Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended |
September 30, 2014 |
|
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: |
000-51916 |
|
ICON Leasing Fund Eleven, LLC |
(Exact name of registrant as specified in its charter) |
Delaware |
20-1979428 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3 Park Avenue, 36th Floor, New York, New York |
10016 |
(Address of principal executive offices) |
(Zip Code) |
(212) 418-4700 |
(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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated filer ☐ |
Accelerated filer ☐ |
|
|
Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Number of outstanding shares of limited liability company interests of the registrant on November 4, 2014 is 362,656.
ICON Leasing Fund Eleven, LLC
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ICON Leasing Fund Eleven, LLC |
|||||||||||
(A Delaware Limited Liability Company) |
|||||||||||
Consolidated Balance Sheets |
|||||||||||
|
|||||||||||
|
September 30, |
|
December 31, |
||||||||
|
2014 |
|
2013 |
||||||||
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|||||||||||
Assets |
|||||||||||
Current assets: |
|
||||||||||
|
Cash and cash equivalents |
$ |
19,454,446 |
|
$ |
16,626,672 |
|||||
|
Current portion of net investment in notes receivable |
|
5,350,503 |
|
|
7,340,974 |
|||||
|
Assets held for sale |
|
88,738 |
|
|
1,551,590 |
|||||
|
Income tax receivable |
|
- |
|
|
1,525,563 |
|||||
|
Due from Manager and affiliates |
|
26,339 |
|
|
- |
|||||
|
Other current assets |
|
- |
|
|
36,231 |
|||||
|
|
|
|
|
Total current assets |
|
24,920,026 |
|
|
27,081,030 |
|
Non-current assets: |
|
|
|
|
|
||||||
|
Net investment in notes receivable, less current portion |
|
- |
|
|
8,009,255 |
|||||
|
Leased equipment at cost (less accumulated depreciation of |
|
|
|
|
|
|||||
|
|
of $6,601,270 and $2,091,462, respectively) |
|
8,813,025 |
|
|
15,325,821 |
||||
|
Investment in joint ventures |
|
13,294,288 |
|
|
12,162,693 |
|||||
|
Other non-current assets |
|
- |
|
|
86,215 |
|||||
|
|
|
|
|
Total non-current assets |
|
22,107,313 |
|
|
35,583,984 |
|
Total assets |
$ |
47,027,339 |
|
$ |
62,665,014 |
||||||
|
|||||||||||
Liabilities and Equity |
|||||||||||
Current liabilities: |
|
|
|
|
|
||||||
|
Accrued expenses and other liabilities |
|
6,297,161 |
|
|
5,540,855 |
|||||
Total liabilities |
|
6,297,161 |
|
|
5,540,855 |
||||||
|
|||||||||||
Commitments and contingencies (Note 12) |
|
|
|
|
|
||||||
|
|||||||||||
Equity: |
|
|
|
|
|
||||||
Members’ equity: |
|
|
|
|
|
||||||
|
Additional members |
|
40,492,476 |
|
|
55,045,259 |
|||||
|
Manager |
|
(2,818,948) |
|
|
(2,671,951) |
|||||
|
Accumulated other comprehensive income |
|
178,410 |
|
|
279,991 |
|||||
|
|
|
|
|
Total members' equity |
|
37,851,938 |
|
|
52,653,299 |
|
Noncontrolling interests |
|
2,878,240 |
|
|
4,470,860 |
||||||
|
|
|
|
|
Total equity |
|
40,730,178 |
|
|
57,124,159 |
|
Total liabilities and equity |
$ |
47,027,339 |
|
$ |
62,665,014 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements. |
1
ICON Leasing Fund Eleven, LLC |
||||||||||||||
(A Delaware Limited Liability Company) |
||||||||||||||
Consolidated Statements of Comprehensive (Loss) Income |
||||||||||||||
(unaudited) |
||||||||||||||
|
||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
|||||||||||
|
September 30, |
|
September 30, |
|||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|||
Revenue and other income: |
|
|
|
|
|
|
|
|
|
|||||
|
Finance income |
$ |
642,472 |
|
$ |
809,322 |
|
$ |
1,591,778 |
|
$ |
2,965,288 |
||
|
Rental income |
|
1,906,537 |
|
|
1,253,515 |
|
|
6,060,007 |
|
|
2,739,977 |
||
|
Income from investment in joint ventures |
|
399,024 |
|
|
367,608 |
|
|
1,209,396 |
|
|
548,690 |
||
|
Loss on sale of leased equipment |
|
(425,092) |
|
|
- |
|
|
(350,283) |
|
|
- |
||
|
|
Total revenue and other income |
|
2,522,941 |
|
|
2,430,445 |
|
|
8,510,898 |
|
|
6,253,955 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
|
General and administrative |
|
251,160 |
|
|
213,923 |
|
|
1,663,819 |
|
|
1,827,068 |
||
|
Depreciation |
|
1,567,584 |
|
|
804,020 |
|
|
4,939,010 |
|
|
1,600,564 |
||
|
Impairment loss |
|
28,407 |
|
|
- |
|
|
302,335 |
|
|
- |
||
|
Credit loss reserve |
|
- |
|
|
2,323,655 |
|
|
- |
|
|
2,323,655 |
||
|
Loss on litigation |
|
823,059 |
|
|
- |
|
|
823,059 |
|
|
- |
||
|
Interest |
|
8,071 |
|
|
24,681 |
|
|
26,864 |
|
|
218,637 |
||
|
Remarketing expense |
|
- |
|
|
913,891 |
|
|
- |
|
|
913,891 |
||
|
Loss (gain) on derivative financial instruments |
|
57,501 |
|
|
5,788 |
|
|
61,756 |
|
|
(15,071) |
||
|
Loss on disposition of assets of foreign investment |
|
- |
|
|
- |
|
|
- |
|
|
610,732 |
||
|
|
Total expenses |
|
2,735,782 |
|
|
4,285,958 |
|
|
7,816,843 |
|
|
7,479,476 |
|
(Loss) income before income taxes |
|
(212,841) |
|
|
(1,855,513) |
|
|
694,055 |
|
|
(1,225,521) |
|||
|
Income tax benefit |
|
- |
|
|
- |
|
|
- |
|
|
109,616 |
||
Net (loss) income |
|
(212,841) |
|
|
(1,855,513) |
|
|
694,055 |
|
|
(1,115,905) |
|||
|
Less: net income (loss) attributable to noncontrolling interests |
|
96,884 |
|
|
(245,929) |
|
|
241,502 |
|
|
43,132 |
||
Net (loss) income attributable to Fund Eleven |
|
(309,725) |
|
|
(1,609,584) |
|
|
452,553 |
|
|
(1,159,037) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|||
|
Currency translation adjustments during the period |
|
(89,122) |
|
|
147,805 |
|
|
(101,581) |
|
|
68,601 |
||
|
Currency translation adjustments reclassified to net loss |
|
- |
|
|
- |
|
|
- |
|
|
610,732 |
||
|
|
Total other comprehensive (loss) income |
|
(89,122) |
|
|
147,805 |
|
|
(101,581) |
|
|
679,333 |
|
Comprehensive (loss) income |
|
(301,963) |
|
|
(1,707,708) |
|
|
592,474 |
|
|
(436,572) |
|||
|
Less: comprehensive income (loss) attributable to noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
||
|
interests |
|
96,884 |
|
|
(245,929) |
|
|
241,502 |
|
|
43,132 |
||
Comprehensive (loss) income attributable to Fund Eleven |
$ |
(398,847) |
|
$ |
(1,461,779) |
|
$ |
350,972 |
|
$ |
(479,704) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Fund Eleven allocable to: |
|
|
|
|
|
|
|
|
|
|
|
|||
|
Additional members |
$ |
(306,628) |
|
$ |
(1,593,489) |
|
$ |
448,027 |
|
$ |
(1,147,448) |
||
|
Manager |
|
(3,097) |
|
|
(16,095) |
|
|
4,526 |
|
|
(11,589) |
||
|
|
|
$ |
(309,725) |
|
$ |
(1,609,584) |
|
$ |
452,553 |
|
$ |
(1,159,037) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of additional shares of |
|
|
|
|
|
|
|
|
|
|
|
|||
|
limited liability company interests outstanding |
|
362,656 |
|
|
362,656 |
|
|
362,656 |
|
|
362,656 |
||
Net (loss) income attributable to Fund Eleven per weighted average |
