Attached files
file | filename |
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EX-32.2 - COMMONWEALTH INCOME & GROWTH FUND V | ex32_2.htm |
EX-31.2 - COMMONWEALTH INCOME & GROWTH FUND V | ex31_2.htm |
EX-31.1 - COMMONWEALTH INCOME & GROWTH FUND V | ex31_1.htm |
EX-32.1 - COMMONWEALTH INCOME & GROWTH FUND V | ex32_1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
T QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 or
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
¨ 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)
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 T NO ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).YES ¨ NO ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer, “large accelerated filer" and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company 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 Exchange
Act). YES ¨ NO T
1
FORM
10-Q
SEPTEMBER
30, 2009
TABLE
OF CONTENTS
PART
I
|
||
Item
1.
|
Financial
Statements
|
3
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
Item
4T.
|
Controls
and Procedures
|
18
|
PART
II
|
||
Item
1.
|
Legal
Proceedings
|
18
|
Item
1 A.
|
Risk
Factors
|
19
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
19
|
Item
5.
|
Other
Information
|
19
|
Item
6.
|
Exhibits
|
19
|
2
Part
I. FINANCIAL INFORMATION
Item
1. Financial Statements
Commonwealth
Income & Growth Fund V
|
||||||||
Condensed
Balance Sheets
|
||||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
|
||||||||
Cash
|
$ | 495,866 | $ | 3,053,703 | ||||
Lease
income receivable, net of reserve of $128,617 and $115,617 at
September 30, 2009
and December
31, 2008, respectively
|
499,203 | 320,541 | ||||||
Accounts
receivable, Commonwealth Capital Corp.
|
359,048 | |||||||
Accounts
receivable, affiliated limited partnerships
|
228 | 300 | ||||||
Prepaid
expenses
|
6,524 | 6,422 | ||||||
1,001,821 | 3,740,014 | |||||||
Computer
equipment, at cost
|
23,792,945 | 21,267,794 | ||||||
Accumulated
depreciation
|
(16,002,140 | ) | (12,060,593 | ) | ||||
7,790,805 | 9,207,201 | |||||||
Equipment
acquisition costs and deferred expenses, net of accumulated amortization
of $378,213
and $518,860 at September 30, 2009 and December 31, 2008,
respectively
|
204,243 | 247,773 | ||||||
Prepaid
acquisition Fees
|
55,893 | 180,205 | ||||||
260,136 | 427,978 | |||||||
Total
Assets
|
$ | 9,052,762 | $ | 13,375,193 | ||||
Liabilities
and Partners' Capital
|
||||||||
Liabilities
|
||||||||
Accounts
payable
|
$ | 110,917 | $ | 357,751 | ||||
Accounts
payable, General Partner
|
67,211 | 22,596 | ||||||
Accounts
payable, Commonwealth Capital Corp.
|
14,252 | - | ||||||
Other
accrued expenses
|
17,239 | 11,302 | ||||||
Unearned
lease income
|
344,991 | 142,203 | ||||||
Notes
payable
|
528,203 | 1,551,477 | ||||||
Total
Liabilities
|
1,082,813 | 2,085,329 | ||||||
Partners'
Capital
|
||||||||
General
partner
|
1,000 | 1,000 | ||||||
Limited
partners
|
7,968,949 | 11,288,864 | ||||||
Total
Partners' Capital
|
7,969,949 | 11,289,864 | ||||||
Total
Liabilities and Partners' Capital
|
$ | 9,052,762 | $ | 13,375,193 |
see
accompanying notes to condensed financial statements
3
Commonwealth
Income & Growth Fund V
|
||||||||||||||||
Condensed
Statements of Operations
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue
|
||||||||||||||||
Lease
|
$ | 1,325,909 | $ | 1,623,117 | $ | 4,312,224 | $ | 5,190,395 | ||||||||
Interest
and other
|
40,831 | 23,593 | 74,157 | 73,388 | ||||||||||||
Gain
(loss) on sale of computer equipment
|
(2,120 | ) | 2,709 | 17,040 | 84,982 | |||||||||||
Total
revenue
|
1,364,620 | 1,649,419 | 4,403,421 | 5,348,765 | ||||||||||||
Expenses
|
||||||||||||||||
Operating,
excluding depreciation
|
266,140 | 327,542 | 1,000,680 | 1,123,480 | ||||||||||||
Equipment
management fee, General Partner
|
66,295 | 81,156 | 215,611 | 259,520 | ||||||||||||
Interest
|
11,650 | 32,326 | 49,530 | 114,822 | ||||||||||||
