Arboretum Silverleaf Income Fund, L.P. - FORM 10-Q

Attached files

file	filename
EX-32.2 - Arboretum Silverleaf Income Fund, L.P.	ex32-2.htm
EX-32.1 - Arboretum Silverleaf Income Fund, L.P.	ex32-1.htm
EX-31.2 - Arboretum Silverleaf Income Fund, L.P.	ex31-2.htm
EX-31.1 - Arboretum Silverleaf Income Fund, L.P.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION FROM __________ TO __________

COMMISSION FILE NUMBER: 333-211626

SQN Asset Income Fund V, L.P.

(Exact name of registrant as specified in its charter)

Delaware	81-1184858
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer ID No.)

100 Arboretum Drive, Suite 105
Portsmouth, NH	03801
(Address of principal executive offices)	(Zip code)

Issuer’s telephone number: (603) 294-1420

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] 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 [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]	Accelerated filer [ ]

Non-accelerated filer [ ]	Smaller Reporting Company [X]

Emerging growth company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

At August 14, 2018 there were 1,576,308.40 units of the Registrant’s limited partnership interests issued and outstanding.

SQN Asset Income Fund V, L.P.

INDEX

PART I – FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements	3

	Condensed Balance Sheets at June 30, 2018 and December 31, 2017	3

	Condensed Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017	4

	Condensed Statement of Changes in Partners’ Equity for the Six Months Ended June 30, 2018	5

	Condensed Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	6

	Notes to Condensed Financial Statements	7

Item 2.	General Partner’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

Signatures		32

PART I – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

SQN Asset Income Fund V, L.P.

(A Delaware Limited Partnership)

Condensed Balance Sheets

	June 30,			December 31,
	2018			2017
	(unaudited)
Assets

Cash and cash equivalents	$	2,770,157		$	2,036,337
Investments in finance leases, net		7,497,692			2,032,092
Investments in equipment subject to operating leases, net		175,322			223,102
Collateralized loans receivable, including accrued interest of $1,370 and $28,997		631,323			3,880,331
Other assets		140,205			28,061
Total Assets	$	11,214,699		$	8,199,923

Liabilities and Partners’ Equity
Liabilities:
Accounts payable and accrued liabilities	$	270,215		$	103,158
Funding liability for collateralized loans and leases		113,107			-
Distributions payable to Limited Partners		253,155			181,062
Distributions payable to General Partner		9,661			5,102
Deferred revenue		169,064			49,619
Total Liabilities		815,202			338,941

Partners’ Equity (Deficit):
Limited Partners		10,425,037			7,880,248
General Partner		(25,540	)		(19,266	)
Total Equity		10,399,497			7,860,982
Total Liabilities and Partners’ Equity	$	11,214,699		$	8,199,923

The accompanying notes are an integral part of these unaudited condensed financial statements.

SQN Asset Income Fund V, L.P.

(A Delaware Limited Partnership)

Condensed Statements of Operations

Three and Six Months Ended June 30, 2018 and 2017

(Unaudited)

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Revenue
Rental income	$	27,256		$	27,256		$	54,512		$	54,512
Finance income		217,827			18,407			350,889			38,711
Interest income		14,677			822			77,010			822
Other income		-			179			830			400
Total Revenue		259,760			46,664			483,241			94,445

Expenses
Management fees - Investment Manager		187,500			187,500			375,000			375,000
Depreciation		23,897			23,897			47,780			47,779
Professional fees		60,516			43,001			137,045			132,776
Administration expense		41,577			34,179			84,461			95,079
Other expenses		1,414			600			10,414			600
Total Expenses		314,904			289,177			654,700			651,234
Net loss	$	(55,144	)	$	(242,513	)	$	(171,459	)	$	(556,789	)

Net loss attributable to the Partnership
Limited Partners	$	(54,593	)	$	(240,088	)	$	(169,744	)	$	(551,221	)
General Partner		(551	)		(2,425	)		(1,715	)		(5,568	)
Net loss attributable to the Partnership	$	(55,144	)	$	(242,513	)	$	(171,459	)	$	(556,789	)

Weighted average number of limited partnership interests outstanding		1,351,321.50			553,840.13			1,049,409.37			259,598.89

Net loss attributable to Limited Partners per weighted average number of limited partnership interests outstanding	$	(0.04	)	$	(0.43	)	$	(0.16	)	$	(2.12	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

SQN Asset Income Fund V, L.P.

(A Delaware Limited Partnership)

Condensed Statement of Changes in Partners’ Equity (Unaudited)

Six Months Ended June 30, 2018

	Limited
	Partnership			Total			General			Limited
	Interests			Equity			Partner			Partners
Balance, January 1, 2018		1,137,300.24		$	7,860,982		$	(19,266	)	$	7,880,248

Partners’ capital contributions		350,339.74			3,503,397			-			3,503,397
Offering expenses		-			(84,477	)		-			(84,477	)
Underwriting fees		-			(243,579	)		-			(243,579	)
Net loss		-			(171,459	)		(1,715	)		(169,744	)
Distributions to partners		-			(460,482	)		(4,559	)		(455,923	)
Redemptions to partners		(536.84	)		(4,885	)		-			(4,885	)

Balance, June 30, 2018		1,487,103.14		$	10,399,497		$	(25,540	)	$	10,425,037

The accompanying notes are an integral part of these unaudited condensed financial statements.

SQN Asset Income Fund V, L.P.

(A Delaware Limited Partnership)

Condensed Statements of Cash Flows

(Unaudited)

	For the six months ended			For the six months ended
	June 30, 2018			June 30, 2017

Cash flows from operating activities:
Net loss	$	(171,459	)	$	(556,789	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Finance income		(350,889	)		(38,711	)
Accrued interest income		(76,980	)		(762	)
Depreciation		47,780			47,779
Change in operating assets and liabilities:
Minimum rents receivable		832,272			174,293
Accrued interest income		110,613			-
Other assets		(112,144	)		(368,598	)
Accounts payable and accrued liabilities		167,057			(32,641	)
Deferred revenue		119,445			24,153
Funding liability for collateralized loans and leases		-			510,274
Net cash provided by (used in) operating activities		565,695			(241,002	)

Cash flows used in investing activities:
Purchase of finance leases		(5,795,107	)		-
Cash paid for collateralized loans receivable		(61,459	)		(1,353,727	)
Cash received from collateralized loans receivable		3,238,065			39,083
Net cash used in investing activities		(2,618,501	)		(1,314,644	)

Cash flows from financing activities:
Repayments of loan payable		-			(1,000	)
Cash received from Limited Partner capital contributions		3,440,450			3,724,776
Cash received from restricted cash		-			70,200
Cash paid for Limited Partner distributions		(383,830	)		(96,351	)
Cash paid for Limited Partner redemptions		(4,885	)		(1,000	)
Cash paid for underwriting fees		(180,632	)		(154,971	)
Cash paid for offering costs		(84,477	)		(284,058	)
Net cash provided by financing activities		2,786,626			3,257,596

Net increase in cash and cash equivalents		733,820			1,701,950
Cash and cash equivalents, beginning of period		2,036,337			1,180,918
Cash and cash equivalents, end of period	$	2,770,157		$	2,882,868

Supplemental disclosure of non-cash investing and financing activities:
Units issued as underwriting fee discount	$	62,947		$	116,599
Distributions payable to General Partner	$	4,559		$	-
Distributions payable to Limited Partners	$	72,093		$	-
Funding liability for collateralized loans and leases	$	113,107		$	-

The accompanying notes are an integral part of these unaudited condensed financial statements.

SQN Asset Income Fund V, L.P.

(A Delaware Limited Partnership)

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2018 and 2017

(Unaudited)

1. Organization and Nature of Operations.

Organization – SQN Asset Income Fund V, L.P. (the “Partnership”) was formed on January 14, 2016, as a Delaware limited partnership and is engaged in a single business segment, the ownership and investment in leased equipment and related financings which includes: (i) purchasing equipment and leasing it to third-party end users; (ii) providing equipment and other asset financing; (iii) acquiring equipment subject to lease; and (iv) acquiring ownership rights (residual value interests) in leased equipment at lease expiration. The Partnership will terminate no later than December 31, 2040.

Nature of Operations – The principal investment strategy of the Partnership is to invest in business-essential, revenue-producing (or cost-saving) equipment or other physical assets with high in-place value and long, relative to the investment term, economic life and other financings. The Partnership executes its investment strategy by making investments in equipment already subject to lease or originating equipment leases and loans in such equipment, which will include: (i) purchasing equipment and leasing it to third-party end users; (ii) providing equipment and other asset financings; (iii) acquiring equipment subject to lease; and (iv) acquiring ownership rights (residual value interests) in leased equipment at lease expiration. From time to time, the Partnership may also purchase equipment and sell it directly to its leasing customers. The Partnership may use other investment structures that SQN Investment Advisors, LLC (the “Investment Manager”) believes will provide the Partnership with an appropriate level of security, collateralization, and flexibility to optimize its return on its investment while protecting against downside risk. In many cases, the structure will include the Partnership holding title to or a priority or controlling position in the equipment or other asset.

