UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K/A
Amendment #1
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2019 or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 333-131736
COMMONWEALTH INCOME & GROWTH FUND
VI
(Exact
name of registrant as specified in its charter)
Pennsylvania
|
20-4115433
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification Number)
|
4532 US Highway 19
Suite 200
New Port Richey, FL 34652
(Address, including zip code, of principal executive
offices)
(877) 654-1500
(Registrant’s
telephone number including area code)
Indicate
by check mark if the registrant is a well-known seasoned issuer,
(as defined in Rule 405 of the Act): YES ☐ NO ☒
Indicate
by checkmark if the registrant is not required to file reports
pursuant to Section-13 or Section-15(d) of the Act. YES
☐ NO
☒
Indicate
by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (ii) has
been subject to such filing requirements for the past 90 days: YES
☒ NO
☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).YES ☒ NO ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K:
YES
☒ NO
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of "accelerated filer,
“large accelerated filer" and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
Smaller
reporting company ☒
|
(Do not
check if a smaller reporting company.)
|
Emerging
growth company ☐
|
Indicate
by check mark whether the registrant is an emerging growth company
(as defined in Rule 12b-2 of the Exchange Act). YES
☐
NO
☒
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act): YES ☐ NO ☒
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
Registrant’s most recently completed second fiscal quarter:
N/A
Documents
incorporated by reference: None.
1
EXPLANATORY NOTE
The
purpose of this Amendment No. 1 to COMMONWEALTH INCOME & GROWTH
FUND VI, LP’s Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the Securities and Exchange
Commission on April 15, 2020 (the “Form 10-K”), is
being filed with the limited purpose of amending the Reports of
Independent Registered Public Accounting Firm on page F1 and of the
Original Form 10-K to correct a scrivener’s error with
respect to the omission of the city and state thereof.
No
other changes have been made to the Form 10-K. This Amendment No. 1
to the Form 10-K speaks as of the original filing date of the Form
10-K, does not reflect events that may have occurred subsequent to
the original filing date, and does not modify or update in any way
disclosures made in the original Form 10-K.
Item
No.
Description
Page
Part II
8.
Financial
Statements and Supplementary Data
3
Part IV
15.
Exhibits and
Financial Statement Schedules and Reports on Form
10-K
4
Index to Exhibits
4
2
ITEM 8: FINANCIAL STATEMENTS
Our
financial statements for the fiscal years ended December 31, 2019
and 2018, and the reports thereon of the independent registered
public accounting firm are included in this annual
report.
3
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ONFORM
10-K
(a)
(1)
|
Financial
Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Balance
Sheets as of December 31, 2019 and 2018
|
F-2
|
|
Statements
of Operations for the years ended December 31, 2019 and
2018
|
F-3
|
|
Statements
of Partners’ Capital for the years ended December 31, 2019
and 2018
|
F-4
|
|
Statements
of Cash Flows for the years ended December 31, 2019 and
2018
|
F-5
|
|
Notes
to Financial Statements
|
F-6
|
(a)
(2)
|
Schedules
|
|
Schedules
are omitted because they are not applicable, not required, or
because the required information is included in the financial
statements and notes thereto.
(a)
(3)
|
Exhibits
|
|
|
*3.1
|
Certificate
of Limited Partnership
|
|
|
|
|
*3.2
|
Agreement
of Limited Partnership
|
|
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certifications by the Chief Executive
Officer
|
|
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certifications by the Principal Financial
Officer
|
|
|
|
|
32
|
Section
1350 Certifications by the Chief Executive Officer and Principal
Financial Officer
|
|
|
|
|
*Incorporated
by reference from the Partnership’s Registration Statement on
Form S-1 (Registration No. 333-131736)
|
4
Commonwealth Income &
Growth Fund VI
Financial Statements
For the years ended December 31, 2019 and 2018
Report of Independent Registered Public Accounting
Firm
|
F-1
|
|
|
Financial statements
|
|
Balance
sheets
|
F-2
|
Statements
of Operations
|
F-3
|
Statements
of Partners’ Capital
|
F-4
|
Statements
of Cash flows
|
F-5
|
|
|
Notes to financial statements
|
F-6
|
5
Report of Independent Registered Public Accounting
Firm
The Partners
Commonwealth Income & Growth Fund VI
New Port Richey, Florida
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Commonwealth
Income & Growth Fund VI (the “Partnership”) as of
December 31, 2019 and 2018, the related statements of operations,
statements of Partners Capital, and cash flows for each of the two
years in the period ended December 31, 2019, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Partnership at December 31, 2019 and 2018, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the
Partnership’s management. Our responsibility is to express an
opinion on the Partnership’s financial statements based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Partnership in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Partnership is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Partnership’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/BDO USA, LLP
We have served as the Partnership's auditor since
2012.
Philadelphia,
Pennsylvania
April 15, 2020
F1
Commonwealth Income &
Growth Fund VI
Balance Sheets
|
December
31,
|
|
|
2019
|
2018
|
ASSETS
|
|
|
Cash and cash
equivalents
|
$3,624
|
$5,863
|
Lease income
receivable, net of reserve of approximately $63,000 and $33,000 at
December 31, 2019 and 2018, respectively
|
108,646
|
82,957
|
Accounts
receivable, Commonwealth Capital Corp., net
|
74,026
|
156,870
|
Other receivables,
net of reserve of approximately $12,000 at December 31, 2019 and
2018, respectively
|
9,255
|
25,834
|
Prepaid
expenses
|
3,042
|
3,959
|
|
198,593
|
275,483
|
|
|
|
|
|
|
Equipment, at
cost
|
4,825,207
|
4,899,399
|
Accumulated
depreciation
|
(4,380,458)
|
(4,018,025)
|
|
444,749
|
881,374
|
Equipment
acquisition costs and deferred expenses, net of accumulated
amortization of approximately $27,000 and $64,000 at
December 31, 2019 and 2018, respectively
|
10,328
|
27,967
|
|
10,328
|
27,967
|
Total
Assets
|
$653,670
|
$1,184,824
|
|
|
|
LIABILITIES
AND PARTNERS' CAPITAL
|
|
|
LIABILITIES
|
|
|
Accounts
payable
|
$133,865
|
$159,643
|
Accounts payable,
CIGF, Inc., net
|
128,078
|
148,482
|
Other accrued
expenses
