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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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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 June 30, 2013

 

OR

 

¨

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

 

For the transition period from             to            

 

Commission file number 000-53174

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LEAF EQUIPMENT LEASING INCOME FUND III, L.P.

(Exact Name of Registrant as Specified in Its Charter)

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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.

 

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LEAF EQUIPMENT LEASING INCOME FUND III, L.P.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

PART I	FINANCIAL INFORMATION	PAGE
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets – June 30, 2013 (Unaudited) and December 31, 2012	3
	Consolidated Statements of Operations – Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)	4
	Consolidated Statement of Changes in Partners’ Deficit – Six Months Ended June 30, 2013 (Unaudited)	5
	Consolidated Statements of Cash Flows –  Six Months Ended June 30, 2013 and 2012 (Unaudited)	6
	Notes to Consolidated Financial Statements – June 30, 2013 (Unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4.	Controls and Procedures	22
PART II	OTHER INFORMATION	23
ITEM 6.	Exhibits	23
SIGNATURES		24

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PART I. FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

		June 30, 2013				December 31, 2012
		(Unaudited)
ASSETS
Cash		$	10			$	42
Restricted cash			4,591				6,406
Investment in leases and loans, net			18,494				31,459
Deferred financing costs, net			178				301
Investment in affiliated leasing partnership			157				328
Other assets			89				75
Total assets		$	23,519			$	38,611
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities:
Debt		$	19,212			$	33,401
Accounts payable and accrued expenses			595				880
Other liabilities			271				334
Due to affiliates			17,386				16,567
Total liabilities			37,464				51,182
Commitments and contingencies (Note 9)
Partners’ Deficit:
General partner			(1,178	)			(1,165	)
Limited partners			(12,767	)			(11,406	)
Total partners’ deficit			(13,945	)			(12,571	)
Total liabilities and partners' deficit		$	23,519			$	38,611

The accompanying notes are an integral part of these consolidated financial statements.

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LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
Revenues:
Interest on equipment financings		$	604			$	1,459			$	1,413			$	3,251
Rental income			119				363				281				842
Gain (loss) on sale of equipment and lease dispositions, net			73				69				196				(253	)
Other income			122				295				279				610
			918				2,186				2,169				4,450
Expenses:
Interest expense			540				1,910				1,223				3,473
Depreciation on operating leases			28				253				94				626
Provision for credit losses			(214	)			567				339				1,108
General and administrative expenses			163				379				382				670
Administrative expenses reimbursed to affiliate			56				161				130				362
			573				3,270				2,168				6,239
Income (loss) before equity in losses of affiliate and impairment on investment in affiliate			345				(1,084	)			1				(1,789	)
Equity in losses of affiliate			(171	)			(16	)			(171	)			(15	)
Impairment on investment in affiliate			–				(428	)			-				(428	)
Net income (loss)		$	174			$	(1,528	)		$	(170	)		$	(2,232	)
Net income (loss) allocated to limited partners		$	172			$	(1,513	)		$	(168	)		$	(2,210	)
Weighted average number of limited partner units outstanding during the period			1,195,631				1,195,631				1,195,631				1,195,631
Net income (loss) per weighted average limited partner unit		$	0.14			$	(1.27	)		$	(0.14	)		$	(1.85	)

The accompanying notes are an integral part of these consolidated financial statements.

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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, 2013		$	(1,165	)			1,195,631			$	(11,406	)		$	(12,571	)
Cash distributions paid			(11	)			-				(1,193	)			(1,204	)
Net loss			(2	)			-				(168	)			(170	)
Balance, June 30, 2013		$	(1,178	)			1,195,631			$	(12,767	)		$	(13,945	)

The accompanying notes are an integral part of this consolidated financial statement.

