10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

OR

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 000-53174

LEAF EQUIPMENT LEASING INCOME FUND III, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-5455968
(State or other jurisdiction ofincorporation or organization)	(I.R.S. EmployerIdentification No.)

110 South Poplar Street, Suite 101, Wilmington Delaware 19801

(Address of principal executive offices) (Zip Code)

(800) 819-5556

(Registrant’s telephone number, including area code)

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.    x  Yes     ¨  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).    x Yes   ¨ 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  o		Accelerated filer   o
Non-accelerated filer    o	(Do not check if a smaller reporting company)	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     x No

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

LEAF EQUIPMENT LEASING INCOME FUND III, L.P.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

PART I	FINANCIAL INFORMATION	PAGE
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets – June 30, 2012 (Unaudited) and December 31, 2011	3
	Consolidated Statements of Operations – Three  and Six Months Ended June 30, 2012 and 2011 (Unaudited)	4
	Consolidated Statement of Changes in Partners’ Deficit – Six Months Ended June 30, 2012 (Unaudited)	5
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011 (Unaudited)	6
	Notes to Consolidated Financial Statements – June 30, 2012 (Unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	21
ITEM 4.	Controls and Procedures	21
PART II	OTHER INFORMATION	22
ITEM 6.	Exhibits	22
SIGNATURES		23

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

	June 30, 2012
	(Unaudited)			December 31, 2011
ASSETS
Cash	$	234		$	154
Restricted cash		7,245			11,250
Accounts receivable		49			60
Investment in leases and loans, net		53,930			84,367
Deferred financing costs, net		489			1,584
Investment in affiliated leasing partnerships		343			786
Other assets		107			158
Total assets	$	62,397		$	98,359
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities:
Debt	$	55,050		$	88,235
Accounts payable and accrued expenses		994			733
Other liabilities		459			511
Due to affiliates		16,102			15,645
Total liabilities		72,605			105,124
Commitments and contingencies (Note 10)
Partners’ (Deficit) Capital:
General partner		(1,140	)		(1,107	)
Limited partners		(9,068	)		(5,658	)
Total partners’ (deficit) capital		(10,208	)		(6,765	)
Total liabilities and partners' (deficit) capital	$	62,397		$	98,359

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

3

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended  June 30,
	2012			2011			2012			2011
Revenues:
Interest on equipment financings	$	1,459		$	3,122		$	3,251		$	7,101
Rental income		363			1,010			842			1,931
Gain/loss on sale of equipment and lease dispositions, net		69			177			(253	)		134
Other income		295			428			610			896
		2,186			4,737			4,450			10,062
Expenses:
Interest expense		1,910			2,420			3,473			5,318
Depreciation on operating leases		253			690			626			1,473
Provision for credit losses		567			3,454			1,108			6,434
General and administrative expenses		379			532			670			911
Administrative expenses reimbursed to affiliate		161			378			362			825
		3,270			7,474			6,239			14,961
Loss before equity in loss of affiliate and impairment on investment in affiliate		(1,084	)		(2,737	)		(1,789	)		(4,899	)
Equity in loss of affiliate		(16	)		(28	)		(15	)		(46	)
Impairment on investment in affiliate		(428	)		-			(428	)		-
Net loss	$	(1,528	)	$	(2,765	)	$	(2,232	)	$	(4,945	)
Net loss allocated to limited partners	$	(1,513	)	$	(2,737	)	$	(2,210	)	$	(4,896	)
Weighted average number of limited partner units outstanding during the period		1,195,631			1,195,631			1,195,631			1,195,631
Net loss per weighted average limited partner unit	$	(1.27	)	$	(2.29	)	$	(1.85	)	$	(4.09	)

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

4

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Statement of Changes in Partners’ Deficit

(In thousands except unit data)

(Unaudited)

	General			Limited Partners					Total
	Partner Amount			Units		Amount			Partners' (Deficit) Capital
Balance, January 1, 2012	$	(1,107	)		1,195,631	$	(5,658	)	$	(6,765	)
Cash distributions paid		(11	)		-		(1,200	)		(1,211	)
Net loss		(22	)		-		(2,210	)		(2,232	)
Balance, June 30, 2012	$	(1,140	)		1,195,631	$	(9,068	)	$	(10,208	)

The accompanying notes are an integral part of this consolidated financial statement.

5

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
Cash flows from operating activities:	2012			2011
Net loss	$	(2,232	)	$	(4,945	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss/(gain) on sale of equipment and lease dispositions, net		253			(134	)
Equity in loss of affiliate		15			46
Impairment on investment in affiliate		428			-
Depreciation on operating leases		626			1,473
Provision for credit losses		1,108			6,434
Amortization of deferred charges and discount on debt		2,222			3,272
Changes in operating assets and liabilities:
Accounts receivable		11			17
Other assets		50			84
Accounts payable and accrued expenses and other liabilities		210			7
Due to affiliates		379			(1,791	)
Net cash provided by operating activities		3,070			4,463
Cash flows from investing activities:
Purchases of leases and loans		(749	)		-
Proceeds from leases and loans		29,620			50,669
Security deposits returned		(343	)		(389	)
Net cash provided by investing activities		28,528			50,280
Cash flows from financing activities:
Repayment of debt		(34,312	)		(56,354	)
Decrease in restricted cash		4,005			2,807
Increase in deferred financing costs		-			(5	)
Cash distributions to partners		(1,211	)		(1,203	)
Net cash used in financing activities		(31,518	)		(54,755	)
Increase/(decrease) in cash		80			(12	)
Cash, beginning of period		154			526
Cash, end of period	$	234		$	514
Cash paid for intererst	$	1,269		$	1,113

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

6

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

June 30 2012

(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

LEAF Equipment Leasing Income Fund III, L.P. (“LEAF III”  or the “Fund”) is a Delaware limited partnership formed on May 16, 2006 by its General Partner, LEAF Asset Management, LLC (the “General Partner”), which manages the Fund. The General Partner is a Delaware limited liability company, and a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of April 24, 2008, the Fund raised $120.0 million by selling 1.2 million of its limited partner units. It commenced operations in March 2007.

The Fund is expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent liquidation period of two years, during which the Fund’s leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the liquidation period, the Fund expects to continue to return capital to its partners as those leases and loans mature. All of the Fund’s leases and loans mature by the end of 2018. The Fund expects to enter its liquidation period beginning in April 2013. Contractually, the Fund will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement (“The Partnership Agreement”).

The Fund acquires diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily from LEAF Financial Corporation (“LEAF Financial”), an affiliate of its General Partner and a subsidiary of RAI. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.

In addition to its 1% general partnership interest, the General Partner has also invested $1.3 million for a 1.3% limited partnership interest in the Fund.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiaries LEAF III C SPE, LLC, and LEAF Receivables Funding 5, LLC.  All intercompany accounts and transactions have been eliminated in consolidation.

The Fund owns approximately a 4% ownership interest in LEAF Funding, LLC (“Funding LLC”). The Fund accounts for its interest in Funding LLC under the equity method of accounting.

In March of 2009 the Fund also invested $428,000 in LEAF Funds Joint Venture 2, LLC (“LEAF Funds JV2”), representing a 2% ownership interest, which the Fund accounted for under the cost method of accounting. In May 2012 the Fund fully impaired its investment in LEAF Funds JV2 due to continued uncertainty as to future performance, which resulted in a $428,000 impairment charge on the accompanying statement of operations.  Should the Fund realize a return on its investment in a future period, this would result in income recognition to the Fund.

The accompanying unaudited financial statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Fund’s financial position as of June 30, 2012, and the results of its operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of results of the Fund’s operations for the 2012 calendar year. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with the Fund’s financial statements and notes thereto presented in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 28, 2012.

The Fund has evaluated subsequent events through the date the financial statements were issued noting no subsequent events that were required to be disclosed in the consolidated financial statements.

7

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements – (Continued)

June 30 2012

(Unaudited)

Use of Estimates

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

Significant Accounting Policies

Investments in Leases and Loans

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

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

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

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

A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable.  The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.  There were no write-downs of equipment for the three and six month periods ending June 30, 2012 or 2011.

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

Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management’s historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account will progress through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due any remaining balance is fully-reserved less an estimated recovery amount. The Fund’s policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.

8

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements – (Continued)

June 30 2012

(Unaudited)

Income is not recognized on leases and loans when a default on payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent.  Fees from delinquent payments are recognized when received and are included in other income.

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others.    The Fund recognizes late fee income as fees are collected. Late fee income was $208,000 and $424,000, respectively, for the three and six months ended June 30, 2012 and $303,000 and $656,000, respectively, for the three and six months ended June 30, 2011.

Recent Accounting Standards

Accounting Standards Recently Adopted

Comprehensive Income - In June 2011, the FASB issued an amendment to eliminate the option to present components of other comprehensive income as part of the statement of changes in equity.  The amendment requires that all non-owner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Fund adopted the two-statement approach for the period beginning January 1, 2012.  However, adoption of this standard did not impact the Fund's financial statements for the three and six months ending June 30, 2012 as the Fund had no items of other comprehensive income.

