LEAF Equipment Leasing Income Fund III, L.P. - FORM 10-Q - May 15, 2012

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EX-31.2 - EXHIBIT 31.2 - LEAF Equipment Leasing Income Fund III, L.P.ex31_2.htm
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EX-31.1 - EXHIBIT 31.1 - LEAF Equipment Leasing Income Fund III, L.P.ex31_1.htm
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 March 31, 2012
 
OR
 
o
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 000-53174
 
 LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
  
20-5455968
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
110 South Poplar Street, Suite 101, Wilmington Delaware 19801
(Address of principal executive offices) (Zip Code)
 
(800) 819-5556
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ¨  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x Yes   ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer                          ¨
   
Non-accelerated filer   (Do not check if a smaller reporting company)
Smaller Reporting Company      x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨ Yes     x No
 
There is no public market for the Registrant’s securities.

 
 
 
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
INDEX TO QUARTERLY REPORT
 
PART I
PAGE
ITEM 1.
 3
  3
  4
  5
  6
  7
  8
ITEM 2. 15
ITEM 3.
 21
ITEM 4.
 21
     
PART II
 23
ITEM 6.
 23
SIGNATURES 24
 
 
2
 
 
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
   
March 31,
    
December 31,
  
   
2012
    
2011
  
ASSETS
            
Cash
   $ 77     $ 154  
Restricted cash
     8,245       11,250  
Accounts receivable
     78       60  
Investment in leases and loans, net
     67,134       84,367  
Deferred financing costs, net
     1,303       1,584  
Investment in affiliated leasing partnerships
     787       786  
Other assets
     252       158  
Total assets
   $ 77,876     $ 98,359  
                 
LIABILITIES AND PARTNERS’ DEFICIT
                
Liabilities:
                
Debt
     68,876     $ 88,235  
Accounts payable and accrued expenses
     852       733  
Other liabilities
     471       511  
Due to affiliates
     15,749       15,645  
Total liabilities
     85,948       105,124  
                 
Commitments and contingencies (Note 10)
                
                 
Partners’ Deficit:
                
General partner
     (1,120 )     (1,107 )
Limited partners
     (6,952 )     (5,658 )
Total partners’ deficit
     (8,072 )     (6,765 )
Total liabilities and partners' deficit
   $ 77,876     $ 98,359  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
3

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
(In thousands, except unit and per unit data)
(Unaudited)
 
   
Three Months Ended March 31,
  
   
2012
    
2011
  
Revenues:
            
Interest on equipment financings
   $ 1,791     $ 3,979  
Rental income
     480       921  
Losses on sales of equipment and lease dispositions, net
     (323 )     (42 )
Other income
     315       469  
      2,263       5,327  
                 
Expenses:
                
Interest expense
     1,564       2,897  
Depreciation on operating leases
     372       783  
Provision for credit losses
     541       2,979  
General and administrative expenses
     291       383  
Administrative expenses reimbursed to affiliate
     201       447  
      2,969       7,489  
Loss before equity in earnings (loss) of affiliate
     (706 )     (2,162 )
Equity in earnings (loss) of affiliate
     1       (18 )
Net loss
   $ (705 )   $ (2,180 )
Net loss allocated to LEAF III's limited partners
   $ (698 )   $ (2,158 )
Weighted average number of limited partner units outstanding during the period
     1,195,631       1,195,631  
Net loss per weighted average limited partner unit
   $ (0.58 )   $ (1.81 )
 
The accompanying notes are an integral part of these consolidated financial statements.

 
4
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(In thousands except unit data)
(Unaudited)
 
   
Three Months Ended March 31,
  
   
2012
    
2011
  
             
Net loss
   $ (705 )   $ (2,180 )
                 
Comprehensive loss
   $ (705 )   $ (2,180 )
 
The accompanying notes are an integral part of these consolidated financial statements.

 
5
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Statement of Changes in Partners’ Deficit
(In thousands except unit data)
(Unaudited)
 
   
General
    
Limited Partners
        
   
Partner
Amount
    
Units
    
Amount
    
Total
Partners' Deficit
  
Balance, January 1, 2012
   $ (1,107 )     1,195,631     $ (5,658 )   $ (6,765 )
Cash distributions paid
     (6 )     -       (596 )     (602 )
Net loss
     (7 )     -       (698 )     (705 )
Balance, March 31, 2012
   $ (1,120 )     1,195,631     $ (6,952 )   $ (8,072 )
 
The accompanying notes are an integral part of this consolidated financial statement.

