COMMONWEALTH INCOME & GROWTH FUND V - FORM 10-Q

Attached files

file	filename
EX-32.1 - CIGF5 EXHIBIT 32.1 03-31-14 - COMMONWEALTH INCOME & GROWTH FUND V	ex32_1.htm
EX-31.1 - CIGF5 EXHIBIT 31.1 03-31-14 - COMMONWEALTH INCOME & GROWTH FUND V	ex31_1.htm
EXCEL - IDEA: XBRL DOCUMENT - COMMONWEALTH INCOME & GROWTH FUND V	Financial_Report.xls
EX-32.2 - CIGF5 EXHIBIT 32.2 03-31-14 - COMMONWEALTH INCOME & GROWTH FUND V	ex32_2.htm
EX-31.2 - CIGF5 EXHIBIT 31.2 03-31-14 - COMMONWEALTH INCOME & GROWTH FUND V	ex31_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014 or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-108057

COMMONWEALTH INCOME & GROWTH FUND V

(Exact name of registrant as specified in its charter)

Pennsylvania	65-1189593
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Brandywine Bldg. One, Suite 200

2 Christy Drive

Chadds Ford, PA 19317

(Address, including zip code, of principal executive offices)

(484) 785-1480

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (ii) has been subject to such filing requirements for the past 90 days:

YES T NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YES T NO ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company T
(Do not check if a smaller reporting company.)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO T

FORM 10-Q

March 31, 2014

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Mine Safety Disclosures	13
Item 5.	Other Information	13
Item 6.	Exhibits	13

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Commonwealth Income & Growth Fund V
Condensed Balance Sheets

	March 31,			December 31,
	2014			2013
	(unaudited)
ASSETS
Cash and cash equivalents	$	18,664		$	28,464
Lease income receivable, net of reserve of approximately $200 and $0 at March 31, 2014 and December 31, 2013, respectively		21,920			23,753
Other receivables		9,040			25,009
Prepaid expenses		413			413
		50,037			77,639

Net investment in finance leases		40,069			33,561

Equipment		7,850,570			7,849,552
Accumulated depreciation		(5,783,477	)		(5,608,966	)
		2,067,093			2,240,586

Equipment acquisition costs and deferred expenses, net of accumulated amortization of approximately $67,000 and $60,000 at March 31, 2014 and December 31, 2013, respectively		22,339			29,830


Total Assets	$	2,179,538		$	2,381,616

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
Accounts payable	$	99,091		$	106,804
Accounts payable, CIGF, Inc., net		442,890			438,125
Accounts payable, Commonwealth Capital Corp., net		335,163			396,426
Other accrued expenses		36,856			9,026
Unearned lease income		58,134			52,884
Notes payable		877,451			987,145
Total Liabilities		1,849,585			1,990,410

PARTNERS' CAPITAL
General Partner		1,000			1,000
Limited Partners		328,953			390,206
Total Partners' Capital		329,953			391,206

Total Liabilities and Partners' Capital	$	2,179,538		$	2,381,616


see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund V
Condensed Statements of Operations
(unaudited)

	Three Months Ended
	March 31, 2014			March 31, 2013
Revenue
Lease	$	284,439		$	330,521
Interest and other		2,974			16,752
Gain on sale of equipment		-			896
Total revenue		287,413			348,169

Expenses
Operating, excluding depreciation		71,315			58,119
Equipment management fee, General Partner		7,165			8,263
Interest		10,062			14,809
Depreciation		252,388			289,408
Amortization of equipment acquisition costs and deferred expenses		7,492			9,475
Bad debt expense		244			-
Total expenses		348,666			380,074

Net loss	$	(61,253	)	$	(31,905	)

Net loss allocated to Limited Partners	$	(61,253	)	$	(31,905	)

Net loss per equivalent Limited Partnership unit	$	(0.05	)	$	(0.03	)

