LEASE EQUITY APPRECIATION FUND I LP - FORM 10-K

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EXCEL - IDEA: XBRL DOCUMENT - LEASE EQUITY APPRECIATION FUND I LP	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - LEASE EQUITY APPRECIATION FUND I LP	ex32_2.htm
EX-32.1 - EXHIBIT 32.1 - LEASE EQUITY APPRECIATION FUND I LP	ex32_1.htm
EX-31.1 - EXHIBIT 31.1 - LEASE EQUITY APPRECIATION FUND I LP	ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - LEASE EQUITY APPRECIATION FUND I LP	ex31_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2012

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

For the transition period from _____________ to _____________

Commission file number 333-84730

LEASE EQUITY APPRECIATION FUND I, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		68-0492247
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

110 South Poplar Street, Suite 101, Wilmington Delaware 19801

(Address of principal executive offices)

(800) 819-5556

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
None		Not applicable

Securities registered pursuant to Section 12 (g) of the Act:

Limited Partner Units

Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. oYes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. oYes þ No

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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). oYes R No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

There is no public market for the Registrant’s securities.

DOCUMENTS INCORPORATED BY REFERENCE

None

LEASE EQUITY APPRECIATION FUND I, L.P.

INDEX TO ANNUAL REPORT

ON FORM 10-K

PART I			PAGE
	ITEM 1:	Business	3
	ITEM 1A:	Risk Factors	4
	ITEM 1B:	Unresolved Staff Comments	5
	ITEM 2:	Properties	5
	ITEM 3:	Legal Proceedings	5
	ITEM 4:	Mine Safety Disclosures	5
PART II
	ITEM 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
	ITEM 6:	Selected Financial Data	6
	ITEM 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
	ITEM 7A:	Quantitative and Qualitative Disclosures about Market Risk	13
	ITEM 8:	Financial Statements and Supplementary Data	14
	ITEM 9:	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	30
	ITEM 9A:	Controls and Procedures	30
	ITEM 9B:	Other Information	30
PART III
	ITEM 10:	Directors and Executive Officers of the Registrant	31
	ITEM 11:	Executive Compensation	32
	ITEM 12:	Security Ownership of Certain Beneficial Owners and Management and Related Unit Holder Matters	32
	ITEM 13:	Certain Relationships and Related Transactions	32
	ITEM 14:	Principal Accountant Fees and Services	33
PART IV
	ITEM 15:	Exhibits, Financial Statement Schedules	34

SIGNATURES			36

Index

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Annual Report on Form 10-K (this “Report”) include “forward-looking statements.” Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.

Forward-looking statements contained in this Report are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Forward-looking statements we make in this Report are subject to various risks and uncertainties that could cause actual results to vary from our forward-looking statements, including:

●

changes in our industry, interest rates or the general economy;

●

increased rates of default and/or decreased recovery rates on our investment in lease and loans;

●

availability, terms and deployment of debt funding;

●

general volatility of the debt markets;

●

the timing of cash flows, if any, from our investments in leases and loans and payments for debt service; and

●

the degree and nature of our competition.

We caution you not to place undue reliance on these forward-looking statements which speak only as of the date of this Report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.

As used herein, the terms “we,” “us,” or “our” refer to Lease Equity Appreciation Fund I, L.P. and subsidiary.

PART I

ITEM 1 –

BUSINESS

General

We are a Delaware limited partnership formed on January 31, 2002 by our General Partner, LEAF Financial Corporation (the “General Partner”), which manages us. Our General Partner is a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise, to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through our offering termination date of August 15, 2004, we raised $17.1 million by selling 171,746 of our limited partner units. We commenced operations in March 2003.

We were expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a subsequent liquidation period of two years, during which our leases and secured loans will either mature or be sold. Our five year reinvestment period has ended and we entered the liquidation period in August 2009. All of our leases and loans mature by the end of 2027. We will terminate on December 31, 2027, unless sooner dissolved or terminated as provided in the Partnership Agreement.

We acquired a diversified portfolio of new, used, or reconditioned equipment that we lease to third-parties. We also acquired portfolios of equipment subject to existing leases from other equipment lessors. Our financings were typically acquired from our General Partner. In addition, we made secured loans to end users to finance their purchase of equipment. We attempted to structure our secured loans so that, in an economic sense, there was no difference to us between a secured loan and a full payout equipment lease. We financed business-essential equipment including, but not limited to, computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focused on the small to mid-size business market, which generally includes businesses with:

●	500 or fewer employees;

●	$1 billion or less in total assets; or

●	$100 million or less in total annual sales.

Our principal objective was to generate regular cash distributions to our limited partners.

Index

Our leases consist of direct financing leases and operating leases as defined by generally accepted accounting principles in the United States (“US GAAP”). Under the direct financing method of accounting, interest income (the excess of the aggregate future rentals and estimated unguaranteed residuals upon expiration of the lease over the related equipment cost) is recognized over the life of the lease using the interest method. Under the operating method, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over its estimated useful life. Rental income on operating leases consists primarily of monthly periodic rentals due under the terms of the leases. Generally, during the lease terms of existing operating leases, we will not recover all of the cost and related expenses of rental equipment and, therefore, we are prepared to remarket the equipment in future years. We discontinue the recognition of revenue for leases and loans for which payments are more that 90 days past due. These assets are classified as non-accrual.

As discussed further in ITEM 7, the recent economic recession in the United States has adversely affected our operations as a result of higher delinquencies and may continue to do so as the economy recovers.

Available Information

We file annual, quarterly and current reports and other information with the SEC. The public may read and copy information we file with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10:00 am and 3:00 pm. The public may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The internet address of the SEC site is http://www.sec.gov. Our General Partner’s internet address is http://www.LEAFFinancial.com. We make our SEC filings available free of charge on or through our General Partner’s-internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We are not incorporating by reference in this report any material from our General Partner’s website.

Agreements with our General Partner

We do not directly employ any persons to manage or operate our business. These functions are provided by our General Partner and employees of our General Partner and/or its affiliates. We reimburse our General Partner and/or its affiliates for all direct and indirect costs of services provided, including the cost of employees and benefits properly allocable to us and all other expenses necessary or appropriate for the conduct of our business.

Competition

The equipment leasing business is highly fragmented and competitive. We acquire equipment from our General Partner and its affiliates. Our General Partner and affiliates compete with:

●

a large number of national, regional and local banks, savings banks, leasing companies and other financial institutions;

●

captive finance and leasing companies affiliated with major equipment manufacturers; and

●

other sources of equipment lease financing, including other publicly-offered partnerships.

Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we have. Competition with these entities may reduce the creditworthiness of potential lessees or borrowers to whom we have access or decrease our yields. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. A lower cost of funds could enable a competitor to offer leases or loans at rates which are less than ours, potentially forcing us to lower our rates or lose origination volume.

Employees

As is commonly the case with limited partnerships, we do not directly employ any of the persons responsible for our management or operations. Rather, the personnel of our General Partner and or its affiliates manage and operate our business. Officers of our General Partner may spend a substantial amount of time managing the business and affairs of our General Partner and its affiliates and may face a conflict regarding the allocation of their time between our business and affairs and their other business interests. The officers of our General Partner who provide services to us are not required to work full time on our affairs. These officers may devote significant time to the affairs of our General Partner’s affiliates and be compensated by these affiliates for the services rendered to them. There may be significant conflicts between us and affiliates of our General Partner regarding the availability of these officers to manage us.

ITEM 1A –

RISK FACTORS

Risk factors have been omitted as permitted under rules applicable to smaller reporting companies.

Index

ITEM 1B –

UNRESOLVED STAFF COMMENTS

None.

ITEM 2 –

PROPERTIES

We do not own or lease any real property.

ITEM 3 –

LEGAL PROCEEDINGS

We are not subject to any pending material legal proceedings.

ITEM 4 –

MINE SAFETY DISCLOSURES

Not applicable.

Index

PART II

ITEM 5 –

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our limited partner units are not publicly traded. There is no market for our limited partner units and it is unlikely that any will develop. The following table shows the number of equity security holders, including our General Partner with respect to limited partner units it purchased.

	Number of Partners as of December 31, 2012
Title of Class
Limited Partners		441
General Partner		1

Total distributions paid to limited partners for the years ended December 31, 2012 and 2011 were $200,000 and $342,000 respectively. These distributions were paid on a monthly basis to our limited partners at rate of approximately 2% through June 2012. In July 2012 we ceased making regular cash distributions to our limited partners. Distributions to our limited partners in 2011 were made at 2% of their original capital contribution to us.

