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Commonwealth Income & Growth Fund V – ‘10-Q’ for 9/30/19

On:  Wednesday, 11/13/19, at 2:36pm ET   ·   For:  9/30/19   ·   Accession #:  1654954-19-12828   ·   File #:  333-108057

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/13/19  Commonwealth Income & Growth Fd V 10-Q        9/30/19   46:1.6M                                   Blueprint/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    223K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     21K 
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25: R1          Document and Entity Information                     HTML     44K 
41: R2          Condensed Balance Sheets                            HTML     85K 
35: R3          Condensed Balance Sheets (Parenthetical)            HTML     20K 
15: R4          Condensed Statements of Operations                  HTML     59K 
27: R5          Condensed Statement of Partners' Capital            HTML     32K 
43: R6          Condensed Statements of Cash Flow                   HTML     36K 
37: R7          Business                                            HTML     24K 
13: R8          Summary of Significant Accounting Policies          HTML     32K 
29: R9          Information Technology, Medical Technology,         HTML     37K 
                Telecommunications Technology, Inventory                         
                Management Equipment (''Equipment'')                             
36: R10         Related Party Transactions                          HTML     24K 
42: R11         Notes Payable                                       HTML     32K 
28: R12         Supplemental Cash Flow Information                  HTML     20K 
16: R13         Commitments and Contingencies                       HTML     23K 
34: R14         Summary of Significant Accounting Policies          HTML     40K 
                (Policies)                                                       
40: R15         Summary of Significant Accounting Policies          HTML     18K 
                (Tables)                                                         
26: R16         Information Technology, Medical Technology,         HTML     31K 
                Telecommunications Technology, Inventory                         
                Management Equipment (Tables)                                    
14: R17         Related Party Transactions (Tables)                 HTML     23K 
38: R18         Notes Payable (Tables)                              HTML     32K 
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23: R20         Business (Details)                                  HTML     17K 
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                (Details)                                                        
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46: R23         Information Technology, Medical Technology,         HTML     23K 
                Telecommunications Technology, Inventory                         
                Management Equipment (Details 1)                                 
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                Telecommunications Technology, Inventory                         
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                Management Equipment (Details Narrative)                         
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24: R31         Supplemental Cash Flow Information (Details)        HTML     18K 
44: R32         Supplemental Cash Flow Information (Details 1)      HTML     18K 
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‘10-Q’   —   Quarterly Report


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 C:   C: 
  Blueprint  

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019 or
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 333-108057
 
COMMONWEALTH INCOME & GROWTH FUND V
(Exact name of registrant as specified in its charter)
 
Pennsylvania
65-1189593
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
17755 US Highway 19 North
Suite 400
Clearwater, FL 33764
(Address, including zip code, of principal executive offices)
 
(877) 654-1500
 (Registrant’s telephone number including area code)
 
Indicate by check mark whether the registrant (i) 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, and (ii) has been subject to such filing requirements for the past 90 days:
YES ☒ NO ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).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 definition of "accelerated filer, “large accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
(Do not check if a smaller reporting company.)
Emerging growth company ☐
 
Indicate by check mark whether the registrant is an emerging growth company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
 

 
1
 C: 
 
 
FORM 10-Q
SEPTEMBER 30, 2019
 
TABLE OF CONTENTS
 
PART I
Item 1.
Financial Statements
   3
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 22
Item 4.
Controls and Procedures
 22
PART II
Item 1.
Commitments and Contingencies
 23
Item 2.
Legal Proceedings
 23
Item 2A.
Risk Factors
 24
Item 3.
Unregistered Sales of Equity Securities and Use of Proceeds
 24
Item 4.
Defaults Upon Senior Securities
 24
Item 5.
Mine Safety Disclosures
 24
Item 6.
Other Information
 24
Item 7.
Exhibits
 24
 
 
 
2
 
 
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
 
 
Commonwealth Income & Growth Fund V
 
 
Condensed Balance Sheets
 
 
 
 
 
 
 
 
 
September 30,
 
 
   
 
2018
 
 
 
(unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $3,570 
 $19,695 
Lease income receivable, net of reserve of approximately $10,000 at September 30, 2019 and December 31, 2018
  214,578 
  114,375 
Other receivables
  1,054 
  4,133 
Prepaid expenses
  1,665 
  1,165 
 
  220,867 
  139,368 
 
    
    
Net investment in finance leases
  10,015 
  21,334 
 
    
    
Equipment, at cost
  4,519,881 
  4,665,356 
Accumulated depreciation
  (4,194,295)
  (4,113,846)
 
  325,586 
  551,510 
 
    
    
Total Assets
 $556,468 
 $712,212 
 
    
    
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
    
    
LIABILITIES
    
    
Accounts payable
 $175,465 
 $173,998 
Accounts payable, CIGF, Inc., net
  22,732 
  22,732 
Accounts payable, Commonwealth Capital Corp., net
  115,355 
  202,146 
Other accrued expenses
  7,964 
  2,979 
Unearned lease income
  17,824 
  19,894 
Notes payable
  142,722 
  303,642 
Total Liabilities
  482,062 
  725,391 
 
    
    
COMMITMENTS AND CONTINGENCIES
    
    
PARTNERS' CAPITAL (DEFICIT)
    
    
General Partner
  1,000 
  1,000 
Limited Partners
  73,406 
  (14,179)
Total Partners' Capital (Deficit)
  74,406 
  (13,179)
 
    
    
Total Liabilities and Partners' Capital (Deficit)
 $556,468 
 $712,212 
 
    
    
see accompanying notes to condensed financial statements
 
 
3
 
 
 
 
Commonwealth Income & Growth Fund V
 
 
Condensed Statements of Operations
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
 
 
   
 
2018
 
 
2019
 
 
2018
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Lease
 $123,869 
 $143,938 
 $378,752 
 $440,773 
Interest and other
  691 
  689 
  1,255 
  2,542 
Sales and property taxes
  7,002 
  - 
  21,870 
  - 
Gain on sale of equipment
  2,459 
  3,327 
  2,834 
  12,808 
Total revenue and gain on sale of equipment
  134,021 
  147,954 
  404,711 
  456,123 
 
