<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
----------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 333-9371
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Captec Franchise Capital Partners L.P. IV
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(Exact name of registrant as specified in its charter)
Delaware 38-3304095
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
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(Address of principal executive offices)
(313) 994-5505
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
---- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Not Applicable
<PAGE> 2
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
INDEX TO FORM 10-Q
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements 1
Balance Sheet, September 30, 1997 2
Statement of Operations for the three month period
ended September 30, 1997 3
Statement of Operations for the nine month period
ended September 30, 1997 4
Statement of Cash Flows for the nine month period
ended September 30, 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The balance sheet of Captec Franchise Capital Partners L.P. IV (the
"Partnership") as of September 30, 1997 and the statements of operations and
cash flows for the period ending September 30, 1997 are unaudited and have not
been examined by independent public accountants. In the opinion of the
Management, these unaudited financial statements contain all adjustments
necessary to present fairly the financial position and results of operations
and cash flows of the Partnership for the periods then ended. All such
adjustments are of a normal and recurring nature.
These financial statements should be read in conjunction with the audited
financial statements and accompanying notes thereto included in the
Partnership's report on Form 10-K for the fiscal year ended December 31, 1996.
When used in this discussion, the words, "intends", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Such risks and uncertainties include the following: (i) a tenant may default
in making rent payments, (ii) a fire or other casualty may interrupt the cash
flow stream from a property, (iii) the properties may not be able to be leased
at the assumed rental rates, (iv) unexpected expenses may be incurred in the
ownership of the properties, and (v) properties may not be able to be sold at
the presently anticipated prices and times.
As a result of these and other factors, the Partnership may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition and operating results. These forward-looking statements speak only
as of the date hereof. The Partnership undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
1
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 2,864,023
Investment in property under leases:
Operating leases, net 4,382,541
Direct financing leases, net 2,610,658
Accounts receivable 6,233
Unbilled rent 2,488
Due from related parties 43,595
-------------
Total assets $ 9,909,538
=============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 27,566
Due to related parties 63,637
Security deposits held on leases -
-------------
Total liabilities 91,203
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Partners' Capital:
Limited partners' capital accounts 9,815,248
General partners' capital accounts 3,087
-------------
Total partners' capital 9,818,335
-------------
Total liabilities & partners' capital $ 9,909,538
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
for the three month period ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Operating revenue:
Rental income $ 104,711
Finance income 75,283
-------------
Total operating revenue 179,994
-------------
Operating costs and expenses:
Depreciation 10,884
General and administrative 3,250
-------------
Total operating costs and expenses 14,134
-------------
Income from operations 165,860
-------------
Other income (expense):
Interest income 20,877
Other 1,173
-------------
Total other income, net 22,050
-------------
Net income 187,910
Net income allocable to general partners 1,879
-------------
Net income allocable to limited partners $ 186,031
=============
Net income per limited partnership unit $ 22
=============
Weighted average number of limited partnership
units outstanding 8,558
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
for the nine month period ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Operating revenue:
Rental income $ 138,737
Finance income 120,677
-----------
Total operating revenue 259,414
-----------
Operating costs and expenses:
Depreciation 14,876
General and administrative 9,787
-----------
Total operating costs and expenses 24,663
-----------
Income from operations 234,751
-----------
Other income (expense):
Interest income 52,811
Other 1,173
-----------
Total other income, net 53,984
-----------
Net income 288,735
Net income allocable to general partners 2,887
-----------
Net income allocable to limited partners $ 285,848
===========
Net income per limited partnership unit $ 59
===========
Weighted average number of limited partnership
units outstanding 4,848
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the nine month period ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net Income $ 288,735
Adjustments to net income:
Depreciation 14,876
Increase in unbilled rent (2,488)
(Increase) in receivables (5,894)
Increase in payables 27,527
-------------
Net cash provided by operating activities 322,756
-------------
Cash flows from investing activities:
Purchase of real estate for operating leases (4,397,417)
Construction loan draws-equipment (187,879)
Purchase of equipment for financing leases (2,517,620)
Reduction of net investment in financing leases 94,841
-------------
Net cash used in investing activities (7,008,075)
-------------
Cash flows from financing activities:
(Increase) in due from related parties (43,595)
Increase in due to related parties 63,637
Issuance of limited partnership units 11,105,734
Offering costs (1,438,534)
Distributions to limited partners (137,900)
-------------
Net cash provided by financing activities 9,549,342
-------------
Net increase in cash 2,864,023
Cash, beginning of period -
-------------
Cash, end of period $ 2,864,023
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 8
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. IV (the "Partnership"), a Delaware
limited partnership, was formed on July 23, 1996 for the purpose of
acquiring income-producing commercial real properties and equipment leased
on a "triple net" or "double net" basis, primarily to operators of national
and regional chain and nationally franchised fast food and family style
restaurants, as well as other national and regional retail chains. The
general partners of the Partnership are Captec Franchise Capital
Corporation IV (the "Corporation"), a wholly owned subsidiary of Captec
Financial Group, Inc. ("Captec"), and Patrick L. Beach, an individual,
hereinafter collectively referred to as the Sponsor. Patrick L. Beach is
also the Chairman of the Board of Directors, President and Chief Executive
Officer of the Corporation and Captec. The general partners have each
contributed $100 in cash to the Partnership as a capital contribution.
