COMMONWEALTH INCOME & GROWTH FUND IV - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - COMMONWEALTH INCOME & GROWTH FUND IV	Financial_Report.xls
EX-32.1 - CIGF4 EXHIBIT 32.1 06-30-12 - COMMONWEALTH INCOME & GROWTH FUND IV	ex32_1.htm
EX-32.2 - CIGF4 EXHIBIT 32.2 06-30-12 - COMMONWEALTH INCOME & GROWTH FUND IV	ex32_2.htm
EX-31.1 - CIGF4 EXHIBIT 31.1 06-30-12 - COMMONWEALTH INCOME & GROWTH FUND IV	ex31_1.htm
EX-31.2 - CIGF4 EXHIBIT 31.2 06-30-12 - COMMONWEALTH INCOME & GROWTH FUND IV	ex31_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012 or

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

Commission File Number: 333-62526

COMMONWEALTH INCOME & GROWTH FUND IV

(Exact name of registrant as specified in its charter)

Pennsylvania	23-3080409
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Brandywine Bldg. One, Suite 200

2 Christy Drive

Chadds Ford, PA 19317

(Address, including zip code, of principal executive offices)

(484) 785-1480

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (i) 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, and (ii) has been subject to such filing requirements for the past 90 days:

YES T NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). YES T 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 definition of "accelerated filer, “large accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company T
(Do not check if a smaller reporting company.)

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

FORM 10-Q

JUNE 30, 2012

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Mine Safety Disclosures	12
Item 5.	Other Information	12
Item 6.	Exhibits	12

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Commonwealth Income & Growth Fund IV
Condensed Balance Sheets

	June 30,			December 31,
	2012			2011
	(unaudited)

ASSETS
Cash and cash equivalents	$	22,419		$	4,457
Lease income receivable, net of reserve of approximately $21,000
at June 30, 2012 and December 31, 2011		12,915			20,036
Other receivables		15,878			18,873
Refundable deposits		1,130			1,130
		52,342			44,496

Net investment in finance leases		6,993			12,368

Equipment, at cost		2,280,341			2,110,145
Accumulated depreciation		(1,701,571	)		(1,592,245	)
		578,770			517,900

Equipment acquisition costs and deferred expenses, net of
accumulated amortization of approximately $13,000 and 15,000 at
June 30, 2012 and December 31, 2011, respectively		10,413			12,496
Prepaid acquisition fees		31,530			33,629
		41,943			46,125

Total Assets	$	680,048		$	620,889

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

LIABILITIES
Accounts payable	$	98,697		$	97,352
Accounts payable, General Partner		263,447			263,047
Accounts payable, Commonwealth Capital Corp.		222,114			183,969
Other accrued expenses		26,033			9,894
Unearned lease income		25,218			25,145
Notes payable		182,722			127,739
Total Liabilities		818,231			707,146

PARTNERS' CAPITAL (DEFICIT)
General Partner		1,000			1,000
Limited Partners		(139,183	)		(87,257	)
Total Partners' Capital (Deficit)		(138,183	)		(86,257	)

Total Liabilities and Partners' Capital (Deficit)	$	680,048		$	620,889



see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund IV
Condensed Statements of Operations
(unaudited)

	Three Months Ended					Six Months Ended

	June 30,			June 30,		June 30,			June 30,
	2012			2011		2012			2011

Revenue
Lease	$	89,563		$	93,298	$	176,019		$	182,897
Interest and other		329			1,688		841			3,116
Gain on sale of computer equipment		549			6,521		1,917			11,812
Total revenue		90,441			101,507		178,777			197,825

Expenses
Operating, excluding depreciation		25,715			29,238		64,760			71,051
Interest		2,149			997		3,325			2,262
Depreciation		67,998			62,006		131,377			125,821
Amortization of equipment acquisition costs and deferred expenses		2,027			2,822		4,182			5,561
Total expenses		97,889			95,063		203,644			204,695

Net (loss)	$	(7,448	)	$	6,444	$	(24,867	)	$	(6,870	)

Net (loss) allocated to Limited Partners	$	(7,448	)	$	6,444	$	(24,867	)	$	(6,870	)