|
|
|
|
|
|
|
|
|
|
|
|||
|
additional share of limited liability company interests outstanding |
$ |
(0.85) |
|
$ |
(4.39) |
|
$ |
1.24 |
|
$ |
(3.16) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
See accompanying notes to consolidated financial statements. |
2
ICON Leasing Fund Eleven, LLC |
|||||||||||||||||||||||
(A Delaware Limited Liability Company) |
|||||||||||||||||||||||
Consolidated Statements of Changes in Equity |
|||||||||||||||||||||||
|
|||||||||||||||||||||||
|
Members' Equity |
|
|
||||||||||||||||||||
|
|
|
|
|
Additional Shares of Limited Liability Company Interests |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Total |
|
|
|
|
|
|
|||
|
|
|
|
|
|
Additional |
|
|
|
Comprehensive |
|
Members' |
|
Noncontrolling |
|
Total |
|||||||
|
|
|
|
|
|
Members |
|
Manager |
|
Income |
|
Equity |
|
Interests |
|
Equity |
|||||||
Balance, December 31, 2013 |
362,656 |
|
$ |
55,045,259 |
|
$ |
(2,671,951) |
|
$ |
279,991 |
|
$ |
52,653,299 |
|
$ |
4,470,860 |
|
$ |
57,124,159 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
- |
|
|
500,521 |
|
|
5,056 |
|
|
- |
|
|
505,577 |
|
|
97,092 |
|
|
602,669 |
|||
|
Currency translation adjustments |
- |
|
|
- |
|
|
- |
|
|
(1,831) |
|
|
(1,831) |
|
|
- |
|
|
(1,831) |
|||
|
Distributions |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(628,827) |
|
|
(628,827) |
|||
Balance, March 31, 2014 (unaudited) |
362,656 |
|
|
55,545,780 |
|
|
(2,666,895) |
|
|
278,160 |
|
|
53,157,045 |
|
|
3,939,125 |
|
|
57,096,170 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
- |
|
|
254,134 |
|
|
2,567 |
|
|
- |
|
|
256,701 |
|
|
47,526 |
|
|
304,227 |
|||
|
Currency translation adjustments |
- |
|
|
- |
|
|
- |
|
|
(10,628) |
|
|
(10,628) |
|
|
- |
|
|
(10,628) |
|||
|
Distributions |
- |
|
|
(15,000,810) |
|
|
(151,523) |
|
|
- |
|
|
(15,152,333) |
|
|
(576,138) |
|
|
(15,728,471) |
|||
Balance, June 30, 2014 (unaudited) |
362,656 |
|
|
40,799,104 |
|
|
(2,815,851) |
|
|
267,532 |
|
|
38,250,785 |
|
|
3,410,513 |
|
|
41,661,298 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
- |
|
|
(306,628) |
|
|
(3,097) |
|
|
- |
|
|
(309,725) |
|
|
96,884 |
|
|
(212,841) |
|||
|
Currency translation adjustments |
- |
|
|
- |
|
|
- |
|
|
(89,122) |
|
|
(89,122) |
|
|
- |
|
|
(89,122) |
|||
|
Distributions |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(629,157) |
|
|
(629,157) |
|||
Balance, September 30, 2014 (unaudited) |
362,656 |
|
$ |
40,492,476 |
|
$ |
(2,818,948) |
|
$ |
178,410 |
|
$ |
37,851,938 |
|
$ |
2,878,240 |
|
$ |
40,730,178 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements. |
3
ICON Leasing Fund Eleven, LLC |
|||||||||||
(A Delaware Limited Liability Company) |
|||||||||||
Consolidated Statements of Cash Flows |
|||||||||||
(unaudited) |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
||||
|
|
|
|
|
|
|
2014 |
|
2013 |
||
Cash flows from operating activities: |
|
|
|
||||||||
|
Net income (loss) |
$ |
694,055 |
|
$ |
(1,115,905) |
|||||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|||||
|
|
|
Finance income |
|
(236,164) |
|
|
(344,633) |
|||
|
|
|
Loss on litigation |
|
823,059 |
|
|
- |
|||
|
|
|
Income from investment in joint ventures |
|
(1,209,396) |
|
|
(548,690) |
|||
|
|
|
Loss on sale of leased equipment |
|
350,283 |
|
|
- |
|||
|
|
|
Depreciation |
|
4,939,010 |
|
|
1,600,564 |
|||
|
|
|
Impairment loss |
|
302,335 |
|
|
- |
|||
|
|
|
Credit loss reserve |
|
- |
|
|
2,323,655 |
|||
|
|
|
Remarketing expense |
|
- |
|
|
913,891 |
|||
|
|
|
Loss (gain) on derivative financial instruments |
|
61,756 |
|
|
(15,071) |
|||
|
|
|
Deferred tax benefit |
|
- |
|
|
1,415,947 |
|||
|
|
|
Interest expense, other |
|
25,462 |
|
|
(102,632) |
|||
|
|
|
Loss on disposition of assets of foreign investment |
|
- |
|
|
610,732 |
|||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|||||
|
|
Collection of finance leases |
|
- |
|
|
930,070 |
||||
|
|
Other assets |
|
60,690 |
|
|
53,663 |
||||
|
|
Accrued expenses and other liabilities |
|
(64,820) |
|
|
186,484 |
||||
|
|
Due from Manager and affiliates |
|
(26,339) |
|
|
(11,801) |
||||
|
|
Distributions from joint venture |
|
93,697 |
|
|
- |
||||
|
|
Income tax receivable |
|
1,525,563 |
|
|
(1,525,563) |
||||
Net cash provided by operating activities |
|
7,339,191 |
|
|
4,370,711 |
||||||
Cash flows from investing activities: |
|
|
|
|
|
||||||
|
Investment in notes receivable |
|
- |
|
|
(3,201,000) |
|||||
|
Purchase of equipment |
|
- |
|
|
(17,085,838) |
|||||
|
Principal received on notes receivable |
|
10,235,890 |
|
|
4,386,746 |
|||||
|
Proceeds from sales of leased equipment |
|
2,391,524 |
|
|
5,094,877 |
|||||
|
Principal received on mortgage note receivable |
|
- |
|
|
16,970,813 |
|||||
|
Investment in joint venture |
|
(15,896) |
|
|
(11,101,155) |
|||||
|
Distributions received from joint venture in excess of profits |
|
- |
|
|
1,508 |
|||||
Net cash provided by (used in) investing activities |
|
12,611,518 |
|
|
(4,934,049) |
||||||
Cash flows from financing activities: |
|
|
|
|
|
||||||
|
Distributions to members |
|
(15,152,333) |
|
|
- |
|||||
|
Investment by noncontrolling interests |
|
- |
|
|
4,978,027 |
|||||
|
Distributions to noncontrolling interests |
|
(1,834,122) |
|
|
(1,136,545) |
|||||
Net cash (used in) provided by financing activities |
|
(16,986,455) |
|
|
3,841,482 |
||||||
Effects of exchange rates on cash and cash equivalents |
|
(136,480) |
|
|
6,347 |
||||||
Net increase in cash and cash equivalents |
|
2,827,774 |
|
|
3,284,491 |
||||||
Cash and cash equivalents, beginning of period |
|
16,626,672 |
|
|
6,963,672 |
||||||
Cash and cash equivalents, end of period |
$ |
19,454,446 |
|
$ |
10,248,163 |
||||||
|
|
|
|
|
|
||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||||||
|
Equipment purchased with remarketing liability |
$ |
- |
|
$ |
181,890 |
|||||
|
Acquisition fee paid by noncontrolling interest |
$ |
- |
|
$ |
149,555 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements. |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
4
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
(1) Organization
ICON Leasing Fund Eleven, LLC (the “LLC”) was formed on December 2, 2004 as a Delaware limited liability company. When used in these notes to consolidated financial statements, the terms “we,” “us,” “our” or similar terms refer to the LLC and its consolidated subsidiaries.
We operated as an equipment leasing and finance program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. We primarily acquired equipment subject to lease, purchased equipment and leased it to third parties, provided equipment and other financing and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration.
