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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended           September 30, 2004 OR [   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to Commission file number: 333-9371 CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV 
  Delaware   38-3304096   24 Frank Lloyd Wright
Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544   (734) 994-5505   Not Applicable   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. Yes [X]  
No [   ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court: Not applicable APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: Not applicable




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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV Index to Form 10-Q Item No.
    
    
    
    PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Balance Sheets,
September 30, 2004 and December 31, 2003
    
    
    3Statement of Operations for the three and nine months ended September 30, 2004 and 2003
    
    
    4Statement of Changes in Partners Capital for the nine months ended September 30, 2004
    
    
    5Statement of Cash Flows for the nine months ended September 30, 2004 and 2003
    
    
    6Notes to Financial Statements
    7 - 10Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    10 - 13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    13PART II
    
    OTHER INFORMATION
Other Information
    14 - 15SIGNATURES
    
    
    
    
    16CERTIFICATION Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
    
    
    17Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
 2




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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 31,2004
    
    2003(Unaudited)AssetsCash and cash equivalents
    
    $
    234,977
    
    
    $
    694,742Restricted cash
    
    
    304,888
    
    
    
    233,390Investment in leases:Operating leases, net
    
    
    26,017,636
    
    
    
    29,667,981Financing leases, net
    
    
    1,364,052
    
    
    
    1,579,536Impaired financing leases, net
    
    
    15,000
    
    
    
    15,000Accounts receivable
    
    
    161,842
    
    
    
    300,189Unbilled rent, net
    
    
    1,208,322
    
    
    
    1,446,046Deferred financing costs, net
    
    
    243,218
    
    
    
    309,259Total assets
    
    $
    29,549,935
    
    
    $
    34,246,143Liabilities and Partners CapitalLiabilities:Notes payable
    
    $
    13,684,407
    
    
    $
    14,948,390Accounts payable and accrued expenses
    
    
    109,373
    
    
    
    160,513Due to related parties
    
    
    10,969
    
    
    
    11,109Total liabilities
    
    
    13,804,749
    
    
    
    15,120,012Partners capital:Limited partners capital accounts
    
    
    15,750,444
    
    
    
    19,138,676General partners capital account
    
    
    (5,258
    )
    
    
    (12,545
    )Total partners capital
    
    
    15,745,186
    
    
    
    19,126,131Total liabilities and partners capital
    
    $
    29,549,935
    
    
    $
    34,246,143
 The accompanying notes are an integral part of the financial statements. 3




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Captec Franchise Capital Partners L.P. IV 
 Statement of Operations
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Operating revenue:Rental income
    
    $
    667,574
    
    
    $
    765,390
    
    
    $
    2,042,313
    
    
    $
    2,264,707Finance income
    
    
    35,658
    
    
    
    47,143
    
    
    
    112,317
    
    
    
    157,606Total operating revenue
    
    
    703,232
    
    
    
    812,533
    
    
    
    2,154,630
    
    
    
    2,422,313Operating costs and expenses:Interest expense
    
    
    284,246
    
    
    
    302,170
    
    
    
    867,131
    
    
    
    901,847Depreciation
    
    
    112,597
    
    
    
    112,597
    
    
    
    337,790
    
    
    
    332,016General and administrative
    
    
    85,939
    
    
    
    44,330
    
    
    
    389,265
    
    
    
    108,400Total operating costs and expenses
    
    
    482,782
    
    
    
    459,097
    
    
    
    1,594,186
    
    
    
    1,342,263Income from operations
    
    
    220,450
    
    
    
    353,436
    
    
    
    560,444
    
    
    
    1,080,050Other income :Gain on sale of equipment
    
    
    
    
    
    
    24,099
    
    
    
    8,040
    
    
    
    44,215Interest and other income
    
    
    29
    
    
    
    110
    
    
    
    5,078
    
    
    
    412Total other income
    
    
    29
    
    
    
    24,209
    
    
    
    13,118
    
    
    
    44,627Income from continuing operations
    
    
    220,479
    
    
    
    377,645
    
    
    
