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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, 2011

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, 17th 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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    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 6,032,500 shares of limited liability company membership interests outstanding at November 10, 2011.

 

 

 


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

Table of Contents

 

Part I.    Financial Information   
Item 1.    Financial Statements   
  

Balance Sheets as of September 30, 2011 and December 31, 2010 (Unaudited)

     3   
  

Statements of Operations for the period from August 21, 2008 (inception of the Fund) to September 30, 2011 and the Quarters and Nine Months Ended September 30, 2011 and 2010 (Unaudited)

     4   
  

Statements of Cash Flows for the period from August 21, 2008 (inception of the Fund) to September 30, 2011 and the Nine Months Ended September 30, 2011 and 2010 (Unaudited)

     5   
  

Statements of Changes in Members’ Equity for the period from August 21, 2008 (inception of the Fund) to September 30, 2011 (Unaudited)

     6   
   Notes to Financial Statements (Unaudited)      7   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      14   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      18   
Item 4.    Controls and Procedures      18   
Part II.    Other Information   
Item 1.    Legal Proceedings      19   
Item 1A.    Risk Factors      19   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      19   
Item 3.    Defaults Upon Senior Securities      19   
Item 4.    Removed and Reserved      19   
Item 5.    Other Information      19   
Item 6.    Exhibits      19   
   Signatures      20   

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.

 

2


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, 2011     December 31, 2010  

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 23,423,290      $ 8,970,075   

Restricted cash

     1,443,263        —     

Participating interest - Future lease income (related party)

     695,229        695,229   

Net investment in finance lease

     295,729        188,673   

Lease receivable

     346,078        76,722   

Prepayment (related party)

     1,918        —     

Maintenance reserve and other receivable

     103,210        —     
  

 

 

   

 

 

 

Total Current Assets

     26,308,717        9,930,699   

Non-current Assets

    

Participating interest - Residual value (related party)

     3,823,018        3,823,018   

Participating interest - Future lease income (related party)

     1,225,056        1,623,662   

Net investment in finance lease

     532,775        485,582   

Leased equipment at cost (net of accumulated depreciation of $1,004,212 and $56,877, respectively)

     17,649,700        2,040,476   
  

 

 

   

 

 

 

Total Non-current Assets

     23,230,549        7,972,738   
  

 

 

   

 

 

 

Total Assets

   $ 49,539,266      $ 17,903,437   
  

 

 

   

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

    

Current Liabilities

    

Commissions and fees payable (related party)

   $ 1,487,684      $ 889,411   

Capital contributions received in advance

     210,000        41,900   

Lease payments received in advance

     563,222        28,876   

Distribution payable

     353,154        135,953   

Other payable

     206,847        3,220   
  

 

 

   

 

 

 

Total Current Liabilities

     2,820,907        1,099,360   

Non-current Liabilities

    

Maintenance reserves

     1,543,389        —     
  

 

 

   

 

 

 

Total Non-current Liabilities

     1,543,389        —     
  

 

 

   

 

 

 

Total Liabilities

     4,364,296        1,099,360   

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 inselling commissions

    

Authorized: 15,800,500 shares;

    

Issued and outstanding: 5,580,307 shares as of September 30, 2011 and 2,113,196 shares as of December 31, 2010

     45,915,184        17,734,339   

Deficit accumulated during development stage

     (740,214     (930,262
  

 

 

   

 

 

 

Total Members’ Equity

     45,174,970        16,804,077   
  

 

 

   

 

 

 

Total Liabilities and Members’ Equity

     49,539,266        17,903,437   
  

 

 

   

 

 

 

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, 2011
    Quarter Ended     Nine Months Ended  
     September 30, 2011      September 30, 2010     September 30, 2011      September 30, 2010  

REVENUE

            

Participating interest income (related party)

   $ 257,084      $ 37,827       $ 49,070      $ 121,162       $ 90,510   

Finance and rental income

     2,028,475        1,000,310         —          1,937,686         —     

Other income

     614        —           —          401         213   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