|
5,059
|
5,058
|
Unearned lease
income
|
41,988
|
15,933
|
Notes
payable
|
160,453
|
554,134
|
Total
Liabilities
|
469,443
|
883,250
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
PARTNERS'
CAPITAL
|
|
|
General
Partner
|
1,000
|
1,000
|
Limited
Partners
|
183,227
|
300,574
|
Total
Partners' Capital
|
184,227
|
301,574
|
|
|
|
Total
Liabilities and Partners' Capital
|
$653,670
|
$1,184,824
|
|
|
|
see
accompanying notes to financial statements
|
F2
Commonwealth Income &
Growth Fund VI
Statements of Operations
|
Years
ended December 31,
|
|
|
2019
|
2018
|
Revenue
|
|
|
Lease
|
$687,754
|
$889,839
|
Interest and
other
|
9,681
|
735
|
Sales and property
taxes
|
39,355
|
-
|
Gain on sale of
equipment
|
1,507
|
57,343
|
Total
revenue and gain on sale of equipment
|
738,297
|
947,917
|
|
|
|
Expenses
|
|
|
Operating,
excluding depreciation
|
221,008
|
381,472
|
Equipment
management fee, General Partner
|
34,387
|
44,588
|
Interest
|
20,587
|
38,756
|
Depreciation
|
479,104
|
592,206
|
Amortization of
equipment acquisition costs and deferred expenses
|
19,725
|
32,406
|
Sales and property
taxes
|
39,355
|
-
|
Bad debt
expense
|
41,478
|
-
|
Total
expenses
|
855,644
|
1,089,428
|
|
|
|
Net
loss
|
$(117,347)
|
$(141,511)
|
|
|
|
Net
loss allocated to Limited Partners
|
$(117,347)
|
$(141,511)
|
|
|
|
Net
loss per equivalent Limited Partnership unit
|
$(0.07)
|
$(0.08)
|
|
|
|
Weighted
average number of equivalent limited partnership units outstanding
during the year
|
1,744,254
|
1,750,044
|
|
|
|
see
accompanying notes to financial statements
|
F3
Commonwealth Income &
Growth Fund VI
Statements of Partners' Capital
|
General
|
Limited
|
|
|
|
|
Partner
|
Partner
|
General
|
Limited
|
|
|
Units
|
Units
|
Partner
|
Partners
|
Total
|
Balance,
December 31, 2017
|
50
|
1,757,396
|
$1,000
|
$488,468
|
$489,468
|
Redemptions
|
-
|
(13,142)
|
-
|
(46,383)
|
(46,383)
|
Net
loss
|
-
|
-
|
-
|
(141,511)
|
(141,511)
|
Balance,
December 31, 2018
|
50
|
1,744,254
|
$1,000
|
$300,574
|
$301,574
|
Net
Loss
|
-
|
-
|
-
|
(117,347)
|
(117,347)
|
Balance,
December 31, 2019
|
50
|
1,744,254
|
$1,000
|
$183,227
|
$184,227
|
|
|
|
|
|
|
see
accompanying notes to financial statements
|
F4
Commonwealth Income &
Growth Fund VI
Statements of Cash Flows
|
Years
ended December 31,
|
|
|
2019
|
2018
|
Cash
flows from operating activities
|
|
|
Net
loss
|
$(117,347)
|
$(141,511)
|
Adjustments to
reconcile net loss to net cash provided by operating
activities
|
|
|
Depreciation
and amortization
|
498,829
|
624,612
|
Bad
debt expense
|
41,478
|
-
|
Net
gain on sale of equipment
|
(1,507)
|
(57,343)
|
Other noncash
activities:
|
|
|
Lease revenue net
of interest expense, on notes payable, realized as a result of
direct payment of principal to bank by lessee
|
(432,345)
|
(445,879)
|
Amortization of
initial direct costs
|
-
|
46
|
Earned interest on
finance leases
|
-
|
(200)
|
Changes in assets
and liabilities
|
|
|
Lease
income receivable
|
(67,167)
|
49,609
|
Accounts
receivable, Commonwealth Capital Corp., net
|
82,844
|
90,416
|
Accounts
receivable, GP
|
-
|
(187)
|
Other
receivables - Other LP's
|
15,527
|
(21,605)
|
Other
receivables
|
1,052
|
29,720
|
Prepaid
expenses
|
917
|
(246)
|
Accounts
payable
|
(25,778)
|
(2,366)
|
Accounts
payable, General Partner
|
(20,404)
|
(9,902)
|
Other
accrued expenses
|
-
|
(90,290)
|
Unearned
lease income
|
26,055
|
(44,914)
|
Net
cash provided by (used in) operating activities
|
2,154
|
(20,040)
|
|
|
|
Cash
flows from investing activities
|
|
|
Capital
expenditures
|
(3,813)
|
(18,893)
|
Equipment
acquisition fees paid to the General Partner
|
(1,699)
|
(3,635)
|
Payment
from finance leases
|
-
|
4,814
|
Net
proceeds from the sale of equipment
|
1,506
|
66,137
|
Net
cash (used in) provided by investing activities
|
(4,006)
|
48,423
|
|
|
|
Cash
flows from financing activities
|
|
|
Redemptions
|
-
|
(46,383)
|
Debt
placement fee paid to General partner
|
(387)
|
(720)
|
Net
cash used in financing activities
|
(387)
|
(47,103)
|
|
|
|
Net
decrease in cash and cash equivalents
|
(2,239)
|
(18,720)
|
|
|
|
Cash
and cash equivalents at beginning of year
|
5,863
|
24,583
|
|
|
|
Cash
and cash equivalents at end of year
|
$3,624
|
$5,863
|
|
|
|
see
accompanying notes to financial statements
|
F5
Commonwealth Income &
Growth Fund VI
Notes to Financial Statements
1. Business
Commonwealth
Income & Growth Fund VI (the “Partnership”) is a
limited partnership organized in the Commonwealth of Pennsylvania
on January 6, 2006. The Partnership offered for sale up to
2,500,000 units of limited partnership interest at the purchase
price of $20 per unit (the “offering”). The Partnership
reached the minimum amount in escrow and commenced operations on
May 10, 2007. The offering terminated on March 6, 2009 with
1,810,311 units sold for a total of approximately $36,000,000 in
limited partner contributions.
During
the years ended December 31, 2019 and 2018, limited partners
redeemed $0 and 13,142 units of partnership interest for a total
redemption price of approximately $0 and $46,000, respectively, in
accordance with the terms of the Partnership’s Limited
Partnership Agreement (the “Agreement”)
The
Partnership used the proceeds of the offering to acquire, own and
lease various types of computer information technology equipment
and other similar capital equipment, which is leased primarily to
U.S. corporations and institutions. Commonwealth Capital Corp.
(“CCC”), on behalf of the Partnership and other
affiliated partnerships, acquires computer equipment subject to
associated debt obligations and lease agreements and allocates a
participation in the cost, debt and lease revenue to the various
partnerships based on certain risk factors.
The
Partnership’s investment objective is to acquire primarily
high technology equipment. Information technology has developed
rapidly in recent years and is expected to continue to do so.
Technological advances have permitted reductions in the cost of
information technology processing capacity, speed, and utility. In
the future, the rate and nature of equipment development may cause
equipment to become obsolete more rapidly. The Partnership also
acquires high technology medical, telecommunications and inventory
management equipment. The Partnership’s General Partner will
seek to maintain an appropriate balance and diversity in the types
of equipment acquired. The market for high technology medical
equipment is growing each year. Generally, this type of equipment
will have a longer useful life than other types of technology
equipment. This allows for increased re-marketability, if it is
returned before its economic or announcement cycle is
depleted.