    573,562
    
    
    
    1,124,677Discontinued Operations:Net gain on sale of properties
    
    
    500
    
    
    
    
    
    
    
    262,045
    
    
    
    Income from discontinued operations, net
    
    
    
    
    
    
    73,865
    
    
    
    102,107
    
    
    
    221,595Debt Retirement Costs
    
    
    
    
    
    
    
    
    
    
    (209,010
    )
    
    
    Income from discontinued operations
    
    
    500
    
    
    
    73,865
    
    
    
    155,142
    
    
    
    221,595Net income
    
    $
    220,979
    
    
    $
    451,510
    
    
    $
    728,704
    
    
    $
    1,346,272Net income allocable to general partner
    
    $
    2,210
    
    
    $
    4,515
    
    
    $
    7,287
    
    
    $
    13,463Net income allocable to limited partners
    
    $
    218,769
    
    
    $
    446,995
    
    
    $
    721,417
    
    
    $
    1,332,809Net income per limited partnership unit
from continuing operations
    
    
    7.53
    
    
    
    12.79
    
    
    
    19.56
    
    
    
    38.04Net income per limited partnership unit
from discontinued operations
    
    
    0.02
    
    
    
    2.50
    
    
    
    5.29
    
    
    
    7.50Net income per limited partnership unit
    
    $
    7.55
    
    
    $
    15.29
    
    
    $
    24.85
    
    
    $
    45.54Weighted average number of limited partnership
units outstanding
    
    
    28,975
    
    
    
    29,232
    
    
    
    29,035
    
    
    
    29,268
 The accompanying notes are an integral part of the financial statements. 4




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Captec Franchise Capital Partners L.P. IV 
 Statements of Changes in Partners Capital
   Limited
    
    Limited
    
    General
    
    TotalPartners
    
    Partners
    
    Partners
    
    PartnersUnits
    
    Accounts
    
    Account
    
    CapitalBalance, December 31, 2003
    
    
    29,155
    
    
    $
    19,138,676
    
    
    $
    (12,545
    )
    
    $
    19,126,131Distributions  ($137.25 per weighted average
limited partnership unit)
    
    
    
    
    
    
    (3,984,933
    )
    
    
    
    
    
    
    (3,984,933
    )Repurchase of limited partnership units
    
    
    (180
    )
    
    
    (124,716
    )
    
    
    
    
    
    
    (124,716
    )Net income
    
    
    
    
    
    
    721,417
    
    
    
    7,287
    
    
    
    728,704Balance, September 30, 2004
    
    
    28,975
    
    
    $
    15,750,444
    
    
    $
    (5,258
    )
    
    $
    15,745,186
 The accompanying notes are an integral part of the financial statements. 5




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Captec Franchise Capital Partners L.P. IV 
 Statements of Cash Flows
   2004
    
    2003Cash flows from operating activities:Net Income
    
    $
    728,704
    
    
    $
    1,346,272Adjustments to net income:Depreciation
    
    
    360,511
    
    
    
    378,280Amortization of debt issuance costs
    
    
    66,041
    
    
    
    60,467Gain on sale of equipment
    
    
    (8,040
    )
    
    
    (44,215
    )Gain on sale of real estate
    
    
    (262,045
    )
    
    
    Increase in unbilled rent
    
    
    (59,735
    )
    
    
    (161,809
    )Decrease (increase) in accounts receivable
    
    
    138,347
    
    
    
    (212,999
    )Decrease in accounts payable and accrued expenses
    
    
    (51,140
    )
    
    
    (36,496
    )Decrease in due to related parties
    
    
    (140
    )
    
    
    (631
    )Increase in restricted cash
    
    
    (71,498
    )
    
    
    (25,183
    )Net cash provided by operating activities
    
    
    841,005
    
    
    
    1,303,686Cash flows from investing activities:Purchase and construction cost of properties
subject to operating leases
    
    
    
    
    
    
    (1,155,000
    )Proceeds from sale of equipment
    
    
    40,200
    
    
    