     2,286,173        1,038,137         49,070        2,059,249         90,723   

EXPENSES

            

Operating expenses (related party)

     1,253,883        166,286         152,674        403,753         463,257   

Acquisition fees (related party)

     195,000        —           —          —           195,000   

Management fees (related party)

     189,212        86,410         8,663        157,069         17,480   

Depreciation

     1,004,212        527,671         —          947,335         —     

Other expenses

     384,298        167,721         12,095        361,044         15,525   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses

     3,026,605        948,088         173,432        1,869,201         691,262   

Net (loss) income before income taxes

     (740,432     90,049         (124,362     190,048         (600,539

Income tax benefit

     218        —           —          —           —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net (loss) income

   $ (740,214   $ 90,049       $ (124,362   $ 190,048       $ (600,539
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Basic and diluted (loss) gain per share

   $ (0.60   $ 0.02       $ (0.10   $ 0.05       $ (0.85

Weighted average number of shares outstanding: basic and diluted

     1,224,997        4,971,943         1,252,649        3,762,206         708,265   

See accompanying notes to the Financial Statements.

 

4


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, 2011
             
              
     Nine Months Ended  
     September 30, 2011     September 30, 2010  

Cash flow from operating activities:

      

Net (loss) income

   $ (740,214   $ 190,048      $ (600,539

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

      

Depreciation

     1,004,212        947,335        —     

Changes in operating assets and liabilities:

      

Commission and fees payable (related party)

     1,242,929        378,135        471,918   

Equipment lease receivable

     (346,078     (269,356     —     

Net investment in finance lease

     184,339        155,114        —     

Taxes receivable (related party)

     —          —          134   

Prepayment (related party)

     (1,918     (1,918     —     

Other receivable

     (3,085     (3,085     (130

Other payable

     193,720        190,500        —     

Lease payments received in advance

     563,222        534,346        28,876   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     2,097,127        2,121,119        (99,741
  

 

 

   

 

 

   

 

 

 

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)

     756,697        398,606        230,246   

Purchase of equipment

     (18,640,785     (16,543,432     —     

Investment in capital leased asset

     (1,012,842     (309,362     —     

Restricted cash

     (1,443,263     (1,443,263     —     
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (26,840,193     (17,897,451     (6,269,754
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities:

      

Proceeds from issuance of shares (including related party)

     54,452,514        33,695,370        14,756,504   

Payment of offering related expenses

     (6,014,947     (3,663,578     (1,644,382

Distribution paid to members

     (1,883,039     (1,386,123     (255,660

Capital contributions received in advance

     210,000        168,100        401,080   

Repurchase of shares

     (41,434     (27,484     —     

Maintenance reserves

     1,443,263        1,443,263        —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     48,166,357        30,229,548        13,257,542   
  

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     23,423,290        14,453,215        6,888,047   

Cash and cash equivalents, beginning of the period

     —          8,970,075        4,474   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 23,423,290      $ 23,423,290      $ 6,892,521   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information

      

Non cash investing and financing activities

      

Issuance of shares under distribution reinvestment plan

   $ 761,154      $ 619,773      $ 63,563   

Accrued purchase of equipment and investment in capital leased asset

   $ 13,127      $ 13,127      $ —     

Accrued offering cost

   $ 244,755      $ 244,755      $ —     

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, 2011

(Unaudited)

 

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

Opening balance - August 21, 2008

     —        $ —        $ —        $ —     

Issuance of members’ shares

     5,500,256        52,947,514        1,505,000        54,452,514   

Issuance of members’ shares - Distribution Reinvestment Plan

     84,573        761,154        —          761,154   

Offering - related expenses

     —          (6,172,073     (87,629     (6,259,702

Repurchase of shares

     (4,522     (41,434     —          (41,434

Distribution to members

     —          (2,822,950     (174,398     (2,997,348

Net loss

     —          (638,880     (101,094     (740,214
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

     5,580,307      $ 44,033,331      $ 1,141,879      $ 45,174,970   
  

 

 

   

 

 

   

 

 

   

 

 

 

  

 

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

See accompanying notes to the Financial Statements.

