UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
T ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
[ ]2008 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
(Exact name of registrant as specified in its charter)
Pennsylvania 65-1189593
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
470 John Young Way
Exton,
| Pennsylvania | 65-1189593 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Brandywine Bldg. One, Suite 200
2 Christy Drive, Chadds Ford PA 19341
(Address,19317
(Address, including zip code, of principal executive offices)
(610) 594-9600
(Registrant's
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class to which each class
be so registered is to be registered
None N/A
---- ---
| Title of each class | Name of exchange on |
| which registered |
| |
| None | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, (as defined in Rule 405 of the Act): YES ¨ NO T
Indicate by checkmark if the registrant is not required to file to file reports pursuant to Section-13 or Section-15(d) of the Act. YES ¨ NO T
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 [X]T NO [ ]
¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, to the best of Registrant'sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: YES [X]T NO [ ]
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as defineda non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer, “large accelerated filer" and “smaller reporting company” in Rule 12c-212b-2 of the Act)Exchange Act. (Check one): YES [ ] NO [X]
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company T |
| Do not check if a smaller reporting company. | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): YES [ ]o NO [X]
Aggregate Market ValueT
State the aggregate market value of Votingthe voting and Non-Voting Common Equity Heldnon-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the Registrant: N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, (as
defined in Rule 405last business day of the Act): YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE
(Specific sectionsRegistrant’s most recently completed second fiscal quarter: N/A
Documents incorporated
are identified under applicable items herein)
Certain exhibits to the Company's Registration Statement on Form S-1
(File No. 33-62526).
by reference: None
FORM 10-K
DECEMBER 31, 2004
2008
TABLE OF CONTENTS
| PART I | |
| Item 1. | Business | 3 | |
| Item 1A. | Risk Factors 10
| 11 | |
| Item 1B. | Unresolved Staff Comments | 11 | |
| Item 2. | Properties 12
| 11 | |
| Item 3. | Legal Proceedings 12
| 11 | |
| Item 4. | Submission of Matters to a Vote of Security Holders 12
| 11 | |
| | | |
| PART II |
| Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12
| 11 | |
| Item 6. | Selected Financial Data | 15 | |
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations 16
| 15 | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk 19
| 20 | |
| Item 8. | Financial Statements and Supplementary Data 19
| 20 | |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19
| 20 | |
| Item 9A. | Controls and Procedures 19
| 20 | |
| Item 9A (T). | Controls and Procedures | 20 | |
| Item 9B. | Other Information 20
| 21 | |
| | | |
| PART III |
| Item 10. | Directors and Executive Officers of the Registrant 20
| 21 | |
| Item 11. | Executive Compensation 23
| 25 | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 23
| 25 | |
| Item 13. | Certain Relationships and Related Transactions 23
and Director Independence | 26 | |
| Item 14. | Principal Accountant Fees and Services 30
| 31 | |
| | | |
| PART IV |
| Item 15. | Exhibits and Financial Statement Schedules 31
| 32 | |
| Index to Exhibits
Signatures
Certifications
| | |
Forward-Looking Statements
From time to time, we and our representatives may provide information, whether orally or in writing, including certain statements in this Annual Report on Form 10-K, which are deemed to be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected.
The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended or using other similar expressions. We do not intend to update these forward-looking statements, except as required by law.
In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Annual Report on Form 10-K, any exhibits to this Form 10-K and other public statements we make. Such factors include, but are not limited to: the outcome of litigation and regulatory proceedings to which we may be a party; actions of competitors; changes and developments affecting our industry; quarterly or cyclical variations in financial results; development of new products and services; interest rates and cost of borrowing; our ability to maintain and improve cost efficiency of operations; changes in foreign currency exchange rates; changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax matters in the foreign countries in which we do business; reliance on third parties for manufacturing of products and provision of services; and other factors that are set forth in the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
PART I
ITEM 1: BUSINESS
GENERAL
Commonwealth Income & Growth Fund V (the "Partnership"“Partnership” or "CIGF5"“CIGF5”) was formed on May 19, 2003 under the Pennsylvania Revised Uniform Limited Partnership Act. The Partnership is offeringoffered for sale up to 1,250,000 units of the limited partnership at the purchase price of $20 per unit (the "Offering"“Offering”). The Partnership raised the minimum capital required ($1,150,000) and commenced operations on March 14, 2005. AsThe Partnership terminated its offering of units on February 24, 2006 with 1,249,951 units ($24,957,862) sold. During the year ended December 31, 2005, 985,494 Units
($19,703,204) have been admitted as Limited Partners2008 limited partners redeemed 4,099 units of the Partnership.
partnership for a total redemption price of approximately $52,000 in accordance with the terms of the limited partnership agreement.
See "The Glossary"“The Glossary” below for the definition of capitalizedselected terms not otherwise defined in the text of this report.
PRINCIPAL INVESTMENT OBJECTIVES
The Partnership was formed for the purpose of acquiring various types of Equipment,equipment, including computer peripheralInformation Technology (I.T.) and other similar capital equipment. The Partnership utilizesutilized the net Proceedsproceeds of the Offeringoffering to purchase IBM and IBM compatible computer peripheralI.T. and other similar capital equipment. The Partnership utilizes Retained Proceedshas utilized retained proceeds and debt financing (not to exceedin excess of 30% of the aggregate cost of the Equipmentequipment owned or subject to Conditional Sales
Contractconditional sales contracts by the Partnership at the time the debt is incurred) to purchase additional Equipment.equipment. The Partnership acquires and leases Equipmentequipment principally to U.S. corporations and other institutions pursuant to Operating Leases.operating leases. The Partnership retains the flexibility to enter into Full Payout Net Leasesfull payout net leases and Conditional Sales Contracts,conditional sales contracts, but has not done so.
The Partnership'sPartnership’s principal investment objectives are to:
(a) Acquire,acquire, lease and sell Equipmentequipment to generate revenues from operations sufficient
to provide annual cash distributions to Limited Partners;
(b) Preservepreserve and protect Limited Partners'Partners’ capital;
(c) Useuse a portion of Cash Flowcash flow and Net Disposition Proceedsnet disposition proceeds derived from the sale,refinancing or other disposition of Equipmentequipment to purchase additional Equipment;equipment; and
(d) Refinance, sell or otherwise dispose of Equipment in a manner
that will maximize the proceeds to the Partnership.
| (d) | refinance, sell or otherwise dispose of equipment in a manner that will maximize the proceeds to the Partnership. |
THERE CAN BE NO ASSURANCE THAT ANY OF THESE OBJECTIVES WILL BE ATTAINED
Limited Partners do not have the right to vote on or otherwise approve or disapprove any particular investment to be made by the Partnership.
Although the Partnership has acquired predominatelygenerally acquires new Equipment,equipment, the Partnership may purchase used Equipment.equipment. Generally, Equipmentequipment is acquired from manufacturers, distributors, leasing companies, agents, owner-users, owner-lessors, and other suppliers upon terms that vary depending upon the Equipmentequipment and supplier involved. Manufacturers and distributors usually furnish a limited warranty against defects in material and workmanship and some purchase agreements for Equipmentequipment provide for service and replacement of parts during a limited period. Equipment purchases are also made through lease brokers and on an ad hoc basis to meet the needs of a particular lessee.
As of December 31,
2005,2008, all
Equipmentequipment purchased by the Partnership is subject to an
Operating Leaseoperating lease or an
Operating Leaseoperating lease was already entered into with a third party when the Partnership acquired an item of
Equipment.equipment. The Partnership may also engage in sale/leaseback transactions, pursuant to which the Partnership would purchase
Equipmentequipment from companies that would then immediately lease the
Equipmentequipment from the Partnership. The Partnership may also purchase
Equipmentequipment which is leased under
Full Payout Net Leasesfull payout net leases or sold under
Conditional
Sales Contractsconditional sales contracts at the time of acquisition or the Partnership may enter into
3
a Full Payout Net Leasefull payout net lease or Conditional Sales Contractconditional sales contract with a third party when the Partnership acquires an item of Equipment.
equipment.
The Partnership may enter into arrangements with one or more manufacturers pursuant to which the Partnership purchases from such manufacturers Equipmentequipment that has previously been leased directly by the manufacturer to third parties ("(“vendor leasing agreements"agreements”). The Partnership and manufacturers may agree to nonrecourseobtain non-recourse loans to the Partnership from the manufacturers, to finance the acquisition of Equipmentequipment. Such loans would be secured only by the Equipmentspecific equipment financed and the receivables due to the manufacturers from users of such Equipment.equipment. It is expected that the manufacturers of Equipmentequipment will provide maintenance, remarketing and other services for the Equipmentequipment subject to such agreements. As of December 31, 2005,2008, the Partnership has not entered into any such agreements.
The General Partner has the discretion, consistent with its fiduciary duty, to change the investment objectives of the Partnership if it determines that such a change is in the best interest of the Limited Partners and so long as such a change is consistent with the Partnership Agreement. The General Partner will notify the Limited Partners if it makes such a determination to change the Partnership'sPartnership’s investment objectives.
TYPES OF EQUIPMENT
COMPUTER PERIPHERAL EQUIPMENT.
Computer peripheralInformation Technology Equipment. Computer Information Technology (I.T.) equipment consists of devices used to convey information into and out of a central processing unit (or "mainframe"“mainframe”) of a computer system, such as tape drives, disk drives, tape controllers, disk controllers, printers, terminals and related control units, all of which are in some way related to the process of storing, retrieving, and processing information by computer.
The Partnership acquires primarily IBM manufactured or IBM compatible equipment.
The General Partner believes that dealing in IBM or IBM compatible equipment is
particularly advantageous because of the large IBM customer base, policy of
supporting users with software and maintenance services and the large amount of
IBM and IBM compatible equipment in the marketplace.
Computer technology has developed rapidly in recent years and is expected to continue to do so. Technological advances have permitted continued reductions in the cost of computer processing capacity, thereby permitting applications not economically feasible a few years ago. Much of the older IBM and IBM compatible computer peripheralI.T. equipment has not been retired from service, because software is generally interchangeable between older and newer equipment, and older equipment is capable of performing many of the same functions as newer equipment. The General Partner believes historically, that thehistorically, values of peripheralI.T. equipment have been affected less dramatically by changes in technology than have the values of central processing units. An equipment user who upgrades to a more advanced central processor generally can continue to use his existing peripheralI.T. equipment. PeripheralI.T. equipment nevertheless is subject to declines in value as new, improved models are developed and become available. Technological advances and other factors, discussed below in ManagementManagement’s Discussion and Analysis, have at times caused dramatic reductionreductions in the market prices of older models of IBM and IBM compatible computer peripheralI.T. equipment from the prices at which they were originally introduced.
OTHER EQUIPMENT-RESTRICTIONS.
Other Equipment-Restrictions. The Partnership generally acquires computer peripheralI.T equipment such as tape drives, disk drives, tape controllers, disk controllers, printers, terminals and related control units, all of which are in some way related to the process of storing, retrieving and processing information by computer. The General Partner is also authorized but does not presently intend,
to cause the Partnership to invest in non-IBM compatible computer peripheral,other types of data processing, telecommunication or medical technology equipment. The Partnership may not invest in any of such other types of Equipmentequipment (i) to the extent that the purchase price of such Equipment,equipment, together with the aggregate Purchase Price of all such other types of Equipmentequipment then owned by the Partnership, is in excess of 25% of the total cost of all of the assets of the Partnership at the time of the Partnership'sPartnership’s commitment to invest therein and (ii) unless the General Partner determines that such purchase is in the best economic interest of the Partnership at the time of the purchase and, in the case of non-IBM compatible peripheral Equipment,I.T equipment, that such Equipmentequipment is comparable in quality to similar IBM or IBM compatible Equipment.equipment. There can be no assurance that any Equipmentequipment investments can be found which meet this standard. Accordingly, there can be no assurance that investments of this type will be made by the Partnership.
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DIVERSIFICATION
Diversification is generally desirable to minimize the effects of changes in specific industries, local economic conditions or similar risks. However, the extent of the Partnership'sPartnership’s diversification, in the aggregate and within each category of Equipment,equipment, depends in part upon the financing which can be assumed by the Partnership or borrowed from third parties on satisfactory terms. The Partnership'sPartnership’s policy not to borrow on a recourse basis will further limit its financing options. Diversification also depends on the availability of various types of Equipment.equipment. Through December 31, 2005,2008, the Partnership has acquired a diversified Equipmentequipment portfolio, which it has leased to 1227 different companies located throughout the United States.
The allocationsequipment types comprising the portfolios at December 31, 2008 are as follows:
EQUIPMENT TYPE APPROXIMATE %
-------------------- -------------
Servers 33%
Workstations 31%
Data Communications 17%
Storage 19%
TOTAL 100%
| Equipment Type | Approximate % |
| Servers | 39% |
| Printers | 3% |
| Datacom | 6% |
| Workstations | 31% |
| Storage | 14% |
| Tape Libraries | 1% |
| Audio Visual | 1% |
| Wifi | 4% |
| Medical | 1% |
| |
| Total | 100% |
During the operational stage of the Partnership, the Partnership may not at any one point in time lease (or sell pursuant to a Conditional Sales Contract)conditional sales contract) more than 25% of the Equipmentequipment to a single Personperson or Affiliatedaffiliated group of Persons.
persons.
DESCRIPTION OF LEASES
The Partnership to date has purchased, and in the future intends to continue to
purchasegenerally purchases only Equipmentequipment that is subject to a lease or for which a lease or similar agreement will be entered into contemporaneously with the consummation of the Partnership'sPartnership’s acquisition of the Equipment.equipment. The General Partner to date
has leased and in the future intends to leaseleases most of the Equipmentequipment purchased by the Partnership to third parties pursuant to operating leases. Operating Leases. Operating Leasesleases are relatively short-term (12 to 48 month) leases under which the aggregate noncancellable rental payments during the original term of the lease are not sufficient to permit the lessor to recover the purchase price of the subject Equipment.equipment. The Equipmentequipment may also be leased pursuant to full payout net leases. Full Payout Net Leases.
Full Payout Net Leasespayout net leases are leases under which the aggregate noncancellable rental payments during the original term of the lease are at least sufficient to recover the purchase price of the subject Equipment.equipment. It is anticipated that the Partnership will enter into few, if any, Full Payoutfull payout net Leases.leases. The General Partner may also enter into Conditional Sales Contractsconditional sales contracts for Equipment.equipment. A Conditional Sales Contractconditional sales contract generally provides that the noncancellable payments to the seller over the term of the contract are sufficient to recover the investment in such Equipmentequipment and to provide a return on such investment. Under a Conditional Sales Contract,conditional sales contract, the seller reserves title to and retains a security interest in, the Equipmentequipment until the Purchase Pricepurchase price of the Equipmentequipment is paid. As of December 31, 2005,2008, the Partnership has not entered into any Full Payout Net
Leasesfull payout net leases or Conditional Sales Contractsconditional sales contracts for Equipmentequipment and does not presently intend to do so.
In general, the terms of the Partnership'sPartnership’s leases, whether the Equipmentequipment is leased pursuant to an Operatingoperating lease or a Full Payout Net Lease,full payout net lease, depend upon a variety of factors, including: the desirability of each type of lease from both an investment and a tax point of view; the relative demand among lessees for Operatingoperating or Full Payout Net Leases;full payout net leases; the type and use of Equipmentequipment and its anticipated residual value; the business of the lessee and its credit rating; the availability and cost of financing; regulatory considerations; the accounting treatment of the lease sought by the lessee or the Partnership; and competitive factors.
An
Operating Leaseoperating lease generally represents a greater risk to the Partnership than a
Full Payout Net Lease,full payout net lease, because in order to recover the purchase price of the subject
Equipmentequipment and earn a return on such investment, it is necessary to renew or extend the
Operating Lease,operating lease, lease the
Equipmentequipment to a third party at the end of the original lease term, or sell the
Equipment.equipment. On the other hand, the term of an
Operating Lease
5
operating lease is generally much shorter than the term of a Full Payout Net Lease,full payout net lease, and the lessor is thus afforded an opportunity under an Operating Leaseoperating lease to re-lease or sell the subject Equipmentequipment at an earlier stage of the Equipment'sequipment’s life cycle than under a Full Payout Net Lease.full payout net lease. Also, the annual rental payments received under an Operating Leaseoperating lease are ordinarily higher than those received under a Full
Payout Net Lease.
full payout net lease.
The Partnership'sPartnership’s policy is to generally enter into "triple“triple net leases"leases” (or the equivalent, in the case of a Conditional Sales Contract)conditional sales contract) which typically provide that the lessee or some other party bear the risk of physical loss of the Equipment;equipment; pay taxes relating to the lease or use of the Equipment;equipment; maintain the Equipment;equipment; indemnify the Partnership-lessor against any liability suffered by the Partnership as the result of any act or omission of the lessee or its agents; maintain casualty insurance in an amount equal to the greater of the full value of the Equipmentequipment and a specified amount set forth in the lease; and maintain liability insurance naming the Partnership as an additional insured with a minimum coverage which the General Partner deems appropriate. In addition, the Partnership may purchase "umbrella"“umbrella” insurance policies to cover excess liability and casualty losses, to the extent deemed practicable and advisable by the General Partner. As of December 31, 2005,2008, all leases that have been entered into are "triple“triple net leases"leases”.
The General Partner has not established any standards for lessees to whom it will lease Equipmentequipment and, as a result, there is not an investment restriction prohibiting the Partnership from doing business with any lessees. However, a credit analysis of all potential lessees is undertaken by the General Partner to determine the lessee'slessee’s ability to make payments under the proposed lease. The General Partner may refuse to enter into an agreement with a potential lessee based on the outcome of the credit analysis.
The terms and conditions of the Partnership'sPartnership’s leases, or Conditional Sales
Contracts,conditional sales contracts, are each determined by negotiation and may impose substantial obligations upon the Partnership. Where the Partnership assumes maintenance or service obligations, the General Partner generally causes the Partnership to enter into separate maintenance or service agreements with manufacturers or certified maintenance organizations to provide such services. Such agreements generally require annual or more frequent adjustment of service fees. As of December 31, 2005,2008, the Partnership has not entered into any such agreements.
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 Partnership believes that this is a valuable methodstrategy adds value since it entices the leasing company from whom weto “stay with the lease” for potential extensions, remarketing or sale of equipment. This strategy potentially minimizes any conflicts the leasing company may have purchased thewith a potential new lease from toand will potentially assist in the extension, or "remarket", of the
lease, or possibly sell the equipment to the lessee. Thismaximizing overall portfolio performance. The remarketing fee is factoredtied into lease performance thresholds and is a factor in when negotiating an extension or sales.
the negotiation of the fee.
BORROWING POLICIES
The General Partner, at its discretion, may cause the Partnership to incur debt in the maximum aggregate amount of 30% of the aggregate cost of the Equipmentequipment owned, or subject to Conditional Sales Contract,conditional sales contracts, by the Partnership at the time the debt is incurred, with monies received that is not considered "original
proceeds"“original proceeds”. The Partnership incurs only non-recourse debt, which is secured by Equipmentequipment and lease income therefrom. Such leveraging permits the Partnership to increase the aggregate amount of its depreciable assets, and, as a result, potentially increases both its lease revenues and its federal income tax deductions above those levels whichthat would be achieved without leveraging. There is no limit on the amount of debt that may be incurred in connection with the acquisition of any single item of Equipment.equipment. Any debt incurred is fully amortized over the term of the initial lease or Conditional Sales Contractconditional sales contract to which the Equipmentequipment securing the debt is subject. The precise amount borrowed by the Partnership depends on a number of factors, including the types of Equipmentequipment acquired by the Partnership; the creditworthiness of the lessee; the availability of suitable financing; and prevailing interest rates. The Partnership is flexible in the degree of leverage it employs, within the permissible limit. There can be no assurance that credit will be available to the Partnership in the amount or at the time desired or on terms considered reasonable by the General Partner. As of December 31, 2005,2008, the aggregate nonrecourse debt outstanding of $785,157approximately $1,551,000 was 14.0%approximately 7% of the aggregate cost of the Equipmentequipment owned.
The Partnership may purchase some items of
Equipmentequipment without leverage. If the Partnership purchases an item of
Equipmentequipment without leverage and thereafter suitable financing becomes available, it may then obtain the financing, secure the financing with the purchased
Equipmentequipment to the extent practicable and invest any
6
proceeds from such financing in additional items of Equipment,equipment, or it may distribute some or all of such proceeds to the Limited Partners. Any such later financing will be on terms consistent with the terms applicable to borrowings generally. As of December 31, 2005,2008, the Partnership has not exercised this option.
To date, the
The General Partner has not causedmay cause the Partnership to borrow funds, at
fixed interest rates and plans to continue borrowing additional funds, to the fullest extent practicable. Thepracticable, at interest rates fixed at the time of borrowing. However, the Partnership may borrow funds at rates whichthat vary with the "prime"“prime” or "base"“base” rate. If lease revenues were fixed, a rise in the "prime"“prime” or "base"“base” rate would increase borrowing costs and reduce the amount of the Partnership'sPartnership’s income and cash available for distribution. Therefore, the General Partner is permitted to borrow funds to purchase Equipmentequipment at fluctuating rates only if the lease for such Equipmentequipment provides for fluctuating rental payments calculated on a similar basis.
Any additional debt incurred by the Partnership must be nonrecourse. Nonrecourse debt in the context of the business to be conducted by the Partnership, means that the lender providing the funds can look for security only to the Equipmentequipment pledged as security and the proceeds derived from leasing or selling such Equipment.equipment. Neither the Partnership nor any Partner (including the General Partner) would be liable for repayment of any nonrecourse debt.
Loan agreements may also require that the Partnership maintain certain reserves or compensating balances and may impose other obligations upon the Partnership. Moreover, since a significant portion of the Partnership'sPartnership’s revenues from the leasing of Equipmentequipment will be reserved for repayment of debt, the use of financing reduces the cash, which might otherwise be available for distributions until the debt has been repaid and may reduce the Partnership's Cash FlowPartnership’s cash flow over a substantial portion of the Partnership'sPartnership’s operating life. As of December 31, 2005, no2008, the Partnership had not entered into any such agreements existed.
agreements.
The General Partner and any of its Affiliatesaffiliates may, but are not required to, make loans to the Partnership on a short-term basis. If the General Partner or any of its Affiliatesaffiliates makes such a short-term loan to the Partnership, the General Partner or Affiliateaffiliate may not charge interest at a rate greater thatthan the interest rate charged by unrelated lenders on comparable loans for the same purpose in the same locality. In no event is the Partnership required to pay interest on any such loan at an annual rate greater than three percent over the "prime rate'“prime rate’ from time to time announced by PNC Bank, Philadelphia, Pennsylvania ("PNC
Bank").Pennsylvania. All payments of principal and interest on any financing provided by the General Partner or any of its affiliates are due and payable by the Partnership within 12 months after the date of the loan.
REFINANCING POLICIES
Subject to the limitations set forth in "Borrowing Policies"“Borrowing Policies” above, the Partnership may refinance its debt from time to time. With respect to a particular item of Equipment,equipment, the General Partner will take into consideration such factors as the amount of appreciation in value, if any, to be realized, the possible risks of continued ownership, and the anticipated advantages to be obtained for the Partnership, as compared to selling such Equipment.equipment. As of December 31, 2005,2008, the Partnership has no such debt.