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LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

		Six Months Ended June 30,
Cash flows from operating activities:		2013				2012
Net loss		$	(170	)		$	(2,232	)
Adjustments to reconcile net loss to net cash provided by operating activities:
(Gain) loss on sale of equipment and lease dispositions, net			(196	)			253
Equity in losses of affiliate			171				15
Impairment on investment in affiliate			–				428
Depreciation on operating leases			94				626
Provision for credit losses			339				1,108
Amortization of deferred charges			123				1,095
Amortization of discount on debt			418				1,127
Changes in operating assets and liabilities:
Accounts Receivable			7				11
Other assets			(22	)			50
Accounts payable and accrued expenses, and other liabilities			(348	)			210
Due to affiliates			819				379
Net cash provided by operating activities			1,235				3,070
Cash flows from investing activities:
Purchases of leases and loans			–				(749	)
Proceeds from leases and loans			12,926				29,620
Security deposits returned			(197	)			(343	)
Net cash provided by investing activities			12,729				28,528
Cash flows from financing activities:
Repayment of debt			(14,607	)			(34,312	)
Decrease in restricted cash			1,815				4,005
Cash distributions to partners			(1,204	)			(1,211	)
Net cash used in financing activities			(13,996	)			(31,518	)
(Decrease) increase in cash			(32	)			80
Cash, beginning of period			42				154
Cash, end of period		$	10			$	234
Cash paid for interest		$	702			$	1,269

The accompanying notes are an integral part of these consolidated financial statements.

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LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

June 30, 2013

(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 minimum of 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. All of the Fund’s leases and loans mature by the end of 2018. The Fund entered its liquidation period in April 2013 and accordingly, is contractually prohibited from acquiring additional leases and loans under the Limited Partnership Agreement (“the Partnership Agreement”). Contractually, the Fund will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Partnership Agreement.

 

The Fund acquired 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 acquired 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 1.3% 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 as the Fund’s General Partner exercises significant influence over the entity.

 

In March 2009, the Fund also invested $428,000 in LEAF Funds Joint Venture 2, LLC (“LEAF Funds JV2”), representing a 2% ownership interest, which the Fund accounted for under the cost method of accounting. In May 2012 the Fund fully impaired its investment in LEAF Funds JV2 due to continued uncertainty as to future performance.  Should the Fund realize a return on its investment in a future period, this would result in a gain to the Fund.

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 June 30, 2013, and the results of its operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of results of the Fund’s operations for the 2013 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, 2012, as filed with the SEC on March 28, 2013.

 

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.

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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.

 

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. Generally, after an account becomes 180 or more days past due any remaining balance is fully-reserved less an estimated recovery amount. Generally, past due accounts are referred to our internal recovery group consisting of a team of credit specialists and collectors. The group utilizes several resources in an attempt to maximize recoveries on past due accounts including: 1) initiating litigation against the end user customer and any personal guarantor, 2) referring the account to an outside law firm or collection agency and/or 3) repossessing and remarketing the equipment through third parties.  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.

 

The Fund discontinues the recognition of revenue for leases and loans for which payments are more than 90 days past due. Payments received while leases and loans are on non-accrual status are recorded as a reduction of principal. Generally, 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.

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Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others.  The Fund recognizes late fee income as fees are collected. Late fee income was $113,000 and $252,000, respectively, for the three and six months ended June 30, 2013, and $256,000 and $524,000, respectively, for the three and six months ended June 30, 2012.

 

NOTE 3 – INVESTMENT IN LEASES AND LOANS

 

The Fund’s investment in leases and loans, net, consists of the following (in thousands):

 

		June 30, 2013				December 31, 2012
Direct financing leases (a)		$	8,384			$	16,339
Loans (b)			10,312				15,705
Operating leases			238				455
			18,934				32,499
Allowance for credit losses			(440	)			(1,040	)
		$	18,494			$	31,459

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(a)	The Fund’s direct financing leases are for initial lease terms generally ranging from 24 to 108 months.

(b)	The interest rates on loans generally range from 6% to 15%.

