UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-53667

LEAF EQUIPMENT FINANCE FUND 4, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		61-1552209
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

110 South Poplar Street, Suite 101, Wilmington Delaware 19801

(Address of principal executive offices) (Zip Code)

(800) 819-5556

(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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller Reporting Company	x

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

There is no public market for the Registrant’s securities.

LEAF EQUIPMENT FINANCE FUND 4, L.P.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

PART I	FINANCIAL INFORMATION	PAGE
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets – June 30, 2014 (Unaudited) and December 31, 2013	3
	Consolidated Statements of Operations – Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)	4
	Consolidated Statement of Changes in Partners’ (Deficit) Capital – Six Months Ended June 30, 2014 (Unaudited)	5
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2014 and 2013 (Unaudited)	6
	Notes to Consolidated Financial Statements – June 30, 2014 (Unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4.	Controls and Procedures	22

PART II	OTHER INFORMATION	23
ITEM 6.	Exhibits	23

SIGNATURES		24

Index

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

	June 30, 2014			December 31, 2013
	(Unaudited)
ASSETS
Cash	$	200		$	229
Restricted cash		1,008			8,147
Investment in leases and loans, net		14,937			32,494
Deferred financing costs, net		286			625
Other assets		113			50
Total assets	$	16,544		$	41,545

LIABILITIES AND PARTNERS’ (DEFICIT) CAPITAL
Liabilities:
Accounts payable, accrued expenses, and other liabilities	$	826		$	1,052
Due to affiliates		3,837			6,284
Debt		9,083			25,870
Subordinated notes payable		9,295			9,295
Total liabilities		23,041			42,501

Commitments and contingencies (Note 10)

Partners’ (Deficit) Capital:
General partner		(1,164	)		(1,110	)
Limited partners		(5,303	)		67
Total partners' deficit		(6,467	)		(1,043	)
Noncontrolling interest		(30	)		87
Total deficit		(6,497	)		(956	)
Total liabilities and deficit	$	16,544		$	41,545

The accompanying notes are an integral part of these consolidated financial statements.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues:
Interest on equipment financings	$	345		$	1,284		$	913		$	2,813
Rental income		26			126			64			281
Gains on sales of equipment and lease dispositions, net		68			198			173			348
Gain on extinguishment of subordinated note payable		–			16			–			16
Other income		69			108			157			246
		508			1,732			1,307			3,704

Expenses:
Interest expense		738			1,809			2,268			3,843
Depreciation on operating leases		12			54			25			102
Provision for credit losses		660			1,407			2,070			2,206
General and administrative expenses		200			228			480			500
Administrative expenses reimbursed to affiliate		26			147			96			329
		1,636			3,645			4,939			6,980
Net loss		(1,128	)		(1,913	)		(3,632	)		(3,276	)
Add: Net loss attributable to the noncontrolling interest		11			42			117			143
Net loss attributable to LEAF 4 partners	$	(1,117	)	$	(1,871	)	$	(3,515	)	$	(3,133	)
Net loss allocated to LEAF 4's limited partners	$	(1,106	)	$	(1,852	)	$	(3,480	)	$	(3,102	)
Weighted average number of limited partner units outstanding during the period		1,259,537			1,259,537			1,259,537			1,259,537
Net loss per weighted average limited partner unit	$	(0.88	)	$	(1.47	)	$	(2.76	)	$	(2.46	)

The accompanying notes are an integral part of these consolidated financial statements.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Statement of Changes in Partners’ (Deficit) Capital

(In thousands, except unit data)

(Unaudited)

	General								Total			Non-
	Partner			Limited Partners					Partners’			Controlling			Total
	Amount			Units		Amount			Deficit			Interest			Deficit
Balance, at January 1, 2014	$	(1,110	)		1,259,537	$	67		$	(1,043	)	$	87		$	(956	)
Cash distributions paid		(19	)		-		(1,890	)		(1,909	)		-			(1,909	)
Net loss		(35	)		-		(3,480	)		(3,515	)		(117	)		(3,632	)
Balance, June 30, 2014	$	(1,164	)		1,259,537	$	(5,303	)	$	(6,467	)	$	(30	)	$	(6,497	)

The accompanying notes are an integral part of this consolidated financial statement.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(3,632	)	$	(3,276	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation on operating leases		25			102
Amortization of original issue discount on debt		780			1,031
Amortization of deferred charges		613			948
Provision for credit losses		2,070			2,206
Gains on sales of equipment and lease dispositions, net		(173	)		(348	)
Gain on extinguishment of subordinated note payable		–			(16	)
Changes in operating assets and liabilities:
Other assets		(63	)		–
Accounts payable, accrued expenses, and other liabilities		(226	)		(467	)
Due to affiliates		(2,447	)		1,357
Net cash (used in) provided by operating activities		(3,053	)		1,537

Cash flows from investing activities:
Proceeds from leases and loans		15,783			28,287
Purchases of leases and loans		(143	)		–
Security deposits returned, net of collections		(279	)		(324	)
Net cash provided by investing activities		15,361			27,963

Cash flows from financing activities:
Decrease in restricted cash		7,139			1,494
Repayment of debt		(17,567	)		(28,185	)
Cash distributions to partners		(1,909	)		(2,546	)
Increase in deferred financing costs		–			(20	)
Redemption of subordinated note payable		–			(44	)
Net cash used in financing activities		(12,337	)		(29,301	)

(Decrease) increase in cash		(29	)		199
Cash, beginning of period		229			38
Cash, end of period	$	200		$	237

Cash paid for interest	$	901		$	1,895

The accompanying notes are an integral part of these consolidated financial statements.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

LEAF Equipment Finance Fund 4, L.P. (“LEAF 4” or the “Fund”), a Delaware limited partnership, was formed on January 25, 2008 by its general partner, LEAF Asset Management, LLC (the “General Partner”), which manages the Fund. The General Partner is a Delaware limited liability company and a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of October 30, 2009, the Fund raised $125.7 million by selling 1.3 million of its limited partner units. It commenced operations in September 2008.