Refinancing, if achievable, may permit the Partnership to retain an item of Equipmentequipment and at the same time to generate additional funds for reinvestment in additional Equipmentequipment or for distribution to the Limited Partners.
LIQUIDATION POLICIES
The General Partner intends to cause the Partnership to begin disposing of its
Equipmentequipment approximately 10 years after commencement of operations or in
approximately January 2015. Notwithstanding the
Partnership'sPartnership’s objective to sell all of its assets and dissolve by December 31, 2015, the General Partner may at any time cause the Partnership to dispose of all its
Equipmentequipment and, dissolve the Partnership upon the approval of Limited Partners holding a
Majoritymajority in
Interestinterest of
Units.
7
units.
Particular items of Equipmentequipment may be sold at any time if, in the judgment of the General Partner, it is in the best interest of the Partnership to do so. The determination of whether particular items of Partnership Equipmentequipment should be sold or otherwise disposed of is made by the General Partner after consideration of all relevant factors (including prevailing general economic conditions, lessee demand, the General Partner'sPartner’s views of current and future market conditions, the cash requirements of the Partnership, potential capital appreciation, cash flow and federal income tax considerations), with a view toward achieving the principal investment objectives of the Partnership. As partial payment for Equipmentequipment sold, the Partnership may receive purchase money obligations secured by liens on such Equipment.
equipment.
MANAGEMENT OF EQUIPMENT
Equipment management services for the Partnership's Equipment isPartnership’s equipment are provided by the General Partner and its Affiliatesaffiliates and by persons employed by the General Partner. Such services will consist of collection of income from the Equipment,equipment, negotiation and review of leases, Conditional Sales Contractsconditional sales contracts and sales agreements, releasing and leasing-related services, payment of operating expenses, periodic physical inspections and market surveys, servicing indebtedness secured by Equipment,equipment, general supervision of lessees to assure that they are properly utilizing and operating Equipment,equipment, providing related services with respect to Equipment,equipment, supervising, monitoring and reviewing services performed by others in respect to Equipmentequipment and preparing monthly Equipmentequipment operating statements and related reports.
COMPETITION
The equipment leasing industry is highly competitive. The Partnership competes with leasing companies, equipment manufacturers and their affiliated financing companies, distributors and entities similar to the Partnership (including other programs sponsored by the General Partner), some of which have greater financial resources than the Partnership and more experience in the equipment leasing business than the General Partner. Other leasing companies and equipment manufacturers, their affiliated financing companies and distributors may be in a position to offer equipment to prospective lessees on financial terms, which are more favorable, that those which the Partnership can offer. They may also be in a position to offer trade-in privileges, software, maintenance contracts and other services, than those which the Partnership may not be able tocan offer. Equipment manufacturers and distributors may offer to sell equipment on terms (such as liberal financing terms and exchange privileges), which will afford benefits to the purchaser similar to those obtained through leases. As a result of the advantages, which certain of its competitors may have, the Partnership may find it necessary to lease its Equipmentequipment on a less favorable basis than certain of its competitors.
The computer peripheral equipment industry is extremely competitive. Competitive
factors include pricing, technological innovation and methods of financing.
Certain manufacturer-lessors maintain advantages through patent protection,
where applicable, and through a policy that combines service and hardware with
payment accomplished through a single periodic charge.
The dominant firms in the computer marketplace are Dell, IBM, Hewlett Packard, Sun SystemsMicrosystems and Cisco. Because of the substantial resources and dominant position of these companies, revolutionary changes with respect to computer systems, pricing, marketing practices, technological innovation and the availability of new and attractive financing plans wouldcould occur at any time. Significant action in any of these areas by these firms might materially adversely affect the partnerships'partnership’s business or that of the other manufacturer'smanufacturers with whom the General Partner might negotiate purchase and other agreements. Any adverse affect on these manufacturers could be reflected in the overall return realized by the Partnership on equipment from those manufacturers.
INVESTMENTS
Through
February 23, 2006,March 10, 2009, the Partnership has purchased, or has made the commitment to purchase, the following
Equipment:
8
EQUIPMENT LIST PURCHASE MONTHLY LEASE
LESSEE MFG DESCRIPTION PRICE PRICE RENTAL TERM
- ------------------- ------------ ------------------------ ---------- -------- ------- -----
Alliant Techsystems Konica Multifunction Printers 26,831 21,527 585 36
Alliant Techsystems HP Dell Servers 14,969 12,215 328 36
Alliant Techsystems Konica Multifunction Printers 34,033 27,771 754 36
Alliant Techsystems Konica Multifunction Printers 7,059 5,760 156 36
Argenbright, Inc. EMC Storage 612,711 593,717 18,626 36
Daimler Chrysler HP Small HP/Compaq Servers 558,191 558,191 14,393 36
Delphi Automotive Dell Desktops - Tier 1 384,075 768,150 20,123 36
Geico HP Small HP/Compaq Servers 620,002 620,002 47,421 12
General Atomics NetApp Storage 146,582 146,582 8,680 36
General Atomics NetApp Storage 297,472 294,944 15,760 36
Kellogg IBM Desktops - Tier 1 765,490 533,739 14,239 35
Mitsubishi Motors IBM Small IBM Servers 132,409 132,409 3,633 36
Mitsubishi Motors IBM Blade Servers 143,675 121,559 3,336 36
Mitsubishi Motors Cisco Datacom - Cisco 292,900 179,242 5,007 36
NBC Universal Avid Graphic Workstations 28,580 26,898 751 33
NBC Universal Avid Graphic Workstations 327,130 246,579 18,711 36
Northrop Grumman HP Midrange HP Servers 64,860 44,126 1,146 36
Northrop Grumman McData Datacom 465,729 331,241 8,768 36
Northrop Grumman CipherOptics Datacom 217,587 148,574 3,904 36
Northrop Grumman CipherOptics Datacom 348,646 236,287 6,208 36
Nortrop Grumman SGI Engineering Workstations 45,110 30,675 797 36
Qwest Stratus Misc High End Servers 104,128 520,641 46,517 36
Raytheon HP Desktops - Tier 1 163,391 145,974 4,697 28
Raytheon Sun Small Sun Servers 114,775 101,700 8,894 30
Raytheon Sun Small Sun Servers 82,511 78,561 6,393 33
Raytheon Sun Small Sun Servers 46,310 40,875 3,589 30
Raytheon Accunet Datacom 70,000 61,414 5,627 30
Raytheon Sun Desktops - Tier 1 30,364 28,853 2,414 33
Raytheon HP Engineering Workstations 108,706 65,609 1,724 36
Raytheon HP Engineering Workstations 144,235 87,053 2,288 36
Raytheon HP Engineering Workstations 271,806 164,049 4,312 36
UGO Networks Sun Small Sun Servers 39,592 34,427 1,119 30
UGO Networks Toshiba Workstations 11,081 11,081 355 31
equipment:| Lessee | MFG | EQ Category Descripton | Prorated List Price | Prorated Purchase Price | Monthly Payment | Lease Term Months |
| Aisin Brake & Chassis | HP | Small HP/Compaq Servers | | $21,139.13 | $1,267.00 | 15 |
| Alcatel USA | NetApp | Digital Storage | $270,000.00 | $165,240.00 | $4,459.00 | 36 |
| Alliant Techsystems | Linux Networx | Blade Servers: All MFG | $810,675.00 | $496,133.10 | $13,035.65 | 35 |
| Alliant Techsystems | Dell | Laptops | $59,233.14 | $53,167.66 | $2,196.21 | 21 |
| Alliant Techsystems | KonicaMinolta | Multifunction Printers | $34,032.50 | $27,770.52 | $754.17 | 36 |
| Alliant Techsystems | KonicaMinolta | Multifunction Printers | $26,381.25 | $21,527.10 | $584.61 | 36 |
| Alliant Techsystems | KonicaMinolta | Multifunction Printers | $7,058.75 | $5,759.94 | $156.42 | 36 |
| Alliant Techsystems | Dell | Tape Drives | $115,331.35 | $70,582.79 | $1,902.97 | 36 |
| Allstate Insurance Company | Sun | High End Sun Servers | $459,554.13 | $284,004.45 | $8,351.85 | 31 |
| Allstate Insurance Company | Sun | Sun Quad Core Servers | $152,236.52 | $111,802.50 | $4,065.86 | 24 |
| America Online | Sun | Small Sun Servers | $108,563.08 | $71,977.32 | $1,898.23 | 36 |
| America Online | Sun | Small Sun Servers | $114,569.87 | $89,983.18 | $2,397.79 | 36 |
| America Online | Sun | Small Sun Servers | $57,284.94 | $44,991.59 | $1,198.90 | 36 |
| America Online | Sun | Small Sun Servers | $51,329.71 | $36,649.42 | $976.60 | 36 |
| Bank of America | Sun | Midrange Sun Servers | $171,548.94 | $61,543.18 | $1,367.76 | 42 |
| BMO Nesbitt Burns Trading Corp. S.A. | Sun | Midrange Sun Servers | $177,337.52 | $158,397.87 | $4,618.88 | 33 |
| Bon Secours - Memorial Regional Medical Center | Hospira | Medical | $424,828.31 | $346,659.90 | $7,103.50 | 44 |
| Charleston Area Medical Center | Konica | Multifunction Printers | $13,264.13 | $12,176.47 | $345.00 | 35 |
| Charleston Area Medical Center | Canon | Multifunction Printers | $18,300.66 | $16,800.00 | $476.00 | 35 |
| Charleston Area Medical Center | Canon | Multifunction Printers | $12,802.77 | $11,752.94 | $333.00 | 35 |
| Convergys | Dell | Dell Servers | $17,955.00 | $12,548.69 | $355.50 | 32 |
| Convergys | HP | Small HP/Compaq Servers | $37,368.60 | $28,084.34 | $762.05 | 34 |
| Convergys | Sun | Small Sun Servers | $175,998.50 | $117,241.63 | $3,016.93 | 35 |
| Daimler Chrysler | Visara | Desktops - Tier 2 | $614,440.00 | $368,664.00 | $9,666.37 | 33 |
| Daimler Chrysler | Visara | Desktops - Tier 3 | $1,753,600.00 | $894,336.00 | $22,989.70 | 36 |
| Daimler Chrysler | HP | Engineering Workstations | $161,663.33 | $98,937.96 | $2,595.67 | 36 |
| Daimler Chrysler | Visara | Engineering Workstations | $328,479.17 | $201,029.25 | $5,167.64 | 36 |
| Daimler Chrysler | Visara | Engineering Workstations | $768,050.00 | $470,046.60 | $12,082.97 | 36 |
| Daimler Chrysler | HP | Engineering Workstations | $382,000.00 | $233,784.00 | $6,133.39 | 36 |
| Daimler Chrysler | HP | Engineering Workstations | $175,083.33 | $107,151.00 | $2,811.14 | 36 |
| Daimler Chrysler | HP | Engineering Workstations | $301,399.61 | $169,085.18 | $4,436.00 | 36 |
| Daimler Chrysler | HP | Engineering Workstations | $557,083.33 | $340,935.00 | $8,944.53 | 36 |
| Daimler Chrysler | HP | Small HP/Compaq Servers | $558,191.00 | $558,190.70 | $14,392.56 | 36 |
| GE Aviation | Nokia | Datacom - Other | $254,546.67 | $194,728.20 | $5,028.57 | 36 |
| Geico | HP | Digital Storage | $1,000,786.45 | $529,994.27 | $17,216.92 | 27 |
| Geico | HP | Digital Storage | $325,669.49 | $302,286.42 | $7,881.04 | 36 |
| Geico | Panasonic | Laptops | $30,500.00 | $14,710.01 | $475.80 | 27 |
| Geico | Panasonic | Laptops | $244,273.88 | $166,936.77 | $4,346.84 | 36 |
| Geico | Panasonic | Laptops | $2,405,757.69 | $1,595,017.35 | $44,890.24 | 33 |
| Geico | HP | Small HP/Compaq Servers | $994,229.48 | $659,174.15 | $17,185.95 | 36 |
| Geico | HP | Small HP/Compaq Servers | $1,367,486.79 | $1,115,869.22 | $29,092.77 | 36 |
| Geico | HP | Small HP/Compaq Servers | $379,233.42 | $297,811.76 | $7,585.40 | 36 |
| Geico | HP | Small HP/Compaq Servers | $666,961.00 | $620,001.99 | $15,807.00 | 36 |
| Geico | HP | Small HP/Compaq Servers | $52,818.17 | $29,983.82 | $833.47 | 33 |
| Geico | HP | Small HP/Compaq Servers | $522,703.63 | $405,199.85 | $10,510.42 | 36 |
| Geico | IBM | Small IBM Servers | $342,637.00 | $179,389.31 | $5,024.08 | 33 |
| Geico | IBM | Small IBM Servers | $494,629.64 | $277,487.23 | $7,234.62 | 36 |
| Geico | IBM | Small IBM Servers | $647,790.77 | $429,485.28 | $11,197.47 | 36 |
| Geico | IBM | Small IBM Servers | $441,789.25 | $405,562.53 | $10,573.80 | 36 |
| Geico | Sun | Small Sun Servers | $23,130.98 | $13,131.01 | $365.01 | 33 |
| General Atomics Aeronautical | Sun | Digital Storage | $154,007.26 | $127,240.80 | $9,890.00 | 11 |
| General Atomics Aeronautical | NetApp | Digital Storage | $355,675.00 | $297,471.81 | $7,880.00 | 36 |
| General Atomics Aeronautical | Sun | High End Sun Servers | $558,084.80 | $262,347.63 | $7,887.00 | 36 |
| General Atomics Aeronautical | Sun | High End Sun Servers | $98,724.00 | $50,349.24 | $2,417.00 | 19 |
| General Atomics Aeronautical | Sun | High End Sun Servers | $837,127.20 | $398,208.82 | $10,488.00 | 36 |
| General Atomics Aeronautical | Sun | Tape Drives | $57,992.05 | $46,138.48 | $1,500.00 | 29 |
| Goodyear Tire and Rubber | Dell | Desktops - Tier 1 | $325,951.67 | $173,713.55 | $5,089.41 | 30 |
| Goodyear Tire and Rubber | Dell | Desktops - Tier 1 | $81,890.00 | $43,642.57 | $1,286.05 | 30 |
| Goodyear Tire and Rubber | Agile | High Volume and Specialized Printers | $53,830.00 | $37,596.87 | $1,012.11 | 35 |
| Goodyear Tire and Rubber | HP | Small HP/Compaq Servers | $166,470.00 | $87,941.62 | $2,768.72 | 30 |
| Goodyear Tire and Rubber | IBM | Small IBM Servers | $40,333.10 | $23,596.48 | $655.07 | 34 |
| IST Management Services | KonicaMinolta | Multifunction Printers | $281,054.44 | $258,007.98 | $7,897.25 | 35 |
| IST Management Services | KonicaMinolta | Multifunction Printers | $6,692.13 | $6,075.12 | $191.72 | 35 |
| IST Management Services | Konica | Multifunction Printers | $5,071.67 | $4,655.79 | $146.93 | 35 |
| IST Management Services | KonicaMinolta | Multifunction Printers | $6,591.11 | $6,050.64 | $190.95 | 35 |
| IST Management Services | KonicaMinolta | Multifunction Printers | $102,261.20 | $52,153.21 | $1,622.38 | 35 |
| IST Management Services | KonicaMinolta | Multifunction Printers | $112,426.67 | $103,207.68 | $3,131.64 | 35 |
| IST Management Services | KonicaMinolta | Multifunction Printers | $12,112.22 | $11,119.02 | $350.90 | 35 |
| Kaiser Foundation | IBM | Digital Storage | $289,248.00 | $147,516.48 | $8,438.23 | 16 |
| Kaiser Foundation | IBM | Digital Storage | $1,600,600.00 | $357,532.44 | $8,968.24 | 36 |
| Kaiser Foundation | IBM | Digital Storage | $2,000,100.00 | $285,461.28 | $7,121.42 | 36 |
| Kellogg | IBM | Desktops - Tier 1 | $765,490.00 | $533,739.39 | $14,238.93 | 35 |
| Lockheed Martin | HP | High End HP Servers | $347,267.32 | $263,055.00 | $6,833.96 | 36 |
| Mitsubishi Motors North America | IBM | Blade Servers: All MFG | $143,675.00 | $121,558.91 | $3,335.72 | 36 |
| Mitsubishi Motors North America | Cisco | Datacom - Cisco | $292,900.00 | $179,241.94 | $5,006.56 | 36 |
| Mitsubishi Motors North America | Sourcefire | Datacom - Other | $51,802.44 | $47,554.64 | $1,414.98 | 36 |
| Mitsubishi Motors North America | IBM | Small IBM Servers | $13,027.78 | $11,959.50 | $353.39 | 36 |
| Mitsubishi Motors North America | IBM | Small IBM Servers | $144,236.00 | $132,409.26 | $3,633.46 | 36 |
| Mitsubishi Motors North America | IBM | Tape Libraries | $61,461.54 | $40,749.00 | $1,233.46 | 36 |
| MobilePro Corp. | Strix | WiFi | $492,800.00 | $427,257.60 | $13,362.00 | 36 |
| MobilePro Corp. | Strix | WiFi | $588,235.29 | $510,000.00 | $15,950.00 | 36 |
| NBC Universal | Sony | Audio Visual | $105,644.92 | $70,042.58 | $1,763.65 | 36 |
| NBC Universal | Avid | Digital Storage | $101,493.85 | $67,290.42 | $2,467.98 | 24 |
| NBC Universal | Avid | Digital Storage | $101,493.85 | $67,290.42 | $2,314.57 | 24 |
| NBC Universal | Avid | Digital Storage | $515,704.61 | $341,912.16 | $8,715.41 | 36 |
| NBC Universal | Avid | Graphic Workstations | $327,130.20 | $246,579.08 | $6,237.00 | 36 |
| NBC Universal | Avid | Graphic Workstations | $298,671.00 | $228,483.32 | $5,801.68 | 36 |
| NBC Universal | Avid | Graphic Workstations | $28,580.00 | $26,897.88 | $751.07 | 33 |
| Northrop Grumman | McData | Datacom - Other | $465,729.00 | $331,241.04 | $8,670.72 | 36 |
| Northrop Grumman | Secure Computing | Datacom - Other | $41,430.59 | $35,920.32 | $1,341.73 | 24 |
| Northrop Grumman | CipherOptics | Datacom - Other | $348,646.00 | $236,287.08 | $6,138.83 | 36 |
| Northrop Grumman | CipherOptics | Datacom - Other | $217,587.00 | $148,574.22 | $3,903.71 | 36 |
| Northrop Grumman | IBM | Digital Storage | $161,992.86 | $57,831.45 | $1,502.49 | 36 |
| Northrop Grumman | SGI | Engineering Workstations | $45,110.00 | $30,674.66 | $796.94 | 36 |
| Northrop Grumman | HP | Midrange HP Servers | $419,068.33 | $256,469.82 | $6,685.82 | 36 |
| Northrop Grumman | HP | Midrange HP Servers | $64,860.00 | $44,125.70 | $1,146.40 | 36 |
| Northrop Grumman | HP | Small HP/Compaq Servers | $283,796.92 | $188,157.36 | $4,997.24 | 36 |
| Northrop Grumman | IBM | Tape Libraries | $108,430.46 | $71,889.40 | $1,917.05 | 36 |
| Perspectives Charter Schools | Lenovo | Laptops | $285,032.95 | $264,567.58 | $6,919.94 | 36 |
| Quick Loan Funding | Dell | Desktops - Tier 1 | $189,734.99 | $154,823.75 | $4,448.91 | 35 |
| Qwest Communications International | Stratus | Misc High End Servers | $520,641.00 | $104,128.16 | $3,101.11 | 36 |
| Raytheon | Accunet | Datacom - Other | $70,000.00 | $61,414.17 | $1,875.53 | 30 |
| Raytheon | Sun | Desktops - Tier 1 | $30,363.55 | $28,852.97 | $804.53 | 33 |
| Raytheon | HP | Engineering Workstations | $108,705.57 | $65,609.28 | $1,724.43 | 36 |
| Raytheon | HP | Engineering Workstations | $271,806.00 | $164,048.64 | $4,311.75 | 36 |
| Raytheon | HP | Engineering Workstations | $144,235.21 | $87,053.21 | $2,288.05 | 36 |
| Raytheon | Sun | Small Sun Servers | $82,510.50 | $78,560.79 | $2,131.09 | 33 |
| Raytheon | Sun | Small Sun Servers | $114,775.20 | $101,699.54 | $2,964.64 | 30 |
| Select Medical Corporation | Datascope | Medical | $267,366.27 | $261,457.01 | $6,975.00 | 36 |
| Tecumseh Products Company | Sun | High End Sun Servers | $167,555.81 | $148,848.60 | $5,119.95 | 28 |
| UGO Networks | Toshiba | Laptops | $12,033.00 | $11,081.41 | $355.37 | 31 |
| UGO Networks | Sun | Small Sun Servers | $39,592.00 | $34,426.55 | $1,118.92 | 31 |
| Xerox | Sun | Small Sun Servers | $175,545.13 | $114,458.60 | $3,277.37 | 32 |
RESERVES
Because the Partnership'sPartnership’s leases are on a "triple-net"“triple-net” basis, no permanent reserve for maintenance and repairs will behas been established from the Offering Proceeds.offering proceeds. However, the General Partner, in its sole discretion, may retain a portion of the Cash Flowcash flow and Net Disposition Proceedsnet disposition proceeds available to the Partnership for maintenance, repairs and working capital. There are no limitations on the amount of Cash Flowcash flow and Net Disposition Proceedsnet disposition proceeds that may be retained as reserves. Since no reserve will be established, if available Cash
Flowcash flow of the Partnership is insufficient to cover the Partnership'sPartnership’s operating expenses and liabilities, it may be necessary for the Partnership to obtain additional funds by refinancing its Equipmentequipment or borrowing. The Partnership’s operating expenses increased approximately $214,000 during 2008 and cash flows were sufficient to cover all expenses and liabilities.
GENERAL RESTRICTIONS
Under the Partnership Agreement, the Partnership is not permitted, among other things, to:
(a) Investinvest in junior trust deeds unless received in connection with the sale of an item of Equipmentequipment in an aggregate amount that does not exceed
30% of the assets of the Partnership on the date of the investment;
9
(b) Investinvest in or underwrite the securities of other issuers;
(c) Acquireacquire any Equipmentequipment for Units;
(d) Issue senior securities (except that the issuance to lenders
of notes or other evidences of indebtedness in connection with
the financing or refinancing of Equipment or the Partnership's
business shall not be deemed to be the issuance of senior
securities);
(e) Make loans to any Person, including the General Partner or any
of its Affiliates, except to the extent a Conditional Sales
Contract constitutes a loan;
(f) Sell or lease any Equipment to, lease any Equipment from, or
enter into any sale- leaseback transactions with, the General
Partner or any of its Affiliates; or
(g) Give the General Partner or any of its Affiliates an exclusive
right or employment to sell the Partnership's Equipment.
units;
| (d) | issue senior securities (except that the issuance to lenders of notes or other evidences of indebtedness in connection with the financing or refinancing of equipment or the Partnership’s business shall not be deemed to be the issuance of senior securities); |
| (e) | make loans to any person, including the General Partner or any of its affiliates, except to the extent a conditional sales contract constitutes a loan; |
| (f) | sell or lease any equipment to, lease any equipment from, or enter into any sale- leaseback transactions with, the General Partner or any of its affiliates; or |
| (g) | give the General Partner or any of its affiliates an exclusive right or employment to sell the Partnership’s equipment. |
The General Partner has also agreed in the Partnership Agreement to use its best efforts to assure that the Partnership shall not be deemed an "investment
company"“investment company” as such term is detained in the Investment Company Act of 1940.
