<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, 1996
[ ] 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 33-77510-C
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
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<TABLE>
<S> <C>
(Exact name of small business issuer as specified in its charter)
Delaware 38-3160141
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
</TABLE>
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. Yes No .
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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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Transitional Small Business Disclosure Format (check one) Yes No X
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<PAGE> 2
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements 1
Balance Sheet, March 31, 1996 2
Statement of Operations for the three month periods
ended March 31, 1996 and 1995 3
Statement of Cash Flows for the three month periods
ended March 31, 1996 and 1995 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
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Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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</TABLE>
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The balance sheet of Captec Franchise Capital Partners L.P. III (the
"Partnership") as of March 31, 1996 and the statements of operations and cash
flows for the periods ending March 31, 1996 and 1995 are unaudited and have
not been examined by independent public accountants. 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. All such
adjustments are of a normal and recurring nature.
These financial statements should be read in conjunction with the audited
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. III
BALANCE SHEET
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 1,371,969
Investment in leases:
Operating leases, net 6,167,537
Direct financing leases, net 2,417,372
Rent receivable 2,451
Unbilled rent 69,934
Due from related parties 609
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Total assets $ 10,029,872
=============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 24,396
Due to related parties 413,868
Operating lease rents paid in advance 9,396
Security deposits held on leases 27,369
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Total liabilities 475,029
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Partners' Capital:
Limited partners' capital accounts 9,549,816
General partners' capital accounts 5,027
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Total partners' capital 9,554,843
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Total liabilities & partners' capital $ 10,029,872
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF OPERATIONS
for the three month periods ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Operating revenue:
Rental income $ 118,217 $ 22,127
Finance income 72,933 -
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Total operating revenue 191,150 22,127
--------- ---------
Operating costs and expenses:
Depreciation 21,594 2,312
General and administrative 14,799 4,476
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Total operating costs and expenses 36,393 6,788
--------- ----------
Income from operations 154,757 15,339
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Other Income (expense):
Interest income 19,154 8,307
Other 907 -
--------- ----------
Total other income, net 20,061 8,307
--------- ----------
Net income 174,818 23,646
--------- ----------
Net income allocable to general partners 1,748 236
Net income allocable to limited partners $ 173,070 $ 23,410
========= ==========
Net income per limited partnership unit $ 18.75 $ 16.05
========= ==========
Weighted average number of limited partnership
units outstanding 9,228 1,459
========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CASH FLOWS
for the three month periods ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 174,818 $ 23,646
Adjustments to net income:
Depreciation 21,594 2,312
Increase in unbilled rent (22,783) (3,493)
Decrease (increase) in receivables 3,349 -
Increases in payables 419,996 23,551
Security deposits received - 9,167
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Net cash provided by operating activities 596,974 55,183
----------- ------------
Cash flows from investing activities:
Purchase of real estate for operating leases (2,819,849) (1,040,000)
Purchase of equipment for financing leases (601,793) -
Reduction of net investment in financing leases 64,022 -
----------- ------------
Net cash used in investing activities (3,357,620) (1,040,000)
----------- ------------
Cash flows from financing activities:
Issuance of limited partnership units 3,513,913 1,868,310
Offering costs (450,783) (242,880)
Distributions to limited partners (214,170) -
----------- ------------
Net cash provided by financing activities 2,848,960 1,625,430
----------- ------------
Net increase in cash 88,314 640,613
Cash, beginning of period 1,283,655 251
----------- ------------
Cash, end of period $ 1,371,969 $ 640,864
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. III (the "Partnership"), a Delaware
limited partnership, was formed on February 18, 1994 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 businesses. The general partners of the Partnership are Captec
Franchise Capital Corporation III (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 August 12, 1994. A minimum of 1,150 Units and a
maximum of 20,000 Units, priced at $1,000 per Unit, were offered on a "best
efforts, part or none" basis. The Partnership broke impound on January 24,
1995, at which time funds totaling $1,155,255 were released from escrow and
the Partnership immediately commenced operations. At March 31, 1996, the
Partnership had accepted subscriptions for 10,915.632 Units, and funds
totaling $10,915,632.
Due to the nature of 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 are
allocated among the limited partners based upon the number of Units owned.
In no event will the Sponsor be allocated less than one percent 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 lives (40 years).
5
<PAGE> 8
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
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 a ten percent (10%) 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 eleven percent (11%) preferred return plus return of the
original contributions to the limited partners.
The Partnership distributed $214,170 during the three month period ended
March 31, 1996, representing quarterly distributions of cash flow from
operations for the quarter ended December 31, 1995 and elective monthly
distributions for the current quarter.