Depreciation
|
1,549,182 | 1,330,147 | 4,381,119 | 4,088,315 | ||||||||||||
Amortization
of equipment acquisition costs and deferred expenses
|
51,260 | 76,089 | 167,842 | 232,861 | ||||||||||||
Bad
debt expense
|
- | 30,818 | 13,000 | 30,818 | ||||||||||||
Total
expenses
|
1,944,527 | 1,878,078 | 5,827,782 | 5,849,816 | ||||||||||||
Net
(loss)
|
$ | (579,907 | ) | $ | (228,659 | ) | $ | (1,424,361 | ) | $ | (501,051 | ) | ||||
Net
(loss) allocated to limited partners
|
$ | (476,010 | ) | $ | (234,897 | ) | $ | (1,443,019 | ) | $ | (519,789 | ) | ||||
Net
(loss) per equivalent limited partnership unit
|
$ | (0.38 | ) | $ | (0.19 | ) | $ | (1.16 | ) | $ | (0.42 | ) | ||||
|
||||||||||||||||
Weighted
average number of equivalent limited partnership units outstanding during
the period
|
1,243,204 | 1,248,010 | 1,243,960 | 1,249,082 |
see
accompanying notes to condensed financial statements
4
Commonwealth
Income & Growth Fund V
|
|||||
Condensed
Statements of Partners' Capital
|
|||||
For
the nine months ended September 30, 2009
|
|||||
(unaudited)
|
|||||
General
Partner
Units
|
Limited
Partner
Units
|
General
Partner
|
Limited
Partner
|
Total
|
|
Balance,
January 1, 2009
|
50
|
1,245,852
|
$ 1,000
|
$ 11,288,864
|
$ 11,289,864
|
Net
Income (loss)
|
-
|
-
|
18,658
|
(1,443,019)
|
(1,424,361)
|
Redemptions
|
-
|
(2,648)
|
-
|
(29,654)
|
(29,654)
|
Distributions
|
-
|
-
|
(18,658)
|
(1,847,242)
|
(1,865,900)
|
Balance,
September 30, 2009
|
50
|
1,243,204
|
$ 1,000
|
$ 7,968,949
|
$ 7,969,949
|
see
accompanying notes to condensed financial statements
5
Commonwealth
Income & Growth Fund V
|
||||||||
Condensed
Statements of Cash Flow
|
||||||||
(unaudited)
|
||||||||
Nine
Months ended
|
Nine
Months ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
Net
cash provided by operating activities
|
$ | 2,285,399 | $ | 1,708,949 | ||||
Investing
activities:
|
||||||||
Capital
expenditures
|
(3,107,805 | ) | (770,973 | ) | ||||
Acquisition
fees paid to General Partner
|
- | $ | (14,039 | ) | ||||
Net
proceeds from the sale of computer equipment
|
160,123 | 545,652 | ||||||
Net
cash (used in) investing activities
|
(2,947,682 | ) | (239,360 | ) | ||||
Financing
activities:
|
||||||||
Redemptions
|
(29,654 | ) | (49,119 | ) | ||||
Distributions
to partners
|
(1,865,900 | ) | (1,873,347 | ) | ||||
Debt
placement fee paid to General Partner
|
- | (2,916 | ) | |||||
Net
cash (used in) financing activities
|
(1,895,554 | ) | (1,925,382 | ) | ||||
Net
(decrease) in cash
|
(2,557,837 | ) | (455,793 | ) | ||||
Cash
beginning of period
|
3,053,703 | 4,114,953 | ||||||
Cash
end of period
|
$ | 495,866 | $ | 3,659,160 |
see
accompanying notes to condensed financial statements
6
NOTES
TO CONDENSED FINANCIAL STATEMENTS
1.
Business
Commonwealth
Income & Growth Fund V (the “Partnership”) is a limited partnership
organized in the Commonwealth of Pennsylvania on May 19, 2003. The
Partnership offered for sale up to 1,250,000 units of the limited partnership at
the purchase price of $20 per unit (the “Offering”). The Partnership
reached the minimum amount in escrow and commenced operations on March 14,
2005. As of February 24, 2006, the Partnership was fully
subscribed.
The
Partnership used the proceeds of the Offering to acquire, own and lease various
types of information technology equipment and other similar capital equipment,
which is leased primarily to U.S. corporations and
institutions. Commonwealth Capital Corp. (“CCC”), on behalf of the
Partnership and other affiliated partnerships, acquires 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 Investment Program
Association (IPA), Financial Planning Association (FPA), 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 computer equipment, make final distributions to partners
and to dissolve. Unless sooner terminated, the Partnership will
continue until December 31, 2015.
2.
