Captec Franchise Capital Partners L P Iv 10-Q 2007 Q1 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 endedMarch 31, 2007

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

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:
Statements of Net Assets in Liquidation (liquidation basis) at March 31, 2007 (unaudited) and December 31, 2006		3
Statement of Changes in Net Assets in Liquidation (liquidation basis) (unaudited) for the three months ended March 31, 2007		4
Statement of Discontinued Operations (going concern basis) (unaudited) for the three months ended March 31, 2006		5
Statements of Cash Flows (unaudited) for the three months ended March 31, 2007 (liquidation basis) and 2006 (going concern basis)		6
Notes to Financial Statements		7 — 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10 — 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk		11
Item 4. Controls and Procedures		11 — 12
PART II OTHER INFORMATION
Other Information		12
SIGNATURES		13
CERTIFICATION Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002		14-16
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Section 302 Certification of Chief Executive Officer and Chief Financial Officer
Section 906 Certification of Chief Executive Officer and Chief Financial Officer

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ITEM 1. FINANCIAL STATEMENTS

Captec Franchise Capital Partners L.P. IV

Statements of Net Assets in Liquidation
(Liquidation Basis)

	March 31,		December 31,
	2007		2006
Assets
Cash and cash equivalents	$	1,111,877	$	1,428,894
Investment in leases:
Operating leases, net		—		892,200
Financing leases, net		—		770,560
Unbilled rent, net		—		3,503
Accounts receivable		—		3,460
Total assets		1,111,877		3,098,617
Liabilities and Net Assets in Liquidation
Liabilities:
Reserve for estimated costs during liquidation period		294,285		368,140
Total liabilities		294,285		368,140
Net assets in liquidation	$	817,592	$	2,730,477

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

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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

Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
For the Three Months Ended March 31, 2007

Net assets in liquidation — December 31, 2006	$	2,730,477
Adjustments relating to adoption of liquidation basis of accounting
Distributions to limited partners		(2,001,500	)
Net change in net assets in liquidation		88,615
Net assets in liquidation — March 31, 2007	$	817,592

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

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Captec Franchise Capital Partners L.P. IV

Statement of Discontinued Operations
(Going Concern Basis)

	For the three
	months ended
	March 31, 2006
Operating revenue:
Rental income	$	133,358
Finance income		29,475
Total operating revenue		162,833
Operating costs and expenses:
Depreciation		20,102
General and administrative		76,815
Total operating costs and expenses		96,917
Income from discontinued operations before other income		65,916
Other income:
Interest and other income		9,297
Total other income		9,297
Net Income from discontinued operations	$	75,213
Net income from discontinued operations allocable to general partner	$	752
Net income from discontinued operations allocable to limited partners	$	74,461
Net income from discontinued operations per limited partnership unit	$	2.57
Weighted average number of limited partnership units outstanding		28,975

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 three months ended March 31, 2007 and 2006

	Liquidation			Going Concern
	Basis			Basis
	2007			2006
Cash flows from operating activities:
Change in net assets in liquidation from operating activity	$	88,615		$	—
Adjustment of real estate investments and other assets to net realizable value		(32,238	)		—
Change in reserve for estimated costs during liquidation period		(8,660	)		—
Cash payments made against reserve		(65,195	)		—
Net Income		—			75,213
Adjustments to net income:
Depreciation		—			20,102
Increase in unbilled rent		—			3,579
Decrease in accounts receivable		3,460			—
Decrease in due to related parties		—			(13,936	)
Decrease in accounts payable		—			(28,872	)
Net cash (used in) provided by operating activities		(14,018	)		56,086
Cash flows from investing activities:
Net proceeds from sale of financing lease		795,218			—
Net proceeds from sale of real estate		895,703			—
Principal collections on financing leases		7,580			9,025
Net cash provided by investing activities		1,698,501			9,025
Cash flows from financing activities:
Distributions to limited partners		(2,001,500	)		—
Net cash used in financing activities		(2,001,500	)		—
Net (decrease) increase in cash and cash equivalents		(317,017	)		65,111
Cash and cash equivalents, beginning of period		1,428,894			896,164
Cash and cash equivalents, end of period	$	1,111,877		$	961,275

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 March 31, 2007, 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.

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Distributions per limited partnership Unit are calculated using the actual distributions disbursed during the period and the weighted average number of limited partnership Units outstanding during the period. Actual individual limited partner distributions may vary from this calculation as a result of a variety of factors including: (i) actual distributions are computed based on quarterly operating results and outstanding limited partnership units, which are disbursed in the subsequent 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.