Net (loss) per equivalent Limited Partnership unit	$	(0.01	)	$	0.01	$	(0.03	)	$	(0.01	)

Weighted average number of equivalent
Limited Partnership units outstanding during
the year		747,925			748,200		747,925			748,200


see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund IV
Condensed Statement of Partners' Capital (Deficit)
For the six months ended June 30, 2012
(unaudited)


	General		Limited
	Partner		Partner		General		Limited
	Units		Units		Partner		Partners			Total
Balance, January 1, 2012		50		747,925	$	1,000	$	(87,257	)	$	(86,257	)
Net loss								(24,867	)		(24,867	)
Capital Contributions - CCC								82,862			82,862
Cash Contributions - CCC								75,000			75,000
Distributions								(184,921	)		(184,921	)
Balance, June 30, 2012		50		747,925	$	1,000	$	(139,183	)	$	(138,183	)



see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund IV
Condensed Statements of Cash Flow
(unaudited)

	Six months ended June 30,
	2012			2011

Net cash provided by (used in) operating activities	$	117,837		$	(28,293	)

Cash flows from investing activities
Payments received from finance leases		5,423			6,601
Net proceeds from sale of computer equipment		4,623			21,092
Net cash provided by investing activities		10,046			27,693

Cash flows from financing activities
Cash Contributions - CCC		75,000			-
Distributions to partners		(184,921	)		(184,988	)
Net cash (used in) financing activities		(109,921	)		(184,988	)

Net increase (decrease) in cash and cash equivalents		17,962			(185,588	)

Cash and cash equivalents at beginning of the period		4,457			192,214

Cash and cash equivalents at end of the period	$	22,419		$	6,626


see accompanying notes to condensed financial statements

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Business

Commonwealth Income and Growth Fund IV (“CIGF4”) was formed on April 20, 2001 under the Pennsylvania Revised Uniform Limited Partnership Act. The Partnership offered $15,000,000 of Limited Partnership units to the public on October 19, 2001. The Partnership raised the minimum capital required ($1,150,000) and commenced operations on July 8, 2002. The Partnership was fully subscribed and terminated its offering of units on September 15, 2003 with 749,950 units ($14,967,729) sold.

The Partnership used the proceeds of the offering to acquire, own and lease various types of information technology, medical technology, telecommunications technology, inventory management equipment and other similar capital equipment, which is leased primarily to U.S. corporations and institutions. Commonwealth Capital Corp (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires equipment subject to associated debt obligations and lease agreements and allocate a participation in the cost, debt and lease revenue to the various partnerships that it manages based on certain risk factors.

The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation that is an indirect wholly owned subsidiary of CCC. CCC is a member of the Investment Program Association (IPA), REISA, Financial Planning Association (FPA), and the Equipment Leasing and Finance Association (ELFA). Approximately ten years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its equipment, make final distributions to partners, and to dissolve. Unless sooner terminated, the Partnership will continue until December 31, 2013. The General Partner is contemplating amending the Partnership agreement, through a proxy vote, to extend the life of the Partnership and continue operations at least through the term of its currently owned assets.

In an effort to increase cash flow, CCC made a non-cash capital contribution of equipment in the amount of approximately $83,000 and a cash contribution of approximately $75,000 during the six months ended June 30, 2012. Additionally, our General Partner elected to forgo any distributions and allocations of net income owed to it during the six months ended June 30, 2012.

The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through December 31, 2012. The General Partner will continue to reassess the funding of limited partner distributions throughout 2012 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.

Since the Partnership’s leases are on a triple-net basis, no reserve for maintenance and repairs is deemed necessary.

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial information presented as of any date other than December 31, 2011 has been prepared from the books and records without audit. Financial information as of December 31, 2011 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. For further information regarding the Partnership’s accounting policies, refer to the financial statements and related notes included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2011. Operating results for the six months ended June 30, 2012 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2012.

Disclosure of Fair Value of Financial Instruments

Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash and cash equivalents, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of June 30, 2012 and December 31, 2011 due to the short term nature of these financial instruments.

The Partnership’s long-term debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at June 30, 2012 and December 31, 2011 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value.

