<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1996
-------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to
------------------- --------------------
Commission file number 33-44654-C
----------------------------------------------------
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 38-3019164
- --------------------------------------------------------------------------
(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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such 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. Yes No .
--- ---
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
--------------
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
<PAGE> 2
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements 1
Consolidated Balance Sheet, September 30, 1996 2
Consolidated Statement of Operations for the
three month periods ended September 30, 1996 and 1995 3
Consolidated Statement of Operations for the
nine month periods ended September 30, 1996 and 1995 4
Consolidated Statement of Cash Flows for the
nine month periods ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated balance sheet of Captec Franchise Capital Partners L.P.
II (the "Partnership") as of September 30, 1996 and the consolidated statements
of operations and cash flows for the periods ending September 30, 1996 and 1995
are unaudited and have not been examined by independent public accountants. In
the opinion of the Management, these unaudited consolidated 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
consolidated financial statements and accompanying notes thereto included in
the Partnership's report on Form 10-KSB for the fiscal year ended December 31,
1995.
1
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Cash $ 105,346
Investment in leases:
Operating leases, net 1,879,609
Direct financing leases, net 371,980
Rent receivable 33,552
Unbilled rent 114,590
Due from related parties 7,584
----------
Total assets $2,512,661
==========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Note payable $ 753,683
Accounts payable 509
Due to related parties 6,305
Operating lease rents paid in advance --
Security deposits held on leases 19,081
----------
Total liabilities 779,578
----------
Partners' Capital:
Limited partners' capital accounts 1,727,462
General partner's capital accounts 5,621
----------
Total partners' capital 1,733,083
----------
Total liabilities & partners' capital $2,512,661
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
for the three month periods ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Operating revenue:
Rental income $54,104 $71,507
Finance income 20,006 21,164
------- -------
Total operating revenue 74,110 92,671
------- -------
Operating costs and expenses:
Depreciation 7,118 7,118
General and administrative 2,748 1,602
------- -------
Total operating costs and expenses 9,866 8,720
------- -------
Income from operations 64,244 83,951
------- -------
Other Income (expense):
Gain on sale of equipment 3,652 -
Interest expense (19,692) (20,766)
Other 20 7,093
------- -------
Total other income, net (16,020) (13,673)
------- -------
Net income 48,224 70,278
Net income allocable to general partners 482 703
------- -------
Net income allocable to limited partners $47,742 $69,575
======= =======
Net income per limited partnership unit $ 12.30 $ 17.93
======= =======
Weighted average number of limited partnership
units outstanding 3,881 3,881
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
for the nine month periods ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Operating revenue:
Rental income $197,119 $206,181
Finance income 56,377 57,897
-------- --------
Total operating revenue 253,496 264,078
-------- --------
Operating costs and expenses:
Depreciation 21,355 21,344
General and administrative 12,980 7,696
-------- --------
Total operating costs and expenses 34,335 29,040
-------- --------
Income from operations 219,161 235,038
-------- --------
Other Income (expense):
Gain on sale of equipment 3,652 -
Interest expense (59,904) (63,045)
Other 1,099 7,093
-------- --------
Total other income, net (55,153) (55,952)
-------- --------
Net income 164,008 179,086
Net income allocable to general partners 1,640 1,791
-------- --------
Net income allocable to limited partners $162,368 $177,295
======== ========
Net income per limited partnership unit $ 41.84 $ 45.68
======== ========
Weighted average number of limited partnership
units outstanding 3,881 3,881
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 7
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine month periods ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net Income $164,008 $179,086
Adjustments to net income:
Depreciation 21,355 21,344
Increase in unbilled rent (44,700) (15,808)
Gain on sale of equipment (3,652) -
Decrease (increase) in receivables (33,303) 26,085
Increases in payables 4,505 8,014
Decrease in rental payments paid in advance (13,500) -
Security deposits received (earned) (24,050) 21,798
-------- --------
Net cash provided by operating activities 70,663 240,519
-------- --------
Cash flows from investing activities:
Disposition (purchase) of real estate for
operating leases - 326,760
Purchase of equipment for financing leases - (425,283)
Proceeds from sale of equipment 7,400 -
Reduction of net investment in financing leases 122,455 51,155
-------- --------
Net cash provided by investing activities 129,855 (47,368)
-------- --------
Cash flows from financing activities:
Principal payments on note payable (32,085) (28,944)
Distributions to limited partners (181,500) (175,200)
-------- --------
Net cash used in financing activities (213,585) (204,144)
-------- --------
Net increase in cash (13,067) (10,993)
Cash, beginning of period 118,413 136,984
-------- --------
Cash, end of period $105,346 $125,991
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 8
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. II (the "Partnership") is a Delaware
limited partnership formed on November 19, 1991 for the purpose of
acquiring income-producing commercial real properties and equipment leased
on a "triple net" basis, primarily to operators of national and regional
franchised business. The Partnership includes a subsidiary, CFCP II, L.C.,
a limited liability company, of which it owns 61.4%. The general partners
of the Partnership are Captec Franchise Capital Corporation II (the
"Corporation"), a wholly owned subsidiary of Captec Financial Group, Inc.
