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 September 30, 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 333-84730
 LEASE EQUITY APPRECIATION FUND I, L.P.
  Delaware
    
    68-0492247(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 þ o
  Large accelerated filer
o

    

  Accelerated filer
o

    

    Non-accelerated filer o
(Do not check if a smaller reporting company)

  

    Smaller reporting company
þ
 o þ




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##### 



LEASE EQUITY APPRECIATION FUND I, L.P.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
 PAGEPART I FINANCIAL INFORMATIONITEM 1. Financial StatementsConsolidated Balance Sheets  September 30, 2008 (unaudited) and December
31, 2007
    
    
    3Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)
    
    
    4Consolidated Statement of Partners Capital and Comprehensive Loss
Nine Months Ended September 30, 2008 (unaudited)
    
    
    5Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2008 and 2007 (unaudited)
    
    
    6Notes to Consolidated Financial Statements  September 30, 2008 (unaudited)
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    19ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28ITEM 4. Controls and Procedures
    
    
    28PART II OTHER INFORMATIONITEM 6. Exhibits
    
    
    29SIGNATURES
    
    
    30
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LEASE EQUITY APPRECIATION FUND I, L.P.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (audited)ASSETSCash
    
    $
    212
    
    
    $
    573Restricted cash
    
    
    7,268
    
    
    
    8,008Accounts receivable
    
    
    35
    
    
    
    18Investment in direct financing leases and notes, net
    
    
    106,087
    
    
    
    100,954Investment in operating leases, net of accumulated depreciation of
$789 and $702, respectively
    
    
    1,308
    
    
    
    720Deferred financing costs, net
    
    
    750
    
    
    
    902Other assets
    
    
    283
    
    
    
    441$
    115,943
    
    
    $
    111,616LIABILITIES AND PARTNERS CAPITALLiabilities:Debt
    
    $
    98,930
    
    
    $
    97,302Accrued repurchase liability
    
    
    28
    
    
    
    Accounts payable and accrued expenses
    
    
    354
    
    
    
    774Security deposits
    
    
    3,157
    
    
    
    2,086Fair value of interest rate swaps
    
    
    1,261
    
    
    
    1,162Due to related parties
    
    
    7,096
    
    
    
    3,670Total liabilities
    
    
    110,826
    
    
    
    104,994Partners Capital:General partner
    
    
    (85
    )
    
    
    (71
    )Limited partners
    
    
    6,463
    
    
    
    7,855Accumulated other comprehensive loss
    
    
    (1,261
    )
    
    
    (1,162
    )Total partners capital
    
    
    5,117
    
    
    
    6,622$
    115,943
    
    
    $
    111,616
  3




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##### 



LEASE EQUITY APPRECIATION FUND I, L.P.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except for unit data)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Interest on equipment financings
    
    $
    2,297
    
    
    $
    1,755
    
    
    $
    7,207
    
    
    $
    5,339Rental income
    
    
    127
    
    
    
    94
    
    
    
    272
    
    
    
    367Gain on sales of equipment and lease dispositions, net
    
    
    437
    
    
    
    434
    
    
    
    1,198
    
    
    
    774Other
    
    
    231
    
    
    
    204
    
    
    
    621
    
    
    
    5133,092
    
    
    
    2,487
    
    
    
    9,298
    
    
    
    6,993Expenses:Interest expense
    
    
    1,413
    
    
    
    1,258
    
    
    
    4,290
    
    
    
    3,724Depreciation on operating leases
    
    
    155
    
    
    
    64
    
    
    
    251
    
    
    
    270Provision for credit losses
    
    
    963
    
    
    
    244
    
    
    
    2,076
    
    
    
    615Management fees to related party
    
    
    315
    
    
    
    305
    
    
    
    950
    
    
    
    870Administrative expenses reimbursed to related party
    
    
    333
    
    
    
    98
    
    
    
    790
    
    
    
    408General and administrative expenses
    
    
    391
    
    
    
    484
    
    
    
    1,041
    
    
    
    1,0733,570
    
    
    
    2,453
    
    
    
    9,398
    
    
    
    6,960Net (loss) income
    
    $
    (478
    )
    
    $
    34
    
    
    $
    (100
    )
    
    $
    33Weighted average number of limited partner units
outstanding during the period
    
    
    171,696
    
    
    
    171,746
    
    
    
    171,718
    
    
    
    171,746Net (loss)
income per weighted average limited partner unit
    
    $
    (2.76
    )
    
    $
    0.20
    
    
    $
    (0.58
    )
    
    $
    0.19
  4




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##### 



LEASE EQUITY APPRECIATION FUND I, L.P.
 
 CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
 AND COMPREHENSIVE LOSS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 (in thousands, except unit data)
 (unaudited)
 AccumulatedOther
    
    
    Partners
    
    
    ComprehensiveGeneral
    
    
    Limited Partners
    
    
    Comprehensive
    
    
    Capital
    
    
    LossPartner
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    Total
    
    
    TotalBalance at January 1, 2008
    
    $
    (71
    )
    
    
    171,746
    
    
    $
    7,855
    
    
    $
    (1,162
    )
    
    $
    6,622Cash distributions paid
    
    
    (13
    )
    
    
    
    
    
    
    (1,290
    )
    
    
    
    
    
    
    (1,303
    )Redemption of limited
partner
units
    
    
    
    
    
    
    (50
    )
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Net loss
    
    
    (1
    )
    
    
    
    
    
    
    (99
    )
    
    
    
    
    
    
    (100
    )
    
    $
    (100
    )Unrealized loss on hedging
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    (99
    )
    
    
    (99
    )Balance at September 30, 2008
    
    $
    (85
    )
    
    
    171,696
    
    
    $
    6,463
    
    
    $
    (1,261
    )
    
    $
    5,117
    
    
    $
    (199
    )
  5




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##### 



LEASE EQUITY APPRECIATION FUND I, L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net
(loss) income
    
    $
    (100
    )
    
    $
    33Adjustments
to reconcile net (loss) income to net cash provided by
operating activities:Gain on sale of equipment and lease dispositions, net
    
    
    (1,198
    )
    
    
    (774
    )Depreciation
    
    
    251
    
    
    
    270Amortization of deferred financing costs
    
    
    159
    
    
    
    95Provision for credit losses
    
    
    2,076
    
    
    
    615Changes in operating assets and liabilities:Accounts receivable
    
    
    (17
    )
    
    
    26Other assets
    
    
    151
    
    
    
    190Accounts payable and accrued expenses
    
    
    (420
    )
    
    
    (51
    )Due to related parties, net
    
    
    3,426
    
    
    
    1,227Net cash provided by operating activities
    
    
    4,328
    
    
    
    1,631Cash flows from investing activities:Investments in direct financing leases and notes
    
    
    (48,245
    )
    
    
    (34,933
    )Proceeds from direct financing leases and notes, net of earned income
    
    
    34,747
    
    
    
    34,379Investments in operating leases
    
    
    (1,010
    )
    
    
    Proceeds from equipment under operating lease, net
    
    
    171
    
    
    
    Proceeds from sale of leases to third parties
    
    
    7,515
    
    
    
    Increase in security deposits, net
    
    
    1,071
    
    
    
    237Net cash used in investing activities
    
    
    (5,751
    )
    
    
    (317
    )Cash flows from financing activities:Borrowings of debt
    
    
    43,887
    
    
    
    31,880Repayment of debt
    
    
    (42,259
    )
    
    
    (31,842
    )Decrease (increase) in restricted cash
    
    
    740
    
    
    
    (3,725
    )Increase in deferred financing costs
    
    
    
    
    
    
    (193
    )Cash distributed to partners
    
    
    (1,303
    )
    
    
    (1,101
    )Redemption of limited partner units
    
    
    (3
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    1,062
    
    
    
    (4,981
    )Decrease in cash
    
    
    (361
    )
    
    
    (3,667
    )Cash, beginning of period
    
    
    573
    
    
    $
    4,298Cash, end of period
    
    $
    212
    
    
    $
    631
  6




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##### 



LEASE EQUITY APPRECIATION FUND I, L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2008
 (unaudited)
 NOTE 1- ORGANIZATION AND NATURE OF BUSINESS
     NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Reclassifications
  Use of Estimates
  7




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
 Use of Estimates (continued)
     Concentration of Credit Risk
   8




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
 Revenue Recognition
  Direct Financing Leases.
 Operating Leases.
 Notes Receivable.
  Income Taxes
  Supplemental Disclosure of Cash Flow Information
  9




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
 Recently Issued Accounting Pronouncements
    Transfers of Financial Assets
 