    
    
    
    
Expenses
    
    
    
    
Operating, excluding depreciation and amortization
  2,770 
  44,570 
  67,686 
  110,242 
Interest
  2,407 
  5,377 
  9,265 
  18,490 
Depreciation
  63,550 
  93,156 
  218,305 
  295,698 
Sales and property taxes
  7,002 
  - 
  21,870 
  - 
Total expenses
  75,729 
  143,103 
  317,126 
  424,430 
 
    
    
    
    
Net income
 $58,292 
 $4,851 
 $87,585 
 $31,693 
 
    
    
    
    
Net income allocated to Limited Partners
 $58,292 
 $4,851 
 $87,585 
 $31,693 
 
    
    
    
    
Net income per equivalent Limited Partnership unit
 $0.05 
 $0.00 
 $0.07 
 $0.03 
 
    
    
    
    
Weighted average number of equivalent Limited Partnership units outstanding during the period
  1,236,148 
  1,236,148 
  1,236,148 
  1,236,148 
 
    
    
    
    
 
see accompanying notes to condensed financial statements
 
 
 
4
 
Commonwealth Income & Growth Fund V
Condensed Statement of Partners' (Deficit) Capital
For the three, six and nine months ended September 30, 2019 and 2018
(unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General
 
 
Limited
 
 
 
 
 
 
 
 
 
 
 
 
Partner
 
 
Partner
 
 
General
 
 
Limited
 
 
 
 
 
 
Units
 
 
Units
 
 
Partner
 
 
Partners
 
 
Total
 
Balance, January 1, 2019
  50 
  1,236,148 
 $1,000 
 $(14,179)
 $(13,179)
Net income
  - 
  - 
  - 
  2,080 
  2,080 
Balance, March 31, 2019
  50 
  1,236,148 
 $1,000 
 $(12,099)
 $(11,099)
Net income
  - 
  - 
  - 
  27,213 
  27,213 
Balance, June 30, 2019
  50 
  1,236,148 
 $1,000 
 $15,114 
 $16,114 
Net income
  - 
  - 
  - 
  58,292 
  58,292 
  50 
  1,236,148 
 $1,000 
 $73,406 
 $74,406 
 
 
 
 
General
 
 
Limited
 
 
 
 
 
 
 
 
 
 
 
 
Partner
 
 
Partner
 
 
General
 
 
Limited
 
 
 
 
 
 
Units
 
 
Units
 
 
Partner
 
 
Partners
 
 
Total
 
Balance, January 1, 2018
  50 
  1,236,148 
 $1,000 
 $(71,280)
 $(70,280)
Net income
  - 
  - 
  - 
  (6,927
  (6,927)
Balance, March 31, 2018
  50 
  1,236,148 
 $1,000 
 $(78,207)
 $(77,207)
Net income
  - 
  - 
  - 
  33,769 
  33,769 
Balance, June 30, 2018
  50 
  1,236,148 
 $1,000 
 $(44,438)
 $(43,438)
Net income
  - 
  - 
  - 
  4,851 
  4,851 
  50 
  1,236,148 
 $1,000 
 $(39,587)
 $(38.587)
 
 
see accompanying notes to condensed financial statements
 
5
 
  
Commonwealth Income & Growth Fund V
Condensed Statements of Cash Flow
(unaudited)
 
 
 
 
 
 
 
 
 
Nine months ended
 
 
 
   
 
2018
 
 
 
 
 
 
 
 
Net cash used in operating activities
 $(31,261)
 $(363)
 
    
    
Cash flows from investing activities
    
    
Capital expenditures
  - 
  (30,275)
Payments received from finance leases
  - 
  21,603 
Net proceeds from the sale of equipment
  15,136 
  19,551 
 
    
    
Net cash provided by investing activities
  15,136 
  10,879 
 
    
    
Net (decrease) increase in cash and cash equivalents
  (16,125)
  10,516 
 
    
    
Cash and cash equivalents, beginning of period
  19,695 
  12,338 
 
    
    
Cash and cash equivalents, end of period
 $3,570 
 $22,854 
 
    
    
see accompanying notes to condensed financial statements
  
 
  
 
6
 
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
1. Business
 
Commonwealth Income & Growth Fund V (the “Partnership”) is a limited partnership organized in the Commonwealth of Pennsylvania in May 2003. The Partnership offered for sale up to 1,250,000 units of the limited partnership at the purchase price of $20 per unit (the “offering”). The Partnership reached the minimum amount in escrow and commenced operations on March 14, 2005. As of February 24, 2006, the Partnership was fully subscribed.
 
The Partnership used the proceeds of the offering to acquire, own and lease various types of information technology, medical technology, telecommunications technology, inventory management equipment and other similar capital equipment, which is leased primarily to U.S. corporations and institutions.
 
Commonwealth Capital Corp. (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships that it manages based on certain risk factors.
 
The Partnership’s investment objective is to acquire primarily high technology equipment. Information technology has developed rapidly in recent years and is expected to continue to do so. Technological advances have permitted reductions in the cost of information technology processing capacity, speed, and utility. In the future, the rate and nature of equipment development may cause equipment to become obsolete more rapidly. The Partnership also acquires high technology medical, telecommunications and inventory management equipment. The Partnership’s general partner will seek to maintain an appropriate balance and diversity in the types of equipment acquired. The market for high technology medical equipment is growing each year. Generally, this type of equipment will have a longer useful life than other types of technology equipment. This allows for increased re-marketability, if it is returned before its economic or announcement cycle is depleted.
 
The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly owned subsidiary of CCC. Approximately ten years after the commencement of operations (the “operational phase”), the Partnership intended to sell or otherwise dispose of all of its equipment; make final distributions to partners, and to dissolve. The Partnership was originally scheduled to end its operational phase on February 4, 2017. During the year ended December 31, 2015, the operational phase was officially extended to December 31, 2020 through an investor proxy vote. The Partnership is expected to terminate on December 31, 2022.
 