Summary of Significant Accounting Policies
Recent
Accounting Pronouncements
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 the preparation of financial statements in
conformity with GAAP. ASC 105 is 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 condensed financial statements. The Partnership has adjusted
historical GAAP references in its third quarter 2009 Form 10-Q 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 FASB ASU. The adoption of this ASU did not have any impact on the
condensed financial statements included herein.
7
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. ASC Update 2009-05 will become effective for the Partnership’s
annual financial statements for the year ended December 31, 2009. The
Partnership has not determined the impact that this update may have on its
financial statements.
In June
2009, the FASB issued FAS 167 “Amendments to FASB Interpretation
No.46(R),” which has yet to be codified with the ASC. Once codified, the
standard would amend ASC 810,
“Consolidation” to address the elimination of the concept of a qualifying
special purpose entity. This guidance is effective for the
Partnership beginning in the first quarter of fiscal year 2010. The
Partnership is currently evaluating the impact that the adoption of ASC 810 will
have on its condensed financial statements.
In June
2009, the FASB issued FAS No. 166, “Accounting for Transfers of
Financial Assets—an amendment of FASB Statement
No. 140.” This pronouncement has not yet been
incorporated into the FASB’s codification. This standard will require more
information about transferred financial assets, including securitization
transactions, and where entities have continuing exposure to the risks related
to transferred financial assets. This standard is effective at the start of a
Partnership’s first fiscal year beginning after November 15, 2009, or
January 1, 2010, for companies reporting earnings on a calendar-year basis.
The Partnership is currently analyzing the impact of this statement, if any, to
its condensed financial statements.
In May
2009, the FASB issued an accounting standard codified within ASC 855,” Subsequent Events”, (“ASC
855” and formerly referred to as SFAS No. 165), which modified the
subsequent event guidance. The three modifications to the subsequent
events guidance are: 1) To name the two types of
subsequent events either as recognized or non-recognized subsequent events, 2)
To modify the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statement are
issued or available to be issued and 3) To require entities to disclose the date
through which an entity has evaluated subsequent events and the basis for that
date, i.e. whether that date represents the date the financial statements were
issued or were available to be issued. This guidance is effective for
interim or annual financial periods ending after June 15, 2009, and should
be applied prospectively. The Partnership adopted ASC 855 during the
quarter ended June 30, 2009 and it did not have a material impact on the
Partnership’s condensed 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-maturity
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 ASC 320 in the quarter
ended June 30, 2009. The adoption did not have a material impact on
the Partnership’s condensed financial statements.
8
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 quarter ended
June 30, 2009. Except for the disclosure requirements, the adoption of ASC 825
did not have a material impact on the Partnership’s condensed 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 ASC 820 in the quarter ended June 30, 2009. The
adoption did not have a material impact on the Partnership’s condensed financial
statements
Basis of
Presentation
The
financial information presented as of any date other than December 31, 2008 has
been prepared from the books and records without audit. Financial
information as of December 31, 2008 has been derived from the audited financial
statements of the Partnership, but does not include all disclosures required by
generally accepted accounting principles to be included in audited financial
statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated, have been
included. For further information regarding the Partnership’s
accounting policies, refer to the financial statements and related notes
included in the Partnership’s annual report on Form 10-K for the year ended
December 31, 2008. Operating results for the nine months ended
September 30, 2009 are not necessarily indicative of financial results that may
be expected for the full year ended December 31, 2009.
Pursuant
to ASC 855, “Subsequent
Events”, subsequent events have been evaluated through November 12, 2009,
the date these financial statements were available to be issued, and there were
no subsequent events to be reported.
Disclosure
of Fair Value of Financial Instruments
Effective
April 2009, the Partnership has adopted 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 “SFAS 107-1”
and “APB 28-1”). This ASC 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.
9
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. The
partnership holds no financial instruments, except notes payable. Cash,
receivables, accounts payable, and accrued expenses and other liabilities are
carried at amounts which reasonably approximate their fair values as of
September 30, 2009 and December 31, 2008.
The
Partnership’s long-term debt consists of notes payable, which are secured by
specific computer equipment and are nonrecourse liabilities of the Partnership.
The estimated fair value of this debt at September 30, 2009 and December 31,
2008 approximates the carrying value of these instruments, due to the interest
rates approximating current market values.
Disclosure
about fair value of financial instruments is based on pertinent information
available to management as of September 30, 2009 and December 31,
2008.