 
6

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
   
Three Months Ended March 31,
  
Cash flows from operating activities:
  
2012
    
2011
  
Net loss
   $ (705 )   $ (2,180 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                
Losses on sales of equipment and lease dispositions, net
     323       42  
Equity in (earnings) loss of affiliate
     (1 )     18  
Depreciation on operating leases
     372       783  
Provision for credit losses
     541       2,979  
Amortization of deferred charges and discount on debt
     903       1,805  
Changes in operating assets and liabilities:
                
Accounts receivable
     (18 )     8  
Other assets
     (94 )     (15 )
Accounts payable and accrued expenses and other liabilities
     79       208  
Due to affiliates
     104       (1,081 )
Net cash provided by operating activities
     1,504       2,567  
                 
Cash flows from investing activities:
                
Proceeds from leases and loans
     16,232       26,654  
Security deposits returned, net of collections
     (235 )     (84 )
Net cash provided by investing activities
     15,997       26,570  
                 
Cash flows from financing activities:
                
Repayment of debt
     (19,981 )     (28,909 )
Repayment of note payable
     -       (813 )
Decrease in restricted cash
     3,005       893  
Cash distributions to partners
     (602 )     (596 )
Net cash used in financing activities
     (17,578 )     (29,425 )
                 
Decrease in cash
     (77 )     (288 )
Cash, beginning of period
     154       526  
Cash, end of period
   $ 77     $ 238  
                 
Cash paid for interest
   $ 672     $ 1,113  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
7
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
March 31, 2012
(Unaudited)
 
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
 
LEAF Equipment Leasing Income Fund III, L.P. (“LEAF III”  or the “Fund”) is a Delaware limited partnership formed on May 16, 2006 by its General Partner, LEAF Asset Management, LLC (the “General Partner”), which manages the Fund. The General Partner is a Delaware limited liability company, and a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of April 24, 2008, the Fund raised $120.0 million by selling 1.2 million of its limited partner units. It commenced operations in March 2007.
 
The Fund is expected to have a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent liquidation period of two years, during which the Fund’s leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the liquidation period, the Fund expects to continue to return capital to its partners as those leases and loans mature. Substantially all of the Fund’s leases and loans mature by the end of 2014. The Fund expects to enter its liquidation period beginning in April 2013. Contractually, the Fund will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement (“The Partnership Agreement”).
 
The Fund acquires diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily from LEAF Financial Corporation (“LEAF Financial”), an affiliate of its General Partner and a subsidiary of RAI. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.
 
In addition to its 1% general partnership interest, the General Partner has also invested $1.3 million for a 1.2% limited partnership interest in the Fund.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiaries LEAF III C SPE, LLC, and LEAF Receivables Funding 5, LLC.  All intercompany accounts and transactions have been eliminated in consolidation.
 
The Fund owns approximately a 4% ownership interest in LEAF Funding, LLC (“Funding LLC”). The Fund accounts for its interest in Funding LLC under the equity method of accounting.
 
In March 2009, the Fund entered into an agreement with LEAF Equipment Finance Fund 4, L.P. (“LEAF 4”) to form LEAF Funds Joint Venture 2, LLC (“LEAF Funds JV2”). Through March 31, 2012, the Fund invested $428,000 in LEAF Funds JV2, representing a 2% interest. The Fund accounts for its investment in LEAF Funds JV2 under the cost method of accounting. Under the cost method, the Fund does not include its share of the income or losses of LEAF Funds JV2 in the Fund’s consolidated statements of operations.

The accompanying unaudited financial statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Fund’s financial position as of March 31, 2012, and the results of its operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of results of the Fund’s operations for the 2012 calendar year. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with the Fund’s financial statements and notes thereto presented in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 28, 2012.

The Fund has evaluated subsequent events through the date the financial statements were issued noting no subsequent events that were required to be disclosed in the consolidated financial statements.
 
 
8
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
March 31, 2012
(Unaudited)
 
Reclassification
 
Certain reclassifications have been made to 2011 reported amounts to conform to the current year presentation.  In the statement of operations, renewal income of approximately $245,000 was reclassified to interest on equipment financings from other income for the three months ended March 31, 2011.
 
Use of Estimates
 
Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for credit losses and the estimated unguaranteed residual values of leased equipment, among others. The Fund bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Significant Accounting Policies

Investments in Leases and Loans
 
The Fund’s investment in leases and loans consist of direct financing leases, operating leases and loans.
 
Direct Financing Leases. Certain of the Fund’s lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. The Fund’s investment in direct financing leases consists of the sum of the total future minimum lease payments receivable plus the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments plus the estimated unguaranteed residual value over the cost of the related equipment.
 
Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate disposition of the leased equipment. The estimates of residual values are based upon the Fund’s history with regard to the realization of residuals, available industry data and the General Partner’s experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the equipment’s fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.
 
Operating Leases. Leases not meeting any of the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis.
 
A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable.  The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.  There were no write-downs of equipment for the three month periods ending March 31, 2012 or 2011.
 
Loans. For term loans, the investment in loans consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted loan payments over the cost of the related equipment. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.
 
Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management’s historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account will progress through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due any remaining balance is fully-reserved, less an estimated recovery amount. Generally, the account is then referred to our internal recovery group consisting of a team of collectors. The Fund’s policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.
 
