3.
Based on my knowledge, the financial statements, and other similar capital equipment, which is leased primarily to U.S. corporationsfinancial information included in this report, fairly present in all material respects the financial condition, results of operations and institutions. Commonwealth Capital Corp. (“CCC”), on behalfcash flows 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.
The Partnership’s general partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly-owned subsidiary of CCC. CCC is a member of the Institute for Portfolio Alternatives (“IPA”) and the Equipment Leasing and Finance Association (“ELFA”). Approximately ten years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its equipment, make final distributions to partners, and to dissolve. Unless sooner terminated or extended pursuant to the terms of its Limited Partnership Agreement (the “Agreement”), the Partnership will continue until December 31, 2021.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Financial informationregistrant as of, December 31, 2018 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial informationand for, the periods indicated, have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2019.
Equity Method Investment
The Partnership accounts for its investment in COF2 under the equity method in accordance with Accounting Standards Codification (“ASC”) 323. Under the equity method, the Partnership records its proportionate share of the Fund’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of distributions and allocation formulas, if any, as described in such governing documents.
Disclosure of Fair Value of Financial Instruments
Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash and cash equivalents, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of September 30, 2019 and December 31, 2018 due to the short term nature of these financial instruments.
The Partnership’s long-term debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at September 30, 2019 and December 31, 2018 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value.
Cash and cash equivalents
We consider cash equivalents to be highly liquid investments with the original maturity dates of 90 days or less.
At September 30, 2019, cash and cash equivalents was held in one bank account maintained at one financial institution with an aggregate balance of approximately $500,000. Bank accounts are federally insured up to $250,000 by the FDIC. At September 30, 2019, the total cash bank balance was as follows:
At September 30, 2019 | |
Total bank balance | $500,000
|
FDIC insured | (250,000)
|
Uninsured amount | $250,000
|
The Partnership believes it mitigates the risk of holding uninsured deposits by only depositing funds with major financial institutions. The Partnership has not experienced any losses in our accounts, and believes it is not exposed to any significant credit risk. The amount in its accounts will fluctuate throughout 2019 due to many factors, including cash receipts, equipment acquisitions, interest rates and distributions to limited partners.
Recently Adopted Accounting Pronouncements
In December 2018, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which is expected to reduce a lessor’s implementation and ongoing costs associated with applying the new leases standard. The ASU also clarifies a specific lessor accounting requirement. Specifically, this ASU addresses the following issues facing lessors when applying the leases standard: Sales taxes and other similar taxes collected from lessees, certain lessor costs paid directly by lessees and recognition of variable payments for contracts with lease and non-lease components. The Partnership concluded, upon adoption of this update that there was no significant change to their accounting.
In March 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) Section A—Leases: Amendments to the FASB Accounting Standards Codification® Section B—Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification® Section C—Background Information and Basis for Conclusions- Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). The new standard requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Additionally, our business involves lease agreements with our customers whereby we are the lessor in the transaction. Accounting guidance for lessors is largely unchanged. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We adopted Topic 842 at the required adoption date of January 1, 2019. We used the package of practical expedients permitted under the transition guidance that allowed us not to reassess: (1) lease classification for expired or existing leases and (2) initial direct costs for any expired or existing leases. We did not recognize an adjustment to the opening balance of partner’s capital upon adoption.
In March 2019, the FASB issued Accounting Standards Update No. 2019-01, Leases (Topic 842) Codification Improvements — Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). The amendments in this Update include the following items brought to the Board’s attention through those interactions with stakeholders:
●
Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers (Issue 1).report;
●4.
Presentation onThe registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the statement of cash flows—sales-typeregistrant and direct financing leases (Issue 2).have:
●(a)
Transition disclosures relatedDesigned such disclosure controls and procedures, or caused such disclosure controls and procedures to Topic 250, Accounting Changes and Error Corrections (Issue 3).
We adopted Topic 842 at the required adoption date of January 1, 2019. The Partnership concludedbe designed under our supervision, to ensure that the sales taxes and other similar taxes collected from the lessees are recorded in the current period in the Condensed Statement of Operations as gross revenues and expenses. As permitted by the guidance, we elected the practical expedient that allows us not to restate comparative periods in the financial statements. Upon adoption of this update, there was no significant changematerial information relating to the Partnership accounting.