For the first, second and third quarters of 2019, the General Partner elected to forgo distributions and allocations of net income owed to it and suspended limited partner distributions. The General Partner will reassess the funding of limited partner distributions on a quarterly basis, throughout 2019.
 
Liquidity and Going Concern
 
The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of Commonwealth Income and Growth Fund V (“CIGF5” or “the Partnership”) through November 30, 2020. The General Partner will continue to reassess the funding of limited partner distributions throughout 2019 and will continue to waive certain fees. The General Partner and CCC will also determine if related party payables owed to them, the Partnership, may be deferred (if deemed necessary in an effort to further increase the Partnership’s cash flow). If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.
 
The Partnership has incurred recurring losses and has a working capital deficit at September 30, 2019. The Partnership believes it has alleviated these conditions as discussed above. Allocations of income and distributions of cash are based on the Agreement.  
 
 
7
 
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Financial information as of December 31, 2018 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2019.
 
Disclosure of Fair Value of Financial Instruments
 
Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash and cash equivalents, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of September 30, 2019 and December 31, 2018 due to the short term nature of these financial instruments.
 
The Partnership’s long-term debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at September 30, 2019 and December 31, 2018 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value.
 
Cash and cash equivalents
 
We consider cash equivalents to be highly liquid investments with the original maturity dates of 90 days or less.
At September 30, 2019, cash and cash equivalents was held in one account maintained at one financial institution with an aggregate balance of approximately $5,000. Bank accounts are federally insured up to $250,000 by the FDIC. At September 30, 2019, the total cash bank balance was as follows:
 
 
Balance
 
Total bank balance
 $5,000 
FDIC insured
  (5,000)
Uninsured amount
 $- 
 
The Partnership’s bank balances are fully insured by the FDIC. The Partnership deposits its funds with a Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks listed on the New York Stock Exchange. The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2019 due to many factors, including cash receipts, equipment acquisitions and interest rates.
 
 
 
8
 
 
Recently Adopted Accounting Pronouncements
 
In December 2018, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which is expected to reduce a lessor’s implementation and ongoing costs associated with applying the new leases standard. The ASU also clarifies a specific lessor accounting requirement.  Specifically, this ASU addresses the following issues facing lessors when applying the leases standard: Sales taxes and other similar taxes collected from lessees, certain lessor costs paid directly by lessees and recognition of variable payments for contracts with lease and non-lease components. The Partnership concluded, upon adoption of this update that there was no significant change to their accounting. 
 
In March 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) Section A—Leases: Amendments to the FASB Accounting Standards Codification® Section B—Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification® Section C—Background Information and Basis for Conclusions- Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). The new standard requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply.  This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Additionally, our business involves lease agreements with our customers whereby we are the lessor in the transaction. Accounting guidance for lessors is largely unchanged. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  We adopted Topic 842 at the required adoption date of January 1, 2019. We used the package of practical expedients permitted under the transition guidance that allowed us not to reassess: (1) lease classification for expired or existing leases and (2) initial direct costs for any expired or existing leases. We did not recognize an adjustment to the opening balance of partner’s capital upon adoption.
 
In March 2019, the FASB issued Accounting Standards Update No. 2019-01, Leases (Topic 842) Codification Improvements — Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). The amendments in this Update include the following items brought to the Board’s attention through those interactions with stakeholders:
 
Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers (Issue 1).
Presentation on the statement of cash flows—sales-type and direct financing leases (Issue 2).
Transition disclosures related to Topic 250, Accounting Changes and Error Corrections (Issue 3).
 
We adopted Topic 842 at the required adoption date of January 1, 2019. The Partnership concluded that the sales taxes and other similar taxes collected from the lessees are recorded in the current period in the Condensed Statement of Operations as gross revenues and expenses. As permitted by the guidance, we elected the practical expedient that allows us not to restate comparative periods in the financial statements. Upon adoption of this update, there was no significant change to the Partnership accounting.
 
 
9
 
  Recent Accounting Pronouncements Not Yet Adopted
 
FASB issued a new guidance, Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as clarified and amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses and ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Thus, for a calendar-year company, it would be effective January 1, 2020. The new guidance requires an allowance for credit losses based on the expectation of lifetime credit losses on financial receivables carried at amortized cost, including, but not limited to, mortgage loans, premium receivables, reinsurance receivables and certain leases. The new current expected credit loss (“CECL”) impairment model for financial assets reported at amortized cost will be applicable to receivables associated with sales-type and direct financing leases but not to operating lease receivables. The Partnership continues to evaluate the impact of the new guidance on its condensed financial statements.
 
3. Information Technology, Medical Technology, Telecommunications Technology, Inventory Management Equipment and other Business-Essential Capital Equipment (“Equipment”)
 
The Partnership is the lessor of equipment under operating leases with periods that generally will range from 12 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.
 
Remarketing fees are paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with the lessee and encourages potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. Remarketing fees incurred in connection with lease extensions are accounted for as operating costs. Remarketing fees incurred in connection with the sale of equipment are included in the gain or loss calculations. For the nine months ended September 30, 2019 and 2018, no remarketing fees were incurred or paid.
 
Gains from the termination of leases are recognized when the lease is modified and terminated concurrently. Gains from lease termination included in lease revenue for the nine months ended September 30, 2019 and 2018 were approximately $0 and $3,000, respectively.
 
CCC, on behalf of the Partnership and on behalf of other affiliated companies and partnerships (“partnerships”), acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various companies based on certain risk factors.
 
The Partnership’s share of the cost of the equipment in which it participates with other partnerships at September 30, 2019 was approximately $1,765,000 and is included in the Partnership’s equipment on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at September 30, 2019 was approximately $7,433,000. The Partnership’s share of the outstanding debt associated with this equipment at September, 2019 was approximately $92,000 and is included in the Partnership’s notes payable on its balance sheet. The total outstanding debt related to the equipment shared by the Partnership at September 30, 2019 was approximately $1,013,000.
 
