Captec Franchise Capital Partners L P Iv 10-Q 2006 Q2 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 endedJune 30, 2006

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 large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one:):

Large accelerated filero      Accelerated filero      Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

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, June 30, 2006 and December 31, 2005		3
	Statements of Operations for the three and six months ended June 30, 2006 and 2005		4
	Statement of Changes in Partners’ Capital for the six months ended June 30, 2006		5
	Statements of Cash Flows for the six months ended June 30, 2006 and 2005		6
	Notes to Financial Statements		7 – 10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11 – 14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		15
Item 4.	Controls and Procedures		15
PART II	OTHER INFORMATION
	Other Information		16
SIGNATURES			17
CERTIFICATION Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002			19 – 20
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 302
Certification Pursuant to Section 906

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Captec Franchise Capital Partners L.P. IV

Balance Sheets

	June 30,		December 31,
	2006		2005
	(Unaudited)
Assets
Cash and cash equivalents	$	2,006,758	$	896,164
Assets held for sale:
Operating leases, net		—		743,750
Unbilled rent, net		—		45,920
Investment in leases:
Operating leases, net		3,518,067		3,551,707
Financing leases, net		900,000		1,217,585
Unbilled rent, net		6,555		7,517
Accounts receivable		3,500		3,500
Total assets	$	6,434,880	$	6,466,143
Liabilities and Partners’ Capital
Liabilities
Accounts payable and accrued expenses	$	8,852	$	63,800
Due to related parties		5,043		20,872
Total liabilities		13,895		84,672
Partners’ capital:
Limited partners’ capital accounts		6,418,248		6,377,000
General partner’s capital account		2,737		4,471
Total partners’ capital		6,420,985		6,381,471
Total liabilities and partners’ capital	$	6,434,880	$	6,466,143

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

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Captec Franchise Capital Partners L.P. IV

Statements of Operations

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Operating revenue:
Rental income	$	119,521		$	111,863		$	231,384		$	223,726
Finance income		28,806			31,485			58,281			63,640
Total operating revenue		148,327			143,348			289,665			287,366
Operating costs and expenses:
Depreciation		16,820			—			33,641			—
Provision for impaired financing lease		298,866			9,961			298,866			9,961
General and administrative		104,209			73,621			181,024			179,548
Total operating costs and expenses		419,895			83,582			513,531			189,509
(Loss) income from continuing operations before other income		(271,568	)		59,766			(223,866	)		97,857
Other income :
Interest and other income		20,451			15,324			29,748			15,674
Total other income		20,451			15,324			29,748			15,674
(Loss) income from continuing operations		(251,117	)		75,090			(194,118	)		113,531
Discontinued operations:
Net income from discontinued operations, net		2,539			237,799			20,753			541,448
Gain on sale of real estate		212,879			3,231,936			212,879			3,231,936
Gain on sale of equipment		—			—			—			1,997
Debt retirement costs		—			(1,360,589	)		—			(1,360,589	)
Income from discontinued operations		215,418			2,109,146			233,632			2,414,792
Net (loss) income	$	(35,699	)	$	2,184,236		$	39,514		$	2,528,323
Net (loss) income allocable to general partner	$	(2,486	)	$	21,842		$	(1,734	)	$	25,283
Net (loss) income allocable to limited partners	$	(33,213	)	$	2,162,394		$	41,248		$	2,503,040
Net (loss) income from continuing operations per limited partnership unit	$	(8.58	)	$	2.57		$	(6.63	)	$	3.88
Net income from discontinued operations per limited partnership unit	$	7.43		$	72.06		$	8.05		$	82.51
Net income per limited partnership unit	$	(1.15	)	$	74.63		$	1.42		$	86.39
Weighted average number of limited partnership units outstanding		28,975			28,975			28,975			28,975

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 six months ended June 30, 2006

(Unaudited)

	Limited		Limited		General			Total
	Partners’		Partners’		Partner’s			Partners’
	Units		Accounts		Account			Capital
Balance, December 31, 2005		28,975	$	6,377,000	$	4,471		$	6,381,471
Net income (loss)		—	$	41,248	$	(1,734	)		39,514
Balance, June 30, 2006		28,975	$	6,418,248	$	2,737		$	6,420,985

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 six months ended June 30, 2006 and 2005

(Unaudited)

