Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 10-Q

For the period ended June 30, 2004

OR

For the transition period from                               to                              

Commission File Number 0-15538

First Capital Income Properties, Ltd.—Series XI

(Exact name of registrant as specified in its charter)

(312) 207-0020

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 such filing requirements for the past 90 days.  Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨    No  x

Documents incorporated by reference:

The First Amended and Restated Certificate and Agreement of Limited Partnership filed as Exhibit A to the Partnership’s Prospectus dated September 12, 1985, included in the Partnership’s Registration Statement on Form S-11, is incorporated herein by reference in Part I of this report.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BALANCE SHEETS

(All dollars rounded to nearest 00s)

STATEMENT OF PARTNERS’ CAPITAL

For the six months ended June 30, 2004 (Unaudited)

(All dollars rounded to nearest 00s)

STATEMENTS OF INCOME AND EXPENSES

For the quarters ended June 30, 2004 and 2003

(Unaudited)

(All dollars rounded to nearest 00s

except per Unit amounts)

2

The accompanying notes are an integral part of the financial statements.

STATEMENTS OF INCOME AND EXPENSES

For the six months ended June 30, 2004 and 2003

(Unaudited)

(All dollars rounded to nearest 00s

except per Unit amounts)

STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2004 and 2003

(Unaudited)

(All dollars rounded to nearest 00s)

3

The accompanying notes are an integral part of the financial statements.

FIRST CAPITAL INCOME PROPERTIES, LTD.—SERIES XI

NOTES TO FINANCIAL STATEMENTS

1. Organization and summary of significant accounting policies:

Definition of special terms:

Capitalized terms used in this report have the same meaning as those terms have in the Partnership’s Registration Statement filed with the Securities and Exchange Commission on Form S-11. Definitions of these terms are contained in Article III of the First Amended and Restated Certificate and Agreement of Limited Partnership, which is included in the Registration Statement.

Accounting policies:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Reference is made to the Partnership’s Annual Report for the year ended December 31, 2003, for a description of other accounting policies and additional details of the Partnership’s financial condition, results of operations, changes in Partners’ capital and changes in cash balances for the year then ended. The details provided in the notes thereto have not changed except as a result of normal transactions in the interim or as otherwise disclosed herein.

The Partnership utilizes the accrual method of accounting. Under this method, revenues are recorded when earned and expenses are recorded when incurred. Effective July 1, 1998, the Partnership recognizes rental income which is contingent upon tenants’ achieving specified targets only to the extent that such targets are attained.

Preparation of the Partnership’s financial statements in conformity with accounting principles generally accepted in the United States 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.

Commercial rental property held for investment is recorded at cost, net of any provisions for value impairment, and depreciated (exclusive of amounts allocated to land) on the straight-line method over their estimated useful lives. Upon classifying a commercial rental property as held for disposition, no further depreciation or amortization of such property is provided for in the financial statements. Lease acquisition fees are recorded at cost and amortized over the life of each respective lease. Repair and maintenance expenditures are expensed as incurred; expenditures for improvements are capitalized and depreciated over the estimated life of such improvements.

The Partnership evaluates its commercial rental property for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (undiscounted) from a property is less than its carrying basis. Upon determination that an impairment has occurred, the carrying basis in the rental property is reduced to its estimated fair value.

Since 1999, the Partnership has owned only one property, Marquette Mall and Office Building (“Marquette”), which has 382,052 net leasable square feet, is located in Michigan City, Indiana and was sold on June 11, 2004.

The FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long Lived Assets. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Standard was adopted in 2002, and management has committed to disposing of its remaining real estate asset. In April 2004, the Partnership entered into a Purchase and Sale Agreement for the sale of Marquette for approximately $6,100,000 and the property was sold on June 11, 2004. In the first quarter of 2004, the Partnership elected to write down the investment in Marquette to the approximate sales value resulting in an impairment charge of $900,000. Marquette’s operations have been disclosed as discontinued operations for each quarter presented as follows:

Property sales are recorded when title transfers and sufficient consideration has been received by the Partnership. Upon disposition, the related costs and accumulated depreciation and amortization are removed from the respective accounts. Any gain on sale is recognized in accordance with accounting principles generally accepted in the United States.