The Partnership commenced a public offering of limited partnership
interests ("Units") on December 23, 1996. A minimum of 2,000 Units and a
maximum of 30,000 Units, priced at $1,000 per Unit, were offered on a "best
efforts, part or none" basis. The Partnership broke impound on March 5,
1997, at which time funds totaling $2,015,500 were released from escrow and
the Partnership immediately commenced operations. At September 30, 1997,
the Partnership had accepted subscriptions for 11,116.254 Units, and funds
totaling $11,116,254.
Allocation of profits, losses and cash distributions from operations and
cash distributions from sale or refinancing are made pursuant to the terms
of the Partnership Agreement. Profits and losses from operations are
allocated among the limited partners based upon the number of Units owned.
In no event will the General Partners be allocated less than one percent of
profits and losses in any year.
Following is a summary of the Partnership's significant accounting
policies:
A. RENTAL INCOME FROM OPERATING LEASES: The Partnership's operating
leases have scheduled rent increases which occur at various dates
throughout the lease terms. The Partnership recognizes the total
rent, as stipulated by the lease agreement, as income on a
straight-line basis over the term of each lease. To the extent rental
income on the straight-line basis exceeds rents billable per the lease
agreement, an amount is recorded as unbilled rent.
B. LAND AND BUILDING SUBJECT TO OPERATING LEASES: Land and
buildings subject to operating leases are stated at cost less
accumulated depreciation. Buildings are depreciated on the
straight-line method over their estimated useful lives (40 years).
6
<PAGE> 9
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
C. NET INVESTMENT IN FINANCING LEASES: Leases classified as
financing leases are stated as the sum of the minimum lease payments
plus the unguaranteed residual value accruing to the benefit of the
lessor, less unearned income. Unearned income is amortized to income
over the lease term so as to produce a constant periodic rate of
return on the net investment in the lease.
D. NET INCOME PER LIMITED PARTNERSHIP INTEREST: Net income per
limited partnership interest is calculated using the weighted average
number of limited partnership units outstanding during the period and
the limited partners' allocable share of the net income.
E. INCOME TAXES: No provision for income taxes is included in the
accompanying financial statements, as the Partnership's results of
operations are passed through to the partners for inclusion in their
respective income tax returns.
F. ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
G. NO COMPARABLE PRIOR PERIOD FINANCIAL INFORMATION: Since the
Partnership had not commenced operations as of September 30, 1996,
there is no comparable financial information for the three and nine
month period then ended.
2. DISTRIBUTIONS:
Cash flows of the Partnership are allocated ninety-nine percent (99%) to
the limited partners and one percent (1%) to the Sponsor, except that the
Sponsor's share is subordinated to a ten percent (10%) per annum
cumulative, non-compounded preferred return to the limited partners. Net
sale or refinancing proceeds of the Partnership will be allocated ninety
percent (90%) to the limited partners and ten percent (10%) to the Sponsor,
except that the Sponsor's share will be subordinated to a ten and one-half
percent (10.5%) per annum cumulative, non-compounded return on their
Adjusted Investment plus return of the original contributions to the
limited partners.
The Partnership distributed approximately $108,000 during the three month
period ended September 30, 1997, representing cash flow from operations for
the quarter ended June 30, 1997.