The General Partner and its
Affiliatesaffiliates may engage in other activities, whether or not competitive with the Partnership. The Partnership Agreement provides, however, that neither the General Partner nor any of its
Affiliatesaffiliates may receive any rebate or
"give up"“give up” in connection with the
Partnership'sPartnership’s activities or participate in reciprocal business arrangements that circumvent the restrictions in the Partnership Agreement against dealings with
Affiliates.
ITEM 1A: RISK FACTORS
THERE WILL BE NO PUBLIC MARKET FOR THE UNITS, AND YOU MAY BE UNABLE TO SELL OR
TRANSFER YOUR UNITS AT A TIME AND PRICE OF YOUR CHOOSING
There exists no public market for the units, and the General Partner does not
expect a public market for units to develop. The units cannot be pledged or
transferred without the consent of the General Partner. The units should be
purchased as a long-term investment only. The General Partner intends to limit
the number of transfers to no more than that number permitted by one of the safe
harbors available under the tax laws and regulations to prevent CIGF5 from being
taxed as a corporation. Generally, these safe harbors require that all nonexempt
transfers and redemptions of units in any calendar year not exceed two percent
of the outstanding interests in the capital or profits of CIGF5.
The General Partner has sole discretion in deciding whether we will redeem units
in the future. Consequently, you may not be able to liquidate your investment in
the event of an emergency. You must be prepared to hold your units for the life
of CIGF5. CIGF5's life cycle will last approximately 10 to 12 years, and any
extension of this period will require an amendment to the partnership agreement,
which must be approved by a majority of the Limited Partners. You may be able to
resell your units, if at all, only at a discount to the offering price, which
may be significant, and the redemption or sale price may be less than the price
you originally paid for your units.
10
INFORMATION TECHNOLOGY EQUIPMENT WE PURCHASE WILL DEPRECIATE IN VALUE AND/OR
BECOME OBSOLETE OR LOSE VALUE AS NEW TECHNOLOGY IS DEVELOPED, WHICH CAN REDUCE
THE VALUE OF YOUR UNITS AND YOUR ULTIMATE CASH RETURN.
Residual value is the amount realized upon the sale or release of equipment when
the original lease has expired. The residual value of our equipment may decline
if technological advancements make it obsolete or change market preferences. The
residual value depends on, among other factors, the condition of the equipment,
the cost of comparable new equipment, the technological obsolescence of the
equipment and supply and demand for the equipment.
In either of these events, the equipment we purchased may have little or no
residual value. This will result in insufficient assets for us to distribute
cash in a total amount equal to the invested capital of the Limited Partners
over the term of our existence. Also, such an occurrence may reduce the value of
the units. Although currently we expect CIGF5 to acquire predominantly new
equipment, CIGF5 may purchase used equipment. There is no limitation on the
amount of used equipment which CIGF5 may acquire. The acquisitions of used
equipment may increase the risk that such equipment will become obsolete so that
it will have little or no residual value.
WE PAY SIGNIFICANT FEES TO THE GENERAL PARTNER AND AFFILIATES, WHICH WILL REDUCE
CASH AVAILABLE FOR DISTRIBUTIONS.
The General Partner and its affiliates, including Commonwealth Capital
Securities Corp.("CCSC"), will receive substantial fees. Some fees will be paid
without regard to the amount of distributions paid or the success or
profitability of CIGF5's operations and investments. For example, an increase in
portfolio turnover or the amount of leverage used to purchase equipment may
increase the fees we pay to the General Partner. Such compensation and fees were
established by the General Partner and are not based on arm's-length
negotiations.
CIGF5 HAS A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE PERFORMANCE.
THERE CAN BE NO ASSURANCE THAT ANY OF THE INVESTMENT OBJECTIVES WILL BE
ATTAINED.
Our operations may not ultimately be successful and we may be unable to meet our
stated investment objectives. Specifically, sufficient cash may ultimately not
be available for distribution to investors. Our General Partner sponsors four
other public equipment leasing programs with investment objectives similar to
CIGF5. The General Partner has also sponsored several privately held equipment
leasing programs. Results for these prior public and private programs have in
some cases been lower than originally anticipated.
ANY DELAY IN ACQUIRING EQUIPMENT WILL DIMINISH OUR RETURNS.
Due to competition with other lessors, we may experience difficulty in obtaining
and leasing appropriate equipment. Our ability to acquire and lease equipment
may also be adversely affected by interest rates, the availability of capital or
increases in corporate liquidity, since prospective lessees may prefer to raise
capital, incur debt or use internally-generated cash to purchase equipment
rather than enter the leasing market.
ITEM 1B: UNRESOLVED STAFF COMMENTS
NOT APPLICABLE
11
affiliates.EMPLOYEES
The Partnership hashad no employees and during 2005,2008 and received administrative and other services from a related party, Commonwealth Capital Corp ("CCC"Corp. (“CCC”), which has 51had 91 employees as of December 31, 2005.
2008.
ITEM 1A: RISK FACTORS
Changes in economic conditions could materially and negatively affect our business.
Our business is directly impacted by factors such as economic, political, and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies, and inflation, all of which are beyond our control. A deterioration in economic conditions, whether caused by national or local concerns, especially within our market area, could result in the following consequences, any of which could hurt business materially: lease delinquencies may increase; problem leases and defaults could increase; and demand for information technology products generally may decrease as businesses attempt to reduce expenses.
ITEM 1B: UNRESOLVED STAFF COMMENTS
NOT APPLICABLE
ITEM 2: PROPERTIES
NOT APPLICABLE
ITEM 3: LEGAL PROCEEDINGS
NOT APPLICABLE
In April 2007, our lessee Quick Loan Funding, Inc. began defaulting on its lease payments. From April 2007 through the first quarter of 2008 we attempted several times to collect payment of outstanding lease payments and to recover the equipment from this lessee. On April 2, 2008, we filed suit in the Superior Court of Orange County, California (Docket No. 30-2008-00104785) against Quick Loan Funding, Inc. and its owner, Daniel Sadek, to recover the unpaid lease payments, late fees and the equipment. In July 2008, we recovered a portion of the equipment leased to Quick Loan Funding, and we are continuing to pursue all available means to recover the remainder of the equipment and the outstanding amounts owed to us. On September 24, 2008 we obtained a judgment against Quick Loan Funding for all amounts owed to us. We are currently in the process of executing this judgment against any available assets of Quick Loan Funding. While we believe Quick Loan Funding is currently insolvent, to our knowledge no proceedings in bankruptcy have been initiated. We believe, based on our physical inspection of Quick Loan’s physical assets during our repossession efforts, that Quick Loan Funding may have sufficient assets to cover our judgment lien against it. To date, the Partnership has recorded a reserve against all outstanding rentals in the amount of approximately $43,000. For the years ended December 31 2008 and 2007 the Partnership recorded impairment charges of approximately $63,000 and $18,000, respectively. As of December 31, 2008 the equipment has a net book value of zero. The Partnership has not experienced any significant changes related to this matter during the fourth quarter of 2008.
In August 2007, a lessee, MobilePro, Inc. defaulted on lease payments for wi-fi equipment owned by the fund. We were able to cover unpaid amounts by retaining cash collateral in the form of security deposits, which covered approximately eight months of additional rent. Since that period, we communicated with and attempted to work with MobilePro on a resolution, through an equipment sale that could satisfy their obligations to us.
By year end 2008, it became clear that they could not locate a buyer for the equipment. Therefore, we began to make several demands for payments of back rent not satisfied by the security deposits, and these demands were not satisfied. Subsequently, on February 10, 2009, our general partner filed suit against MobilePro and other related parties for collection, in the US District Court for the District of Arizona.
Simultaneously, we also filed suit against the City of Tempe, Arizona in order to seek access to our equipment, so that we could repossess and remarket the equipment, as Tempe has denied us access. On March 27, 2009, the City of Tempe filed a response and counterclaim, seeking an unspecified amount for the use of the right-of-way on the utility poles where the equipment is located, as well as an unspecified fee for electricity used by the equipment and the city is additionally seeking entitlement to ownership of the equipment. We believe both counterclaims are without merit for several reasons and will continue to enforce our rights to the equipment. The partnership has taken reserves against this lease, from quarter to quarter, to maintain a conservative position on our books.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE
PART II
ITEM 5: MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
| ITEM 5: | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
There is no public market for the Unitsunits nor is it anticipated that one will develop. As of December 31, 2005,2008, there were 730889 holders of Units.units. The Unitsunits are not listed on any exchange or permitted to trade on any over-the-counter market. In addition, there are substantial restrictions on the transferability of Units.
units.
GENERAL LIMITATIONS
Units cannot be transferred without the consent of the General Partner, which may be withheld in its absolute discretion. The General Partner monitors transfers of Unitsunits in an effort to ensure that all transfers are within certain safe harbors promulgated by the IRS to furnish guidance regarding publicly traded partnerships. These safe harbors limit the number of transfers that can occur in any one year. The General Partner intends to cause the Partnership to comply with the safe harbor that permits nonexempt transfers and redemptions of Unitsunits of up to five percent of the total outstanding interest in the Partnership'sPartnership’s capital or profits in any one year.
REDEMPTION PROVISION
Upon the conclusion of the 30-month period following the termination of the
Offering,offering, the Partnership may, at the sole discretion of the General Partner, repurchase a number of the outstanding
Units.units. After such
30-month30 month period, on a semi-annual basis, the General Partner, at its discretion,
willmay establish an amount for redemption, generally not to exceed two percent of the outstanding
Unitsunits per year, subject to the General
Partner'sPartner’s good faith determination that such redemptions will not (a) cause the Partnership to be taxed as a corporation under Section 7704 of the Code or (b) impair the capital or operations of the Partnership. (The Partnership may redeem
Unitsunits in excess of the two percent limitation if, in the good faith judgment of the General Partner, the conditions imposed in the preceding sentence would remain satisfied.) The redemption price for
Unitsunits will be 105% of the selling Limited
Partner's Adjusted Capital
ContributionsPartner’s adjusted capital contributions attributable to the
Unitsunits for sale. Following the determination of the annual redemption amount, redemptions will occur on a semi-annual basis and all requests for redemption, which must be made in writing, must be on file as of the
Record Daterecord date in which the redemption is to occur. The General Partner will maintain a master list of requests for redemption with priority being given to
Unitsunits owned by estates, followed by IRAs and Qualified Plans. All other requests will be considered in the order received. Redemption requests made by or on behalf of Limited Partners who are not affiliated with the General Partner or its
Affiliatesaffiliates will be given priority over those made by Limited Partners who are affiliated with the General Partner or its
Affiliates.affiliates. All redemption requests will remain in effect until and unless canceled, in writing, by the requesting Limited Partner(s).
12
The Partnership will accept redemption requests beginning 30 months following the termination of the Offering.offering. There will be no limitations on the period of time that a redemption request may be pending prior to its being granted. Limited Partners will not be required to hold their interest in the Partnership for any specified period prior to their making a redemption request. In order to make a redemption request, Limited Partners will be required to advise the General Partner in writing of such request. Upon receipt of such notification, the Partnership will provide detailed forms and instructions to complete the request. Atrequest The Partnership terminated its offering of units on February 24, 2006 with 1,249,951 units ($24,957,862) sold. During the year ended December 31, 2005,2008 limited partners redeemed 4,099 units of the General Partner has not redeemed
any Units. Additionally, no Limited Partners have requestedpartnership for a total redemption price of their
Units.
approximately $52,000 in accordance with the terms of the limited partnership agreement.
EXEMPT TRANSFERS
The following sixseven categories of transfers are exempt transfers for purposes of calculating the volume limitations imposed by the IRS and will generally be permitted by the General Partner:
(1) Transfers in which the basis of the Unit in the hands of the
transferee is determined, in whole or in part, by reference to
its basis in the hands of the transferor (for example, Units
acquired by corporations in certain reorganizations,
contributions to capital, gifts of Units, Units contributed to
another partnership, and nonliquidating as well as liquidating
distributions by a parent partnership to its partners of
interests in a sub partnership);
(2) Transfers at death;
(3) Transfers between members of a family (which include brothers
and sisters, spouse, ancestors, and lineal descendants);
(4) Transfers resulting from the issuance of Units by the
Partnership in exchange for cash, property, or services;
(5) Transfers resulting from distributions from Qualified Plans;
and
(6) Any transfer by a Limited Partner in one or more transactions
during any 30-day period of Units representing in the
aggregate more than five percent of the total outstanding
interests in capital or profits of the Partnership.
| (1) | transfers in which the basis of the unit in the hands of the transferee is determined, in whole or in part, by reference to its basis in the hands of the transferor (for example, units acquired by corporations in certain reorganizations, contributions to capital, gifts of units, units contributed to another partnership, and nonliquidating as well as liquidating distributions by a parent partnership to its partners of interests in a sub partnership); |
| (3) | transfers between members of a family (which include brothers and sisters, spouse, ancestors, and lineal descendants); |
| (4) | transfers resulting from the issuance of units by the Partnership in exchange for cash, property, or services; |
| (5) | transfers resulting from distributions from Qualified Plans; |
| (6) | any transfer by a Limited Partner in one or more transactions during any 30-day period of units representing in the aggregate more than five percent of the total outstanding interests in capital or profits of the Partnership; and |
| (7) | transfers by one or more partners representing in the aggregate fifty percent (50%) or more of the total interests in partnership’s capital or profits in one transaction or a series of related transactions. |
ADDITIONAL RESTRICTIONS ON TRANSFER
Limited Partners who wish to transfer their Unitsunits to a new beneficial owner are required to pay the Partnership up to $50 for each transfer to cover the Partnership'sPartnership’s cost of processing the transfer application and take such other actions and execute such other documents as may be reasonably requested by the General Partner. There is no charge for re-registration of a certificate in the event of a marriage, divorce, death, or transfer to a trust so long as the transfer is not a result of a sale of the Units.
units.
In addition, the following restrictions apply to each transfer: (i) no transfer may be made if it would cause 25% or more of the outstanding Unitsunits to be owned by benefit plans; and (ii) no transfer is permitted unless the transferee obtains such governmental approvals as may reasonably be required by the General Partner, including without limitation, the written consents of the Pennsylvania Securities Commissioner and of any other state securities agency or commission having jurisdiction over the transfer.
ALLOCATION AND DISTRIBUTION BETWEEN THE GENERAL PARTNER AND THE LIMITED PARTNERS
Cash distributions, if any, are made quarterly on March 31, June 30, September 30, and December 31 of each year. Distributions are made 99% to the Limited Partners and
one percent1% to the General Partner until the Limited Partners have received an amount equal to their
Capital Contributionscapital contributions plus the
Priority
Return;priority return; thereafter, cash distributions will be made 90% to Limited Partners and 10% to the General Partner.
13
Distributions made in connection with the liquidation of the Partnership or a Partner's UnitsPartner’s units will be made in accordance with the Partner'sPartner’s positive Capital
Accountcapital account balance as determined under the Partnership Agreement and Treasury Regulations.The Priority Returnpriority return is calculated on the Limited Partners' Adjusted Capital
ContributionsPartners’ adjusted capital contributions for their Units.units. The Adjusted Capital Contributionsadjusted capital contributions will initially be equal to the amount paid by the Limited Partners for their Units.units. If distributions at any time exceed the Priority Return,priority return, the excess will reduce the Adjusted Capital Contributions,adjusted capital contributions, decreasing the base on which the Priority Returnpriority return is calculated.
If the proceeds resulting from the sale of any Equipmentequipment are reinvested in Equipment,equipment, sufficient cash will be distributed to the Partners to pay the additional federal income tax resulting from such sale for a Partner in a 38.6%35% federal income tax bracket or, if lower, the maximum federal income tax rate in effect for individuals for such taxable year.
Generally, the General Partner is allocated Net Profitsnet profits equal to its cash distributions (but not less than one percent of Net Profits)net profits) and the balance is allocated to the Limited Partners. Net Profitsprofits arising from transactions in connection with the termination or liquidation of the Partnership are allocated in the following order: (1) First, to each Partner in an amount equal to the negative amount, if any, of his Capital Account;capital account; (2) Second, an amount equal to the excess of the proceeds which would be distributed to the Partners based on the Operating Distributionsoperating distributions to the Partners over the aggregate Capital Accountscapital accounts of all the Partners, to the Partners in proportion to their respective shares of such excess, and (3) Third, with respect to any remaining Net Profits,net profits, to the Partners in the same proportions as if the distributions were Operating
Distributions.operating distributions. Net Losses,losses, if any, are in all cases allocated 99% to the Limited Partners and one percent1% to the General Partner.
Net Profitsprofits and Net Lossesnet losses are computed without taking into account, in each taxable year of the Partnership, any items of income, gain, loss or deduction required to be specially allocated pursuant to Section 704(b) of the Code and the Treasury Regulation promulgated thereunder. No Limited Partner is required to contribute cash to the capital of the Partnership in order to restore a closing Capital Accountcapital account deficit, and the General Partner has only a limited deficit restoration obligation under the Partnership Agreement.
Quarterly distributions in the following amounts were paid to the Limited Partners during the period of March 14, 2005 (Commencement of Operations)
through December 31, 2005.
QUARTER ENDED 2005
------------- ---------
MARCH 31 $ -
JUNE 30 100,925
SEPTEMBER 30 235,746
DECEMBER 31 357,823
TOTAL $ 694,494
year 2008 and 2007:
| Quarter Ended | | 2008 | | | 2007 | |
| March 31 | | $ | 618,724 | | | $ | 618,724 | |
| June 30 | | | 618,352 | | | | 618,328 | |
| September 30 | | | 617,533 | | | | 618,724 | |
December 31 | | | 616,697 | | | | 618,724 | |
Total | | $ | 2,471,306 | | | $ | 2,474,500 | |
ALLOCATIONS AND DISTRIBUTIONS AMONG THE LIMITED PARTNERS
14
Except during the Offering Period, Cash Availableavailable for Distributiondistribution that is allocable to the Limited Partners is apportioned among and distributed to them solely with reference to the number of Units owned by each as of the Record Daterecord date for each such distribution. During the Offering Period, Cash Available
Net profits, net losses and cash available for Distribution which is allocable to the Limited Partners was apportioned among
and distributed to them with reference to both (i) the number of Units owned by
each as of each Record Date and (ii) the number of days since the previous
Record Date (or, in the case of the first Record Date, the commencement of the
Offering Period) that the Limited Partner owned the Units.
After the Offering Period, Net Profits, Net Losses and Cash Available for
Distributiondistribution allocable to the Limited Partners is apportioned among them in accordance with the number of Unitsunits owned by each. A different convention was
utilized during the Offering Period, whereby Net Profits and Net Losses
allocable to Limited Partners were apportioned among them in the ratio which the
product of the number of Units owned by a Limited Partner multiplied by the
number of days in which the Limited Partner owns such Units during the period
bears to the sum of such products for all Limited Partners.
In addition, where a Limited Partner transfers Unitsunits during a taxable year, the Limited Partner may be allocated Net Profitsnet profits for a period for which such Limited Partner does not receive a corresponding cash distribution.
ITEM 6: SELECTED FINANCIAL DATA
The following tables sets forth, in summary form, selected financial data for
the Partnership as of and for the period ended December 31, 2005. This table is
qualified in its entirety by the more detailed information and financial
statements presented elsewhere in this report, and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
herein.
PERIOD ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 2005
------------------------------------------ ------------
Lease Income $ 381,447
Net (Loss) (892,464)
Cash Distributions to Limited Partners 694,494
Net (Loss) Allocated to Limited Partners (907,319)
Net (Loss) Per Limited Partner Unit (1.80)
Cash Distribution Per Limited Partner Unit 1.38
PERIOD ENDED DECEMBER 31,
OTHER DATA: 2005
------------------------------------------ ------------
Net cash (used in) operating activities $ (613,947)
Net cash (used in) investing activities (5,348,221)
Net cash provided by financing activities 16,638,401
15
AS OF DECEMBER 31,
2005
------------
Total Assets $ 16,864,073
Notes Payable 785,157
Partners' Capital 15,793,735
Net loss per limited partner unit is computed based upon net loss allocated to
the Limited Partners and the weighted average number of equivalent Units
outstanding during the year. Cash distribution per Unit is computed based upon
distributions allocated to the Limited Partners and the weighted average number
of equivalent Units outstanding during the year.
NOT APPLICABLE
ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDCONDITIONAND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Partnership's discussion and analysis of its financial condition and results of operations are based upon its financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Partnership to make estimates and judgments that affect the reported amountsfinancial position of assets,
liabilities, revenues and expenses.our business. The Partnership bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,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.
The Partnership believes that its critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements.
COMPUTER EQUIPMENT
CCC, on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. Depreciation on computer equipment for financial statement purposes is based on the straight-line method
estimated generally over
estimated useful lives of
two to four years.
16
REVENUE RECOGNITION
Through December 31, 2005,2008, the Partnership has only entered into operating leases. Lease revenue is recognized on a monthly basis in accordance with the terms of the operating lease agreements.
The Partnership reviews a customer'scustomer’s credit history before extending credit and may establish a provision for uncollectible accounts receivable based upon the credit risk of specific customers, historical trends and other information.
LONG-LIVED ASSETS
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. In 2008 and 2007, the Partnership determined that the carrying amount of certain assets was greater than the undiscounted cash flows to be generated by these assets. In 2008 and 2007, the Partnership recorded impairment charges of approximately $99,000 and $59,000, respectively. Such amounts have been included in depreciation expense in the accompanying financial statements.
Depreciation on computer equipment for financial statement purposes is based on the straight-line method estimated generally over estimated useful lives of two to four years.
REIMBURSABLE EXPENSES
Reimbursable expenses, which are charged to the Partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases. For example, if the Partnership has more investors than another program sponsored by CCC, then higher amounts of expenses related to investor services, mailing and printing costs will be allocated to the Partnership. Also, while the Partnership is in its offering stage, higher compliance costs are allocated to it than to a program not in its offering stage, as compliance resources are utilized to review incoming investor suitability and proper documentation. Finally, lease related expenses, such as due diligence, correspondence, collection efforts and analysis staff costs, increase as programs purchase more leases, and decrease as leases terminate and equipment is sold. All of these factors contribute to CCC’s determination as to the amount of expenses to allocate to the Partnership or to other sponsored programs. For the Partnership, all reimbursable expenses are expensed as they are incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities, including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses will be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157 “Fair Value Measurements”. As of January 1, 2008 the Partnership adopted SFAS No.159. The Partnership has not elected the fair value option for any financial assets or financial liabilities.