Forgiveness of Related Party Payables

In accordance with ASC Topic 470-50 Debt Modifications and Extinguishments, the Partnership accounts for forgiveness of related party payables as Partners' capital transactions.

Cash and cash equivalents

We consider cash and cash equivalents to be cash on hand and highly liquid investments with the original maturity dates of 90 days or less.

At June 30, 2012, cash was held in three bank accounts maintained at one financial institution with an aggregate balance of approximately $23,000. Bank accounts are federally insured up to $250,000, while pursuant to the Dodd/Frank Act of 2010, some accounts are fully insured by the FDIC. At June 30, 2012, the total cash bank balance was as follows:

At June 30, 2012	Amount
Total bank balance	$	23,000
FDIC insured		(23,000	)
Uninsured amount	$	-

The Partnership's deposits are fully insured by the FDIC as of June 30, 2012. The Partnership has not experienced any losses in our accounts, and believes it is not exposed to any significant credit risk. The amounts in such accounts will fluctuate throughout 2012 due to many factors, including the pace of additional limited partner contributions, cash receipts, equipment acquisitions and distributions to limited partners.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04 (“ASC Update 2011-04”), Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. This ASU is intended to update the fair value measurement and disclosure requirements in US GAAP for measuring fair value and for disclosing information about fair value measurements. Some of the amendments clarify the Board’s intent about application of existing fair value measurement requirements, while others change a particular principle or requirement for measuring or disclosing fair value measurement information. The amendments in this update are for interim and annual periods beginning after December 15, 2011. The Partnership adopted the provisions of this ASU during the first quarter of 2012, and the required changes in presentation and disclosure requirements have been included in its financial statements. The adoption did not have a material impact on the Partnership’s financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-11 (“ASC Update 2011-11”), Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU requires an entity to disclose information about offsetting and related arrangements to enable user of its financial statements to understand the effect of those arrangements on its financial position. The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership is currently evaluating the effect this ASU will have on its financial statements.

3. Information Technology, Medical Technology, Telecommunications Technology, Inventory Management Equipment (“Equipment”)

The Partnership is the lessor of equipment under leases with periods that generally will range from 12 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.

Remarketing fees will be paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with the lessees for potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. Remarketing fees incurred in connection with lease extensions are accounted for as operating costs. Remarketing fees incurred in connection with the sale of equipment are included in our gain or loss calculations. For the six months ended June 30, 2012 and 2011, remarketing fees were incurred in the amounts of approximately $15,000. For the six months ended June 30, 2012 and 2011 remarketing fees were paid in the amount of approximately $17,000 and $12,000, respectively.

The Partnership’s share of the equipment in which it participates with other partnerships at June 30, 2012 was approximately $1,381,000 and is included in the fixed assets on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at June 30, 2012 was approximately $183,000. The total cost of the equipment shared by the Partnership with other partnerships at June 30, 2012 was approximately $17,115,000. The total outstanding debt related to the equipment shared by the Partnership at June 30, 2012 was approximately $421,000.

The Partnership’s share of the equipment in which it participates with other partnerships at December 31, 2011 was approximately $1,119,000 and is included in the fixed assets on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2011 was approximately $128,000. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 2011 was approximately $16,962,000. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2011 was approximately $340,000.

The following is a schedule of future minimum rentals on noncancellable operating leases at June 30, 2012:

	Amount
Six months ended December 31, 2012	$	140,000
Year Ended December 31, 2013		168,000
Year Ended December 31, 2014		85,000
Year Ended December 31, 2015		1,000
	$	394,000

Unless sooner terminated or extended pursuant to the terms of the Agreement, the Partnership will continue until December 31, 2013.

The following lists the components of the net investment in direct financing leases at June 30, 2012:

	Amount
Total minimum lease payments to be received	$	5,000
Estimated residual value of leased equipment (unguaranteed)		2,000
Less: unearned income		-
Net investment in direct finance leases	$	7,000

Our finance lease customers operate in various industries, and we have no significant customer concentration in any one industry. We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credits scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. Factors taken into consideration when assessing risk includes both general and industry specific qualitative and quantitative metrics. We separately take in to consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category. The following table presents the credit risk profile, by creditworthiness category, of our finance lease receivables at June 30, 2012:

Risk Level	Percent of Total
Low		-	%
Moderate-Low		48	%
Moderate		28	%
Moderate-High		24	%
High		-	%
Net finance lease receivable		100	%

As of June 30, 2012 we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive, with no late payments.

