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EX-31.2 - EXHIBIT 31.2 - Macquarie Equipment Leasing Fund, LLCv423811_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Macquarie Equipment Leasing Fund, LLCv423811_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - Macquarie Equipment Leasing Fund, LLCv423811_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - Macquarie Equipment Leasing Fund, LLCv423811_ex32-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

  

 

 

(Mark One)

 

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

 

For the Quarterly Period Ended September 30, 2015

 

OR

 

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

 

For the Transition Period from             to              

 

Commission File Number: 000-53904

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware 26-3291543
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)

 

225 Franklin St, 17th Floor, Suite 1740

Boston, Massachusetts 02110

(Address of Principal Executive Offices) (Zip Code)

 

(617) 457-0645

(Registrant’s Telephone Number, Including Area Code)

 

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes  x    No    ¨

 

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

 

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

 

Large Accelerated Filer    ¨ Accelerated Filer    ¨
   
Non-accelerated Filer        ¨ Smaller Reporting Company    x

 

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

 

There were 9,297,490 shares of limited liability company membership interests outstanding at November 13, 2015.

 

 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

Table of Contents

 

Part I. Financial Information  
     
Item 1. Financial Statements 3
     
  Balance Sheets as of September 30, 2015 and December 31, 2014 (Unaudited) 3
     
  Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited) 4
     
  Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (Unaudited) 5
     
  Statement of Changes in Members’ Equity for the Nine Months Ended September 30, 2015 (Unaudited) 6
     
  Notes to Financial Statements (Unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
     
Item 4. Controls and Procedures 20
     
Part II. Other Information  
     
Item 1. Legal Proceedings 20
     
Item 1A. Risk Factors 20
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
Item 3. Defaults Upon Senior Securities 20
     
Item 4. Mine Safety Disclosures 20
     
Item 5. Other Information 20
     
Item 6. Exhibits 21
     
  Signatures 22

 

Macquarie Equipment Leasing Fund, LLC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Equipment Leasing Fund, LLC.

 

2 

 

 

Part I. FINANCIAL INFORMATION

 

Item 1.           Financial Statements

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

BALANCE SHEETS

(Unaudited)

 

   September 30, 2015   December 31, 2014 
         
ASSETS          
Current Assets          
Cash and cash equivalents  $954,089   $5,707,071 
Restricted cash   1,445,270    1,248,967 
Net investment in finance leases   883,022    686,558 
Loans receivable   500,061    532,987 
Participating interest - loans receivable (related party)   9,975,414    3,290,219 
Accrued interest receivable (related party)   67,122    22,746 
Lease receivables   300,000    - 
Maintenance reserve and other receivables   325,455    92,390 
Other assets   63,118    5,038 
Total Current Assets   14,513,551    11,585,976 
           
Non-current Assets          
Net investment in finance leases   3,528,885    3,541,973 
Leased equipment at cost (net of accumulated depreciation of  $14,792,040 as of September 30, 2015 and $12,977,988 as of December 31, 2014)   60,467,731    64,379,136 
Total Non-current Assets   63,996,616    67,921,109 
           
Total Assets  $78,510,167   $79,507,085 
           
LIABILITIES AND MEMBERS’ EQUITY          
Current Liabilities          
Fees payable (related party)  $382,239   $7,433 
Deferred rental income   1,033,056    1,131,590 
Distribution payable   613,562    638,436 
Other payables   303,742    235,802 
Maintenance reserve   1,486,512    - 
Total Current Liabilities   3,819,111    2,013,261 
           
Non-current Liabilities          
Maintenance reserve   -    1,292,892 
Other payables   672,281    672,281 
Total Non-current Liabilities   672,281    1,965,173 
           
Total Liabilities  $4,491,392   $3,978,434 
           
Commitments and Contingencies (Note 11)          
           
Members' Equity          
Shares of membership interests, $10.00 par value as may be reduced (i) under a distribution reinvestment plan, (ii) for volume discounts, or (iii) for reductions in selling commissions          
Authorized: 15,800,500 shares;          
Issued and outstanding: 9,331,312 shares as of September 30, 2015 and 9,396,317          
shares as of December 31, 2014, net of repurchases of 326,805 and 261,800, respectively   62,850,191    63,361,376 
           
Accumulated surplus   11,168,584    12,167,275 
Total Members’ Equity   74,018,775    75,528,651 
           
Total Liabilities and Members’ Equity  $78,510,167   $79,507,085 

 

See accompanying notes to Financial Statements

 

3 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30, 2015   September 30, 2014   September 30, 2015   September 30, 2014 
                 
REVENUE                    
                     
Finance and rental income   2,975,401    3,065,789    9,169,207    9,337,517 
Net gain on sale of leased equipment   11,275    33,708    11,275    76,253 
Interest income   11,562    -    35,447    - 
Interest income (related party)   181,466    -    284,944    - 
Other income   2,635    28,386    29,647    30,543 
                     
Total revenue   3,182,339    3,127,883    9,530,520    9,444,313 
                     
EXPENSES                    
                     
Operating expenses (related party)   117,582    111,185    351,661    354,822 
Management fees (related party)   162,932    157,498    484,325    489,382 
Depreciation   1,264,659    1,163,694    3,531,624    3,662,831 
Impairment loss   -    -    165,556    - 
Other expenses (including related party expenses of $18,842, $19,001, $56,263, and $56,672 for the three and nine months ended September 30, 2015 and 2014 respectively)   109,368    144,274    394,572    588,686 
                     
Total expenses   1,654,541    1,576,651    4,927,738    5,095,721 
                     
Net income  $1,527,798   $1,551,232   $4,602,782   $4,348,592 
                     
Basic and diluted earnings per share  $0.16   $0.16   $0.49   $0.46 
                     
Weighted average number of shares outstanding: basic and diluted   9,331,312    9,421,250    9,361,452    9,435,367 

 

See accompanying notes to Financial Statements.