The Partnership’s share of the cost of the equipment in which it participates with other partnerships at December 31, 2018 was approximately $1,853,000 and is included in the Partnership’s equipment on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 2018 was approximately $7,609,000. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2018 was approximately $218,000 and is included in the Partnership’s notes payable on its balance sheet. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2018 was approximately $1,696,000.
 
As the Partnership and the other programs managed by the General Partner continue to acquire new equipment for the portfolio, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the fund an opportunity to acquire additional assets and revenue streams, while allowing the fund to remain diversified and reducing its overall risk with respect to one portfolio.
 
 
10
 
 
The following is a schedule of approximate future minimum rentals on non-cancellable operating leases at September 30, 2019:
 
 For the period ended December
 
Amount
 
Three months ended December 31, 2019
 $90,000 
Year Ended December 31, 2020
  96,000 
Year Ended December 31, 2021
  13,000 
 
 $199,000 
 
Finance Leases:
 
The following lists the approximate components of the net investment in direct financing leases:
 
Total minimum lease payments to be received
 $8,000 
 $15,000 
Estimated residual value of leased equipment (unguaranteed)
  3,000 
  7,000 
Less: unearned income
  (1,000)
  (1,000)
Net investment in finance leases
 $10,000 
 $21,000 
 
We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credit scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. Factors taken into consideration when assessing risk include both general and industry specific qualitative and quantitative metrics. We separately take into consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category.
 
A reserve for credit losses is deemed necessary when payment has not been received for one or more months of receivables due on the equipment held under finance leases. At the end of each period, management evaluates the open receivables due on this equipment and determines the need for a reserve based on payment history and any current factors that would have an impact on payments.
 
The following table presents the credit risk profile, by creditworthiness category, of our direct finance lease receivables at September 30, 2019:
 
Risk Level
 
Percent of Total
Low
 
 
-%
Moderate-Low
 
 
-%
Moderate
 
 
-%
Moderate-High
 
 
100%
High
 
 
-%
Net finance lease receivable
 
 
100%
 
As of September 30, 2019 and December 31, 2018, we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive, with no late payments.
 
 
11
 
 
The following is a schedule of approximate future minimum rentals on non-cancellable finance leases at September 30, 2019:
 
 
Amount
 
Three months ended December 31, 2019
 $2,000 
2020
  6,000 
Total
 $8,000 
 
The Partnership was originally scheduled to end its operational phase on February 4, 2017. During the year ended December 31, 2015, the operational phase was officially extended to December 31, 2020 through an investor proxy vote (see note 1). The Partnership is expected to terminate on December 31, 2022. If the Partnership should terminate, CCC will assume all remaining active leases at their fair market value and related remaining revenue stream and any associated debt obligation for the duration of the remaining lease term.
 
4. Related Party Transactions
 
Receivables/Payables
 
As of September 30, 2019 and December 31, 2018, the Company’s related party receivables and payables are short term, unsecured and non-interest bearing.
 
Nine months ended September 30,
   
 
2018
 
 
Reimbursable Expenses
 
 
 
 
 
 
The General Partner and its affiliates are entitled to reimbursement by the Partnership for the cost of goods, supplies or services obtained and used by the General Partner in connection with the administration and operation of the Partnership from third parties unaffiliated with the General Partner. In addition, the General Partner and its affiliates are entitled to reimbursement of certain expenses incurred by the General Partner and its affiliates in connection with the administration and operation of the Partnership. For the three months ended September 30, 2019 and 2018, the General Partner waived certain reimbursable expenses due to it by the Partnership. For the nine months ended September 30, 2019 and 2018, the Partnership was charged approximately $0 in Other LP expense.
 $59,000 
 $99,000 
 
    
    
Equipment Management Fee
    
    
The General Partner is entitled to be paid for managing the equipment portfolio a monthly fee equal to the lesser of (i) the fees which would be charged by an independent third party for similar services for similar equipment or (ii) the sum of (a) two percent of (1) the gross lease revenues attributable to equipment which is subject to full payout net leases which contain net lease provisions plus (2) the purchase price paid on conditional sales contracts as received by the Partnership and (b) 5% and 2% of the gross lease revenues attributable to equipment which is subject to operating leases, respectively. In an effort to increase future cash flow for the fund our General Partner had elected to reduce the percentage of equipment management fees paid to it from 5% to 2.5% of the gross lease revenues attributable to equipment which is subject to operating leases. The reduction was effective beginning in July 2010 and remained in effect for the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, 2019 and 2018, equipment management fees of approximately $10,000 and $11,000 were earned but were waived by the General Partner, respectively.
 $- 
 $- 
 
 
 
12
 
 
5. Notes Payable
 
Notes payable consisted of the following approximate amounts:
 
 
September 30,
 
 
   
