<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from to
---------- ----------
Commission file number 33-77510C
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 38-3160141
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. 48106-0544
Box 544, Ann Arbor, Michigan
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (734) 994-5505
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act: Units of limited
partnership
interest
($1.0000)
----------------
(Title of Class)
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. [ X ] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
At December 31, 1997 subscriptions for 20,000 units of limited partnership
interest (the "Units") had been accepted, representing an aggregate amount of
$20,000,000. At December 31, 1997, 19,963 Units were issued and outstanding. The
aggregate sales price does not reflect market value and reflects only the price
at which the Units were offered to the public. Currently, there is no market for
the Units and no market is expected to develop.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of the Prospectus of the Registrant dated August 12, 1994, as
supplemented and filed pursuant to Rule 424(b) under the Securities Act of 1933,
as amended, S.E.C. File No. 33-77510C, and is incorporated by reference in Part
III of this Annual Report on Form 10-KSB.
1
<PAGE> 2
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
ITEM 14-EXHIBITS, FINANCIAL STATEMENTS AND REPORTS
Due to information being transferred between computer applications, the
balance sheets submitted March 31, 1998 for the year ended December 31, 1997
were misstated.
As required, we are submitting the entire financial statements and
auditors' reports including the corrected balance sheets.
2
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III PAGE
----
Report of Independent Accountants.............................................4
Financial Statements:
Balance Sheet..........................................................5
Statement of Operations................................................6
Statement of Changes in Partners' Capital..............................7
Statement of Cash Flows................................................8
Notes to Financial Statements..........................................9
CAPTEC FRANCHISE CAPITAL CORPORATION III
Report of Independent Accountants............................................15
Financial Statements:
Balance Sheet.........................................................16
Statement of Operations...............................................17
Statement of Changes in Stockholders' Equity..........................18
Statement of Cash Flows...............................................19
Notes to Financial Statements.........................................20
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Franchise Capital Corporation III
Managing General Partner of
Captec Franchise Capital Partners L.P. III:
We have audited the accompanying balance sheet of Captec Franchise Capital
Partners L.P. III as of December 31, 1997 and 1996, and the related statements
of operations, changes in partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
financial statement amounts and disclosures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Captec Franchise Capital
Partners L.P. III as of December 31, 1997 and 1996, and the results of its
operations, changes in partners' capital and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand
Detroit, Michigan
March 14, 1998
4
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
BALANCE SHEET
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 553,680 $ 690,175
Investment in property under leases:
Operating leases, net 13,876,649 13,732,321
Financing leases, net 2,062,971 2,905,751
Impaired financing lease, net 50,000 -
Accounts receivable 11,514 1,959
Unbilled rent 411,111 210,673
Due from related parties 27,491 20,589
----------- -----------
Total assets $16,993,416 $17,561,468
=========== ===========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 18,031 $ 4,852
Due to related parties 59,383 7,728
Operating lease rents received in advance - 43,916
Security deposits held on leases 59,329 65,953
----------- -----------
Total liabilities 136,743 122,449
----------- -----------
Partners' Capital:
Limited partners' capital accounts 16,824,232 17,422,518
General partners' capital accounts 32,441 16,501
----------- -----------
Total partners' capital 16,856,673 17,439,019
----------- -----------
Total liabilities & partners' capital $16,993,416 $17,561,468
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Operating revenue:
Rental income $1,672,274 $ 983,625
Finance income 328,204 341,142
---------- ----------
Total operating revenue 2,000,478 1,324,767
---------- ----------
Operating costs and expenses:
Depreciation 209,859 114,272
General and administrative 89,781 55,125
Credit allowance for impaired financing lease 169,775 -
---------- ----------
Total operating costs and expenses 469,415 169,397
---------- ----------
Income from operations 1,531,063 1,155,370
---------- ----------
Other income:
Gain on sale of equipment 9,299 -
Interest income 50,460 154,575
Other 3,190 12,141
---------- ----------
Total other income 62,949 166,716
---------- ----------
Net income 1,594,012 1,322,086
Net income allocable to general partners 15,940 13,222
---------- ----------
Net income allocable to limited partners $1,578,072 $1,308,864
========== ==========