The following is a schedule of future minimum rentals on noncancelable direct financing leases at June 30, 2012:

	Amount
2012	$	3,000
2013		2,000
	$	5,000

4. Related Party Transactions

As of June 30, 2012 and 2011, the Company’s related party receivables and payables are short term, unsecured and non-interest bearing.

Six months ended June 30,	2012		2011

Reimbursable expenses
Reimbursable expenses, which are charged to the partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases.	$	44,000	$	53,000

Equipment acquisition fee
The General Partner earned an equipment acquisition fee of 4% of the purchase price of each item of equipment purchases as compensation for the negotiation of the acquisition of the equipment and lease thereof or sale under a conditional sales contract. At June 30, 2012, the remaining balance of prepaid acquisition fees was approximately $32,000, which is expected to be earned in future periods. For six months ended June 30, 2012 acquisition fees of approximately $6,000 were earned but were waived by the General Partner.	$	2,000	$	5,000

Equipment management fee
The General Partner is entitled to be paid a monthly fee equal to the lesser of (i) the fees which would be charges by and independent third party for similar services for similar equipment or (ii) the sum of (a) two percent of (1) the gross lease revenues attributable to equipment which is subject to full payout net leases which contain net lease provisions plus (2) the purchase price paid on conditional sales contracts as received by the Partnership and (b) 5% of the gross lease revenues attributable to equipment which is subject to operating and capital leases. For six months ended June 30, 2012 equipment management fees of approximately $9,000 were earned but were waived by the General Partner. For the six months ended June 30, 2011, equipment management fees of approximately $9,000 were earned and were waived by the General Partner.		$	-			$	-

Equipment liquidation fee
With respect to each item of equipment sold by the General Partner (other than in connection with a conditional sales contract), a fee equal to the lesser of (i) 50% of the competitive equipment sale commission or (ii) three percent of the sales price for such equipment is payable to the General Partner. The payment of such fee is subordinated to the receipt by he limited partners of (i) a return of their net capital contributions and a 10% per annum cumulative return, compounded daily, on adjusted capital contribution and (ii) the net disposition proceeds form such sale in accordance with the Partnership Agreement. Such fee will be reduced to the extent any liquidation of resale fees are paid to unaffiliated parties. For the six months ended June 30, 2012, approximately $200 of equipment liquidation fees were waived by the General Partner.		$	-			$	-

Debt placement fee
As compensation for arranging term debt to finance the acquisition of equipment to the Partnership, a fee equal to one percent of such indebtedness; provided, however, that such fee is reduced to the extent the Partnership incurs such fees to third parties, unaffiliated with the General Partner or the lender, with respect to such indebtedness and no such fee is paid with respect to borrowings from the General Partner or its affiliates. For the six months ended June 30, 2012, approximately $1,000 of debt placement fees were waived by the General Partner.		$	-			$	-

5. Notes Payable

Notes payable consisted of the following approximate amounts:

	June 30, 2012		December 31, 2011
Installment note payable to bank; interest at 7.50% due in quarterly installments of $6,632, including interest, with final payment in October 2012	$	13,000	$	25,000
Installment note payable to bank; interest at 3.95%, due in quarterly installments of $8,985, including interest, after an inital payment of $17,970, with final payment in September 2014		77,000		103,000
Installment note payable to bank; interest at 3.95%, due in quarterly installments of $9,975, including interest, after an initial payment of $19,591, with final payment in December 2014		93,000		-
	$	183,000	$	128,000

The notes are secured by specific equipment and are nonrecourse liabilities of the Partnership. As such, the notes do not contain any debt covenants with which we must comply on either an annual or quarterly basis. Aggregate maturities of notes payable for each of the periods subsequent to June 30, 2012 are as follows:

	Amount
Six months ended December 31, 2012	$	47,000
Year ended December 31, 2013		71,000
Year ended December 31, 2014		65,000
	$	183,000

Unless sooner terminated or extended pursuant to the terms of the Agreement, the Partnership will continue until December 31, 2013. Upon termination of the Partnership, the General Partner will assume the outstanding notes payable and related equipment and minimum rentals.