6
<PAGE> 9
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
Organization and offering expenses, excluding selling commissions, are paid
initially by the General Partners and/or their Affiliates and will be
reimbursed by the Partnership in an amount equal to up to three percent
(3%) of the gross proceeds of the offering (less any amounts paid directly
by the Partnership). In addition, the Sponsors and/or their affiliates
will be paid a non-accountable expense allowance by the Partnership in an
amount equal to two percent (2%) of the gross proceeds of the offering.
The Sponsor was reimbursed $177,587 during the three month period ended
March 31, 1996. These costs were treated as capital issuance costs and
have been netted against the limited partners' capital accounts.
The Partnership will also pay to Participating Dealers, including
affiliates of the general partners, selling commissions in an amount equal
to eight percent (8%) of the purchase price of all units placed by them
directly. Total commissions incurred during the three month period ended
March 31, 1996 were $273,196. These costs were treated as capital issuance
costs and have been netted against the limited partners' capital accounts.
The Sponsor has also guaranteed payment of organization and offering
expenses which exceed 13%, including selling commissions, of the gross
proceeds of the offering.
An acquisition fee is charged, not to exceed the lesser of: (i) four
percent (4%) of gross proceeds plus an additional .00624% for each 1% of
indebtedness incurred in acquiring properties and/or equipment but in no
event will acquisition fees exceed five percent (5%) of the aggregate
purchase prices of properties and equipment; or (ii) compensation
customarily charged in arm's length transactions by others rendering
similar services. The Partnership paid $131,602 in acquisition fees during
the three month period ended March 31, 1996. Of this amount, $23,146 was
capitalized into net investment in direct financing leases and $108,456 was
capitalized into land and building on operating leases.
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.
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 ten percent (10%) per annum on their
adjusted invested capital. There were no subordinated asset management fee
paid to the Sponsor during the three month period ended March 31, 1996.
7
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS, CONTINUED:
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 March 31, 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 eleven percent (11%) 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.
4. LAND AND BUILDING ON OPERATING LEASES:
The net investment in operating leases as of March 31, 1996 is comprised of
the following:
<TABLE>
<S> <C>
Land $1,473,279
Building and improvements 4,749,830
----------
6,223,109
Less accumulated depreciation (55,572)
-----------
Total $6,167,537
===========
</TABLE>
The following is a schedule of future minimum lease payments to be
received on the operating leases as of March 31, 1996:
<TABLE>
<S> <C>
1996 $497,786
1997 676,619
1998 692,735
1999 709,291
2000 727,448
Thereafter 12,413,354
-----------
Total $15,717,233
===========
</TABLE>
8
<PAGE> 11
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NET INVESTMENT IN DIRECT FINANCING LEASES:
The net investment in direct financing leases as of March 31, 1996 is
comprised of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $3,058,809
Estimated residual value 211,652
----------
Gross investment in direct financing leases 3,270,461
Less unearned income (853,089)
----------
Net investment in direct financing leases $2,417,372
==========
</TABLE>
The following is a schedule of future minimum lease payments to be
received on the direct financing leases as of March 31, 1996:
<TABLE>
<S> <C>
1996 $480,835
1997 629,758
1998 629,758
1999 629,758
2000 432,518
Thereafter 256,182
----------
Total $3,058,809
==========
</TABLE>
6. SUBSEQUENT EVENT:
In April 1996, the Partnership made a distribution to its limited partners
totaling 231,373, which represented the aggregate quarterly distribution of
cash flow from operations for the quarter ended March 31, 1996 in the
amount of $254,000, less $22,627 of elective monthly distributions
previously distributed during that quarter.
9
<PAGE> 12
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL COMMITMENTS:
Captec Franchise Capital Partners L.P. III (the "Partnership") commenced
the Offering of up to 20,000 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 August 12, 1994. The Offering will terminate August 12, 1996.
As of March 31, 1996, the Partnership had accepted subscriptions for
10,915.632 Units and funds totaling $10,915,632.88 from 827 investors. The
Partnership had cash totaling $1,371,969 as of March 31, 1996, approximately
$1,000,000 of which is available for investment.
The Partnership intends to utilize the proceeds of the offering to acquire
existing, income-producing commercial Properties and Equipment which will be
leased on a "triple net" basis primarily to operators of nationally franchised
fast-food, family style and dinner house restaurants as well as other
franchised service-type businesses. The property leases are expected to
provide for a base minimum annual rent, with provisions for fixed increases on
specific dates or indexation of rent to indices such as the Consumer Price
Index and/or percentage rents. Equipment will be leased only pursuant to Full
Payout Leases. The Partnership may incur secured indebtedness in connection
with the acquisition of its Properties and/or Equipment.
