##### Table of Contents



United States
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 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 333-116595
 LEASE EQUITY APPRECIATION FUND II, L.P.
  Delaware
    
    20-1056194(State or other jurisdiction ofincorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 þ o
  Large accelerated filer
o
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



LEASE EQUITY APPRECIATION FUND II, L.P.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
 PAGEPART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  March 31, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations Three Months Ended March 31, 2008 and 2007
(unaudited)
    
    
    4Consolidated Statement of Partners Capital and Comprehensive Loss
Three Months Ended March 31, 2008 (unaudited)
    
    
    5Consolidated Statements of Cash Flows
Three Months Ended March 31, 2008 and 2007 (unaudited)
    
    
    6Notes to Consolidated Financial Statements  March 31, 2008 (unaudited)
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21ITEM 4. Controls and Procedures
    
    
    21PART II OTHER INFORMATIONITEM 6. Exhibits
    
    
    22SIGNATURES
    
    
    23CERTIFICATION OF CEO PURSUANT TO RULE 13a-14(a)CERTIFICATION OF CFO PURSUANT TO RULE 13a-14(a)CERTIFICATION OF CEO PURSUANT TO RULE SECTION 1350CERTIFICATION OF CFO PURSUANT TO RULE SECTION 1350
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LEASE EQUITY APPRECIATION FUND II, L.P.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (audited)ASSETSCash
    
    $
    570
    
    
    $
    259Restricted cash
    
    
    31,259
    
    
    
    29,442Accounts receivable
    
    
    268
    
    
    
    297Investment in direct financing leases and notes, net
    
    
    326,024
    
    
    
    331,622Investment in operating leases, net of accumulated depreciation of $8,310 and
$7,885, respectively
    
    
    9,904
    
    
    
    11,693Other assets
    
    
    3,593
    
    
    
    4,075$
    371,618
    
    
    $
    377,388LIABILITIES AND PARTNERS CAPITALLiabilities:Debt
    
    $
    317,735
    
    
    $
    324,170Accounts payable and accrued expenses
    
    
    1,479
    
    
    
    1,256Security deposits
    
    
    4,961
    
    
    
    5,143Fair value of interest rate swaps
    
    
    11,586
    
    
    
    6,623Due to related parties
    
    
    4,738
    
    
    
    3,054Total liabilities
    
    
    340,499
    
    
    
    340,246Partners Capital
    
    
    31,119
    
    
    
    37,142$
    371,618
    
    
    $
    377,388
  3




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LEASE EQUITY APPRECIATION FUND II, L.P.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except unit data)
 (unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Income:Interest on equipment financings
    
    $
    7,276
    
    
    $
    5,786Rental income
    
    
    1,316
    
    
    
    1,451Gain on sale of equipment and lease dispositions, net
    
    
    322
    
    
    
    57Other
    
    
    643
    
    
    
    5059,557
    
    
    
    7,799Expenses:Interest expense
    
    
    4,796
    
    
    
    4,231Depreciation on operating leases
    
    
    1,114
    
    
    
    1,223Provision for credit losses
    
    
    1,321
    
    
    
    1,115Management fees to related party
    
    
    984
    
    
    
    942Administrative expense reimbursed to related party
    
    
    443
    
    
    
    402General and administrative expenses
    
    
    605
    
    
    
    6779,263
    
    
    
    8,590Net income (loss)
    
    $
    294
    
    
    $
    (791
    )Weighted average number of limited partner units outstanding during the
period
    
    
    597,497
    
    
    
    600,000Net income (loss) per weighted average limited partner unit
    
    $
    0.49
    
    
    $
    (1.30
    )
  4




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P.
 
 CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
 AND COMPREHENSIVE INCOME (LOSS)
 FOR THE THREE MONTHS ENDED MARCH 31, 2008
 (in thousands, except unit data)
 (unaudited)
 AccumulatedGeneral
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Partners
    
    
    ComprehensivePartner
    
    
    Limited Partners
    
    
    Comprehensive
    
    
    Capital
    
    
    Income (Loss)Amount
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    Total
    
    
    TotalBalance at January 1, 2008
    
    $
    (99
    )
    
    
    597,945
    
    
    $
    41,855
    
    
    $
    (4,614
    )
    
    $
    37,142Cash distributions paid
    
    
    (12
    )
    
    
    
    
    
    
    (1,192
    )
    
    
    
    
    
    
    (1,204
    )Redemption of Limited
Partners Units
    
    
    
    
    
    
    (617
    )
    
    
    (55
    )
    
    
    
    
    
    
    (55
    )Net Income
    
    
    3
    
    
    
    
    
    
    
    291
    
    
    
    
    
    
    
    294
    
    
    $
    294Unrealized loss on hedging
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,963
    )
    
    
    (4,963
    )
    
    
    (4,963
    )Amortization of gain on
financial derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    (95
    )
    
    
    (95
    )Balance at March 31, 2008
    
    $
    (108
    )
    
    
    597,328
    
    
    $
    40,899
    
    
    $
    (9,672
    )
    
    $
    31,119
    
    
    $
    (4,764
    )
  5




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LEASE EQUITY APPRECIATION FUND II, L.P.
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 (in thousands)
 (unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    294
    
    
    $
    (791
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Gain on sale of equipment and lease dispositions, net
    
    
    (322
    )
    
    
    (57
    )Depreciation
    
    
    1,114
    
    
    
    1,223Provision for credit losses
    
    
    1,321
    
    
    
    1,115Amortization of deferred financing costs
    
    
    123
    
    
    
    24Amortization of gain on financial derivative
    
    
    (95
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    29
    
    
    
    101Other assets
    
    
    363
    
    
    
    377Accounts payable and accrued expenses
    
    
    223
    
    
    
    (28
    )Due to related parties, net
    
    
    1,684
    
    
    
    150Net cash provided by operating activities
    
    
    4,734
    
    
    
    2,114Cash flows from investing activities:Investment in direct financing leases and notes
    
    
    (27,302
    )
    
    
    (33,909
    )Proceeds from (investment in) equipment under operating leases, net
    
    
    675
    
    
    
    (1,285
    )Proceeds from direct financing leases, net of earned income
    
    
    31,901
    
    
    
    27,689Security deposits, net
    
    
    (182
    )
    
    
    702Net cash provided by (used in) investing activities
    
    
    5,092
    
    
    
    (6,803
    )Cash flows from financing activities:Borrowings of debt
    
    
    26,953
    
    
    
    31,736Repayment of debt
    
    
    (33,388
    )
    
    
    (29,455
    )Increase in restricted cash
    
    
    (1,817
    )
    
    
    (8,842
    )Increase in deferred financing costs
    
    
    (4
    )
    
    
    (42
    )Cash distributed to partners
    
    
    (1,204
    )
    
    
    (1,196
    )Redemption of limited partners units
    
    
    (55
    )
    
    
    Net cash used in financing activities
    
    
    (9,515
    )
    
    
    (7,799
    )Increase (decrease) in cash
    
    
    311
    
    
    
    (12,488
    )Cash, beginning of period
    
    
    259
    
    
    
    14,210Cash, end of period
    
    $
    570
    
    
    $
    1,722
  6




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LEASE EQUITY APPRECIATION FUND II, L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2008
 (unaudited)
 NOTE 1  ORGANIZATION AND NATURE OF BUSINESS
      NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Reclassifications
  7




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(unaudited)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Use of Estimates
      Concentration of Credit Risk
   Revenue Recognition
  8




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(unaudited)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Direct Financing Leases.
 Operating Leases.
 Notes Receivable.
  Income Taxes
  Supplemental Disclosure of Cash Flow Information
  9




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
MARCH 31, 2008
(unaudited)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Recently Issued Accounting Pronouncements
    Transfers of Financial Assets
  Fair Value of Financial Instruments
   10




