Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended
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March 31, 2012
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
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to
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Commission_File_Number_
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000-54604
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ICON ECI Fund Fifteen, L.P.
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(Exact name of registrant as specified in its charter)
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Delaware
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27-3525849
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3 PArk Avenue, 4th Floor, New York, New York
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10016
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(Address of principal executive offices)
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(Zip code)
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(212) 418-4700
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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).
[x] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,’’ ‘‘accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [x] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [x] No
Number of outstanding limited partnership interests of the registrant on May 11, 2012 is 80,937.
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Table of Contents
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Page
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1
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| Consolidated Statement of Operations | 2 | |
| Consolidated Statement of Changes in Equity | 3 | |
| Consolidated Statement of Cash Flows | 4 | |
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6
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13
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19
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19
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20
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20
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20
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20
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20
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20
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21
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22
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(A Delaware Limited Partnership)
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Consolidated Balance Sheets
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Assets
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March 31,
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2012
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December 31,
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(unaudited)
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2011
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Cash
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$ | 23,180,514 | $ | 5,383,978 | ||||
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Net investment in notes receivable
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27,456,694 | 13,014,700 | ||||||
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Net investment in finance lease
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1,570,413 | 1,681,451 | ||||||
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Vessel
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9,625,000 | 9,625,000 | ||||||
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Deferred charges
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1,196,677 | 1,236,399 | ||||||
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Other assets
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482,590 | 494,942 | ||||||
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Total Assets
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$ | 63,511,888 | $ | 31,436,470 | ||||
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Liabilities and Equity
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Liabilities:
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Due to General Partner and affiliates
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$ | 3,321,944 | $ | 3,420,832 | ||||
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Deferred revenue
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22,400 | - | ||||||
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Accrued expenses and other liabilities
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124,318 | 349,835 | ||||||
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Total Liabilities
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3,468,662 | 3,770,667 | ||||||
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Commitments and contingencies (Note 8)
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Partners’ Equity:
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Limited Partners
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59,062,245 | 26,651,016 | ||||||
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General Partner
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(22,792 | ) | (14,549 | ) | ||||
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Total Partners’ Equity
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59,039,453 | 26,636,467 | ||||||
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Noncontrolling Interest
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1,003,773 | 1,029,336 | ||||||
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Total Equity
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60,043,226 | 27,665,803 | ||||||
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Total Liabilities and Equity
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$ | 63,511,888 | $ | 31,436,470 | ||||
See accompanying notes to consolidated financial statements.
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(A Delaware Limited Partnership)
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Consolidated Statement of Operations
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(unaudited)
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Three Months Ended March 31, 2012
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Revenue:
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Finance income
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$ | 705,195 | ||
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Other income
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3,769 | |||
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Total revenue
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708,964 | |||
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Expenses:
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Management fees
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26,817 | |||
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Administrative expense reimbursements
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419,085 | |||
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General and administrative
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232,801 | |||
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Interest
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188,093 | |||
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Total expenses
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866,796 | |||
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Net loss
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$ | (157,832 | ) | |
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Less: Net loss attributable to noncontrolling interest
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(143,063 | ) | ||
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Net loss attributable to Fund Fifteen
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$ | (14,769 | ) | |
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Net loss allocable to:
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Limited Partners
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$ | (14,621 | ) | |
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General Partner
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(148 | ) | ||
| $ | (14,769 | ) | ||
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Weighted average number of limited
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partnership interests outstanding
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52,155 | |||
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Net loss per weighted average limited
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partnership interest outstanding
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$ | (0.28 | ) | |
See accompanying notes to consolidated financial statements.
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(A Delaware Limited Partnership)
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Consolidated Statement of Changes in Equity
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Partners' Equity
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Limited
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Total
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Partnership
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Limited
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Partners’
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Noncontrolling
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Total
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Interests
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Partners
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General Partner
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Equity
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Interest
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Equity
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Balance, December 31, 2011
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31,529 | $ | 26,651,016 | $ | (14,549 | ) | $ | 26,636,467 | $ | 1,029,336 | $ | 27,665,803 | ||||||||||||
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Net loss
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- | (14,621 | ) | (148 | ) | (14,769 | ) | (143,063 | ) | (157,832 | ) | |||||||||||||
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Proceeds from sale of limited partnership interests
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37,187 | 37,118,509 | - | 37,118,509 | - | 37,118,509 | ||||||||||||||||||
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Sales and offering expenses
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- | (3,891,204 | ) | - | (3,891,204 | ) | - | (3,891,204 | ) | |||||||||||||||
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Cash distributions paid
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- | (801,455 | ) | (8,095 | ) | (809,550 | ) | - | (809,550 | ) | ||||||||||||||
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Investment by noncontrolling interest
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- | - | - | - | 117,500 | 117,500 | ||||||||||||||||||
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Balance, March 31, 2012 (unaudited)
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68,716 | $ | 59,062,245 | $ | (22,792 | ) | $ | 59,039,453 | $ | 1,003,773 | $ | 60,043,226 | ||||||||||||
See accompanying notes to consolidated financial statements.
