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EX-31.1 - SECTION 302 PEO CERTIFICATION - Macquarie Equipment Leasing Fund, LLCdex311.htm
EX-31.2 - SECTION 302 PFO CERTIFICATION - Macquarie Equipment Leasing Fund, LLCdex312.htm
EX-32.1 - SECTION 906 PEO CERTIFICATION - Macquarie Equipment Leasing Fund, LLCdex321.htm
EX-32.2 - SECTION 906 PFO CERTIFICATION - Macquarie Equipment Leasing Fund, LLCdex322.htm
Table of Contents

 

 

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 September 30, 2010

OR

 

¨ 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: 000-53904

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   26-3291543

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

225 Franklin St, 17 th Floor, Suite 1700

Boston, Massachusetts 02110

(Address of Principal Executive Offices) (Zip Code)

(617) 457-0645

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A

 

 

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

There were 1,781,365 shares of limited liability company membership interests outstanding at November 15, 2010.

 

 

 


Table of Contents

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

Table of Contents

 

Part I.    Financial Information   
Item 1.    Financial Statements (Unaudited)      3   
   Balance Sheets as of September 30, 2010 and December 31, 2009 (Unaudited)      3   
   Statements of Operations for the period from August 21, 2008 (inception of the Fund) to September 30, 2010 and the Quarters and Nine Months ended September 30, 2010 and 2009 (Unaudited)      4   
   Statements of Cash Flows for the period from August 21, 2008 (inception of the Fund) to September 30, 2010 and the Nine Months ended September 30, 2010 and 2009 (Unaudited)      5   
   Statements of Changes in Members’ Equity for the period from August 21, 2008 (inception of the Fund) to September 30, 2010 (Unaudited)      6   
   Notes to Financial Statements (Unaudited)      7   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      12   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      15   
Item 4.    Controls and Procedures      15   
Part II.    Other Information   
Item 1.    Legal Proceedings      15   
Item 1A.    Risk Factors      15   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      15   
Item 3.    Defaults Upon Senior Securities      15   
Item 4.    Removed and Reserved      15   
Item 5.    Other Information      15   
Item 6.    Exhibits      15   
   Signatures      16   

Macquarie Equipment Leasing Fund, LLC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Equipment Leasing Fund, LLC.


Table of Contents

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

BALANCE SHEETS

(Unaudited)

 

     September 30, 2010     December 31, 2009  

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 6,892,521      $ 4,474   

Participating interest - Future lease income (current) (related party)

     695,229        —     

Other receivable

     130        —     

Taxes receivable (related party)

     84        218   
                

Total Current Assets

     7,587,964        4,692   

Non-current Assets

    

Participating interest - Residual value (related party)

     3,823,018        —     

Participating interest - Future lease income (non-current) (related party)

     1,751,507        —     
                

Total Non-current Assets

     5,574,525        —     
                

Total Assets

   $ 13,162,489      $ 4,692   
                

LIABILITIES AND MEMBERS’ EQUITY

    

Current Liabilities:

    

Commissions and fees payable (related party)

   $ 471,918      $ —     

Capital contributions received in advance

     401,080        —     

Lease payments received in advance (related party)

     28,876        —     

Distribution payable

     91,393        —     
                

Total Current Liabilities

     993,267        —     
                

Total Liabilities

     993,267        —     

Commitments and Contingencies

     —          —     

Equity

    

Shares of membership interests, $10.00 par value as may be reduced (i) under a distribution reinvestment plan, (ii) for volume discounts, or (iii) for reductions in selling commissions

    

Authorized: 15,800,500 shares; Issued and outstanding: 1,504,938 shares as of September 30, 2010 and 500 shares as of December 31, 2009

     12,770,069        5,000   

Deficit accumulated during development stage

     (600,847     (308
                

Total Members’ Equity

     12,169,222        4,692   
                

Total Liabilities and Members’ Equity

   $ 13,162,489      $ 4,692   
                

See accompanying notes to the Financial Statements.