7
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
Organization and offering expenses, excluding selling commissions, are paid
initially by the Sponsors and/or their affiliates and were reimbursed by
the Partnership in an amount equal to up to three percent (3%) of the gross
proceeds of the offering (less any amounts paid directly by the
Partnership). In addition, the Sponsors and/or their affiliates were paid
a non-accountable expense allowance by the Partnership in an amount equal
to two percent (2%) of the gross proceeds of the offering. The Sponsor was
reimbursed $542,085 during the nine month period ended September 30, 1997.
These costs were treated as capital issuance costs and have been netted
against the limited partners' capital accounts.
The Partnership paid to Participating Dealers, including Affiliates of the
general partners, selling commissions in an amount equal to eight percent
(8%) of the purchase price of all Units placed by them directly. An
additional one percent (1%) of the purchase price was paid to Participating
Dealers on all Units placed by them until the minimum number of Units were
sold (2,015.5). The additional one percent (1%) was paid out of the
non-accountable expense allowance. There were $861,478 of selling
commissions paid or incurred during the nine month period ended September
30, 1997. These costs were treated as capital issuance costs and have been
netted against the limited partners' capital accounts. The Sponsor has
also guaranteed payment of organization and offering expenses which exceed
13%, including selling commissions, of the gross proceeds of the offering.
An acquisition fee is charged, not to exceed the lesser of: (i) four
percent (4%) of gross proceeds plus an additional .0677% for each 1% of
indebtedness incurred in acquiring properties and/or equipment but in no
event will acquisition fees exceed five percent (5%) of the aggregate
purchase prices of properties and equipment; or (ii) compensation
customarily charged in arm's length transactions by others rendering
similar services. The Partnership paid the Sponsor $273,189 in acquisition
fees during the nine month period ended September 30, 1997, and expects to
receive an additional $68,351 once the Partnership has obtained the maximum
leverage. The acquisition fees were capitalized into net investment in
financing leases.
The Partnership has entered into an asset management agreement with the
Sponsor and its affiliates, whereby the Sponsor provides various property
and equipment management services for the Partnership.
A subordinated asset management fee is charged, in an amount equal to one
percent (1%) of the gross rental revenues derived from the properties and
equipment. Payment of the asset management fee is subordinated to receipt
by the limited partners of annual distributions equal to a cumulative,
noncompounded return of ten percent (10%) per annum on their Adjusted
Investment. There were no subordinated asset management fees paid to the
General Partners during the nine month period ended September 30, 1997.
8
<PAGE> 11
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS, CONTINUED:
An equipment liquidation fee limited to the lesser of three percent (3%) of
the sales price or customary fees for similar services will be paid in
conjunction with asset liquidation services. There were no equipment
liquidations during the nine month period ended September 30, 1997.
The Partnership Agreement provides for the Sponsor to receive a real estate
liquidation fee limited to the lesser of three percent (3%) of the gross
sales price or fifty percent (50%) of the customary real estate commissions
in the event of a real estate liquidation. This fee is payable only after
the limited partners have received distributions equal to a cumulative,
noncompounded return of ten and one-half percent (10.5%) per annum,
cumulative non-compounded preferred return on their Adjusted Investment
capital plus distributions of sale or refinancing proceeds equal to 100% of
their original contributions. There were no real estate liquidations
during the nine month period ended September 30, 1997.
The Partnership has agreed to indemnify the Sponsor and their affiliates
against certain costs paid in settlement of claims which might be sustained
by them in connection with the Partnership. Such indemnification is
limited to the assets of the Partnership and not the limited partners.
4. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of September 30, 1997 is
comprised of the following:
<TABLE>
<S> <C>
Land $ 2,091,094
Building and improvements 2,306,323
-----------
4,397,417
Less accumulated depreciation (14,876)
-----------
Total $ 4,382,541
===========
</TABLE>
The following is a schedule of future minimum lease payments to be received
on the operating leases as of September 30, 1997.