Weighted average number of equivalent Limited Partnership units outstanding during the period		1,236,608			1,236,608


see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund V
Condensed Statement of Partners' Capital
For the three months ended March 31, 2014
(unaudited)

	General Partner Units		Limited Partner Units		General Partner		Limited Partner			Total
Balance, January 1, 2014		50		1,236,608	$	1,000	$	390,206		$	391,206
Net loss		-		-		-		(61,253	)		(61,253	)
Balance, March 31, 2014		50		1,236,608	$	1,000	$	328,953		$	329,953

see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund V
Condensed Statements of Cash Flow
(unaudited)

	Three Months Ended
	March 31, 2014			March 31, 2013


Net cash provided by operating activities	$	13,063		$	97,288

Investing activities:
Capital expenditures		(17,054	)		(20,643	)
Purchase of finance leases		(8,515	)		-
Payments from finance leases		2,706			-
Net proceeds from the sale of equipment		-			1,370
Net cash used in investing activities		(22,863	)		(19,273	)

Financing activities:
Payments on payable to Affiliate		-			(79,698	)
Net cash used in financing activities		-			(79,698	)

Net decrease in cash and cash equivalents		(9,800	)		(1,683	)

Cash and cash equivalents at beginning of period		28,464			151,547

Cash and cash equivalents at end of period	$	18,664		$	149,864

see accompanying notes to condensed financial statements

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Business

Commonwealth Income & Growth Fund V (the “Partnership”) is a limited partnership organized in the Commonwealth of Pennsylvania in May 2003. The Partnership offered for sale up to 1,250,000 units of the limited partnership at the purchase price of $20 per unit (the “offering”). The Partnership reached the minimum amount in escrow and commenced operations on March 14, 2005. As of February 24, 2006, the Partnership was fully subscribed.

The Partnership used the proceeds of the offering to acquire, own and lease various types of information technology, medical technology, telecommunications technology, inventory management 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 equipment subject to associated debt obligations and lease agreements and allocate a participation in the cost, debt and lease revenue to the various partnerships that it manages 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. Approximately ten years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its equipment, make final distributions to partners, and to dissolve. Unless sooner terminated, the Partnership will continue until February 4, 2017.

The General Partner continues to suspend distributions, as part of an aggressive work out plan of reinvestment and recovery for lost equity experienced during the litigation process with Mobile Pro/City of Tempe. The General Partner will reassess the funding of limited partner distributions on a quarterly basis, throughout 2014.

The General Partner and CCC will also determine if related party payables owed to them by the Partnership may be deferred (if deemed necessary) in an effort to increase the Partnership’s cash flow.

The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through March 31, 2015. The General Partner will continue to reassess the funding of limited partner distributions throughout 2014 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial information presented as of any date other than December 31, 2013 has been prepared from the books and records without audit. Financial information as of December 31, 2013 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. For further information regarding the Partnership’s accounting policies, refer to the financial statements and related notes included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2013. Operating results for the three months ended March 31, 2014 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2014.

Disclosure of Fair Value of Financial Instruments

Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash and cash equivalents, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of March 31, 2014 and December 31, 2013 due to the short term nature of these financial instruments.

The Partnership’s long-term debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at March 31, 2014 and December 31, 2013 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value.

Cash and cash equivalents

We consider cash equivalents to be highly liquid investments with the original maturity dates of 90 days or less.

At March 31, 2014, cash was held in three accounts maintained at one financial institution with an aggregate balance of approximately $20,000. Bank accounts are federally insured up to $250,000 by the FDIC. At March 31, 2014, the total cash bank balance was as follows:

At March 31, 2014	Amount
Total bank balance	$	20,000
FDIC insured		(20,000	)
Uninsured amount	$	-

The Partnership’s bank balances are fully insured by the FDIC. The Partnership deposits its funds with a Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks listed on the New York Stock Exchange. The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2014 due to many factors, including cash receipts, interest rates and equipment acquisitions.

