UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
xT 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, 20062009 or
o¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-108057
COMMONWEALTH INCOME & GROWTH FUND V
(Exact name of registrant as specified in its charter)
Pennsylvania | | 65-1189593 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
Brandywine Bldg. One, Suite 200
2 Christy Drive, Chadds Ford PA 19317
(Address, including zip code, of principal executive offices)
(610) 594-9600
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class to | | Name of exchange on |
be so registered | | which each classregistered |
| |
is to be registeredNone | 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 [X]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 [ X]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’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, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definition of "accelerated filer, and large“large accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [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]T
Aggregate Market ValueState 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:last business day of the Registrant’s most recently completed second fiscal quarter: N/A
Documents incorporated by reference: None
DECEMBER 31, 2006
FORM 10-K
DECEMBER 31, 2009
TABLE OF CONTENTS
| | PART I | | |
Item 1. | | | 3 | 3 |
Item 1A. | | | 11 | 10 |
Item 1B. | | | 11 | 11 |
Item 2. | | | 11 | 12 |
Item 3. | | | 11 | 12 |
Item 4. | | | 12 | |
| | 12 | |
| | PART II | | |
Item 5. | | | 12 | 12 |
Item 6. | | | 14 | 15 |
Item 7. | | | 15 | 16 |
Item 7A. | | | 22 | 19 |
Item 8. | | | 22 | 19 |
Item 9. | | | 22 | 19 |
Item 9A. | | | 22 | |
19Item 9A (T). | Controls and Procedures | 23 | |
Item 9B. | | | 23 | |
| | 20 | |
| | PART III | | |
Item 10. | | | 24 | 20 |
Item 11. | | | 28 | 23 |
Item 12. | | | 28 | 23 |
Item 13. | | | 28 | 23 |
Item 14. | | | 33 | |
| | 30 | |
| | PART IV | | |
Item 15. | | | 35 | | 31 |
| | | | |
| | | | |
| | 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;operat ions; 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 “Risk Factors” section, 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
GENERAL
Commonwealth Income & Growth Fund V (the “Partnership” or “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”). 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 years ended December 31, 2006, 1,249,951 Units ($24,957,862) have been admitted as Limited Partners2009 and 2008 limited partners redeemed 3,606 and 4,099 units, respectively, of the Partnership.partnership for a total redemption price of approximately $38,000 and $52,000, respectively, in accordance with the terms of the limited partnership agreement.
See “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 Information Technology (I.T.) and other similar capital equipment. The Partnership utilized the net Proceedsproceeds of the Offeringoffering to purchase IBM and IBM compatible computer I.T.information technology and other similar capital equipment. The Partnership has utilized Retained Proceedsretained proceeds and debt financing (not in excess of 30% of the aggregate cost of the Equipmentequipment owned or subject to Conditional Sales Contractsconditional 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 notn ot done so.
The Partnership’s principal investment objectives are to:
| (a) | Acquire, lease and sell Equipment(a) acquire, lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to Limited Partners; |
| (b) | Preserve(b) preserve and protect Limited Partners’ capital; |
| (c) | Use a portion of Cash Flow(c) use a portion of cash flow and net disposition proceeds derived from the sale,refinancing or other disposition of equipment to purchase additional equipment; and Net Disposition Proceeds derived from the sale, refinancing or other disposition of Equipment to purchase additional Equipment; and |
| (d) | Refinance, sell or otherwise dispose of Equipment(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 generally acquires predominately 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, 2006,2009, all Equipmentequipment purchased by the Partnership is subject to an Operating Lease or an Operating Lease was already entered into with a third party when the Partnership acquired an item of Equipment.operating lease. 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 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 Equipmentmanufacturer’s equipment that has previously been leased directly by the manufacturer to third parties (“vendor leasing agreements”). The Partnership and manufacturers may agree to obtain non-recoursenonrecourse loans to the Partnership from the manufacturers, to finance the acquisition of Equipment.equipment. 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, 2006,2009, 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’s investment objectives.
TYPES OF EQUIPMENT
Computer Information Technology Equipment. ComputerThe Partnership invests in various types of information technology equipment subject to leases. Our investment objective is to acquire primarily high technology equipment including, but not limited to: servers, desktops, laptops, workstations, printers, copiers, and storage devices. Our general partner believes that dealing in high technology equipment is particularly advantageous due to a robust aftermarket. Information Technology (I.T.) equipment consists of devices used to convey information into and out of a central processing unit (or “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.
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. Muchspeed, and utility. In the future, the rate and nature of equipment development may cause equipment to become obsolete more rapidly.
We also acquire high technology medical and telecommunications equipment. Our general partner will seek to maintain an appropriate balance and diversity in the older IBMtypes of equipment acquired. The medical equipment we acquire may consist of ventilators, IV infusion pumps, long-term acute care beds, CT scanners, MRIs, flow cytometers, and IBM compatible computer I.T.other medical technology devices. The telecom equipment has not been retired from service, because software is generally interchangeable between olderwe acquire may include Cisco switches, routers, blade switches, wireless access points, and newer equipment, and oldervideo conferencing systems. The market for high technology medical equipment is capablegrowing each year. Generally this type of performing many of the same functions as newerequipment will have a longer useful life tahn information technology equipment. The General Partner believes that historically, values of I.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 I.T. equipment. Information Technology equipment neverthelessThis allows for increased re-marketability, if it is subject to declines in value as new, improved models are developed and become available. Technological advances and other factors, discussed below in Management’s Discussion and Analysis, have at times caused dramatic reductions in the market prices of older models of I.T. equipment from the prices at which they were originally introduced.returned before its economic or announcement cycle is depleted .
Other Equipment-Restrictions. The Partnership generally acquires computer I.T equipment such as tape drives, disk drives, tape controllers, disk controllers, printers, terminalsinformation technology, telecommunications and related control units, all of which are in some way related to the process of storing, retrieving and processing information by computer.medical technology equipment. The General Partner is also authorized but does not presently intend, to cause the Partnership to invest in other types of data processing, telecommunication or medical technologybusiness-essential capital 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 Pricepurchase 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’s commitment to invest therein and (ii) unless the General Partner determines that such purchase is in the best economic interest of the PartnershipPartn ership at the time of the purchase and, in the case of non-IBM compatible I.T Equipment, that such Equipment is comparable in quality to similar IBM or IBM compatible Equipment.purchase. 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.
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’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’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, 2006,2009, the Partnership has acquired a diversified Equipmentequipment portfolio, which it has leased to 2643 different companies located throughout the United States.
The allocationsequipment types comprising the portfolio at December 31, 2009 are as follows
Equipment Type | Approximate % |
Servers | 33%35% |
Laptops | 9% |
Printers | 7% |
Desktops | 9% |
Datacom | 5% |
Workstations | 32% |
Data Communications | 8%10% |
Storage | 22% |
Printers | 1% |
Asset Tracking Systems | 1%15% |
Wifi | 3%4% |
Total Medical | 6% |
| |
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 generally 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’s acquisition of the Equipment.equipment. The General Partner leases most of the Equipmentequipment purchased by the Partnership to third parties pursuant to Operating Leases. Operating Leases are relatively short-term (12 to 48 month)operating leases. Types of 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. The Equipment may also be leased pursuant to Full Payout Net Leases. Full Payout 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. It is anticipated that the Partnership will enter into few, if any, Full Payout net Leases. The General Partner may also enter into Conditional Sales Contracts for Equipment. A Conditional 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 Equipment and to provide a return on such investment. Under a Conditional Sales Contract, the seller reserves title to and retains a security interest in, the Equipment until the Purchase Price of the Equipment is paid. As of December 31, 2006, the Partnership has not entered into any Full Payout Net Leases or Conditional Sales Contracts for Equipment and does not presently intend to do so.as follows:
· | Operating leases 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. |
· | In a finance lease, the lessor generally recovers at least 90% of the original equipment cost during the lease term. It is anticipated that the Partnership will enter into few, if any, finance leases. |
· | The General Partner may also enter into conditional sales contracts for equipment. A conditional 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 equipment and to provide a return on such investment. Under a conditional sales contract, the seller reserves title to and retains a security interest in, the equipment until the purchase price of the equipment is paid. |
In general, the terms of the Partnership’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 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 Leaseoperating 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.finance 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’s policy is to generally enter into “triple net 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”“um brella” insurance policies to cover excess liability and casualty losses, to the extent deemed practicable and advisable by the General Partner. As of December 31, 2006,2009, all leases that have been entered into are “triple net 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’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’s leases, or 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, 2006, 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 PartnershipGeneral Partner believes that this strategy adds value since it entices the leasing company to “stay"stay with the lease”lease" for potential extensions, remarketing or sale of equipment. This strategy potentially minimizesis designed to minimize any conflicts the leasing company may have with a potential new lease and will potentiallymay assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee.
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 Contracts,conditional sales contracts, by the Partnership at the time the debt is incurred, with monies received that isare not considered “original proceeds”. of the Partnership’s public offering. 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 connectionco nnection 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, 2006,2009, the aggregate nonrecourse debt outstanding of $2,320,496approximately $261,000 was 15.0%approximately 1.2% 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 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, 2006,2009, the Partnership has not exercised this option.
The General Partner may cause the Partnership to borrow funds, to the fullest extent practicable, at interest rates fixed at the time of borrowing. However, the Partnership may borrow funds at rates that vary with the “prime” or “base” rate. If lease revenues were fixed, a rise in the “prime” or “base” rate would increase borrowing costs and reduce the amount of the Partnership’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 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’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 flow over a substantial portion of the Partnership’s operating life. As of December 31, 2006, no2009, 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 than 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’ 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 dated ate of the loan.