The Fund is expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent maturity period of two years, during which the Fund’s leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the maturity period, the Fund expects to continue to return capital to its partners as those leases and loans mature. All of the Fund’s leases and loans mature by the end of 2032. The Fund expects to enter its maturity period beginning in October 2014. Contractually, the Fund will terminate on December 31, 2032, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement (the “Partnership Agreement”).

The Fund acquires diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily an affiliate of its General Partner. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.

In addition to its 1% general partnership interest, the General Partner has also invested $1.0 million for a 0.85% limited partnership interest in the Fund.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiary LEAF Receivables Funding 4, LLC. The consolidated financial statements also include LEAF Funds Joint Venture 2, LLC (“LEAF Funds JV2”) and its subsidiaries LEAF Commercial Finance Fund, LLC (LCFF) and LEAF Receivables Funding 6, LLC, as well as LEAF Funding, LLC (“LEAF Funds JV1”) and its wholly owned subsidiaries LEAF Capital Funding III, LLC and LEAF Receivables Funding II, LLC. The Fund maintains a 98%, and 96% ownership interest in LEAF Funds JV2 and LEAF Funds JV1, respectively. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited financial statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Fund’s financial position as of June 30, 2014, and the results of its operations and cash flows for the periods presented. The results of operations for the three and six month periods ended June 30, 2014 are not necessarily indicative of results of the Fund’s operations for the entire fiscal year. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with the Fund’s financial statements and notes thereto presented in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on May 16, 2014.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for credit losses and the estimated unguaranteed residual values of leased equipment, among others. The Fund bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements - (Continued)

June 30, 2014

(Unaudited)

Investments in Commercial Finance Assets

The Fund’s investments in commercial finance assets consist of direct financing leases, operating leases, and loans.

Direct Financing Leases. Certain of the Fund’s lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. The Fund’s investment in direct financing leases consists of the sum of the total future minimum lease payments receivable and the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments plus the estimated unguaranteed residual value expected to be realized at the end of the lease term over the cost of the related equipment.

Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate disposition of the leased equipment. The estimates of residual values are based upon the General Partner’s history with regard to the realization of residuals, available industry data and the General Partner’s senior management’s experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the equipment’s fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.

Operating Leases. Leases not meeting the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis.

Generally, during the lease terms of existing operating leases, the Fund will not recover all of the cost and related expenses of its rental equipment and, therefore, it is prepared to remarket the equipment in future years. The Fund’s policy is to review, on a quarterly basis, the expected economic life of its rental equipment in order to determine the recoverability of its undepreciated cost. The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.

Loans. For term loans, the investment in loans consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted loan payments over the cost of the loan. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.

Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management’s historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance of the Fund’s leases and loans, the Fund performs a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off unless individually reviewed for impairment. In an individual review for impairment the Fund considers the loans performance, probability of repayment, and general and local economic conditions when assessing whether impairment is necessary. Substantially all of the Fund’s leases and loans evaluated for impairment on an individual basis include an analysis of the market values of underlying collateral values, as adjusted for estimated selling and other closing costs. After an account becomes 180 or more days past due, any remaining balance is fully-reserved less an estimated recovery amount. Generally, past due accounts are referred to our internal recovery group consisting of a team of credit specialists and collectors. The group utilizes several resources in an attempt to maximize recoveries on charged-off accounts including: 1) initiating litigation against the end user customer and any personal guarantor, 2) referring the account to an outside law firm or collection agency and/or 3) repossessing and remarketing the equipment or other assets through third parties.

The Fund’s policy is to charge off to the allowance those financings which are in default and for which it is probable management will be unable to collect all amounts contractually owed. The Fund discontinues the recognition of revenue for leases and loans for which payments are more than 90 days past due. Payments received while leases and loans are on non-accrual status are recorded as a reduction of principal. Generally income recognition resumes when a lease or loan becomes less than 90 days delinquent, unless certain factors specific to those leases or loans continue to raise concerns as to future collectability.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements - (Continued)

June 30, 2014

(Unaudited)

Concentration of Credit Risk

As of June 30, 2014, 16% and 12% of the Fund’s leases and loans, based on the dollar amount of the blended net investment in leases and loans, were located in New York and California, respectively. No other state accounted for more than 10% of the Fund’s leases and loans as of June 30, 2014. Also, as of June 30, 2014, 53%, 21%, and 11% of the Fund’s leases and loans were in the services, retail trade, and finance/insurance/real estate types of business, respectively. No other type of business accounted for more than 10% of the Fund’s leases and loans as of June 30, 2014. In addition, no individual end user accounted for more than 10% of the Fund’s leases and loans as of June 30, 2014.

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others. The Fund recognizes late fee income as fees are collected. Late fee income was $58,000 and $142,000, respectively, for the three and six month periods ended June 30, 2014, and was $98,000 and $219,000, respectively, for the three and six month periods ending June 30, 2013.

NOTE 3 – INVESTMENT IN LEASES AND LOANS

The Fund’s investment in leases and loans, net, consists of the following (in thousands):

	June 30,			December 31,
	2014			2013
Direct financing leases ⁽¹⁾	$	2,180		$	6,908
Loans ⁽²⁾		13,125			33,531
Operating leases		22			105
		15,327			40,544
Allowance for credit losses		(390	)		(8,050	)
	$	14,937		$	32,494

(1)

The Fund’s direct financing leases are for initial lease terms generally ranging from 24 to 180 months.

(2)

The interest rates on loans generally range from 5% to 18%.