<TABLE>
<S> <C>
1997 $ 125,491
1998 501,962
1999 501,962
2000 501,962
2001 501,962
Thereafter 5,372,475
-----------
Total $ 7,505,814
===========
</TABLE>
9
<PAGE> 12
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
5. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of September 30, 1997 is
comprised of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $3,186,111
Estimated residual value 81,372
Construction draws 187,879
----------
Gross investment in financing leases 3,455,362
Less unearned income (844,704)
----------
Net investment in financing leases $2,610,658
==========
The following is a schedule of future minimum lease
payments to be received on the financing leases as
of September 30, 1997:
1997 $ 166,916
1998 536,454
1999 536,454
2000 536,454
2001 536,454
Thereafter 873,379
----------
Total $3,186,111
==========
</TABLE>
6. SUBSEQUENT EVENT:
Based upon the results of operations for the three month period ended
September 30, 1997, the Partnership had $221,000 to distribute, of which
$167,315 was distributed to its limited partners on October 15, 1997 and
the remaining $53,685 will be distributed to those limited partners who
elected to receive distributions on a monthly basis on November 15, 1997
and December 15, 1997.
10
<PAGE> 13
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL COMMITMENTS:
The Partnership commenced the offering (the "Offering") of up to 30,000
limited partnership units ("Units") registered under the Securities Act of
1933, as amended, by means of a Registration Statement which was declared
effective by the Securities and Exchange Commission on December 23, 1996. The
Offering will terminate when the maximum number of Units are sold (30,000) or
December 23, 1998, whichever occurs first.
The Partnership accepted subscriptions for the minimum number of Units on
March 5, 1997, broke escrow and immediately commenced operations. As a result,
on that date the Partnership received funds totaling $2,015,500 from the sale
of 2,015.5 Units. As of September 30, 1997, the Partnership had accepted
subscriptions for 11,116.254 Units and funds totaling $11,116,254 from 701
limited partners. The Partnership had cash totaling $2,864,023 as of September
30, 1997, approximately $2,568,227 of which is available for investment.
The Partnership intends to utilize the proceeds of the offering to acquire
income-producing commercial Properties and Equipment leased primarily to
operators of national chain and nationally franchised fast-food, family style
and dinner house restaurants as well as other franchised or chain businesses or
Retail Concerns, pursuant to Triple Net Leases or Double Net Leases. The
Partnership expects to use not less than 75%, but not more than 90%, of the Net
Offering Proceeds to acquire Properties and up to 25%, but not less than 10%,
to acquire Equipment. The Property leases are expected to provide for a base
minimum annual rent, with provisions for fixed increases on specific dates or
indexation of rent to indices such as the Consumer Price Index and/or
percentage rents. Equipment will be leased only pursuant to Full Payout
Leases.
Net Offering Proceeds, together with leverage of up to 35% of the sum of
gross proceeds and the aggregate amount of Partnership indebtedness secured by
Partnership assets (approximately 40% of the aggregate purchase prices of
Partnership assets) when incurred, will provide additional funds to be used by
the Partnership to purchase Properties and Equipment.
Once substantially all of the Partnership's funds have been applied as
intended, the Partnership expects to require limited amounts of liquid assets
since the form of lease which it intends to use for its Properties and
Equipment will require lessees to pay all taxes and assessments, maintenance
and repairs items (except, with respect to Double Net Properties, costs
associated with the maintenance and repair of the exterior walls and roof of
the Property) and insurance premiums, including casualty insurance. The
general partners expect that the cash flow to be generated by the Partnership's
Properties and Equipment will be adequate to pay operating expenses and provide
distributions to Limited Partners.
11
<PAGE> 14
The General Partners are not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor do they expect any material changes in the availability and
relative cost of such capital resources, other than as referred to herein and
in the Partnership's Prospectus.
ACQUISITIONS
During the nine month period ending September 30, 1997, the Partnership
purchased eight equipment packages ("Equipment") for a total cost, including
acquisition fees of $2,705,498 and four real estate properties ("Properties")
for $4,397,417. The number of Properties and Equipment to be acquired will
depend upon the number of Units sold in the Offering.
REAL ESTATE
On July 25, 1997 Partnership acquired the land and 6,257 square foot
building comprising a Carino's Italian Kitchen restaurant located at 675
Sunland Park Drive, El Paso, Texas. (the "Carino's Property"). The Carino's
Property was constructed for its present use in 1995 and was fully operational
at the time of the purchase. The Carino's Property was purchased from, and
leased back to Kona Restaurant Group, Inc., a Delaware corporation ("Kona
Group"). Kona Group operates casual dining restaurants under the primary trade
name of Carino's Italian Kitchen and Kona Ranch Steak House. The headquarter
offices of Kona Group are located at 12200 Stemmons Freeway, Suite 220,
Dallas, Texas. The Partnership purchased a fee simple interest in the Carino's
Property for a purchase price of $1,600,000.