Net Offering Proceeds from future sales of Units, together with leverage
of up to 30% of the sum of gross proceeds and the aggregate amount of
Partnership indebtedness secured by Partnership assets (approximately 35% of
the aggregate purchase prices of Partnership assets) when incurred, will
provide additional funds to be used by the Partnership to purchase Properties
and Equipment.
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 lessee to pay all taxes and assessments, maintenance and
repairs 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.
10
<PAGE> 13
During the three month period ending March 31, 1996, the Partnership
acquired two equipment packages for a total cost of $578,647 and real estate
for $2,711,393. See Equipment Acquisitions and Real Estate Acquisitions below.
The number of Properties and/or the amount of Equipment to be acquired will
depend upon the number of Units sold in the Offering.
Real Estate Acquisitions:
Red Robin Property, Grapevine, Texas. On March 29, 1996 the Partnership
acquired the land and 7,485 square foot building comprising a Red Robin Grill &
Spirits restaurant located at 1701 William D. Tate Avenue, Grapevine, Texas
(the "Grapevine Property"). The Grapevine Property was constructed for its
present use in August of 1995 and was fully operational at the time of the
purchase. The Grapevine Property was purchased from, and leased back to Red
Robin International, Inc. a Nevada corporation (the "Tenant"). The Tenant
operates and franchises casual dining restaurants under the primary trade name
of Red Robin Restaurants. The headquarters offices of the Tenant are located
at 28 Executive Park, Suite 200, Irvine, California. The Partnership purchased
a fee simple interest in the Grapevine Property for a purchase price of
$2,711,393 which was negotiated by an affiliate of the Managing General partner
which considered factors such as the potential value of the site, the financial
condition and business and operating history of the Tenant and demographic data
for the area in which the Texas Property is located. The purchase price for
the Grapevine Property is supported by an independent MAI appraisal. The
Partnership purchased the Grapevine Property with cash from offering proceeds.
It is anticipated that the Grapevine Property will be leveraged as provided for
in the Prospectus, however, the Partnership presently does not have a financing
commitment.
The Tenant and the Partnership have entered into the Partnership's
standard form of lease (the "Lease"), which is an absolute net lease, whereby
the Tenant is responsible for all expenses related to the Grapevine Property
including real estate taxes, insurance, maintenance and repair costs. The
Lease term expires on March 31, 2016 with two renewal options of five years
each The initial annual rent is equal to eleven percent (11%) of the purchase
price and will be payable in monthly installments on the first day of each
month. Thus, based on the purchase price of $2,711,393, the rent in the first
year of the Lease is $298,253 per year, or $24,854 per month. The Minimum
Annual Rent shall be increased on April 1, 1997 and every April 1 thereafter
by two and one half percent (2.5%).
The Tenant has an option to purchase the Grapevine Property during two
"window periods;" the first window period commencing on April 1, 2000 and
expiring on June 29, 2000 and the second window period commencing on April 1,
2003 and expiring on June 29, 2003. The option price the Tenant shall pay for
the Grapevine Property shall $3,211,861 if the option is exercised during the
first window period, or $3,458,823 if the option is exercised during the second
window period
An Affiliate of the Managing General Partner analyzed demographic,
geographic and market diversification data for the area in which the Grapevine
Property is located and reviewed the appraisal of the Grapevine Property and
the analysis regarding comparable properties contained therein. Based upon the
foregoing, the General Partners are unaware of any unfavorable competitive
conditions regarding the Grapevine Property. The General Partners believe that
the amount of insurance carried by the Tenant is adequate.
11
<PAGE> 14
The current annual rent per square foot for the Grapevine Property is
$39.85. The depreciable basis of the Grapevine Property for federal tax
purposes is $1,611,393 and it will be depreciated using the straight line
method over 39 years, a rate of $41,318 per year. The 1995 tax rate of the
county in which the Grapevine Property is located is $2.455 per $100 of
assessed value. The current annual realty taxes are $13,644; however, the
current property tax assessment on the Grapevine Property is for is for the
land only. It is anticipated that there will be a new assessment to reflect
the improvements to the land (i.e., the restaurant facility).
