<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, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM to
--------------------- -------------------------
COMMISSION FILE NUMBER: 333-9371
-------------------------------------------------------
Captec Franchise Capital Partners L.P. IV
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3304095
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(734) 994-5505
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(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>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Balance Sheets, September 30, 1998 and December 31,1997................1
Statements of Operations for the three and nine month periods
ended September 30, 1998 and 1997......................................2
Statement of Changes in Partners' Capital for the nine month period
ended September 30, 1998 ..............................................3
Statements of Cash Flows for the nine month periods
ended September 30, 1998 and 1997......................................4
Notes to Financial Statements..........................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................7
PART II OTHER INFORMATION......................................................9
SIGNATURES...........................................................................10
</TABLE>
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 883,648 $ 5,008,194
Investment in property under leases:
Operating leases, net 16,617,371 5,805,870
Financing leases, net 7,786,661 2,838,663
Accounts receivable 1,428 3,487
Unbilled rent 92,571 25,983
Due from related parties 476,689 49,381
------------- -------------
Total assets $ 25,858,368 $ 13,731,578
============= =============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 11,372 $ 49,375
Due to related parties 80,749 129,683
------------- -------------
Total liabilities 92,121 179,058
------------- -------------
Partners' Capital:
Limited partners' capital accounts 25,748,320 13,547,060
General partners' capital accounts 17,927 5,460
------------- -------------
Total partners' capital 25,766,247 13,552,520
------------- -------------
Total liabilities & partners' capital $ 25,858,368 $ 13,731,578
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
Unaudited Unaudited
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Rental income $ 376,664 $ 104,711 $ 754,095 $ 138,737
Finance income 169,512 75,283 385,379 120,677
--------- --------- --------- ---------
Total operating revenue 546,176 179,994 1,139,474 259,414
--------- --------- --------- ---------
Operating costs and expenses:
Depreciation 40,955 10,884 80,484 14,876
General and administrative 12,399 3,250 58,261 9,787
--------- --------- --------- ---------
Total operating costs and expenses 53,354 14,134 138,745 24,663
--------- --------- --------- ---------
Income from operations 492,822 165,860 1,000,729 234,751
--------- --------- --------- ---------
Other income:
Interest income 65,181 20,877 245,984 52,811
Other - 1,173 35 1,173
--------- --------- --------- ---------
Total other income 65,181 22,050 246,019 53,984
--------- --------- --------- ---------
Net income 558,003 187,910 1,246,748 288,735
Net income allocable to general partners 5,580 1,879 12,467 2,887
--------- --------- --------- ---------
Net income allocable to limited partners $ 552,423 $ 186,031 $ 1,234,281 $ 285,848
========= ========= =========== =========
Net income per limited partnership unit $ 19.51 $ 21.74 $ 53.49 $ 58.96
========= ========= =========== =========
Weighted average number of limited partnership
units outstanding 28,318 8,558 23,074 4,848
========= ========= =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
----- -------- -------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 15,392 13,547,060 5,460 13,552,520
Issuance of 13,998 limited
partnership units, net 13,998 12,335,980 - 12,335,980
Distributions - ($59.33 per unit) - (1,369,001) - (1,369,001)
Net income - 1,234,281 12,467 1,246,748
------ ------------ -------- ------------
Balance, September 30, 1998 29,390 $ 25,748,320 $ 17,927 $ 25,766,247
====== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,246,748 $ 288,735
Adjustments to net income:
Depreciation 80,484 14,876
(Increase) in unbilled rent (66,588) (2,488)
Decrease (increase) in accounts receivable 2,059 (5,894)
(Decrease) increase in accounts payable (38,003) 27,527
----------- ----------
Net cash provided by operating activities 1,224,700 322,756
----------- ----------
Cash flows from investing activities:
Purchase of real estate for operating leases (10,891,985) (4,397,417)
Purchase of equipment for financing leases (5,454,039) (2,705,499)
Reduction of net investment in financing leases 506,041 94,841
----------- ----------
Net cash used in investing activities (15,839,983) (7,008,075)
----------- ----------
Cash flows from financing activities:
Increase in due from related parties (427,308) (43,595)
(Decrease) increase in due to related parties (48,934) 63,637
Issuance of limited partnership units 14,160,652 11,105,734
Offering costs (1,824,672) (1,438,534)
Distributions to limited partners (1,369,001) (137,900)
----------- ----------
Net cash provided by financing activities 10,490,737 9,549,342
----------- ----------
Net increase in cash and cash equivalents (4,124,546) 2,864,023
Cash and cash equivalents, beginning of period 5,008,194 -
----------- ----------
Cash and cash equivalents, end of period $ 883,648 $2,864,023
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
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 upon formation of the Partnership were 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. In August, 1998, the general partnership interest of
the Partnership was acquired by Captec Net Lease Realty, Inc., an
affiliate of Captec, for $2,912,000.