In September 2006, the FASB issued Statement of Financial Accounting Standards 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance on measuring the fair value of assets and liabilities. SFAS 157 applies to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also requires additional disclosures in both annual and quarterly reports. In February 2008, the FASB issued two Staff Positions on SFAS 157: (1) FASB Staff Position No. FAS 157-1 (FAS 157-1), “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13,” and (2) FASB Staff Position No. FAS 157-2 (FAS 157-2), “Effective Date of FASB Statement No. 157.” FAS 157-1 excludes FASB Statement No. 13, Accounting for Leases, as well as other accounting pronouncements that address fair value measurements on lease classification or measurement under Statement 13, from SFAS 157’s scope. FAS157-2 partially defers Statement 157’s effective date. As of January 1, 2008 the Partnership adopted SFAS No. 157 for all financial assets. Adoption of this pronouncement did not impact the 2008 financial statements of the Partnership. In October 2008, the FASB issued FSP SFAS 157-3 "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active" ("FSP SFAS 157-3"), which is effective upon issuance for all financial statements that have not been issued. FSP SFAS 157-3 clarifies the application of SFAS 157, in a market that is not active. Adoption of FSP SFAS 157-3 did not impact the 2008 financial statements of the Partnership.
LIQUIDITY AND CAPITAL RESOURCES
For the period of March 14, 2005 (Commencement of Operations) throughyears ended December 31, 2005, the Partnership used2008 and 2007 cash fromwas provided by operating activities of approximately $614,000$2,548,000 and $3,295,000, respectively which includes a net loss of $899,000approximately $1,043,000 and $311,000 and depreciation and amortization expenses of $306,000.approximately $5,747,000 and $5,323,000 respectively. Other non-cash activities included in the determination of the net loss include direct payments of lease income by lessees to banks of $50,000approximately $1,924,000 and $1,760,000, respectively, for that same period.
the years ended December 31, 2008 and 2007.
The Partnership'sPartnership’s primary sources of cash for the year ended December 31, 2008 was cash generated by operating activities of approximately $2,548,000 and net proceeds from the sale of computer equipment of approximately $724,000. The Partnership’s primary source of capitalcash for the period of March 14, 2005
(Commencement of Operations) throughyear ended December 31, 20052007 was contributionscash generated by operating activities of approximately $19,700,000. Equipment in$3,295,000.
The primary uses of cash for the amountyears ended December 31, 2008 and 2007 were for the payment of $4,600,000 was purchaseddistributions to partners totaling approximately $2,496,000 and distributions$2,499,000, respectively, acquisition fees of approximately $703,000 were paid during the same period.
$84,000 and $248,000, respectively, and for capital expenditures for new equipment totaling $1,765,000 and $3,615,000, respectively.
Cash ishas been invested in money markethigh yield savings accounts that invest directly in treasury
obligations pending the Partnership's use of such funds to purchase additional
computer equipment, to pay Partnership expenses or to make distributions to the
Partners.and checking accounts. At December 31, 2005,2008 cash was held in two accounts at one major financial institution. The accounts at this institution are federally insured, in aggregate, for amounts up to $250,000. At times, the balances may have exceeded federally insured limits. At December 31, 2008, the total cash balance was approximately $3,546,000 and exceeded federally insured limits by approximately $3,296,000. At December 31, 2007 cash was held in two accounts at one major financial institution. The accounts at this institution were federally insured, in aggregate, for amounts up to $100,000. At times, the balances may have exceeded federally insured limits. At December 31, 2007, the total cash balance was approximately $4,349,000 and exceeded federally insured limits by approximately $4,249,000. The Partnership had approximately $10,222,000,
investedmitigates this risk by only depositing funds with major financial institutions. The Partnership has not experienced any losses in these money market accounts.such accounts, and believes it is not exposed to any significant credit risk. The Partnership'samount in such accounts will fluctuate throughout 2009 due to many factors, including the pace of revenues, equipment acquisitions and distributions.
The Partnership’s investment strategy of acquiring computer equipment and generally leasing it under triple-net leases to operators, who generally meet specified financial standards, minimizes the Partnership'sPartnership’s operating expenses. As
ofAt December 31, 2005,2008, the Partnership had future minimum rentals on noncancellable operating leases of $1,797,000$3,909,000 for the year ended 2006ending 2009 and $3,148,000$1,183,000 thereafter. The Partnership incurredPartnership’s outstanding debt during 2005 in the amount
of $835,000. As ofat December 31, 2005, the outstanding debt2008 was $785,000,approximately $1,551,000 with a
weighted average interest rate of 6.05%rates ranging from 4.65% to 6.30% and will be payable through September
2008.
May 2012.
CCC, on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors.
17
The Partnership'sPartnership’s share of the computer equipment in which it participates with other partnerships at December 31, 2008 and 2007 was approximately $9,865,000 and $8,381,000, respectively and is included in the Partnership’s fixed assets on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 2008 and 2007 was approximately $24,040,000 and $17,371,000, respectively. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2008 and 2007 was approximately $974,000 and $1,683,000, respectively. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2008 and 2007 was approximately $2,513,000 and $3,187,000, respectively.
The Partnership’s cash flow from operations is expected to continue to be adequate to cover all operating expenses, liabilities, and distributions to Partners during the next 12-month period. During 2008, operating expenses of the Partnership increased 23%. If available Cash Flowcash flow or Net
Disposition Proceedsnet disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership will attempt to obtain additional funds by disposing of or refinancing Equipment,equipment, or by borrowing within its permissible limits. The Partnership may also reduce the distributions to its Partners if it deems necessary. Since the Partnership'sPartnership’s leases are on a "triple-net"“triple-net” basis, no reserve for maintenance and repairs are deemed necessary.
The Partnership intends to invest approximately $3,000,000 in additional equipment for the remainder of 2009. The acquisition of this equipment will be funded by debt financing and with cash flows from lease rental payments.
RESULTS OFFROM OPERATIONS
For the period of March 14, 2005 (Commencement of Operations) throughyears ended December 31, 2005,2008 and 2007 the Partnership recognized incomerevenue of $423,000approximately $6,844,000 and $6,827,000 and expenses of $1,322,000approximately $7,886,000 and $7,138,000 resulting in net loss of $899,000. The Partnershipapproximately $1,043,000 and $311,000, respectively.
Lease revenue increased to approximately $6,755,000 from approximately $6,607,000 for the years ended December 31, 2008 and 2007, respectively, primarily due to more lease agreements being entered into 27
leases that generatedversus lease income of approximately $382,000 for that same
period.
agreements terminating during 2008.
For the period of March 14, 2005 (Commencement of Operations) throughyears ended December 31, 2005,2008 and 2007, the Partnership recognized interest income of $41,000approximately $89,000 and $220,000 as a result of monies being invested in money marketsavings accounts that invest directly in cash or treasury obligations pending the Partnership'sPartnership’s use of such funds to purchase additional computer equipment, to pay Partnership expenses, or to make distributions to the Partners.
For
The Partnership sold computer equipment with a net book value of approximately $750,000 during the period of March 14, 2005 (Commencement of Operations) throughyear ended December 31, 2005, operating2008, for a net loss of approximately $28,000. The Partnership sold computer equipment with a net book value of approximately $16,000 during the year ended December 31, 2007, for a net loss of approximately $10,000.
Operating expenses, excluding depreciation, consist of accounting, legal, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. TheFor the year ended December 31, 2008 operating expenses totaledincreased to approximately $818,000.
For$1,476,000 from $1,262,000 for the period of March 14, 2005 (Commencement of Operations) throughyear ended December 31, 2005, organizational costs were approximately $173,000.
2008. This increase is primarily due to increases in limited partner, tax, legal, remarketing and other related office expenses.
The equipment management fee iswas approximately 5% of the gross lease revenue attributable to equipment that is subject to operating leases. For the period of
March 14, 2005 (Commencement of Operations) through December 31, 2005, theThe equipment management fee wasincreased to approximately $19,000.
$338,000 for the year ended December 31, 2008 from approximately $330,000 for the year ended December 31, 2007, which is consistent with the increase in lease revenue.
Depreciation and amortization expenses consist of depreciation on computer equipment, impairment charges, and amortization of equipment acquisition fees. For the period of March 14, 2005 (Commencement of Operations) throughyears ended December 31, 2005,2008 and 2007, these expenses totaled approximately $306,000.
$5,830,000 and $5,323,000, respectively. This increase was due to the acquisition of new equipment attributable to the purchase of new leases during 2008.
The Partnership identified specific computer equipment and associated equipment acquisition costs, which were reevaluated due to technological changes. In 2008 and 2007, the Partnership determined that the carrying amount of certain assets was greater than the undiscounted cash flows to be generated by these assets. In 2008 and 2007, the Partnership recorded impairment charges of approximately $99,000 and $59,000, respectively. Such amounts have been included in depreciation expense in the accompanying financial statements.
Depreciation on computer equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years.
NET LOSS
For
Net loss increased to approximately $1,043,000 for the period of March 14, 2005 (Commencement of Operations) through year ended December 31, 2005,2008 from approximately $311,000 for the year ended December 31, 2007. This change in net loss was $899,000.
COMMITMENTS AND CONTINGENCIES
CONTRACTUAL CASH OBLIGATIONS
The following table presents our contractual cash obligations as of December 31,
2005:
18
PAYMENTS DUE BY PERIOD
TOTAL 2006 2007 2008
--------- --------- --------- ---------
Installment notes payable
due 2008:
Principal $ 785,157 $ 294,164 $ 312,807 $ 178,186
Interest 70,011 38,329 22,090 9,592
--------- --------- --------- ---------
TOTAL $ 855,168 $ 332,493 $ 334,897 $ 187,778
========= ========= ========= =========
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005,attributable to the Financial Accounting Standards Board (FASB) issued SFAS No.
154, "Accounting Changes and Error Corrections" (SFAS No. 154) which replaces
APB No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements - An Amendment of APB Opinion No. 28." SFAS No. 154
provides guidance on the methods issuers should use to account for and report
accounting changes and error corrections. Specifically, this statement requires
that issuers retrospectively apply any voluntary change in accounting principles
to prior period financial statements, if it is practicable to do so. This
principle replaces APB No. 20, which required that most voluntary changes in accounting principle be recognized by including the cumulative effect of the
change to the new accounting principle on prior periods in the net income
reported by the issuer in the period in which it instituted the change. SFAS No.
154 also redefines the term "restatement" to mean the correction of an error by
revising previously issued financial statements. Unless adopted early, SFAS No.
154 is effective for accounting changesrevenues and corrections of errors made in fiscal
years beginning after December 15, 2005. The Partnership does not expect the
adoption of SFAS No. 154 to have an impact on its financial position or results
of operations.
expenses as discussed above. ITEM 7.A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership believes its exposure to market risk is not material due to the
fixed interest rate of its long-term debt and its associated fixed revenue
streams.
MARKETRISK
NOT APPLICABLE
.ITEM 8: FINANCIAL STATEMENTS
Our financial statements, including selected quarterly financial data for the fiscal yearyears ended December 31, 2005,2008 and 2007 and the reports thereon of Asher & Company, Ltd, are included in this annual report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGONACCOUNTING AND FINANCIAL DISCLOSURE
NONE
NOT APPLICABLE
ITEM 9A: CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of the principal executive officer and principal financial officer,
havehas evaluated the effectiveness of our controls and procedures related to our reporting and disclosure obligations as of December 31,
2005,2008, which is the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are
sufficienteffective to provide that (a)
19
material information relating to us, including our consolidated subsidiaries, is made known to these officers by our and our consolidated subsidiaries other employees, particularly material information related to the period for which this periodic report is being prepared; and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission.| ITEM 9A (T): | CONTROLS AND PROCEDURES |
Management's Report on Internal Control over Financial Reporting. It is the responsibility of the General Partner to establish and maintain adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The General Partner’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the General Partner; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership’s internal control over financial reporting at December 31, 2008. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Partnership’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the board of directors.
Based on our assessment, management determined that, at December 31, 2008, the Partnership maintained effective internal control over financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management's report in this annual report.
ITEM 9B: OTHER INFORMATION
NONE
NOT APPLICABLE
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL
The Partnership does not have any Directors or executive officers.
The General Partner, a wholly owned subsidiary of Commonwealth of Delaware, Inc., a Delaware corporation, which is in turn a wholly-owned subsidiary of CCC, a Pennsylvania corporation, was incorporated in Pennsylvania on August 26, 1993. The General Partner also acts as the General Partner for Commonwealth Income & Growth Fund I, Commonwealth Income & Growth Fund II, Commonwealth Income &
Growth Fund III, Commonwealth Income & Growth Fund IV, Commonwealth Income & Growth Fund VI and Commonwealth Income & Growth Fund VI.VII. The principal business office of the General Partner is 470 John
Young Way,Brandywine Bldg. One, Suite 300, Exton,200, 2 Christy Drive, Chadds Ford, PA 19341,19317, and its telephone number is 610-594-9600. The General Partner manages and controls the affairs of the Partnership and has sole responsibility for all aspects of the Partnership'sPartnership’s operations. The officers of the General Partner devote such time to the affairs of the Partnership as in the opinion of the General Partner is necessary to enable it to perform its function as General Partner. The officers of the General Partner are not required to spend their full time in meeting their obligations to the Partnership.
The directors and officers of the General Partner and key employees of CCC
are
as follows:
NAME TITLE
- ----------------------- -----------------------------------------------------
George S. Springsteen Chairman of the Board, Treasurer and
Chief Executive
Officer of CCC, CCSC, and Comonwealth Income & Growth
Fund, Inc. ("CIGF, Inc.")
Kimberly A. Springsteen Director, Secretary, President & Chief Operations
Officers of CCC, CCSC and CIGF, Inc. Chief Compliance
Officer of CCSC.
Henry J. Abbott Director, Senior Vice President & Portfolio Manager
of CCC, CCSC and CIGF, Inc.
Lynn A. Franceschina Controller, Senior Vice President of CCC, CCSC and
CIGF, Inc.
Katrina M. Mason Due Diligence Officer, Senior Vice President of CCC,
CCSC and CIGF, Inc.
Jay Dugan Chief Technology Officer, Senior Vice President of
CCC, CCSC and CIGF, Inc.
Donald Bachmayer Accounting Manager, Vice President of CCC, CCSC, and
CIGF, Inc.
Mark Hershenson Broker Services Manager, Vice President of CCC, CCSC
and CIGF, Inc.
James Pruett Compliance Officer, Assistant Vice President of CCC,
CCSC and CIGF, Inc.
Donnamarie D. Abbott Investor Services Manager, Assistant Vice President
of CCC, and CIGF, Inc.
20
GEORGE S. SPRINGSTEEN, age 71, is a founding stockholder, Chairman of
the Board and Chief Executive Officer of Commonwealth Capital Corp. since 1978.
In addition, Mr. Springsteen serves as Chairman of the Board and Chief Executive
Officer and registered principal of the broker/dealer,its subsidiary Commonwealth Capital Securities Corp and the General Partner, Commonwealth Income & Growth Fund Inc.
He oversees numerous equipment investment portfolios and is responsible for
business development. Mr. Springsteen and his wife, Kim,Corp. ("CCSC"), are the sole
shareholders of the parent company and its affiliates. Mr. Springsteen oversees
the Portfolio Advisory Committee, the Audit Committee, the Disaster Recovery
Committee and the Facilities Committee. Before starting Commonwealth, Mr.
Springsteen managed a portfolio of $120 million at Granite Computer Corp.,
bought their portfolio and founded his own firm. Mr. Springsteen attended the
University of Delaware and holds his NASD Series 22, 63 and 39 licenses. Mr.
Springsteen is a member of the Equipment Leasing Association and a founding
member of the Computer Dealers Leasing Association prior to, as well as a member
of the Investment Program Association. (Mr. Springsteen is the spousefollows:| NAME | TITLE |
| Kimberly A. Springsteen-Abbott | Chairman of the Board, Chief Executive Officer and Chief Compliance Officer of CCC, |
| CCSC, & CIGF, Inc |
| |
| Henry J. Abbott | Director of CCC, CCSC & CIGF, Inc., Executive Vice President of CCSC and |
| President of CCC and CIGF, Inc. |
| |
| William Pieranunzi III | President of CCSC, Director of CCC and CCSC, and Senior Vice President |
| Of CCC |
| |
| Lynn A. Franceschina | Executive Vice President, Chief Operating Officer, and Director of CCC, |
| CCSC & CIGF, Inc. |
| |
| Jay Dugan | Executive Vice President and Chief Technology Officer and Director of CCC, |
| Senior Vice President and Chief Technology Officer of CIGF, Inc. |
| |
| Peter Daley | Director of CCC |
| |
| James Pruett | Senior Vice President and Compliance Officer of CCC, CCSC, & CIGF, Inc. |
| |
| Mark Hershenson | Senior Vice President and Broker-Dealer Relations Manager of CCC, |
| CCSC & CIGF, Inc |
| |
| Richard G. Devlin III | Vice President and General Counsel of CCC, CCSC & CIGF, Inc. |
| |
| David W. Riggleman | Vice President and Portfolio Manager of CCC and CIGF, Inc. |
| |
| Edmond J. Enderle | Vice President and Controller of CCC, CCSC, & CIGF, Inc. |
| |
| Donna Abbott | Vice President and Investor Services Manager of CCC, CCSC & CIGF, Inc. |
| |
| Lisa Renshaw | Vice President, National Sales Manager of CCC and CIGF Inc. |
| |
| Joseph Neill | Vice President and Broker Services Manager of CCC, CCSC and CIGF, Inc. |
| |
Kimberly A. Springsteen)
KIMBERLYSpringsteen-Abbott, Kimberly A. SPRINGSTEEN,Springsteen-Abbott, age 46,49, joined Commonwealth in 1997 as a founding registered principal and Chief Compliance Officer of its broker/dealer, Commonwealth Capital Securities Corp. Ms. Springsteen-Abbott is the Chief Executive Officer and servesChairman of the Board of Directors of Commonwealth Capital Corp. (the parent corporation); Commonwealth Capital Securities Corp. (the broker/dealer); and Commonwealth Income & Growth Fund, Inc. (the General Partner). Ms. Springsteen-Abbott is responsible for general operations of the equipment leasing/portfolio management side of the business. Ms. Springsteen-Abbott oversees all CCC operations, as Directorwell as CCSC SEC/FINRA compliance. For the broker/dealer, she oversees securities policies, company procedures/operations. Ms. Springsteen-Abbott oversees all corporate daily operations and Secretary,
Presidenttraining, as well as develops long-term corporate growth strategies. Ms. Springsteen-Abbott has over 27 years of experience in the financial services industry, specifically in the real estate, energy and Chief Operating Officerleasing sectors of alternative investments. Ms. Springsteen-Abbott is the sole shareholder of Commonwealth Capital Corp. Ms. Springsteen-Abbott was elected to the Board of Directors of the parent corporation in 1997 and has also served as its affiliates. Ms.
Springsteen is responsible for oversightExecutive Vice President and COO. Also in 1997, she founded Commonwealth Capital Securities Corp., where she was elected to the Board of daily operations,Directors and appointed President, COO and Chief Compliance Officer. Her responsibilities included business strategy, product development, broker/dealer relations development, due diligence, and business development.compliance. From 1980 through 1997, Ms. Springsteen also oversees the Portfolio Advisory
Committee, the Audit Committee, the Disaster Recovery Committee and the
Facilities Committee. Ms. Springsteen has developed and presented numerous
motivational, informational and sales training workshops over the past 25 years.
Prior to Commonwealth, Ms. SpringsteenSpringsteen-Abbott was employed with Wheat First Butcher Singer, a regional broker/dealer located in Richmond, Virginia. At Wheat, she served as Senior Vice President & Marketing Manager infor the Alternative Investments Department of Wheat
First/Butcher & Singer, a broker/dealer headquartered in Richmond, Virginia,
where she raised over $450,000,000 of capital in the real estate, equipment
leasing, tax credit and energy-related industries.Division. Ms. SpringsteenSpringsteen-Abbott holds her NASDFINRA Series 7, 63 and 39 licenses andlicenses. She is a member of the Equipment Leasing and Finance Association, the National Equipment Finance Association (formerly, the Eastern Association of Equipment Lessors), the Financial Planners Association, the National Association of Equipment Leasing Brokers and serveshas served on the Board of Trustees for the Investment Program Association. Ms. SpringsteenSpringsteen-Abbott is a member of the Executive Committee and the Disaster Recovery Committee. Ms. Springsteen-Abbott is the wife of George Springsteen and is co-shareholder of the parent and its affiliates.
HENRYHenry J. ABBOTT,Abbott.
Henry J. Abbott, age 55,58, joined Commonwealth in 1998 as a Portfolio Manager. Mr. Abbott serves as President of CCC and CIGF, Inc., as Executive Vice President of CCSC, and as a Director Senior Vice President and Portfolio
Manager of the parentCCC and its affiliates. Mr. Abbott is a registered principal of the broker/dealer. Mr. Abbott is responsible for lease acquisitions, equipment dispositions and portfolio review. Additionally, Mr. Abbott is also responsible for oversight of residual valuation, due diligence, equipment inspections, negotiating renewal and purchase options and remarketing off leaseoff-lease equipment. Mr. Abbott serves as senior member on the Portfolio Advisory
Committee, the Audit Committee, the Disaster Recovery Committee and the Facilities Committee.Committee, and was appointed to the Executive Committee in 2008. Prior to Commonwealth, Mr. Abbott has been active in the commercial lending industry, working primarily on asset-backed transactions for more than 30 years. Mr. Abbott attended St. John'sJohn’s University and holds his NASDFINRA Series 7, 63 and 24 licenses. Mr. Abbott was a founding partner of Westwood Capital LLC in New York, a Senior Vice President for IBJ Schroeder Leasing Corporation and has managed a group specializing in the provision of operating lease finance programs in the high technology sector. Mr. Abbott brings extensive knowledge and experience in leasing and has managed over $1.5 billion of secured transactions. Mr. Abbott is a member of the Equipment Leasing and Finance Association, the National Equipment Finance Association (formerly, the Eastern Association of Equipment Lessors), the National Association of Equipment Leasing Brokers and the Investment Program Association. LYNNMr. Abbott is the husband of Kimberly A. FRANCESCHINA,Springsteen-Abbott.
William Pieranunzi III, age 3451, joined Commonwealth in 2001 and2007 as President of CCSC, the broker/dealer affiliate. Mr. Pieranunzi also serves as Senior Vice Presidenta Director of CCC and Controller of the parent and its affiliates. Ms.
Franceschina is responsible for the oversight of all accounting, cash
management, financial reporting and audit and tax preparation functions. During
the period of March 2004 to October 2004, Ms. Franceschina was employed with
Wilmington Trust Corp., where she was a part in the development of policies and
procedures related to Sarbanes Oxley and its documentation. Prior to
Commonwealth, in 1994 until 1999, Ms. Franceschina served as a Senior Accountant
with Duquesne University, and from 1999 to 2000, a Senior Financial Analyst for
Environ Products. Ms. Franceschina attended Robert Morris University and holds a
Bachelor of Science in Accounting. Ms. Franceschina serves on the Portfolio
Advisory Committee and the Disaster Recovery
21
Committee, as well as a member of the Equipment Leasing Association, the
Investment Program Association and the Institute of Management Accountants.
