UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2006
[_] 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, L.P.
(Exact name of registrant as specified in its charter)
Pennsylvania 65-1189593
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
470 John Young Way
Exton,Brandywine Bldg. One, Suite 200
2 Christy Drive
Chadds Ford, PA 1934119317
(Address, including zip code, of principal executive offices)
(610) 594-9600
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days: YES [X] NO [_]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, (as
definedor a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12c-212b-2 of the Act)Exchange Act. (Check
one):
YESLarge accelerated filer [_] NOAccelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES [_] NO [X]
1
FORM 10-Q
MARCH 31,JUNE 30, 2006
TABLE OF CONTENTS
PART I
Item 1. Condensed Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1112
Item 3. Quantitative and Qualitative Disclosures About Market Risk 1315
Item 4. Controls and Procedures 1316
PART II
Item 1. Legal Proceedings 1416
Item 1A. Risk Factors 1416
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 1518
Item 3. Defaults Upon Senior Securities 1618
Item 4. SumissionSubmission of Matters to a Vote of Securities Holders 1618
Item 5. Other Information 1618
Item 6. Index to Exhibits
Signatures
Certifications
2
COMMONWEALTH INCOME & GROWTH FUND V, L.P.
CONDENSED BALANCE SHEET
MARCH 31,JUNE 30, DECEMBER 31,
2006 2005
----------------------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $13,092,532$11,136,299 $10,722,300
Lease income receivable, net of reserves of $0 as of
March 31,June 30, 2006 and December 31, 2005 141,279262,711 91,047
Other receivable - Affiliates 93,532118,870 71,259
Other receivables -- 94,293
Prepaid Fees 19,65013,705 --
----------- -----------
13,346,99311,531,585 10,978,899
----------- -----------
Computer equipment, at cost 7,860,51410,344,032 5,480,291
Accumulated depreciation (729,551)(1,317,229) (289,811)
----------- -----------
7,130,9639,026,803 5,190,480
----------- -----------
Equipment acquisition costs and deferred expenses, net 285,460361,046 211,190
Prepaid acquisition fees 583,112530,963 483,504
----------- -----------
868,572892,009 694,694
----------- -----------
TOTAL ASSETS $21,346,528$21,450,397 $16,864,073
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 387,105343,349 $ 138,832
Accounts payable - General Partner 58,71783,692 61,224
Accounts payable - Commonwealth Capital Corp. 93,32048,342 39,258
Unearned lease income 95,503121,500 45,867
Notes Payable 1,029,0911,837,670 785,157
----------- -----------
TOTAL LIABILITIES 1,663,7362,434,553 1,070,338
----------- -----------
PARTNERS' CAPITAL
General partner 1,000 1,000
Limited partners 19,681,79219,014,844 15,792,735
----------- -----------
TOTAL PARTNERS' CAPITAL 19,682,79219,015,844 15,793,735
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $21,346,528$21,450,397 $16,864,073
=========== ===========
see accompanying notes to condensed financial statements
3
COMMONWEALTH INCOME & GROWTH FUND V
CONDENSED STATEMENTS OF OPERATIONS
FOR THE PERIOD OF
MARCH 14,
THREE MONTHSTHREE-MONTHS ENDED SIX-MONTHS (COMMENCEMENT OF
ENDED OPERATIONS)
MARCH 31,JUNE 30, JUNE 30, JUNE 30, THROUGH MARCH 31,JUNE 30,
2006 2005 2006 2005
---------- --------- ---------- -----------------
(UNAUDITED) (UNAUDITED)
------------ -----------------
INCOME
Lease $ 604,587762,116 $ 73716,739 $1,366,704 $ 17,476
Interest and other 49,425118,198 1 167,623 2
---------- ----------------- ---------- ---------
TOTAL INCOME 654,012 738880,314 16,740 1,534,326 17,478
---------- ----------------- ---------- ---------
EXPENSES
Operating 354,490 21,873257,596 205,787 612,086 227,659
Organizational costs -- 53,860 36,751 25,93979,799
Equipment management fee - General Partner 30,229 3741,848 837 72,077 874
Interest 16,17320,885 -- 37,057 --
Depreciation 439,739 948587,678 12,527 1,027,417 13,475
Amortization of equipment
acquisition costs and deferred expenses 24,396 5133,041 668 57,436 719
Miscellaneous 230 -- 230 --
---------- ----------------- ---------- ---------
TOTAL EXPENSES 901,778 48,848941,278 273,679 1,843,054 322,526
---------- ----------------- ---------- ---------
NET (LOSS) $ (247,766) $(48,110)(60,963) $(256,939) (308,729) (305,048)
========== ================= ========== =========
NET (LOSS) ALLOCATED TO LIMITED PARTNERS $ (254,244) $(48,110)(65,730) $(257,958) (319,974) (306,068)
========== ================= ========== =========
NET (LOSS) PER EQUIVALENT LIMITED
PARTNERSHIP UNIT $ (0.22)(0.05) $ (0.64)(0.68) (0.26) (0.80)
========== ================= ========== =========
WEIGHTED AVERAGE NUMBER OF EQUIVALENT LIMITED
PARTNERSHIP UNITS OUTSTANDING DURING THE PERIOD 1,130,000 74,9701,249,951 262,747 1,249,951 232,900
========== ================= ========== =========
see accompanying notes to condensed financial statements
4
COMMONWEALTH INCOME & GROWTH FUND V, L.P.