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
MARCH 31, 2008
(unaudited)
 NOTE 3  RESTRICTED CASH
  NOTE 4  INVESTMENT IN LEASES AND NOTES
  March 31,
    
    
    December 31,2008
    
    
    2007Direct financing leases
    
    $
    260,831
    
    
    $
    268,983Notes receivable
    
    
    66,903
    
    
    
    64,599$
    327,734
    
    
    $
    333,582Allowance for credit losses
    
    
    (1,710
    )
    
    
    (1,960
    )$
    326,024
    
    
    $
    331,622
  March 31,
    
    
    December 31,2008
    
    
    2007Total future minimum lease payments
    
    $
    290,769
    
    
    $
    301,449Unearned rental income
    
    
    (32,677
    )
    
    
    (35,846
    )Residuals, net of unearned residual income
    
    
    2,739
    
    
    
    3,380$
    260,831
    
    
    $
    268,983
  Three Months EndedMarch 31,2008
    
    
    2007Allowance for credit losses, beginning of period
    
    $
    1,960
    
    
    $
    1,121Provision for credit losses
    
    
    1,321
    
    
    
    1,115Net write offs
    
    
    (1,571
    )
    
    
    (818
    )Allowance for credit losses, end of period
    
    $
    1,710
    
    
    $
    1,418
 11




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
MARCH 31, 2008
(unaudited)
 NOTE 5  OTHER ASSETS
  NOTE 6  DEBT
  March 31, 2008
    
    
    December 31, 2007In September 2007, the
Fund closed a $276.8
million term
securitization (Series
2007-1 Notes). In
connection with the Series
2007-1 transaction, four
tranches of notes were
issued to investors in the
form of $84 million Class
A-1 notes, $77 million
Class A-2 notes, $101.3
million Class A-3 notes
and $14.5 million Class B
notes. Interest rates and
maturities on the four
tranches are
as follows: Class
A-1 5.38%, maturing
in September 2008 has been
fully repaid in March
2008; Class A-2 one month
LIBOR plus 0.12%, maturing
in January 2010; Class A-3
one month LIBOR plus
0.20%, maturing in July
2010 and Class B 6.65%,
maturing in July 2010. To
mitigate fluctuations in
interest rates on Class
A-2 and Class A-3 notes
the Fund has entered into
interest rate swap
agreements. The interest
rate swap agreements
terminate at various dates
ranging from January 2010
to July 2012 (See Note 7).
As of March 31, 2008, the
interest rate swap
agreements fix the
interest rate on Class A-2
and Class A-3 notes at
5.40% on a weighted
average basis
    
    $
    189,181
    
    
    $
    214,653WestLB AG, New York Branch
revolving line of credit,
with an aggregate
borrowing limit of $150
million collateralized by
specific leases and notes
receivables and related
equipment, with a 1%
credit reserve of the
outstanding line of
credit. Interest on this
facility is calculated at
LIBOR plus .95% per annum.
To mitigate fluctuations
in interest rates the Fund
has entered into interest
rate swap agreements. The
interest rate swap
agreements terminate on
various dates ranging from
December 2010 to March
2014. As of March 31,
2008, the interest rate
swap agreements fix the
interest rate on the
outstanding balance at
5.93% on a weighted
average basis. Interest
and principal are due
monthly. The line of
credit is renewable for a
one year period in 2008.
    
    
    128,554
    
    
    
    109,517Total outstanding debt
    
    $
    317,735
    
    
    $
    324,170
 12




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
MARCH 31, 2008
(unaudited)
 NOTE 6  DEBT  (Continued)
    2009
    
    $
    110,3342010
    
    
    88,3342011
    
    
    61,3682012
    
    
    35,6332013
    
    
    15,489Thereafter
    
    
    6,577$
    317,735
 NOTE 7  DERIVATIVE INSTRUMENTS
      13




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
MARCH 31, 2008
(unaudited)
 NOTE 8  TRANSACTIONS WITH AFFILIATES
       Three Months EndedMarch 31,2008
    