ITEM 6 –

SELECTED FINANCIAL DATA

Selected financial data has been omitted as permitted under rules applicable to smaller reporting companies.

Index

ITEM 7 –

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides an analysis of our operating results, an overview of our liquidity and capital resources and other items related to us. This discussion and analysis should be read in conjunction with Item 1 and the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for the year ended December 31, 2012.

As used herein, the terms “we,” “us,” or “our” refer to Lease Equity Appreciation Fund I, L.P. and subsidiary.

Fund Summary

As discussed in more detail in Item 1, we acquired a diversified portfolio of new, used or reconditioned equipment that we leased to third-parties. We also acquired portfolios of equipment subject to existing leases from other equipment lessors. Our financings were typically acquired from our General Partner. In addition, we made secured loans to end users to finance their purchase of equipment.

When we commenced operations in 2003, the United States economy was experiencing strong growth, an abundance of liquidity in the debt markets and historically low credit losses. However, it is widely believed that the United States economy over the past few years has suffered through the worst economic recession in over 75 years. The recession has been severe and its consequences broadly felt. Many well-known major financial institutions failed and others had to be bailed out. Unemployment soared to generational highs and has remained at such levels. Bank lending was severely reduced and became more expensive. In recent years, banks became much more reluctant to lend, and when they did, it became more expensive to borrow. If existing loans came up for renewal and were extended, they were written for reduced amounts and at higher interest rates. Also, lenders insisted on ever-tighter covenants around delinquencies and write-offs that made it more difficult to remain in compliance. The recession caused increased delinquencies and losses greater than we had projected requiring us to repay our lender the amounts borrowed against delinquent leases in addition to anticipated principal pay down.

Our General Partner has deferred payment of fees and reimbursement of expenses totaling approximately $7.6 million from inception through December 31, 2012 in order to preserve our cash. Additionally, our General Partner waived approximately $173,000 in management fees for the 12 month period ended December 31, 2012 and has waived approximately $1.9 million on a cumulative basis. The General Partner has also waived future management fees in order to preserve our cash. We entered our maturity phase in August 2009 and are prohibited under the Partnership Agreement from acquiring new leases.

To date, limited partners have received total distributions ranging from approximately 50% to 64% of their original amount invested, depending upon when the investment was made. Distributions to our limited partners were made at a rate of 2.0% of their original capital invested in 2011 and through June of 2012. In July 2012 we ceased making regular cash distributions to our partners as the fund is in its final liquidation process which will continue until all of the leases are collected or sold and our debts are paid. Our General Partner will continue to work to maximize the amount that can be distributed to our limited partners in the future. Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include lease and loan defaults by our customers, accelerated principal payments on our debt facilities required per our agreements, and prevailing economic conditions. Based on our recent performance, which was negatively impacted by the economic recession, it does not appear probable there will be significant, if any, further distributions to the limited partners. Any future cash distributions to our limited partners are dependent upon excess cash remaining after we have repaid our obligations.

General Economic Overview

United States of America (“U.S.”) economic activity for the quarter ended December 31, 2012 was dominated by uncertainties surrounding the U.S. Presidential election and various tax cuts set to expire January 1, 2013 (the “Fiscal Cliff”). These uncertainties, with respect to potential changes in taxes, government spending, and government regulations, left many businesses in a “wait and see” position before deciding to invest in personnel, equipment and other capital expenditures. Likewise the uncertainties affected consumer sentiment and resulted in a less than hoped for robust holiday selling season. Thus both business and consumer economic activities were somewhat dampened in the fourth quarter of 2012 by the questions regarding the outcome of the election and Fiscal cliff. Despite the foregoing there were a number of positive reports in the important housing, manufacturing , and service industries that point to a slow but continuing improvement in the economy. Some specific key economic indicators and reports that were released in the fourth quarter of 2012 and that show these trends are summarized below.

Gasoline prices showed a significant decline which is positive for household budgets and may spur some consumer spending

The Commerce Department reported signs of recovery in the housing market as new single family home sales increased at the fastest rate in two and one half years and the median price of new homes rose 14.9% year-over-year.

Index

The S&P/Case-Shiller Home Price Index report released in December 2012 showed that home prices rose 4.3% in the most recent 12 month period. This is significant as it indicates an increase in demand after a long post recession period of decline.

The National Association of Realtors reported existing home sales increased 14.5% year-over-year showing that “Momentum continues to build in the housing market from growing jobs and a bursting out of household formation.”

The Institute of Supply Management reported that both the manufacturing and non-manufacturing sectors expanded in December 2012 with the non-manufacturing sector showing expansion for the thirty-sixth consecutive month.

The National Association of Credit Management index remained positive in December 2012, although it was slightly lower than the preceding month due to lower reported business sales which “reinforces the notion that business is stalled out in anticipation of what might happen with spending and taxation next year.”

The National Federation of Independent Business confidence level increased but remained at a low level with 70% of surveyed business owners reporting that the current period is a bad time to expand citing uncertainty around taxes and regulations as the top two business problems.

The Equipment Leasing and Finance Association’s Monthly Confidence Index for December 2012 declined from November 2012 “reflecting industry participant’s concerns regarding the impact of fiscal issues on capital expenditures.”

Together these indicators point to an economy that is showing signs of a slow sustained improvement in certain sectors, but also held back by significant uncertainty caused by the political climate. With a new set of economic deadlines looming in early 2013 including government spending and debt limitations the uncertainty may well continue into the first quarter of 2013. As this affects small businesses, this situation might affect the performance of our portfolio of leases and loans which are largely made to the small to medium sized business community.

Finance Receivables and Asset Quality

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

	December 31,
	2012			2011
Investment in leases and loans, net	$	2,825		$	10,565

Number of contracts		2,500			3,700
Number of individual end users (a)		2,300			3,500
Average original equipment cost	$	15.7		$	17.6
Average initial lease term (in months)		65			62
Average remaining lease term (in months)		21			21
States accounting for more than 10% of lease and loan portfolio:
California		20	%		15	%
Florida		11	%		9	%

Types of equipment accounting for more than 10% of lease and loan portfolio:
Medical Equipment		35	%		20	%
Industrial Equipment		25	%		24	%
Office Equipment		14	%		16	%
Water Purification		9	%		15	%

Types of businesses accounting for more than 10% of lease and loan portfolio:
Services		60	%		48	%
Manufacturing		9	%		12	%
Retail Trade		9	%		12	%

(a)

Located in the 50 states as well as the District of Columbia and Puerto Rico. No individual end user or single piece of equipment accounted for more than 4% of our portfolio based on original cost of the equipment.

Index

We have primarily utilized debt facilities to fund the acquisitions of lease portfolios. As of December 31, 2012 and December 31, 2011, our outstanding debt was $3.4 million and $10.9 million, respectively.

Portfolio Performance

The table below provides information about our finance receivables, including non-performing assets, which are those assets that are not accruing income due to non-performance or impairment (dollars in thousands):

	As of and for the
	Years Ended December 31,
							Change
	2012			2011			$			%
Investment in leases and loans before allowance for credit losses	$	3,085		$	10,715		$	(7,630	)	(71	)%
Less: allowance for credit losses		(260	)		(150	)		(110	)	73	%
Investment in leases and loans, net	$	2,825		$	10,565		$	(7,740	)	(73	)%

Weighted average investment in direct financing leases and loans before allowance for credit losses	$	6,609		$	19,022		$	(12,413	)	(65	)%
Non-performing assets	$	282		$	137		$	145		106	%
Charge-offs, net of recoveries	$	685		$	4,080		$	(3,395	)	(83	)%
As a percentage of finance receivables:
Allowance for credit losses		8.43	%		1.40	%
Non-performing assets		9.14	%		1.28	%
As a percentage of weighted average finance receivables:
Charge-offs, net of recoveries		10.36	%		21.45	%

We managed our credit risk by adhering to strict credit policies and procedures, and closely monitoring our receivables. Our General Partner, the servicer of our leases and loans, responded to the recent economic recession in part, by implementing early intervention techniques in collection procedures.

Our allowance for credit losses is our estimate of losses inherent in our commercial finance receivables. The allowance is based on factors which include our historical loss experience on equipment finance portfolios we manage, an analysis of contractual delinquencies, current economic conditions and trends and equipment finance portfolio characteristics, adjusted for recoveries. In evaluating historic performance, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. Our policy is to charge off to the allowance those financings which are in default and for which it is probable management will be unable to collect all amounts contractually owed. Substantially all of our assets are collateral for our debt and, therefore, significantly greater delinquencies than anticipated will have an adverse impact on our cash flow and distributions to our partners.