Recent Accounting Pronouncements Not Yet Adopted
FASB issued a new guidance, Accounting Standards Update No. 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,as clarified and amendedregistrant, including its consolidated subsidiaries, is made known to us by ASU 2018-19,Codification Improvements to Topic 326, Financial Instruments – Credit Losses andASU 2019-05,Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.The new guidance is effective for fiscal years, and interim periodsothers within those fiscal years, beginning after December 15, 2019. Thus, for a calendar-year company, it would be effective January 1, 2020. The new guidance requires an allowance for credit losses based on the expectation of lifetime credit losses on financial receivables carried at amortized cost, including, but not limited to, mortgage loans, premium receivables, reinsurance receivables and certain leases. The new current expected credit loss (“CECL”) impairment model for financial assets reported at amortized cost will be applicable to receivables associated with sales-type and direct financing leases but not to operating lease receivables. The Partnership continues to evaluate the impact of the new guidance on its condensed financial statements.
3. Information Technology, Medical Technology, Telecommunications Technology, Inventory Management and Other Business-Essential Capital Equipment (“Equipment”)
The Partnership is the lessor of equipment under operating leases with periods that generally will range from 12 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.
Remarketing fees will be paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with lessee and encourages potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. For the nine months ended September 30, 2019 and 2018, there were no remarketing fees incurred, paid with cash or netted against receivables due from such parties.
CCC, on behalf of the Partnership and on behalf of other affiliated companies and partnerships (“partnerships”), acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various companies based on certain risk factors.
The Partnership’s share of the cost of the equipment in which it participates with other partnerships at September 30, 2019 was approximately $9,335,000 and is included in the Partnership’s equipment on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at September 30, 2019 was approximately $1,216,000 and is included in the Partnership’s notes payable on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at September 30, 2019 was approximately $21,376,000. The total outstanding debt related to the equipment shared by the Partnership at September 30, 2019 was approximately $2,629,000.
The Partnership’s share of the cost of the equipment in which it participates with other partnerships at December 31, 2018 was approximately $10,206,000 and is included in the Partnership’s equipment on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2018 was approximately $1,786,000 and is included in the Partnership’s notes payable on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 2018 was approximately $23,912,000. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2018 was approximately $3,875,000.
As the Partnership and the other programs managed by the General Partner increase their overall portfolio size, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the fund an opportunity to acquire additional assets and revenue streams, while allowing the fund to remain diversified and reducing its overall risk with respect to one portfolio. As additional investment opportunities ariseentities, particularly during 2019, the Partnership expects total shared equipment and related debt to trend higher as the Partnership builds its portfolio.
The following is a schedule of approximate future minimum rentals on non-cancellable operating leases:
Periods Ended December 31,
| |
Three months ended December 31, 2019 | $480,000
|
Year Ended December 31, 2020 | 1,119,000
|
Year Ended December 31, 2021 | 301,000
|
| $1,900,000
|
Finance Leases:
The following lists the components of the net investment in direct financing leases:
| | |
Total minimum lease payments to be received | $-
| $2,000
|
Estimated residual value of leased equipment (unguaranteed) | -
| 3,000
|
Initial direct costs finance leases | -
| -
|
Less: unearned income | -
| -
|
Net investment in finance leases | $-
| $5,000
|
We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credits scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. When assessing risk, factors taken into consideration include both general and industry specific qualitative and quantitative metrics. We separately take in to consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements and their payment history. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category.
A reserve for credit losses is deemed necessary when payment has not been received for one or more months of receivables due on the equipment held under finance leases. At the end of each period, management evaluates the open receivables due on this equipment and determines the need for a reserve based on payment history and any current factors that would have an impact on payments.
As of September 30, 2019 and December 31, 2018, we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive.
CCC, on behalf of the Partnership and on behalf of other affiliated companies and partnerships (“partnerships”), acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various companies based on certain risk factors.