 

6


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 earns 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 reimburses 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. 3 to Registration Statement on Form S-1 (the “Registration Statement on Form S-1”) with the Securities and Exchange Commission on April 11, 2011. 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 Manager made an initial capital contribution of $5,000. The Manager made additional capital contributions to the fund on March 31, 2010 and June 22, 2010 for $500,000 and $1,000,000, respectively. 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 33 months from the date of the first effectiveness order. This follows approval during June, 2011 by the Manager, by shareholders holding a majority of the Fund's shares, and by regulators, to extend the share offering period from 24 to 33 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. For the period from inception through September 30, 2011, the Fund has received and accepted cumulative subscriptions for 5,580,307 shares (including the Distribution Reinvestment Plan, or “DRP”, shares and net of repurchase of shares) of limited liability company interest (“shares”) for $48,912,532 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.

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.

Restricted Cash

Restricted cash consists of cash collected for aircraft maintenance reserves as discussed in Note 4, Leased Equipment at Cost.

Income Taxes

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, on their 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.

Leased Equipment at Cost

Investment in leased equipment is stated at cost less accumulated depreciation. Leased equipment is depreciated on a straight line basis over the lease term to the assets’ residual value. The factors considered in determining the residual value include, but are not limited to, the type of equipment, how the equipment is integrated into the potential lessee’s business, the length of the lease and the industry in

 

7


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

which the potential lessee operates. Initial direct costs associated with the leases are included in the leased equipment cost.

Maintenance reserve

Where the lessee is responsible for maintenance and repairs, including major maintenance events over the term of the lease, the lessee pays additional rentals based on the usage of the equipment. This is recognized as a liability on the Fund’s Balance Sheet. As the maintenance is performed, the lessee is reimbursed for costs incurred up to, but not exceeding, the related additional rentals the Fund receives from the lessee. For each maintenance event, the difference between the liability and reimbursement paid to the lessee is recorded as revenue when management is satisfied that the remaining reserve is considered sufficient to cover future maintenance or repairs.

Revenue recognition

For finance leases, at inception date, the Fund records the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, the initial direct costs related to the lease and the related unearned income in Net Investment in Finance Lease. Unearned income represents the difference between the sum of the minimum lease payments receivable, plus the estimated unguaranteed residual value, minus the cost of the leased equipment. Unearned income is recognized as finance income in the Statement of Operations over the term of the lease using the effective interest rate method.

For operating leases, rental income is recognized on a straight-line basis over the lease term.

Impairments

The significant assets in the Fund’s portfolio are reviewed for impairment at least annually or when indicators of impairment exist. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair market value. The Manager’s assessment for impairment includes review of published values for similar assets, recent transactions for similar assets, lease terms, asset condition, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset. No impairments have been recorded since inception of the Fund.

Allowance for doubtful accounts

The Fund evaluates the collectability of its receivables by analyzing the counterparties’ payment history, general creditworthiness and current economic trends. The Fund records an allowance when the analysis indicates that the probability of full collection is unlikely. No allowance was deemed necessary as at September 30, 2011.

Write offs

The Fund takes write offs when it determines that a receivable is uncollectible and when all economically sensible means of recovery have been exhausted. No write offs have been required since the inception of the Fund.

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 Accounting Standards Update (“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 a company’s financing receivables, how a company analyzes and assesses credit risk in determining its allowance for credit losses, and the reasons for any changes a company may make in its allowance for credit losses. The disclosure as of the end of a reporting period are 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 adoption of the new guidance had no significant effect on the Fund’s financial statements.