    220,947Proceeds from sale of real estate
    
    
    3,849,338
    
    
    
    Principal collections on financing leases
    
    
    183,324
    
    
    
    629,525Net cash provided by (used in) investing activities
    
    
    4,072,862
    
    
    
    (304,528
    )Cash flows from financing activities:Proceeds from issuance of notes payable
    
    
    
    
    
    
    920,000Debt issuance costs
    
    
    
    
    
    
    (12,276
    )Repayments of notes payable
    
    
    (1,263,983
    )
    
    
    (259,513
    )Repurchase of limited partnership units
    
    
    (124,716
    )
    
    
    (79,555
    )Distributions to limited partners
    
    
    (3,984,933
    )
    
    
    (2,160,000
    )Net cash used in financing activities
    
    
    (5,373,632
    )
    
    
    (1,591,344
    )Net decrease in cash and cash equivalents
    
    
    (459,765
    )
    
    
    (592,186
    )Cash and cash equivalents, beginning of period
    
    
    694,742
    
    
    
    1,132,891Cash and cash equivalents, end of period
    
    $
    234,977
    
    
    $
    540,705
 The accompanying notes are an integral part of the financial statements. 6




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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, the general partnership interest was immediately transferred to
GP4 Asset Acquisition. Therefore, as of September 11, 2003, 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, 2004, 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 7




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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 distributions which creates timing differences between
comparative calculations, and (iii) the calculation ignores the timing of
repurchases.The balance sheet of the Partnership as of September 30, 2004, the
statements of operations and cash flows for the periods ending September
30, 2004 and September 30, 2003 and the statements of changes in
partners capital for the period ending September 30, 2004 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-K for the year ended December 31, 2003 filed with the United
States Securities and Exchange Commission on March 28, 2004.2.
    
    LAND AND BUILDING SUBJECT TO OPERATING LEASES:The net investment in operating leases as of September 30, 2004 is
comprised of the following: Land
    
    $
    10,261,125Building and improvements
    
    
    17,979,56428,240,689Less accumulated depreciation
    
    
    (2,223,053
    )Total
    
    $
    26,017,636
  3.
    
    NET INVESTMENT IN FINANCING LEASES:The net investment in financing leases as of September 30, 2004 is
comprised of the following: Minimum lease payments to be received
    
    $
    2,197,758Less unearned income
    
    
    (833,706
    )Net investment in financing leases
    
    $
    1,364,052
  4.
    
    NOTES PAYABLE:In December 1998, the Partnership entered into a $6.4 million term note.
The note has a 10-year term, is collateralized by certain properties which
have a carrying value of approximately $11.6 million subject to operating
leases, and bears an interest rate of 8.13% per annum.In March 1999, the Partnership entered into an additional $3.3 million
term note. The note has a 10-year term, is collateralized by certain
properties subject to operating leases which have a carrying value of
approximately $3.4 million, and bears 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 the Capital Foods
property.In October 2000, the Partnership assumed a $3.75 million term note,
collateralized by a certain property which has a carrying value of
approximately $4.6 million. The note has a 10-year term, and bears
interest at a rate of 8.35% per annum.In November 2001, the Partnership entered into an additional $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 $874,000, and the maturity date was extended to
November 2005. The remaining note is secured by a certain property
subject to an operating lease which has a carrying value of $1.5 million,
and bears interest a rate of prime plus 2% per annum. 8




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In April 2003, the Partnership entered into an $862,500 term note. The
note has a 5-year term, is collateralized by a certain property subject to
an operating lease which has a carrying value of $1.1 million, and bears
interest at a rate of 6.25%, per annum.In April 2003, the Partnership entered into a $57,500 unsecured revolving
note. The note has a 2-year term and bears interest at a variable rate
equivalent to the Wall Street Journal (WSJ) prime rate plus 1/2%. The
interest rate is adjusted monthly for changes in the WSJ prime rate.Debt issuance costs of $646,349 were incurred in connection with the
issuance of the notes, and are being 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.5.
    