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The components of direct financing leases and loans are as follows (in thousands):

		June 30, 2013								December 31, 2012
		Leases				Loans				Leases				Loans
Total future minimum lease payments		$	7,793			$	11,566			$	15,639			$	17,785
Unearned income			(511	)			(971	)			(1,017	)			(1,699	)
Residuals, net of unearned residual income			1,212				-				1,927				-
Security deposits			(110	)			(283	)			(210	)			(381	)
		$	8,384			$	10,312			$	16,339			$	15,705

The Fund’s investment in operating leases, net, consists of the following (in thousands):

		June 30, 2013				December 31, 2012
Equipment on operating leases		$	1,657			$	3,147
Accumulated depreciation			(1,419	)			(2,690	)
Security deposits			(1	)			(2	)
		$	237			$	455

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 $440,000 and $1.0 million) as of June 30, 2013 and December 31, 2012, respectively (in thousands):

		June 30, 2013								December 31, 2012
Age of receivable		Investment in leases and loans				%				Investment in leases and loans				%
Current		$	15,954				84.3	%		$	27,004				83.1	%
Delinquent:
31 to 91 days past due			2,496				13.2	%			4,023				12.4	%
Greater than 91 days (a)			484				2.5	%			1,472				4.5	%
		$	18,934				100.0	%		$	32,499				100.0	%

 

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(a)	Balances in this age category are collectively evaluated for impairment.

 

The Fund had $484,000 and $1.5 million of leases and loans on nonaccrual status as of June 30, 2013 and December 31, 2012, respectively.  The credit quality of the Fund’s investment in leases and loans as of June 30, 2013 and December 31, 2012 is as follows (in thousands):

		June 30, 2013				December 31, 2012
Performing		$	18,450			$	31,027
Nonperforming			484				1,472
		$	18,934			$	32,499

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The following table summarizes the activity in the allowance for credit losses (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
Allowance for credit losses, beginning of period		$	730			$	1,200			$	1,040			$	1,640
Provision for credit losses			(214	)			567				339				1,108
Charge-offs			(358	)			(1,175	)			(1,363	)			(2,618	)
Recoveries			282				258				424				720
Allowance for credit losses, end of period (a)		$	440			$	850			$	440			$	850

 

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NOTE 5 – DEFERRED FINANCING COSTS

 

As of June 30, 2013 and December 31, 2012, deferred financing costs include $178,000 and $301,000, respectively, of unamortized deferred financing costs which are being amortized over the estimated life of the related debt. Accumulated amortization as of June 30, 2013 and December 31, 2012 is $1.9 million and $1.8 million, respectively.

 

NOTE 6 –DEBT

 

The Fund’s bank debt consists of the following (dollars in thousands):

June 30, 2013

December 31, 2012

Outstanding

Interest rate

Outstanding

Type

Maturity Date

Balance

per annum

Balance

2010-4 Term Securitization

Term

August 2018, January 2019

$

19,212

1.70% to 5.50%

$

33,401

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 $604,000 remains unamortized as of June 30, 2013.  As of June 30, 2013, $18.8 million of leases and loans and $4.5 million of restricted cash were pledged as collateral for this facility. Recourse is limited to the amount of collateral pledged.

The 2010-4 Term Securitization is serviced by an affiliate of our General Partner (the “Servicer”).  If the Servicer or our portfolio does not comply with certain requirements, then the noteholders have the right to replace the Servicer.  The servicing agreement was amended as of September 28, 2012 to increase the cumulative net loss percentages as the portfolio had exceeded the allowed cumulative net loss amount.  In addition, the servicing agreement and the indenture were amended to establish an additional reserve account to be funded by cash flows on leases and loans that will be used by the trustee as additional collateral.  The portfolio was in compliance with these agreements as of June 30, 2013.

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Debt Repayments: Excluding $604,000 of remaining unamortized discount on the 2010-04 Term Securitization, estimated annual principal payments on the Fund’s aggregate borrowings over the next three annual periods ended June 30, are as follows (in thousands):

June 30, 2014		$	12,158
June 30, 2015			5,024
June 30, 2016			2,634
		$	19,816

 

NOTE 7 – FAIR VALUE MEASUREMENT

 

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.

 

•

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 – Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

 

•

Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

 

There were no assets or liabilities measured at fair value at June 30, 2013 or December 31, 2012.