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(A Delaware Limited Partnership)
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Consolidated Statement of Cash Flows
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(unaudited)
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Three Months Ended March 31, 2012
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Cash flows from operating activities:
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Net loss
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$ | (157,832 | ) | |
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Adjustments to reconcile net loss to net cash
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used in operating activities:
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Finance income
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64,090 | |||
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Interest expense from amortization of debt financing costs
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2,478 | |||
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Changes in operating assets and liabilities:
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Other assets
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9,871 | |||
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Accrued expenses
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(225,517 | ) | ||
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Deferred revenue
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22,400 | |||
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Due to General Partner and affiliates
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(128,825 | ) | ||
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Net cash used in operating activities
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(413,335 | ) | ||
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Cash flows from investing activities:
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Principal repayment on finance lease
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105,222 | |||
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Investment in notes receivable
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(14,560,686 | ) | ||
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Principal repayment on notes receivable
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60,417 | |||
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Net cash used in investing activities
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(14,395,047 | ) | ||
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Cash flows from financing activities:
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Sale of limited partnership interests
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37,118,509 | |||
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Sales and offering expenses paid
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(3,617,390 | ) | ||
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Deferred charges paid
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(204,151 | ) | ||
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Investment by noncontrolling interest
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117,500 | |||
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Cash distributions to partners
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(809,550 | ) | ||
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Net cash provided by financing activities
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32,604,918 | |||
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Net increase in cash
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17,796,536 | |||
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Cash, beginning of the period
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5,383,978 | |||
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Cash, end of the period
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$ | 23,180,514 | ||
See accompanying notes to consolidated financial statements.
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ICON ECI Fund Fifteen, L.P.
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(A Delaware Limited Partnership)
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Consolidated Statement of Cash Flows
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(unaudited)
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Three Months Ended March 31, 2012
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Supplemental disclosure of non-cash financing activities:
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Change in organizational and offering expenses and other costs due to Investment Manager
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$ | 1,951 | ||
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Organizational and offering expenses charged to equity
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$ | 241,922 | ||
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Change in underwriting fees due to ICON Investments
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$ | 31,889 | ||
See accompanying notes to consolidated financial statements.
5
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(1)
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Organization
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ICON ECI Fund Fifteen, L.P. (the “Partnership”) was formed on September 23, 2010 as a Delaware limited partnership. The initial capitalization of the Partnership was $1,001. The Partnership will continue until December 31, 2025, unless terminated sooner. The Partnership is offering limited partnership interests (“Interests”) on a “best efforts” basis with the intention of raising up to $418,000,000 of capital, consisting of 420,000 Interests, of which 20,000 have been reserved for the Partnership’s distribution reinvestment plan (the “DRIP Plan”). The DRIP Plan allows limited partners to purchase Interests with distributions received from
the Partnership and/or certain affiliates of the Partnership.
At any time prior to the time that the offering of Interests is terminated, the Partnership may, at its sole discretion, increase the offering to a maximum of up to $618,000,000 of capital, consisting of 620,000 Interests; provided, however, that the offering period may not be extended in connection with such change. The Partnership is currently in its offering period, which commenced on June 6, 2011 and is anticipated to end no later than June 6, 2013.
With the proceeds from Interests sold, the Partnership will (i) primarily originate or acquire a diverse pool of investments in domestic and global companies, which investments will primarily be structured as debt and debt-like financings (such as loans and leases) that are collateralized by equipment and other corporate infrastructure (collectively, “Capital Assets”) utilized by such companies to operate their businesses, as well as other strategic investments in or collateralized by Capital Assets that ICON GP 15, LLC, a Delaware limited liability company and the general partner of the Partnership (the “General Partner”), believes will provide the Partnership with a
satisfactory, risk-adjusted rate of return, (ii) pay fees and expenses, and (iii) establish a cash reserve. The General Partner will make investment decisions on behalf of and manage the business of the Partnership. Additionally, the General Partner has a 1% interest in the profits, losses, cash distributions and liquidation proceeds of the Partnership.
As of July 28, 2011 (the “Initial Closing Date”), the Partnership raised a minimum of $1,200,000 from the sale of Interests, at which time the Partnership commenced operations. Upon the commencement of operations on the Initial Closing Date, the Partnership returned the initial capital contribution of $1,000 to ICON Capital Corp., a Delaware corporation and the investment manager of the Partnership (the “Investment Manager”). During the period from June 6, 2011 to March 31, 2012, the Partnership sold 68,716 Interests to 1,674 limited partners, representing $68,585,440 of capital contributions. Investors from the Commonwealth of Pennsylvania and the State of Tennessee
were not admitted until the Partnership raised total equity in the amount of $20,000,000, which the Partnership achieved on November 17, 2011. During the period from June 6, 2011 to March 31, 2012, the Partnership paid or accrued the following commissions and fees in connection with its offering of Interests: (i) sales commissions to third parties in the amount of $4,699,100 and (ii) underwriting fees in the amount of $2,039,982 to ICON Securities Corp. d/b/a ICON Investments, an affiliate of the General Partner and the dealer-manager of the offering of the Interests (“ICON Investments”). In addition, during such period, the General Partner and its affiliates, on behalf of the Partnership, incurred organizational and offering expenses in the amount of $1,724,243. From the Initial Closing Date through March 31, 2012, organizational and offering expenses in the amount of
$527,568 were recorded as a reduction of partners’ equity.