Recent Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08 (“ASU Updated 2014-08”), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU provides guidance on the change in criteria established to enhance the presentation of reporting discontinued operations. The guidance is effective for annual financial statements beginning on or after December 15, 2014 that report discontinued operations or disposals of components of an entity. The Partnership is currently evaluating the effect that this ASU will have on its financial statements.

In March 2014, the FASB issued ASU No. 2014-06 (“ASU Updated 2014-06”), Technical Corrections and Improvements Related to Glossary Terms. This ASU provides updates to the FASB Accounting Standards Codification established in September 2009 as the source of authoritative U.S. GAAP recognized by the FASB. The update is effectively immediately upon issuance. The Partnership adopted this ASU during the first quarter of 2014 and there was no material impact on its financial statements.

In April 2013, the FASB issued ASU No. 2013-07 (“ASU Updated 2013-07”), Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. This ASU provides guidance on the application of the liquidation basis of accounting as provided by U.S. GAAP. The guidance will improve the consistency of financial reporting for liquidating entities. The guidance in this ASU is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. The Partnership is currently evaluating the effect that this ASU will have on its financial statements during the liquidation phase of its life cycle.

3. Information Technology, Medical Technology, Telecommunications Technology, Inventory Management Equipment and other Business-Essential Capital Equipment (“Equipment”)

The Partnership is the lessor of equipment under operating leases with periods that generally will range from 12 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.

Remarketing fees are paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with the lessee and encourages potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. 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. For the three months ended March 31, 2014 and 2013, the Partnership incurred remarketing fees of approximately $0 and $15,000, respectively. For the three months ended March 31, 2014 and 2013, the Partnership did not pay remarketing fees.

CCC, on behalf of the Partnership and on behalf of other affiliated 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 partnerships based on certain risk factors.

The Partnership’s share of the cost of the equipment in which it participates with other partnerships at March 31, 2014 was approximately $5,214,000 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 March 31, 2014 was approximately $13,400,000. The Partnership’s share of the outstanding debt associated with this equipment at March 31, 2014 was approximately $639,000 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 March 31, 2014 was approximately $1,886,000.

The Partnership’s share of the cost of the equipment in which it participates with other partnerships at December 31, 2013 was approximately $5,290,000 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, 2013 was approximately $13,546,000. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2013 was approximately $688,000 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, 2013 was approximately $1,814,000.

As the Partnership and the other programs managed by the General Partner continue to acquire new equipment for the portfolio, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the fund an opportunity to acquire additional assets and revenue streams, while allowing the fund to remain diversified and reducing its overall risk with respect to one portfolio.

The following is a schedule of future minimum rentals on non-cancellable operating leases at March 31, 2014:

	Amount
Nine Months ended December 31, 2014	$	748,000
Year ended December 31, 2015		456,000
Year ended December 31, 2016		171,000
Year ended December 31, 2017		5,000
	$	1,380,000

The Partnership is scheduled to terminate on February 4, 2017. If the Partnership terminates on February 4, 2017, CCC will assume the rights to the remaining active leases and their related remaining revenue stream through their termination.

The following lists the components of the net investment in direct financing leases at March 31, 2014:

	March 31, 2014
Total minimum lease payments to be received	$	41,000
Estimated residual value of leased equipment (unguaranteed)		5,000
Less: unearned income		(6,000	)
Net investment in direct finance leases	$	40,000

Our finance lease customers operate in various industries, and we have no significant customer concentration in any one industry. We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credits scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. Factors taken into consideration when assessing risk includes both general and industry specific qualitative and quantitative metrics. We separately take in to consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category. The following table presents the credit risk profile, by creditworthiness category, of our direct finance lease receivables at March 31, 2014:

Risk Level	Percent of Total
Low		-	%
Moderate-Low		100	%
Moderate		-	%
Moderate-High		-	%
High		-	%
Net finance lease receivable		100	%

As of March 31, 2014, we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive, with no late payments.