REFINANCING POLICIES
Subject to the limitations set forth in “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, 2006,2009, 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’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.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’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 Equipmentequipment 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, whichthan those wh ich 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)privileges or service contracts), 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 I.T. 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 Systems 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 could occur at any time. Significant action in any of these areas by these firms might materially adversely affect the partnership’s business or that of the other manufacturers 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 March 23, 2007,16, 2010, the Partnership has purchased, or has made the commitment to purchase, the following Equipment:equipment:
Lessee | MFG | Equipment Category | Purchase Price | Monthly Payment | Lease Term Months |
America Online | Sun | Small Sun Servers | $44,992 | $1,199 | 36 |
America Online | Sun | Small Sun Servers | $89,983 | $2,398 | 36 |
America Online | Sun | Small Sun Servers | $36,649 | $977 | 36 |
America Online | Sun | Small Sun Servers | $71,977 | $1,898 | 36 |
Convergys | Sun | Small Sun Servers | $117,242 | $3,017 | 35 |
Geico | Sun | Small Sun Servers | $13,131 | $365 | 33 |
Raytheon | Sun | Small Sun Servers | $78,561 | $2,131 | 33 |
Raytheon | Sun | Small Sun Servers | $40,875 | $1,196 | 30 |
Raytheon | Sun | Small Sun Servers | $101,700 | $2,965 | 30 |
Tecumseh Products Company | Sun | Small Sun Servers | $10,333 | $355 | 28 |
UGO Networks | Sun | Small Sun Servers | $34,427 | $1,119 | 31 |
Xerox | Sun | Small Sun Servers | $114,459 | $3,277 | 32 |
Aisin Brake & Chassis | HP | Small HP/Compaq Servers | $21,139 | $1,267 | 14 |
Alliant Techsystems | HP | Small HP/Compaq Servers | $12,215 | $328 | 36 |
Convergys | HP | Small HP/Compaq Servers | $28,084 | $762 | 34 |
Daimler Chrysler | HP | Small HP/Compaq Servers | $558,191 | $14,393 | 36 |
Geico | HP | Small HP/Compaq Servers | $297,812 | $7,585 | 36 |
Geico | HP | Small HP/Compaq Servers | $620,002 | $15,807 | 36 |
Geico | HP | Small HP/Compaq Servers | $659,174 | $17,186 | 36 |
Geico | HP | Small HP/Compaq Servers | $1,115,869 | $29,091 | 36 |
Geico | HP | Small HP/Compaq Servers | $29,984 | $833 | 33 |
Geico | HP | Small HP/Compaq Servers | $405,200 | $10,510 | 36 |
Goodyear Tire and Rubber | HP | Small HP/Compaq Servers | $87,942 | $2,769 | 30 |
Goodyear Tire and Rubber | HP | Small HP/Compaq Servers | $26,085 | $814 | 30 |
Northrop Grumman | HP | Small HP/Compaq Servers | $188,157 | $4,997 | 36 |
Geico | IBM | Small IBM Servers | $405,563 | $10,574 | 36 |
Geico | IBM | Small IBM Servers | $429,485 | $11,197 | 36 |
Geico | IBM | Small IBM Servers | $277,487 | $7,235 | 36 |
Geico | IBM | Small IBM Servers | $179,389 | $5,024 | 33 |
Goodyear Tire and Rubber | IBM | Small IBM Servers | $23,596 | $655 | 34 |
Mitsubishi Motors North America | IBM | Small IBM Servers | $132,409 | $3,633 | 36 |
Mitsubishi Motors North America | IBM | Small IBM Servers | $11,960 | $353 | 36 |
Convergys | Dell | Dell Servers | $12,549 | $356 | 32 |
Bank of America | Sun | Midrange Sun Servers | $61,543 | $1,368 | 42 |
BMO Nesbitt Burns Trading Corp. S.A. | Sun | Midrange Sun Servers | $158,398 | $2,555 | 33 |
Northrop Grumman | HP | Midrange HP Servers | $44,126 | $1,146 | 36 |
Northrop Grumman | HP | Midrange HP Servers | $256,470 | $6,686 | 36 |
Alliant Techsystems | Linux Networx | Blade Servers: All MFG | $496,133 | $13,036 | 35 |
Alliant Techsystems | HP | Blade Servers: All MFG | $10,035 | $265 | 36 |
Mitsubishi Motors North America | IBM | Blade Servers: All MFG | $121,559 | $3,336 | 36 |
Qwest Communications International | Stratus | Misc High End Servers | $104,128 | $3,101 | 36 |
Allstate Insurance Company | Sun | High End Sun Servers | $284,004 | $8,352 | 31 |
General Atomics Aeronautical | Sun | High End Sun Servers | $50,349 | $2,417 | 19 |
General Atomics Aeronautical | Sun | High End Sun Servers | $398,209 | $10,488 | 36 |
General Atomics Aeronautical | Sun | High End Sun Servers | $262,348 | $7,887 | 36 |
Tecumseh Products Company | Sun | High End Sun Servers | $148,849 | $5,120 | 28 |
Lockheed Martin | HP | High End HP Servers | $48,619 | $1,265 | 36 |
Lockheed Martin | HP | High End HP Servers | $263,055 | $6,834 | 36 |
NBC Universal | Avid | Graphic Workstations | $228,483 | $5,802 | 36 |
NBC Universal | Avid | Graphic Workstations | $26,898 | $751 | 33 |
NBC Universal | Avid | Graphic Workstations | $246,579 | $6,237 | 36 |
Daimler Chrysler | Visara | Engineering Workstations | $470,047 | $12,083 | 36 |
Daimler Chrysler | HP | Engineering Workstations | $340,935 | $8,945 | 36 |
Daimler Chrysler | HP | Engineering Workstations | $98,938 | $2,596 | 36 |
Daimler Chrysler | HP | Engineering Workstations | $233,784 | $6,133 | 36 |
Daimler Chrysler | HP | Engineering Workstations | $107,151 | $2,811 | 36 |
Daimler Chrysler | HP | Engineering Workstations | $169,085 | $4,436 | 36 |
Daimler Chrysler | Visara | Engineering Workstations | $201,029 | $5,168 | 36 |
Northrop Grumman | SGI | Engineering Workstations | $30,675 | $797 | 36 |
Raytheon | HP | Engineering Workstations | $164,049 | $4,312 | 36 |
Raytheon | HP | Engineering Workstations | $65,609 | $1,724 | 36 |
Raytheon | HP | Engineering Workstations | $87,053 | $2,288 | 36 |
Alliant Techsystems | Dell | Laptops | $53,168 | $2,196 | 21 |
Geico | Panasonic | Laptops | $1,595,017 | $44,890 | 33 |
Geico | Panasonic | Laptops | $14,710 | $476 | 27 |
Geico | Panasonic | Laptops | $166,937 | $4,347 | 36 |
Perspectives Charter Schools | Lenovo | Laptops | $264,568 | $6,920 | 36 |
UGO Networks | Toshiba | Laptops | $11,081 | $355 | 31 |
Alliant Techsystems | Dell | Desktops - Tier 44 | $17,727 | $444 | 36 |
Delphi Automotive Systems | Dell | Desktops - Tier 45 | $384,075 | $10,061 | 36 |
Geico | Dell | Desktops - Tier 46 | $1,511 | $53 | 24 |
Goodyear Tire and Rubber | Dell | Desktops - Tier 47 | $43,643 | $1,286 | 30 |
Goodyear Tire and Rubber | Dell | Desktops - Tier 48 | $173,714 | $5,089 | 30 |
Kellogg | IBM | Desktops - Tier 49 | $533,739 | $14,239 | 35 |
Quick Loan Funding | Dell | Desktops - Tier 50 | $154,824 | $4,449 | 35 |
Raytheon | HP | Desktops - Tier 51 | $145,974 | $4,697 | 28 |
Raytheon | Sun | Desktops - Tier 52 | $28,853 | $805 | 33 |
Daimler Chrysler | Visara | Desktops - Tier 7 | $894,336 | $22,990 | 36 |
Daimler Chrysler | Visara | Desktops - Tier 8 | $368,664 | $9,666 | 33 |
Argenbright, Inc. | Cisco | Datacom - Cisco | $593,717 | $18,626 | 36 |
Mitsubishi Motors North America | Cisco | Datacom - Cisco | $179,242 | $5,007 | 36 |
GE Aviation | Nokia | Datacom - Other | $194,728 | $5,029 | 36 |
Goodyear Tire and Rubber | Dragon | Datacom - Other | $23,833 | $1,007 | 21 |
Mitsubishi Motors North America | Sourcefire | Datacom - Other | $47,555 | $1,415 | 36 |
Northrop Grumman | CipherOptics | Datacom - Other | $148,574 | $3,904 | 36 |
Northrop Grumman | McData | Datacom - Other | $331,241 | $8,671 | 36 |
Northrop Grumman | Secure Computing | Datacom - Other | $35,920 | $1,342 | 24 |
Northrop Grumman | CipherOptics | Datacom - Other | $236,287 | $6,139 | 36 |
Raytheon | Accunet | Datacom - Other | $61,414 | $1,876 | 30 |
Goodyear Tire and Rubber | Agile | High Volume and Specialized Printers | $37,597 | $1,012 | 35 |
Charleston Area Medical Center | Canon | Canon Multifunction Centers | $16,800 | $476 | 35 |
Charleston Area Medical Center | Canon | Canon Multifunction Centers | $11,753 | $333 | 35 |
Alliant Techsystems | Konica Minolta | Konica Minolta Multifunction Centers | $16,242 | $431 | 36 |
Alliant Techsystems | Konica Minolta | Konica Minolta Multifunction Centers | $5,760 | $156 | 36 |
Alliant Techsystems | Konica Minolta | Konica Minolta Multifunction Centers | $27,771 | $754 | 36 |
Alliant Techsystems | Konica Minolta | Konica Minolta Multifunction Centers | $21,527 | $585 | 36 |
Charleston Area Medical Center | Konica Minolta | Konica Minolta Multifunction Centers | $13,500 | $395 | 37 |
Charleston Area Medical Center | Konica Minolta | Konica Minolta Multifunction Centers | $12,645 | $370 | 37 |
Charleston Area Medical Center | Konica Minolta | Konica Minolta Multifunction Centers | $12,176 | $345 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $6,051 | $191 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $52,153 | $1,622 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $6,075 | $192 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $258,008 | $7,897 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $103,208 | $3,132 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $4,656 | $147 | 35 |
IST Management Services | Konica Minolta | Konica Minolta Multifunction Centers | $11,119 | $351 | 35 |
AK Steel Holding Corp. | Oce | Oce Multifunction Centers | $9,506 | $956 | 10 |
American Water Works Service Company, Inc. | Oce | Oce Multifunction Centers | $7,848 | $661 | 12 |
American Water Works Service Company, Inc. | Oce | Oce Multifunction Centers | $34,195 | $2,483 | 14 |
American Water Works Service Company, Inc. | Oce | Oce Multifunction Centers | $32,321 | $2,065 | 16 |
Bank of The West | Oce | Oce Multifunction Centers | $60,233 | $2,845 | 22 |
Bank of The West | Oce | Oce Multifunction Centers | $23,475 | $762 | 33 |
Cigna | Oce | Oce Multifunction Centers | $3,534 | $240 | 15 |
Cigna | Oce | Oce Multifunction Centers | $5,449 | $348 | 16 |
Cigna | Oce | Oce Multifunction Centers | $3,296 | $278 | 12 |