KATRINAM. MASON, age 33, joined Commonwealth in 2002 and serves as
Senior Vice President, Broker/Dealer Relations Manager and Due Diligence Manager
of the parent and its affiliates. Ms. Mason is a registered principal of the
broker/dealer. Ms. MasonCCSC. Mr. Pieranunzi is responsible for managing due diligence and broker/dealer development, as well as coordination of the national sales and
marketing effort, syndication and product development. Ms. MasonMr. Pieranunzi was elected to the Board of Directors of the parent and its affiliates on January 1, 2008. Mr. Pieranunzi serves on the Disaster Recovery Committee and the Website Committee.committee. Mr. Pieranunzi currently holds his FINRA series 22 and 63 licenses. Prior to Commonwealth, Ms. Mason worked at ICON Securities, an equipment leasing sponsor, from 1997Mr. Pieranunzi in 2005 co-founded and was Chief Executive Officer and President of Jing Tsai Entertainment Company, Ltd. in Foshan, Guangdong Province, China; Foshan’s premiere entertainment company through multiple 99KTV Store Locations. He retains his titles and continues to 2002 and served as President from 2001 to 2002.serve on the board of Jung Tsai. Prior to that, Ms. Mason servedfrom 1996-2004, Mr. Pieranunzi was a private investor. From 1984-1995, Mr. Pieranunzi worked at PLM International, then a $1.4 billion publicly traded worldwide provider of transportation equipment and related financial services. He joined PLM as a Regional Marketing Directorjunior wholesaler and in 1994 became Executive Vice President. Prior to that, from 1981 to 1984 Mr. Pieranunzi worked at Mutual Benefit Financial Services Company, the registered broker/dealer of Textainer Capital, an equipment-leasing
sponsor. Ms. Mason attendedMutual Benefit Life Insurance Company where he was manager of the Universitymutual funds and pension divisions. Mr. Pieranunzi is a Magna Cum Laude, Beta Gamma Sigma graduate of California at Santa Barbara and
holds a BachelorBoston College’s School of Arts and also attended University of San Francisco and holds
an MBA. Ms Mason holds her NASD Series 7, 22, 63 & 24 licenses. Ms. MasonManagement. Mr. Pieranunzi is a member of the Equipment Leasing and Finance Association, the Eastern Association of Equipment Lessors, the Investment Program Association, the National Association of Equipment Leasing Brokers, and the Financial Planners Association.
Lynn Franceschina, age 37, joined Commonwealth in 2001 and serves as Executive Vice President of CCC and CIGF, Inc., Senior Vice President of CCSC, and Chief Operations Officer and Director of CCC, CCSC, and CIGF, Inc. and certain of its affiliates. Ms. Franceschina is responsible for daily operations, including oversight of all accounting, financial reporting and tax functions, investor communications, and human resources. During the period of March 2004 to October 2004, Ms. Franceschina was employed at Wilmington Trust Corp. where she was part of the policies and procedures team responsible for Sarbanes-Oxley documentation. Prior to joining Commonwealth, Ms. Franceschina was the Business Controls Manager for Liquent, Inc., a leading software developer, where she was responsible for managing corporate forecasting and analysis, as well as the budgeting for the sales and marketing division. From 1999 to 2000, she served as a Senior Financial Analyst for Environ Products, and from 1994 to 1999, she was a Senior Accountant with Duquesne University. Prior to joining Duquesne University, Ms. Franceschina was an accountant with the public accounting firm of Horovitz, Rudoy, & Roteman. Ms. Franceschina is a Sigma Beta Delta graduate of Robert Morris University, during which time she also served as treasurer of her Alpha Chi national honor society chapter. Ms. Franceschina holds her FINRA Series 22, 63, and 39 licenses. She is a member of the Disaster Recovery Committee, the Equipment Leasing and Finance Association, Investment Program Association, and the Investment Program Association.
JAY DUGAN,Institute of Management Accountants.
Jay Dugan, age 57,60, joined Commonwealth in 2002 and serves as Senior
Vice President and Chief Technology Officer of the parent and its affiliates. Mr. Dugan is also Executive Vice President of CCC and Senior Vice President of CIGF, Inc. Mr. Dugan is responsible for the information technology vision, security, and operation and ongoing development, including network configurations, protection of corporate assets and maximizing security and efficiency of information flow. Prior to Commonwealth, Mr. Dugan founded First Securities USA, an NASDa FINRA member firm, in 1988 and operated that firm through 1998. From 1999 until 2002, Mr. Dugan was an independent due diligence consultant until he came to Commonwealth to develop that area of the firm. Mr. Dugan attended St. Petersburg College and holds an AS Degree in Computer Networking Technology. Mr. Dugan is a Microsoft Certified Systems Engineer, Microsoft Certified Database Administrator and Comp-Tia Certified Computer Technician. Mr. Dugan is a senior member of the Disaster Recovery Committee, as well as oversight member of the Website Committee.
DONALD A. BACHMAYER,
Peter Daley, age 41,70, joined Commonwealth in 20042006 as a director. Mr. Daley is an Accredited Senior Appraiser for the discipline of Machinery and servesEquipment with a specialty in High-Technology for the valuation of computer equipment. Mr. Daley has been in the computer business since 1965, first with IBM as Vicea computer broker/lessor and then with Daley Marketing Corporation (DMC), a firm he founded in July 1980 to publish reports about computer equipment, including “Market Value Reports” and “Residual Value Reports.” In January 2001 Mr. Daley acquired Computer Economics, merged DMC into CEI and in April 2005 sold the IT Management Company and created a new company focused on the fair market value business. Additionally, Mr. Daley remains President of DMC Consulting Group, a separate company that specializes in writing Appraisals, Portfolio Analysis and Accounting ManagerProperty Tax Valuation from Fair Market Value to Residual Value valuations. Mr. Daley has developed a database of “Fair Market Value” equipment values from 1980 to the General Partner, CCCpresent, utilizing a variety of reports and certainpublications along with the DMC and CEI Market Value Reports. This database has been successfully used in the valuation of its subsidiaries wherecomputer equipment in the settlement of a number of Virginia tax cases. He has also previously testified in California, Minnesota, Michigan, New York, and the Virginia Courts as an expert in the field of valuation of computer equipment. Mr. Daley has a full repertoire of lectures, seminars, presentations, and publications that he has conceived and shared with the public. From 1994 to present he has been employed since 2004.writing computer appraisals and reports for Fortune 500 companies. From 2005 to present as president of DMC Valuations Group, Mr. Bachmayer is
responsible for financial reportingDaley has been publishing, both on the web and analysis, cash managementin print, fair market values, residual values, and tax
compliance. He ismanufacturer’s price lists to existing valuation clients around the world. Mr. Daley graduated from Pepperdine University in 1991 with a memberMasters of the Portfolio Advisory Committee. Prior to joining
Commonwealth,Business Administration, and from 2002 to 2004, Mr. Bachmayer served as Accounting Supervisor
for LEAF Financial, an equipment-leasing sponsor, where his responsibilities
included cash management, commission and syndication reporting. From 1997 to
2001, Mr. Bachmayer was a senior accountant/auditorCal State Northridge with Fishbein & Company,
P.C., certified public accountants, with responsibilities including audit,
financial reporting, cash management, commission and syndication reporting, and
tax preparation. Mr. Bachmayer attended LaSalle University and holds a Bachelor of Science in Accounting.
MARK HERSHENSON, Business Administration in 1965. Mr. Daley is also an Accredited Senior Appraiser with the American Society of Appraisers.
Mark Hershenson, age 40,43, joined Commonwealth in 2002 and serves as Senior Vice President and Broker ServicesDealer Relations Manager of the parent and its affiliates. Mr. Hershenson is responsible for management of all custodialbroker/dealer relationships, broker
services inand over-sees the areas of product educationDue Diligence, Marketing, and production goals, wholesaler
scheduling/support and internal sales staff.Broker Services Departments. Prior to Commonwealth, Mr. Hershenson served as part of a financial planning practice at American United Life from 1999 through 2002. He has written a book for the Florida Insurance Commissioner on how to sell insurance products. Additionally, in 1991 through 1998, Mr. Hershenson served as sales trainer fatat MetLife for over 100 registered representatives. Mr. Hershenson attended Stonehill College and holds a Bachelor'sBachelor’s degree in Psychology, with a concentration in Marketing/Organizational Behaviorism and Master'sengaged in Master’s level coursework in Financial Planning though American College. Mr. HershensonHe holds his NASDFINRA Series 6, 7, 39 and 63 licenses. Mr. Hershenson is a member of the Equipment Leasing and Finance Association and the Investment Program Association.
JAMES PRUETT,
James Pruett, age 40,43, joined Commonwealth in 2002 and serves as AssistantSenior Vice President and Compliance Officer of the parent and its affiliates.affiliates, and is Secretary to the parent’s board of directors. Mr. Pruett is responsible for management of regulatory policies and procedures, assisting in compliance internal audit, associate regulatory filings, broker/dealer registrations, state and broker/dealer financial regulatory reporting requirements. Mr. Pruett assists in the management of shareholder records and updates. Mr. Pruett is a member of the Website Committee and the Disaster Recovery Committee. Mr. Pruett holds his NASDFINRA Series 22, 63 and 6339 licenses. Prior to joining Commonwealth, Mr. Pruett served as
22
Managing Editor/Associate Publisher for Caliber Entertainment, a publishing and entertainment licensing company. Mr. Pruett'sPruett’s responsibilities included oversight of production of publishing library, as well as serving as Editor-in-Chief for all publications and additionally served as Media Relations Liaison. Mr. Pruett is a member of the Equipment Leasing Association and the Investment Program Association.
DONNAMARIE
Richard G. Devlin, age 37, joined Commonwealth in October 2006 and serves as Vice President and General Counsel. Mr. Devlin is responsible for all syndication and Blue Sky activities, FINRA and SEC registrations, contract administration and general legal matters as head of the Legal Department. Mr. Devlin also assists with broker-dealer compliance functions. Prior to joining Commonwealth, Mr. Devlin was employed since December 2000 as an associate with the law firm Reed Smith, LLP in Philadelphia, where he was responsible for all elements of public and private securities offerings as issuer’s counsel. Mr. Devlin has developed programs and advised clients regarding compliance with the Sarbanes-Oxley Act of 2002 and related corporate governance and disclosure regulations. Mr. Devlin has advised both foreign and domestic entities on US securities law compliance in the context of IPOs, exchange listing, private placements, mergers, and employee benefit plans. In 1997 Mr. Devlin graduated Magna Cum Laude from the University of Pittsburgh School of Law with a Juris Doctorate and in 1994 he completed his Bachelor of Science in Business Administration and Finance at The American University in Washington, DC. Mr. Devlin is admitted to the bar in New Jersey and Pennsylvania, and holds his FINRA Series 22 and 63 Licenses. Mr. Devlin is also a member of the Website Committee and the Disaster Recovery Committee.
David W. Riggleman, age 46, joined Commonwealth in 2007 and serves as Vice President and Portfolio Manager of CCC and CIGF, Inc. Mr. Riggleman is responsible for lease acquisitions, equipment research and evaluation, lease pricing, portfolio analysis, and asset remarketing and disposition. Prior to joining Commonwealth, Mr. Riggleman served from January 2005 to July 2007 as Vice President, Investments for Raymond James and Associates in Cumberland, Maryland. At Raymond James, he served as a Branch Owner in the Advisor Select Program. He managed branch associates in addition to managing private client accounts with more than $75 million in assets under management. From July 1994 to December 2004, Mr. Riggleman was Vice President, Investments and Branch Manager at Legg Mason. While there, he opened and managed a branch while also managing private client and institutional assets with assets under management of more than $65 million. He served as a member of Legg Mason President’s Council in 1998 and served consecutive terms as member of Legg Mason’s Financial Services Advisory Panel in 1999 and 2000. From January 1987 to June 1994, he was Vice President, Investments of Wheat First Securities, where he managed private client and institutional assets totaling more than $40 million. Mr. Riggleman studied Economics at the University of Richmond, and also Business Administration at Frostburg State University.
Edmond J. Enderle, age 62, joined Commonwealth in 2006 and serves as Vice President and Controller. Mr. Enderle is responsible for regulatory filings, internal controls, budgeting, forecasting, cash flow projections and all accounting related to syndication. Mr. Enderle also functions as the Audit Liaison. Prior to Commonwealth, Mr. Enderle worked at Sunoco Logistics Partners LP located in Philadelphia. This company boasted $4.5 billion in revenue, and here Mr. Enderle served as the Accounting Manager, responsible for SEC reporting, financial accounting, reporting and analysis, preparation of annual revenue and expense budgets and managing the monthly close process ensuring adherence to GAAP. Mr. Enderle also conducted environmental and legal reserve analysis, wrote, reviewed and certified various Sarbanes Oxley procedures and system narratives, and reported to management for strategic planning and executive presentations. Prior to Sunoco Logistics, Mr. Enderle worked at Sunoco Inc. (GP of Sunoco Logistics an Operator of 5 Oil Refineries) as the Accounting Manager in the Supply Chain department where his responsibilities included management of the Crude and Refined Oil Pools, departmental budgeting, monthly closing processes, and financial analysis and reporting. Mr. Enderle attended St. Josephs University in Philadelphia and holds a BS in Accounting and also attended Widener University in Chester, Pennsylvania and holds an MBA in Finance/Taxation
Donnamarie D. ABBOTT,Abbott, age 47,50, joined Commonwealth in 2001 and serves as
Assistant Vice President and Investor Services Manager of the parent and its affiliates. Ms. Abbott is responsible for management of daily operations in Investor Services, from pre-formation stage through issuance of investors'investors’ final distribution, communication, audited financial report, including fund masters, blue sky coordination, subscription processing, distributions, transfers of interest, redemptions, reporting and tax reporting. Ms. Abbott is a member of the Office Development Committee, the Website Committee and the Disaster Recovery Committee. Ms. Abbott holds her NASDFINRA Series 22 and 63 licenses. Prior to joining Commonwealth, Ms. Abbott served as a Pennsylvania licensed realtor. Ms. Abbott is a member of the Equipment Leasing and Finance Association and a member of the Investment Program Association.
Lisa Renshaw, age 52, joined Commonwealth in 2006 and serves as Vice President and National Sales Manager of CCC. Ms. Renshaw, based in Wilmington, North Carolina, brings over twenty years of leasing experience to CCC and is responsible for spearheading lease acquisitions efforts and is the primary liaison with Lessors in the Eastern United States. Ms Renshaw will continue to strengthen CCC’s relationships and customer base on the east coast. Previously, Ms. Renshaw was employed by IBM Global Finance from 2002 to 2006 with responsibilities for pricing lease transactions. She supported IGF sales representatives in the East and Central region as well as third party business partners and IBM Global Services by structuring FMV leases, upgrades, extensions, hybrids and migrations. Prior to IGF, Ms. Renshaw owned her own company, Carrier Capital Resources, from 1992 to 2002, where she brokered lease transactions between lessors and funding sources on a nationwide basis. During this time, Ms. Renshaw also served on the Board of Directors of the National Equipment Finance Association (formerly, the Eastern Association of Equipment Lessors). Prior to 1992, Ms. Renshaw was employed by IBJ Schroeder Bank and Trust (1987 – 1992); PKFinans (1985-1987); Citibank (1981-1985); Playtex (1979 to 1981); Penn Life Insurance (1977-1979); and Greenbelt CARES (1976-1977). Married with two children, Ms. Renshaw earned her BA in psychology from American University, graduating Cum Laude in 1976.
Joseph W. Neill, age 61, joined Commonwealth in January 2006 and now serves as our Broker Services Manager. Joe is responsible for the management of all custodial relationships, broker services in the area of product education and production goals, wholesaler scheduling/support and the internal sales staff. Prior to Commonwealth, he served as a Regional Vice President from 1995 until 2003 with State Street Research, after which he spent approximately one year in retirement. Mr. Neill then served as an insurance consultant with Amerilife from July 2003 until July 2004. In July 2004 he joined Allstate Financial as an investment advisor, where he worked until January 2006. He also has a broad and diverse background in investment and insurance company operations after serving more than 30 years in that area. Mr. Neill attended Temple University and holds a science degree. He is a military veteran who received a Bronze Star
The directors and officers of the General Partner are required to spend only such time on the Partnership'sPartnership’s affairs as is necessary in the sole discretion of the directors of the General Partner for the proper conduct of the Partnership'sPartnership’s business. A substantial amount of time of such directors and officers is expected to be spent on matters unrelated to the Partnership, particularly after the Partnership'sPartnership’s investments have been selected. Under certain circumstances, such directors and officers are entitled to indemnification from the Partnership.
The Partnership has no audit committee financial expert, as defined in item 401 of Regulation S-K (17CFR § 229.401) under
Section 229.401 of the Exchange Act, serving on its audit committee. An audit committee is not required because the Partnership isPartnership’s units are not a listed security assecurities (as defined by Section 240.10A-3;17CFR§ 240.10A-3); therefore, no audit committee financial expert is required.
CODE OF ETHICS
In view of the fiduciary obligation that the General Partner has to the Partnership, the General Partner believes an adoption of a formal code of ethics is unnecessary and would not benefit the Partnership, particularly, in light of Partnership's limited business activities.
ITEM 11: EXECUTIVE COMPENSATION
The Partnership does not have any Directors or executive officers.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ANDMANAGEMENT
NONE
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following table summarizes the types, amounts and recipients of compensation to be paid by the Partnership directly or indirectly to the General Partner and its
Affiliates.affiliates. Some of these fees are paid regardless of the success or profitability of the
Partnership'sPartnership’s operations and investments. While such compensation and fees were established by the General Partner and are not based on
arm's-lengtharm’s-length negotiations, the General Partner believes that such compensation and fees are comparable to those that would be charged by an unaffiliated entity or entities for similar services. The Partnership Agreement limits the liability of the General Partner and its
Affiliatesaffiliates to the Partnership and the Limited Partners and provides indemnification to the General Partner and its
Affiliatesaffiliates under certain circumstances.
23
AMOUNT
ENTITY RECEIVING INCURRED
COMPENSATION TYPE OF COMPENSATION DURING 2005
- -------------------------- ------------------------------------------------------ ------------------
OFFERING AND ORGANIZATION STAGE
The General Partner ORGANIZATIONAL FEE. An Organization Fee equal to $ 494,000
three percent of the first $10,000,000 of Limited
Partners' Capital Contributions and two percent of the
Limited Partners' Capital Contribution in excess of
$10,000,000, as compensation for the organization of
the Partnership.. The General Partner pays all
Organizational and Offering Expenses, other than
Underwriter's Commissions and a non-accountable
expense allowance payable to the Dealer Manager that
is equal to the lesser of (i) one percent of the
Offering proceeds or (ii) $50,000.
The General Partner's SELLING COMMISSIONS AND DEALER MANAGER FEES. The $ 1,969,000
Affiliates amount of underwriting commissions (which include
selling commissions and dealer manager fees) ranged
between four and nine percent of capital contributions
based upon the quantity of units sold to a single
investor. The units were offered to the public through
Commonwealth Capital Securities Corp., which received
selling commissions of up to eight percent on all
sales of units and acted as the dealer manager for
which it received a dealer manager fee of two percent
on all sales of units.
OPERATIONAL AND SALE OR LIQUIDATION STAGES
The General Partner EQUIPMENT ACQUISITION FEE. An Equipment Acquisition $ 663,000
Fee of four percent of the Purchase Price of each item
of Equipment purchased as compensation for the
negotiation of the acquisition of the Equipment and
the lease thereof or sale under a Conditional Sales
Contract. The fee was paid upon each closing of the
Offering with respect to the Equipment purchased by
the Partnership with the net proceeds of the Offering
available for investment in Equipment. If the
Partnership acquires Equipment in an amount exceeding
the net proceeds of the Offering available for
investment in Equipment, the fee will be paid when
such Equipment is acquired. Of this amount,
approximately $180,000 has been earned by the General
Partner relating to equipment acquired in 2005. The
remaining balance of approximately $484,000 will be
earned with acquisitions in future periods.
The General Partner and REIMBURSABLE EXPENSES. The General and its Affiliates $ 492,000
its Affiliates Partner 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. The amounts set
forth on this table do not include expenses incurred
in the offering of Units.
The General Partner DEBT PLACEMENT FEE. As compensation for arranging $ 8,000
Term Debt to finance the acquisition of Equipment to
the Partnership, a fee equal to one percent of such
indebtedness; provided, however, that such fee is
reduced to the extent the Partnership incurs such fees
to third Parties, un affiliated with the General
Partner or the lender, with respect to such
indebtedness and no such fee is paid with respect to
borrowings from the General Partner or its Affiliates.
24
The General Partner EQUIPMENT MANAGEMENT FEE. A monthly fee equal to the $ 19,000
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) five percent of
the Gross Lease Revenues attributable to Equipment
which is subject to Operating Leases.
The General Partner RE-LEASE FEE. As Compensation for providing re-leasing $ 0
services for any Equipment for which the General
Partner has, following the expiration of, or default
under, the most recent lease of Conditional Sales
Contract, arranged a subsequent lease of Conditional
Sales Contract for the use of such Equipment to a
lessee or other party, other than the current or most
recent lessee of other operator of such equipment or
its Affiliates ("Re-lease"), the General Partner will
receive, on a monthly basis, a Re3-lease Fee equal to
the lesser of (a) the fees which would be charged by
an independent third party of comparable services for
comparable equipment or (b) two percent of Gross Lease
Revenues derived from such Re-lease.
The General Partner EQUIPMENT LIQUIDATION FEE. With respect to each item $ 0
of Equipment sold by the General Partner (other than
in connection with a Conditional Sales Contract), a
fee equal to the lesser of (i) 50% of the Competitive
Equipment Sale Commission or (ii) three percent of the
sales price for such Equipment. The payment of such
fee is subordinated to the receipt by the Limited
Partners of (i) a return of their Capital
Contributions and 10% annum cumulative return,
compounded daily, on Adjusted Capital Contributions
("Priority Return") and (ii) the Net Disposition
Proceeds from such sale in accordance with the
Partnership Agreement. Such fee is reduced to the
extent any liquidation or resale fees are paid to
unaffiliated parties.
The General Partner PARTNERSHIP INTEREST. The General Partner has a $ 8,000
present and continuing one percent interest of $1,000
in the Partnership's item of income, gain, loss,
deduction, credit, and tax preference. In addition,
the General Partner receives one percent of Cash
Available for Distribution until the Limited Partners
have received distributions of Cash Available for
Distribution equal to their Capital Contributions plus
the 10% Priority Return and thereafter, the General
Partner will receive 10% of Cash Available for
Distribution.
