<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 JUNE 30, 1998
------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
---------------- ------------------------------
COMMISSION FILE NUMBER: 33-77510-C
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Captec Franchise Capital Partners L.P. III
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3160141
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(734) 994-5505
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Not Applicable
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
PART I FINANCIAL INFORMATION Page
Item 1. Balance Sheets, June 30, 1998 and December 31, 1997 ........... 1
Statements of Operations for the three and six month periods
ended June 30, 1998 and 1997 .............................. 2
Statement of Changes in Partners' Capital for the six month
period ended June 30, 1998 ................................ 3
Statements of Cash Flows for the six month periods
ended June 30, 1998 and 1997 .............................. 4
Notes to Financial Statements ................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 7
PART II OTHER INFORMATION.............................................. 9
SIGNATURES.............................................................. 10
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 752,101 $ 553,680
Investment in property under leases:
Operating leases, net 13,767,249 13,876,649
Financing leases, net 1,604,855 2,062,971
Impaired financing lease, net 50,000 50,000
Accounts receivable 206 11,514
Unbilled rent 498,398 411,111
Due from related parties 82,432 27,491
------------ ------------
Total assets $ 16,755,241 $ 16,993,416
============ ============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 43,057 $ 18,031
Due to related parties 65,196 59,383
Security deposits held on leases 59,329 59,329
------------ ------------
Total liabilities 167,582 136,743
------------ ------------
Partners' Capital:
Limited partners' capital accounts 16,547,080 16,824,232
General partners' capital accounts 40,579 32,441
------------ ------------
Total partners' capital 16,587,659 16,856,673
------------ ------------
Total liabilities & partners' capital $ 16,755,241 $ 16,993,416
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- -------------------------
Unaudited Unaudited
1998 1997 1998 1997
---- ---- --- ----
<S> <C> <C> <C> <C>
Operating revenue:
Rental income $ 427,770 $ 429,622 $ 855,540 $ 822,737
Finance income 48,624 86,311 107,840 170,803
--------- --------- --------- ---------
Total operating revenue 476,394 515,933 963,380 993,540
--------- --------- --------- ---------
Operating costs and expenses:
Depreciation 54,700 52,357 109,400 101,188
General and administrative 17,108 17,615 46,424 63,124
--------- --------- --------- ---------
Total operating costs and expenses 71,808 69,972 155,824 164,312
--------- --------- --------- ---------
Income from operations 404,586 445,961 807,556 829,228
--------- --------- --------- ---------
Other income (expense):
Gain on sale of equipment - - 4,713 -
Interest income 160 24,272 316 52,861
Other 228 128 1,247 440
--------- --------- --------- ---------
Total other income, net 388 24,400 6,276 53,301
--------- --------- --------- ---------
Net income 404,974 470,361 813,832 882,529
Net income allocable to general partners 4,050 4,704 8,138 8,825
--------- --------- --------- ---------
Net income allocable to limited partners $ 400,924 $ 465,657 $ 805,694 $ 873,704
========= ========= ========== =========
Net income per limited partnership unit $ 20.08 $ 23.28 $ 40.36 $ 43.69
========= ========= ========= =========
Weighted average number of limited partnership
units outstanding 19,963 20,000 19,963 20,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
----- -------- -------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 19,963 16,824,232 32,441 16,856,673
Distributions - ($54.24 per unit) (1,082,846) - (1,082,846)
Net income 805,694 8,138 813,832
---------- ------------ --------- ------------
Balance, June 30, 1998 19,963 $ 16,547,080 $ 40,579 $ 16,587,659
========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENTS OF CASH FLOWS
for the six month periods ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 813,832 $ 882,529
Adjustments to net income:
Depreciation 109,400 101,188
Gain on sale of equipment (4,713) -
Increase in unbilled rent (87,287) (83,711)
Decrease in receivables 11,308 1,845
Increase (decrease) in payables 25,026 (42,887)
Security deposits received - (6,624)
---------- ----------
Net cash provided by operating activities 867,566 852,340
---------- ----------
Cash flows from investing activities:
Purchase of real estate for operating leases - (1,865,965)
Reduction of construction loan draws - 939,778
Reduction of net investment in financing leases 462,828 207,851
---------- ----------
Net cash used in investing activities 462,828 (718,336)
---------- ----------
Cash flows from financing activities:
(Increase) decrease in due from related parties (54,941) 10,400
Increase in due to related parties 5,814 463,183
Distributions to limited partners (1,082,846) (1,044,909)
---------- ----------
Net cash provided by (used in) investing activities (1,131,973) (571,326)
---------- ----------
Net increase in cash 198,421 (437,322)
Cash, beginning of period 553,680 690,175
---------- ----------
Cash, end of period $ 752,101 $ 252,853
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO 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" 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 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 20,000 limited partnership
interests ("Units") on August 12, 1994 and reached final funding in
August,1996. Net proceeds after offering expenses were approximately $17.4
million. During 1997, the Partnership repurchased a total of 37 units. At
June 30, 1998, the Partnership had 19,963 units issued and outstanding.