The
Partnership’s General Partner is Commonwealth Income &
Growth Fund, Inc. (the “General Partner”), a
Pennsylvania corporation which is an indirect wholly owned
subsidiary of CCC. CCC is a member of the Institute for
Portfolio Alternatives (“IPA”) and the Equipment
Leasing and Finance Association (“ELFA”).
By proxy vote of the Limited Partners at shareholders meeting that
was held on September 4, 2018, the term of the fund was extended to
a termination date of December 31, 2023.
Allocations
of income and distributions of cash are based on the Agreement. The
various allocations under the Agreement prevent any limited
partner’s capital account from being reduced below zero and
ensure the capital accounts reflect the anticipated sharing ratios
of cash distributions, as defined in the Agreement. During the year
ended December 31, 2019 and 2018, there were no limited partner
cash distributions.
Liquidity
The
Partnership has incurred recurring loses and has a working capital
deficit at December 31, 2019.
For the
years ended December 31, 2019 and 2018, the General Partner elected
to forgo distributions and allocations of net income owed to it,
and suspended limited partner distributions. The General Partner
will continue to reassess the funding of limited partner
distributions throughout 2020 and will continue to waive certain
fees. The General Partner and CCC will also defer certain related
party payables owed to the Partnership in an effort to further
increase the Partnership’s cash flow (see Note 10 –
Subsequent Events). If available cash flow or net disposition
proceeds are insufficient to cover the Partnership expenses and
liabilities on a short and long term basis, the Partnership may
attempt to obtain additional funds by disposing of or refinancing
equipment, or by borrowing within its permissible
limits.
F6
2. Summary of Significant
Accounting Policies
Use of Estimates
The
preparation of financial statements is in conformity with
accounting principles generally accepted in the United States of
America which requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. Such estimates relate primarily to the
determination of residual values at the end of the lease term, the
expected future cash flows and fair value used for impairment
analysis purposes and determination of the allowance for doubtful
accounts.
Disclosure of Fair Value
Fair Value Measurements
The
Partnership applies the provisions included in the Fair Value
Measurements and Disclosures Topic to all financial and
non-financial assets and liabilities. This Topic emphasizes that
fair value is a market-based measurement, not an entity-specific
measurement. It clarifies that fair value is an exit price,
representing the price that would be received to sell an asset or
paid to transfer a liability in the principal or most advantageous
market in an orderly transaction between market participants on the
measurement date. The Topic requires the use of valuation
techniques to measure fair value that maximize the use of
observable inputs and minimize use of unobservable inputs. These
inputs are prioritized as follows:
●
Level 1: Observable
inputs such as quoted prices in active markets for identical assets
or liabilities.
●
Level 2: Inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets
or liabilities in active markets and inputs other than quoted
prices that are observable for the asset or liability, such as
interest rates and yield curves that are observable at commonly
quoted intervals.
●
Level 3:
Unobservable inputs for which there is little or no market data and
which require internal development of assumptions about how market
participants price the asset or liability.
There
were no assets or liabilities measured at fair value on a recurring
basis at December 31, 2019 and 2018. There were no assets measured
on a non-recurring basis at December 31, 2019 and
2018.
Fair Value disclosures of financial instruments
Estimated
fair value was determined by management using available market
information and appropriate valuation methodologies. However,
judgment was necessary to interpret market data and develop
estimated fair value. Cash, other receivables, accounts payable and
other accrued expenses are carried at amounts which reasonably
approximate their fair values as of December 31, 2019 and 2018 due
to the immediate or short-term nature of these financial
instruments.
The
Partnership’s long-term debt consists of notes payable, which
are secured by specific equipment and are nonrecourse liabilities
of the Partnership. The estimated fair value of this debt at
December 31, 2019 and 2018 approximates the carrying value of these
instruments, due to the interest rates on this debt approximating
current market interest rates. The Partnership classifies the fair
value of its notes payable within Level 2 of the valuation
hierarchy based on the observable inputs used to estimate fair
value.
F7
Revenue Recognition
The
Partnership is principally engaged in business of leasing
equipment. Ancillary to the Partnership’s principal equipment
leasing business, the Partnership also sells certain equipment and
may offer certain services to support its customers.
The
Partnership’s lease transactions are principally accounted
for under Topic 842 on January 1, 2019. Prior to Topic 842, the
Partnership accounted for these transactions under Topic 840,
Leases (“Topic 840”). Lease revenue includes revenue
generated from leasing equipment to customers, including re-rent
revenue, and is recognized as either on a straight line basis or
using the effective interest method over the length of the lease
contract, if such lease is either an operating lease or finance
lease, respectively.
The
Partnership’s sale of equipment along with certain services
provided to customers is recognized under ASC Topic 606, Revenue
from Contracts with Customers, (“Topic 606”), which was
adopted on January 1, 2018. Prior to adoption of Topic 606, the
Partnership recognized these transactions under ASC Topic 605,
Revenue Recognized, and (“Topic 605”). The Partnership
recognizes revenue when it satisfies a performance obligation by
transferring control over a product or service to a customer. The
amount of revenue recognized reflects the consideration the
Partnership expects to be entitled to in exchange for such products
or services.
For the
years ended December 31, 2019 and 2018, the Partnership’s
lease portfolio consisted of operating leases and finance leases.
For operating leases, lease revenue is recognized on a
straight-line basis in accordance with the terms of the lease
agreement. Finance lease interest income is recorded over the term
of the lease using the effective interest method.
Upon
the end of the lease term, if the lessee has not met the return
conditions as set out in the lease, the Partnership is entitled in
certain cases to additional compensation from the lessee. The
Partnership’s accounting policy for recording such payments
is to treat them as revenue.
Gains
or losses from sales of leased and off-lease equipment are recorded
on a net basis in the Partnership’s Statement of Operations.
Gains from the termination of leases are recognized when the
lease is modified and terminated concurrently. Our leases do not
contain any step-rent provisions or escalation clauses nor are
lease revenues adjusted based on any index.
Partnership’s
accounting policy for sales and property taxes collected from the
lessees are recorded in the current period as gross revenues and
expenses.
Recently Adopted Accounting Pronouncements
In
December 2018, the Financial Accounting Standard Board
(“FASB”) issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements
for Lessors, which is expected to reduce a lessor’s
implementation and ongoing costs associated with applying the new
leases standard. The ASU also clarifies a specific lessor
accounting requirement. Specifically, this ASU addresses
the following issues facing lessors when applying the leases
standard: Sales taxes and other similar taxes collected from
lessees, certain lessor costs paid directly by lessees and
recognition of variable payments for contracts with lease and
non-lease components. The Partnership concluded, upon adoption of
this update that there was no significant change to their
accounting.
