see accompanying notes to condensed financial statements

see accompanying notes to condensed financial statements

see accompanying notes to condensed financial statements

1. Business

Commonwealth Income & Growth Fund V (the “Partnership”) is a limited partnership organized in the Commonwealth of Pennsylvania on May 19, 2003.  The Partnership offered for sale up to 1,250,000 units of the limited partnership at the purchase price of $20 per unit (the “Offering”).  The Partnership reached the minimum amount in escrow and commenced operations on March 14, 2005.  As of February 24, 2006, the Partnership was fully subscribed.

The Partnership used the proceeds of the Offering to acquire, own and lease various types of information technology (I.T.) equipment and other similar capital equipment, which is leased primarily to U.S. corporations and institutions.  Commonwealth Capital Corp. (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors.

The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly owned subsidiary of CCC.  CCC is a member of the Investment Program Association (IPA), Financial Planning Association (FPA), and the Equipment Leasing and Finance Association (ELFA).  Approximately ten years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its computer equipment, make final distributions to partners and to dissolve.  Unless sooner terminated, the Partnership will continue until December 31, 2015.

2. Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Basis of Presentation

The financial information presented as of any date other than December 31, 2008 has been prepared from the books and records without audit.  Financial information as of December 31, 2008 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included.  For further information regarding the Partnership’s accounting policies, refer to the financial statements and related notes included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2008.  Operating results for the threenine months ended March 31,September 30, 2009 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2009.

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 in the amount of approximately $87,000 and $15,000 existed at March 31,for the period ended September 30, 2009 and 2008.2008, respectively.    Such amounts have been included in depreciation expense in the accompanying financial statements.

Depreciation on computer equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of three toor four years.

Reimbursable Expenses

Reimbursable expenses, which are charged to the Partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases.  For example, if the Partnership has more investors than another program sponsored by CCC, then higher amounts of expenses related to investor services, mailing and printing costs will be allocated to the Partnership.  Also, while a Partnership is in its offering stage, higher compliance costs are allocated to it than to a program not in its offering stage, as compliance resources are utilized to review incoming investor suitability and proper documentation.  Finally, lease related expenses, such as due diligence, correspondence, collection efforts and analysis staff costs, increase as programs purchase more leases, and decrease as leases terminate and equipment is sold. All of these factors contribute to CCC’s determination as to the amount of expenses to allocate to the Partnership or to other sponsored programs.  For the Partnership, all reimbursable expenses are expensed as they are incurred.

At March 31,September 30, 2009, cash was held in two accounts maintained at one financial institution. The accounts were, in the aggregate, federally insured for up to $250,000.  At March 31,September 30, 2009, the total cash balance was as follows:

The Partnership can mitigate thismitigates bank failure risk by depositing funds with more than one institution and by only depositing funds with major a financial institutions.institution.  The Partnership deposits its funds with a Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks listed on the New York Stock Exchange.  The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2009 due to many factors, including the pace of additional revenues, equipment acquisitions and distributions. 

Net Income (Loss) Per Equivalent Limited Partnership Unit

The net income (loss) per equivalent limited partnership unit is computed based upon net income (loss) allocated to the limited partners and the weighted average number of equivalent units outstanding during the period.

3. Computer Equipment

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

Through March 31,September 30, 2009, the Partnership has only entered into operating leases.  Lease revenue is recognized on the monthly straight-line basis which is generally in accordance with the terms of the operating lease agreements.  The company’s leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index.

Remarketing fees are paid to the leasing companies from which the Partnership purchases leases.  These are fees that are earned by the leasing companies when the initial terms of the lease have been met and the equipment is re-leased or sold.  The General Partner believes that this strategy adds value since it entices the leasing company to "stay with the lease" for potential extensions, remarketing or sale of equipment.  This strategy potentially minimizes any conflicts the leasing company may have with a potential new lease and will potentially assist in maximizing overall portfolio performance.  The remarketing fee is tied into lease performance thresholds and is factored in the negotiation of the fee.  Remarketing fees incurred in connection with lease extensions are accounted for as operating costs.  Remarketing fees incurred in connection with the sale of computer equipment are included in our gain or loss calculations.  For the threenine months ended March 31,September 30, 2009 and 2008, the Partnership incurred remarketing fees of approximately $7,000$51,000 and $2,600,$51,000, respectively. For the threenine months ended March 31,September 30, 2009 and 2008 the Partnership paid approximately $5,000$37,000 and $22,000, respectively, in such fees.  No such fees were paid for the three months ended March 31, 2008.

The Partnership’s share of the computer equipment in which it participates with other partnerships at March 31,September 30, 2009 and December 31, 2008 was approximately $9,920,000$11,564,000 and $9,480,000, respectively, whichand is included in the Partnership’s fixed assets on its balance sheet.  The total cost of the equipment shared by the Partnership with other partnerships at March 31,September 30, 2009 and December 31, 2008 was approximately $25,068,000$34,907,000 and $23,272,000, respectively.  The Partnership’s share of the outstanding debt associated with this equipment at March 31,September 30, 2009 and December 31, 2008 was $923,000$435,000 and $1,183,000, respectively.  The total outstanding debt related to the equipment shared by the Partnership at March 31,September 30, 2009 and December 31, 2008 was approximately $2,728,000$1,547,000 and $3,349,000, respectively.

The following is a schedule of future minimum rentals on noncancellablenon-cancellable operating leases at March 31,September 30, 2009:

4. Related Party Transactions

Receivables/Payables

As of March 31,September 30, 2009, the Partnership’s related party receivables and payables are short term, unsecured, and non-interest bearing.