ENTITY RECEIVING COMPENSATION | TYPE OF COMPENSATION | AMOUNT INCURRED DURING 2008 | AMOUNT INCURRED DURING 2007 |
| | | | |
| | | | |
| | OPERATIONAL AND SALE OR LIQUIDATION STAGES | | |
| | | | |
| The General Partner | Equipment Acquisition Fee. An equipment acquisition fee of four percent of the purchase price of each item of equipment purchased as compensation for the negotiation of the acquisition of the equipment and the lease thereof or sale under a conditional sales contract. The fee was paid upon each closing of the offering with respect to the equipment purchased by the Partnership with the net proceeds of the offering available for investment in equipment. If the Partnership acquires equipment in an amount exceeding the net proceeds of the offering available for investment in equipment, the fee will be paid when such equipment is acquired. Of this amount, approximately $68,000 and $129,000, respectively has been earned by the General Partner relating to equipment acquired in 2008 and 2007. The remaining balance of approximately $180,000 will be earned with acquisitions in future periods. | $ 84,000 | $ 248,000 |
| The General Partner and its Affiliates | Reimbursable Expenses. The General 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. The amounts set forth on this table do not include expenses incurred in the offering of units. | $ 1,403,000 | $ 1,247,000 |
| The General Partner | Debt Placement Fee. As compensation for arranging term debt to finance the acquisition of equipment to the Partnership, a fee equal to one percent of such indebtedness; provided, however, that such fee is reduced to the extent the Partnership incurs such fees to third parties, unaffiliated with the General Partner or the lender, with respect to such indebtedness and no such fee is paid with respect to borrowings from the General Partner or its affiliates. | $ 3,000 | $ 26,000 |
| The General Partner | Equipment Management Fee. 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) five percent of the gross lease revenues attributable to equipment which is subject to operating leases. | $ 338,000 | $ 330,000 |
| The General Partner | Re-Lease Fee. As Compensation for providing re-leasing services for any equipment for which the General Partner has, following the expiration of, or default under, the most recent lease of conditional sales contract, arranged a subsequent lease of conditional sales contract for the use of such equipment to a lessee or other party, other than the current or most recent lessee of other operator of such equipment or its affiliates (“re-lease”), the General Partner will receive, on a monthly basis, a re-lease fee equal to the lesser of (a) the fees which would be charged by an independent third party of comparable services for comparable equipment or (b) two percent of gross lease revenues derived from such re-lease. | $ - | $ - |
| The General Partner | Equipment Liquidation Fee. With respect to each item of equipment sold by the General Partner (other than in connection with a conditional sales contract), a fee equal to the lesser of (i) 50% of the competitive equipment sale commission or (ii) three percent of the sales price for such equipment. The payment of such fee is subordinated to the receipt by the Limited Partners of (i) a return of their capital contributions and 10% annum cumulative return, compounded daily, on adjusted capital contributions and (ii) the net disposition proceeds from such sale in accordance with the Partnership Agreement. Such fee is reduced to the extent any liquidation or resale fees are paid to unaffiliated parties. | $ 26,000 | $ 200 |
| The General Partner | Partnership Interest. The General Partner has a present and continuing one percent interest of $1,000 in the Partnership’s item of income, gain, loss, deduction, credit, and tax preference. In addition, the General Partner receives one percent of cash available for distribution until the Limited Partners have received distributions of cash available for Distribution equal to their capital contributions plus the 10% cumulative return and thereafter, the General Partner will receive 10% of cash available for distribution. | $ 25,000 | $ 25,000 |
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest arising out of its relationships with the General Partner and its Affiliates.affiliates. These conflicts include the following:
COMPETITION WITH GENERAL PARTNER AND AFFILIATES: COMPETITION FOR MANAGEMENT'S
TIME
Competitions with General Partner and Affiliates: Competitions for Management’s time
The General Partner and its Affiliateaffiliate sponsor other investor programs, which are in potential competition with the Partnership in connection with the purchase of Equipmentequipment as well as opportunities to lease and sell such Equipment.equipment. Competition for Equipmentequipment has occurred and is likely to occur in the future. The General Partner and its Affiliatesaffiliates may also form additional investor programs, which may be competitive with the Partnership.
If one or more investor programs and the Partnership are in a position to acquire the same
Equipment,equipment, the General Partner will determine which program will purchase the
Equipmentequipment based upon the objectives of each and the suitability of the acquisition in light of those objectives. The General Partner will generally afford priority to the program or entity that has had funds available to purchase
Equipmentequipment for the longest period of time. If one or more investor programs and the Partnership are in a position to enter into lease with the same lessee or sell
Equipmentequipment to the same purchaser, the General Partner will generally afford priority to the
Equipmentequipment which has been available for lease or sale for the longest period of time.
25
Certain senior executives of the General Partner and its Affiliatesaffiliates also serve as officers and directors of the other programs and are required to apportion their time among these entities. The Partnership is, therefore, in competition with the other programs for the attention and management time of the General Partner and Affiliates.affiliates. The officers and directors of the General Partner are not required to devote all or substantially all of their time to the affairs of the Partnership.
ACQUISITIONS
CCC and the General Partner or other Affiliatesaffiliates of the General Partner may acquire Equipmentequipment for the Partnership provided that (i) the Partnership has insufficient funds at the time the Equipmentequipment is acquired, (ii) the acquisition is in the best interest of the partnership and (iii) no benefit to the General Partner or its Affiliatesaffiliates arises from the acquisition except for compensation paid to CCC, the General Partner or such other Affiliateaffiliate as disclosed in this Report.report. CCC, the General Partner or their Affiliatesaffiliates will not hold Equipmentequipment for more than 60 days prior to transfer to the Partnership. If sufficient funds become available to the Partnership within such 60 day period, such Equipmentequipment may be resold to the Partnership for a price not in excess of the sum of the cost of the Equipmentequipment to such entity and any accountable Acquisition Expensesacquisition expenses payable to third parties which are incurred by such entity and interest on the Purchase Pricepurchase price from the date of purchase to the date of transfer to the Partnership. CCC, the General Partner or such other Affiliateaffiliate will retain any rent or other payments received for the Equipment,equipment, and bear all expenses and liabilities, other than accountable Acquisition Expensesacquisition expenses payable to third parties with respect to such Equipment,equipment, for all periods prior to the acquisition of the Equipmentequipment by the Partnership. Except as described above, there will be no sales of Equipmentequipment to or from any Affiliateaffiliate of CCC.
In certain instances, the Partnership may find it necessary, in connection with the ordering and acquisition of Equipment,equipment, to make advances to manufacturers or vendors with funds borrowed from the General Partner for such purpose. The Partnership does not borrow money from the General Partner or any of its Affiliatesaffiliates with a term in excess of twelve months. Interest is paid on loans or advances (in the form of deposits with manufacturers or vendors of Equipmentequipment or otherwise) from the General Partner of its Affiliatesaffiliates from their own funds at a rate equal to that which would be charged by third party financing institutions on comparable loans from the same purpose in the same geographic area, but in no event in excess of the General Partner'sPartner’s or Affiliate'saffiliate’s own cost of funds. In addition, if the General Partner or its Affiliatesaffiliates borrow money and loan or advance it on a short-term basis to or on behalf of the Partnership, the General Partner or such affiliates shall receive no greater interest rate and financing charges from the Partnership than that which unrelated lenderlenders charge on comparable loans. The Partnership will not borrow money from the General Partner or any of its affiliates for a term in excess of twelve months.
If the General Partner or any of its Affiliatesaffiliates purchases Equipmentequipment in its own name and with its own funds in order to facilitate ultimate purchase by the Partnership, the purchaser is entitled to receive interest on the funds expended for such purchase on behalf of the Partnership. Simple interest on any such temporary purchases is charged on a floating rate basis not in excess of three percent over the "prime rate"“prime rate” from time to time announced by PNC Bank, from the date of initial acquisition to the date of repayment by the Partnership/ownership transfer.
The Partnership does not invest in equipment
Limited Partnerships,limited partnerships, general partnerships or joint ventures, except that (a) the Partnership may invest in general partnerships or joint ventures with persons other that equipment
Programsprograms formed by the General Partner or its
Affiliates,affiliates, which partnerships or joint ventures own specific equipment; provided that (i) the Partnership has or acquires a controlling interest in such ventures or partnerships, (ii) the non-controlling interest is owned by a
non-Affiliated,non-affiliated, and (iii) the are no duplicate fees; and (b) the Partnership may invest in joint venture arrangements with other equipment
Programsprograms formed by the General Partner or its
Affiliatesaffiliates if such action is in the best interest of all
Programsprograms and if all the following conditions are met: (i) all the
Programsprograms have substantially identical investment objectives; (ii) there are no duplicate fees; (iii) the sponsor compensation is substantially identical in each
Program;program; (iv) the Partnership has a right of first refusal to buy another
Program'sprogram’s interest in a joint venture if the other
Programprogram wishes to sell equipment held in the joint venture; (v) the investment of each
Programprogram is on substantially the same terms and conditions; and (vi) the joint venture is formed either for the purpose of effecting appropriated diversification for the
Programsprograms or for the purpose of relieving the General Partner
26
or its Affiliatesaffiliates from a commitment entered into pursuant to certain provisions of the Partnership Agreement.GLOSSARY
The following terms used in this Reportreport shall (unless otherwise expressly provided herein or unless the context otherwise requires) have the meanings set forth below.
"Acquisition Expenses"
“Acquisition Expenses” means expenses relating to the prospective selection and acquisition of or investment in Equipmentequipment by the Partnership, whether or not actually acquired, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisal, accounting fees and expenses and other related expenses.
"Acquisition Fees"
“Acquisition Fees” means the total of all fees and commissions paid by any party in connection with the initial purchase of Equipmentequipment acquired by the Partnership. Included in the computation of such fees or commissions shall be the Equipment Acquisition Feeequipment acquisition fee and any commission, selection fee, construction supervision fee, financing fee, non-recurring management fee or any fee of a similar nature, however designated.
"Adjusted
“Adjusted Capital Contributions"Contributions” means Capital Contributionscapital contributions of the Limited Partners reduced by any cash distribution received by the Limited Partners pursuant to Sections 4.1 or 8.1 of the Partnership Agreement, to the extent such distributions exceed any unpaid Priority Returnpriority return as of the date such distributions were made.
"Affiliate"
“Affiliate” means, when used with reference to a specified Person,person, (i) any person, that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person,person, (ii) any Personperson that is a director or an executive officer of, partner in, or serves in a similar capacity to, the specified Person,person, or any Personperson of which the specified Personperson is an executive officer or partner or with respect to which the specified Personperson serves in a similar capacity, (iii) any Personperson owning or controlling 10% or more of the outstanding voting securities of such specified Person,person, or (iv) if such Personperson is an officer, director or partner, any entity for which such Personperson acts in such capacity.
"Capital Account"
“Capital Account” means the bookkeepingseparate account maintained by the Partnershipestablished for each Partner.
"Capital Contributions"Partner pursuant to Section 4.1.
“Capital Contributions” means in the case of the General Partner, the total amount of money contributed to the Partnership by the General Partner, and in the case of Limited Partners, $20 for each Unit,unit, or where the context requires, the total Capital Contributionscapital contributions of all the Partners.
"Cash
“Cash Available for Distribution"Distribution” means Cash Flowcash flow plus Net Disposition Proceedsnet disposition proceeds plus cash funds available for distribution from Partnership reserves, less such amounts as the General Partner, in accordance with the Partnership Agreement, causes the Partnership to reinvest in Equipmentequipment or interests therein, and less such amounts as the General Partner, in its sole discretion, determines should be set aside for the restoration or enhancement of Partnership reserves.
"Cash Flow"
“Cash Flow” for any fiscal period means the sum of (i) cash receipts from operations, including, but not limited to, rents or revenues arising from the leasing or operation of the
Equipmentequipment and interest, if any, earned on funds on deposit for the Partnership, but not including
Net Disposition Proceeds,net disposition proceeds, minus (ii) all cash expenses and costs incurred and paid in connection with the ownership, lease, management, use and/or operation of the
Equipment,equipment, including, but not limited to, fees for handling and storage; all interest expenses paid and all repayments of principal regarding borrowed funds; maintenance; repair costs; insurance premiums; accounting and legal fees and expenses; debt collection expenses; charges, assessments or levies imposed upon or against the
Equipment;equipment; ad valorem, gross receipts and other property taxes levied against the
Equipment;equipment; and all costs of repurchasing Units in accordance with the Partnership Agreement; but not including depreciation or amortization of fees or capital expenditures, or provisions for future expenditures, including, without limitation,
Organizationalorganizational and
Offering Expenses.
27
"Code"offering expenses. “Code” means the Internal Revenue Code of 1986, as amended, and as may be amended from tine to time by future federal tax statutes.
"Competitive
“Competitive Equipment Sale Commission"Commission” means that brokerage fee paid for services rendered in connection with the purchase or sale of Equipment,equipment, which is reasonable, customary, and competitive in light of the size, type, and location of the Equipment.
"Conditionalequipment.
“Conditional Sales Contract"Contract” means an agreement to sell Equipmentequipment to a buyer in which the seller reserves title to, and retains a security interest in, the Equipmentequipment until the Purchase Pricepurchase price of the Equipmentequipment is paid.
"Effective Date" means February 7, 2005, the date on which the Partnership's
Registration Statement on Form S-1 was declared effective by the United States
Securities and Exchange Commission.
"Equipment"
“Equipment” means each item of and all of the computer peripheralI.T. and other similar capital equipment purchased, owned, operated, and/or leased by the Partnership or in which the Partnership has acquired a direct or indirect interest, as more fully described in the Partnership Agreement, together with all appliances, parts, instruments, accessories, furnishings, or other equipment included therein and all substitutions, renewals, or replacements of, and all additions, improvements, and accessions to, any and all thereof.
"Full
“Full Payout Net Lease"Lease” means an initial Net Leasenet lease of the Equipmentequipment under which the non-cancelable rental payments due (and which can be calculated at the commencement of the Net Lease)net lease) during the initial noncancelable fixed term (not including any renewal or extension periodperiod) of the lease or other contract for the use of the Equipmentequipment are at least sufficient to recover the Purchase Pricepurchase price of the Equipment.
"General Partner"equipment.
“General Partner” means Commonwealth Income & Growth Fund, Inc. and any additional, substitute or successor general partner of the Partnership.
"Gross
“Gross Lease Revenues"Revenues” means Partnership gross receipts from leasing or other operation of the Equipment,equipment, except that, to the extent the Partnership has leased the Equipmentequipment from an unaffiliated party, it shall mean such receipts less any lease expense.
"IRS"
“IRS” means the Internal Revenue Service.
"Limited Partner"
“Limited Partner” means a person who acquires Unitsunits and who is admitted to the Partnership as a limited partner in accordance with the terms of the Partnership Agreement.
"Majority in Interest" means, with respect to the Partnership, Limited Partners
holding more than 50% of the outstanding Units held by all Limited Partners at
the Record Date for any vote or consent of the Limited Partners.
"Net
“Net Dispositions Proceeds"Proceeds” means the net proceeds realized by the Partnership from the refinancing, sale or other disposition of Equipment,equipment, including insurance proceeds or lessee indemnity payments arising from the loss or destruction of Equipment,equipment, less such amounts as are used to satisfy Partnership liabilities.
"Net Lease"
“Net Lease” means a lease or other contract under which the owner provides equipment to a lessee or other operator in return for a payment, and the lessee assumes all obligations and pays for the operation, repair, maintenance and insuring of the equipment.
"Net Profits"
“Net Profits” or
"Net Losses"“Net Losses” shall be computed in accordance with Section 703(a) of the Code (including all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) (1) of the Code) for each taxable year of the Partnership or shorter period prior to an interim closing of the
Partnership'sPartnership’s books with the following adjustments: (I) any income of the Partnership that is exempt from federal income tax and not otherwise taken into
28
account in computing Net Profitsnet profits and Net Lossnet loss pursuant to this definition shall be added to such taxable income or shall reduce such taxable loss; (ii) any expenditure of the Partnership described in Code Section 705(a) (2) (B) or treated as Code Section 705(a) (2) (B) expenditures pursuant to Treasury Regulations section 1.704-1(b) (2) (iv) (i) and not otherwise taken into account in computing Net Profitsnet profits and Net Lossesnet losses pursuant to this definition shall be subtracted from such taxable income or loss; (iii) items of income, gain, loss and deduction specially allocated pursuant to Section 7.3 of the Partnership Agreement shall not be included in the computation of Net Profitsnet profits or Net Loss;net loss; and if property is reflected on the books of the Partnership at a book value that differs from the adjusted tax basis of the property in accordance with Treasury Regulation Section 1.704-1(b) (2) (iv) (d) or (f), depreciation, amortization, and gain or loss with respect to such property shall be determined by reference to such book value in a manner consistent with Treasury Regulation Section 1.704-1(b) (2) (iv) (g). The terms "Net Profit"“net profit” or "Net Losses"“net losses” shall include the Partnership'sPartnership’s distributive share of the profit or loss of any partnership or joint venture in which it is a partner or joint venturer.
"Offering" “Offering” means the initial public offering of Unitsunits in the Partnership.
"Offering Period" means the period commencing the Effective Date and ending the
last day of the calendar month in which the Closing Date occurs.
"Operating Distributions"
“Operating Distributions” means the quarterly distributions made to the Partners pursuant to Article 8 of the Partnership Agreement.
"Operating Lease"
“Operating Lease” means a lease or other contractual arrangement under which an unaffiliated party agrees to pay the Partnership, directly or indirectly, for the use of the Equipment,equipment, and which is not a Full Payout Net Lease.
"Organizationalfull payout net lease.
“Organizational and Offering Expenses"Expenses” means the expenses incurred in connection with the organization of the Partnership and in preparation of the Offering,offering, including Underwriting Commissions,underwriting commissions, listing fees and advertising expenses specifically incurred in connection with the distribution of the Units.
"Partnerunits.
“Partner (s)"” means any one or more of the General Partner and the Limited Partners.
"Partnership"
“Partnership” means Commonwealth Income & Growth Fund IV, a Pennsylvania limited partnership.
"Partnership Agreement"
“Partnership Agreement” means that Limited Partnership Agreementagreement of Commonwealth Income & Growth Fund IV by and among the General Partner and the Limited Partners, pursuant to which the Partnership is governed.
"Person"
“Person” means an individual, partnership, limited liability company, joint venture, corporation, trust, estate or other entity.
"Priority Return" means an amount equal to a return at a rate of 10% per annum,
compounded daily, on the Adjusted Capital Contribution for all outstanding
Units, which amount shall begin accruing at the end of the calendar quarter in
which such Units are sold by the Partnership.
"Proceeds"
“Proceeds” means proceeds from the sale of the Units.
"Program"units.
“Program” means a limited or general partnership, joint venture, unincorporated association or similar organization, other than a corporation formed and operated for the primary purpose of investment in and the operation of or gain from an interest in Equipment.
"Purchase Price"equipment.
“Purchase Price” means, with respect to any Equipment,equipment, an amount equal to the sum of (i) the invoice cost of such Equipmentequipment or any other such amount paid to the seller, (ii) any closing, delivery and installation charges associated therewith not included in such invoice cost and paid by or on behalf of the Partnership, (iii) the cost of any capitalized modifications or upgrades paid by on or behalf of the Partnership in connection with its purchase of the Equipment,equipment, and (iv) solely for purposes of the definition of Full Payout Net
Lease,full payout net lease, the amount of the Equipment Acquisition Feeequipment acquisition fee and any other Acquisition
Fees.
"Retained Proceeds"acquisition fees.
“Retained Proceeds” means
Cash Availablecash available for
Distribution,distribution, which instead of being distributed to the Partners is retained by the Partnership for the purpose of acquiring or investing in
Equipment.
29
"Term Debt"equipment. “Term Debt” means debt of the Partnership with a term in excess of twelve months, incurred with respect to acquiring or investing in Equipment,equipment, or refinancing non-Term Debt,non-term debt, but not debt incurred with respect to refinancing existing Partnership Term Debt.
"Unit"term debt.
“Unit” means a Limited Partnership interest in the Partnership.
ITEM 14: PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed for the fiscal yearyears ended December 31, 20052008 and 2007 for professional services rendered by the Partnership'sPartnership’s independent registered public accounting firm for the audit of our annual financial statements and review of the financial statements included in our Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for that fiscal year, were approximately $14,800.
$83,000 and $92,000.
AUDIT-RELATED FEES
The
There were no aggregate fees billed in the fiscal yearyears ended December 31, 20052008 and 2007 for assurance and related services by the Partnership'sPartnership’s independent registered public accounting firm that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported under the paragraph captioned "Audit Fees" above were $4,500.
Fees."
TAX FEES
The aggregate fees billed in the fiscal yearyears ended December 31, 20052008 and 2007 for professional services rendered by the Partnership'sPartnership’s independent registered public accounting firm for tax compliance,compliance; tax advice and tax planning were $0.
approximately $16,000 and $0, respectively.
ALL OTHER FEES
The
There were no aggregate fees billed in the fiscal yearyears ended December 31, 20052008 and 2007 for products and services provided by the Partnership'sPartnership’s independent registered public accounting firm, other than the services reported above under other captions of this Item 14 were $0.
14.
PRE-APPROVAL POLICIES AND PROCEDURES
All audit related services, tax planning and other services were pre-approved by the Board of Directors of the General Partner, which concluded that the provision of such services by the Partnership'sPartnership’s independent registered public accounting firm was compatible with the maintenance of that firm's independence in the conduct of its auditing functions. The policy of the General Partner provides for pre-approval of these services and all audit related, tax or other services not prohibited under Section 10A(g) of the Securities Exchange Act of 1934, as amended to be performed for us by our independent auditors, subject to the de minimus exception described in Section 10A(i)(1)(B) of the Exchange Act on an annual basis and on individual engagements if minimum thresholds are exceeded.
The percentage of audit-related, tax and
There were no other services that werefees approved by the boardBoard of directors is zero (-0-).
Directors of the General Partner or paid by the Partnership, during 2008 besides fees related to audit or tax compliance services.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON
FORMONFORM 10-K
30
(a)(1) Financial Statements
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets as of December 31, 2005 and 2004 F-2-3
Statements of Operations for the period from March 14, 2005
(Commencement of Operations) through the year ended
December 31, 2005 F-4
Statements of Partners' Capital for the period from
March 14, 2005 (Commencement of Operations) through the
year ended December 31, 2005 F-5
Statements of Cash Flows for the period from March 14, 2005
(Commencement of Operations) through the year ended
December 31, 2004 F-6-7
Notes to Financial Statements F-8-20
(a)(2) Schedules.
| (a) (1) | Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-1 |
| Balance Sheets as of December 31, 2008 and 2007 | |
| Statements of Operations for the years ended December 31, 2008 and 2007 | |
| Statements of Partners’ Capital for the years ended December 31, 2008 and 2007 | |
| Statements of Cash Flows for the years ended December 31, 2008 and 2007 | |
| Notes to Financial Statements | |
| (a) (2) | Schedules | |
Schedules are omitted because they are not applicable, not required, or because the required informationrequiredinformation is included in the financial statements and notes thereto.
(a)(3) Exhibits.
* 3.1 Certificate of Limited Partnership
* 3.2 Agreement of Limited Partnership
* Incorporated by reference from the Partnership's Registration
Statement on Form S-1 (Registration No. 333-62526)
(b) Reports on Form 8-K
(c) Exhibits.
31.1 Rule 13a-14(a)/15d-14(a) Certifications by the Principal
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certifications by the Principal
Financial Officer
32 Section 1350 Certifications by the Principal Executive Officer
and Principal Financial Officer
31
| (a) (3) | Exhibits | |
| *3.1 | Certificate of Limited Partnership |
| *3.2 | Agreement of Limited Partnership |
| | |
| | Rule 13a-14(a)/15d-14(a) Certifications by the Principal Executive Officer |
| | |
| | Rule 13a-14(a)/15d-14(a) Certifications by the Principal Financial Officer |
| | |
| | Section 1350 Certifications by the Principal Executive Officer and Principal Financial Officer |
| | |
| *Incorporated by reference from the Partnership’s Registration Statement on Form S-1 (Registration No. 333-108057) |
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Reportreport to be signed on its behalf March 30, 200631, 2009 by the undersigned thereunto duly authorized.