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2006
(UNAUDITED)
General Limited
Partner Partner General Limited
Units Units Partner Partners TotalGENERAL LIMITED
PARTNER PARTNER GENERAL LIMITED
UNITS UNITS PARTNER PARTNERS TOTAL
------- --------- --------------- ----------- -----------
BALANCE, December 31, 2005 50 985,494 $ 1,000 $15,792,735 $15,793,735
Contributions -- 264,457 -- 5,254,658 5,254,658
Offering costs -- -- -- (593,264) (593,264)
Net income (loss) 11,245 (319,974) (308,729)
Distributions (11,245) (1,119,311) (1,130,556)
-- -- 6,478 (254,244) (247,766)
Distributions -- -- (6,478) (518,093) (524,571)
--- --------- --------------- ----------- -----------
BALANCE, MARCH 31,JUNE 30, 2006 50 1,249,951 $ 1,000 $19,681,792 $19,682,792
===$19,014,844 $19,015,844
== ========= =============== =========== ===========
see accompanying notes to condensed financial statements
5
COMMONWEALTH INCOME & GROWTH FUND V, L.P.
CONDENSED STATEMENTS OF CASH FLOW
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2006 AND THE PERIOD OF MARCH 14, 2005
(COMMENCEMENT OF OPERATIONS) THROUGH MARCH 31,JUNE 30, 2005
2006 2005
(UNAUDITED) (UNAUDITED)
----------- -----------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 466,239727,396 $ (65,072)(136,769)
----------- ----------
Capital expenditures (2,034,556) --(3,589,483) (456,481)
Prepaid acquisition fees (99,608) (45,508)(47,459) (236,090)
Equipment acquisition fees paid to General Partner (95,209) (1,820)(194,550) (18,259)
----------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (2,229,373) (47,328)(3,831,492) (710,830)
----------- ----------
Contributions 5,254,658 2,381,3807,599,940
Distributions (524,571) (285,174)(1,130,556) (101,944)
Offering costs (593,264) --(925,384)
Debt Placement fees paid to General Partner (3,457)(12,743) --
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,133,366 2,096,2063,518,095 6,572,612
----------- ----------
Net increase in cash and cash equivalents 2,370,232 1,983,806413,999 5,725,013
Cash and cash equivalents, beginning of period 10,722,300 1,067
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $13,092,532 $1,984,873$11,136,299 $5,726,080
=========== ==========
see accompanying notes to condensed financial statements
6
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BUSINESS Commonwealth Income & Growth Fund V (the
"Partnership") is a limited partnership
organized in the Commonwealth of Pennsylvania
on May 19, 2003. The Partnership is offeringoffered 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 uses the proceeds of the
Offering to acquire, own and lease various
types of computer peripheralIT equipment and other
similar capital equipment, which will be leased
primarily to U.S. corporations and
institutions. Commonwealth Capital Corp,
("CCC"), on behalf of the Partnership and other
affiliated partnerships, will acquire computer
equipment subject to associated debt
obligations and lease agreements and allocate a
participation in the cost, debt and lease
revenue to the various partnerships based on
certain risk factors.
The Partnership's General Partner is
Commonwealth Income & Growth Fund, Inc. (the
"General Partner"), a Pennsylvania corporation
which is an indirect wholly owned subsidiary of
Commonwealth Capital Corp. Commonwealth Capital
Corp. is a member of the Investment Program
Association (IPA), Financial Planning
Association (FPA), and the Equipment Leasing
Association (ELA). Approximately ten
years after the commencement of operations, the
Partnership intends to sell or otherwise
dispose of all of its computer equipment, make
final distributions to partners, and to
dissolve. Unless sooner terminated, the
Partnership will continue until December 31,
2015.