In May 2011, the FASB issued new guidance ASU 2011-4, Fair Value Measurements - amendments to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This new guidance amends

 

8


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this new guidance, in the first quarter of 2012 is not expected to have a significant impact 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 is entitled to receive cash payments of $57,752 per month and approximately 10% of the residual value from MBL. 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 acquisition of the residual value in leased assets by a third party has been recorded in accordance with ASC 360-10-25 Acquisition of the Residual Value in Leased Asset by a Third Party. The asset is tested for impairment in accordance with ASC 360-35-14 Adjusting the Residual Value in Leased Assets by a Third Party. No impairments have been recognized since the acquisition of the economic interest.

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.

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. Income associated with the cash flows will be recognized monthly based on an effective yield over the lease term as required by ASC 470-10-25.

On September 26, 2011, MBL entered into a conditional sale agreement to sell the engines that the Fund has the participating interest in. The sale is expected to be completed by February 29, 2012. The Fund will continue to classify the non-current portion of the participating interest as a non-current asset until the sale is completed by MBL.

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 underlying airline, and the Fund has no recourse against any member of the Macquarie Group in the event the underlying airline fails to meet its payment obligations. Although the Fund currently has no reason to believe that the underlying airline will fail to meet its contractual obligations, a risk of loss to the Fund exists to the extent that the underlying 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. LEASED EQUIPMENT AT 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 period of 59 months 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, including the initial direct costs was $2,097,353. No leverage was used to finance this acquisition by the Fund. Rentals of $38,361 are received monthly by the Fund. At the end of the lease term the lessee may return the equipment, continue to rent the

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

equipment, or purchase the equipment for its then fair market value.

In March 2011, the Fund entered into an agreement to purchase a 2002 vintage Bombardier CRJ-700ER aircraft (“the Aircraft”). The Aircraft is on lease until April 2014 to an airline which is wholly owned by the Government of India and will be used by the airline for its domestic routes in India. The purchase price for the aircraft, including the estimated initial direct costs was $9,771,861. The Fund also inherited the related maintenance reserve of $1,236,497, which is recorded as a liability on the Balance Sheet. No leverage was used to finance this acquisition by the Fund. At the end of the lease term, the lessee may return or continue to rent the equipment. Rentals of $181,000 are received monthly by the Fund. In addition to the inherited maintenance reserve balance, the Fund is entitled to receive additional rentals based on the usage of the aircraft during the lease term. Cash received for the additional rentals is presented as restricted cash in the Fund’s Balance Sheet and will be used to reimburse the lessee for the maintenance of the aircraft.

In July 2011, the Fund acquired an ETS-364B Test System, an item of semiconductor testing equipment manufactured by Teradyne, Inc. This equipment is on lease to the U.S. subsidiary of a semiconductor manufacturing company headquartered in Germany. The lease is for 36 months and the equipment will be used in the client’s U.S. facilities. The purchase price for the equipment, including the initial direct cost, was $383,898. No leverage was used to finance this acquisition by the Fund. The first rental was $92,729, including an amount of revenue which will be deferred for accounting purposes. For the subsequent monthly rental periods, rentals of $8,211 are to be received by the Fund. 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. The lease will be recorded as an operating lease with rental income recognized on a straight line basis over the lease term.

In September 2011, the Fund entered into a sale and assignment agreement with Macquarie Electronics USA Inc. (“MEUI”) a member of the Macquarie group of companies to acquire semiconductor manufacturing tools of various makes on lease to a major global manufacturer of semiconductor products. The remaining term of the lease is for10 months and the equipment will be used in the client’s U.S. facilities. The purchase price for the equipment, including the initial direct cost, was $6,400,800. No leverage was used to finance this acquisition by the Fund. The first rental was $699,129, including an amount of revenue which will be deferred for accounting purposes. For the subsequent quarterly rental periods, rentals of $699,129 are to be received by the Fund. 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. The lease will be recorded as an operating lease with rental income recognized on a straight line basis over the lease term.