 

4 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended 
   September 30, 2015   September 30, 2014 
Cash flow from operating activities:          
Net income  $4,602,782   $4,348,592 
           
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   3,531,624    3,662,831 
Impairment loss   165,556    - 
Net gain on sale of leased equipment   (11,275)   (76,253)
Changes in operating assets and liabilities:          
Fees payable (related party)   374,806    293,489 
Lease receivables   (300,000)   1,109,263 
Interest receivable (related party)   (44,377)   - 
Net investment in finance leases   673,375    626,180 
Other receivables   (10,247)   41,992 
Other payables   67,940    (9,564)
Deferred finance and rental income   (98,534)   (88,284)
Other assets   (58,080)   10,529 
Net cash provided by operating activities   8,893,570    9,918,775 
           
Cash flow from investing activities:          
Purchase of equipment   -    (1,226,863)
Investment in capital leased equipment   (856,751)   (3,139,232)
Proceeds from sale of leased equipment   -    1,101,666 
Participating interest - loans receivable (related party)   (29,304,991)   - 
Repayment of participating interest - loans receivable (related party)   22,619,796    - 
Repayment of loans by others   32,926    - 
Restricted cash   (196,303)   862,817 
Security deposit   -    90,000 
Net cash used in investing activities   (7,705,323)   (2,311,612)
           
Cash flow from financing activities:          
Distributions paid to members   (5,626,347)   (5,667,226)
Repurchase of shares   (511,185)   (338,184)
Maintenance reserve   196,303    (862,817)
Net cash used in financing activities   (5,941,229)   (6,868,227)
           
Net decrease in cash and cash equivalents   (4,752,982)   738,936 
           
Cash and cash equivalents, beginning of the period   5,707,071    9,090,632 
           
Cash and cash equivalents, end of the period  $954,089   $9,829,568 
           
Supplemental disclosures of cash flow information          
Non cash investing and financing activities          
Maintenance reserve  $(2,683)  $(500,757)
Accrued purchase of equipment  $-   $14,975 
Distribution Payable  $613,562   $619,340 

 

See accompanying notes to Financial Statements.

 

5 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

STATEMENT OF CHANGES IN MEMBERS’ EQUITY

(Unaudited)

 

       Membership interests   Accumulated surplus     
   Members'
shares
   Additional
members (1)
   Managing
member
   Additional
members (1)
   Managing
member
   Total 
                         
Balance at December 31, 2014   9,396,317   $62,410,244   $951,132   $12,047,939   $119,336   $75,528,651 
Repurchase of shares   (65,005)   (511,185)   -              (511,185)
Distribution to members   -    -    -    (5,504,665)   (96,808)   (5,601,473)
Net income   -    -    -    4,523,238    79,544    4,602,782 
Balance at September 30, 2015   9,331,312   $61,899,059   $951,132   $11,066,512   $102,072   $74,018,775 

 

(1)Additional members represent all members other than the Manager.

 

See accompanying notes to Financial Statements

 

6 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

1. ORGANIZATION AND BUSINESS OPERATIONS

 

Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company (the “Fund”), was formed on August 21, 2008 for the purpose of being an equipment leasing program that acquires a diversified portfolio of equipment, equipment leases and other equipment-related investments. The majority of the equipment leased by the Fund is leased to corporate clients. The Fund’s objective is to generate income through the collection of lease rentals and other revenues, as well as through the sale of leased and off lease equipment and other portfolio investments. The Fund’s fiscal year end is December 31. 

 

The manager of the Fund is Macquarie Asset Management Inc. (the “Manager”), a member of the Macquarie Group of Companies which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide (the “Macquarie Group”). Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. The Manager has made a total of $1,505,000 in capital contributions to the Fund. The Manager and its affiliates earn fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions and disposals, equipment loans, asset management and administrative, reporting and regulatory services. The Fund reimburses the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment lease and loans, and other equipment-related investments. The Fund has one reportable segment, all information and disclosures herein are related to that segment.

 

The initial closing date for the Fund was March 5, 2010, the date at which the Fund raised over $2,500,000 and reached the minimum offering amount. The Fund’s offering period ceased on March 19, 2012 and the operating period commenced on that date. The Fund’s liquidation period is scheduled to begin on July 1, 2016 and can last for up to three years.

 

This report covers the three and nine months ended September 30, 2015 and 2014, respectively.

 

The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Fund’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on February 18, 2015.

 

The prior period amounts for participating interest - loans receivable (related party) and accrued interest (related party) on the Fund’s balance sheet have been reclassified to conform to the current period presentation.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Use of Estimates

 

The accompanying financial statements were prepared in accordance with U.S. GAAP. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Fund considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained with one financial institution, which at times may be in excess of federal insurance limits.

 

Restricted Cash

 

Restricted cash consists of cash collected from the lessee of the CRJ 700 ER aircraft for maintenance costs.

 

Income Taxes

 

The Fund is treated as a partnership for federal and state income tax purposes. As a partnership, the Fund is not subject to federal and state income taxes, while each member will be individually liable for income taxes, if any, on their share of net taxable income from the Fund. Interest, dividends and other income realized by the Fund may be subject to withholding tax in the jurisdiction in which the income is sourced.

 

7 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

Leased Equipment at Cost

 

If a lease meets certain requirements under ASC 840 at its inception, such that the Fund retains ownership in the underlying equipment, the lease is accounted for as an operating lease. Investment in leased equipment is stated at cost less accumulated depreciation. Leased equipment is depreciated on a straight-line basis over the lease term to the assets’ residual value. Initial direct costs (such as freight, installation, acquisition fees and expenses, legal fees and inspection fees) associated with the leases are capitalized as part of the cost of the leased equipment and depreciated over the lease term.

 

The lease term from the acquisition date by the Fund of each item of equipment is as follows:

 

  Lease
  term (in years)
Aircraft engines (2 x CFM56-7B jet engines) 9
Aircraft Bombardier CRJ 700 ER 2
Aircraft (Airbus model A320-200) 2.5
Flat bed rail cars 5
Racetrack equipment 4
Smart safes 5
Machine tool equipment 5

 

The residual value and useful life are determined by the Manager and are calculated using information from both internal (i.e. from affiliates) and external sources, such as trade publications, industry valuers, auction data, internal and external sales data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical assets. Once an asset comes off lease or is re-leased, the Fund reassesses its useful life and residual value.

 

Costs incurred in extending the useful life and/or increasing the resale value of leased equipment are capitalized into the cost of an asset. No such costs have been incurred to date.

 

If the equipment is returned at the end of a lease term and the lessee has not met the return conditions as set out in the lease, the Fund is entitled, in certain cases, to additional compensation from the lessee. The Fund’s accounting policy for recording such payments is to treat the payments as revenue. No such payments were received for the three and nine months ended September 30, 2015 and 2014, respectively. 

 

The lessee is generally responsible for the ongoing maintenance costs of the equipment under net lease arrangements. 

 

The significant operating lease assets in the Fund’s portfolio are reviewed for impairment at least annually or when indicators of impairment exist. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair market value. The Manager’s assessment for impairment (i.e. undiscounted cash flows used in the recoverability assessment) includes review of residual values based on published values for similar assets, recent transactions for similar assets, lease terms, asset condition, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset.

