<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 JUNE 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
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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
- --------------------------------------------------------------------------------
(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
PART I FINANCIAL INFORMATION Page
Item 1. Balance Sheets, June 30, 1998 and December 31,1997 .............. 1
Statements of Operations for the three and six month periods
ended June 30, 1998 and 1997 .................................... 2
Statement of Changes in Partners' Capital for the six month
period ended June 30, 1998 ...................................... 3
Statements of Cash Flows for the six month periods
ended June 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
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,230,394 $ 5,008,194
Investment in property under leases:
Operating leases, net 12,302,168 5,805,870
Financing leases, net 5,471,575 2,838,663
Accounts receivable 11,388 3,487
Unbilled rent 52,818 25,983
Due from related parties 112,824 49,381
------------ ------------
Total assets $ 23,181,167 $ 13,731,578
============ ============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 36,595 $ 49,375
Due to related parties 162,006 129,683
------------ ------------
Total liabilities 198,601 179,058
------------ ------------
Partners' Capital:
Limited partners' capital accounts 22,970,219 13,547,060
General partners' capital accounts 12,347 5,460
------------ ------------
Total partners' capital 22,982,566 13,552,520
------------ ------------
Total liabilities & partners' capital $ 23,181,167 $ 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 Six months ended
June 30, June 30,
------------------------ ----------------------
Unaudited Unaudited
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Rental income $ 199,649 $ 27,925 $ 377,432 $ 34,026
Finance income 125,545 38,908 215,867 45,394
--------- -------- --------- --------
Total operating revenue 325,194 66,833 593,299 79,420
--------- -------- --------- --------
Operating costs and expenses:
Depreciation 19,764 3,992 39,528 3,992
General and administrative 18,093 4,059 45,862 6,876
--------- -------- --------- --------
Total operating costs and expenses 37,857 8,051 85,390 10,868
--------- -------- --------- --------
Income from operations 287,337 58,782 507,909 68,552
--------- -------- --------- --------
Other income:
Interest income 100,985 21,473 180,804 31,934
Other 35 - 35 -
--------- -------- --------- --------
Total other income 101,020 21,473 180,839 31,934
--------- -------- --------- --------
Net income 388,357 80,255 688,748 100,486
Net income allocable to general partners 3,884 802 6,887 1,005
--------- -------- --------- --------
Net income allocable to limited partners $ 384,473 $ 79,453 $ 681,861 $ 99,481
========= ======== ========= ========
Net income per limited partnership unit $ 16.51 $ 18.62 $ 33.40 $ 34.46
========= ======== ========= ========
Weighted average number of limited partnership
units outstanding 23,282 4,268 20,413 2,887
========= ======== ========= ========
</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 six months ended June 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 10,947 limited partnership
units, net 10,947 9,528,299 - 9,528,299
Distributions - ($38.76 per unit) - (787,001) - (787,001)
Net income - 681,861 6,887 688,748
------- ------------ -------- ------------
Balance, June 30, 1998 26,339 $ 22,970,219 $ 12,347 $ 22,982,566
======= ============ ======== ============
</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 six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 688,748 $ 100,486
Adjustments to net income:
Depreciation 39,528 3,992
Increase in unbilled rent (26,835) (2,620)
Increase in accounts receivable (7,901) (14,748)
Decrease (increase) in accounts payable (12,780) 24,004
---------- ----------
Net cash provided by operating activities 680,760 111,114
---------- ----------
Cash flows from investing activities:
Purchase of real estate for operating leases (6,535,831) (1,002,560)
Purchase of equipment for financing leases (2,921,877) (1,694,979)
Reduction of net investment in financing leases 288,970 53,199
---------- ----------
Net cash used in investing activities (9,168,738) (2,644,340)
---------- ----------
Cash flows from financing activities:
Increase in due from related parties (63,443) (12,844)
Increase in due to related parties 32,323 131,425
Issuance of limited partnership units 10,939,743 6,212,886
Offering costs (1,411,444) (803,066)
Distributions to limited partners (787,001) (29,900)
---------- ----------
Net cash provided by financing activities 8,710,178 5,498,501