The components of direct financing leases and loans are as follows (in thousands):

	June 30, 2014						December 31, 2013
	Leases			Loans			Leases			Loans
Total future minimum lease payments	$	1,517		$	14,690		$	5,620		$	35,227
Unearned income		(186	)		(1,392	)		(303	)		(1,295	)
Residuals, net of unearned residual income		893			-			1,676			-
Security deposits		(44	)		(173	)		(85	)		(401	)
	$	2,180		$	13,125		$	6,908		$	33,531

The Fund’s investment in operating leases consists of the following (in thousands):

	June 30, 2014			December 31, 2013
Equipment	$	290		$	1,487
Accumulated depreciation		(268	)		(1,382	)
	$	22		$	105

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements - (Continued)

June 30, 2014

(Unaudited)

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The following table is an age analysis of the Fund’s receivables from leases and loans (presented gross of allowance for credit losses of $390,000 and $8.1 million) as of June 30, 2014 and December 31, 2013, respectively (in thousands):

	June 30, 2014					December 31, 2013
Age of receivable	Investment in leases and loans		%			Investment in leases and loans		%
Current ^(a)	$	14,364		94	%	$	38,339		95	%
Delinquent:
31 to 91 days past due		512		3	%		1,351		3	%
Greater than 91 days		451		3	%		854		2	%
	$	15,327		100	%	$	40,544		100	%

(a)

Included in this category are approximately $629,000 and $8.378 million as of June 30, 2014 and December 31, 2013, respectively, of certain loans which are systematically current but are on the cost recovery method due to continued uncertainty as to collectability of future payments. This secured loan obligation totals $629,000. The obligor of this loan is another finance company that is no longer operating. Collateral for the loan is a pool of loans to construction companies and developers. The Fund has been in the process of monetizing the underlying collateral for the loan via sale. The Fund has written the loan down to the net realizable value of the underlying collateral.

The Fund had $1.1 million and $9.2 million of leases and loans on nonaccrual status as of June 30, 2014 and December 31, 2013, respectively. The credit quality of the Fund’s investment in leases and loans as of June 30, 2014 and December 31, 2013 are as follows (in thousands):

	June 30, 2014		December 31, 2013
Performing	$	14,247	$	31,312
Nonperforming		1,080		9,232
	$	15,327	$	40,544

The Company’s investment in non-performing leases and loans as of June 30, 2014 and December 31, 2013 were collectively evaluated for impairment, except for certain asset backed loans that were individually evaluated for impairment (see above for more information). The following table summarizes the activity in the allowance for credit losses (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Allowance for credit losses, beginning of period	$	8,130		$	6,420		$	8,050		$	8,920
Provision for credit losses		660			1,407			2,070			2,206
Charge-offs		(8,654	)		(1,534	)		(10,105	)		(5,245	)
Recoveries		254			127			375			539
Allowance for credit losses end of period	$	390		$	6,420		$	390		$	6,420

Allowance for credit losses:
Ending balance, individually evaluated for impairment	$	–		$	5,530		$	–		$	5,530
Ending balance, collectively evaluated for impairment		390			890			390			890
Balance, end of year	$	390		$	6,420		$	390		$	6,420

Recorded investment in leases and term loans:^(b)
Ending balance, individually evaluated for impairment	$	629		$	9,237		$	629		$	9,237
Ending balance, collectively evaluated for impairment		14,698			52,030			14,698			52,030
Balance, end of year	$	15,327		$	61,267		$	15,327		$	61,267

(b)	Due to a 2012 adjustment, the investment in leases and loans was restated and reduced by $4.0 million from the previously reported amounts for the three and six months ended June 30, 2013.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements - (Continued)

June 30, 2014

(Unaudited)

NOTE 5 – DEFERRED FINANCING COSTS

As of June 30, 2014 and December 31, 2013, deferred financing costs include $286,000 and $625,000, respectively, of unamortized deferred financing costs which are being amortized over the terms of the estimated life of the related debt. Accumulated amortization as of June 30, 2014 and December 31, 2013 was $2.4 million, and $5.2 million, respectively.

NOTE 6 –DEBT

The Fund’s debt consists of the following (in thousands):

						December 31,
	June 30, 2014					2013
	Type	Outstanding Balance ⁽¹⁾			Interest rate per annum	Outstanding Balance
2010-1 Term Securitization	Term	$	–		5.0%	$	3,311
2010-3 Term Securitization	Term		–		3.5% to 5.5%		10,766
2011-1 Term Securitization	Term		9,749		1.7% to 5.5%		13,239
		$	9,749			$	27,316
Less: Unamortized Original Issue Discount			(666	)			(1,446	)
		$	9,083			$	25,870

(1)

These borrowings are collateralized by specific leases and loans and restricted cash. As of June 30, 2014, $8.8 million of leases and loans and $628,000 of restricted cash were pledged as collateral under the Fund’s term securitizations. Recourse under these securitizations is limited to the amount of collateral pledged.

Series 2010-1 Term Securitization. In May 2010, three classes of asset-backed notes were issued (The “2010-1 Term Securitization”), one with an original maturity date of October 2016 and two with an original maturity date of September 2018, respectively. The asset-backed notes totaled $92.7 million, bore interest at a fixed stated rate of 5%, and were issued at an original discount of $6.5 million.

Series 2010-3 Term Securitization. In August 2010, five classes of asset-backed notes were issued (The “2010-3 Term Securitization”), one with an original maturity date of June 2016 and four with an original maturity date of February 2022, respectively. The asset-backed notes totaled $171.4 million, bore interest at fixed stated rates ranging from 3.5% to 5.5%, and were issued at an original discount of $3.7 million.

In April 2014, the Company sold a pool of leases with a net investment of approximately $5.7 million to a third party for proceeds totaling approximately $5.9 million. A portion of the proceeds from the sale were used to pay off in full the 2010-1 and 2010-3 Term Securitizations.

Series 2011-1 Term Securitization. In January 2011, a previous lender was paid-off with the proceeds from the 2011-1 Term Securitization (The “2011-1 Term Securitization”) in which six classes of asset-backed notes were issued that have varying maturity dates ranging from December 2018 to December 2023. The asset-backed notes totaled $96.0 million and bear interest at fixed, stated rates ranging from 1.7% to 5.5% and were issued at an original discount of approximately $6.2 million.

Covenants: The Fund’s securitization is serviced by an affiliate of the Fund’s General Partner (the “Servicer”). If the Servicer of the Fund’s portfolio does not comply with certain requirements, the noteholders have the right to replace the Servicer. The Fund is not, nor has been, delinquent on any payments owed to the noteholders. The servicing agreement was amended to increase the cumulative net loss percentage as the portfolio has exceeded the allowed cumulative net loss amount. In addition, the servicing agreement and the indenture on this facility was amended to establish an additional reserve account to be funded by cash flows on leases and loans that will be used by the trustee as additional collateral. These events do not constitute events of default. The portfolio has not been in compliance with the cumulative net loss percentage trigger level on the 2011-1 term securitization since October 31, 2013, of which the trustee, rating agency, and investors are aware.