 

If no impairment is deemed to exist and if the current assessment of the residual value is determined to be lower than the current value, the Fund adjusts the residual value downward and prospectively adjusts depreciation expense over the remaining life of the lease.

 

In June 2015, the Fund reassessed the residual value of its operating lease for self-service checkout equipment. Due to a decline in the market value of this type of equipment the residual value was adjusted downward. The adjustment of the self-service checkout equipment’s residual value resulted in the recoverable amount being lower than the assets’ carrying amount and an impairment charge of $165,556 was recognized for the nine months ended September 30, 2015. There were no impairment charges recorded during the three months ended September 30, 2015 and 2014 and during the nine months ended September 30, 2014.

 

8 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

Net Investment in Finance Leases

 

If a lease meets specific criteria under ASC 840 at its inception, such that ownership of the underlying asset is effectively transferred to the lessee, the Fund recognizes the lease as a net investment in finance lease on its balance sheet. Net investment in finance leases consist of lease receivables plus the estimated unguaranteed residual value of the leased equipment on the lease termination date, less the unearned income. 

 

The residual values of the Fund’s significant finance lease assets are reviewed at least annually. If the review results in a lower estimate than had been previously established, the Fund will determine whether the decline in the estimated residual value is other than temporary. If the decline in estimated residual value is judged to be other than temporary, the accounting for the transaction shall be revised using the changed estimate and the resulting reduction in the net investment shall be recognized as a loss in the period in which the estimate is changed. An upward adjustment of a leased asset’s estimated residual value shall not be made.

 

Loans Receivable and Participating Interests – Loans Receivable (Related Party)

 

Loans receivable are reported on the Fund’s balance sheet at the outstanding principal balance, plus costs incurred to originate the loans. Unearned income, discounts and premiums are amortized to interest income in the Statement of Operations using the effective interest method. Upon the repayment of a loan receivable, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of interest income in the statement of operations.

 

Loans with related parties are disclosed separately in the Fund’s financial statements. See Note 5 for disclosures relating the Fund’s participating interest in a loan receivable.

 

Due to the short term nature of the Fund’s outstanding loans receivable (all outstanding loans have maturities less than one year) the loan’s cost approximates fair value.

 

Maintenance Reserve

 

Under the lease agreement for the Fund’s Bombardier CRJ 700 ER aircraft, the lessee is responsible for the costs of major maintenance on the components of the aircraft, including the engines, airframe, auxiliary power unit and landing gear at an approved maintenance facility in accordance with the manufacturer’s recommended maintenance guidelines. The lessee is required to pay the Fund for maintenance, calculated monthly, which is based on the prior month’s flight hours and flight cycles. These payments are set aside for future maintenance costs and are recognized as restricted cash on the Fund’s Balance Sheet when paid by lessee. As maintenance is performed, and to the extent that the lessee has met all of its obligations under the lease, the lessee is reimbursed for costs incurred up to, but not exceeding, the related payments the Fund receives from the lessee for maintenance. At the completion of each major maintenance event, the difference between the liability for the cost of the aircraft’s maintenance and the reimbursement paid to the lessee is recorded as revenue if management is satisfied that the remaining reserve is considered sufficient to cover future maintenance or repairs. No such payments were made during the three and nine months ended September 30, 2015 and 2014, respectively.

 

Cash is only collected for maintenance costs on the Fund’s CRJ 700 ER aircraft.

 

Revenue Recognition

 

At inception of a finance lease the Fund records the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, the initial direct costs related to the lease, and the related unearned income. Unearned income represents the total minimum lease payments receivable plus the estimated unguaranteed residual value minus the cost of the leased equipment. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.

 

For operating leases, rental income is recognized on a straight-line basis over the lease term. From time to time, the Fund receives rental payments in advance. These advance payments are recognized on the Fund's Balance as deferred revenue and recognized as income in the month they are earned. 

 

Gains or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund’s Statements of Operations. The Fund recognized a gain on the sale of leased equipment of $11,275 during the three and nine months ended September 30, 2015 and $33,708 and $76,253 during the three and nine months ended September 30, 2014.

 

Certain of the Fund’s leases contain provisions for late fees on past due rent. The Fund recognizes late fees as income when they become chargeable and collection is reasonably assured.

 

9 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

The Fund recognizes interest income on its loans receivable using the effective interest method.

 

Allowance for Doubtful Accounts

 

The Fund is exposed to risks under its leasing transactions, including risk associated with a lessee’s creditworthiness, repossession and remarketing and the future market value of the equipment. The Fund evaluates the collectability of its lease receivables by analyzing the counterparties’ payment history, general credit worthiness and current economic trends. Although the Fund currently has no reason to believe that the lessees will fail to meet their contractual obligations, a risk of loss to the Fund exists should a lessee fail to meet its payment obligations under a lease. The Fund records an allowance when the analysis indicates that the probability of full collection is unlikely. No allowance was recorded as of September 30, 2015 or December 31, 2014, respectively. No allowance was recorded or reversed in the Fund’s Statement of Operations during the three and nine months ended September 30, 2015 and 2014, respectively.

 

An allowance or provision for credit losses is established if there is evidence that the Fund will be unable to collect all amounts due according to the original contractual terms of the loan or finance lease receivable. The allowance for credit losses is reported as a reduction of the loan receivable’s carrying value on the Fund’s Balance Sheet. Additions to the allowance and provision for credit losses are recorded in the statement of operations. Allowances and provisions for credit losses are evaluated periodically and on an individual asset and customer level. Loans receivable are considered impaired when the Fund determines that it is probable that it will not be able to collect all amounts due according to the original contractual terms. Individual credit exposures are evaluated based on the realizable value of any collateral, and payment history. The estimated recoverable amount is the value of the expected future cash flows, including amounts that may be realized with the repossession of the collateral.

 

The accrual of interest income based on the original terms of the loan receivable may be discontinued based on the facts and circumstances of the individual credit exposure, and any future interest income is recorded based on cash receipts. Any subsequent changes to the amounts and timing of the expected future cash flows compared with the prior estimates result in a change in the allowance for credit losses and are charged or credited to the statement of operations. An allowance is generally reversed only when cash is received in accordance with the original contractual terms of the note.

 

The Fund does not provision for credit losses on a collective basis.

 

All loans are performing and there are no delinquent loans on the Fund’s Balance Sheet. Due to the credit rating of the counterparties, the short-term nature of loans, and payment history, the Fund has not recorded a provision for credit losses on its loans receivable as of September 30, 2015 or December 31, 2014, respectively.