 

The Fund is also required to disclose the fair value of financial instruments not measured at fair value for which it is practicable to estimate that value.  For cash, restricted cash, receivables, and payables, the carrying amounts approximate fair value because of the short term maturity of these instruments.

 

The Fund is also required to disclose the methods used to estimate fair value on financial instruments not measured at fair value and the level within the fair value hierarchy that those fair value measurements are categorized. The carrying value and fair value of the Fund’s debt at June 30, 2013 and December 31, 2012 is as follows:

					Fair Value Measurements Using												Liabilities
	Carrying Value				Level 1				Level 2				Level 3				At Fair Value
Debt, at June 30, 2013		$	19,212			$	-			$	17,759			$	-			$	17,759
Debt, at December 31, 2012		$	33,401			$	-			$	31,367			$	-			$	31,367

 

The fair value of the debt was determined using quoted prices obtained from brokers as of the measurement date.

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NOTE 8 – 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 June 30,								Six Months Ended June 30,
	2013				2012				2013				2012
Administrative expenses		$	56			$	161			$	130			$	362

Administrative Expenses. The General Partner and its affiliates are reimbursed by the Fund for administrative services reasonably necessary to operate the Fund which do not exceed the General Partner’s actual cost of those services.

 

Due to Affiliates. Due to affiliates includes amounts due to the General Partner and its affiliates related to acquiring and managing portfolios of equipment from its General Partner, management fees and reimbursed expenses.

Distributions. The General Partner owns a 1.0% general partner interest and a 1.2% limited partner interest in the Fund. The General Partner was paid cash distributions of $11,000 and $16,000 for its general partner and limited partner interests, respectively, for the six months ended June 30, 2013 and $11,000 and $15,000 for its general partner and limited partner interests, respectively, for the six months ended June 30, 2012.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

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.

NOTE 10 – SUBSEQUENT EVENTS

The Fund has evaluated its June 30, 2013 financial statements for subsequent events through the date the financial statements were issued.  The Fund is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

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 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, 2012. 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, 2012.

 

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, along with its affiliates,  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 minimum of 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. All of our leases and loans mature by the end of 2018. We entered our liquidation period in April 2013 and accordingly, are not permitted to obtain additional leases and loans. We will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the 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 also 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.

To date, limited partners have received total distributions ranging from approximately 24% to 34% of their original amount invested, depending upon when the investment was made.   Our General Partner is working to maximize the amount that can be distributed to limited partners in the future. Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include lease and loan defaults by our customers, accelerated principal payments on our debt facilities required per our agreements, and prevailing economic conditions.  Distributions to our limited partners were made at a rate of 2.0% of their original capital invested for the six month period ended June 30, 2013.

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General Economic Overview

United States of America (“U.S.”) economic activity for the quarter ended June 30, 2013 showed overall growth and improvement in many sectors of the economy.  The continued recovery from the Great Recession was noted by Federal Reserve Chairman Bernanke’s testimony before Congress that it may soon be possible for the Federal Reserve to begin tapering the highly accommodative monetary policy known as Quantitative Easing.  The improving economic conditions coupled with the reductions in Federal spending resulting from Sequestration have resulted in a lower Federal deficit than was originally forecast. This has pushed back the pending approach of the U.S. debt ceiling and removed that issue (temporarily) as a major cause of concern.  On the labor front the quarter showed a trend in jobs growth and reductions in new claims for unemployment. Overhanging the economic outlook is the uncertainty and unknown effects of Obamacare particularly with respect to small businesses which are critical to job creation.  Some specific key economic indicators and reports that were released in the second quarter of 2013 are summarized below.

·

The National Association of Realtors Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2; the data reflect contracts but not closings. Contract activity is at the strongest pace since December 2006 when it reached 112.8; pending sales have been above year-ago levels for the past 25 months.

·

The National Association of Credit Management Index for June 2013 showed continued improvement in business credit conditions.  The Index measured 56.1 (any number over 50 shows improving conditions) and is at the highest level since the start of the Great Recession.