4. Investment in COF 2
On August 13, 2015, the Partnership purchased 1,648 units for $1,500,000, of Commonwealth Opportunity Fund 2 (“COF 2”), an affiliate fund of the General Partner. In accordance with the Partnership Agreement, the Partnership is permitted to invest in equipment Programs formed by the General Partner or its affiliates. COF 2 is an affiliate program that broke escrow on August 13, 2015. The General Partner believes this action is in the best interests of all the Programs. The Partnership accounts for its investment in COF 2 under the equity method in accordance with ASC 323. The Partnership’s net investment in COF 2 at September 30, 2019 and December 31, 2018 was approximately $650,000 and $790,000, respectively (see COF 2 Financial Summary below). During the nine months ended September 30, 2019, COF 2 declared distributions to the Partnership of approximately $16,000.
| | |
COF 2 Summarized Financial Information | | |
Assets | $2,308,000 | $3,214,000 |
Liabilities | $463,000 | $960,000 |
Partners' capital | $1,845,000 | $2,254,000 |
Revenue | $855,000 | $1,319,000 |
Expenses | $1,216,000 | $1,677,000 |
Net loss | $(361,000) | $(358,000) |
5. Related Party Transactions
Receivables/Payables
As of September 30, 2019 and December 31, 2018, the Partnership’s related party receivables and payables are short term, unsecured, and non-interest bearing.
Nine months ended September 30, | | 2018 |
| | |
Reimbursable Expenses | | |
The General Partner and its affiliates are entitled to reimbursement by the Partnership for the cost of goods, supplies or services obtained and used by the General Partner in connection with the administration and operation of the Partnership from third parties unaffiliated with the General Partner. In addition, the General Partner and its affiliates are entitled to reimbursement of certain expenses incurred by the General Partner and its affiliates in connection with the administration and operation of the Partnership. For the nine months ended September 30, 2019 and 2018, the Partnership was charged approximately $376,000 and $481,000 in other LP expense, respectively . | $599,000 | $804,000 |
Equipment Acquisition Fee | | |
The General Partner earned an equipment acquisition fee of 4% of the purchase price of each item of equipment purchased as compensation for the negotiation of the acquisition of the equipment and lease thereof or sale under a conditional sales contract. For the nine months ended September 30, 2019 and 2018, the General Partner earned acquisition fees from operating and finance leases of approximately $0 and $34,000, respectively. At September 30, 2019, the remaining balance of prepaid acquisition fees was $0.
| $- | $34,000 |
| | |
As compensation for arranging term debt to finance our acquisition of equipment, we will pay the general partner a fee equal to one percent of such indebtedness; provided, however, that such fee shall be reduced to the extent we incur such fees to third parties unaffiliated with the general partner or the lender with respect to such indebtedness. No such fee will be paid with respect to borrowings from the general partner or its affiliates. We intend to initially acquire leases on an all cash basis with the proceeds of this offering, but may borrow funds after the offering proceeds have been invested. The amount we borrow, and therefore the amount of the fee, will depend upon interest rates at the time of a loan, and the amount of leverage we determine is appropriate at the time. Fees will increase as the amount of leverage we use increases, and as turnover in the portfolio increases and additional equipment is purchased using leverage | $- | $7,000 |
| | |
We pay our general partner a monthly fee equal to the lesser of (a) the fees which would be charged by an independent third party in the same geographic market for similar services and equipment or (b) the sum of (i) two percent of gross lease revenues attributable to equipment subject to full payout net leases which contain net lease provisions and (ii) five percent of the gross lease revenues attributable to equipment subject to operating leases. Our general partner, based on its experience in the equipment leasing industry and current dealings with others in the industry, will use its business judgment to determine if a given fee is competitive, reasonable and customary. The amount of the fee will depend upon the amount of equipment we manage, which in turn will depend upon the amount we raise in this offering. Reductions in market rates for similar services would also reduce the amount of this fee we will receive. | $76,000 | $95,000 |
Equipment Liquidation Fee | | |