    2007Acquisition fees
    
    $
    507
    
    
    $
    554Asset management fees
    
    $
    984
    
    
    $
    942Reimbursed administrative expenses
    
    $
    443
    
    
    $
    402
  14




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LEASE EQUITY APPRECIATION FUND II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
MARCH 31, 2008
(unaudited)
 NOTE 9  ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH DISTRIBUTIONS
   NOTE 10  COMPREHENSIVE LOSS
  NOTE 11  NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
  NOTE 12  FIRST QUARTER ADJUSTMENT
  15




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (unaudited)
 When used in this Form 10-Q , the words believes anticipates, expects and similar
expressions are intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties more particularly described in Item 1A, under the caption Risks
Inherent in Our Business, in our annual report on Form 10-K for 2007. These risks and
uncertainties could cause actual results to differ materially. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. We
undertake no obligation to publicly release the results of any revisions to forward-looking
statements which we may make to reflect events or circumstances after the date of this Form 10-Q or
to reflect the occurrence of unanticipated events.
 OVERVIEW
    
    
    500 or fewer employees;
    
    $1.0 billion or less in total assets; or
    
    $100.0 million or less in total annual sales.
      16




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Our Lease Portfolio
  Direct Financing Leases and Notes
 March 31, 2008
    
    
    December 31, 2007Net
    
    
    
    
    
    
    NetType of Equipment
    
    Investment
    
    
    Percentage
    
    
    Investment
    
    
    PercentageIndustrial Equipment
    
    $
    92,416
    
    
    
    28.2
    %
    
    $
    96,100
    
    
    
    28.8
    %Medical Equipment
    
    
    65,949
    
    
    
    20.1
    
    
    
    69,545
    
    
    
    20.8Computers
    
    
    48,260
    
    
    
    14.7
    
    
    
    53,590
    
    
    
    16.1Office Equipment
    
    
    23,518
    
    
    
    7.2
    
    
    
    20,097
    
    
    
    6.0Restaurant Equipment
    
    
    19,087
    
    
    
    5.8
    
    
    
    19,553
    
    
    
    5.9Garment Care
    
    
    15,290
    
    
    
    4.7
    
    
    
    16,837
    
    
    
    5.0Communications
    
    
    14,954
    
    
    
    4.6
    
    
    
    15,788
    
    
    
    4.7Software
    
    
    12,305
    
    
    
    3.8
    
    
    
    13,992
    
    
    
    4.2Agriculture Equipment
    
    
    9,732
    
    
    
    2.9
    
    
    
    
    
    
    
    Other
    
    
    26,223
    
    
    
    8.0
    
    
    
    28,080
    
    
    
    8.5$
    327,734
    
    
    
    100.0
    %
    
    $
    333,582
    
    
    
    100.0
    %
 Operating Leases
 March 31, 2008
    
    
    December 31, 2007Net
    
    
    
    
    
    
    NetType of Equipment
    
    Investment
    
    
    Percentage
    
    
    Investment
    
    
    PercentageIndustrial Equipment
    
    $
    2,679
    
    
    
    27.0
    %
    
    $
    3,476
    
    
    
    29.7
    %Communications
    
    
    2,210
    
    
    
    22.3
    
    
    
    2,378
    
    
    
    20.3Computers
    
    
    2,059
    
    
    
    20.9
    
    
    
    2,514
    
    
    
    21.5Office Equipment
    
    
    1,775
    
    
    
    17.9
    
    
    
    2,030
    
    
    
    17.4Building systems
    
    
    380
    
    
    
    3.8
    
    
    
    419
    
    
    
    3.6Agriculture Equipment
    
    
    345
    
    
    
    3.5
    
    
    
    360
    
    
    
    3.1Medical Equipment
    
    
    220
    
    
    
    2.2
    
    
    
    262
    
    
    
    2.2Restaurant Equipment
    
    
    186
    
    
    
    1.9
    
    
    
    197
    
    
    
    1.7Garment Care
    
    
    36
    
    
    
    0.4
    
    
    
    43
    
    
    