The following is a schedule of future minimum rentals on non-cancellable finance leases at March 31, 2014:

	Amount
Nine months ended December 31, 2014		9,000
Year ended December 31, 2015		12,000
Year ended December 31, 2016		12,000
Year ended December 31, 2017		7,000
Year ended December 31, 2018		1,000
	$	41,000

4. Related Party Transactions

Receivables/Payables

As of March 31, 2014, the Partnership’s related party receivables and payables are short term, unsecured, and non-interest bearing.

During the year ended December 31, 2013, the Partnership recorded a receivable from CCC of approximately $47,000 related to the SEC settlement as disclosed in Note 7. As of March 31, 2014, the balance of this receivable is approximately $24,000.

Three months ended March 31,	2014		2013

Reimbursable expenses
The General Partner and its affiliates are entitled to reimbursement by the Partnership for the cost of goods, supplies or services obtained and used by the General Partner in connection with the administration and operation of the Partnership from third parties unaffiliated with the General Partner. In addition, the General Partner and its affiliates are entitled to reimbursement of certain expenses incurred by the General Partner and its affiliates in connection with the administration and operation of the Partnership. For the three months ended March 31, 2014 and 2013, the General Partner waived certain reimbursable expenses due to it by the Partnership.	$	63,000	$	48,000

Equipment acquisition fee
The General Partner earned an equipment acquisition fee of 4% of the purchase price of each item of equipment purchased as compensation for the negotiation of the acquisition of the equipment and lease thereof or sale under a conditional sales contract. At March 31, 2014, all prepaid equipment acquisition fees were earned by the General Partner. For the three months ended March 31, 2014 and 2013, approximately $3,000 and $2,000 of acquisition fees were waived by the General Partner, respectively.	$	-	$	-

Debt placement fee
As compensation for arranging term debt to finance our acquisition of equipment, we will pay the general partner a fee equal to one percent of such indebtedness; provided, however, that such fee shall be reduced to the extent we incur such fees to third parties unaffiliated with the general partner or the lender with respect to such indebtedness. No such fee will be paid with respect to borrowings from the general partner or its affiliates. We intend to initially acquire leases on an all cash basis with the proceeds of this offering, but may borrow funds after the offering proceeds have been invested. The amount we borrow, and therefore the amount of the fee, will depend upon interest rates at the time of a loan, and the amount of leverage we determine is appropriate at the time. We do not intend to use more than 30% leverage overall in our portfolio. Fees will increase as the amount of leverage we use increases, and as turnover in the portfolio increases and additional equipment is purchased using leverage. Additionally, during the three months ended March 31, 2014 and 2013, the General Partner earned but waived approximately $1,000 and $2,000 of debt placement fees, respectively.		$	-			$	-

Equipment management fee
The General Partner is entitled to be paid for managing the equipment portfolio a monthly fee equal to the lesser of (i) the fees which would be charged by an independent third party for similar services for similar equipment or (ii) the sum of (a) two percent of (1) the gross lease revenues attributable to equipment which is subject to full payout net leases which contain net lease provisions plus (2) the purchase price paid on conditional sales contracts as received by the Partnership and (b) 5% of the gross lease revenues attributable to equipment which is subject to operating leases. In an effort to increase future cash flow for the fund our General Partner had elected to reduce the percentage of equipment management fees paid to it from 5% to 2.5% of the gross lease revenues attributable to equipment which is subject to operating leases. The reduction was effective beginning in July 2010 and remained in effect for the three months ended March 31, 2014 and 2013.		$	7,000			$	8,000