Kona Group and the Partnership have entered into a lease (the "Carino's
Lease"), which is an absolute net lease, whereby Kona Group is responsible for
all expenses related to the Carino's Property including real estate taxes,
insurance, maintenance and repair costs. The Carino's Lease term expires on
July 31, 2014 with one renewal option of six years and one renewal option of
seven years. The initial annual rent is equal to eleven percent (11%) of the
purchase price and will be payable in monthly installments on the first day of
each month. Thus, based on the purchase price of $1,600,000 the rent in the
first year of the Carino's Lease is $176,000 per year, or $14,667 per month.
The annual rent shall be increased by five percent (5%) on the August 1, 2000
and every three years thereafter.
Kona Group shall have an option to purchase the Carino's Property during
the sixty-first (61st) full month of the Carino's Lease. In the event that
Kona Group elects to exercise the option to purchase in the sixty-first full
month of the Carino's Lease, the option price shall be One Million Nine Hundred
Forty Thousand Four Hundred Dollars ($1,940,400).
The current annual rent per square foot for the Carino's Property is
$28.13 per square foot. The depreciable basis of the Carino's Property for
federal tax purposes is $500,000 and it will be depreciated using the straight
line method over 39 years, a rate of $12,821 per year.
Kona Group has paid to the an affiliate of the General Partner a
commitment fee equal to $16,000 as provided for in the Partnership Agreement.
Kona Group also paid all of the expenses incident to the closing of the
transaction contemplated by this commitment including, without limitation,
title insurance premiums, recording fees and expenses and transfer taxes.
12
<PAGE> 15
On July 25, 1997, the Partnership purchased an undivided 34.375% interest
as a tenant in common with Captec Franchise Capital Partners L.P. III, a
Delaware limited partnership and affiliate of the Managing General Partner
("Captec III") in the land and 8,825 square foot building located at 4532 South
Florida Avenue, Lakeland, Florida (the "Lakeland Property"). The Lakeland
Property was constructed for its present use in May of 1997 and leased to
Corral South Store 3, Inc., a Florida corporation ("Corral South 3"). Corral
South 3 operates casual dining restaurants under the primary trade name of
Golden Corral Restaurants. The headquarters of the Corral South 3 are located
at 2665 Oak Ridge Court, Ft. Meyers, Florida. Captec 3 purchased the Lakeland
Property for a total purchase price $1,600,000 and sold the 34.375% interest to
the Partnership for $550,000.
The Corral South 3 Lease is an absolute net lease whereby the Corral South
3 is responsible for all expenses related to the Lakeland Property including
real estate taxes, insurance, maintenance and repair costs ("Corral South 3
Lease"). The Corral South 3 Lease commenced on June 1, 1997 and expires
fifteen years thereafter. The Corral South 3 has two renewal options of five
years each. The initial annual rent is $174,400, or $14,533 per month. The
Partnership's pro-rata share of the rent will be $59,950 or $4,996 per month.
The current annual rent per square foot on the Lakeland Property is $19.76.
The depreciable basis of the Lakeland Property for federal tax purposes is
$1,080,000 and it will be depreciated using the straight line method over 39
years, a rate of $27,692 per year.
The obligations under the Corral South 3 Lease are guaranteed for the
benefit of the Partnership by David C. Brown, an individual. David C. Brown is
the sole stockholder of Corral South 3. Corral South 3 has an option to
purchase the Lakeland Property commencing on the sixty-first month of the
Corral South 3 Lease. In the event that Corral South 3 elects to exercise the
option to purchase, the option price shall be $1,833,520.
Corral South 3 has paid to an affiliate of the General Partner a
commitment fee equal to $5,500, as provided for in the Partnership Agreement.
Corral South 3 has paid all of the expenses incident to the closing of the
transaction including, without limitation, the Partnership's attorney's fees,
title insurance premiums, recording fees and expenses and transfer taxes.
