Investment in Finance Leases

6 Months Ended

Jun. 30, 2013

5.	Investments in Finance Leases

Anaerobic Digestion Plant

An anaerobic digestion plant is a series of processes in which microorganism’s breakdown biodegradable materials and produces a biogas which can be used to generate electricity.

On June 19, 2013, Bravo purchased a lease for a 20% ownership interest in an anaerobic digestion plant located in the United Kingdom from SQN Fund II for £118,564 ($187,332 applying the exchange rate used in the agreement). The Investment Manager re-tested the remaining lease term and determined the lease to be a finance lease. Under the terms of the lease Bravo will receive 28 monthly payments as follows: (i) £3,935 ($5,984 applying exchange rates at June 30, 2013) through September 20, 2015 and (ii) there will be a rent holiday, where no payments are due through January 20, 2016. At the expiration of the lease term, the lessee has a purchase option as follows: (i) make a one-time payment of £16,018 ($24,360 applying exchange rates at June 30, 2013) or (ii) make 4 additional monthly payments of £3,935 ($5,984 applying exchange rates at June 30, 2013) and then a final payment of £762 ($1,159 applying exchange rates at June 30, 2013). Once the final payment is received, title to the equipment passes to the lessee. When the anaerobic digestion plant produces sufficient electricity, it will be entitled to a payment under United Kingdom government program for the production of alternative energy. Bravo will account for this as contingent rental payments.

The purchase option is contingent upon Orchard House Foods Limited, the end user of the electricity generated by the anaerobic digestion plant, extending its service agreement for six months or longer with BioWayste Holdings Limited, the LLC’s lessee. The service agreement term runs concurrently with the lease term and is between Orchard House Foods Limited and BioWayste Holdings Limited, an independent service provider, who operates and maintains the anaerobic digestion plant.

The Partnership previously purchased the other 80% ownership interest during 2012. On June 19, 2013, the Partnership transferred the net book value of its 80% interest to Bravo.

Furniture and fixtures

On June 19, 2013, Bravo purchased a lease for furniture and fixtures located in the United Kingdom from SQN Fund II for £179,170 ($283,089 applying the exchange rate used in the agreement). The Investment Manager re-tested the remaining lease term and determined the lease to be a finance lease. The lease has an initial lease term through March 31, 2015 and a renewal period through December 31, 2016. The initial lease term has one remaining quarterly payment of £62,252 ($94,673 applying exchange rates as of June 30, 2013) through June 30, 2013 and then quarterly payments of £20,380 ($30,994 applying exchange rates as of June 30, 2013) through March 31, 2015. The renewal period has quarterly payments of £6,750 ($10,265 applying exchange rates as of June 30, 2011) through December 31, 2016. At the end of the renewal period the lessee acquires title to the furniture and fixtures.

On June 19, 2013, Bravo purchased a lease for furniture and fixtures located in the United Kingdom from SQN Fund II for £72,997 ($115,335 applying the exchange rate used in the agreement). The Investment Manager re-tested the remaining lease term and determined the lease to be a finance lease. The lease has a remaining term of 12 months and quarterly payments of £18,627 ($28,328 applying the exchange rate as of June 30, 2013).

Information Technology Infrastructure Equipment

On June 19, 2013, Bravo purchased lease for information technology infrastructure equipment located in the United Kingdom from SQN Fund II for £29,448 ($46,528 applying the exchange rate used in the agreement). The Investment Manager re-tested the remaining lease term and determined the lease to be a finance lease. The lease has a remaining term of 15 months through September 2014 with quarterly payments of £6,091 ($9,263 applying the exchange rate as of June 30, 2013).

Submersible Vehicle

On April 17, 2013, the Partnership entered into a lease transaction classified as a finance lease for £895,718 ($1,388,990 applying exchange rates at April 30, 2013). The equipment is used in the United Kingdom and is a remotely operated submersible vehicle used in the offshore energy industry. This equipment may be used for, but not limited to, drilling support, underwater rig inspections, repairs, maintenance and offshore wind farm construction projects. The term of the lease is for 60 months with the following schedule of payments: (i) £96,149 ($149,098 applying exchange rates at April 30, 2013) was paid when the lease was executed, (ii) £9,164 ($14,211 applying exchange rates at April 30, 2013) was paid on May 2, 2013 for the period from April 14, 2013 through April 30, 2013, (iii) £17,183 ($26,646 applying exchange rates at April 30, 2013) monthly, in arrears through April 30, 2018 and (iv) £87,349 ($135,452 applying exchange rates at April 30, 2013) due on April 30, 2018. The final payment may be extended, at the Partnership’s option for an additional 48 months at £2,300 ($3,567 applying exchange rates at April 30, 2013). If the extended rental period is not entered into then the lessee will pay annually, in advance, £7,996 ($12,399 applying exchange rates at April 30, 2013).

On June 19, 2013, the Partnership transferred the net book value of its investment in the submersible vessel to Bravo.

Medical Equipment

On March 27, 2013, the Partnership entered into a transaction classified as a finance lease for medical equipment located in the United States of America for $475,317. The finance lease has a 60 month term, requires monthly payments, in advance, of $10,500 and included a bargain purchase option at the expiration of the lease term. The initial monthly rental payment was paid on March 27, 2013. At March 31, 2013, the Partnership accrued a fee to SAM totaling $4,495 which is included in acquisition expense in the accompanying condensed consolidated statements of operations.

On June 19, 2013, the Partnership transferred the net book value of its investment in this medical equipment to Bravo.

Commercial LED lighting

On February 28, 2013, the Partnership’s Investment Manager entered into a transaction under the Vendor Program, and allocated the transaction to the Partnership. The transaction was to finance the installation of a LED lighting system for a community center located in the United Kingdom for £20,941 ($31,677 applying exchange rates at February 28, 2013). This transaction has a lease term of 36 months which commenced upon completion of the installation of the lighting system, which was completed during early March 2013. Under the terms of the agreement the Partnership receives quarterly lease payments, in advance, of £2,055 ($3,109 applying exchange rates at February 28, 2012). After the lease term expires title to the equipment will pass to the lessee.

Investment in finance leases consisted of the following:

	June 30, 2013			December 31,
	(Unaudited)			2012
Minimum rents receivable	$	9,209,627		$	8,319,597
Estimated unguaranteed residual value		535,791			465,151
Unearned income		(2,216,469	)		(1,944,158	)

	$	7,528,949		$	6,840,590

At June 30, 2013, the aggregate amounts of future minimum lease payments receivable, less amounts relating to three leases for entertainment and leisure equipment sold during July 2013, are as follows:

	Lease Payment Currencies
	US Dollars		British Pounds (1)		Total
Years Ending June 30,
2013	$	126,000	$	2,721,871	$	2,847,871
2014		126,000		2,162,736		2,288,736
2015		126,000		1,203,909		1,329,909
2016		126,000		1,082,731		1,208,731
2017		84,000		482,551		566,551

	$	588,000	$	7,653,798	$	8,241,798

(1) Converted to US Dollars at June 30, 2013 exchange rate.

For the three months ended June 30, 2013 and 2012, the Partnership incurred a foreign currency transaction loss on its various investments in finance leases of $46,373 and $260,809, respectively. For the six months ended June 30, 2013 and 2012, the Partnership incurred a foreign currency transaction loss on its various investments in finance leases of $526,205 and $59,695, respectively. All amounts are included in foreign currency transaction loss in the accompanying condensed consolidated statements of operations.