 
9
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
March 31, 2012
(Unaudited)
 
Income is not recognized on leases and loans when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent.  Fees from delinquent payments are recognized when received and are included in other income.

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others.  Late fee income was $215,000 and $353,000 for the three months ended March 31, 2012 and 2011, respectively.
 
Recent Accounting Standards
 
Accounting Standards Recently Adopted

Comprehensive Income - In June 2011, the FASB issued an amendment to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Fund adopted the two-statement approach for the period beginning January 1, 2012.

Fair Value Measurements - In May 2011, the FASB issued an amendment to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the current requirements. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability. This guidance was adopted by the Fund for the period beginning January 1, 2012 and did not significantly impact the Fund’s consolidated financial statements.

NOTE 3 – INVESTMENT IN LEASES AND LOANS
 
The Fund’s investment in leases and loans, net, consists of the following (in thousands):
 
   
March 31,
    
December 31,
  
 
  
2012
    
2011
  
Direct financing leases (a)
   $ 38,307     $ 50,246  
Loans (b)
     28,547       33,674  
Operating leases
     1,480       2,087  
      68,334       86,007  
Allowance for credit losses
     (1,200 )     (1,640 )
    $ 67,134     $ 84,367  
 
(a)
The Fund’s direct financing leases are for initial lease terms generally ranging from 24 to 96 months.
(b)
The interest rates on loans generally range from 7% to 14%.
 
 
10
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
March 31, 2012
(Unaudited)
 
The components of direct financing leases and loans are as follows (in thousands):
 
   
March 31, 2012
    
December 31, 2011
  
   
Leases
    
Loans
    
Leases
    
Loans
  
Total future minimum lease payments
   $ 38,247     $ 32,441     $ 50,509     $ 38,350  
Unearned income
     (2,915 )     (3,305 )     (4,019 )     (3,987 )
Residuals, net of unearned residual income (a)
     3,394       -       4,319       -  
Security deposits
     (419 )     (589 )     (563 )     (689 )
    $ 38,307     $ 28,547     $ 50,246     $ 33,674  
 
(a)
Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from extensions or disposition of the equipment.
 
The Fund’s investment in operating leases, net, consists of the following (in thousands):
 
   
March 31,
    
December 31,
  
   
2012
    
2011
  
Equipment on operating leases
   $ 6,929     $ 8,527  
Accumulated depreciation
     (5,453 )     (6,438 )
Security deposits
     4       (2 )
    $ 1,480     $ 2,087  
 
NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The following table is an age analysis of the Fund’s receivables from leases and loans (presented gross of allowance for credit losses of $1.2 million and $1.6 million) as of March 31, 2012 and December 31, 2011, respectively (in thousands):
 
   
March 31, 2012
    
December 31, 2011
  
Age of receivable
  
Investment in
leases and loans
    
%
    
Investment in
 leases and loans
    
%
  
Current
   $ 64,638       94.6 %   $ 80,907       94.1 %
Delinquent:
                                
31 to 91 days past due
     1,694       2.5 %     2,850       3.3 %
Greater than 91 days (a)
     2,002       2.9 %     2,250       2.6 %
                                 
    $ 68,334       100.0 %   $ 86,007       100.0 %
 
 
(a)
Balances in this age category are collectively evaluated for impairment.

The credit quality of the Fund’s investment in leases and loans as of March 31, 2012 is as follows (in thousands):
 
   
March 31,
    
December 31,
  
   
2012
    
2011
  
Performing
   $ 66,332     $ 83,757  
Nonperforming
     2,002       2,250  
    $ 68,334     $ 86,007  
 
 
11
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
March 31, 2012
(Unaudited)
 
The following table summarizes the activity in the allowance for credit losses (in thousands):
 
   
Three Months Ended March 31,
  
   
2012
    
2011
  
Allowance for credit losses, beginning of year
   $ 1,640     $ 9,180  
Provision for credit losses
     541       2,979  
Charge-offs
     (1,443 )     (3,054 )
Recoveries
     462       525  
Allowance for credit losses, end of period (a)
   $ 1,200     $ 9,630  
 
 
(a)
End of period lease and loan balances were collectively evaluated for impairment.
 
NOTE 5 – DEFERRED FINANCING COSTS
 
As of March 31, 2012 and December 31, 2011, deferred financing costs include $1.3 million and $1.6 million, respectively, of unamortized deferred financing costs which are being amortized over the estimated useful life of the related debt. Accumulated amortization as of March 31, 2012 and December 31, 2011 is $2.8 million and $2.5 million, respectively.
 