Also referred to as a "resale fee." With respect to each item of equipment sold by the general partner, we will pay a fee equal to the lesser of (i) 50% of the competitive equipment sale commission or (ii) three percent of the sales price of the equipment. The payment of this fee is subordinated to the receipt by the limited partners of (i) a return of their capital contributions and a 10% per annum cumulative return, compounded daily, on adjusted capital contributions and (ii) the net disposition proceedsfrom such sale in accordance with the partnership agreement. Our general partner, based on its experience in the equipment leasing industry and current dealings with others in the industry, uses its business judgment to determine if a given sales commission is competitive, reasonable and customary. Such fee will be reduced to the extent any liquidation or resale fees are paid to unaffiliated parties. The amount of such fees will depend upon the sale price of equipment sold. Sale prices will vary depending upon the type, age and condition of equipment sold. The shorter the terms of our leases, the more often we may sell equipment, which will increase liquidation fees we receive. | $2,000 | $6,000
|
6. Notes Payable
Notes payable consisted of the following approximate amounts:
| | |
Installment note payable to bank; interest at 1.80% due in monthly installments of $2,533, including interest; with final payment in April 2019 | - | 10,000 |
Installment note payable to bank; interest at 1.80% due in monthly installments of $8,677, including interest; with final payment in May 2019 | - | 43,000 |
Installment notes payable to bank; interest at 6.00% due in monthly installments ranging from $101 to $831, including interest, with final payment in July 2019 | - | 2,000 |
Installment note payable to bank; interest at 4.98% due in monthly installments of $2,807, including interest, with final payment in September 2019 | - | 25,000 |
Installment note payable to bank; interest at 5.49% due in monthly installments of $4,177, including interest, with final payment in January 2020 | 16,000 | 53,000 |
Installment note payable to bank; interest at 5.93% due in monthly installments of $3,324, including interest, with final payment in February 2020 | 16,000 | 45,000 |
Installment note payable to bank; interest at 5.25% due in quarterly installments of $3,836, including interest, with final payment in March 2020 | 8,000 | 18,000 |
Installment note payable to bank; interest at 5.25% due in quarterly installments of $25,557, including interest, with final payment in April 2020 | 75,000 | 146,000 |
Installment note payable to bank; interest at 4.37% due in monthly installments of $16,273, including interest, with final payment in April 2020 | 48,000 | 94,000 |
Installment note payable to bank; interest at 4.88% due in monthly installments of $1,363, including interest, with final payment in May 2020 | 11,000 | 22,000 |
Installment note payable to bank; interest at 5.62% due in quarterly installments of $2,897, including interest, with final payment in July 2020 | 11,000 | 19,000 |
Installment note payable to bank; interest at 4.55% due in monthly installments ranging from $1,723 to $14,777, including interest, with final payment in August 2020 | 177,000 | 317,000 |
Installment note payable to bank; interest at 5.66% due in quarterly installments of $29,292, including interest, with final payment in October 2020 | 140,000 | 220,000 |
Installment note payable to bank; interest at 5.25% due in monthly installments of $2,463, including interest, with final payment in October 2020 | 31,000 | 52,000 |
Installment note payable to bank; interest at 5.31% due in monthly installments of $52,336, including interest, with final payment in January 2021 | 300,000 | 441,000 |
Installment note payable to bank; interest at 6.00% due in quarterly installments of $74,533, including interest, with final payment in January 2021 | 425,000 | 623,000 |
Installment notes payable to bank; interest at 5.33% due in monthly installments ranging from $4,312 to $15,329, including interest, with final payment in August 2021 | 429,000 | 585,000 |
| $1,687,000 | $2,715,000 |
The notes are secured by specific equipment with a carrying value of approximately $2,693,000 and are nonrecourse liabilities of the Partnership. As such, the notes do not contain any financial debt covenants with which we must comply on either an annual or quarterly basis. Aggregate maturities of notes payable for each of the periods subsequent to September 30, 2019 are as follows:
| |
Three months ended December 31, 2019
| $325,000
|
Year ended December 31, 2020 | 1,083,000
|
Year ended December 31, 2021 | 279,000
|
| $1,687,000
|
During 2015, the General Partner executed a collateralized debt financing agreement on behalf of certain affiliates for a total shared loan amount of approximately $847,000, of which the Partnership’s share was approximately $290,000. The Partnership’s portion of the current loan amount at September 30, 2019 and December 31, 2018 was approximately $0 and $2,000, respectively, and is secured by specific equipment under both operating and finance leases. The carrying value of the secured equipment under operating leases at both September 30, 2019 and December 31, 2018 is $0. The carrying value of the secured equipment under finance leases at September 30, 2019 and December 31, 2018 is approximately $0 and $5,000, respectively.
7. Supplemental Cash Flow Information
No interest or principal on notes payable was paid by the Partnership during 2019 and 2018 because direct payment was made by lessee to the bank in lieu of collection of lease income and payment of interest and principal by the Partnership.