2. SUMMARY OF SIGNIFICANT BASIS OF PRESENTATION
ACCOUNTING
POLICIES The financial information presented as of any
date other than December 31 has been prepared
from the books and records without audit.
Financial information as of December 31 has
been derived from the audited financial
statements of the Partnership, but does not
include all disclosures required by accounting
principles generally accepted in the United
States of America. 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, 2005. Operating
results for the three-monthsix-month period ended March 31,June 30,
2006 are not necessarily indicative of
financial results that may be expected for the
full year ended December 31, 2006.
7
LONG-LIVED ASSETS
The Partnership evaluates its long-lived assets
when events or circumstances indicate that the
value of the asset may not be recoverable. The
Partnership determines whether an impairment
exists by estimating the undiscounted cash
flows to be generated by each asset. If the
estimated undiscounted cash flows are less than
the carrying value of the asset, then an
impairment exists. The amount of the impairment
is determined based on the difference between
the carrying value and the fair value. Fair
value is determined based on estimated
discounted cash flows to be generated by the
asset. The partnership determined that no
impairment existed as of March 31,June 30, 2006.
Depreciation on computer equipment for
financial statement purposes is based on the
straight-line method over estimated useful
lives of four years.
NET INCOME (LOSS) PER EQUIVALENT LIMITED
PARTNERSHIP UNIT
The net income (loss) per equivalent limited
partnership unit is computed based upon net
income (loss) allocated to the limited partners
and the weighted average number of equivalent
limited partner units outstanding during the
period.
3. COMPUTER EQUIPMENT The Partnership is the lessor of equipment
under operating leases with periods ranging
from 14 to 48 months. In general, associated
costs such as repairs and maintenance,
insurance and property taxes are paid by the
lessee.
Through March 31,June 30, 2006, the Partnership's
leasing operations consisted of operating
leases. Operating lease revenue is recognized
on a monthly basis in accordance with the terms
of the lease agreement.
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 "stay with the
lease" for potential extensions, remarketing or
sale of equipment. This strategy potentially
minimizes any conflicts the leasing company may
have with a potential new lease and will
potentially assist in maximizing overall
portfolio performance. The remarketing fee is
tied into lease performance thresholds and is
factored in the negotiation of the fee.
Remarketing fees incurred in connection with
lease extensions are accounted for as operating
costs. Remarketing fees incurred in connection
with the sale of computer equipment are
included in our gain or loss calculations. No
remarketing fees were paid for the period ended
March 31,June 30, 2006.
8
The Partnership's share of the computer
equipment in which it participates with other
partnerships at March 31,June 30, 2006 and December 31,
2005 was approximately $1,677,000$2,378,000 and $932,000,
respectively, which is included in the
Partnership's fixed assets on
8
its balance
sheet, and the total cost of the equipment
shared by the Partnership with other
partnerships at March 31,June 30, 2006 and December 31,
2005 was approximately $3,851,000$5,542,000 and
$2,177,000, respectively. The Partnership's
share of the outstanding debt associated with
this equipment at March 31,June 30, 2006 and December
31, 2005 was $270,000$460,000 and $0, respectively. The
total outstanding debt at March 31,June 30, 2006 and
December 31, 2005 was $676,000$1,043,000 and $0,
respectively.
The following is a schedule of future minimum
rentals on noncancellable operating leases at
MarchJune 30, 2006:
Amount
-----------------------------------------------
Six months ending December 31, 2006:
Amount
----------
Nine months ending December 31, 2006 $2,013,000
Year ended December 31, 2007 2,622,000
Year ended December 31, 2008 2,016,000
Year ended December 31, 2009 33,000
----------
$6,684,0002006 $1,753,602
Year ended December 31, 2007 3,416,609
Year ended December 31, 2008 2,550,680
Year ended December 31, 2009 251,240
----------
$7,972,131
==========
4. RELATED PARTY TRANSACTIONS RECEIVABLES/PAYABLES
TRANSACTIONS
As of March 31,June 30, 2006, the Partnership's related
party receivables and payables are short term,
unsecured, and non-interest bearing.
REIMBURSABLE EXPENSES
The General Partner and its affiliates are
entitled to reimbursement by the Partnership
for the cost of supplies and 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 for certain expenses incurred
by the General Partner and its affiliates in
connection with the administration and
operation of the Partnership. During the
three-monthssix-months ended March 31,June 30, 2006, the Partnership
recorded $75,000$379,613 for reimbursement of expenses
to the General Partner. For the period of March
14, 2005 (Commencement of Operations) through
March 31,June 30, 2005, the Partnership recorded
$8,000$131,000 for reimbursement of expenses to the
General Partner.