Leased equipment at cost consists of the following:

      September 30, 2011     December 31, 2010  

Self-serve checkout equipment

   $ 2,097,353      $ 2,097,353   

Aircraft

     9,758,861        —     

Semiconductor Equipment

     383,898        —     

Semiconductor Tools

     6,400,800        —     

Less: Accumulated depreciation

     (1,004,212     (56,877
  

 

 

   

 

 

 
   $ 17,649,700      $ 2,040,476   
  

 

 

   

 

 

 

Annual minimum future rental receivable over the next 5 years consist of the following:

 

For the period October 1 to December 31, 2011

   $ 1,690,340   

For the year ending December 31, 2012

     4,129,124   

For the year ending December 31, 2013

     2,730,866   

For the year ending December 31, 2014

     1,232,822   

For the year ending December 31, 2015

     345,251   
  

 

 

 
   $ 10,128,403   
  

 

 

 

The Fund is exposed to risks under these transactions, including risk associated with the leasing clients’ creditworthiness and risks associated with the future market value of the equipment. Although the Fund currently has no reason to believe that the clients will fail to meet their contractual obligations, a risk of loss to the Fund exists should the client fail to meet its payment obligations under the lease. A risk of loss or lower than expected returns also exists if the market value of the equipment at the end of the lease term is lower than anticipated.

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

5. NET INVESTMENT IN FINANCE LEASE

In November 2010, the Fund entered into a lease agreement with a U.S. owner and operator of senior housing and retirement communities, to provide various items of furniture and other related equipment for use in model display apartments and office equipment for use in the administrative offices. To date, $1,013,405 has been purchased which is subject to leases of between 36 and 39 months. With quarterly rentals ranging from $7,861 to $15,481 and a monthly rental of $21,646. No leverage was used to finance the above acquisitions by the Fund. 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.

Net investment in finance lease (current and non-current) consists of the following:

 

      Septmeber 30, 2011     December 31, 2010  

Minimum lease payments receivable

   $ 865,639      $ 735,949   

Estimated residual values of leased property (unguaranteed)

     109,398        72,354   

Less: Unearned income

     (146,533     (134,048
  

 

 

   

 

 

 

Net investment in finance lease

   $ 828,504      $ 674,255   
  

 

 

   

 

 

 

Annual minimum future rental receivable over the next 4 years consist of the following:

 

For the period October 1 to December 31, 2011

   $ 104,100   

For the year ending December 31, 2012

     374,753   

For the year ending December 31, 2013

     331,464   

For the year ending December 31, 2014

     55,322   
  

 

 

 
   $ 865,639   
  

 

 

 

The Fund is exposed to risks under these transactions, including risk associated with the leasing client's creditworthiness and risks associated with the future market value of the equipment. Although the Fund currently has no reason to believe that the client will fail to meet its contractual obligations, a risk of loss to the Fund exists should the client fail to meet its payment obligations under the lease. A risk of loss or lower than expected returns also exists if the market value of the equipment at the end of the lease term is lower than anticipated.

6. 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, acts as dealer manager for the Fund and manages a group of selling dealers, including other unaffiliated broker dealers.

The Manager and the dealer manager 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;

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

   

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 pays 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

 

   

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

For the quarters and nine months ended September 30, 2011 and 2010 the Fund has accrued or paid to the Manager or its affiliates the following amounts:

 

               Quarter Ended September 30,      Nine Months Ended September 30,  

Entity

  

Capacity

  

Description

   2011      2010      2011      2010  

Maquarie Asset Management Inc.

   Manager    Organization and Offering expense allowance (1)    $ 280,432       $ 124,495       $ 758,602       $ 364,278   

Macquarie Capital (USA) Inc.

   Dealer Manager    Selling commisions and Dealer Manager fees (1)    $ 296,703       $ 186,528       $ 760,931       $ 381,932   

Macquarie Capital (USA) Inc.

