Captec Franchise Capital Partners L P Iv 10-Q 2005 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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:333-9371

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

38-3304096
(IRS Employer Identification Number)

24 Frank Lloyd Wright Drive, Lobby L, 4^th Floor
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)

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. Yesþ Noo

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

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

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV

Index to Form 10-Q

Item No.		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Balance Sheets, September 30, 2005 and December 31, 2004		3
	Statements of Discontinued Operations for the three and nine months ended September 30, 2005 and 2004		4
	Statement of Changes in Partners' Capital for the nine months ended September 30, 2005		5
	Statements of Cash Flows for the nine months ended September 30, 2005 and 2004		6
	Notes to Financial Statements		7 – 10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10 – 14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		14
Item 4.	Controls and Procedures		14
PART II	OTHER INFORMATION
	Other Information		15
SIGNATURES			16
Certification Pursuant to Section 302
Certification Pursuant to 18 U.S.C. Section 1350

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Captec Franchise Capital Partners L.P. IV

Balance Sheets

	September 30,		December 31,
	2005		2004
	(Unaudited)
Assets
Cash and cash equivalents	$	4,182,959	$	143,463
Restricted cash		—		333,006
Assets Held for Sale:
Operating leases, net		4,375,864		25,905,039
Financing leases, net		1,213,106		1,326,425
Unbilled rent, net		68,017		1,075,996
Other Assets		—		258,339
Due from Related Parties		—		—
Accounts receivable		3,500		178,011
Total assets	$	9,843,446	$	29,220,279
Liabilities and Partners’ Capital
Liabilities Held for Sale:
Notes payable	$	—	$	13,597,961
Accounts payable and accrued expenses		26,577		171,715
Due to related parties		—		10,969
Total liabilities		26,577		13,780,645
Partners’ capital:
Limited partners’ capital accounts		9,812,801		15,444,197
General partner’s capital account		4,068		(4,563	)
Total partners’ capital		9,816,869		15,439,634
Total liabilities and partners’ capital	$	9,843,446	$	29,220,279

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

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Captec Franchise Capital Partners L.P. IV

Statements of Discontinued Operations

(Unaudited)

	Three months ended					Nine months ended
	September 30,					September 30,
	2005			2004		2005			2004
Operating revenue:
Rental income	$	233,993		$	667,574	$	1,510,921		$	2,194,235
Finance income		30,815			35,658		94,947			112,317
Total operating revenue		264,808			703,232		1,605,868			2,306,552
Operating costs and expenses:
Interest expense		43,619			284,246		555,865			892,706
Depreciation		—			112,597		—			360,512
Debt retirement costs		329,765			—		1,690,354			209,010
General and administrative		92,777			85,939		282,286			390,783
Total operating costs and expenses		466,161			482,782		2,528,505			1,853,011
Income (loss) from discontinued operations before other income		(201,353	)		220,450		(922,637	)		453,541
Other income :
Gain on sale of equipment		—			—		1,997			8,040
Gain on sale of real estate		1,522,516			500		4,754,452			262,045
Interest and other income		77,749			29		93,423			5,078
Total other income		1,600,265			529		4,849,872			275,163
Net Income from discontinued operations		1,398,912			220,979		3,927,235			728,704
Net income from discontinued operations allocable to general partner		2,062			2,210		8,631			7,287
Net income from discontinued operations allocable to limited partners	$	1,396,850		$	218,769	$	3,918,604		$	721,417
Net income from discontinued operations per limited partnership unit	$	48.21		$	7.55	$	135.24		$	24.83
Weighted average number of limited partnership units outstanding		28,975			28,975		28,975			29,065

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

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Captec Franchise Capital Partners L.P. IV

Statement of Changes in Partners’ Capital

For the nine months ended September 30, 2005
(Unaudited)

	Limited		Limited			General			Total
	Partners’		Partners’			Partner’s			Partners’
	Units		Accounts			Account			Capital
Balance, December 31, 2004		28,975	$	15,444,197		$	(4,563	)	$	15,439,634
Distributions — ($329.59 per limited partnership unit)		—		(9,550,000	)		—			(9,550,000	)
Net income		—		3,918,604			8,631			3,927,235
Balance, September 30, 2005		28,975	$	9,812,801		$	4,068		$	9,816,869

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

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Captec Franchise Capital Partners L.P. IV

Statements of Cash Flows

For the nine months ended September 30, 2005 and 2004
(Unaudited)

