<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 March 31, 1997
[ ] 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 33-44654-C
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 38-3019164
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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)
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
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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
Transitional Small Business Disclosure Format (check one) Yes No X
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION Page
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Item 1. Financial Statements.......................................1
Consolidated Balance Sheet, March 31, 1997.................2
Consolidated Statement of Operations for the
three month periods ended March 31, 1997 and 1996..........3
Consolidated Statement of Cash Flows for the
nine month periods ended March 31, 1997 and 1996...........4
Notes to Financial Statements..............................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................9
PART II OTHER INFORMATION
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Item 1. Legal Proceedings.........................................11
Item 2. Changes in Securities.....................................11
Item 3. Defaults Upon Senior Securities...........................11
Item 4. Submission of Matters to a Vote of Security Holders.......11
Item 5. Other Information.........................................11
Item 6. Exhibits and Reports on Form 8-K..........................11
SIGNATURES................................................................12
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i
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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 March 31, 1997 and the consolidated statements of
operations and cash flows for the periods ending March 31, 1997 and 1996 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,
1996.
1
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1997
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Cash $ 181
-----
Total assets $ 181
=====
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Due to related parties $ 181
-----
Total liabilities 181
-----
Partners' Capital:
Limited partners' capital accounts -
General partner's capital accounts -
-----
Total partners' capital -
-----
Total liabilities & partners' capital $ 181
=====
</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 March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Operating revenue:
Rental income $ - $ 71,507
Finance income - 18,781
-------- --------
Total operating revenue - 90,288
-------- --------
Operating costs and expenses:
Depreciation - 7,118
General and administrative - 4,357
-------- --------
Total operating costs and expenses - 11,475
-------- --------
Income from operations - 78,813
-------- --------
Other income (expense):
Gain on sale of assets 216,756 -
Interest expense 0 (20,242)
Other 44 525
-------- --------
Total other income, net 216,800 (19,717)
-------- --------
Net income 216,800 59,096
Net income allocable to general partners 2,168 591
-------- --------
Net income allocable to limited partners $214,632 $ 58,505
======== ========
Net income per limited partnership unit $ 55.30 $ 15.07
======== ========
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 Cash Flows
for the three month periods ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 216,800 $ 59,096
Adjustments to net income:
Gain on sale of assets (216,756) -
Depreciation - 7,118
Increase in unbilled rent - (16,155)
Decrease (increase) in receivables 250 (4,951)
Increases in payables (509) -
Security deposits received - -
----------- --------
Net cash provided by operating activities (215) 45,108
----------- --------
Cash flows from investing activities:
Disposition of real estate subject to operating leases 2,335,000 -
Disposition of equipment subject to financing leases 425,000 -
Reduction of net investment in financing leases - 19,318
----------- --------
Net cash provided by (used in) investing activities 2,760,000 19,318
----------- --------
Cash flows from financing activities:
Liquidation payments to limited partners (2,000,570) -
Retirement of note payable (by assumption) (749,849) -
Decrease in due from related parties 7,584 -
(Decrease) increase in due to related parties (29,544) 1,150
Principal payments on note payable - (10,421)
Distributions to limited partners - (61,000)
----------- --------
Net cash used in financing activities (2,772,379) (70,271)
----------- --------
Net increase in cash (12,594) (5,845)
Cash, beginning of period 12,775 118,413
----------- --------
Cash, end of period $ 181 $112,568
=========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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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 Partnership reached final funding as of May 6,
1994 from the sale of 3,881 Units in the amount of $1,940,500.
On January 29, 1997 the Partnership sold two net leased real estate
properties (including land and building) for $2,335,000 and three net
leased equipment packages for $425,000 (the "Sale of Assets") to Captec Net
Lease Realty, Inc., a Michigan corporation ("Purchaser") and an affiliate
of the Corporation. The sale was effective as of January 1, 1997. All
rights and obligations under the leases were assigned to the Purchaser.
The total sale price of $2,760,000 (the "Sale Price") included a $325,000
settlement paid to the Partnership by Tropicana Taco Cabana, Ltd., which
amount was transferred to the Purchaser in the sale. In addition, the
Purchaser assumed the note payable to Heller Financial, Inc. with a
principal balance as of January 29, 1997 of $742,425 and assumed the
accrued liability of $7,424 related to a prepayment premium on the note.
The sale price was determined by valuing the properties in excess of recent
MAI appraisals and by valuing the equipment leases by computing the net
present value of the remaining rental payments due under those leases and
estimated residual values of such equipment.
The Sale of Assets was recommended by the Corporation in a Plan of
Liquidation dated November 18, 1996 (the "Plan") which was mailed to all
limited partners and which required a vote in favor of the Plan prior to
proceeding with the sale. The Plan was approved by a majority of the
limited partners on December 23, 1996.
Simultaneous with the Sale of Assets, after paying all expenses of the
Partnership, the Partnership was liquidated. The liquidation resulted in a
final distribution to the limited partners on January 28, 1997 in the
amount of $2,000,570; or $515.47 per Unit. As of March 31, 1997, all of
the Partnership's accounts have been liquidated, expect for the payment of
$181 due to affiliates, which disbursement will be made in the following
quarter.
5
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED:
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 life (40 years).
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.
6
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $2,000,570 during the three month period ended
March 31, 1997 from net sale proceeds from the Sale of Assets (see Note 1).
This distribution was the final liquidating distribution, which resulted
in the return of all investor capital, plus gains thereon.