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ICON ECI Fund Fifteen, L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(1)
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Organization - continued
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Partners’ capital accounts are increased for their initial capital contribution plus their proportionate share of earnings and decreased by their proportionate share of losses and distributions. Profits, losses, cash distributions and liquidation proceeds are allocated 99% to the limited partners and 1% to the General Partner until the aggregate amount of cash distributions paid to limited partners equals the sum of the limited partners’ aggregate capital contributions, plus an 8% cumulative annual return on their aggregate unreturned capital contributions, compounded daily. After such time, distributions will be allocated 90% to the limited partners and 10% to the General
Partner.
The Partnership’s fiscal year ends on December 31.
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(2)
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Summary of Significant Accounting Policies
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Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Partnership have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Q. In the opinion of the General Partner, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation have been included. The results for the interim period are not necessarily indicative of the results for the full year.
The consolidated financial statements include the accounts of the Partnership and its majority-owned subsidiaries and other controlled entities. All intercompany accounts and transactions have been eliminated in consolidation. In joint ventures where the Partnership has a controlling financial interest, the financial condition and results of operations of the joint venture are consolidated. Noncontrolling interest represents the minority owner’s proportionate share of its equity in the joint venture. The noncontrolling interest is adjusted for the minority owner’s share of the earnings, losses, investments and distributions of the joint
venture.
The Partnership accounts for its noncontrolling interests in joint ventures where the Partnership has influence over financial and operational matters, generally 50% or less ownership interest, under the equity method of accounting. In such cases, the Partnership’s original investments are recorded at cost and adjusted for its share of earnings, losses and distributions. The Partnership accounts for investments in joint ventures where the Partnership has virtually no influence over financial and operational matters using the cost method of accounting. In such cases, the Partnership’s original investments are recorded at cost and any distributions
received are recorded as revenue. All of the Partnership’s investments in joint ventures are subject to its impairment review policy.
Net loss attributable to the Partnership per weighted average Interest is based upon the weighted average number of Interests outstanding during the applicable period.
7
ICON ECI Fund Fifteen, L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(2)
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Summary of Significant Accounting Policies - continued
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Credit Quality of Notes Receivable and Direct Finance Leases and Allowance for Credit Losses
The Investment Manager weighs all credit decisions on a combination of external credit ratings as well as internal credit evaluations of all potential borrowers. A potential borrower’s credit is analyzed using those credit ratings as well as the potential borrower’s financial statements and other financial data deemed relevant.
As the Partnership’s notes receivable and direct finance leases (each, a “Note” and, collectively, the “Notes”) are limited in number, the Partnership is able to estimate the allowance for credit losses based on a detailed analysis of each Note as opposed to using portfolio based metrics and allowance for credit losses. Notes are analyzed quarterly and categorized as either performing or non-performing based on payment history. If a Note becomes non-performing due to a borrower’s missed scheduled payments or failed financial covenants, the Investment Manager analyzes if a reserve should be established or if the Note should be restructured. Material events
would be specifically disclosed in the discussion of each Note held.
As of March 31, 2012 and December 31, 2011, the Investment Manager determined that no allowance for credit losses was required.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU No 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs (“ASU 2011-04”), which amends its guidance related to fair value measurements in order to align the definition of fair value measurements and the related disclosure requirements between US GAAP and International Financial Reporting Standards. The new guidance also changes certain existing fair value measurement principles and disclosure requirements. The adoption of ASU 2011-04 became effective for the Partnership on January 1, 2012. The adoption of these additional disclosures did not have a material effect on the Partnership’s
consolidated financial statements.
In June 2011, the FASB issued ASU No 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which revises the manner in which companies present comprehensive income in their financial statements. The new guidance removes the option to report other comprehensive income and its components in the statement of changes in equity and instead requires presentation in one continuous statement of comprehensive income or two separate but consecutive statements. The adoption of ASU 2011-05 became effective for the Partnership on January 1, 2012. The adoption of this guidance did not have a material impact on the Partnership’s consolidated financial statements, as it only
required a change in the format of presentation.