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, and the Partnership immediately commenced operations. At
September 30, 1998, the Partnership had accepted subscriptions for 29,390
Units.
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.
The balance sheet of the Partnership as of September 30, 1998 and the
statements of operations and cash flows for the period ending September
30, 1998 and 1997 have not been audited. 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. Results of operations
for the interim periods are not necessarily indicative of results expected
for the full year.
5
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of September 30, 1998 is
comprised of the following:
Land $ 6,260,342
Building and improvements 7,891,468
Construction draws on properties 2,579,032
------------
16,730,842
Less accumulated depreciation (113,471)
------------
Total $ 16,617,371
============
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of September 30, 1998 is
comprised of the following:
Minimum lease payments to be received $ 9,238,666
Estimated residual value 232,697
------------
Gross investment in financing leases 9,471,363
Less unearned income (1,684,702)
------------
Net investment in financing leases $ 7,786,661
============
6
<PAGE> 9
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
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.
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 invests in 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.
As of September 30, 1998, the Partnership had accepted subscriptions for
29,390 Units. After payment of approximately $3.8 million in offering expenses,
net proceeds available for investment from the sale of units was approximately
$25.3 million. As of September 30, 1998 the partnership has invested
approximately $16.7 million in 14 properties, including four properties in the
construction phase, and approximately $8.5 million in 24 equipment leases
including one property in the construction phrase.
As of September 30, 1998 the Partnership's investments were allocated
approximately 66% to properties and 34% to equipment. This allocation is
expected to change as additional properties and equipment are acquired. The
final asset mix allocation is expected to be a least 75%, but not more than 90%
properties, and up to 25%, but not less than 10% equipment.
Once the proceeds of the offering have been invested, the Partnership
expects to obtain leverage of up to 35% of the sum of gross proceeds and the
aggregate amount of Partnership
7
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
indebtedness secured by Partnership assets (approximately 40% of the aggregate
purchase prices of Partnership assets). Such leverage, when incurred, will
provide additional funds to be used by the Partnership to purchase properties
and equipment. Presently, the Partnership is in active negotiations for the
financing commitment for this leverage.
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.
ACQUISITIONS.
- -------------
During the nine months ending September 30, 1998, the Partnership
entered into five real estate leases and fourteen equipment leases with
restaurant and jewelry store operators. The Partnership acquired the properties
subject to real estate leases at a total cost, including acquisition fees, of
approximately $8.3 million, and the equipment related to direct financing leases
at a total cost, including acquisition fees, of approximately $5.2 million. The
partnership also invested in four real estate properties and one equipment
package under construction at an anticipated cost of $4,670,000. The Partnership
funded approximately $2,790,000 through September 30, 1998 related to these
projects.
RESULTS OF OPERATIONS.
- ----------------------
For the nine months ended September 30, 1998, the Partnership earned
revenues of approximately $1,385,000 as compared to $313,000 for the nine months
ended September 30, 1997. Total revenue for the period ended September 30, 1998
is comprised of $754,000 of rental income, $385,000 of equipment lease finance
income, and $246,000 of interest income. The increase in revenues in 1998
resulted from the acquisition of the properties noted above and the benefit of a
full period of revenue from properties acquired and leased in preceding periods.
Operations commenced in March of 1997.
For the nine months ended September 30, 1998, the Partnership incurred
expenses of approximately $139,000 as compared to $25,000 for the nine months
ended September 30, 1997. Total expenses for the period ended September 30, 1998
is comprised of $81,000 of depreciation expense and $58,000 of general and
administrative expenses.
As a result of the above the Partnership earned net income of
approximately $1,247,000 for the nine months ended September 30, 1998.
DISTRIBUTIONS.
- --------------
The Partnership declared second quarter distributions totaling $720,000,
of which $617,000 was distributed to its limited partners on October 15, 1998
and the remaining $103,000 will be distributed to those limited partners who
elected to receive distributions on a monthly basis.
8
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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
9
<PAGE> 12
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 16, 1998
10
<PAGE> 13
INDEX TO EXHIBITS
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 883,648
<SECURITIES> 0
<RECEIVABLES> 570,678
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,454,326
<PP&E> 24,484,526
<DEPRECIATION> 80,484
<TOTAL-ASSETS> 25,858,368
<CURRENT-LIABILITIES> 92,121
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,766,247
<TOTAL-LIABILITY-AND-EQUITY> 25,858,368
<SALES> 1,139,474
<TOTAL-REVENUES> 1,385,493
<CGS> 0
<TOTAL-COSTS> 138,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,246,748
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,246,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,246,748
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