Our manager is ICON Capital, LLC, a Delaware limited liability company formerly known as ICON Capital Corp. (the “Manager”). Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, pursuant to the terms of our amended and restated limited liability company agreement (the “LLC Agreement”).
Our operating period ended on April 30, 2014 after having been extended for two years. On May 1, 2014, we commenced our liquidation period, which we expect to continue for approximately one year. During our liquidation period, we will sell our assets and/or let our investments mature in the ordinary course of business.
(2) Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Our accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Q. In the opinion of our Manager, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation have been included. These consolidated financial statements should be read together with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2013. The results for the interim period are not necessarily indicative of the results for the full year.
Credit Quality of Notes Receivable and Finance Leases and Credit Loss Reserve
Our Manager weighs all credit decisions based on a combination of external credit ratings as well as internal credit evaluations of all borrowers. A borrower’s credit is analyzed using those credit ratings as well as the borrower’s financial statements and other financial data deemed relevant.
As our financing receivables, generally notes receivable and finance leases, are limited in number, our Manager is able to estimate the credit loss reserve based on a detailed analysis of each financing receivable as opposed to using portfolio-based metrics. Financing receivables are analyzed quarterly and categorized as either performing or non-performing based on payment history. If a financing receivable becomes non-performing due to a borrower’s missed scheduled payments or failed financial covenants, our Manager analyzes whether a credit loss reserve should be established or whether the financing receivable should be restructured. Material events would be specifically disclosed in the discussion of each financing receivable held.
Financing receivables are generally placed in a non-accrual status when payments are more than 90 days past due. Additionally, our Manager periodically reviews the creditworthiness of companies with payments outstanding less than 90 days and based upon our Manager’s judgment, these accounts may be placed in a non-accrual status.
In accordance with the cost recovery method, payments received on non-accrual financing receivables are applied to principal if there is doubt regarding the ultimate collectability of principal. If collection of the principal of non-accrual financing receivables is not in doubt, interest income is recognized on a cash basis. Financing receivables in non-accrual status may not be restored to accrual status until all delinquent payments have been received, and we believe recovery of the remaining unpaid receivable is probable.
When our Manager deems it is probable that we will not be able to collect all contractual principal and interest on a non-performing financing receivable, we perform an analysis to determine if a credit loss reserve is necessary. This analysis considers the
5
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
estimated cash flows from the financing receivable, or the collateral value of the asset underlying the financing receivable when financing receivable repayment is collateral dependent. If it is determined that the impaired value of the non-performing financing receivable is less than the net carrying value, we will recognize a credit loss reserve or adjust the existing credit loss reserve with a corresponding charge to earnings. We then charge off a financing receivable in the period that it is deemed uncollectible by reducing the credit loss reserve and the balance of the financing receivable.
Recent Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”), which clarifies guidance to the release of the cumulative translation adjustment when an entity sells all or part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The adoption of ASU 2013-05 became effective for us on January 1, 2014 and did not have a material effect on our consolidated financial statements.
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. The adoption of ASU 2014-09 becomes effective for us on January 1, 2017, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The adoption of ASU 2014-15 becomes effective for us on our fiscal year ending December 31, 2016, and all subsequent annual and interim periods. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.
(3) Net Investment in Notes Receivable
Net investment in notes receivable consisted of the following:
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
2014 |
|
2013 |
||
|
Principal outstanding |
$ |
5,350,503 |
|
$ |
15,517,421 |
||
|
Deferred fees |
|
- |
|
|
(167,192) |
||
|
|
Net investment in notes receivable |
|
5,350,503 |
|
|
15,350,229 |
|
|
Less: current portion of net investment in notes receivable |
|
5,350,503 |
|
|
7,340,974 |
||
|
|
Net investment in notes receivable, less current portion |
$ |
- |
|
$ |
8,009,255 |
Subsequent to the arbitration panel’s ruling in February 2014 (see Note 12), ZIM Integrated Shipping Services Ltd. (“ZIM”) ceased making scheduled repayments on our notes receivable. Our Manager believes that ZIM is not entitled to offset its obligations under the notes receivable by the seller’s credits. As a result, our Manager believes that ZIM is in default of its obligations and that it is unlikely that ZIM will make any past due or future repayments on the notes receivable, if at all, until we and ZIM resolve our dispute regarding the seller’s credits. Accordingly, during the three months ended March 31, 2014, we placed the notes receivable on non-accrual status. As of September 30, 2014, the notes receivable related to ZIM totaled approximately $5,351,000.
On June 6, 2014, NTS Communications, Inc. and certain of its affiliates (collectively, “NTS”) satisfied their obligations in connection with a secured term loan scheduled to mature on July 1, 2017 by making a prepayment of approximately $3,301,000, comprised of all outstanding principal, accrued interest and a prepayment fee of approximately $125,000. The prepayment fee was recognized as additional finance income.
6
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
On July 2, 2014, SAExploration, Inc., SAExploration Seismic Services (US), LLC and NES, LLC (collectively, “SAE”) satisfied its obligation in connection with a secured term loan scheduled to mature on November 28, 2016 by making a prepayment of approximately $6,122,000, comprised of all outstanding principal, accrued interest and prepayment fees of approximately $599,000. The prepayment fees were recognized as additional finance income.
Leased equipment at cost consisted of the following:
|
|
September 30, |
|
December 31, |
||
|
|
2014 |
|
2013 |
||
|
Mining equipment |
$ |
15,414,295 |
|
$ |
17,417,283 |
|
Less: accumulated depreciation |
|
6,601,270 |
|
|
2,091,462 |
|
Leased equipment at cost, less accumulated depreciation |
$ |
8,813,025 |
|
$ |
15,325,821 |
Depreciation expense was $1,567,584 and $804,020 for the three months ended September 30, 2014 and 2013, respectively. Depreciation expense was $4,939,010 and $1,600,564 for the nine months ended September 30, 2014 and 2013, respectively.
On September 12, 2013, a joint venture owned by us, ICON Leasing Fund Twelve, LLC (“Fund Twelve”) and ICON ECI Fund Sixteen (“Fund Sixteen”), each an entity also managed by our Manager, purchased mining equipment for approximately $15,107,000. The equipment is subject to a 24-month lease with Murray Energy Corporation and certain of its affiliates (collectively, “Murray”), which expires on September 30, 2015. On December 1, 2013 and February 1, 2014, Fund Sixteen contributed capital of approximately $934,000 and $1,726,000, respectively, to the joint venture, inclusive of acquisition fees. Subsequent to Fund Sixteen’s second capital contribution, the joint venture is owned 67% by us, 13.2% by Fund Twelve and 19.8% by Fund Sixteen.
On June 30, 2014, we sold 100% of the limited liability company interests of ICON Murray V, LLC (“ICON Murray V”) to Hardwood Partners, LLC (“Hardwood”) for $1,621,200. As a result, we recorded a gain on sale of approximately $75,000.
On June 26, 2014, we sold a portion of the auto parts manufacturing equipment previously leased to Heuliez SA and Heuliez Investissements SNC (collectively, “Heuliez”) for approximately $102,000. No gain or loss was recorded as a result of this transaction. As a result of our Manager’s periodical review of the fair value of our assets held for sale, we recognized an impairment charge of approximately $274,000 based on negotiations with a third party for the sale of the remaining auto parts manufacturing equipment during the three months ended June 30, 2014.
Due to certain logistical restraints surrounding the sale of the remaining auto parts manufacturing equipment, our Manager determined during the three months ended September 30, 2014, that it was in our best interests to sell such equipment to Heuliez rather than the third party with whom we were in negotiations during the three months ended June 30, 2014. Accordingly, on September 26, 2014, we sold the remaining auto parts manufacturing equipment to Heuliez for approximately $668,000. As a result of this transaction, we recorded a loss on sale of equipment of approximately $425,000.
Our wholly-owned subsidiary, ICON EAR II, LLC (“ICON EAR II”), owns real property that was classified as assets held for sale at September 30, 2014 and December 31, 2013. During the three months ended September 30, 2014, we recognized an impairment charge of approximately $28,000 based on the estimated fair value less cost to sell the real property.
(6) Investment in Joint Ventures
On May 15, 2013, a joint venture owned 39% by us, 21% by Fund Twelve and 40% by ICON ECI Fund Fifteen, L.P., an entity also managed by our Manager, purchased a portion of the subordinated credit facility for Jurong Aromatics Corporation Pte. Ltd. from Standard Chartered Bank.