We focused on financing equipment used by small to mid-sized businesses. The recent economic recession and ongoing uncertainties surrounding the recovery in the United States has made it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. Our non-performing assets as a percentage of finance receivables increased to 9.14% at December 31, 2012 compared to 1.28% at December 31, 2011 as a result of this. Our performance in 2012 regressed mid-year as a few larger accounts became delinquent and have progressed to non-performing assets as of December 31, 2012. Additionally, our investments in leases and loans that were current as a percentage of our portfolio decreased to 88.1% as of December 31, 2012 compared to 93.5% at December 31, 2011.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including the allowance for credit losses, the estimated unguaranteed residual values of leased equipment, and the fair value and effectiveness of interest rate swaps. We base our estimates on historical experience, current economic conditions and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Index

We have identified the following policies as critical to our business operations and the understanding of our results of operations.

Investments in Leases and Loans

Our investments in leases and loans consist of direct financing leases, operating leases and loans.

Direct Financing Leases. Certain of our lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. Our investment in direct financing leases consists of the sum of the total future minimum lease payments receivable plus the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments plus the estimated unguaranteed residual value over the cost of the related equipment.

Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate disposition of the leased equipment. The estimates of residual values are based upon our history with regard to the realization of residuals, available industry data and the General Partner’s senior management’s experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the equipment’s fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.

Operating Leases. Leases not meeting any of the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. We recognize rental income on a straight line basis.

A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable. We write down our rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.

Loans. For term loans, the investment in loans consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted loan payments over the cost of the related equipment. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.

Allowance for Credit Losses. We evaluate the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management’s historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due, any remaining balance is fully-reserved less an estimated recovery amount. Generally, past due accounts are referred to our internal recovery group consisting of a team of credit specialists and collectors. The group utilizes several resources in an attempt to maximize recoveries on past due accounts including: 1) initiating litigation against the end user customer and any personal guarantor, 2) referring the account to an outside law firm or collection agency and/or 3) repossessing and remarketing the equipment through third parties. Our policy is to charge off to the allowance those financings which are in default and for which it is probable management will be unable to collect all amounts contractually owed. We discontinue the recognition of revenue for leases and loans for which payments are more than 90 days past due. As of December 31, 2012 and, 2011, we had $282,000 and $137,000, respectively, of leases and loans on non-accrual status. Payments received while leases and loans are on non-accrual status are recorded as a reduction of principal. Generally, income recognition resumes when a lease or loan becomes less than 90 days delinquent. Fees from delinquent payments are recognized when received and are included in other income.

Index

Results of Operations

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

							Increase (Decrease)
	2012			2011			$			%
Revenues:
Interest on equipment financings	$	667		$	1,463		$	(796	)	(54	)%
Rental income		64			259			(195	)	(75	)%
Gains on sales of equipment and lease dispositions, net		124			161			(37	)	( 23	)%
Other income		192			296			(104	)	(35	)%
		1,047			2,179			(1,132	)	(52	)%

Expenses:
Interest expense		482			1114			(632	)	(57	)%
Depreciation on operating leases		40			195			(155	)	(79	)%
Provision for credit losses		795			2,550			(1,755	)	(69	)%
General and administrative expenses		360			423			(63	)	(15	)%
Administrative expenses reimbursed to affiliate		76			193			(117	)	(61	)%
Loss (gain) on derivative activities		293			(240	)		533		(222	)%
		2,046			4,235			(2,189	)	(52	)%
Net loss	$	(999	)	$	(2,056	)	$	1,057
Net loss allocated to limited partners	$	(989	)	$	(2,035	)	$	1,046

The overall decrease in revenues and expenses is primarily a result of the Fund being in its maturity phase whereby the Fund is prohibited from acquiring any more leases and loans. A more specific discussion follows:

The decrease in total revenues was primarily attributable to the following:

●

A significant decrease in our weighted average net investment in financing assets to $6.6 million for the year ended December 31, 2012 as compared to $19.0 million for the year ended December 31, 2011, a decrease of $12.4 million or 65%. We have not acquired additional leases and loans since we entered our maturity phase in August 2009. Therefore, our revenues are expected to continue to decline as our weighted average net investment in financing assets declines due to the ongoing maturities of our leases and loans.

●

Gains on the sale of equipment and lease dispositions decreased $37,000 to $124,000 for the year ended December 31, 2012 compared to $161,000 for the year ended December 31, 2011. Gains and losses on sales of equipment may vary significantly from period to period.

●

Other income decreased from $296,000 for the year ended December 31, 2011 to $192,000 for the year ended December 31, 2012, a decrease of $104,000 or 35%. The decrease in other income is primarily related to a decrease in late fee income, which is driven by the decrease in the size of our portfolio.

The decrease in total expenses was primarily attributable to the following:

●

A decrease in interest expense primarily due to the decrease in our bank debt caused by the ongoing maturities of the portfolio of lease and loans. Weighted average borrowings for the year ended December 31, 2012 were $6.7 million as compared to $17.6 million as of December 31, 2011. Borrowings for the years ended December 31, 2012 and 2011 were at an effective interest rate of 7.2% and 6.3%, respectively. We expect our interest expense to continue to decline as our portfolio of leases and loans matures.

●

A decrease in depreciation on operating leases due to continued maturity of our lease and loan portfolio.

●

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

●

A significant decrease in our provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. This decrease is consistent with the decline in the portfolio of equipment financed assets.

The net loss per limited partner unit, after the net loss allocated to our General Partner, for the years ended December 31, 2012 and 2011 was $5.76 and $11.85, respectively, based on a weighted average number of limited partner units outstanding of 171,696 for both periods.

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Approximately $173,000 of management fees were waived for the year ended December 31, 2012 and approximately $1.9 million have been waived on a cumulative basis. The General Partner has also waived all future management fees.

Liquidity and Capital Resources

General

Our major source of liquidity is excess cash derived from the collection of lease payments, after payment of debt principal and interest on debt. Our other cash requirements, in addition to debt service, are for normal operating expenses and, prior to July 2012, distributions to our limited partners. As noted previously, we ceased making regular cash distributions in July 2012. Based on our recent performance, which was negatively impacted by the economic recession, it does not appear probable there will be significant, if any, further distributions to the limited partners. Any future cash distributions to our limited partners are dependent upon excess cash remaining after we have repaid our obligations.

As noted previously, we entered the maturity phase in August 2009. Accordingly, we are generally not permitted to purchase any new leases or loans, unless contractually required to as part of an ultimate net loss reserve associated with portfolios of leases and loans previously sold to third parties.

We believe that our future net cash inflows can be estimated as the total scheduled future payments to be received from leases and loans less our debt service payments. At December 31, 2012, the total future minimum lease payments scheduled to be received was $3.3 million which excludes the $260,000 allowance for credit losses. The outstanding principal balance owed on our debt facility was $3.4 million. We believe at this time that future net cash inflows on our investments in leases and loans plus our restricted cash will be sufficient to meet debt service payments. The following table sets forth our sources and uses of cash for the periods indicated (in thousands):

	Years Ended December 31,
	2012			2011
Net cash provided by operating activities	$	91		$	377
Net cash provided by investing activities		7,029			13,990
Net cash used in financing activities		(7,133	)		(14,356	)
(Decrease) increase in cash	$	(13	)	$	11

Cash decreased by $13,000 primarily due to debt repayments of $7.5 million (of which $667,000 was paid from restricted cash), distributions to our partners of $204,000, and a reduction in cash provided by operations partially offset by $7.0 million in net proceeds from our investments in leases and loans.

As of December 31, 2012, $3.4 million was outstanding under our secured term loan agreement with Portigon Financial Services (“Portigon” or the “Lender”), previously known as WestLB AG, New York Branch. No further borrowings are available under the secured term loan agreement. This facility is secured by eligible leases and loans that have been pledged as collateral. Recourse under this facility is limited to the amount of collateral pledged. As of December 31, 2012, $3.1 million of leases and loans and $286,000 of restricted cash were pledged as collateral under this facility. Interest on this facility is calculated at LIBOR plus 0.95% per annum. Interest rate swap agreements fix the interest rate on this facility at 5.5%. Interest and principal are due as payments are received on the underlying leases and loans pledged as collateral, with any remaining balance due in March 2014 (maturity date).

On June 29, 2012, we amended our agreement with the Lender to remove certain covenants from the loan agreement. In exchange for the foregoing, we and the parent of our General Partner agreed to a limited guaranty of a portion of the remaining amount due to the Lender. The Lender has further agreed to accept a discount on a payoff of the loan at the maturity date in the event the natural runoff of the portfolio has not paid off the loan balance prior to such date.