NOTE 6 –DEBT
 
The Fund’s bank debt consists of the following (dollars in thousands):
 
                 
December 31,
  
 
March 31, 2012
  
2011
  
         
Outstanding
      
Outstanding
  
 
Type
  
Maturity Date
  
Balance
  
Interest rate per annum
  
Balance
  
2010-4 Term Securitization
Term
  
August 2018, January 2019
   $ 68,876  
1.70% to 5.50%
   $ 88,235  
DZ Bank
Revolving
  
November 2013
     -  
Commercial Paper plus 1.75%
     -  
          $ 68,876       $ 88,235  
 
2010-4 Term Securitization
 
The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes were issued at an original discount of approximately $ 7.2 million of which approximately $2.2 million remains unamortized as of March 31, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of March 31, 2012, $68.1 million of leases and loans and $7.8 million of restricted cash were pledged as collateral for this facility. Recourse is limited to the amount of collateral pledged.
 
 DZ Bank
 
 The outstanding balance of $72.9 million was paid off on December 8, 2010 with the proceeds from the 2010-4 Term Securitization.  Interest on each borrowing on this facility is calculated at the commercial paper rate for the lender at the time of such borrowing plus 1.75% per year. The DZ Bank facility has not been terminated but it is currently not available for use as the Fund had incurred multiple breaches under its covenants for which the Fund has requested waivers.  Additionally, no cross-default provisions exist with the 2010-4 Term Securitization.  As of March 31, 2012, no amounts were outstanding under this borrowing arrangement.
 
 
12
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
March 31, 2012
(Unaudited)
 
Debt Repayments: Excluding $2.2 million of remaining unamortized discount on the 2010-04 Term Securitization, estimated annual principal payments on the Fund’s aggregate borrowings over the next five annual periods ended March 31, and thereafter, are as follows (in thousands):
 
March 31, 2013
   $ 40,942  
March 31, 2014
     19,240  
March 31, 2015
     10,887  
    $ 71,069  
 
NOTE 7 – NOTE PAYABLE
 
The Fund had a $1.3 million, 12% note payable to Guggenheim. The remaining principal balance of $778,000 was paid off on March 21, 2011.
 
NOTE 8 – FAIR VALUE MEASUREMENT
 
For cash, receivables and payables, the carrying amounts approximate fair values because of the short term maturity of these instruments. The carrying value of debt approximates fair market value since interest rates approximate current market rates.
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (exit price). U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
 
There were no assets or liabilities measured at fair value at March 31, 2012 or December 31, 2011.
 
NOTE 9 – CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES
 
The Fund relies on the General Partner and its affiliates to manage the Fund’s operations and pays the General Partner or its affiliates fees to manage the Fund in accordance with the Partnership Agreement. The following is a summary of fees and costs of services charged by the General Partner or its affiliates (in thousands):
 
   
Three Months Ended March 31,
  
   
2012
    
2011
  
Administrative expenses
     201       447  
Management fees
     -       -  
 
Administrative Expenses. The General Partner and its affiliates are reimbursed by the Fund for administrative services reasonably necessary to operate which do not exceed the General Partner’s cost of those fees or services.
 
Management Fees. The General Partner was paid a subordinated annual asset management fee equal to 4% of gross rental payments for operating leases or 2% for full payout leases or a competitive fee, whichever is less. During the Fund’s five-year investment period, the management fees were subordinated to the payment to the Fund’s limited partners of a cumulative annual distribution of 8.5% of their capital contributions, as adjusted by distributions deemed to be a return of capital. Beginning August 1, 2009, the General Partner waived its asset management fees.  Approximately $441,000 of management fees were waived for the three month period ended March 31, 2012 and $4.5 million has been waived on a cumulative basis.  The General Partner has also waived all future management fees.
 
Due to Affiliates. Due to affiliates includes amounts due to the General Partner related to acquiring and managing portfolios of equipment from its General Partner, management fees and reimbursed expenses.
 
 
13
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
March 31, 2012
(Unaudited)
 
NOTE 10 – COMMITMENTS AND CONTINGENCIES
 
In connection with a sale of leases and loans to a third-party in July of 2008, the Fund contractually agreed to repurchase delinquent leases up to a maximum of $327,000, calculated on the basis of 7.5% of total proceeds received from the sale (“Repurchase Commitment”).  As of March 31, 2012, the Fund has a $179,000 remaining Repurchase Commitment.
 
The Fund is party to various routine legal proceedings arising out of the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Fund’s financial condition or results of operations.
 
 
14
 
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
When used in this Form 10-Q, the words “believes” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in Item 1A, under the caption “Risks Inherent in Our Business,” in our annual report on Form 10-K for the year ended December 31, 2011. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
 
The following discussion provides an analysis of our operating results, an overview of our liquidity and capital resources and other items related to us. The following discussion and analysis should be read in conjunction with (i) the accompanying interim financial statements and related notes and (ii) our consolidated financial statements, related notes, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
As used herein, the terms “we,” “us,” or “our” refer to LEAF Equipment Leasing Income Fund III, L.P. and its subsidiaries.
 