·

The June 2013 Institute of Supply Management report on manufacturing showed an expanding manufacturing sector with the over Index increasing from 49.0 to 50.9 (any number over 50 indicates improvement), new orders increasing from 48.8 to 51.9, and production increasing from 48.6 to 53.4.

·

The U.S. Census Bureau report on durable goods showed that new orders for manufactured goods continued in increase during quarter.

·

The Monthly Confidence Index for the Equipment Finance Industry continued to increase demonstrating equipment finance industry participants’ increasing optimism despite continued moderate demand for equipment.

·

The National Federation of Independent Business (NFIB) reported that small-business optimism remained in tepid territory in June, as NFIB’s monthly economic Index dropped just under a point (0.9) and landed at 93.5, effectively ending any hope of a revival in confidence among job creators. Six of the ten Index components fell, two rose and two were unchanged. While job creation plans increased slightly in June, expectations for improved business conditions remained negative. The Index—which was 12 points higher in June than at its lowest reading during the Great Recession but 7 points below the pre-2008 average and 14 points below the peak for the expansion—has been teetering between modest increases and declines for months.

 

Taken altogether these indicators point to an economy that is continuing to grow steadily but slowly.  Uncertainties with regard to monetary policy, fiscal policy, and Obamacare provide a moderating influence on economic growth.  The various monetary, fiscal, and healthcare activities (or lack of activities) may have an effect on the performance of leases and loans which have been largely extended to the small to medium sized business community.

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Finance Receivables and Asset Quality

 

Information about our portfolio of leases and loans is as follows (dollars in thousands):

		June 30, 2013				December 31, 2012
Investment in leases and loans, net		$	18,494			$	31,459
Number of contracts			7,100				9,100
Number of individual end users (a)			6,600				8,400
Average original equipment cost		$	26.4			$	25.2
Average initial lease term (in months)			63				62
Average remaining lease term (in months)			20				20
States accounting for more than 10% of lease and loan portfolio:
Florida			16	%			14	%
Texas			11	%			10	%
Types of equipment accounting for more than 10% of lease and loan portfolio:
Industrial Equipment			35	%			36	%
Medical Equipment			20	%			17	%
Office Equipment			11	%			13	%
Types of businesses accounting for more than 10% of lease and loan portfolio:
Services			44	%			44	%
Retail Trade			14	%			13	%
Transportation/Communication/Energy			13	%			13	%

 

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(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 9% of our portfolio based on original cost of the equipment.

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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
		Six Months Ended June 30,
										Change
		2013				2012				$					%
Investment in leases and loans before allowance for credit losses		$	18,934			$	54,780			$	(35,846	)			(64	)%
Less: allowance for credit losses			(440	)			(850	)			410				(48	)%
Investment in leases and loans, net		$	18,494			$	53,930			$	(35,436	)			(66	)%
Weighted average investment in direct financing leases and loans before allowance for credit losses		$	24,655			$	67,999			$	(43,344	)			(64	)%
Non-performing assets		$	484			$	1,338			$	(854	)			(64	)%
Charge-offs, net of recoveries		$	939			$	1,898			$	(959	)			(51	)%
As a percentage of finance receivables:
Allowance for credit losses			2.32	%			1.55	%
Non-performing assets			2.56	%			2.44	%
As a percentage of weighted average finance receivables:
Charge-offs, net of recoveries			3.81	%			2.79	%

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 have continued as the U.S. economy recovers as evidenced by an increase in our charge-offs (net of recoveries) as a percentage of our weighted average investment in finance receivables from 2.79% at June 30, 2012 to 3.81% at June 30, 2013.

 

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 2012 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 June 30, 2013.

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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. As noted previously, we entered our liquidation period in April 2013 subsequent to which we are prohibited under the partnership from acquiring additional leases and loans.  Accordingly, we expect the size of our portfolio to continue to decline.