    0.4Software
    
    
    14
    
    
    
    0.1
    
    
    
    14
    
    
    
    0.1$
    9,904
    
    
    
    100.0
    %
    
    $
    11,693
    
    
    
    100.0
    %
 17




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Direct Financing Leases and Notes
 March 31, 2008
    
    
    December 31, 2007Net
    
    
    
    
    
    
    NetType of Business
    
    Investment
    
    
    Percentage
    
    
    Investment
    
    
    PercentageServices
    
    $
    149,336
    
    
    
    45.6
    %
    
    $
    153,981
    
    
    
    46.1
    %Retail Trade
    
    
    39,673
    
    
    
    12.1
    
    
    
    38,120
    
    
    
    11.4Manufacturing
    
    
    36,009
    
    
    
    11.0
    
    
    
    36,334
    
    
    
    10.9Agriculture/Forestry/Fishing
    
    
    26,400
    
    
    
    8.1
    
    
    
    27,260
    
    
    
    8.2Transportation/Communication/Energy
    
    
    20,449
    
    
    
    6.2
    
    
    
    20,820
    
    
    
    6.2Construction
    
    
    18,884
    
    
    
    5.8
    
    
    
    19,219
    
    
    
    5.8Wholesale Trade
    
    
    14,834
    
    
    
    4.5
    
    
    
    15,240
    
    
    
    4.6Finance/Insurance/Real Estate
    
    
    10,330
    
    
    
    3.1
    
    
    
    9,981
    
    
    
    3.0Public Administration
    
    
    1,151
    
    
    
    0.3
    
    
    
    949
    
    
    
    0.3Other
    
    
    10,668
    
    
    
    3.3
    
    
    
    11,678
    
    
    
    3.5$
    327,734
    
    
    
    100.0
    %
    
    $
    333,582
    
    
    
    100.0
    %
 Operating Leases
 March 31, 2008
    
    
    December 31, 2007Net
    
    
    
    
    
    
    NetType of Business
    
    Investment
    
    
    Percentage
    
    
    Investment
    
    
    PercentageServices
    
    $
    3,983
    
    
    
    40.2
    %
    
    $
    4,558
    
    
    
    39.0
    %Construction
    
    
    2,953
    
    
    
    29.8
    
    
    
    3,692
    
    
    
    31.6Manufacturing
    
    
    1,092
    
    
    
    11.0
    
    
    
    1,303
    
    
    
    11.1Finance/Insurance/Real Estate
    
    
    553
    
    
    
    5.6
    
    
    
    622
    
    
    
    5.3Wholesale Trade
    
    
    370
    
    
    
    3.7
    
    
    
    424
    
    
    
    3.6Retail Trade
    
    
    297
    
    
    
    3.0
    
    
    
    333
    
    
    
    2.9Agriculture/Forestry/Fishing
    
    
    240
    
    
    
    2.4
    
    
    
    267
    
    
    
    2.3Transportation/Communication/Energy
    
    
    237
    
    
    
    2.4
    
    
    
    273
    
    
    
    2.3Public Administration
    
    
    145
    
    
    
    1.5
    
    
    
    183
    
    
    
    1.6Other
    
    
    34
    
    
    
    0.4
    
    
    
    38
    
    
    
    0.3$
    9,904
    
    
    
    100.0
    %
    
    $
    11,693
    
    
    
    100.0
    %
  18




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##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007
  
    
    Interest income on equipment financings increased to $7.3 million for the three
months ended March 31, 2008 as compared to $5.8 for the three months ended March 31,
2008, an increase of $1.5 million (26%). Our average net investment in financing
assets increased to $328.9 million for the three months ended March 31, 2008 as
compared to $309.0 million for the three months ended March 31, 2007, an increase of
$19.9 million (6%). This growth was driven by our General Partners increased sales to
us, increasing the amount of our WestLB debt facility from $75.0 million to $150.0
million in June 2006 and marketing efforts supported by lines of financing.
    