	2006			2005
Cash flows from operating activities:
Net income	$	39,514		$	2,528,323
Adjustments to net income:
Depreciation		36,922			—
Amortization of debt issuance costs		—			25,749
Gain on sale of equipment		—			(1,997	)
Gain on sale of real estate		(212,879	)		(3,231,936	)
Provision for impaired financing lease		298,866			9,961
Decrease (increase) in unbilled rent		228			(194,230	)
Decrease in accounts receivable		—			9,410
Decrease in accounts payable and accrued expenses		(54,948	)		(82,347	)
Increase in due from related parties		—			(1,310	)
Decrease in due to related parties		(15,828	)		(10,969	)
Decrease in restricted cash		—			333,006
Net cash provided by (used by) operating activities		91,875			(616,340	)
Cash flows from investing activities:
Net proceeds from sale of real estate		1,000,000			20,786,225
Proceeds from sale of equipment		—			15,000
Payment of lease commissions		—			(59,805	)
Principal collections on financing leases		18,719			61,003
Net cash provided by investing activities		1,018,719			20,802,423
Cash flows from financing activities:
Repayments of notes payable		—			(10,112,936	)
Distributions to limited partners		—			(625,000	)
Net cash used in financing activities		—			(10,737,936	)
Net increase in cash and cash equivalents		1,110,594			9,448,147
Cash and cash equivalents, beginning of period		896,164			143,463
Cash and cash equivalents, end of period	$	2,006,758		$	9,591,610

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, 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 June 30, 2006, 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

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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 quarter; (ii) certain limited partners have elected to receive monthly distributions versus quarterly distributions which creates timing differences between comparative calculations, (iii) the calculation ignores the timing of repurchases, and (iv) liquidating distributions are determined based on the tax account balances of the partners per the Partnership agreement.

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 to oversee the marketing and offering for sale of all the real estate assets and equipment leases and loans on behalf of the Partnership. This agreement has been terminated and the Partnership is negotiating with local real estate brokers to oversee the sale of the remaining assets. 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, as of December 31, 2004 all assets, excluding cash, were previously classified as Assets Held for Sale, and the results of the operations for these Assets Held for Sale were previously classified as discontinued operations for all years presented, since the operations were directly related to the assets held for sale. Depreciation of real estate assets ceased at December 31, 2004. The three real properties and one financing lease owned by the Partnership as of June 30, 2006 and December 31, 2005 which were not disposed of within one year from the initial held for sale designation were reclassified to investment in operating leases and financing leases at December 31, 2005. In accordance with FAS 144, the partnership recognized depreciation expense of $80,407 for the operating lease assets for the year ended December 31, 2005 in the fourth quarter of 2005 to cumulatively catch-up depreciation since the cessation in December 2004 upon reclassification of these assets. At March 31, 2006 and December 31, 2005 one of the investments in operating leases was recorded as held for sale as this property was sold on April 12, 2006. The respective results of operations of these assets, except for the real property sold on April 12, 2006, have been presented within continuing operations for all periods presented in accordance with FAS 144. The remaining assets of the Partnership will be sold and the cash will be used to distribute the net proceeds from such liquidations after the repayment of all liabilities in accordance with the partnership agreement.

On April 12, 2006, the Partnership sold the property located in Southgate, Michigan and the related lease for a purchase price of $1 million. There were no debt retirement costs associated with the disposition of this property.

As of June 30, 2006, the Partnership had a portfolio of three properties located in two states, and one financing lease for a total cost basis of $5.2 million. As of June 30, 2006, the Partnership has not made, nor does it intend to make, any commitments to purchase additional properties.

The balance sheet of the Partnership as of June 30, 2006, the statements of operations and cash flows for the periods ending June 30, 2006 and 2005 and the statement of changes in partners’ capital for the period ending June 30, 2006 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, 2005 filed with the United States Securities and Exchange Commission on March 29, 2006.