Long-Lived
Assets
The
Partnership evaluates its long-lived assets when events or circumstances
indicate that the value of the asset may not be recoverable. The
Partnership determines whether an impairment exists by estimating the
undiscounted cash flows to be generated by each asset. If the
estimated undiscounted cash flows are less than the carrying value of the asset,
then an impairment exists. The amount of the impairment is determined
based on the difference between the carrying value and the fair
value. Fair value is determined based on estimated discounted cash
flows to be generated by the asset. The Partnership determined that
impairment in the amount of approximately $87,000 and $15,000 existed for the
period ended September 30, 2009 and 2008,
respectively. Such amounts have been included in
depreciation expense in the accompanying financial statements.
Depreciation
on computer equipment for financial statement purposes is based on the
straight-line method estimated generally over useful lives of three or four
years.
Reimbursable
Expenses
Reimbursable
expenses, which are charged to the Partnership by CCC in connection with the
administration and operation of the Partnership, are allocated to the
Partnership based upon several factors including, but not limited to, the number
of investors, compliance issues, and the number of existing leases. For
example, if the Partnership has more investors than another program sponsored by
CCC, then higher amounts of expenses related to investor services, mailing and
printing costs will be allocated to the Partnership. Also, while 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 staff costs, increase as programs purchase more
leases, and decrease as leases terminate and equipment is sold. All of these
factors contribute to CCC’s determination as to the amount of expenses to
allocate to the Partnership or to other sponsored programs. For the
Partnership, all reimbursable expenses are expensed as they are
incurred.
Cash
At
September 30, 2009, cash was held in two accounts maintained at one financial
institution. The accounts were, in the aggregate, federally insured for up to
$250,000. At September 30, 2009, the total cash balance was as
follows:
At
September 30, 2009
|
Bank
A
|
Total
bank balance
|
$ 1,003,978
|
FDIC
insurable limit
|
$ (250,000)
|
Uninsured
amount
|
$ 753,978
|
The
Partnership mitigates bank failure risk by only depositing funds with major a
financial institution. The Partnership deposits its funds with a
Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks
listed on the New York Stock Exchange. The Partnership has not
experienced any losses in such accounts, and believes it is not exposed to any
significant credit risk. The amount in such accounts will fluctuate throughout
2009 due to many factors, including the pace of additional revenues, equipment
acquisitions and distributions.
10
Net
Income (Loss) Per Equivalent Limited Partnership Unit
The net
income (loss) per equivalent limited partnership unit is computed based upon net
income (loss) allocated to the limited partners and the weighted average number
of equivalent units outstanding during the period.
Reclassification
Certain
prior amounts have been reclassified to conform to the current presentation. The
net results of the reclassifications did not have an impact on the Partnership’s
previously reported financial position, cash flows, or results of
operations.
3.
Computer Equipment
The
Partnership is the lessor of equipment under operating leases with periods
generally ranging from 12 to 48 months. In general, associated costs
such as repairs and maintenance, insurance and property taxes are paid by the
lessee.
Through
September 30, 2009, the Partnership has only entered into operating
leases. Lease revenue is recognized on the monthly straight-line
basis which is generally in accordance with the terms of the operating lease
agreements. The company’s leases do not contain any step-rent
provisions or escalation clauses nor are lease revenues adjusted based on any
index.
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 and the equipment is re-leased or
sold. The General Partner believes that this strategy adds value
since it entices the leasing company to "stay with the lease" for potential
extensions, remarketing or sale of equipment. This strategy
potentially minimizes any conflicts the leasing company may have with a
potential new lease and will potentially assist in maximizing overall portfolio
performance. The remarketing fee is tied into lease performance
thresholds and is factored in the negotiation of the fee. Remarketing
fees incurred in connection with lease extensions are accounted for as operating
costs. Remarketing fees incurred in connection with the sale of
computer equipment are included in our gain or loss calculations. For
the nine months ended September 30, 2009 and 2008, the Partnership incurred
remarketing fees of approximately $51,000 and $51,000, respectively. For the
nine months ended September 30, 2009 and 2008 the Partnership paid approximately
$37,000 and $22,000, respectively, in such fees.
The
Partnership’s share of the computer equipment in which it participates with
other partnerships at September 30, 2009 and December 31, 2008 was approximately
$11,564,000 and $9,480,000, respectively, and is included in the Partnership’s
fixed assets on its balance sheet. The total cost of the equipment
shared by the Partnership with other partnerships at September 30, 2009 and
December 31, 2008 was approximately $34,907,000 and $23,272,000,
respectively. The Partnership’s share of the outstanding debt
associated with this equipment at September 30, 2009 and December 31, 2008 was
$435,000 and $1,183,000, respectively. The total outstanding debt
related to the equipment shared by the Partnership at September 30, 2009 and
December 31, 2008 was approximately $1,547,000 and $3,349,000,
respectively.