The results of operations of the joint venture are summarized below:
7
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, 2014 |
|
September 30, 2013 |
|
September 30, 2014 |
|
September 30, 2013 |
||||
|
Revenue |
$ |
1,041,164 |
|
$ |
895,272 |
|
$ |
3,008,438 |
|
$ |
1,335,011 |
|
Net income |
$ |
1,030,902 |
|
$ |
887,864 |
|
$ |
2,970,934 |
|
$ |
1,321,616 |
|
Our share of net income |
$ |
430,993 |
|
$ |
371,659 |
|
$ |
1,241,256 |
|
$ |
553,294 |
(7) Revolving Line of Credit, Recourse
We entered into an agreement with California Bank & Trust (“CB&T”) for a revolving line of credit through March 31, 2015 of up to $5,000,000 (the “Facility”), which was secured by all of our assets not subject to a first priority lien. Amounts available under the Facility were subject to a borrowing base that was determined, subject to certain limitations, by the present value of future receivables under certain loans and lease agreements in which we had a beneficial interest.
The interest rate for general advances under the Facility was CB&T’s prime rate. We could have elected to designate up to five advances on the outstanding principal balance of the Facility to bear interest at the current London Interbank Offered Rate plus 2.5% per year. In all instances, borrowings under the Facility were subject to an interest rate floor of 4.0% per year. In addition, we were obligated to pay an annualized 0.5% fee on unused commitments under the Facility.
On January 8, 2014, the Facility with CB&T was terminated. There were no obligations outstanding as of the date of the termination.
(8) Foreign Income Taxes
Certain of our direct and indirect wholly-owned subsidiaries are unlimited liability companies and are taxed as corporations under the laws of Canada. Other indirect wholly-owned subsidiaries are taxed as corporations in Barbados. For the three and nine months ended September 30, 2014, there was no income tax benefit or expense. For the three months ended September 30, 2013, there was no income tax benefit or expense. For the nine months ended September 30, 2013, the current income tax benefit was $1,525,563 and deferred income tax expense was $1,415,947. Under the laws of Canada, our Canadian subsidiaries are subject to income tax examination for 2008 and subsequent periods. We have not identified any material uncertain tax positions as of September 30, 2014.
As of December 31, 2013, we had an income tax receivable of approximately $1,526,000 relating to expected income tax refunds primarily due to carrying back to previous tax years the loss realized for income tax purposes upon Teal Jones Group and Teal Jones Lumber Services, Inc. (collectively, “Teal Jones”) satisfying its obligations in connection with the mortgage note receivable and finance lease during the three months ended March 31, 2013. In July 2014, we received the tax refund of approximately CAD $1,628,000 (USD $1,525,000). As of September 30, 2014 and December 31, 2013, we fully reserved our deferred tax asset of approximately $2,400,000 in relation to the unused net operating losses that we do not expect to be able to realize.
(9) Transactions with Related Parties
We paid distributions to our Manager of $0 and $151,523 for the three and nine months ended September 30, 2014, respectively. We did not pay any distributions to our Manager for the three and nine months ended September 30, 2013. Our Manager’s interest in the net (loss) income attributable to us was $(3,097) and $4,526 for the three and nine months ended September 30, 2014, respectively. Our Manager’s interest in the net loss attributable to us was $16,095 and $11,589 for the three and nine months ended September 30, 2013, respectively.
Our Manager has waived the following fees in relation to services provided during the three and nine months ended September 30, 2014 and 2013:
8
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
|
|
|
|
|
September 30, |
|
September 30, |
||||||||
|
Entity |
|
Capacity |
|
Description |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
ICON Capital, LLC |
|
Manager |
|
Management fees |
|
$ |
194,820 |
|
$ |
139,813 |
|
$ |
497,434 |
|
$ |
921,700 |
|
ICON Capital, LLC |
|
Manager |
|
Administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reimbursements |
|
|
142,719 |
|
|
110,432 |
|
|
416,702 |
|
|
435,514 |
|
ICON Capital, LLC |
|
Manager |
|
Acquisition fees |
|
|
- |
|
|
363,020 |
|
|
- |
|
|
1,350,448 |
|
|
|
|
|
|
|
$ |
337,539 |
|
$ |
613,265 |
|
$ |
914,136 |
|
$ |
2,707,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2014, we had a receivable due from our Manager and its affiliates of $26,339 relating to legal expense reimbursements in connection with Global Crossing Telecommunications, Inc. At December 31, 2013, we had no related party receivable or payable.
(10) Accumulated Other Comprehensive Income
Accumulated other comprehensive income, which related to accumulated unrealized gains on currency translation adjustments, was $178,410 and $279,991 at September 30, 2014 and December 31, 2013, respectively.
Assets carried at fair value are classified and disclosed in one of the following three categories:
· Level 1: Quoted market prices available in active markets for identical assets as of the reporting date.
· Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
· Level 3: Pricing inputs that are generally unobservable and are supported by little or no market data.
Financial Assets Measured on a Recurring Basis
Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our Manager’s assessment, on our behalf, of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets being measured and their placement within the fair value hierarchy.
The following table summarizes the valuation of our financial assets measured at fair value on a recurring basis as of December 31, 2013:
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
|
Assets: |
||||||||||||
|
|
Warrants |
$ |
- |
|
$ |
- |
|
$ |
80,699 |
|
$ |
80,699 |
As of December 31, 2013, our warrants were valued using the Black-Scholes-Merton option pricing model based on observable and unobservable inputs that are significant to the fair value measurement and are classified within Level 3. Unobservable inputs used in the Black-Scholes-Merton option pricing model include, but are not limited to, the expected stock price volatility and the expected period until the warrants are exercised. Increases or decreases of these inputs would result in a higher or lower fair value measurement. On July 21, 2014, we exercised the warrants and received net cash proceeds of approximately $19,000, which resulted in a loss of approximately $58,000 and was recorded in loss (gain) on derivative financial instruments on the consolidated statements of comprehensive (loss) income.
The fair value of the warrants was recorded in other non-current assets within the consolidated balance sheets. The unrealized gain on the change in fair value of the warrants was recorded in loss (gain) on derivative financial instruments on the consolidated statements of comprehensive (loss) income.
9
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
Assets Measured at Fair Value on a Nonrecurring Basis
We are required, on a nonrecurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements. Assets classified as held for sale are required to be recorded at the lower of carrying value or fair value less any costs to sell such assets. The following table summarizes the valuation of our material assets measured at fair value on a nonrecurring basis, of which the fair value information presented is not current but rather as of the date the impairment was recorded, and the carrying value of the asset as of September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Loss for the |
|
|
|
|
Carrying Value at |
|
Fair Value at Impairment Date |
|
|
Nine Months Ended |
|||||||
|
|
|
|
September 30, 2014 |
|
Level 1 |
|
Level 2 |
|
|
Level 3 |
|
|
September 30, 2014 |
||
|
Asset held for sale (1) |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
1,044,959 |
|
$ |
273,928 |
|
(1) Related to Heuliez, for which the impairment was recognized during the three months ended June 30, 2014. |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets for which Fair Value is Disclosed
Certain of the our financial assets, which include fixed-rate notes receivable, for which fair value is required to be disclosed, were valued using inputs that are generally unobservable and are supported by little or no market data and are therefore classified within Level 3. Under U.S. GAAP, we use projected cash flows for fair value measurements of these financial assets. Fair value information with respect to certain of our other assets is not separately provided since (i) U.S. GAAP does not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets, other than lease-related investments, approximates fair value due to their short-term maturities and variable interest rates.
The estimated fair value of our fixed-rate notes receivable was based on the discounted value of future cash flows related to the loan based on recent transactions of this type. Principal outstanding on our fixed-rate notes receivable was discounted at a rate of 15% per year.
|
|
September 30, 2014 |
||||
|
|
|
|
Fair Value |
||
|
|
Carrying Value |
|
(Level 3) |
||
|
Principal outstanding on fixed-rate notes receivable |
$ |
5,350,503 |
|
$ |
5,350,503 |
(12) Commitments and Contingencies
At the time we acquire or divest of our interest in an equipment lease or other financing transaction, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. Our Manager believes that any liability of ours that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition or results of operations taken as a whole.
