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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
| þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedSeptember 30, 2005
OR
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:33-77510-C
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
38-3160141
(IRS Employer Identification Number)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
P.O. Box 544, Ann Arbor, Michigan 48106-0544
(Address of principal executive offices, including zip code)
(734) 994-5505
(Issuer’s telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last year)
(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 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. YesR No£
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
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£ NoR
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
Index to Form 10-QSB
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Captec Franchise Capital Partners L.P. III
Balance Sheets
| September 30 | December 31, | |||||||
| 2005 | 2004 | |||||||
| (Unaudited) | ||||||||
Assets | ||||||||
| Cash and cash equivalents | $ | 2,949,599 | $ | 1,556,320 | ||||
| Restricted cash | — | 664,680 | ||||||
| Assets Held for Sale: | ||||||||
| Operating leases, net | 1,970,377 | 12,987,161 | ||||||
| Financing leases, net | 48,258 | 267,429 | ||||||
| Unbilled rent, net | 124,870 | 955,171 | ||||||
| Deferred financing costs, net | — | 191,163 | ||||||
| Accounts receivable | — | 4,228 | ||||||
| Due from related parties | 151 | 151 | ||||||
| Total assets | $ | 5,093,255 | $ | 16,626,303 | ||||
Liabilities and Partners’ Capital | ||||||||
| Liabilities: | ||||||||
| Notes payable | $ | — | $ | 5,548,515 | ||||
| Accounts payable and accrued expenses | 73,012 | 126,361 | ||||||
| Security deposits held on leases | — | 7,106 | ||||||
| Total liabilities | 73,012 | 5,681,982 | ||||||
| Partners’ capital: | ||||||||
| Limited partners’ capital accounts | 4,989,815 | 10,919,279 | ||||||
| General partner’s capital account | 30,428 | 25,042 | ||||||
| Total partners’ capital | 5,020,243 | 10,944,321 | ||||||
| Total liabilities and partners’ capital | $ | 5,093,255 | $ | 16,626,303 | ||||
The accompanying notes are an integral part of the financial statements.
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Captec Franchise Capital Partners L.P. III
Statements of Discontinued Operations
(Unaudited)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Operating revenue: | ||||||||||||||||
| Rental income | $ | 91,599 | $ | 448,780 | $ | 864,734 | $ | 1,346,326 | ||||||||
| Finance income | 1,259 | 5,393 | 7,827 | 19,979 | ||||||||||||
| Total operating revenue | 92,858 | 454,173 | 872,561 | 1,366,305 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Interest expense | — | 129,769 | 232,123 | 391,760 | ||||||||||||
| Depreciation | — | 59,520 | — | 178,559 | ||||||||||||
| General and administrative | 44,578 | 42,565 | 154,855 | 132,974 | ||||||||||||
| Debt Retirement Costs | — | — | 905,118 | — | ||||||||||||
| Total operating costs and expenses | 44,578 | 231,854 | 1,292,096 | 703,293 | ||||||||||||
| Income (loss) from discontinued operations before other income | 48,280 | 222,319 | (419,535 | ) | 663,012 | |||||||||||
| Other income (expense): | ||||||||||||||||
| Loss on sale of equipment | — | — | (581 | ) | (3,938 | ) | ||||||||||
| Gain on sale of assets | 526,332 | — | 4,957,450 | — | ||||||||||||
| Interest and other income | 52,095 | 171 | 53,553 | 7,406 | ||||||||||||
| Total other income (expense) | 578,427 | 171 | 5,010,422 | 3,468 | ||||||||||||
| Net Income from discontinued operations | $ | 626,707 | $ | 222,490 | $ | 4,590,887 | $ | 666,480 | ||||||||
| Net income from discontinued operations allocable to general partner | $ | 1,004 | $ | 2,225 | $ | 5,386 | $ | 6,665 | ||||||||
| Net income from discontinued operations allocable to limited partners | $ | 625,703 | $ | 220,265 | $ | 4,585,501 | $ | 659,815 | ||||||||
| Net income from discontinued operations per limited partnership unit | $ | 31.87 | $ | 11.22 | $ | 233.56 | $ | 33.61 | ||||||||
| Weighted average number of limited partnership units outstanding | 19,633 | 19,633 | 19,633 | 19,633 | ||||||||||||
The accompanying notes are an integral part of the financial statements.