In
March 2016, the FASB issued Accounting Standards Update No.
2016-02, Leases (Topic 842)
Section A—Leases: Amendments to the FASB Accounting Standards
Codification® Section B—Conforming Amendments Related to
Leases: Amendments to the FASB Accounting Standards
Codification® Section C—Background Information and Basis
for Conclusions- Effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal
years, for any of the following: A public business entity; A
not-for-profit entity that has issued, or is a conduit bond obligor
for, securities that are traded, listed, or quoted on an exchange
or an over-the-counter market; An employee benefit plan that files
financial statements with the U.S. Securities and Exchange
Commission (SEC). The new standard requires the recognition and
measurement of leases at the beginning of the earliest period
presented using a modified retrospective approach, which includes a
number of optional practical expedients that entities may elect to
apply. This guidance also expands the requirements for
lessees to record leases embedded in other arrangements and the
required quantitative and qualitative disclosures surrounding
leases. Additionally, our business involves lease agreements with
our customers whereby we are the lessor in the transaction.
Accounting guidance for lessors is largely unchanged. The
amendments are effective for fiscal years beginning after December
15, 2018, and interim periods within those fiscal
years. We adopted Topic 842 at the required adoption
date of January 1, 2019. We used the package of practical
expedients permitted under the transition guidance that allowed us
not to reassess: (1) lease classification for expired or existing
leases and (2) initial direct costs for any expired or existing
leases. We did not recognize an adjustment to the opening balance
of partner’s capital upon adoption.
F8
In
March 2019, the FASB issued Accounting Standards Update No.
2019-01, Leases (Topic 842)
Codification Improvements — Effective for fiscal years
beginning after December 15, 2019, including interim periods within
those fiscal years, for any of the following: A public business
entity; A not-for-profit entity that has issued, or is a conduit
bond obligor for, securities that are traded, listed, or quoted on
an exchange or an over-the-counter market; An employee benefit plan
that files financial statements with the U.S. Securities and
Exchange Commission (SEC). The amendments in this Update include
the following items brought to the Board’s attention through
those interactions with stakeholders:
●
Determining the
fair value of the underlying asset by lessors that are not
manufacturers or dealers (Issue 1).
●
Presentation on the
statement of cash flows—sales-type and direct financing
leases (Issue 2).
●
Transition
disclosures related to Topic 250, Accounting Changes and Error
Corrections (Issue 3).
We
adopted Topic 842 at the required adoption date of January 1, 2019.
The Partnership concluded that the sales taxes and other similar
taxes collected from the lessees are recorded in the current period
in the Condensed Statement of Operations as gross revenues and
expenses. As permitted by the guidance, we elected the practical
expedient that allows us not to restate comparative periods in the
financial statements. Upon adoption of this update, there was no
significant change to the Partnership accounting.
Recent Accounting Pronouncements Not Yet Adopted
FASB
issued a new guidance, Accounting Standards Update No. 2016-13,
Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as clarified
and amended by ASU 2018-19, Codification Improvements to Topic 326,
Financial Instruments – Credit Losses and ASU 2019-05,
Financial Instruments – Credit Losses (Topic 326): Targeted
Transition Relief. The new guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2019. Thus, for a calendar-year company, it would be
effective January 1, 2020. The new guidance requires an allowance
for credit losses based on the expectation of lifetime credit
losses on financial receivables carried at amortized cost,
including, but not limited to, mortgage loans, premium receivables,
reinsurance receivables and certain leases. The new current
expected credit loss (“CECL”) impairment model for
financial assets reported at amortized cost will be applicable to
receivables associated with sales-type and direct financing leases
but not to operating lease receivables.
On
November 15, 2019, the FASB delayed the effective date of FASB ASC
Topic 326 for certain small public companies and other private
companies. As amended, the effective date of ASC Topic 326 was
delayed until fiscal years beginning after December 15, 2022 for
SEC filers that are eligible to be smaller reporting companies
under the SEC’s definition, as well as private companies and
not-for-profit entities. The Partnership continues to evaluate the
impact of the new guidance on its condensed financial
statements.
Other Assets
Equipment
acquisition costs and deferred expenses are amortized on a
straight-line basis over two-to-four year lives based on the
original term of the lease and loan, respectively. Unamortized
acquisition costs and deferred expenses are charged to amortization
expense when the associated leased equipment is sold.
F9
Long-Lived Assets
Depreciation
on technology and inventory management equipment for financial
statement purposes is based on the straight-line method estimated
generally over useful lives of two to five years. Once an asset
comes off lease or is released, the Partnership reassesses the
useful life of an asset.
The
Partnership evaluates its long-lived assets when events or
circumstances indicate that the value of the asset may not be
recoverable. The Partnership determines whether impairment exists
by estimating the undiscounted cash flows to be generated by each
asset. If the estimated undiscounted cash flows are less than the
carrying value of the asset then impairment exists. The amount of
the impairment is determined based on the difference between the
carrying value and the fair value. Fair value is determined based
on estimated discounted cash flows to be generated by the asset,
third party appraisals or comparable sales of similar assets, as
applicable, based on asset type.
Residual
values are determined by management and are calculated using
information from both internal and external sources, as well as
other economic indicators.
Reimbursable Expenses
Reimbursable
expenses are comprised of both ongoing operational expenses and
fees associated with the allocation of salaries and benefits,
referred to as other LP expenses. Reimbursable expenses, which are
charged to the Partnership by CCC in connection with the
administration and operation of the Partnership, are allocated to
the Partnership based upon several factors including, but not
limited to, the number of investors, leasing volume and stage of
the program. For example, if a partnership has more investors than
another program sponsored by CCC, then higher amounts of expenses
related to investor services, including mailing and printing costs
will be allocated to that partnership. Also, while a partnership is
in its offering stage, higher compliance costs are allocated to it
than to a program not in its offering stage, as compliance
resources are utilized to review incoming investor suitability and
proper documentation. Finally, lease related expenses, such as due
diligence, correspondence, collection efforts and analysis and
staff costs, increase as programs purchase more leases, and
decrease as leases terminate and equipment is sold. All of these
factors contribute to CCC’s determination as to the amount of
expenses to allocate to the Partnership or to other sponsored
programs. CCC is not reimbursed for salary and benefit costs of
control persons. For the Partnership, all reimbursable items
are expensed as they are incurred.
Lease Income Receivable
Lease
income receivable includes current lease income receivable net of
allowances for uncollectible amounts, if any. The Partnership
monitors lease income receivable to ensure timely and accurate
payment by lessees. The Partnership’s Lease Relations
department is responsible for monitoring lease income receivable
and, as necessary, resolving outstanding invoices.