As of December 31, 2012 we were in compliance with financial covenants remaining on the term facility.

Partners’ distributions paid during the years ended December 31, 2012 and 2011 were $204,000 and $344,000, respectively. Cumulative partner distributions paid from our inception to December 31, 2012 were approximately $9.6 million. To date, limited partners have received total distributions of approximately 56% of their original amount invested, depending upon when the investment was made. Partner distributions for the years ended December 31, 2012 and 2011 were made at a rate of 2% of capital invested. As noted previously, we ceased making regular cash distributions in July 2012. However, our General Partner will continue to work to maximize the amount that can be distributed to our limited partners in the future. Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include lease and loan defaults by our customers, accelerated principal payments on our debt facilities required per our agreements, and prevailing economic conditions. As noted previously, any future cash distributions to our limited partners are dependent upon excess cash, if any, remaining after we have repaid our obligations.

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The General Partner has waived its management fees beginning May 2009. Accordingly, we did not record any management fee expense for the years ended December 31, 2012 or 2011. The cash savings on management fees and distributions is expected to be used to pay down our liabilities. Approximately $173,000 of management fees were waived for the year ended December 31, 2012 and approximately $1.9 million have been waived on a cumulative basis.

As discussed above, our liquidity has been and may continue to be adversely affected by higher than expected equipment lease defaults, which result in a loss of anticipated revenues. These losses affect our ability to make distributions to our partners and, if the level of defaults is sufficiently large, result in our inability to fully recover our investment in the underlying equipment. In evaluating our allowance for losses on uncollectible leases, we consider our contractual delinquencies, economic conditions and trends, lease portfolio characteristics and our General Partner’s management’s prior experience with similar lease assets. At December 31, 2012, our credit evaluation indicated a need for an allowance for credit losses of $260,000. As our lease portfolio ages, and if the economic recovery in the United States stalls or reverses, we anticipate the need to increase our allowance for credit losses.

Legal Proceedings

We are a party to various routine legal proceedings arising out of the ordinary course of our business. Our General Partner believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

Recently Issued Accounting Pronouncements

See Note 2 in the Notes to Consolidated Financial Statements for a description of certain new accounting pronouncements that will or may affect our consolidated financial statements.

ITEM 7 A –

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk have been omitted as permitted under rules applicable to smaller reporting companies.

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ITEM 8 –

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners

Lease Equity Appreciation Fund I, L.P. and Subsidiary

We have audited the accompanying consolidated balance sheets of Lease Equity Appreciation Fund I, L.P. (a Delaware limited partnership) and subsidiary (the “Fund”) as of December 31, 2012 and 2011 and the related consolidated statements of operations, comprehensive loss, changes in partners’ deficit and cash flows for each of the two years in the period ended December 31, 2012. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lease Equity Appreciation Fund I, L.P. and subsidiary as of December 31, 2012 and 2011 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

March 28, 2013

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Consolidated Balance Sheets

(In thousands)

	December 31,
	2012			2011
ASSETS
Cash	$	35		$	48
Restricted cash		422			1,089
Investment in leases and loans, net		2,825			10,565
Deferred financing costs, net		63			45
Other assets		31			70
Total assets	$	3,376		$	11,817

LIABILITIES AND PARTNERS’ DEFICIT
Liabilities:
Bank debt	$	3,393		$	10,889
Accounts payable and accrued expenses		162			152
Other liabilities		58			89
Derivative liabilities, at fair value		99			381
Due to affiliates		7,635			7,649
Total liabilities		11,347			19,160

Commitments and contingencies (Note 10)

Partners’ Deficit:
General partner		(225	)		(211	)
Limited partners		(7,488	)		(6,299	)
Accumulated other comprehensive loss		(258	)		(833	)
Total partners’ deficit		(7,971	)		(7,343	)
Total liabilities and partners' deficit	$	3,376		$	11,817

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

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Consolidated Statements of Operations

(In thousands, except unit and per unit data)

	Years Ended December 31,
	2012			2011
Revenues:
Interest on equipment financings	$	667		$	1,463
Rental income		64			259
Gains on sales of equipment and lease dispositions, net		124			161
Other income		192			296
		1,047			2,179

Expenses:
Interest expense		482			1,114
Depreciation on operating leases		40			195
Provision for credit losses		795			2,550
General and administrative expenses		360			423
Administrative expenses reimbursed to affiliate		76			193
Loss (gain) on derivative activites		293			(240	)
		2,046			4,235
Net loss	$	(999	)	$	(2,056	)
Net loss allocated to limited partners	$	(989	)	$	(2,035	)

Weighted average number of limited partner units outstanding during the period		171,696			171,696
Net loss per weighted average limited partner unit	$	(5.76	)	$	(11.85	)

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

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Consolidated Statements of Comprehensive Loss

(In thousands)

	Years Ended December 31,
	2012			2011
Net loss	$	(999	)	$	(2,056	)
Amortization of loss on financial derivatives reclassified from accumulated other comprehensive loss		575			445
Comprehensive loss	$	(424	)	$	(1,611	)

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

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Consolidated Statements of Changes in Partners’ Deficit

(In thousands, except unit data)

									Accumulated
	General								Other			Total
	Partner			Limited Partners					Comprehensive			Partners’
	Amount			Units		Amount			(Loss) Income			Deficit

Balance at January 1, 2011	$	(188	)		171,696	$	(3,922	)	$	(1,278	)	$	(5,388	)

Cash distributions to partners		(2	)		-		(342	)		-			(344	)
Net loss		(21	)		-		(2,035	)		-			(2,056	)
Amortization of loss on financial derivatives		-			-		-			445			445
Balance at December 31, 2011		(211	)		171,696		(6,299	)		(833	)		(7,343	)

Cash distributions to partners		(4	)		-		(200	)		-			(204	)
Net loss		(10	)		-		(989	)		-			(999	)
Amortization of loss on financial derivatives		-			-		-			575			575
Balance, December 31, 2012	$	(225	)		171,696	$	(7,488	)	$	(258	)	$	(7,971	)

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

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Consolidated Statements of Cash Flows

(In thousands)

	Years Ended December 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(999	)	$	(2,056	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Gains on sales of equipment and lease dispositions, net		(124	)		(161	)
Depreciation on operating leases		40			195
Provision for credit losses		795			2,550
Amortization of deferred financing costs		82			105
Net loss (gain) on derivative activities		293			(240	)
Changes in operating assets and liabilities:
Other assets		39			34
Accounts payable and accrued expenses and other liabilities		(21	)		24
Due to affiliates		(14	)		(74	)
Net cash provided by operating activities		91			377

Cash flows from investing activities:
Purchases of leases and loans		(7	)		—
Proceeds from leases and loans		7,225			14,156
Security deposits returned		(189	)		(166	)
Net cash provided by investing activities		7,029			13,990

Cash flows from financing activities:
Repayment of debt		(7,496	)		(14,776	)
Decrease in restricted cash		667			764
Increase in deferred financing costs		(100	)		—
Cash distributions to partners		(204	)		(344	)
Net cash used in financing activities		(7,133	)		(14,356	)

(Decrease)/increase in cash		(13	)		11
Cash, beginning of period		48			37
Cash, end of period	$	35		$	48

Supplemental cash flow disclosure:
Cash paid for interest	$	414		$	1,033

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

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements

December 31, 2012 and 2011

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

Lease Equity Appreciation Fund I, L.P. (the “Fund”) is a Delaware limited partnership formed on January 31, 2002 by its General Partner, LEAF Financial Corporation (the “General Partner”). The General Partner manages the Fund. The General Partner is a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of August 15, 2004, the Fund raised $17.1 million by selling 171,746 of its limited partner units. The Fund commenced operations in March 2003.

The Fund was expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent liquidation period of two years, during which the Fund’s leases and secured loans will either mature or be sold. The Fund’s five-year reinvestment period has ended and the Fund entered the liquidation period in August 2009. All of the Fund’s leases and loans mature by the end of 2027. Contractually, the Fund will terminate on December 31, 2027, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement.

The Fund acquired diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquired existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily an affiliate of its General Partner. The primary objective of the Fund was to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.

As of December 31, 2012 and 2011, in addition to its 1% general partnership interest, the General Partner also had invested $800,000 for a 6% limited partnership interest in the Fund.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiary, LEAF Fund I, LLC. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for credit losses, the estimated unguaranteed residual values of leased equipment, and the fair value and effectiveness of interest rate swaps. The Fund bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Reclassification

Certain reclassifications have been made to 2011 reported amounts to conform to the current year presentation. Amortization of other comprehensive loss on the Fund’s interest rate swaps of approximately $445,000 for the year ended December 31, 2011 was reclassified from interest expense to loss on derivative activities. Interest rate swap payments of approximately $798,000 for the year ended December 31, 2011 was reclassified from loss on derivative activities to interest expense. These reclassifications did not impact the Fund’s financial position, net loss or cash flows for the period ended December 31, 2011.