2.	LAND AND BUILDING SUBJECT TO OPERATING LEASES:
	The net investment in operating leases, including those classified as held for sale, as of June 30, 2006 and December 31, 2005 is comprised of the following:

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	June 30, 2006			December 31, 2005
Land	$	1,390,200		$	1,705,200
Building and improvements		2,689,980			3,214,980
		4,080,180			4,920,180
Less accumulated depreciation		(562,113	)		(624,723	)
Total	$	3,518,067		$	4,295,457

3.	NET INVESTMENT IN FINANCING LEASES:
	The net investment in financing leases as of June 30, 2006 and December 31, 2005 is comprised of the following:

	June 30, 2006			December 31, 2005
Minimum lease payments to be received	$	1,803,853		$	1,880,854
Less unearned income		(604,987	)		(663,268	)
Less provision for impaired financing lease		(298,866	)		0
Net investment in financing leases	$	900,000		$	1,217,585

As of June 30, 2006, the Partnership’s remaining financing lease is to Sterling Jewelers for the location in Plano, Texas. The Partnership has not received any offers on this asset. In order to facilitate the sale of this asset and conclude the liquidation and dissolution of the Partnership, the general partner obtained a third party appraisal of this asset. The appraisal value as of July 13, 2006 was estimated to be $900,000. Based on this appraisal, the Partnership has recorded a provision for impaired financing lease by $298,866 as of June 30, 2006.

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. The Partnership defeased all the remaining amounts payable under this note using the proceeds from the sale of twelve properties in June 2005. 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 certain 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. The Partnership defeased all the remaining amounts payable under this note using the proceeds from the sale of twelve properties in June 2005. The Partnership incurred approximately $427,000 of yield maintenance costs and $46,000 of professional fees related to the June 2005 defeasance.
	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 of a property. The note had a 10-year term and was collateralized by a property that had a carrying value of approximately $4.6 million and bore interest at the rate of 8.35% per annum. The Partnership prepaid all remaining amounts payable under this note using the proceeds from the sale of the collateralized property in August 2005. The Partnership incurred approximately $295,000 of yield maintenance costs and $35,000 of professional fees related to the prepayment.

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	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 a balance of $874,000, and the maturity date was extended to July 2006. The remaining note was secured by a certain 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. The Partnership prepaid all remaining amounts payable under this note using the proceeds from the sale of the secured property in June 2005.
	In April 2003, the Partnership entered into an $862,500 term note. The note has a 5-year term, was collateralized by a certain 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. The Partnership prepaid all remaining amounts payable under this note using the proceeds from the sale of the collateralized property in June 2005.
	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. The Partnership prepaid the remaining amounts payable under this note using the proceeds from the sale of the twelve properties in June 2005.
	The Partnership has no further obligations related to any of its notes payable.
	Debt issuance costs of $646,349 were incurred in connection with the issuance of the notes, and are were amortized over the life of the notes to interest expense using the straight-line method, which was not materially different than the interest rate method. Upon the defeasance and prepayment of the notes payable in June 2005, the remaining unamortized debt issuance costs associated with the debt that was prepaid were expensed.
5.	DISCONTINUED OPERATIONS:
	Income from discontinued operations, net for the three and six months ended June 30, 2006 and 2005 consisted of the following:

	Three months ended
	6/30/06		6/30/05
Revenues	$	2,539	$	461,309
Interest expense		0		223,510
Income from discontinued operations, net	$	2,539	$	237,799

	Six months ended
	6/30/06		6/30/05
Revenues	$	24,034	$	1,053,694
Depreciation		3,281		0
Interest expense		0		512,246
Income from discontinued operations, net	$	20,753	$	541,448

Revenues and depreciation from discontinued operations for the three and six months ended June 30, 2006, was due to rent and depreciation recorded for the Arby’s property through the sale date of April 12, 2006. Revenue from discontinued operations for the three and six months ended June 30, 2005 was due to rental income from twelve properties sold in June 2005, one property sold in each of the months of August and September 2005, one property sold in April 2006 and one equipment lease sold in February 2005.

Interest expense is allocated 100% to discontinued operations based on the lender’s requirement that the notes be paid in full with the proceeds from the sale of properties during the year ended December 31, 2005.

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Gain on sale of real estate for the six months ended June 30, 2006 was approximately $213,000 due to sale of one property in April 2006 for a sales price, prior to closing costs, of $1,000,000. Gain on sale of real estate for the six months ended June 30, 2005 was approximately $3,232,000 due to the sale of twelve properties in June 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $20,786,000. There was approximately $1,361,000 in debt retirement costs associated with the disposition of these twelve properties in June 2005.