Cigna | Oce | Oce Multifunction Centers | $6,849 | $534 | 13 |
Cigna | Oce | Oce Multifunction Centers | $3,174 | $230 | 14 |
Fedex Ground Package System, Inc. | Oce | Oce Multifunction Centers | $6,614 | $399 | 17 |
Fedex Ground Package System, Inc. | Oce | Oce Multifunction Centers | $6,969 | $360 | 20 |
Fedex Ground Package System, Inc. | Oce | Oce Multifunction Centers | $5,448 | $348 | 16 |
Fedex Ground Package System, Inc. | Oce | Oce Multifunction Centers | $4,058 | $295 | 14 |
Fedex Ground Package System, Inc. | Oce | Oce Multifunction Centers | $3,401 | $265 | 13 |
Fedex Ground Package System, Inc. | Oce | Oce Multifunction Centers | $12,645 | $624 | 21 |
FirstGroup America | Oce | Oce Multifunction Centers | $3,037 | $119 | 27 |
FirstGroup America | Oce | Oce Multifunction Centers | $2,118 | $128 | 17 |
FirstGroup America | Oce | Oce Multifunction Centers | $5,023 | $321 | 16 |
FirstGroup America | Oce | Oce Multifunction Centers | $2,447 | $178 | 14 |
FirstGroup America | Oce | Oce Multifunction Centers | $2,387 | $186 | 13 |
General Dynamics Corp | Oce | Oce Multifunction Centers | $154,411 | $4,620 | 30 |
Henry Schein, Inc. | Oce | Oce Multifunction Centers | $4,228 | $270 | 16 |
Henry Schein, Inc. | Oce | Oce Multifunction Centers | $8,434 | $509 | 17 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $41,444 | $1,514 | 29 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $18,228 | $1,165 | 16 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $12,395 | $967 | 13 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $19,483 | $690 | 30 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $5,969 | $989 | 6 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $7,015 | $705 | 10 |
Liberty Mutual Insurance Company | Oce | Oce Multifunction Centers | $8,531 | $421 | 21 |
Norfolk Southern Railway Co | Oce | Oce Multifunction Centers | $14,015 | $420 | 36 |
Norfolk Southern Railway Co | Oce | Oce Multifunction Centers | $50,939 | $1,609 | 34 |
Pitney Bowes Management Services | Oce | Oce Multifunction Centers | $3,160 | $185 | 16 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $7,761 | $209 | 36 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $10,457 | $281 | 36 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $220,542 | $5,933 | 36 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $5,229 | $141 | 36 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $72,411 | $1,948 | 36 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $159,511 | $4,291 | 36 |
SuperValu, Inc. | Ricoh Aficio | Ricoh Aficio Multifunction Centers | $11,884 | $320 | 36 |
Alliant Techsystems | Dell | Tape Drives | $70,583 | $1,903 | 36 |
General Atomics Aeronautical | Sun | Tape Drives | $46,138 | $1,500 | 29 |
Mitsubishi Motors North America | IBM | Tape Libraries | $40,749 | $1,233 | 36 |
Northrop Grumman | IBM | Tape Libraries | $71,889 | $1,917 | 36 |
Alcatel USA | NetApp | Digital Storage | $165,240 | $4,459 | 36 |
Geico | HP | Digital Storage | $302,286 | $7,881 | 36 |
Geico | HP | Digital Storage | $529,994 | $17,217 | 27 |
General Atomics Aeronautical | Sun | Digital Storage | $127,241 | $9,890 | 11 |
General Atomics Aeronautical | NetApp | Digital Storage | $297,472 | $7,880 | 36 |
General Atomics Aeronautical | NetApp | Digital Storage | $146,582 | $4,340 | 36 |
ITT Night Vision | HP | Digital Storage | $337,306 | $9,429 | 36 |
ITT Night Vision | HP | Digital Storage | $62,030 | $2,150 | 30 |
Kaiser Foundation | IBM | Digital Storage | $285,461 | $7,121 | 36 |
Kaiser Foundation | IBM | Digital Storage | $357,532 | $8,968 | 36 |
Kaiser Foundation | IBM | Digital Storage | $147,516 | $8,438 | 16 |
Marriott International, Inc. | Netezza | Digital Storage | $432,000 | $11,880 | 35 |
NBC Universal | Avid | Digital Storage | $67,290 | $2,468 | 24 |
NBC Universal | Avid | Digital Storage | $67,290 | $2,315 | 24 |
NBC Universal | Avid | Digital Storage | $341,912 | $8,715 | 36 |
NBC Universal | Sonomic | Digital Storage | $18,836 | $480 | 36 |
Northrop Grumman | IBM | Digital Storage | $57,831 | $1,502 | 36 |
Goodyear Tire and Rubber | Polycom | Audio Visual | $41,987 | $1,783 | 21 |
NBC Universal | Sony | Audio Visual | $70,043 | $1,764 | 36 |
MobilePro Corp. | Strix | WiFi | $427,258 | $13,362 | 36 |
MobilePro Corp. | Strix | WiFi | $510,000 | $15,950 | 36 |
Select Medical Corporation | Datascope | Medical | $261,457 | $6,975 | 36 |
Allied Health Care Services | Lifecare | Respiratory Therapy | $321,300 | $8,379 | 36 |
Allied Health Care Services | Lifecare | Respiratory Therapy | $408,000 | $10,640 | 35 |
Allied Health Care Services | Respironics | Respiratory Therapy | $127,500 | $9,461 | 12 |
Bon Secours - Memorial Regional Medical Center | Hospira | Infusion Therapy | $346,660 | $7,104 | 44 |
Cargill, Inc. | OI Analytical | Industrial Precision Equipment | $31,656 | $812 | 36 |
Allstate Insurance Company | Sun | Sun Quad Core Servers | $111,802 | $4,066 | 24 |
LESSEE | MFG | EQUIPMENT DESCRIPTION | LIST PRICE | PURCHASE PRICE | MONTHLY RENTAL | LEASE TERM |
Alcatel USA Sourcing, L.P. | NetApp | Digital Storage | 270,000 | 165,240 | 4,459 | 36 |
America Online LLC. | Sun | Server | 114,570 | 89,983 | 2,398 | 36 |
America Online LLC. | Sun | Server | 57,285 | 44,992 | 2,398 | 36 |
America Online LLC. | Sun | Server | 51,330 | 36,649 | 977 | 36 |
America Online LLC. | Sun | Server | 108,563 | 71,977 | 1,898 | 36 |
Alliant Techsystems, Inc. | Konica | Multifunction Printers | 26,831 | 21,527 | 585 | 36 |
Alliant Techsystems, Inc. | HP | Dell Servers | 14,969 | 12,215 | 328 | 36 |
Alliant Techsystems, Inc. | Konica | Multifunction Printers | 34,033 | 27,771 | 754 | 36 |
Alliant Techsystems, Inc. | Konica | Multifunction Printers | 7,059 | 5,760 | 156 | 36 |
Argenbright, Inc. | EMC | Digital Storage | 612,711 | 593,717 | 18,626 | 36 |
Alliant Techsystems, Inc. | Dell | Workstations | 115,331 | 70,583 | 1,903 | 36 |
Alliant Techsystems, Inc. | Linux | High End Servers | 810,675 | 496,133 | 13,036 | 35 |
Daimler Chrysler Corporation | HP | Small HP/Compaq Servers | 558,191 | 558,191 | 14,393 | 36 |
Daimler Chrysler Corporation | Visara | Printers/Thin Clients | 614,440 | 368,664 | 9,666 | 33 |
Daimler Chrysler Corporation | Visara | Thin Clients/Printers | 1,753,600 | 894,336 | 22,990 | 36 |
Daimler Chrysler Corporation | Visara | Engineering Workstations | 328,479 | 201,029 | 5,168 | 36 |
Daimler Chrysler Corporation | HP | Engineering Workstations | 301,400 | 169,085 | 4,436 | 36 |
Daimler Chrysler Corporation | HP | Workstations | 175,083 | 107,151 | 2,811 | 36 |
Daimler Chrysler Corporation | HP | Workstations | 382,000 | 233,784 | 6,133 | 36 |
Daimler Chrysler Corporation | HP | Workstations | 161,663 | 98,938 | 2,596 | 36 |
Daimler Chrysler Corporation | Visara | Thin Clients/Printers | 768,050 | 470,047 | 12,083 | 36 |
Daimler Chrysler Corporation | HP | Workstations | 557,083 | 340,935 | 8,945 | 36 |
Convergys Corporation | Dell | Workstations | 17,955 | 12,549 | 356 | 32 |
Convergys Corporation | HP/IBM | Workstations | 37,369 | 28,084 | 762 | 34 |
Convergys Corporation | Sun | Servers | 175,999 | 117,242 | 3,017 | 35 |
Delphi Automotive | Dell | Desktops/Laptops | 1,546,975 | 384,075 | 10,061 | 36 |
GE Aviation | Nokia | Firewall | 254,547 | 194,728 | 5,029 | 36 |
General Atomics Aeronautical Systems, Inc. | NetApp | Digital Storage | 146,582 | 146,582 | 8,680 | 36 |
General Atomics Aeronautical Systems, Inc. | NetApp | Digital Storage | 297,472 | 294,944 | 15,760 | 36 |
General Atomics Aeronautical Systems, Inc. | NetApp/Sun/Qlogic/Hitachi/ Storage Tek | Storage/Server/Switch/Disk Array/Tape Library | 355,675 | 297,472 | 7,880 | 36 |
General Atomics Aeronautical Systems, Inc. | Sun | Software | 558,085 | 262,348 | 7,887 | 36 |
General Atomics Aeronautical Systems, Inc. | Sun | Servers | 837,127 | 398,209 | 10,488 | 36 |
General Atomics Aeronautical Systems, Inc. | STK | Tape Drive | 57,992 | 46,138 | 1,500 | 29 |
Government Employees Insurance Company | HP | Small HP/Compaq Servers | 620,002 | 620,002 | 47,421 | 12 |
Government Employees Insurance Company | Panasonic | Workstations | 30,500 | 14,710 | 1,427 | 27 |
Government Employees Insurance Company | Dell | Workstations | 3,087 | 1,511 | 160 | 24 |
Government Employees Insurance Company | Sun | Servers | 23,131 | 13,131 | 1,095 | 33 |
Government Employees Insurance Company | HP | Workstations | 52,818 | 29,984 | 2,500 | 33 |
Government Employees Insurance Company | HP | Storage Arrays/Servers | 1,000,786 | 529,994 | 51,651 | 27 |
Government Employees Insurance Company | IBM | Series Servers | 342,637 | 179,389 | 15,072 | 33 |
Goodyear | HP | Workstations | 49,316 | 26,085 | 814 | 30 |
Goodyear | HP | Workstations | 166,470 | 87,942 | 2,769 | 30 |
Goodyear | Dell | Workstations | 325,952 | 173,714 | 5,119 | 30 |
Goodyear | Dell | Workstations | 81,890 | 43,643 | 1,286 | 30 |
Goodyear | Dragon | Routers | 30,584 | 23,833 | 1,007 | 21 |
Goodyear | Polycom | AV Equipment | 57,276 | 41,987 | 1,783 | 21 |
Goodyear | IBM | Workstations | 40,333 | 23,596 | 655 | 34 |
Goodyear | Invision | Printers | 53,830 | 37,597 | 1,012 | 35 |
ITT Night Vision | HP | Blade Servers | 472,418 | 337,306 | 9,429 | 36 |
Kellogg Company | IBM | Desktops - Tier 1 | 765,490 | 533,739 | 14,239 | 35 |
Kaiser Foundation Health Plan, Inc. | IBM | Digital Storage | 289,248 | 147,516 | 8,438 | 16 |
Kaiser Foundation Health Plan, Inc. | IBM | Enterprise Storage Server | 1,600,600 | 357,532 | 8,968 | 38 |
Kaiser Foundation Health Plan, Inc. | IBM | Enterprise Storage Server | 2,000,100 | 285,461 | 21,364 | 36 |
Mitsubishi Motors North America, Inc. | IBM | Small IBM Servers | 132,409 | 132,409 | 3,633 | 36 |