11
The
following is a schedule of future minimum rentals on non-cancellable operating
leases at September 30, 2009:
Amount
|
|
Three
Months ended December 31, 2009
|
$ 925,475
|
Year
ended December 31, 2010
|
2,015,859
|
Year
ended December 31, 2011
|
1,212,108
|
Year
ended December 31, 2012
|
303,886
|
$ 4,457,328
|
4.
Related Party Transactions
Receivables/Payables
As of
September 30, 2009, the Partnership’s related party receivables and payables are
short term, unsecured, and non-interest bearing.
Nine
Months Ended September 30,
|
2009
|
2008
|
Reimbursable expenses
|
||
Reimbursable
expenses, which are charged to the Partnership by CCC in connection with
the administration and operation of the Partnership, are allocated to the
Partnership based upon several factors including, but not limited to, the
number of investors, compliance issues, and the number of existing
leases. See “Summary of Significant Accounting Policies -
Reimbursable Expenses, “above.
|
$ 926,000
|
$ 1,068,000
|
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. At September 30,
2009, the remaining balance of prepaid acquisition fees was approximately
$56,000, which will be earned in future periods.
|
$ 124,000
|
$ 42,000
|
|
||
Debt Placement fee
|
||
As
compensation for arranging term debt to finance the acquisition of
equipment by the Partnership, the General Partner is paid a fee equal to
1% of such indebtedness, provided, however, that such fee shall be reduced
to the extent the Partnership incurs such fees to third parties,
unaffiliated with the General Partner or the lender, with respect to such
indebtedness and no such fee will be paid with respect to borrowings from
the General Partner or its affiliates.
|
$ -
|
$ 3,000
|
Equipment management fee
|
||
The
General Partner is entitled to be paid for managing the equipment
portfolio a monthly fee equal to the lesser of (i) the fees which would be
charged by an independent third party for similar services for similar
equipment or (ii) the sum of (a) two percent of (1) the gross lease
revenues attributable to equipment which is subject to full payout net
leases which contain net lease provisions plus (2) the purchase price paid
on conditional sales contracts as received by the Partnership and (b) 5%
of the gross lease revenues attributable to equipment which is subject to
operating and capital leases.
|
$ 216,000
|
$ 260,000
|
Equipment liquidation fee
|
||
With
respect to each item of equipment sold by the General Partner (other than
in connection with a conditional sales contract), a fee equal to the
lesser of (i) 50% of the competitive equipment sale commission or (ii)
three percent of the sales price for such equipment is payable to the
General Partner. The payment of such fee is subordinated to the
receipt by the limited partners of (i) a return of their net capital
contributions and a 10% per annum cumulative return, compounded daily, on
adjusted capital contributions and (ii) the net disposition proceeds from
such sale in accordance with the Partnership Agreement. Such
fee will be reduced to the extent any liquidation or resale fees are paid
to unaffiliated parties.
|
$ 5,000
|
$ 18,000
|
12
5.
Notes Payable
Notes
payable consisted of the following:
September
30, 2009
|
December
31, 2008
|
|||||||
Installment
notes payable to banks; interest ranging from 5.25% to 6.20% due in
quarterly or monthly
installments
ranging from $6,588 to $134,671, including interest, with final payments
from January through October 2009
|
$ | 190,041 | $ | 989,358 | ||||
Installment
notes payable to banks; interest ranging from 5.40% to 5.85% due in
quarterly
installments
ranging from $23,643 to $31,661, including interest, with final payments
from January through July 2010
|
167,998 | 322,037 | ||||||
Installment
note payable to bank; interest at 5.75% due in quarterly installments of
$22,756 including
interest,
with final payment in January 2011
|
129,923 | 190,829 | ||||||
Installment
note payable to bank; interest at 6.21%, due in monthly installments of
$1,368, including
interest,
with final payment in May 2012.
|
40,241 | 49,253 | ||||||
$ | 528,203 | $ | 1,551,477 | |||||
Amount
|
|
Three
months ending December 31, 2009
|
$ 267,218
|
Year
ended December 31, 2010
|
216,349
|
Year
ended December 31, 2011
|
37,903
|
Year
ended December 31, 2012
|
6,733
|
$ 528,203
|
13
6.
Supplemental Cash Flow Information
Other
noncash activities included in the determination of net loss are as
follows:
Nine
months ended September 30,
|
2009
|
2008
|
Lease
income, net of interest expense on notes payable realized as a result of
direct payment of principal by lessee to bank
|
$ 1,023,374
|
$ 1,495,243
|
No
interest or principal on notes payable was paid by the Partnership because
direct payment was made by lessee to the bank in lieu of collection of lease
income and payment of interest and principal by the Partnership.