 

3


Table of Contents

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

STATEMENTS OF OPERATIONS

(Unaudited)

 

     Period from August 21,
2008 (inception of the
Fund) to September 30,

2010
    Quarter Ended     Nine Months Ended  
     September 30, 2010     September 30, 2009     September 30, 2010     September 30, 2009  

REVENUE

          

Participating interest income (related party)

   $ 90,510        49,070      $ —        $ 90,510      $ —     

Other income

     213        —          —          213        —     
                                        

Total revenue

     90,723        49,070        —          90,723        —     

EXPENSES

          

Operating expenses (related party)

     463,257        152,674        —          463,257        —     

Acquisition fees (related party)

     195,000        —          —          195,000        —     

Management fees (related party)

     17,480        8,663        —          17,480        —     

Other expenses

     16,051        12,095        86        15,525        325   
                                        

Total expenses

     691,788        173,432        86        691,262        325   

Net loss before income taxes

     (601,065     (124,362     (86     (600,539     (325

Income tax benefit

     218        —          36        —          135   
                                        

Net loss

   $ (600,847     (124,362   $ (50   $ (600,539   $ (190
                                        

Basic and diluted loss per share

   $ (2.39   $ (0.10   $ (0.10   $ (0.85   $ (0.38

Weighted average number of shares outstanding: basic and diluted

     251,435        1,252,649        500        708,265        500   

See accompanying notes to the Financial Statements.

 

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Table of Contents

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Period from August 21, 2008
(inception of the
Fund) to September 30, 2010
    Nine Months Ended  
     September 30, 2010     September 30, 2009  

Cash flow from operating activities:

      

Net loss

   $ (600,847   $ (600,539   $ (190

Adjustments to reconcile net loss to net cash used in operating activities:

      

Changes in assets and liabilities:

      

Commission and fees payable (related party)

     471,918        471,918        —     

Other receivable

     (130     (130     —     

Taxes receivable (related party)

     (84     134        (135

Lease payments received in advance (related party)

     28,876        28,876        —     
                        

Net cash used in operating activities

     (100,267     (99,741     (325
                        

Cash flow from investing activities:

      

Payment for participating interest - Residual value and Future lease income (related party)

     (6,500,000     (6,500,000     —     

Proceeds from participating interest - Future lease income (related party)

     230,246        230,246        —     
                        

Net cash used in investing activities

     (6,269,754     (6,269,754     —     
                        

Cash flow from financing activities:

      

Proceeds from issuance of shares

     14,761,504        14,756,504        —     

Payment of offering related expenses

     (1,644,382     (1,644,382     —     

Distributions paid to members

     (255,660     (255,660     —     

Capital contributions received in advance

     401,080        401,080        —     
                        

Net cash provided by financing activities

     13,262,542        13,257,542        —     
                        

Net increase (decrease) in cash and cash equivalents

     6,892,521        6,888,047        (325

Cash and cash equivalents, beginning of the period

     —          4,474        4,884   
                        

Cash and cash equivalents, end of the period

   $ 6,892,521      $ 6,892,521      $ 4,559   
                        

Supplemental disclosures of cash flow information

      

Non cash financing activities

      

Issuance of shares under distribution reinvestment plan

   $ 63,563      $ 63,563      $ —     

See accompanying notes to the Financial Statements.

 

5


Table of Contents

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

STATEMENT OF CHANGES IN MEMBERS’ EQUITY

Period from August 21, 2008 (inception of the Fund) to September 30, 2010

(Unaudited)

 

     Members’ shares      Additional
members’ equity (1)
    Managing
member’s equity
    Total  

Opening balance - August 21,2008

     500       $ —        $ 5,000      $ 5,000   

Issuance of members’ shares

     1,497,375         13,256,504        1,500,000        14,756,504   

Issuance of members’ shares - Distribution Reinvestment Plan

     7,063         63,563        —          63,563   

Offering related expenses

     —           (1,556,753     (87,629     (1,644,382

Distributions to members

     —           (365,619     (44,997     (410,616

Net loss

     —           (519,299     (81,548     (600,847
                                 

Closing balance - September 30, 2010

     1,504,938       $ 10,878,396      $ 1,290,826      $ 12,169,222   
                                 

 

(1) Additional members represent all members other than the Managing member

See accompanying notes to the Financial Statements.

 

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Table of Contents

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BUSINESS OPERATIONS

Macquarie Equipment Leasing Fund, LLC ( the “Fund” or the “Company”), a Delaware limited liability company, was formed on August 21, 2008 for the purpose of being an equipment leasing program that will acquire a diversified portfolio of equipment, equipment leases and other equipment related-investments. The majority of the equipment is expected to be leased to corporate clients. The Fund’s objective is to generate income through the collection of lease rentals and other revenues, through the sale of leased equipment and through other portfolio investments. The Fund’s fiscal year end is December 31.