Three Months Ended June 30, 2013 as compared to the Three Months Ended June 30, 2012 (dollars in thousands):

										Increase (Decrease)
		2013				2012				$					%
Revenues:
Interest on equipment financings		$	604			$	1,459			$	(885	)			(59	)%
Rental income			119				363				(224	)			(67	)%
Gain on sale of equipment and lease dispositions, net			73				69				4				6	%
Other income			122				295				(173	)			(59	)%
			918				2,186				(1,268	)			(58	)%
Expenses:
Interest expense			540				1,910				(1,370	)			(72	)%
Depreciation on operating leases			28				253				(225	)			(89	)%
Provision for credit losses			(214	)			567				(781	)			(138	)%
General and administrative expenses			163				379				(216	)			(57	)%
Administrative expenses reimbursed to affiliate			56				161				(105	)			(65	)%
			573				3,270				(2,697	)			(82	)%
Income (loss) before equity in losses of affiliate and impairment on investment in affiliate			345				(1,084	)			1,429
Equity in losses of affiliate			(171	)			(16	)			(155	)
Impairment on investment in affiliate			–				(428	)			428
Net income (loss)		$	174			$	(1,528	)		$	1,702
Net income (loss) allocated to limited partners		$	172			$	(1,513	)		$	1,685

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 $21.3 million for the three months ended June 30, 2013 as compared to $60.4 million for the three months ended June 30, 2012, a decrease of $39.1 million or 65%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.

 

·

Gains on the sale of equipment and lease dispositions increased $4,000 to a gain of $73,000 for the three months ended June 30, 2013 compared to a gain of $69,000 for the three months ended June 30, 2012.  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 late fee income. Late 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 expense due to a decrease in our average debt outstanding. Average borrowings for the three months ended June 30, 2013 and 2012 were $22.2 million and $62.4 million, respectively. The interest expense reduction was primarily driven by accelerated debt payments required by our debt agreements 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.

 

·

An increase 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, in addition to various qualitative factors.

 

·

A decrease in general and administrative expenses and administrative expenses reimbursed to affiliate due to the decrease in the size of our portfolio.

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The net income per limited partner unit, after the loss allocated to our General Partner, for the three months ended June 30, 2013 was $0.14 compared to net loss per limited partner unit of $1.27 for the three months ended June 30, 2012, based on a weighted average number of limited partner units outstanding of 1,195,631 for both periods.

Six Months Ended June 30, 2013 as compared to the Six Months Ended June 30, 2012 (dollars in thousands):

										Increase (Decrease)
		2013				2012				$					%
Revenues:
Interest on equipment financings		$	1,413			$	3,251			$	(1,838	)			(57	)%
Rental income			281				842				(561	)			(67	)%
Gain (loss) on sale of equipment and lease dispositions, net			196				(253	)			449				177	%
Other income			279				610				(331	)			(54	)%
			2,169				4,450				(2,281	)			(51	)%
Expenses:
Interest expense			1,223				3,473				(2,250	)			(65	)%
Depreciation on operating leases			94				626				(532	)			(85	)%
Provision for credit losses			339				1,108				(769	)			(69	)%
General and administrative expenses			382				670				(288	)			(43	)%
Administrative expenses reimbursed to affiliate			130				362				(232	)			(64	)%
			2,168				6,239				(4,071	)			(65	)%
Loss before equity in losses of affiliate and impairment on investment in affiliate			1				(1,789	)			1,790
Equity in losses of affiliate			(171	)			(15	)			(156	)
Impairment on investment in affiliate			–				(428	)			428
Net loss		$	(170	)		$	(2,232	)		$	2,062
Net loss allocated to limited partners		$	(168	)		$	(2,210	)		$	2,042

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 $24.7 million for the six months ended June 30, 2013 as compared to $68.0 million for the six months ended June 30, 2012, a decrease of $43.3 million or 64%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.

 

·

Gains (losses) on the sale of equipment and lease dispositions increased $449,000 to a gain of $196,000 for the six months ended June 30, 2013 compared to a loss of $253,000 for the six months ended June 30, 2012.  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 late fee income. Late 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 expense due to a decrease in our average debt outstanding. Average borrowings for the six months ended June 30, 2013 and 2012 were $25.8 million and $70.6 million, respectively. The interest expense reduction was primarily driven by accelerated debt payments required by our debt agreements 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.