Mitsubishi Motors North America, Inc. | IBM | Blade Servers | 143,675 | 121,559 | 3,336 | 36 |
Mitsubishi Motors North America, Inc. | Cisco | Datacom - Cisco | 292,900 | 179,242 | 5,007 | 36 |
Mitsubishi Motors North America, Inc. | Toshiba/IBM/Cisco | Workstations | 175,647 | 132,409 | 3,633 | 36 |
Mitsubishi Motors North America, Inc. | IBM | Tape Library | 61,462 | 40,749 | 1,233 | 36 |
MobilePro Corporation | Stirx | Wifi Access Points | 588,235 | 510,000 | 15,950 | 36 |
NBC Universal, Inc. | Avid | Graphic Workstations | 28,580 | 26,898 | 751 | 33 |
NBC Universal, Inc. | Avid | Graphic Workstations | 327,130 | 246,579 | 18,711 | 36 |
NBC Universal, Inc. | Sonomic | Digital Audio System | 28,410 | 18,836 | 1,440 | 36 |
NBC Universal, Inc. | Avid | Digital Storage | 101,494 | 67,290 | 6,944 | 24 |
NBC Universal, Inc. | Avid | Digital Graphic Editing System | 298,671 | 228,483 | 5,802 | 36 |
NBC Universal, Inc. | Avid | Digital Storage | 515,705 | 341,912 | 26,146 | 36 |
NBC Universal, Inc. | Apple/Sony/Tektronix | Digital Graphic Editing System | 105,645 | 70,043 | 5,291 | 36 |
NBC Universal, Inc. | Avid | Digital Storage | 101,494 | 67,290 | 7,404 | 24 |
Northrop Grumman Corporation | HP | Proliant Server | 283,797 | 188,157 | 4,997 | 35 |
Northrop Grumman Corporation | IBM | Tape Library/Tape Drives | 108,430 | 71,889 | 1,917 | 36 |
Northrop Grumman Corporation | IBM | Digital Storage | 161,993 | 57,831 | 1,502 | 36 |
Northrop Grumman Corporation | HP | Midrange HP Servers | 64,860 | 44,126 | 1,146 | 36 |
Northrop Grumman Corporation | McData | Datacom | 465,729 | 331,241 | 8,768 | 36 |
Northrop Grumman Corporation | CipherOptics | Datacom | 217,587 | 148,574 | 3,904 | 36 |
Northrop Grumman Corporation | CipherOptics | Datacom | 348,646 | 236,287 | 6,208 | 36 |
Northrop Grumman Corporation | SGI | Engineering Workstations | 45,110 | 30,675 | 797 | 36 |
Northrup Grumman Corporation | Hewlett Packard | Engineering Workstations | 419,068 | 256,470 | 6685.82 | 36 |
Quick Loan Funding, Inc. | Dell/Toshiba/Apple/Dyntek | Workstations | 189,735 | 154,824 | 4448.91 | 34 |
Qwest Communications International, Inc. | Stratus | Misc High End Servers | 104,128 | 520,641 | 46,517 | 36 |
Raytheon Company | HP | Desktops - Tier 1 | 163,391 | 145,974 | 4,697 | 28 |
Raytheon Company | Sun | Small Sun Servers | 114,775 | 101,700 | 8,894 | 30 |
Raytheon Company | Sun | Small Sun Servers | 82,511 | 78,561 | 6,393 | 33 |
Raytheon Company | Sun | Small Sun Servers | 46,310 | 40,875 | 3,589 | 30 |
Raytheon Company | Accunet | Datacom | 70,000 | 61,414 | 5,627 | 30 |
Raytheon Company | Sun | Desktops - Tier 1 | 30,364 | 28,853 | 2,414 | 33 |
Raytheon Company | HP | Engineering Workstations | 108,706 | 65,609 | 1,724 | 36 |
Raytheon Company | HP | Engineering Workstations | 144,235 | 87,053 | 2,288 | 36 |
Raytheon Company | HP | Engineering Workstations | 271,806 | 164,049 | 4,312 | 36 |
Tecumseh Products Company | SunFire | Server | 11,631 | 10,332.60 | 355 | 28 |
Tecumseh Products Company | Sun | Server | 167,556 | 148,849 | 5,120 | 28 |
UGO Networks | Sun | Small Sun Servers | 39,592 | 34,427 | 1,119 | 30 |
UGO Networks | Toshiba | Workstations | 11,081 | 11,081 | 355 | 31 |
Xerox Corporation | Dell/Sun | Servers | 175,545 | 114,459 | 3,277 | 32 |
RESERVES
Because the Partnership’s leases are on a “triple-net” basis, no permanent reserve for maintenance and repairs has 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’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 expense s decreased approximately $197,000 during 2009 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 |
| Equipment equipment in an aggregate amount that does not exceed 30% of the assets of the Partnership on the date of the investment; |
| (b) | Investinvest in or underwrite the securities of other issuers; |
| (c) | Acquireacquire any Equipmentequipment for Units;units; |
| (d) | Issueissue senior securities (except that the issuance to lenders of notes or other evidences of indebtedness in connection with the financing or refinancing of Equipmentequipment or the Partnership’s business shall not be deemed to be the issuance of senior securities); |
| (e) | Makemake loans to any Person,person, including the General Partner or any of its Affiliates,affiliates, except to the extent a Conditional Sales Contractconditional sales contract constitutes a loan; |
| (f) | Sellsell or lease any Equipmentequipment to, lease any Equipmentequipment from, or enter into any sale- leaseback transactions with, the General Partner or any of its Affiliates;affiliates; or |
| (g) | Givegive the General Partner or any of its Affiliatesaffiliates an exclusive right or employment to sell the Partnership’s Equipment.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” 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” in connection with the Partnership’s activities or participate in reciprocal business arrangements that circumvent the restrictions in the Partnership Agreement against dealings with Affiliates.
EMPLOYEES
The Partnership had no employees during 20062009 and received administrative and other services from a related party, Commonwealth Capital CorpCorp. (“CCC”), which had 6881 employees as of December 31, 2006.2009.
Changes in economic conditions could materially and negatively affect our business.
THERE WILL BE NO PUBLIC MARKET FOR THE UNITS, AND YOU MAY BE UNABLE TO SELL OR TRANSFER YOUR UNITS ATOur 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. Beginning in 2008 and continuing through the end of 2009, general worldwide economic conditions experienced a downturn due to the sequential effects of the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, increased energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. A TIME AND PRICE OF YOUR CHOOSINGdet erioration 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.
There exists no public marketITEM 1B: UNRESOLVED STAFF COMMENTS
NOT APPLICABLE
ITEM 2: PROPERTIES
NOT APPLICABLE
ITEM 3: LEGAL PROCEEDINGS
In August 2007, a lessee, MobilePro, Inc. defaulted on lease payments for wi-fi equipment owned by the fund. We were able to recover 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, when it became clear that the parties could not locate an acceptable buyer for the units,equipment, 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 General Partner does not expectUS District C ourt 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 public marketresponse and counterclaim, seeking an unspecified amount for units to develop. The units cannot be pledged or transferred without the consentuse of the General Partner. The units are suitable as a long-term investment only. The General Partner intends to limitright-of-way on 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.
INFORMATION TECHNOLOGY EQUIPMENT WE PURCHASE WILL DEPRECIATE IN VALUE AND/OR BECOME OBSOLETE ORLOSE VALUE AS NEW TECHNOLOGY ISDEVELOPED, 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 ofutility poles where the equipment the cost of comparable new equipment, the technological obsolescence ofis located, as well as an unspecified fee for electricity used by the equipment and supplythe city is additionally seeking entitlement to ownership of the equipment. We believe both counterclaims are without merit for several reasons 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 uscontinue to distribute cash in a total amount equalenforce our rights to the invested capitalequipment. The partnership has taken reserves against this lease, from quarter to quarter, to maintain a conservative position on our books.
As of December 31, 2009, our legal proceedings against Mobile Pro, Inc. and the Limited Partners overCity of Tempe, Arizona remained open. However, we settled the termproceedings with MobilePro, Inc. on February 26, 2010, when MobilePro agreed to the entry 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 onjudgment against it in the amount of used equipment$904,620, representing the principal unpaid balance of rental payments owed to us and other affiliated Commonwealth entities. We are in the process of determining the extent to which CIGF5 may acquire. The acquisitionsthis judgment will be collectible against MobilePro's remaining assets after foreclosure by its senior secured creditors. With respect to the litigation with the City of used equipment may increaseTempe, the risk that such equipment will become obsolete so that it willparties are engaged in the discovery process and have little or no residual value.
WE PAY SIGNIFICANT FEES TO THE GENERAL PARTNER AND AFFILIATES, WHICH WILL REDUCE CASH AVAILABLE FOR DISTRIBUTIONS.September 13, 2010. We anticipate discussing settlement options with the City, while moving forw ard toward trial. To date, the Partnership has taken reserves against outstanding rentals of approximately $31,000 to cover potential loss exposure.
The General Partner andIn October 2009 we entered into a cure resolution agreement with Chrysler LLC, pursuant to which Chrysler paid, in November 2009, approximately $62,000 of past due amounts to cure its affiliates, including Commonwealth Capital Securities Corp.(“CCSC”), will receive substantial fees. Some fees will be paid without regard topre-bankruptcy defaults under its leases. Based upon this cure payment, we recovered 82.4% of 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. THERECAN BE NO ASSURANCE THAT ANY OF THE INVESTMENT OBJECTIVES WILL BE ATTAINED.
Our operations may not ultimately be successfulpre-bankruptcy receivables due from Chrysler 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 haveare no longer involved in some cases been lower than originally anticipated.Chrysler’s bankruptcy proceedings.