The General Partner of the Partnership is SQN AIF V GP, LLC (the “General Partner”), a wholly-owned subsidiary of the Partnership’s Investment Manager. Both the Partnership’s General Partner and its Investment Manager are Delaware limited liability companies. The General Partner manages and controls the day to day activities and operations of the Partnership, pursuant to the terms of the Limited Partnership Agreement. The General Partner paid an aggregate capital contribution of $100 for a 1% interest in the Partnership’s income, losses and distributions. The Investment Manager makes all investment decisions and manages the investment portfolio of the Partnership. The Partnership’s income, losses and distributions are allocated 99% to the Limited Partners and 1% to the General Partner until the Limited Partners have received total distributions equal to their capital contributions plus an 8% per year, compounded annually, cumulative return on their capital contributions. After such time, all income, losses and distributable cash will be allocated 80% to the Limited Partners and 20% to the General Partner. The Partnership expects to conduct its activities for at least six years and divide the Partnership’s life into three distinct stages: (i) the Offering Period, (ii) the Operating Period and (iii) the Liquidation Period. The Offering Period began on August 11, 2016, will terminate no later than two years after that date, unless extended by the General Partner, from time to time, in its sole discretion, by up to an additional 12 months. On August 3, 2018, the General Partner extended the Offering Period by an additional 12 months to August 11, 2019. The Operating Period commenced on October 3, 2016, the date of the Partnership’s initial closing, and will last for four years unless extended at the sole discretion of the General Partner. During the Operating Period, the Partnership will invest most of the net proceeds from its offering in business-essential, revenue-producing (or cost-saving) equipment, other physical assets with substantial economic lives and, in many cases, associated revenue streams and project financings. The Liquidation Period, which follows the conclusion of the Operating Period, is the period in which the Partnership will sell its assets in the ordinary course of business and will last two years, unless it is extended, at the sole discretion of the General Partner.

SQN Securities, LLC (“Securities”), a Delaware limited liability company, is affiliated with the General Partner. Securities will act initially as the selling agent for the offering of the units. The units are offered on a “best efforts,” “minimum-maximum” basis.

During the Operating Period, the Partnership plans to make quarterly distributions of cash to the Limited Partners, if, in the opinion of the Partnership’s Investment Manager, such distributions are in the Partnership’s best interests. Therefore, the amount and rate of cash distributions could vary and are not guaranteed. The targeted distribution rate is 6.0% annually, paid quarterly as 1.5%, of each Limited Partner’s capital contribution (pro-rated to the date of admission for each Limited Partner). Since June 30, 2017, the Partnership’s distribution rate has been 6.5% annually, paid quarterly at 1.625%, of capital contributions. On March 31, 2018, the distribution rate increased to 7.0% annually, paid quarterly at 1.75%, of capital contributions. On June 30, 2018, the distribution rate increased to 7.5% annually, paid quarterly at 1.88%, of capital contributions. During the six months ended June 30, 2018, the Partnership declared and accrued quarterly distribution to its Limited Partners totaling $455,923 which resulted in a distributions payable to Limited Partners of $253,155 at June 30, 2018. At June 30, 2018, the Partnership declared and accrued a distribution of $4,559, for distributions due to the General Partner which resulted in distributions payable to the General Partner of $9,661 at June 30, 2018.

From August 11, 2016 through June 30, 2018, the Partnership admitted 330 Limited Partners with total capital contributions of $14,886,015 resulting in the sale of 1,488,601.52 Units. The Partnership received cash contributions of $14,350,049 and applied $535,966 which would have otherwise been paid as sales commission to the purchase of 53,597 additional Units.

2. Summary of Significant Accounting Policies.

Basis of Presentation — The condensed balance sheets, statements of operations, statement of changes in partners’ equity and statements of cash flows of the Partnership at June 30, 2018 and 2017 and for the three and six months ended June 30, 2018 and 2017 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results reported in these condensed financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. These unaudited interim condensed financial statements should be read in conjunction with the financial statements and notes contained in the Partnership’s annual report on Form 10-K, as filed with the SEC on March 29, 2018.

Use of Estimates — The preparation of condensed interim financial statements in conformity with U.S. GAAP requires the General Partner and Investment Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed interim financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates primarily include the determination of allowances for doubtful lease, notes and loan accounts, depreciation and amortization, impairment losses, estimated useful lives, and residual values. Actual results could differ from those estimates.

Cash and Cash Equivalents — The Partnership considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of funds maintained in checking and money market accounts maintained at financial institutions.

The Partnership’s cash and cash equivalents are held principally at one financial institution and at times may exceed federally insured limits. The Partnership has placed these funds in a full service commercial financial institution in order to minimize risk relating to exceeding insured limits.

Credit Risk — In the normal course of business, the Partnership is exposed to credit risk. Credit risk is the risk that the Partnership’s counterparty to an agreement either has an inability or unwillingness to make contractually required payments. The Partnership expects concentrations of credit risk with respect to lessees to be dispersed across different industry segments and different regions of the world.

Asset Impairments — Assets in the Partnership’s investment portfolio, which are considered long-lived assets, are periodically reviewed, no less frequently than annually or when indicators of impairment exist, to determine whether events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. If there is an indication of impairment, the Partnership estimates the future cash flows (undiscounted and without interest charges) expected from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If an impairment is determined to exist, the impairment loss is measured as the amount by which the carrying value of a long-lived asset exceeds its fair value and is recorded in the statement of operations in the period the determination is made. The events or changes in circumstances that generally indicate that an asset may be impaired are, (i) the estimated fair value of the underlying equipment is less than its carrying value, (ii) the lessee is experiencing financial difficulties and (iii) it does not appear likely that the estimated proceeds from the disposition of the asset will be sufficient to recover the carrying value of the asset. The preparation of the undiscounted cash flows requires the use of assumptions and estimates, including the level of future rents or receipts from the sale of the investment, estimated downtime between re-leasing events, and the amount of re-leasing costs. The Investment Manager’s review for impairment includes a consideration of the existence of impairment indicators, including third party appraisals, published values for similar assets, recent transactions for similar assets, adverse changes in market conditions for specific asset types, and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset.

Lease Classification and Revenue Recognition — The Partnership records revenue based upon the lease classification determined at the inception of the transaction and based upon the terms of the lease or when there are significant changes to the lease terms.

The Partnership leases equipment to third parties and each such lease may be classified as either a finance lease or an operating lease. Initial direct costs are capitalized and amortized over the term of the related lease for a finance lease. For an operating lease, initial direct costs are included as a component of the cost of the equipment and depreciated.

For finance leases, the Partnership records, at lease inception, the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment upon lease termination, the initial direct costs, if any, related to the lease and the related unearned income. Unearned income represents the difference between the sum of the minimum lease payments receivable plus the estimated unguaranteed residual value, minus the cost of the leased equipment. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.

For operating leases, rental income is recognized on the straight line basis over the lease term. Billed and uncollected operating lease receivables will be included in accounts receivable. Accounts receivable are stated at their estimated net realizable value. Rental income received in advance is the difference between the timing of the cash payments and the income recognized on the straight line basis.

The investment committee of the Investment Manager approves each new equipment lease, financing transaction, and lease acquisition. As part of this process it determines the unguaranteed residual value, if any, to be used once the acquisition has been approved. The factors considered in determining the unguaranteed residual value include, but are not limited to, the creditworthiness of the potential lessee, the type of equipment being considered, how the equipment is integrated into the potential lessees’ business, the length of the lease the industry in which the potential lessee operates and the secondary market value of the equipment. Unguaranteed residual values are reviewed for impairment in accordance with the Partnership’s policy relating to impairment review.

The residual value assumes, among other things, that the asset will be utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded, and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. The residual value is calculated using information from various external sources, such as trade publications, auction data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical asset and other economic indicators.

Finance Lease Receivables and Allowance for Doubtful Lease, Notes and Loan Accounts — In the normal course of business, the Partnership provides credit or financing to its customers, performs credit evaluations of these customers, and maintains reserves for potential credit losses. These credit or financing transactions are normally collateralized by the equipment being financed. In determining the amount of allowance for doubtful lease, notes and loan accounts, the Investment Manager considers historical credit losses, the past due status of receivables, payment history, and other customer-specific information, including the value of the collateral. The past due status of a receivable is based on its contractual terms. Expected credit losses are recorded as an allowance for doubtful lease, notes and loan accounts. Receivables are written off when the Investment Manager determines they are uncollectible. At June 30, 2018 and 2017, an allowance for doubtful lease, notes and loan accounts is not currently provided since, in the opinion of the Investment Manager, all accounts recorded are deemed collectible.