Index

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements - (Continued)

June 30, 2014

(Unaudited)

Debt Repayments: Excluding $666,000 of remaining unamortized discount on the term securitizations, estimated annual principal payments on the Fund’s aggregate borrowings over the next five annual periods ended June 30, and thereafter, are as follows (in thousands):

June 30, 2015	$	3,901
June 30, 2016		2,389
June 30, 2017		2,217
June 30, 2018		489
June 30, 2019		433
Thereafter		320
	$	9,749

NOTE 7 – SUBORDINATED NOTES PAYABLE

LCFF has $9.3 million of 8.25% secured subordinated promissory notes (the “Notes”) outstanding, which are recourse to LCFF only. The Notes were issued to private investors and require interest only payments until their maturity in February 2015. LCFF may call or redeem the Notes, in whole or in part, at any time during the interest only period.

Covenants: The Notes are subject to various covenants as set forth in their indenture, including an interest coverage ratio test which LCFF is not in compliance with. LCFF notified the Trustee and noteholders of this breach. As a result, the noteholders have the right to declare an event of default, which to date has not occurred. If the noteholders would declare an event of default they have various rights and remedies available to them including (1) the right to declare all amounts currently outstanding under the Notes as immediately due and payable; (2) the right to take immediate possession of the assets of LCFF; and (3) the right to sell or otherwise dispose of the assets of LCFF in their current condition. If the noteholders choose to repossess and sell LCFF’s assets, such a sale of a portfolio could be at prices lower than its carrying value, which could result in losses to the Fund.

Notwithstanding the foregoing, LCFF is not, nor has been, delinquent on any payments of interest owed to the noteholders.

NOTE 8 – FAIR VALUE MEASUREMENT

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (exit price). U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

•

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 – Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

•

Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

There were no assets or liabilities measured at fair value at June 30, 2014 or December 31, 2013.

The Fund is also required to disclose the fair value of financial instruments not measured at fair value for which it is practicable to estimate that value. For cash, restricted cash, receivables, and payables, the carrying amounts approximate fair value because of the short term maturity of these instruments.

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LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements - (Continued)

June 30, 2014

(Unaudited)

The methods used to estimate the fair value on bank debt that is not measured at fair value, the level within the fair value hierarchy that those fair value measurements are categorized, and the carrying value and fair value of the Fund’s debt at June 30, 2014 and December 31, 2013 is as follows:

			Fair Value Measurements Using						Liabilities
	Carrying Value		Level 1		Level 2		Level 3		At Fair Value
Debt, at June 30, 2014	$	9,083	$	−	$	7,086	$	−	$	7,086
Debt, at December 31, 2013	$	25,870	$	−	$	24,094	$	−	$	24,094

The fair value of the debt was determined using quoted prices obtained from a broker-dealer as of the measurement date.

NOTE 9 – CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

The Fund relies on the General Partner and its affiliates to manage the Fund’s operations and pays the General Partner or its affiliates fees to manage the Fund in accordance with the Partnership Agreement. The following is a summary of fees and costs of services and materials charged by the General Partner or its affiliates (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Administrative expenses	$	26	$	147	$	96	$	329

Administrative Expenses. The General Partner and its affiliates are reimbursed by the Fund for administrative services reasonably necessary to operate the Fund which do not exceed the General Partner’s actual cost of those services.

Management Fees. The General Partner has waived management fees since August 2010. The General Partner has waived management fees of approximately $199,000 and $342,000 for the three and six month periods ended June 30, 2014, respectively, and $7.7 million have been waived on a cumulative basis.

Due to Affiliates. Due to affiliates includes amounts owed to the General Partner and its affiliates for various items such as management fees, expense reimbursements, and the acquisition and management of equipment portfolios. These amounts are expected to be repaid once the necessary funds are available.

Distributions. The General Partner owns a 1% general partner interest and 0.85% limited partner interest in the Fund. The General Partner was paid cash distributions of $19,000 and $16,000 for its general partner and limited partner interests, respectively, for the six months ended June 30, 2014 and $27,000 and $22,000 for its general partner and limited partner interests, respectively, for the six months ended June 30, 2013.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

The Fund is party to various routine legal proceedings arising out of the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Fund’s financial condition or results of operations.

NOTE 11 – SUBSEQUENT EVENTS

The Fund has evaluated its June 30, 2014 financial statements for subsequent events through the date the financial statements were issued. The Fund is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When used in this Form 10-Q, the words “believes,” “anticipates,” “expects,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in other documents filed with the Securities and Exchange Commission. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

The following discussion provides an analysis of our operating results, an overview of our liquidity and capital resources and other items related to us. The following discussion and analysis should be read in conjunction with (i) the accompanying interim financial statements and related notes and (ii) our consolidated financial statements, related notes, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2013.

As used herein, the terms “we,” “us,” or “our” refer to LEAF Equipment Finance Fund 4, L.P. and its subsidiaries.

Business

We are a Delaware limited partnership formed on January 25, 2008 by our general partner, LEAF Asset Management, LLC (the “General Partner”), which, along with its affiliates, manages us. Our General Partner is a Delaware limited liability company and a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Our offering period began on August 12, 2008. Through our offering termination date of October 30, 2009, we raised $125.7 million by selling 1.2 million of our limited partner units. We commenced operations in September 2008.

We expect to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a subsequent maturity period of two years, during which our leases and secured loans will either mature or be sold. In the event we are unable to sell our leases and loans during the maturity period, we expect to continue to return capital to our partners as those leases and loans mature. All of our leases and loans mature by the end of 2032. We expect to enter our maturity period beginning in October 2014. We will terminate on December 31, 2032, unless sooner dissolved or terminated as provided in the Partnership Agreement.

We acquire a diversified portfolio of new, used or reconditioned equipment that we lease to third parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from LEAF Financial Corporation (“LEAF Financial”), an affiliate of our General Partner and also a subsidiary of RAI. In addition, we may make secured loans to end users to finance their purchase of equipment. We attempt to structure our secured loans so that, in an economic sense, there is no difference to us between a secured loan and a full payout equipment lease. We also invest in equipment, leases and secured loans through joint venture arrangements with our General Partner’s affiliated investment programs. We finance business essential equipment including, but not limited to, computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on the small to mid-size business market, which generally includes businesses with:

500 or fewer employees;

$1.0 billion or less in total assets;

Or $100.0 million or less in total annual sales.