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Captec Franchise Capital Partners L.P. III
Statement of Changes in Partners’ Capital
For the nine months ended September 30, 2005
For the nine months ended September 30, 2005
| Limited | Limited | General | Total | |||||||||||||
| Partners’ | Partners’ | Partner’s | Partners’ | |||||||||||||
| Units | Accounts | Account | Capital | |||||||||||||
| Balance, December 31, 2004 | 19,633 | $ | 10,919,279 | $ | 25,042 | $ | 10,944,321 | |||||||||
| Distributions — ($535.58 per weighted average limited partnership unit) | — | (10,514,965 | ) | — | (10,514,965 | ) | ||||||||||
| Net income from discontinued operations | — | 4,585,501 | 5,386 | 4,590,887 | ||||||||||||
| Balance, September 30, 2005 | 19,633 | $ | 4,989,815 | $ | 30,428 | $ | 5,020,243 | |||||||||
The accompanying notes are an integral part of the financial statements.
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Captec Franchise Capital Partners L.P. III
Statements of Cash Flows
For the nine months ended September 30,
(Unaudited)
For the nine months ended September 30,
(Unaudited)
| 2005 | 2004 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Income from discontinued operations | $ | 4,590,887 | $ | 666,480 | ||||
| Adjustments to net income: | ||||||||
| Depreciation | — | 178,559 | ||||||
| Amortization of debt issuance costs | 19,912 | 35,843 | ||||||
| Loss on sale of equipment | 581 | 3,938 | ||||||
| Gain on sale of real estate | (4,957,450 | ) | — | |||||
| Loss on investments in financing leases | 17,515 | — | ||||||
| Increase in unbilled rent | (24,791 | ) | (60,908 | ) | ||||
| Decrease in accounts receivable | 4,228 | 18,168 | ||||||
| (Decrease) increase in accounts payable and accrued expenses | (53,349 | ) | 23,976 | |||||
| Decrease (increase) in restricted cash | 664,680 | (125,289 | ) | |||||
| Decrease in due from related parties | — | 3,200 | ||||||
| Net cash provided by operating activities | 262,213 | 743,967 | ||||||
| Cash flows from investing activities: | ||||||||
| Net proceeds from sale of real estate | 16,993,471 | — | ||||||
| Net proceeds from sale of equipment | 101,812 | 149,315 | ||||||
| Principal payments on financing leases | 99,263 | 96,730 | ||||||
| Net cash provided by investing activities | 17,194,546 | 246,045 | ||||||
| Cash flows from financing activities: | ||||||||
| Repayments of notes payable | (5,548,515 | ) | (115,817 | ) | ||||
| Distributions to limited partners | (10,514,965 | ) | (1,171,203 | ) | ||||
| Net cash used in financing activities | (16,063,480 | ) | (1,287,020 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 1,393,279 | (297,008 | ) | |||||
| Cash and cash equivalents, beginning of year | 1,556,320 | 537,442 | ||||||
| Cash and cash equivalents, end of period | $ | 2,949,599 | $ | 240,434 | ||||
The accompanying notes are an integral part of the financial statements.
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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 initial general partners upon formation of the Partnership were Captec Franchise Capital Corporation III (the “Corporation”), a wholly-owned subsidiary of Captec Financial Group, Inc. (“Captec”), an affiliate, and Patrick L. Beach, the Chairman of the Board of Directors, President and Chief Executive Officer of the Corporation and Captec. In August 1998, Captec Net Lease Realty, Inc. (“Captec Net Lease Realty”), an affiliate, acquired the general partnership interests of the Partnership. In December 2001, Captec Net Lease Realty merged with and into Commercial Net Lease Realty, Inc. (“Commercial Net Lease”). In connection with the merger, Commercial Net Lease agreed to sell and assign its general partnership interest in the Partnership to GP3 Asset Acquisition, LLC (“GP3 Asset Acquisition”), which is wholly-owned by Mr. Beach and is an affiliate of Captec. Effective January 15, 2002, the limited partners consented to the transfer of the general partnership interest. On September 11, 2003, the Partnership’s secured lender consented to the transfer of the general partnership interest to GP3 Asset Acquisition. Upon receipt of the secured lender’s consent, GP3 Asset Acquisition became the general partner of the Partnership.