The manager of the Fund is Macquarie Asset Management Inc. (the “Manager”), a member of the Macquarie Group of Companies which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide (the “Macquarie Group”). Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. The Manager expects to earn fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services. Further, the Fund expects to reimburse the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment lease and other equipment related investments.

The Fund filed Post-Effective Amendment No. 2 to Registration Statement on Form S-1 (the “Registration Statement on Form S-1”) with the Securities and Exchange Commission on June 8, 2010. The Fund is considered to be a development stage enterprise as limited operations have commenced since its first effectiveness order received on June 19, 2009. The initial capital contribution to the Fund was $5,000 from the Manager and the Manager made an additional contribution of $1,500,000 to the Fund. The Fund is offering membership interests with the intention of raising up to $157,200,000 of equity. The Fund expects the share offering period to last for up to 24 months from the date of the first effectiveness order.

The initial closing date for the Fund was March 5, 2010, the date at which the Fund raised over $2,500,000 and reached the minimum offering amount. As of September 30, 2010, the Fund has received and accepted cumulative subscriptions for 1,504,938 shares (including the Distribution Reinvestment Plan, or “DRP”, shares) of limited liability company interest (“shares”) for $13,180,685, net of offering costs, including the capital contributions from the Manager.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Use of Estimates

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Loss Per Share

For the second quarter of 2010, the Fund’s quarterly report overstated basic and diluted loss per share by $0.60 due to an error in calculating its weighted average number of shares outstanding during the quarter ended June 30, 2010. The revised loss per share for the quarter ended June 30, 2010 is $0.35. Loss per share reported for other periods were not impacted by this error and the Fund’s management has concluded that the resulting effect of this overstatement was not material to the previously issued financial statements and will reflect the revised loss per share for the quarter ended June 30, 2010 in future filings.

Cash and Cash Equivalents

The Fund considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained with one financial institution.

Income Taxes

Until the initial closing date of March 5, 2010, the Fund was a single member Limited Liability Company and used the liability method for accounting for income taxes in accordance with Accounting Standards Codification (“ASC”) 740 Income Taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation reserves are established when it is determined that it is more than likely than not that the deferred income tax asset will not be realized.

The Fund recorded its benefit for income taxes as amounts due based upon the estimated taxes that would be due if the Fund had filed its income tax returns on a separate entity basis and will be settled via an informal tax sharing agreement with the Manager. The Fund’s share of current and deferred federal and state tax benefits or obligations were recorded as taxes receivable (related party) in the balance sheet as of December 31, 2009.

The Fund received and accepted subscriptions for a minimum offering amount on March 5, 2010. From that date the above guidance no longer applies. The Fund is treated as a partnership for federal and state income tax purposes. As a partnership, the Fund itself is not subject to federal and state income taxes, while each member will be individually liable for income taxes, if any, of its share of net taxable income from the Fund. Interest, dividends and other income realized by the Fund may be subject to withholding tax in the jurisdiction in which the income is sourced.

 

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Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

Development Stage Company

The Fund complies with the reporting requirements of Accounting Standards Codification 915, Development Stage Entities.

New Accounting Pronouncements

In July 2010, the FASB issued ASU 2010-20 Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, an amended guidance for disclosures about the credit quality of financing receivables and the allowance for credit losses. This update amends existing guidance by requiring more robust and disaggregated disclosures by an entity about the credit quality of its financing receivables and its allowance for credit losses. These disclosures will provide financial statement users with additional information about the nature of credit risks inherent in the Company’s financing receivables, how the Company analyzes and assesses credit risk in determining its allowance for credit losses, and the reasons for any changes the Company may make in its allowance for credit losses. This update is generally effective for interim and annual reporting periods ending on or after December 15, 2010; however, certain aspects of the update pertaining to activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company believes the adoption of this update will primarily result in increased notes receivable disclosures, but is not expected to have any other impact on the Company’s financial statements.

