Del Taco Income Properties Iv (DTIPIV) 10-Q 2006 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x 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 PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                               .

Commission file no. 33-13437

DEL TACO INCOME PROPERTIES IV

a California limited partnership

(Exact name of registrant as specified in its charter)

California	33-0241855
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
25521 Commercentre Drive, Lake Forest, California	92630
(Address of principal executive offices)	(Zip Code)

(949) 462-9300

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No o

     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 filer o           Accelerated filer o           Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No þ

INDEX

DEL TACO INCOME PROPERTIES IV

	PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at June 30, 2006 (Unaudited) and December 31, 2005		3
Condensed Statements of Income for the three and six months ended June 30, 2006 and 2005 (Unaudited)		4
Condensed Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (Unaudited)		5
Notes to Condensed Financial Statements (Unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures About Market Risk		11
Item 4. Controls and Procedures		12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports		13
SIGNATURE		14
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

-2-

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

DEL TACO INCOME PROPERTIES IV

CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2006			2005
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	131,568		$	150,403
Receivable from Del Taco LLC		38,473			38,934
Deposits		742			400
Total current assets		170,783			189,737
PROPERTY AND EQUIPMENT:
Land and improvements		1,236,700			1,236,700
Buildings and improvements		1,289,860			1,289,860
Machinery and equipment		484,789			484,789
		3,011,349			3,011,349
Less—accumulated depreciation		1,388,134			1,360,500
		1,623,215			1,650,849
	$	1,793,998		$	1,840,586
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners	$	33,395		$	37,993
Accounts payable		8,764			5,923
Total current liabilities		42,159			43,916
OBLIGATION TO GENERAL PARTNER		137,953			137,953
PARTNERS’ EQUITY:
Limited partners; 165,375 units outstanding at June 30, 2006 and December 31, 2005		1,628,880			1,673,263
General partner-Del Taco LLC		(14,994	)		(14,546	)
		1,613,886			1,658,717
	$	1,793,998		$	1,840,586

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
RENTAL REVENUES	$	115,721	$	116,001	$	225,726	$	223,924
EXPENSES:
General and administrative		8,554		9,004		45,489		43,709
Depreciation		13,817		13,817		27,634		27,634
		22,371		22,821		73,123		71,343
Operating income		93,350		93,180		152,603		152,581
OTHER INCOME:
Interest		504		498		1,057		961
Other		100		50		300		275
Net income	$	93,954	$	93,728	$	153,960	$	153,817
Net income per limited partnership unit (note 2)	$	0.56	$	0.56	$	0.92	$	0.92
Number of units used in computing per unit amounts		165,375		165,375		165,375		165,375

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	153,960		$	153,817
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		27,634			27,634
Changes in operating assets and liabilities:
Receivable from Del Taco LLC		461			7,055
Deposits		(342	)		133
Payable to limited partners		(4,598	)		512
Accounts payable		2,841			(1,859	)
Net cash provided by operating activities		179,956			187,292
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners		(198,791	)		(203,673	)
Net decrease in cash		(18,835	)		(16,381	)
Beginning cash balance		150,403			140,285
Ending cash balance	$	131,568		$	123,904

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006

UNAUDITED

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should therefore be read in conjunction with the financial statements and notes thereto contained in the annual report on Form 10-K for the year ended December 31, 2005 for Del Taco Income Properties IV (the Partnership or the Company). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Partnership’s financial position at June 30, 2006, the results of operations for the three and six month periods ended June 30, 2006 and 2005 and cash flows for the six month periods ended June 30, 2006 and 2005 have been included. Operating results for the three and six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT

Net income per limited partnership unit is based on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average number of units outstanding during the periods presented which amounted to 165,375 in 2005 and 2004.

Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to Del Taco LLC, formerly known as Del Taco Inc., (Del Taco or the General Partner) and 99 percent to the limited partners. Partnership gains from any sale or refinancing will be allocated one percent to the General Partner and 99 percent to the limited partners until allocated gains and profits equal losses, distributions and syndication costs, and until each class of limited partners receive their priority return as defined in the partnership agreement. Additional gains will be allocated 12 percent to the General Partner and 88 percent to the limited partners.

NOTE 3 — LEASING ACTIVITIES

The Partnership leases certain properties for operation of restaurants to Del Taco on a triple net basis. The leases are for terms of 32 years commencing with the completion of the restaurant facility located on each property and require monthly rentals equal to 12 percent of the gross sales of the restaurants. The leases terminate in the years 2023 to 2024. There is no minimum rental under any of the leases.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006

UNAUDITED

NOTE 3 — LEASING ACTIVITIES — continued

For the three months ended June 30, 2005, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $570,571 and unaudited net income of $28,056 as compared to $572,983 and $57,227, respectively, for the corresponding period in 2005. Del Taco net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the decrease in net income from the corresponding period of the prior year primarily relates to additional interest expense from the debt that was issued in connection with the acquisition of Del Taco (see Note 7) . For the three months ended June 30, 2006, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $393,771 as compared with $393,693 during the same period in 2005.

For the six months ended June 30, 2006, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,121,248 and unaudited net income of $75,648 as compared to $1,112,442 and $101,393 respectively, for the corresponding period in 2005. Del Taco net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the decrease in net income from the corresponding period of the prior year primarily relates to additional interest expense from the debt that was issued in connection with the acquisition of Del Taco (see Note 7) . For the six months ended June 30, 2006, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $759,802 as compared with $753,594 during the same period in 2005.