Restricted Cash

The Fund had restricted cash of $422,000 and $1.1 million as of December 31, 2012 and 2011, respectively. Restricted cash as of December 31, 2012 included cash being held in reserve by the Fund’s lenders of $286,000 and approximately $136,000 of customer payments deposited into a lockbox shared with the General Partner and other entities serviced by the Fund’s General Partner. The lockbox is in the name of U.S. Bank NA as trustee under an inter-creditor agreement amongst the Fund’s General Partner, the other entities and their respective lenders. These amounts, which are recorded as restricted cash on the consolidated balance sheets, represent customer payments received by the lockbox, applied to the respective customer’s accounts, but not transferred to the Fund’s bank account.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

Concentration of Credit Risk

As of December 31, 2012, 20% and 11% of the Fund’s leases and loans were located in California and Florida, respectively. No other state accounted for more than 10% of the Fund’s leases and loans as of December 31, 2012.

Investments in Leases and Loans

The Fund’s investments in leases and loans consist of direct financing leases, operating leases and loans.

Direct Financing Leases. Certain of the Fund’s lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. The Fund’s investment in direct financing leases consists of the sum of the total future minimum lease payments receivable plus the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments plus the estimated unguaranteed residual value over the cost of the related equipment.

Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate disposition of the leased equipment. The estimates of residual values are based upon the Fund’s history with regard to the realization of residuals, available industry data and the General Partner’s senior management’s experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the equipment’s fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.

Operating Leases. Leases not meeting any of the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis.

A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable. The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.

Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management’s historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due, any remaining balance is fully-reserved less an estimated recovery amount. Generally, past due accounts are referred to our internal recovery group consisting of a team of credit specialists and collectors. The group utilizes several resources in an attempt to maximize recoveries on past due accounts including: 1) initiating litigation against the end user customer and any personal guarantor, 2) referring the account to an outside law firm or collection agency and/or 3) repossessing and remarketing the equipment through third parties. The Fund’s policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote. The Fund discontinues the recognition of revenue for leases and loans for which payments are more than 90 days past due. As of December 31, 2012 and, 2011, the Fund had $282,000 and $137,000, respectively, of leases and loans on non-accrual status. Payments received while leases and loans are on non-accrual status are recorded as a reduction of principal. Generally, income recognition resumes when a lease or loan becomes less than 90 days delinquent. Fees from delinquent payments are recognized when received and are included in other income.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

Transfers of Financial Assets

In connection with establishing its credit facilities with its banks, the Fund has formed bankruptcy remote special purpose entities through which the financings are arranged. The Fund’s transfers of assets to these special purpose entities do not qualify for sales accounting treatment due to certain call provisions that the Fund maintains. Accordingly, assets and related debt of the special purpose entities are included in the Fund’s consolidated balance sheets. The Fund’s leases and restricted cash are assigned as collateral for these borrowings and there is no further recourse to the general credit of the Fund. Collateral in excess of these borrowings represents the Fund’s maximum loss exposure.

The Fund may sell leases to third parties. Leases are accounted for as sold when control of the lease is surrendered. Control over the leases are deemed surrendered when (1) the leases have been isolated from the Fund, (2) the buyer has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the leases and (3) the Fund does not maintain effective control over the leases through either (a) an agreement that entitles and obligates the Fund to repurchase or redeem the leases before maturity, or (b) the ability to unilaterally cause the buyer to return specific leases. In connection with these sales, the Fund’s General Partner, the servicer of the leases prior to the sale, may continue to service the leases for the third party in exchange for “adequate compensation” as defined under U.S. GAAP. The Fund accrues liabilities for obligations associated with leases and loans sold which the Fund may be required to repurchase due to breaches of representations and warranties and early payment defaults. The Fund periodically evaluates the estimates used in calculating expected losses and adjustments are reported in earnings. To obtain fair values, the Fund generally estimates fair value based on the present value of future cash flows estimated using management’s best estimates of key assumptions, including credit losses and discount rates commensurate with the risks involved. As theses estimates are influenced by factors outside the Fund’s control and as uncertainty is inherent in these estimates, actual amounts charged off could differ from amounts recorded. The provision for repurchases is recorded as a component of gain on sales of leases and loans.

Derivative Instruments

The Fund recognizes all derivatives at fair value as either assets or liabilities in the Consolidated Balance Sheets. The accounting for subsequent changes in the fair value of these derivatives depends on whether the derivative has been designated and qualified for hedge accounting treatment pursuant to US GAAP.

Prior to October 1, 2010, the Fund entered into derivative contracts, including interest rate swaps, substantially all of which were accounted for as cash flow hedges. Under hedge accounting, the effective portion of the gain or loss on a derivative designated as a cash flow hedge was reported in accumulated other comprehensive income on the Consolidated Balance Sheets and was then reclassified into earnings as an adjustment to interest expense over the term of the related borrowing.

Effective October 1, 2010, the Fund discontinued the use of hedge accounting. Therefore, any subsequent changes in the fair value of derivative instruments, including those that had previously been accounted for under hedge accounting, is recognized immediately in loss on derivatives. While the Fund will continue to use derivative financial instruments to reduce exposure to changing interest rates, this accounting change may create volatility in the Fund’s results of operations, as the fair value of Fund’s derivative financial instruments change.

For the forecasted transactions that are probable of occurring, the derivative gain or loss remaining in accumulated other comprehensive loss as of December 31, 2012 is being reclassified into earnings as an adjustment to loss (gain) on derivative activities over the terms of the related forecasted borrowings, consistent with hedge accounting treatment. In the event that the related forecasted borrowing is no longer probable of occurring, the related gain or loss in accumulated other comprehensive loss will be recognized in earnings immediately.

Income Taxes

Federal and state income tax laws provide that the income or losses of the Fund are reportable by the Partners on their individual income tax returns. Accordingly, no provision for such taxes has been made in the accompanying financial statements.

Comprehensive Loss

Comprehensive loss includes net loss and all other changes in the equity of a business during a period from transactions and other events and circumstances from non-owner sources. These changes, other than net loss, are referred to as “other comprehensive loss” and for the Fund only include changes in accumulated other comprehensive loss as a result of hedging activities.

Allocation of Partnership Income, Loss and Cash Distributions and Net Loss Per Limited Partner Unit

The Fund allocates net income, net loss and cash distributions as follows: 99% to the limited partners and 1% to the general partner. As noted previously, in July 2012 the Fund ceased making regular cash distributions to its limited partners.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

Net loss per limited partner unit is computed by dividing net loss allocated to limited partners by the weighted average number of limited partner units outstanding during the period. The weighted average number of limited partner units outstanding during the period is computed based on the number of limited partner units issued during the period weighted for the days outstanding during the period.

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others. The Fund recognizes late fee income as fees are collected. Late fee income was $162,000 for the year ended December 31, 2012 and $257,000 for the year ended December 31, 2011.

Recent Accounting Standards

Accounting Standards Recently Adopted

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

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

NOTE 3 – INVESTMENT IN LEASES AND LOANS

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

	December 31,
	2012			2011
Direct financing leases (a)	$	1,880		$	7,612
Loans (b)		1,194			3,023
Operating leases		11			80
		3,085			10,715
Allowance for credit losses		(260	)		(150	)
	$	2,825		$	10,565

(a) The Fund’s direct financing leases are for initial lease terms generally ranging from 24 to 126 months.

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

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

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

	December 31,
	2012						2011
	Leases			Loans			Leases			Loans
Total future minimum lease payments	$	1,841		$	1,418		$	7,895		$	3,486
Unearned income		(172	)		(174	)		(619	)		(397	)
Residuals, net of unearned residual income (a)		229			-			519			-
Security deposits		(18	)		(50	)		(183	)		(66	)
	$	1,880		$	1,194		$	7,612		$	3,023

(a)	Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from lease extensions or disposition of the equipment.