Effective November 8, 2004, the limited partners consented to a Plan of Liquidation and Dissolution, which involves the dissolution of the Partnership, the liquidation of its assets and the winding up of its affairs. As a result, the general partner is authorized to liquidate the assets of the Partnership and distribute the net proceeds from such liquidation after the repayment of all debt in accordance with the partnership agreement. The Partnership is undertaking steps to liquidate and dispose of its assets in accordance with the Plan of Liquidation and Dissolution. Effective February 8, 2007, the Partnership has liquidated all of its real assets in accordance with the Plan of Liquidation and Dissolution.

On December 18, 2006, the Partnership entered into a contract to sell the last remaining asset of the Partnership. Effective with the execution of the contract, and in accordance with generally accepted accounting principles, the Partnership adopted the liquidation basis of accounting as of the close of business on December 18, 2006. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts. These estimates are and will be periodically reviewed and adjusted as appropriate. A Statement of Net Assets in Liquidation and a Statement of Changes in Net Assets in Liquidation are the principal financial statements presented under the liquidation basis of accounting. Under the liquidation basis of accounting, the Partnership is required to estimate and accrue the costs associated with implementing and completing the plan of liquidation. These amounts can vary significantly due to, among other things, the timing and amounts associated with the discharging known and contingent liabilities and the costs associated with cessation of the Partnership’s operations including an estimate of costs subsequent to that date (which would include reserve contingencies for the appropriate statutory periods). As a result, the Partnership has accrued the projected costs, including miscellaneous wind-down costs, expected to be incurred during the projected period required to complete the liquidation of the Partnership. These projections could change materially and will be adjusted from time to time as projections and assumptions change.

Under the liquidation basis of accounting, the carrying amounts of the last remaining real estate assets were adjusted to their estimated net realizable values and liabilities, including the estimated costs associated with implementing the liquidation, which were adjusted to estimated settlement amounts. The net realizable value of the remaining assets were based on contract sales price, less costs associated with the sale and closing of the transactions. Cash balances, accounts receivable and accounts payable are presented at face value.

The sales of the remaining two real assets were completed on January 22, 2007 and February 8, 2007. The Partnership made a liquidating distribution in the first quarter of 2007 of approximately $2,000,000 which included proceeds from the 2007 sales. The timing and amount of any additional future final liquidating distribution, if any, will depend on the extent to which reserves for current or future liabilities are required. Accordingly, there can be no assurance that will be any further distributions after the liquidating distribution mentioned above. It is anticipated that the final distribution, if any, of the Partnership will occur by the end of the second quarter of 2007.

Prior to December 18, 2006, the Partnership’s financial statements are presented on the going concern basis of accounting.

The statement of net assets in liquidation (liquidation basis) of the Partnership as of March 31, 2007, the statement of changes in net assets in liquidation (liquidation basis) for the three months

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	ended March 31, 2007, the statement of discontinued operations for the three months ended March 31, 2006 (going concern basis) and the statements of cash flows for the periods ending March 31, 2007 (liquidation basis) and 2006 (going concern basis) 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, 2006 filed with the United States Securities and Exchange Commission on March 29, 2007.
2.	LAND AND BUILDING SUBJECT TO OPERATING LEASES:
	As of March 31, 2007 the Partnership has liquidated all of its land and buildings subject to operating leases.
	Leases
	Real Estate Leases:All of the properties were subject to triple net leases pursuant to which the tenant was responsible for all expenses related to the cost of operating the Properties, including real estate taxes, insurance, maintenance and repair costs. Certain of the leases provided the tenant with one or more options to renew the lease upon expiration of the base term at predetermined or market rental rates.
	The real property located in Riverdale, Georgia was sold on January 22, 2007 for a purchase price of $900,000 pursuant to a contract of sale which was executed on September 12, 2006. There were no debt retirement costs associated with the disposition of this property. In connection with the sale, the Partnership terminated the lease with Blockbuster Entertainment Corp on November 30, 2006.
3.	NET INVESTMENT IN FINANCING LEASES:
	As of March 31, 2007 the Partnership has liquidated all of its net investment in financing leases.
	Net investment in financing leases at December 31, 2006 includes one building used as a retail store that is subject to a long-term ground lease and in prior years included equipment used in restaurant operations which are leased on a triple-net basis. Leases classified as financing leases are stated as the sum of the minimum lease payments plus the unguaranteed residual value accruing to the benefit of the lessor, less unearned income. Unearned income is amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease. Direct origination costs are deferred and amortized over the life of the lease as an adjustment to yield. The Partnership periodically reviews its financing lease portfolio for impairment whenever events or changes in circumstances indicate that the carrying value of a lease may not be recoverable. If impairment is indicated, a loss reserve is calculated based on the estimated amounts recoverable. The lease was sold on February 8, 2007 for a purchase price of $900,000. On December 19, 2006, under the liquidation method of accounting, the Partnership decreased its investment in this financing lease by approximately $108,000, which represented the estimated net loss realized on the sale of this asset in February 2007. Upon final completion of the sale, the Partnership realized approximately $32,200 in excess of the December 19, 2006 estimated proceeds.