    EARNINGS FROM DISCONTINUED OPERATIONS:In accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets, the Company has classified the operations of the
properties sold during the nine months ended September 30, 2004 as
discontinued operations. Accordingly, the results of operations related
to the properties have been reclassified to earnings from discontinued
operations. Discontinued operations reflect the sale of three properties
that were triggered by the tenants exercise of purchase option clauses in
the lease agreements. The properties were sold for net cash proceeds of
approximately $3.9 million, resulting in a gain of approximately $262,000.
There were approximately $209,000 in debt retirement costs associated
with the disposition of the Capital Food property. Expenses include an
allocation of interest expense based on the outstanding debt required to
be repaid. The following is a summary of earnings from discontinued
operations: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues:Operating lease rents
    
    $
    
    
    
    $
    108,095
    
    
    
    151,922
    
    
    $
    324,286Expenses:Interest expense
    
    
    
    
    
    
    17,728
    
    
    
    25,575
    
    
    
    53,184Provision for depreciation
    
    
    
    
    
    
    15,422
    
    
    
    22,721
    
    
    
    46,265Management Fees
    
    
    
    
    
    
    1,081
    
    
    
    1,519
    
    
    
    3,243Income from discontinued operation, net
    
    $
    
    
    
    $
    73,865
    
    
    $
    102,107
    
    
    $
    221,595
  6.
    
    CHANGE IN ESTIMATE:The Partnership holds two vacant properties, for which it is actively
seeking new tenants. In June 2004, the leases on these properties (for
which rental payments were over eighteen months past due), along with the
rights to pursue remedies against the tenant and all Guarantors, were
terminated as the Partnership entered into a Settlement Agreement with the
former tenants and Guarantors. Under that Settlement Agreement, the
Partnership received $100,000 as full and final payment from all parties
involved. The remaining receivable of $125,000 associated with these
leases was written off as bad debt expense in June 2004. 9




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7.
    
    LIQUIDATION PLAN:On or about September 24, 2004, the Partnership filed with the Securities
and Exchange Commission and mailed to its limited partners a consent
solicitation statement pursuant to which the Partnership began soliciting
the consent of its limited partners to (i) dissolve the Partnership,
liquidate its assets and wind up its affairs; and (ii) amend the
partnership agreement to permit, on a limited basis, the sale of
Partnership assets to certain affiliates in connection with the
dissolution, liquidation and winding up of the Partnership. On November
8, 2004, the requisite limited partner consents for each proposal were
obtained, the consent solicitation was closed and the plan of liquidation
and the amendment to the partnership agreement became effective. As a
result, the general partner is authorized to liquidate the assets of the
Partnership and distribute the net proceeds from such liquidation in
accordance with the partnership agreement, without any further action by
the limited partners. The Partnership is undertaking steps to commence
the liquidation in accordance with the adopted Plan of Liquidation and
Dissolution. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  When used in this discussion, words such as intends, anticipates,
expects, will, could, estimate, and similar expressions are
intended to identify forward-looking statements. Forward-looking
statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those described herein.
Such risks and uncertainties, some of which are beyond the Partnerships
control, include, but are not limited to, the following: (i) the
possibility that tenants and lessees may default in making rent payments,
(ii) the risk of fire or other casualty interrupting cash flow from a
property, (iii) the inability to enter into leases at the assumed rental
rates, (iv) unexpected expenses, and (v) the inability to sell properties
at anticipated prices and/or times. Any statements contained in this
report or any document 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.RESULTS OF OPERATIONSThree Months Ended September 30, 2004.During the three months ended
September 30, 2004, total operating revenue decreased 13.5% to
approximately $703,000 compared to approximately $813,000 for the three
months ended September 30, 2003. Rental revenue from operating leases for
the three months ended September 30, 2004 decreased 12.8% to approximately
$668,000 compared to approximately $765,000 for the prior year period,
primarily due to the three vacant properties. Earned income from
financing leases for the three months ended September 30, 2004 decreased
24.4% to approximately $36,000 compared to approximately $47,000 for the
three months ended September 30, 2003 due to the amortization of principal
balances and the disposition of an equipment lease in April 2004.Operating expenses totaled approximately $483,000 for the three months
ended September 30, 2004, compared to approximately $459,000 for the three
months ended September 30, 2003. The increase is primarily due to
increased general and administrative expenses as a result of increased
property taxes (on vacant properties) and increased professional fees.Other income for the three months ended September 30, 2003 was
approximately $24,000 due to the disposition of two equipment leases in
August 2003 for net cash proceeds of approximately $108,000. 10