 

·

An increase 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, in addition to various qualitative factors.

 

·

A decrease in general and administrative expenses and administrative expenses reimbursed to affiliate due to the decrease in the size of our portfolio.

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The net loss per limited partner unit, after the loss allocated to our General Partner, for the six months ended June 30, 2013 and 2012 was $0.14 and $1.85, respectively, based on a weighted average number of limited partner units outstanding of 1,195,631 for both periods.

 

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.  The following table sets forth our sources and uses of cash for the periods indicated (in thousands):

		Six Months Ended June 30,
		2013				2012
Net cash provided by operating activities		$	1,235			$	3,070
Net cash provided by investing activities			12,729				28,528
Net cash used in financing activities			(13,996	)			(31,518	)
(Decrease) increase in cash		$	(32	)		$	80

Cash decreased by $32,000 which was primarily due to debt repayments of $14.6 million and distributions to our partners of $1.2 million, partially offset by net proceeds from leases and loans of $12.9 million, cash provided by operating activities of $1.2 million, and a decrease in restricted cash of $1.8 million.

 

Partners’ distributions paid for the six months ended June 30, 2013 and 2012 were $1.2 million each period.  To date, limited partners have received total distributions of approximately 29% 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 six month periods ended June 30, 2013 and 2012.

 

Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include: lease and loan defaults by our customers; accelerated principle payments of our debt facilities required per our agreements; and prevailing economic conditions. The terms of our current debt facilities are structured to use excess cash to accelerate the repayment of debt. This results in paying less interest expense over time, but also limits available cash to make monthly distributions to the partners. The terms of our current debt facilities coupled with continued higher than expected lease and loan defaults, caused by a slow economic recovery could impact our ability to make monthly cash distributions to our limited partners.

 

Our General Partner has waived all future asset management fees. Through June 30, 2013, the General Partner has earned and waived management fees of $5.8million, of which $348,000 related to the six months ended June 30, 2013.

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Borrowings

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 $604,000 remains unamortized as of June 30, 2013.  As of June 30, 2013, $18.8 million of leases and loans and $4.5 million of restricted cash were pledged as collateral on this facility. Recourse is limited to the amount of collateral pledged.

The 2010-4 Term Securitization is serviced by an affiliate of our General Partner (the “Servicer”).  If the Servicer or our portfolio does not comply with certain requirements, then the noteholders have the right to replace the Servicer.  The servicing agreement was amended as of September 28, 2012 to increase the cumulative net loss percentages as the portfolio had exceeded the allowed cumulative net loss amount.  In addition, the servicing agreement and the indenture were amended to establish an additional reserve account to be funded by cash flows on leases and loans that will be used by the trustee as additional collateral.  The portfolio was in compliance with these agreements as of June 30, 2013.

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 limits 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.

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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.

 

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 quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

 

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)
10.5		First Amendment dated as of September 28, 2012 to the Indenture between LEAF Receivables Funding 5, LLC and U.S. Bank National Association (6)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		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
32.2		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 June 30, 2013 and December 31, 2012; (ii) the Consolidated Statements of  Operations for the three and six month periods ended June 30, 2013 and 2012; (iii) the Consolidated Statement of Changes in Partners’ Deficit for the six months ended June 30, 2013; (iv) the Consolidated Statements of Cash Flows for the six month periods ended June 30, 2013 and 2012; and, (v) the Notes to Consolidated Financial Statements.

 

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(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.

(6)

Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2012 and by this reference incorporated herein.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
	A Delaware Limited Partnership
	By:	LEAF Asset Management, LLC, its General Partner
August 13, 2013	By:	/s/ CRIT S. DEMENT
		Crit S. DeMent
		Chief Executive Officer
August 13, 2013	By:	/s/ ROBERT K. MOSKOVITZ
		Robert K. Moskovitz
		Chief Financial Officer