The Partnership commenced a public offering (the “Offering”) of up to 20,000 units (the “Units”) of limited partnership interests, priced at $1,000 per Unit, by means of a Registration Statement on Form SB-2, under the Securities Act of 1933, as amended, which was declared effective by the Securities and Exchange Commission on August 12, 1994. The Partnership accepted subscriptions for the minimum number of Units on January 24, 1995 and immediately commenced operations. The Offering was fully subscribed in August 1996. Since 1997, 367 Units have been repurchased by the Partnership pursuant to the terms of the Repurchase Plan set forth in the Partnership’s August 12, 1994 prospectus with respect to the Offering. At September 30, 2005, the Partnership had 19,633 Units issued and outstanding.
The principal investment objectives of the Partnership are: (i) preservation and protection of capital; (ii) distribution of cash flow generated by the Partnership’s leases; (iii) capital appreciation of the Partnership’s properties; (iv) generation of increased income and protection against inflation through contractual escalation of base rents or participation in gross revenues of tenants of the Partnership’s properties; and (v) deferred taxation of cash distributions to the limited partners.
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.
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.
Distributions per limited partnership Unit are calculated using the actual distributions disbursed during the period to the weighted average number of limited partnership Units during the period. Actual individual limited partner distributions realized may vary from this calculation as a result of a variety of factors including: (i) actual distributions are computed based on quarterly operating results and outstanding limited partnership units, which are disbursed in the subsequent quarter; (ii) certain limited partners have elected to receive monthly distributions versus quarterly
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distributions which creates timing differences between comparative calculations, (iii) liquidating distributions are calculated using capital balances and (iv) the calculation ignores the timing of repurchases.
In November 2004, the limited partners approved a plan to liquidate the Partnership and dispose of all the assets of the Partnership. With this approval, the Partnership commenced activities to liquidate and dispose of the assets of the Partnership, which included entering into an exclusive listing agreement with a third party, who will oversee the marketing and offering for sale of all the real estate assets and equipment leases and loans on behalf of the Partnership. In accordance with Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long Lived-Assets” (“FAS 144”), as a result of the approval of this plan, all assets except cash are classified as Assets Held for Sale and depreciation on these assets is discontinued, all liabilities are classified as Liabilities Held for Sale and the results of the operations in their entirety are classified as discontinued operations for all years presented, since the operations are directly related to the assets or liabilities held for sale. The assets of the Partnership will be sold and the net proceeds of such sale will be distributed to the partners after the repayment of all debt in accordance with the partnership agreement.
On February 15, 2005, the Partnership executed an Agreement of Sale (the “Agreement”) pursuant to which the Partnership agreed to sell ten of the Partnership’s properties and certain real property leases related to such properties for an aggregate purchase price of $17,125,000. On March 14, 2005, the Agreement was amended to remove one of the properties and the real property lease related to such property, and the Purchase Price was reduced to $15,375,000. On June 16, 2005, the Partnership consummated the sale of the remaining nine properties. Simultaneous with the closing of the sale, the Partnership repaid approximately $5,465,000 of its notes payable and paid related debt retirement costs of approximately $905,000. After setting aside reserves for outstanding liabilities and expenses of the ongoing liquidation, the Partnership made a special partial liquidating distribution on August 5, 2005 to the limited partners from the proceeds of this sale in the aggregate amount of approximately $9,850,000. In accordance with the Partnership agreement, this special distribution was allocated among partners in proportion to their capital accounts.
On September 8, 2005, the Partnership consummated the sale of the Partnership’s property and the associated real property lease, located in Puyallup, Washington for a purchase price of $1,792,000. The Partnership received the entire amount of net proceeds from the sale, totaling approximately $1,764,000.
The balance sheet of the Partnership as of September 30, 2005, the statements of discontinued operations and cash flows for the periods ending September 30, 2005 and September 30, 2004 and the statement of changes in partners’ capital for the period ending September 30, 2005 have not been audited. In the opinion of 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. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the United States Securities and Exchange Commission on March 30, 2005.