To date, limited partners have received total distributions ranging from approximately 21% to 30% of their original amount invested, depending upon when the investment was made. As the cash flows and liquidity of the Fund could no longer support a 4% monthly distribution, beginning with the February 2014 distribution, received in March, monthly distributions were reduced to 3%. Also, the April and May 2014 distributions, received in May and June respectively, were lowered to 2%. Distributions for June 2014, received and July, and beyond will be lowered to 1% and continue for as long as the Fund can support them. However, management is working to maximize the amount that can be distributed to limited partners in the future. Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors, which include lease and loan defaults by our customers, accelerated principal payments on our debt facilities required per our agreements, and prevailing economic conditions. In order to reduce our ongoing cash requirements, the General Partner has waived management fees since August 2010.

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General Economic Overview

For the quarter ended June 30, 2014, U.S. economic activity showed overall slow but steady growth in many sectors of the economy especially in the small business sector. The severe weather experienced in the first quarter of 2014 has had a lagging effect on economic performance but there are signs of a rebound in the second quarter 2014 performance. With no changes in monetary policy from the Federal Reserve, and no legislative initiatives expected from the Congress until after the November 2014 election, the economy is expected to continue to grow at a slow pace through the remainder of 2014 barring international shocks from the Ukraine crisis, Iraq or similar events. Some specific key economic indicators and reports that were released in the second quarter of 2014 that have specific relevance for small to medium size business performance are summarized below. The indicators show overall positive trends. These indicators have especially important relevance to us as loans and leases to small to medium size businesses comprise the majority of our portfolio.

The Monthly Confidence Index reported by The Equipment Leasing & Finance Foundation for June 2014 was 61.4; down from 65.1 at the March 2014 report (over 50 is considered positive). The Monthly Confidence Index measures lease and finance company executive sentiment with respect to availability of capital, plans on hiring, and overall U.S. economic trends. While down slightly from the prior report the Index reflected the sentiment of the majority of the executives that business conditions will remain the same or improve over the next four months.

The National Association of Realtors reported in June 2014 that home prices increased in most of the country and were 5.1% higher than prior year levels. Additionally existing home sales rose 4.9% at an annual rate as compared to the prior month. These are important economic indicators because rising home prices generally contribute to an improvement in consumer sentiment which can drive consumer spending, the most important driver of economic growth.

On July 1, 2014 the Thomson Reuters/PayNet Small Business Lending Index which measures the volume of lending to small businesses showed an increase of 12 % as compared to the prior year period. Commentary in the report stated “The index has risen at double digit rates for three consecutive months signaling growing confidence among small companies and further GDP growth.”

The National Federation of Independent Business reported that its Small Business Optimism Index increased to 96.6 in June 2014. This is the highest level since September 2007 approaching the onset of the Great Recession. The Index measures ten different items including small business sentiment about business expansion, hiring, and sales trends.

The National Association of Credit Management Index (“CMI”) for June 2014 measured 56.1 which was higher than the 55.6 for the last quarter end but down from 56.8 in May 2014 (any number over 50 shows an economy in expansion). The factors comprising the CMI include activities like credit extended, credit approval rates, delinquencies and bankruptcies. The recent CMI numbers suggest a still sluggish but slowly growing economy. The CMI has remained over 50 for more than a year and CMI Index also noted an expansion in credit extended to business.

The June 2014 Institute of Supply Management reported its PMI Index on the manufacturing sector showed continued expansion, and the June 2014 PMI index of 53.7 (any number over 50 indicates growth) was at its highest level since May 2010.

The 2014 Equipment Leasing & Finance Foundation’s U.S. Economic Outlook update released in early July 2014 reported that the U.S. investment in equipment and software is expected to grow 2.6% in 2014 which is down from an initial forecast of 2.8% as a result of the sluggish first quarter weather related performance.

Taken altogether, these indicators point to an economy that is continuing to grow steadily but slowly which is positive for the small to medium size businesses that comprise the majority of our portfolio.

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Finance Receivables and Asset Quality

Information about our portfolio of commercial finance assets is as follows (dollars in thousands):

	June 30, 2014			December 31, 2013
Investment in leases and loans, net	$	14,937		$	32,494
Number of contracts		2,400			4,500
Number of individual end users ⁽¹⁾		2,200			4,100
Average original equipment cost	$	79.6		$	63.0
Average initial lease term (in months)		54			59
Average remaining lease term (in months)		18			16

States accounting for more than 10% of lease and loan portfolio:
New York		16	%		29	%
California		12	%		9	%

Types of assets accounting for more than 10% of lease and loan portfolio:
Medical equipment		42	%		28	%
Restaurant equipment		17	%		15	%
Asset-backed secured loans		6	%		24	%

Types of businesses accounting for more than 10% of lease and loan portfolio:
Services		53	%		42	%
Retail trade		21	%		17	%
Finance/Insurance/Real Estate		11	%		28	%

(1)

Located in the 50 states as well as the District of Columbia and Puerto Rico. No individual end user accounted for more than 5% of our portfolio.

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Portfolio Performance

The table below provides information about our commercial finance assets including non-performing assets, which are those assets that are not accruing income due to non-performance or impairment (dollars in thousands):

	As of and for the
	Six Months Ended June 30,
							Change
	2014			2013			$			%
				(restated)^(a)

Investment in leases and loans before allowance for credit losses	$	15,327		$	61,267		$	(45,940	)		(75	)%
Less: allowance for credit losses		(390	)		(6,420	)		6,030			(94	)%
Investment in leases and loans, net	$	14,937		$	54,847		$	(39,910	)		(73	)%

Weighted average investment in direct financing leases and loans before allowance for credit losses	$	31,007		$	76,132		$	(45,125	)		(59	)%
Non-performing assets	$	1,080		$	10,702		$	(9,622	)		(90	)%
Charge-offs, net of recoveries	$	9,730		$	4,706		$	5,024			107	%

As a percentage of finance receivables:
Allowance for credit losses		2.54	%		10.48	%
Non-performing assets		7.05	%		17.47	%

As a percentage of weighted average finance receivables:
Charge-offs, net of recoveries		31.38	%		6.18	%

(a)

Due to an adjustment to increase the provision for credit losses and reduce the investment in leases and loans and equity by $4.0 million, the gross and net investment in leases and loans, weighted average investment in direct financing leases and loans, and non-performing assets changed from the previously filed $65.2 million, $58.8 million, $80.1 million, and $14.7 million, respectively, which changed the previously filed percentages from 9.84%, 22.53%, and 1.76%, respectively.

