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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 March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commissions File Number 333-116595
LEASE EQUITY APPRECIATION FUND II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 20-1056194
(State of Organization) (I.R.S. Employer Identification No.)
110 S. Poplar Street, Suite 101
Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
(215) 574-1636
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
LEASE EQUITY APPRECIATION FUND II, L.P.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
-----
PART I FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Balance Sheets - March 31, 2005 and December 31, 2004 (Audited) 3
Notes to Balance Sheet - March 31, 2005........................ 4 - 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 6
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..... 6
ITEM 4. Controls and Procedures........................................ 6
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 7
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 7
ITEM 3. Defaults Upon Senior Securities................................ 7
ITEM 4. Submission of Matters to a Vote of Security Holders............ 7
ITEM 5. Other Information.............................................. 7
ITEM 6. Exhibits and Reports on Form 8-K............................... 7
SIGNATURES................................................................ 8
2
LEASE EQUITY APPRECIATION FUND II, L.P.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash ......................................... $ 1,001 $ 1,001
============ ============
LIABILITIES AND PARTNERS' CAPITAL
PARTNERS' CAPITAL:
General partner ............................ $ 1,000 $ 1,000
Limited partner ............................ 1 1
------------ ------------
$ 1,001 $ 1,001
============ ============
The accompanying notes are an integral part of these financial statements.
3
LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Lease Equity Appreciation Fund II, L.P. (the Fund), a Delaware limited
partnership, was formed on March 30, 2004 by LEAF Financial Corporation (the
General Partner). The Fund's Fiscal Year ends on December 31. LEAF Financial
Corporation is a wholly owned subsidiary of Resource Leasing, Inc., a wholly
owned subsidiary of Resource America, Inc. Resource America, Inc. ("RAI") is a
publicly-traded company (NASDAQ: REXI) operating in the energy, real estate,
financial services, and equipment leasing sectors.
The General Partner and the initial limited partner capitalized the
Fund. Upon the consummation of the public offering, the initial limited partner
will withdraw, its capital contribution will be refunded and the unit will be
retired. The General Partner contributed $1,000 to the Fund for a 1% partnership
interest and the initial limited partner contributed $1 to the Fund for a 99%
partnership interest. The Fund will be managed by the General Partner.
The General Partner will own a 1% general partnership interest, and the
limited partners will own a 99% limited partnership interest. Cash
distributions, if available, will be made monthly. The cash distributions will
be allocated 99% to the limited partners and 1% to the General Partner. Net
income and net losses will also be allocated 99% to the limited partners and 1%
to the General Partner.
The Fund is considered to be a development stage enterprise and its sole
activity through March 31, 2005 consisted of the organization and start-up of
the Fund. Accordingly, no statement of operations is presented.
The Fund will acquire a diversified portfolio of equipment that will be
leased to end users. The Fund will also acquire existing portfolios of equipment
subject to existing leases from other equipment lessors. The primary objective
of the Fund is to invest the net proceeds raised from the sale of limited
partnership units in equipment leases and portfolios of existing equipment
leases in order to generate regular cash distributions to the limited partners
over the life of the Fund.
The Fund shall terminate on December 31, 2029, unless sooner disolved or
terminated as provided in the Partnership Agreement.
NOTE 2 - PUBLIC OFFERING OF LIMITED PARTNERSHIP UNITS
As of March 31, 2005, the Fund raised $2,822,610 through the sale of
28,234 limited partnership units. These proceeds are maintained in an escrow
account and will be moved to the Fund's operating account after the Fund meets
its minimum offering requirements of $2,000,000, excluding subscriptions from
Iowa and Pennsylvania or $3,000,000 including subscriptions from Iowa and
Pennsylvania. In April 2005, the Fund met its minimum offering requirements and
commenced operations.
4
LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO BALANCE SHEET - (CONTINUED)
MARCH 31, 2005
(UNAUDITED)
NOTE 3 - TRANSACTIONS WITH AFFILIATES
The General Partner will receive a fee for assisting the Fund in
acquiring equipment for lease and portfolios of equipment subject to existing
equipment leases equal to 2% of the purchase price the Fund pays for the
equipment or portfolios of equipment subject to existing equipment leases,
including in each instance any debt it incurs or assumes in connection with the
purchases.