An affiliate of the Managing General Partner has received an Acquisition
Fee from the Partnership in an amount equal to $108,456 and expects to receive
an additional fee of $27,114 from the Partnership after leveraging the
Grapevine Property, as provided for in the Prospectus. These fees are being
paid for services rendered in connection with the selection, evaluation and
acquisition of the Grapevine Property, as provided for in the Partnership
Agreement. In addition, the Tenant has paid to the same affiliate a commitment
fee equal to $27,114, as provided for in the Partnership Agreement. The Tenant
also paid all of the expenses incident to the closing of the transaction
contemplated by this commitment including, without limitation, the
Partnership's attorney's fees, title insurance premiums, recording fees and
expenses and transfer taxes. The Tenant has deposited with the Partnership a
$24,854 as security for Tenant's faithful performance of Tenant's obligations
under the lease.
The Lease contains a substitution option that in the event that the Tenant
determines that the Grapevine Property is inadequate or unprofitable or the
Grapevine Property is rendered unsuitable by condemnation or casualty, the
Tenant may substitute another property having a Red Robin Grill & Spirits
restaurant located thereon, of equal or greater current value. The substitute
property shall be subject to the approval of the Partnership.
The Lease contains material default provisions that include, but are not
limited to: (i) the vacating or abandonment of the Texas Property by the
Tenant; (ii) the failure by the Tenant to make any payment due under the Lease;
(iii) the failure by the Tenant to observe or perform any of the covenants,
conditions, or provisions of the Lease; and (iv) the making by the Tenant of
any general arrangement or general assignment for the benefit of creditors. In
the event of a material default by the Tenant, the Lease contains remedy
provisions which are summarized as follows: (i) the Partnership may terminate
the Lease and take possession of the Grapevine Property, in which case the
Partnership would be entitled to damages incurred by reason of the material
default; (ii) the Partnership may maintain the Tenant's right to possession of
the Grapevine Property, in which case the Lease would continue to be in effect;
or (iii) the Partnership may pursue any other legal remedy available.
12
<PAGE> 15
Equipment Acquisitions:
Checkers Equipment, Palm Harbor, Florida. On March 11, 1996 the
Partnership purchased restaurant equipment and a modular building ("Palm Harbor
Equipment") to be used in the operation of a Checkers Drive-In Restaurant
located at 33225 U. S. Highway 19, North, Palm Harbor, Florida. The Palm
Harbor Equipment was purchased from Checkers of Palm Harbor, a Franchise, Inc.,
for $225,000 and leased back to Checkers of Palm Harbor, a Franchise, Inc., a
Florida Corporation, DBA Checkers Drive-In Restaurant (the "Lessee"). The
Lessee owns and operates the Checkers Drive-In Restaurant under a franchise
agreement. The purchase was made in cash from proceeds of the Partnership;
however, it is anticipated that the Palm Harbor Equipment will subsequently be
leveraged as provided for in the Prospectus.
The Lessee and Partnership entered into the Partnership's standard form of
lease (the "Lease") commencing on March 15, 1996, whereby the Lessee is
responsible for all expenses related to the Palm Harbor Equipment including
taxes, insurance, maintenance and repair costs. The Lease term is 84 months
and the minimum annual rent is $48,600 payable in monthly installments of
$4,050 on the fifteenth day of each month. The annual rent remains fixed for
the entire Lease term. At the end of the Lease term, upon at least 90 days
prior irrevocable notice to the Partnership, the Lessee may purchase all of the
Palm Harbor Equipment for $22,500. The Lease is guaranteed by the following
individuals: George W. Cook and Michael G. Perez.
The Lessee paid a commitment fee equal to $2,250 to an affiliate as
provided for the Partnership Agreement. In addition, the first and last
month's rent totaling $8,100 was paid to the Partnership at the time of
closing.
An affiliate of the Managing General Partner has received an Acquisition
Fee from the Partnership in an amount equal to $9,000 and expects to receive an
additional fee of $2,250 from the Partnership after leveraging the Palm Harbor
Equipment.
Denny's Equipment, Cypress, Florida. On March 29, 1996 the Partnership
purchased restaurant equipment ("Cypress Equipment") to be used in the
operation of a Denny's Restaurant located at 2380 NW Highway 19, Crystal River,
Florida. The Cypress Equipment was purchased for $353,647 and leased to
Cypress Partners 1995, Ltd., a Florida limited partnership, dba Denny's (the
"Lessee"). The Lessee owns and operates the Denny's Restaurant under a
franchise agreement. The headquarter's office of the Lessee are located at 115
marks Street, Orlando, Florida. The purchase was made in cash from proceeds of
the Partnership; however, it is anticipated that the Cypress Equipment will
subsequently be leveraged as provided for in the Prospectus.