Gain on sale of equipment for the six months ended June 30, 2005 was approximately $2,000 due to the disposition of an equipment lease in February 2005 for net cash proceeds of $15,000, resulting in a gain of approximately $2,000. There were no such gains on sale during the six months ended June 30, 2006.

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.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2006

During the three months ended June 30, 2006, total operating revenue increased to approximately $148,300 compared to approximately $143,300 for the three months ended June 30, 2005. Rental revenue from operating leases for the three months ended June 30, 2006 increased to approximately $120,000, compared to approximately $112,000 for the three months s ended June 30, 2005 due to rent adjustments tied to the consumer price index for certain leases. Earned income from financing leases for the three months ended June 30, 2006 decreased to approximately $28,800 compared to approximately $31,500 for the three months ended June 30, 2005 due to the amortization of principal balances.

Operating expenses were approximately $420,000 for the three months ended June 30, 2006, compared to approximately $84,000 for the three months ended June 30, 2005. The increase is primarily due to an approximate $299,000 provision for impaired financing lease charge recorded in the quarter ended June 30, 2006. In addition, the Partnership recognized $16,820 and $0 of depreciation expense in the quarters ended June 30, 2006 and 2005, respectively, for investment in operating leases. The Partnership recognized $80,407 of depreciation expense for investment in operating leases in the fourth quarter of 2005 to cumulatively catch-up depreciation on these assets when they were reclassified from held for sale in accordance with FAS 144. In accordance with FAS 144, the Partnership had ceased depreciation on all assets classified as Assets Held for Sale at December 31, 2004.

Other income for the quarter ended June 30, 2006 was approximately $20,500 due to interest income earned on cash proceeds from the sale of assets. Other income for the three months ended June 30, 2005 includes late charge income of approximately $15,000.

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Income from discontinued operations, net for the quarter ended June 30, 2006 and 2005 consisted of the following:

	2006		2005
Revenues	$	2,539	$	461,309
Interest expense		0		223,510
Income from discontinued operations, net	$	2,539	$	237,799

Revenues from discontinued operations for the three months ended June 30, 2006 of $2,539 was due to the partial month’s rent recorded for the Arby’s property sold on April 12, 2006. Revenue from discontinued operations for the three months ended June 30, 2005 of approximately $461,000 is rental income from twelve properties sold in June 2005, one property sold in each of the months of August and September 2005, and one property sold in April 2006.

Interest expense is allocated 100% to discontinued operations based on the lender’s requirement that the notes be paid in full with the proceeds from the sale of properties during the year ended December 31, 2005.

Gain on sale of real estate for the three months ended June 30, 2006 was approximately $213,000 due to sale of one property in April 2006 for a sales price, prior to closing costs, of $1,000,000. Gain on sale of real estate for the three months ended June 30, 2005 was approximately $3,232,000 due to the sale of twelve properties in June 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $20,786,000. There was approximately $1,361,000 in debt retirement costs associated with the disposition of these twelve properties in June 2005.

As a result of the foregoing, the Partnership’s net loss was approximately $36,000 for the three months ended June 30, 2006, compared to net income of approximately $2.2 million for the three months ended June 30, 2005.

Six months ended June 30, 2006

During the six months ended June 30, 2006, total operating revenue increased to approximately $290,000 compared to approximately 287,000 for the six months ended June 30, 2005. Rental revenue from operating leases for the six months ended June 30, 2006 increased to approximately $231,000, compared to approximately $224,000 for the six months ended June 30, 2005 due to rent adjustments tied to the consumer price index for certain leases. Earned income from financing leases for the six months ended June 30, 2006 decreased to approximately $58,000 compared to approximately $64,000 for the six months ended June 30, 2005 due to the amortization of principal balances.

Operating expenses were approximately $514,000 for the six months ended June 30, 2006, compared to approximately $190,000 for the six months ended June 30, 2005. The increase is primarily due to an approximate $299,000 provision for impaired financing lease charge recorded in the quarter ended June 30, 2006. In addition, the Partnership recognized $33,641 and $0 of depreciation expense in the six months ended June 30, 2006 and 2005, respectively, for investment in operating leases. The Partnership recognized $80,407 of depreciation expense for investment in operating leases in the fourth quarter of 2005 to cumulatively catch-up depreciation on these assets when they were reclassified from held for sale in accordance with FAS 144. In accordance with FAS 144, the Partnership had ceased depreciation on all assets classified as Assets Held for Sale at December 31, 2004.

