31, 1998. 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 audits 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 Famous Host Lodging V, L. P. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Notes 10 and 11 in the financial statements, the Partnership has entered into an agreement to sell the Partnership's properties. If the property is sold then at such time the Partnership will be dissolved.
The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern until such time as the property is sold. As discussed in Note 11 to the financial statements, the Partnership is involved in arbitration proceedings in connection with the land lease. The uncertainty of the outcome of these proceedings raises sustantial doubt as to the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
VOCKER KRISTOFFERSON AND CO.
February 4, 1999 San Mateo, California
FAMOUS HOST LODGING V, L. P. (A California Limited Partnership) BALANCE SHEETS December 31, 1998 and 1997
ASSETS 1998 1997 ---------- ---------- Current Assets: Cash and temporary investments (Notes 1, 3, 9 and 10) $ 370,184 $ 146,113 Accounts receivable 20,431 32,624 Other receivables (Note 10) 36,286 - Prepaid expenses 31,028 37,862 ---------- ---------- Total Current Assets 457,929 216,599 ---------- ---------- Property and Equipment (Notes 2 and 4): Building 4,077,604 4,077,604 Furniture and equipment 1,342,104 1,294,151 ---------- ---------- 5,419,708 5,371,755 Accumulated depreciation and amortization (3,433,032) (3,190,183) ---------- ---------- Property and Equipment, Net 1,986,676 2,181,572 ---------- ----------
Other Assets 32,294 32,294 ---------- -----------
Total Assets $2,476,899 $2,430,465 ========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities: Accounts payable and accrued liabilities $ 136,999 $ 165,909 Due to related parties 8,819 10,856 ---------- ----------
Total Liabilities 145,818 176,765 ---------- ---------- Contingent Liabilities and Lease Commitments (Notes 5, 6 and 11) - -
Partners' Equity: Limited Partners; 10,000 units authorized, 9,022 units issued and outstanding 2,326,092 2,250,315 General Partners 4,989 3,385 ---------- ---------- Total Partners' Equity 2,331,081 2,253,700 ---------- ----------
Total Liabilities and Partners' Equity $2,476,899 $2,430,465 ========== ==========
See accompanying notes to financial statements.
FAMOUS HOST LODGING V, L. P. (A California Limited Partnership) STATEMENTS OF OPERATIONS
Years Ended December 31: ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- Income: Guest room $2,599,166 $2,458,115 $2,489,982 Restaurant 422,079 690,622 655,746 Telephone and vending 38,513 55,707 65,512 Interest 6,879 6,938 9,131 Other 57,860 39,344 37,045 ---------- ---------- ---------- Total Income 3,124,497 3,250,726 3,257,416 ---------- ---------- ---------- Expenses: Hotel operations (exclusive of depreciation shown separately below) (Notes 5, 6 and 7) 1,858,635 1,886,822 1,900,900 Restaurant operations (exclusive of depreciation shown separately below) (Note 5, 6, and 7) 553,878 887,991 800,817 General and administrative (Note 5) 99,601 77,356 78,787 Depreciation and amortization (Note 2) 245,802 281,791 299,764 Legal settlement and related legal fees 21,368 - - Legal fees related to pending sale 29,401 - - Property management fees (Note 5) 155,429 161,840 162,361 ---------- ---------- ---------- Total Expenses 2,964,114 3,295,800 3,242,629 ---------- ---------- ----------
Net Income (Loss) $ 160,383 $ (45,074) $ 14,787 ========== ========== ==========
Net Income (Loss) Allocable to Limited Partners $158,779 $(44,623) $14,639 ======== ======== ======= Net Income (Loss) Allocable to General Partners $1,604 $(451) $148 ====== ===== ==== Net Income (Loss) Per Partnership Unit (Note 1) $17.60 $(4.95) $1.62 ====== ===== ===== Distributions to Limited Partners Per Partnership Unit (Note 1) $9.20 $36.80 $36.80 ===== ====== ======
See accompanying notes to financial statements.