From November 2010 through March 2011, we, through our wholly-owned subsidiaries, sold four container vessels previously on bareboat charter to ZIM to unaffiliated third parties. During June 2011, we received notices from ZIM claiming it was allegedly owed various amounts for unpaid seller’s credits in the aggregate amount of approximately $7,300,000. Our Manager believes any obligation to repay the seller’s credits was extinguished when ZIM defaulted by failing to fulfill certain of its obligations under the bareboat charters. On August 8, 2011, our Manager agreed to a three party arbitration panel to hear such claims. On April 19, 2012, ZIM filed arbitration claim submissions. On June 26, 2012, our Manager filed a defense and counterclaim. On February 21, 2014, the arbitration panel ruled that the seller’s credits were forfeited by virtue of ZIM’s default but that such forfeiture was not proved to be an accurate representation of genuine loss suffered from such default and thus, could not be enforced under English law. Taking into consideration the arbitration panel’s ruling, we accrued approximately $4,700,000 during the year ended December 31, 2013. We filed for the right to appeal the arbitration panel’s ruling, which was denied on August 7, 2014. In light of such denial, we increased our accrual to approximately $5,523,000 during the three months ended September 30, 2014. Our Manager is in the process of assessing our recourse with respect to this matter.
10
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2014
(unaudited)
During 2008, a joint venture owned 45% by us and 55% by Fund Twelve (“ICON EAR”) purchased and simultaneously leased back semiconductor manufacturing equipment to Equipment Acquisition Resources, Inc. (“EAR”) for approximately $15,730,000. In addition, ICON EAR II and ICON EAR (collectively, the “ICON EAR entities”) purchased and simultaneously leased back semiconductor manufacturing equipment to EAR for a purchase price of approximately $6,348,000. On October 23, 2009, EAR filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On October 21, 2011, the Chapter 11 bankruptcy trustee for EAR filed an adversary complaint against the ICON EAR entities seeking the recovery of the lease payments that the trustee alleges were fraudulently transferred from EAR to the ICON EAR entities. The complaint also sought the recovery of payments made by EAR to the ICON EAR entities during the 90-day period preceding EAR’s bankruptcy filing, alleging that those payments constituted a preference under the U.S. Bankruptcy Code. Additionally, the complaint sought the imposition of a constructive trust over certain real property and the proceeds from the sale that the ICON EAR entities received as security in connection with their investment. Our Manager filed an answer to the complaint that included certain affirmative defenses. Our Manager believes these claims are frivolous and intends to vigorously defend this action. At this time, we are unable to predict the outcome of this action or loss therefrom, if any.
Subsequent to the filing of the bankruptcy petition, EAR disclaimed any right to its equipment and such equipment became the subject of an Illinois State Court proceeding. The equipment was subsequently sold as part of the Illinois State Court proceeding. On March 6, 2012, one of the creditors in the Illinois State Court proceeding won a summary judgment motion filed against the ICON EAR entities, thereby dismissing the ICON EAR entities’ claims to the proceeds resulting from the sale of the EAR equipment. The ICON EAR entities appealed this decision. On September 16, 2013, the lower court’s ruling was affirmed by the Illinois Appellate Court. On October 21, 2013, the ICON EAR entities filed a Petition for Leave to Appeal with the Supreme Court of Illinois appealing the decision of the Illinois Appellate Court, which petition was denied on January 29, 2014. The only remaining asset owned by ICON EAR at September 30, 2014 and December 31, 2013 was real property with a carrying value of approximately $220,000 and $290,000, respectively. At September 30, 2014 and December 31, 2013, the carrying value of our investment in the joint venture related to ICON EAR was approximately $102,000 and $134,000, respectively. At September 30, 2014 and December 31, 2013, the only remaining asset owned by ICON EAR II was real property with a carrying value of approximately $89,000 and $117,000, which is included in assets held for sale on the consolidated balance sheets.
In 2011, Kreif Group (“Kreif”) entered into an agreement with ICON French Equipment I, LLC (“ICON French Equipment”) to acquire certain assets from ICON French Equipment. Subsequently, Krief breached its purchase obligation to acquire such assets, which resulted in ICON French Equipment filing a legal claim against Kreif. In 2013, a court ruled in favor of ICON French Equipment. On October 3, 2014, ICON French Equipment reached a settlement agreement with Kreif to settle Kreif’s obligation for €520,000, payable by November 15, 2014. Upon receipt of such amount, a gain on litigation will be recognized.
We have entered into a remarketing agreement with a third party. Residual proceeds received in excess of specific amounts will be shared with this third party in accordance with the terms of the remarketing agreement. The present value of the obligations related to this agreement was approximately $188,000 at September 30, 2014 and is included in accrued expenses and other liabilities on the consolidated balance sheets.
11
Item 2. Manager’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our current financial position and results of operations. This discussion should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013. This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements.”
As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON Leasing Fund Eleven, LLC and its consolidated subsidiaries.
Forward-Looking Statements
Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events. They are based on assumptions and are subject to risks and uncertainties and other factors outside of our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Overview
We operated as an equipment leasing and finance program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. We primarily acquired equipment subject to lease, purchased equipment and leased it to third parties, provided equipment and other financing and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration. Some of our equipment leases were acquired for cash and were expected to provide current cash flow, which we refer to as “income” leases. For our other equipment leases, we financed the majority of the purchase price through borrowings from third parties. We refer to these leases as “growth” leases. These growth leases generated little or no current cash flow because substantially all of the rental payments received from the lessee were used to service the indebtedness associated with acquiring or financing the lease. For these leases, we anticipated that the future value of the leased equipment would exceed our cash portion of the purchase price.
Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, under the terms of our LLC Agreement.
Our operating period ended on April 30, 2014 after having been extended for two years. On May 1, 2014, we commenced our liquidation period, which we expect to continue for approximately one year. During our liquidation period, we will sell our assets and/or let our investments mature in the ordinary course of business.
Recent Significant Transactions
We engaged in the following significant transactions since December 31, 2013:
Mining Equipment
· On June 30, 2014, we sold 100% of the limited liability company interests of ICON Murray V to Hardwood for $1,621,200. As a result, we recorded a gain on sale of approximately $75,000.
Notes Receivable
· On June 6, 2014, NTS satisfied their obligations in connection with a secured term loan scheduled to mature on July 1, 2017 by making a prepayment of approximately $3,301,000, comprised of all outstanding principal, accrued interest and a prepayment fee of approximately $125,000. The prepayment fee was recognized as additional finance income.
· On July 2, 2014, SAE satisfied its obligation in connection with a secured term loan scheduled to mature on November 28, 2016 by making a prepayment of approximately $6,122,000, comprised of all outstanding principal, accrued interest and prepayment fees of approximately $599,000. The prepayment fees were recognized as additional finance income.
12
Assets Held for Sale
· On June 26, 2014, we sold a portion of the auto parts manufacturing equipment previously leased to Heuliez for approximately $102,000. No gain or loss was recorded as a result of this transaction. We recognized an impairment charge of approximately $274,000 based on negotiations with a third party for the sale of the remaining auto parts manufacturing equipment during the three months ended June 30, 2014. Due to certain logistical restraints surrounding the sale of the remaining auto parts manufacturing equipment, our Manager determined during the three months ended September 30, 2014, that it was in our best interests to sell such equipment to Heuliez rather than the third party with whom we were in negotiations during the three months ended June 30, 2014. Accordingly, on September 26, 2014, we sold the remaining auto parts manufacturing equipment to Heuliez for approximately $668,000. As a result of this transaction, we recorded a loss on sale of equipment of approximately $425,000.
· During the three months ended September 30, 2014, we recognized an impairment charge of approximately $28,000 based on the estimated fair value less cost to sell the real property owned by ICON EAR II.
Foreign Income Taxes
· In July 2014, we received an income tax refund of approximately CAD $1,628,000 (USD $1,525,000) related to Teal Jones.
Recent Accounting Pronouncements
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will become effective for us on January 1, 2017. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which will become effective for us on our fiscal year ending December 31, 2016. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.
We do not believe any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our consolidated financial statements.