COMMONWEALTH INCOME & GROWTH FUND V
By: COMMONWEALTH INCOME &
GROWTH FUND, INC., General Partner
By: /s/ George S. Springsteen
--------------------------------
George S. Springsteen, Chief
Executive Officer
| COMMONWEALTH INCOME & GROWTH FUND V |
| By: COMMONWEALTH INCOME & GROWTH FUND, INC., General Partner |
| By: /s/ Kimberly A. Springsteen-Abbott |
| Kimberly A. Springsteen-Abbott |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March
30, 2006:
SIGNATURE CAPACITY
- --------------------------- ---------------------------------------
/s/ GEORGE S. SPRINGSTEEN Chairman, Director, and
- --------------------------- Chief Executive Officer of
George S. Springsteen Commonwealth Income & Growth Fund, Inc.
/s/ KIMBERLY A. SPRINGSTEEN President, Chief Operating Officer and
- --------------------------- Secretary
Kimberly A. Springsteen
32
COMMONWEALTH INCOME & GROWTH FUND V
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS
Balance sheets F-3-4
Statements of operations F-5
Statements of partners' capital F-6
Statements of cash flows F-7-8
NOTES TO FINANCIAL STATEMENTS F-9-21
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Partners
31, 2009:
| SIGNATURE | CAPACITY |
| |
| /s/ Kimberly A. Springsteen-Abbott | Chairman, Chief Executive Officer, |
| Kimberly A. Springsteen-Abbott | Commonwealth Income & Growth Fund, Inc. |
/s/Henry J. Abbott | Director, President, |
| Henry J. Abbott | Commonwealth Income & Growth Fund, Inc. |
Commonwealth Income & Growth Fund V
Exton,
Financial Statements
Years Ended December 31, 2008 and 2007
Commonwealth Income & Growth Fund V
| Report of Independent Registered Public Accounting Firm | F-1 |
| |
| Financial statements | |
| Balance sheets | |
| Statements of operations | |
| Statements of partners’ capital | |
| Statements of cash flows | |
| |
| Notes to financial statements | |
Report of Independent Registered Public Accounting Firm
The Partners
Commonwealth Income & Growth Fund V
Chadds Ford, Pennsylvania
We have audited the accompanying balance sheets of Commonwealth Income & Growth Fund V (“Partnership”) as of December 31, 20052008 and 20042007, and the related statements of operations, and Partners'Partners’ capital and cash flows for each of the years in the two-year period from March 14,
2005 (commencement of operations) throughended December 31, 2005. These2008. The Partnership’s management is responsible for these financial statements are the responsibility of the Partnership's management.statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The companyPartnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company'sPartnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Income & Growth Fund V as of December 31, 20052008 and 20042007, and the results of its operations and its cash flows for each of the years in the two year period from March 14, 2005 (commencement of
operations) throughended December 31, 20052008 in conformity with accounting principles generally accepted in the United States of America
/s/America.
/s/ ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania
March
29, 2006
F-2
COMMONWEALTH INCOME30, 2009Commonwealth Income &
GROWTH FUNDGrowth Fund V
BALANCE SHEETS
December 31, 2005 2004
- ---------------------------------------------------------------- ------------- -------------
ASSETS
Cash and cash equivalents $ 10,722,300 $ 1,067
Lease income receivable, net of reserve of $0 at
December 31, 2005 91,047 --
Accounts receivable, affiliated limited partnerships 71,259 --
Other receivables 94,293 --
------------- -------------
10,978,899 1,067
------------- -------------
COMPUTER EQUIPMENT, at cost 5,480,291 --
ACCUMULATED DEPRECIATION (289,811) --
------------- -------------
5,190,480 --
------------- -------------
EQUIPMENT ACQUISITION COSTS AND DEFERRED EXPENSES, net
of accumulated amortization of $16,370 at December 31, 2005 211,190 --
PREPAID ACQUISITION FEES, GENERAL PARTNER 483,504 --
------------- -------------
694,694 --
------------- -------------
TOTAL ASSETS $ 16,864,073 $ 1,067
============= =============
F-3
COMMONWEALTH INCOME & GROWTH FUND V
BALANCE SHEETS
December 31, 2005 2004
- ---------------------------------------------------------------- ------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable, primarily for equipment purchases $ 129,771 $ --
Accounts payable, General Partner 61,224 --
Accounts payable, Commonwealth Capital Corp. 39,258 --
Other accrued expenses 9,061 --
Unearned lease income 45,867 --
Notes payable 785,157
------------- -------------
TOTAL LIABILITIES 1,070,338 --
------------- -------------
PARTNERS' CAPITAL
General Partner 1,000 1,000
Limited Partners 15,792,735 567
------------- -------------
15,793,735 1,567
Receivable from Limited Partner -- (500)
------------- -------------
TOTAL PARTNERS' CAPITAL 15,793,735 1,067
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 16,864,073 $ 1,067
============= =============
See accompanying notes to financial statements.
F-4
COMMONWEALTH INCOME & GROWTH FUND V
STATEMENT OF OPERATIONS
For the Period of March 14, 2005 (commencement of operations)
through December 31, 2005
- -------------------------------------------------------------------- -------------
INCOME
Lease $ 381,447
Interest and other 41,320
-------------
TOTAL INCOME 422,767
-------------
EXPENSES
Operating, excluding depreciation 817,691
Organizational costs 172,960
Equipment management fee, General Partner 19,072
Interest 5,944
Depreciation 289,812
Amortization of equipment acquisition costs and deferred expenses 16,370
-------------
TOTAL EXPENSES 1,321,849
-------------
NET (LOSS) $ (899,082)
=============
NET (LOSS) ALLOCATED TO LIMITED PARTNERS $ (907,319)
NET (LOSS) PER EQUIVALENT LIMITED PARTNERSHIP UNIT $ (1.80)
WEIGHTED AVERAGE NUMBER OF EQUIVALENT
LIMITED PARTNERSHIP UNITS OUTSTANDING DURING THE YEAR 503,047
=============
F-5
COMMONWEALTH INCOME & GROWTH FUND V
STATEMENT OF PARTNERS' CAPITAL
General Limited
Partner Partner General Limited
Units Units Partner Partners Total
------------ ------------ ------------ ------------ ------------
BALANCE, March 14, 2005 (1) 50 -- $ 1,000 $ 67 $ 1,067
Contributions -- 985,494 -- 19,703,204 19,703,204
Offering costs -- -- -- (2,308,723) (2,308,723)
Net income (loss) (2) -- -- 8,237 (907,319) (899,082)
Distributions -- -- (8,237) (694,494) (702,731)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2005 50 985,494 $ 1,000 $ 15,792,735 $ 15,793,735
============ ============ ============ ============ ============
See accompanying notes to financial statements.
(1) The General Partner contributed $1,000 in exchange for 50 units of the
Partnership when the Partnership was organized in May 2003.
(2) Net income (loss) is for the period March 14, 2005 (Commencement of
Operations) through December 31, 2005.
F-6
COMMONWEALTH INCOME & GROWTH FUND V
STATEMENT OF CASH FLOWS
For the Period of March 14, 2005 (commencement of operations)
through December 31, 2005
- ---------------------------------------------------------------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (899,082)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities Depreciation and amortization 306,182
(Gain) loss on sale of computer equipment
Other noncash activities included in determination of net (loss) (49,630)
Changes in assets and liabilities
Lease income receivable (91,047)
Accounts receivable, General Partner 61,224
Accounts receivable, affiliated limited partnerships (71,259)
Other receivables (94,293)
Accounts payable 129,772
Accounts payable, Commonwealth Capital Corp. 39,258
Other accrued expenses 9,061
Unearned lease income 45,867
-------------
NET CASH (USED IN) OPERATING ACTIVITIES (613,947)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,645,505)
Prepaid acquisition fees to the General Partner (483,504)
Equipment acquisition fees to the General Partner (219,212)
-------------
NET CASH (USED IN) INVESTING ACTIVITIES (5,348,221)
-------------
F-7
COMMONWEALTH INCOME & GROWTH FUND V
STATEMENT OF CASH FLOWS
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions 19,703,204
Offering costs (2,308,723)
Distributions to Partners (702,732)
Debt placement fee to the General Partner (8,348)
-------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,683,401
-------------
Net increase in cash and cash equivalents 10,721,233
Cash and cash equivalents at beginning of period 1,067
-------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,722,300
-------------
See Balance Sheets
| December 31, | | 2008 | | | 2007 | |
| | | | | | | |
| Assets | | | | | | |
| | | | | | | |
| Cash | | $ | 3,053,703 | | | $ | 4,114,953 | |
| Lease income receivable, net of reserve of $115,617 and $42,780 at December 31, 2008 and 2007 | | | 320,541 | | | | 211,207 | |
| Other receivable, Commonwealth Capital Corp. | | | 394,435 | | | | 55,740 | |
| Other receivable, General Partner | | | 18,516 | | | | 0 | |
| Other receivable, affiliated limited partnerships | | | 300 | | | | 1,903 | |
| Prepaid expenses | | | 6,422 | | | | 1,745 | |
| | | | 3,793,917 | | | | 4,385,548 | |
| | | | | | | | | |
| | | | | | | | | |
Computer equipment, at cost | | | 21,267,794 | | | | 21,299,239 | |
| Accumulated depreciation | | | (12,060,593 | ) | | | (7,919,040 | ) |
| | | | 9,207,201 | | | | 13,380,199 | |
| | | | | | | | | |
| | | | | | | | | |
Equipment acquisition costs and deferred expenses, net of accumulated amortization of $518,860 and $449,553 at December 31, 2008 and 2007 | | | 247,773 | | | | 463,248 | |
| Prepaid acquisition fees, General Partner | | | 180,205 | | | | 247,936 | |
| | | | 427,978 | | | | 711,184 | |
| | | | | | | | | |
| Total assets | | $ | 13,429,096 | | | $ | 18,476,931 | |
| | | | | | | | | |
| | | | | | | |
| Liabilities and Partners' Capital | | | | | | |
| | | | | | | |
| Liabilities | | | | | | |
| Accounts payable, | | $ | 357,751 | | | $ | 292,491 | |
| Accounts payable, General Partner | | | 41,112 | | | | 9,734 | |
| Accounts payable, Commonwealth Capital Corp. | | | 35,387 | | | | - | |
| Other accrued expenses | | | 11,302 | | | | 2,182 | |
| Unearned lease income | | | 142,203 | | | | 157,032 | |
| Notes payable | | | 1,551,477 | | | | 3,134,218 | |
| | | | | | | | | |
| Total liabilities | | | 2,139,232 | | | | 3,595,657 | |
| | | | | | | | | |
| Partners' capital | | | | | | | | |
| General partner | | | 1,000 | | | | 1,000 | |
| Limited partners | | | 11,288,864 | | | | 14,880,274 | |
| | | | | | | | | |
| Total partners' capital | | | 11,289,864 | | | | 14,881,274 | |
| | | | | | | | | |
| Total liabilities and partners' capital | | $ | 13,429,096 | | | $ | 18,476,931 | |
see accompanying notes to financial statements
F-8
COMMONWEALTH INCOME Commonwealth Income & GROWTH FUNDGrowth Fund V
NOTES TO FINANCIAL STATEMENTS
Statements of Operations
| Years ended December 31, | | 2008 | | | 2007 | |
| | | | | | | |
| Revenue | | | | | | |
| Lease | | $ | 6,754,899 | | | $ | 6,606,964 | |
| Interest and other | | | 88,905 | | | | 220,242 | |
| | | | | | | | | |
| Total revenue | | | 6,843,804 | | | | 6,827,206 | |
| | | | | | | | | |
| Expenses | | | | | | | | |
| Operating, excluding depreciation | | | 1,476,166 | | | | 1,261,938 | |
| Equipment management fee, General Partner | | | 337,745 | | | | 330,348 | |
| Interest | | | 142,519 | | | | 160,164 | |
| Depreciation | | | 5,526,498 | | | | 5,038,347 | |
| Amortization of equipment acquisition costs | | | | | | | | |
| and deferred expenses | | | 303,115 | | | | 284,601 | |
| Bad debt expense | | | 72,818 | | | | 52,860 | |
| Loss on sale of computer equipment | | | 27,840 | | | | 9,637 | |
| | | | | | | | | |
| Total expenses | | | 7,886,701 | | | | 7,137,895 | |
| | | | | | | | | |
| Net (loss) | | $ | (1,042,897 | ) | | $ | (310,689 | ) |
| | | | | | | | | |
| Net (loss) allocated to limited partners | | $ | (1,067,860 | ) | | $ | (335,685 | ) |
| | | | | | | | | |
| Net (loss) per equivalent partnership unit | | $ | (0.86 | ) | | $ | (0.27 | ) |
| | | | | | | | | |
| Weighted average number of equivalent | | | | | | | | |
| limited partnership units outstanding | | | | | | | | |
| during the year | | | 1,248,297 | | | | 1,249,951 | |
see accompanying notes to financial statements
Commonwealth Income & Growth Fund V
Statements of Partners' Capital
| | | General | | | Limited | | | | | | | | | | |
| | | Partner | | | Partner | | | General | | | Limited | | | | |
| | | Units | | | Units | | | Partner | | | Partners | | | Total | |
| | | | | | | | | | | | | | | | |
| Balance, January 1, 2007 | | | 50 | | | | 1,249,951 | | | $ | 1,000 | | | $ | 17,690,459 | | | $ | 17,691,459 | |
| Net income (loss) | | | - | | | | - | | | | 24,996 | | | | (335,685 | ) | | | (310,689 | ) |
| Distributions | | | - | | | | - | | | | (24,996 | ) | | | (2,474,500 | ) | | | (2,499,496 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 50 | | | | 1,249,951 | | | | 1,000 | | | | 14,880,274 | | | | 14,881,274 | |
| Net income (loss) | | | - | | | | - | | | | 24,963 | | | | (1,067,860 | ) | | | (1,042,897 | ) |
| Redemptions | | | - | | | | (4,099 | ) | | | - | | | | (52,244 | ) | | | (52,244 | ) |
| Distributions | | | - | | | | - | | | | (24,963 | ) | | | (2,471,306 | ) | | | (2,496,269 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 | | | 50 | | | | 1,245,852 | | | $ | 1,000 | | | $ | 11,288,864 | | | $ | 11,289,864 | |
see accompanying notes to financial statements
Commonwealth Income & Growth Fund V
| Years ended December 31, | | 2008 | | | 2007 | |
| | | | | | | |
| Cash flows from operating activities | | | | | | |
| Net (loss) | | $ | (1,042,897 | ) | | $ | (310,689 | ) |
| Adjustments to reconcile net (loss) to net cash | | | | | | | | |
| provided by operating activities | | | | | | | | |
| Depreciation and amortization | | | 5,829,613 | | | | 5,322,948 | |
| Loss on sale of computer equipment | | | 27,840 | | | | 9,637 | |
| Bad debt expense | | | 72,818 | | | | 42,799 | |
| Other noncash activities included in | | | | | | | | |
| determination of net (loss) | | | (1,923,632 | ) | | | (1,759,856 | ) |
| Changes in assets and liabilities | | | | | | | | |
| (Increase) decrease in assets | | | | | | | | |
| Lease income receivable | | | (182,153 | ) | | | (51,513 | ) |
| Other receivable, General Partner | | | (18,516 | ) | | | (47,028 | ) |
| Other receivable, affiliated limited partnerships | | | 1,603 | | | | 56,675 | |
| Prepaid expenses | | | (4,675 | ) | | | 2,925 | |
| (Increase) decrease in liabilities | | | | | | | | |
| Accounts payable | | | 65,258 | | | | 114,941 | |
| Accounts payable, Commonwealth Capital Corp. | | | (303,309 | ) | | | (55,740 | ) |
| Accounts payable, General Partner | | | 31,377 | | | | - | |
| Other accrued expenses | | | 9,118 | | | | (36,264 | ) |
| �� Unearned lease income | | | (14,829 | ) | | | 5,784 | |
| | | | | | | | | |
| Net cash provided by operating activities | | | 2,547,616 | | | | 3,294,619 | |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Capital expenditures | | | (1,764,885 | ) | | | (3,614,595 | ) |
| Prepaid acquisition fees to the General Partner | | | 67,730 | | | | 129,060 | |
| Net proceeds from the sale of computer equipment | | | 724,440 | | | | 6,836 | |
| Equipment acquisition fees - General Partner | | | (84,231 | ) | | | (247,527 | ) |
| | | | | | | | | |
| Net cash (used in) investing activities | | | (1,056,946 | ) | | | (3,726,226 | ) |
| | | | | | | |
| Cash flows from financing activities | | | | | | |
| Redemptions | | | (52,244 | ) | | - | |
| Distributions to partners | | | (2,496,269 | ) | | | (2,499,496 | ) |
| Debt placement fee to the General Partner | | | (3,407 | ) | | | (25,736 | ) |
| | | | | | | | | |
| Net cash (used in) financing activities | | | (2,551,920 | ) | | | (2,525,232 | ) |
| | | | | | | | | |
| Net (decrease) in cash | | | (1,061,250 | ) | | | (2,956,839 | ) |
| | | | | | | | | |
| Cash at beginning of period | | | 4,114,953 | | | | 7,071,792 | |
| | | | | | | | | |
| Cash at end of period | | $ | 3,053,703 | | | $ | 4,114,953 | |
see accompanying notes to financial statements
Commonwealth Income & Growth Fund V
Notes to Financial Statements
1. BUSINESS Business
Commonwealth Income & Growth Fund V (the "Partnership"“Partnership”) is a limited partnership organized in the Commonwealth of Pennsylvania on May 19, 2003. The Partnership is offeringoffered for sale up to 1,250,000 units of the limited partnership at the purchase price of $20 per unit (the "Offering"“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.
During the year ended December 31, 2005, the Partnership has received
$19,703,204 in contributions from2008 limited partners amounting to 985,494 units.
redeemed 4,099 units of the partnership for a total redemption price of approximately $52,000 in accordance with the terms of the limited partnership agreement.
The Partnership usesused the proceeds of the Offeringoffering to acquire, own and lease various types of computer peripheralinformation technology (I.T.) equipment and other similar capital equipment, which will beis leased primarily to U.S. corporations and institutions. Commonwealth Capital Corp ("CCC"Corp. (“CCC”), on behalf of the Partnership and other affiliated partnerships, will acquire computer equipment subject to associated debt obligations and lease agreements and allocate a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors
factors.
The Partnership'sPartnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the "General Partner"“General Partner”), a Pennsylvania corporation which is an indirect wholly owned subsidiary of CCC. CCC is a member of
the Investment Program Association (IPA), Financial
Planning Association (FPA), and the Equipment
Leasing Association (ELA). Approximately ten years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its computer equipment, make final distributions to partners, and to dissolve. Unless sooner terminated, the Partnership will continue until December 31, 2015.
Allocations of income and distributions of cash are based on the
Partnership'sPartnership’s Limited Partnership Agreement (the
"Agreement"“Agreement”). The various allocations under the Agreement prevent any limited
partner'spartner’s capital account from being reduced below zero and ensure the capital accounts reflect the anticipated sharing ratios of cash distributions, as defined in the Agreement. During
2005,2008 and 2007 annual cash distributions to limited partners were made at a rate of approximately 10% of their original contributed capital. Distributions during
20052008 and 2007 reflect an annual return of capital in the
F-9
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
amount of approximately $1.38$1.98 for both years, per weighted average number of limited partnership units outstanding during the year.
2. SUMMARY OF REVENUE RECOGNITION
SIGNIFICANT
ACCOUNTING POLICIES Summary of Significant Accounting Policies
Revenue Recognition
Through December 31, 2005,2008, the Partnership has only entered into operating leases. Lease revenue is recognized on a monthly basis in accordance with the terms of the operating lease agreements. The Partnership reviews a customer'scustomer’s credit history before extending credit and may establish a provision for uncollectible accounts receivable based upon the credit risk of specific customers, historical trends and other information.
USE OF ESTIMATES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS")
No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of the fair value
of certain instruments. The carrying values of cash,
receivables and payables approximate fair value due
to the short term maturity of these instruments. For
debt, the carrying amounts approximate fair value
because the interest rates approximate current
market rates.
LONG-LIVED ASSETS
Long-Lived Assets
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 an impairment
F-10
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS 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 an impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. FairThe fair value is determined based on estimated discounted cash flows to be generated by the asset. The partnershipIn 2008 and 2007, the Partnership determined that nothe carrying amount of certain assets was greater than the undiscounted cash flows to be generated by these assets. In 2008 and 2007, the Partnership recorded impairment had
occurred duringcharges of approximately $99,000 and $59,000, respectively. Such amounts have been included in depreciation expense in the period of March 14, 2005
(Commencement of Operations) through December 31,
2005.
accompanying financial statements. Depreciation on computer equipment for financial statement purposes is based on the straight-line method estimated generally over estimated useful lives of two to four years.
INTANGIBLE ASSETS
Intangible Assets
Equipment acquisition costs and deferred expenses are amortized on a straight-line basis over two-to-four year lives. Unamortized acquisition costs and deferred expenses are charged to amortization expense when the associated leased equipment is sold.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid
investments with a maturity of three months or less
to be cash equivalents.
Cash
Cash equivalents havehas been invested in a money market fund investing directly
in Treasury obligations. Cash athigh yield savings accounts and checking accounts. At December 31, 20052008 cash was held in the custody oftwo accounts at one major financial institution. The accounts at this institution are federally insured, in aggregate, for amounts up to $250,000. At times, the balances may exceedhave exceeded federally insured limits. At December 31, 2008, the total cash balance was approximately $3,546,000 and exceeded federally insured limits by approximately $3,296,000. At December 31, 2007 cash was held in two accounts at one major financial institution. The accounts at this institution were federally insured, in aggregate, for amounts up to $100,000. At times, the balances may have exceeded federally insured limits. At December 31, 2007, the total cash balance was approximately $4,349,000 and exceeded federally insured limits by approximately $4,249,000. The Partnership mitigates this risk by only depositing funds with a major financial institution.institutions. The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. ACCOUNTS RECEIVABLE
The amount in such accounts will fluctuate throughout 2009 due to many factors, including the pace of revenues, equipment acquisitions and distributions.
Accounts Receivable
Accounts receivable includes current accounts receivable, net of allowances and other accruals. The Partnership regularly reviews the collectability of its receivables and the credit worthiness of its customers and adjusts its allowance for doubtful accounts accordingly.
F-11
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES
Income Taxes
The Partnership is not subject to federal income taxes; instead, any taxable income (loss) is passed through to the partners and included on their respective income tax returns.
Taxable income differs from financial statement net income as a result of reporting certain income and expense items for tax purposes in periods other than those used for financial statement purposes, principally relating to depreciation, amortization, and lease income.
OFFERING COSTS
Offering Costs
Offering costs are payments for selling commissions, dealer manager fees, professional fees and other offering expenses relating to the syndication. Selling commissions are 8% of the partners'partners’ contributed capital and dealer manager fees are 2% of the partners'partners’ contributed capital. These costs have been deducted from partnership capital in the accompanying financial statements.
NET INCOME (LOSS) PER EQUIVALENT LIMITED PARTNERSHIP
UNIT
Net Income (Loss) Per Equivalent Limited Partnership Unit
The net income (loss) per equivalent limited partnership unit is computed based upon net income (loss) allocated to the Limited Partners and the weighted average number of equivalent limited partner units outstanding during the year.
REIMBURSABLE EXPENSES
Reimbursable Expenses
Reimbursable expenses, which are charged to the Partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases.