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As a result of the foregoing, the Partnerships net income from continuing
operations decreased 41.6% to approximately $220,000 for the three months
ended September 30, 2004, compared to $378,000 for the three months ended
September 30, 2003.Discontinued operations reflect the sale of three properties pursuant to
purchase option clauses in the lease agreements.As a result of the foregoing, the Partnerships net income decreased 51.1%
to approximately $221,000 for the three months ended September 30, 2004,
compared to approximately $452,000 for the three months ended September
30, 2003.Nine Months Ended September 30, 2004.During the nine months ended
September 30, 2004, total operating revenue decreased 11.1% to
approximately $2.2 million compared to approximately $2.4 million for the
nine months ended September 30, 2003. Rental revenue from operating
leases for the nine months ended September 30, 2004 decreased 9.8% to
approximately $2.0 million compared to approximately $2.3 million for the
nine months ended September 30, 2003, due to the vacant properties.
Earned income from financing leases for the nine months ended September
30, 2004 decreased 28.7% to approximately $112,000 compared to
approximately $158,000 for the nine months ended September 30, 2003, due
to the amortization of principal balances and disposition of an equipment
lease in April 2004.Operating expenses increased 18.8% to approximately $1.6 million for the
nine months ended September 30, 2004, compared to approximately $1.3
million for the nine months ended September 30, 2003. The increase is
primarily due to increased general and administrative expenses as a result
of increased property taxes (on vacant properties), increased professional
fees, and bad debt expense of $125,000 relating to two leases for which
rental payments had been delinquent for 18 months, and is partially offset
by decreases in depreciation and interest expense due to the sale of the
properties in 2004. The Partnership has entered into a Settlement
Agreement with the guarantors on the two delinquent real estate leases and
is actively seeking to re-tenant these properties.Other income for the nine months ended September 30, 2004 was
approximately $13,000 due to an $8,000 gain on the disposition of an
equipment lease in June 2004 for net cash proceeds of approximately
$40,000 and late charge income of approximately $5,000. Other income for
the nine months ended September 30, 2003 was approximately $45,000 due to
gains from the disposition of an equipment lease in April 2003 and two
equipment leases in August 2003 for net cash proceeds of approximately
$221,000.As a result of the foregoing, the Partnerships net income from continuing
operations decreased 49.0% to approximately $574,000 for the nine months
ended September 30, 2004, compared to $1.1 million for the nine months
ended September 30, 2003.Discontinued operations reflect the sale of three properties pursuant to
purchase option clauses in the lease agreements. The properties were sold
for net cash proceeds of approximately $3.9 million in 2004, resulting in
a gain of approximately $262,000. There were approximately $209,000 in
debt retirement costs associated with the disposition of one of these
properties.As a result of the foregoing, the Partnerships net income decreased 45.9%
to approximately $729,000 for the nine months ended September 30, 2004,
compared to approximately $1.3 million for the nine months ended September
30, 2003.The Partnership announced second quarter distributions of $375,000, of which approximately $326,641 was distributed to certain
limited partners on October 15, 2004 and the remainder of which will be
distributed to limited partners electing to receive distributions on a
monthly basis. 11