Equipment Notes and Loans Receivable — Equipment notes and loans receivable are reported in the condensed interim financial statements as the outstanding principal balance net of any unamortized deferred fees, and premiums or discounts on purchased loans. Costs to originate loans, if any, are reported as other assets in the condensed interim financial statements and amortized to expense over the estimated life of the loan. Income is recognized over the life of the note agreement. On certain equipment notes and loans receivable, specific payment terms were reached requiring prepayments which resulted in the recognition of unearned interest income. Unearned income, discounts and premiums, if any, are amortized to interest income in the condensed statements of operations using the effective interest rate method. Equipment notes and loans receivable are generally placed in a non-accrual status when payments are more than 90 days past due and all unpaid accrued interest is reversed. Additionally, the Investment Manager periodically reviews the creditworthiness of companies with payments outstanding less than 90 days. Based upon the Investment Manager’s judgment, accounts may be placed in a non-accrual status. Accounts on a non-accrual status are only returned to an accrual status when the account has been brought current and the Partnership believes recovery of the remaining unpaid receivable is probable. Revenue on non-accrual accounts is recognized only when cash has been received.

Income Taxes — As a partnership, no provision for income taxes is recorded since the liability for such taxes is the responsibility of each of the Partners rather than the Partnership. The Partnership’s income tax returns are subject to examination by the federal and state taxing authorities, and changes, if any, could adjust the individual income tax of the Partners.

The Partnership has adopted the provisions of Financial Accounting Standards Board’s (“FASB”) Topic 740, Accounting for Uncertainty in Income Taxes. This accounting guidance prescribes recognition thresholds that must be met before a tax position is recognized in the condensed interim financial statements and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The Partnership has evaluated its entity level tax positions for the years ended December 31, 2017 and 2016, and does not expect any material adjustments to be made. The tax years 2017 and 2016 remain open to examination by the major taxing jurisdictions to which the Partnership is subject.

Per Share Data — Net income or loss attributable to Limited Partners per weighted average number of limited partnership interests outstanding is calculated as follows; the net income or loss allocable to the Limited Partners divided by the weighted average number of limited partnership interests outstanding during the period.

Foreign Currency Transactions — The Partnership has designated the United States of America dollar as the functional currency for the Partnership’s investments denominated in foreign currencies. Accordingly, certain assets and liabilities are translated at either the reporting period exchange rates or the historical exchange rates, revenues and expenses are translated at the average rate of exchange for the period, and all transaction gains or losses are reflected in the condensed statements of operations.

Depreciation — The Partnership records depreciation expense on equipment when the lease is classified as an operating lease. In order to calculate depreciation, the Partnership first determines the depreciable equipment cost, which is the cost less the estimated residual value. The estimated residual value is the Partnership’s estimate of the value of the equipment at lease termination. Depreciation expense is recorded by applying the straight-line method of depreciation to the depreciable equipment cost over the lease term.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. The adoption of ASU 2016-15 becomes effective for fiscal years beginning on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted. An entity will apply the amendments within ASU 2016-15 using a retrospective transition method to each period presented. The Partnership has adopted ASU No 2016-15 and has determined there was no significant impact on its condensed interim financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. Current US GAAP is based on an incurred loss model that delays recognition of credit losses until it is probable the loss has been incurred. Accordingly, it is anticipated that credit losses will be recognized earlier under the CECL model than under the incurred loss model. ASU 2016-13 is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained earnings. Early adoption is permitted. The Partnership is currently evaluating the impact of this guidance on its condensed interim financial statements.

In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements, ASU 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification (“ASU 2016-02”), effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets, and makes targeted changes to lessor accounting. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Partnership is currently evaluating the impact of this guidance on its condensed interim financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), ASU 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB approved amendments deferring the effective date by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. Early application was permitted but not before the original public entity effective date, i.e., annual periods beginning after December 15, 2016. The Partnership has adopted ASU 2014-09 and has determined there was no significant impact on its condensed interim financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the condensed interim financial statements.

3. Related Party Transactions.

The General Partner is responsible for the operations of the Partnership and the Investment Manager makes all investment decisions and manages the investment portfolio of the Partnership. The Partnership reimburses the General Partner for actual incurred organizational and offering costs not to exceed 1.5% of all capital contributions received by the Partnership. Because organizational and offering expenses will be paid, as and to the extent they are incurred, organizational and offering expenses may be drawn disproportionately to the gross proceeds of each closing. The General Partner also has a promotional interest in the Partnership equal to 20% of all distributed distributable cash, after the Partnership has provided an 8% cumulative return, compounded annually, to the Limited Partners on their capital contributions. The General Partner has a 1% interest in the profits, losses and distributions of the Partnership. The General Partner will initially receive 1% of all distributed distributable cash, which was accrued at June 30, 2018 and 2017.

The Partnership pays the Investment Manager during the Offering Period, Operating Period and the Liquidation Period a management fee equal to the greater of, (i) 2.5% per annum of the aggregate offering proceeds, payable monthly in advance or (ii) $62,500 per month. For the three months ended June 30, 2018 and 2017, the Partnership paid $187,500 in management fee expense to the Investment Manager. For the six months ended June 30, 2018 and 2017, the Partnership paid $375,000 in management fee expense to the Investment Manager.

The Partnership pays the Investment Manager during the Operating Period a structuring fee in an amount equal to 1.5% of each cash investment made, including reinvestments, payable on the date each such investment is made. For the six months ended June 30, 2018 and 2017, the Partnership accrued $108,370 and $12,593, respectively, of structuring fees to the Investment Manager.

On December 15, 2017, the Partnership entered into two assignment and purchase agreements with Arboretum Core Asset Finance Fund, L.P., a Delaware limited partnership, a fund managed by the Investment Manager, to purchase two seasoned and performing promissory notes for total cash of $130,559. The funds from the promissory notes with the borrower were used to acquire point-of-sale systems for multiple restaurants. The two promissory notes will be paid in 13 monthly installments of principal and interest of $7,943 and $2,870, respectively. The notes accrue interest at a rate of 18% per annum and mature on January 1, 2019. The promissory notes are secured by a first priority lien with respect to the equipment. For the three and six months ended June 30, 2018, the promissory notes earned interest income of $2,837 and $6,672, respectively.

Securities is a Delaware limited liability company and is a subsidiary of an affiliate of the Partnership’s Investment Manager. Securities in its capacity as the Partnership’s selling agent receives an underwriting fee of 2% of the gross proceeds from Limited Partners’ capital contributions (excluding proceeds, if any, the Partnership receives from the sale of the Partnership’s Units to the General Partner or its affiliates). While Securities is initially acting as the Partnership’s exclusive selling agent, the Partnership may engage additional selling agents in the future.

For the six months ended June 30, 2018 and the year ended December 31, 2017, the Partnership incurred the following transactions with Securities:

	June, 2018			December 31, 2017
	(unaudited)
Balance - beginning of period	$	—		$	—
Underwriting fees earned by Securities		68,409			154,917
Payments by the Partnership to Securities		(68,409	)		(154,917	)

Balance - end of period	$	—		$	—

For the six months ended June 30, 2018 and 2017, the Partnership incurred the following underwriting fee transactions:

	June 30, 2018		June 30, 2017
	(unaudited)		(unaudited)
Underwriting discount incurred by the Partnership	$	62,947	$	116,599
Underwriting fees earned by Securities		68,409		74,496
Fees paid to outside brokers		112,223		80,475
Total underwriting fees	$	243,579	$	271,570

4. Investments in Finance Leases.

At June 30, 2018 and December 31, 2017, net investments in finance leases consisted of the following:

	June 30, 2018			December 31, 2017
	(unaudited)
Minimum rents receivable	$	8,385,227		$	2,422,090
Estimated unguaranteed residual value		662,066			128,970
Unearned income		(1,549,601	)		(518,968	)
Total	$	7,497,692		$	2,032,092

Computer Equipment

On October 6, 2016, the Partnership funded a lease facility for $680,020 of Apple computers with a private school in New York City. The finance lease requires 36 monthly payments of $17,402. The lessee made a down payment of $102,002 and the remainder amount was funded by the Partnership. The lease is secured by ownership of the equipment. At June 30, 2018, there were no significant changes to this lease.

Furniture and Kitchen Equipment

On October 21, 2016, the Partnership funded a finance lease for $357,020 of an assortment of school furniture and kitchen equipment with a public charter school in New Jersey. The finance lease requires 36 monthly payments of $11,647 with the first and last payments due in advance. The lease is secured by a first priority lien against the equipment. At June 30, 2018, there were no significant changes to this lease.

Agricultural Equipment

On November 9, 2017, the Partnership funded a lease facility for $406,456 of agricultural equipment and supplies with a company based in Illinois. The finance lease requires 36 monthly payments of $13,819 with the first and last payments due in advance. On February 9, 2018, the Partnership funded a second lease facility for $48,850 of agricultural equipment and supplies with the company based in Illinois. The finance lease requires 36 monthly payments of $1,661 with the first and last payments due in advance. On April 17, 2018, the Partnership funded a third lease facility for $44,380 of agricultural equipment and supplies with the company based in Illinois. The finance lease requires 36 monthly payments of $1,509 with the first and last payments due in advance. The leases are secured by a first priority lien against the agricultural equipment and supplies and a personal guarantee from the company’s CEO. At June 30, 2018, there were no significant changes to these leases.

Infrastructure Equipment

On December 4, 2017, the Partnership entered into a lease facility for $940,000 of railcar movers with a company based in Missouri. The finance lease requires 60 monthly payments of $16,468 with the first and last payments due in advance, and an additional final payment of $350,709. The lease is secured by a first priority lien against the railcar movers. At June 30, 2018, there were no significant changes to this lease.