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
As discussed in Note 1, the Sale of Assets was consummated with an
affiliate of the Corporation. The Purchaser and the Corporation have the
following common directors, shareholders and officers: Patrick L. Beach and
W. Ross Martin.
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:
As a result of the Sale of Assets (see Note 1), there was no investment in
operating leases as of March 31, 1997.
5. NET INVESTMENT IN FINANCING LEASES:
As a result of the Sale of Assets (see Note 1), there was no investment in
financing leases as of March 31, 1997.
7
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NOTE PAYABLE:
In conjunction with the Sale of Assets (see Note 1), the Purchaser assumed
the note payable with a principal balance as of January 29, 1997 of
$742,425 and assumed the accrued liability of $7,424 related to a
prepayment premium on the note. 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
two real estate investments which were purchased by the Purchaser as part
of the Sale of Assets.
8
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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.
On January 29, 1997 the Partnership sold two net leased real estate
properties (including land and building) for $2,335,000 and three net leased
equipment packages for $425,000 (the "Assets") to Captec Net Lease Realty,
Inc., a Michigan corporation ("Purchaser") and an affiliate of Captec Franchise
Capital Corporation II, the managing general partner of the Partnership
("Managing General Partner"). The sale was effective as of January 1, 1997.
The Purchaser and the Managing General Partner of the Partnership have the
following common directors, shareholders and officers: Patrick L. Beach and W.
Ross Martin.
All rights and obligations under the leases were assigned to the
Purchaser. The total sale price of $2,760,000 (the "Sale Price") included a
$325,000 settlement paid to the Partnership by Tropicana Taco Cabana, Ltd.,
which amount was transferred to the Purchaser in the sale. In addition, the
Purchaser assumed the note payable to Heller Financial, Inc. with a principal
balance as of January 29, 1997 of $742,425 and assumed the accrued liability of
$7,424 related to a prepayment premium on the note.
The Sale Price was determined by valuing the properties in excess of
recent MAI appraisals and by valuing the equipment leases by computing the net
present value of the remaining rental payments due under those leases and
estimated residual values of such equipment.
The sale of the Assets was recommended by the Managing General Partner of
the Partnership in a Plan of Liquidation dated November 18, 1996 (the "Plan")
which was mailed to all limited partners and which required a vote in favor of
the Plan prior to proceeding with the sale. The Plan was approved by a
majority of the limited partners on December 23, 1996.
Simultaneous with the sale, after paying all expenses of the Partnership,
the Partnership was liquidated. The liquidation resulted in a final
distribution to the limited partners on January 28, 1997 in the amount of
$2,000,569; or $515.47 per Unit. As of March 31, 1997, all of the
Partnership's accounts have been liquidated, expect for the payment of $181 due
to affiliates, which disbursement will be made in the following quarter.
9
<PAGE> 12
Description of the Assets Sold:
The Partnership sold the land and a 3,800 square foot building located at
3575 West Tropicana Blvd., Las Vegas Nevada (the "Las Vegas Property") for
$1,755,000. At the time of sale, the Partnership obtained an independent MAI
appraisal on the Las Vegas Property. The appraised value as of November 1996
was $1,100,000.
The Partnership sold its interest in CFCP II (the "Joint Venture"), a
joint venture which was formed for the sole purpose of acquiring the land and
3,400 square foot building located at 13606 Bruce B. Downs Blvd., Tampa,
Florida (the "Tampa Property"). The Partnership obtained an independent MAI
appraisal on the Tampa Property reflecting the value attributable to the
Partnership interest of $490,590, as of November 1996.
The Partnership sold three equipment packages that are currently under
lease to various tenants for a total of $425,000. The Partnership sold a
modular building, which is classified as equipment, being used in the operation
of a Checkers Drive-In-Restaurant located in Kissimme, Florida for $132,000;
restaurant equipment being used in the operation of a Schlotsky's Deli located
at 2835 N. Memorial Parkway, Huntsville, Alabama for $88,000; and restaurant
equipment being used in the operation of an Italian Oven located at Cedar Knoll
Galleria, Ashland, Kentucky for $205,000.
Results of Operations:
For the three month period ended March 31, 1997, the Partnership earned
revenues totaling approximately $217,000, compared to approximately $91,000 for
the corresponding period of the preceding year. The increase in year-to-date
revenues over the prior year's period was due to the effects of the sale of the
Partnership assets, which resulted in a gain on sale.
For the three month period ended March 31, 1997, the Partnership incurred
no expenses, compared to $32,000 for the corresponding period of the preceding
year. The decline in expenses over the prior year's period was due to the
effects of the sale of the Partnership assets, which resulted in the cessation
of operating expenses as of January 1, 1997.
For the three month period ended March 31, 1997, the Partnership earned
net income of approximately $217,000, compared to approximately $59,000 for the
corresponding period of the preceding year. The increase in year-to-date net
income over the prior year's period was due to the effects of the sale of the
Partnership assets.
During the three month period ended March 31, 1997, the Partnership made
distributions to the limited partners totaling $2,000,570, which represented
distribution the net proceeds from the sale of the Partnership assets.
10
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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
(a) Exhibits.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. (Incorporated by reference
from Registrant's SEC File No. 33-44654C, dated January
29, 1997).
11
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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: May 19, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 181
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 181
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 181
<CURRENT-LIABILITIES> 181
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 181
<SALES> 0
<TOTAL-REVENUES> 216,800
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 216,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 216,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