Results of Operations for the Three Months Ended September 30, 2014 (the “2014 Quarter”) and 2013 (the “2013 Quarter”)
Financing Transactions
The following tables set forth the types of assets securing the financing transactions in our portfolio:
|
|
|
September 30, 2014 |
|
December 31, 2013 |
||||||||
|
Asset Type |
|
Net Carrying Value |
|
Percentage of Total Net Carrying Value |
|
Net Carrying Value |
|
Percentage of Total Net Carrying Value |
||||
|
Marine - container vessels(1) |
|
$ |
5,350,503 |
|
|
100% |
|
$ |
6,740,685 |
|
|
44% |
|
Seismic imaging equipment |
|
|
- |
|
|
- |
|
|
5,386,064 |
|
|
35% |
|
Telecommunications equipment |
|
|
- |
|
|
- |
|
|
3,223,480 |
|
|
21% |
|
|
|
$ |
5,350,503 |
|
|
100% |
|
$ |
15,350,229 |
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Subsequent to the sale of the Marine-container vessels in 2011, the remaining note receivable is unsecured. In addition, the note receivable was placed on non-accrual status during the 2014 Period (as defined below). |
The net carrying value of our financing transactions includes the balances of our net investment in notes receivable, which is included in our consolidated balance sheets.
During the 2014 Quarter and the 2013 Quarter, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:
13
|
|
|
Percentage of Total Finance Income |
||||||
|
Customer |
|
Asset Type |
|
2014 Quarter |
|
2013 Quarter |
||
|
SAExploration, Inc. |
|
Seismic imaging equipment |
|
|
100% |
|
|
25% |
|
ZIM Integrated Shipping Services Ltd. |
|
Marine - container vessels |
|
|
- |
|
|
46% |
|
Heuliez S.A. |
|
Auto parts manufacturing equipment |
|
|
- |
|
|
15% |
|
NTS Communications, Inc. |
|
Telecommunications equipment |
|
|
- |
|
|
14% |
|
|
|
|
|
|
100% |
|
|
100% |
Finance income from our net investment in notes receivable and net investment in finance leases are included in finance income in our consolidated statements of comprehensive (loss) income.
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or finance income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Operating Lease Transactions
The following tables set forth the types of equipment subject to operating leases in our portfolio:
|
|
|
September 30, 2014 |
|
December 31, 2013 |
||||||||
|
Asset Type |
|
Net Carrying Value |
|
Percentage of Total Net Carrying Value |
|
Net Carrying Value |
|
Percentage of Total Net Carrying Value |
||||
|
Mining equipment |
|
$ |
8,813,025 |
|
|
100% |
|
$ |
15,325,821 |
|
|
100% |
The net carrying value of our operating lease transactions includes the balance of our leased equipment at cost, which is included in our consolidated balance sheets.
During the 2014 Quarter and the 2013 Quarter, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:
|
|
|
Percentage of Total Rental Income |
||||||
|
Customer |
|
Asset Type |
|
2014 Quarter |
|
2013 Quarter |
||
|
Murray Energy Corporation |
|
Mining equipment |
|
|
100% |
|
|
41% |
|
Pliant Corporation |
|
Plastic processing and printing equipment |
|
|
- |
|
|
59% |
|
|
|
|
|
|
100% |
|
|
100% |
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or rental income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Revenue and other income for the 2014 Quarter and the 2013 Quarter is summarized as follows:
|
|
Three Months Ended September 30, |
|
|
|||||
|
|
2014 |
|
2013 |
|
Change |
|||
|
Finance income |
$ |
642,472 |
|
$ |
809,322 |
|
$ |
(166,850) |
|
Rental income |
|
1,906,537 |
|
|
1,253,515 |
|
|
653,022 |
|
Income from investment in joint ventures |
|
399,024 |
|
|
367,608 |
|
|
31,416 |
|
Loss on sale of leased equipment |
|
(425,092) |
|
|
- |
|
|
(425,092) |
|
Total revenue and other income |
$ |
2,522,941 |
|
$ |
2,430,445 |
|
$ |
92,496 |
Total revenue and other income for the 2014 Quarter increased $92,496, or 3.8%, as compared to the 2013 Quarter. The increase in revenue was primarily due to entering into two new operating leases during the 2013 Quarter, partially offset by the loss on sale of leased equipment of approximately $425,000 in connection with Heuliez during the 2014 Quarter. The decrease in finance income was
14
primarily a result of (i) the note receivable with ZIM being placed on non-accrual status during the 2014 Period (as defined below), (ii) the satisfaction of a secured term loan by NTS subsequent to the 2013 Quarter and (iii) the termination of our finance lease with Heuliez in 2013, and (iv) partially offset by finance income recognized from prepayment fees received due to SAE’s prepayment of its secured term loan during the 2014 Quarter.
Expenses for the 2014 Quarter and the 2013 Quarter are summarized as follows:
|
|
Three Months Ended September 30, |
|
|
|||||
|
|
2014 |
|
2013 |
|
Change |
|||
|
General and administrative |
$ |
251,160 |
|
$ |
213,923 |
|
$ |
37,237 |
|
Depreciation |
|
1,567,584 |
|
|
804,020 |
|
|
763,564 |
|
Impairment loss |
|
28,407 |
|
|
- |
|
|
28,407 |
|
Credit loss reserve |
|
- |
|
|
2,323,655 |
|
|
(2,323,655) |
|
Loss on litigation |
|
823,059 |
|
|
- |
|
|
823,059 |
|
Interest |
|
8,071 |
|
|
24,681 |
|
|
(16,610) |
|
Remarketing expense |
|
- |
|
|
913,891 |
|
|
(913,891) |
|
Loss on derivative financial instruments |
|
57,501 |
|
|
5,788 |
|
|
51,713 |
|
Total expenses |
$ |
2,735,782 |
|
$ |
4,285,958 |
|
$ |
(1,550,176) |
Total expenses for the 2014 Quarter decreased $1,550,176, or 36.2%, as compared to the 2013 Quarter. The decrease in total expenses was primarily due to a credit loss reserve of $2,323,655 recorded in connection with Heuliez during the 2013 Quarter. In addition, during the 2013 Quarter, we recognized a remarketing expense related to the sale of equipment previously under lease with Pliant Corporation (“Pliant”) with no comparable expense during the 2014 Quarter. The decrease was partially offset by a loss on litigation recorded during the 2014 Quarter as a result of the ZIM arbitration ruling and subsequent denial of the right to appeal (see “Commitments and Contingencies and Off-Balance Sheet Transactions” below) and an increase in depreciation expense recognized on our purchased assets related to two new operating leases we entered into during the 2013 Quarter.
Income Tax Benefit
Certain of our direct and indirect wholly-owned subsidiaries are unlimited liability companies and are taxed as corporations under the laws of Canada. Other indirect wholly-owned subsidiaries are taxed as corporations in Barbados. There was no income tax expense or benefit for the 2014 Quarter and 2013 Quarter as a result of our foreign subsidiaries ceasing operations.
Other Comprehensive (Loss) Income
Other comprehensive loss for the 2014 Quarter was $89,122, as compared to other comprehensive income of $147,805 for the 2013 Quarter. This change was due to unfavorable movements in foreign exchange rates for the 2014 Quarter as compared to favorable movements in foreign exchange rates for the 2013 Quarter related to Heuliez.
Net Loss Attributable to Fund Eleven
As a result of the foregoing factors, net loss attributable to us for the 2014 Quarter and the 2013 Quarter was $309,725 and $1,609,584, respectively. Net loss attributable to us per weighted average additional share of limited liability company interests (“Share”) outstanding for the 2014 Quarter and the 2013 Quarter was $0.85 and $4.39, respectively.
Results of Operations for the Nine Months Ended September 30, 2014 (the “2014 Period”) and 2013 (the “2013 Period”)
Financing Transactions
During the 2014 Period and the 2013 Period, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:
15
|
|
|
Percentage of Total Finance Income |
||||||
|
Customer |
|
Asset Type |
|
2014 Period |
|
2013 Period |
||
|
SAExploration, Inc. |
|
Seismic imaging equipment |
|
|
67% |
|
|
19% |
|
NTS Communications, Inc. |
|
Telecommunications equipment |
|
|
24% |
|
|
5% |
|
ZIM Integrated Shipping Services Ltd. |
|
Marine - container vessels(1) |
|
|
8% |
|
|
43% |
|
Heuliez S.A. |
|
Auto parts manufacturing equipment |
|
|
1% |
|
|
14% |
|
Teal Jones |
|
Lumber processing equipment |
|
|
- |
|
|
19% |
|
|
|
|
|
|
100% |
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
(1) Subsequent to the sale of the Marine - container vessels in 2011, the remaining note receivable is unsecured. In addition, the note receivable was placed on non-accrual status during the 2014 Period. |
Finance income from our net investment in notes receivable, net investment in finance leases and net investment in mortgage note receivable are included in finance income in our consolidated statements of comprehensive (loss) income.