NOTE 4 — TRANSACTIONS WITH DEL TACO

The receivable from the Del Taco, Inc. consists primarily of rent accrued for the month of June 2006. The June rent was collected in July 2006.

Del Taco serves in the capacity of general partner in other partnerships which are engaged in the business of operating restaurants, and three other partnerships which were formed for the purpose of acquiring real property in California for construction of Mexican-American restaurants for lease under long-term agreements to Del Taco for operation under the Del Taco trade name.

In addition, see Note 5 with respect to certain distributions to the General Partner.

NOTE 5 — DISTRIBUTIONS

On July 24, 2006, a distribution to the limited partners of $92,241 or approximately $.56 per limited partnership unit, was approved. Such distribution was paid July 31, 2006. The General Partner also received a distribution of $932 with respect to its 1% partnership interest. Total cash distributions made in January and April 2006 were $107,410 and $91,381, respectively.

NOTE 6 — PAYABLE TO LIMITED PARTNERS

Payable to limited partners represents a reclassification from cash for distribution checks made to limited partners that have remained outstanding for 6 months or longer.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006

UNAUDITED

NOTE 7 — ACQUISITION OF GENERAL PARTNER

On January 30, 2006, the parent company of the General Partner entered into an agreement to sell all of its issued and outstanding common stock to Sagittarius Acquisitions II, Inc. the transaction was consummated on March 29, 2006 and is not expected to have any impact on the financial position, results of operations or cash flows of the Partnership.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Del Taco Income Properties IV (the Partnership or the Company) offered limited partnership units for sale between June 1987 and June 1988. $4.135 million was raised through the sale of limited partnership units and used to acquire sites and build three restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (Del Taco or the General Partner) for offering costs incurred. In February of 1992, approximately $442,000 raised during the offering but not required to acquire sites and build restaurants was distributed to the limited partners.

The three restaurants leased to Del Taco make up all of the income producing assets of the Partnership. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, competition, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.

Results of Operations

The Partnership owns three properties that are under long-term lease to Del Taco for restaurant operations (Del Taco, in turn, has sub-leased one of the restaurants to a Del Taco franchisee).

The following table sets forth rental revenue earned by restaurant for the three and six months ended June 30, 2006 and 2005 (unaudited):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Orangethorpe Ave., Placentia, CA	$	45,099	$	44,552	$	88,287	$	86,289
Lakeshore Drive, Lake Elsinore, CA		47,253		47,243		91,176		90,431
Highland Ave., San Bernardino, CA		23,369		24,206		46,263		47,204
Total	$	115,721	$	116,001	$	225,726	$	223,924

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants plus supplemental rent as required by the Partnership agreement. The Partnership earned rental revenue of $115,721 during the three month period ended June 30, 2006, which represents a decrease of $280 from the corresponding period in 2005. The Partnership earned rental revenue of $225,726 during the six month period ended June 30, 2006, which represents an increase of $1,802 from the corresponding period in 2005. The changes in rental revenue between 2006 and 2005 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued

The following table breaks down general and administrative expenses by type of expense:

	Percent of Total
	General & Administrative Expense
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Accounting fees		61.04	%		55.20	%		77.69	%		77.13	%
Distribution of information to limited partners		38.96	%		44.80	%		22.31	%		22.87	%
		100.00	%		100.00	%		100.00	%		100.00	%

General and administrative costs for the three month period ended June 30, 2006 decreased from the corresponding period in the previous year due to decreased printing and distribution of information costs, partially offset by increased audit fees. General and administrative costs for the six month period ended June 30, 2006 increased from the corresponding period in the previous year due to increased audit fees, partially offset by decreased costs for software licensing fees.

For the three month period ended June 30, 2006, net income increased by $226 from 2005 to 2006 due to the decrease in general and administrative expenses of $450, the increase in interest and other income of $56, partially offset by the decrease in revenues of $280. For the six month period ended June 30, 2006, net income increased by $143 from 2005 to 2006 due to an increase in revenues of $1,802, the increase in interest and other income of $121, partially offset by the increase in general and administrative expenses of $1,780.

Recent Accounting Pronouncements

None

Off-Balance Sheet Arrangements

None

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-Q are based upon the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership believes the critical accounting policies that most impact the financial statements are described below. A summary of the significant accounting policies of the Partnership can be found in Note 1 to the Financial Statements which is included in the Partnership’s December 31, 2005 Form 10-K.

Property and Equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives which are 20 years for land improvements, 35 years for buildings and improvements, and 10 years for machinery and equipment.

The partnership accounts for property and equipment in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets.” SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset. Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

None.

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Item 4. Controls and Procedures

     (a) Evaluation of disclosure controls and procedures:

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Treasurer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Treasurer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic Securities and Exchange Commission filings.

     (b) Changes in internal controls:

There were no significant changes in the Company’s internal controls over financial reporting that occurred during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     (c) Asset-Backed issuers:

Not applicable.

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PART II. OTHER INFORMATION

There is no information required to be reported for any items under Part II, except as follows:

Item 6. Exhibits and Reports

(a) Exhibits

31.1	Ronald Powell’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Steven L. Brake’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)	Reports
	None.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DEL TACO INCOME PROPERTIES IV
	(a California limited partnership)
	Registrant
	Del Taco LLC
	General Partner
Date: August 11, 2006	/s/ Steven L. Brake
	Steven L. Brake
	Treasurer

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Exhibit Index

Exhibits	Description
31.1	Ronald Powell’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Steven L. Brake’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002