F-12
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
For example, if the Partnership has more investors than another program sponsored by CCC, then higher amounts of expenses related to investor services, mailing and printing costs will be allocated to the Partnership. Also, while the Partnership is in its offering stage, higher compliance costs are allocated to it than to a program not in its offering stage, as compliance resources are utilized to review incoming investor suitability and proper documentation. Finally, lease related expenses, such as due diligence, correspondence, collection efforts and analysis staff costs, increase as programs purchase more leases, and decrease as leases terminate and equipment is sold. All of these factors contribute to CCC’s determination as to the amount of expenses to allocate to the Partnership or to other sponsored programs. For the Partnership, all reimbursable expenses are expensed as they are incurred.
Recent Accounting Pronouncements
In May 2005,February 2007, the Financial Accounting Standards
Board (FASB)FASB issued SFAS No. 154, "Accounting
Changes159, “The Fair Value Option for Financial Assets and Error Corrections" (SFASLiabilities, including an amendment of FASB Statement No. 154) which
replaces APB No. 20 "Accounting Changes" and 115” (“SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements - An Amendment of APB Opinion
No. 28."159”). SFAS No. 154 provides guidance159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses will be reported on items for which the methods issuers should use to account for and report
accounting changes and error corrections.
Specifically, this statement requires that issuers
retrospectively apply any voluntary changefair value option has been elected in accounting principles to prior period financial
statements, if it is practicable to do so. This
principle replaces APB No. 20, which required that
most voluntary changes in accounting principle be
recognized by including the cumulative effect of the
change to the new accounting principle on prior
periods in the net income reported by the issuer in
the period in which it instituted the change.earnings at each subsequent reporting date. SFAS No. 154 also redefines the term "restatement" to
mean the correction of an error by revising
previously issued financial statements. Unless
adopted early, SFAS No. 154159 is effective for
accounting changes and corrections of errors made in fiscal years beginning after DecemberNovember 15, 2005. The
Partnership does not expect2007. Early adoption is permitted as of the adoptionbeginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 154157 “Fair Value Measurements”. As of January 1, 2008 the Partnership adopted SFAS No.159. The Partnership has not elected the fair value option for any financial assets or financial liabilities.
In September 2006, the FASB issued Statement of Financial Accounting Standards 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance on measuring the fair value of assets and liabilities. SFAS 157 applies to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also requires additional disclosures in both annual and quarterly reports. In February 2008, the FASB issued two Staff Positions on SFAS 157: (1) FASB Staff Position No. FAS 157-1 (FAS 157-1), “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13,” and (2) FASB Staff Position No. FAS 157-2 (FAS 157-2), “Effective Date of FASB Statement No. 157.” FAS 157-1 excludes FASB Statement No. 13, Accounting for Leases, as well as other accounting pronouncements that address fair value measurements on lease classification or measurement under Statement 13, from SFAS 157’s scope. FAS157-2 partially defers Statement 157’s effective date. As of January 1, 2008 the Partnership adopted SFAS No. 157 for all financial assets. Adoption of this pronouncement did not impact the 2008 financial statements of the Partnership. In October 2008, the FASB issued FSP SFAS 157-3 "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active" ("FSP SFAS 157-3"), which is effective upon issuance for all financial statements that have annot been issued. FSP SFAS 157-3 clarifies the application of SFAS 157, in a market that is not active. Adoption of FSP SFAS 157-3 did not impact on itsthe 2008 financial position or
resultsstatements of operations.
the Partnership.
3. COMPUTER EQUIPMENT Computer Equipment
The Partnership is the lessor of equipment under operating leases with periods generally ranging from 1612 to 3648 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.
Through December 31, 2005,2008, the Partnership'sPartnership’s leasing operations consisted entirely of operating leases. Operating lease revenue is recognized on a monthly basis in accordance with the terms of the lease agreement.
Remarketing fees are paid to the leasing companies from which the Partnership purchases leases. Remarketing fees 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
F-13
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS entices the leasing company to "stay with the lease" for potential extensions, remarketing or sale of equipment. This strategy potentially minimizes any conflicts the leasing company may have with a potential new lease and will potentially assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is factored 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 computer equipment are included in our gain or loss calculations. No remarketingRemarketing fees of approximately $110,000 and $1,000 were paid for the periodyears ended December 31, 2005.
2008 and 2007, respectively. The Partnership'sPartnership’s share of the computer equipment in which they participateit participates with other partnerships at December 31, 20052008 and 2007 was approximately $932,000, which$9,865,000 and $8,381,000, respectively and is included in the Partnership'sPartnership’s fixed assets on theirits balance sheet,
and thesheet. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 20052008 and 2007 was approximately $2,177,000.
$24,040,000 and $17,371,000, respectively. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2008 and 2007 was approximately $974,000 and $1,683,000, respectively. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2008 and 2007 was approximately $2,513,000 and $3,187,000, respectively.
The following is a schedule of future minimum rentals on noncancelable operating leases at December 31, 2005:
Years ending December 31, Amount
----------------------------------- --------------
2006 $ 1,797,114
2007 1,791,214
2008 1,356,815
--------------
$ 4,945,143
==============
SIGNIFICANT 2008:
| Year ending December 31, | | Amount | |
| | | | |
| 2009 | | $ | 3,908,115 | |
| 2010 | | | 876,712 | |
| 2011 | | | 299,857 | |
| 2012 | | | 6,839 | |
| | | $ | 5,091,523 | |
| | | | | |
Significant Customers
Lessees exceeding 10% of lease income for the period
CUSTOMERS ended December 31:
F-14
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
Lessee 2005
----------------------------------- ----
Lessee A 18%
Lessee B 25%
Lessee C 10%
----
TOTAL % OF LEASE INCOME 53%
====
| Lessee | 2008 | 2007 |
| | | |
| Lessee A | 16% | 16% |
| Lessee B | 32% | 27% |
| Total % of Lease Income | 48% | 43% |
Lessees exceeding 10% of accounts receivable at December 31:
Lessee 2005
----------------------------------- ----
Lessee A 27%
Lessee B --
Lessee C 12%
Lessee D 20%
Lessee E 12%
Lessee F 22%
----
TOTAL % OF ACCOUNTS RECEIVABLE 93%
====
| Lessee | 2008 | 2007 |
| | | |
| Lessee A | - | 63% |
| Lessee B | 10% | 17% |
| Lessee C | - | 10% |
| Lessee D | 13% | - |
| Lessee E | 15% | - |
| Total % of Accounts Receivable | 38% | 90% |
4.
RELATED PARTY ORGANIZATIONAL FEE
TRANSACTIONS
The General Partner is entitled to be paid an
Organizational Fee equal to three percent of the
first $10,000,000 of Limited Partners' Capital
Contributions and two percent of the Limited
Partners' Capital Contributions in excess of
$10,000,000, as compensation for the organization of
the Partnership. During 2005, the Partnership paid
approximately $494,000 in organizational fees. There
were no amounts due to the General Partner in
connection with organizational fees as of December
31, 2005.
SELLING COMMISSION AND DEALER MANAGER FEES
The Partnership will pay to Commonwealth Capital
Securities Corp. (CCSC), an affiliate of
Commonwealth Capital Corp., an aggregate of up to
10% of the partners' contributed capital as selling
commissions and dealer manager reallowance fees,
after the required $1,150,000 minimum subscription
amount has been sold.
F-15
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
During 2005, selling commissions and dealer manager
fees of approximately $1,969,000 were paid to CCSC.
There was $9,400 due to CCSC as of December 31,
2005.
REIMBURSABLE EXPENSES
Related Party Transactions
Reimbursable Expenses
The General Partner and its affiliates are entitled to reimbursement by the Partnership for the cost of 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 for certain expenses incurred by the General Partner and its affiliates in connection with the administration and operation of the Partnership. For the period of March 14, 2005
(Commencement of Operations) throughyears ending December 31, 2005,2008 and 2007, the Partnership recorded $492,000,approximately $1,403,000 and $1,247,000, respectively, for reimbursement of expenses to the General Partner. At
December 31, 2005, the amount due to CCC was
approximately $39,000.
EQUIPMENT ACQUISITION FEE
Partner.
Equipment Acquisition Fee
The General Partner is entitled to be paid an equipment acquisition fee of 4% of the purchase price of each item of equipment purchased as compensation for the negotiation of the acquisition of the equipment and lease thereof or sale under a conditional sales contract. The fee was paid upon each closing of the
Offeringoffering with respect to the equipment to be purchased by the Partnership with the net proceeds for the
Offeringoffering available for investment in equipment. If the Partnership acquires equipment in an amount exceeding the net proceeds of the
Offeringoffering available for investment in equipment, the fee will be paid when such equipment is acquired.
During 2005,For the years ending December 31, 2008 and 2007, equipment acquisition fees of approximately
$663,000 were paid to the General
Partner. Of this amount, approximately $180,000$68,000 and $129,000, respectively has been earned by the General Partner relating to equipment
acquired in 2005.acquired. The remaining balance of approximately
$483,000$180,000 will be earned with acquisitions in future periods.
F-16
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
DEBT PLACEMENT FEE
Debt Placement Fee
As compensation for arranging term debt to finance the acquisition of equipment by the Partnership, the General Partner is paid a fee equal to 1% of such indebtedness; provided, however, that such fee shall be reduced to the extent the Partnership incurs such fees to third parties, unaffiliated with the General Partner or the lender, with respect to such indebtedness and no such fee will be paid with respect to borrowings from the General Partner or its affiliates. During 2005,2008 and 2007 the Partnership paid approximately $8,000$3,000 and $26,000, respectively, in debt placement fees to the General Partner. There were no amounts due to the General Partner in connection with debt placement fees as of December 31,2 005.
EQUIPMENT MANAGEMENT FEE
31, 2008 and 2007.
Equipment Management Fee
The General Partner is entitled to be paid 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% of the gross lease revenues attributable to equipment which is subject to operating leases. During 2005,2008 and 2007, equipment management fees of approximately $19,000$338,000 and $330,000, respectively, were paid to the General Partner as determined pursuant to section (ii) above.
RELEASE FEE
Re-lease Fee
As compensation for providing releasing services for any equipment for which the General Partner has, following the expiration of, or default under, the most recent lease or conditional sales contract, arranged a subsequent lease or conditional sales contract for the use of such equipment to a lessee or other party, other than the current or most recent lessee or other operator of such equipment or its affiliates
("Release"(“Re-lease”), the General Partner shall receive, on a monthly basis, a
ReleaseRe-lease Fee equal to the lesser
F-17
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS of (a) the fees which would be charged by an independent third party for comparable services for comparable equipment or (b) two percent of gross lease revenues derived from such Release.Re-lease. There were no such fees paid to or earned by the General Partner in 2005.
EQUIPMENT LIQUIDATION FEE
2008 and 2007.
Equipment Liquidation Fee
With respect to each item of equipment sold by the General Partner (other than in connection with a conditional sales contract), a fee equal to the lesser of (i) 50% of the competitive equipment salesales commission or (ii) three percent of the sales price for such equipment is payable to the General Partner. The payment of such fee is subordinated to the receipt by the limited partners of the net disposition proceeds from such sale in accordance with the Partnership Agreement. Such fee will be reduced to the extent any liquidation or resale fees are paid to unaffiliated parties. There were no such
fees earned byDuring 2008 and 2007 the General Partner earned approximately $26,000 and $200, respectively in 2005.
liquidation fees.
5. NOTES PAYABLE Notes payable consistedPayable
Notes Payable are secured by specific computer equipment and are nonrecourse liabilities of the following:
December 31, 2005
----------------------------------- -------------
Installment notes payable to banks;
interest ranging from 6.0% to 6.3%,
due in monthly installments ranging
from $2,413 to $14,239, including
interest, with final payments from
February through September 2008. 785,157
-------------
$ 785,157
=============
ThesePartnership.
| December 31, | | 2008 | | | 2007 | |
| | | | | | | |
Installment notes payable to banks; interest ranging from 4.65% to 6.30% due in monthly installments ranging from $1,095 to $14,239 including interest with final payments from February through Oct 2008 | | $ | - | | | $ | 275,143 | |
| | | | | | | | | |
Installment notes payable to banks; interest ranging from 5.25% to 6.20% due in monthly installments ranging from $6,588 to $134,671 including interest with final payments from February through Oct 2009 | | | 989,358 | | | | 2,337,462 | |
| | | | | | | | | |
Installment notes payable to banks; interest ranging from 5.40% to 5.85% due in monthly installments rangingfrom $23,64 3to $31,661 including interest with final payments from January through July 2010 | | | 322,037 | | | | 521,613 | |
| | | | | | | | | |
Installment note payable to banks; interest at 5.75%, due in monthly installments of $22,756, including interest with final payment in January 2011 | | | 190,829 | | | | - | |
| | | | | | | | | |
Installment note payable to banks; interest at 6.21%, due in monthly installments of $1,368 including interest with final payment in May 2012 | | | 49,253 | | | | - | |
| | | | | | | | | |
| | | $ | 1,551,477 | | | $ | 3,134,218 | |
| | | | | | | | | |
The notes are secured by specific computer equipment and are nonrecourse liabilities of the Partnership.
As such, the notes do not contain any debt covenants with which we must comply on either an annual or quarterly basis. Aggregate maturities of notes payable for each of the
yearsperiods subsequent to
December 31,
2005September 30, 2008 are as follows:
F-18
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
Year ending
| Year Ending December 31, | | | |
| | | | |
| 2009 | | | 1,290,490 | |
| 2010 | | | 216,350 | |
| 2011 | | | 37,903 | |
| 2012 | | | 6,734 | |
| | | $ | 1,551,477 | |
| | | | | |
At December 31, Amount
----------------------------------- -------------
2006 294,1642008 and 2007, 312,807
2008 178,186
-------------
$ 785,157
=============
the estimated fair value of our debt approximates the carrying value of such instruments due to the interest rates on such debt approximating current market rates.
6. SUPPLEMENTAL CASH Supplemental Cash Flow Information
Other noncash activities included in the
FLOW INFORMATION determination of net loss are as follows:
Year ended December 31, 2005
----------------------------------- -------------
Lease income, net of interest
expense on notes payable realized
as a result of direct payment of
principal by lessee to bank $ 49,630
-------------
Total adjustment to net (loss) from
other noncash activities $ 49,630
=============
| Year ending December 31, | | 2008 | | | 2007 | |
| | | | | | | |
| Lease income, net of interest expense on | | | | | | |
| notes payable realized as a result of direct | | | | | | |
| payment of principal by lessee to bank | | $ | 1,923,636 | | | $ | 1,759,856 | |
| | | | | | | | | |
No interest or principal on notes payable was paid by the Partnership 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.
Noncash investing and financing activities include the following:
Year
| Year ended December 31, | | 2008 | | | 2007 | |
| | | | | | | |
| Debt assumed in connection with | | | | | | |
| purchase of computer equipment | | $ | 340,896 | | | $ | 2,573,578 | |
| | | | | | | | | |
| Prepaid acquisition fees earned by the General Partner | | $ | 67,730 | | | $ | 129,060 | |
| | | | | | | | | |
7. Commitments and Contingencies
In April 2007, our lessee Quick Loan Funding, Inc. began defaulting on its lease payments. From April 2007 through the first quarter of 2008 we attempted several times to collect payment of outstanding lease payments and to recover the equipment from this lessee. On April 2, 2008, we filed suit in the Superior Court of Orange County, California (Docket No. 30-2008-00104785) against Quick Loan Funding, Inc. and its owner, Daniel Sadek, to recover the unpaid lease payments, late fees and the equipment. In July 2008, we recovered a portion of the equipment leased to Quick Loan Funding, and we are continuing to pursue all available means to recover the remainder of the equipment and the outstanding amounts owed to us. On September 24, 2008 we obtained a judgment against Quick Loan Funding for all amounts owed to us. We are currently in the process of executing this judgment against any available assets of Quick Loan Funding.
While we believe Quick Loan Funding is currently insolvent, to our knowledge no proceedings in bankruptcy have been initiated. We believe, based on our physical inspection of Quick Loan’s physical assets during our repossession efforts, that Quick Loan Funding may have sufficient assets to cover our judgment lien against it. To date, the Partnership has recorded a reserve against all outstanding rentals in the amount of approximately $43,000.For the years ended December 31 2005
----------------------------------- -------------
Debt assumed in connection with
purchase2008 and 2007 the Partnership recorded impairment charges of computer equipment $ 834,787
-------------
F-19
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
7. RECONCILIATION OF NET (LOSS) REPORTED FOR FINANCIAL REPORTING
PURPOSES TO TAXABLE (LOSS) ON THE FEDERAL PARTNERSHIP RETURN
For the Periodapproximately $63,000 and $18,000, respectively. As of March 14, 2005 (commencement of
operations) through December 31 2005
------------------------------------------------------- -------------2008 the equipment had a net book value of zero. The Partnership has not experienced any significant changes related to this matter during the fourth quarter of 2008. In August 2007, a lessee, MobilePro, Inc. defaulted on lease payments for wi-fi equipment owned by the fund. We were able to cover unpaid amounts by retaining cash collateral in the form of security deposits, which covered approximately eight months of additional rent. Since that period, we communicated with and attempted to work with MobilePro on a resolution, through an equipment sale that could satisfy their obligations to us.
By year end 2008, it became clear that they could not locate a buyer for the equipment. Therefore, we began to make several demands for payments of back rent not satisfied by the security deposits, and these demands were not satisfied. Subsequently, on February 10, 2009, our general partner filed suit against MobilePro and other related parties for collection, in the US District Court for the District of Arizona.
Simultaneously, we also filed suit against the City of Tempe, Arizona in order to seek access to our equipment, so that we could repossess and remarket the equipment, as Tempe has denied us access. On March 27, 2009, the City of Tempe filed a response and counterclaim, seeking an unspecified amount for the use of the right-of-way on the utility poles where the equipment is located, as well as an unspecified fee for electricity used by the equipment and the city is additionally seeking entitlement to ownership of the equipment. We believe both counterclaims are without merit for several reasons and will continue to enforce our rights to the equipment. The partnership has taken reserves against this lease, from quarter to quarter, to maintain a conservative position on our books.
8. Reconciliation of Net (loss)Reported for financial reporting purposes $ (899,082)
Adjustments
Depreciation 4,573
Amortization (13,026)
Organizational costs 172,960
Other 63,879
-------------Financial Reporting Purposes to Taxable (loss)Income on the Federal Partnership return $ (670,696)
=============
Return
| Year ended December 31, | | 2008 | | | 2007 | |
| | | | | | | |
| Net (loss) for financial reporting purposes | | $ | (1,042,897 | ) | | $ | (292,763 | ) |
| Adjustments | | | | | | | | |
| (Loss) on sale of computer equipment | | | (471,847 | ) | | | - | |
| Depreciation | | | (70,993 | ) | | | 1,215,336 | |
| Amortization | | | 245,717 | | | | 228,124 | |
| Unearned lease income | | | (14,829 | ) | | | 5,784 | |
| Penalties | | | 4,228 | | | | - | |
| Bad debts | | | 30,818 | | | | - | |
| Other | | | 59,473 | | | | 42,326 | |
| | | | | | | | | |
| Taxable income (loss) on the Federal | | | | | | | | |
| Partnership return | | $ | (1,260,330 | ) | | $ | 1,198,807 | |
The "Adjustments - Other"“Adjustments – Other” includes financial statement adjustments reflected on the tax return in the subsequent year.
Adjustment
foror (loss) on sale of equipment is due to longer useful lives for tax reporting
purposes.
F-20
COMMONWEALTH INCOME & GROWTH FUND V
NOTES TO FINANCIAL STATEMENTS
8. QUARTERLY RESULTS purpose.
9. Quarterly Results of Operation (Unaudited)
Summarized quarterly financial data for the
period
OF OPERATIONyear ended December 31,
20052008 is as follows:
(UNAUDITED)
Quarter ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
2005
REVENUES
Lease and other $ 738 $ 16,740 $ 98,764 $ 306,525
------------ ------------ ------------ ------------
TOTAL REVENUES 738 16,740 98,764 306,525
TOTAL COSTS AND EXPENSES 48,848 273,679 369,641 629,681
------------ ------------ ------------ ------------
NET (LOSS) $ (48,110) $ (256,939) $ (270,877) $ (323,156)
------------ ------------ ------------ ------------
(LOSS) PER LIMITED PARTNER UNIT (1) $ (0.64) $ (.98) $ (0.51) $ (0.41)
============ ============ ============ ============
(1) Amounts| | | | | | Quarter ended | | | | |
| | | March 31 | | | June 30 | | | September 30 | | | December 31 | |
| | | | | | | | | | | | | |
| 2008 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | |
| Lease and other | | $ | 1,856,348 | | | $ | 1,760,724 | | | $ | 1,646,710 | | | $ | 1,580,021 | |
| Gain (loss) on sale of computer equipment | | | (4,966 | ) | | | 87,240 | | | | 2,709 | | | | (112,823 | ) |
| | | | | | | | | | | | | | | | | |
| Total revenues | | | 1,851,382 | | | | 1,847,964 | | | | 1,649,419 | | | | 1,467,198 | |
| | | | | | | | | | | | | | | | | |
| Total costs and expenses | | | 1,943,993 | | | | 2,027,745 | | | | 1,878,078 | | | | 2,009,044 | |
| | | | | | | | | | | | | | | | | |
| Net (loss) | | $ | (92,611 | ) | | $ | (179,781 | ) | | $ | (228,659 | ) | | $ | (541,846 | ) |
| Net (loss) allocated to limited partners | | $ | (98,856 | ) | | $ | (186,031 | ) | | $ | (234,897 | ) | | $ | (548,075 | ) |
| Net (loss) per limited partner unit | | $ | (0.08 | ) | | $ | (0.15 | ) | | $ | (0.19 | ) | | $ | (0.44 | ) |
Summarized quarterly financial data for all quarters presented prior to fourth quarter of 2005 have
been restated to correct the calculation of net loss per limited
partnership unit.
F-21year ended December 31, 2007 is as follows:
| | | | | | Quarter ended | | | | |
| | | March 31 | | | June 30 | | | September 30 | | | December 31 | |
| | | | | | | | | | | | | |
| 2007 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | |
| Lease and other | | $ | 1,452,763 | | | $ | 1,784,260 | | | $ | 1,773,753 | | | $ | 1,816,430 | |
| (Loss) on sale of computer equipment | | | - | | | | (38 | ) | | | (4,854 | ) | | | - | |
| | | | | | | | | | | | | | | | | |
| Total revenues | | | 1,452,763 | | | | 1,784,222 | | | | 1,768,899 | | | | 1,816,430 | |
| | | | | | | | | | | | | | | | | |
| Total costs and expenses | | | 1,481,339 | | | | 1,872,523 | | | | 1,868,853 | | | | 1,910,288 | |
| | | | | | | | | | | | | | | | | |
| Net (loss) | | $ | (28,576 | ) | | $ | (88,301 | ) | | $ | (99,954 | ) | | $ | (93,858 | ) |
| Net (loss) allocated to limited partners | | $ | (34,826 | ) | | $ | (94,547 | ) | | $ | (106,204 | ) | | $ | (100,108 | ) |
| Net (loss) per limited partner unit | | $ | (0.03 | ) | | $ | (0.08 | ) | | $ | (0.08 | ) | | $ | (0.08 | ) |