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.
NOT APPLICABLE
ITEM 3: LEGAL PROCEEDINGS NOT APPLICABLE
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 |
NOT APPLICABLE
PART II
ITEM 5:MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESThere is no public market for the Unitsunits nor is it anticipated that one will develop. As of December 31, 2006,2009, there were 730896 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.
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’s capital or profits in any one year.
REDEMPTION PROVISION
Upon the conclusion of the 30-month period following the termination of the Offering, theThe Partnership may, at the sole discretion of the General Partner, repurchase a number of the outstanding Units. After such 30 month period, onunits pursuant to its limited redemption plan. On a semi-annual basis, the General Partner, at its discretion, may establish an amount for redemption, generally not to exceed two percent of the outstanding Unitsunits per year, subject to the General Partner’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 sellingsell ing Limited Partner’s Adjusted Capital Contributionsadjusted 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).
The Partnership willbegan to accept redemption requests beginning 30 months following the termination of the Offering.public offering of its units. 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. During the years ended December 31, 2006,2009 and 2008 limited partners redeemed 3,606 and 4,099 units, respectively, of the General Partner has not redeemed any Units. Additionally, no Limited Partners have requestedpartnership for a total redemption price of their Units.approximately $38,000 and $52,000, respectively, 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) | Transferstransfers in which the basis of the Unitunit 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, Unitsunits acquired by corporations in certain reorganizations, contributions to capital, gifts of Units, Unitsunits, 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) | Transferstransfers at death; |
(3) | Transferstransfers between members of a family (which include brothers and sisters, spouse, ancestors, and lineal descendants); |
(4) | Transferstransfers resulting from the issuance of Unitsunits by the Partnership in exchange for cash, property, or services; |
(5) | Transferstransfers resulting from distributions from Qualified Plans; and |
(6) | Anyany transfer by a Limited Partner in one or more transactions during any 30-day period of Unitsunits representing in the aggregate more than five percent of the total outstanding interests in capital or profits of the Partnership.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’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 of 10% per annum; thereafter, cash distributions will be made 90% to Limited Partners and 10% to the General Partner. Distributions made in connection with the liquidation of the Partnership or a Partner’s Unitsunits will be made in accordance with the Partner’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 Contributionsadjusted 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 distributionsdistr ibutions 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 year 20062009 and for the period from March 14, 2005 (Commencement of Operations) through December 31, 2005:2008:
Quarter Ended | | 2009 | | | 2008 | |
March 31 | | $ | 616,366 | | | $ | 618,724 | |
June 30 | | | 615,492 | | | | 618,352 | |
September 31 | | | 615,385 | | | | 617,533 | |
December 31 | | | 614,910 | | | | 616,697 | |
Total | | $ | 2,462,153 | | | $ | 2,471,306 | |
Quarter Ended | 2006 | 2005 |
March 31 | $ 518,093 | $ - |
June 30 | 601,218 | 100,925 |
September 30 | 680,958 | 235,746 |
December 31 | 555,569 | 357,823 |
Total | $ 2,355,838 | $ 694,494 |
ALLOCATIONS AND DISTRIBUTIONS AMONG THE LIMITED PARTNERS
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.
Net Profits, Net Lossesprofits, net losses and Cash Availablecash available for Distributiondistribution allocable to the Limited Partners is apportioned among them in accordance with the number of Unitsunits owned by each.
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.
The following table sets forth, in summary form, selected financial data for the Partnership as of and for each of the two years in the period ended December 31, 2006. 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.NOT APPLICABLE
Statements of Operations Data: | | 2006 | | | 2005 | |
Lease Income | | $ | 3,554,915 | | | $ | 381,447 | |
Net (Loss) | | | (384,088 | ) | | | (899,082 | ) |
Cash Distributions to Limited Partners | | | 2,355,838 | | | | 694,494 | |
Net (Loss) Allocated to Limited Partners | | | (407,832 | ) | | | (907,319 | ) |
Net (Loss) Per Limited Partner Unit | | | (0.33 | ) | | | (1.80 | ) |
Cash Distribution Per Limited Partner Unit | | | 0.53 | | | | 1.38 | |
FOR PERIODS ENDED DECEMBER 31,
Other Data: | | 2006 | | | 2005 | |
Net cash provided by (used in) operating activities | | $ | 1,991,570 | | | $ | (613,947 | ) |
Net cash (used in) investing activities | | | (7,902,443 | ) | | | (5,348,221 | ) |
Net cash provided by financing activities | | | 2,260,364 | | | | 16,638,401 | |
| | 2006 | | | 2005 | |
Total Assets | | $ | 20,435,961 | | | $ | 16,864,073 | |
Notes Payable | | | 2,320,496 | | | | 785,157 | |
Partners’ Capital | | | 17,691,459 | | | | 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.
ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDCONDITIONAND RESULTS OF OPERATIONS
INTRODUCTION
We were formed on May 19, 2003 for the purpose of acquiring various types of business-essential technology equipment, including computer information technology, telecommunications, medical technology and other similar capital equipment. We offered for sale up to 1,250, 000 units of the limited partnership at the purchase price of $20 per unit (the “offering”). We reached the minimum offering amount, broke escrow and commenced operations on March 14, 2005. The offering terminated on February 24, 2006 with 1,249,951 units ($24,957,862) sold.
Our management team consists of the officers of our corporate General Partner, Commonwealth Income & Growth Fund, Inc. We have utilized the net proceeds of our public offering to purchase technology equipment and lease it to businesses throughout the United States. We have also utilized debt financing (not in excess of 30% of the aggregate cost of the equipment owned or subject to conditional sales contracts at the time the debt is incurred) to purchase additional equipment. We acquire and lease equipment principally to U.S. corporations and other institutions pursuant to operating leases. We retain the flexibility to enter into full payout net leases and conditional sales contracts, but have not done so.
COMPETITIVE OUTLOOK
As discussed in “Competition” in Item 1 above, the commercial leasing and financing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region. We compete primarily on the basis of pricing, terms and structure, particularly on structuring flexible, responsive, and customized financing solutions for our customers. Our investments are often made directly rather than through competition in the open market. This approach limits the competition for our
typical investment, which is intended to enhance returns. We believe our investment model will represent the best way for individual investors to participate in investing in business-essential equipment. Nevertheless, to the extent that our competitors compete aggressively on any combination of the foregoing factors, our results could be adversely impacted.
PRINCIPAL INVESTMENT OBJECTIVES
Our principal investment objectives are to:
(a) | acquire, lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to our limited partners; |
| |
(b) | preserve and protect limited partners’ capital |
| |
(c) | use a portion of cash flow and net disposition proceeds derived from the sale, refinancing or other disposition of equipment to purchase additional equipment; and |
| |
(d) | refinance, sell or otherwise dispose of equipment in a manner that will maximize proceeds. |
INDUSTRY OVERVIEW
We invest in various types of domestic information technology equipment leases located solely within the United States. Our investment objective is to acquire primarily high technology equipment. We believe that dealing in high technology equipment is particularly advantageous due to a robust aftermarket. Information technology has developed rapidly in recent years and is expected to continue to do so. Technological advances have permitted reductions in the cost of computer processing capacity, speed, and utility. In the future, the rate and nature of equipment development may cause equipment to become obsolete more rapidly. In an effort to mitigate this risk our portfolio manager attempts to diversify our fund through the acquisition of different types of equipment, staggered lease maturi ties, various lessees, businesses located throughout the U.S., and industries served.
We also acquire high technology medical and telecommunications equipment. Our general partner seeks to maintain an appropriate balance and diversity in the types of equipment acquired. The market for high technology medical equipment is growing each year. Generally, this type of equipment has a longer useful life. This allows for increased re-marketability, if it is returned before its economic or announcement cycle is depleted.
Results from a December 2009 and January 2010 survey conducted by the Independent Equipment Company (“IEC”) and the Equipment Leasing & Finance Association (ELFA) showed an overall positive forecast for 2010 equipment leasing business volume, in which our fund has invested. High technology medical and information technology equipment ranked number one and two, respectively, on the Net Rising Index (which is a calculation based on the percentage of survey respondents who reported rising demand, less the percentage who reported falling demand) in this survey. We believe that these results reflect an optimistic view of the future of equipment leasing, by indicating that equipment leasing volume is expected to rise throughout the United States in 2010.
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. Beginning in 2008 and continuing through 2009, general worldwide economic conditions experienced a downturn due to the sequential effects of the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, increased energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. Given these circumstances, we believe companies are increasingly turning to leasing as a fina ncing solution. We believe that companies lease business-essential equipment because leasing can provide many benefits to a company. The number one benefit of leasing that we see for a company is that there is no large outlay of cash required. Therefore, companies can preserve their working capital, lease equipment, which is an expense item, have the flexibility to upgrade the equipment when needed, and have no risk of obsolescence. Because we expect leasing to remain an attractive financing solution for American businesses during the next 12 months, we feel that our ability to increase our portfolio size and leasing revenues during that period will remain strong.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Partnership'sOur management’s discussion and analysis of itsour financial condition and results of operations areis based upon itsour 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 Partnershipmanagement to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership bases itsManagement’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Partnership believesWe believe that itsour critical accounting policies affect itsour more significant judgments and estimates used in the preparation of itsour 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 over estimated useful lives of four years.Lease Classification / Revenue Recognition
REVENUE RECOGNITION
ThroughFor the year ended December 31, 2006, the Partnership has2009, we only entered into operating leases. Lease revenue is recognized on a monthly basis in accordance with the terms of the operating lease agreements. Billed operating lease receivables are included in accounts receivable until collected. Deferred revenue is the difference between the timing of the receivables billed and the income recognized on a straight-line basis.
The PartnershipOur management reviews a customer’s credit history before extending credit andcredit. In the event of a default we may establish a provision for uncollectible accounts receivable based upon the credit risk of specific customers, historical trends and other information.