On June 29, 2018, the Partnership entered into a lease facility for $1,199,520 for water pumps based in North Dakota. The finance lease requires 48 monthly payments of $31,902 with the first and last payments due in advance. The lease is secured by a first priority lien against the water pumps.

Fabrication Equipment

On January 18, 2018, the Partnership entered into a lease facility for $2,188,377 of fabrication equipment with a company based in Texas. The lease requires 42 monthly payments of $57,199 with the first and last payments due in advance. The lease is secured by a first priority lien against the fabrication equipment. The lease is expected to commence on the first day of the calendar quarter following final funding, and the company has been paying pre-commencement rents to the Partnership. On January 30, 2018, February 14, 2018 and on March 16, 2018, the Partnership advanced $1,079,895, $647,122 and $349,428, respectively, under this lease facility.

Virtual Office Software Equipment

On February 5, 2018, the Partnership entered into a lease facility for $245,219 of virtual office software and equipment with a company based in Florida. The lease requires 24 monthly payments of $12,020 with the first and last payments due in advance. The lease is secured by a first priority lien against the virtual office software and equipment. On February 5, 2018, the Partnership advanced $245,219 under this lease facility. At June 30, 2018, there were no significant changes to this lease.

Education and Tourism Equipment

On February 12, 2018, the Partnership entered into a lease facility for up to $1,500,000 of educational multimedia content equipment with a global company. The lease is secured by a first priority lien against the educational multimedia content equipment. On February 14, 2018, the Partnership advanced $1,015,720 as equipment lease schedule 1 (“Schedule 1”) under this lease facility. The Schedule 1 lease requires 36 monthly payments of $33,402 with the first payment due in advance, commencing on March 1, 2018. On June 29, 2018, the Partnership amended and restated the above lease facility and Schedule 1 to $1,175,720 and advanced an additional $160,000 under the amended and restated lease facility. The amended and restated Schedule 1 lease requires 32 monthly payments of $39,212, commencing on July 1, 2018. As of June 30, 2018, the amended lease facility is fully funded.

Kitchen Equipment

On March 9, 2018, the Partnership entered into a lease facility for $88,233 of restaurant kitchen equipment with a company based in Pennsylvania. The lease requires 42 monthly payments of $2,669 with the first and last payments due in advance. The lease is secured by a first priority lien against the restaurant kitchen equipment and a corporate guarantee of an affiliated company. On March 13, 2018, the Partnership advanced $88,233 under this lease facility. On May 11, 2018, the Partnership received cash of $99,162 as total payoff of the finance lease. The finance lease had a net book value of $82,674 resulting in additional finance income on payoff of $16,488.

Information Technology Equipment

On April 3, 2018, the Partnership funded a lease facility for $390,573 of IT server equipment with a company based in California. The finance lease requires 36 monthly payments of $13,444 with the first payment due in advance. The lease is secured by a first priority lien against the IT server equipment.

Medical Equipment

On June 26, 2018, the Partnership entered into a lease facility for $673,706 of electrosurgical fiber, manufacturing, and testing equipment with a company based in Massachusetts. The lease is secured by a first priority lien against the equipment and a corporate guarantee of the parent company of the lessee. On June 26, 2018, the Partnership advanced a total of $455,749 as equipment lease schedule 1 and schedule 2 under this lease facility. The lease schedules require 42 monthly payments of $20,224 with the first and last payment due upon commencement, commencing no later than January 1, 2019. The company has been paying pre-commencement rents to the Partnership.

5. Investment in Equipment Subject to Operating Leases.

On October 18, 2016, the Partnership funded a lease facility for $318,882 for 16 pizza ovens to five separate lessees. Each lease has a 36 month term with various monthly payments. The lease is secured by ownership of the equipment and by a corporate guarantee of the parent of the lessees.

The composition of the equipment subject to operating leases of the Partnership as of June 30, 2018 is as follows:

Description	Cost Basis		Accumulated Depreciation		Net Book Value
	(unaudited)		(unaudited)		(unaudited)
Food equipment	$	334,826	$	159,505	$	175,321
	$	334,826	$	159,505	$	175,321

The composition of the equipment subject to operating leases of the Partnership as of December 31, 2017 is as follows:

Description	Cost Basis		Accumulated Depreciation		Net Book Value

Food equipment	$	334,826	$	111,724	$	223,102
	$	334,826	$	111,724	$	223,102

Depreciation expense for the three and six months ended June 30, 2018 was $23,897 and $47,780, respectively.

6. Collateralized Loans Receivable.

On June 26, 2017, the Partnership entered into a Commercial Finance Agreement (“CFA”) with a borrower to provide secured financing for $1,184,850 of warehouse racking equipment. The CFA is secured by the racking equipment, and accrues interest at a rate of 9% per annum and matures on June 26, 2020. The borrower will make 36 monthly payments as follows: one payment of $39,083, 11 monthly payments of $69,498 and 24 monthly payments of $20,222. In connection with the CFA, on June 26, 2017, the Partnership advanced $689,552 to the vendor as a progress payment for the equipment. On July 31, 2017, the Partnership advanced $495,298 to the vendor as the final payment for the equipment. For the three and six months ended June 30, 2018, the CFA earned interest income of $8,997 and $21,527, respectively.

On June 26, 2017, the Partnership entered into a loan agreement with a borrower to refinance the borrower’s debt. In connection with the refinancing, the Partnership received a promissory note from the borrower in the amount of $150,000. The note accrues interest at a rate of 12% per annum and matures on June 26, 2021. The promissory note will be paid through 48 monthly installments of principal and interest of $3,931. The promissory note is secured by a first priority security interest in all of the borrower’s assets and personal guarantees of the borrower’s principals as well as a corporate guarantee of an affiliate of the borrower. For the three and six months ended June 30, 2018, the promissory note earned interest income of $2,828 and $5,878, respectively.

On November 7, 2017, the Partnership entered into a loan agreement with a borrower to provide short term bridge financing, which funds were used to acquire the rights, title, and interest in an asset backed equipment loan (the “Underlying Loan”). In connection with the loan agreement, the Partnership received a promissory note from the borrower in the amount of $2,800,000. The note accrued interest at a rate of 1.5% per month for the first 30 days and 1.25% per month thereafter, and matured on February 7, 2018. The promissory note was paid in one monthly installment of interest of $42,000 for the first 30 days and two monthly installments of $35,000 thereafter. The promissory note was secured by (i) a first priority security interest in all the borrower’s right, title and interest in the Underlying Loan and the proceeds thereof; (ii) a first priority security interest in all of borrower’s right, title and interest in an unrelated, performing asset backed loan and the equipment related thereto; and (iii) a first priority security interest in borrower’s 100% membership interests in the special purpose entity that holds the Underlying Loan. For the three months ended March 31, 2018, the promissory note earned interest income of $42,903. During the year ended December 31, 2017, the Partnership received a payment of $42,000. On January 5, 2018, the Partnership received a payment of $42,000. On February 6, 2018, the Partnership received cash proceeds of $2,828,000 as payment in full of the asset backed equipment loan.

The future principal maturities of the Partnership’s collateralized loans receivable at June 30, 2018 are as follows:

Years ending June 30, (unaudited)
2019	$	328,926
2020		255,932
2021		45,095
2022		—
2023		—
Thereafter		—
Total	$	629,953

7. Fair Value of Financial Instruments

The Partnership’s carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and other liabilities, approximate fair value due to their short term until maturities.

As of June 30, 2018, the Partnership evaluated the carrying values of its financial instruments and they approximate fair value.

8. Indemnifications

The Partnership enters into contracts that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is not known.

In the normal course of business, the Partnership enters into contracts of various types, including lease contracts, contracts for the sale or purchase of lease assets, loan agreements and management contracts. It is prevalent industry practice for most contracts of any significant value to include provisions that each of the contracting parties, in addition to assuming liability for breaches of the representations, warranties, and covenants that are part of the underlying contractual obligations, to also assume an obligation to indemnify and hold the other contractual party harmless for such breaches, and for harm caused by such party’s gross negligence and willful misconduct, including, in certain instances, certain costs and expenses arising from the contract. Generally, to the extent these contracts are performed in the ordinary course of business under the reasonable business judgment of the General Partner and the Investment Manager, no liability will arise as a result of these provisions. The General Partner and Investment Manager knows of no facts or circumstances that would make the Partnership’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Partnership believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Partnership’s similar commitments is remote. Should any such indemnification obligation become payable, the Partnership would separately record and/or disclose such liability in accordance with U.S. GAAP.

9. Business Concentrations

For the six months ended June 30, 2018 and 2017, the Partnership had one lessee which accounted for approximately 100% of the Partnership’s rental income derived from operating leases. For the six months ended June 30, 2018, the Partnership had four lessees which accounted for approximately 42%, 15%, 13% and 11% of the Partnership’s income derived from finance leases. For the six months ended June 30, 2017, the Partnership had two leases which accounted for approximately 61% and 39% of the Partnership’s income derived from finance leases. For the six months ended June 30, 2018, the Partnership had two promissory notes which accounted for approximately 56% and 28% of the Partnership’s interest income derived from collateralized loans receivable. For the six months ended June 30, 2017, the Partnership had two loans which accounted for approximately 72% and 21% of the Partnership’s interest income derived from collateralized loans receivable.