Net income per limited partnership unit $ 78.91 $ 84.07
========== ==========
Weighted average number of limited partnership
units outstanding 19,998 15,569
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 7,400 $ 6,527,785 $ 3,279 $ 6,531,064
Issuance of 12,600 limited partnership, net 12,600 10,957,187 10,957,187
Distributions - ($88.08 per unit) (1,371,318) (1,371,318)
Net income 1,308,864 13,222 1,322,086
---------- ------------ ------------ ------------
Balance, January 1, 1997 20,000 17,422,518 16,501 17,439,019
Repurchase of limited partnership units (37) (31,450) (31,450)
Distributions - ($107.26 per unit) (2,144,908) - (2,144,908)
Net income 1,578,072 15,940 1,594,012
---------- ------------ ------------ ------------
Balance, December 31, 1997 19,963 $ 16,824,232 $ 32,441 $ 16,856,673
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,594,012 $ 1,322,086
Adjustments to net income:
Depreciation 209,859 114,272
Gain on sale of equipment (9,299) -
Provision for credit losses 169,775 -
Increase in unbilled rent (200,438) (163,522)
Increase in receivables (9,555) (1,959)
(Decrease) increase in payables 13,179 (20,387)
(Decrease) increase in lease rents received in advance (43,916) 43,916
(Decrease) increase in security deposits held on leases (6,624) 38,584
------------ ------------
Net cash provided by operating activities 1,716,993 1,332,990
------------ ------------
Cash flows from investing activities:
Purchase and construction advances of real estate
for operating leases (926,187) (10,477,310)
Proceeds from disposition of real estate for operating leases 572,000 -
Purchase of equipment for financing leases - (1,357,856)
Proceeds from sale of equipment 15,842 -
Reduction of net investment in financing leases 616,462 331,707
------------ ------------
Net cash provided by (used in) investing activities 278,117 (11,503,459)
------------ ------------
Cash flows from financing activities:
Increase in due from related parties (6,902) (14,180)
Increase in due to related parties 51,655 5,300
Issuance of limited partnership units - 12,585,027
Repurchase of limited partnership units (31,450) -
Offering costs - (1,627,840)
Distributions to limited partners (2,144,908) (1,371,318)
------------ ------------
Net cash provided by (used in) financing activities (2,131,605) 9,576,989
------------ ------------
Net decrease in cash and cash equivalents (136,495) (593,480)
Cash and cash equivalents, beginning of period 690,175 1,283,655
------------ ------------
Cash and cash equivalents, end of period $ 553,680 $ 690,175
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
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" 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.
On December 1, 1997 the Partnership repurchased 25 Units for $21,250 or
85% of the investor's capital account as of December 1, 1997. The
repurchase of the Units was completed pursuant to the terms of the
Repurchase Plan set forth in the Partnership's Prospectus. An additional
12 Units were repurchased on December 31, 1997 for $10,200 under the same
terms and conditions set forth above.
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. CASH AND CASH EQUIVALENTS: The Partnership considers all highly
liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
b. 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.
9
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED:
c. 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 lives (40 years).
d. 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.
e. 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.
f. 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.
g. 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 an eleven percent (11%) preferred return
plus return of the original contributions to the limited partners.
Distributions of cash flow from operations are paid quarterly in arrears.
10
<PAGE> 11
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
Organization and offering expenses, excluding selling commissions, were
initially paid by the General Partners and/or their affiliates and were
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 Sponsor and its affiliate
were 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 for $629,978 during 1996. These costs were
accounted for as capital issuance costs and have been netted against the
limited partners' capital accounts.
The Partnership also paid 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 1996 were $1,007,966. These costs were
accounted for as capital issuance costs and have been netted against the
limited partners' capital accounts.
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 the sponsor $23,104 and $455,017
in acquisition fees during 1997 and 1996, respectively. In addition, the
Partnership recovered $22,000 resulting from the Co-tenancy with LP IV on
one of the financing leases. Of these amounts, $61,524 was capitalized
into net investment in financing leases and $416,597 was capitalized into
land and building subject to 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 is 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
non-compounded return of ten percent (10%) per annum on their adjusted
invested capital. There were no asset management fees paid or accrued to
the Sponsor during 1996. For the twelve months ended December 31, 1997,
$41,400 was incurred.
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 equipment liquidation services. There were no equipment
liquidation fees paid during 1997 or 1996.