In May 2009, the FASB issued ASC 855 Subsequent Events, which sets forth the accounting and disclosure requirements for subsequent events; events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. This guidance requires disclosure of the date through which subsequent events have been evaluated. If the subsequent events are not recognized in the financial statements, this guidance also requires disclosure of the nature and effect of such in the financial statements. The guidance was effective for interim or annual financial periods ending after June 15, 2009. In February 2010, FASB issued ASU 2010-09 Amendments to Certain Recognition and Disclosure Requirements. The guidance requires an entity that is either an SEC filer or a conduit bond obligor for conduit debt securities that are traded in a public market to evaluate subsequent events through the dates financial statements are issued. All other entities are required to evaluate subsequent events through the date financial statements are available to be issued. It also requires all entities excluding the SEC filers to disclose the dates through which the subsequent events have been evaluated. The Fund adopted the amended guidance in the first quarter of 2010. The adoption of the new guidance had no effect on the Fund’s financial statements.

3. PARTICIPATING INTEREST

On March 24, 2010, the Fund entered into a participation agreement with Macquarie Bank Limited (“MBL”) a member of the Macquarie Group of companies to acquire an economic interest of up to 10% ($6,500,000) in a sale leaseback transaction. Pursuant to the participation agreement, the Fund made installment payments to, and will receive monthly payments from, MBL in a manner which mirrors the cash flows arising in connection with the commercial aircraft engines leased by a third party (“the underlying airline”) subject to leases of between 51 to 69 months. MBL will pay the Fund approximately 10% (consistent with the investment percentage) of the monthly lease payments received from the third party and approximately 10% of the engine sales proceeds, remaining maintenance reserves and damages and insurance proceeds (collectively referred to as “residual value”), at the end of the lease term when the engines have been successfully remarketed. Under a separate agreement, the Fund shall pay Macquarie Aviation Capital Limited, a member of the Macquarie Group of companies, via its fund manager, a fee (5% of the lease rental receipts) for the ongoing management of the engines and for the collection and remittance of rentals.

The Fund has paid MBL $6,500,000 (approximately 10% of the transaction value). Therefore, the Fund is entitled to receive cash payments of $57,752 per month and approximately 10% of the residual value. The $6,500,000 investment has been bifurcated on the face of the balance sheet into two assets based upon relative fair value in accordance with the accounting guidance described below:

1) Participating Interest—Engine residual value: Representing the present value of the residual engine value as of the time of investment. The recognition of the asset upon investment is in accordance with ASC 360-10-25 Acquisition of the Residual Value in Leased Asset by a Third Party for an acquisition of the residual value in leased assets by a third party. The asset will be tested for impairment as in accordance with ASC 320 Investments—Debt and Equity Securities.

2) Participating Interest—Future lease income: Representing the present value of the discounted future cash flows as of each balance sheet date based on the accounting guidance of ASC 470-10-25 Sales of Future Revenues or Various Other Measures of Income.

The proceeds related to the residual value will be recouped if remarketing of the engines at the end of the lease term is successful. Any gains or losses on the residual value will be recognized based on the difference between the proceeds and the carrying amount. Income associated with the cash flows will be recognized monthly based on an effective yield over the lease term, based on the accounting guidance of ASC 470-10-25.

 

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Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The Fund is exposed to the credit risk of the underlying airline. Neither MBL nor any other member of the Macquarie Group guarantees the payment obligations of the airline, and the Fund has no recourse against any member of the Macquarie Group in the event the airline fails to meet its payment obligations. Although the Fund currently has no reason to believe that the airline will fail to meet its contractual obligations, a risk of loss to the Fund exists to the extent that the airline fails to meet its payment obligations and the net remarketing proceeds from the sale of (repossessed) equipment are not sufficient to reimburse the Fund for its investment in the transaction. The Fund also faces risk of loss should MBL fail to meet its payment obligation under the participation agreement.

4. TRANSACTIONS WITH AFFILIATES

As discussed in Note 1, the Fund is required to pay fees to the Manager and its affiliates for providing or arranging all services necessary for its operations, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services.

Macquarie Capital (USA) Inc. (the “dealer manager”), a member of the Macquarie Group of companies, will act as dealer manager for the Fund and will manage a group of selling dealers, including other unaffiliated broker dealers.