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

NOTE 3 –  INVESTMENT IN LEASES AND LOANS

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

	June 30, 2012			December 31, 2011
Direct financing leases (a)	$	29,804		$	50,246
Loans (b)		23,887			33,674
Operating leases		1,089			2,087
		54,780			86,007
Allowance for credit losses		(850	)		(1,640	)
	$	53,930		$	84,367

(a) The Fund’s direct financing leases are for initial lease terms generally ranging from 24 to 96 months.

(b) The interest rates on loans generally range from 7% to 16%.

9

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements – (Continued)

June 30 2012

(Unaudited)

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

	June 30, 2012						December 31, 2011
	Leases			Loans			Leases			Loans
Total future minimum lease payments	$	29,493		$	27,084		$	50,509		$	38,350
Unearned income		(2,098	)		(2,660	)		(4,019	)		(3,987	)
Residuals, net of unearned residual income (a)		2,833			-			4,319			-
Security deposits		(424	)		(537	)		(563	)		(689	)
	$	29,804		$	23,887		$	50,246		$	33,674

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

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

	June 30,  2012			December 31,  2011
Equipment on operating leases	$	5,797		$	8,546
Accumulated depreciation		(4,703	)		(6,438	)
Security deposits		(5	)		(21	)
	$	1,089		$	2,087

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The following table is an age analysis of the Fund’s receivables from leases and loans (presented gross of allowance for credit losses of $850,000 and $1.6 million) as of June 30, 2012 and December 31, 2011, respectively (in thousands):

	June 30, 2012					December 31, 2011
Age of receivable	Investment in leases and loans		%			Investment in leases and loans		%
Current	$	51,931		94.8	%	$	80,907		94.1	%
Delinquent:
31 to 91 days past due		1,511		2.8	%		2,850		3.3	%
Greater than 91 days (a)		1,338		2.4	%		2,250		2.6	%
	$	54,780		100.0	%	$	86,007		100.0	%

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

The Fund had $1.3 million and $2.3 million of leases and loans on nonaccrual status as of June 30, 2012 and December 31, 2011, respectively.  The credit quality of the Fund’s investment in leases and loans as of June 30, 2012 and December 31, 2011 is as follows (in thousands):

	June 30, 2012		December 31, 2011
Performing	$	53,442	$	83,757
Nonperforming		1,338		2,250
	$	54,780	$	86,007

10

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements – (Continued)

June 30 2012

(Unaudited)

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Allowance for credit losses, beginning of period	$	1,200		$	9,630		$	1,640		$	9,180
Provision for credit losses		567			3,454			1,108			6,434
Charge-offs		(1,175	)		(7,910	)		(2,618	)		(10,964	)
Recoveries		258			436			720			960
Allowance for credit losses, end of period (a)	$	850		$	5,610		$	850		$	5,610

(a) End of period balances were collectively evaluated for impairment.

NOTE 5 – DEFERRED FINANCING COSTS

As of June 30, 2012 and December 31, 2011, deferred financing costs include $489,000 and $1.6 million, respectively, of unamortized deferred financing costs which are being amortized over the estimated useful life of the related debt. Accumulated amortization as of June 30, 2012 and December 31, 2011 is $1.6 million and $2.5 million, respectively.  In June 2012, the Fund expensed the unamortized deferred financing costs totaling $568,000 related to its DZ Bank facility due to uncertainty that the Fund will utilize the facility in the future. 

NOTE 6 – DEBT

The Fund’s bank debt consists of the following (dollars in thousands):

						December 31,
	June 30, 2012					2011
			Outstanding		Interest rate	Outstanding
	Type	Maturity Date	Balance		per annum	Balance
2010-4 Term Securitization	Term	August 2018, January 2019	$	55,050	1.70% to 5.50%	$	88,235
DZ Bank	Revolving	November 2013		-	Commercial paper plus 1.75%		-
			$	55,050		$	88,235

2010-4 Term Securitization

The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes were issued at an original discount of approximately $7.2 million of which approximately $1.7 million remains unamortized as of June 30, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of June 30, 2012, $54.6 million of leases and loans and $6.7 million of restricted cash were pledged as collateral for this facility. Recourse is limited to the amount of collateral pledged.

The Fund’s securitization is serviced by an affiliate of the Fund’s General Partner (the “Servicer”).  If the Servicer or the Fund’s portfolio does not comply with certain requirements, then the noteholders have the right to replace the Servicer.  The portfolio exceeded the cumulative net loss percentage permitted in the 2010-4 Term Securitization in April 2012.  Accordingly, the noteholders were notified and discussions are ongoing about a resolution.  Whereas the noteholders have the right to appoint a successor Servicer to replace the General Partner’s affiliate, to date they have not elected to do so.

This event does not constitute an event of default on the 2010-4 Term Securitization.  Additionally, the Fund is not, nor has been, delinquent on any payments owed to the noteholders.

DZ Bank

The outstanding balance of $72.9 million was paid off on December 8, 2010 with the proceeds from the 2010-4 Term Securitization.  Interest on each borrowing on this facility is calculated at the commercial paper rate for the lender at the time of such borrowing plus 1.75% per year. The DZ Bank facility has not been terminated but it is currently not available for use as the Fund had incurred multiple breaches under its covenants for which the Fund has requested waivers.  Additionally, no cross-default provisions exist with the 2010-4 Term Securitization.  As of June 30, 2012, no amounts were outstanding under this borrowing arrangement.

11

LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements – (Continued)

June 30 2012

(Unaudited)

Debt Repayments: Excluding $1.7 million of remaining unamortized discount on the 2010-04 Term Securitization, estimated annual principal payments on the Fund’s aggregate borrowings over the next five annual periods ended June 30, and thereafter, are as follows (in thousands):

June 30, 2013	$	33,302
June 30, 2014		14,782
June 30, 2015		8,655
	$	56,739

NOTE 7 – NOTE PAYABLE

The Fund had a $1.3 million, 12% note payable to Guggenheim. The remaining principal balance of $778,000 was paid off on March 21, 2011.

NOTE 8 – FAIR VALUE MEASUREMENT

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

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

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

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

There were no assets or liabilities measured at fair value at June 30, 2012 or December 31, 2011.

The Fund is also required to disclose the fair value of financial instruments for which it is practicable to estimate that value.  For cash, restricted cash, receivables, and payables, the carrying amounts approximate fair value because of the short term maturity of these instruments. At December 31, 2011, the carrying value of debt approximated fair value as interest rates were comparable to current market rates.

Subsequent to the adoption of ASU 2011-04, the Fund is also required to disclose the methods used to estimate fair value and the level within the fair value hierarchy within which the fair value measurements are categorized. The carrying value and fair value of the Fund’s debt at June 30, 2012 is as follows:

			Fair Value Measuring Using						Liabilities
	Carrying Value		Level 1		Level 2		Level 3		At Fair Value
Debt, at June 30, 2012	$	55,050	$	-	$	52,607	$	-	$	52,607

The fair value of the debt was determined using quoted prices obtained from brokers as of the measurement date. 

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LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements – (Continued)

June 30 2012

(Unaudited)

NOTE 9 – CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Administrative expenses	$	161	$	378	$	362	$	825
Management fees		-		-		-		-

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

Management Fees. The General Partner was paid a subordinated annual asset management fee equal to 4% of gross rental payments for operating leases or 2% for full payout leases or a competitive fee, whichever is less. During the Fund’s five-year investment period, the management fees were subordinated to the payment to the Fund’s limited partners of a cumulative annual distribution of 8.5% of their capital contributions, as adjusted by distributions deemed to be a return of capital. Beginning August 1, 2009, the General Partner waived its asset management fees.  Approximately $803,000 of management fees were waived for the six month period ended June 30, 2012 and $4.9 million has been waived on a cumulative basis.  The General Partner has also waived all future management fees.

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

NOTE 10 – COMMITMENTS AND CONTINGENCIES

In connection with a sale of leases and loans to a third-party in July of 2008, the Fund contractually agreed to repurchase delinquent leases up to a maximum of $327,000, calculated on the basis of 7.5% of total proceeds received from the sale (“Repurchase Commitment”).  As of June 30, 2012, the Fund has a $194,000 remaining Repurchase Commitment.

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

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ITEM 2 –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 the year ended December 31, 2011. 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.

The following discussion provides an analysis of our operating results, an overview of our liquidity and capital resources and other items related to us. The following discussion and analysis should be read in conjunction with (i) the accompanying interim financial statements and related notes and (ii) our consolidated financial statements, related notes, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2011.

As used herein, the terms “we,” “us,” or “our” refer to LEAF Equipment Leasing Income Fund III, L.P. and its subsidiaries.

Business

We are a Delaware limited partnership formed on May 16, 2006 by our General Partner, LEAF Asset Management, LLC (the “General Partner”), which, along with its afiliates, manages us. The General Partner is a Delaware limited liability company, and subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through our offering termination date of April 24, 2008 we raised $120.0 million by selling 1.2 million of our limited partner units. We commenced operations in March 2007.

We are expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a subsequent liquidation period of two years, during which our leases and secured loans will either mature or be sold. In the event we are unable to sell our leases and loans during the liquidation period, we expect to continue to return capital to our partners as those leases and loans mature. All of our leases and loans mature by the end of 2018. We expect to enter our liquidation period beginning in April 2013. We will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement.