Business
 
We are a Delaware limited partnership formed on May 16, 2006 by our General Partner, LEAF Asset Management, LLC (the “General Partner”), which manages us. The General Partner is a Delaware limited liability company, and subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through our offering termination date of April 24, 2008 we raised $120.0 million by selling 1.2 million of our limited partner units. We commenced operations in March 2007.
 
We are expected to have a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a subsequent liquidation period of two years, during which our leases and secured loans will either mature or be sold. In the event we are unable to sell our leases and loans during the liquidation period, we expect to continue to return capital to our partners as those leases and loans mature. Substantially all of our leases and loans mature by the end of 2014. We expect to enter our liquidation period beginning in April 2013. We will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement.
 
We acquire a diversified portfolio of new, used or reconditioned equipment that we lease to third parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from LEAF Financial Corporation (“LEAF”), an affiliate of our General Partner and a subsidiary of RAI. In addition, we may make secured loans to end users to finance their purchase of equipment. We attempt to structure our secured loans so that, in an economic sense, there is no difference to us between a secured loan and a full payout equipment lease. We finance business-essential equipment including, but not limited to computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on the small to mid-size business market, which generally includes businesses with:
 
·
500 or fewer employees;
 
·
$1.0 billion or less in total assets; or
 
·
Or $100 million or less in total annual sales.
 
Our principal objective is to generate regular cash distributions to our limited partners.

General Economic Overview

Economic indicators for the quarter ending March 31, 2012 point to continuation of a slow but uncertain recovery from the “Great Recession.”  Among positive trends was further job growth, reduction in jobless claims, and reduction in the unemployment rate.  Growth in manufacturing continued, driven largely by the recovering auto industry.  At the same time rising oil prices and the persistent problems in housing markets pose a serious threat to a sustained pattern of economic growth.  Capital markets remain on edge with the continuing flow of troublesome news related to sovereign debt in the euro-zone.

 
15
 
Certain key indicators of economic activity that were reported in the quarter ending March 31, 2012 are described below.  While these indicators show an overall favorable trend, they also highlight unbalanced economic performance. While the following uncertainties in the economic outlook persist, and while the economy remains unsettled, our portfolio performance may be affected.

 
·
The National Federation of Independent Business Small-Business Optimism Index posted a gain in February 2012 which was the sixth consecutive month of gains. The National Federation of Independent Business reports that while the increase is a sign that economic recovery is likely to continue, the Index remains at a historically low level.  This is an important economic indicator for us because small businesses comprise the majority of the borrowers and lessees in our portfolio and consequently the health of the small business community is critical to our portfolio performance.
 
·
In March 2012, The National Association of Realtors reported that existing home sales in February 2012 declined from the pace in January 2012 but increased as compared to the prior year period. The National Association of Realtors also reported that the pending home sales index, which is a forward looking indicator, posted a decline in February 2012 as compared to January 2012.
 
·
The S&P Case-Shiller Home Price Index from March 2012 reported annual decreases in home prices of 3.9% and 3.8% for the 10 and 20- City Composite Indices and a decline of 0.8% for both indices in the month of January 2012.
 
·
During March 2012 the nation added 120,000 jobs and the unemployment rate at the end of March 2012 fell to 8.2% from 8.5% at the end of December 2011.
 
·
The Institute of Supply Management reported, in March 2012, a broad based growth in U.S. manufacturing.  The Institute of Supply Management’s Employment Index also grew in March 2012, the 30th consecutive month of such gains, which generally supports the national job growth trends.
 
·
The Equipment Lease and Finance Foundation’s Monthly Confidence Index in March 2012 was 61.7, up significantly from the December 2011 Index of 57.2.    This signifies general optimism among members of the equipment leasing and finance industry fueled largely by growth in business volumes and improving receivables performance.  Similarly the March 2012 Credit Manager’s Index published by the National Association of Credit Managers increased to 56.2 from 54.4 in December 2011 driven largely by growth in new business, improved business payment habits, and declines in business bankruptcies.
 
 
16

Finance Receivables and Asset Quality
 
Information about our portfolio of leases and loans is as follows (dollars in thousands):
 
   
March 31,
    
December 31,
  
   
2012
    
2011
  
Investment in leases and loans, net
   $ 67,134     $ 84,367  
                 
Number of contracts
     17,000       20,000  
Number of individual end users (a)
     14,900       17,200  
Average original equipment cost
   $ 20.2     $ 18.8  
Average initial lease term (in months)
     60       59  
Average remaining lease term (in months)
     16       21  
States accounting for more than 10% of lease and loan portfolio:
                
California
     11 %     12 %
Florida
     11 %     10 %
                 
Types of equipment accounting for more than 10% of lease and loan portfolio:
                
Industrial Equipment
     36 %     37 %
Office Equipment
     15 %     15 %
Medical Equipment
     14 %     13 %
                 
Types of businesses accounting for more than 10% of lease and loan portfolio:
                
Services
     42 %     42 %
Retail Trade
     13 %     13 %
Transportation/Communication/Energy
     12 %     12 %
 
(a)
Located in the 50 states as well as the District of Columbia and Puerto Rico. No individual end user or single piece of equipment accounted for more than 1% of our portfolio based on original cost of the equipment.