11
<PAGE> 12
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS, CONTINUED:
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. There
were no real estate liquidations in 1997 or 1996.
The Partnership has agreed to indemnify the Sponsor and its 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:
The net investment in operating leases as of December 31, 1997 and 1996
is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 5,482,775 $ 5,127,875
Building and improvements 8,751,982 7,812,917
Construction draws on properties (including
land cost of $555,000) 939,778
------------ ------------
14,234,757 13,880,570
Less accumulated depreciation (358,108) (148,249)
------------ ------------
Total $ 13,876,649 $ 13,732,321
============ ============
</TABLE>
As indicated above, at December 31, 1996, the Partnership had made
investments in properties under construction. All construction draws are
subject to the terms of a standard lease agreement with the Partnership
which fully obligates the tenant to the long-term lease of all amounts
advanced under construction draws. At December 31, 1997, the Company had
funded all commitments on properties under construction.
12
<PAGE> 13
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
4. LAND AND BUILDING SUBJECT TO OPERATING LEASES, CONTINUED:
The following is a schedule of future minimum lease payments to be
received on the operating leases as of December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 1,518,499
1999 1,535,055
2000 1,556,756
2001 1,595,843
2002 1,633,354
Thereafter 20,295,533
---------------
Total $ 28,135,040
===============
</TABLE>
5. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of December 31, 1997 and 1996
is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Minimum lease payments to be received $ 2,292,057 $ 3,535,259
Estimated residual value 241,327 269,812
----------- -----------
Gross investment in financing leases 2,533,384 3,805,070
Less unearned income (470,413) (899,320)
----------- -----------
Net investment in financing leases $ 2,062,971 $ 2,905,751
=========== ===========
</TABLE>
The following is a schedule of future minimum lease payments to be
received on the financing leases as of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 683,288
1999 687,338
2000 505,422
2001 211,149
2002 154,443
Thereafter 50,409
---------------
Total $ 2,292,057
===============
</TABLE>
13
<PAGE> 14
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
6. IMPAIRED FINANCING LEASE
At December 31, 1997, the Partnership's investment in impaired financing
leases was comprised of one lease to a single restaurant obligor. The
recorded investment in the lease is $219,775 net of a related credit
allowance of $169,775. Installment payments on this lease are delinquent by
more than 120 days and income accrual has been suspended by the
Partnership. The restaurant was subsequently closed during February, 1998
and the Partnership expects to sell the leased equipment at auction. The
net investment in the impaired lease represents the estimated net proceeds
that the Partnership expects to receive.
7. SUBSEQUENT EVENT:
In January 1998, the Partnership made a distribution to its limited
partners totaling approximately $474,000.
14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Franchise Capital Corporation III
Managing General Partner of
Captec Franchise Capital Partners L.P. III:
We have audited the accompanying balance sheet of Captec Franchise Capital
Corporation III as of December 31, 1997 and 1996, and the related statements of
operations, changes in partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
financial statement amounts and disclosures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Captec Franchise Capital
Corporation III as of December 31, 1997 and 1996, and the results of its
operations, changes in partners' capital and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand
Detroit, Michigan
March 14, 1998
15
<PAGE> 16
CAPTEC FRANCHISE CAPITAL CORPORATION III
BALANCE SHEET
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------- -------
ASSETS
<S> <C> <C>
Cash $ 14 $ 2,670
Investment in partnership 16,221 8,250
Receivable from affiliate 9,048 13,549
Other assets 5,672 5,672
------- -------
Total assets $30,955 $30,141
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Total liabilities:
Accounts payable $ - $ 5,187
Payable to affiliate 13,973 15,942
Income tax payable 5,730 2,732
------- -------
Total liabilities 19,703 23,861
------- -------
Stockholders' equity:
Common stock, no par value; 100 shares authorized,
issued and outstanding - -
Paid-in capital 1,000 1,000
Retained earnings (accumulated deficit) 10,252 5,280
------- -------
Total stockholders' equity 11,252 6,280
------- -------
Total liabilities & stockholders' equity $30,955 $30,141
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
CAPTEC FRANCHISE CAPITAL CORPORATION III
STATEMENT OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Investment income from partnership $7,970 $6,611
Interest
- 101
General and administrative
- -
------ ------
Net income before taxes 7,970 6,510
Income tax provision 2,998 2,200
------ ------
Net income $4,972 $4,310
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
CAPTEC FRANCHISE CAPITAL CORPORATION III
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON PAID-IN (ACCUM.