The Manager and the dealer manager will receive fees from the Fund for offering services during the offering period including:

 

   

Selling commission of up to 7% of the offering proceeds from each share sold by the dealer manager or selling dealers, payable to the dealer manager (and re-allowed to unaffiliated selling dealers);

 

   

Due diligence expense reimbursement for detailed and itemized bona fide accountable due diligence expenses, payable to the dealer manager (and re-allowed to unaffiliated selling dealers);

 

   

Dealer manager fees of 3% of the offering proceeds from each share sold, payable to the dealer manager; and

 

   

Organization and offering expense allowance, which varies based upon the actual organization and offering expenses incurred by the Manager and its affiliates and the number of shares sold, payable to the Manager.

The organization and offering expense allowance will not exceed the actual fees and expenses incurred by the Manager or its affiliates in connection with the Fund’s organization and offering and will be calculated as follows:

 

   

up to 2.433% of the offering proceeds from each share sold for the first 3,500,000 shares;

 

   

up to 2.09% of the offering proceeds from each share sold for shares sold that exceed 3,500,000 but amount to 7,500,000 or fewer shares; and

 

   

up to 1.60% of the offering proceeds from each share sold for shares sold that exceed 7,500,000 shares.

The Fund will pay the Manager and its affiliates fees for operating services performed during the offering period and on an ongoing basis once the Fund has commenced operations, including:

 

   

Acquisition fees of 3% of the purchase price that the Fund pays for each item of equipment or direct or indirect interest in equipment acquired, including under lease agreements, trading transactions, residual value guarantees, pay per use agreements, forward purchase agreements, total lease return swaps, participation agreements, equipment purchase options, other equipment related transactions, joint ventures, special purpose vehicles and other Fund arrangements;

 

   

Asset management fees equal to the lesser of: (a) (i) 5% of gross rental payments from non-full payout leases (except that 1% of gross rental payments shall be payable with respect to non-full payout leases for which management services are performed by non-affiliates under the Manager’s supervision); (ii) 2% of gross rental payments from full payout leases which contain net lease provisions; and (iii) 7% of gross rental payments from equipment for which the Fund provides services in addition to equipment management relating to the continued and active operation of the Fund’s equipment such as, but not limited to, ongoing marketing and re-leasing of equipment and hiring or arranging for the hiring of crews or operating personnel for the Fund’s equipment and similar services; or (b) the amount of fees which are competitive for similar services;

 

   

Remarketing fees equal to the lesser of (i) 3% of the purchase price paid to the Fund by the purchaser of the investment, or (ii) one-half of reasonable, customary and competitive brokerage fees paid for services rendered in connection with the sale of equipment of similar size, type and location. Payment of remarketing fees shall be subordinated until such time when investor return has been achieved. “Investor return” means such time when the aggregate amount of distributions to the members equals, as of any determination date, an amount equal to a pre-tax eight percent (8.0%) per annum internal rate of return compounded daily on all capital contributions of members;

 

   

Out-performance fees depending upon the extent to which investor return has been achieved prior to the time that investor return is achieved, cash distributions will be made 99.0% to the Fund’s members and 1.0% to the Manager. After the time that investor return is achieved, cash distributions will be made 81.0% to the Fund’s members and 19.0% to the Manager and

 

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Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

   

Reimbursement of operating expenses depending upon the scope of services the Manager provides to the Fund.

As of and for the nine months ended September 30, 2010 the Fund has accrued or paid to the Manager or its affiliates the following amounts:

 

Entity

  

Capacity

    

Description

  

Amount

 

Maquarie Asset Management Inc.

   Manager      Organization and Offering expense allowance (1)    $ 364,278   

Macquarie Capital (USA) Inc.

   Dealer Manager      Selling commisions and Dealer manager fees (1)    $ 381,932   

Maquarie Asset Management Inc.

   Manager      Acquisition fees (2)    $ 195,000   

Maquarie Asset Management Inc.

   Manager      Management fee (2)    $ 17,480   

Maquarie Asset Management Inc.

   Manager      Operating Expenses (2)    $ 463,257   

Maquarie Asset Management Inc.

   Manager      Outperformance fee (2)    $ 3,192   

 

(1) Amount charged directly to members’ equity.
(2) Amount charged directly to operations.

5. EQUITY CONTRIBUTION

As of September 30, 2010, the Fund has received and accepted subscriptions for 1,504,938 shares of limited liability company interest (including the DRP shares) for $13,180,685, net of offering costs. The subscriptions received include total contributions of $1,505,000 from the Manager, excluding the offering costs.