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

	December 31,
	2012			2011
Equipment	$	160		$	539
Accumulated depreciation		(149	)		(459	)
	$	11		$	80

At December 31, 2012, the future minimum lease and loan payments and related rental payments scheduled to be received on non-cancelable direct financing leases, loans and operating leases for each of the five succeeding annual periods ending December 31, and thereafter, are as follows (in thousands):

	Direct
	Financing				Operating
	Leases		Loans		Leases (a)		Totals
2013	$	1,319	$	753	$	4	$	2,076
2014		298		446		–		744
2015		162		105		–		267
2016		58		98		–		156
2017		4		16		–		20
	$	1,841	$	1,418	$	4	$	3,263

(a)

Operating lease amounts shown are net of residual value, if any, at the end of the lease term.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The following table is an age analysis of the Fund’s receivables from leases and loans (presented gross of allowance for credit losses of $260,000 and $150,000 for December 31, 2012 and December 31, 2011, respectively) as of December 31, 2012 and December 31, 2011 (in thousands):

	Years Ended December 31,
	2012					2011
Age of receivable	Investments in leases and loans		%			Investments in leases and loans		%
Current	$	2,719		88.14	%	$	10,016		93.5	%
Delinquent:
31 to 91 days past due		84		2.72	%		562		5.2	%
Greater than 91 days (a)		282		9.14	%		137		1.3	%
	$	3,085		100	%	$	10,715		100	%

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

The Fund had $282,000 and $137,000 of leases and loans on nonaccrual status as of December 31, 2012 and 2011, respectfully. The credit quality of the Fund’s investment in leases and loans as of December 31, 2012 and 2011 is as follows (in thousands):

	December 31,
	2012		2011
Performing	$	2,803	$	10,578
Nonperforming		282		137

	$	3,085	$	10,715

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

	Years Ended December 31,
	2012			2011
Allowance for credit losses, beginning of period	$	150		$	1,680
Provision for credit losses		795			2,550
Charge-offs		(952	)		(4,732	)
Recoveries		267			652
Allowance for credit losses, end of period (a)	$	260		$	150

(a)	End of period balances of investments in leases and loans are collectively evaluated for impairment.

NOTE 5 – DEFERRED FINANCING COSTS

As of December 31, 2012 and 2011, deferred financing costs include $63,000 and $45,000, respectively, of unamortized deferred financing costs which are being amortized over the estimated useful life of the related debt. Accumulated amortization as of December 31, 2012 and 2011 was $1.2 million and $1.1 million, respectively.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

NOTE 6 – BANK DEBT

The Fund has a secured term loan agreement with Portigon Financial Services (“Portigon” or the “Lender”), previously known as WestLB AG, New York Branch, which is collateralized by specific lease receivables and related equipment.

As of December 31, 2012 and 2011, the outstanding balance under this financing arrangement was $3.4 million and $10.9 million, respectively. Interest and principal are due as payments are received on the underlying leases and loans pledged as collateral, with any remaining balance due in March, 2014. Interest on this facility is calculated at London Interbank Offered Rate (“LIBOR”) plus 0.95% per annum. To mitigate fluctuations in interest rates, the Fund has entered into interest rate swap agreements which fix the interest rate on this facility at 5.5%. The interest rate swap agreements terminate at various dates ranging from January 2013 through December 2014. Recourse under this facility is limited to the amount of collateral pledged other than as noted below. As of December 31, 2012, $3.1 million of leases and loans and $286,000 of restricted cash were pledged as collateral under this facility.

On June 29, 2012, the Fund amended its agreement with the Lender to remove certain covenants from the loan agreement. In exchange for the foregoing, the Fund and the parent of the Fund’s General Partner agreed to a limited guaranty of a portion of the remaining amount due to the Lender. The Lender has further agreed to accept a discount on a payoff of the loan at the maturity date in the event the natural runoff of the portfolio has not paid off the loan balance prior to such date.

As of December 31, 2012 the Fund was in compliance with financial covenants remaining on the term facility.

Debt repayments. Estimated annual principal payments on the Fund’s aggregate borrowings ending December 31 are as follows (in thousands):

December 31, 2013	$	1,954
December 31, 2014		1,439
	$	3,393

NOTE 7 – DERIVATIVE INSTRUMENTS

Since the Fund’s assets are structured on a fixed-rate basis and funds borrowed through bank debt are obtained on a floating-rate basis, the Fund is exposed to interest rate risk if rates rise because it will increase the Fund’s borrowing costs. To manage interest rate risk, the Fund employs a hedging strategy using derivative financial instruments such as interest rate swaps. The Fund does not use derivative financial instruments for trading or speculative purposes. The Fund manages the credit risk of possible counterparty default in these derivative transactions by dealing primarily with counterparties with investment grade ratings. The Fund has agreements with certain of its derivative counterparties that contain a provision where if the Fund defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Fund could also be declared in default on its derivative obligations. As of December 31, 2012, the Fund has not posted any collateral related to these agreements. If the Fund had breached any of these provisions at December 31, 2012, it could be required to settle its obligations under the agreements at their termination value of $106,000.

At December 31, 2012, the Fund had 21 interest rate swap contracts that terminate on various dates ranging from January 2013 through December 2014 which generally coincide with the maturity period of our portfolio of leases and loans which collateralize the credit facility.

In the fourth quarter of 2010, the Fund made an election to discontinue the use of hedge accounting for its derivative financial instruments whereby any subsequent changes in the fair value of derivative instruments, including those that had previously been accounted for under hedge accounting, are recognized immediately in the accompanying consolidated statements of operations. While this change may create future volatility in the Fund’s reported income statement results, it is not expected to have any impact on the Fund’s future cash flows.

For the forecasted transactions that are probable of occurring, the derivative loss remaining in accumulated other comprehensive loss as of December 31, 2012 is being reclassified into earnings over the terms of the related forecasted borrowings, consistent with hedge accounting treatment. In July 2012 the Fund prospectively revised its estimate on amortization of accumulated other comprehensive loss which will accelerate amortization and more closely align the recognition of accumulated other comprehensive loss with projected repayments of the Fund’s borrowings. This increased the Fund’s net loss and loss on derivative activities by $149,000 for the year ended December 31, 2012, and increased the net loss per limited partner unit by $0.87 per share for the year ended December 31, 2012.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

The following tables present the fair value of the Fund’s derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2012 and December 31, 2011 and on the consolidated statements of operations for the year ended December 31, 2012 and 2011 (dollars in thousands):

	2012			2011
Fixed swaps (notional amount)	$	3,677		$	12,657
Range of receive rate		0.21% - 0.24	%		0.23% - 0.57	%
Range of pay rate		2.90% - 5.74	%		2.90% - 5.74	%

The following table indicates the fair value of the derivative contracts as of December 31, 2012 and 2011:

	Balance Sheet Location	Derivative Assets		Derivative Liabilities
2012	Derivative liabilities, at fair value	$	-	$	99
2011	Derivative liabilities, at fair value	$	-	$	381

The following table summarizes the effect of the interest rate swaps on the consolidated statement of operations and other comprehensive income for the years ended December 31, 2012 and 2011 (in thousands):

	Location of loss reclassified from OCI to the statement of operations	Amount of loss reclassified from OCI to the statements of operations		Location of loss recognized in the statements of operations	Amount of loss recognized in the statements of operations
2012	(a)	$	575	(b)	$	36
2011	(a)	$	445	(b)	$	113

(a)

Losses reclassified from accumulated other comprehensive loss were realized in loss (gain) on derivative activities on the accompanying statements of operations.

(b)

Subsequent to dedesignation as cash flow hedges all changes in fair value were realized in loss (gain) on derivative activities and all cash payments on derivatives were realized in interest expense. The Fund recognized expense of $318,000 and $798,000 in interest expense in 2012 and 2011, respectively, related to payments on derivatives and a gain of $282,000 and $685,000 related to fair value changes on derivatives within loss (gain) on derivative activities in 2012 and 2011, respectively.

Approximately $229,000 of the accumulated other comprehensive loss is expected to be charged to earnings over the next 12 months.

NOTE 8 – FAIR VALUE MEASUREMENT

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (exit price). U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

●

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

●

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

●

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

The Fund employs a hedging strategy to manage exposure to the effects of changes in market interest rates. All derivatives are recorded on the consolidated balance sheets at their fair value as either assets or liabilities. Because the Fund’s derivatives are not listed on an exchange, these instruments are valued by a third-party pricing agent using an income approach and utilizing models that use as their primary basis readily observable market parameters. This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors. Although the Fund has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, the Fund has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Fund has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

Liabilities measured at fair value on a recurring basis included the following (in thousands):

	Fair Value Measurements Using							Liabilities
	Level 1		Level 2			Level 3		At Fair Value
Interest Rate Swaps at December 31, 2012	$	-	$	(99	)	$	-	$	(99	)
Interest Rate Swaps at December 31, 2011	$	-	$	(381	)	$	-	$	(381	)

The Fund is also required to disclose the fair value of financial instruments not measured at fair value for which it is practicable to estimate that value. For cash, restricted cash, receivables, and payables, the carrying amounts approximate fair value because of the short term maturity of these instruments. At December 31, 2011, the carrying value of debt approximated fair value as interest rates were comparable to current market rates.