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2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of September 30, 2005 is comprised of the following:
| Land | $ | 721,665 | ||
| Building and improvements | 1,580,985 | |||
| $ | 2,302,650 | |||
| Less accumulated depreciation | (332,273 | ) | ||
| Total | $ | 1,970,377 | ||
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of September 30, 2005 is comprised of the following:
| Minimum lease payments to be received | $ | 68,872 | ||
| Less unearned income | (20,614 | ) | ||
| Net investment in financing leases | $ | 48,258 | ||
4. NOTES PAYABLE:
In November 1998, the Partnership entered into a $6.2 million term note. The note had a ten-year term, was collateralized by certain properties subject to operating leases which had a carrying value of approximately $7.6 million, and bore interest at a rate of 8.37% per annum. In September 2003, the Partnership defeased approximately $1,979,000 of this note payable with proceeds from the sale of a property. The Partnership incurred approximately $481,000 of yield maintenance costs and $49,000 of professional fees related to the defeasance. Using the proceeds from the sale of nine properties on June 16, 2005, the Partnership defeased the remaining amounts payable under this note. The Partnership incurred approximately $539,000 of yield maintenance costs and $36,000 of professional fees in connection with the defeasance of this note.
In March 1999, the Partnership entered into an additional $2.0 million term note. The note had a ten-year term, was collateralized by certain properties subject to operating leases which had a carrying value of approximately $3.7 million, and bore interest at a rate of 8.5% per annum. Using the proceeds from the sale of nine properties on June 16, 2005, the Partnership defeased the remaining amounts payable under this note. The Partnership incurred approximately $295,000 of yield maintenance costs and $36,000 of professional fees in connection with the defeasance of this note.
Debt issuance costs of $477,909 were incurred in connection with the issuance of the notes, and were amortized over the life of the notes to interest expense using the straight-line method, which is not materially different than the interest rate method. In connection with the defeasance of the two notes on June 16, 2005, the remaining unamortized debt issuance costs were expensed.
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. Forward-looking statements are subject to certain risks and uncertainties, some of which are beyond the Partnership’s control, 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 leased at the assumed rental rates, (iv) unexpected expenses may be incurred in the ownership of
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the properties, and (v) properties may not be sold at the presently anticipated prices and times. Any statements contained in this report or any documents incorporated herein by reference that are not statements of historical fact may be deemed to be forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Partnership disclaims, except as may be required by law, any obligations to update or release revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
As a result of the approval of the Plan of Liquidation and Dissolution, all of the Partnership’s assets except cash are classified as Assets Held for Sale, all liabilities are classified as Liabilities Held for Sale and the operations of the Partnership have been classified as discontinued operations for all periods presented. Therefore, the following discussion and analysis of the results of operations is entirely in regards to discontinued operations, and the discussion and analysis of financial condition is principally regarding Assets and Liabilities Held for Sale.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2005
During the three months ended September 30, 2005, total operating revenue was approximately $92,900, compared to $454,200 for the three months ended September 30, 2004. Rental revenue from operating leases for the three months ended September 30, 2005 decreased 79.6% to approximately $91,600, compared to approximately $448,800 for the three months ended September 30, 2004, due to the sale of one property in December 2004, nine properties in June 2005, and one property in September 2005. Earned income from financing leases for the three months ended September 30, 2005 decreased 76.7% to approximately $1,300, compared to approximately $5,400 for the three months ended September 30, 2004, as a result of the amortization of the principal balances on the financing leases, and the prepayment of one financing lease in August 2005.
Operating expenses from discontinued operations were approximately $44,600 for the three months ended September 30, 2005, compared to approximately $231,900 for the three months ended September 30, 2004. The partnership did not incur any Interest Expense for the three months ended September 30, 2005, compared to approximately $129,800 for the three months ended September 30, 2004 due to the prepayment of all of the Partnership’s debt resulting from the sale of one property in December 2004 and nine properties in June 2005. In accordance with FAS 144, all of the Partnership’s assets except cash are classified as Assets Held for Sale and depreciation on these assets is discontinued. Therefore, no depreciation expense is recognized for the three months ended September 30, 2005. General and administrative expenses increased by approximately $2,000 due primarily to increases in professional fees.
Other income from discontinued operations for the three months ended September 30, 2005 was approximately $578,400. One equipment lease was sold for book value during the three months ended September 30, 2005 for net cash proceeds of approximately $26,300. One property was sold in September 2005 for net cash of approximately $1,764,000, resulting in a gain of approximately $526,300. Other income for the three months ended September 30, 2005 includes interest and other income of approximately $52,100, resulting primarily from interest income.