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##### Table of Contents



LIQUIDITY AND CAPITAL COMMITMENTSIn 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 Partnership entered into an additional $3.3 million term note in March
1999. Proceeds from the notes were used to acquire additional properties.
The notes have a ten-year term, are collateralized by certain properties
subject to operating leases,
and bear interest at rates of 8.13% and 8.5% per annum, respectively. In
March 2004 the Partnership defeased approximately $466,000 of this note
payable with proceeds from the sale of a property.The Partnership purchased one net leased real estate property in October
2000 and assumed a $3.75 million term note in connection with the
acquisition. The note has a ten-year term and bears interest at a rate of
8.35% per annum.In November 2001, the Partnership entered into an additional $1.5 million
term note. In June 2004, the Partnership sold one of the two properties,
subject to an operating lease, that secured the $1.5 million note. In June 2004, the Partnership
sold one of the two properties, subject to an operating lease, that secured the $1.5 million
note. Using proceeds from the sale, the note was paid down to $874,000, and the
maturity date was extended an additional two years. The note is secured
by a certain property subject to an operating lease which has a carrying
value of $1.5 million, and bears interest a rate of prime plus 2% per
annum.In April 2003, the Partnership entered into an $862,500 term note. The
note has a 5-year term, is collateralized by a certain property subject to
an operating lease which has a carrying value of $1.1 million, and bears
interest at a rate of 6.25%, per annum. In April 2003, the Partnership
entered into a $57,500 unsecured revolving note. The note has a 2-year
term and bears interest at a variable rate equivalent to the Wall Street
Journal (WSJ) prime rate plus 1/2%. The interest rate is adjusted monthly
for charges in the WSJ prime rate.Debt issuance costs of $646,349 were incurred in connection with the
issuance of the notes, and are being 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.As of September 30, 2004, the Partnership had a portfolio of 19 properties
located in 9 states, with a cost basis of $29.1 million, 4 performing
equipment leases with an original investment of $950,000 and one
repossessed equipment package related to a defaulted equipment contract.
The remaining net investment in the Partnerships leased equipment is
$124,000, net of $826,000 of aggregate principal collections on financing
leases during the life of those investments. Since inception, the
Partnership has received approximately $6.9 million of aggregate principal
collections on all of its financing lease investments (including both
active and terminated leases). During the quarter ending June 30, 2004,
the partnership terminated the operating leases on two properties for
which rental payments had been delinquent for approximately 18 months.
Further, the Partnership entered into a Settlement Agreement with the
guarantors on these two leases. The Partnership is actively seeking to
re-tenant these properties, and one additional property that was vacated
in the fourth quarter of 2003. The general partner does not believe
impairment exists on any of the vacant 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. 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. 12




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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
limited partners. Disclosure of Contractual Obligations Payment due by periodContractual
    
    
    
    
    
    Less than
    
    1-3
    
    3-5Obligations
    
    Total
    
    1 year
    
    years
    
    years
    
    More than 5 yearsLong-term Debt
Obligation
    
    $
    13,684,407
    
    
    $
    277,120
    
    
    $
    3,640,103
    
    
    $
    9,032,880
    
    
    $
    734,304
 
 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 that a lessee defaults 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. The Partnership is exposed to interest rate risks, primarily as a result
of its long-term fixed rate debt used to finance its investments. The
Partnerships approach to interest rate risk management is to limit the
impact of interest rate changes on earnings and cash flows by matching
investments with long-term fixed rate borrowings to the extent possible.
A change in interest rates will not affect the interest expense associated
with the fixed rate debt. Changes in the interest rate environment upon
maturity of this fixed rate debt could have an effect on the Partnerships
future cash flows and earnings, depending on whether the debt is replaced
with other fixed rate debt, variable rate debt, or equity or repaid by the
sale of assets. Current Notes Payables mature in 2005 and in the years
2008 through 2010. 
 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. 13