   Dealer Manager    Due diligence expense (1)    $ 2,270       $ —         $ 40,908       $ —     

Maquarie Asset Management Inc.

   Manager    Acquisition fees (2)    $ 198,578       $ —         $ 478,789       $ 195,000   

Maquarie Asset Management Inc.

   Manager    Management fee (3)    $ 86,410       $ 8,663       $ 157,069       $ 17,480   

Maquarie Asset Management Inc.

   Manager    Operating Expenses (3)    $ 129,664       $ 152,674       $ 367,131       $ 463,257   

Maquarie Asset Management Inc.

   Manager    Outperformance fee (3)    $ 12,676       $ 2,107       $ 23,592       $ 3,192   

 

(1) Amount charged directly to members’ equity.
(2) Amount either charged directly to operations or capitalized and amortized.
(3) Amount charged directly to operations.

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

The Fund has also entered into agreements with affiliates involving participation rights and the purchase of equipment as discussed in Notes 3 and 5, respectively.

7. EQUITY CONTRIBUTION

For the period from inception through September 30, 2011, the Fund has received and accepted subscriptions for 5,580,307 shares of limited liability company interest (including the DRP shares and net of repurchase of shares) for $48,912,532 net of offering costs. The subscriptions received include total contributions of $1,505,000 from the Manager, excluding the offering costs.

8. SUBSEQUENT EVENTS

As of November 10, 2011 the Fund has raised and accepted additional cumulative subscription for 452,192 shares of limited liability company interest for $3,977,142, net of offering costs.

On October 27, 2011, the Fund has agreed to enter into a sale and leaseback arrangement with a leading Dubai airline over two new CFM56-7B aircraft jet engines (“Engines”) to power the airline's fleet of 737NG aircraft for approximately $24 million and has entered into a nine year lease with the airline. The first engine was delivered on October 31, 2011, and the second engine is scheduled for delivery in mid November 2011. Lease rentals will be paid to the Fund in U.S. dollars on a monthly basis. At the end of the lease term, the lessee may return the Engines, purchase them at their then fair market value, or continue to rent them. There was no debt used to fund the acquisition by the Fund.

 

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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 and results of operations. 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 statements and related notes included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 15, 2011, 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 March 2012. This follows approval during June, 2011 by the Manager, by shareholders holding a majority of the Fund's shares, and by regulators, to extend the share offering period from 24 to 33 months from the date of the first effectiveness order. The Fund 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 are being 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 10, 2011, the Fund has received and accepted cumulative subscriptions for 6,032,500 Shares (including the DRP shares and net of repurchase of shares) for $52,889,674, 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.

Recent Transactions

Semiconductor Tools Portfolio

On September 2, 2011, the Fund acquired 11 semiconductor manufacturing tools of various makes on lease to a major global manufacturer of semiconductor products for a 10 month period. These tools, which are located in the U.S., are used in the manufacture of memory storage components including DRAM, NAND Flash and NOR Flash memory used in leading edge computing, consumer, networking, embedded and mobile products. At the time of purchase, these tools were approximately four years old. The tools, together with rights under the associated lease, were purchased from a major equipment financier in the U.S., via an affiliate of the Manager. The purchase price for the equipment, including the estimated initial direct costs was $6,400,800. The Fund did not utilize any debt financing to fund the purchase price of the equipment. Rentals are paid quarterly, with four rental payments to be received during the initial lease term. At the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or request to purchase the equipment for its then fair market value.

 

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Semiconductor Tool

On July 1, 2011, the Fund acquired, a new ETS-364B Test System, being an item of semiconductor testing equipment manufactured by Teradyne. This equipment is on lease to the U.S. subsidiary of a semiconductor manufacturing company for a 36 month period and equipment will be used in the client’s facilities in the U.S. The purchase price for the equipment, including the initial direct costs was $383,898. The Fund did not utilize any debt financing to fund the purchase price of the equipment. Rentals are paid monthly. At the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or request to purchase the equipment for its then fair market value.