LONG-LIVED ASSETSLong Lived Assets / Asset Impairments
The Partnership evaluates itsWe evaluate our long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determinesWe determine 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 2009 and 2008, we recorded impairment charges in the amount of approximately $110,000 and $99,000, respectively. Such amounts have been included in depreciation expense in our 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 EXPENSESReimbursable Expenses
Reimbursable expenses, which are charged to the Partnershipus by CCC in connection with theour administration and operation, of the Partnership, are allocated to the Partnershipus based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases.
expenses related to investor services, mailing and printing costs will be allocated to that partnership. Also, while a 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 st aff 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 us or to other sponsored programs. All of our reimbursable expenses are expensed as they are incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006,February 2010, the SecuritiesFASB issued Accounting Standards Update No. 2010-09 (“ASC Update 2010-09”) Subsequent Events (Topic 855): Amendments to Certain Recognition and Exchange Commission staffDisclosure Requirements. This ASU amends FASB Codification topic 855, originally issued Staff Accounting Bulletin (“SAB”) 108, “Consideringas FASB Statement 165, "Subsequent Events" (FAS 165). The amendments in ASU 2010-09 remove the Effects of Prior Year Misstatements when Quantifying Misstatementsrequirement in Current Year Financial Statements” (“SAB 108”). SAB 108 wasASC 855-10 for a SEC filer to disclose a date through which subsequent events have been evaluated in both issued to provide consistency between how registrants quantifyand revised financial statement misstatements. SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of a registrant’s financial statements and the related financial statement disclosures.statements. This ASU is effective upon issuance. The SEC staff believes that both a balance sheet and an income statement approach should be employed by the registrant to quantify errors and evaluate if either approach results in quantifying a material misstatement. The effective date for SAB 108 is the first annual period ending after November 15, 2006. This bulletin was implemented by the Partnership adopted this ASU. Except for the year ending December 31, 2006 andremoval of disclosure requirements in ASC 855-10, the adoption of this standard did not have ana material impact on the Partnership’s financial statements.
In September 2006,January 2010, the FASB issued Statement of Financial Accounting Standards Update No. 2010-06 (“SFAS”ASC Update 2010-06”) 157, “FairImproving Disclosures about Fair Value Measurements” (“SFAS 157”)Measurements, which provides guidance on measuring to enhance the fair value of assets and liabilities. SFAS 157 will apply to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the useusefulness of fair value measurements. ASU 2010-06 amends the disclosures about fair value measurements in FASB Accounting Standards Codification™ (ASC) 820-10, Fair Value Measurements and Disclosures. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The Partnership is currently evaluating the effect this ASU will have on its financial statements.
In January 2010, the FASB issued Accounting Standards Update No. 2010-04 (“ASC Update 2010-04”) Accounting for Various Topics – Technical Corrections to any new circumstances. ThisSEC Paragraphs. The purpose of this ASU is to make technical corrections to certain guidance issued by the SEC that is included in the FASB Accounting Standards Codification (ASC). Primarily, this ASU changes references to various FASB and AICPA pronouncements to the appropriate ASC paragraph numbers. The Partnership does not anticipate that the adoption of this accounting standard will also require additional disclosureshave a material impact on its financial statements.
In June 2009, the FASB issued an accounting standard codified within Accounting Standards Codification (“ASC”) ASC 105, Generally Accepted Accounting Principles, (“ASC 105” and formerly referred to as SFAS No. 168), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in both annual and quarterly reports. SFAS 157 will bethe preparation of financial statements in conformity with GAAP. ASC 105 was effective for financial statements issued for interim and annual periods ending after September 15, 2009. As ASC 105 is not intended to change or alter existing GAAP, it will not impact the Partnership’s financial statements. The Partnership has adjusted historical GAAP references in its December 31, 2009 financial statements and Form 10-K to reflect accounting guidance references included in the Codification.
In September 2009, the FASB issued Accounting Standards Update No. 2009-07 (“ASC Update 2009-07”) Accounting for Various Topics - Technical Corrections to SEC Paragraphs. This ASU represents technical corrections to various ASC Topics containing SEC guidance. The technical corrections resulted from external comments received, and consisted principally of paragraph referencing and minor wording changes. In the third quarter of 2009, the Partnership adopted this accounting standard. The adoption of this standard did not have a material impact on the financial statements included herein.
In August 2009, the FASB issued Accounting Standards Update No 2009-05 (“ASC Update 2009-05”), an update to FASB ASC 820, Fair Value Measurements and Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. In the fourth quarter of 2009, the Partnership adopted this accounting standard. The ad option of this standard did not have a material impact on the financial statements included herein.
In December 2009, the FASB issued Accounting Standards Update No. 2009-17, (“ASC Update 2009-17”), Consolidations (ASC 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This ASU incorporates FAS 167, Amendments to FASB Interpretation No. 46(R), into the Codification. The new requirements are effective as of the beginning of the Partnership’s first fiscal year beginning after November 15, 2009. The Partnership is currently evaluating the effect this ASU will have on its financial statements.
In December 2009, the FASB issued Accounting Standards Update No. 2009-16, (“ASC Update 2009-16”) Transfers and Servicing (ASC 860) – Accounting for Transfers of Financial Assets . This ASU incorporates FAS 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140, into the FASB Accounting Standards Codification (the Codification). The new requirements are effective for transfers of financial assets occurring in fiscal years beginning after November 15, 20072009 This standard will require more information about transferred financial assets, including securitization transactions, and will be adopted bywhere entities have contin uing exposure to the Partnership in the first quarter of its fiscal year 2008.risks related to transferred financial assets. The Partnership is currently determiningevaluating the effect if any, that the adoption of SFAS 157this ASU will have on its financial statements.
In April 2009, the FASB issued an accounting standard codified within ASC 320 (formerly referred to as FSP FAS 115-2, FAS124-2 and EITF 99-20-2), “Recognition and Presentation of Other-Than-Temporary-Impairment.” ASC 320 (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC 320, declines in the fair value of held-to-matur ity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of impairment related to other factors is recognized in other comprehensive income. ASC 320 is effective for interim and annual periods ending after June 15, 2009. The Partnership adopted this standard in the quarter ended June 30, 2009. The adoption of this standard did not have a material impact on the Partnership’s financial statements.
In April 2009, the FASB issued an accounting standard codified within ASC 825, “Financial Instruments,” (“ASC 825”), ASC 825-10-65, Transition and Open Effective Date Information, (“ASC 825-10-65” and formerly referred to as FSP FAS No. 107-1 and APB Opinion No. 28-1), which requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This guidance also requires those disclosures in summarized financial information at interim reporting periods. ASC 825-10-65 is effective prospectively for interim reporting periods ending after June 15, 2009. The Partnership adopted ASC 825 in the quart er ended June 30, 2009. Except for the disclosure requirements, the adoption of this standard did not have a material impact on the Partnership’s financial statements.
In April 2009, the FASB issued an accounting standard codified within ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820” and formerly referred to as FSP FAS 157-4), ASC 820 affirms the objective of fair value when a market is not active, clarifies and includes additional factors for determining whether there has been a significant decrease in market activity, eliminates the presumption that all transactions are distressed unless proven otherwise, and requires an entity to disclose a change in valuation technique. ASC 820 is effective for interim and annual periods ending after June 15, 2009. The Partnership adopted this standard in the quarter ended June 30, 2009. The adoption of this standard did not have a materi al impact on the Partnership’s financial statements
LIQUIDITY AND CAPITAL RESOURCES
ForOur primary source of cash for the yearyears ended December 31, 2006, the Partnership used cash from2009 and 2008 was generated by operating activities of approximately $1,992,000$2,891,000 and $2,548,000, respectively, which includes a net loss of $384,000approximately $1,953,000 and depreciation and amortization expenses$1,043,000 respectively. Net proceeds from the sale of $2,855,000. Otherequipment were approximately $254,000 for the year ended December 31, 2009. This compares to net proceeds from the sale of equipment during 2008 of approximately $724,000. Additionally, other non-cash activities included in the determination of the net loss include direct payments of lease income by lessees to banks of $609,000 for that same period.approximately $1,290,000 and $1,924,000, respectively.
Our primary use of cash for the year ended December 31, 2009 was for capital expenditures for new equipment of approximately $3,118,000 and distributions to partners of approximately $2,487,000. This compares to capital expenditures of $1,765,000 and distributions of $2,496,000 for the year ended December 31, 2008. The Partnership’s primary sourcesincrease in capital expenditures is the result of capital formanagement’s ability to focus primarily on equipment acquisitions, and an increased pace of such acquisitions. Capital expenditures and distributions are expected to continue to increase overall during 2010, however, as management focuses on additional equipment acquisitions and funding limited partner distrib utions. We intend to invest approximately $1,500,000 in additional equipment during 2010. The acquisition of this equipment will be funded by cash flows from lease rental payments. Any debt service will be funded from cash flows from lease rental payments, and not from public offering proceeds.
For the years ended December 31, 20062009 and 20052008 depreciation and amortization expenses were contributionsapproximately $5,949,000 and $5,830,000, respectively. Additionally, other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $5,255,000$1,290,000 and $19,700,000,$1,924,000, respectively. Capital expenditures for
As we continue to increase the years ended December 31, 2006 and 2005 were insize of our equipment portfolio, operating expenses will increase, which reflects the amountsadministrative costs of $7,618,000 and $4,646,000, respectively. And acquisition fees were paidservicing the portfolio, but because of our investment strategy of leasing technology equipment primarily through triple-net leases, we avoid operating expenses related to the General Partner for the same years, respectively, in the amounts of $107,000 and $484,000.
Cash is invested in money market accounts that invest directly in treasury obligations pending the Partnership’s use of such funds to purchase additional computerequipment maintenance or taxes. Depreciation expenses will likely increase more rapidly than operating expenses as we add technology equipment to pay Partnership expenses or to make distributions to the Partners. our portfolio.
At December 31, 2006,2009 and 2008 cash was held in two high yield 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 Partnership had approximately $6,573,000, investedbalances may have exceeded federally insured limits.
At December 31, 2009 | | | |
Total bank balance | | $ | 1,052,000 | |
FDIC insurable limit | | $ | (250,000 | ) |
Uninsured amount | | $ | 802,000 | |
| | | | |
At December 31, 2008 | | | | |
Total bank balance | | $ | 3,546,000 | |
FDIC insurable limit | | $ | (250,000 | ) |
Uninsured amount | | $ | 3,296,000 | |
We mitigate the risk of holding uninsured deposits by depositing funds with more than one institution and by only depositing funds with major financial institutions. We deposit our funds with two institutions that are Moody's Aaa-and Aa3 Rated. These ratings represent prime and high grade marks of credit worthiness regarding the institution’s debt issues. We have not experienced any losses in these money market accounts. At December 31, 2005,such accounts, and believe we are not exposed to any significant credit risk. The amounts in such accounts will fluctuate throughout 2010 due to many factors, including the Partnership had approximately $10,222,000, invested in these money market accounts.pace of additional 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’s operating expenses. As of December 31, 2006, the Partnership2009, we had future minimum rentals on noncancellable operating leases of $5,000,000approximately $2,367,000 for the year ended 2007ending 2010 and $5,600,000$1,519,000 thereafter. These amounts represent scheduled payments on existing leases only, and do not include expected future revenues on leases that we have not yet entered into.