FAMOUS HOST LODGING V, L. P. (A California Limited Partnership) STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31: ---------------------------------- 1998 1997 1996 ---------- ---------- ----------
Limited Partners: Balance, beginning of year $2,250,315 $2,626,948 $2,944,319 Net income (Loss) 158,779 (44,623) 14,639 Less: Cash distribution to limited partners (83,002) (332,010) (332,010) ---------- ---------- ---------- Balance, End of Year 2,326,092 2,250,315 2,626,948 ---------- ---------- ----------
General Partners: Balance, beginning of year 3,385 3,836 3,688 Net income (Loss) 1,604 (451) 148 ---------- ---------- ---------- Balance, End of Year 4,989 3,385 3,836 ---------- ---------- ----------
Total Partners' Equity $2,331,081 $2,253,700 $2,630,784 ========== ========== ==========
See accompanying notes to financial statements.
FAMOUS HOST LODGING V, L. P. (A California Limited Partnership) STATEMENTS OF CASH FLOWS
Years Ended December 31: ---------------------------------- 1998 1997 1996 ---------- ---------- ----------
Cash Flows From Operating Activities: Received from hotel and restaurant operations $3,129,811 $3,237,065 $3,255,807 Expended for hotel and restaurant operations and general and administrative expenses (2,778,711) (2,963,719) (2,942,661) Interest received 6,879 8,651 8,216 ---------- ---------- ---------- Net Cash Provided by Operating Activities 357,979 281,997 321,362 ---------- ---------- ----------
Cash Flows From Investing Activities: Proceeds from sale of property and equipment - 230 500 Purchases of property and equipment (50,906) (50,387) (29,643) ---------- ---------- ---------- Net Cash Used by Investing Activities (50,906) (50,157) (29,143) ---------- ---------- ----------
Cash Flows From Financing Activities: Distributions paid to limited partners (83,002) (332,010) (332,010) ---------- ---------- ---------- Net Cash Used by Financing Activities (83,002) (332,010) (332,010) ---------- ---------- ----------
Net Increase (Decrease) in Cash and Temporary Investments 224,071 (100,170) (39,791) Cash and Temporary Investments: Beginning of year 146,113 246,283 286,074 ---------- ---------- ----------
End of Year $ 370,184 $ 146,113 $ 246,283 ========== ========= ==========
See accompanying notes to financial statements.
FAMOUS HOST LODGING V, L. P. (A California Limited Partnership) STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31: ---------------------------------- 1998 1997 1996 ---------- ---------- ----------
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities:
Net income (loss) $ 160,383 $ (45,074) $ 14,787 ---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 245,802 281,791 299,764 (Gain) loss on disposition of property and equipment - 59,047 (500) (Increase) decrease in accounts receivable 12,193 (8,093) 6,607 Increase in other receivables (36,286) - - (Increase) decrease in prepaid expenses 6,834 1,900 (3,724) Increase (decrease) in accounts payable and accrued liabilities (28,910) (18,108) 4,106 Increase (decrease) in due to related parties (2,037) 10,534 322 ---------- ---------- ---------- Total Adjustments 197,596 327,071 306,575 ---------- ---------- ----------
Net Cash Provided By Operating Activities $ 357,979 $ 281,997 $ 321,362 ========== ========== ==========
See accompanying notes to financial statements.
FAMOUS HOST LODGING V, L. P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Famous Host Lodging V, L.P. is a limited partnership organized under California law on January 17, 1984, to acquire and/or develop and operate hotel properties in the State of California. The term of the Partnership expires December 31, 2023, and may be dissolved earlier under certain circumstances (see Note 12). On February 13, 1991 the Partnership Agreement was amended to change the name of the Partnership from "Super 8 Lodging V, Ltd." to "Famous Host Lodging V, L.P." The hotel in Barstow, California was opened in December 1985. In 1987 the Partnership commenced operation of a family restaurant and cocktail lounge immediately adjacent to the hotel. The Partnership grants credit to customers, substantially all of which are local businesses.
The managing general partner is Grotewohl Management Services, Inc., the fifty percent stockholder and officer of which is Philip B. Grotewohl. In addition, there is one individual associate general partner.
The net income or net loss of the Partnership is allocated 1% to the General Partners and 99% to the Limited Partners. Net income (loss) and distributions per partnership unit are based upon 9,022 units outstanding. All partnership units are owned by the Limited Partners.