 
2018
 
Installment note payable to bank; interest at 4.47% due in monthly installments of $2,208, including interest, with final payment in February 2019
  - 
  2,000 
Installment notes payable to bank; interest at 6.00%, due in monthly installments ranging from $803 to $1,216, including interest, with final payment in February 2019
  - 
  2,000 
Installment note payable to bank; interest at 1.80% due in monthly installments of $2,116, including interest, with final payment in February 2019
  - 
  4,000 
Installment note payable to bank; interest at 1.80% due in monthly installments of $175, including interest, with final payment in March 2019
  - 
  1,000 
Installment notes payable to bank; interest at 1.80% due in monthly installments ranging from $121 to $175, including interest, with final payment in April 2019
  - 
  2,000 
Installment note payable to bank; interest at 4.98% due in monthly installments of $2,847, including interest, with final payment in December 2019
  9,000 
  33,000 
Installment note payable to bank; interest at 5.25% due in quarterly installments of $8,102, including interest, with final payment in December 2019
  8,000 
  31,000 
Installment note payable to bank; interest at 4.87% due in quarterly installments of $11,897, including interest, with final payment in January 2020
  23,000 
  57,000 
Installment note payable to bank; interest at 5.25% due in monthly installments of $679, including interest, with final payment in June 2020
  6,000 
  12,000 
Installment note payable to bank; interest at 5.56% due in monthly installments of $2,925, including interest, with final payment in June 2020
  26,000 
  50,000 
Installment note payable to bank; interest at 4.87% due in monthly installments of $1,902, including interest, with final payment in July 2020
  7,000 
  13,000 
Installment note payable to bank; interest at 6.28% due in quarterly installments of $722, including interest, with final payment in September 2020
  3,000 
  5,000 
Installment note payable to bank; interest at 5.75% due in monthly installments of $857, including interest, with final payment in November 2020
  12,000 
  19,000 
Installment note payable to bank; interest at 5.31% due in quarterly installments of $4,618, including interest, with final payment in January 2021
  27,000 
  39,000 
Installment note payable to bank; interest at 4.70% due in monthly installments of $1,360, including interest, with final payment in February 2021
  22,000 
  34,000 
 
 $143,000 
 $304,000 
 
 
13
 
 
These notes are secured by specific equipment with a carrying value of approximately $291,000 and are nonrecourse liabilities of the Partnership. As such, the notes do not contain any financial debt covenants with which we must comply on either an annual or quarterly basis. Aggregate approximate maturities of notes payable for each of the periods subsequent to September 30, 2019 are as follows:
 
 
Amount
 
Three months ended December 31, 2019
 $52,000 
  84,000 
  7,000 
 
 $143,000 
 
The Partnership was originally scheduled to end its operational phase on February 4, 2017. During the year ended December 31, 2015, the operational phase was officially extended to December 31, 2020 through an investor proxy vote (see note 1). The Partnership is expected to terminate on December 31, 2022. If the Partnership should terminate, CCC will assume the obligation related to the remaining notes payable for the duration of the remaining lease term.
 
During 2015, the General Partner executed a collateralized debt financing agreement on behalf of certain affiliates for a total shared loan amount of approximately $847,000, of which the Partnership’s share was approximately $101,000. The Partnership’s portion of the current loan amount at September 30, 2019 and December 31, 2018 was approximately $0 and $2,000, respectively, and is secured by specific equipment under both operating and finance leases. The carrying value of the secured equipment under operating leases at both September 30, 2019 and December 31, 2018 is $0. The carrying value of the secured equipment under finance leases at September 30, 2019 and December 31, 2018 is approximately $10,000 and $22,000, respectively.
 
6. Supplemental Cash Flow Information
 
No interest or principal on notes payable was paid by the Partnership during 2019 and 2018 because direct payment was made by lessee to the bank in lieu of collection of lease income and payment of interest and principal by the Partnership.
 
Other noncash activities included in the determination of net loss are as follows:
 
Nine months ended September 30,
   
 
2018
 
Lease revenue net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank
 $161,000 
 $229,000 
 
During the nine months ended September 30, 2019 and 2018, the Partnership wrote-off fully depreciated equipment of approximately $0.
 
 
 
14
 
 
7. Commitments and Contingencies
 
FINRA
 
On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming Commonwealth Capital Securities Corp. (“CCSC”) and the owner of the firm, Kimberly Springsteen-Abbott, as respondents; however on October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Ms. Springsteen-Abbott.  The sole remaining charge was that Ms. Springsteen-Abbott had approved the misallocation of some expenses to certain Funds.  Management believes that the expenses at issue include amounts that were proper and that were properly allocated to Funds, and also identified a smaller number of expenses that had been allocated in error, but were adjusted and repaid to the affected Funds when they were identified in 2012.  During the period in question, Commonwealth Capital Corp. (“CCC”) and Ms. Springsteen-Abbott provided important financial support to the Funds, voluntarily absorbed expenses and voluntarily waived fees in amounts aggregating in excess of any questioned allocations.  A Hearing Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should be barred from the securities industry because the Panel concluded that she allegedly misallocated approximately $208,000 of expenses involving certain Funds over the course of three years.  As such, management had allocated approximately $87,000 of the $208,000 in allegedly misallocated expenses back to the affected funds as a contingency accrual in CCC’s financial statements and a good faith payment for the benefit of those Income Funds.
 
The decision of the Hearing Panel was stayed when it was appealed to FINRA's National Adjudicatory Council (the “NAC”) pursuant to FINRA Rule 9311.  The NAC issued a decision that upheld the lower panel’s ruling and the bar took effect on August 23, 2016.  Ms. Springsteen-Abbott appealed the NAC’s decision to the U.S. Securities and Exchange Commission (the “SEC”).  On March 31, 2017, the SEC criticized that decision as so flawed that the SEC could not even review it, and remanded the matter back to FINRA for further consideration consistent with the SEC’s remand, but did not suggest any view as to a particular outcome.
 
On July 21, 2017, FINRA reduced the list of 1,840 items totaling $208,000 to a remaining list of 84 items totaling $36,226 (which includes approximately $30,000 of continuing education expenses for personnel providing services to the Funds), and reduced the proposed fine from $100,000 to $50,000, but reaffirmed its position on the bar from the securities industry.  Respondents promptly appealed FINRA’s revised ruling to the SEC. That appeal is pending as of November 13, 2019.  All requested or allowed briefs have been filed with the SEC.  Management believes that whatever final resolution of this may be, it will not result in any material adverse financial impact on the Funds, although, a final assurance cannot be provided until the legal matter is resolved.
 
Leased Equipment
 
The General Partner is in the process of negotiations with a lessee to “Buy-out” certain equipment currently under lease contract.  If a “Buy-out” agreement is not reached, the lessee will continue to lease the equipment as written under the original lease contract.  The equipment to be included in the “Buy-out” represents approximately 12.5% of the Partnership’s total equipment at cost as of September 30, 2019.
 