Our allowance for credit losses is our estimate of losses inherent in our commercial finance receivables at the current time. The allowance is based on factors which include our historical loss experience on equipment finance portfolios we manage, an analysis of contractual delinquencies, current economic conditions and trends and equipment finance portfolio characteristics, adjusted for recoveries. In evaluating historic performance of our leases and loans, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off unless individually reviewed for impairment. In an individual review for impairment we consider the loans performance, probability of repayment, and general and local economic conditions when assessing whether impairment is necessary. Substantially all of our leases and loans evaluated for impairment on an individual basis include an analysis of the market values of underlying collateral values, as adjusted for estimated selling and other closing costs. Our policy is to charge-off to the allowance those financings for which it is probable management will be unable to collect all amounts contractually owed. Substantially all of our assets are collateral for our debt, and therefore, significantly greater delinquencies than anticipated will have an adverse impact on our cash flow and distributions to our partners.

We focus on financing equipment used by small to mid-sized businesses. The lingering effects of the recent economic recession in the U.S. has adversely affected our operations in the form of higher charge-offs, net of recoveries. These increased primarily due to certain non-performing loans that were written off because of continued uncertainty as to future collectability. These loans were systematically current, but were on the cost recovery method due to collectability concerns. Included in the non-performing assets is one secured loan obligation totaling $629,000. The obligor of this loan is another finance company that is no longer operating. Collateral for the loan is a pool of loans to construction companies and developers. The Fund has been in the process of monetizing the underlying collateral for the loan via sale. The Fund has written the loan down to the net realizable value of the underlying collateral. However, due to the shrinking size of the portfolio, the investment in leases and loans, allowance for credit losses, and non-performing assets all decreased from the same period in the prior year.

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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, including the allowance for credit losses and the estimated unguaranteed residual values of leased equipment, among others. We base our estimates on historical experience, current economic conditions and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a complete discussion of our critical accounting policies and estimates, see our annual report on Form 10-K for fiscal 2013 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.” There have been no material changes to these policies through June 30, 2014.

Results of Operations

As discussed previously, the lingering effects of the recent economic recession has negatively impacted our operating results primarily through increased rates of default on outstanding leases and loans and increased costs of borrowing from our lenders. These factors have resulted in our inability to reinvest earnings in additional leases and loans, leading to a decrease in our portfolio balance and a reduction in cash generated to continue to support distributions to our limited partners.

Three months ended June 30, 2014 compared to three months ended June 30, 2013 (dollars in thousands):

							Increase (Decrease)
	2014			2013			$			%
Revenues:
Interest on equipment financings	$	345		$	1,284		$	(939	)	(73	)%
Rental income		26			126			(100	)	(79	)%
Gains on sales of equipment and lease dispositions, net		68			198			(130	)	(66	)%
Gain on extinguishment of subordinated note payable		–			16			(16	)	(100	)%
Other income		69			108			(39	)	(36	)%
		508			1,732			(1,224	)	(71	)%
Expenses:
Interest expense		738			1,809			(1,071	)	(59	)%
Depreciation on operating leases		12			54			(42	)	(78	)%
Provision for credit losses		660			1,407			(747	)	(53	)%
General and administrative expenses		200			228			(28	)	(12	)%
Administrative expenses reimbursed to affiliate		26			147			(121	)	(82	)%
		1,636			3,645			(2,009	)	(55	)%
Net loss		(1,128	)		(1,913	)		785
Add: Net loss attributable to the noncontrolling interest		11			42			(31	)
Net loss attributable to LEAF 4 partners	$	(1,117	)	$	(1,871	)	$	754
Net loss allocated to LEAF 4's limited partners	$	(1,106	)	$	(1,852	)	$	746

The decrease in total revenues was primarily attributable to the following:

A decrease in interest on equipment financings and rental income. Our weighted average net investment in financing assets decreased to $25.7 million for the three months ended June 30, 2014 as compared to $71.0 million for the three months ended June 30, 2013, a decrease of $45.3 million or 64%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.

Gains on sales of equipment and lease dispositions decreased $130,000 to $68,000 for the three months ended June 30, 2014 compared to a gain of $198,000 for the three months ended June 30, 2013. Gains and losses on sales of equipment may vary significantly from period to period.

Other income decreased $39,000 from $108,000 at June 30, 2013 to $69,000 at June 30, 2014. The decrease is primarily due to a reduction in late fee income which is a result of the decrease in our portfolio.

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The decrease in total expenses was primarily a result of the following:

A decrease in interest due to a decrease in our average debt outstanding. Average borrowings for the three months ended June 30, 2014 and 2013 were $12.2 million and $52.4 million, respectively. The interest expense reduction was primarily driven by the reduction in the size of our portfolio of leases and loans.

A decrease in depreciation on operating leases due to a decrease in the size of our portfolio.

A decrease in our provision for credit losses principally reflects the decrease in our equipment financing portfolio and the diminishing impact of the recession.

A decrease in general and administrative expenses and administrative expenses reimbursed to affiliates due to the reduction in the size of our portfolio.

The net loss per limited partner unit, after the net loss allocated to our General Partner, for the three months ended June 30, 2014 and 2013 was $0.88 and $1.47, respectively, based on a weighted average number of limited partner units outstanding of 1,259,537 each period.