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ICON ECI Fund Fifteen, L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(3)
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Net Investment in Notes Receivable
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Net investment in notes receivable consisted of the following at March 31, 2012:
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Principal outstanding
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$ | 26,338,530 | ||
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Initial direct costs
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1,637,672 | |||
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Deferred fees
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(519,508 | ) | ||
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Net investment in notes receivable
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$ | 27,456,694 |
On February 3, 2012, the Partnership made a term loan in the amount of $7,250,000 to subsidiaries of Revstone Transportation, LLC. The loan bears interest at 15% per year and is for a period of sixty months. The loan is secured by all of Revstone’s assets, including a mortgage on real property. In addition, the Partnership agreed to make a secured capital expenditure loan (the “CapEx Loan”), which is intended not to exceed $2,240,000. On April 2, 2012, Revstone borrowed approximately $500,000 in connection with the CapEx Loan. The outstanding CapEx Loan balance bears interest at 17% per year and is for a period of sixty months. The CapEx Loan is secured by a first
priority security interest in the automotive manufacturing equipment purchased with the proceeds from the CapEx Loan and a second priority security interest in the term loan collateral.
On February 29, 2012, the Partnership made a term loan in the amount of $2,000,000 to VAS Aero Services, LLC. The loan bears interest at variable rates ranging between 12% and 14.5% per year and is for a period of thirty-one months. The loan is secured by a second priority interest on all of VAS’s assets.
On March 9, 2012, the Partnership made a term loan in the amount of $5,000,000 to Kanza Construction, Inc. The loan bears interest at 13% per year and is for a period of sixty months. The loan is secured by all of Kanza’s assets.
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(4)
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Net Investment in Finance Lease
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Net investment in finance lease consisted of the following at March 31, 2012:
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Minimum rents receivable
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$ | 1,607,416 | ||
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Estimated residual value
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328,191 | |||
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Initial direct costs
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34,997 | |||
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Unearned income
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(400,191 | ) | ||
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Net investment in finance lease
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$ | 1,570,413 |
9
ICON ECI Fund Fifteen, L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(4)
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Net Investment in Finance Lease - continued
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Non-cancelable minimum annual amounts due on the investment in the finance lease over the remaining term of the lease were as follows at March 31, 2012:
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Years Ending December 31,
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2012
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$ | 535,805 | ||
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2013
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714,407 | |||
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2014
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357,204 | |||
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Total
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$ | 1,607,416 | ||
On December 19, 2011, the Partnership, through a joint venture owned 60% by the Partnership and 40% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., an entity managed by the Investment Manager (“Fund Fourteen”), agreed to purchase the offshore support vessel, the Lewek Ambassador. The purchase price of the vessel will be the lesser of $25,000,000 and the fair market value of the vessel as determined two weeks before the vessel's delivery date, which is expected to occur on or before May 31, 2012. On December 20, 2011, the joint venture funded $9,000,000 of the purchase price and will fund the remaining portion upon delivery of the vessel. Simultaneously with the initial funding, the joint venture entered into a bareboat charter
with Gallatin Maritime Management for a period of nine years to commence on the delivery date of the vessel. Until the delivery of the vessel, the asset has been classified as a Vessel asset on the consolidated balance sheets while it undergoes modifications. For the purpose of purchasing the Lewek Ambassador, the joint venture was capitalized using a combination of debt and equity. The joint venture has recorded notes payable to the Partnership and Fund Fourteen in the amounts of $4,200,000 and $2,800,000, respectively. The notes bear interest at 17% per year and mature eighty-four months from the delivery date of the vessel. As the joint venture consolidates into the Partnership, the note payable between the joint venture and the Partnership is eliminated in consolidation. The note payable to Fund Fourteen is presented within Due to General Partner and Affiliates on the
consolidated balance sheets.
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(5)
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Revolving Line of Credit, Recourse
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On May 10, 2011, the Partnership entered into an agreement with California Bank & Trust (“CB&T”) for a revolving line of credit of up to $5,000,000 (the “Facility”), which is secured by all of the Partnership’s assets not subject to a first priority lien. Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, on the present value of the future receivables under certain loans and lease agreements in which the Partnership has a beneficial interest.
The Facility expires on March 31, 2013 and the Partnership may request a one year extension to the revolving line of credit within 390 days of the then-current expiration date, but CB&T has no obligation to extend. The interest rate for general advances under the Facility is CB&T’s prime rate and the interest rate on up to five separate non-prime rate advances that are permitted to be made under the Facility is the 90-day rate at which U.S. dollar deposits can be acquired by CB&T in the London Interbank Eurocurrency Market plus 2.5% per year, provided that all interest rates on advances
under the facility are subject to an interest rate floor of 4.0% per year. In addition, the Partnership is obligated to pay a commitment fee based on an annual rate of 0.50% on unused commitments under the Facility.
There are no borrowings outstanding under the Facility at March 31, 2012. At March 31, 2012, the Partnership was in compliance with all covenants related to the Facility.
10
ICON ECI Fund Fifteen, L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(6)
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Transactions with Related Parties
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The Partnership has entered into agreements with the General Partner, the Investment Manager and ICON Investments, whereby the Partnership pays certain fees and reimbursements to these parties. ICON Investments is entitled to receive a 3.0% underwriting fee from the gross proceeds from sales of Interests.