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of finance income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Operating Lease Transactions
During the 2014 Period and the 2013 Period, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:
|
|
|
Percentage of Total Rental Income |
||||||
|
Customer |
|
Asset Type |
|
2014 Period |
|
2013 Period |
||
|
Murray Energy Corporation |
|
Mining equipment |
|
|
100% |
|
|
19% |
|
Pliant Corporation |
|
Plastic processing and printing equipment |
|
|
- |
|
|
81% |
|
|
|
|
|
|
100% |
|
|
100% |
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of rental income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Revenue and other income for the 2014 Period and the 2013 Period is summarized as follows:
|
|
Nine Months Ended September 30, |
|
|
|||||
|
|
2014 |
|
2013 |
|
Change |
|||
|
Finance income |
$ |
1,591,778 |
|
$ |
2,965,288 |
|
$ |
(1,373,510) |
|
Rental income |
|
6,060,007 |
|
|
2,739,977 |
|
|
3,320,030 |
|
Income from investment in joint ventures |
|
1,209,396 |
|
|
548,690 |
|
|
660,706 |
|
Loss on sale of leased equipment |
|
(350,283) |
|
|
- |
|
|
(350,283) |
|
Total revenue and other income |
$ |
8,510,898 |
|
$ |
6,253,955 |
|
$ |
2,256,943 |
Total revenue and other income for the 2014 Period increased $2,256,943, or 36.1%, as compared to the 2013 Period. The increase in revenue was primarily due to entering into two new operating leases and one new joint venture during the 2013 Period. The decrease in finance income was a result of (i) the note receivable with ZIM being placed on non-accrual status during the 2014 Period, (ii) Teal Jones satisfying its obligations during the 2013 Period in connection with the mortgage note receivable and lease financing arrangement and (iii) partially offset by finance income recognized from prepayment fees received due to NTS’ and SAE’s prepayments of the secured term loans during the 2014 Period. The loss on sale of leased equipment recognized during the 2014 Period related to the sale of equipment in connection with Heuliez of approximately $425,000, offset by a gain of approximately $75,000 on sale of equipment previously on lease to Murray.
Expenses for the 2014 Period and the 2013 Period are summarized as follows:
16
|
|
Nine Months Ended September 30, |
|
|
|||||
|
|
2014 |
|
2013 |
|
Change |
|||
|
General and administrative |
$ |
1,663,819 |
|
$ |
1,827,068 |
|
$ |
(163,249) |
|
Depreciation |
|
4,939,010 |
|
|
1,600,564 |
|
|
3,338,446 |
|
Impairment loss |
|
302,335 |
|
|
- |
|
|
302,335 |
|
Credit loss reserve |
|
- |
|
|
2,323,655 |
|
|
(2,323,655) |
|
Loss on litigation |
|
823,059 |
|
|
- |
|
|
823,059 |
|
Interest |
|
26,864 |
|
|
218,637 |
|
|
(191,773) |
|
Remarketing expense |
|
- |
|
|
913,891 |
|
|
(913,891) |
|
Loss (gain) on derivative financial instruments |
|
61,756 |
|
|
(15,071) |
|
|
76,827 |
|
Loss on disposition of assets of foreign investment |
|
- |
|
|
610,732 |
|
|
(610,732) |
|
Total expenses |
$ |
7,816,843 |
|
$ |
7,479,476 |
|
$ |
337,367 |
Total expenses for the 2014 Period increased $337,367, or 4.5%, as compared to the 2013 Period. The increase in total expenses was primarily due to (i) an increase in depreciation expense recognized on our purchased assets related to two new operating leases we entered into during the 2013 Period, (ii) a loss on litigation recorded during the 2014 Period as a result of the ZIM arbitration ruling and subsequent denial of the right to appeal (see “Commitments and Contingencies and Off-Balance Sheet Transactions” below) and (iii) an impairment charge recorded during the 2014 Period in connection with the equipment that was classified as held for sale prior to its sale during the 2014 Period. These increases were partially offset by decreases related to (i) a credit loss reserve recorded in connection with Heuliez in the 2013 Period, (ii) a remarketing expense related to the sale of equipment previously under lease with Pliant during the 2013 Period and (iii) a loss on disposition of assets of foreign investment in connection with the prepayment by Teal Jones during the 2013 Period.
Income Tax Benefit
Certain of our direct and indirect wholly-owned subsidiaries are unlimited liability companies and are taxed as corporations under the laws of Canada. Other indirect wholly-owned subsidiaries are taxed as corporations in Barbados. There was no income tax expense or benefit for the 2014 Period as a result of our foreign subsidiaries ceasing operations. For the 2013 Period, the income tax benefit was $1,525,563 and the deferred income tax expense was $1,415,947.
Other Comprehensive (Loss) Income
Other comprehensive loss for the 2014 Period was $101,581, as compared to other comprehensive income of $679,333 for the 2013 Period. This change was primarily due to the release of the accumulation of currency translation adjustments during the 2013 Period in connection with the Teal Jones prepayment of the mortgage note receivable and lease financing arrangement.
Net Income (Loss) Attributable to Fund Eleven
As a result of the foregoing factors, net income (loss) attributable to us for the 2014 Period and the 2013 Period was $452,553 and $(1,159,037), respectively. Net income (loss) attributable to us per weighted average additional Share outstanding for the 2014 Period and the 2013 Period was $1.24 and $(3.16), respectively.
Financial Condition
This section discusses the major balance sheet variances at September 30, 2014 compared to December 31, 2013.
Total Assets
Total assets decreased $15,637,675, from $62,665,014 at December 31, 2013 to $47,027,339 at September 30, 2014. The decrease was primarily the result of distributions paid to our members and noncontrolling interests, partially offset by net income for the 2014 Period.
Current Assets
Current assets decreased $2,161,004, from $27,081,030 at December 31, 2013 to $24,920,026 at September 30, 2014. The decrease was primarily due to distributions paid to our members and noncontrolling interests, partially offset by proceeds received from the repayment of certain notes receivable, proceeds received from the sale of leased equipment, the receipt of the income tax receivable and net income for the 2014 Period.
Total Liabilities
17
Liabilities increased $756,306, from $5,540,855 at December 31, 2013 to $6,297,161 at September 30, 2014. The increase was primarily due to the increase in accrual related to the ZIM arbitration (See “Commitments and Contingencies and Off-Balance Sheet Transactions”).
Equity
Equity decreased $16,393,981, from $57,124,159 at December 31, 2013 to $40,730,178 at September 30, 2014. The decrease was primarily due to distributions paid to our members and noncontrolling interests, partially offset by our net income for the 2014 Period.
Liquidity and Capital Resources
Summary
At September 30, 2014 and December 31, 2013, we had cash and cash equivalents of $19,454,446 and $16,626,672, respectively. During the nine months ended September 30, 2014, our main sources of cash were from collections on operating leases and principal and interest received on our notes receivable. Our main use of cash was distributions to our members and noncontrolling interests. During our liquidation period, which commenced on May 1, 2014, we expect our main sources of cash will be from the collection of income and proceeds from the sale of assets held directly by us or indirectly by our joint ventures and our main use of cash will be for distributions to our members. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we pay distributions and to the extent that expenses exceed cash flows from operations and the proceeds from the sale of our investments.
We anticipate being able to meet our liquidity requirements into the foreseeable future through our expected results of our operations, as well as cash received from our investments at maturity. However, our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our lessees’ and borrowers’ businesses that are beyond our control.
Pursuant to the terms of our offering, we established a cash reserve in the amount of 0.5% of the gross offering proceeds. As of September 30, 2014, the cash reserve was $1,825,993.