We acquire a diversified portfolio of new, used or reconditioned equipment that we lease to third parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from LEAF Financial Corporation (“LEAF”), an affiliate of our General Partner and also a subsidiary of RAI. In addition, we may make secured loans to end users to finance their purchase of equipment. We attempt to structure our secured loans so that, in an economic sense, there is no difference to us between a secured loan and a full payout equipment lease. We finance business-essential equipment including, but not limited to computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on the small to mid-size business market, which generally includes businesses with:

● 500 or fewer employees;

● $1.0 billion or less in total assets; or

● Or $100 million or less in total annual sales.

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

General Economic Overview

Economic indicators for the quarter ending June 30, 2012 suggest that the recovery from the Great Recession has slowed and in fact may have stalled.  A steady stream of economic reports during the second quarter of 2012 shows declines in economic activity across a wide range of the U.S. economy.  The abundance of negative news in the second quarter is in stark contrast to first quarter 2012 economic reports that seemed to suggest the economic recovery was gaining momentum.  Adding to the economic uncertainty are the on-going and accelerating problems with sovereign debt and the banking system in the euro-zone. There is also evidence of business inertia caused by a “wait and see” posture by businesses due to the uncertainty caused in an election year with respect to taxation and regulation. Specific economic indicators and reports that were released in the second quarter of 2012 that show the downward trend are summarized below.

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· The June 2012 Institute of Supply Management report on the U.S. manufacturing sector indicated that manufacturing has declined for the first time since July 2009 due to concern over uncertainties in the economies in Europe and China.

· The Case-Shiller Home Price report released June 26, 2012 showed that home prices are declined from levels one year earlier.  Housing is a key engine for economic growth.

· The U.S. unemployment rate which had been declining remained flat at 8.2% in June 2012.

· The International Monetary Fund’s annual report on the U.S. economy predicts that economic growth in the U.S. will remain depressed over the next two years.

· The Reuters/University of Michigan consumer confidence index showed a steep decline.

· The National Associate of Credit Management Index declined in June 2012 for the second month in a row as indications of business expansion are lower.  The number of new credit applications was down and the number of accounts placed for collection was up.

· The National Federation of Independent Business Optimism Index declined to “historically low” levels with many small businesses reported as being reluctant to expand their businesses and hire new workers.

· The Equipment Lease and Finance Foundation’s Monthly Confidence Index was down in June 2012 “reflecting growing concern over the European debt crisis, U.S. unemployment and regulatory and political uncertainty”.

           The foregoing presents an unfavorable report on the general economic condition at June 30, 2012 and casts doubt on the future of the recovery from the Great Recession, and while this condition continues our portfolio performance may be negatively affected.

Finance Receivables and Asset Quality

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

	June 30, 2012			December 31, 2011
Investment in leases and loans, net	$	53,930		$	84,367
Number of contracts		14,900			20,000
Number of individual end users (a)		13,200			17,200
Average original equipment cost	$	21.1		$	18.8
Average initial lease term (in months)		60			59
Average remaining lease term (in months)		15			21
States accounting for more than 10% of lease and loan portfolio:
Florida		12	%		10	%
California		11	%		12	%
Types of equipment accounting for more than 10% of lease and loan portfolio:
Industrial Equipment		37	%		37	%
Medical Equipment		15	%		13	%
Office Equipment		14	%		15	%
Types of businesses accounting for more than 10% of lease and loan portfolio:
Services		44	%		42	%
Retail Trade		13	%		13	%
Transportation/Communication/Energy		12	%		12	%

(a) Located in the 50 states as well as the District of Columbia and Puerto Rico. No individual end user or single piece of equipment accounted for more than 1% of our portfolio based on original cost of the equipment.

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Portfolio Performance

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

	As of and for the
	Six Months Ended June 30,
							Change
	2012			2011			$			%
Investment in leases and loans before allowance for credit losses	$	54,780		$	135,449		$	(80,669	)	(60	)%
Less: allowance for credit losses		(850	)		(5,610	)		4,790		(85	)%
Investment in leases and loans, net	$	53,930		$	129,839		$	(75,909	)	(58	)%
Weighted average investment in direct financing leases and loans before allowance for credit losses	$	67,999		$	162,255		$	(94,256	)	(58	)%
Non-performing assets	$	1,338		$	6,998		$	(5,660	)	(81	)%
Charge-offs, net of recoveries	$	1,898		$	10,004		$	(8,106	)	(81	)%
As a percentage of finance receivables:
Allowance for credit losses		1.55	%		4.14	%
Non-performing assets		2.44	%		5.17	%
As a percentage of weighted average finance receivables:
Charge-offs, net of recoveries		2.79	%		6.17	%

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

We focus on financing equipment used by small to mid-sized businesses. The recent economic recession in the U.S. has made it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. These higher delinquencies may continue as the U.S. economy recovers.  Despite this, our non-performing assets as a percentage of finance receivables decreased from 5.17% at June 30, 2011 to 2.44% at June 30, 2012, reflecting an improvement in the aging of our portfolio.  Our allowance for credit losses as a percentage of our investments in leases and loans also reflects this, decreasing from 4.14% at June 30, 2011 to 1.55% at June 30, 2012.

Our net charge-offs decreased in the 2012 period compared to the 2011 period due primarily to the decrease in our portfolio balance.

Critical Accounting Policies

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

For a complete discussion of our critical accounting policies and estimates, see our annual report on Form 10-K for fiscal 2011 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Estimates.”  There have been no material changes to these policies through June 30, 2012.

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Results of Operations

As discussed previously, the economic recession has negatively impacted our operating results primarily through increased rates of default on outstanding leases and loans and increased costs of borrowing from our lenders.  These factors have resulted in our inability to reinvest earnings in additional leases and loans, leading to a decrease in our portfolio balance and a reduction in cash generated to continue to support distributions to our limited partners.

Three Months Ended June 30, 2012 as compared to the Three Months Ended June 30, 2011 (dollars in thousands):

							Increase (Decrease)
	2012			2011			$			%
Revenues:
Interest on equipment financings	$	1,459		$	3,122		$	(1,663	)	(53	)%
Rental income		363			1,010			(647	)	(64	)%
Gain on sale of equipment and lease dispositions, net		69			177			(108	)	(61	)%
Other income		295			428			(133	)	(31	)%
		2,186			4,737			(2,551	)	(54	)%
Expenses:
Interest expense		1,910			2,420			(510	)	(21	)%
Depreciation on operating leases		253			690			(437	)	(63	)%
Provision for credit losses		567			3,454			(2,887	)	(84	)%
General and administrative expenses		379			532			(153	)	(29	)%
Administrative expenses reimbursed to affiliate		161			378			(217	)	(57	)%
		3,270			7,474			(4,204	)	(56	)%
Loss before equity in loss of affiliate and impairment on investment in affiliate		(1,084	)		(2,737	)		1,653
Equity in loss of affiliate		(16	)		(28	)		12
Impairment on investment in affiliate		(428	)		-			(428	)
Net loss	$	(1,528	)	$	(2,765	)	$	1,237
Net loss allocated to limited partners	$	(1,513	)	$	(2,737	)	$	1,224

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

· A decrease in interest on equipment financings and rental income.  Our weighted average net investment in financing assets decreased to $60.4 million for the three months ended June 30, 2012 as compared to $148.4 million for the three months ended June 30, 2011, a decrease of $88 million or 59%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.

· Gains on the sale of equipment and lease dispositions decreased $108,000 to $69,000 for the three months ended June 30, 2012 compared to $177,000 for the three months ended June 30, 2011.  Gains and losses on sales of equipment may vary significantly from period to period.

· A decrease in other income, primarily due to a reduction in both late fee and collection fee income. Late fee and collection fee income decreased due to the decrease of the equipment financing portfolio.

The decrease in total expenses was primarily the result of the following:

· A decrease in interest due to a decrease in our average debt outstanding, partially offset by an additional expense of $568,000 related to deferred financing costs on our DZ Bank facility.  Average borrowings for the three months ended June 30, 2012 and 2011 were $62.4 million and $144.6 million, respectively. Borrowings for the three months ended June 30, 2012 and 2011 were at an effective interest rate of 8.6% and 6.7%, respectively. The interest expense reduction was primarily driven by accelerated debt payments required by our debt agreements and due to the reduction in the size of our portfolio of leases and loans.

· A decrease in depreciation on operating leases due to a decrease in the size of our operating lease portfolio.

· A significant decrease in provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. This decrease is consistent with the decline in the portfolio of equipment financed assets and an improvement in the performance of our portfolio.  Non-performing assets declined to $1.3 million at June 30, 2012 compared to $7.0 million at June 30, 2011, which is a decrease as a percentage of our portfolio to 2.4% at June 30, 2012 compared to 5.2% at June 30, 2011.

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

The net loss per limited partner unit, after the loss allocated to our General Partner, for the three months ended June 30, 2012 and 2011 was $1.27 and $2.29, respectively, based on a weighted average number of limited partner units outstanding of 1,195,631 for both periods.