 

Write Offs

 

The Fund takes write offs when it determines that a receivable is uncollectible and when all economically sensible means of recovery have been exhausted. No write offs were recorded for the three and nine months ended September 30, 2015 and 2014, respectively.

 

Operating Expenses and Management Fees

 

The Manager charges the Fund management fees and the Fund reimburses the Manager for certain operating expenses directly related to the Fund. These fees are recognized on accrual basis. See Note 8 for further details.

 

Comprehensive Income

 

The Fund follows the requirements of ASC 220 Comprehensive Income, for the reporting and presentation of comprehensive income and its components. The Fund does not have any components of other comprehensive income, thus it is not presented separately in the Fund’s financial statements.

 

Distributions

 

The Manager has sole discretion to determine what portion, if any, of cash on hand will be distributed to the members. Distributions are made on a monthly basis and accrued at the end of each month. Cash distributions are paid on the 15th day of the following month and reflected in the Statement of Changes in Members’ Equity. Distributions accrued but not paid are recorded as a distribution payable on the Fund’s Balance Sheet.

 

10 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. The original effective date for ASU 2014-09 would have required the Fund to adopt it beginning in its first quarter of 2018. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date. Accordingly, the Fund may adopt the standard in either its first quarter of 2018 or 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Fund is currently evaluating the timing of its adoption of ASU 2104-09.The adoption of this standard is not expected to have an impact on the Fund's financial statements.

 

In August 2014, FASB issued ASU No. 2014-15, Preparation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The adoption of this standard becomes effective for the fiscal year ended December 31, 2016, and all subsequent annual and interim periods. Early adoption is permitted. The Fund is currently in the process of evaluating the impact of the adoption of this standard on its financial statements.

 

In June 2015, FASB issued ASU No. 2015-10 to clarify the codification, correct unintended application of guidance, eliminate inconsistencies, and to improve the codification's presentation of guidance for a wide range of topics in the codification. Transition guidance varies based on the amendments included. The amendments that require transition guidance are effective for annual periods, and interim periods within those fiscal periods, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance. The Fund is currently in the process of evaluating the transition provisions of the amendment and impact on its future financial statements.

 

In June 2015, FASB issued ASU No. 2015-03, Interest—Imputation of Interest, to simplify presentation of debt issuance costs. The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The adoption of this standard becomes effective for fiscal years beginning after December 15, 2015. The Fund is currently in the process of evaluating the impact of the adoption of this standard on its financial statements.

 

3. LEASED EQUIPMENT AT COST

 

Extension of Airbus A320-200 Aircraft

 

In June 2015, the Fund agreed to renew the lease for its Airbus A320-200 aircraft which was initially acquired in May 2013. The aircraft is leased to an airline based in Oceania that operates internationally. The lease was extended for a period of 30 months from June 2015. The lease is recorded as an operating lease on the Fund’s Balance Sheet with rental income recognized on a straight-line basis over the lease term.

 

Sale of Self-Service Checkout Equipment

 

At the expiration of its lease for self-service checkout equipment in September 2015, the lessee exercised its purchase option for the equipment. The Fund sold the equipment to the lessee for $225,500 in exchange for a receivable recorded on the Fund’s Balance Sheet in other receivables. The Fund recognized a gain on sale of $11,275 during the three months ended September 30, 2015. The Fund received the sales proceeds from the lessee in October 2015.

 

Leased equipment at cost net of accumulated depreciation consists of the following:

  

   September 30, 2015   December 31, 2014 
Aircraft engines (2 x CFM56-7B jet engines)  $25,338,321   $25,338,321 
Aircraft Bombardier CRJ 700 ER   9,786,555    9,786,555 
Aircraft (Airbus model A320-200)   19,551,352    19,551,352 
Self-serve checkout equipment   -    2,097,353 
Flat bed rail cars   7,777,356    7,777,356 
Racetrack equipment   3,763,611    3,763,611 
Smart safes   3,273,610    3,273,610 
Machine tool equipment   5,768,966    5,768,966 
Less: Accumulated depreciation   (14,792,040)   (12,977,988)
   $60,467,731   $64,379,136 

 

11 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

Annual minimum future rentals receivable related to the Fund’s operating leases over the next five years consist of the following:

  

For the period October 1 to December 31, 2015  $2,156,767 
For the year ending December 31, 2016   9,781,805 
For the year ending December 31, 2017   7,795,837 
For the year ending December 31, 2018   3,812,928 
For the year ending December 31, 2019   2,280,822 
Thereafter   1,861,641 
   $27,689,800 

 

A risk of loss or lower than expected returns exists if the market value of the equipment at the end of the lease term is lower than assumed.

 

4. NET INVESTMENT IN FINANCE LEASES

 

The Fund’s net investments in finance leases primarily relate to race track equipment, furniture, eight-seater aircrafts, manufacturing equipment and smart safes.

 

Manufacturing Equipment

 

In April 2015, the Fund entered into a lease for manufacturing equipment with a leading bus manufacturing company based in Australia for $854,333. The lease consists of $613,813 on an existing lease to the bus manufacturing company and $240,520 acquired through a sale and leaseback arrangement with the bus manufacturing company. At the end of the lease term of 36 months all of the Fund’s right, title and interest in the equipment will be transferred to the lessee. The lease was classified as a finance lease on the Fund’s balance sheet. No leverage was used to finance this acquisition.

 

Net investment in finance lease (current and non-current) consists of the following:

 

   September 30, 2015   December 31, 2014 
Minimum lease payments receivable  $2,730,414   $2,703,429 
Estimated residual values of leased property (unguaranteed)   2,436,311    2,436,311 
Less: Unearned income   (754,818)   (911,209)
Net investment in finance leases  $4,411,907   $4,228,531 

 

Annual minimum future rentals receivable related to the Fund’s finance leases over the next 5 years consist of the following:

 

For the period October 1 to December 31, 2015  $341,368 
For the year ending December 31, 2016   1,279,700 
For the year ending December 31, 2017   857,341 
For the year ending December 31, 2018   252,005 
For the year ending December 31, 2019   - 
   $2,730,414 

 

A risk of loss or lower than expected returns exists if the market value of the equipment at the end of the lease term is lower than the asset’s residual value.

 

As of September 30, 2015 and 2014, 64% and 59%, respectively, of the Fund’s net investment in finance leases were related to GA8-TC320 Airvan aircraft on lease to an Australian aircraft manufacturer.