At June 30, 2018 and 2017, the Partnership had one lessee which accounted for approximately 100% of the Partnership’s investment in operating leases. At June 30, 2018, the Partnership had four lessees which accounted for approximately 30%, 16%, 15% and 12% of the Partnership’s investment in finance leases. At June 30, 2017, the Partnership had two lessees which accounted for approximately 62% and 38% of the Partnership’s investment in finance leases. At June 30, 2018, the Partnership had three borrowers which accounted for approximately 69%, 20% and 12% of the Partnership’s investment in collateralized loans receivable. At June 30, 2017, the Partnership had two borrowers which accounted for approximately 88% and 12% of the Partnership’s investment in collateralized loans receivable.

10. Geographic Information

Geographic information for revenue for the three months ended June 30, 2018 and 2017 was as follows:

	Three Months Ended June 30, 2018
	United States		Total
	(unaudited)		(unaudited)
Revenue:
Rental income	$	27,256	$	27,256
Finance income	$	217,827	$	217,827
Interest income	$	14,677	$	14,677

	Three Months Ended June 30, 2017
	United States		Total
	(unaudited)		(unaudited)
Revenue:
Rental income	$	27,256	$	27,256
Finance income	$	18,407	$	18,407
Interest income	$	822	$	822

Geographic information for revenue for the six months ended June 30, 2018 and 2017 was as follows:

	Six Months Ended June 30, 2018
	United States		Total
	(unaudited)		(unaudited)
Revenue:
Rental income	$	54,512	$	54,512
Finance income	$	350,889	$	350,889
Interest income	$	77,010	$	77,010

	Six Months Ended June 30, 2017
	United States		Total
	(unaudited)		(unaudited)
Revenue:
Rental income	$	54,512	$	54,512
Finance income	$	38,711	$	38,711
Interest income	$	822	$	822

Geographic information for long-lived assets at June 30, 2018 and December 31, 2017 was as follows:

	June 30, 2018
	United States		Total
	(unaudited)		(unaudited)
Long-lived assets:
Investment in finance leases, net	$	7,497,692	$	7,497,692
Investments in equipment subject to operating leases, net	$	175,322	$	175,322
Collateralized loan receivable, including accrued interest	$	631,323	$	631,323

	December 31, 2017
	United States		Total
Long-lived assets:
Investment in finance leases, net	$	2,032,092	$	2,032,092
Investments in equipment subject to operating leases, net	$	223,102	$	223,102
Collateralized loan receivable, including accrued interest	$	3,880,331	$	3,880,331

11. Commitments and Contingencies

On May 1, 2018, the Partnership, as co-borrower, entered into a loan agreement with a bank for a $5,000,000 revolving line of credit. This short term line is intended to be utilized to warehouse transactions to be invested in by the Partnership as investor proceeds are received. In connection with the loan agreement, the Partnership issued a promissory note to the bank in the amount of $5,000,000 that matures on May 1, 2020. To date, the Partnership has not drawn any funds under the revolving line of credit. In the event the Partnership draws funds, interest shall accrue at a rate of Prime Rate plus 1% per annum.

As of June 30, 2018, the Partnership has an unfunded commitment of $111,932 for the finance lease of fabrication equipment, two unfunded commitments totaling $217,957 for the finance lease of electrosurgical fiber, manufacturing, and testing equipment and one unfunded commitment totaling $5,500,000 for a collateralized loan to finance a food production facility in Georgia. Except for those investments, the Partnership does not have any unfunded commitments for any investments.

12. Subsequent Events

On June 29, 2018, the Partnership entered into a loan agreement with a borrower to provide financing in an amount up to $7,500,000 to finance a food production facility in Georgia. The loan facility is structured as two tranches: Tranche I: $5,500,000 was funded on July 5, 2018. Tranche II: Up to $2,000,000 is available at lender’s discretion subject to the borrower achieving certain milestones. The loan facility is secured by a first priority security interest in all of the borrower’s assets. In connection with the Tranche I loan, the Partnership received three promissory notes from the borrower in the amount of $1,500,000, $2,000,000 and $2,000,000 respectively. On July 5, 2018, the Partnership funded $5,500,000 for the Tranche I loan. The Tranche I loan accrues interest at a rate of 12.75% plus 3 month LIBOR with a floor of 1.5% and matures on June 30, 2021. The Tranche I loan requires 18 monthly interest only payments upon commencement (first 12 monthly interest payments to be paid in cash at 11% and the remainder to be paid in kind (“PIK”) by adding such PIK interest to the principal balance and 6 monthly interest payments to be paid in cash) and 18 monthly payment of principal and interest payment with monthly principal paydowns of $150,000. Upon maturity of the Tranche I loan, the borrower will make a final balloon payment of approximately $3,029,000 ($2,900,000 principal plus accrued PIK interest). On June 29, 2018, the Partnership entered into an assignment agreement with a third party and will sell $3,000,000 of the Tranche I loan, effective July 5, 2018, and will sell $1,000,000 of the Tranche I loan, effective on or about September 1, 2018. On July 5, 2018, the Partnership returned two promissory notes to the borrower in the amount of $2,000,000 and $2,000,000 respectively and the borrower reissued one promissory note to the Partnership in the amount of $1,000,000 and one promissory note to the third party in the amount of $3,000,000.

From July 1, 2018 through August 14, 2018, the Partnership admitted an additional 22 Limited Partners with total capital contributions of $892,053 resulting in the sale of 89,205.26 Units. The Partnership received cash contributions of $881,500 and applied $10,553 which would have otherwise been paid as sales commissions to the purchase of 1,055.26 additional Units. The Partnership paid or accrued an underwriting fee to Securities and outside brokers totaling $17,630 and $34,050, respectively.

Item 2. General Partner’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include SQN Asset Income Fund V, L.P.

The following is a discussion of our current financial position and results of operations. This discussion should be read in conjunction with the disclosures below regarding “Forward-Looking Statements” and the “Risk Factors” set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.

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,” “expect,” “intend,” “predict,” “continue,” “further,” “seek,” “plan,” 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. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview

We are a Delaware limited partnership formed on January 14, 2016. Our partnership operates under a structure which we pool the capital invested by our partners. This pool of capital is then used to invest in business-essential, revenue-producing (or cost-saving) equipment and other physical assets with substantial economic lives and, in many cases, associated revenue streams and project financings. The pooled capital contributions are also used to pay fees and expenses associated with our organization and to fund a capital reserve.

Our principal investment strategy is to invest in business-essential, revenue-producing (or cost-savings) equipment with high in-place value and long, relative to the investment term, economic life and project financings. We expect to achieve our investment strategy by making investments in equipment already subject to lease or originating equipment leases in such equipment, which will include: (i) purchasing equipment and leasing it to third-party end users; (ii) providing equipment and other asset financing; (iii) acquiring equipment subject to lease and (iv) acquiring ownership rights (residual value interests) in leased equipment at lease expiration. From time to time, we may also purchase equipment and sell it directly to our leasing customers.

Many of our investments will be structured as full payout or operating leases. Full payout leases generally are leases under which the rent over the initial term of the lease will return our invested capital plus an appropriate return without consideration of the residual value, and where the lessee may acquire the equipment or other assets at the expiration of the lease term. Operating leases generally are leases under which the aggregate non-cancelable rental payments during the original term of the lease, on a net present value basis, are not sufficient to recover the purchase price of the equipment or other assets leased under the lease.

We also intend to invest by way of loans, participation agreements and residual sharing agreements where we would acquire an interest in a pool of equipment or other assets, or rights to the equipment or other assets, at a future date. We also may structure investments as project financings that are secured by, among other things, essential use equipment and/or assets. Finally, we may use other investment structures that our Investment Manager believes will provide us with the appropriate level of security, collateralization, and flexibility to optimize our return on our investment while protecting against downside risk, such as vendor and rental programs. In many cases, the structure will include us holding title to or a priority or controlling position in the equipment or other asset.

Although the final composition of our portfolio cannot be determined at this stage, we expect to invest in equipment and other assets that are considered essential use or core to a business or operation in the agricultural, energy, environmental, medical, manufacturing, technology, and transportation industries. Our Investment Manager may identify other assets or industries that meet our investment objectives. We expect to invest in equipment, other assets and project financings located primarily within the United States of America and the European Union but may also make investments in other parts of the world.

We are currently in the Offering and Operating Period. The Offering Period will expire on the earlier of raising $250,000,000 in Limited Partner contributions (25,000,000 units at $10 per Unit) or August 11, 2018, which is two years from the date we were declared effective by the Securities and Exchange Commission (the “SEC”). unless extended by our General Partner, from time to time, in its sole discretion, by up to an additional 12 months. On August 3, 2018, the General Partner extended the Offering Period by an additional 12 months to August 11, 2019. During the Operating Period, we will invest most of the net proceeds from our offering in business-essential, revenue-producing (or cost-saving) equipment, other physical assets with substantial economic lives and, in many cases, associated revenue streams and project financings. The Operating period began on the date we admitted our first Limited Partners, the initial closing, which occurred on October 3, 2016 and will last for four years from that date unless extended at the sole discretion of the General Partner. At our initial closing, we reimbursed our Investment Manager for a portion of the fees and expenses associated with our organization and offering which they previously paid on our behalf and we funded a small capital reserve. The Liquidation Period, which follows the conclusion of the Operating Period, is the period in which we will sell assets in the ordinary course of business and will last two years, unless it is extended, at the sole discretion of the General Partner.