Aircraft Engine Portfolio

The Fund holds an approximately 10% interest in a portfolio of eight aircraft jet engines on lease to a leading Australian airline, with the remaining balance owned by MBL, an affiliate of the Manager. On September 26, 2011, MBL entered into a conditional agreement to sell its entire portfolio of aircraft jet engines, including those in which the Fund has a participation interest, to a third party. As stated in the participation agreement entered into between the Fund and MBL, the Fund is entitled to a share of the sale proceeds of the aircraft jet engine portfolio in line with its participation interest amount. The final amount payable to the Fund in respect of the sale of its interest in the engines has not been finalized pending the agreement of lease novation arrangements with the lessee. The Fund will receive its payments within five days of the receipt of sale of each relevant engine in which it holds an interest. The participation agreement will terminate subsequent to the Fund receiving its full amounts due in respect of the relevant engines.

Proceeds received from the sale of the engines will be re-invested in new lease transactions as determined appropriate by the Manager.

Office Equipment

During the third quarter of 2011, the Fund acquired items of office equipment for use in the administrative offices of an existing client. The client is a leading U.S. owner and operator of senior housing and retirement communities, and the equipment is on lease for a period of 39 months. The purchase price for the equipment, including the estimated initial direct costs was $84,345. No leverage was used to finance this acquisition by the Fund. Rentals are to be received quarterly by the Fund. 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.

Extension of Offering Period

During June 2011, the Fund’s offering period was extended by nine months from June 19, 2011 to March 19, 2012, or until such earlier time as (a) the Fund’s maximum offering has been sold, or (b) the Manager otherwise terminates the Fund’s offering. This will result in a maximum total offering period for the Fund of two years and nine months. This extension was approved by the Manager, by shareholders holding a majority of the Fund's shares, and by various regulators.

To maintain the same total anticipated Fund duration, the Fund’s operating period has been reduced by a corresponding nine month period, such that the operating period will end four years and three months after the end of the offering period, provided that the operating period may be extended at the discretion of the Manager by a further period not exceeding an additional twelve (12) months. The Fund may undertake investing activities during both the offering and operating periods.

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 have been based on estimates. Assumptions have been made regarding engine utilization, condition and maintenance costs based on independent third party data.

Leased Equipment at Cost

Leased equipment is depreciated on a straight line basis over the lease term to the assets’ estimated residual value. The factors considered in

 

15


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estimating the residual value include, but are not limited to, the type of equipment, how the equipment is integrated into the potential lessee’s business, the length of the lease and the industry in which the potential lessee operates. The economic life of the leased equipment is also estimated to determine the classification of the lease at inception date.

Net Investment in Finance Lease

For finance leases, at inception date, the Fund records the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, the initial direct costs related to the lease and the related unearned income in Net investment in finance lease. The unguaranteed residual value of the equipment at lease termination requires management estimates. The economic life of the leased equipment is also estimated to determine the classification of the lease at inception date.

Results of Operations for the Quarter and Nine months Ended September 30, 2011 and 2010

We are currently in our offering period. Through September 30, 2011, we have received and accepted cumulative subscription of $48,912,532 , net of offering costs and as at November 10, 2011, the Fund had raised total equity of $52,889,674, net of offering costs.

Total revenue for the quarter and nine months ended September 30, 2011 increased by $989,067 and $1,968,526, respectively, compared to quarter and nine months ended September 30, 2010. The increase in revenue was primarily due to additional revenue from our recently acquired self serve checkout kiosks, furniture and fixture, an aircraft and several semiconductor equipments, which are on lease to various lessees.