	2005			2004
Cash flows from operating activities:
Net income from discontinued operations	$	3,927,235		$	728,704
Adjustments to net income:
Depreciation		—			360,512
Amortization of debt issuance costs		25,749			66,041
Gain on sale of equipment		(1,997	)		(8,040	)
Gain on sale of real estate		(4,754,452	)		(262,045	)
Loss on investments in financing leases		9,961			—
Increase in unbilled rent		(81,384	)		(59,735	)
Decrease in accounts receivable		(85,678	)		138,347
Decrease in accounts payable and accrued expenses		(115,236	)		(51,141	)
Decrease in due to related parties		(10,969	)		(140	)
Decrease (increase) in restricted cash		333,006			(71,498	)
Net cash (used in) provided by operating activities		(753,765	)		841,005
Cash flows from investing activities:
Proceeds from sale of equipment		15,000			40,200
Proceeds from sale of real estate		27,895,673			3,849,338
Payment of lease commissions		(59,805	)		—
Principal collections on financing leases		90,355			183,324
Net cash provided by investing activities		27,941,223			4,072,862
Cash flows from financing activities:
Repayments of notes payable		(13,597,961	)		(1,263,983	)
Repurchase of limited partnership units		—			(124,716	)
Distributions to limited partners		(9,550,000	)		(3,984,933	)
Net cash used in financing activities		(23,147,961	)		(5,373,632	)
Net increase (decrease) in cash and cash equivalents		4,039,496			(459,765	)
Cash and cash equivalents, beginning of period		143,463			694,742
Cash and cash equivalents, end of period	$	4,182,959		$	234,977

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

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV

NOTES TO FINANCIAL STATEMENTS

1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:

Captec Franchise Capital Partners L.P. IV (the “Partnership”), a Delaware limited partnership, was organized on July 23, 1996 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 franchised fast food and family style restaurants, as well as other national and regional retail chains.

The initial general partners of the Partnership were Captec Franchise Capital Corporation IV (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”), an affiliate, acquired the general partnership interest of the Partnership. In December 2001, Captec Net Lease 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 GP4 Asset Acquisition, LLC (“GP4 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 GP4 Asset Acquisition. Upon receipt of the secured lender’s consent, GP4 Asset Acquisition became the general partner of the Partnership.

The Partnership commenced a public offering (the “Offering”) of up to 30,000 limited partnership units (the “Units”), priced at $1,000 per Unit, registered under the Securities Act of 1933, as amended, by means of a Registration Statement filed on Form S-11, which was declared effective by the Securities and Exchange Commission on December 23, 1996. The Partnership accepted subscriptions for the minimum number of Units on March 5, 1997 and immediately commenced operations. The Offering was fully subscribed in December 1998. Since 1999, 1,025 Units have been repurchased by the Partnership pursuant to the terms of the Repurchase Plan set forth in the Partnership’s December 23, 1996 prospectus with respect to the Offering. At September 30, 2005, the Partnership had 28,975 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 Partnership properties; (iv) generation of increased income and protection against inflation through escalation of base rents or participation in gross revenues of tenants of Partnership 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 activities 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 and the weighted average number of limited partnership Units outstanding during the period. Actual individual limited partner distributions 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

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quarter; (ii) certain limited partners have elected to receive monthly distributions versus quarterly distributions which creates timing differences between comparative calculations, (iii) liquidating distributions are calculated using capital account 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 June 3, 2005, the Partnership sold twelve of the Partnership’s properties and certain real property leases related to such properties for an aggregate purchase price of $20,975,000. Simultaneous with the closing of the sale, the Partnership repaid approximately $9,937,000 of its notes payable and paid related debt retirement costs of approximately $1,361,000. 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 $8,700,000. In accordance with the Partnership agreement, this special distribution was allocated among partners in proportion to their capital accounts.

On August 25, 2005, the Partnership sold one of the Partnership’s properties and the real property lease related to such property for a purchase price of $6,000,000. Simultaneous with the closing of the sale, the Partnership repaid the remainder of its notes payable, totaling approximately $3,479,000 and paid related debt retirement costs of approximately $330,000. The Partnership received approximately $2,085,000 net cash proceeds from the sale of this property. On September 28, 2005, the Partnership sold one of the Partnership’s properties and the real property lease related to such property for a purchase price of $1,163,448. The Partnership did not incur any selling expenses associated with this sale and as such, received cash proceeds of $1,163,448 from the sale of this property.