Allocation of profits, losses and cash distributions from operations and
cash distributions from sale or refinancing are made pursuant to the terms
of the Partnership Agreement. Profits and losses from operations are
allocated among the limited partners based upon the number of Units owned.
In no event will the General Partners be allocated less than one percent of
profits and losses in any year.
The balance sheet of the Partnership as of June 30, 1998 and the statements
of operations and cash flows for the period ending June 30, 1998 and 1997
have not been audited. In the opinion of the Management, these unaudited
financial statements contain all adjustments necessary to present fairly
the financial position and results of operations and cash flows of the
Partnership for the periods then ended. Results of operations for the
interim periods are not necessarily indicative of results for the full
year.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of June 30, 1998 is comprised of
the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 5,482,775
Building and improvements 8,751,982
-----------
14,234,757
Less accumulated depreciation (467,508)
-----------
Total $13,767,249
===========
</TABLE>
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of June 30, 1998 is comprised of
the following:
<TABLE>
<CAPTION>
<S> <C>
Minimum lease payments to be received $1,806,607
Estimated residual value 213,036
----------
Gross investment in financing leases 2,019,643
Less unearned income (414,788)
----------
Net investment in financing leases $1,604,855
==========
</TABLE>
4. SUBSEQUENT EVENT:
In August, 1998 the general partnership interest of the Partnership was
acquired by Captec Net Lease Realty, Inc., an affiliate of Captec, for
$1,483,000.
6
<PAGE> 9
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
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 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 reached final funding on August 12, 1996 with subscriptions for the
entire 20,000 Units and funds totaling $20,000,000. Net proceeds after
offering expenses were $17,400,000.
During 1998, the Partnership expects to obtain leverage of up to
approximately $8.5 million. 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.
At June 30, 1998, the partnership had $14.2 million invested in eleven net
leased real estate properties and $2.5 million invested in eight equipment
packages. As of June 30, 1998 the Partnership's investments were allocated
approximately 85% to properties and 15% to equipment. This allocation is
expected to change as additional properties and equipment are acquired. The
final asset mix allocation is expected to be at least 75%, but not more than
90% properties and up to 25%, but not less than 10% 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 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
7
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
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.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 1998. During the three months ended June 30,
1998 (the "Quarter") total operating revenue decreased 7% to $477,000 as
compared to $516,000 for the three months ended June 30, 1997 (the "1997
Quarter"). The decrease in revenues resulted from the sale of equipment under
one financing lease in February, 1998 and the suspension of revenue associated
with the impairment of one financing lease.
Operating expenses were approximately $72,000 for the Quarter as compared
to approximately $70,000 for the 1997 Quarter.
Other income declined to $388 in the Quarter from $24,400 in the 1997
Quarter as interest income was earned in 1997 from funds raised and not yet
used to acquire properties.
As a result of the foregoing, the Partnership's net income decreased 14%
to $405,000 for the Quarter as compared to $470,000 for the 1997 Quarter.
SIX MONTHS ENDED JUNE 30, 1998. During the six months ended June 30, 1998
("1998") operating revenue decreased 3% to $963,000 as compared to $994,000 for
the six months ended June 30, 1997 ("1997"). The decrease in revenues resulted
from the sale of one equipment property in February, 1998 and the suspension of
revenue associated with the impairment of one financing lease.
Operating expenses were approximately $156,000 for 1988 as compared to
approximately $164,000 for 1997.
Other income declined to $6,276 in 1988 from approximately $53,000 in
1997, as interest income was earned in 1997 from funds raised and not yet used
to acquire properties.
As a result of the foregoing, the Partnership's net income decreased 8% to
$814,000 for 1998 as compared to $883,000 for 1997.
DISTRIBUTIONS. The Partnership announced second quarter distributions of
$532,000, of which $462,782 was distributed to its limited partners on July 15,
1998 and the remaining $69,218 will be distributed to those limited partners
who elected to receive distributions on a monthly basis.
8
<PAGE> 11
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. 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
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
4 Agreement of Limited Partnership of Registrant.
(Incorporated by reference from Exhibit B of the final
Prospectus dated August 12, 1994, as supplemented and filed
with the Securities and Exchange Commission, S. E. C. File
No. 33-77510C)
27 Financial Data Schedule
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: Captec Franchise Capital Corporation III
Managing General Partner of
Captec Franchise Capital Partners L.P. III
By: /w/ W. Ross Martin
-----------------------------------------
W. Ross Martin
Chief Financial Officer and Vice President,
a duly authorized officer
Date: August 14, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 752,101
<SECURITIES> 0
<RECEIVABLES> 581,036
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,333,137
<PP&E> 15,889,612
<DEPRECIATION> 467,508
<TOTAL-ASSETS> 16,755,241
<CURRENT-LIABILITIES> 167,582
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,587,659
<TOTAL-LIABILITY-AND-EQUITY> 16,755,241
<SALES> 476,394
<TOTAL-REVENUES> 476,782
<CGS> 0
<TOTAL-COSTS> 71,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 404,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 404,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 404,974
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