The Partnership has disposed of its real estate properties and upon resolution of post-closing sale matters, the Partnership will make a liquidating distribution and dissolve.

Cash equivalents are considered all highly liquid investments with a maturity of three months or less when purchased.

Certain prior year amounts have been reclassified to conform to the current year presentation.

2. Related party transactions:

In accordance with the Partnership Agreement, Net Profits and Net Losses (exclusive of Net Profits and Net Losses from the sale, disposition or provision for value impairment of Partnership properties) shall be allocated 1% to the General Partner and 99% to the Limited Partners. Net Profits from the sale or disposition of a Partnership property are allocated: first, prior to giving effect to any distributions of Sale or Refinancing Proceeds from the transaction, to the General Partner and Limited Partners with negative balances in their Capital Accounts, pro rata in proportion to such respective negative balances, to the extent of the total of such negative balances; second, to each Limited Partner in an amount, if any, necessary to make the positive balance in its Capital

4

Account equal to the Sale or Refinancing Proceeds to be distributed to such Limited Partner with respect to the sale or disposition of such property; third, to the General Partner in an amount, if any, necessary to make the positive balance in its Capital Account equal to the Sale or Refinancing Proceeds to be distributed to the General Partner with respect to the sale or disposition of such property; and fourth, the balance, if any, 25% to the General Partner and 75% to the Limited Partners. Net Losses from the sale, disposition or provision for value impairment of Partnership properties are allocated: first, after giving effect to any distributions of Sale or Refinancing Proceeds from the transaction, to the General Partner and Limited Partners with positive balances in their Capital Accounts, pro rata in proportion to such respective positive balances, to the extent of the total amount of such positive balances; and second, the balance, if any, 1% to the General Partner and 99% to the Limited Partners. Notwithstanding anything to the contrary, there shall be allocated to the General Partner not less than 1% of all items of Partnership income, gain, loss, deduction and credit during the existence of the Partnership. For the quarter and six months ended June 30, 2004, the General Partner was allocated Net Profits (Losses) of $0 and $(7,200), respectively. For the quarter and six months ended June 30, 2003, the General Partner was allocated Net (Losses) Profits of $1,000 and $3,700, respectively.

Fees and reimbursements paid and payable by the Partnership to Affiliates during the quarter and six months ended June 30, 2004 were as follows:

3. Front-End Fees loan payable to Affiliate:

The Partnership borrowed $8,295,200 from an Affiliate of the General Partner, the amount needed for the payment of securities sales commissions, Offering and Organizational Expenses and other Front-End Fees, other than Acquisition Fees. Repayment of the principal amount of the Front-End Fees loan is subordinated to payment to the Limited Partners of 100% of their Original Capital Contribution from Sale or Refinancing Proceeds (as defined in the Partnership Agreement). In the event that the Front-End Fees loan is not repaid, such amount will be reclassed to Partners’ Capital.

Pursuant to a modification of this loan agreement, beginning January 1, 1996, the Partnership elected to defer payment of interest on the Front-End Fees Loan. During the year ended December 31, 1999, the Affiliate of the General Partner elected to waive the Partnership’s obligation for all outstanding deferred interest on this loan and charge no interest in the future. During the year ended December 31, 1999, the Partnership reflected the waiver of deferred interest in the financial statements through an adjustment of $2,257,700 to Partners’ Capital.

Based upon the current estimated value of its assets, net of its outstanding liabilities, the General Partner believes that the Partnership’s cumulative distributions to its Limited Partners from inception through the termination of the Partnership will be less than such Limited Partners’ Original Capital Contribution. Accordingly, during the quarter ended June 30, 2004, the Front End Fees loan was considered extinguished in accordance with the terms of the note and reflected as an increase to Partners’ Capital.

4. Reallocation of Partners’ Capital:

As stated in Footnote 3, the General Partner believes that the Partnership’s cumulative distributions to its Limited Partners from inception through the termination of the Partnership will be less than such Limited Partners’ Original Capital Contribution therefore, under the terms of the Partnership Agreement, the General Partner will not be entitled to any distributions. During the quarter ended June 30, 2004, the General Partner has concluded that all remaining cash will be distributed to the Limited Partners and as a result, there has been a reallocation of equity from the General Partner to the Limited Partners.