The Lessee and Partnership entered into the Partnership's standard form of
lease (the "Lease") commencing on March 15, 1996, whereby the Lessee is
responsible for all expenses related to the Cypress Equipment including taxes,
insurance, maintenance and repair costs. The Lease term is 60 months and the
minimum annual rent is $92,684 payable in monthly installments of $7,723.65 on
the fifteenth day of each month. The annual rent remains fixed for the entire
Lease term. At the end of the Lease term, upon at least 90 days prior
irrevocable notice to the Partnership, the Lessee may purchase all of the
Cypress Equipment for the fair market value, however the fair market value
shall not exceed the sum of $35,364.70. The Lease is
13
<PAGE> 16
jointly and severally guaranteed by the following: Cypress Associates, a
Florida partnership; Cypress Ormond Beach, Inc., a Florida corporation; Transam
Financial Services, Inc., a Florida corporation; Gerald F. Hilbrich, an
individual; Thomas E. McIntyre, an individual; George Noga, an individual;
and Larry K. Walker, an individual,
The Lessee paid a commitment fee equal to $3,534 to an Affiliate as
provided for the Partnership Agreement. In addition, the first and last
month's rent totaling $15,447 was paid to the Partnership at the time of
closing.
An affiliate of the Managing General Partner has received an Acquisition
Fee from the Partnership in an amount equal to $14,146 and expects to receive
an additional fee of $3,536 from the Partnership after leveraging the Cypress
Equipment.
General Provisions
Prior to entering into the leases an Affiliate of the Managing General
Partner considered factors such as the financial condition and business and
operating history of the Lessees and demographic data for the area in which the
Equipment is located. The General Partners believe that the amount of
insurance carried by the Lessees is adequate.
RESULTS OF OPERATIONS:
For the three month period ended March 31, 1996, the Partnership earned
revenues totaling approximately $211,000, compared to approximately $30,000 for
the corresponding period of the preceding year. The increase in revenues over
the prior year's period (593%) was due to the effect of the Partnership's
progress during the comparable periods in selling Units and investing the
proceeds therefrom in income producing real estate properties and equipment.
For the three month period ended March 31, 1996, the Partnership incurred
expenses totaling approximately $36,000, compared to $7,000 for the
corresponding period of the preceding year. The increase in expenses over the
prior year's period (436%) was due to the same effects which produced the
increase in revenues. This growth caused corresponding increases in
depreciation expense (due to the growth in depreciable assets) and general and
administrative expenses.
For the three month period ended March 31, 1996, the Partnership earned
net income of approximately $175,000, compared to approximately $23,000 for
the corresponding period of the previous year. The increase in net income over
the prior year's period (639%) was primarily due to the increase in revenues
discussed above.
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<PAGE> 17
Based upon the results of operations for the three month period ended
March 31, 1996, the Partnership distributed to its limited partners a total of
$254,000, representing cash flow from operations for that period. These
amounts were distributed as follows: $22,627 paid in February 1996 and March
1996 to investors that have elected to receive monthly distributions and
$231,373 paid in April 1996. On a comparative basis, the Partnership
distributed to its limited partners a total of $22,900 for the corresponding
period of the preceding year. The increase in distributions over the prior
year's period (1,009%) was due to the increase in net income discussed above
and the reduction in net investment in financing leases (i.e. capital returned
on equipment lease investments) resulting from the growth in the equipment
lease portfolio.
15
<PAGE> 18
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
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
Reports on Form 8-K. (Incorporated by reference from Registrant's SEC
File No. 33-77510C, filed January 2, 1996 (Form 8-K/A No. 1); January
3, 1996, and March 25, 1996. Subsequent reports on Form 8-K were
filed April 2, 1996 and April 3, 1996).
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<PAGE> 19
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 III
Managing General Partner of
Captec Franchise Capital Partners L.P. III
BY: /s/ W. Ross Martin
---------------------------------------------
W. Ross Martin
Chief Financial Officer and Vice President,
a duly authorized officer
DATE: May 13, 1996
--
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<PAGE> 20
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,371,969
<SECURITIES> 0
<RECEIVABLES> 2,490,366
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,862,335
<PP&E> 6,223,109
<DEPRECIATION> 55,572
<TOTAL-ASSETS> 10,029,872
<CURRENT-LIABILITIES> 475,029
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,554,843
<TOTAL-LIABILITY-AND-EQUITY> 10,029,872
<SALES> 191,150
<TOTAL-REVENUES> 211,211
<CGS> 0
<TOTAL-COSTS> 36,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 174,818
<INCOME-TAX> 0
<INCOME-CONTINUING> 174,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,818
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