Six Months Ended June 30, 2012 compared to the Six Months Ended June 30, 2011 (dollars in thousands):

							Increase (Decrease)
	2012			2011			$			%
Revenues:
Interest on equipment financings	$	3,251		$	7,101		$	(3,850	)	(54	)%
Rental income		842			1,931			(1,089	)	(56	)%
(Loss)/gain on sale of equipment and lease dispositions, net		(253	)		134			(387	)	(289	)%
Other income		610			896			(286	)	(32	)%
		4,450			10,062			(5,612	)	(56	)%
Expenses:
Interest expense		3,473			5,318			(1,845	)	(35	)%
Depreciation on operating leases		626			1,473			(847	)	(58	)%
Provision for credit losses		1,108			6,434			(5,326	)	(83	)%
General and administrative expenses		670			911			(241	)	(26	)%
Administrative expenses reimbursed to affiliate		362			825			(463	)	(56	)%
		6,239			14,961			(8,722	)	(58	)%
Loss before equity in (loss) earnings of affiliate and impairment on investment in affiliate		(1,789	)		(4,899	)		3,110
Equity in (loss) earnings of affiliate		(15	)		(46	)		31
Impairment on investment in affiliate		(428	)		-			(428	)
Net loss	$	(2,232	)	$	(4,945	)	$	2,713
Net loss allocated to limited partners	$	(2,210	)	$	(4,896	)	$	2,686

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

· A decrease in interest income on equipment financings and rental income. Our weighted average net investment in financing assets decreased to $68.0 million for the six months ended June 30, 2012 as compared to $162.3 million for the six months ended June 30, 2011, a decrease of $94.3 million or 58%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.

· (Losses)/gains on the sale of equipment and lease dispositions decreased to a net loss of $253,000 for the six months ended June 30, 2012, compared to a net gain of $134,000 for the six months ended June 30, 2011, a decrease of $387,000.  Gains and losses on sales of equipment may vary significantly from period to period.

· A decrease in other income, due primarily to a decrease in late fee, handling, and collection administrative fee income. These decreases were due to the decrease of the equipment financing portfolio.

The decrease in total expenses was primarily the result of the following:

· A decrease in interest due to a decrease in our average debt outstanding, partially offset by an additional expense of $568,000 related to deferred financing costs on our DZ Bank facility.  Average borrowings for the six months ended June 30, 2012 and June 30, 2011 were $70.6 million and $157.9 million, respectively.   Borrowings for the six months ended June 30, 2012 and 2011 were at an effective interest rate of 8.2% and 6.2%, respectively. The interest expense reduction was also driven by accelerated debt payments required by our debt agreements.

· A decrease in depreciation on operating leases due to a decrease in the size of our operating lease portfolio.

· A significant decrease in provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. This decrease is consistent with the decline in the portfolio of equipment financed assets and an improvement in the performance of our portfolio.  Non-performing assets declined to $1.3 million at June 30, 2012 compared to $7.0 million at June 30, 2011, which is a decrease as a percentage of our portfolio to 2.4% at June 30, 2012 compared to 5.2% at June 30, 2011.

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

The net loss per limited partner unit, after the loss allocated to our General Partner, for the six months ended June 30, 2012 and 2011 was $1.85 and $4.09, respectively, based on a weighted average number of limited partner units outstanding of 1,195,631 each period.

Liquidity and Capital Resources

General

Our major source of liquidity is from the collection of lease and loan payments.  Our primary cash requirements are for debt service, investment in leases and loans, and distributions to partners, in addition to normal operating expenses.  We believe at this time that future net cash inflows will be sufficient to finance operations and meet debt service payments. The following table sets forth our sources and uses of cash for the periods indicated (in thousands):

	Six Months Ended June 30,
	2012			2011
Net cash provided by operating activities	$	3,148		$	4,463
Net cash provided by investing activities		28,450			50,280
Net cash used in financing activities		(31,518	)		(54,755	)
Increase (decrease) in cash	$	80		$	(12	)

Cash increased by $80,000 which was primarily due to net proceeds from leases and loans of $28.4 million, cash provided by operating activities of $3.1 million, and a decrease in restricted cash of $4.0 million, partially offset by debt repayments of $34.3 million and distributions to our partners of $1.2 million.

Partners’ distributions paid for the six months ended June 30, 2012 and 2011 were $1.2 million, each period.  To date, limited partners have received total distributions of approximately 27% of their original amount invested, depending upon when the investment was made.  Distributions to limited partners were paid at a rate of 2.0% for the six month periods ended June 30, 2012 and 2011.

Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include: our ability to obtain and maintain debt financing on acceptable terms to build and maintain our equipment finance portfolio; lease and loan defaults by our customers; accelerated principle payments of our debt facilities required per our agreements; and prevailing economic conditions. The terms of our current debt facilities are structured to use excess cash to accelerate the repayment of debt.  This results in paying less interest expense over time, but also limits available cash to make monthly distributions to the partners.  The terms of our current debt facilities coupled with continued higher than expected lease and loan defaults, caused by a slow economic recovery could impact our ability to make monthly cash distributions to our limited partners.

Beginning August 1, 2010, our General Partner waived its asset management fee. Through June 30, 2012, the General Partner has waived $4.9 million of asset management fees, of which $803,000 related to the six months ended June 30, 2012.

Borrowings

Our borrowing relationships each require the pledging of eligible leases and loans to secure amounts advanced. Borrowings outstanding under our credit facilities were as follows as of June 30, 2012 (in thousands):

			Amount		Amount of
	Type	Maturity	Outstanding		Collateral
2010-4 Term Securitization	Term	August 2018, January 2019	$	55,050	$	61,362
DZ Bank	Revolving	November, 2013		-		-
			$	55,050	$	61,362

2010-4 Term Securitization

The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes bear interest at stated, fixed rates ranging from 1.7% to 5.5% and were issued at an original discount of approximately $ 7.2 million of which approximately $1.7 million remains unamortized as of June 30, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of June 30, 2012, $54.6 million of leases and loans and $6.7 million of restricted cash were pledged as collateral this facility. Recourse is limited to the amount of collateral pledged.

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Our securitization is serviced by an affiliate of our General Partner (the “Servicer”).  Under the terms of our securitization, if the Servicer or our portfolio does not comply with certain requirements, then the noteholders have the right to replace the Servicer.  The portfolio exceeded the cumulative net loss percentage permitted in the 2010-4 Term Securitization in April 2012.  Accordingly, the noteholders were notified and discussions are ongoing about a resolution.  Whereas the noteholders have the right to appoint a successor Servicer to replace our General Partner’s affiliate, to date they have not elected to do so.  However, if such a change would occur, it would likely adversely impact our cash flow and our ability to pay distributions to our partners.  Additionally any potential changes to the terms of our debt facilities could also adversely impact our cash flow and therefore partner distributions.

This event does not constitute an event of default on the 2010-4 Term Securitization.  Additionally, we are not, nor have been, delinquent on any payments owed to the noteholders.

DZ Bank

 The outstanding balance of $72.9 million was paid off on December 8, 2010 with the proceeds from the 2010-4 Term Securitization.  Interest on each borrowing on this facility is calculated at the commercial paper rate for the lender at the time of such borrowing plus 1.75% per year. The DZ Bank facility has not been terminated but it is currently not available for use as we have incurred multiple breaches under its covenants for which we have requested waivers.  Additionally, no cross-default provisions exist with the 2010-4 Term Securitization.  As of June 30, 2012, there were no amounts were outstanding under this borrowing arrangement.

Guggenheim Note Payable

We had a note payable to Guggenheim in the amount of $1.3 million and which bore interest at 12% annually. The remaining principal balance of $778,000 was paid off on March 21, 2011.

Liquidity Summary

Our primary source of liquidity comes from payments on our lease and loan portfolio.Our liquidity has been and could be further adversely affected by higher than expected equipment lease defaults, which results in a loss of revenues. These losses may adversely affect our ability to make distributions to our partners and, if the level of defaults is sufficiently large, may result in our inability to fully recover our investment in the underlying equipment. As our lease portfolio ages, and if the recovery in the United States economy falters for a substantial period of time, we anticipate theneed to increase our allowance for credit losses.

Our primary use of cash is for debt service. Substantially all of our leases and loans are collateral for our debt, however, all of our debt is non-recourse to the partnership which limit our financial exposure. Repayment of our debt is based on the payments we receive from our customers. If a lease or loan becomes delinquent our lender uses the excess collateral from performing leases to repay our loan, even though our customer has not paid us. Therefore, higher than expected lease and loan defaults will reduce our liquidity.

As noted previously, the noteholders have the right to appoint a successor Servicer to replace our General Partner’s affiliate as a result of the portfolio exceeding the cumulative net loss percentage in April 2012.  If such a change would occur, it would likely adversely impact our cash flow and our ability to pay distributions to our partners.

The tightening of credit markets has and may continue to adversely affect our liquidity, particularly our ability to obtain or renew debt financing needed to execute our investment strategies. Historically, we have utilized both revolving and term debt facilities to fund our acquisitions of equipment financings.  If we are unable to obtain new debt that will allow us to invest the repayments of existing leases and loans into new investments, then our portfolio of leases and loans will continue to decline.