 10




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
 Fair Value of Financial Instruments
   NOTE 3  RESTRICTED CASH
  NOTE 4 -INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
  September 30 ,
    
    
    December 31,2008
    
    
    2007Direct financing leases
    
    $
    86,153
    
    
    $
    80,509Notes receivable
    
    
    21,234
    
    
    
    21,045107,387
    
    
    
    101,554Allowance for credit losses
    
    
    (1,300
    )
    
    
    (600
    )$
    106,087
    
    
    $
    100,954
 11




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 4 -INVESTMENT IN DIRECT FINANCING LEASES AND NOTES  (Continued)
  September 30,
    
    
    December 31,2007
    
    
    2007Total future minimum lease payments
    
    $
    97,029
    
    
    $
    92,388Unearned rental income
    
    
    (12,172
    )
    
    
    (12,752
    )Residuals, net of unearned residual income
    
    
    1,296
    
    
    
    873$
    86,153
    
    
    $
    80,509
  Nine Months EndedSeptember 30,2008
    
    
    2007Allowance for credit losses, beginning of the period
    
    $
    600
    
    
    $
    431Provision for credit losses
    
    
    2,076
    
    
    
    615Net write-offs
    
    
    (1,376
    )
    
    
    (576
    )Allowance for credit losses, end of the period
    
    $
    1,300
    
    
    $
    470
  Direct FinancingPeriods Ending September 30,
    
    Leases
    
    
    Notes
    
    
    Operating Leases
    
    
    Total2009
    
    $
    40,061
    
    
    $
    8,452
    
    
    $
    469
    
    
    $
    48,9822010
    
    
    25,838
    
    
    
    5,333
    
    
    
    372
    
    
    
    31,5432011
    
    
    16,134
    
    
    
    3,600
    
    
    
    226
    
    
    
    19,9602012
    
    
    9,805
    
    
    
    2,426
    
    
    
    59
    
    
    
    12,2902013
    
    
    2,105
    
    
    
    682
    
    
    
    10
    
    
    
    2,797Thereafter
    
    
    3,086
    
    
    
    741
    
    
    
    
    
    
    
    3,827$
    97,029
    
    
    $
    21,234
    
    
    $
    1,136
    
    
    $
    119,399
 12




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 5 -SALES OF LEASES AND NOTES
    NOTE 6  DEFERRED FINANCING COSTS, NET
  2009
    
    $
    1802010
    
    
    1772011
    
    
    1772012
    
    
    882013
    
    
    59Thereafter
    
    
    69$
    750
 13




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 7 - DEBT
  September 30, 2008
    
    
    December 31, 2007WestLB AG, New York
Branch revolving line
of credit, with an
aggregate borrowing
limit of $110 million
collateralized by
specific lease
receivables and related
equipment, with a 1%
credit reserve of the
outstanding line of
credit. Interest on
this facility is
calculated at LIBOR
plus 0.95% per annum.
To mitigate
fluctuations in
interest rates, the
Fund has entered into
interest rate swap
agreements, terminating
at various dates
ranging from February
2010 to June 2015. The
interest rate swap
agreements fix the
interest rate on this
facility at 5.4% on a
weighted average basis.
Interest and principal
are due as payments are
received under the
leases and loans. The
line expires January
31, 2011. At
expiration, the Fund
would not be required
to make full repayment.
Rather, the Fund would
continue to repay the
outstanding debt under
the original terms
    
    $
    98,649
    
    
    $
    95,571OFC Capital, a division
of ALFA Financial
Corporation,
collateralized by
specific lease
receivables equal to
93% of the aggregate
payments due under the
related equipment lease
or equipment finance
transaction, discounted
at an interest rate of
6.9%, funded subject to
a credit reserve of 3%
of the loan amount.
The loan is repayable
as payments are made
under the leases or
equipment financing
transactions
collateralizing the
loan, with a final
maturity date of
February 15,
2009
    
    
    281
    
    
    
    1,731Total outstanding debt
    
    $
    98,930
    
    
    $
    97,302
   2009
    
    $
    38,0082010
    
    
    27,3702011
    
    
    17,4452012
    
    
    10,6772013
    
    
    3,776Thereafter
    
    
    1,654$
    98,930
 14




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 8 - DERIVATIVE INSTRUMENTS
      NOTE 9 - FAIR VALUE MEASUREMENT
 , ,
  15