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 statements 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 discontinued 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-K 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	$	1,705,200
Building and improvements		3,214,980
		4,920,180
Less accumulated depreciation		(544,316	)
Total	$	4,375,864

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	$	1,906,520
Less unearned income		(693,414	)
Net investment in financing leases	$	1,213,106

4. NOTES PAYABLE:

In December 1998, the Partnership entered into a $6.4 million term note. The note had a 10-year term, was collateralized by certain properties that had a carrying value of approximately $11.6 million subject to operating leases, and bore interest at a rate of 8.13% per annum. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership defeased all remaining amounts payable under this note. The Partnership incurred approximately $841,000 of yield maintenance costs and $46,000 of professional fees related to the defeasance.

In March 1999, the Partnership entered into an additional $3.3 million term note. The note had a 10-year term, was collateralized by properties that had a carrying value of approximately $3.4 million subject to operating leases, and bore interest at a rate of 8.5% per annum. In March 2004, the Partnership defeased approximately $466,000 of this note payable with proceeds from the sale of a property. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership defeased all remaining amounts payable under this note. The Partnership incurred approximately $427,000 of yield maintenance costs and $46,000 of professional fees related to the defeasance.

In October 2000, the Partnership assumed a $3.75 million term note, collateralized by a certain property that had a carrying value of approximately $4.6 million. The note had a 10-year term, and bore interest at a rate of 8.35% per annum. Using the proceeds from the sale of one property on August 28, 2005, the Partnership prepaid all remaining amounts payable under this note. The Partnership incurred approximately $295,000 of yield maintenance costs and $35,000 of professional fees related to the prepayment.

In November 2001, the Partnership entered into a $1.5 million term note. In June 2004, the Partnership sold a property subject to an operating lease that secured this note. Using proceeds from the sale, the note was paid down to a balance of $874,000, and the maturity date was extended to July 2006. The remaining principal balance on the note was secured by a property subject to an operating lease that had a carrying value of $1.5 million, and bore interest at a rate of prime plus 2% per annum. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership prepaid the remaining amounts payable under this note.

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In April 2003, the Partnership entered into an $862,500 term note. The note had a 5-year term, was collateralized by a property subject to an operating lease that had a carrying value of $1.1 million, and bore interest at a rate of 6.25%, per annum. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership prepaid the remaining amounts payable under this note.

In April 2003, the Partnership entered into a $57,500 unsecured revolving note. The note initially had a 2-year term and bore interest at a variable rate equivalent to the Wall Street Journal (WSJ) prime rate plus 1/2%. The interest rate was adjusted monthly for changes in the WSJ prime rate. In April 2005, the maturity date on the note was extended to April 2006. All other terms and conditions on the note remained unchanged. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership prepaid the remaining amounts payable under this note.

Debt issuance costs of $646,349 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. Upon the defeasance and prepayment of the notes payable on June 3, 2005, as indicated above, the remaining unamortized debt issuance costs associated with the debt that was prepaid 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 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 decreased 62.3% to approximately $265,000, compared to approximately $703,000 for the three months ended September 30, 2004. Rental revenue from operating leases for the three months ended September 30, 2005 decreased 64.9% to approximately $234,000, compared to approximately $668,000 for the prior year period, primarily due to the disposition of the three properties in 2004, twelve properties in June 2005, and one property each in August 2005 and September 2005. Earned income from financing leases for the three months ended September 30, 2005 decreased 13.6% to approximately $31,000, compared to

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approximately $36,000 for the three months ended September 30, 2004, due to the amortization of principal balances and the disposition of an equipment lease in April 2004.

Operating expenses from discontinued operations totaled approximately $466,000 for the three months ended September 30, 2005, compared to approximately $483,000 for the three months ended September 30, 2004. Interest expense decreased to approximately $44,000 for the three months ended September 30, 2005, compared to approximately $284,000 for the three months ended September 30, 2004, due to the decrease in debt resulting from the sale of three properties in 2004, the sale of twelve properties in June 2005, and the sale of one property in August 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 expense increased by approximately $7,000 for the three months ended September 30, 2005 compared to the prior year due to an increase in professional fees associated with the ongoing liquidation of the Partnership’s assets. For the three months ended September 30, 2005, there were approximately $330,000 in debt retirement costs associated with the disposition of one property in August 2005. For the three months ended September 30, 2004, there were no debt retirement costs.