Other income for the six months ended June 30, 2006 was approximately $29,700 due to interest income earned on cash proceeds from the sale of assets. Other income for the six months ended June 30, 2005 includes late charge income of approximately $15,700.

Income from discontinued operations, net for the six months ended June 30, 2006 and 2005 consisted of the following:

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	2006		2005
Revenues	$	24,034	$	1,053,694
Depreciation		3,281		0
Interest expense		0		512,246
Income from discontinued operations, net	$	20,753	$	541,448

Revenues and depreciation from discontinued operations for the six months ended June 30, 2006 of approximately $24,000 and $3,000, respectively, was due to rent and depreciation recorded for the Arby’s property through the sale date of April 12, 2006. Revenue from discontinued operations for the three months ended June 30, 2005 of approximately $1,054,000 is rental income from twelve properties sold in June 2005, one property sold in each of the months of August and September 2005, one property sold in April 2006 and one equipment lease sold in February 2005.

Interest expense is allocated 100% to discontinued operations based on the lender’s requirement that the notes be paid in full with the proceeds from the sale of properties during the year ended December 31, 2005.

Gain on sale of real estate for the six months ended June 30, 2006 was approximately $213,000 due to sale of one property in April 2006 for a sales price, prior to closing costs, of $1,000,000. Gain on sale of real estate for the six months ended June 30, 2005 was approximately $3,232,000 due to the sale of twelve properties in June 2005 for net cash, prior to repayment of debt and related debt retirement costs, of approximately $20,786,000. There was approximately $1,361,000 in debt retirement costs associated with the disposition of these twelve properties in June 2005.

Gain on sale of equipment for the six months ended June 30, 2005 was approximately $2,000 due to the disposition of an equipment lease in February 2005 for net cash proceeds of $15,000, resulting in a gain of approximately $2,000. There were no such gains on sale during the six months ended June 30, 2006.

As a result of the foregoing, the Partnership’s net income was approximately $40,000 for the six months ended June 30, 2006, compared to net income of approximately $2.5 million for the six months ended June 30, 2005.

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. The Partnership defeased all the remaining amounts payable under this note using the proceeds from the sale of twelve properties in June 2005. 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 certain 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. The Partnership defeased all the remaining amounts payable under this note using the proceeds from the sale of twelve properties in June 2005. The Partnership incurred approximately $427,000 of yield maintenance costs and $46,000 of professional fees related to the June 2005 defeasance.

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 of a property. The note had a 10-year term and was collateralized by a property that had a carrying value of approximately $4.6 million

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and bore interest at the rate of 8.35% per annum. The Partnership prepaid all remaining amounts payable under this note using the proceeds from the sale of the collateralized property in August 2005. 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 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 a balance of $874,000, and the maturity date was extended to July 2006. The remaining note was secured by a certain 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. The Partnership prepaid all remaining amounts payable under this note using the proceeds from the sale of the secured property in June 2005.

In April 2003, the Partnership entered into an $862,500 term note. The note has a 5-year term, was collateralized by a certain 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. The Partnership prepaid all remaining amounts payable under this note using the proceeds from the sale of the collateralized property in June 2005.

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. The Partnership prepaid the remaining amounts payable under this note using the proceeds from the sale of the twelve properties in June 2005.

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. Upon the defeasance and prepayment of the notes payable in June 2005, the remaining unamortized debt issuance costs associated with the debt that was prepaid were expensed.

As of June 30, 2006, the Partnership had a portfolio of three properties located in two states, and one financing lease for a total cost basis of $5.2 million. As of June 30, 2006, 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 June 30, 2006, 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 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

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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 had entered into an exclusive listing agreement with a third party to oversee the marketing and sale of the Partnership’s assets. This agreement has been terminated and the Partnership is negotiating with local real estate brokers to oversee the sale of the remaining 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.

The Partnership was 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 was 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 the fixed rate debt could have had an effect on the Partnership’s future cash flows and earnings, depending on whether the debt was replaced with other fixed rate debt, variable rate debt, or equity or repaid by the sale of assets. The Partnership does not currently have any outstanding Notes Payables.

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 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 2002
32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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:	August 11, 2006

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Exhibit Index

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 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 2002
32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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