OFFERING COSTS
Offering costs are payments for selling
commissions, dealer manager fees, professional
fees and other offering expenses relating to
the syndication. Selling commissions are 8% of
the partners' contributed capital and dealer
manager fees are 2% of the partners'
contributed capital. These costs have been
deducted from partnership capital in the
accompanying financial statements.
9
EQUIPMENT ACQUISITION FEE
The General Partner is entitled to be paid 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 period ended March 31,June 30, 2006, equipment
acquisition fees of approximately $314,000$194,550 were
earned by the General Partner. No equipment
acquisition fees were earned by the General
Partner for the period of March 14, 2005
(Commencement of Operations) through June 30,
2005.
DEBT PLACEMENT FEE
As compensation for arranging term debt to
finance the acquisition of equipment by the
Partnership, the General Partner is paid a fee
equal to 1% of such indebtedness; provided,
however, that such fee shall be reduced to the
extent the Partnership incurs such fees to
third parties, unaffiliated with the General
Partner or the lender, with respect to such
indebtedness and no such fee will be paid with
respect to borrowings from the General Partner
or its affiliates. For the period ended March
31,June
30, 2006, debt placement fees of approximately
$12,000$12,743 were earned by the General Partner. No
debt placement fees were earned by the General
Partner for the period of March 14, 2005
(Commencement of Operations) through March 31,June 30,
2005.
EQUIPMENT MANAGEMENT FEE
The General Partner is entitled to be paid a
monthly fee equal to the lesser of (i) the fees
which would be charged by an independent third
party for similar services for similar
equipment or (ii) the sum of (a) two percent of
(1) the gross lease revenues attributable to
equipment which is subject to full payout net
leases which contain net lease provisions plus
(2) the purchase price paid on conditional
sales contracts as received by the Partnership
and (b) 5% of the gross lease revenues
attributable to equipment which is subject to
operating and capital leases. For the
three-monthssix-months ended March 31,June 30, 2006, equipment
management fees of approximately $30,000$72,000 were
earned by the General Partner. For the period
of March 14, 2005 (Commencement of Operations)
through March 31,June 30, 2005, equipment management
fees of approximately $37$874 were earned by the
General Partner.
10
5. NOTES PAYABLE Notes payable consisted of the following:
MARCH 31, 2006
--------------
Installment note payable to
bank; interest at 4.61%, due
in monthly installments
ranging of $160, including
interest, with final payment
in December 2007. $ 1,069
Installment notes payable to
banks; interest ranging from
4.65% to 6.3%, due in monthly
installments ranging from
$1,095 to $14,239, including
interest, with final payments
from February through
September 2008. 1,028,022
----------
$1,029,091
10
DECEMBER 31,
JUNE 30, 2006 2005
-------------------------------------------------------------
Installment note payable to
bank; interest at 4.61%, due
in monthly instaltlments of
$160, including interest, with
final payment in December
2007. $ 922 --
Installment notes payable to
banks; interest ranging from
4.65% to 6.3%, due in monthly
installments ranging from
$1,095 to $14,239, including
interest, with final payments
from February through October
2008. 925,186 785,157
Installment notes payable to
banks; interest ranging from
6.08% to 6.14%, due in monthly
installments ranging from
$21,364 to $22,990, including
interest, with final payment
in February 2009. 911,563 --
-------------------------------------------------------------
$1,837,671 785,157
-------------------------------------------------------------
These notes are secured by specific computer
equipment and are nonrecourse liabilities of
the Partnership. Aggregate maturities of notes
payable for each of the periods subsequent to
March 31,June 30, 2006 are as follows:
AMOUNT
----------
NineSix months ended December 31, 2006 $ 313,580365,341
Year ended December 31, 2007 440,368763,939
Year ended December 31, 2008 275,143619,077
Year ended December 31, 2009 89,314
----------
$1,029,091$1,837,671
----------
6. SUPPLEMENTAL Other noncash activities included in the
CASH FLOW determination of net loss are as follows:
INFORMATION
Six months Ended June 30, 2006 2005
- ----------------------------------------------- -------- ----
Lease income, net of interest expense on
11
notes payable realized as a result of direct
payment of principal by lessee to bank $221,744 $--
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:
Six months Ended June 30, 2006 2005
- --------------------------------------- ---------- ----
Debt assumed in connection with
purchase of computer equipment $1,274,257 $--
Equipment acquisition fees earned by
General Partner upon purchase of
equipment from prepaid
acquisition fees $ 47,459 $--
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
The Partnership's discussion and analysis of its financial condition and results
of operations are based upon its financial statements which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the Partnership
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. The Partnership bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Partnership believes that its critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.