As a result of the foregoing, the Partnership’s net income from discontinued operations increased to approximately $626,700 for the three months ended September 30, 2005, compared to approximately $222,500 for the three months ended September 30, 2004.
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Nine Months Ended September 30, 2005
During the nine months ended September 30, 2005, total operating revenue was approximately $872,500, compared to $1,366,300 for the nine months ended September 30, 2004. Rental revenue from operating leases for the nine months ended September 30, 2005 decreased 35.7% to approximately $864,700, compared to approximately $1,346,300 for the nine months ended September 30, 2004, due to the sale of one property in December 2004, nine properties in June 2005, and one property in September 2005. Earned income from financing leases for the nine months ended September 30, 2005 decreased 60.8% to approximately $7,800, compared to approximately $20,000 for the nine months ended September 30, 2004, as a result of the amortization of the principal balances on the financing leases, and the prepayment of one financing lease in September 2005.
Operating expenses from discontinued operations were approximately $1,292,100 for the nine months ended September 30, 2005, compared to approximately $703,300 for the nine months ended September 30, 2004. Interest expense decreased to approximately $232,100 for the nine months ended September 30, 2005, compared to approximately $391,800 for the nine months ended September 30, 2004 due to the prepayment of all of the Partnership’s debt resulting from the sale of one property in December 2004 and nine properties in June 2005. In accordance with FAS 144, all of the Partnership’s assets except cash are classified as Assets Held for Sale and depreciation on these assets is discontinued. Therefore, no depreciation expense is recognized for the nine months ended September 30, 2005. The Partnership’s G&A expense increased by approximately $22,000 due to increased professional fees associated with the ongoing liquidation of the Partnership’s assets and losses in the investment value of equipment leases; there were no such losses for the nine months ended September 30, 2004. For the nine months ended September 30, 2005, there were approximately $905,100 in debt retirement costs associated with the disposition of the nine properties in June 2005. For the nine months ended September 30, 2004, there were no debt retirement costs.
Other income from discontinued operations for the nine months ended September 30, 2005 was approximately $5,010,400. Two equipment leases were sold during the nine months ended September 30, 2005 for net cash proceeds of approximately $102,000 resulting in a net loss of approximately $1,000. Nine properties were sold in June 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $15,230,000, resulting in a gain of approximately $4,431,000. One property was sold in September 2005 for net cash of $1,764,000, resulting in a gain of approximately $526,000. Other income for the nine months ended September 30, 2005 includes interest and other income of approximately $53,600, resulting primarily from interest income. Other income from discontinued operations for the nine months ended September 30, 2004 was approximately $3,500 due to the sale of an equipment lease for net cash proceeds of approximately $142,000 resulting in a gain of approximately $2,000, which was offset by an expense of approximately $6,000 relating to the final settlement of a repossessed equipment package which yielded net proceeds of approximately $6,000. Interest and other income is composed primarily of interest and late charge income of approximately $7,400.
As a result of the foregoing, the Partnership’s net income from discontinued operations increased to approximately $4,590,900 for the nine months ended September 30, 2005, compared to approximately $666,500 for the nine months ended September 30, 2004.
The Partnership announced third quarter distributions of $80,000, of which approximately $73,000 was distributed to its limited partners on October 15, 2005. The balance was distributed to limited partners who elected to receive distributions on a monthly basis on August 15, 2005 and September 15, 2005. In addition, the Partnership announced a partial liquidating distribution of $9,850,000, which was distributed to its limited partners on August 5, 2005.
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LIQUIDITY AND CAPITAL COMMITMENTS
The Partnership commenced the Offering of up to 20,000 Units, priced at $1,000 per Unit, on August 12, 1994. The Partnership accepted subscriptions for the minimum number of Units on January 24, 1995, and immediately commenced operations. The Offering was fully subscribed on August 12, 1996. Net proceeds after Offering expenses were $17.4 million.
In November 1998, the Partnership entered into a $6.2 million term note. The Partnership entered into an additional $2.0 million term note in March 1999. Proceeds from the notes were used to acquire additional properties and equipment. The notes had a 10-year term, were collateralized by certain properties subject to operating leases, and bore interest at rates of 8.37% and 8.50% per annum, respectively. In September 2003, the Partnership defeased approximately $1,979,000 of these notes payable with proceeds from the sale of a property. In June 2005, the Partnership defeased the remaining balances payable under each of these notes with proceeds from the sale of nine properties.