 
17
 
Portfolio Performance
 
The table below provides information about our finance receivables including non-performing assets, which are those assets that are not accruing income due to non-performance or impairment (dollars in thousands):
 
   
As of and for the
  
   
Three Months Ended March 31,
  
               
Change
  
   
2012
    
2011
     $       %  
Investment in leases and loans before allowance for credit losses
   $ 68,334     $ 167,148     $ (98,814 )     (59 )%
Less: allowance for credit losses
     1,200       9,630       (8,430 )     (88 )%
Investment in leases and loans, net
   $ 67,134     $ 157,518     $ (90,384 )     (57 )%
                                 
Weighted average investment in direct financing leases and loans before allowance for credit losses
   $ 75,556     $ 176,248     $ (100,692 )     (57 )%
Non-performing assets
   $ 2,002     $ 12,170     $ (10,168 )     (84 )%
Charge-offs, net of recoveries
   $ 981     $ 2,529     $ (1,548 )     (61 )%
As a percentage of finance receivables:
                                
Allowance for credit losses
     1.76 %     5.76 %                
Non-performing assets
     2.93 %     7.28 %                
As a percentage of weighted average finance receivables:
                                
Charge-offs, net of recoveries
     1.30 %     1.43 %                
 
Our allowance for credit losses is our estimate of losses inherent in our commercial finance receivables. The allowance is based on factors which include our historical loss experience on equipment finance portfolios we manage, an analysis of contractual delinquencies, current economic conditions and trends and equipment finance portfolio characteristics, adjusted for recoveries. In evaluating historic performance, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. Our policy is to charge-off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote. Substantially all of our assets are collateral for our debt and, therefore, significantly greater delinquencies than anticipated will have an adverse impact on our cash flow and distributions to our partners.

We focus on financing equipment used by small to mid-sized businesses. The recent economic recession in the U.S. has made it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. These higher delinquencies may continue as the U.S. economy recovers.  Despite this, our non-performing assets as a percentage of finance receivables decreased from 7.28% at March 31, 2011 to 2.93% at March 31, 2012, reflecting an improvement in the aging of our portfolio.  Our allowance for credit losses as a percentage of our investments in leases and loans also reflects this, decreasing from 5.76% at March 31, 2011 to 1.76% at March 31, 2012.

Our net charge-offs decreased in the 2012 period compared to the 2011 period due primarily to the decrease in our portfolio balance.
 
Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including the allowance for credit losses, and the estimated unguaranteed residual values of leased equipment, among others. We base our estimates on historical experience, current economic conditions and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
For a complete discussion of our critical accounting policies and estimates, see our annual report on Form 10-K for fiscal 2011 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Estimates.”  There have been no material changes to these policies through March 28, 2012.

 
18
 
Results of Operations
 
As discussed previously, the economic recession has negatively impacted our operating results primarily through increased rates of default on outstanding leases and loans and increased costs of borrowing from our lenders.  These factors have resulted in our inability to reinvest earnings in additional leases and loans, leading to a decrease in our portfolio balance and a reduction in cash generated to continue to support distributions to our limited partners.
 
Three Months Ended March 31, 2012 as compared to the Three Months Ended March 31, 2011 (dollars in thousands):
 
         
Increase (Decrease)
  
   
2012
    
2011
      $       %  
Revenues:
                          
Interest on equipment financings
   $ 1,791     $ 3,979     $ (2,188 )     (55 )%
Rental income
     480       921       (441 )     (48 )%
Losses on sales of equipment and lease dispositions, net
     (323 )     (42 )     (281 )     (669 )%
Other income
     315       469       (154 )     (33 )%
      2,263       5,327       (3,064 )     (58 )%
                                 
Expenses:
                                
Interest expense
     1,564       2,897       (1,333 )     (46 )%
Depreciation on operating leases
     372       783       (411 )     (52 )%
Provision for credit losses
     541       2,979       (2,438 )     (82 )%
General and administrative expenses
     291       383       (92 )     (24 )%
Administrative expenses reimbursed to affiliate
     201       447       (246 )     (55 )%
      2,969       7,489       (4,520 )     (60 )%
Loss before equity in earnings (loss) of affiliate
     (706 )     (2,162 )     1,456          
Equity in earnings (loss) of affiliate
     1       (18 )     19          
Net loss
     (705 )     (2,180 )     1,475          
Net loss allocated to LEAF III's limited partners
   $ (698 )   $ (2,158 )   $ 1,460          
 
The decrease in total revenues was primarily attributable to the following:
 
 
·
A decrease in interest on equipment financings and rental income.  Our weighted average net investment in financing assets decreased to $75.6 million for the three months ended March 31, 2012 as compared to $176.2 million for the three months ended March 31, 2011, a decrease of $100.6 million or 57%. This decrease was primarily due to the runoff of our portfolio of leases and loans.
 