6. SUBSEQUENT EVENTS

As of November 15, 2010 the Fund has raised and accepted additional cumulative subscription for 276,427 shares of limited liability company interest for $2,421,902, net of offering cost.

In October 2010, the fund acquired 451 new NCR Self-Serv kiosks (customer self-service terminals). These customer self-service terminals are on lease to a leading U.S. retailer for a remaining 59 month period and will be used in the retailer’s stores across the U.S. The retailer is an existing client of an entity affiliated with the Fund’s manager. The acquisition of the equipment was facilitated by the entity affiliated with the Fund’s manager purchasing the equipment and then simultaneously selling it to the Fund. The purchase price for the equipment was $2,036,265, paid directly by the Fund to the manufacturer of the equipment. No leverage was used to finance this acquisition by the Fund. Rentals of $38,361 are paid monthly and at the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or purchase the equipment for its then fair market value.

In connection with the transaction, the Manager was paid an acquisition fee in the amount of $61,088 and will receive monthly asset management fees of approximately $1,918 per month.

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In early November 2010, the Fund acquired various items of furniture and other related equipment for use in model display apartments. This equipment is on lease to a leading U.S. owner and operator of senior housing and retirement communities for a 36 month period. The equipment will be used in the client’s facilities across the U.S. The purchase price for the equipment was $676,423. The Fund did not utilize any debt financing to fund the purchase price for the equipment. Rentals of $21,646 are paid monthly and at the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or purchase the equipment for its then fair market value.

In connection with the transaction, the Manager was paid an acquisition fee in the amount of $20,293 and will receive monthly asset management fees in the amount of $1,082 per month.

 

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

The following is a discussion of our current financial position. This discussion should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, the audited financial statement and related notes included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 15, 2010, and with our Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on October 15, 2008, as amended (“Registration Statement”). This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements.”

As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include Macquarie Equipment Leasing Fund, LLC (the “Fund”).

Forward-Looking Statements

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview

Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company, was formed on August 21, 2008 for the purpose of acquiring a diversified portfolio of equipment and equipment leases. The Fund will also make investments in other equipment related transactions which will allow it to directly or indirectly participate in the benefits and risks of equipment ownership or usage.

The Fund is currently in its offering period, which commenced on June 19, 2009 and is anticipated to end in June 2011. It is currently in the process of raising capital. On March 5, 2010, subscriptions for the minimum number of shares of limited liability company interest (“Shares”), being 290,509 Shares for $2,837,350, excluding subscriptions from Pennsylvania investors, had been received. As a result, subscription proceeds were released from escrow to commence principal operations and reimburse organization and offering fees and expenses. Subsequent capital contributions will be used to fund operations, invest in equipment, equipment leases and other equipment related transactions and pay fees and expenses as described in the Fund’s Registration Statement. As of November 15, 2010, the Fund has received and accepted cumulative subscriptions for 1,781,365 Shares for $15,602,587, net of offering costs. When the Fund’s offering period ends, the Fund will enter into its operating period, whereupon it may continue to make investments in equipment, equipment leases and other equipment related transactions.

The Fund is offering a total of 15,000,000 Shares for a price of $10.00 per share, subject to certain reductions. The Fund is also offering up to 800,000 Shares pursuant to its Distribution Reinvestment Plan (“DRP”) at a public offering price of $9.00 per Share. The Fund’s manager, Macquarie Asset Management Inc. (“Manager”), has contributed a total of $1,505,000. The Fund’s fiscal year end is December 31.

 

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Recent Transaction

On March 24, 2010, the Fund entered into a participation agreement with Macquarie Bank Limited (“MBL”) and invested in a portfolio of eight commercial jet aircraft engines. The engines, purchased by a wholly owned member of the Macquarie Group Limited group of companies (“the Macquarie Group”), are subject to leases of between 51 and 69 months to a major Australian commercial passenger airline. Six of the engines were manufactured by CFM International, Inc. (a joint venture between General Electric and SNECMA, a French Government owned engine manufacturer) for use on Boeing 737 New Generation aircraft, and two of the engines were manufactured by General Electric for use on the Embraer 190 and 195 aircraft. The engines have a remaining useful life of between approximately 15 and 30 years.