("Captec") and Patrick L. Beach, an individual, herein after 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 May 7, 1992. A minimum of 2,300 Units and a maximum
of 15,000 Units, priced at $500 per Unit, were offered on a "best efforts,
part or none" basis. The Partnership broke impound on April 4, 1994 and
reached final funding on May 6, 1994. At September 30, 1996, 3,881 Units
were issued and outstanding.
Due to the nature of the Partnership's business operations (acquiring,
leasing and selling real properties) and other factors, in certain cases the
financial activity is not directly comparable from year to year as the
Partnership's revenue generating assets increase and decrease. 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 will be allocated
among the limited partners based upon the number of Units owned. In no event
will the Sponsor be allocated less than 1% 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 ON OPERATING LEASES: Land and buildings on
operating leases are stated at cost. Buildings are depreciated on the
straight-line method over their estimated useful life (40 years).
6
<PAGE> 9
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED:
C. NET INVESTMENT IN DIRECT FINANCING LEASES: Leasing operations
classified as direct 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.
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 an eleven percent (11%) 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 twelve percent (12%) preferred return plus return of
the original capital contributions to the limited partners. Distributions
are paid quarterly in arrears approximately 15 days following the end of
each calendar quarter.
The Partnership distributed $59,500 during the three month period ended
September 30, 1996, representing cash flow from operations for the quarter
ended June 30, 1996.
7
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
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. An acquisition fee
is charged, not to exceed the lesser of five percent (5%) of the aggregate
purchase price of properties and equipment or the customary charge by
others rendering similar services. No acquisition fees were paid by the
Partnership during the three month period ended September 30, 1996.
A subordinated asset management fee may be 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 eleven percent (11%) per annum on their
adjusted invested capital. There were no subordinated asset management
fees paid to the Sponsor during the three month period ended September 30,
1996.
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
liquidation fees paid during the three month period ended September 30,
1996.
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 twelve percent (12%) per annum on their adjusted
invested capital plus distributions of sale or refinancing proceeds equal
to 100% of their original contributions.
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.
8
<PAGE> 11
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LAND AND BUILDING ON OPERATING LEASES:
The net investment in operating leases as of September 30, 1996 is
comprised of the following:
Land $ 805,900
Building and improvements 1,138,902
----------
1,944,802
Less accumulated depreciation (65,193)
----------
Total $1,879,609
==========
The following is a schedule of future minimum lease payments to be received
on the operating leases as of September 30, 1996:
1996 $ 41,715
1997 169,779
1998 174,874
1999 180,125
2000 185,532
Thereafter 3,099,507
----------
Total $3,851,532
==========
5. NET INVESTMENT IN DIRECT FINANCING LEASES:
The net investment in direct financing leases as of September 30, 1996 is
comprised of the following:
Minimum lease payments to be received $ 415,682
Estimated residual value 47,307
----------
Gross investment in direct financing leases 462,989
Less unearned income (91,009)
----------
Net investment in direct financing leases $ 371,980
==========
9
<PAGE> 12
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NET INVESTMENT IN DIRECT FINANCING LEASES, CONTINUED:
The following is a schedule of future minimum lease payments to be received
on the direct financing leases as of September 30, 1996:
1996 $ 27,770
1997 132,061
1998 132,061
1999 118,545
2000 5,245
--------
Total $415,682
========
6. JOINT VENTURE:
In order to more fully utilize its capital, the Partnership entered into a
joint venture with an affiliate of Captec to acquire one net leased real
property. As of September 30, 1996, the Partnership had invested
approximately $491,000 in CFCP II, L.C., representing 61.4% ownership of
the joint venture.
The Partnership accounts for its investment in CFCP II, L.C. on a
flow-through basis, whereby the Partnership's share of the assets and
liabilities and income and expense of CFCP II, L.C. are reflected in the
Partnership's financial statements.