Noncash
investing and financing activities include the following:
Nine
months ended September 30,
|
2009
|
2008
|
Debt
assumed in connection with purchase of computer equipment
|
$ -
|
$ 291,642
|
Equipment
acquisition fees earned by General Partner upon purchase of equipment from
prepaid acquisition fees
|
$ 124,312
|
$ 42,505
|
The
Partnership wrote-off fully amortized acquisition and finance fees of
approximately $309,000 for the nine months ended September 30,
2009. Additionally, the partnership wrote-off obsolete equipment with
a net book value of approximately $15,000 for the nine months ended September
30, 2009.
Item
2: Management’s Discussion and Analysis of Financial Condition and Results of
Operations
FORWARD
LOOKING STATEMENTS
Certain
statements within this Quarterly Report on Form 10-Q may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (“PSLRA”). These statements are being made
pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe
harbor” provisions of the PSLRA, and, other than as required by law, we assume
no obligation to update or supplement such statements. Forward-looking
statements are those that do not relate solely to historical fact. They include,
but are not limited to, any statement that may predict, forecast, indicate or
imply future results, performance, achievements or events. You can identify
these statements by the use of words such as “may,” “will,” “could,”
“anticipate,” “believe,” “estimate,” “expects,” “intend,” “predict” or “project”
and variations of these words or comparable words or phrases of similar meaning.
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.
CRITICAL
ACCOUNTING POLICIES
The
Partnership's discussion and analysis of its financial condition and results of
operations are based upon its financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Partnership to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. The Partnership bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The
Partnership believes that its critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.
14
COMPUTER
EQUIPMENT
Commonwealth
Capital Corp., 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 three to four years.
REVENUE
RECOGNITION
Through
September 30, 2009, the Partnership has only entered into operating
leases. Lease revenue is recognized on a monthly straight-line basis
which is generally in accordance with the terms of the operating lease
agreement. The Partnership’s leases do not contain any step-rent provisions or
escalation clauses nor are lease revenues adjusted based on any
index.
The
Partnership reviews a customer’s credit history before extending credit and
establishes a provision for uncollectible accounts receivable based upon the
credit risk of specific customers, historical trends and other
information.
LONG-LIVED
ASSETS
The
Partnership evaluates its long-lived assets when events or circumstances
indicate that the value of the asset may not be recoverable. The
Partnership determines whether an 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,
and 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. The Partnership determined that
impairment in the amount of approximately $87,000 and $15,000 existed for the
period ended September 30, 2009 and 2008,
respectively. Such amounts have been included in
depreciation expense in the accompanying financial statements.
LIQUIDITY
AND CAPITAL RESOURCES
The
Partnership’s primary source of cash for the nine months ended September 30,
2009 and 2008 was cash provided by operating activities of approximately
$2,285,000 and $1,709,000, respectively. During the nine months ended
September 30, 2009 equipment was purchased in the amount of approximately
$3,108,000 and distributions were paid in the amount of approximately
$1,866,000. Equipment was purchased in the amount of approximately
$771,000 during the nine months ended September 30, 2008 and distributions were
paid in the amount of approximately $1,873,000.
The
Partnership intends to invest approximately $500,000 in additional equipment for
the remainder of 2009. The acquisition of this equipment will be funded by
debt financing and cash flows from lease rental payments.
For the
nine months ended September 30, 2009, the Partnership generated cash flows from
operating activities of approximately $2,285,000, which includes a net loss of
approximately $1,424,000, a gain on sale of computer equipment of approximately
$17,000 and depreciation and amortization expenses of approximately
$4,549,000. Other non-cash activities included in the determination
of net income include direct payments of lease income by lessees to banks of
approximately $1,023,274.
15
For the
nine months ended September 30, 2008, the Partnership generated cash flows from
operating activities of approximately $1,709,000 which includes a net loss of
approximately $501,000, and depreciation and amortization expenses of
approximately $4,321,000. Other non-cash activities included in the
determination of net loss include direct payments of lease income by lessees to
banks of approximately $1,495,000.