 

5. LOANS RECEIVABLE

 

In November 2014, the Fund entered into an agreement with an Australian aircraft manufacturer to provide a finance facility of $540,000 for a period of 12 months. The Australian aircraft manufacturer is required to pay monthly installments of $7,597 over the term of the facility and a final installment of $496,260 on the first day of the last month in the term. The loan is secured by a GA8-TC320 aircraft. The loan is recorded as a loan receivable and held at amortized cost on the balance sheet. The Fund recognizes interest income using the effective interest method.

 

12 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

The Fund recognized interest income on the loan of $11,562 and $35,447 for the three and nine months ended September 30, 2015, respectively, and $0 for both the three and nine months ended September 30, 2014.

 

6. PARTICIPATING INTEREST (RELATED PARTY)

 

In June 2015, the Fund entered into a participation agreement with Macquarie Bank Limited London Branch (“MBL UK”), a member of the Macquarie Group of companies, to provide financing of $3,745,028 to participate in an existing facility previously provided by MBL UK to a UAE information technology distribution company. The loan had a term of 60 days from disbursement. The Fund’s advance was paid to MBL UK and the Fund will receive principal and interest payments from MBL UK. Repayment is predicated on MBL UK receiving principal and interest payments from the underlying counterparty. The transaction is recorded as a participating interest – loan receivable (related party) on the Fund’s Balance Sheet and recognized at amortized cost. The Fund recognizes interest income using the effective interest method. The loan is unsecured with the Fund being entitled to a pro-rata portion of MBL UK’s credit insurance in the event of a default. The loan was fully repaid in August 2015. During the three months ended September 2015, the Fund provided additional financing of $6,144,535 to participate in an existing MBL UK facility under the same agreement, of which $1,150,800 was repaid in September 2015. The balance outstanding included in the Fund’s Balance Sheet as of September 30, 2015 was $4,993,735. In October 2015, the Fund received a repayment of $1,914,379 and in November 2015 the Fund received a repayment of $1,630,386.

 

In March 2015, the Fund entered into a participation agreement with Macquarie Equipment Capital, Inc. (“MECI”), a member of the Macquarie Group of companies, to provide financing of $4,995,979 to participate in an existing facility previously provided by MECI to a U.S. information technology distribution company. The loan had a term of 44 days from disbursement. The Fund’s advance was paid to MECI and the Fund received principal and interest payments from MECI. Repayment was predicated on MECI receiving principal and interest payments from the underlying counterparty. The transaction was recorded as a participating interest – loan receivable (related party) on the Fund’s Balance Sheet and recognized at amortized cost. The Fund recognized interest income using the effective interest method. The loan was unsecured with the Fund being entitled to a pro-rata portion of MECI’s credit insurance in the event of a default. The loan was fully repaid in May 2015. In May and June 2015, the Fund provided additional financing of $4,963,269 to MECI to participate in an existing facility under the same agreement which was fully repaid in July 2015. In July and September 2015, the Fund provided additional financing of $9,456,181 to MECI to participate in an existing facility under the same agreement, out of which $4,474,502 was repaid in September 2015. The balance outstanding included on the Fund’s balance sheet as of September 30, 2015 was $4,981,679. The outstanding balance was fully repaid in October 2015.

 

The Fund recognized interest income from related parties of $181,466 and $284,944 for the three and nine months ended September 30, 2015, respectively and $0 for the three and nine months ended September 30, 2014.

 

7. LOAN FACILITY

 

In September 2015, the Fund entered into a limited recourse loan agreement. The facility has a credit limit of $16,750,000 and is secured by the Fund’s leased CFM-7B aircraft engines. The facility has a term of four years and bears interest of 3.192% per year.

 

The Fund drew down the full amount of the facility in October 2015.

 

8. TRANSACTIONS WITH AFFILIATES

 

As discussed in Note 1, the Fund is required to pay fees to the Manager and its affiliates for providing or arranging all services necessary for its operations, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services. As discussed in Note 6, the Fund entered into participation agreements with MBL UK and MECI, members of the Macquarie Group of companies and affiliates of the Manager.

 

13 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

The Fund pays the Manager and its affiliates’ fees for operating services performed including:

 

Acquisition fees of 3% of the purchase price that the Fund pays for each item of equipment or direct or indirect interest in equipment acquired, including under lease agreements, trading transactions, residual value guarantees, pay per use agreements, forward purchase agreements, total lease return swaps, participation agreements, equipment purchase options, other equipment-related transactions, joint ventures, special purpose vehicles and other Fund arrangements;

 

Asset management fees equal to the lesser of: (a) (i) 5% of gross rental payments from non-full payout leases (except that 1% of gross rental payments shall be payable with respect to non-full payout leases for which management services are performed by non-affiliates under the Manager’s supervision); (ii) 2% of gross rental payments from full payout leases which contain net lease provisions; and (iii) 7% of gross rental payments from equipment for which the Fund provides services in addition to equipment management relating to the continued and active operation of the Fund’s equipment such as, but not limited to, ongoing marketing and re-leasing of equipment and hiring or arranging for the hiring of crews or operating personnel for the Fund’s equipment and similar services; or (b) the amount of fees which are competitive for similar services;

 

Remarketing fees equal to the lesser of (i) 3% of the purchase price paid to the Fund by the purchaser of the investment, or (ii) one-half of reasonable, customary and competitive brokerage fees paid for services rendered in connection with the sale of equipment of similar size, type and location. Payment of remarketing fees shall be subordinated until such time when investor return has been achieved. “Investor return” means such time when the aggregate amount of distributions to the members equals, as of any determination date, an amount equal to a pre-tax 8.0% per annum internal rate of return compounded daily on all capital contributions of members;

 

Out-performance fees depending upon the extent to which Investor Return has been achieved. Prior to the time that Investor Return is achieved, cash distributions will be made 99.0% to the Fund’s members and 1.0% to the Manager. After the time that Investor Return is achieved, cash distributions will be made 81.0% to the Fund’s members and 19.0% to the Manager; and

 

Reimbursement of operating expenses depending upon the scope and volume of services the Manager provides to the Fund.

 

For the three and nine months ended September 30, 2015 and 2014, the Fund paid management fees to Macquarie Aircraft Leasing Services (“MALS”), an affiliate of the Manager, for management services related to the aircraft lease for the Airbus model A320-200. The fees paid by the Fund to MALS are 3% of gross rental receipts and are expensed as incurred and included in the Fund’s Statements of Operations.