FORWARD LOOKING STATEMENTS
Certain statements within this Quarterly Report on Form 10-Q may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"). These statements are being made
pursuant to the PSLRA, with the intention of obtaining the benefits of the "safe
harbor" provisions of the PSLRA, and, other than as required by law, we assume
no obligation to update or supplement such statements. Forward-looking
statements are those that do not relate solely to historical fact. They include,
but are not limited to, any statement that may predict, forecast, indicate or
12
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.
COMPUTER EQUIPMENT
CCC, on behalf of the Partnership and other affiliated partnerships, acquires
computer equipment subject to associated debt obligations and lease revenue and
allocates a participation in the cost, debt and lease revenue to the various
partnerships based on 11
certain risk factors. Depreciation on computer equipment
for financial statement purposes is based on the straight-line method over
estimated useful lives of four years.
REVENUE RECOGNITION
Through March 31,June 30, 2006, the Partnership's leasing operations consist of operating
leases. Operating lease revenue is recognized on a monthly basis in accordance
with the terms of the lease agreement.
The Partnership reviews a customer's credit history before extending credit and
establishes a provision for uncollectible accounts receivable based upon the
credit risk of specific customers, historical trends and other information.
LONG-LIVED ASSETS
The Partnership evaluates its long-lived assets when events or circumstances
indicate that the value of the asset may not be recoverable. The Partnership
determines whether an impairment exists by estimating the undiscounted cash
flows to be generated by each asset. If the estimated undiscounted cash flows
are less than the carrying value of the asset, then an impairment exists. The
amount of the impairment is determined based on the difference between the
carrying value and the fair value. Fair value is determined based on estimated
discounted cash flows to be generated by the asset.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of capital for the quartersix-months ended March 31,June 30,
2006 and the period of March 14, 2005 (Commencement of Operations) through March 31,June
30, 2005, was contributions of approximately $5,300,000$5,200,000 and $2,400,000,$7,600,000,
respectively. The Partnership incurred and paid offering costs of approximately
$593,000 and $285,000 during those same periods. Equipment in the amount of approximately $2,000,000$3,600,000 was purchased
during the quartersix-months ended March 31,June 30, 2006 and distributions in the amount of
$525,000$1,100,000 were paid during that same period. NoEquipment in the amount of
$456,000 was purchased and distributions were paid in the amount of $102,000
during the period of March 14, 2005 (Commencement of Operations) through March 31,June
30, 2005.
For the quartersix-months ended March 31,June 30, 2006, cash was provided from operations in the
amount of $466,000,$727,000, which includes a net loss of $248,000,$309,000 and depreciation and
amortization expenses of approximately $464,000.$1,085,000. Other noncashnon-cash activities
included in the determination of net
13
income include direct payments of lease income by lessees to banks of
approximately $102,000.$222,000.
For the period of March 14, 2005 (Commencement of Operations) through March 31,June 30,
2005, the Partnership used cash for operating activities of approximately
$65,000,$137,000, which includes a net loss of approximately $48,000,$305,000, and depreciation
and amortization expenses of approximately $1,000.$14,000.
The Partnership's investment strategy of acquiring computer equipment and
generally leasing it under "triple-net leases" to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses. As
of March 31,June 30, 2006, the Partnership had future minimum rentals on non-cancelable
operating leases of $2,013,000$1,753,602 for the balance of the year ending December 31,
2006 and $4,671,000$6,218,529 thereafter.
12
The Partnership's cash from operations is expected to continue to be adequate to
cover all operating expenses, liabilities, and preferred distributions to
Partners during the next 12-month period. If available Cash Flow or Net
Disposition Proceeds are insufficient to cover the Partnership expenses and
liabilities on a short and long term basis, the Partnership will attempt to
obtain additional funds by disposing of or refinancing Equipment, or by
borrowing within its permissible limits. The Partnership may, from time to time,
reduce the distributions to its Partners if it deems necessary. Since the
Partnership's leases are on a "triple-net" basis, no reserve for maintenance and
repairs are deemed necessary.