Since the final distribution will be contingent upon estimated liquidation and dissolution costs that have not yet been accounted for in the financial statements, the amount and timing of the final distribution to the Limited Partners has not yet been determined and may not equal the $10,495,000 reflected on the Balance Sheet as Limited Partners’ Capital.

5. Property Sale:

On June 11, 2004, the Partnership completed the sale of Marquette Mall and Office Building for a sale price of $6,100,000. Net proceeds from this transaction amounted to $5,877,700 which was net of actual and estimated closing and post-closing sale expenses. The Partnership reported a (loss) on sale for financial reporting purposes of $(95,600) for the quarter and six-months ended June 30, 2004.

TRANSFER AGENT AND REGISTRAR

The Bank of New York

P.O. Box 7090

Troy, Michigan 48007-7090

(800) 447-7364

5

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Reference is made to the Partnership’s Annual Report for the year ended December 31, 2003 for a discussion of the Partnership’s business.

Certain statements in the Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the SEC, all as may be amended from time to time. Such forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Partnership, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. The Partnership cautions investors that any forward-looking statements made by the Partnership are not guarantees or indicative of future performance. Important assumptions and other important factors could cause actual results to differ materially from those forward-looking statements with respect to the Partnership. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Although the Partnership believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. The Partnership’s future financial condition and results of operations, as well as any forward-looking statements, are made only as of the date hereof and the partnership does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

On June 11, 2004 the Partnership completed the sale of Marquette. Please refer to the Form 8-K filed on June 25, 2004 for more information regarding the sale. The sale of Marquette constituted the sale of the remaining property held by the Partnership. The remaining assets of the partnership primarily consist of cash and cash equivalents held for distribution to Partners and amounts held to resolve post-closing sale matters which are reflected as receivables and payables on the Partnership’s balance sheet. Operating results for the quarter ended June 30, 2004 reflect Marquette’s operations through its sale on June 11, 2004. Other than post-closing sale matters, Marquette operations will have no material impact on future operating results of the Partnership.

Based upon the current estimated value of its assets, net of its outstanding liabilities, the General Partner believes that the Partnership’s cumulative distributions to its Limited Partners from inception through the termination of the Partnership will be less than such Limited Partners’ Original Capital Contribution therefore, under the terms of the Partnership Agreement, the General Partner will not be entitled to any distributions. During the quarter ended June 30, 2004, the General Partner has concluded that all remaining cash will be distributed to the Limited Partners and as a result, there has been a reallocation of equity from the General Partner to the Limited Partners. Since the final distribution will be contingent upon estimated liquidation and dissolution costs that have not yet been accounted for in the financial statements, the amount and timing of the final distribution to the Limited Partners has not yet been determined and may not equal the $10,495,000 reflected on the Balance Sheet as Limited Partners’ Capital.

The Partnership, following the sale of its operating assets, is in the disposition phase of its life cycle. During the disposition phase of the Partnership’s life cycle, comparisons of operating results are complicated due to the timing and effect of property sales and dispositions. Components of the Partnership’s operating results are generally expected to decline as real property interests are sold or disposed of since the Partnership no longer realizes income and incurs expenses from such real property interests. Accordingly, operating results are not comparable as a result of the sale and the disposition of the operating assets of the Partnership and may not provide any indication of the future operating results of the Partnership. The FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long Lived Assets. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard was adopted in 2002. In April 2004, the Partnership entered into a Purchase and Sale Agreement for the sale of Marquette for approximately $6,100,000 and the property was sold on June 11, 2004. During the first quarter of 2004, the Partnership wrote down the investment in Marquette to the approximate sales value resulting in an impairment charge of $900,000. The impairment charge is reflected in Discontinued Operations on the Statements of Income and Expenses. Marquette’s operations have been disclosed as discontinued operations for each period presented as follows

6

ITEM 2. MANAGEMENT’S DISCUSSION A