Under the participation agreement, the Fund is entitled to receive from MBL an amount equal to approximately 10% of the cashflows associated with the portfolio of engines. These cashflows include rentals, engine sales proceeds, damages and insurance proceeds, and any residual maintenance reserves. For the right to participate in these cashflows, the Fund paid a participation price of $6,500,000 to MBL, representing approximately 10% of the costs incurred to purchase the engines. This amount consists entirely of investor capital with no debt, or leverage, having been incurred to fund payment of the participation price installment.

The Fund is exposed to the credit risk of the underlying airline. Neither MBL nor any other member of the Macquarie Group guarantees the payment obligations of the airline, and the Fund has no recourse against any member of the Macquarie Group in the event the airline fails to meet its payment obligations. Although the Fund currently has no reason to believe that the airline will fail to meet its contractual obligations, a risk of loss to the Fund exists to the extent that the airline fails to meet its payment obligations and the net remarketing proceeds from the sale of (repossessed) equipment are not sufficient to reimburse the Fund for its investment in the transaction. The Fund also faces risk of loss should MBL fail to meet its payment obligation under participant agreement.

The engines are located in Australia. All payments under the participation agreement and in the underlying leases are in U.S. dollars.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our 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 expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Investments in Participating Interest

Our participating interest in the sales leaseback transaction consists of the sum of the total fair value of the future minimum lease payments receivable plus the estimated fair value of the unguaranteed residual value of the leased equipment. Bifurcation of the investment into the portions attributable to the Residual Value and the Future Lease Income and the timing of income recognition has been based on estimates. Assumptions have been made regarding engine utilization, condition and maintenance costs based on independent third party data.

Results of Operations for the Quarter and Nine Months Ended September 30, 2010

We are currently in our offering period. The minimum offering of $2,500,000 was achieved on March 5, 2010. Through September 30, 2010, we have received and accepted cumulative subscription of $13,180,685, net of offering costs and as at November 15, 2010, the Fund had raised total equity of $15,602,587, net of offering costs. Investors from the Commonwealth of Pennsylvania, where a minimum offering amount of $7,500,000 applies, were admitted as members of the Fund in June.

Total revenue for the quarter and nine months ended September 30, 2010 were $49,070 and $90,723, respectively, which was primarily due to the income recognized from our investment in a participation agreement with Macquarie Bank Limited in connection with a portfolio of eight commercial jet aircraft engines.

Total expenses for the quarter and nine months ended September 30, 2010 were $173,432 and $691,262 respectively, which were comprised primarily of operating expenses, management and acquisition fees to the Manager. As a result of the foregoing factors, the net loss for the quarter and nine months ended September 30, 2010 were $124,362 and $600,539, respectively.

 

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Liquidity and Capital Resources

Cash Flows Summary

At September 30, 2010, the Fund had cash and cash equivalents of $6,892,521. During our offering period, our main source of cash will be from financing activities and our main use of cash will be to acquire a diversified portfolio of equipment, equipment leases and other equipment related-investments. We will also make investments in other equipment related transactions which will allow us to directly or indirectly participate in the benefits and risks of equipment ownership or usage.

Cash and cash equivalents include cash in banks and highly liquid investments with original maturity dates of three months or less. Until offering proceeds are used for the acquisition or operation of the Fund’s portfolio, the offering proceeds will be held in an operating account at Wells Fargo Bank, National Association. In addition, pursuant to the terms of our offering, the Fund will establish working capital reserves of approximately 1.0% of the gross offering proceeds.

Sources and Uses of Cash

The Fund will continue to sell its shares until the end of the offering period. As additional shares are sold, the Fund will experience an increase in liquidity as cash is received. As the Fund uses cash to acquire equipment or other equipment-related investments, its liquidity will decrease. The Fund’s maximum offering amount is $150,000,000, plus up to an additional $7,200,000 under the Fund’s DRP.

For the period from inception through September 30, 2010, we sold 1,504,938 Shares (including the DRP shares), representing $13,180,685 of capital contributions, net of offering costs. For the period from the commencement of our operations on March 5, 2010 through September 30, 2010, we have paid or accrued sales commissions to third parties of $ 898,145, and dealer manager commissions to Macquarie Capital (USA) Inc. of $381,932. In addition, organization and offering expenses of $364,278 were paid or incurred by us to our Manager or its affiliates during this period.