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 9 - FAIR VALUE MEASUREMENT (Continued)
   Fair Value measurements Using
    
    LiabilitiesLevel 1
    
    Level 2
    
    Level 3
    
    At Fair ValueLiabilitiesInterest Rate Swaps
    
    $
    
    
    
    $
    1,261
    
    
    $
    
    
    
    $
    1,261
 NOTE 10 - TRANSACTIONS WITH AFFILIATES
      16




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 10 - TRANSACTIONS WITH AFFILIATES (Continued)
  Three Months Ended
    
    Nine Months EndedSeptember 30 ,
    
    September 30 ,2008
    
    2007
    
    2008
    
    2007Acquisition fees
    
    $
    225
    
    
    $
    210
    
    
    $
    946
    
    
    $
    600Asset management fees
    
    
    315
    
    
    
    305
    
    
    
    950
    
    
    
    870Reimbursed
administrative
expenses
    
    
    333
    
    
    
    98
    
    
    
    790
    
    
    
    408
  NOTE 11 - ALLOCATION OF PARTNERSHIP INCOME (LOSS) AND CASH DISTRIBUTIONS
   NOTE 12 - COMPREHENSIVE LOSS
  NOTE 13 - NET (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT
  17




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LEASE EQUITY APPRECIATION FUND I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
September 30, 2008
(unaudited)
 NOTE 14  FIRST QUARTER ADJUSTMENT
  18




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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 billion or less in total assets; or
    
    $100 million or less in total annual sales.
   19




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##### 



Our Lease Portfolio
  Direct Financing Leases and Notes
 September 30, 2008
    
    
    December 31, 2007Type of Equipment
    
    Net Investment
    
    
    Percentage
    
    
    Net Investment
    
    
    PercentageIndustrial Equipment
    
    $
    26,016
    
    
    
    24.2
    %
    
    $
    28,956
    
    
    
    28.5
    %Medical Equipment
    
    
    22,244
    
    
    
    20.7
    
    
    
    26,001
    
    
    
    25.6Office Equipment
    
    
    12,182
    
    
    
    11.3
    
    
    
    6,248
    
    
    
    6.2Computers
    
    
    10,405
    
    
    
    9.7
    
    
    
    12,501
    
    
    
    12.3Water Purification
    
    
    9,691
    
    
    
    9.0
    
    
    
    
    
    
    
    Computer Software
    
    
    5,247
    
    
    
    4.9
    
    
    
    4,876
    
    
    
    4.8Communications
    
    
    4,819
    
    
    
    4.5
    
    
    
    4,338
    
    
    
    4.3Restaurant Equipment
    
    
    4,220
    
    
    
    3.9
    
    
    
    5,160
    
    
    
    5.1Agriculture Equipment
    
    
    3,200
    
    
    
    3.0
    
    
    
    4,375
    
    
    
    4.3Other
    
    
    9,363
    
    
    
    8.8
    
    
    
    9,099
    
    
    
    8.9$
    107,387
    
    
    
    100.0
    %
    
    $
    101,554
    
    
    
    100.0
    %Operating LeasesSeptember 30, 2008
    
    
    December 31, 2007Type of Equipment
    
    Net Investment
    
    
    Percentage
    
    
    Net Investment
    
    
    PercentageOffice Equipment
    
    $
    942
    
    
    
    72.0
    %
    
    $
    141
    
    
    
    19.7
    %Industrial Equipment
    
    
    170
    
    
    
    13.0
    
    
    
    344
    
    
    
    47.7Communications
    
    
    86
    
    
    
    6.6
    
    
    
    153
    
    
    
    21.3Computers
    
    
    86
    
    
    
    6.6
    
    
    
    67
    
    
    
    9.3Agriculture Equipment
    
    
    13
    
    
    
    1.0
    
    
    
    15
    
    
    
    2.0Water Purification
    
    
    11
    
    
    
    0.8
    
    
    
    
    
    
    
    $
    1,308
    
    
    
    100.0
    %
    
    $
    720
    
    
    
    100.0
    %
 20




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##### 



Direct Financing Leases and Notes
 September 30, 2008
    
    
    December 31, 2007Type of Business
    
    Net Investment
    
    
    Percentage
    
    
    Net Investment
    
    
    PercentageServices
    
    $
    50,895
    
    
    
    47.4
    %
    
    $
    49,004
    
    
    
    48.3
    %Retail Trade
    
    
    13,530
    
    
    