 

For the three and nine months ended September 30, 2015 and 2014, the Fund has accrued, in fees payable (related party) on the Fund’s Balance Sheet, or paid to the Manager or its affiliates the following amounts:

 

         Three Months Ended   Nine Months Ended 
Entity  Capacity  Description  September 30, 2015   September 30, 2014   September 30, 2015   September 30, 2014 
                       
Macquarie Asset Management Inc.  Manager  Acquisition fees (1)  $-   $-   $25,630   $105,668 
Macquarie Asset Management Inc.  Manager  Management fee (2)   141,782    136,348    420,875    447,082 
Macquarie Asset Management Inc.  Manager  Operating Expenses (2)   117,582    111,185    351,661    354,822 
Macquarie Asset Management Inc.  Manager  Outperformance fee (2)   18,842    19,001    56,263    56,672 
Macquarie Rail Inc.  Affiliate  Due dilligence (1)   -    -    -    41,267 
Macquarie Aircraft Leasing Services  Affiliate  Management fee (2)   21,150    21,150    63,450    42,300 

  

 

(1) Amount is capitalized into the cost of an asset when it is classified as an operating or a finance lease.

(2) Amount charged directly to operations.

 

9. EQUITY

 

As of September 30, 2015 and December 31, 2014, the Fund had 9,331,312 and 9,396,317 shares of limited liability company interest outstanding, respectively (including the DRP shares and net of repurchase of shares). As of September 30, 2015 and December 31, 2014, the cumulative number of shares repurchased since inception was 326,805 and 261,800, respectively.

 

The Fund declared distributions of $1,881,600 during the three months ended September 30, 2015, of which $1,268,038 were paid and $613,562 were payable as of September 30, 2015.

 

10. FAIR VALUE MEASUREMENTS

 

The Fund is required to disclose the fair value of financial instruments, as defined. None of the Fund’s assets and liabilities are carried at fair value on the Fund’s balance sheet on a recurring basis.

 

14 

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

 

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 at the measurement date. Fair value measurements are not adjusted for transaction costs. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange.

 

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

 

Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Fund’s own estimates of assumptions that market participants would use in pricing the asset or liability.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

Non-recurring fair value measurements

 

As of September 30, 2015 and December 31, 2014, there were no assets or liabilities measured using non-recurring fair value measurements.

 

Fair value of financial instruments

 

The Fund’s financial instruments, which are not carried on the Fund’s balance sheet at fair value on a recurring basis, are carried at contracted amounts which approximate fair value. As of September 30, 2015 and December 31, 2014, they consist of cash and cash equivalents and restricted cash, which are classified as Level 1 under the hierarchy defined above, and loans receivable and participating interests - loans receivable (related party), which are classified as Level 3, based on the fact that they were valued using inputs that are generally unobservable and are supported by little or no market data. The Fund uses projected cash flows to estimate the fair value of these financial assets. Fair value information with respect to certain financial instruments which are not carried on the balance sheet at fair value is not separately provided given that fair value disclosures of lease arrangements are not required and the carrying value of the Fund’s other financial instruments approximates fair value due to the fact that they have short term maturities (all less than one year) and credit risk is deemed low.

 

Fees payable, distributions payable, and other payables are short term in nature and therefore their carrying value approximates their fair value, which would be classified as Level 3.

 

11. COMMITMENTS AND CONTINGENCIES

 

Other than obligations associated with investing activities or as set forth in the Fund’s operating agreement, there were no contractual obligations, commitments or contingencies as of September 30, 2015 and December 31, 2014, respectively.

 

12. SUBSEQUENT EVENTS

 

In October and November 2015, the Fund provided additional financing to MBL UK of $1,919,369 and $1,624,910, respectively, to participate in an existing facility under the same agreement as described in Note 6.

 

15 

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following is a discussion of our current financial position and results of operations. This discussion should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, the audited financial statements and related notes included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 18, 2015, and with our Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on October 15, 2008, as amended (“Registration Statement”). This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements.”

 

As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include Macquarie Equipment Leasing Fund, LLC (the “Fund”).

 

Forward-Looking Statements

 

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

Overview

 

Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company, was formed on August 21, 2008 for the purpose of acquiring a diversified portfolio of equipment and equipment leases. The Fund also makes investments in and loans collateralized by other equipment-related transactions which will allow it to directly or indirectly participate in the benefits and risks of equipment ownership or usage. The Fund’s liquidation period is scheduled to begin on July 1, 2016 and can last for up to three years.

 

The Fund’s offering was for a total of 15,000,000 Shares at a price of $10.00 per share, subject to certain reductions. The Fund also offered up to 800,000 Shares pursuant to its Distribution Reinvestment Plan (“DRP”) at a public offering price of $9.00 per Share. The Manager has contributed a total of $1,505,000. The Fund’s fiscal year end is December 31.

 

The Fund’s offering period ended on March 19, 2012 and the Fund’s operating period commenced on that date. The Fund will continue to make investments in equipment, equipment leases and other equipment-related transactions. As of September 30, 2015, the Fund had 9,331,312 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares).

 

As of November 13, 2015, the Fund had 9,297,490 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares).

 

Third Quarter Transactions

 

Participating Interest in a Finance Facility

 

The Fund’s participating interest with MBL UK was fully repaid in August 2015. During the three months ended September 30, 2015, the Fund provided additional financing of $6,144,535 to MBL UK to participate in an existing facility under the previous agreement, out of which $1,150,800 was repaid in September 2015 and $1,914,379 was repaid in October 2015.

 

In July and September 2015, the Fund provided additional financing of $9,456,181 to MECI to participate in an existing facility under the same agreement from prior quarters, of which $4,474,502 was repaid in September 2015 and $4,981,679 was repaid in October 2015.

 

Extension of Airbus A320-200 Aircraft

 

In June 2015, the Fund agreed to renew the lease for its Airbus A320-200 aircraft which was initially acquired in May 2013. The aircraft is leased to an airline based in Oceania that operates internationally. The lease was extended for a period of 30 months from June 2015. The lease is recorded as an operating lease on the Fund’s Balance Sheet with rental income recognized on a straight-line basis over the lease term.

 

16 

 

 

Sale of Self-Service Checkout Equipment

 

At the expiration of its lease for self-service checkout equipment in September 2015, the lessee exercised its purchase option for the equipment. The Fund agreed to sell the equipment to the lessee for $225,500. The Fund recognized a gain on sale of $11,275 during the three months ended September 30, 2015. The Fund received the sales proceeds from the lessee in October 2015.

 

Loan Facility

 

In September 2015, the Fund entered into a limited recourse loan agreement. The facility has a credit limit of $16,750,000 and is secured by the Fund’s leased CFM-7B aircraft engines. The facility has a term of four years and bears interest of 3.192% per year.

 

The Fund drew down the full amount facility in October 2015.