RESULTS OF OPERATIONS
Three months ended March 31,June 30, 2006 compared to the period of March 14, 2005
(Commencement of Operations) through March 31,three months ended June 30,
2005
For the quarterthree months ended March 31,June 30, 2006, the Partnership recognized income of
approximately $654,000$880,000 and expenses of approximately $902,000,$941,000, resulting in a
net loss of approximately $248,000.$61,000. For the periodthree-months ended of March 14, 2005 (Commencement of Operations) through March 31,June 30, 2005,
the Partnership recognized income of approximately $1,000$17,000 and expenses of
approximately $49,000,$274,000, resulting in a net loss of approximately $48,000.
For$257,000.
Lease income increased to $762,000 for the quarterthree months ended March 31,June 30, 2006,
operatingfrom $17,000 for the three months ended June 30, 2005, primarily due to the fact
that more lease agreements were entered into since the six months ended June 30,
2005 as the fund commenced operations.
Operating expenses, of $354,000, excluding depreciation, primarily consist of sales expenses of $21,000, conferences of
$11,000, postage and shipping of $5,000,accounting,
legal, outside service fees and reimbursement of expenses to CCC, a related
party, for administration and operation of the Partnership ofPartnership. The expenses
increased 25% to approximately $168,000.
Operating expenses, excluding depreciation, were $22,000 during the period of
March 14, 2005 (Commencement of Operations) through March 31, 2005. These
expenses mainly consist of printing and sales expenses.
Organizational costs were approximately $37,000 and $26,000$257,000 for the quarter ended March 31,June 30, 2006,
andfrom $205,000 for the periodquarter ended June 30, 2005.
The equipment management fee is approximately 5% of March 14,the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee increased to approximately $40,000 for the quarter ended June 30,
2006, from $800 for the quarter ended June 30, 2005, (Commencement of
Operations) through March 31, 2005, respectively. In accordancewhich is consistent with
the American Institute of Certified Public Accountants, Statement of Position (SOP)
98-05, costs relating to start-up activities and organization costs (accounting,
legal, printing, etc.) are expensed as incurred.increase in lease income.
14
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses totaledincreased
to approximately $464,000 and $1,000$620,000 for the quarter ended June 30, 2006, from $13,000 for
the quarter ended June 30, 2005 due to additional equipment being purchased and
the associated acquisition and finance fees being recorded by the Partnership
since the quarter ended June 30, 2005.
Six months ended June 30, 2006 compared to March 31,14, 2005 (Commencement of
Operations) through June 30, 2005
For the six months ended June 30, 2006, the Partnership recognized income of
approximately $1,534,000, and expenses of approximately $1,843,000, resulting in
a net loss of approximately $309,000. For the period of to March 14, 2005
(Commencement of Operations) through June 30, 2005, the Partnership recognized
income of approximately $17,000, and expenses of approximately $322,000,
resulting in a net loss of approximately $305,000.
Lease income increased to $1,367,000 for the six months ended June 30, 2006,
from $17,000 for the period of to March 14, 2005 (Commencement of Operations)
through June 30, 2005, primarily due to the fact that more lease agreements were
entered into since the period from June 30, 2005 as the fund commenced
operations.
Operating expenses, excluding depreciation, primarily consist of accounting,
legal, outside service fees and reimbursement of expenses to CCC, a related
party, for administration and operation of the Partnership. The expenses
increased to approximately $612,000 for the six months ended June 30, 2006, from
$228,000 for the period of March 14, 2005 (Commencement of Operations) through
March 31,June 30, 2005, respectively.primarily due to an increase in the amount charged by CCC, a
related party, to the Partnership for its administration and operation of
approximately $30,000, an increase in due diligence costs of approximately
$7,000 and an increase in accounting fees of approximately $60,000. Such
expenses increased due to the commencement of operations and further activity
within the fund.
The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee increased to approximately $72,000 for the six months ended June
30, 2006, from $900 for the period ended June 30, 2005, which is consistent with
the increase in lease income.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses increased
to approximately $1,085,000 for the six months ended June 30, 2006; from $14,000
for the period ended June 30, 2005 due to additional equipment being purchased
and the associated acquisition and finance fees being recorded by the
Partnership since the period ended June 30, 2005.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership believes its exposure to market risk is not material due to the
fixed interest rate of its long-term debt and its associated fixed revenue
streams.debt. There are no material changes to this
disclosure related to these items since the filing of our Annual Report on Form
10-K for the year ended December 31, 2005.
15
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and Financial Officer of the PartnershipGeneral Partner have
conducted a review of the Partnership'sGeneral Partner's disclosure controls and procedures
as of March 31,June 30, 2006.