Sources of Liquidity

Cash generated from our financing activities will be our most significant source of liquidity during our offering period. We believe that cash generated from our financing activities, as well as the expected results of our operations, will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our members, Manager and administrative expenses, new investment opportunities, management fees and administrative expense reimbursements. Our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our lessees’ businesses that are beyond our control.

The Fund’s liquidity may be adversely affected by unanticipated or greater than anticipated operating costs or losses, including the inability of a client of the Fund to make timely lease payments. The Fund anticipates that it will fund its operations from cash flow generated by operating and financing activities. The Manager has no intent to permanently fund any cash flow deficit of the Fund or provide other financial assistance to the Fund.

The Fund also intends to incur indebtedness in purchasing its portfolio. During periods of general illiquidity in financial markets, it may not be possible for the Manager to source debt on the Fund’s behalf at an appropriate interest rate, on appropriate terms, at appropriate levels or at all.

Distributions

The Fund began making monthly cash distributions on April 15, 2010. We paid cash distributions to the members in the amount of $165,350 and $255,660 for the quarter and nine months ended September 30, 2010.

While the Fund anticipates making monthly cash distributions, it may vary the amount of, or completely suspend making distributions at any time and without notice.

 

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Commitments, Contingencies and Off-Balance Sheet Transactions

Other than obligations associated with our investing activities or as set forth in our Operating Agreement, we have no contractual obligations and commitments, contingencies or off-balance sheet transactions at September 30, 2010.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

 

Item 4. Controls and Procedures

Under the direction and with the participation of our Manager’s President and Principal Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Manager’s President and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2010. There has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

In the ordinary course of conducting our business, there may be certain claims, suits and complaints filed against us. In the opinion of management, the outcome of such matters, if any, will not have a material impact on our financial position. No material legal proceedings are currently pending or threatened, to our knowledge, against us or against any of our assets.

 

Item 1a. Risk Factors

There have been no material changes from the risk factors disclosed in our Post-Effective Amendment No. 2 to Registration Statement on Form S-1, dated June 8, 2010.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) We registered 15,800,00 shares of limited liability company interest, (SEC File No. 333-154278, effective June 19, 2009), of which we registered 15,000,000 shares at $10.00 per share to be offered to the public in a primary offering and 800,000 shares offered to our investors pursuant to our DRP at $9.00 per share. The Fund is currently in its offering period, which commenced on June 19, 2009 and is anticipated to end in June 2011.

Through November 15, 2010, we received capital contributions in the amount of $15,602,587, net of offering costs. Through November 15, 2010, we have paid or accrued sales commissions to third parties of $1,096,594, organization and offering expense to our Manager of $430,253, and dealer manager and selling commissions to Macquarie Capital (USA) Inc. of $447,122.

As of November 15, 2010 we have used approximately $9.2 million of the offering proceeds to acquire a participation interest in a portfolio of commercial jet aircraft engines, 451 self-serve kiosks on lease to a major U.S. retailer and various items of furniture and other related equipments on lease to leading U.S owner and operator of senior housing and retirement communities. This is described in further detail under Management’s Discussion and Analysis of Financial Condition and Result of Operations—Recent Transaction and Note 6, Subsequent Events under Notes to the financial statements.

 

Item 3. Defaults Upon Senior Securities

Not applicable.

 

Item 4. [Removed and Reserved]

 

Item 5. Other Information

None.

 

Item 6. Exhibits

An exhibit index has been filed as part of this Report on page E-1.

 

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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.

 

MACQUARIE EQUIPMENT LEASING FUND, LLC
By:  

/S/    DAVID FAHY        

  
Name:   David Fahy   
Title:  

President of the Manager and Principal Executive

Officer of Registrant

  
  Date: November 15, 2010   
By:  

/S/    FRANK V. SARACINO        

  
Name:   Frank V. Saracino   
Title:  

Principal Financial Officer of the Manager and Principal

Accounting Officer of Registrant

  
  Date: November 15, 2010   

 

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Exhibit Index

 

Exhibit
Number

  

Description

31.1*    Rule 13a-14(a)/15d-14(a) Certification of President of the Manager and Principal Executive Officer of Registrant.
31.2*    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant
32.1*    Section 1350 Certification of President of the Manager and Principal Executive Officer of Registrant
32.2*    Section 1350 Certification of Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant

 

* Filed herewith.

 

E-1