Other noncash activities included in the determination of net loss are as follows:
Nine months ended September 30, | | |
Lease revenue net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank | $1,029,000 | $1,681,000 |
Noncash investing and financing activities include the following:
Nine months ended September 30, | | |
Accrual for distributions to partners paid in October (included in other accrued expenses) | $76,000 | $77,000 |
Accrued expenses incurred in connection with the purchase of technology equipment | $- | $894,000 |
During the nine months ended September 30, 2019 and 2018, the Partnership wrote-off fully amortized acquisition and finance fees of approximately $29,000 and $23,000, respectively.
During both the nine months ended September 30, 2019 and 2018, the Partnership wrote-off fully depreciated equipment of approximately $0.
8. Commitments and Contingencies
Medshare
In January 2015, CCC, on behalf of the Funds, entered into a Purchase Agreement (“Purchase Agreement”) for the sale of the equipment to Medshare Technologies (“Medshare”) for approximately $3,400,000. The Partnership’s share of the sale proceeds was approximately $1,033,000. As of November 14, 2019, the Partnership had received approximately $728,000 of the approximate $1,033,000 sale proceeds and has recorded a reserve of $243,000 against the outstanding receivables. On April 3, 2015 Medshare was obligated to make payment in full and failed to do so. As a result, Medshare defaulted on its purchase agreement with CCC and was issued a demand letter for full payment of the equipment. On June 25, 2015, Medshare filed a lawsuit in Texas state court for breach of contract (“State Suit”). On June 26, 2015, Commonwealth filed a lawsuit in the Northern District of Texas against Medshare seeking payment in full and/or return of the Equipment and damages.
In July 2016, CCC, on behalf of the Funds, entered into a $1,400,000 binding Settlement Agreement (“Settlement Agreement”) with Medshare and its principal owner, Chris Cleary (collectively referred to as “Defendants”), who are held jointly and severally liable for the entire settlement. On August 2, 2016, the Defendants made payment to CCC of an initial $200,000 to be followed by 24 structured monthly payments of approximately $50,000 per month to begin no later than September 15, 2016. The Partnership’s share of the Settlement Agreement is approximately $453,000 and is to be applied against the net Medshare receivable of approximately $350,000 as of the settlement date. The remaining $103,000 will be applied against the $243,000 reserve and recorded as a bad debt recovery. As of November 13, 2019, the Partnership received approximately $182,000 of the approximate $453,000 settlement agreement which was applied against the net Medshare receivable of approximately $350,000 as of the settlement date. As Defendant defaulted on settlement agreement, CCC sought and obtained consent judgment from U.S. District Court for Northern District of Texas, Dallas Division on July 27, 2017 in the amount of $1.5 million, less $450,000 previously paid plus $6,757 in attorney fees, both the Defendant and Cleary being jointly and severally liable for the judgment amount. The court also vacated the September 21, 2016 settlement dismissal.
On July 27, 2017 Defendant filed Chapter 11 in Northern District of Texas Dallas Division. On July 26, 2017 Legacy Texas Bank, a secured creditor of the Defendant filed for a TRO in the U.S. District Court of the Northern District of Texas, Dallas Division. Included with the TRO filing was a request for appointment of trustee for operation of Defendant, which was granted and the case converted to Chapter 7. On December 18, 2018 the Bankruptcy Court entered final order and issued its last payment to CCC in March 2019 of approximately $43,000, of which the Partnership’s share was approximately $14,000. The Medshare Bankruptcy matter is now closed. Although the trustee’s final distribution to Commonwealth did not fully satisfy the judgment, recovery may still be pursued directly against Cleary. As such, management believes that the foregoing will not result in any adverse financial impact on the Funds, but no assurance can be provided until the proceedings are resolved.
FINRA
On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming Commonwealth Capital Securities Corp. (“CCSC”) and the owner of the firm, Kimberly Springsteen-Abbott, as respondents; however on October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Ms. Springsteen-Abbott. The sole remaining charge was that Ms. Springsteen-Abbott had approved the misallocation of some expenses to certain Funds. Management believes that the expenses at issue include amounts that were proper and that were properly allocated to Funds, and also identified a smaller number of expenses that had been allocated in error, but were adjusted and repaid to the affected Funds when they were identified in 2012. During the period in question, Commonwealth Capital Corp. (“CCC”)which this report is being prepared;