The Partnership'sCompany's disclosure controls and procedures include the Partnership's
controls and other procedures designed to ensure that information required to be
disclosed in this and other reports filed under the Securities Exchange Act of
1934, as amended (the " Exchange Act") is accumulated and communicated to the
Partnership'sGeneral partner's management,
13
including its chief executive officer and a
financial officer, to allow timely decisions regarding required disclosure and
to ensure that such information is recorded, processed, summarized and reported
with the required time quarters.periods.
Based upon this review, the Partnership'sGeneral Partner's Chief Executive Officer and
Financial Officer have concluded that the Partnership'sGeneral Partner's disclosure controls
(as defined in pursuant to Rule 13a-14c13a-14 c promulgated under the Exchange Act) are
sufficiently effective to ensure that the information required to be disclosed
by the PartnershipGeneral Partner in the reports it files under the Exchange Act is
recorded, processed, summarized and reported with adequate timeliness.
There have been no changes in the General Partner's internal controls or in
other factors that could materially affect our disclosure controls and
procedures in the quarter ended March 31,June 30, 2006, that have materially affected or
are reasonably likely to materially affect the General Partner's internal
controls over financial reporting.
PART II: OTHER INFORMATION
COMMONWEALTH INCOME & GROWTH FUND V
Item 1. LEGAL PROCEEDINGS.
N/A
Item 1A. RISK FACTORS
THERE IS NO PUBLIC MARKET FOR THE UNITS, AND YOU MAY BE UNABLE TO SELL OR
TRANSFER YOUR UNITS AT A TIME AND PRICE OF YOUR CHOOSING
There exists no public market for the units, and the General Partner does not
expect a public market for units to develop. The units cannot be pledged or
transferred without the consent of the General Partner. The units should be
purchased as a long-term investment only. The General Partner intends to limit
the number of transfers to no more than that number permitted by one of the safe
harbors available under the tax laws and regulations to prevent CIGF5 from being
taxed as a corporation. Generally, these safe harbors require that all nonexempt
transfers and redemptions of units in any calendar year not exceed two percent
of the outstanding interests in the capital or profits of CIGF5.
The General Partner has sole discretion in deciding whether we will redeem units
in the future. Consequently, you may not be able to liquidate your investment in
the event of an
16
emergency. You must be prepared to hold your units for the life of CIGF5.
CIGF5's life cycle will last approximately 10 to 12 years, and any extension of
this period will require an amendment to the partnership agreement, which must
be approved by a majority of the Limited Partners. You may be able to resell
your units, if at all, only at a discount to the offering price, which may be
significant, and the redemption or sale price may be less than the price you
originally paid for your units.
INFORMATION TECHNOLOGY EQUIPMENT WE PURCHASE WILL DEPRECIATE IN VALUE AND/OR
BECOME OBSOLETE OR LOSE VALUE AS
14
NEW TECHNOLOGY IS DEVELOPED, WHICH CAN REDUCE
THE VALUE OF YOUR UNITS AND YOUR ULTIMATE CASH RETURN.
Residual value is the amount realized upon the sale or release of equipment when
the original lease has expired. The residual value of our equipment may decline
if technological advancements make it obsolete or change market preferences. The
residual value depends on, among other factors, the condition of the equipment,
the cost of comparable new equipment, the technological obsolescence of the
equipment and supply and demand for the equipment.
In either of these events, the equipment we purchased may have little or no
residual value. This will result in insufficient assets for us to distribute
cash in a total amount equal to the invested capital of the Limited Partners
over the term of our existence. Also, such an occurrence may reduce the value of
the units. Although currently we expect CIGF5 to acquire predominantly new
equipment, CIGF5 may purchase used equipment. There is no limitation on the
amount of used equipment which CIGF5 may acquire. The acquisitions of used
equipment may increase the risk that such equipment will become obsolete so that
it will have little or no residual value.
WE PAY SIGNIFICANT FEES TO THE GENERAL PARTNER AND AFFILIATES, WHICH WILL REDUCE
CASH AVAILABLE FOR DISTRIBUTIONS.
The General Partner and its affiliates, including Commonwealth Capital
Securities Corp.("CCSC"), will receive substantial fees. Some fees will be paid
without regard to the amount of distributions paid or the success or
profitability of CIGF5's operations and investments. For example, an increase in
portfolio turnover or the amount of leverage used to purchase equipment may
increase the fees we pay to the General Partner. Such compensation and fees were
established by the General Partner and are not based on arm's-length
negotiations.
CIGF5 HAS A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE PERFORMANCE.
THERE CAN BE NO ASSURANCE THAT ANY OF THE INVESTMENT OBJECTIVES WILL BE
ATTAINED.