Equipment liquidation fee
With respect to each item of equipment sold by the General Partner (other than in connection with a conditional sales contract), a fee equal to the lesser of (i) 50% of the competitive equipment sale commission or (ii) three percent of the sales price for such equipment is payable to the General Partner. The payment of such fee is subordinated to the receipt by the limited partners of (i) a return of their net capital contributions and a 10% per annum cumulative return, compounded daily, on adjusted capital contributions and (ii) the net disposition proceeds from such sale in accordance with the Partnership Agreement. Such fee will be reduced to the extent any liquidation or resale fees are paid to unaffiliated parties.. During the three months ended March 31, 2014 and 2013, the General Partner waived approximately $0 and $100 of equipment liquidation fees, respectively.		$	-			$	-

5. Notes Payable

Notes payable consisted of the following approximate amounts:

		March 31, 2014	December 31, 2013
Installment notes payable to bank; interest at 3.95%, due in quarterly installments of $9,657 and $6,824, including interest, with final payment in July 2014	$	32,000	$	48,000

Installment notes payable to bank; interest at 3.95% , due in quarterly installments ranging from $4,517 to $9,795, including interest, with final payment in December 2014		101,000		137,000

Installment notes payable to bank; interest at 5.25%, due in monthly installments of $4,813, including interest, with final payment in March 2015		108,000		135,000

Installment notes payable to bank; interest rates ranging from 5.25% to 5.60%, due in monthly installments ranging from $868 to $3,800, including interest, with final payment in April 2015		79,000		98,000

Installment notes payable to bank; interest rates ranging from 3.95% to 4.23%, due in quarterly installment ranging from $2,436 to $6,195, including interest, with final payment in September 2015		89,000		104,000

Installment note payable to bank; interest at 4.23%, due in quarterly installments of $398, including interest, with final payment in October 2015		3,000		3,000

Installment notes payable to bank; interest at 4.23%, due in quarterly installments ranging from $208 to $1,217, including interest, with final payment in November 2015		10,000		11,000

Installment note payable to bank; interest at 4.23% due in quarterly installments of $12,780, including interest, with final payment in July 2016		121,000		146,000

Installment note payable to bank; interest at 5.50%, due in monthly installments of $7,910, including interest, with final payment in August 2016		214,000		235,000

Installment note payable to bank; interest at 4.23%, due in quarterly installments of $6,153, including interest, with final payment in August 2016		58,000		70,000

Installment note payable to bank; interest at 4.23%, due in quarterly installments of $2,740, including interest, with final payment in December 2016		31,000		-

Installment note payable to bank; interest at 4.85%, due in monthly installments of $922, including interest; with final payment in March 2017		31,000		-
	$	877,000	$	987,000

These notes are secured by specific equipment with a carrying value of approximately $1,396,000 and are nonrecourse liabilities of the Partnership. As such, the notes do not contain any financial debt covenants with which we must comply on either an annual or quarterly basis. Aggregate maturities of notes payable for each of the periods subsequent to March 31, 2014 are as follows:

	Amount
Nine months ending December 31, 2014	$	457,000
Year ended December 31, 2015		278,000
Year ended December 31, 2016		139,000
Year ended December 31, 2017		3,000
	$	877,000

The Partnership is scheduled to terminate on February 4 , 2017. If the Partnership terminates on February 4, 2017, CCC will assume the obligation related to the remaining notes payable through their original term.

6. Supplemental Cash Flow Information

Other noncash activities included in the determination of net loss are as follows:

Three months ended March 31,		2014				2013
Lease revenue net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank		$	172,000			$	163,000

No interest or principal on notes payable was paid by the Partnership because direct payment was made by lessee to the bank in lieu of collection of lease income and payment of interest and principal by the Partnership.

Noncash investing and financing activities include the following:

Three months ended March 31,		2014				2013
Debt assumed in conjunction with purchase of equipment		$	62,000			$	21,000

At March 31, 2013, the Partnership wrote-off fully amortized acquisition and finance fees of approximately $5,000.

At March 31, 2013, the Partnership wrote-off fully reserved lease income receivable of approximately $138,000.

At March 31, 2014, the Partnership wrote-off fully depreciated equipment of approximately $78,000.