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Legal Proceedings

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

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 – CONTROLS AND PROCEDURES

Disclosure Controls

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

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

21

PART II. OTHER INFORMATION

ITEM 6 – EXHIBITS

Exhibit
No.	Description
3.1	Certificate of Limited Partnership (1)
3.2	Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III, L.P. (1)
3.3	Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III, L.P. (4)
4.1	Forms of letters sent to limited partners confirming their investment (1)
10.1	Origination and Servicing Agreement among LEAF Equipment Leasing Income Fund III, L.P., LEAF Financial Corporation and LEAF Funding Inc., dated February 12, 2007 (1)
10.2	Receivables Loan and Security Agreement, dated as of November 21, 2008, among LEAF III C SPE, LLC, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III, L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, U.S. Bank, National Association, and Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services) (2)
10.3	Amendment No. 1 to Receivables Loan and Security Agreement, dated as of April 13, 2010 among LEAF III C SPE, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III, L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (3)
10.4	Indenture between LEAF Receivables Funding 5, LLC and U.S. Bank National Association dated as of November 5, 2010 (5)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2012 and December 31, 2011; (ii) the Consolidated Statements of  operations for the three and six month periods ended June 30, 2012 and 2011; (iii) the Consolidated Statements of Comprehensive Income for the three and six month period ended June 30, 2012; (iv) the Consolidated Statements of Changes in Partners’ (Deficit) Capital for the six month period ended June 30, 2012; (iv) the Consolidated Statements of Cash Flows for the periods ended June 30, 2012 and 2011; and, (iv) the Notes to Consolidated Financial Statements.

(1) Filed previously as an exhibit to our Registration Statement on Form S-1 filed on October 2, 2006 and by this reference incorporated herein.

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

(3) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and by this reference incorporated herein.

(4) Filed previously as an exhibit to our Current Report on Form 8-K Report dated October 17, 2011.

(5) Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2010 and by this reference incorporated herein.

22

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.

	LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
	A Delaware Limited Partnership
	By:	LEAF Asset Management, LLC, its General Partner
August 14, 2012	By:	/s/ CRIT S. DEMENT
		Crit S. DeMent
		Chairman and Chief Executive Officer
August 14, 2012	By:	/s/ ROBERT K. MOSKOVITZ
		Robert K. Moskovitz
		Chief Financial Officer

23

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Crit S. DeMent, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 of LEAF Equipment Leasing Income Fund III, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2012	/s/ Crit S. DeMent
	Name: Crit S. DeMent
	Title: Chief Executive Officer of the General Partner

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Robert K. Moskovitz, certify that:

1. I have reviewed this Quarterly report on Form 10-Q for the quarter ended June 30, 2012 of LEAF Equipment Leasing Income Fund III, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under such supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2012	/s/ Robert K. Moskovitz
	Name: Robert K. Moskovitz
	Title: Chief Financial Officer of the General Partner

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LEAF Equipment Leasing Income Fund III, L.P. (the “Company”) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Crit S. DeMent, Chief Executive Officer of the General Partner of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 14, 2012	/s/ Crit S. DeMent
	Name: Crit S. DeMent
	Title: Chief Executive Officer of the General Partner

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LEAF Equipment Leasing Income Fund III, L.P. (the “Company”) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert K. Moskovitz, Chief Financial Officer of the General Partner of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 14, 2012	/s/ Robert K. Moskovitz
	Name: Robert K. Moskovitz
	Title: Chief Financial Officer of the General Partner

XML

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (Details) (USD $)	3 Months Ended				6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011		Dec. 31, 2011
Investment in leases and loans, amount
Current, amount	$ 51,931,000				$ 51,931,000				$ 80,907,000
Financing receivable recorded investment 31 To 91 days past due	1,511,000				1,511,000				2,850,000
Financing receivable recorded investment greater than 91 days past due	1,338,000	[1]			1,338,000	[1]			2,250,000	[1]
Fund's investment in leases and loans	54,780,000				54,780,000				86,007,000
Investment in leases and loans, percentage
Current, percentage (in hundredths)	94.80%				94.80%				94.10%
Financing receivable recorded investment 31 To 91 days past due, percentage (in hundredths)	2.80%				2.80%				3.30%
Financing receivable recorded investment greater than 91 days past due, percentage (in hundredths)	2.40%				2.40%				2.60%
Financing receivable, recorded investment, past due, percentage (in hundredths)	100.00%				100.00%				100.00%
Leases and loans on nonaccrual status	1,300,000				1,300,000				2,300,000
Allowance for Loan and Lease Losses [Roll Forward]
Allowance for credit losses, beginning of year	1,200,000		9,630,000		1,640,000		9,180,000
Provision for credit losses	567,000		3,454,000		1,108,000		6,434,000
Charge-offs	(1,175,000)		(7,910,000)		(2,618,000)		(10,964,000)
Recoveries	258,000		436,000		720,000		960,000
Allowance for credit losses, end of period	850,000	[2]	5,610,000	[2]	850,000	[2]	5,610,000	[2]
Performing [Member]
Investment in leases and loans, amount
Fund's investment in leases and loans	53,442,000				53,442,000				83,757,000
Nonperforming [Member]
Investment in leases and loans, amount
Fund's investment in leases and loans	$ 1,338,000				$ 1,338,000				$ 2,250,000

[1] Balances in this age category are collectivelly evaluated for impairment.

[2] End of period balances were collectively evaluated for impairment.

XML

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

6 Months Ended

Jun. 30, 2012

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY [Abstract]

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

NOTE 4 - ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The following table is an age analysis of the Fund's receivables from leases and loans (presented gross of allowance for credit losses of $850,000 and $1.6 million) as of June 30, 2012 and December 31, 2011, respectively (in thousands):

	June 30, 2012					December 31, 2011
Age of receivable	Investment in leases and loans		%			Investment in leases and loans		%
Current	$	51,931		94.8	%	$	80,907		94.1	%
Delinquent:
31 to 91 days past due		1,511		2.8	%		2,850		3.3	%
Greater than 91 days (a)		1,338		2.4	%		2,250		2.6	%
	$	54,780		100.0	%	$	86,007		100.0	%

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

The Fund had $1.3 million and $2.3 million of leases and loans on nonaccrual status as of June 30, 2012 and December 31, 2011, respectively.  The credit quality of the Fund's investment in leases and loans as of June 30, 2012 and December 31, 2011 is as follows (in thousands):

	June 30, 2012		December 31, 2011
Performing	$	53,442	$	83,757
Nonperforming		1,338		2,250
	$	54,780	$	86,007

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Allowance for credit losses, beginning of period	$	1,200		$	9,630		$	1,640		$	9,180
Provision for credit losses		567			3,454			1,108			6,434
Charge-offs		(1,175	)		(7,910	)		(2,618	)		(10,964	)
Recoveries		258			436			720			960
Allowance for credit losses, end of period (a)	$	850		$	5,610		$	850		$	5,610

(a) End of period balances were collectively evaluated for impairment.

XML

FAIR VALUE MEASUREMENT (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt, Fair Value	$ 0
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt, Fair Value	52,607
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt, Fair Value	0
Carrying Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt, Fair Value	55,050
Liabilities at Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt, Fair Value	$ 52,607

XML

NOTE PAYABLE (Details) (Notes Payable to Guggenheim [Member], USD $)	6 Months Ended
	Jun. 30, 2012
Notes Payable to Guggenheim [Member]
Extinguishment of Debt [Line Items]
Notes payable, face amount	$ 1,300,000
Interest rate, notes payable (in hundredths)	12.00%
Amount of debt paid off	$ 778,000

XML

CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
General Partner [Member]
Summary of fees and costs of services charged [Abstract]
Management fees	$ 0	$ 0	$ 0	$ 0
Management Fees
Percentage of gross rental payments (in hundredths)			4.00%
Percentage of full payout leases (in hundredths)			2.00%
Management fees waived, current period			803,000
Management fees waived, cumulative	4,900,000		4,900,000
Affiliated Entity [Member]
Summary of fees and costs of services charged [Abstract]
Administrative expenses	$ 161,000	$ 378,000	$ 362,000	$ 825,000
Limited Partner [Member]
Management Fees
Limited partner cumulative annual distribution percentage (in hundredths)			8.50%

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	1 Months Ended
	Jul. 31, 2008	Jun. 30, 2012
COMMITMENTS AND CONTINGENCIES [Abstract]
Repurchase delinquent leases, maximum	$ 327,000
Percentage of total proceeds received from the sale (in hundredths)	7.50%
Remaining repurchase commitment, amount		$ 194,000

XML

INVESTMENT IN LEASES AND LOANS

6 Months Ended

Jun. 30, 2012

INVESTMENT IN LEASES AND LOANS [Abstract]

INVESTMENT IN LEASES AND LOANS

NOTE 3 - INVESTMENT IN LEASES AND LOANS

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

	June 30, 2012			December 31, 2011
Direct financing leases (a)	$	29,804		$	50,246
Loans (b)		23,887			33,674
Operating leases		1,089			2,087
		54,780			86,007
Allowance for credit losses		(850	)		(1,640	)
	$	53,930		$	84,367

(a) The Fund's direct financing leases are for initial lease terms generally ranging from 24 to 96 months.