The
Partnership reviews a customer’s credit history before
extending credit. When the analysis indicates that the probability
of full collection is unlikely, the Partnership may establish an
allowance for uncollectible lease income receivable based upon the
credit risk of specific customers, historical trends and other
information. The Partnership writes off its lease income receivable
when it determines that it is uncollectible and all economically
sensible means of recovery have been exhausted.
Cash and cash equivalents
We
consider cash and cash equivalents to be cash on hand and highly
liquid investments with an original maturity of 90 days or
less.
F10
At
December 31, 2019, cash was held in an account maintained at one
financial institution with an aggregate balance of approximately
$6,000. Bank accounts are federally insured up to $250,000 by the
FDIC. At December 31, 2019 and 2018, the cash balance was
approximately as follows:
Balance at December 31,
|
2019
|
2018
|
Total bank
balance
|
$6,000
|
$17,000
|
FDIC
insured
|
$(6,000)
|
$(17,000)
|
Uninsured
amount
|
$-
|
$-
|
The
Partnership believes it mitigates the risk of holding uninsured
deposits by only depositing funds with major financial
institutions. The Partnership has not experienced any losses in our
accounts, and believes it is not exposed to any significant credit
risk. The amounts in such accounts will fluctuate throughout 2020
due to many factors, including cash receipts, equipment
acquisitions, interest rates and distributions to limited
partners.
Income Taxes
Pursuant
to the provisions of Section 701 of the Internal Revenue Code, the
Partnership is not subject to federal or state income taxes. All
income and losses of the Partnership are the liability of the
individual partners and are allocated to the partners for inclusion
in their individual tax returns. The Partnership does not have any
entity-level uncertain tax positions. In addition, the Partnership
believes its tax status as a pass-through entity would be sustained
under U.S. Federal, state or local tax examination. The Partnership
files U.S. federal and various state income tax returns and is
generally subject to examination by federal, state and local income
tax authorities for three years from the filing of a tax
return.
Taxable
income differs from financial statement net income as a result of
reporting certain income and expense items for tax purposes in
periods other than those used for financial statement purposes,
principally relating to depreciation, amortization, and lease
revenue.
Net Loss Per Equivalent Limited Partnership Unit
The net
loss per equivalent limited partnership unit is computed based upon
net loss allocated to the limited partners and the weighted average
number of equivalent units outstanding during the
period.
3. Information Technology, Medical Technology, Telecommunications
Technology, Inventory Management and Other Business-Essential
Capital Equipment (“Equipment”)
The
Partnership is the lessor of equipment under leases with periods
generally ranging from 12 to 48 months. In general, associated
costs such as repairs and maintenance, insurance and property taxes
are paid by the lessee.
Remarketing
fees will be paid to the leasing companies from which the
Partnership purchases leases. These are fees that are earned by the
leasing companies when the initial terms of the lease have been
met. The General Partner believes that this strategy adds value
since it entices the leasing company to remain actively involved
with the lessees and encourages potential extensions, remarketing
or sale of equipment. This strategy is designed to minimize
conflicts the leasing company may have with a new lessee and may
assist in maximizing overall portfolio performance. The remarketing
fee is tied into lease performance thresholds and is a factor in
the negotiation of the fee. Remarketing fees incurred in connection
with lease extensions are accounted for as operating costs.
Remarketing fees incurred in connection with the sale of equipment
are included in the gain or loss calculations.
Gains
or losses from sales of leased and off-lease equipment are recorded
on a net basis in the Partnership’s Statement of Operations.
Gains from the termination of leases are recognized when the
lease is modified and terminated concurrently. Gains from lease
termination included in lease revenue for the year ended December
31, 2019 and 2018, was approximately $0 and $500,
respectively.
F11
CCC, on behalf of the Partnership and on behalf of other affiliated
companies and partnerships (“partnerships”), acquires
equipment subject to associated debt obligations and lease
agreements and allocates a participation in the cost, debt and
lease revenue to the various companies based on certain risk
factors.
The
Partnership’s share of the cost of the equipment in which it
participates with other partnerships at December 31, 2019 was
approximately $2,539,000 and is included in the Partnership’s
equipment on its balance sheet. The total cost of the equipment
shared by the Partnership with other partnerships at December 31,
2019 was approximately $9,007,000. The Partnership’s share of
the outstanding debt associated with this equipment at December 31,
2019 was approximately $88,000 and is included in the
Partnership’s notes payable on its balance sheet. The total
outstanding debt related to the equipment shared by the Partnership
at December 31, 2019 was approximately $873,000.
The
Partnership’s share of the cost of the equipment in which it
participates with other partnerships at December 31, 2018 was
approximately $4,774,000 and is included in the Partnership’s
equipment on its balance sheet. The total cost of the equipment
shared by the Partnership with other partnerships at December 31,
2018 was approximately $13,440,000. The Partnership’s share
of the outstanding debt associated with this equipment at December
31, 2018 was approximately $197,000 and is included in the
Partnership’s notes payable on its balance sheet. The total
outstanding debt related to the equipment shared by the Partnership
at December 31, 2018 was approximately $1,701,000.
As the
Partnership and the other programs managed by the General Partner
increase their overall portfolio size, opportunities for shared
participation are expected to continue. Sharing in the acquisition
of a lease portfolio gives the Partnership an opportunity to
acquire additional assets and revenue streams, while allowing the
Partnership to remain diversified and reducing its overall risk
with respect to one portfolio. Thus, total shared equipment and
related debt should continue throughout 2020 as the Partnership
continues to acquire equipment for its portfolio.
The
following is a schedule of approximate future minimum rentals on
non-cancelable operating leases at December 31, 2019:
Years Ended December 31,
|
Amount
|
2020
|
$217,000
|
2021
|
28,000
|
2022
|
8,000
|
2023
|
8,000
|
2024
|
6,000
|
|
$267,000
|
The
Partnership is scheduled to terminate on December 31, 2023. CCC
will assume the rights to the remaining active leases and their
related remaining revenue stream through their
termination.
4. Significant Customers
Lessees
equal to or exceeding 10% of lease revenue:
Years Ended December 31,
|
|
2019
|
|
2018
|
L-3
Communications Holdings, Inc.
|
|
28%
|
|
22%
|
Alliant
Techsystems.
|
|
24%
|
|
25%
|
Cummins,
Inc.
|
|
23%
|
|
19%
|
Automatic
Data Processing, Inc.
|
|
12%
|
|
10%
|
International
Paper Company
|
|
12%
|
|
15%
|
** Represents less than 10% of lease revenue
F12
Lessees
equal to or exceeding 10% of net lease income
receivable:
At December 31,
|
|
2019
|
|
2018
|
Cummins,
Inc.
|
|
84%
|
|
36%
|
Automatic
Data Processing, Inc.
|
|
**%
|
|
35%
|
L-3
Communications Holdings, Inc.
|
|
**%
|
|
12%
|
**
Represents less than 10% of lease income receivable
F13
5. Related Party
Transactions
Receivables/Payables
As of
December 31, 2019 and 2018, the Partnership’s related party
receivables and payables are short term, unsecured, non-interest
bearing, and are presented net of related party receivables of
approximately $74,000 and $157,000 at December 31, 2019 and 2018,
respectively, and related party payables of approximately $128,000
and $148,000 at December 31, 2019 and 2018,
respectively.