Our General Partner, our Investment Manager and their affiliates, including Securities in its capacity as our selling agent and certain non-affiliates (namely, Selling Dealers) receive fees and compensation from the offering of our Units, including the following, with any and all compensation paid to our General Partner solely in cash. We pay an underwriting fee of 2% of the gross proceeds of the offering (excluding proceeds, if any, we receive from the sale of our Units to our General Partner or its affiliates) to our selling agent or selling agents. While Securities initially acts as our exclusive selling agent, we may engage additional selling agents in the future. From these underwriting fees, a selling agent may pay Selling Dealers, a non-accountable marketing fee based upon such factors as the volume of sales of such Selling Dealers, the level of marketing support provided by such participating dealers and the assistance of such Selling Dealers in marketing the offering, or to reimburse representatives of such Selling Dealers for the costs and expenses of attending our educational conferences and seminars. This fee will vary, depending upon separately negotiated agreements with each Selling Dealer. In addition, we pay a sales commission to Selling Dealers up to 5% of the gross proceeds of this offering (excluding proceeds, if any, we receive from the sale of our Units to our General Partner or its affiliates).

Our General Partner receives an organizational and offering expense allowance of up to 1.5% of our offering proceeds to reimburse it for expenses incurred in preparing us for registration or qualification under federal and state securities laws and subsequently offering and selling our Units. The organizational and offering expense allowance will be paid out of the proceeds of the offering. The organizational and offering expense allowance will not exceed the actual fees and expenses incurred by our General Partner and its affiliates. Because organizational and offering expenses will be paid as and to the extent they are incurred, organizational and offering expenses may be drawn disproportionately to the gross proceeds of each closing.

During our Operating Period, our Investment Manager will receive a structuring fee in an amount equal to 1.5% of each cash investment made, including reinvestments, payable on the date each such investment is made.

During our Operating Period and our Liquidation Period, our Investment Manager receives a management fee in an amount equal to the greater of (i) 2.5% per annum of the aggregate offering proceeds, payable monthly in advance or (ii) $62,500 per month.

Our General Partner will initially receive 1% of all distributed distributable cash. Our General Partner has a Promotional Interest in us equal to 20% of all distributed distributable cash after we have provided a return to our Limited Partners of their respective capital contributions plus an 8% per annum, compounded annually, cumulative return on their capital contributions.

Recent Significant Transactions

Fabrication Equipment

On January 18, 2018, the Partnership entered into a lease facility for $2,188,377 of fabrication equipment with a company based in Texas. The lease requires 42 monthly payments of $57,199 with the first and last payments due in advance. The lease is secured by a first priority lien against the fabrication equipment. The lease is expected to commence on July 1, 2018, and the company has been paying pre-commencement rents to the Partnership. On January 30, 2018, February 14, 2018 and on March 16, 2018, the Partnership advanced $1,079,895, $647,122 and $349,428, respectively, under this lease facility.

Virtual Office Software Equipment

Agricultural Equipment

On February 9, 2018, the Partnership funded a lease facility for $48,850 of agricultural equipment and supplies with a company based in Illinois. The finance lease requires 36 monthly payments of $1,661 with the first and last payments due in advance. On April 17, 2018, the Partnership funded a third lease facility for $44,380 of agricultural equipment and supplies with the company based in Illinois. The finance lease requires 36 monthly payments of $1,509 with the first and last payments due in advance. The leases are secured by a first priority lien against the agricultural equipment and supplies and a personal guarantee from the company’s CEO.

Education and Tourism Equipment

Kitchen Equipment

Medical Equipment

Infrastructure Equipment

Critical Accounting Policies

An understanding of our critical accounting policies is necessary to understand our financial results. The preparation of condensed interim financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) requires our General Partner and our Investment Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates will primarily include the determination of allowance for notes and leases, depreciation and amortization, impairment losses and the estimated useful lives and residual values of the leased equipment we acquire. Actual results could differ from those estimates.

Lease Classification and Revenue Recognition

Each equipment lease we enter into is classified as either a finance lease or an operating lease, which is determined at lease inception, based upon the terms of each lease, or when there are significant changes to the lease terms. We capitalize initial direct costs associated with the origination and funding of lease assets. Initial direct costs include both internal costs (e.g., labor and overhead), if any, and external broker fees incurred with the lease origination. Costs related to leases that are not consummated are not eligible for capitalization as initial direct costs and are expensed as incurred as acquisition expense. For a finance lease, initial direct costs are capitalized and amortized over the lease term using the effective interest rate method. For an operating lease, the initial direct costs are included as a component of the cost of the equipment and depreciated over the lease term.

For finance leases, we record, at lease inception, the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, the initial direct costs related to the lease, if any, and the related unearned income. Unearned income represents the difference between the sum of the minimum lease payments receivable, plus the estimated unguaranteed residual value, minus the cost of the leased equipment. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.

For operating leases, rental income is recognized on the straight-line basis over the lease term. Billed operating lease receivables are included in accounts receivable until collected. Accounts receivable is stated at its estimated net realizable value. Deferred revenue is the difference between the timing of the receivables billed and the income recognized on the straight-line basis.

Our Investment Manager has an investment committee that approves each new equipment lease and other financing transaction. As part of its process, the investment committee determines the residual value, if any, to be used once the investment has been approved. The factors considered in determining the residual value include, but are not limited to, the creditworthiness of the potential lessee, the type of equipment considered, how the equipment is integrated into the potential lessee’s business, the length of the lease, the industry in which the potential lessee operates and the secondary market value of the equipment. Residual values are reviewed for impairment in accordance with our impairment review policy.

The residual value assumes, among other things, that the asset will be utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. The residual value is calculated using information from various external sources, such as trade publications, auction data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical asset and other economic indicators.

Asset Impairments

The significant assets in our investment portfolio are periodically reviewed, no less frequently than annually or when indicators of impairment exist, to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair value. If there is an indication of impairment, we will estimate the future cash flows (undiscounted and without interest charges) expected from the use of the asset and its eventual disposition. Future cash flows are the future cash in-flows expected to be generated by an asset less the future out-flows expected to be necessary to obtain those in-flows. If an impairment is determined to exist, the impairment loss will be measured as the amount by which the carrying value of a long-lived asset exceeds its fair value and recorded in the statement of operations in the period the determination is made. The events or changes in circumstances that generally indicate that an asset may be impaired are, (i) the estimated fair value of the underlying equipment is less than its carrying value, (ii) the lessee is experiencing financial difficulties and (iii) it does not appear likely that the estimated proceeds from the disposition of the asset will be sufficient to satisfy the residual position in the asset. The preparation of the undiscounted cash flows requires the use of assumptions and estimates, including the level of future rents, the residual value expected to be realized upon disposition of the asset, estimated downtime between re-leasing events and the amount of re-leasing costs. Our Investment Manager’s review for impairment includes a consideration of the existence of impairment indicators including third-party appraisals, published values for similar assets, recent transactions for similar assets, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset.

Equipment Notes and Loans Receivable

Equipment notes and loans receivable are reported in our balance sheets at the outstanding principal balance net of any unamortized deferred fees, premiums or discounts on purchased notes and loans. Costs to originated notes, if any, are reported as other assets in our balance sheets. Unearned income, discounts and premiums, if any, are amortized to interest income in the statements of operations using the effective interest rate method. Equipment notes and loans receivable are generally placed in a non-accrual status when payments are more than 90 days past due. Additionally, we periodically review the creditworthiness of companies with payments outstanding less than 90 days. Based upon the Investment Manager’s judgment, accounts may be placed in a non-accrual status. Accounts on a non-accrual status are only returned to an accrual status when the account has been brought current and we believe recovery of the remaining unpaid receivable is probable. Revenue on non-accrual accounts is recognized only when cash has been received.

Recent Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed interim financial statements.

Business Overview

Our Offering period commenced on August 11, 2016 and will last until the earlier of (i) August 11, 2018, which is two years from the commencement of our Offering Period, unless extended by our General Partner, from time to time, in its sole discretion, by up to an additional 12 months, or (ii) the date that we have raised $250,000,000. On August 3, 2018, our General Partner extended the Offering Period by an additional 12 months to August 11, 2019. We are currently in negotiations with additional Selling Dealers to offer our Units for sale. We have been approved for sale under Blue Sky regulations in 49 states and the District of Columbia. During the Offering Period it is anticipated that the majority of our cash inflows will be derived from financing activities and be the direct result of capital contributions from Limited Partners.