The Partnership incurredbalance of our non-recourse debt during 2006 in the amount of $2,145,000. And the Partnership incurred debt during 2005 in the amount of $835,000. As ofat December 31, 2006, the outstanding debt2009 was $2,320,000approximately $261,000 with interest rates ranging from 4.61%5.40% to 6.20%6.21% and which will be payable through May 2012. At December 31, 2008 our debt balance was approximately $1,551,000 with interest rates ranging from 5.25% to 6.21% and will be payable through July 2009. AsMay 2012. Non-recourse debt leases will not generate current cash flow because the rental payments received from these leases are used to service the indebtedness associated with acquiring or financing the lease. For these leases, we anticipate that the equipment will generate income to the investor either through an extension of December 31, 2005, the outstanding debt was $785,000, with a weighted averagelease term or from the sale of the equipment at the end of the lease term. Management does not expect significant interest rate increases to take place during the remainder of 6.05%2010, and will be payable through September 2008.therefore expects our cost of nonrecourse borrowing to remain steady throughout the next approximately 12 months.
CCC, on our behalf and 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. Our share of the equipment in which we participate with other partnerships at December 31, 2009 and December 31, 2008 was approximately $11,564,000 and $9,480,000, respectively, and is included in our fixed assets on our balance sheet. The total cost of the equipment we share with other partnerships at December 31, 2009 and December 31, 2008 was approximately $34,907,000 and $23,272,000, respectively. Our share of the outstanding debt associated with this equipment at December 31, 2009 and December 31, 2008 was $201,000 and $ 1,183,000, respectively. The total outstanding debt related to the equipment we share at December 31, 2009 and December 31, 2008 was approximately $973,000 and $3,349,000, respectively.
As we and the other programs managed by our general partner increase our overall portfolio size, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the fund an opportunity to acquire additional assets and revenue streams, while allowing the fund to remain diversified and reducing its overall risk with respect to one portfolio. Thus, total shared equipment and related debt should continue to trend higher at a modest pace for the remainder of 2010 in total dollars, but is expected to remain relatively constant as a percentage of our portfolio.
Our cash flow from operations is expected to continue to be adequate to cover all operating expenses, liabilities, and distributions to Partnerslimited partners during the next 12-month period. During 2009, our operating expenses decreased approximately $197,000 due to increased efficiencies as daily operations continued within the fund. If available Cash Flowcash flow or Net Disposition Proceedsnet disposition proceeds are insufficient to cover the Partnershipour expenses and liabilities on a short and long term basis, the Partnershipwe will attempt to obtain additional funds by disposing of or refinancing Equipment,equipment, or by borrowing within its permissible limits. The PartnershipWe may also reduce the distributions to its Partnerslimited partners if our management deems it deems necessary. Since the Partnership’sour leases are on a “triple-net” basis, no reserve for maintenance and repairs areis deemed necessary.
RESULTS FROM OPERATIONSFor the year ended December 31, 2009 we recognized revenue of approximately $5,619,000 and expenses of approximately $7,572,000 resulting in net loss of approximately $1,953,000. The net loss is due in part to a decrease in lease revenue during 2009 due to more lease agreements ending during 2009 and not being replaced with as many new equipment acquisitions. Additionally, depreciation expense increased during 2009 associated with the purchase of new equipment and equipment purchased in the prior year. These increases were partially offset by decreases in operating expenses of approximately $197, 000 for the year ended December 31, 2009.
For the year ended December 31, 2008 we recognized revenue of approximately $6,844,000 and expenses of approximately $7,886,000 resulting in net loss of approximately $1,043,000. The net loss was due in part to increased operating expenses and the depreciation of technology equipment purchased during 2008.
We have entered into 147 leases that generated lease revenue of approximately $5,468,000 during 2009. Management expects to continue to add new leases to our portfolio throughout 2010. We expect increases in portfolio size to increase both aggregate lease income and depreciation expense as new equipment depreciates.
Lease revenue decreased to approximately $5,468,000 for the year ended December 31, 2009 from approximately $6,755,000 for the year ended December 31, 2008. This decrease was primarily due to more lease agreements ending during 2009 and not being replaced with as many new equipment acquisitions.
For the years ended December 31, 20062009 and 2005 the Partnership recognized revenue of $3,918,000 and $423,000 and expenses of $4,302,000 and $1,322,000 resulting in net loss of $384,000 and $899,000, respectively.
For the years ended December 31, 2006 and 2005, the Partnership2008, we recognized interest income of $363,000$113,000, and $41,000$89,000, respectively, as a result of monies being invested in multiple money market accounts that invest directly in cash or treasury obligations pending the Partnership’sour use of such fundsfunds. The amount in such accounts, and therefore the interest income there from, will fluctuate throughout 2010 due to many factors, including the pace of equipment acquisitions and distributions. Overall, the continued use of offering proceed to purchase additional computer equipment should cause cash balances to pay Partnership expenses ordecrease during the next 12 months, as compared to make distributions to the Partners.2009.
For the years ended December 31, 20062009 and 2005,2008, operating expenses, excluding depreciation, consistconsisted of accounting, legal, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. The operatingoperations. These expenses totaleddecreased to approximately $1,139,000$1,279,000 during 2009 from $1,476,000 in 2008. This decrease is primarily attributable to decreases in administrative expenses and $818,000, respectively.tax services during 2009.
For the years ended December 31, 2006 and 2005, organizational costs were approximately $37,000 and $173,000, respectively.
We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 5% of the gross lease revenue attributable to equipment that is subject to operating leases and 2% of the gross lease revenue attributable to equipment that is subject to finance leases. For the yearsyear ended December 31, 2006 and 2005,2009 the equipment management fee was approximately $178,000 and $19,000, respectively.
Depreciation and amortization expenses consist of depreciation on computer equipment, impairment charges, and amortization of equipment acquisition fees. For the years ended December 31, 2006 and 2005, these expenses totaled approximately $2,855,000 and $306,000, respectively.
The Partnership identified specific computer equipment and associated equipment acquisition costs, which were reevaluated due to technological changes. In 2006, the Partnership determined that the carrying amount of certain assets was greater than the undiscounted cash flows to be generated by these assets. The Partnership recorded charges of $46,000 for the period ended December 31, 2006 to record the assets at their estimated fair value. Such amounts have been included in depreciation expense in the accompanying financial statements.
NET LOSS
Net loss decreased to $384,000approximately $273,000 from approximately $338,000 for the year ended December 31, 20062008 which is consistent with the decrease in lease revenue.
For the year ended December 31, 2009, interest expense decreased to approximately $57,000 from $899,000approximately $143,000 for the year ended December 31, 2005.2008. This changedecrease is a result of our general partner’s decision to assume less debt obligations associated with lease purchases during 2009. NET LOSS
Net loss increased to approximately $1,953,000 for the year ended December 31, 2009 from $1,043,000 for the year ended December 31, 2008. The changes in net loss waswere attributable to the changes in revenuesrevenue and expenses as discussed above.
COMMITMENTS AND CONTINGENCIES
Contractual Cash Obligations
The following table presents our contractual cash obligations as of December 31, 2006:
Payments due by period
| | Total | | | 2007 | | | 2008 | | | 2009 | |
Installment notes payable due Dec 2007: | | | | | | | | | | | | |
Principal | | $ | 622 | | | $ | 622 | | | | - | | | | - | |
Interest | | | 46 | | | | 46 | | | | | | | | | |
Installment notes payable due Oct 2008: | | | | | | | | | | | | | | | | |
Principal | | | 714,889 | | | | 439,746 | | | $ | 275,143 | | | | - | |
Interest | | | 37,790 | | | | 31,238 | | | | 6,552 | | | | | |
Installment notes payable due July 2009: | | | | | | | | | | | | | | | | |
Principal | | | 1,604,985 | | | | 663,689 | | | | 695,842 | | | $ | 245,454 | |
Interest | | | 115,947 | | | | 71,871 | | | | 39,717 | | | | 4,359 | |
Total | | $ | 2,474,279 | | | $ | 1,207,212 | | | $ | 1,017,254 | | | $ | 249,813 | |
ITEM 7.A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMARKETRISK
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.NOT APPLICABLE
Our financial statements, including selected quarterly financial data for the fiscal years ended December 31, 20062009 and 2005,2008 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
NOT APPLICABLE
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, 2005,2009, 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) 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,record ed, 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 |
TableManagement's Report on Internal Control over Financial Reporting. It is the responsibility of Contentsthe 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 det ail 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, 2009. 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, 2009, 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
NOT APPLICABLE
ITEM 9B: OTHER INFORMATION
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 and is the manager of several private entities. The principal business office of the General Partner is Brandywine Bldg. One, Suite 200, 2 Christy Drive, Chadds Ford, PA 19317, Exton, 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’sPartners hip’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 and its subsidiary Commonwealth Capital Securities Corp. ("CCSC"), are as follows:
NAME | | TITLE |
Kimberly A. Springsteen Springsteen-Abbott | | Chairman of the Board, Chief Executive Officer and Chief Compliance Officer of CCC, CCSC, & CIGF, Inc. |
| | |
Henry J. Abbott
| | President of CCC & CIGF, Inc. Director of CCC, CCSC & CIGF,Inc. |
| | |
Katrina M. Mason
| | President of CCSC, Due Diligence 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 | Director of CCC and CCSC |
| |
Lynn A. Franceschina | Director and Chief Operating Officer, and Director of CCC, CCSC & CIGF, Inc.; Executive Vice President of CCC and CIGF Inc.; Senior Vice President of CCSC |
| |
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. |
| | |
Jay Dugan Mark Hershenson | | ExecutiveSenior Vice President & Chief Technology Officer of CCC, CCSC, & CIGF, Inc. and DirectorBroker-Dealer Relations Manager of CCC, |
| | |
Peter Daley
| | Independent Director of CCCCCSC & 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. |
| | |
James Green
| Donna Abbott | Vice President & Portfolio Manager of CCC & CIGF, Inc. |
| | |
James Pruett
| | Vice President & Compliance Officer of CCC, CCSC, & CIGF, Inc. |
| | |
Mark Hershenson
| | Vice President & Brokerand Investor Services Manager of CCC, CCSC & CIGF, Inc. |
| | |
Donna Abbott
| Lisa Renshaw | Vice President, & Investor ServicesNational Sales Manager of CCC CCSC &and CIGF, Inc. |
| |
Kimberly A. Springsteen,Springsteen-Abbott, Kimberly A. Springsteen-Abbott, age 47,50, joined Commonwealth in April 1997 as a founding registered principal and Chief Compliance Officer of its broker/dealer, Commonwealth Capital Securities Corp. Ms. SpringsteenSpringsteen-Abbott is the Chief Executive Officer and Chairman 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).General Partner), positions she has held since April 2006. Ms. SpringsteenSpringsteen-Abbott is responsible for general operations of the equipment leasing/portfolio management side of the business. Ms. SpringsteenSpringsteen-Abbott oversees all CCC operations, as well as CCSC SEC/NASDFINRA compliance. For the broker/dealer, she oversees securities policies, company procedures/operations. Ms. SpringsteenSpringsteen-Abbott oversees all corporate daily operations and training, as well as develops long-term corporate growth strategies. Ms. SpringsteenSpringsteen-Abbott has over 27 years of experience in the financial services industry, specifically in the real estate, energy and leasing sectors of Alternative Investments.alternative investments. Ms. SpringsteenSpringsteen-Abbott is the sole shareholder of Commonwealth Capital Corp. and subsidiaries. Since 1997, Ms. Springsteen has served as Executive Vice President, COO andSpringsteen-Abbott was elected to the Board of Directors of the parent corporation. Incorporation in 1997 Ms. Springsteenand has also served as its Executive Vice President and COO. Also in 1997, she founded its broker/dealer arm (CommonwealthCommonwealth Capital Securities Corp.). She, where she was elected to the Board of Directors and appointed President, COO and Chief Compliance Director of the broker/dealer and elected to its Board of Directors.Officer. Her responsibilities included business strategy, product development, broker/dealer relations development, due diligence, and compliance.c ompliance. From 1980 through 1997, 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 for the Alternative Investments Division. Ms. SpringsteenSpringsteen-Abbott holds her FINRA Series 7, 63 and 39 NASD licenses. 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. Springsteen-Abbott is a member of the Executive Committee and the Disaster Recovery Committee. Ms. Springsteen-Abbott is the wife of Henry J. Abbott.