The partnership agreement requires that the Partnership maintain working capital reserves for normal repairs, replacements, working capital and contingencies in an amount of at least 5% of gross proceeds of the public offering of units as adjusted for distributions of sales proceeds ($276,799 at December 31, 1998). As of December 31, 1998, the Partnership had working capital of $312,111.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income or loss are passed through to the individual partners for income tax purposes, along with any income tax credits. Therefore, no federal or California income taxes are provided for in the financial statements of the Partnership..
Property and equipment are recorded at cost. Depreciation and amortization are computed using the following estimated useful lives and methods:
Description Methods Useful Lives ----------------------- ---------------------- ------------ Building and components 150% declining balance 10-25 years and straight-line
Furniture and equipment 200% declining balance 4-7 years and straight-line
Costs incurred in connection with maintenance and repair are charged to expense. Major renewals and betterments that materially prolong the lives of assets are capitalized.
FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset.
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 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of December 31, 1998 and 1997 consist of the following: 1998 1997 --------- --------- Cash in bank $ 44,385 $ 71,809 Money market accounts 325,799 74,304 --------- --------- Total Cash and Temporary Investments $ 370,184 $ 146,113 ========= =========
Temporary investments are recorded at cost, which approximates market value. The Partnership considers temporary investments and all highly liquid marketable securities with original maturities of five months or less to be cash equivalents for purposes of the statement of cash flows.
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of the accumulated depreciation and amortization of property and equipment: 1998 1997 ---------- ---------- Building $2,345,614 $2,196,453 Furniture and equipment 1,087,418 993,730 ---------- ---------- $3,433,032 $3,190,183 ========== ==========
The following is a summary of the federal income tax basis as of December 31, 1998: Building $4,470,012 Furniture and equipment 1,289,698 ---------- 5,269,710 Less accumulated depreciation 4,076,523 ---------- $1,193,187 ==========
FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - RELATED PARTY TRANSACTIONS
Property Management Fees The General Partners, or their affiliates, handle the management of the hotel property of the Partnership. The fee for this service is 5% of the gross revenues from Partnership operations, as defined in the partnership agreement, and amounted to $155,429 in 1998, $161,840 in 1997 and $162,361 in 1996.
Subordinated Distributions to General Partners During the Partnership's operational stage, the General Partners are to receive an aggregate of 10% of Partnership distributions from cash available for distribution, of which 9% will constitute a fee for managing the Partnership and 1% will be on account of their interest in the income and losses of the Partnership. These distributions are subordinated, however, to payment to each Limited Partner during such year of distributions from cash available for distribution equal to a 14% per annum non-cumulative return on his adjusted capital contribution. Through December 31, 1998, the Limited Partners have not received a 14% non-cumulative return in any year, therefore no distributions have been made or have accrued to the General Partners.
Subordinated Incentive Distributions Under the terms of the partnership agreement, the General Partners are to receive an aggregate of 15% of Partnership distributions of net proceeds from the sale or refinancing of Partnership properties. The aggregate distribution of 15% is composed of a 14% subordinated incentive fee as additional compensation for services rendered by the General Partners and the 1% on account of their interest in the income and losses of the Partnership. These distributions are subordinated, however, to net proceeds from the sale or refinancing of Partnership properties remaining after distribution to the Limited Partners of any portion thereof required to cause distributions to the Limited Partners from all sources to be equal to their capital contributions plus 10% per annum cumulative return on their adjusted capital contributions. At December 31, 1998, the Limited Partners had not received the 10% per annum cumulative return, and accordingly, no such proceeds have been distributed to the General Partners.
Administrative Expenses Shared by the Partnership and Its Affiliates There are certain administrative expenses allocated between the Partnership and other partnerships managed by the General Partners and their affiliates. These expenses, which are allocated based on usage, are telephone, data processing, rent of the administrative office, and administrative salaries. Management believes that the methods used to allocate shared administrative expenses are reasonable. The administrative expenses allocated to the Partnership were approximately $247,000 in 1998, $230,000 in 1997 and $225,000 in 1996 and are included in general and administrative expenses and hotel and restaurant operations expenses in the accompanying statements of operations. Included in administrative salaries are allocated amounts paid to two employees who are related to Philip B. Grotewohl, the fifty percent stockholder of Grotewohl Management Services, Inc. (see Note 1), the General Partner.
FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - LEASE COMMITMENTS
The Partnership leases 3.05 acres of land in Barstow, California for a term of 50 years beginning in 1984. The Partnership has the right to extend the lease for three consecutive periods of ten years each. The base rent payments are subject to annual upward or downward adjustments based on changes in the Consumer Price Index. (See also note 11.)
The Partnership also leases the site adjacent to its Barstow hotel that contains a restaurant and lounge. The lease provides for a 20-year term ending December 31, 2010 with an option to terminate this lease after termination of the Holiday Inn license agreement. The option cannot be exercised before the tenth year of the renewal term and requires six months written notice.
Both leases contain provisions requiring the lessee to pay all property taxes and assessments. The leases provide for payment of the excess of percentage rent over the base rent. The percentage rent is 9% of the combined gross hotel room revenues and gross restaurant and lounge sales.
Rental expense under these leases incurred by the Partnership amounted to $294,417 in 1998, $299,375 in 1997 and $299,569 in 1996. Such amounts are included in hotel and restaurant operations expense in the accompanying statements of operations.
Future lease commitments at December 31, 1998, using the current minimum monthly amounts, are as follows:
Years Ended Hotel Land Restaurant December 31: Lease Lease Total ------------ ---------- ---------- ---------- 1999 $ 166,536 $ 118,404 $ 284,940 2000 166,536 118,404 284,940 2001 166,536 118,404 284,940 2002 166,536 118,404 284,940 2003 166,536 118,404 284,940 2003-2034 5,245,884 947,232 6,193,116 ---------- ----------- ----------
Total minimum future lease payments $6,078,564 $1,539,252 $7,617,816 ========== ========== ==========
FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - HOTEL AND RESTAURANT OPERATING EXPENSES
The following table summarizes the major components of hotel and restaurant operating expenses for the following years: 1998 1997 1996 ---------- ---------- ---------- Hotel operating expenses: Salaries and related expenses $ 476,895 $ 473,267 $ 464,624 Rent 249,347 235,753 238,538 Franchise, advertising and reservation fees 185,342 175,932 179,762 Utilities 142,254 151,979 155,573 Allocated costs, mainly indirect salaries 197,696 186,004 184,064 Renovations and replacements 63,617 52,913 40,926 Maintenance expenses 107,682 106,149 125,157 Property taxes 64,014 63,790 65,322 Property insurance 41,564 43,021 41,984 Other operating expenses 330,224 398,014 404,950 ---------- ---------- -----------
Total hotel operating expenses $1,858,635 $1,886,822 $1,900,900 ========== ========== ==========
Restaurant operating expenses: Salaries and related expenses $ 227,896 $ 393,229 $ 343,962 Cost of food and beverage 164,578 287,070 253,888 Rent 46,886 65,302 63,068 Utilities 43,575 49,693 48,678 Property taxes 10,315 10,504 11,551 Property insurance 8,863 8,595 9,525 Other operating expenses 51,765 73,598 70,145 ---------- ---------- ----------
Total restaurant operating expenses $ 553,878 $ 887,991 $ 800,817 ========== ========== ==========
NOTE 7 - COMMITMENTS
Franchise Fees In February 1991, the Partnership obtained a ten-year franchise agreement with Holiday Inns, Inc. to operate its Barstow hotel and restaurant under the name "Holiday Inn." The Partnership pays monthly franchise fees of 4% of gross room revenues of the hotel and makes monthly contributions of 1 1/2% and 1% of guest room revenues to a marketing fund and reservation fund, respectively.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and temporary investments approximates fair value because of the short-term maturity of those investments.
FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in five commercial banks located in California. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total uninsured cash balances (not reduced by outstanding checks) as of December 31, 1998 follows:
Total cash in all California banks $394,769 Portion insured by FDIC (100,000) -------- Uninsured cash balance $294,769 ========
NOTE 10 - PENDING SALE OF MOTEL ASSETS
On May 15, 1998 the Partnership and four other limited partnerships managed by the general partner entered into a contract to sell all their motel assets. Escrow for the sales opened June 1998. By majority vote the limited partners of the Partnership have approved the sale of the Partnership's motel assets pursuant to such contract, and the limited partners of the four other limited partnerships have also approved by majority vote the sale of their respective limited partnership's motel assets. The sale of the Partnership's motel assets and the motel assets of the other limited partnerships are subject to certain contingencies (see Note 11). The Partnership has been unable to reach an agreement with the franchisor as to the early termination of the franchise agreement. Because of these contingencies the Partnership has not yet reclassified its motel assets as held for sale. If the sale occurs on the terms approved by the limited partners, it is anticipated that the Partnership would report a gain per books in the amount of approximately $2,100,000. Accordingly, there has been no adjustment to the carrying value of the Partnership's motel assets. If the sale is consummated the Partnership would be dissolved.
In connection with the anticipated sale of the motel assets, the Partnership has incurred reimbursable costs in the amount of $36,286 which are included as other receivables in the accompanying balance sheet.
NOTE 11 - LEGAL PROCEEDINGS
On September 24, 1998 the Lessor of the Barstow Land lease (see note 5) served upon the Partnership a demand for arbitration. In the demand, the Lessor has asked for damages of at least $250,000 due to alleged violations of certain lease requirements in connection with the hours of operations and the use of meeting and banquet rooms. On October 23, 1998 the Partnership served the Lessor with a counterclaim asking for a dismissal of the Lessor's demand and compensatory damages for the Lessor's breach of his implied covenant of good faith and fair dealing with regard to leasing of nearby properties. At this stage in the proceedings, management cannot estimate the outcome of the arbitration.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Dennis A. Brown and Grotewohl Management Services, Inc. were the original managing general partners of the Partnership, and Robert J. Dana was the original associate general partner of the Partnership. Upon the death of Mr. Brown on February 25, 1988, Grotewohl Management Services, Inc. and Mr. Dana elected to continue the Partnership as the Managing General Partner and Associate General Partner, respectively.
The General Partner was organized in 1981 to serve as a general partner of limited partnerships to be formed for the purpose of investing in Super 8 Motels. The 50% shareholder, sole director and principal executive officer of the General Partner is Mr. Grotewohl.
Mr. Grotewohl, age 80, was an attorney-at-law and was engaged in the private practice of law in San Mateo County, California, between 1967 and 1978. Since 1978, Mr. Grotewohl's principal occupation has been as a promoter and general partner of Super 8 Motels limited partnerships
Mr. Robert J. Dana, age 70, was active in the securities industry through the 1980's. He is presently retired.
Item 11. EXECUTIVE COMPENSATION
Although Mr. Brown ceased to be a general partner of the Partnership upon his death, a trust established for Mr. Brown's heirs shares in certain of the compensation otherwise payable to the General Partners and their affiliates.
Property Management Fees
The Manager, a California general partnership which is owned equally by the Brown trust and the Managing General Partner, is managing the Partnership's hotel and restaurant. The fee for this service is 5% of the gross hotel and restaurant revenue. During the fiscal year ended December 31, 1998, the Partnership paid property management fees in the amount of $155,429 to the Manager.
General Partners' Interest in Cash Available for Distribution
At quarterly intervals, the total amount of the Partnership's Cash Available for Distribution is determined at the discretion of the General Partners. (See Item 5
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
AMOUNT AND TITLE NATURE OF OF NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT CLASS OWNER OWNERSHIP OF CLASS ------------------------------------------------------------------------- Units Everest Lodging Investors, LLC 261 Units 2.89% Units Everest Madison Investors, LLC 298 Units 3.30% ------- ------- Total 559 Units 6.19% =======
Security Ownership of Management
The General Partners are not the beneficial owners of any Units.
Changes in Control
With the consent of all other General Partners and Limited Partners holding more than 50% of the Units, a General Partner may designate a successor or additional general partner, in each case with such participation in such General Partner's interest as such General Partner and successor or additional general partner may agree upon, provided that the interests of the Limited Partners are not affected thereby.