During our Operating Period, which began on October 3, 2016, the date of our initial closing, we will use the majority of our net offering proceeds from Limited Partner capital contributions to acquire our initial investments. As our investments mature, we anticipate reinvesting the cash proceeds in additional investments in leased equipment and financing transactions, to the extent that the cash will not be needed for expenses, reserves and distributions to our Limited Partners. During this time-frame we expect both rental income and finance income to increase substantially as well as related expenses such as depreciation and amortization. During the Operating Period, we believe the majority of our cash outflows will be from investing activities as we acquire additional investments and to a lesser extend from financing activities from our paying quarterly distributions to our Limited Partners. Our cash flow from operations is expected to increase, primarily from the collection of rental and interest payments.

We are currently in both our Offering Period and our Operating Period. The Offering Period is designated as the period in which we raise capital from investors. During this period, we expect to generate the majority of our cash inflow from financing activities though the sale of our Units to investors. Through June 30, 2018, we admitted 330 Limited Partners with total capital contributions of $14,886,015 resulting in the sale of 1,488,601.52 Units. We received cash contributions of $14,350,049 and applied $535,966 which would have otherwise been paid as sales commission to the purchase of 53,597 additional Units.

We have also entered our Operating Period, which is defined as the period in which we invest the net proceeds from the Offering Period into business-essential, revenue-producing (or cost-saving) equipment and other physical assets with substantial economic lives and, in many cases, associated revenue streams. During this period we anticipate substantial cash outflows from investing activities as we acquire leased and financed equipment. We also expect our operating activities to generate cash inflows during this time as we collect rental payments from the leased and financed assets we acquire.

Results of Operations for the Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017

Our revenue for the three months ended June 30, 2018 and 2017 is summarized as follows:

	June 30, 2018		June 30, 2017
	(unaudited)		(unaudited)
Revenue:
Rental income	$	27,256	$	27,256
Finance income		217,827		18,407
Interest income		14,677		822
Other income		—		179
Total Revenue	$	259,760	$	46,664

For the three months ended June 30, 2018, we earned $27,256 in rental income from five operating leases of pizza ovens equipment. We received monthly lease payments of approximately $536,000 and recognized $217,827 in finance income from various finance leases during the same period. We also recognized $14,677 in interest income from collateralized loans receivable during the same period. As we acquire finance leases and operating leases, and as we participate in additional financing projects, we believe our revenue will grow significantly during 2018.

For the three months ended June 30, 2017, we earned $27,256 in rental income from five operating leases of pizza ovens equipment. We received monthly lease payments of approximately $87,200 and recognized $18,407 in finance income from two finance leases during the same period. We also recognized $822 in interest income which was generated by two collateralized loans receivable.

Our expenses for the three months ended June 30, 2018 and 2017 are summarized as follows:

	June 30, 2018		June 30, 2017
	(unaudited)		(unaudited)
Expenses:
Management fees — Investment Manager	$	187,500	$	187,500
Depreciation		23,897		23,897
Professional fees		60,516		43,001
Administration expense		41,577		34,179
Other expenses		1,414		600
Total Expenses	$	314,904	$	289,177

For the three months ended June 30, 2018, we incurred $314,904 in total expenses. We paid $187,500 in management fees to our Investment Manager during the three months ended June 30, 2018. We pay our Investment Manager a management fee during the Operating Period and the Liquidation Period equal to the greater of, (i) 2.5% per annum of the aggregate offering proceeds, payable monthly in advance or (ii) $62,500 per month. We recognized $23,897 in depreciation expense and $41,577 in administration expense. Administration expense mainly consists of expenses paid to the fund administrator. We also incurred $60,516 in professional fees, which were mostly comprised of fees related to compliance with the rules and regulations of the SEC and consulting services. As the size and complexity of our activities grow, we expect that our professional fees will increase accordingly.

For the three months ended June 30, 2017, we incurred $289,177 in total expenses. We paid $187,500 in management fees to our Investment Manager during the three months ended June 30, 2017. We pay our Investment Manager a management fee during the Operating Period and the Liquidation Period equal to the greater of, (i) 2.5% per annum of the aggregate offering proceeds, payable monthly in advance or (ii) $62,500 per month. We recognized $23,897 in depreciation expense and $34,179 in administration expense. We also incurred $43,001 in professional fees, which were mostly comprised of fees related to compliance with the rules and regulations of the SEC.

Net Loss

As a result of the factors discussed above, we reported a net loss for the three months ended June 30, 2018 of $55,144 as compared to a net loss of $242,513 for the three months ended June 30, 2017.

Results of Operations for the Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017

Our revenue for the six months ended June 30, 2018 and 2017 is summarized as follows:

	June 30, 2018		June 30, 2017
	(unaudited)		(unaudited)
Revenue:
Rental income	$	54,512	$	54,512
Finance income		350,889		38,711
Interest income		77,010		822
Other income		830		400
Total Revenue	$	483,241	$	94,445

For the six months ended June 30, 2018, we earned $54,512 in rental income from five operating leases of pizza ovens equipment. We received monthly lease payments of approximately $832,000 and recognized $350,889 in finance income from various finance leases during the same period. We also recognized $77,010 in interest income from collateralized loans receivable during the same period. As we acquire finance leases and operating leases, and as we participate in additional financing projects, we believe our revenue will grow significantly during 2018.

For the six months ended June 30, 2017, we earned $54,512 in rental income from five operating leases of pizza ovens equipment. We received monthly lease payments of approximately $174,300 and recognized $38,711 in finance income from two finance leases during the same period. We also recognized $822 in interest income which was generated by two collateralized loans receivable.

Our expenses for the six months ended June 30, 2018 and 2017 are summarized as follows:

	June 30, 2018		June 30, 2017
	(unaudited)		(unaudited)
Expenses:
Management fees — Investment Manager	$	375,000	$	375,000
Depreciation		47,780		47,779
Professional fees		137,045		132,776
Administration expense		84,461		95,079
Other expenses		10,414		600
Total Expenses	$	654,700	$	651,234

For the six months ended June 30, 2018, we incurred $654,700 in total expenses. We paid $375,000 in management fees to our Investment Manager during the six months ended June 30, 2018. We pay our Investment Manager a management fee during the Operating Period and the Liquidation Period equal to the greater of, (i) 2.5% per annum of the aggregate offering proceeds, payable monthly in advance or (ii) $62,500 per month. We recognized $47,780 in depreciation expense and $84,461 in administration expense. Administration expense mainly consists of expenses paid to the fund administrator. We also incurred $137,045 in professional fees, which were mostly comprised of fees related to compliance with the rules and regulations of the SEC and consulting services. As the size and complexity of our activities grow, we expect that our professional fees will increase accordingly.

For the six months ended June 30, 2017, we incurred $651,234 in total expenses. We paid $375,000 in management fees to our Investment Manager during the six months ended June 30, 2017. We pay our Investment Manager a management fee during the Operating Period and the Liquidation Period equal to the greater of, (i) 2.5% per annum of the aggregate offering proceeds, payable monthly in advance or (ii) $62,500 per month. We recognized $47,779 in depreciation expense and $95,079 in administration expense. We also incurred $132,776 in professional fees, which were mostly comprised of fees related to compliance with the rules and regulations of the SEC.

Net Loss

As a result of the factors discussed above, we reported a net loss for the six months ended June 30, 2018 of $171,459, and for the six months ended June 30, 2017 of $556,789.

Liquidity and Capital Resources

Sources and Uses of Cash

	Six Months Ended June 30, 2018			Six Months Ended June 30, 2017
	(unaudited)			(unaudited)
Cash provided by (used in):
Operating activities	$	565,695		$	(241,002	)
Investing activities	$	(2,618,501	)	$	(1,314,644	)
Financing activities	$	2,786,626		$	3,257,596

Sources of Liquidity

We are currently in both our Offering Period and our Operating Period. The Offering Period is the time frame in which we raise capital contributions from Limited Partners through the sale of our Units. As such, we expect that during our Offering Period a substantial portion of our cash inflows will be from financing activities. The Operating Period is the time frame in which we acquire equipment under lease or enter into other equipment financing transactions. During this time period we anticipate that a substantial portion of our cash outflows will be for investing activities. We believe that cash inflows will be sufficient to finance our liquidity requirements for the foreseeable future, including quarterly distributions to our Limited Partners, general and administrative expenses, fees paid to our Investment Manager and new investment opportunities.

Operating Activities

Cash provided by operating activities for the six months ended June 30, 2018 was $565,695 and was primarily driven by the following factors; depreciation expense of approximately $48,000, receipt of approximately $832,000 in minimum rental payments from finance leases acquired during the period, receipt of approximately $111,000 in interest income payments from collateralized loans receivable acquired during the period, an increase of deferred revenue of approximately $120,000 and an increase of accounts payable of approximately $167,000. Offsetting these fluctuations was a net loss for the six months ended June 30, 2018 of approximately $171,000, finance income of approximately $351,000, and a decrease in other assets of $112,000. We expect our accounts payable and accrued expenses will fluctuate from period to period primarily due to the timing of payments related to lease and financings transactions we will enter into. We anticipate that as we enter into additional equipment leasing and financing transactions we will generate greater net cash inflows from operations principally from rental payments received from lessees.