Six months ended June 30, 2014 compared to six months ended June 30, 2013 (dollars in thousands):

							Increase (Decrease)
	2014			2013			$			%
Revenues:
Interest on equipment financings	$	913		$	2,813		$	(1,900	)	(68	)%
Rental income		64			281			(217	)	(77	)%
Gains on sales of equipment and lease dispositions, net		173			348			(175	)	(50	)%
Gain on extinguishment of subordinated note payable		–			16			(16	)	(100	)%
Other income		157			246			(89	)	(36	)%
		1,307			3,704			(2,397	)	(65	)%
Expenses:
Interest expense		2,268			3,843			(1,575	)	(41	)%
Depreciation on operating leases		25			102			(77	)	(75	)%
Provision for credit losses		2,070			2,206			(136	)	(6	)%
General and administrative expenses		480			500			(20	)	(4	)%
Administrative expenses reimbursed to affiliate		96			329			(233	)	(71	)%
		4,939			6,980			(2,041	)	(29	)%
Net loss		(3,632	)		(3,276	)		(356	)
Add: Net loss attributable to the noncontrolling interest		117			143			(26	)
Net loss attributable to LEAF 4 partners	$	(3,515	)	$	(3,133	)	$	(382	)
Net loss allocated to LEAF 4's limited partners	$	(3,480	)	$	(3,102	)	$	(378	)

The decrease in total revenues was primarily attributable to the following:

A decrease in interest on equipment financings and rental income. Our weighted average net investment in financing assets decreased to $31.0 million for the six months ended June 30, 2014 as compared to $76.1 million for the six months ended June 30, 2013, a decrease of $45.1 million or 59%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.

Gains on sales of equipment and lease dispositions decreased $175,000 to $173,000 for the six months ended June 30, 2014 compared to a gain of $348,000 for the six months ended June 30, 2013. Gains and losses on sales of equipment may vary significantly from period to period.

Other income decreased $89,000 from $246,000 for the six months ended June 30, 2013 to $157,000 for the six months ended June 30, 2014. The decrease is primarily due to a reduction in late fee income which is a result of the decrease in our portfolio.

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The decrease in total expenses was primarily a result of the following:

A decrease in interest due to a decrease in our average debt outstanding. Average borrowings for the six months ended June 30, 2014 and 2013 were $17.6 million and $59.3 million, respectively. The interest expense reduction was primarily driven by the reduction in the size of our portfolio of leases and loans.

A decrease in depreciation on operating leases due to a decrease in the size of our portfolio.

A decrease in our provision for credit losses is principally due to a decrease of our equipment financing portfolio.

A decrease in general and administrative expenses and administrative expenses reimbursed to affiliates due to the reduction in the size of our portfolio.

The net loss per limited partner unit, after the net loss allocated to our General Partner, for the six months ended June 30, 2014 and 2013 was $2.76 and $2.46, respectively, based on a weighted average number of limited partner units outstanding of 1,259,537 each period.

Liquidity and Capital Resources

General

Our major source of liquidity is from the collection of lease and loan payments. Our primary cash requirements, in addition to normal operating expenses are for debt service, investments in leases and loans, and distributions to our partners.

The following table sets forth our sources and uses of cash for the periods indicated (in thousands):

	Six Months Ended June 30,
	2014			2013
Net cash (used in) provided by operating activities	$	(3,053	)	$	1,537
Net cash provided by investing activities		15,361			27,963
Net cash used in financing activities		(12,337	)		(29,301	)
(Decrease) increase in cash	$	(29	)	$	199

Cash decreased by $29,000 due to net proceeds from our investments in leases and loans of $15.361 million and a reduction in our restricted cash of $7.139 million, offset by cash used in operating activities of $3.053 million, debt repayments of $17.567 million, and distributions to our partners of $1.909 million.

Partner’s distributions paid for the six months ended June 30, 2014 and June 30, 2013 were $1.9 million and $2.5 million, respectively, each period. Cumulative partner distributions paid from our inception to June 30, 2014 were approximately $32.2 million. To date, limited partners have received total distributions of approximately 26% of their original amount invested, depending upon when the investment was made. As the cash flows and liquidity of the Fund could no longer support a 4% monthly distribution, beginning with the February 2014 distribution, received in March, monthly distributions were reduced to 3%. Also, the April and May 2014 distributions, received in May and June respectively, were lowered to 2%. Distributions for June 2014, received and July, and beyond will be lowered to 1% and continue for as long as the Fund can support them. Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include lease and loan defaults by our customers, accelerated principle payments on our debt facilities required per our agreements, and prevailing economic conditions. The terms of our current debt facilities are structured to use excess cash to accelerate the repayment of debt. This results in paying less interest expense over time, but also limits available cash to make monthly distributions to the partners. The terms of our current debt facilities coupled with continued higher than expected lease and loan defaults, caused by a slow economic recovery could impact our ability to make monthly cash distributions to our limited partners.

Our General Partner has waived management fees since August 2010. Through June 30, 2014, the General Partner has waived management fees of $7.7 million, of which $342,000 related to the six months ended June 30, 2014.

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Borrowings

Our borrowing relationships each require the pledging of eligible leases and loans to secure amounts advanced. Borrowings outstanding under our debt facilities as of June 30, 2014 were as follows (in thousands):

		Amount		Amount of
	Type		Outstanding		Collateral ⁽¹⁾
2011-1 Term Securitization	Term	$	9,083	$	9,435

(1)

This borrowing is collateralized by specific leases and loans and restricted cash. As of June 30, 2014, $8.8 million of leases and loans and $628,000 of restricted cash were pledged as collateral under the Fund’s term securitization. Recourse under this securitization is limited to the amount of collateral pledged.

Series 2011-1 Term Securitization. In January 2011, a previous lender was paid-off with the proceeds from the 2011-1 Term Securitization (The “2011-1Term Securitization”) in which six classes of asset-backed notes were issued that have varying maturity dates ranging from December 2018 to December 2023. The asset-backed notes totaled $96.0 million and bear interest at fixed, stated rates ranging from 1.7% to 5.5% and were issued at an original discount of approximately $6.2 million.

Subordinated Notes Payable: In addition to the above borrowing, LEAF Commercial Finance Fund, LLC (“LCFF”), a subsidiary of LEAF Funds JV2, has $9.3 million of 8.25% secured subordinated promissory notes (the “Notes”) outstanding, which are recourse only to LCFF. The Notes were issued to private investors and require interest only payments until their maturity in February 2015. LCFF may call or redeem the Notes, in whole or in part, at any time during the interest only period.