Debt issuance costs of $477,909 were incurred in connection with the issuance of the notes, and were amortized over the life of the notes to interest expense using the straight-line method, which is not materially different than the interest rate method. In connection with the defeasance of the two notes on June 16, 2005, the remaining unamortized debt issuance costs were expensed.
As of September 30, 2005, the Partnership had invested $2.3 million in 2 net leased real estate properties and $195,000 in 1 performing equipment lease. The remaining net investment in the Partnership’s leased equipment is $48,000, after principal collections of $47,000, and a principal loss of $100,000, resulting from the re-writing of this lease in 1991. Inclusive of the above amount, the Partnership has received approximately $3.5 million of aggregate principal collections on its financing leases during the life of those investments. As of September 30, 2005, the Partnership has not made any commitments to purchase additional properties or equipment, nor does it intend to make any such commitments.
The Partnership annually considers written requests to repurchase Units pursuant to the terms of the repurchase plan set forth in the Partnership’s prospectus with respect to the Offering. Since 1997, a total of 367 Units have been repurchased by the Partnership. The Partnership is not obligated to accept Unit repurchase requests if the General Partner determines that such purchases would impair the capital or operation of the Partnership and the Partnership may suspend or cancel the Repurchase Plan at any time in its sole discretion. In connection with the announcement of the Partnership’s liquidation plans, the General Partner has indefinitely suspended the Repurchase Plan.
The Partnership expects that only limited amounts of liquid assets will be required for existing properties since its property and equipment leases require tenants and lessees to pay all taxes and assessments, maintenance and repairs and insurance premiums, including casualty insurance thereby minimizing the Partnership’s operating expenses and capital requirements. The General Partner expects that the cash flow to be generated by the Partnership’s properties and equipment will provide adequate liquidity and capital resources to pay operating expenses and provide distributions to the limited partners.
Effective November 8, 2004, the limited partners consented to the Plan of Liquidation and Dissolution, which involves the dissolution of the Partnership, the liquidation of its assets and the winding up of its affairs. As a result, the general partner is authorized to liquidate the assets of the Partnership and distribute the net proceeds from such liquidation after the repayment of all debt in accordance with the partnership agreement. The Partnership is undertaking steps to liquidate and dispose of its assets in accordance with the Plan of Liquidation and Dissolution and has entered into an exclusive listing agreement with a third party that will oversee the marketing and sale of the Partnership’s assets. Management believes the proceeds on sale will be adequate to pay off all liabilities and make one or more distributions to the partners.
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ITEM 3. CONTROLS AND PROCEDURES
Mr. Beach, acting in his capacity as the principal executive officer of GP3 Asset Acquisition is ultimately responsible for the disclosure controls and procedures of the Partnership. Disclosure controls and procedures are established and maintained by the Partnership to ensure the information required to be disclosed by the Partnership in the reports that it files or submits pursuant to the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Mr. Beach has evaluated the effectiveness of the Partnership’s disclosure controls and procedures and has determined that, as of the end of the fiscal period covered by this report, these controls and procedures effectively communicate the information required to be disclosed by the Partnership in the report it files or submits under the Act in a manner that allows timely decisions regarding such disclosures.
There have been no significant changes in the Partnership’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date, including, but not limited to, any actions with regard to significant deficiencies and material weaknesses.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.None.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY 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
The following exhibits are included herein or incorporated by reference:
| Number | Exhibit | |
| 2 | Plan of Liquidation and Dissolution (Incorporated by reference to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed on September 21, 2004) | |
| 4 | Amended Agreement of Limited Partnership of Registrant. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-KSB for the year ended December 31, 1998) | |
| 10.1 | Promissory Note dated November 28, 1998 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-KSB for the year ended December 31, 1998) | |
| 10.2 | Promissory Note dated June 30, 1999 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-QSB for the quarter ended June 30, 1999) | |
| 31 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Table of Contents
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| By: | Captec Franchise Capital Partners L.P. III | ||||
| GP3 Asset Acquisition, LLC | |||||
| Its Manager | |||||
| By: | /s/ Patrick L. Beach | ||||
| Patrick L. Beach | |||||
| President | |||||
| Date: | November 14, 2005 |
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