6. Supplemental Cash Flow Information

During the six months ended June 30, 2012, the Partnership wrote-off fully amortized acquisition and finance fees of approximately $6,000.

Other noncash activities included in the determination of net loss are as follows:

Six months ended June 30,		2012				2011
Lease revenue net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank		$	57,000			$	32,000

No interest or principal on notes payable was paid by the Partnership because direct payment was made by lessee to the bank in lieu of collection of lease income and payment of interest and principal by the Partnership.

Noncash investing and financing activities include the following:

Six months ended June 30,	2012		2011
Forgiveness of related party payables recorded as a capital contribution	$	-	$	60,000
Capital Contribution - equipment transfer from CCC	$	83,000	$	114,000
Equipment acquisition fees earned by General Partner upon purchase of equipment from prepaid acquisition fees	$	2,000	$	5,000
Debt assumed in connection with purchase of equipment	$	112,000	$	-

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

FORWARD LOOKING STATEMENTS

This section, as well as other portions of this document, includes certain forward-looking statements about our business and our prospects, tax treatment of certain transactions and accounting matters, sales of securities, expenses, cash flows, distributions, investments and operating and capital requirements. Such forward-looking statements include, but are not limited to: acquisition policies of our general partner; the nature of present and future leases; provisions for uncollectible accounts; the strength and sustainability of the U.S. economy; the continued difficulties in the credit markets and their impact on the economy in general; and the level of future cash flow, debt levels, revenues, operating expenses, amortization and depreciation expenses. You can identify those statements by the use of words such as “could,” “should,” “would,” “may,” “will,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and “contemplate,” as well as similar words and expressions.

Actual results may differ materially from those in any forward-looking statements because any such statements involve risks and uncertainties and are subject to change based upon various important factors, including, but not limited to, nationwide economic, financial, political and regulatory conditions; the health of debt and equity markets, including interest rates and credit quality; the level and nature of spending in the information, medical and telecommunications technologies markets; and the effect of competitive financing alternatives and lease pricing.

Readers are also directed to other risks and uncertainties discussed in other documents we file with the SEC, including, without limitation, those discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC. We undertake no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on various other assumptions that are believed to be 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.

We believe that our critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

See Note 2 to our condensed financial statements included herein for a discussion of accounting pronouncements.

INFORMATION TECHNOLOGY, MEDICAL TECHNOLOGY, TELECOMMUNICATIONS TECHNOLOGY, INVENTORY MANAGEMENT EQUIPMENT

Commonwealth Capital Corp., on our behalf and on behalf of other affiliated partnerships, acquires equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. Depreciation on equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years.

The Equipment Lease Finance Association (“ELFA”) Monthly Leasing and Finance Index which reports economic activity for the $628 billion equipment finance sector, showed overall new business volume for the 2nd quarter of 2012 increased 14.5% relative to the same period of 2011. Credit quality continued to improve as the rate of receivables aged in excess of 30 days declined slightly when compared to data from the 2nd quarter of 2011. Additionally, charge-offs declined 45.4% in the 2nd quarter of 2012, relative to the same period in 2011. More than 65% of ELFA reporting members reported submitting more transactions for approval during March, a 62% increase over the previous month. For 2012, the ELFA has forecast a 4.1% increase in finance volume year over year.

LEASE INCOME RECEIVABLE

Lease income receivable includes current lease income receivable net of allowances for uncollectible amounts. The Partnership monitors lease income receivable to ensure timely and accurate payment by lessees. Its Lease Relations department is responsible for monitoring lease income receivable and, as necessary, resolving outstanding invoices.

The Partnership reviews a customer’s credit history before extending credit. In the event of a default it may establish a provision for uncollectible lease income receivable based upon the credit risk of specific customers, historical trends and other information.