Subsequent to the adoption of Accounting Standards Update 2011-04 (“ASU 2011-04”), the Fund is also required to disclose the methods used to estimate fair value on financial instruments not measured at fair value and the level within the fair value hierarchy that those fair value measurements are categorized. The carrying value and fair value of the Fund’s debt at December 31, 2012 is as follows:

	Carrying			Fair Value Measurements Using							Liabilities
	Value			Level 1		Level 2			Level 3		At Fair Value
Bank debt, at December 31, 2012	$	(3,393	)	$	-	$	(3,301	)	$	-	$	(3,301	)

The fair value of the debt as of December 31, 2012 was determined using quoted prices from broker-dealers of comparable securities as of the measurement date.

NOTE 9 – CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

The Fund relies on the General Partner and its affiliates to manage the Fund’s operations and pays the General Partner or its affiliates fees to manage the Fund. The following is a summary of fees and costs of services and materials charged by the General Partner or its affiliates (in thousands):

	Years Ended December 31,
	2012		2011
Management fees	$	-	$	-
Administrative expenses	$	76	$	193

Management Fees. The General Partner was paid a subordinated annual asset management fee equal to 3% or 2% of gross rental payments for operating leases or full payout leases, respectively, or a competitive fee, whichever was less. However, the General Partner waived asset management fees of $173,000 and $370,000, respectively for the years ended December 31, 2012 and 2011 and has waived $1.9 million on a cummulative basis. The General Partner has waived all future management fees.

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

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

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

Distributions. The General Partner owns a 1% general partner interest and a 6% limited partner interest in the Fund. The General Partner was paid cash distributions of $4,000 and $11,000, respectively, for its general partner and limited partner interests in the Fund in 2012 and $2,000 and $19,000, respectively, for its general partner and limited partner interests in 2011.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

In connection with a sale of leases and loans to a third-party in July of 2008, the Fund contractually agreed to repurchase delinquent leases up to a maximum of $120,000 calculated as 7.5% of total proceeds received from the sale (“Repurchase Commitment”). As of December 31, 2012 the Fund has a $78,000 remaining Repurchase Commitment, of which none was recorded as a liability at December 31, 2012.

The Fund is party to various routine legal proceedings arising in the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Fund’s financial condition or results of operations.

NOTE 11 – SUBSEQUENT EVENTS

The Fund has evaluated its December 31, 2012 financial statements for subsequent events through the date the financial statements were issued. The Fund is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

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LEASE EQUITY APPRECIATION FUND I, L.P. AND SUBSIDIARY

Notes To Consolidated Financial Statements – (Continued)

December 31, 2012 and 2011

ITEM 9 –

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A –

CONTROLS AND PROCEDURES

Disclosure Controls

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our General Partner’s chief executive officer and chief financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our General Partner’s chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level discussed above.

Management’s Report on Internal Control over Financial Reporting

Our General Partner’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our General Partner’s management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control – Integrated Framework. Based upon this assessment, our General Partner’s management concluded that, as of December 31, 2012, our internal control over financial reporting is effective.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B –

OTHER INFORMATION

None

Index

PART III

ITEM 10 –

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our General Partner manages our activities. Although our limited partners have limited voting rights under our partnership agreement, they do not directly or indirectly participate in our management or operations or have actual or apparent authority to enter into contracts on our behalf or to otherwise bind us. Our General Partner will be liable, as General Partner, for all of our debts to the extent not paid, except to the extent that indebtedness or other obligations incurred by it are specifically with recourse only to our assets. Whenever possible, our General Partner intends to make any of our indebtedness or other obligations with recourse only to our assets.

As is commonly the case with limited partnerships, we do not directly employ any of the persons responsible for our management or operation. Rather, our General Partner’s personnel manage and operate our business. Officers of our General Partner may spend a substantial amount of time managing the business and affairs of our General Partner and its affiliates and may face a conflict regarding the allocation of their time between our business and affairs and their other business interests.

The following table sets forth information with respect to the directors and executive officers of our General Partner.

Name	Age	Position
Crit S. DeMent	60	Chief Executive Officer
Jonathan Z. Cohen	42	Director
Jeffrey F. Brotman	49	Director
Robert K. Moskovitz	56	Chief Financial Officer

Crit S. DeMent was Chairman of the Board of Directors and Chief Executive Officer of LEAF Financial since November 2001 until December 14, 2011. Mr. DeMent also serves as Chairman of the Board of Directors and Chief Executive Officer of LEAF Asset Management since it was formed in August 2006, Chairman of the Board of Directors and Chief Executive Officer of LEAF Funding since March 2003, a Senior Vice President of Resource America since 2005 and Senior Vice President – Equipment Leasing of Resource Capital Corp. since March 2005. Beginning January 1, 2011, Mr. DeMent serves as the Chairman of the Board of Directors and Chief Executive Officer of LEAF Commercial Capital, Inc. Before that, he was President of Fidelity Leasing, Inc. and its successor, the Technology Finance Group of Citi-Capital Vendor Finance from 1998 to 2001. Mr. DeMent was Vice President of Marketing for Tokai Financial Services from 1987 through 1996. Mr. DeMent serves as the Chairman of the Board of Directors of the Equipment Leasing and Finance Association.

Jonathan Z. Cohen has been a Director of LEAF Financial Corporation since January 2002, and a Director of LEAF Asset Management since it was formed in August 2006. Mr. Cohen also serves, or has served, in the following positions with Resource America: a Director since 2002, President since 2003, Chief Executive Officer since 2004, Chief Operating Officer from 2002 to 2004, Executive Vice President from 2001 to 2003, and Senior Vice President from 1999 to 2001. In addition, Mr. Cohen serves as Chief Executive Officer, President and a Director of Resource Capital Corp. (a publicly-traded real estate investment trust) since its formation in 2005. Mr. Cohen also serves as Vice Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC (the general partner of Atlas Pipeline Partners, L.P., a publicly-traded oil and gas pipeline limited partnership) since its formation in 1999, Chairman of the Board of Directors of Atlas Energy GP, LLC (the general partner of Atlas Energy, L.P. (f/k/a Atlas Pipeline Holdings, L.P.), a publicly-traded oil and gas limited partnership) and Vice Chairman of the Board of Directors of Atlas Resource Partners GP, LLC (the general partner of Atlas Resource Partners, L.P., a publicly-traded oil and gas E&P limited partnership) since February 2012. Mr. Cohen was also Vice Chairman of the Board of Directors of Atlas Energy, Inc. ((f/k/a Atlas America, Inc.) a publicly-traded oil and gas company) from September 2000 until February 2011 and Vice Chairman of Atlas Energy Resources, LLC from June 2006 until February 2011.

Jeffrey F. Brotman has been a Director of LEAF Financial since April 2008. Mr. Brotman has also been Executive Vice President of Resource America since June 2007. Mr. Brotman was a co-founder of Ledgewood, P.C. (a Philadelphia-based law firm) and was affiliated with the firm from 1992 until June 2007, serving as its managing partner from 1995 until March 2006. Mr. Brotman is also a non-active Certified Public Accountant and an Adjunct Professor at the University of Pennsylvania Law School. Mr. Brotman was Chairman of the Board of Directors of TRM Corporation (a publicly-traded consumer services company) from September 2006 until September 2008 and was its President and Chief Executive Officer from March 2006 through June 2007.

The board of directors of our General Partner has not adopted specific minimum qualifications for service on the board, but rather seeks a mixture of skills that are relevant to our business. The following presents a brief summary of the attributes of each director that led to the conclusion that such person should serve as a director:

Mr. DeMent has lengthy and extensive experience in the equipment leasing and finance industry.

Mr. Cohen has extensive financial and operational experience, including as the chief executive officer of our general partner’s publicly traded parent company.

Index

Mr. Brotman has significant experience in finance, as an attorney, and as the chief executive officer of a public company.