 

Results of Operations for the Three and Nine Months Ended September 30, 2015 and 2014

 

Total revenue for the three months ended September 30, 2015 was $3,182,339 compared to $3,127,883 for the three months ended September 30, 2014. The increase of $54,456 was primarily due to an increase in interest income of $193,028. The increase in interest income is driven by the Fund’s loan and participation agreements with MBL UK and MECI, which were entered in the fourth quarter of 2014 and first nine months of 2015. The increase was partially offset by a decrease in rental income of $90,388, driven by the decrease in rentals on the Fund’s Airbus A320-200 aircraft and a decrease in other income of $25,751 due to a one-time late fee received during the three months ended September 30, 2014.

 

Total expenses for the three months ended September 30, 2015 were $1,654,541 compared to $1,576,651 for the three months ended September 30, 2014. The increase of $77,890 was driven by an increase in depreciation of $100,965. This increase was partially offset by a decrease in other expenses of $34,906 which is caused by one-off transaction costs for a deal that did not proceed that were incurred during the three months ended September 30, 2014.

 

As a result, the Fund’s net income for the three months ended September 30, 2015 decreased by $23,434 when compared to the three months ended September 30, 2014.

 

Total revenue for the nine months ended September 30, 2015 was $9,530,520 compared to $9,444,313 for the nine months ended September 30, 2014. The increase of $86,207 was primarily due to an increase in interest income of $320,391. The increase in interest income is driven by the Fund’s loan and participation agreements with MBL UK and MECI as described above. This increase was partially offset by a decrease in rental income of $168,310, due to decreases in monthly rentals received on the Fund’s Bombardier CRJ 700 ER aircraft and Airbus A320-200 aircraft. The Fund also realized a net gain of $76,253 from the sale of office equipment during the nine months ended September 30, 2014 compared to net gain of $11,275 from the sale of self-serve checkout equipment during the nine months ended September 30, 2015.

 

Total expenses for the nine months ended September 30, 2015 were $4,927,738 compared to $5,095,721 for the nine months ended September 30, 2014. This decrease of $167,983 was primarily due to a decrease in depreciation expense of $131,207 and a decrease in other expenses of $194,114. The decrease in other expenses is due to one off transaction costs incurred during the nine months ended September 30, 2014 for a deal that did not proceed. The decrease in expenses was partially offset by recognition of an impairment loss of $165,556 for one of the Fund’s operating leases during the nine months ended September 30, 2015.

 

As a result, the Fund’s net income for the nine months ended September 30, 2015 increased by $254,190 when compared to the nine months ended September 30, 2014.

 

The Fund evaluated a number of equipment transactions during the first nine months of 2015. The Fund continues to pursue additional equipment investments as well as leverage opportunities on the existing equipment portfolio.

 

Financial Condition

 

This section discusses the major balance sheet variances from September 30, 2015 compared to December 31, 2014.

 

17 

 

 

Total Assets

 

Total assets decreased by $996,918, from $79,507,085 as of December 31, 2014 to $78,510,167 as of September 30, 2015. The decrease in total assets was primarily due to a net decrease in cash and cash equivalents of $4,752,982 and a decrease in operating lease assets of $3,911,405. These decreases were offset by increases in other operating assets. The decrease in cash was driven by funding new participation agreements of $29,304,991, cash distributions paid to members of $5,626,347, and an acquisition of leased assets for $856,751. The aforementioned decreases in cash were offset by increases comprised of rents collected during the period and loan principal repayments of $8,186,046 by MBL UK and $14,433,750 by MECI. Operating lease assets decreased during the period due to depreciation expense of $3,531,624, the sale of self-service checkout equipment, and an impairment loss of $165,556. The decrease in cash and operating lease assets was partially offset by a net increase in loans receivable (related party) of $6,729,571 from new participation agreements, an increase in lease receivables of $300,000 due to unpaid rents as of September 30, 2015, an increase in other receivables of $233,065 due to the sale of self-service checkout equipment for which proceeds weren’t received until October, and an increase in net investment in finance leases of $183,376 due to the acquisition of manufacturing equipment in April 2015.

 

Total Liabilities

 

Total liabilities increased by $512,958, from $3,978,434 as of December 31, 2014 to $4,491,392 as of September 30, 2015. The increase in total liabilities is the result of an increase in fees payable to related parties of $374,806 and an increase in maintenance reserve payable of $193,620. Fees payable to related parties increased due to asset management fees and operating expenses incurred during the nine months ended September 30, 2015. Fees payable to the Manager are allocated to the Fund on a quarterly basis and are settled annually in December. This increase is partially offset by a decrease in deferred rental income of $98,534.

 

Equity

 

Equity decreased by $1,509,876, from $75,528,651 as of December 31, 2014 to $74,018,775 as of September 30, 2015. The decrease in equity is primarily due to distributions declared to investors of $5,601,473, of which $4,987,911 were paid and $613,562 were payable as of September 30, 2015. Additionally, 65,005 shares were redeemed for $511,185 during the nine months ended September 30, 2015. This decrease was offset by net income of $4,602,782 for the same period.

 

Liquidity and Capital Resources

 

Cash Flows Summary

 

The following table sets forth summary cash flow data for the nine months ended September 30, 2015 and 2014.

 

   September 30, 2015   September 30, 2014 
Net cash provided by (used in) :          
Operating activities  $8,893,570   $9,918,775 
Investing activities   (7,705,323)   (2,311,612)
Financing activities   (5,941,229)   (6,868,227)
Net decrease in cash and cash equivalents  $(4,752,982)  $738,936 

 

See the Statements of Cash Flows included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for additional information.

 

As of September 30, 2015, the Fund had cash and cash equivalents of $954,089. The amount of cash provided by operating activities for the nine months ended September 30, 2015 of $8,893,570 consisted primarily of rentals collected during the nine months from leased assets.

 

The cash used in investing activities for the nine months ended September 30, 2015 is primarily attributable to the participation in new finance facilities of $29,304,991 and acquisition of leased assets of $856,751. These cash outflows were partially offset by the principal repayments received during the nine months ended September 30, 2015 of $8,186,046 from MBL UK and $14,433,750 from MECI.

 

The cash used in financing activities for the nine months ended September 30, 2015 is primarily attributable to distributions to members and share repurchases.

 

Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less and are held in operating and money market accounts at Wells Fargo Bank, N.A.