    Gain on sale of equipment increased to $322,000 for the three months ended March 31,
2008 as compared to a gain of $57,000 for the three months ended March 31, 2007, an
increase of $265,000 (465%). Gains and losses on sales of equipment may vary
significantly from period to period.
    
    Other income increased to $643,000 for the three months ended March 31, 2008 as
compared to $505,000 for the three months ended March 31, 2007, an increase of $138,000
(27%). Other income consists primarily of late fee income. Late fee income has
increased due to the increase of the equipment financing portfolio coupled with an
increase in payment collection efforts.
  
    
    Rental income decreased to $1.3 million for the three months ended March 31, 2008 as
compared to $1.5 million for the three months ended March 31, 2007, a decrease of
$135,000 (9%). This decrease is directly related to our decrease in operating leases.
  
    
    Interest expense increased to $4.8 million for the three months ended March 31, 2008
as compared to $4.2 million for the three months ended March 31, 2007, an increase of
$565,000 (13%) due to our increase in average debt outstanding. Our average debt
increased to $321.0 million for the three months ended March 31, 2008 as compared to
$292.2 million for the three months ended March 31, 2007, an increase of $28.8 million
(10%).
    
    Our provision for credit losses increased to $1.3 million for the three months ended
March 31, 2008 as compared to $1.1 million for the three months ended March 31, 2007,
an increase of $206,000 (18%). As our portfolio increases and ages, we expect that our
provision for credit losses will increase. This increase was within our expectation.
We provide for bad debts when losses are likely to occur based on a migration analysis
of past due payments and economic conditions.
    
    Management fees increased to $1.0 million for the three months ended March 31, 2008
as compared to $942,000 for the three months ended March 31, 2007, an increase of
$42,000 (4%). This increase is directly attributable to the increase in our portfolio
of equipment financing assets, since management fees are paid based on lease payments
received.
    
    Administrative expenses reimbursed to related party increased to $443,000 for the
three months ended March 31, 2008 as compared to $402,000 for the three months ended
March 31, 2007, an increase of $41,000 (10%). This increase is
due to the hiring of additional collection personnel to minimize any
impact on delinquencies resulting from a weakened US
economy.
  
    
    Depreciation on operating leases decreased to $1.1 million for the three months
ended March 31, 2008 as compared to $1.2 million for the three months ended March 31,
2007, a decrease of $109,000 (9%). This decrease is directly related to our decrease
in operating leases.
    
    General and administrative expenses decreased to $605,000 for the three months ended
March 31, 2008 as compared to $677,000 for the three months ended March 31, 2007, a
decrease of $72,000 (11%). This decrease is principally related to a decrease in
property taxes.
  19




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##### Table of Contents



Liquidity and Capital Resources
    Three Months Ended March 31,2008
    
    
    2007Net cash provided by operating activities
    
    $
    4,734
    
    
    $
    2,114Net cash provided by (used in) investing activities
    
    
    5,092
    
    
    
    (6,803
    )Net cash used in financing activities
    
    
    (9,515
    )
    
    
    (7,799
    )Increase (decrease) in cash
    
    $
    311
    
    
    $
    (12,488
    )
        20




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
    21




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description3.1
    
    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)31.1
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.32.1
    
    Certification of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code.32.2
    
    Certification of Chief Financial Officer pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code.
 
 (1)
    
    Filed previously as Appendix A to our Post-Effective Amendment
No. 3 to our Registration Statement on Form S-1, filed on January 24, 2004.(2)
    
    Filed previously as an Exhibit to Amendment No. 1 to our
Registration Statement on Form S-1 filed on June 7, 2002. 22




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##### Table of Contents



SIGNATURES
  LEASE EQUITY APPRECIATION FUND II, L.P.
A Delaware Limited PartnershipBy:
    LEAF Financial Corporation, its General PartnerMay 20, 2008
    /s/ Crit DeMentCRIT DEMENTChairman and Chief Executive OfficerMay 20, 2008
    /s/ Robert K. MoskovitzROBERT K. MOSKOVITZChief Financial Officer 23