At
September 30, 2009, cash was held in two accounts maintained at one financial
institution. The accounts were, in the aggregate, federally insured for up to
$250,000. At September 30, 2009, the total cash balance was as
follows:
At
September 30, 2009
|
Bank
A
|
Total
bank balance
|
$ 1,003,978
|
FDIC
insurable limit
|
$ (250,000)
|
Uninsured
amount
|
$ 753,978
|
The
Partnership mitigates bank failure risk by only depositing funds with major a
financial institution. The Partnership deposits its funds with a
Moody's Aaa-Rated banking institutions which is one of only three Aaa-Rated
banks listed on the New York Stock Exchange. The Partnership has not
experienced any losses in such accounts, and believes it is not exposed to any
significant credit risk. The amount in such accounts will fluctuate throughout
2009 due to many factors, including the 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 September 30, 2009, the Partnership had future
minimum rentals on non-cancelable operating leases of approximately $925,000 for
the balance of the year ending December 31, 2009 and approximately $3,532,000
thereafter. As of September 30, 2009, the Partnership’s outstanding
debt was approximately $528,000 with interest rates ranging from 5.25% to 6.21%,
and will be payable through May 2012.
The
Partnership’s cash from operations is expected to continue to be adequate to
cover all operating expenses, liabilities, and preferred distributions to
Partners during the next 12-month period. If available cash flow or
net disposition proceeds are insufficient to cover the Partnership expenses and
liabilities on a short and long term basis, the Partnership will attempt to
obtain additional funds by disposing of or refinancing equipment, or by
borrowing within its permissible limits. The Partnership may, from
time to time, reduce the distributions to its Partners if it deems
necessary. Since the Partnership’s leases are on a “triple-net”
basis, no reserve for maintenance and repairs is deemed necessary.
RESULTS
OF OPERATIONS
Three months ended September
30, 2009 compared to Three Months ended September 30, 2008
For the
three months ended September 30, 2009, the Partnership recognized revenue of
approximately $1,365,000 and expenses of approximately $1,945,000, resulting in
a net loss of approximately $580,000. For the three months ended
September 30, 2008, the Partnership recognized revenue of approximately
$1,649,000 and expenses of approximately $1,878,000, resulting in a net loss of
approximately $229,000.
Lease
revenue decreased 18% to approximately $1,326,000 for the three months ended
September 30, 2009, from approximately $1,623,000 for the three months ended
September 30, 2008. This decrease was primarily attributable more
lease agreements ending versus new leases commencing, during the three months
ended September 30, 2009.
Operating
expenses, excluding depreciation, primarily consist of accounting, legal,
outside service fees and reimbursement of expenses to CCC for administration and
operation of the Partnership. These expenses decreased 19% to
approximately $266,000 for the three months ended September 30, 2009 from
approximately $328,000 for the three months ended September 30, 2008 primarily
due to decreases in reimbursable expenses and Partnership taxes. See “Summary of
Significant Accounting Policies - Reimbursable Expenses,” in note
2.
The
equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee decreased 18% to approximately $66,000 for the three months ended
September 30, 2009, from approximately $81,000 for the three months ended
September 30, 2008, which is consistent with the decrease in lease
revenue.
16
Depreciation
and amortization expenses consist of depreciation on computer equipment and
amortization of equipment acquisition fees. These expenses increased to
approximately $1,600,000 for the three months ended September 30, 2009, from
$1,406,000 for the three months ended September 30, 2008. This increase is
primarily attributable to the acquisition of new equipment associated with the
purchase of new leases.
The
Partnership sold computer equipment with a net book value of approximately
$109,000 for the three months ended September 30, 2009, for a net loss of
approximately $2,000. The Partnership sold computer equipment with a
net book value of approximately $35,000 for the three months ended September 30,
2008, for a net gain of approximately $3,000.
Nine months ended September
30, 2009 compared to Nine Months ended September 30, 2008
For the
nine months ended September 30, 2009, the Partnership recognized revenue of
approximately $4,403,000, and expenses of approximately $5,828,000 resulting in
a net loss of approximately $1,425,000. For the nine months ended
September 30, 2008, the Partnership recognized revenue of approximately
$5,349,000, and expenses of approximately $5,850,000 resulting in a net loss of
approximately $501,000.
Lease
revenue decreased 17% to $4,312,000 for the nine months ended September 30,
2009, from $5,190,000, for the nine months ended September 30, 2008. This
decrease was primarily attributable more lease agreements ending versus new
leases commencing, during the nine months ended September 30, 2009.
Operating
expenses, excluding depreciation, primarily consist of accounting, legal,
outside service fees and reimbursement of expenses to CCC, a related party, for
administration and operation of the Partnership. These expenses
decreased to approximately $1,001,000 for the nine months ended September 30,
2009, from approximately $1,123,000 for the nine months ended September 30,
2009, primarily due to decreases in reimbursable expenses and Partnership
taxes. This decrease was partially offset by in increase in
outside services of approximately $11,000. See “Summary of
Significant Accounting Policies - Reimbursable Expenses,” in note
2.