    12.6
    
    
    
    11,491
    
    
    
    11.3Manufacturing
    
    
    10,446
    
    
    
    9.7
    
    
    
    10,242
    
    
    
    10.1Transportation/Communication/Energy
    
    
    7,037
    
    
    
    6.6
    
    
    
    6,515
    
    
    
    6.4Wholesale Trade
    
    
    6,668
    
    
    
    6.2
    
    
    
    6,311
    
    
    
    6.2Construction
    
    
    6,165
    
    
    
    5.7
    
    
    
    5,687
    
    
    
    5.6Agriculture/Forestry/Fishing
    
    
    5,159
    
    
    
    4.8
    
    
    
    6,703
    
    
    
    6.6Finance/Insurance/Real Estate
    
    
    4,041
    
    
    
    3.8
    
    
    
    2,729
    
    
    
    2.7Public Administration
    
    
    996
    
    
    
    0.9
    
    
    
    335
    
    
    
    0.3Other
    
    
    2,450
    
    
    
    2.3
    
    
    
    2,537
    
    
    
    2.5$
    107,387
    
    
    
    100.0
    %
    
    $
    101,554
    
    
    
    100.0
    %Operating LeasesSeptember 30, 2008
    
    
    December 31, 2007Type of Business
    
    Net Investment
    
    
    Percentage
    
    
    Net Investment
    
    
    PercentageServices
    
    $
    528
    
    
    
    40.4
    %
    
    $
    153
    
    
    
    21.3
    %Construction
    
    
    253
    
    
    
    19.3
    
    
    
    391
    
    
    
    54.2Finance/Insurance/Real Estate
    
    
    157
    
    
    
    12.0
    
    
    
    5
    
    
    
    0.7Wholesale Trade
    
    
    115
    
    
    
    8.8
    
    
    
    103
    
    
    
    14.3Manufacturing
    
    
    101
    
    
    
    7.7
    
    
    
    15
    
    
    
    2.0Retail Trade
    
    
    46
    
    
    
    3.6
    
    
    
    6
    
    
    
    0.9Public Administration
    
    
    33
    
    
    
    2.5
    
    
    
    
    
    
    
    Transportation/Communication/Energy
    
    
    29
    
    
    
    2.2
    
    
    
    15
    
    
    
    2.1Agriculture/Forestry/Fishing
    
    
    22
    
    
    
    1.7
    
    
    
    27
    
    
    
    3.8Other
    
    
    24
    
    
    
    1.8
    
    
    
    5
    
    
    
    0.7$
    1,308
    
    
    
    100.0
    %
    
    $
    720
    
    
    
    100.0
    %
 Critical Accounting Policies
   21




---



##### 



Results of Operations
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
  Increase (Decrease)2008
    
    
    2007
    
    
    $$
    
    
    %Revenues:Interest on equipment financings
    
    $
    2,297
    
    
    $
    1,755
    
    
    $
    542
    
    
    
    31
    %Rental income
    
    
    127
    
    
    
    94
    
    
    
    33
    
    
    
    35
    %Gains on sale of equipment and lease dispositions, net
    
    
    437
    
    
    
    434
    
    
    
    3
    
    
    
    1
    %Other
    
    
    231
    
    
    
    204
    
    
    
    27
    
    
    
    13
    %3,092
    
    
    
    2,487
    
    
    
    605
    
    
    
    24
    %Expenses:Interest expense
    
    
    1,413
    
    
    
    1,258
    
    
    
    155
    
    
    
    12
    %Depreciation on operating leases
    
    
    155
    
    
    
    64
    
    
    
    91
    
    
    
    142
    %Provision for credit losses
    
    
    963
    
    
    
    244
    
    
    
    719
    
    
    
    295
    %Management fees to related party
    
    
    315
    
    
    
    305
    
    
    
    10
    
    
    
    3
    %Administrative expenses reimbursed to related party
    
    
    333
    
    
    
    98
    
    
    
    235
    
    
    
    240
    %General and administrative expenses
    
    
    391
    
    
    
    484
    
    
    
    (93
    )
    
    
    (19
    %)3,570
    
    
    
    2,453
    
    
    
    1,117
    
    
    
    46
    %Net (loss) income
    
    $
    (478
    )
    
    $
    34
    
    
    $
    (512
    )
    
    
    (1,506
    %)
 22




---



##### 




    
    An increase in interest income on equipment financings due to an increase in our
weighted average net investment in financing assets to $107.9 million for the three
months ended September 30, 2008 as compared to $87.3 million for the three months ended
September 30, 2007, an increase of $20.6 million (24%).
    