Other income from discontinued operations for the three months ended September 30, 2005 was approximately $1,600,000. One property was sold each in August 2005 and September 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $7,109,000, resulting in a gain of approximately $1,522,000. Other income for the three months ended September 30, 2005, was approximately $78,000 and is composed primarily of interest income and $22,000 of recoveries of accounts receivable previously written off. There was minimal other income for the three months ended September 30, 2004.

As a result of the foregoing, the Partnership’s net income from discontinued operations increased to approximately $1,399,000 for the three months ended September 30, 2005, compared to $221,000 for the three months ended September 30, 2004.

Nine Months Ended September 30, 2005.During the nine months ended September 30, 2005, total operating revenue decreased 30.4% to approximately $1,606,000 compared to approximately $2,307,000 for the nine months ended September 30, 2004. Rental revenue from operating leases for the nine months ended September 30, 2005 decreased 31.1% to approximately $1,511,000 compared to approximately $2,194,000 for the prior period, primarily due to the disposition of the three properties in 2004, twelve properties in June 2005, and one property each in August 2005 and September 2005. Earned income from financing leases for the nine months ended September 30, 2005 decreased 15.5% to approximately $95,000 compared to approximately $112,000 for the nine months ended September 30, 2004 due to the amortization of principal balances and the disposition of an equipment lease in April 2004.

Operating expenses from discontinued operations totaled approximately $2,529,000 for the nine months ended September 30, 2005, compared to approximately $1,853,000 for the nine months ended September 30, 2004. Interest expense totaled approximately $556,000 for the nine months ended September 30, 2005, compared to approximately $893,000 for the nine months ended September 30, 2004. This decrease in interest expense is attributable to the decrease in debt resulting from the sale of three properties in 2004, twelve properties in June 2005, and one property in August 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. General and administrative expense decreased by approximately $108,000 for the nine months ended September 30, 2005 compared to the prior year due to bad debt expense of $125,000 for the nine months ended September 30, 2004. There was no bad debt expense for the nine months ended September 30, 2005. For the nine months ended September 30, 2005 there were approximately $10,000 of 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 $1,690,000 in debt retirement costs associated with the disposition of the

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twelve properties in June 2005 and one property in August 2005. For the nine months ended September 30, 2004, there were approximately $209,000 in debt retirement costs associated with the disposition of one property.

Other income from discontinued operations for the nine months ended September 30, 2005 was approximately $4,850,000. Twelve properties were sold in June 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $20,786,000, resulting in a gain of approximately $3,232,000. In addition one property was sold in each August 2005 and September 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $7,109,000, resulting in a gain of approximately $1,522,000. In addition, the Partnership collected $22,000 from a property which had previously been disposed, resulting in a net gain of a like amount

An equipment lease was sold in February 2005 for net cash proceeds of $15,000, resulting in a gain of approximately $2,000. Other income for the nine months ended September 30, 2005 includes late charge income of approximately $15,000 and interest income of $56,000. Other income from discontinued operations for the nine months ended September 30, 2004 was approximately $275,000 due to a gain on the disposition of an equipment lease in June 2004 of approximately $8,000, late charge income of approximately $5,000 and the sale of three properties for cash proceeds of approximately $3,900,000, resulting in a gain of approximately $262,000.

As a result of the foregoing, the Partnership’s net income from discontinued operations increased to approximately $3,927,000 for the nine months ended September 30, 2005, compared to approximately $729,000 for the nine months ended September 30, 2004.

The Partnership announced third quarter distributions of $200,000, of which approximately $174,000 was distributed to certain limited partners on October 15, 2005 and the remainder of which will be distributed to limited partners electing to receive distributions on a monthly basis. In addition, the Partnership paid a partial liquidating distribution to limited partners on August 5, 2005, totaling $8,700,000.

LIQUIDITY AND CAPITAL COMMITMENTS

In December 1996, the Partnership commenced its offering of up to 30,000 Units. The offering reached final funding in December 1998 with subscriptions for the entire 30,000 Units. Net proceeds after offering expenses were approximately $26.1 million.

In December 1998, the Partnership entered into a $6.4 million term note. The note had a 10-year term, was collateralized by certain properties that had a carrying value of approximately $11.6 million subject to operating leases, and bore interest at a rate of 8.13% per annum. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership defeased all remaining amounts payable under this note. The Partnership incurred approximately $841,000 of yield maintenance costs and $46,000 of professional fees related to the defeasance.