 
 
15
 
 
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD LOOKING STATEMENTS
 
This section, as well as other portions of this document, includes certain forward-looking statements about our business and our prospects, tax treatment of certain transactions and accounting matters, sales of securities, expenses, cash flows, distributions, investments and operating and capital requirements. Such forward-looking statements include, but are not limited to: acquisition policies of our general partner; the nature of present and future leases; provisions for uncollectible accounts; the strength and sustainability of the U.S. economy; the continued difficulties in the credit markets and their impact on the economy in general; and the level of future cash flow, debt levels, revenues, operating expenses, amortization and depreciation expenses. You can identify those statements by the use of words such as “could,” “should,” “would,” “may,” “will,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and “contemplate,” as well as similar words and expressions.
 
Actual results may differ materially from those in any forward-looking statements because any such statements involve risks and uncertainties and are subject to change based upon various important factors, including, but not limited to, nationwide economic, financial, political and regulatory conditions; the health of debt and equity markets, including interest rates and credit quality; the level and nature of spending in the information, medical and telecommunications technologies markets; and the effect of competitive financing alternatives and lease pricing.
 
Readers are also directed to other risks and uncertainties discussed in other documents we file with the SEC, including, without limitation, those discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC. We undertake no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.
 
INDUSTRY OVERVIEW
 
The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $1 trillion equipment finance sector, showed their overall new business volume for September was $10 billion, up 18 % year-over-year from new business volume in September 2018. Volume was up 9 % month-to-month from $9.2 billion in August. Year to date, cumulative new business volume was up 5 % compared to 2018. Receivables over 30 days were 1.70 %, down from 2.0 % the previous month and up from 1.60 % the same period in 2018. Charge-offs was 0.40 %, down from 0.42 % the previous month, and unchanged from the year-earlier period. Credit approvals totaled 76.3 %, down from 76.6 % in August. Total headcount for equipment finance companies was down 2.1 % year-over-year. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in October is 51.4, down from the September index of 54.7.
 
CRITICAL ACCOUNTING POLICIES
 
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on various other assumptions that are believed to be 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.
 
We believe that our critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
 
See Note 2 to our condensed financial statements included herein for a discussion related to recent accounting pronouncements.
 
 
 
16
 
 
LEASE INCOME RECEIVABLE
 
Lease income receivable includes current lease income receivable net of allowances for uncollectible accounts, if any. The Partnership monitors lease income receivable to ensure timely and accurate payment by lessees. Its Lease Relations department is responsible for monitoring lease income receivable and, as necessary, resolving outstanding invoices. Lease revenue is recognized on a monthly straight-line basis which is in accordance with the terms of the lease agreement.
 
The Partnership reviews a customer’s credit history before extending credit. When the analysis indicates that the probability of full collection is unlikely, the Partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers, historical trends and other information. The Partnership writes off its lease income receivable when it determines that it is uncollectible and all economically sensible means of recovery have been exhausted.
 
REVENUE RECOGNITION
 
Through September 30, 2019, the Partnership’s lease portfolio consisted of operating and finance leases. For operating leases, lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreements.
 
Finance lease interest income is recorded over the term of the lease using the effective interest method. For finance leases, we record, at lease inception, unearned finance lease income which is calculated as follows: total lease payments, plus any residual values and initial direct costs, less the cost of the leased equipment.
 
Upon the end of the lease term, if the lessee has not met the return conditions as set out in the lease, the Partnership is entitled, in certain cases, to additional compensation from the lessee. The Partnership’s accounting policy for recording such payments is to treat them as revenue.
 
Gain or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund’s condensed Statement of Operations.
 
Our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index.
 
Gains from the termination of leases are recognized when the lease is modified and terminated concurrently. Gains from lease termination included in lease revenue for the nine months ended September 30, 2019 and 2018 were approximately $0 and $3,000, respectively.
 
LONG-LIVED ASSETS
 
Depreciation on equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years. Once an asset comes off lease or is re-leased, the Partnership reassesses the useful life of an asset.
 
The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset, third party appraisals or comparable sales of similar assets, as applicable, based on asset type.
 
Residual values are determined by management and are calculated using information from both internal and external sources, as well as other economic indicators.
 
 
 
17
 
 
LIQUIDITY AND CAPITAL RESOURCES
 
Our primary source of cash for the nine months ended September 30, 2019 is net proceeds from the sale of equipment of approximately $15,000. This compares to the nine months ended September 30, 2018 where our primary sources of cash were payments from finance leases of approximately $22,000 and net proceeds from the sale of equipment of approximately $20,000.
 
Our primary uses of cash for the nine months ended September 30, 2019 was cash used in operating activities of approximately $31,000. Our primary uses of cash for the nine months ended September 30, 2018 was for the purchase of new equipment of approximately $30,000.
 
For the nine months ended September 30, 2019 and 2018, the Partnership had no financing activities.
 
As we continue to increase the size of our equipment portfolio, operating expenses will increase, which reflects the administrative costs of servicing the portfolio, but because of our investment strategy of leasing equipment primarily through triple-net leases, we avoid operating expenses related to equipment maintenance or taxes.
 
Cash was used in operating activities for the nine months ended September 30, 2019 of approximately $31,000, which includes net income of approximately $88,000 and depreciation and amortization expenses of approximately $218,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $161,000. Cash was used in operating activities for the nine months ended September 30, 2018 of approximately $400, which includes a net income of approximately $32,000 and depreciation and amortization expenses of approximately $296,000.  Other non-cash activities included in the determination of net gain include direct payments of lease income by lessees to banks of approximately $229,000 and a gain on sale of equipment in the amount of approximately $13,000.
 
During 2015, the General Partner executed a collateralized debt financing agreement on behalf of certain affiliates for a total shared loan amount of approximately $847,000, of which the Partnership’s share was approximately $101,000. The Partnership’s portion of the current loan amount at September 30, 2019 and December 31, 2018 was approximately $0 and $2,000, respectively, and is secured by specific equipment under both operating and finance leases. The carrying value of the secured equipment under operating leases at both September 30, 2019 and December 31, 2018 is $0. The carrying value of the secured equipment under finance leases at September 30, 2019 and December 31, 2018 is approximately $10,000 and $22,000, respectively.
 