(b) The interest rates on loans generally range from 7% to 16%.

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

	June 30, 2012						December 31, 2011
	Leases			Loans			Leases			Loans
Total future minimum lease payments	$	29,493		$	27,084		$	50,509		$	38,350
Unearned income		(2,098	)		(2,660	)		(4,019	)		(3,987	)
Residuals, net of unearned residual income (a)		2,833			-			4,319			-
Security deposits		(424	)		(537	)		(563	)		(689	)
	$	29,804		$	23,887		$	50,246		$	33,674

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

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

	June 30,  2012			December 31,  2011
Equipment on operating leases	$	5,797		$	8,546
Accumulated depreciation		(4,703	)		(6,438	)
Security deposits		(5	)		(21	)
	$	1,089		$	2,087

XML

Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash	$ 234	$ 154
Restricted cash	7,245	11,250
Accounts receivable	49	60
Investment in leases and loans, net	53,930	84,367
Deferred financing costs, net	489	1,584
Investment in affiliated leasing partnerships	343	786
Other assets	107	158
Total assets	62,397	98,359
Liabilities:
Debt	55,050	88,235
Accounts payable and accrued expenses	994	733
Other liabilities	459	511
Due to affiliates	16,102	15,645
Total liabilities	72,605	105,124
Commitments and contingencies (Note 10)
Partners' (Deficit) Capital:
General partner	(1,140)	(1,107)
Limited partners	(9,068)	(5,658)
Total partners' (deficit) capital	(10,208)	(6,765)
Total liabilities and partners' (deficit) capital	$ 62,397	$ 98,359

XML

ORGANIZATION AND NATURE OF BUSINESS

6 Months Ended

Jun. 30, 2012

ORGANIZATION AND NATURE OF BUSINESS [Abstract]

ORGANIZATION AND NATURE OF BUSINESS

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

LEAF Equipment Leasing Income Fund III, L.P. ("LEAF III"  or the "Fund") is a Delaware limited partnership formed on May 16, 2006 by its General Partner, LEAF Asset Management, LLC (the "General Partner"), which manages the Fund. The General Partner is a Delaware limited liability company, and a subsidiary of Resource America, Inc. ("RAI"). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of April 24, 2008, the Fund raised $120.0 million by selling 1.2 million of its limited partner units. It commenced operations in March 2007.

The Fund is expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent liquidation period of two years, during which the Fund's leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the liquidation period, the Fund expects to continue to return capital to its partners as those leases and loans mature. All of the Fund's leases and loans mature by the end of 2018. The Fund expects to enter its liquidation period beginning in April 2013. Contractually, the Fund will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement ("The Partnership Agreement").

The Fund acquires diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily from LEAF Financial Corporation ("LEAF Financial"), an affiliate of its General Partner and a subsidiary of RAI. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.

In addition to its 1% general partnership interest, the General Partner has also invested $1.3 million for a 1.3% limited partnership interest in the Fund.

XML

ORGANIZATION AND NATURE OF BUSINESS (Details) (USD $) In Millions, unless otherwise specified	4 Months Ended	6 Months Ended
	Apr. 24, 2008	Jun. 30, 2012
ORGANIZATION AND NATURE OF BUSINESS [Abstract]
Fund raised through selling units	$ 120.0
Units sold to raise funds (in units)	1.2
Expected life of fund		9 years
Offering period of fund, maximum		2 years
Reinvestment period		5 years
Subsequent liquidation period		2 years
Percentage of interest of general partnership (in hundredths)		1.00%
General Partner [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
General Partners' invested, value		1.3
Percentage of interest of limited partnership (in hundredths)		1.30%

XML

INVESTMENT IN LEASES AND LOANS (Details) (USD $) In Thousands, unless otherwise specified									6 Months Ended
	Jun. 30, 2012		Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011		Mar. 31, 2011	Dec. 31, 2010	Jun. 30, 2012 Minimum [Member]	Jun. 30, 2012 Maximum [Member]	Jun. 30, 2012 Financing Receivable [Member]		Dec. 31, 2011 Financing Receivable [Member]		Jun. 30, 2012 Loans Receivable [Member]		Dec. 31, 2011 Loans Receivable [Member]		Jun. 30, 2012 Operating Lease Receivable [Member]	Dec. 31, 2011 Operating Lease Receivable [Member]
Investment in leases and loans, net [Abstract]
Fund's investment in leases and loans	$ 54,780			$ 86,007							$ 29,804	[1]	$ 50,246	[1]	$ 23,887	[2]	$ 33,674	[2]	$ 1,089	$ 2,087
Allowance for credit losses	(850)	[3]	(1,200)	(1,640)	(5,610)	[3]	(9,630)	(9,180)
Loans and leases receivable, net amount, Total	53,930			84,367
Direct financing initial leases term (in months)									24 months	96 months
Interest rate on loan receivable (in hundredths)									7.00%	16.00%
Direct financing in leases and loans [Abstract]
Total future minimum lease payments											29,493		50,509		27,084		38,350
Unearned income											(2,098)		(4,019)		(2,660)		(3,987)
Residuals, net of unearned residual income											2,833	[4]	4,319	[4]	0	[4]	0	[4]
Security deposits											(424)		(563)		(537)		(689)
Investment in operating leases, net [Abstract]
Equipment on operating leases	5,797			8,546
Accumulated depreciation	(4,703)			(6,438)
Security Deposit	$ (5)			$ (21)

[1] The Fund's direct financing leases are for initial lease terms generally ranging from 24 to 96 months.

[2] The interest rates on loans generally range from 7% to 16%.

[3] End of period balances were collectively evaluated for impairment.

[4] Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from extensions or disposition of the equipment.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiaries LEAF III C SPE, LLC, and LEAF Receivables Funding 5, LLC.  All intercompany accounts and transactions have been eliminated in consolidation.

The Fund owns approximately a 4% ownership interest in LEAF Funding, LLC ("Funding LLC"). The Fund accounts for its interest in Funding LLC under the equity method of accounting.

In March of 2009 the Fund also invested $428,000 in LEAF Funds Joint Venture 2, LLC ("LEAF Funds JV2"), representing a 2% ownership interest, which the Fund accounted for under the cost method of accounting. In May 2012 the Fund fully impaired its investment in LEAF Funds JV2 due to continued uncertainty as to future performance, which resulted in a $428,000 impairment charge on the accompanying statement of operations.  Should the Fund realize a return on its investment in a future period, this would result in income recognition to the Fund.

The accompanying unaudited financial statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Fund's financial position as of June 30, 2012, and the results of its operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of results of the Fund's operations for the 2012 calendar year. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with the Fund's financial statements and notes thereto presented in the Fund's Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 28, 2012.

The Fund has evaluated subsequent events through the date the financial statements were issued noting no subsequent events that were required to be disclosed in the consolidated financial statements.

Use of Estimates

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

Significant Accounting Policies

Investments in Leases and Loans

The Fund's investment in leases and loans consist of direct financing leases, operating leases and loans.

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

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

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

A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable.  The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.  There were no write-downs of equipment for the three and six month periods ending June 30, 2012 or 2011.

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

Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management's historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account will progress through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due any remaining balance is fully-reserved less an estimated recovery amount. The Fund's policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.

Income is not recognized on leases and loans when a default on payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent.  Fees from delinquent payments are recognized when received and are included in other income.

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others.    The Fund recognizes late fee income as fees are collected. Late fee income was $208,000 and $424,000, respectively, for the three and six months ended June 30, 2012 and $303,000 and $656,000, respectively, for the three and six months ended June 30, 2011.

Recent Accounting Standards

Accounting Standards Recently Adopted

Comprehensive Income - In June 2011, the FASB issued an amendment to eliminate the option to present components of other comprehensive income as part of the statement of changes in equity.  The amendment requires that all non-owner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Fund adopted the two-statement approach for the period beginning January 1, 2012.  However, adoption of this standard did not impact the Fund's financial statements for the three and six months ending June 30, 2012 as the fund had no items of other comprehensive income.

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

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenues:
Interest on equipment financings	$ 1,459	$ 3,122	$ 3,251	$ 7,101
Rental income	363	1,010	842	1,931
Gain/loss on sale of equipment and lease dispositions, net	69	177	(253)	134
Other income	295	428	610	896
Revenues	2,186	4,737	4,450	10,062
Expenses:
Interest expense	1,910	2,420	3,473	5,318
Depreciation on operating leases	253	690	626	1,473
Provision for credit losses	567	3,454	1,108	6,434
General and administrative expenses	379	532	670	911
Administrative expenses reimbursed to affiliate	161	378	362	825
Expenses	3,270	7,474	6,239	14,961
Loss before equity in loss of affiliate and impairment on investment in affiliate	(1,084)	(2,737)	(1,789)	(4,899)
Equity in loss of affiliate	(16)	(28)	(15)	(46)
Impairment on investment in affiliate	(428)	0	(428)	0
Net loss	(1,528)	(2,765)	(2,232)	(4,945)
Net loss allocated to limited partners	$ (1,513)	$ (2,737)	$ (2,210)	$ (4,896)
Weighted average number of limited partner units outstanding during the period (in units)	1,195,631	1,195,631	1,195,631	1,195,631
Net loss per weighted average limited partner unit (in dollars per unit)	$ (1.27)	$ (2.29)	$ (1.85)	$ (4.09)

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INVESTMENT IN LEASES AND LOANS (Tables)

6 Months Ended

Jun. 30, 2012

INVESTMENT IN LEASES AND LOANS [Abstract]

Investment in leases and loans, net

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

	June 30, 2012			December 31, 2011
Direct financing leases (a)	$	29,804		$	50,246
Loans (b)		23,887			33,674
Operating leases		1,089			2,087
		54,780			86,007
Allowance for credit losses		(850	)		(1,640	)
	$	53,930		$	84,367

(a) The Fund's direct financing leases are for initial lease terms generally ranging from 24 to 96 months.