ENTITY
RECEIVING
COMPENSATION
|
TYPE
OF COMPENSATION
|
AMOUNT
INCURRED
DURING
2019
|
AMOUNT
INCURRED
DURING
2018
|
|
|
|
|
|
OPERATIONAL
AND SALE OR LIQUIDATION STAGES
|
|
|
The General
Partner
|
Equipment Acquisition Fee. The General
Partner earned an equipment acquisition fee of 4% of the purchase
price of each item of equipment purchased as compensation for the
negotiation of the acquisition of the equipment and lease thereof
or sale under a conditional sales contract. For the year
ended December 31, 2019, equipment acquisition fees earned by the
General Partner for operating and finance leases were approximately
$2,000 and $0, respectively. For the year ended December 31, 2018,
equipment acquisition fees earned by the General Partner for
operating and finance leases was approximately $4,000 and $0,
respectively.
|
$2,000
|
$4,000
|
The General Partner
and its Affiliates
|
Reimbursable Expenses. The General
Partner and its affiliates are entitled to reimbursement by the
Partnership for the cost of goods, supplies or services obtained
and used by the general partner in connection with the
administration and operation of the partnership from third parties
unaffiliated with the General Partner. The amounts set forth on
this table do not include expenses incurred in the offering of
units. For the years ended December 31, 2019 and 2018, the
Partnership was charged approximately $97,000 and $142,000 in other
LP expense, respectively.
|
$231,000
|
$397,000
|
The General
Partner
|
Debt Placement Fee. As compensation for
arranging term debt to finance the acquisition of equipment to the
Partnership, a fee equal to one percent of such indebtedness;
provided, however, that such fee shall be reduced to the extent the
Partnership incurs such fees to third parties unaffiliated with the
General Partner or the lender, with respect to such indebtedness.
No such fee will be paid with respect to borrowings from the
general partner or its affiliates.
|
$400
|
$1,000
|
The General
Partner
|
Equipment Management Fee. A monthly fee
equal to the lesser of (a) the fees which would be charged by an
independent third party in the same geographic market for similar
services and similar equipment or (b) the sum of (i) two percent of
the gross lease revenues attributable to equipment subject to full
payout net leases which contain net lease provisions and (ii) five
percent of the gross lease revenues attributable to equipment
subject to operating leases and (iii) two percent of the gross
lease revenues attributable to equipment subject to finance
leases.
|
$34,000
|
$45,000
|
The General
Partner
|
Equipment Liquidation Fee. With respect
to each item of equipment sold by the general partner, a fee equal
to the lesser of (i) 50% of the competitive equipment sale
commission or (ii) three percent of the sales price for such
equipment. The payment of this fee is subordinated to the receipt
by the Limited Partners of (i) a return of their capital
contributions and 10% annum cumulative return, compounded daily, on
adjusted capital contributions and (ii) the net disposition
proceeds from such sale in accordance with the Partnership
Agreement. Such fee is reduced to the extent any liquidation or
resale fees are paid to unaffiliated parties. During the years
ended December 31, 2019 and 2018, the General Partner earned but
waived approximately $0 and $2,000 of equipment liquidation fees,
respectively.
|
$ -
|
$-
|
The General
Partner
|
Partnership Interest and Distribution.
The General Partner has a present and continuing one percent
interest of $1,000 in the Partnership’s item of income, gain,
loss, deduction, credit, and tax preference. In addition, the
General Partner receives one percent of Cash Available for
Distribution until the Limited Partners have received distributions
of Cash Available for Distribution equal to their Capital
Contributions plus the 10% Cumulative Return and thereafter, the
General Partner will receive 10% of Cash Available for
Distribution.
|
$ -
|
$-
|
F14
6. Notes Payable
Notes
payable consisted approximately of the following:
|
December 31, 2019
|
December 31, 2018
|
Installment
note payable to bank; interest rate of 4.47%, due in monthly
installments of $9,935, including interest, with final payment in
January 2019
|
$ -
|
$ 10,000
|
Installment
note payable to bank; interest rate of 1.80%, due in monthly
installments of $456, including interest, with final payment in
February 2019
|
-
|
1,000
|
Installment
note payable to bank; interest rate of 4.23%, due in monthly
installments of $1,339, including interest, with final payment in
August 2019
|
-
|
11,000
|
Installment
note payable to bank; interest rate of 4.37%, due in quarterly
installments of $42,121, including interest, with final payment in
October 2019
|
-
|
164,000
|
Installment
note payable to bank; interest rate of 5.46%, due in monthly
installments of $904, including interest, with final payment in
December 2019
|
-
|
11,000
|
Installment
note payable to bank; interest rate of 5.46%, due in monthly
installments of $4,364, including interest, with final payment in
January 2020
|
4,000
|
55,000
|
Installment
note payable to bank; interest rate of 5.93%, due in monthly
installments of $1,425, including interest, with final payment in
February 2020
|
3,000
|
19,000
|
Installment
note payable to bank; interest rate of 5.56%, due in monthly
installments of $2,925, including interest, with final payment in
June 2020
|
17,000
|
50,000
|
Installment
note payable to bank; interest rate of 5.25%, due in monthly
installments of $253, including interest, with final payment in
August 2020
|
-
|
5,000
|
Installment
note payable to bank; interest rate of 5.25% due in quarterly
installments of $5,330, including interest, with final payment in
August 2020
|
-
|
35,000
|
Installment
note payable to bank; interest rate of 4.87% due in quarterly
installments of $4,785, including interest, with final payment in
October 2020
|
18,000
|
36,000
|
Installment
note payable to bank; interest rate of 5.31%, due in quarterly
installments of $6,157, including interest, with final payment in
January 2021
|
30,000
|
52,000
|
Installment
note payable to bank; interest rate of 6.33% due in quarterly
installments of $5,805, including interest, with final payment in
January 2021
|
28,000
|
48,000
|
Installment
note payable to bank; interest rate of 6.66%, due in quarterly
installments of $2,774, including interest, with final payment in
January 2021
|
13,000
|
23,000
|
Installment
note payable to bank; interest rate of 6.66% due in quarterly
installments of $665, including interest, with final payment in
March 2021
|
-
|
17,000
|
Installment
note payable to bank; interest rate of 5.33%, due in monthly
installments of $582, including interest, with final payment in
August 2021
|
11,000
|
17,000
|
Installment
note payable to bank; interest rate of 4.14%, due in monthly
installments of $705, including interest, with final payment in
August 2024
|
36,000
|
-
|
|
$160,000
|
$554,000
|
The
notes are secured by specific equipment with a carrying value of
approximately $438,000 and are nonrecourse liabilities of the
Partnership. As such, the notes do not contain any financial debt
covenants with which we must comply on either an annual or
quarterly basis. Aggregate approximate payments of notes payable
for each of the periods subsequent to December 31, 2019 are as
follows:
Years Ended December 31,
|
Amount
|
|
2020
|
$
|
113,000
|
2021
|
|
26,000
|
2022
|
|
8,000
|
2023
|
|
8,000
|
2024
|
|
5,000
|
|
$
|
160,000
|
The
Partnership is scheduled to terminate on December 31, 2023. CCC
will assume the obligation and rights to the remaining notes
payable and its related secured equipment as described above
through their termination.
|
|
|
7. Supplemental Cash Flow Information
No
interest or principal on notes payable was paid by the Partnership
during 2019 and 2018 because direct payment was made by lessee to
the bank in lieu of collection of lease income and payment of
interest and principal by the Partnership.