In March 1999, the Partnership entered into an additional $3.3 million term note. The note had a 10-year term, was collateralized by properties that had a carrying value of approximately $3.4 million subject to operating leases, and bore interest at a rate of 8.5% per annum. In March 2004, the Partnership defeased approximately $466,000 of this note payable with proceeds from the sale of a property. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership defeased all remaining amounts payable under this note. The Partnership incurred approximately $427,000 of yield maintenance costs and $46,000 of professional fees related to the defeasance.

In October 2000, the Partnership assumed a $3.75 million term note, collateralized by a certain property that had a carrying value of approximately $4.6 million. The note had a 10-year term, and bore interest at a rate of 8.35% per annum. Using the proceeds from the sale of one property on

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August 28, 2005, the Partnership prepaid all remaining amounts payable under this note. The Partnership incurred approximately $295,000 of yield maintenance costs and $35,000 of professional fees related to the prepayment.

In November 2001, the Partnership entered into a $1.5 million term note. In June 2004, the Partnership sold a property subject to an operating lease that secured this note. Using proceeds from the sale, the note was paid down to a balance of $874,000, and the maturity date was extended to July 2006. The remaining principal balance on the note was secured by a property subject to an operating lease that had a carrying value of $1.5 million, and bore interest at a rate of prime plus 2% per annum. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership prepaid the remaining amounts payable under this note.

In April 2003, the Partnership entered into an $862,500 term note. The note had a 5-year term, was collateralized by a property subject to an operating lease that had a carrying value of $1.1 million, and bore interest at a rate of 6.25%, per annum. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership prepaid the remaining amounts payable under this note.

In April 2003, the Partnership entered into a $57,500 unsecured revolving note. The note initially had a 2-year term and bore interest at a variable rate equivalent to the Wall Street Journal (WSJ) prime rate plus 1/2%. The interest rate was adjusted monthly for changes in the WSJ prime rate. In April 2005, the maturity date on the note was extended to April 2006. All other terms and conditions on the note remained unchanged. Using the proceeds from the sale of twelve properties on June 3, 2005, the Partnership prepaid the remaining amounts payable under this note.

Debt issuance costs of $646,349 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. Upon the defeasance and prepayment of the notes payable on June 3, 2005 as indicated above, the remaining unamortized debt issuance costs associated with the debt that was prepaid were expensed.

As of September 30, 2005, the Partnership had a portfolio of 5 properties located in 4 states, with a cost basis of $6.1 million. The Partnership no longer holds any equipment leases. The Partnership has received approximately $7.1 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, nor does it intend to make, any commitments to purchase additional properties.

The Partnership semi-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 1999, 1,025 Units have been repurchased by the Partnership pursuant the repurchase plan. At September 30, 2005, the Partnership had 28,975 Units issued and outstanding. The Partnership is not obligated to accept Unit repurchase requests if the annualized cash flow for the three months prior to the redemption period is less than 10% per annum of the adjusted investment and/or if such repurchases would impair the capital of the Partnership. 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

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Credit risk relates to investment in leases and accounts receivable balances and results from the possibility of lessee defaulting on its contractual obligation to the Partnership. Both the ability of the lessees to pay rent on a timely basis and the amount of the rent (which is the Partnership’s principal source of income) are affected by general economic conditions. A default by a lessee or other premature termination of a lease agreement will interrupt rental payments and Partnership cash flows would be temporarily impacted. In such an instance, the general partner expects that it would find a substitute lessee, however, there can be no assurances that the property or equipment could be leased on comparable or acceptable terms. The Partnership monitors this risk by performing ongoing credit evaluations of lessees and maintains allowances for potential credit losses.

ITEM 4. CONTROLS AND PROCEDURES

Mr. Beach, acting in his capacity as the principal executive officer of GP4 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 as of a date within 90 days prior to the filing date of this report, and has determined that the Partnership’s disclosure controls and procedures effectively communicate the information required to be disclosed by the Partnership in the reports it files or submits under the Act in a manner that allows timely decisions regarding such disclosure.

There have been no significant changes in the Partnership’s internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .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 Registrant’s Definitive Proxy Statement on Schedule 14A, filed on September 21, 2004 and the corresponding exhibit in the Registrant’s Form 10-K 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-K 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-Q 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 of the Sarbanes-Oxley Act of 2002

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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 Partners L.P. IV
	GP4 Asset Acquisition, LLC
	Its Manager
By:	/s/ Patrick L. Beach
	Patrick L. Beach
	President
Date:	November 14, 2005

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EXHIBIT INDEX

Number	Exhibit
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 of the Sarbanes-Oxley Act of 2002

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