We consider cash equivalents to be highly liquid investments with the original maturity dates of 90 days or less.
At September 30, 2019, cash and cash equivalents was held in one account maintained at one financial institution with an aggregate balance of approximately $5,000. Bank accounts are federally insured up to $250,000 by the FDIC. At September 30, 2019, the total cash bank balance was as follows:
 
 
Balance
 
Total bank balance
 $5,000 
FDIC insured
  (5,000)
Uninsured amount
 $- 
 
 
 
18
 
  The Partnership’s bank balances are fully insured by the FDIC. The Partnership deposits its funds with a Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks listed on the New York Stock Exchange. The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2019 due to many factors, including cash receipts, equipment acquisitions, interest rates, and distributions to limited partners.
 
Our investment strategy of acquiring equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes our operating expenses. As of September 30, 2019, we had future minimum rentals on non-cancelable operating leases of approximately $90,000 for the balance of the year ending December 31, 2019 and approximately $109,000 thereafter.  As of September 30, 2019, we had future minimum rentals on non-cancelable finance leases of approximately $2,000 for the balance of the year ending December 31, 2019 and approximately $6,000 thereafter.
 
As of September 30, 2019, our non-recourse debt was approximately $143,000, with interest rates ranging from 1.8% to 6.28%, and will be payable through February 2021.
 
The Partnership was originally scheduled to end its operational phase on February 4, 2017.  During the year ended December 31, 2015, the operational phase was officially extended to December 31, 2020 through an investor proxy vote. The Partnership is expected to terminate on December 31, 2022. As such, the Partnership will continue to report its financial statements on a going concern basis until a formal plan of liquidation is approved by the General Partner.
 
As the Partnership and the other programs managed by the General Partner increase their overall portfolio size, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the fund an opportunity to acquire additional assets and revenue streams, while allowing the fund to remain diversified and reducing its overall risk with respect to one portfolio. Thus, total shared equipment and related debt should continue to trend higher in fiscal year 2019, as the Partnership builds its portfolio.
 
The General Partner elected to forgo distributions and allocations of net income owed to it, and suspended limited partner distributions for the nine months ended September 30, 2019. The General Partner will continue to reassess the funding of limited partner distributions throughout 2019 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.
 
The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through September 30, 2020. The General Partner will continue to reassess the funding of limited partner distributions throughout 2019 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits. Additionally, the Partnership will seek to enhance portfolio returns and maximize cash flow through the use of leveraged lease transactions; the acquisition of lease equipment through financing.  This strategy allows the General Partner to acquire additional revenue generating leases without the use of investor funds, thus maximizing overall return.
 
19
 
 
RESULTS OF OPERATIONS
 
Three months ended September 30, 2019 compared to three months ended September 30, 2018
 
Lease Revenue
 
Our lease revenue decreased to approximately $124,000 for the three months ended September 30, 2019, from approximately $144,000 for the three months ended September, 2018. This decrease is primarily due to more lease agreements ending versus new lease agreements being acquired.
 
The Partnership had 61 and 71 operating leases during the three months ended September 30, 2019 and 2018, respectively. The decline in number of active leases is consistent with the overall decrease in lease revenue. Management expects to add new leases to our portfolio throughout the remainder of 2019, funded primarily through debt financing. As the operational phase of the Partnership has been extended to December 31, 2020, management will continue to seek lease opportunities to enhance portfolio returns and cash flow.
 
Sale of Equipment
 
For the three months ended September 30, 2019, the Partnership sold equipment with a net book value of approximately $5,000 for a net gain of approximately $2,000. For the three months ended September 30, 2018, the Partnership sold equipment with a net book value of approximately $4,000 for a net gain of approximately $3,000.
 
Operating Expenses
 
Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses decreased to approximately $3,000 for the three months ended September 30, 2019, from approximately $45,000 for the three months ended September 30, 2018. This decrease is primarily attributable to a decrease in legal fees of approximately $43,000.
 
Equipment Management Fees
 
We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 2.5% of the gross lease revenue attributable to equipment that is subject to operating leases. An equipment management fee of approximately $3,000 and $4,000 was earned but waived by the General Partner for both the three months ended September 30, 2019 and 2018, respectively.
 
 
20
 
 
Depreciation and Amortization Expenses
 
Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $64,000 for the three months ended September 30, 2019, from $93,000 for the three months ended September 30, 2018. This decrease is primarily due to significant leases that became fully depreciated.
 
Net Income
 
For the three months ended September 30, 2019, we recognized revenue of approximately $134,000 and expenses of approximately $76,000, resulting in net income of approximately $58,000. For the three months ended September 30, 2018, we recognized revenue of approximately $148,000 and expenses of approximately $143,000, resulting in a net income of approximately $5,000. This change in net income due to the changes in revenue and expenses as described above.
 
Nine months ended September 30, 2019 compared to nine months ended September 30, 2018
 
Lease Revenue
 
Our lease revenue decreased to approximately $379,000 for the nine months ended September 30, 2019, from approximately $441,000 for the nine months ended September 30, 2018. The Partnership had 63 and 80 operating leases during the nine months ended September 30, 2019 and 2018, respectively. The decline in number of active leases is consistent with the overall decrease in lease revenue. Management expects to add new leases to our portfolio throughout the remainder of 2019, funded primarily through debt financing. As the operational phase of the Partnership has been extended to December 31, 2020, management will continue to seek lease opportunities to enhance portfolio returns and cash flow.
 
Sale of Equipment
 
The Partnership sold equipment with net book value of approximately $12,000 for the nine months ended September 30, 2019 for a net gain of approximately $3,000. This compared to equipment sold for the nine months ended September 30, 2018 with net book value of approximately $7,000, for a net gain of approximately $13,000.
 