(b) The interest rates on loans generally range from 7% to 16%.

Schedule of components of direct financing leases and loans

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

	June 30, 2012						December 31, 2011
	Leases			Loans			Leases			Loans
Total future minimum lease payments	$	29,493		$	27,084		$	50,509		$	38,350
Unearned income		(2,098	)		(2,660	)		(4,019	)		(3,987	)
Residuals, net of unearned residual income (a)		2,833			-			4,319			-
Security deposits		(424	)		(537	)		(563	)		(689	)
	$	29,804		$	23,887		$	50,246		$	33,674

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

Schedule of fund's investment in operating leases, net

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

	June 30,  2012			December 31,  2011
Equipment on operating leases	$	5,797		$	8,546
Accumulated depreciation		(4,703	)		(6,438	)
Security deposits		(5	)		(21	)
	$	1,089		$	2,087

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	LEAF Equipment Leasing Income Fund III, L.P.
Entity Central Index Key	0001376074
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012

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ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (Tables)

6 Months Ended

Jun. 30, 2012

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY [Abstract]

Schedule of age analysis of the fund's receivables from leases and loans

The following table is an age analysis of the Fund's receivables from leases and loans (presented gross of allowance for credit losses of $850,000 and $1.6 million) as of June 30, 2012 and December 31, 2011, respectively (in thousands):

	June 30, 2012					December 31, 2011
Age of receivable	Investment in leases and loans		%			Investment in leases and loans		%
Current	$	51,931		94.8	%	$	80,907		94.1	%
Delinquent:
31 to 91 days past due		1,511		2.8	%		2,850		3.3	%
Greater than 91 days (a)		1,338		2.4	%		2,250		2.6	%
	$	54,780		100.0	%	$	86,007		100.0	%

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

The Fund had $1.3 million and $2.3 million of leases and loans on nonaccrual status as of June 30, 2012 and December 31, 2011, respectively.  The credit quality of the Fund's investment in leases and loans as of June 30, 2012 and December 31, 2011 is as follows (in thousands):

	June 30, 2012		December 31, 2011
Performing	$	53,442	$	83,757
Nonperforming		1,338		2,250
	$	54,780	$	86,007

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Allowance for credit losses, beginning of period	$	1,200		$	9,630		$	1,640		$	9,180
Provision for credit losses		567			3,454			1,108			6,434
Charge-offs		(1,175	)		(7,910	)		(2,618	)		(10,964	)
Recoveries		258			436			720			960
Allowance for credit losses, end of period (a)	$	850		$	5,610		$	850		$	5,610

(a) End of period balances were collectively evaluated for impairment.

Schedule of credit quality of the fund's investment in leases and loans

The Fund had $1.3 million and $2.3 million of leases and loans on nonaccrual status as of June 30, 2012 and December 31, 2011, respectively.  The credit quality of the Fund's investment in leases and loans as of June 30, 2012 and December 31, 2011 is as follows (in thousands):

	June 30, 2012		December 31, 2011
Performing	$	53,442	$	83,757
Nonperforming		1,338		2,250
	$	54,780	$	86,007

Schedule of activity in the allowance for credit losses

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Allowance for credit losses, beginning of period	$	1,200		$	9,630		$	1,640		$	9,180
Provision for credit losses		567			3,454			1,108			6,434
Charge-offs		(1,175	)		(7,910	)		(2,618	)		(10,964	)
Recoveries		258			436			720			960
Allowance for credit losses, end of period (a)	$	850		$	5,610		$	850		$	5,610

(a) End of period balances were collectively evaluated for impairment.

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Consolidated Statement of Changes in Partners' Deficit (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	General Partner [Member]	Limited Partner [Member]	Total
Balance at Dec. 31, 2011	$ (1,107)	$ (5,658)	$ (6,765)
Balance (in units) at Dec. 31, 2011		1,195,631
Increase (Decrease) in Partners' Capital [Roll Forward]
Cash distributions paid	(11)	(1,200)	(1,211)
Net loss	(22)	(2,210)	(2,232)
Balance at Jun. 30, 2012	$ (1,140)	$ (9,068)	$ (10,208)
Balance (in units) at Jun. 30, 2012		1,195,631

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NOTE PAYABLE

6 Months Ended

Jun. 30, 2012

NOTE PAYABLE [Abstract]

NOTE PAYABLE

NOTE 7 - NOTE PAYABLE

The Fund had a $1.3 million, 12% note payable to Guggenheim. The remaining principal balance of $778,000 was paid off on March 21, 2011.

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DEBT

6 Months Ended

Jun. 30, 2012

DEBT [Abstract]

DEBT

NOTE 6 - DEBT

The Fund's bank debt consists of the following (dollars in thousands):

						December 31,
	June 30, 2012					2011
			Outstanding		Interest rate	Outstanding
	Type	Maturity Date	Balance		per annum	Balance
2010-4 Term Securitization	Term	August 2018, January 2019	$	55,050	1.70% to 5.50%	$	88,235
DZ Bank	Revolving	November 2013		-	Commercial paper plus 1.75%		-
			$	55,050		$	88,235

2010-4 Term Securitization

The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes were issued at an original discount of approximately $7.2 million of which approximately $1.7 million remains unamortized as of June 30, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of June 30, 2012, $54.6 million of leases and loans and $6.7 million of restricted cash were pledged as collateral for this facility. Recourse is limited to the amount of collateral pledged.

The Fund's securitization is serviced by an affiliate of the Fund's General Partner (the "Servicer").  If the Servicer or the Fund's portfolio does not comply with certain requirements, then the noteholders have the right to replace the Servicer.  The portfolio exceeded the cumulative net loss percentage permitted in the 2010-4 Term Securitization in April 2012.  Accordingly, the noteholders were notified and discussions are ongoing about a resolution.  Whereas the noteholders have the right to appoint a successor Servicer to replace the General Partner's affiliate, to date they have not elected to do so.

This event does not constitute an event of default on the 2010-4 Term Securitization.  Additionally, the Fund is not, nor has been, delinquent on any payments owed to the noteholders.

DZ Bank

The outstanding balance of $72.9 million was paid off on December 8, 2010 with the proceeds from the 2010-4 Term Securitization.  Interest on each borrowing on this facility is calculated at the commercial paper rate for the lender at the time of such borrowing plus 1.75% per year. The DZ Bank facility has not been terminated but it is currently not available for use as the Fund had incurred multiple breaches under its covenants for which the Fund has requested waivers.  Additionally, no cross-default provisions exist with the 2010-4 Term Securitization.  As of June 30, 2012, no amounts were outstanding under this borrowing arrangement.

Debt Repayments: Excluding $1.7 million of remaining unamortized discount on the 2010-04 Term Securitization, estimated annual principal payments on the Fund's aggregate borrowings over the next five annual periods ended June 30, and thereafter, are as follows (in thousands):

June 30, 2013	$	33,302
June 30, 2014		14,782
June 30, 2015		8,655
	$	56,739

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Impairment charge	$ 428,000	$ 0	$ 428,000	$ 0
Other Income [Abstract]
Late fee income	208,000	303,000	424,000	656,000
Maximum [Member]
Capital Leased Assets [Line Items]
Useful life of equipments			7 years
LEAF Funding, LLC [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Percentage of ownership interest (in hundredths)	4.00%		4.00%
LEAF Funds Joint Venture 2 [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Ownership Percentage by Parent	2.00%		2.00%
Funds invested to form joint venture under agreement	428,000		428,000
Impairment charge			$ 428,000

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DEBT (Tables)

6 Months Ended

Jun. 30, 2012

DEBT [Abstract]

Schedule of fund's bank debt

The Fund's bank debt consists of the following (dollars in thousands):

						December 31,
	June 30, 2012					2011
			Outstanding		Interest rate	Outstanding
	Type	Maturity Date	Balance		per annum	Balance
2010-4 Term Securitization	Term	August 2018, January 2019	$	55,050	1.70% to 5.50%	$	88,235
DZ Bank	Revolving	November 2013		-	Commercial paper plus 1.75%		-
			$	55,050		$	88,235

Schedule of estimated annual principal payments

Debt Repayments: Excluding $1.7 million of remaining unamortized discount on the 2010-04 Term Securitization, estimated annual principal payments on the Fund's aggregate borrowings over the next five annual periods ended June 30, and thereafter, are as follows (in thousands):

June 30, 2013	$	33,302
June 30, 2014		14,782
June 30, 2015		8,655
	$	56,739

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 10 - COMMITMENTS AND CONTINGENCIES

In connection with a sale of leases and loans to a third-party in July of 2008, the Fund contractually agreed to repurchase delinquent leases up to a maximum of $327,000, calculated on the basis of 7.5% of total proceeds received from the sale ("Repurchase Commitment").  As of June 30, 2012, the Fund has a $194,000 remaining Repurchase Commitment.