STOCK CAPITAL DEFICIT) TOTAL
------ ------- -------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ - $1,000 $ 970 $ 1,970
Net Income - - 4,310 4,310
----- ------ ------- -------
Balance, December 31, 1996 - 1,000 5,280 6,280
Net income - - 4,972 4,972
----- ------ ------- -------
Balance, December 31, 1997 $ - $1,000 $10,252 $11,252
===== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
CAPTEC FRANCHISE CAPITAL CORPORATION III
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,972 $ 4,310
Adjustments to net income:
Undistributed income from partnership (7,971) (6,610)
Increase in income tax payable 2,998 2,200
(Increase) decrease in receivable from affiliate
and other assets 4,501 (10,162)
Decrease in accounts payable (5,187) (30,021)
------- ---------
Net cash provided by operating activities (687) (40,283)
------- ---------
Cash flows from financing activities:
Proceeds from borrowings from affiliates (1,969) 42,567
Receipt of offering expense reimbursements - 632,248
Repayment of borrowings from affiliates - (632,248)
------- ---------
Net cash provided by (used in) financing activities (1,969) 42,567
------- ---------
Net increase (decrease) in cash (2,656) 2,284
Cash, beginning of year 2,670 386
------- ---------
Cash, end of period $ 14 $ 2,670
======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
CAPTEC FRANCHISE CAPITAL CORPORATION III
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Corporation III (the "Corporation") is a
Michigan corporation organized on February 15, 1994. The Corporation was
formed for the purpose of serving as the managing general partner of
Captec Franchise Capital Partners L.P. III (the "Partnership"), a
Delaware limited partnership.
The Corporation is a wholly owned subsidiary of Captec Financial Group,
Inc. ("Captec"). Captec has paid $1,000 in cash to the Corporation for
the purchase of all 100 shares of common stock of the Corporation. As a
general partner of the Partnership, the Corporation has contributed $100
to the capital of the Partnership. Patrick L. Beach is also a general
partner of the Partnership and is the Chairman of the Board of Directors,
President and Chief Executive Officer of the Corporation and Captec. Each
general partner has a 0.5 percent share in the Partnership's net income
or loss.
The Partnership undertook a public offering of limited partnership
interests ("Units") in 1994. A minimum of 1,150 Units and a maximum of
20,000 Units, priced at $1,000 per Unit, are being offered on a "best
efforts, part or none" basis. The Partnership broke impound on January
24, 1995. At December 31, 1997, the Partnership had accepted
subscriptions for 20,000 Units and received offering proceeds totaling
$20,000,000.
Affiliates of the Corporation are expected to provide various services to
the Partnership and will be paid certain fees for such services as
specified in the Partnership Agreement.
Following is a summary of the Corporation's significant accounting
principles:
a. INCOME TAXES: The Corporation reports its income for federal
income tax purposes in the consolidated tax return of Captec.
Income taxes are allocated by Captec to the Corporation on the
separate return basis. The Corporation's income tax expense
reflected in the statement of operations and that computed by
applying the statutory federal income tax rate are approximately
equal. Deferred income taxes, for financial reporting purposes,
are not material.
b. 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.
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CAPTEC FRANCHISE CAPITAL CORPORATION III
NOTES TO FINANCIAL STATEMENTS
2. OPERATIONS:
The Corporation's only source of revenue in 1997 and 1996 was from its
investment in the Partnership. See the accompanying financial statements
of the Partnership.
3. RELATED PARTY TRANSACTIONS:
Organization and offering expenses related to the offering of Units are
prepaid by the Corporation and 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). The Corporation is
also reimbursed by the Partnership for a non-accountable expense
allowance in an amount equal to two percent (2%) of the gross proceeds of
the offering. During 1996 the Corporation received reimbursements from
the Partnership totaling $632,248.
The Corporation receives advances from Captec in order to have sufficient
funds for the prepayment of organization and offering and non-accountable
expenses made on behalf of the Partnership. As the Corporation receives
reimbursements of such prepaid expenses, the advances to Captec are
repaid.
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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.
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
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 Sr. Vice President
a duly authorized officer
Date: June 23, 1998
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