The General Partner has a 1% interest in the Partnership’s profits, losses, cash distributions and liquidation proceeds. In addition, the General Partner and its affiliates will be reimbursed for organizational and offering expenses incurred in connection with the Partnership’s organization and offering of Interests and administrative expenses incurred in connection with the Partnership’s operations.
Administrative expense reimbursements are costs incurred by the General Partner or its affiliates that are necessary to the Partnership’s operations. These costs include the General Partner’s and its affiliates’ legal, accounting, investor relations and operations personnel, as well as professional fees and other costs that are charged to the Partnership based upon the percentage of time such personnel dedicate to the Partnership. Excluded are salaries and related costs, office rent, travel expenses and other administrative costs incurred by individuals with a controlling interest in the General Partner.
The Partnership pays the Investment Manager (i) a monthly management fee equal to 3.50% of the gross periodic payments due and paid from the Partnership’s investments and (ii) acquisition fees, through the end of the operating period, equal to 2.50% of the total purchase price paid by or on behalf of the Partnership for each of the Partnership’s investments, including, but not limited to, the cash paid, indebtedness incurred or assumed, plus all fees and expenses incurred in connection therewith.
Fees and other expenses paid or accrued by the Partnership to the General Partner or its affiliates were as follows:
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Entity
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Capacity
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Description
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Three Months Ended March 31, 2012
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ICON Capital Corp.
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Investment Manager
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Organizational and offering expense reimbursements (1)
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$ | 202,200 | ||||
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ICON Investments
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Dealer-Manager
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Underwriting fees (2)
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1,102,522 | |||||
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ICON Capital Corp.
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Investment Manager
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Acquisition fees (3)
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658,377 | |||||
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ICON Capital Corp.
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Investment Manager
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Management fees (4)
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26,817 | |||||
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ICON Capital Corp.
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Investment Manager
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Administrative expense reimbursements (4)
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419,085 | |||||
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Fund Fourteen
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Noncontrolling Interest
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Interest expense (4)
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119,000 | |||||
| $ | 2,528,001 | |||||||
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(1) Amount capitalized and amortized to partners' equity.
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(2) Amount charged directly to partners' equity.
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(3) Amount capitalized and amortized to operations over the estimated service period in accordance with the Partnership's accounting policies.
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(4) Amount charged directly to operations.
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At March 31, 2012, the Partnership had a net payable of $3,321,944 due to the General Partner and its affiliates that primarily consisted of a note payable of $2,800,000 due to Fund Fourteen, related to its noncontrolling interest in the Lewek Ambassador, administrative expense reimbursements of approximately $219,000 and organization and offering expense reimbursements of approximately $170,000.
From April 1, 2012 to May 11, 2012, the Partnership raised an additional $12,149,657 in capital contributions and paid or accrued underwriting fees to ICON Investments in the amount of $353,653.
11
ICON ECI Fund Fifteen, L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
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(7)
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Fair Value Measurements
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Fair value information with respect to the Partnership’s leased assets and liabilities is not separately provided since (i) the current accounting pronouncements do not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets, other than lease-related investments, and the recorded value of recourse debt approximate fair value due to their short-term maturities and variable interest rates. The estimated fair value of the Partnership’s fixed rate notes receivable was based on the discounted value of future cash flows related to the loans based on recent transactions of this type. Principal outstanding on fixed rate notes receivable
was discounted at rates ranging between 12.75% and 17.0% per year.
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March 31, 2012
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||||||||
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Fair Value
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||||||||
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Carrying Value
|
(Level 3)
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|||||||
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Principal outstanding on fixed rate notes receivable
|
$ | 26,338,530 | $ | 26,338,530 | ||||
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(8)
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Commitments and Contingencies
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At the time the Partnership acquires or divests of its interest in Capital Assets, the Partnership may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. The General Partner believes that any liability that may arise as a result of any such indemnification obligations will not have a material adverse effect on the financial condition or results of operations of the Partnership taken as a whole.
The following is a discussion of our current financial position and results of operations. This discussion should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011. This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements” and the “Risk Factors” set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.
As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON ECI Fund Fifteen, L.P.
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
We are a newly organized direct financing fund that will primarily make investments in domestic and global companies, which investments will primarily be structured as debt and debt-like financings (such as loans and leases) that are collateralized by Capital Assets utilized by such companies to operate their businesses, as well as other strategic investments in or collateralized by Capital Assets that our General Partner believes will provide us with a satisfactory, risk-adjusted rate of return. We were formed as a Delaware limited partnership and have elected to be treated as a partnership for federal income tax purposes. As of the Initial Closing Date, we raised a minimum of $1,200,000
from the sale of our Interests, at which time we commenced operations. Subsequent to the Initial Closing Date, we returned the initial capital contribution of $1,000 to the Investment Manager. From the commencement of our offering on June 6, 2011 to March 31, 2012, we sold 68,716 Interests to 1,674 limited partners, representing $68,585,440 of capital contributions. Investors from the Commonwealth of Pennsylvania and the State of Tennessee were not admitted until we raised total equity in the amount of $20,000,000, which we achieved on November 17, 2011. During the period from June 6, 2011 to May 11, 2012, we raised $80,735,097 in total equity, and will continue to raise equity until our offering period ends on or before June 6, 2013.