    An increase in rental income which was principally the result of an increase in our
investment in operating leases in the 2008 period compared to the 2007 period.
  
    
    An increase in interest expense due to the increase of our debt incurred to acquire
equipment financing assets. Weighted average borrowings for the three months ended
September 30, 2008 and 2007 were $102.3 million and $81.5 million, respectively, at an
effective interest rate of 5.3% and 6.0%, respectively.
    
    An increase in depreciation on operating leases resulting from an increase in our
investment in operating leases.
    
    An increase in our provision for credit losses. We provide for credit losses when
losses are likely to occur based on a migration analysis of past due payments and
economic conditions. Our provision for credit losses has increased due to the growth
in size of the portfolio as well as the worsening of general economic conditions.
    
    An increase in administrative expenses reimbursed to related party, which was due to
the hiring of additional collection personnel by our General Partner to minimize any
impact on delinquencies resulting from a weakened US economy.
  
    
    A decrease in our general and administrative expenses, which was principally the
result of a reduction in professional fees.
  Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30 , 2007
  Increase (Decrease)2008
    
    
    2007
    
    
    $$
    
    
    %Revenues:Interest on equipment financings
    
    $
    7,207
    
    
    $
    5,339
    
    
    $
    1,868
    
    
    
    35
    %Rental income
    
    
    272
    
    
    
    367
    
    
    
    (95
    )
    
    
    (26
    %)Gain on sale of equipment and lease dispositions, net
    
    
    1,198
    
    
    
    774
    
    
    
    424
    
    
    
    55
    %Other
    
    
    621
    
    
    
    513
    
    
    
    108
    
    
    
    21
    %9,298
    
    
    
    6,993
    
    
    
    2,305
    
    
    
    33
    %Expenses:Interest expense
    
    
    4,290
    
    
    
    3,724
    
    
    
    566
    
    
    
    15
    %Depreciation on operating leases
    
    
    251
    
    
    
    270
    
    
    
    (19
    )
    
    
    (7
    %)Provision for credit losses
    
    
    2,076
    
    
    
    615
    
    
    
    1,461
    
    
    
    238
    %Management fees to related party
    
    
    950
    
    
    
    870
    
    
    
    80
    
    
    
    9
    %Administrative expenses reimbursed to related party
    
    
    790
    
    
    
    408
    
    
    
    382
    
    
    
    94
    %General and administrative expenses
    
    
    1,041
    
    
    
    1,073
    
    
    
    (32
    )
    
    
    (3
    %)9,398
    
    
    
    6,960
    
    
    
    2,438
    
    
    
    35
    %Net (loss) income
    
    $
    (100
    )
    
    $
    33
    
    
    $
    (133
    )
    
    
    (403
    %)
 23




---



##### 




    
    An increase in interest income on equipment financings due to an increase in our
weighted average net investment in financing assets to $106.9 million for the nine
months ended September 30, 2008 as compared to $87.4 million for the nine months ended
as of September 30, 2007, an increase of $19.5 million (22%). This growth was driven
by our General Partners increased sales to us and marketing efforts supported by lines
of financing.
    
    An increase in gain on sale of equipment. Gains on sale of equipment may vary
significantly from period to period due to the portfolio maturing. As the portfolio
ages, there will be increased activities from early lease terminations and end of lease
dispositions. Included in gains for the nine months ended September 30, 2008 is gains
of $389,000 related to the sales of pools of leases to unrelated third parties.
    
    An increase in other income, which consists primarily of late fee income and
handling fee income. Late fee income has increased due to the increase of the
financing portfolio and an increase in payment collection efforts.
  
    
    A decrease in our rental income which was due to operating leases reaching full
term.
  
    
    An increase in interest expense due to the increase of our debt incurred to acquire
equipment financing assets. Weighted average borrowings for the nine months ended
September 30, 2008 and 2007 were $101.1 million and $81.9 million, respectively, at an
effective interest rate of 5.5% and 5.9%, respectively.
    
    An increase in our provision for credit losses. We provide for credit losses when
losses are likely to occur based on a migration analysis of past due payments and
economic conditions. Our provision for credit losses has increased due to the growth
in size of the portfolio as well as the worsening of general economic conditions.
    