 
·
Losses on the sale of equipment and lease dispositions increased $281,000 to $323,000 for the three months ended March 31, 2012 compared to $42,000 for the three months ended March 31, 2011.  Gains and losses on sales of equipment may vary significantly from period to period.
 
 
·
A decrease in other income, primarily due to a reduction in both late fee and collection fee income. Late fee and collection fee income decreased due to the decrease of the equipment financing portfolio.
 
The decrease in total expenses was primarily the result of the following:
 
 
·
A decrease in interest due to our decrease in average debt outstanding. Average borrowings for the three months ended March 31, 2012 and 2011 were $78.7 million and $171.4 million, respectively. The interest expense reduction was primarily driven by accelerated debt payments required by our lenders and due to the reduction in the size of our portfolio of leases and loans.
 
 
·
A decrease in depreciation on operating leases due to a decrease in the size of our operating lease portfolio.
 
 
·
A significant decrease in provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. This decrease is consistent with the decline in the portfolio of equipment financed assets and an improvement in the performance of our portfolio.  Non-performing assets declined to $2.0 million at March 31, 2012 compared to $12.2 million at March 31, 2011.
 
 
·
A decrease in administrative expenses reimbursed to affiliate due to the decrease in the size of our portfolio.

The net loss per limited partner unit, after the loss allocated to our General Partner, for the three months ended March 31, 2012 and 2011 was $0.58 and $1.81, respectively, based on a weighted average number of limited partner units outstanding of 1,195,631 for both periods.

 
19
 
Liquidity and Capital Resources
 
General
 
Our major source of liquidity is from the collection of lease and loan payments.  Our primary cash requirements are for debt service, investment in leases and loans, and distributions to partners, in addition to normal operating expenses. We believe at this time that future net cash inflows will be sufficient to finance operations and meet debt service payments. The following table sets forth our sources and uses of cash for the periods indicated (in thousands):
 
   
Three Months Ended March 31,
  
   
2012
    
2011
  
Net cash provided by operating activities
   $ 1,504     $ 2,567  
Net cash provided by investing activities
     15,997       26,570  
Net cash used in financing activities
     (17,578 )     (29,425 )
Decrease in cash
   $ (77 )   $ (288 )
 
Cash decreased by $77,000 which was primarily due to debt repayments of $19.9 million and distributions to our partners of $602,000, offset by net proceeds from leases and loans of $16.0 million, and improved operating cash of $1.5 million.
 
Partners’ distributions paid for the three months ended March 31, 2012 and 2011 were $602,000 and $596,000, respectively.  To date, limited partners have received total distributions of approximately 27% of their original amount invested, depending upon when the investment was made.   Distributions to limited partners were paid at a rate of 2.0% for the three month periods ended March 31, 2012 and 2011.
 
Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include: our ability to obtain and maintain debt financing on acceptable terms to build and maintain our equipment finance portfolio; lease and loan defaults by our customers; and prevailing economic conditions. Due to the recent economic recession, we continue to see a scarcity of available debt on terms beneficial to us and higher than expected loan defaults, resulting in poorer fund performance than projected.
 
Maintaining or increasing our portfolio with performing leases and loans is expected to generate additional cash flow to us and ultimately may increase distributions to the limited partners.
 
Beginning August 1, 2010, our General Partner waived its asset management fee. Through March 31, 2012, the General Partner has waived $4.5 million of asset management fees, of which $441,000 related to the three months ended March 31, 2012.
 
Borrowings
 
Our borrowing relationships each require the pledging of eligible leases and loans to secure amounts advanced. Borrowings outstanding under our credit facilities were as follows as of March 31, 2012 (in thousands):
 
         
Amount
    
Amount of
  
 
Type
  
Maturity
  
Outstanding
    
Collateral
  
2010-4 Term Securitization
Term
  
August 2018, January 2019
   $ 68,876     $ 75,921  
DZ Bank
Revolving
  
November 2013
     -       -  
          $ 68,876     $ 75,921  
 
2010-4 Term Securitization
 
The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes bear interest at stated, fixed rates ranging from 1.7% to 5.5% and were issued at an original discount of approximately $7.2 million of which approximately $2.2 million remains unamortized as of March 31, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of March 31, 2012, $68.1 million of leases and loans and $7.8 million of restricted cash were pledged as collateral this facility. Recourse is limited to the amount of collateral pledged.
 