After the net offering proceeds have been invested, it is anticipated that additional investments will be made with the cash generated from our initial investments to the extent that cash is not used for our expenses, reserves and distributions to our partners. The investment in additional Capital Assets in this manner is called “reinvestment.” We anticipate investing and reinvesting in Capital Assets from time to time for five years from the date we complete the offering. This time frame is called the “operating period” and may be extended, at our General Partner’s discretion, for up to an additional three
years. After the operating period, we will then sell our assets in the ordinary course of business, during a time frame called the “liquidation period.”
We will seek to generate returns in three ways. We will seek to generate:
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·
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current cash flow from payments of principal and/or interest (in the case of secured loans and other financing transactions) and rental payments (in the case of leases);
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·
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deferred cash flow by realizing the value of certain Capital Assets that we lease at the maturity of the investment; and
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·
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a combination of both current and deferred cash flow from other structured investments.
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In the case of secured loans and other financing transactions, the principal and interest payments due under the loan are expected to provide a return of and a return on the amount we lend. In the case of leases where there is significant current cash flow generated during the primary term of the lease and the value of the Capital Assets at the end of the term will be minimal or is not considered a primary reason for making the investment, the rental payments due under the lease are expected to be, in the aggregate, sufficient to provide a return of and a return on our investment.
In the case of investments in leased Capital Assets that decline in value at a slow rate due to the long economic life of such Capital Assets, we expect that we will generate sufficient net proceeds at the end of the investment from the sale or re-lease of such Capital Assets. In the case of operating leases, we expect most, if not all, of the return of and the return on such investments to be realized upon the sale or re-lease of the Capital Assets. For leveraged leases, we expect the rental income we receive to be less than the purchase price of the Capital Assets because we will structure these transactions to utilize some or all of the lease rental payments to reduce the amount of
non-recourse indebtedness used to acquire such assets.
In some cases with respect to the above investments, we may acquire equity interests, as well as warrants or other rights to acquire equity interests, in the borrower or lessee that may increase the expected return on our investment.
Our General Partner manages and controls our business affairs, including, but not limited to, our investments in Capital Assets, under the terms of our Partnership Agreement. Our Investment Manager, an affiliate of our General Partner, will originate and service our investments. Our Investment Manager manages or is the investment manager or managing trustee for six other public equipment funds.
Significant Transactions
We engaged in the following significant transactions since December 31, 2011:
Notes Receivable
On February 3, 2012, we made a term loan in the amount of $7,250,000 to subsidiaries of Revstone Transportation, LLC. The loan bears interest at 15% per year and is for a period of sixty months. The loan is secured by all of Revstone’s assets, including a mortgage on real property. In addition, we agreed to make the CapEx Loan, which is intended not to exceed $2,240,000. On April 2, 2012, Revstone borrowed approximately $500,000 in connection with the CapEx Loan. The outstanding CapEx Loan balance bears interest at 17% per year and is for a period of sixty months. The CapEx Loan is secured by a first priority security interest in the automotive manufacturing equipment purchased
with the proceeds from the CapEx Loan and a second priority security interest in the term loan collateral.
On February 29, 2012, we made a term loan in the amount of $2,000,000 to VAS Aero Services, LLC. The loan bears interest at variable rates ranging between 12% and 14.5% per year and is for a period of thirty-one months. The loan is secured by a second priority interest on all of VAS’s assets.
On March 9, 2012, we made a term loan in the amount of $5,000,000 to Kanza Construction, Inc. The loan bears interest at 13% per year and is for a period of sixty months. The loan is secured by all of Kanza’s assets.
Acquisition Fees
In connection with the new investments made since December 31, 2011, we paid total acquisition fees to our Investment Manager of approximately $658,000.
Results of Operations for the Three Months Ended March 31, 2012 (the “2012 Quarter”)
Total revenue for the 2012 Quarter was $708,964, which was attributable to finance income generated from our notes receivable and finance lease.
Total expenses for the 2012 Quarter were $866,796, which was primarily due to administrative expense reimbursements to our General Partner in the amount of approximately $419,000. Administrative expense reimbursements are costs incurred by our General Partner or its affiliates that are necessary to our operations.
Noncontrolling Interest
Net loss attributable to noncontrolling interest for the 2012 Quarter was $143,063, which was primarily due to the interest expense on a note payable of $2,800,000 due to Fund Fourteen related to its noncontrolling interest in the Lewek Ambassador.