A General Partner may withdraw from the Partnership at any time upon 60 days' prior written notice to the Limited Partners and any other General Partners, or may transfer his interest to an entity controlled by him; provided, however, that in either such event, if it is determined that the Partnership business is to be continued rather than dissolved and liquidated upon the happening thereof, the withdrawal or transfer will be effective only after receipt by the Partnership of an opinion of counsel to the effect that such withdrawal or transfer will not cause the Partnership to be classified as an association taxable as a corporation rather than as a partnership for federal income tax purposes.
The Limited Partners shall take no part in the management of the Partnership's business; however, a majority in interest of the Limited Partners, without the concurrence of the General Partners, shall have the right to amend the Partnership Agreement, dissolve the Partnership, remove a General Partner or any successor general partner, elect a new general partner or general partners upon the removal, retirement, death, insanity, dissolution, insolvency or bankruptcy of a General Partner, and approve or disapprove the sale, exchange or pledge in a single transaction of all or substantially all of the properties acquired by the Partnership.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the Partnership and other partnerships managed by the General Partners and their affiliates. These expenses, which are allocated based on usage, are telephone, data processing, rent of administrative offices and administrative salaries. The administrative expenses allocated to the Partnership were approximately $247,000 in 1998 and are included in general and administrative expenses and hotel and restaurant operations expenses in the Partnership's financial statements. Included in administrative salaries are allocated amounts paid to two employees who are related to Philip B. Grotewohl, the chairman of the Managing General Partner.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report 1. Financial Statements Included in Part II of this Report
Report of Independent Certified Public Accountants
Balance Sheets, December 31, 1998 and 1997 Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 Statements of Partners' Equity for the Years Ended December 31, 1998, 1997 and 1996 Statements of Cash Flow for the Years Ended December 31, 1998, 1997 and 1996 Notes to Financial Statements
2. Financial Statement Schedules Included in this Report
None
3. Exhibits
3.1 and 4.1 The Partnership Agreement filed as Exhibit 3.1 and 4.1 to the annual report on Form 10-K for the fiscal year ended December 31, 1994 is incorporated herein by reference.
10.1 Ground Lease respecting the Barstow Hotel filed as Exhibit 10.1 to post-effective amendment no. 1 to the registration statement on Form S-1 of the Partnership (File No.2-88942) is incorporated herein by reference.
10.2 Motel Management Agreement between the Partnership and Super 8 Management Corporation filed as Exhibit 10.3 to the registration statement on Form S-1 of the Partnership (File No. 33-3842) is incorporated herein by reference.
10.3 Ground Lease respecting the Barstow Restaurant filed as Exhibit 10.9 to the annual report on Form 10-K of the Partnership for the fiscal year ended December 31, 1989 is incorporated herein by reference.
10.4 Amendment to Ground Leases filed as Exhibit 10.11 to the annual report on Form 10-K of the Partnership for the fiscal year ended December 31, 1990 is incorporated herein by reference.
10.5 Franchise Agreement between Partnership and Holiday Inns, Inc. filed as Exhibit 10.6 to the annual report on Form 10-K of the Partnership for the fiscal year ended December 31, 1994 is incorporated herein by reference.
Exhibits 10.6 and 10.7 are hereby incorporated herein by reference from the Schedule 14A filed by the registrant on November 3, 1998. 10.6 Purchase and Sale Agreement dated April 30, 1998 10.7 Agreement dated April 21, 1998 and Exclusive Sales Agency contract dated May 8, 1998. Exhibits 10.8 and 10.9 are hereby incorporated herein by reference from the Rule 13E-3 Transaction Statement filed by registrant on November 16, 1998. 10.8 First Amendment dated May 15, 1998 to Agreement dated April 21, 1998. 10.9 Second Amendment dated October 29, 1998 to Agreement dated April 21, 1998
(b) Reports on Form 8-K
Inapplicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) FAMOUS HOST LODGING V, L.P.
By (Signature and Title) /s/ Philip B. Grotewohl --------------------------------- Philip B. Grotewohl, Chairman of Grotewohl Management Services, Inc., General Partner Date April 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) /s/ Philip B. Grotewohl --------------------------------- Philip B. Grotewohl, Chief executive officer, chief financial officer, chief accounting officer and director of Grotewohl Management Services, Inc., General Partner Date April 12, 1999