As we previously indicated to our members, we have experienced liquidity pressures in our portfolio as a result of the recent unprecedented economic environment, coupled with our prior investment strategy that, among other things, relied significantly on third parties to originate investments, used a substantial amount of long-term debt to make investments, and was highly dependent on the residual value of equipment to achieve investment returns. As a result, we reduced our distribution rate from 9.1% per year to 4.0% per year effective January 1, 2011 through April 2012. We extended our operating period two years and did not pay any distributions during this extended operating period. We commenced our liquidation period on May 1, 2014, which we expect to continue for approximately one year. While we believe that these actions taken by our Manager have improved our financial position, we will be unable to meet our investment objectives.
Cash Flows
Operating Activities
Cash provided by operating activities increased $2,968,480, from $4,370,711 in the 2013 Period to $7,339,191 in the 2014 Period. This increase was primarily a result of increased rental receipts from two new operating leases we entered into during the 2013 Period and the receipt of a tax refund in connection with an income tax receivable recorded during the year ended December 31, 2013, partially offset by the termination of one operating lease, one mortgage note receivable and two finance leases during or subsequent to the 2013 Period.
Investing Activities
Cash flows from investing activities increased $17,545,567, from a use of cash of $4,934,049 in the 2013 Period to a source of cash of $12,611,518 in the 2014 Period. This increase was primarily due to less cash used to make investments in the 2014 Period, partially offset by proceeds received from the prepayment of the mortgage note receivable by Teal Jones during the 2013 Period.
Financing Activities
Cash flows from financing activities decreased $20,827,937, from a source of cash of $3,841,482 in the 2013 Period to a use of cash of $16,986,455 in the 2014 Period. This decrease was due to distributions paid to our members and noncontrolling interests.
18
Distributions
We, at our Manager’s discretion, paid monthly distributions to our members and noncontrolling interests starting with the first month after each member’s admission and the commencement of our joint venture operations, respectively, and continued to pay distributions until the end of our operating period. During the 2014 Period, we paid distributions to our Manager, additional members and noncontrolling interests of $151,523, $15,000,810 and $1,834,122, respectively. Distributions paid during our liquidation period will vary, depending on the timing of the sale of our assets and/or the maturity of our investments and our receipt of finance and other income from our investments.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At the time we acquire or divest of our interest in an equipment lease or other financing transaction, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. Our Manager believes that any liability of ours that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition or results of operations taken as a whole.
From November 2010 through March 2011, we, through our wholly-owned subsidiaries, sold four container vessels previously on bareboat charter to ZIM to unaffiliated third parties. During June 2011, we received notices from ZIM claiming it was allegedly owed various amounts for unpaid seller’s credits in the aggregate amount of approximately $7,300,000. Our Manager believes any obligation to repay the seller’s credits was extinguished when ZIM defaulted by failing to fulfill certain of its obligations under the bareboat charters. On August 8, 2011, our Manager agreed to a three party arbitration panel to hear such claims. On April 19, 2012, ZIM filed arbitration claim submissions. On June 26, 2012, our Manager filed a defense and counterclaim. On February 21, 2014, the arbitration panel ruled that the seller’s credits were forfeited by virtue of ZIM’s default but that such forfeiture was not proved to be an accurate representation of genuine loss suffered from such default and thus, could not be enforced under English law. Taking into consideration the arbitration panel’s ruling, we accrued approximately $4,700,000 during the year ended December 31, 2013. We filed for the right to appeal the arbitration panel’s ruling, which was denied on August 7, 2014. In light of such denial, we increased our accrual to approximately $5,523,000 during the three months ended September 30, 2014. Our Manager is in the process of assessing our recourse with respect to this matter.
During 2008, ICON EAR purchased and simultaneously leased back semiconductor manufacturing equipment to EAR for approximately $15,730,000. In addition, ICON EAR II, purchased and simultaneously leased back semiconductor manufacturing equipment to EAR for a purchase price of approximately $6,348,000. On October 23, 2009, EAR filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On October 21, 2011, the Chapter 11 bankruptcy trustee for EAR filed an adversary complaint against the ICON EAR entities seeking the recovery of the lease payments that the trustee alleges were fraudulently transferred from EAR to the ICON EAR entities. The complaint also sought the recovery of payments made by EAR to the ICON EAR entities during the 90-day period preceding EAR’s bankruptcy filing, alleging that those payments constituted a preference under the U.S. Bankruptcy Code. Additionally, the complaint sought the imposition of a constructive trust over certain real property and the proceeds from the sale that the ICON EAR entities received as security in connection with their investment. Our Manager filed an answer to the complaint that included certain affirmative defenses. Our Manager believes these claims are frivolous and intends to vigorously defend this action. At this time, we are unable to predict the outcome of this action or loss therefrom, if any.
Subsequent to the filing of the bankruptcy petition, EAR disclaimed any right to its equipment and such equipment became the subject of an Illinois State Court proceeding. The equipment was subsequently sold as part of the Illinois State Court proceeding. On March 6, 2012, one of the creditors in the Illinois State Court proceeding won a summary judgment motion filed against the ICON EAR entities, thereby dismissing the ICON EAR entities’ claims to the proceeds resulting from the sale of the EAR equipment. The ICON EAR entities appealed this decision. On September 16, 2013, the lower court’s ruling was affirmed by the Illinois Appellate Court. On October 21, 2013, the ICON EAR entities filed a Petition for Leave to Appeal with the Supreme Court of Illinois appealing the decision of the Illinois Appellate Court, which petition was denied on January 29, 2014. The only remaining asset owned by ICON EAR at September 30, 2014 and December 31, 2013 was real property with a carrying value of approximately $220,000 and $290,000, respectively. At September 30, 2014 and December 31, 2013, the carrying value of our investment in the joint venture related to ICON EAR was approximately $102,000 and $134,000, respectively. At September 30, 2014 and December 31, 2013, the only remaining asset owned by ICON EAR II was real property with a carrying value of approximately $89,000 and $117,000, which is included in assets held for sale on the consolidated balance sheets.
In 2011, Kreif entered into an agreement with ICON French Equipment to acquire certain assets from ICON French Equipment. Subsequently, Krief breached its purchase obligation to acquire such assets, which resulted in ICON French Equipment filing a legal claim against Kreif. In 2013, a court ruled in favor of ICON French Equipment. On October 3, 2014, ICON French Equipment
19
reached a settlement agreement with Kreif to settle Kreif’s obligation for €520,000, payable by November 15, 2014. Upon receipt of such amount, a gain on litigation will be recognized.
We have entered into a remarketing agreement with a third party. Residual proceeds received in excess of specific amounts will be shared with this third party in accordance with the terms of the remarketing agreement. The present value of the obligations related to this agreement was approximately $188,000 at September 30, 2014 and is included in accrued expenses and other liabilities on the consolidated balance sheets.
Off-Balance Sheet Transactions
None.
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended September 30, 2014, our Manager carried out an evaluation, under the supervision and with the participation of the management of our Manager, including its Co-Chief Executive Officers and the Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our Manager’s disclosure controls and procedures as of the end of the period covered by this report pursuant to the Securities Exchange Act of 1934, as amended. Based on the foregoing evaluation, the Co-Chief Executive Officers and the Principal Financial and Accounting Officer concluded that our Manager’s disclosure controls and procedures were effective.
In designing and evaluating our Manager’s disclosure controls and procedures, our Manager recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our Manager’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.
Evaluation of internal control over financial reporting
There have been no changes in our internal control over financial reporting during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
21
In the ordinary course of conducting our business, we may be subject to certain claims, suits and complaints filed against us. In our Manager’s opinion, the outcome of such matters, if any, will not have a material impact on our consolidated financial position or results of operations. We are not aware of any material legal proceedings that are currently pending against us or against any of our assets.
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell or repurchase any Shares during the three months ended September 30, 2014.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
22
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.
ICON Leasing Fund Eleven, LLC
(Registrant)
By: ICON Capital, LLC
(Manager of the Registrant)
November 7, 2014
By: /s/ Michael A. Reisner |
Michael A. Reisner |
Co-Chief Executive Officer and Co-President (Co-Principal Executive Officer) |
By: /s/ Mark Gatto |
Mark Gatto |
Co-Chief Executive Officer and Co-President (Co-Principal Executive Officer) |
By: /s/ Christine H. Yap |
Christine H. Yap |
Principal Financial and Accounting Officer |
24