7. NOTE PAYABLE:
The Partnership has a note payable to a financial institution with a
principal balance as of September 30, 1996 of $753,683. This note bears
interest at a fixed rate of 10.35 percent per annum and is payable in equal
monthly installments of $10,221 with a balloon payment for all remaining
principal, approximately $603,000, due in October 1999. This note is
secured by a mortgage in the Partnership's two real estate investments
which comprise its entire investment in operating leases.
10
<PAGE> 13
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. NOTE PAYABLE, CONTINUED:
At June 30, 1996, annual maturities of the note payable are as follows:
Year ending December 31:
1996 $ 11,258
1997 48,051
1998 53,261
1999 641,113
--------
Total $753,683
========
8. SUBSEQUENT EVENT:
In October 1996, the Partnership made a distribution to its limited
partners totaling $112,000 which represented distribution of cash flow from
operations in the amount of $50,000 and proceeds from the prepayment of an
equipment lease by the lessee, Coastal Cuisine, Inc., in the amount of
$62,000 for the quarter ended September 30, 1996.
11
<PAGE> 14
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources:
The Partnership commenced the Offering of up to 15,000 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 May 7, 1992. The Partnership reached
final funding as of May 6, 1994 from the sale of 3,881 Units in the amount of
$1,940,500. After payment of all offering expenses (including selling
commissions) totaling $252,265, net proceeds available for investment from the
sale of units totaled $1,688,235. Proceeds from issuance of a note payable
equaled $831,000. Therefore, the Partnership received net capital available
for investment totaling $2,519,235.
As of September 30, 1996, the Partnership has fully invested all of its
capital available for investment. This capital has been used to invest in two
net leased real estate properties (including land and building) in amounts
totaling $1,852,202 and four equipment leases in amounts totaling $547,069. In
addition, in prior quarters, the Partnership paid affiliates acquisition fees
associated with the acquisition and leasing of these assets in amounts totaling
$119,954. There were no new acquisition investments made during the three
month period ended September 30, 1996; however, one equipment lease was prepaid
by the lessee, resulting in prepayment proceeds of approximately $62,700 and
proceeds from the sale of the underlying equipment of $7,400.
The Partnership believes that it has sufficient liquidity to maintain its
operations through cash reserves and cash flows from operations. All of the
Partnership's leases provide for monthly rental payments to be paid to the
Partnership. The form of lease used for both real estate and equipment is an
absolute net lease, which requires lessees to pay all taxes and assessments,
repairs and maintenance and insurance premiums, including casualty insurance.
As such, the Partnership does not anticipate incurring any expenses associated
with the operation of real estate properties or equipment. Therefore,
management expects that its cash reserves and the cash flow from leases will
be sufficient to pay installments on the note payable and other general and
administrative expenses, and further, to provide quarterly distributions to the
limited partners.
Results of Operations:
For the three and nine month periods ended September 30, 1996, the
Partnership earned revenues totaling approximately $78,000 and $258,000,
respectively, compared to approximately $100,000 and $271,000 for the
corresponding periods of the preceding year. The decrease in year-to-date
revenues over the prior year's period was due to the effects of the payoff of
the Coastal Cuisine equpment lease and the non-accrual of rents associated with
the delinquent lease to Kenny Rogers Roasters of Tampa Bay.
12
<PAGE> 15
For the three and nine month periods ended September 30, 1996, the
Partnership incurred expenses totaling approximately $30,000 and $94,000,
respectively, compared to $30,000 and $92,000 for the corresponding periods of
the preceding year. On a comparative basis, there were no significant
fluctuations in expenses.
For the three and nine month periods ended September 30, 1996, the
Partnership earned net income of approximately $48,000 and $164,000,
respectively, compared to approximately $70,000 and $179,000, for the
corresponding periods of the previous year. The decrease in year-to-date net
income over the prior year's period was due to the effects of the payoff of the
Coastal Cuisine equipment lease and the non-accrual of rents associated with
the delinquent lease to Kenny Rogers Roasters of Tampa Bay.
During the nine month period ended September 30, 1996, the Partnership
made distributions to the limited partners totaling $181,500, as compared with
$175,200 for the corresponding period of the preceding year. In addition, in
October 1996, the Partnership made a distribution to its limited partners
totaling $112,000, which represented distribution of cash flow from operations
in the amount of $50,000 and the proceeds from the prepayment of the Coastal
Cuisine, Inc. equipment lease in the amount of $62,000, as compared with a
distribution of $60,500 for the corresponding period of the preceding year. The
decrease in distributions associated with operations is due to the decrease in
revenues discussed above.