    An increase in administrative expenses reimbursed to related party due to the hiring
of additional collection personnel by our General Partner to minimize any impact on
delinquencies resulting from a weakened US economy.
  
    
    A decrease in depreciation on operating leases due to operating leases reaching full
term.
    
    A decrease in general and administrative which was principally the result of a
reduction in professional fees.
  24




---



##### 



Finance Receivables and Asset Quality
  As of and ForTheAs of and For The
    
    
    
    
    
    
    
    
    
    Year EndedNine Months Ended September 30,
    
    Change
    
    December 31,2008
    
    2007
    
    $
    
    %
    
    2007Investment in direct financing leases
and notes before allowance for credit
losses
    
    $
    107,387
    
    
    $
    89,025
    
    
    $
    18,362
    
    
    
    21
    %
    
    $
    101,554Weighted average investment in direct
financing leases and notes before
allowance for credit losses
    
    
    106,920
    
    
    
    87,347
    
    
    
    19,573
    
    
    
    22
    %
    
    
    87,561Allowance for credit losses
    
    
    1,300
    
    
    
    470
    
    
    
    830
    
    
    
    177
    %
    
    
    600Non-performing assets
    
    
    3,052
    
    
    
    2,699
    
    
    
    353
    
    
    
    13
    %
    
    
    1,369Net write-offs
    
    $
    1,376
    
    
    $
    576
    
    
    $
    800
    
    
    
    139
    %
    
    $
    1,113As a percentage of finance receivables:Allowance for credit losses
    
    
    1.21
    %
    
    
    0.53
    %
    
    
    
    
    
    
    
    
    
    
    0.59
    %Non-performing assets
    
    
    2.84
    %
    
    
    3.03
    %
    
    
    
    
    
    
    
    
    
    
    1.35
    %As a percentage of weighted average
finance receivables:Net write-offs
    
    
    1.29
    %
    
    
    0.66
    %
    
    
    
    
    
    
    
    
    
    
    1.27
    %
    25




---



##### 



Liquidity and Capital Resources
    Nine Months EndedSeptember 30,2008
    
    
    2007Net cash provided by operating activities
    
    $
    4,328
    
    
    $
    1,631Net cash used in investing activities
    
    
    (5,751
    )
    
    
    (317
    )Net cash provided by (used in) financing activities
    
    
    1,062
    
    
    
    (4,981
    )Decrease in cash
    
    $
    (361
    )
    
    $
    (3,667
    )
   Borrowings
  MaximumFacility
    
    
    Amount
    
    
    AmountAmount
    
    
    Outstanding
    
    
    AvailableWestLB AG (1)
    
    $
    110,000
    
    
    $
    98,649
    
    
    $
    11,351OFC Capital (2)
    
    
    281
    
    
    
    281
    
    
    
    $
    110,281
    
    
    $
    98,930
    
    
    $
    11,351
 
 (1)
    
    Availability subject to lease or loan eligibility and borrowing base formula.(2)
    
    This term note was a one-time funding that pays down over time without any ability for
us to draw down additional amounts. The original Amount of Borrowing from December, 2003 was $13.1 million.   26




---



##### 



Contractual Obligations
  Payments Due By PeriodLess than
    
    1  3
    
    4  5
    
    After 5Total
    
    1 Year
    
    Years
    
    Years
    
    YearsContractual obligations:Debt
    
    $
    98,930
    
    
    $
    38,008
    
    
    $
    44,815
    
    
    $
    14,453
    
    
    $
    1,654
  27




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
    28




---



##### 



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 and
by this reference incorporated herein.(2)
    
    Filed previously as an Exhibit to Amendment No. 1 to our
Registration Statement on Form S-1 filed on September 7, 2002 and by this
reference incorporated herein. 29




---



##### 



SIGNATURES
  LEASE EQUITY APPRECIATION FUND I, L.P.A Delaware Limited PartnershipBy: LEAF Financial Corporation, its General PartnerNovember 14, 2008
    
    /s/ Crit DeMentCRIT DEMENTChairman and Chief Executive OfficerNovember 14, 2008
    
    /s/ Robert K. MoskovitzROBERT K. MOSKOVITZChief Financial OfficerNovember 14, 2008
    
    /s/ Tonya L. ZweierTONYA L. ZWEIERChief Accounting Officer
 30