Cash used in operating activities for the six months ended June 30, 2017 was $241,002 and was primarily driven by the following factors; a net loss for the six months ended June 30, 2017 of approximately $557,000, finance income of approximately $39,000, an increase in other assets of approximately $369,000 and a decrease of accounts payable of approximately $33,000. Offsetting these fluctuations was depreciation expense of approximately $48,000, receipt of approximately $174,000 in minimum rental payments from finance leases acquired during the period and an increase in other liability of approximately $510,000.

Investing Activities

Cash used in investing activities was $2,618,501 for the six months ended June 30, 2018, which consisted of approximately $5,795,000 and $62,000 that we paid for the purchase of finance leases and for the acquisition of collateralized loans receivable, respectively, offset by approximately $3,238,000 in cash received from collateralized loans receivable.

Cash used in investing activities for the six months ended June 30, 2017 was $1,314,644. We paid approximately $1,354,000 for the acquisition of our collateralized loans receivable and received approximately $39,000 from our collateralized loans receivable.

Financing Activities

Cash provided by financing activities for the six months ended June 30, 2018 was $2,786,626 and was primarily due to cash proceeds received of approximately $3,440,000 from the sale of our Units to Limited Partners. Offsetting this increase were payments for distributions to our Limited Partners of approximately $384,000, payments of approximately $85,000 for organizational and offering costs and underwriting fees of $181,000.

Cash provided by financing activities for the six months ended June 30, 2017 was $3,257,596 and was primarily due to cash proceeds received of approximately $3,725,000 from the sale of our Units to Limited Partners. Offsetting this increase were payments for distributions to our Limited Partners of approximately $96,000, payments of approximately $284,000 for organizational and offering costs and underwriting fees of approximately $155,000.

Distributions

During the Operating Period, we intend to pay cash distributions on a quarterly basis to our Limited Partners at 1.5% per quarter, the equivalent rate of 6.0% per annum, of each Limited Partners’ capital contribution (pro-rated to the date of admission for each Limited Partner). Since June 30, 2017, our distribution rate has been 6.5% annually, paid quarterly at 1.625%, of capital contributions. On March 31, 2018, our distribution rate increased to 7.0% annually, paid quarterly at 1.75%, of capital contributions. On June 30, 2018, our distribution rate increased to 7.5% annually, paid quarterly at 1.88%, of capital contributions. The amount and rate of cash distributions could vary and are not guaranteed. During the six months ended June 30, 2018, we declared and accrued quarterly distribution to our Limited Partners totaling $455,923 which resulted in a distributions payable to Limited Partners of $255,155 at June 30, 2018. At June 30, 2018, we declared and accrued a distribution of $4,559, for distributions due to the General Partner which resulted in distributions payable to the General Partner of $9,661 at June 30, 2018.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitment and Contingencies

Our income, losses and distributions are allocated 99% to our Limited Partners and 1% to our General Partner until the Limited Partners have received total distributions equal to each Limited Partners’ capital contribution plus an 8%, compounded annually, cumulative return on each Limited Partners’ capital contribution. After such time, income, losses and distributions will be allocated 80% to our Limited Partners and 20% to our General Partner.

We enter into contracts that contain a variety of indemnifications. Our maximum exposure under these arrangements is not known.

In the normal course of business, we enter into contracts of various types, including lease contracts, contracts for the sale or purchase of leased assets, loan agreements and management contracts. It is prevalent industry practice for most contracts of any significant value to include provisions that each of the contracting parties, in addition to assuming liability for breaches of the representations, warranties, and covenants that are part of the underlying contractual obligations, to also assume an obligation to indemnify and hold the other contractual party harmless for such breaches, and for harm caused by such party’s gross negligence and willful misconduct, including, in certain instances, certain costs and expenses arising from the contract. Generally, to the extent these contracts are performed in the ordinary course of business under the reasonable business judgment of our General Partner and our Investment Manager, no liability will arise as a result of these provisions. Should any such indemnification obligation become payable, we would separately record and/or disclose such liability in accordance with accounting principles generally accepted in the United States of America.

On May 1, 2018, we, as co-borrower, entered into a loan agreement with a bank for a $5,000,000 revolving line of credit. This short term line is intended to be utilized to warehouse transactions to be invested in by us as investor proceeds are received. In connection with the loan agreement, we issued a promissory note to the bank in the amount of $5,000,000 that matures on May 1, 2020. To date, we have not drawn any funds under the revolving line of credit. In the event that we draw funds, interest shall accrue at a rate of Prime Rate plus 1% per annum.

As of June 30, 2018, we have an unfunded commitment of $111,932 for the finance lease of fabrication equipment, two unfunded commitments totaling $217,957 for the finance lease of electrosurgical fiber, manufacturing, and testing equipment and one unfunded commitment totaling $5,500,000 for the collateralized loan to finance a food production facility in Georgia. Except for those investments, we do not have any unfunded commitments for any investments.

Off-Balance Sheet Transactions

None.

Contractual Obligations

None.

Subsequent Events

On June 29, 2018, the Partnership entered into a loan agreement with a borrower to provide financing in an amount up to $7,500,000 to finance a food production facility in Georgia. The loan facility is structured as two tranches: Tranche I: $5,500,000 was funded on July 5, 2018. Tranche II: Up to $2,000,000 is available at lender’s discretion subject to the borrower achieving certain milestones. The loan facility is secured by a first priority security interest in all of the borrower’s assets. In connection with the Tranche I loan, the Partnership received three promissory notes from the borrower in the amount of $1,500,000, $2,000,000 and $2,000,000 respectively. On July 5, 2018, the Partnership funded $5,500,000 for the Tranche I loan. The Tranche I loan accrues interest at a rate of 12.75% plus 3 month LIBOR with a floor of 1.5% and matures on June 30, 2021. The Tranche I loan requires 18 monthly interest only payments upon commencement (first 12 monthly interest payments to be paid in cash at 11% and the remainder to be paid in kind (“PIK”) by adding such PIK interest to the principal balance and 6 monthly interest payments to be paid in cash) and 18 monthly payment of principal and interest payment with monthly principal paydowns of $150,000. Upon maturity of the Tranche I loan, the borrower will make a final balloon payment of approximately $3,029,000 ($2,900,000 principal plus accrued PIK interest). On June 29, 2018, the Partnership entered into an assignment agreement with a third party and will sell $3,000,000 of the Tranche I loan, effective July 5, 2018, and will sell $1,000,000 of the Tranche I loan, effective September 1, 2018. On July 5, 2018, the Partnership returned two promissory notes to the borrower in the amount of $2,000,000 and $2,000,000 respectively and the borrower reissued one promissory note to the Partnership in the amount of $1,000,000 and one promissory note to the third party in the amount of $3,000,000.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable for Smaller Reporting Companies.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, our General Partner and Investment Manager carried out an evaluation, under the supervision and with the participation of the management of our General Partner and Investment Manager, including its Chief Executive Officer, of the effectiveness of the design and operation of our General Partner’s and Investment Manager’s disclosure controls and procedures as of the end of the period covered by this Report pursuant to the Securities Exchange Act of 1934. Based on the foregoing evaluation, the Chief Executive Officer concluded that our General Partner’s and Investment Manager’s disclosure controls and procedures were effective.

In designing and evaluating our General Partner’s and Investment Manager’s disclosure controls and procedures, our General Partner and Investment Manager recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our General Partner’s and Investment Manager’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.

Evaluation of internal control over financial reporting

Our General Partner is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of condensed financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and (3) 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 condensed financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our General Partner and our Investment Manager have assessed the effectiveness of their internal control over financial reporting as of June 30, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework.”

Based on their assessment, our General Partner and our Investment Manager believe that, as of June 30, 2018, its internal control over financial reporting is effective.

Changes in internal control over financial reporting

Beginning January 1, 2018, we implemented ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date. Although the adoption of the new revenue standard had no significant impact on our results of operations, cash flows, or financial position, we did implement changes to our controls related to revenue. These included the development of new policies based on the five-step model provided in the new revenue standard, enhanced contract review requirements, and other ongoing monitoring activities. These controls were designed to provide assurance at a reasonable level of the fair presentation of our condensed financial statements and related disclosures. There was no other change in our internal control over financial reporting during the quarter ended June 30, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not aware of any material legal proceedings that are currently pending against us or against any of our assets.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our Registration Statement on Form S-1, as amended, was declared effective by the SEC on August 11, 2016. Our Offering Period commenced on August 11, 2016. From August 11, 2016 through June 30, 2018, the Partnership admitted 330 Limited Partners with total capital contributions of $14,886,015 resulting in the sale of 1,488,601.52 Units. The Partnership received cash contributions of $14,350,049 and applied $535,966 which would have otherwise been paid as sales commission to the purchase of 53,597 additional Units.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

31.1		Certification of President and Chief Compliance Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of President and Chief Compliance Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive Data Files

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

File No. 333-211626

SQN AIF V GP, LLC

General Partner of the Registrant

August 14, 2018

/s/ Michael Miroshnikov
Michael Miroshnikov
President

Arboretum Silverleaf Income Fund, L.P. - FORM 10-Q - August 14, 2018

Attached files

Arboretum Silverleaf Income Fund, L.P. Reports