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MACQUARIE EQUIPMENT LEASING FUND, LLC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 14, 2014

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, 2014, 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 will also make 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 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 June 30, 2014, the Fund had 9,430,343 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares).

As of August 14, 2014, the Fund had 9,419,189 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares).

Second Quarter Transactions GA8-TC320 Airvan Aircraft



In May 2014, the lessee exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 97.4% of the original cost of the aircraft to the Fund. The lessee paid a purchase price of $542,265 and the Fund recognized a loss of $8,900, driven by acquisition fees capitalized in the cost of the aircraft.

The Fund purchased an additional GA8-TC320 Airvan aircraft for $360,500 including direct costs from the Australian aircraft manufacturer and entered into a sale and leaseback arrangement for a period of 44 months. The lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised at the end of the lease, ownership of the aircraft is transferred back to the lessee on payment of $232,430. The lease was classified as finance lease on the Fund's balance sheet. No leverage was used to finance this acquisition.

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Results of Operations for the Three and Six Months Ended June 30, 2014 and 2013

Total revenue for the three and six months ended June 30, 2014 increased by $371,042 and $1,472,401 respectively, as compared to the three and six months ended June 30, 2013 primarily due to an increase in rental income of $381,652 and $1,437,323 respectively. The increase in rental income was due to additional equipment purchased by the Fund during the second half of 2013 and in the first six months of 2014. These additional lease transactions include assets such as machine tool equipment, an Airbus A320-200 aircraft, smart safes, four GA8-TC320 Airvan aircraft, and railcars. The Fund also realized a gain of $51,445 from sale of office equipment and a loss of $8,900 from sale of one GA8-TC320 Airvan aircraft in the first six months of 2014.

Total expenses for the three months ended June 30, 2014 increased by $309,901 compared to the three months ended June 30, 2013 primarily due to an increase in other expenses of $188,291, depreciation expense of $80,330 and operating expenses of $39,163. The increase in other expenses was due to one off transaction costs incurred during the six months ended June 30, 2014. The costs were initially capitalized and subsequently expensed when it became more likely than not that the transaction would not be completed. Total expenses for the six months ended June 30, 2014 increased by $732,764 compared to the six months ended June 30, 2013 primarily due to an increase in depreciation expense of $408,484, other expenses of $197,148, operating expenses of $68,157 and asset management fees of $58,975. The increase in depreciation and management fees were driven by the purchase of additional equipment during the second half of 2013 and in the first six months of 2014.

The Fund evaluated a number of equipment transactions during the first six months of 2014 and closed some of these transactions. To date, the Fund has not used leverage to finance these transactions. The Fund continues to pursue additional equipment investment as well as debt leverage opportunities on the existing equipment portfolio.

Financial Condition



This section discusses the major balance sheet variances from June 30, 2014 compared to December 31, 2013.

Total Assets



Total assets decreased by $750,706, from $82,732,255 as of December 31, 2013 to $81,981,549 as of June 30, 2014. The decrease in total assets during the six months ended June 30, 2014 was due to the following: cash decreased due to the acquisition of leased assets for a total of $3,693,250 and cash distributions to members of $3,767,172, partially offset by rents collected and rentals received in advance from certain lessees. Operating lease assets increased due to the aforementioned acquisitions, the increase was partially offset by depreciation expense of $2,499,137. Net investment in finance leases increased by $1,505,772 due to new acquisitions, partially offset by the sale of two finance lease assets, amortization of unearned revenue and the collection of rentals. Lease receivables decreased due to the payment of outstanding rentals.

Total Liabilities



Total liabilities increased by $442,916, from $5,096,833 as of December 31, 2013 to $5,539,749 as of June 30, 2014. The increase in total liabilities is the result of an increase in fees payable to related parties of $208,989, receipt of a security deposit for $90,000, an increase in other payables by $76,482 and an additional accrual for maintenance of the CRJ 700ER aircraft of $63,928. Fees payable to related parties increased due to accrual of operating expense for the six months ended June 30, 2014 and an increase in management fees related to the Fund's additional asset purchases. Operating expenses due to the Manager are settled on an annual basis in December. Other payables increased due to additional accrued deal expenses for a deal the Fund did not proceed with.

Equity



Equity decreased by $1,193,622 from $77,635,422 as of December 31, 2013 to $76,441,800 as of June 30, 2014. The decrease in equity is primarily due to distributions to investors of $3,744,525, of which $3,124,452 were paid and $620,073 were payable as of June 30, 2014. Additionally, 29,041 shares were redeemed for $246,457 during the six months ended June 30, 2014. The decrease was offset by net income of $2,797,360 for the same period.

Liquidity and Capital Resources

Cash Flows Summary The following table sets forth summary cash flow data for the six months ended June 30, 2014 and 2013. June 30, 2014 June 30, 2013 Net cash provided by (used in) : Operating activities $ 6,552,795$ 5,113,989 Investing activities (3,108,370 ) (25,435,602 ) Financing activities (3,895,291 ) (4,397,225 )



Net decrease in cash and cash equivalents $ (450,866 )$ (24,718,838 )

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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 June 30, 2014, the Fund had cash and cash equivalents of $8,639,766. The amount of cash provided by operating activities for the six months ended June 30, 2014 of $6,552,795 consisted primarily of rentals collected during the six months from assets on lease.

The cash used in investing activities for the six months ended June 30, 2014 is primarily attributable to the purchase of five GA8-TC320 Airvan aircraft for $2,458,147, purchase of additional railcars for $1,032,186 and the purchase of additional smart safes for $210,150. This decrease is partially offset by proceeds of $542,265 received from sale of one GA8-TC320 Airvan aircraft and $70,953 received from sale of office equipment and the security deposit of $90,000 received from the lessee of the GA8-TC320 Airvan aircraft.

The cash used in financing activities for the six months ended June 30, 2014 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.

Sources and Uses of Cash



The Fund's main activities and principal use of cash has been to acquire a diversified portfolio of equipment, equipment leases and other equipment-related investments which are denominated in US 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 collaterized by equipment.

As of August 14, 2014 we have used approximately $96,391,971 of the offering and equipment sale proceeds to acquire the following assets:

Purchase Price



Participation interest in Commercial jet aircraft engines (sold in March 2012)

$ 6,500,000 Aircraft Bombardier CRJ 700 ER 9,758,734 Self-serve checkout equipment 2,097,353 ETS-364B semiconductor test system (sold in May 2012) 383,898 Furniture, office and other related equipments 811,400



Furniture, office and other related equipments (sold in Nov 2013 & Mar 2014)

870,453 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 1,885,873 GA8-TC320 Airvan Aircraft (sold in May 2014) 572,274 $ 96,391,971 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.

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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 began making monthly cash distributions on April 15, 2010 and paid cash distributions to our members in the amount of $1,902,741 and $3,767,172 during the three and six months ended June 30, 2014.

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 Transactions

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 transactions as of June 30, 2014.

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 our financial statements in "Financial Statements and Supplementary Data" in Part I, Item 1, of this Form 10-Q for financial information and further discussions, for a summary of the Company's significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.


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Source: Edgar Glimpses


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