Net Loss Attributable to Fund Fifteen
As a result of the foregoing factors, the net loss attributable to us for the 2012 Quarter was $14,769. The net loss attributable to us per weighted average Interest for the 2012 Quarter was $0.28.
Financial Condition
This section discusses the major balance sheet variances at March 31, 2012 compared to December 31, 2011.
Total Assets
Total assets increased $32,075,418, from $31,436,470 at December 31, 2011 to $63,511,888 at March 31, 2012. The increase in total assets was the result of cash proceeds received from the sale of Interests, which were then used to make investments in three notes receivable.
Total Liabilities
Total liabilities decreased $302,005, from $3,770,667 at December 31, 2011 to $3,468,662 at March 31, 2012. The decrease was primarily the result of the payment of certain accrued liabilities during the 2012 Quarter.
Equity
Equity increased $32,377,423, from $27,665,803 at December 31, 2011 to $60,043,226 at March 31, 2012. The increase primarily related to the cash proceeds received from the sale of Interests, which were partially offset by sales and offering expenses incurred and distributions paid or accrued to our partners.
Liquidity and Capital Resources
Summary
At March 31, 2012, we had cash of $23,180,514. Pursuant to the terms of our offering, we have established a reserve in the amount of 0.50% of the gross offering proceeds from the sale of our Interests. As of March 31, 2012, the cash reserve was $342,927. During our offering period, our main source of cash will be from financing activities and our main use of cash will be in investing activities.
We are offering our Interests on a “best efforts” basis with the current intention of raising up to $418,000,000. As additional Interests are sold, we will experience a relative increase in liquidity as cash is received, and then a relative decrease in liquidity as cash is expended to make investments.
We will use the net proceeds of the offering to invest in Capital Assets located in North America, Europe and other developed markets, including those in Asia, South America and elsewhere. We seek to acquire a portfolio of Capital Assets that is comprised of both transactions that generate (a) current cash flow from payments of principal and/or interest (in the case of secured loans and other financing transactions) and rental payments (in the case of leases), (b) deferred cash flow by realizing the value of certain Capital Assets that we lease at the maturity of the investment, or (c) a combination of both.
Unanticipated or greater than anticipated operating costs or losses (including a borrower’s inability to make timely loan payments or a lessee’s inability to make timely lease payments) would adversely affect our liquidity. To the extent that working capital may be insufficient to satisfy our cash requirements, we anticipate that we would fund our operations from cash flow generated by operating and financing activities. In addition, as of March 31, 2012, we have $5,000,000 available to us under the Facility. Our General Partner does not intend to fund any cash flow deficit of ours or provide other financial assistance to us.
From the commencement of our offering period on June 6, 2011 through March 31, 2012, we sold 68,716 Interests to 1,674 limited partners, representing $68,585,440 of capital contributions. From the Initial Closing Date on July 28, 2011 through March 31, 2012, we paid or accrued sales commissions to third parties of $4,699,100 and underwriting commissions to ICON Investments of $2,039,982. In addition, organization and offering expenses of $1,724,243 were paid or accrued by us, our General Partner or its affiliates during this period.
Operating Activities
Cash used in operating activities in the 2012 Quarter of $413,335 is primarily related to payments made for general and administrative expenses.
Investing Activities
Cash used in investing activities in the 2012 Quarter of $14,395,047 is primarily related to our investment in three notes receivable.
Financing Activities
Cash provided by financing activities in the 2012 Quarter of $32,604,918 is primarily related to the proceeds from the sale of Interests, which was partially offset by the sales and offering expenses paid during the 2012 Quarter.
Sources of Liquidity
We believe that cash generated from the sale of Interests pursuant to our offering and other 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 partners, general and administrative expenses, new investment opportunities, management fees and administrative expense reimbursements. In addition, our revolving line of credit, which expires on March 31, 2013, is available for additional working capital needs or new investment opportunities. Our revolving line of credit is discussed in further detail below.
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’ and borrowers’ businesses that are beyond our control.
Revolving Line of Credit, Recourse
At March 31, 2012, we had $5,000,000 available under the Facility, which is secured by all of our assets not subject to a first priority lien. Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, based on the present value of the future receivables under certain loans and lease agreements in which we have a beneficial interest.
The Facility expires on March 31, 2013 and we may request a one year extension to the revolving line of credit within 390 days of the then-current expiration date, but CB&T has no obligation to extend. The interest rate for general advances under the Facility is CB&T’s prime rate and the interest rate on up to five separate non-prime rate advances that are permitted to be made under the Facility is the 90-day rate at which U.S. dollar deposits can be acquired by CB&T in the London Interbank Eurocurrency Market plus 2.50% per year, provided that all interest rates on advances under the facility are subject to an interest rate floor of 4.00% per year. In addition, we are
obligated to pay a commitment fee based on an annual rate of 0.50% on unused commitments under the Facility.
There are no borrowings outstanding under the Facility at March 31, 2012.
At March 31, 2012, we were in compliance with all covenants related to the Facility.