GENERAL REAL ESTATE TERMS
The purchase prices of the Properties were negotiated by an affiliate of
the Managing General Partner who considered factors such as the potential value
of the site, the financial condition and business and operating history of Kona
Group and Corral South 3 and demographic data for the area in which the
Properties are located. The purchase price for the Properties are supported by
an independent MAI appraisal. The Partnership purchased the Properties with
cash from offering proceeds. It is anticipated that the Properties will be
leveraged as provided for in the Prospectus, however, the Partnership presently
does not have a financing commitment.
The Carino's and Corral South 3 Leases (collectively referred to as the
"Leases") contain material default provisions that include, but are not limited
to: (i) the vacating or abandonment of the Properties by Kona Group and Corral
South 3 (collectively referred to as the "Lessees"); (ii) the failure by the
Lessees to make any payment due under the; (iii) the failure by the Lessee to
observe or perform any of the covenants, conditions, or provisions of
13
<PAGE> 16
the Leases; and (iv) the making by the Lessees of any general arrangement or
general assignment for the benefit of creditors. In the event of a material
default by the Lessees, the Leases contain remedy provisions which are
summarized as follows: (i) the Partnership may terminate the Leases and take
possession of the Properties, in which case the Partnership would be entitled
to damages incurred by reason of the material default; (ii) the Partnership may
maintain the Lessee's right to possession of the Properties, in which case the
Leases would continue to be in effect; or (iii) the Partnership may pursue any
other legal remedy available.
EQUIPMENT
On July 25,1997, the Partnership made an initial disbursement of $30,600
for restaurant equipment to be used in the operation of a Burger King
restaurant, located at 401 Southpark Blvd., Colonial Heights, Virginia ("Burger
King Equipment"). The final disbursement was made on November 1,1997. The
Burger King Equipment was acquired from various vendors for a total cost of
$282,327 and leased it to Virginia QSC, LLC, a Delaware limited liability
company, dba Burger King ("Virginia QSC"). The headquarter offices of Virginia
QSC are located at 3521 W. Van Buren, Phoenix, Arizona. Virginia QSC owns and
operates the Burger King restaurant under a franchise agreement.
The Partnership and Virginia QSC have entered into a Progress Payment
Agreement dated July 15, 1997, ("Agreement") whereby the Partnership shall
provide disbursements of down payments and interim payments to pay approved
costs associated with the purchase of the Burger King Equipment. Under the
terms of the Agreement, all of the Burger King Equipment will be delivered and
installed and all disbursements made on or before October 31, 1997. Virginia
QSC paid to the Partnership a daily progress rental payment for each day that
any down payment and/or interim payment remained outstanding. The daily
progress payment shall be equal to .00031944 times the total amount outstanding
to the date upon which the last of the following events shall have occurred:
(a) Virginia QSC shall have paid the first regularly monthly scheduled
installment of rent; or (b) All of the Burger King Equipment had been
delivered, installed and accepted by Virginia QSC.
The Partnership and Virginia QSC entered into the Partnership's standard
form of equipment lease dated July 15, 1997 and amended November 1, 1997
("Virginia QSC Lease"). Under the terms of the Virginia QSC Lease, Virginia
QSC is responsible for all expenses related to the Burger King Equipment
including taxes, insurance, maintenance and repair costs. The base lease term
is 84 months and will commenced on November 1, 1997. Under the terms of
the Virginia QSC Lease, the minimum annual rent is $58,340 and is payable in
monthly installments of $4,862. The annual rent remains fixed for the entire
Virginia QSC Lease term. All obligations under the Virginia QSC Lease are
jointly and severally unconditionally guaranteed by the following individuals:
Justin Hathaway, Steven Porath and Alan Buford.
At the end of the Virginia QSC Lease term, upon at least 90 days prior
irrevocable notice to the Partnership, Virginia QSC may purchase all of the
Burger King Equipment for $1.00. The General Partners believe that the amount
of insurance carried by Virginia QSC is adequate.
Virginia QSC paid the first and last month's rent of $9,723 and interim
rent of $1,094 to the Partnership at final funding. Virginia QSC paid a
commitment fee equal to $3,100 to an affiliate of the General Partner as
provided for in the Partnership Agreement.
14
<PAGE> 17
On July 9, 1997, the Partnership purchased restaurant equipment to be used
in the operation of an Breckenridge Brewery & Pub, located at 600 South Main,
Breckenridge, Colorado (the "Breckenridge Equipment") for $791,000. The
Breckenridge Equipment was acquired from, and leased back to BBI Acquisition
Co., a Colorado corporation, dba Breckenridge Brewery & Pub ("BBI"). The
headquarter offices of BBI are located at 471 Kalamath Street, Denver,
Colorado.