---------- ----------
Net increase in cash and cash equivalents 222,200 2,965,275
Cash and cash equivalents, beginning of period 5,008,194 -
---------- -
Cash and cash equivalents, end of period $5,230,394 $2,965,275
========== ==========
</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 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, and the Partnership immediately commenced operations. At June 30,
1998, the Partnership had accepted subscriptions for 26,339 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 June 30, 1998 and the statements
of operations and cash flows for the period ending June 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 June 30, 1998 is comprised of
the following:
<TABLE>
<S> <C>
Land $ 6,379,516
Building and improvements 5,569,341
Construction draws on properties 425,827
-----------
12,374,684
Less accumulated depreciation (72,516)
-----------
Total $12,302,168
===========
</TABLE>
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of June 30, 1998 is comprised of
the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $ 6,810,228
Estimated residual value 232,697
-----------
Gross investment in financing leases 7,042,925
Less unearned income (1,571,350)
-----------
Net investment in financing leases $ 5,471,575
===========
</TABLE>
4. SUBSEQUENT EVENT:
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.
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.
As of June 30, 1998, the Partnership had accepted subscriptions for 26,339
Units. After payment of $3,407,269 in offering expenses, net proceeds available
for investment from the sale of units totaled $22,913,376. As of June 30, 1998
the partnership has purchased nine properties including one property that is
still in the construction phase totaling $12,374,688, and fifteen equipment
packages totaling $5,973,376. At June 30, 1998 the Partnership had
approximately $4,565,312 of uninvested capital and approximately $5.0 million
invested in interest bearing cash accounts.
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. As of
June 30, 1998 the Partnership's investments were allocated approximately 67% to
properties and 33% 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
<PAGE> 10
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 does not have a 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 six months ending June 30, 1998, the Partnership entered into
three real estate leases and five equipment leases with restaurant operators.
The Partnership acquired the properties subject to real estate leases at a
total cost, including acquisition fees, of $6,110,000, and the equipment
related to direct financing leases at a total cost, including acquisition fees,
of $2,921,877. The partnership also acquired one real estate property under
construction at an anticipated cost of $811,200. The Partnership funded
$425,831 through June 30, 1998 related to this project.
RESULTS OF OPERATIONS.
For the six months ended June 30, 1998, the Partnership earned revenues of
approximately $774,000 as compared to $111,000 for the six months ended June
30, 1997. Total revenue for the period ended June 30, 1998 is comprised of
$377,000 of rental income, $216,000 of equipment lease finance income, and
$181,000 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 six months ended June 30, 1998, the Partnership incurred expenses
of approximately $85,000 as compared to $11,000 for the six months ended June
30, 1997. Total expenses for the period ended June 30, 1998 is comprised of
$39,000 of depreciation expense and $46,000 of general and administrative
expenses.
As a result of the above the Partnership earned net income of
approximately $689,000 for the six months ended June 30, 1998.
DISTRIBUTIONS.
The Partnership declared second quarter distributions totaling $582,000,
of which $490,668 was distributed to its limited partners on July 15, 1998 and
the remaining $91,332 will be distributed to those limited partners who elected
to receive distributions on a monthly basis.
8
<PAGE> 11
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: August 14, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,230,394
<SECURITIES> 0
<RECEIVABLES> 177,030
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,407,424
<PP&E> 17,846,259
<DEPRECIATION> (72,516)
<TOTAL-ASSETS> 23,181,167
<CURRENT-LIABILITIES> 196,601
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,982,566
<TOTAL-LIABILITY-AND-EQUITY> 23,181,167
<SALES> 593,299
<TOTAL-REVENUES> 774,138
<CGS> 0
<TOTAL-COSTS> 85,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 688,748
<INCOME-TAX> 0
<INCOME-CONTINUING> 688,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 688,748
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