7. Commitments and Contingencies

Allied Health Care Services

As previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013, management wrote off the fully reserved accounts receivable and fully impaired assets related to the lease to Allied Health Care Services, Inc. (“Allied”), due to the bankruptcy of Allied and the criminal conviction of its founder for fraud. There have been no material changes in the status of Allied’s bankruptcy or in the likelihood of recovering available assets since the date of the Partnership’s annual report. The deadline for the bankruptcy trustee to pursue adversary claims against certain creditors has expired, including extensions. The bankruptcy trustee cannot seek to claim the Partnership's payments received from Allied, therefore the Partnership has no exposure to such potential claims. Commonwealth continues to pursue all of our rights against both Allied and Mr. Schwartz to recover any available assets to the greatest extent possible.

SEC Settlement

In August 2012 the staff of the U.S. Securities and Exchange Commission raised a question with Commonwealth Capital Corp. (“Commonwealth”), the sponsor of our funds, regarding the interpretation and application of the term “control person.” The term affected the scope of the reimbursement to Commonwealth of certain expenses incurred for the funds. The staff was concerned that some investors may not have understood the meaning and methodology used by the funds. Commonwealth worked with the staff to assure that our disclosure was clarified. Commonwealth Income and Growth Fund, Inc., the General Partner of the funds, entered into a settlement with the SEC in September 2013 of approximately $200,000 that is being allocated to several of the Funds. The Partnership’s portion of the settlement is approximately $47,000, which was recorded as a reduction in expenses in the condensed statement of operations during the year ended December 31, 2013 in accordance with the accounting guidance in FASB ASC 605-50. As of March 31, 2014, the balance of this receivable is approximately $24,000.

FINRA Review

On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming CCSC and the owner of the firm, Kimberly Springsteen-Abbott, as respondents. The complaint alleges that Ms. Springsteen-Abbott approved misallocation of certain expenses to the funds. On October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Kimberly Springsteen-Abbott. Management believes that the expenses at issue include amounts that were proper and were properly allocated to funds, and expenses that had been allocated in error but were previously adjusted and repaid to the affected funds when they were identified. CCSC and Ms. Springsteen-Abbott deny the allegations and intend to vigorously defend the proceeding. Management believes that resolution of the charge will not result in any material adverse financial impact on the Funds, but no assurance can be provided until the proceeding is resolved.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expects,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected.

INDUSTRY OVERVIEW

The Equipment Lease Finance Association (ELFA) Monthly Leasing and Finance Index which reports economic activity for the $827 billion equipment finance sector showed overall new business volume for quarter ending March 31, 2014 increased at rate of 5.8% relative to the same period of 2013. Credit quality remained flat as the rate of receivables aged in excess of 30 days increased to 2.1% from the same period last year. Additionally, charge-offs remain unchanged at the all-time low of 0.2%. More than 65% of ELFA reporting members reported submitting more transactions for approval during the month of March. According to the Equipment Lease Foundation, growth for 2014 is forecast at 4.0%.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that our critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

See Note 2 to our condensed financial statements included herein for a discussion related to recent accounting pronouncements.

Lease Income Receivable

Lease income receivable includes current lease income receivable net of allowances for uncollectible accounts, if any. The Partnership monitors lease income receivable to ensure timely and accurate payment by lessees. Its Lease Relations department is responsible for monitoring lease income receivable and, as necessary, resolving outstanding invoices. Lease revenue is recognized on a monthly straight-line basis which is in accordance with the terms of the lease agreement.

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.

REVENUE RECOGNITION

Through March 31, 2014, the Partnership’s lease portfolio consisted of operating and finance leases. For operating leases, lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreements.

Finance lease interest income is recorded over the term of the lease using the effective interest method. For finance leases, we record, at lease inception, unearned finance lease income which is calculated as follows: total lease payments, plus any residual values and initial direct costs, less the cost of the leased equipment.

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.

Gain or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund’s condensed Statement of Operations.

Our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index.