Noncash
investing and financing activities approximately include the
following:
Years Ended December
31,
|
2019
|
2018
|
Debt assumed in
connection with purchase of equipment
|
$39,000
|
$147,000
|
During
the years ended December 31, 2019 and 2018, the Partnership
wrote-off fully amortized acquisition and finance fees of
approximately $51,000 and $2,000, respectively.
During
the years ended December 31, 2019 and 2018, the Partnership
wrote-off fully depreciated assets of approximately $0 and
$205,000, respectively.
F15
8. Commitments and Contingencies
Medshare
In
January 2015, CCC, on behalf of the Funds, entered into a Purchase
Agreement (“Purchase Agreement”) for the sale of the
equipment to Medshare Technologies (“Medshare”) for
approximately $3,400,000. The Partnership’s share of the sale
proceeds was approximately $77,000. As of April 15, 2020, the
Partnership has received approximately $62,000 of the approximate
$77,000 sale proceeds and has recorded a reserve against the
outstanding receivable of approximately $12,000. On April 3, 2015
Medshare was obligated to make payment in full and failed to do so.
As a result, Medshare defaulted on its purchase agreement with CCC
and was issued a demand letter for full payment of the equipment.
On June 25, 2015, Medshare filed a lawsuit in Texas state court for
breach of contract (“State Suit”). On June 26, 2015,
Commonwealth filed a lawsuit in the Northern District of Texas
against Medshare seeking payment in full and/or return of the
Equipment and damages.
In July
2016, CCC, on behalf of the Funds, entered into a $1,400,000
binding Settlement Agreement (“Settlement Agreement”)
with Medshare and its principal owner, Chris Cleary (collectively
referred to as “Defendants”), who are held jointly and
severally liable for the entire settlement. On August 2, 2016, the
Defendants made payment to CCC of an initial $200,000 to be
followed by 24 structured monthly payments of approximately $50,000
per month to begin no later than September 15, 2016. The
Partnership’s share of the Settlement Agreement is
approximately $23,000 and is to be applied against the net Medshare
receivable of approximately $18,000 as of the settlement date. The
remaining $5,000 will be applied against the $12,000 reserve and
recorded as a bad debt recovery. As of April 15, 2020, the
Partnership received approximately $9,000 of the approximate
$23,000 settlement agreement which was applied against the net
Medshare receivable of approximately $18,000 as of the settlement
date. As Defendant defaulted on settlement agreement, CCC sought
and obtained consent judgment from U.S. District Court for Northern
District of Texas, Dallas Division on July 27, 2017 in the amount
of $1.5 million, less $450,000 previously paid plus $6,757 in
attorney fees, both Defendant and Cleary being jointly and
severally liable for judgment amount. The court also vacated the
September 21, 2016 settlement dismissal.
On July
27, 2017 Defendant filed Chapter 11 in Northern District of Texas
Dallas Division. On July 26, 2017 Legacy Texas Bank, a
secured creditor of the Defendant filed for a TRO in the U.S.
District Court of the Northern District of Texas, Dallas Division.
Included with the TRO filing was a request for appointment of
trustee for operation of Defendant, which was granted and the case
converted to Chapter 7. On December 18, 2018 the Bankruptcy Court
entered final order and issued its last payment to CCC in March
2019 of approximately $43,000, of which the Partnership’s
share was approximately $700. The Medshare Bankruptcy matter
is now closed. Although the trustee’s final distribution to
Commonwealth did not fully satisfy the judgment, recovery may
still be pursued directly against Cleary. As such, management
believes that the foregoing will not result in any adverse
financial impact on the Funds, but no assurance can be provided
until the proceedings are resolved.
FINRA
On May 3, 2013, the FINRA Department of Enforcement filed a
complaint naming Commonwealth Capital Securities Corp.
(“CCSC”) and the owner of the firm, Kimberly
Springsteen-Abbott, as respondents; however on October 22, 2013,
FINRA filed an amended complaint that dropped the allegations
against CCSC and reduced the scope of the allegations against Ms.
Springsteen-Abbott. The sole remaining charge was that Ms.
Springsteen-Abbott had approved the misallocation of some expenses
to certain Funds. Management believes that the expenses at
issue include amounts that were proper and that were properly
allocated to Funds, and also identified a smaller number of
expenses that had been allocated in error, but were adjusted and
repaid to the affected Funds when they were identified in
2012. During the period in question, Commonwealth Capital
Corp. (“CCC”) and Ms. Springsteen-Abbott provided
important financial support to the Funds, voluntarily absorbed
expenses and voluntarily waived fees in amounts aggregating in
excess of any questioned allocations. A Hearing Panel ruled
on March 30, 2015, that Ms. Springsteen-Abbott should be barred
from the securities industry because the Panel concluded that she
allegedly misallocated approximately $208,000 of expenses involving
certain Funds over the course of three years. As such,
management had allocated approximately $87,000 of the $208,000 in
allegedly misallocated expenses back to the affected funds as a
contingency accrual in CCC’s financial statements and a good
faith payment for the benefit of those Income Funds.
F16
The decision of the Hearing Panel was stayed when it was appealed
to FINRA's National Adjudicatory Council (the “NAC”)
pursuant to FINRA Rule 9311. The NAC issued a decision that
upheld the lower panel’s ruling and the bar took effect on
August 23, 2016. Ms. Springsteen-Abbott appealed the
NAC’s decision to the U.S. Securities and Exchange Commission
(the “SEC”). On March 31, 2017, the SEC
criticized that decision as so flawed that the SEC could not even
review it, and remanded the matter back to FINRA for further
consideration consistent with the SEC’s remand, but did not
suggest any view as to a particular outcome.