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##### Table of Contents



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. 
 PART II  OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.None ITEM 2. CHANGES IN SECURITIES. USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES.None ITEM 3. DEFAULTS UPON SENIOR SECURITIES.None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On or about September 24, 2004, the Partnership filed with the Securities
and Exchange Commission and mailed to its limited partners a consent
solicitation statement pursuant to which the Partnership began soliciting
the consent of its limited partners to (i) dissolve the Partnership,
liquidate its assets and wind up its affairs; and (ii) amend the
partnership agreement to permit, on a limited basis, the sale of
Partnership assets to certain affiliates in connection with the
dissolution, liquidation and winding up of the Partnership. The Partnerships liquidation plans, as stated in the offering materials
delivered in connection with the Offering, indicated that the Partnership
intended to dispose of its properties and liquidate the Partnership in
approximately March 2003 through February 2007, the seventh and tenth
years after the Partnership commenced operations. These liquidation plans
were partly based upon the then-general partners belief that the
equipment leases would have expired by the time of liquidation, and that
the return of the investment in such assets would have been received
through the full payout of rental payments. As of September 30, 2004,
substantially all of the Partnerships investments in equipment leases
have expired and the related capital returned to the limited partners. The general partner believes that market conditions for selling retail net
leased real estate are presently favorable, due to the limited supply of,
and high demand for, such assets, as well as the low interest rate
environment. As a result, the general partner believes that net leased
real estate assets are presently being sold at high prices relative to
their annual income. Although market conditions are presently favorable,
the general partner believes that the current expectations for increases
in interest rates could result in reduced real estate values over time,
due to the effect of increased borrowing costs and increased yield
expectations (in comparison to other investments). In light of these
trends, the general partner has concluded that it would be preferable to
sell the Partnerships assets as soon as practicable to benefit from the
existing favorable environment. As part of the consent solicitation, the Partnership also solicited the
consent of the limited partners to an amendment to the Partnerships
partnership agreement, which would permit the general partner and/or its
affiliates to purchase Partnership assets under certain limited
circumstances. The general partner believes that there is a chance that
the general partner will be unable to sell all of the Partnerships assets
to third parties in connection with the liquidation. Since the partnership
agreement prohibits distributions in kind, the Partnership cannot be
liquidated until all of the Partnerships assets are sold. Failure to sell
all of the Partnerships assets in a timely manner will result in a delay
in the liquidating distribution to the partners and result in continued
administrative costs to the Partnership. The general partner believes that
if it is permitted to purchase these unsold assets, if any, the partners
will materially benefit because they will receive their liquidating
distributions sooner and less of the Partnerships financial resources
will be devoted to administrative costs incurred in connection with the
continuation of the Partnership. 14




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##### Table of Contents



Effective November 8, 2004, the requisite limited partner consents for
each proposal were obtained and the consent solicitation was closed.
Limited partners holding 16,679 units and 16,062 units consented to the
liquidation proposal and the amendment to the limited partnership
agreement, respectively. Limited partners holding 95 units and 581 units
did not consent to the liquidation proposal and the amendment to the
limited partnership agreement, respectively. Limited partners holding 280
units and 411 units abstained from consenting to the liquidation proposal
and the amendment to the limited partnership agreement, respectively. In
summary, 97.8% of the units voted approved the liquidation proposal and
94.2% of the units voted approved the amendment to the limited partnership
agreement. The Partnership has undertaken steps to commence the liquidation of the
Partnership. The Partnership has entered into an exclusive listing
agreement with CB Richard Ellis. CB Richard Elliss Net Leased Property
Group will oversee the brokerage activity on behalf of the Partnership.
Partnership assets will be marketed on a local, regional and national
basis and to a limited number of international investors. The general
partner believes this will provide for very broad exposure of the assets
to potential purchasers. ITEM 5. OTHER INFORMATION.None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are included herein or incorporated by
reference: Number
    
    Exhibit2
    
    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 March 31, 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 March 31, 1999)31
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
of the Sarbanes-Oxley Act of 2002
 (b) Reports on Form 8-K: There were no reports filed on Form 8-K for the quarter ended September
30, 2004. 15




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##### Table of Contents



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 ManagerBy:
    
    /s/ Patrick L. BeachPatrick L. Beach
PresidentDate:
    
    November 12, 2004
 16




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##### Table of Contents



Number
    
    Exhibit2
    
    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)10.2.1
    
    Promissory Note dated March 31, 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 March 31, 1999)31
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
of the Sarbanes-Oxley Act of 2002
 17