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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: under the liquidation basis of accounting, the Partnership is required to estimate and accrue the costs associated with implementing and completing the plan of liquidation. These amounts can vary significantly due to, among other things, the timing and amounts associated with the discharging known and contingent liabilities and the costs associated with cessation of the Partnership’s operations including an estimate of costs subsequent to that date (which would include reserve contingencies for the appropriate statutory periods). As a result, the Partnership has accrued the projected costs, including miscellaneous wind-down costs, expected to be incurred during the projected period required to complete the liquidation of the Partnership. These projections could change materially and will be adjusted from time to time as projections and assumptions change. 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 March 31, 2007

During the three months ended March 31, 2007, net assets in liquidation decreased by approximately $1,913,000. The decrease is due to distributions to limited partners of approximately $2,001,500 in March 2007 offset by a decrease in estimated future liabilities of approximately $8,700 associated with implementing the liquidation of the Partnership, interest income of approximately $29,600, higher proceeds than estimated of approximately $32,200 from the sale of the financing lease, and contract payments of approximately $18,100 on the finance lease prior to sale. Also, during the three months ended March 31, 2007, the Partnership made payments of approximately $65,200 which were applied against its reserve for estimated costs during the liquidation period.

The real property located in Riverdale, Georgia was sold on January 22, 2007 for a purchase price of $900,000 pursuant to a contract of sale which was executed on September 12, 2006. There were no debt retirement costs associated with the disposition of this property. In connection with the sale, the Partnership terminated the lease with Blockbuster Entertainment Corp on November 30, 2006. On December 19, 2006, under the liquidation method of accounting, the Partnership decreased its investment in the property by approximately $3,000, which represented the net loss realized on the sale of this property.

The financing lease located in Plano, Texas was sold on February 8, 2007 for a purchase price of $900,000 pursuant to a contract of sale which was executed on December 18, 2006. On December 19, 2006, under the liquidation method of accounting, the Partnership decreased its investment in this financing lease by approximately $108,000, which represented the estimated net loss realized on the sale of this asset upon sale in February 2007. Upon final completion of the sale, the Partnership realized approximately $32,200 in excess of the December 19, 2006 estimated proceeds.

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Three Months Ended March 31, 2006.

During the three months ended March 31, 2006, total operating revenue was approximately $162,800. Rental revenue from operating leases for the three months ended March 31, 2006 was approximately $133,400. Earned income from financing leases for the three months ended March 31, 2006 was approximately $29,500.

Operating expenses were approximately $96,900 for the three months ended March 31, 2006. In accordance with FAS 144, the Partnership recognized $20,102 in depreciation expense in the quarter ended March 31, 2006 for investment in operating leases. General and administrative expenses were approximately $76,800, primarily professional fees for audit and tax work and third party servicing costs.

Other income for the quarter ended March 31, 2006 was approximately $9,300 due to interest income earned on cash proceeds from the sale of assets.

As a result of the foregoing, the Partnership’s net income was approximately $75,200 for the three months ended March 31, 2006.

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.

Effective November 8, 2004 the limited partners consented to the Plan of Liquidation and Dissolution, which involves the dissolution of the Partnership, the liquidation of its assets and the winding up of its affairs. As a result, the general partner is authorized to liquidate the assets of the Partnership and distribute the net proceeds from such liquidation after the repayment of all debt in accordance with the partnership agreement. The Partnership is undertaking steps to liquidate and dispose of its assets in accordance with the Plan of Liquidation and Dissolution. The sales of the remaining two real assets were completed on January 22, 2007 and February 8, 2007. The Partnership made a liquidating distribution in the first quarter of 2007 of approximately $2,000,000 which included proceeds from the 2007 sales. The timing and amount of any additional future final liquidating distribution, if any, will depend on the extent to which reserves for current or future liabilities are required. Accordingly, there can be no assurance that will be any further distributions after the liquidating distribution mentioned above. It is anticipated that the final distribution, if any, of the Partnership will occur by the end of the second quarter of 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership’s assets at March 31, 2007 consists solely of cash, therefore, no market risk exists.

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:	May 11, 2007

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