On July 21, 2017, FINRA reduced the list of 1,840 items totaling
$208,000 to a remaining list of 84 items totaling $36,226 (which
includes approximately $30,000 of continuing education expenses for
personnel providing services to the Funds), and reduced the
proposed fine from $100,000 to $50,000, but reaffirmed its position
on the bar from the securities industry. Respondents promptly
appealed FINRA’s revised ruling to the SEC. All the requested
or allowed briefs have been filed with the SEC. The SEC upheld
FINRA’s order on February 7, 2020 to bar, but eliminated
FINRA’s proposed fine. Ms. Springsteen-Abbott has filed a
Petition for Review in the United States Court of Appeals for the
District of Columbia Circuit to review a final order entered
against her by the U.S. Securities and Exchange Commission. As the
SEC eliminated FINRA’s fine completely, Management is even
more confident that regardless of final resolution, it will not
result in any material adverse financial impact to the Funds,
although a final assurance cannot be provided until the legal
matter is resolved. That appeal is pending as of April 15,
2020.
9. Reconciliation of Amounts Reported for Financial Reporting
Purposes to Amounts on the Federal
Partnership Return (Unaudited)
The tax
basis of the Partnership’s net assets and liabilities vary
from the amounts presented in these financial statements at
December 31, 2019 and 2018 as follows:
Years Ended December
31,
|
2019
|
2018
|
Financial statement
basis of net assets
|
$184,227
|
$301,574
|
Tax basis of net
assets (unaudited)
|
(845,742)
|
(1,024,158)
|
Difference
(unaudited)
|
$(1,029,969)
|
$(1,325,732)
|
The
primary differences between the tax basis of net assets and the
amounts recorded in the financial statements are the result of
differences in accounting for impairment losses, syndication costs
and differences between the depreciation methods used in the
financial statements and the Partnership’s tax returns
(unaudited).
Years ended December 31,
|
2019
|
2018
|
Net
loss for financial reporting purposes to taxable loss
|
$(117,347)
|
$(141,511)
|
Loss on sale of
equipment
|
(2,182)
|
(30,883)
|
Depreciation
|
286,135
|
226,516
|
Amortization
|
(2,859)
|
8,909
|
Unearned lease
income
|
(9,290)
|
(44,914)
|
Penalties
|
249
|
3,620
|
Bad
debts
|
30,327
|
4,051
|
*Other
|
(6,093)
|
(32,380)
|
Taxable
income (loss) on the Federal Partnership return
(unaudited)
|
$178,940
|
$(6,592)
|
*Other-
includes financial statement adjustments that will be reflected on
the tax return in the subsequent year.
F17
10. Subsequent Events
Leased Equipment
Purchase
and Sale Agreement – On January 31, 2020 the Partnership
entered into a Purchase and Sale Agreement, (the “Purchase
Agreement”) with Cummins, Inc. (the “Buyer”) to
sell to the Buyer approximately 1,475 items of equipment that the
Buyer previously leased from the Company. The General Partner
allocated to the Partnership its share of approximately $180,000,
for the sale price of primarily, High End Sun Servers and Small IBM
Severs and will record a gain on sale of equipment of approximately
$47,000 on the Condensed Statement of Operations, during the first
quarter ended March 31, 2020.
COVID-19 Pandemic
Subsequent
to December 31, 2019, the World Health Organization declared the
novel coronavirus outbreak a public health emergency. The
Fund’s operations is located in Florida, which has restricted
gatherings of people due to the coronavirus outbreak. At present,
the Fund’s operations have not been adversely affected and
continues to function effectively. Due to the dynamic nature of
these unprecedented circumstances and possible business disruption,
the Fund will continue to monitor the situation closely, but given
the uncertainty about the situation, an estimate of the future
impact, if any, cannot be made at this time.
Related Party Payables
In
order to provide additional support for the Partnership, the
General Partner (“GP”) has converted certain payables
that were classified as current to noncurrent payables. These
payables were deferred to increase the Partnership’s cash
flow from the date of issuance of our audited financial statements.
To provide additional support to the Partnership, CCC agreed to
convert approximately $128,000 of payables from due on demand to
long term. Such payables won't be due until sometime after April
15, 2021.
F18
31.1 THE RULE 15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE
OFFICER
I, Kimberly A. Springsteen-Abbott certify
that:
1.
I have reviewed
this annual report on Form 10-K of Commonwealth Income & Growth
Fund VI (the Registrant);
2.
Based on my
knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The
registrant’s other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and
have:
(a)
Designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such
internal control over financial reporting or caused such internal
control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the
effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(d)
Disclosed in this
report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.
The registrant's
other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
(a)
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b)
Any fraud, whether
or not material, that involves management or other employees who
have a significant role in the registrant's internal control over
financial reporting.
/s/ Kimberly A. Springsteen-Abbott
Kimberly
A. Springsteen-Abbott
Chief
Executive Officer
April 28,
2020
F19
31.2 RULE 15d-14(a) CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
I,
Kimberly A. Springsteen-Abbott, certify that:
1.
I have reviewed
this annual report on Form 10-K of Commonwealth Income & Growth
Fund VI (the Registrant);
2.
Based on my
knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The
registrant’s other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and
have:
(a)
Designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such
internal control over financial reporting or caused such internal
control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the
effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(d)
Disclosed in this
report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.
The registrant's
other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
(a)
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b)
Any fraud, whether
or not material, that involves management or other employees who
have a significant role in the registrant's internal control over
financial reporting.
/s/ Kimberly A. Springsteen-Abbott
Kimberly
A. Springsteen-Abbott
Principal
Financial Officer
April 28,
2020
F20
EXHIBIT 32
WRITTEN STATEMENT OF CHIEF EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
FURNISHED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION
1350)
AND FOR THE PURPOSE OF COMPLYING WITH RULE 13a-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934.
In
connection with the Annual Report of Commonwealth Income &
Growth Fund VI (the “Company”) on Form 10-K for the
period ending December 31, 2019, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”),
the undersigned, the Chief Executive Officer and the Principal
Financial Officer of the Company hereby certifies pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, to such officer’s knowledge,
that: (a) the Annual Report on Form 10-K of the Company for the
year ended December 31, 2019 filed on the date hereof with the
Securities and Exchange Commission (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and (b) information contained in
the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
|
/s/Kimberly A. Springsteen-Abbott
|
|
Kimberly A.
Springsteen-Abbott
|
|
Chief Executive
Officer and Principal Financial Officer
|
|
April 15,
2020
|
F21
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
|
COMMONWEALTH
INCOME & GROWTH FUND VI, LP
|
|
BY:
COMMONWEALTH INCOME & GROWTH FUND, INC., General
Partner
|
|
|
April
28, 2020
|
By: /s/
Kimberly A. Springsteen-Abbott
|
Date
|
Kimberly
A. Springsteen-Abbott
|
|
Chief
Executive Officer
Commonwealth
Income & Growth Fund, Inc.
|
|
|
|
|
April 28,
2020
|
By: /s/ Henry
J. Abbott
|
Date
|
Henry
J. Abbott
|
|
Director, President,Commonwealth Income & Growth Fund,
Inc.
|
F22