 
20
 
 DZ Bank
 
 The outstanding balance of $72.9 million was paid off on December 8, 2010 with the proceeds from the 2010-4 Term Securitization.  Interest on each borrowing on this facility is calculated at the commercial paper rate for the lender at the time of such borrowing plus 1.75% per year. The DZ Bank facility has not been terminated but it is currently not available for use as we have incurred multiple breaches under its covenants for which we have requested waivers.  Additionally, no cross-default provisions exist with the 2010-4 Term Securitization.  As of March 31, 2012, there were no amounts were outstanding under this borrowing arrangement.
 
Guggenheim Note Payable
 
We had a note payable to Guggenheim in the amount of $1.3 million and which bore interest at 12% annually. The remaining principal balance of $778,000 was paid off on March 21, 2011.
 
Liquidity Summary
 
Our primary source of liquidity comes from payments on our lease and loan portfolio. Our liquidity has been and could be further adversely affected by higher than expected equipment lease defaults, which results in a loss of revenues. These losses may adversely affect our ability to make distributions to our partners and, if the level of defaults is sufficiently large, may result in our inability to fully recover our investment in the underlying equipment. As our lease portfolio ages, and if the recovery in the United States economy falters for a substantial period of time, we anticipate the need to increase our allowance for credit losses.
 
Our primary use of cash is for debt service. Substantially all of our leases and loans are collateral for our debt, however, all of our debt is non-recourse to the partnership which limit our financial exposure. Repayment of our debt is based on the payments we receive from our customers. If a lease or loan becomes delinquent our lender uses the excess collateral from performing leases to repay our loan, even though our customer has not paid us. Therefore, higher than expected lease and loan defaults will reduce our liquidity.
 
The tightening of credit markets has and may continue to adversely affect our liquidity, particularly our ability to obtain or renew debt financing needed to execute our investment strategies. Historically, we have utilized both revolving and term debt facilities to fund our acquisitions of equipment financings.  If we are unable to obtain new debt that will allow us to invest the repayments of existing leases and loans into new investments, then our portfolio of leases and loans will continue to decline.
 
Legal Proceedings
 
We are a party to various routine legal proceedings arising out of the ordinary course of our business. Our General Partner believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
 
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Quantitative and Qualitative Disclosures about Market Risk have been omitted as permitted under rules applicable to smaller reporting companies.
 
ITEM 4 – CONTROLS AND PROCEDURES
 
Disclosure Controls
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
 
21
 
Under the supervision of our General Partner’s chief executive officer and chief financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our General Partner’s chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level discussed above.
 
Changes in Internal Control over Financial Reporting
 
There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
22
 
ITEM 6 – EXHIBITS
 
Exhibit
    
No.
  
Description
3.1
  
Certificate of Limited Partnership (1)
3.2
  
Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III, L.P. (1)
3.3
  
Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III, L.P.  (4)
4.1
  
Forms of letters sent to limited partners confirming their investment (1)
10.1
  
Origination and Servicing Agreement among LEAF Equipment Leasing Income Fund III, L.P., LEAF Financial Corporation and LEAF Funding Inc., dated February 12, 2007 (1)
10.2
  
Receivables Loan and Security Agreement, dated as of November 21, 2008, among LEAF III C SPE, LLC, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III, L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, U.S. Bank, National Association, and Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services) (2)
10.3
  
Amendment No. 1 to Receivables Loan and Security Agreement, dated as of April 13, 2010 among LEAF III C SPE, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III, L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (3)
10.4
  
Indenture between LEAF Receivables Funding 5, LLC and U.S. Bank National Association dated as of November 5, 2010 (5)
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
  
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (ii) the Consolidated Statements of Operations for the three month periods ended March 31, 2012 and 2011; (iii) the Consolidated Statements of Comprehensive Income for the three month period ended March 31, 2012; (iv) the Consolidated Statements of Changes in Partners’ (Deficit) Capital for the three month period ended March 31, 2012; (iv) the Consolidated Statements of Cash Flows for the periods ended March 31, 2012 and 2011; and, (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text. 
 
(1)
Filed previously as an exhibit to our Registration Statement on Form S-1 filed on October 2, 2006 and by this reference incorporated herein.
(2)
Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008 and by this reference incorporated herein.
(3)
Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and by this reference incorporated herein.
(4)
Filed previously as an exhibit to our Current Report on Form 8-K Report dated October 17, 2011.
(5)
Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2010 and by this reference incorporated herein.
 
 
23
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
  
 
A Delaware Limited Partnership
  
       
 
By:
LEAF Asset Management, LLC, the General Partner
  
       
May 15, 2012
By:
/s/ CRIT S. DEMENT
  
   
Crit S. DeMent
  
   
Chief Executive Officer
  
       
May 15, 2012
By:
/s/ ROBERT K. MOSKOVITZ
  
   
Robert K. Moskovitz
  
   
Chief Financial Officer
  
 
 
24

LEAF Equipment Leasing Income Fund III, L.P. Reports