Operating Expenses
 
Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses decreased to approximately $68,000 for the nine months ended September 30, 2019, from approximately $110,000 for the nine months ended September 30, 2018. This decrease is primarily attributable to a decrease in legal fees of approximately $43,000.
 
 
 
21
 
 
Equipment Management Fees
 
We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 2.5% of the gross lease revenue attributable to equipment that is subject to operating leases. The equipment management fee of approximately $10,000 and $11,000 for the nine months ended September 30, 2019 and 2018 was earned but waived by the General Partner.
 
 
Depreciation and Amortization Expenses
 
Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $218,000 for the nine months ended September 30, 2019, from $296,000 for the nine months ended September, 2018.
 
Net Income
 
For the nine months ended September 30, 2019, we recognized revenue of approximately $405,000 and expenses of approximately $317,000, resulting in net income of approximately $88,000. For the nine months ended September 30, 2018, we recognized revenue of approximately $456,000 and expenses of approximately $424,000, resulting in net income of approximately $32,000. This change in net income is due to the changes in revenue and expenses as described above.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
N/A
 
Item 4. Controls and Procedures
 
Our management, under the supervision and with the participation of the General Partner’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures related to our reporting and disclosure obligations as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the General Partner’s Chief Executive Officer and Principal Financial Officer have concluded that, as of September 30, 2019, our disclosure controls and procedures are effective in ensuring that information relating to us which is required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) accumulated and communicated to management, including the General Partner’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in the Partnership’s internal control over financial reporting during the third quarter of 2019 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.
 
 
 
22
 
 
Part II: OTHER INFORMATION
 
Item 1. Commitments and Contingencies
 
Leased Equipment
 
The General Partner is in the process of negotiations with a lessee to “Buy-out” certain equipment currently under lease contract.  If a “Buy-out” agreement is not reached, the lessee will continue to lease the equipment as written under the original lease contract.  The equipment to be included in the “Buy-out” represents approximately 12.5% of the Partnership’s total equipment at cost as of September 30, 2019.
 
Item 2. Legal Proceedings
 
FINRA
 
On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming Commonwealth Capital Securities Corp. (“CCSC”) and the owner of the firm, Kimberly Springsteen-Abbott, as respondents; however on October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Ms. Springsteen-Abbott.  The sole remaining charge was that Ms. Springsteen-Abbott had approved the misallocation of some expenses to certain Funds.  Management believes that the expenses at issue include amounts that were proper and that were properly allocated to Funds, and also identified a smaller number of expenses that had been allocated in error, but were adjusted and repaid to the affected Funds when they were identified in 2012.  During the period in question, Commonwealth Capital Corp. (“CCC”) and Ms. Springsteen-Abbott provided important financial support to the Funds, voluntarily absorbed expenses and voluntarily waived fees in amounts aggregating in excess of any questioned allocations.  A Hearing Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should be barred from the securities industry because the Panel concluded that she allegedly misallocated approximately $208,000 of expenses involving certain Funds over the course of three years.  As such, management had allocated approximately $87,000 of the $208,000 in allegedly misallocated expenses back to the affected funds as a contingency accrual in CCC’s financial statements and a good faith payment for the benefit of those Income Funds.
 
The decision of the Hearing Panel was stayed when it was appealed to FINRA's National Adjudicatory Council (the “NAC”) pursuant to FINRA Rule 9311.  The NAC issued a decision that upheld the lower panel’s ruling and the bar took effect on August 23, 2016.  Ms. Springsteen-Abbott appealed the NAC’s decision to the U.S. Securities and Exchange Commission (the “SEC”).  On March 31, 2017, the SEC criticized that decision as so flawed that the SEC could not even review it, and remanded the matter back to FINRA for further consideration consistent with the SEC’s remand, but did not suggest any view as to a particular outcome.
 
On July 21, 2017, FINRA reduced the list of 1,840 items totaling $208,000 to a remaining list of 84 items totaling $36,226 (which includes approximately $30,000 of continuing education expenses for personnel providing services to the Funds), and reduced the proposed fine from $100,000 to $50,000, but reaffirmed its position on the bar from the securities industry.  Respondents promptly appealed FINRA’s revised ruling to the SEC. That appeal is pending as of November 13, 2019.  All requested or allowed briefs have been filed with the SEC.  Management believes that whatever final resolution of this may be, it will not result in any material adverse financial impact on the Funds, although a final assurance cannot be provided until the legal matter is resolved.
 
 
23
 
 
Item 2ARisk Factors
  N/A
 
Item
 3. Unregistered Sales of Equity Securities and Use of Proceeds
 
N/A
 
 
Item
 4. Defaults Upon Senior Securities
 
N/A
 
 
Item
 5. Mine Safety Disclosures
 
N/A
 
 
Item
 6. Other Information
 
NONE
 
 
Item
 7. Exhibits
 
31.1 THE RULE 15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER
31.2 THE RULE 15d-14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
32.2 SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
 
24
 
 
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.
 
  
COMMONWEALTH INCOME & GROWTH FUND V
 
BY: COMMONWEALTH INCOME & GROWTH FUND, INC., General Partner
 
 
 
 

Kimberly A. Springsteen-Abbott
 
Chief Executive Officer And Principal Financial Officer
Commonwealth Income & Growth Fund, Inc.
 
 
 
 
By: /s/ Theodore Cavaliere

Theodore Cavaliere
 
Vice President, Financial Operations Principal
 
 
 
25

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
12/31/22
12/31/21
12/31/20
11/30/20
9/30/20
1/1/20
12/31/1910-K,  10-K/A,  NT 10-K
12/15/19
Filed on:11/13/19
For Period end:9/30/19
6/30/1910-Q
3/31/1910-Q
1/1/19
12/31/1810-K
12/15/18
9/30/1810-Q
6/30/1810-Q
3/31/1810-Q
1/1/18
7/21/17
3/31/1710-K,  10-Q
2/4/17
8/23/16
12/31/1510-K
3/30/15
10/22/13
5/3/13
2/24/06
3/14/05
 List all Filings 
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