REVENUE RECOGNITION

Through June 30, 2012, the Partnership’s leasing operations consisted of operating and finance leases. Lease revenue is recognized on a monthly basis in accordance with the terms of the lease agreement. For finance leases, we record, at lease inception, unearned finance lease income which is calculated as follows: total lease payments, plus any residual value and initial direct costs, less the cost of the leased equipment. Interest income is earned on the finance lease receivable over the lease term using the interest method. As required, at each reporting period, management evaluates the finance lease for impairment and considers any need for an allowance for credit losses.

Our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index.

LONG-LIVED ASSETS

The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset, then impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value and is included in depreciation expense in the accompanying financial statements. The fair value of equipment is calculated using income or market approaches.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Our primary sources of cash for the six months ended June 30, 2012 were cash provided by operating activities of approximately $118,000, proceeds from the sale of equipment in the amount of approximately $5,000, payments from finance leases of approximately $5,000 and a cash contribution from CCC of approximately $75,000. This compares to the six months ended June 30, 2011 where our primary sources of cash were from proceeds from the sale of equipment of approximately $21,000 and payments from finance leases of approximately $7,000.

Our primary use of cash for the six months ended June 30, 2012 and 2011 was for distributions to our Limited partners in the amount of approximately $185,000 in each period.

While we intend to invest additional capital in equipment during the remainder of 2012, the amount of such additional investment is uncertain, as available funds will first be committed to the payment of investor distributions and operating expenses.

For the six months ended June 30, 2012, cash was provided by operating activities of approximately $118,000, which includes net loss of approximately $25,000, a gain on sale of equipment of approximately $2,000 and depreciation and amortization expenses of approximately $136,000. Other non-cash activities included in the determination of net income include direct payments of lease income by lessees to banks of approximately $57,000.

For the six months ended June 30, 2011, cash was used in operating activities of approximately $28,000, which includes a net loss of approximately $7,000, a gain on sale of equipment of approximately $12,000 and depreciation and amortization expenses of approximately $131,000. Other non-cash activities included in the determination of net income include direct payments of lease income by lessees to banks of approximately $32,000.

We consider cash and cash equivalents to be cash on hand and highly liquid investments with the original maturity dates of 90 days or less.

At June 30, 2012 cash was held in three accounts maintained at one financial institution. Bank accounts are federally insured up to $250,000, while pursuant to the Dodd/Frank Act of 2010, some accounts are fully insured by the FDIC. At June 30, 2012, our total cash bank balance of approximately $23,000 was fully insured.

The Partnership's deposits are fully insured by the FDIC as of June 30, 2012. We deposit our funds with a Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks listed on the New York Stock Exchange. We have not experienced any losses in such accounts, and believe that we are not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2012 due to many factors, including the pace of additional cash receipts, equipment acquisitions and distributions to investors.

Our investment strategy of acquiring equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes our operating expenses. As of June 30, 2012, we had future minimum rentals on non-cancelable leases of approximately $140,000 for the balance of the year ending December 31, 2012 and approximately $254,000 thereafter. As of June 30, 2012, we had future minimum rentals on non-cancelable finance leases of approximately $3,000 for the balance of the year ending December 31, 2012 and approximately $2,000 thereafter.

As of June 30, 2012, our debt was approximately $183,000, with interest rates ranging from 3.95% through 7.50% and will be payable through December 2014.

Unless sooner terminated or extended pursuant to the terms of the Agreement, the Partnership will continue until December 31, 2013. The General Partner is contemplating amending the Partnership agreement, through a proxy vote, to extend the life of the Partnership and continue operations at least through the term of its currently owned assets. Upon termination of the Partnership, the General Partner will assume the outstanding notes payable and related equipment and minimum rentals.

In an effort to increase cash flow, CCC made a non-cash capital contribution of equipment in the amount of approximately $83,000 and a cash contribution of approximately $75,000. Additionally, our General Partner elected to forgo any distributions and allocations of net income owed to it during the six months ended June 30, 2012 and 2011.

Since the Partnership’s leases are on a triple-net basis, no reserve for maintenance and repairs is deemed necessary.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2012 compared to Three Months Ended June 30, 2011

Lease Revenue

Lease revenue decreased to approximately $90,000 for the three months ended June 30, 2012, from $93,000 for the three months ended June 30, 2011. This decrease was primarily due to more lease agreements terminating versus new lease agreements being acquired.