Our primary source of liquidity comes from payments on our lease and loan portfolio. Our liquidity has been and could be further adversely affected by higher than expected equipment lease defaults, which results in a loss of revenues. These losses may adversely affect our ability to make distributions to our partners and, if the level of defaults are sufficiently large, may result in our inability to fully recover our investment in the underlying equipment. As our lease portfolio ages, and if the recovery in the United States economy falters for a substantial period of time, we may need to increase our allowance for credit losses.

Our primary use of cash is for debt service. Substantially all of our leases and loans are collateral for our debt, however, all of our debt is non-recourse to the partnership which limits our financial exposure. Repayment of our debt is based on the payments we receive from our customers. If a lease or loan becomes delinquent our lender uses the excess collateral from performing leases to repay our loan, even though our customer has not paid us. Therefore, higher than expected lease and loan defaults will reduce our liquidity.

The terms of securitizations require the use of excess cash flow from the underlying collateral to accelerate the repayment on our debt. As a result, this minimizes the excess cash flow available to us for the acquisition of new leases and loans until our securitizations are paid off. When we have available resources, the climate of the credit markets is such that our liquidity may be adversely affected, particularly our ability to obtain or renew debt financing needed to execute our investment strategies. Historically, we have utilized both revolving and term debt facilities to fund our acquisitions of equipment financings. If we are unable to obtain new debt that will allow us to invest the repayments of existing leases and loans into new investments, then our portfolio of leases and loans will continue to decline.

Legal Proceedings

We are a party to various routine legal proceedings arising out of the ordinary course of our business. Our General Partner believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk have been omitted as permitted under rules applicable to smaller reporting companies.

ITEM 4 – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our General Partner’s chief executive officer and chief financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our General Partner’s chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level discussed above.

Changes in Internal Control over Financial Reporting

We have implemented new procedures to strengthen our internal control over financial reporting as noted below in “Remediation of Material Weakness in Internal Control over Financial Reporting.” Other than these changes, there has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Remediation of Material Weakness in Internal Control over Financial Reporting

As part of the evaluation of our internal control over financial reporting with respect to the valuation of our allowance for loan losses, management previously concluded that there was a deficiency associated with our misapplication of the terms of an agreement that was due to insufficient review and that constituted a material weakness in internal control over financial reporting.

Management identified remedial steps that were implemented during the quarter with respect to this internal control weakness, as follows:

Management has corrected all errors and restated all previously reported amounts that were incorrect.

Management has reviewed our policies related to the valuation of our allowance for loan losses and properly applied the terms of all agreements used to value the collateral securing the loan held by our consolidated subsidiary.

Management has made changes to its review process to include a greater emphasis on non-recurring, unusual, or unique transactions.

After testing the adequacy and effectiveness of the controls put into place during the quarter, management has concluded that the implementation of these new control processes and procedures has remediated the material weakness in its internal control over financial reporting, and as a result, its disclosure controls and procedures.

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PART II. OTHER INFORMATION

ITEM 6 – EXHIBITS

Exhibit
No.		Description
3.1		Certificate of Limited Partnership (1)
3.2		Amended and Restated Agreement of Limited Partnership (2)
3.3		Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of LEAF Equipment Finance Fund 4, L.P. (7)
4.1		Forms of letters sent to limited partners confirming their investment (1)
10.1		Form of Origination and Servicing Agreement Among LEAF Financial Corporation, LEAF Equipment Finance Fund 4, LP and LEAF Funding, Inc. (1)
10.2		Indenture by and between LEAF Commercial Finance Fund, LLC and U.S. Bank National Association (3)
10.3		Amended and Restated Limited Liability Company Agreement of LEAF Commercial Finance Fund, LLC(3)
10.4		Limited Liability Company Agreement of LEAF Funds Joint Venture 2, LLC (3)
10.5		Indenture between LEAF Receivables Funding 2, LLC and U.S. Bank National Association dated as of May 1, 2010 (4)
10.6		Indenture between LEAF Receivables Funding 4, LLC and U.S. Bank National Association dated as of July 4, 2010 (5)
10.7		Indenture between LEAF Receivables Funding 6, LLC and U.S. Bank National Association dated as of January 6, 2011 (6)
10.8		First Amendment dated as of September 28, 2012 to the Indenture between LEAF Receivables Funding 2, LLC and U.S. Bank National Association (8)
10.9		First Amendment dated as of October 15, 2012 to the Indenture between LEAF Receivables Funding 4, LLC and U.S. Bank National Association (8)
10.10		First Amendment dated as of February 25, 2013 to the Indenture between LEAF Receivables Funding 6, LLC and U.S. Bank National Association (8)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (ii) the Consolidated Statements of Operations for the three and six month periods ended June 30, 2014 and 2013; (iii) the Consolidated Statement of Changes in Partners’ (Deficit) Capital for the six months ended June 30, 2014; (iv) the Consolidated Statements of Cash Flows for the six month periods ended June 30, 2014 and 2013; and, (v) the Notes to Consolidated Financial Statements.

(1)

Filed previously as an exhibit to our Registration Statement on Form S-1 filed on March 24, 2008 and by this reference incorporated herein.

(2)

Filed previously as an exhibit to Form 8-K on May 8, 2009 and by this reference incorporated herein.

(3)

Filed previously on May 12, 2009 in Post-Effective Amendment No. 1 as an exhibit to our Registration Statement and by this reference incorporated herein.

(4)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2010 and by this reference incorporated herein.

(5)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2010 and by this reference incorporated herein.

(6)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and by this reference incorporated herein.

(7)

Filed previously as an exhibit to form 8-K on October 20, 2011 and by this reference incorporated herein.

(8)

Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2012 and by this reference incorporated herein.

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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.

	LEAF EQUIPMENT FINANCE FUND 4, L.P.
	Delaware Limited Partnership
	By:	LEAF Asset Management, LLC, its General Partner

August 13, 2014	By:	/s/ CRIT S. DEMENT
		Crit S. DeMent
		Chief Executive Officer

August 13, 2014	By:	/s/ ROBERT K. MOSKOVITZ
		Robert K. Moskovitz
		Chief Financial Officer

LEAF Equipment Finance Fund 4, L.P. 10-Q