The Partnership and BBI entered into the Partnership's standard form of
equipment lease ("BBI Lease") commencing August 1, 1997. Under the terms of
the BBI Lease, BBI is responsible for all expenses related to the Breckenridge
Equipment including taxes, insurance, maintenance and repair costs. The lease
term is 84 months and the minimum annual rent is $163,622 payable in monthly
installments of $13,605.20 on the 1st day of each month. The annual rent
remains fixed for the entire BBI Lease term. All obligations under the BBI
Lease are unconditionally guaranteed by Breckenridge Holding Company, a
Colorado corporation.
At the end of the BBI Lease term, upon at least 90 days prior irrevocable
notice to the Partnership, BBI may purchase all of the Breckenridge Equipment
for $1.00. The General Partners believe that the amount of insurance carried
by BBI is adequate. BBI paid the first and last month's rent of $27,210 and
interim rent in the amount of $10,094 to the Partnership. BBI paid a
commitment fee equal to $7,910 to an affiliate of the General Partner as
provided for in the Partnership Agreement.
GENERAL EQUIPMENT LEASE PROVISIONS
The purchase of the Equipment was made in cash from proceeds of the
Partnership; however, it is anticipated that the Equipment will subsequently be
leveraged as provided for in the Prospectus. The Partnership presently does
not have a financing commitment. The General Partners believe that the amount
of insurance carried on the Equipment is adequate.
RESULTS OF OPERATIONS:
For the three and nine month periods ended September 30, 1997 the
Partnership earned revenues totaling approximately $202,000 and $314,000
respectively. The increase in revenues is comprised of $34,000 rental income,
$46,000 financial income and $32,000 interest income. For the three and nine
month periods ended September 30, 1997, the Partnership incurred expenses
totaling approximately $14,000 and $25,000 respectively, comprised of general
and administrative expenses and depreciation(due to the growth in depreciable
assets). For the three and nine month periods ended September 30, 1997, the
Partnership earned net income of approximately $187,000 and $289,000
respectively. The increase in revenues, expenses and net income is due to
progress in selling Units and investing the proceeds therefrom in income
producing, net leased, real estate properties and equipment.
No comparative information is available for the three and nine month
periods ended September 30, 1996, since the Partnership did not commence
operations until the first quarter of 1997.
15
<PAGE> 18
The Partnership distributed approximately $137,900 during the three month
period ended September 30, 1997, representing cash flow from operations for the
quarter ended June 30, 1997. Based upon the results of operations for the
three month period ended September 30, 1997, the Partnership had $138,500 which
will be distributed during the following quarter.
16
<PAGE> 19
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
4 Agreement of Limited Partnership of Registrant.
(Incorporated by reference from Exhibit B of the final Prospectus
dated December 23, 1996, as supplemented and filed with the
Securities and Exchange Commission, S.E.C. File No. 333-9371)
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K dated July 9, 1997, filed July 22, 1997; Form 8-K dated July
25, 1997, filed August 5, 1997 and Form 8-K dated August 8, 1997, filed
August 13, 1997. Subsequent reports on Form 8-K dated October 14, 1997,
filed October 16, 1996 and Form 8-K dated October 15, 1997, filed
October 23, 1997.
17
<PAGE> 20
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.
By: Captec Franchise Capital Corporation IV
Managing General Partner of
Captec Franchise Capital Partners L.P. IV
By: /w/ W. Ross Martin
-----------------------------------
W. Ross Martin
Chief Financial Officer and Vice
President,
a duly authorized officer
Date: November 14, 1997
18
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,864,023
<SECURITIES> 0
<RECEIVABLES> 52,316
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,916,339
<PP&E> 7,008,075
<DEPRECIATION> (14,876)
<TOTAL-ASSETS> 9,909,538
<CURRENT-LIABILITIES> 91,203
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,818,335
<TOTAL-LIABILITY-AND-EQUITY> 9,909,538
<SALES> 259,414
<TOTAL-REVENUES> 313,398
<CGS> 0
<TOTAL-COSTS> 24,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 288,735
<INCOME-TAX> 0
<INCOME-CONTINUING> 288,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,735
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