Sale of Equipment

We sold equipment with a net book value of approximately $0 for the three months ended June 30, 2012, for a net gain of approximately $1,000. We sold equipment with a net book value of approximately $6,000 for the three months ended June 30, 2011, for a net gain of approximately $7,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC, a related party, for administration and operation of the Partnership. These expenses decreased to approximately $26,000 for the three months ended June 30, 2012, compared to $29,000 for the three months ended June 30, 2011 due to decreased administrative expenses and other outside service fees.

Depreciation and Amortization Expense

Depreciation and amortization expenses consist of depreciation on equipment, including impairment charges (if any), and amortization of equipment acquisition fees. The expenses increased to approximately $70,000 for the three months ended June 30, 2012, from approximately $65,000 for the three months ended June 30, 2011 due to the depreciation of new equipment acquired and contributed by CCC during 2012.

Net Income (Loss)

For the three months ended June 30, 2012, we recognized revenue of approximately $90,000 and expenses of approximately $98,000, resulting in a net loss of approximately $8,000. For the three months ended June 30, 2011, we recognized revenue of approximately $102,000 and expenses of approximately $95,000, resulting in a net income of approximately $7,000. This net loss/income is primarily due to the changes in revenue and expenses as described above.

Six Months Ended June 30, 2012 compared to Six Months Ended June 30, 2011

Lease Revenue

Lease revenue decreased to approximately $176,000 for the six months ended June 30, 2012, from approximately $183,000 for the six months ended June 30, 2011. This decrease was primarily due to more lease agreements terminating versus new lease agreements being acquired during the six months ended June 30, 2012.

Sale of Equipment

We sold equipment with a net book value of approximately $3,000 for the six months ended June 30, 2012, for a net gain of approximately $2,000. We sold equipment with a net book value of approximately $9,000 for the six months ended June 30, 2011, for a net gain of approximately $12,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC, a related party, for administration and operation of the Partnership. These expenses decreased to approximately $65,000 for the six months ended June 30, 2012, compared to $71,000 for the six months ended June 30, 2011 due to decreased administrative expenses, partially offset by higher other outside service fees.

Depreciation and Amortization Expense

Depreciation and amortization expenses consist of depreciation on equipment, including impairment charges (if any), and amortization of equipment acquisition fees. The expenses increased to approximately $136,000 for the six months ended June 30, 2012, from $131,000 for the six months ended June 30, 2011 due to the depreciation of new equipment acquired and contributed by CCC during 2012.

Net Income (Loss)

For the six months ended June 30, 2012, we recognized revenue of approximately $179,000 and expenses of approximately $204,000, resulting in a net loss of approximately $25,000. For the six months ended June 30, 2011, we recognized revenue of approximately $198,000 and expenses of approximately $205,000, resulting in a net loss of approximately $7,000. This net loss is primarily due to the changes in revenue and expenses as described above.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

N/A

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures related to our reporting and disclosure obligations as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of June 30, 2012, our disclosure controls and procedures are effective in ensuring that information relating to us which is required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) accumulated and communicated to management, including the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in the Partnership’s internal control over financial reporting during the second quarter of 2012 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

Part II: OTHER INFORMATION

Item 1.

Legal Proceedings

NONE

Item 1A.

Risk Factors

N/A

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	N/A

Item 3.	Defaults Upon Senior Securities
	N/A

Item 4.	Mine Safety Disclosures
	N/A

Item 5.	Other Information
	NONE

Item 6.	Exhibits

31.1 THE RULE 15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

31.2 THE RULE 15d-14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

32.2 SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

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.

	COMMONWEALTH INCOME & GROWTH FUND IV
	BY: COMMONWEALTH INCOME & GROWTH FUND, INC., General Partner


August 14, 2012	By: /s/ Kimberly A. Springsteen-Abbott
Date	Kimberly A. Springsteen-Abbott
	Chief Executive Officer


August 14, 2012	By: /s/ Lynn A. Franceschina
Date	Lynn A. Franceschina
	Executive Vice President, Chief Operating Officer

Attached files

COMMONWEALTH INCOME & GROWTH FUND IV Reports

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