Distributions
We, at our General Partner’s discretion, pay monthly distributions to each of our limited partners beginning with the first month after each such limited partner’s admission and expect to continue to pay such distributions until the termination of our operating period. We paid distributions to our General Partner and limited partners of $8,095 and $801,455, respectively, during the 2012 Quarter.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At the time we acquire or divest an interest in Capital Assets, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. Our General Partner believes that any liability that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition taken as a whole.
Off-Balance Sheet Transactions
None.
There are no material changes to the disclosures related to this item since the filing of our Annual Report on Form 10-K for the year ended December 31, 2011.
Evaluation of disclosure controls and procedures
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as well as the financial statements for our General Partner, our General Partner carried out an evaluation, under the supervision and with the participation of the management of our General Partner, including its Co-Chief Executive Officers and the Principal Accounting and Financial Officer, of the effectiveness of the design and operation of our General Partner’s disclosure controls and procedures as of the end of the period covered by this report pursuant to the Securities Exchange Act of 1934, as amended. Based on the foregoing evaluation, the Co-Chief Executive
Officers and the Principal Accounting and Financial Officer concluded that our General Partner’s disclosure controls and procedures were effective.
In designing and evaluating our General Partner’s disclosure controls and procedures, our General Partner recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our General Partner’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.
Evaluation of internal control over financial reporting
There have been no changes in our internal control over financial reporting during the period ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the ordinary course of conducting our business, we may be subject to certain claims, suits and complaints filed against us. In our General Partner’s opinion, the outcome of such matters, if any, will not have a material impact on our financial position, cash flows or results of operations. We are not aware of any material legal proceedings that are currently pending against us or against any of our assets.
There have been no material changes from the risk factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.
On September 23, 2010, we were capitalized with the issuance to (i) ICON GP 15, LLC of a general partnership interest for the purchase price of $1.00 and (ii) ICON Capital Corp. of one Interest for the purchase price of $1,000. These partnership interests were purchased for investment and for the purpose of organizing us. We issued the partnership interests in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933.
Our Registration Statement on Form S-1, as amended, was declared effective by the Securities and Exchange Commission on June 6, 2011 (SEC File No. 333-169794). Our offering period commenced on June 6, 2011 and will end no later than June 6, 2013.
Our Initial Closing Date was July 28, 2011. Following such date, we returned the initial capital contribution of $1,000 to our Investment Manager. During the period from June 6, 2011 through March 31, 2012, we received additional capital contributions in the amount of $68,585,440. For the period from June 6, 2011 through March 31, 2012, we paid or accrued sales commissions to third parties of $4,699,100 and underwriting commissions to ICON Investments of $2,039,982. In addition, organizational and offering expenses in the amount of $1,724,243 were paid or accrued by us, our General Partner or its affiliates during this period. Net offering proceeds to us
after deducting the expenses described were $60,122,115 during this period.
From April 1, 2012 through May 11, 2012, we received additional capital contributions in the amount of $12,149,657. For the period from April 1, 2012 through May 11, 2012, we paid or accrued sales commissions to third parties of $795,859 and underwriting commissions to ICON Investments of $353,653.
See the disclosure under “Recent Significant Transactions” in Item 2 of Part I for a discussion of the investments we have made with our net offering proceeds.
Not applicable.
Not applicable.
Not applicable.
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3.1
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Certificate of Limited Partnership of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on October 6, 2010 (File No. 333-169794)).
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4.1
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Limited Partnership Agreement of Registrant (Incorporated by reference to Exhibit A to Registrant’s Prospectus filed with the SEC on June 6, 2011 (File No. 333-169794)).
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10.1
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Investment Management Agreement, by and between ICON ECI Fund Fifteen, L.P. and ICON Capital Corp. (Incorporated by reference to Exhibit 10.2 to Amendment No. 6 to the Registrant’s Registration Statement on Form S-1 filed with the SEC on June 3, 2011 (File No. 333-169794)).
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10.2
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Commercial Loan Agreement, by and between California Bank & Trust and ICON ECI Fund Fifteen, L.P., dated as of May 10, 2011 (Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, filed on August 12, 2011).
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
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31.3
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Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting and Financial Officer.
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32.1
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Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.3
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Certification of Principal Accounting and Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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| 101.INS* |
XBRL Instance Document.
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| 101.SCH* |
XBRL Taxonomy Extension Schema Document.
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| 101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document.
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| 101.LAB* |
XBRL Taxonomy Extension Labels Linkbase Document.
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| 101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase Document.
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| * |
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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.
ICON ECI Fund Fifteen, L.P.
(Registrant)
By: ICON GP 15, LLC
(General Partner of the Registrant)
May 15, 2012
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By: /s/ Michael A. Reisner
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Michael A. Reisner
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Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)
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By: /s/ Mark Gatto
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Mark Gatto
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Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)
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By: /s/ Keith S. Franz
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Keith S. Franz
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Managing Director
(Principal Accounting and Financial Officer)
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22
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