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 three months ended March 31, 2014 and 2013 were approximately $1,000 and $0, respectively.

LONG-LIVED ASSETS

Depreciation on equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years. Once an asset comes off lease or is re-leased, 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.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of cash for the three months ended March 31, 2014 was cash provided by operating activities of approximately $13,000 and payments from finance leases of approximately $3,000. This compares to the three months ended March 31, 2013 where our primary sources of cash were from operating activities of approximately $97,000 and proceeds for the sale of equipment of approximately $1,000.

Our primary uses of cash for the three months ended March 31, 2014 were for the purchase of new equipment of approximately $17,000 and for the purchase of finance leases of approximately $9,000. For the three months ended March 31, 2013, our primary uses of cash were for the purchase of new equipment of approximately $21,000 and payments on payable to Affiliate of approximately $80,000.

Capital expenditures are expected to occur during the remainder of 2014, but due to the continued recovery efforts for lost equity experienced during the litigation process with Mobile Pro/City of Tempe, the Partnership is unable to project the 2014 acquisitions at this time. During the three months ended March 31, 2014, the Partnership acquired approximately $79,000 of equipment, primarily through debt financing of approximately $62,000 and purchased finance leases of approximately $9,000.

Commonwealth Capital Corp., on our behalf and on behalf of other affiliated partnerships, acquires equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors.

As we continue to acquire equipment for the equipment portfolio, operating expenses may increase, but because of our investment strategy of leasing equipment primarily through triple-net leases, we avoid operating expenses related to equipment maintenance or taxes.

Cash was provided by operating activities for the three months ended March 31, 2014 of approximately $13,000, which includes a net loss of approximately $61,000 and depreciation and amortization expenses of approximately $260,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $172,000. For the three months ended March 31, 2013, cash was provided by operating activities of approximately $97,000, which includes a net loss of approximately $32,000 and depreciation and amortization expenses of approximately $299,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $163,000. Additionally we had a gain on the sale of equipment in the amount of approximately $1,000.

We consider cash equivalents to be highly liquid investments with the original maturity dates of 90 days or less.

At March 31, 2014	Amount
Total bank balance	$	20,000
FDIC insured		(20,000	)
Uninsured amount	$	-

Our investment strategy of acquiring equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes our operating expenses.

As of March 31, 2014, we had future minimum rentals on non-cancelable operating leases of approximately $748,000 for the balance of the year ending December 31, 2014 and approximately $632,000 thereafter.

As of March 31, 2014, we had future minimum rentals on non-cancelable finance leases of approximately $9,000 for the balance of the year ending December 31, 2014 and approximately $32,000 thereafter.

As of March 31, 2014, our non-recourse debt was approximately $877,000, with interest rates ranging from 3.95% to 5.60%, and will be payable through March 2017.

Our cash from operations is expected to continue to be adequate to cover all operating expenses, liabilities, and distributions to Partners during the next 12-month period. If available cash flow or net disposition proceeds are insufficient to cover our expenses and liabilities on a short and long term basis, we will attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within our permissible limits. The General Partner continues to suspend distributions, as part of an aggressive work out plan of reinvestment and recovery for lost equity experienced during the litigation process with Mobile Pro/City of Tempe. The General Partner will reassess the funding of limited partner distributions on a quarterly basis, throughout 2014. The General Partner and CCC will also determine if related party payables owed to them by the Partnership may be deferred (if deemed necessary) in an effort to increase the Partnership’s cash flow.

RESULTS OF OPERATIONS

Three months ended March 31, 2014 compared to three months ended March 31, 2013

Lease Revenue

Our lease revenue decreased to approximately $284,000 for the three months ended March 31, 2014, from approximately $331,000 for the three months ended March 31, 2013. This decrease is primarily due to more lease agreements ending versus new lease agreements being acquired.