The General Partner will receive a subordinated annual asset management
fee equal to 4% of gross rental payments for operating leases, as defined in the
partnership agreement, or 2% of gross rental payments for full payout leases, or
a competetive fee, whichever is less. An operating lease is one in which the
aggregate noncancellable rental payments during the initial term of the lease,
on a net present value basis, are not sufficient to recover the purchase price
of the equipment. A full payout lease is one in which the gross rental payments,
on a net present value basis, are at least sufficient to recover the purchase
price of the equipment.
During the Fund's five-year investment period, the management fee will
be subordinated to the payment to the Fund's limited partners of a cumulative
annual distribution of 8% of their capital contributions, as adjusted by
distributions deemed to be a return of capital.
The General Partner will receive a subordinated commission equal to
one-half of a competitive commission, up to a maximum of 3% of the contract
sales price, for arranging the sale of the Fund's equipment after the expiration
of a lease. This commission will be subordinated to the payment to the limited
partners of a cumulative 8% annual return on their capital contributions, as
adjusted by distributions deemed to be returns of capital.
The General Partner and its affiliate, Anthem Securities, Inc. ("Anthem
Securities"), an indirect subsidiary of Resource America, Inc., will receive an
organization and offering allowance of 3.5% of the offering proceeds raised.
This amount includes reimbursement to Anthem Securities to use for the selling
dealers' bona fide accountable due diligence expenses of up to .5% of the
proceeds of each unit sold by them. These charges will be recorded by the Fund
as offering costs incurred for the sale of limited partnership units on the
Statements of Partners' Capital.
The General Partner will receive a commission equal to the lesser of a
competitive rate or 2% of gross rental payments derived from any re-lease of
equipment, payable as the Fund receives rental payments from re-lease. The Fund
will not, however, pay a re-lease commission if the re-lease is with the
original lessee or its affiliates.
The General partner will also be reimbursed for operating and
administrative expenses, subject to limitations contained in the Fund's
partnership agreement.
Anthem Securities will receive an underwriting fee of up to 3% of the
offering proceeds for obtaining and managing the group of selling broker-dealers
who will sell the units in the offering. Anthem Securities will also receive
sales commissions of 7% of the proceeds of each unit sold by it, although it is
not anticipated that it will sell a material number of units.
5
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 1, UNDER THE CAPTION "RISKS INHERENT IN OUR BUSINESS", IN OUR
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2004. 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 Fund is currently in its offering period. Since its formation on
March 30, 2004 through March 31, 2005, the Fund had no operations to report. The
sole activity of the Fund for this period consisted of the organization and
start-up of the Fund.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The General Partner's chief executive officer and chief financial
officer have evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")) as of March 31, 2005, with
respect to the Fund. Based on their evaluation, these officers have concluded
that these disclosure controls and procedures are effective in all material
respects to ensure that information required to be disclosed in the Fund's
periodic reports filed under the Exchange Act is recorded, processed, summarized
and reported within the time period specified by the Securities and Exchange
Commission's rules and forms. Based on their evaluation, the General Partner's
chief executive officer and chief financial officer also have concluded that
there have been no changes in internal controls with respect to the Fund that
materially affected, or were reasonably likely to materially affect, those
internal controls during the first quarter of 2005.
6
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Fund is not subject to any pending legal proceedings
ITEM 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. - OTHER INFORMATION
None
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Quarterly
Report on Form 10-Q:
1. FINANCIAL STATEMENTS
The financial statements required by this Item are set forth
in Item 1
2. FINANCIAL STATEMENT SCHEDULES
No schedules are required to be presented.
3. EXHIBITS
Exhibit No. Description
----------- ---------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
31/3 Rule 13a-14(b)/15d-14(a) Certification
32.1 Section 1350 Certification
32.2 Section 1350 Certification
(b) Reports on Form 8-K: None.
7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LEASE EQUITY APPRECIATION FUND II, L.P.
A Delaware Limited Partnership
By: LEAF Financial Corporation,
its General Partner
May 16, 2005 /s/ Crit DeMent
---------------------------------------
CRIT DEMENT
Chairman and Chief Executive Officer
of the General Partner
May 16, 2005 /s/ Miles Herman
---------------------------------------
MILES HERMAN
President, Chief Operating Officer and
Director of the General Partner
May 16, 2005 /s/ Robert K. Moskovitz
---------------------------------------
ROBERT K. MOSKOVITZ
Chief Financial Officer, Treasurer
of the General Partner
8