Total expenses for the quarter and nine months ended September 30, 2011 increased by $774,656 and $1,177,939, respectively compared to quarter and nine months ended September 30, 2010. The increase is primarily due to increase in depreciation recognized on assets purchased for various leases. As a result of the foregoing factors, the net income for the quarter and nine months ended September 30, 2011 was $90,049 and $190,048, respectively.

Liquidity and Capital Resources

Cash Flows Summary

At September 30, 2011, the Fund had cash and cash equivalents of $23,423,290. 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.

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.

Our offering period ends on March 19, 2012. This follows approval during June, 2011 by the Manager, by shareholders holding a majority of the Fund's shares, and by regulators, to extend the share offering period from 24 to 33 months from the date of the first effectiveness order. Although we intend to raise up to $157,200,000 in total capital in the period from the inception of the Fund to the end of our offering period, we do not presently anticipate raising that full amount. The rate of our capital raising was initially impacted by poor general economic conditions in the U.S., which produced a number of consequential industry effects which further dampened our rate of capital raising. We anticipate that our total capital raise will amount to between $90,000,000 and $110,000,000 through March 2012. We believe that this amount is sufficient to meet our investment objectives. This anticipated amount is subject to change, and may be higher or lower than we currently expect.

For the period from inception through September 30, 2011, we sold 5,580,307 Shares (including the DRP shares and net of repurchase of shares), representing $48,912,532 of capital contributions, net of offering costs. For the period from the commencement of our operations on March 5, 2010 through September 30, 2011, we have paid or accrued sales commissions to third parties of $3,664,947, dealer manager commissions to Macquarie Capital (USA) Inc. of $1,284,710 and due diligence expense to Macquarie Capital (USA) Inc. of $40,908. In addition, organization and offering expenses of $1,282,381 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

 

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requirements for the foreseeable future, including distributions to our members, new investment opportunities, management fees, equipment maintenance events 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 our members in the amount of $627,622 and $1,386,123 for the quarter and nine months ended September 30, 2011, respectively.

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.

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, 2011.

 

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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, 2011. 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, 2011 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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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. 3 to Registration Statement on Form S-1, dated April 11, 2011.

 

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 March 2012.

Through November 10, 2011, we received capital contributions in the amount of $52,889,674, net of offering costs. Through November 10, 2011, we have paid or accrued sales commissions to third parties of $3,987,287, organization and offering expense to our Manager of $1,360,983, and dealer manager and selling commissions to Macquarie Capital (USA) Inc. of $1,427,300.

As of November 10, 2011 we have used approximately $38.32 million of the offering proceeds to acquire a participation interest in a portfolio of commercial jet aircraft engines, a 2002 vintage Bombardier CRJ-700ER aircraft , 451 self-serve kiosks on lease to a major U.S. retailer, an ETS-364B semiconductor test system; various items of furniture, office and other related equipments on lease to leading U.S owner and operator of senior housing and retirement communities and semiconductor manufacturing tools of various makes on lease to a major global manufacturer of semiconductor products.

 

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 10, 2011

 

By:  

/s/ FRANK V. SARACINO

Name:   Frank V. Saracino
Title:   Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant
  Date: November 10, 2011

 

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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
101.0**   The following materials from the Quarterly Report on Form 10-Q of Macquarie Equipment Leasing Fund, LLC for the quarter ended September 30, 2011, filed on November 10, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets as of September 30, 2011 and December 31, 2010 (Unaudited), (ii) the Statement of Operations for the period from August 21, 2008 (inception of the Fund) to September 30, 2011 and the Quarters and Nine Months Ended September 30, 2011 and 2010 (Unaudited), (iii) the Statements of Cash Flows for the period from August 21, 2008 (inception of the Fund) to September 30, 2011 and the Nine Months Ended September 30, 2011 and 2010 (Unaudited) (iv) the Statements of Changes in Members’ Equity for the period from August 21, 2008 (inception of the Fund) to September 30, 2011 (Unaudited) and (v) the Notes to Financial Statements (Unaudited).

 

* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

E-1

 

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