Henry J. Abbott, age 55,59, joined Commonwealth in August 1998 as a Portfolio Manager. Mr. Abbott serves asManager, a position he held until April 2006, at which time he was elected President of CCC and CIGF, IncInc., Executive Vice President of CCSC, and as a Director of CCC CCSC, and CIGF, Inc.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’s University and holds his NASDFINRA Series 7, 6463 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. Mr . Abbott is the husband of Kimberly A. Springsteen-Abbott.
Katrina M. Mason William Pieranunzi III, age 34,52, joined Commonwealth in 2002 and servesNovember 2007 as President of CCSC, and Director for CCC, CCSC, and CIGF, Inc. Ms. Mason is a registered principal of the broker/dealer. Ms. Mason isdealer affiliate. As President, Mr. Pieranunzi was 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. Mason servesMr. Pieranunzi was elected to the Board of Directors of the parent and its affiliates on the Disaster Recovery CommitteeJanuary 1, 2008. In August 2009, Mr. Pieranunzi resigned as President of CCSC, but remains a director of CCC and the Website Committee.CCSC. 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 September 2005 co-founded and was C hief 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 Lea sing and Finance Association, the Eastern Association of Equipment Lessors, the Investment Program Association, the National Association of Equipment Leasing Association,Brokers, and the Financial Planners Association and the Investment Program Association.
Lynn A. Franceschina, age 35,38, joined Commonwealth in 2001 as Vice President and servesAccounting Manager. In October 2004 she became Controller and Senior Vice President, and since April 2006 has served as Executive Vice President of the parentCCC and its affiliatesCIGF, Inc., Senior Vice President of CCSC, and as Director forChief Operations Officer of CCC, CCSC, and CIGF, Inc. and certain of its affiliates. She was named as a director of CCC and its affiliates in June 2006. Ms. Franceschina is responsible for thedaily operations, including oversight of all accounting, cash management, financial reporting and audittax functions, investor communications, and tax preparation functions.human resources. During the period of March 2004 to October 2004, Ms. Franceschina was employed withempl oyed at Wilmington Trust Corp., where she was a part inof the development of policies and procedures relatedteam responsible for Sarbanes-Oxley documentation. Prior to Sarbanes Oxley and its documentation. From 1994 to 1999,joining Commonwealth, Ms. Franceschina servedwas the Business Controls Manager for Liquent, Inc., a leading software developer, where she was responsible for managing corporate forecasting and analysis, as a Senior Accountant with Duquesne University,well as the budgeting for the sales and frommarketing division. From 1999 to 2000, she served as a Senior Financial Analyst for Environ Products.Products, and from 1994 to 1999, she was a Senior Accountant with Duquesne University. Prior to jointing Commonwealth,joining Duquesne University, Ms. Franceschina served as a Business Controls Manager for Liquent, Inc., a high-tech software developer.was an accountant with the public accounting firm of Horovitz, Rudoy, & Roteman. Ms. Franceschina attendedis a Sigma Beta Delta graduate of Robert Morris University, and holds a Bachelorduring which time she also served as treasurer of Science in Accounting.her Alpha Chi national honor society chapter. Ms. Franceschina holds her NASDFINRA Series 22, license. Ms. Franceschina serves on the Portfolio Advisory Committee63, and the Disaster Recovery Committee, as well as39 licenses. She is a member of the Disaste r Recovery Committee, the Equipment Leasing and Finance Association, the Investment Program Association, and the Institute of Management Accountants.
Jay Dugan,, age 58,61, joined Commonwealth in 2002 as Assistant Vice President and serves asNetwork Adminstrator, and became a Vice President in December 2002, Senior Vice President in December 2003, and has been Executive Vice President and Chief Technology Officer of the parent and its affiliates since December 2004. Mr. Dugan has also been a director of CCC and Director for CCC.CIGF, Inc. since June 2006. 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.
Peter Daley, age 67,68, joined Commonwealth in June 2006 as an independenta director. Mr. Daley is an Accredited Senior Appraiser for the discipline of Machinery and Equipment 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 a 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 createdcreat ed 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 Property 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 present, utilizing a variety of reports and publications along with the DMC and CEI Market Value Reports. This database has been successfully used in the valuation of computer 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 writingwriti ng computer appraisals and reports for Fortune 500 companies. From April 2005 to present as president of DMC Valuations Group, Mr. Daley has been publishing, both on the web and in print, fair market values, residual values, and manufacturer’s price lists to existing valuation clients around the world. Mr. Daley graduated from Pepperdine University in 1991 with a Masters of Business Administration, and from Cal State Northridge with a Bachelor of Science in Business Administration in 1965. Mr. Daley is also an Accredited Senior Appraiser with the American Society of Appraisers.
Richard G. Devlin III Mark Hershenson, age 35,44, joined Commonwealth in October 2006April 2002 as Broker Services Manager and serveshas served as Senior Vice President and General CounselBroker Dealer Relations Manager of the parent and its affiliates since December 2007. Mr. Hershenson is responsible for management of all broker/dealer relationships, and over-sees the Due Diligence, Marketing, and 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 at Met Life for over 100 registered representatives. Mr. Hershenson attended Stonehill College and holds a Bachelor’s degree in Psychology, with a concentration in Marketing/Organizational Behaviorism and engaged in Master’s level coursework in Financial Planning though American College. He holds his FINRA 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, age 44, joined Commonwealth in 2002 as an Executive Assistant. Mr. Pruett was named Assistant Vice President and a Compliance Associate in February 2005, Vice President and Compliance Manager in December 2005 and since December 2007 has served as Senior Vice President and Compliance Officer of the parent and its affiliates. Mr. Pruet was also named Secretary to the parent’s board of directors in December 2008. 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 FINRA Series 22, 63 and 39 licenses. Prior to joining Commonwealth, Mr. Pruett served as Managing Editor/Associate Publisher for Caliber Entertainment, a publishing and entertainment licensing company. Mr. Pruett’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 and Finance Association and the Investment Program Association.
Richard G. Devlin, age 38, joined Commonwealth in October 2006 as Vice President and General Counsel. Mr. Devlin is responsible for all syndication and Blue Sky activities, NASDFINRA and SEC registrations, legal opinions for our funds, syndication,contract administration and general legal matters.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. Also, as part of Reed Smith’s Securitization Practice Group, Mr. Devlin managed a team of professionals in a high volume commercial loan servicing practice. Mr. Devlin has developed programs and advised clients regarding compliance withwi th 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.University in Washington, DC. Mr. Devlin is admitted to the bar in New Jersey and Pennsylvania.Pennsylvania, and holds his FINRA Series 22 and 63 Licenses. Mr. Devlin hasis also advised MBA students at Drexel University as a judgemember of the 2006 Business Plan Competition atWebsite Committee and the Baiada Center for Entrepreneurship at Drexel’s LeBow College of Business,Disaster Recovery Committee and wasis a recipientmember of the 2006 MS Leadership Award fromEquipment Leasing and Finance Association and the National Multiple Sclerosis Society.Investment Program Association.
The directors and officers of the General Partner are required to spend only such time on the Partnership’s affairs as is necessary in the sole discretion of the directors of the General Partner for the proper conduct of the Partnership’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’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 the Exchange Act, serving on its audit committee. An audit committee is not required because the Partnership isPartnership’s units are not a listed securitysecurities (as defined by 17CFR§ 240.10A-3); therefore, no audit committee financial expert is required.
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.
The Partnership does not have any Directors or executive officers.
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’s operations and investments. While such compensation and fees were established by the General Partner and are not based on arm’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.ci rcumstances.
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:
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.
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’s or Affiliate’saffiliate’s own cost of funds. In addition, if the GeneralG eneral 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 lenders 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.
The Partnership does not invest in equipment limited partnerships, general partnerships or joint ventures, except that (a) the Partnership may invest in general partnerships or joint ventures with persons other thatthan 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-affiliate, 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 investmentinves tment 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 appropriatedappropriate diversification for the Programsprograms or for the purpose of relieving the General Partner or its Affiliatesaffiliates from a commitment entered into pursuant to certain provisions of the Partnership Agreement.
“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” 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.
“Capital Account” means the separate account established for each 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 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 leviedlev ied 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.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 Equipment Sale 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.equipment.
“Equipment” means each item of and all of the computer I.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.
“General Partner” means Commonwealth Income & Growth Fund, Inc. and any additional, substitute or successor general partner of the Partnership.
“Gross Lease 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” means the Internal Revenue Service.
“Net Dispositions 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” 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” or “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’s books with the following adjustments: (I) any income of the Partnership that is exempt from federal income tax and not otherwise taken into 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)( 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’s distributive share of the profit or loss of any partnership or joint venture in which it is a partner or joint venturer.
“Operating Distributions” means the quarterly distributions made to the Partners pursuant to Article 8 of the Partnership Agreement.
“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.full payout net lease.
“Organizational and Offering 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.units.
“Partner (s)” means any one or more of the General Partner and the Limited Partners.
“Partnership” means Commonwealth Income & Growth Fund IV, a Pennsylvania limited partnership.
“Person” means an individual, partnership, limited liability company, joint venture, corporation, trust, estate or other entity.
“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.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.term debt.
“Unit” means a Limited Partnership interest in the Partnership.
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’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.