The
equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee decreased to approximately $216,000 for the nine months ended
September 30, 2009, from $260,000 for the nine months ended September 30, 2008,
which is consistent with the decrease in lease income.
Depreciation
and amortization expenses consist of depreciation on computer equipment and
amortization of equipment acquisition fees. These expenses increased to
approximately $4,549,000 for the nine months ended September 30, 2009, from
$4,321,000 for the nine months ended September 30, 2008. This increase was due
to the acquisition of new equipment attributable to the purchase of new
leases.
The
Partnership sold computer equipment with a net book value of approximately
$143,000 for the nine months ended September 30, 2009, for a net gain of
approximately $17,000. The Partnership sold computer equipment with a
net book value of approximately $461,000 for the nine months ended September 30,
2008, for a net gain of approximately $85,000.
17
Item 3.Quantitative and Qualitative
Disclosures About Market Risk
N/A
Item
4T. Controls and Procedures
Our
management, under the supervision and with the participation of the principal
executive officer and principal financial offer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of September 30, 2009 which is the end of the period
covered by this Quarterly Report on Form 10-Q. Based on that
evaluation, the principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures are effective to provide
that (a) material information relating to us, including our consolidated
affiliates is made known to these officers by us and our consolidated
affiliates’ other employees, particularly material information related to the
period for which this periodic report is being prepared; and (b) this
information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the rules and forms promulgated
by the Securities and Exchange Commission. There have been no
significant changes in the General Partner’s internal controls or in other
factors that could significantly affect our disclosure controls and procedures
in the third quarter of 2009 or subsequent to the date of the
evaluation.
Part
II: OTHER INFORMATION
Item
1. Legal Proceedings
To date,
the Partnership has recorded a reserve against all outstanding rentals for Quick
Loan Funding in the amount of $43,000. As of June 30, 2009, the
equipment has a net book value of zero. Additionally, in July, known
assets of Quick Loan Funding were sold at auction in Orange County, CA and were
purchased by our General Partner. The General Partner is in the process of
reselling certain assets with value, with resale proceeds to be delivered to the
Partnership, in an attempt to reduce equity lost on this lease transaction.
Please see the description of the Quick Loan Funding proceeding in the
Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008 under the heading “Legal Proceedings.”
The
Partnership’s legal proceedings against Mobile Pro, Inc. and the City of Tempe,
Arizona remain open. Please see the description of the MobilePro and Tempe
proceedings in the Partnership’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 under the heading “Legal Proceedings” for a more
complete description of this matter. The parties are engaged in the
discovery process and have set a tentative trial date of September 13,
2010. To date, the Partnership has taken reserves against outstanding
rentals of approximately $31,000 to cover potential loss exposure.
As of
September 30, 2009, the Partnership has approximately $374,000 in accounts
receivable due from Chrysler. To date, the Partnership has recorded a reserve
against all outstanding rentals for Chrysler in the amount of
$55,000. We have entered into a cure resolution agreement with
Chrysler, pursuant to which Chrysler has agreed to pay approximately $125,000 of
past due amounts and cure its pre-bankruptcy defaults under its leases. Upon
receipt of the cure amount, which is due on or before November 25, 2009, we will
have recovered 82.1 % of the outstanding receivables.
Item
1A. Risk Factors
Changes
in economic conditions could materially and negatively affect our
business.
Our
business is directly impacted by factors such as economic, political, and market
conditions, broad trends in industry and finance, legislative and regulatory
changes, changes in government monetary and fiscal policies, and inflation, all
of which are beyond our control. Beginning in 2008 and continuing
through the third quarter 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
deterioration in economic conditions, whether caused by national or local
concerns, especially within our market area, could result in the following
consequences, any of which could hurt business materially: lease delinquencies
may increase; problem leases and defaults could increase; and demand for
information technology products generally may decrease as businesses attempt to
reduce expenses.
18
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
N/A
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
N/A
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
N/A
|
|
Item
5.
|
Other
Information
|
N/A
|
|
Item
6.
|
Exhibits
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMMONWEALTH
INCOME & GROWTH FUND V
|
|
BY:
COMMONWEALTH INCOME & GROWTH FUND, INC., General
Partner
|
November 16, 2009
|
By: /s/ Kimberly A.
Springsteen-Abbott
|
Date
|
Kimberly
A. Springsteen-Abbott
|
Chief
Executive Officer
|
|
November 16, 2009
|
By: /s/ Lynn A.
Franceschina
|
Date
|
Lynn
A. Franceschina
|
Executive
Vice President, Chief Operating
Officer
|