Tenant Defaults
The Partnership has invested in an operating lease under a joint venture
arrangement described in Note 6 to the consolidated financial statements
included herein. The Partnership's net investment in the property underlying
this lease is $512,344. The tenant under this lease, Kenny Rogers Roasters of
Tampa Bay, Inc., has defaulted on the lease agreement due to non-payment of
rents. As of September 30, 1996, the Partnership is owed $35,654 of rents past
due from March 1, 1996 and forward, of which $19,803 have been accrued and
receivable by the Partnership. The Partnership holds a $5,581 security deposit
which can be applied against these past due rents, at the Partnership's
discretion. Presently, this default has caused the suspension of cash flows
from rents to the Partnership in an amount equal to $4,950 per month, which
amount represents 16.57% of the Partnership's aggregate current monthly rental
income. The General Partners are unable to determine at this time whether any
of these past due rents will be recovered.
The General Partners have been conducting ongoing discussions with the
tenant and with the franchisor and other franchisees in the Kenny Rogers
Roasters franchise system, as well as with other parties interested in the
property for operation of other restaurant and non-restaurant uses. These
discussions have been focused on determining whether the tenant can cure the
default, and identifying alternate tenants that are interested in taking over
the operations of this restaurant or purchasing the property for conversion to
other concepts.
To date, no agreements have been reached as a result of these discussions.
The General Partners believe that the property can be re-leased to new tenants
within a 3 to 6 month period, although such new lease may not provide for the
same amount of monthly rent as required under the existing lease. Furthermore,
the General Partners will pursue the default remedy provisions under the lease,
to the extent that pursuing such remedies is determined to
13
<PAGE> 16
be in the best interest of the Partnership, taking into account such factors as
the cost of any legal actions and the probability of recovery. The General
Partners will continue to seek a resolution to this lease default and will
report any commitment or definitive agreement regarding this default.
Additionally, the General Partners have obtained revised estimates of the
market value of the property from local real estate experts. These estimates
have indicated that the current market value the Partnership's 61.4% share of
the property is equal to or greater than the Partnership's net investment in
the property. Based upon this analysis, the General Partners believe that the
Partnership's net investment in this property is fairly stated.
As previously reported, on July 25, 1995, Tropicana Taco Cabana Ltd., a
Texas limited partnership (the "Tenant") assumed the lease and operations of
the Taco Cabana Restaurant located at 3575 W. Tropicana, Las Vegas, Nevada (the
"Property"). The Tenant's managing general partner was Felix Steling, the
guarantor under the original lease between the Partnership and Red Line Taco
Seven, Ltd. (the "Guarantor"). After a year of operations, the Tenant was
unable to generate sufficient cash flow to cover the lease payments to the
Partnership. Although all lease payments were current as of August 1, 1996,
negotiations began to resolve the imminent problem. On September 5, 1996, the
Partnership and the Tenant entered into an agreement whereby the Partnership
took possession of the Property and the Tenant/Guarantor paid $325,000 to the
Partnership in settlement of all obligations.
While the General Partners believe that the Property can be re-leased on
reasonable terms and is continuing its efforts to find a new tenant, there is
no assurance that it will be successful in the near future, and if a new tenant
is obtained, there is no assurance that the economic terms of those leases will
compare favorably with the defaulted lease. The General Partners will continue
to seek a resolution to the lease default and will report any commitments or
definitive agreements regarding this default.
14
<PAGE> 17
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
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
Exhibit 27 - Financial Data Schedule
No reports on the Form 8-K were filed for the three month period
ending September 30, 1996.
15
<PAGE> 18
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 II
Managing General Partner of
Captec Franchise Capital Partners L.P. II
By: /s/ W. Ross Martin
--------------------------------------------
W. Ross Martin
Chief Financial Officer and Vice President,
a duly authorized officer
DATE: November 13, 1996
16
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 12
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 105,346
<SECURITIES> 0
<RECEIVABLES> 155,726
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 261,072
<PP&E> 2,316,782
<DEPRECIATION> 65,193
<TOTAL-ASSETS> 2,512,661
<CURRENT-LIABILITIES> 779,578
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,733,083
<TOTAL-LIABILITY-AND-EQUITY> 2,512,661
<SALES> 74,110
<TOTAL-REVENUES> 77,782
<CGS> 0
<TOTAL-COSTS> 9,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,692
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