The Partnership had 87 and 120 active operating leases during the three months ended March 31, 2014 and 2013, respectively. The decrease in the amount of active leases is consistent with the overall decrease in lease revenue. Management expects to continue to add new leases to our portfolio throughout the remainder of 2014, funded primarily through debt.

Sale of Equipment

During the three months ended March 31, 2014, the Partnership did not sell any equipment. This compared to equipment that we sold for the three months ended March 31, 2013 with a net book value of approximately $500, for a net gain of approximately $1,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses increased to approximately $71,000 for the three months ended March 31, 2014, from approximately $58,000 for the three months ended March 31, 2013. This increase is primarily attributable to an increase in legal fees, partially offset by a decrease in various administrative expenses.

Equipment Management Fees

We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 2.5% of the gross lease revenue attributable to equipment that is subject to operating leases. The equipment management fee decreased to approximately $7,000 for the three months ended March 31, 2014 as compared to approximately $8,000 for the three months ended March 31, 2013. This decrease is consistent with the decrease in overall lease revenue.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $260,000 for the three months ended March 31, 2014, from $299,000 for the three months ended March 31, 2013. This decrease is primarily due to an increase in the amount of equipment that is fully depreciated, partially offset by new equipment acquisitions.

Net Income (Loss)

For the three months ended March 31, 2014, we recognized revenue of approximately $287,000 and expenses of approximately $348,000, resulting in a net loss of approximately $61,000. For the three months ended March 31, 2013, we recognized revenue of approximately $348,000 and expenses of approximately $380,000, resulting in a net loss of approximately $32,000. This change in net loss is due to the changes in revenue and expenses as described above.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

N/A

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of the General Partner’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures related to our reporting and disclosure obligations as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the General Partner’s Chief Executive Officer and Principal Financial Officer have concluded that, as of March 31, 2014, our disclosure controls and procedures are effective in ensuring that information relating to us which is required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) accumulated and communicated to management, including the General Partner’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in the Partnership’s internal control over financial reporting during the first quarter of 2014 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

Part II: OTHER INFORMATION

Item 1. Legal Proceedings

Allied Health Care Services

SEC Settlement

FINRA Review

On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming CCSC and the owner of the firm, Kimberly Springsteen-Abbott, as respondents. The complaint alleges that Ms. Springsteen-Abbott approved misallocation of certain expenses to the funds. On October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Kimberly Springsteen-Abbott. Management believes that the expenses at issue include amounts that were proper and were properly allocated to funds, and expenses that had been allocated in error but were previously adjusted and repaid to the affected funds when they were identified. CCSC and Ms. Springsteen-Abbott deny the allegations and intend to vigorously defend the proceeding. In addition, to avoid any future issues concerning the allocation of expenses, Commonwealth has implemented new procedures to better monitor the allocation of expenses, which procedures have been in effect since 2012. Management believes that resolution of the charge will not result in any material adverse financial impact on the Funds, but no assurance can be provided until the proceeding is resolved.

Item 1A. Risk Factors

N/A

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	N/A

Item 3.	Defaults Upon Senior Securities
	N/A

Item 4.	Mine Safety Disclosures
	N/A

Item 5.	Other Information
	NONE

Item 6.	Exhibits

31.1 THE RULE 15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

31.2 THE RULE 15d-14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

32.2 SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COMMONWEALTH INCOME & GROWTH FUND V
	BY: COMMONWEALTH INCOME & GROWTH FUND, INC., General Partner
May 15, 2014	By: /s/ Kimberly A. Springsteen-Abbott
Date	Kimberly A. Springsteen-Abbott
	Chief Executive Officer Commonwealth Income & Growth Fund, Inc.

May 15, 2014	By: /s/ Lynn A. Franceschina
Date	Lynn A. Franceschina
	Executive Vice President, Chief Operating Officer

COMMONWEALTH INCOME & GROWTH FUND V - FORM 10-Q - May 15, 2014

Attached files

COMMONWEALTH INCOME & GROWTH FUND V Reports