<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 March 31, 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
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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)
(313) 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
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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 Sheet, March 31, 1998 and December 31,1997.....................................1
Statement of Operations for the three month periods
ended March 31, 1998 and 1997..........................................................2
Statement of Changes in Partners' Capital for the three month period
ended March 31, 1998 ..................................................................3
Statement of Cash Flows for the three month periods
ended March 31, 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......................................................................10
SIGNATURES........................................................................................11
</TABLE>
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,349,667 $ 5,008,194
Investment in property under leases:
Operating leases, net 6,199,447 5,805,870
Financing leases, net 4,137,800 2,838,663
Accounts receivable 16,006 3,487
Unbilled rent 33,383 25,983
Due from related parties 83,878 49,381
------------ ------------
Total assets $ 17,820,181 $ 13,731,578
============ ============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 46,563 $ 49,375
Due to related parties 160,369 129,683
------------ ------------
Total liabilities 206,932 179,058
------------ ------------
Partners' Capital:
Limited partners' capital accounts 17,604,785 13,547,060
General partners' capital accounts 8,464 5,460
------------ ------------
Total partners' capital 17,613,249 13,552,520
------------ ------------
Total liabilities & partners' capital $ 17,820,181 $ 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
STATEMENT OF OPERATIONS
for the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Operating revenue:
Rental income $ 177,783 $ 6,486
Finance income 90,322 6,101
----------- ------------
Total operating revenue 268,105 12,587
----------- ------------
Operating costs and expenses:
Depreciation 19,764 -
General and administrative 27,769 2,817
----------- ------------
Total operating costs and expenses 47,533 2,817
----------- ------------
Income from operations 220,572 9,770
----------- ------------
Other income:
Interest income 79,819 10,461
----------- ------------
Total other income 79,819 10,461
----------- ------------
Net income 300,391 20,231
Net income allocable to general partners 3,004 202
----------- ------------
Net income allocable to limited partners $ 297,387 $ 20,029
=========== ============
Net income per limited partnership unit $ 16.99 $ 14.59
=========== ============
Weighted average number of limited partnership
units outstanding 17,508 1,373
=========== ============
</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 three months ended March 31, 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 4,720 limited partnership
units, net 4,720 4,110,337 4,110,337
Distributions - ($26.26 per unit) - (349,999) - (349,999)
Net income - 297,387 3,004 300,391
------ ------------ ------- ------------
Balance, March 31, 1998 20,112 $ 17,604,785 $ 8,464 $ 17,613,249
====== ============ ======= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 300,391 $ 20,231
Adjustments to net income:
Depreciation 19,764 -
Increase in unbilled rent (7,400) -
Increase in accounts receivable (12,519) (4,465)
Decrease (increase) in accounts payable (2,812) 12,944
----------- -----------
Net cash provided by operating activities 297,424 28,710
----------- -----------
Cash flows from investing activities:
Purchase of real estate for operating leases (413,342) (1,002,560)
Purchase of equipment for financing leases (1,427,462) (418,081)
Reduction of net investment in financing leases 128,326 9,241
----------- -----------
Net cash used in investing activities (1,712,478) (1,411,400)
----------- -----------
Cash flows from financing activities:
Increase in due from related parties (34,497) (11,904)
Increase in due to related parties 30,686 39,556
Issuance of limited partnership units 4,717,201 2,589,143
Offering costs (606,864) (335,450)
Distributions to limited partners (349,999) -
----------- -----------
Net cash provided by financing activities 3,756,527 2,281,345
----------- -----------
Net decrease in cash and cash equivalents 2,341,473 898,655
Cash and cash equivalents, beginning of period 5,008,194 -
----------- -----------
Cash and cash equivalents, end of period $ 7,349,667 $ 898,655
=========== ===========
</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
March 31, 1998, the Partnership had accepted subscriptions for 20,112
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 March 31, 1998 and the
statements of operations and cash flows for the period ending March 31,
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 March 31, 1998 is comprised
of the following:
<TABLE>
<S> <C>
Land $ 2,676,582
Building and improvements 3,162,275
Construction draws on properties 413,342
------------
6,252,199
Less accumulated depreciation (52,752)
------------
Total $ 6,199,447
============
</TABLE>
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of March 31, 1998 is comprised
of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $ 5,256,055
Estimated residual value 149,656
------------
Gross investment in financing leases 5,405,711
Less unearned income (1,267,911)
------------
Net investment in financing leases $ 4,137,800
============
</TABLE>
6
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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 March 31, 1998, the Partnership had accepted subscriptions for
20,112 Units. After payment of $2,602,689 in offering expenses, net proceeds
available for investment from the sale of units totaled $17,495,415. As of March
31, 1998 the partnership has purchased six properties including one property
that is still in the construction phase totaling $6,252,199, and twelve
equipment packages totaling $4,478,961. At March 31, 1998 the Partnership had
approximately $6.8 of uninvested capital and approximately $7.0 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 March
31, 1998 the Partnership's investments were allocated approximately 58% to
properties and 42% 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 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 three months ending March 31, 1998, the Partnership entered
into three equipment leases with restaurant operators. The Partnership acquired
the restaurant equipment related to these leases at a total cost, including
acquisition fees, of $1,427,462. The partnership also acquired one real estate
property under construction at an anticipated cost of $811,200. The Partnership
purchased the real estate property subject to a lease with an operator of an
Arby's franchise. The Partnership funded $413,342 through March 31, 1998 related
to this project.
RESULTS OF OPERATIONS:
For the three months ended March 31, 1998 and 1997 the Partnership
earned revenues totaling approximately $347,000 and $23,000 respectively. Total
revenue for the period ended March 31, 1998 is comprised of $178,000 of rental
income, $90,000 of equipment lease finance income, and $80,000 of interest
income. Operations commenced in March of 1997.
For the three months ended March 31, 1998, the Partnership incurred
expenses totaling approximately $48,000, comprised of general and administrative
expenses and depreciation as compared to approximately $3,000 for the three
months ended March 31, 1997.
As a result of the above the Partnership earned net income of
approximately $300,000 for the three months ended March 31, 1998. Based upon the
results of operations for the three month period ended March 31, 1998, the
Partnership announced distributions totaling $437,001, of which $364,185 was
distributed to its limited partners on April 15, 1998 and the remaining $72,816
will be distributed to those limited partners who elected to receive
distributions on a monthly basis on May 15, 1998 and June 15, 1998.
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:
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
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>
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: May 15, 1998
10
<PAGE> 13
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,349,667
<SECURITIES> 0
<RECEIVABLES> 133,267
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,482,934
<PP&E> 10,389,999
<DEPRECIATION> (52,752)
<TOTAL-ASSETS> 17,820,181
<CURRENT-LIABILITIES> 206,932
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,613,249
<TOTAL-LIABILITY-AND-EQUITY> 17,820,181
<SALES> 268,105
<TOTAL-REVENUES> 347,924
<CGS> 0
<TOTAL-COSTS> 47,533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 300,391
<INCOME-TAX> 0
<INCOME-CONTINUING> 300,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 300,391
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