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

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FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2012

FAIR VALUE MEASUREMENT [Abstract]

FAIR VALUE MEASUREMENT

NOTE 8 - FAIR VALUE MEASUREMENT

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

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

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

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

There were no assets or liabilities measured at fair value at June 30, 2012 or December 31, 2011.

The Fund is also required to disclose the fair value of financial instruments for which it is practicable to estimate that value.  For cash, restricted cash, receivables, and payables, the carrying amounts approximate fair value because of the short term maturity of these instruments. At December 31, 2011, the carrying value of debt approximated fair value as interest rates were comparable to current market rates.

Subsequent to the adoption of ASU 2011-04, the Fund is also required to disclose the methods used to estimate fair value and the level within the fair value hierarchy within which the fair value measurements are categorized. The carrying value and fair value of the Fund's debt at June 30, 2012 is as follows:

			Fair Value Measuring Using						Liabilities
	Carrying Value		Level 1		Level 2		Level 3		At Fair Value
Debt, at June 30, 2012	$	55,050	$	-	$	52,607	$	-	$	52,607

The fair value of the debt was determined using quoted prices obtained from brokers as of the measurement date. 

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CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

6 Months Ended

Jun. 30, 2012

CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES [Abstract]

CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

NOTE 9 - CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Administrative expenses	$	161	$	378	$	362	$	825
Management fees		-		-		-		-

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

Management Fees. The General Partner was paid a subordinated annual asset management fee equal to 4% of gross rental payments for operating leases or 2% for full payout leases or a competitive fee, whichever is less. During the Fund's five-year investment period, the management fees were subordinated to the payment to the Fund's limited partners of a cumulative annual distribution of 8.5% of their capital contributions, as adjusted by distributions deemed to be a return of capital. Beginning August 1, 2009, the General Partner waived its asset management fees.  Approximately $803,000 of management fees were waived for the six month period ended June 30, 2012 and $4.9 million has been waived on a cumulative basis.  The General Partner has also waived all future management fees.

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basis of Accounting, Policy

Basis of Presentation

The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiaries LEAF III C SPE, LLC, and LEAF Receivables Funding 5, LLC.  All intercompany accounts and transactions have been eliminated in consolidation.

The Fund owns approximately a 4% ownership interest in LEAF Funding, LLC ("Funding LLC"). The Fund accounts for its interest in Funding LLC under the equity method of accounting.

In March of 2009 the Fund also invested $428,000 in LEAF Funds Joint Venture 2, LLC ("LEAF Funds JV2"), representing a 2% ownership interest, which the Fund accounted for under the cost method of accounting. In May 2012 the Fund fully impaired its investment in LEAF Funds JV2 due to continued uncertainty as to future performance, which resulted in a $428,000 impairment charge on the accompanying statement of operations.  Should the Fund realize a return on its investment in a future period, this would result in income recognition to the Fund.

The accompanying unaudited financial statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Fund's financial position as of June 30, 2012, and the results of its operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of results of the Fund's operations for the 2012 calendar year. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with the Fund's financial statements and notes thereto presented in the Fund's Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 28, 2012.

The Fund has evaluated subsequent events through the date the financial statements were issued noting no subsequent events that were required to be disclosed in the consolidated financial statements.

Use of Estimates, Policy

Use of Estimates

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

Investment, Policy

Investments in Leases and Loans

The Fund's investment in leases and loans consist of direct financing leases, operating leases and loans.

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

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

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

A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable.  The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.  There were no write-downs of equipment for the three and six month periods ending June 30, 2012 or 2011.

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

Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management's historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account will progress through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due any remaining balance is fully-reserved less an estimated recovery amount. The Fund's policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.

Income is not recognized on leases and loans when a default on payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent.  Fees from delinquent payments are recognized when received and are included in other income.

Other Income

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others.    The Fund recognizes late fee income as fees are collected. Late fee income was $208,000 and $424,000, respectively, for the three and six months ended June 30, 2012 and $303,000 and $656,000, respectively, for the three and six months ended June 30, 2011.

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CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES (Tables)

6 Months Ended

Jun. 30, 2012

CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES [Abstract]

Schedule of summary of fees and costs of services charged

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Administrative expenses	$	161	$	378	$	362	$	825
Management fees		-		-		-		-

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DEFERRED FINANCING COSTS (Details) (USD $)	1 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
DEFERRED FINANCING COSTS [Abstract]
Deferred financing costs, net	$ 489,000	$ 1,584,000
Accumulated amortization, deferred finance costs	1,600,000	2,500,000
Deferred financing costs related to DZ Bank facility that were expensed during the period	$ 568,000

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net loss	$ (2,232)	$ (4,945)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss/(gain) on sale of equipment and lease dispositions, net	253	(134)
Equity in loss of affiliate	15	46
Impairment on investment in affiliate	428	0
Depreciation on operating leases	626	1,473
Provision for credit losses	1,108	6,434
Amortization of deferred charges and discount on debt	2,222	3,272
Changes in operating assets and liabilities:
Accounts receivable	11	17
Other assets	50	84
Accounts payable and accrued expenses and other liabilities	210	7
Due to affiliates	379	(1,791)
Net cash provided by operating activities	3,070	4,463
Cash flows from investing activities:
Purchases of leases and loans	(749)	0
Proceeds from leases and loans	29,620	50,669
Security deposits returned	(343)	(389)
Net cash provided by investing activities	28,528	50,280
Cash flows from financing activities:
Repayment of debt	(34,312)	(56,354)
Decrease in restricted cash	4,005	2,807
Increase in deferred financing costs	0	(5)
Cash distributions to partners	(1,211)	(1,203)
Net cash used in financing activities	(31,518)	(54,755)
Increase/(decrease) in cash	80	(12)
Cash, beginning of period	154	526
Cash, end of period	234	514
Cash paid for interest	$ 1,269	$ 1,113

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DEFERRED FINANCING COSTS

6 Months Ended

Jun. 30, 2012

DEFERRED FINANCING COSTS [Abstract]

DEFERRED FINANCING COSTS

NOTE 5 - DEFERRED FINANCING COSTS

As of June 30, 2012 and December 31, 2011, deferred financing costs include $489,000 and $1.6 million, respectively, of unamortized deferred financing costs which are being amortized over the estimated useful life of the related debt. Accumulated amortization as of June 30, 2012 and December 31, 2011 is $1.6 million and $2.5 million, respectively. In June 2012 the Fund expensed the unamortized deferred financing costs totaling $568,000 related to its DZ Bank facility due to the uncertainty that the Fund will utilize the facility in the future.

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DEBT (Details) (USD $)			6 Months Ended	7 Months Ended		6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Term [Member]	Nov. 05, 2010 Term [Member]	Dec. 31, 2011 Term [Member]	Jun. 30, 2012 Revolving [Member]	Dec. 31, 2011 Revolving [Member]	Dec. 08, 2010 Revolving [Member]
Maturity Date
Term, maturity date range, start			Aug. 31, 2018
Term, maturity date range, end			Jan. 31, 2019
Revolving, maturity date						Nov. 30, 2013
Outstanding Balance
Total secured debt	$ 55,050,000	$ 88,235,000	$ 55,050,000		$ 88,235,000	$ 0	$ 0
Interest rate per annum
Interest rate per annum, minimum (in hundredths)			1.70%
Interest rate per annum, maximum (in hundredths)			5.50%
Interest rate per annum, description basis						commercial paper
Interest rate per annum, basis spread on variable rate (in hundredths)						1.75%
2010-4 Term Securitization
Asset backed notes issued				201,900,000
Number of tranches, asset backed notes				6
Number of notes matured date1				1
Number of notes matured date2				5
Original discount of notes issued				7,200,000
Unamortized discount of notes issued				1,700,000
Investment in leases and loans			54,600,000
Restricted cash			6,700,000
DZ Bank
Amount of debt paid off								72,900,000
Estimated annual principal payments [Abstract]
June 30, 2013	33,302,000,000
June 30, 2014	14,782,000,000
June 30, 2015	8,655,000,000
Total estimated annual principal payments	$ 56,739,000,000

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FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Jun. 30, 2012

FAIR VALUE MEASUREMENT [Abstract]

Carrying value and fair value of the Fund's debt

Subsequent to the adoption of ASU 2011-04, the Fund is also required to disclose the methods used to estimate fair value and the level within the fair value hierarchy within which the fair value measurements are categorized. The carrying value and fair value of the Fund's debt at June 30, 2012 is as follows:

			Fair Value Measuring Using						Liabilities
	Carrying Value		Level 1		Level 2		Level 3		At Fair Value
Debt, at June 30, 2012	$	55,050	$	-	$	52,607	$	-	$	52,607