Robert K. Moskovitz has been Chief Financial Officer of LEAF Financial since February 2004, Treasurer of LEAF Financial from September 2004 until April 2009, and Assistant Secretary of LEAF Financial since June 2007. Mr. Moskovitz also serves as Chief Financial Officer, and Assistant Secretary of LEAF Asset Management since it was formed in August 2006 and Chief Financial Officer and a Director of LEAF Funding since May 2004. Beginning January 1, 2011, Mr. Moskovitz serves as the Chief Financial Officer of LEAF Commercial Capital, Inc. He has over twenty years of experience as the Chief Financial Officer of both publicly and privately owned companies. From 2002 to 2004, Mr. Moskovitz was an independent consultant on performance management initiatives, primarily to the financial services industry. From 2001 to 2002 he was Executive Vice President and Chief Financial Officer of ImpactRx, Inc., which provides advanced sales and marketing intelligence to pharmaceutical companies. From 1983 to 2001 Mr. Moskovitz held senior executive level financial positions with several high growth public and privately held companies. He began his professional career with Deloitte & Touché (formerly Touché Ross & Co). Mr. Moskovitz holds a B.S. degree in Business Administration from Drexel University.

Code of Business Conduct and Ethics

Because we do not directly employ any persons, we rely on a Code of Business Conduct and Ethics adopted by Resource America, Inc. that applies to the principal executive officer and principal financial officer of our General Partner, as well as to persons performing services for us generally. You may obtain a copy of this code of ethics by a request to our General Partner at LEAF Financial Corporation, One Commerce Square, 2005 Market Street, 14th Floor, Philadelphia, Pennsylvania 19103.

ITEM 11 –

EXECUTIVE COMPENSATION

We do not have, nor do we expect to have, any employees as discussed in Item 10 – “Directors and Executive Officers of the Registrant.” Instead, our management and day-to-day activities are provided by the employees of our General Partner and its affiliates. No officer or director of our General Partner will receive any direct remuneration from us. Those persons will receive compensation solely from our General Partner or its affiliates other than us.

ITEM 12 –

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNIT HOLDER MATTERS

(a)

We had 441 limited partners as of December 31, 2012.

(b)

In 2004, our General Partner contributed $1,000 to our capital as our General Partner and received its General Partner interest in us. As of December 31, 2012, our General Partner owned 9,526, or 6%, of our limited partner units. These purchases of limited partner units by our General Partner and its affiliates were at a price discounted by the 7% sales commission which was paid by most of our other limited partners.

(c)

We know of no arrangements that would, at any date subsequent to the date of this report, result in a change in control of us.

(d)

Our General Partner’s name and address is LEAF Financial Corporation, One Commerce Square, 2005 Market Street, 14th Floor, Philadelphia Pennsylvania 19103.

ITEM 13 –

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

	Years Ended December 31,
	2012		2011
Management fees	$	-	$	-
Administrative expenses	$	76	$	193

Management Fees. Our General Partner is paid a subordinated annual asset management fee equal to 3% or 2% of gross rental payments for operating leases or full payout leases, respectively, or a competitive fee, whichever is less. In 2012 and 2011, the General Partner waived asset management fees of $173,000 and $370,000, respectively and has waived $1.9 million on a cumulative basis. The General Partner has waived all future management fees.

Index

Administrative Expenses. Our General Partner and its affiliates are reimbursed by us for administrative services reasonably necessary to operate which don’t exceed the General Partner’s cost of those fees or services.

Distributions. Our General Partner owns a 1% general partner interest and a 6% limited partner interest in us. The General Partner was paid cash distributions of $4,000 and $11,000, respectively, for its general partner and limited partner interests in us in 2012 and $2,000 and $19,000, respectively, for its general partner and limited partner interests in Fund in 2011.

Additionally, our General Partner is entitled to the following fees (if applicable):

●

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 our equipment after the expiration of a lease. No commissions were paid in the years ended December 31, 2012 or 2011; and

●

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 we receive rental payments from re-lease. We will not, however, pay a re-lease commission if the re-lease is with the original lessee or its affiliates. No re-lease commissions were paid in the years ended December 31, 2012 or 2011.

Our General Partner applies distributable cash first at 1% to our General Partner and 99% to the limited partners in an amount equal to their unpaid cumulative return and, thereafter, to investment and reinvestment in investments or, if our General Partner elects not to invest or reinvest such distributable cash, 1% to our General Partner and 99% to the limited partners. As noted previously, we ceased making regular cash distributions to our investors in July 2012.

Because we are not listed on any national securities exchange or inter-dealer quotation system, we have elected to use the Nasdaq National Stock Market’s definition of “independent director” in evaluating whether any of our General Partner’s directors are independent. Under this definition, the board of directors of our General Partner has determined that Linda Richardson is an independent Director of our General Partner.

ITEM 14 –

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees. The aggregate fees billed by our independent auditors, Grant Thornton, LLP for professional services rendered were $109,000 and $127,000 in the years ending December 31, 2012 and 2011, respectively.

Audit-Related Fees. We did not incur fees in 2012 and 2011 for other services not included above.

Tax Fees. We did not incur fees in 2012 and 2011 for other services not included above.

All Other Fees. Our auditors, Grant Thornton, LLP, billed us for professional services rendered related to sales tax filings of $6,000 and $4,000 for the years ended December 31, 2012 and 2011, respectively.

Procedures for Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor.

Our General Partner’s Board of Directors reviews and approves in advance any audit and any permissible non-audit engagement or relationship between us and our independent auditors.

Index

PART IV

ITEM 15 –

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this Annual Report on Form 10-K:

1. Financial Statements

The financial statements required by this Item are set forth in Item 8 – “Financial Statements and Supplemental Data.”

2. Financial Statement Schedules

No schedules are required to be presented in this report under Regulation S-X promulgated by the SEC.

3. Exhibits

No.	Description
3.1	Amended and Restated Agreement of Limited Partnership (1)
3.2	Certificate of Limited Partnership (2)
4.1	Forms of letters sent to limited partners confirming their investment (2)
10.1	Origination and Servicing Agreement among LEAF Financial Corporation, Lease Equity Appreciation Fund I, L.P. and LEAF Funding, Inc., dated April 4, 2003 (4)
10.2	Secured Loan Agreement dated as of December 31, 2004 among LEAF Fund I, LLC, LEAF Funding, Inc., Lease Equity Appreciation Fund I, L.P., LEAF Financial Corporation, U.S. Bank National Association, and WestLB, New York Branch (3)
10.3	First Amendment to WestLB AG, New York Branch, Secured Loan Agreement (5)
10.4	Third Amendment to WestLB AG , New York Branch, Secured Loan Agreement (6)
10.5	Fourth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (7)
10.6	Fifth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (8)
10.7	Seventh Amendment WestLB AG, New York Branch, Secured Loan Agreement (9)
10.8	Eighth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (10)
10.9	Ninth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2012 and December 31, 2011; (ii) the Consolidated Statements of Operations for the years ended December 31, 2012 and 2011; (iii) the Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012 and 2011; (iv) the Consolidated Statement of Changes in Partners’ Deficit for the years ended December 31, 2012 and 2011; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011; and, (iv) the Notes to Consolidated Financial Statements.

(1)

Filed previously as Appendix A to our Post-Effective Amendment No. 3 to our Registration Statement on Form S-1, filed on January 26, 2004 and by this reference incorporated herein.

(2)

Filed previously as an exhibit to Amendment No. 1 to our Registration Statement on Form S-1 filed on June 7, 2002 and by this reference incorporated herein.

(3)

Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2004 and by this reference incorporated herein.

(4)

Filed previously on Form 8-K, filed on September 19, 2003 and by this reference incorporated herein.

(5)

Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2005 and by this reference incorporated herein.

(6)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and by this reference incorporated herein.

(7)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 and by this reference incorporated herein.

(8)

Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2007 and by this reference incorporated herein.

(9)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and by this reference incorporated herein.

(10)

Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008 and by this reference incorporated herein.

(11)

Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and by this reference incorporated herein.

Index

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 I, L.P.
	Delaware Limited Partnership
	By: LEAF Financial Corporation, its General Partner

March 28, 2013	By:	/s/ CRIT S. DEMENT
		CRIT S. DEMENT
		Chief Executive Officer

March 28, 2013	By:	/s/ ROBERT K. MOSKOVITZ
		ROBERT K. MOSKOVITZ
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Crit S. Dement	Chief Executive Officer of the General Partner	March 28, 2013
Crit S. DeMent	(Principal Executive Officer)

/s/ Robert K. Moskovitz	Chief Financial Officer	March 28, 2013
Robert K. Moskovitz	(Principal Accounting and Financial Officer)

/s/ Jonathan Z. Cohen	Director of the General Partner	March 28, 2013
Jonathan Z. Cohen

/s/ Jeffrey F. Brotman	Director of the General Partner	March 28, 2013
Jeffrey F. Brotman

Attached files

LEASE EQUITY APPRECIATION FUND I LP Reports

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