 

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Sources and Uses of Cash

 

The Fund’s main activities and our main use of cash has been to acquire a diversified portfolio of equipment, equipment leases, loans and other equipment-related investments which are denominated in U.S. dollars and are on lease to corporate clients around the world. We will also make investments in other equipment-related transactions which will allow us to directly or indirectly participate in the benefits and risks of equipment ownership or usage and make loans collateralized by equipment.

 

As of November 13, 2015 we have used approximately $137,888,938 of the offering and equipment sale proceeds to acquire the following assets:

 

Asset Type  Purchase Price 
Participation interest in Commercial jet aircraft engines (sold in March 2012)  $6,500,000 
Aircraft Bombardier CRJ 700 ER   9,786,555 
Self-serve checkout equipment (sold in September 2015)   2,097,353 
ETS-364B semiconductor test system (sold in May 2012)   383,898 
Furniture, office and other related equipments   669,010 
Furniture, office and other related equipments (sold in Nov 2013, Mar 2014 & Sep 2014)   1,012,843 
Semiconductor manufacturing tools (sold in June 2012)   6,400,800 
Aircraft engines (2 x CFM56-7B jet engines)   25,338,321 
Flat bed rail cars   7,777,356 
Racetrack equipment   5,311,507 
Smart safes   3,294,695 
Smart safes (sold in July 2013)   68,989 
Machine tool equipment   5,768,966 
Aircraft (Airbus model A320-200)   19,551,352 
GA8-TC320 Airvan Aircraft   3,115,888 
GA8-TC320 Airvan Aircraft (sold in May 2014, Aug 2014 & Dec 2014)   1,567,802 
Financing provided to aircraft lessor   540,000 
Financing provided to an affiliate (fully repaid by lessee)   32,856,021 
Financing provided to an affiliate   4,993,249 
Bus manufacturing equipment   854,333 
   $137,888,938 

  

The Fund believes it has sufficient working capital to continue existing operations for the next 12 months and through its liquidation phase, which begins on July 1, 2016.

 

Sources of Liquidity

 

We believe that cash generated from our operating activities and from debt borrowings, if required, will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our members, funding of new investment opportunities, payment of management fees, equipment maintenance events, and administrative expense reimbursements. Our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our lessees’ businesses that are beyond our control.

 

The Fund’s liquidity may be adversely affected by unanticipated or greater than anticipated operating costs or losses, including the inability of a client of the Fund to make timely lease payments or costs associated with off lease assets or assets available for sale. The Fund anticipates that it will fund its operations from cash flow generated by operating and financing activities. The Manager has no intent to permanently fund any cash flow deficit of the Fund or provide other financial assistance to the Fund.

 

The Fund also intends to incur indebtedness on future acquisitions for its portfolio. During periods of general illiquidity in financial markets, it may not be possible for the Manager to source debt on the Fund’s behalf at an appropriate interest rate, on appropriate terms, at appropriate levels or at all.

 

Distributions

 

The Fund paid total cash distributions of $1,884,242 and $1,900,054 to our members during the three months ended September 30, 2015 and 2014, respectively, and cash distributions of $5,626,347 and $5,667,226 to our members during the nine months ended September 30, 2015 and 2014, respectively.

 

While the Fund anticipates making monthly cash distributions, it may vary the amount of, or completely suspend making distributions at any time and without notice.

 

Commitments, Contingencies and Off-Balance Sheet Arrangements

 

Other than obligations associated with our investing activities or as set forth in our operating agreement, we have no contractual obligations and commitments, contingencies or off-balance sheet arrangements as of September 30, 2015 and December 31, 2014, respectively.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our 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 expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Accounting Policies, Accounting Changes and Future Application of Accounting Standards

 

See Note 2, “Significant Accounting Policies”, in Part I, Item 1, for a summary of the Fund’s significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

Although this information is not required to be disclosed for smaller reporting companies, we believe that there have been no material changes to the disclosures reported in our Form 10-K, dated February 18, 2015.

 

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Item 4.Controls and Procedures

 

Under the direction and with the participation of our Manager’s President and Principal Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Manager’s President and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2015. There has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act) that occurred during the three months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

 

In the ordinary course of conducting our business, there may be certain claims, suits and complaints filed against us. In the opinion of management, the outcome of such matters, if any, will not have a material impact on our financial position. No material legal proceedings are currently pending or threatened, to our knowledge, against us or against any of our assets.

 

Item 1a.Risk Factors

 

Not applicable.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) None.

 

(b) None.

 

(c) A summary of the share repurchases during the quarter is as follows:

  

   Total Number of
Shares Purchased
   Average Price Paid
per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet be Purchased
Under the Plans or
Programs (1)
 
July 1 to July 31, 2015   40,168   $7.75    40,168    - 
August 1 to August 31, 2015   -    -    -    - 
September 1 to September 30, 2015   -    -    -    - 
Total   40,168   $7.75    40,168    - 

 

(1) Our operating agreement, dated June 19, 2009, and which does not have an expiration date, allows for the repurchase of shares according to a specified repurchase formula set forth therein. Our operating agreement limits the number of shares that can be repurchased in any one year, but there is no maximum number of shares that may be repurchased over time. Repurchased shares may not be reissued.

 

Item 3.Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

Item 5.Other Information

 

None.

 

20 

 

 

Item 6.Exhibits

 

An exhibit index has been filed as part of this Report on page 24.

 

21 

 

 

SIGNATURES

 

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

 

  MACQUARIE EQUIPMENT LEASING FUND, LLC
     
  By: /s/ David Fahy
  Name:   David Fahy
  Title: President of the Manager and Principal Executive
    Officer of Registrant
     
    Date: November 13, 2015
     
  By: /s/ John Papatsos
  Name:  John Papatsos
  Title: Principal Financial Officer of the Manager and Principal
    Accounting Officer of Registrant
     
    Date: November 13, 2015

 

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Exhibit Index

 

Exhibit
Number
  Description
     
31.1*   Rule 13a-14(a)/15d-14(a) Certification of President of the Manager and Principal Executive Officer of Registrant.
     
31.2*   Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant.
     
32.1**   Section 1350 Certification of President of the Manager and Principal Executive Officer of Registrant.
     
32.2**   Section 1350 Certification of Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant.
     
101.0*   The following materials from the Quarterly Report on Form 10-Q of Macquarie Equipment Leasing Fund, LLC for the three months ended September 30, 2015, filed on November 13, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014, (ii) the Statement of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited), (iii) the Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (Unaudited) (iv) the Statements of Changes in Members’ Equity for the Nine Months Ended September 30, 2015 (Unaudited) and (v) the Notes to Financial Statements (Unaudited).

 

 

 

*Filed herewith.

 

**Furnished, rather than filed herewith.

 

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