Our operations may not ultimately be successful and we may be unable to meet our
stated investment objectives. Specifically, sufficient cash may ultimately not
be available for distribution to investors. Our General Partner sponsors four
other public equipment leasing programs with investment objectives similar to
CIGF5. The General Partner has also sponsored several privately held equipment
leasing programs. Results for these prior public and private programs have in
some cases been lower than originally anticipated.
ANY DELAY IN ACQUIRING EQUIPMENT WILL DIMINISH OUR RETURNS.
17
Due to competition with other lessors, we may experience difficulty in obtaining
and leasing appropriate equipment. Our ability to acquire and lease equipment
may also be adversely affected by interest rates, the availability of capital or
increases in corporate liquidity, since prospective lessees may prefer to raise
capital, incur debt or use internally-generated cash to purchase equipment
rather than enter the leasing market.
15
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES.
N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
N/A
Item 5. OTHER INFORMATION.
N/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
31.1 THE RULE 15D-14(A)
31.2 THE RULE 15D-14(A)
32.1 SECTION 1350 CERTIFICATION OF CEO
32.2 SECTION 1350 CERTIFICATION OF CFO
b) Report on Form 8-K:
On April 24, 2006 COMMONWEALTH INCOME & GROWTH FUND V issued an 8-K statement to
the SEC. Items reported in this statement consisted of the following: George S.
Springsteen, Founder and former Chairman of the Board, CEO and Treasurer of the
general partner's parent company, Commonwealth Capital Corp. ("CCC"), passed
away unexpectedly on April 18, 2006. The Board of Directors immediately took
action and adopted the following changes in management effective April 24, 2006:
Mr. Springsteen's spouse, Kimberly A. Springsteen, 46, has been appointed as
Chairman of the Board, Chief Executive Officer and Treasurer of CCC, CIGF, Inc.
and CCSC, and remains a Director and Chief Operating Officer of each. Henry J.
Abbott, 55, has been appointed as President of CCC, CIGF, Inc. and CCSC. Jay M.
Dugan, 58, has been appointed as Executive Vice President of CCC, CIGF, Inc. and
CCSC. Lynn A. Franceschina, 34, has been appointed as Executive Vice President
of CCC, CIGF, Inc. and CCSC. James Pruett, 40, has been appointed as a Vice
President of CCC, CIGF, Inc. and CCSC. Donnamarie D. Abbott, 46, has been
appointed as a Vice President of CCC, CIGF, Inc. and CCSC.
18
Also included in the April 24, 2006 8-K statement were changes among the Board
of Directors as follows: Effective as of April 18, 2006, Jay M. Dugan, Katrina
M. Mason and Lynn A. Franceschina have joined Ms. Springsteen and Mr. Abbott on
the Board of Directors of CCC and CIGF, Inc. Ms. Springsteen has been appointed
as the Chairman of the Board of Directors and Katrina M. Mason, 33, has been
appointed President of CCSC, effective as of the date hereof.
SIGNATURE
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 IV
BY: COMMONWEALTH INCOME & GROWTH
FUND, INC. General Partner
May 15,August 14, 2006 By: /s/ Kimberly A. Springsteen
Date ------------------------------------
Kimberly A. Springsteen
Chief Executive Officer
16
31.1 THE RULE 15D-14(A)
I, Kimberly A. Springsteen certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commonwealth Income &
Growth Fund V (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 officer(s) 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) 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) 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
(c) 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
- ----------------------------------------
Kimberly A. Springsteen
Chief Executive Officer
May 15, 2006
17
31.2 THE RULE 15D-14(A)
I, Kimberly A. Springsteen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commonwealth Income &
Growth Fund V (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 officer(s) 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)) 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) 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
(c) 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
- ----------------------------------------
Kimberly A. Springsteen
Principal Financial Officer
May 15, 2006
18
32.1 SECTION 1350 CERTIFICATION OF CEO
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Commonwealth Income & Growth Fund V,
(the "Company") on Form 10-Q for the quarter ending March 31, 2006, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Kimberly A. Springsteen, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kimberly A. Springsteen
- ----------------------------------------
Kimberly A. Springsteen
Chief Executive Officer
May 15, 2006
19
32.2 SECTION 1350 CERTIFICATION OF CFO
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Commonwealth Income & Growth Fund V,
(the "Company") on Form 10-Q for the quarter ending March 31, 2006, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Kimberly A. Springsteen, Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kimberly A. Springsteen
- ----------------------------------------
Kimberly A. Springsteen
Principal Financial Officer
May 15, 2006
20