 

 

Notes payable consisted of the following:

6. Supplemental Cash Flow Information

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

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.

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

FORWARD LOOKING STATEMENTS

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expects,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected.

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.

COMPUTER EQUIPMENT

 

Commonwealth Capital Corp., on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. Depreciation on computer equipment for financial statement purposes is based on the straight-line method over estimated useful lives of three to four years.

REVENUE RECOGNITION

Through March 31,September 30, 2009, the Partnership has only entered into operating leases.  Lease revenue is recognized on a monthly straight-line basis which is generally in accordance with the terms of the operating lease agreement. The Partnership’s leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index.

The Partnership reviews a customer’s credit history before extending credit and establishes a provision for uncollectible accounts receivable based upon the credit risk of specific customers, historical trends and other information.

LONG-LIVED ASSETS

The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable.  The Partnership determines whether an impairment exists by estimating the undiscounted cash flows to be generated by each asset.  If the estimated undiscounted cash flows are less than the carrying value of the asset, anand 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 in the amount of approximately $87,000 and $15,000 existed as of March 31,for the period ended September 30, 2009 and 2008.2008, respectively.    Such amounts have been included in depreciation expense in the accompanying financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership’s primary source of cash for the threenine months ended March 31,September 30, 2009 and 2008 was cash provided by operating activities of approximately $627,000$2,285,000 and $734,000,$1,709,000, respectively.  During the threenine months ended March 31,September 30, 2009 and 2008, equipment was purchased in the amount of approximately $1,125,000 and $513,000, respectively,$3,108,000 and distributions were made to partnerspaid in the amount of approximately $623,000$1,866,000.   Equipment was purchased in the amount of approximately $771,000 during the nine months ended September 30, 2008 and $625,000, respectively.distributions were paid in the amount of approximately $1,873,000.  

The Partnership intends to invest approximately $2,000,000$500,000 in additional equipment for the remainder of 2009.  The acquisition of this equipment will be funded by debt financing and cash flows from lease rental payments.

For the threenine months ended March 31,September 30, 2009, the Partnership generated cash flows from operating activities of approximately $627,000,$2,285,000, which includes a net loss of approximately $375,000$1,424,000, a gain on sale of computer equipment of approximately $17,000 and depreciation and amortization expenses of approximately $1,438,000.$4,549,000.  Other non-cash activities included in the determination of net income include direct payments of lease income by lessees to banks of approximately $435,420.$1,023,274.

For the threenine months ended March 31,September 30, 2008, the Partnership generated cash flows from operating activities of approximately $734,000,$1,709,000 which includes a net loss of approximately $93,000, loss on sale of computer equipment of approximately $5,000$501,000, and depreciation and amortization expenses of approximately $1,441,000.$4,321,000.  Other non-cash activities included in the determination of net incomeloss include direct payments of lease income by lessees to banks of approximately $495,000.$1,495,000.

At March 31,September 30, 2009, cash was held in two accounts maintained at one financial institution. The accounts were, in the aggregate, federally insured for up to $250,000.  At March 31,September 30, 2009, the total cash balance was as follows:

The Partnership can mitigate thismitigates bank failure risk by depositing funds with more than one institution and by only depositing funds with major a financial institutions.institution.  The Partnership deposits its funds with a Moody's Aaa-Rated banking institutions which is one of only three Aaa-Rated banks listed on the New York Stock Exchange.  The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2009 due to many factors, including the pace of additional revenues, equipment acquisitions and distributions. 

The Partnership's investment strategy of acquiring computer equipment and generally leasing it under “triple-net leases” to operators who generally meet specified financial standards minimizes the Partnership's operating expenses.  As of March 31,September 30, 2009, the Partnership had future minimum rentals on non-cancelable operating leases of approximately $3,746,000$925,000 for the balance of the year ending December 31, 2009 and approximately $2,013,000$3,532,000 thereafter.  As of March 31,September 30, 2009, the Partnership’s outstanding debt was approximately $1,116,000$528,000 with interest rates ranging from 5.25% to 6.21%, and will be payable through May 2012.

The Partnership’s cash from operations is expected to continue to be adequate to cover all operating expenses, liabilities, and preferred distributions to Partners during the next 12-month period.  If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership will attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.  The Partnership may, from time to time, reduce the distributions to its Partners if it deems necessary.  Since the Partnership’s leases are on a “triple-net” basis, no reserve for maintenance and repairs is deemed necessary.

 

RESULTS OF OPERATIONS

Three months ended March 31,September 30, 2009 compared to three monthsThree Months ended March 31,September 30, 2008

For the three months ended March 31,September 30, 2009, the Partnership recognized revenue of approximately $1,550,000$1,365,000 and expenses of approximately $ 1,925,000,$1,945,000, resulting in a net loss of approximately $ 375,000.$580,000.  For the three months ended March 31,September 30, 2008, the Partnership recognized revenue of approximately $1,856,000$1,649,000 and expenses of approximately $1,949,000,$1,878,000, resulting in a net loss of approximately $93,000.$229,000.  

Lease revenue decreased 16 %18% to approximately $1,528,000$1,326,000 for the three months ended March 31,September 30, 2009, from approximately $1,828,000$1,623,000 for the three months ended March 31,September 30, 2008.  This decrease was primarily attributable more lease agreements ending versus new leases commencing, during the three months ended March 31,September 30, 2009.

Operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership.  These expenses ofdecreased 19% to approximately $375,000 remained relatively consistent$266,000 for the three months ended March 31,September 30, 2009 andfrom approximately $328,000 for the three months ended September 30, 2008 primarily due to the steady continuing operationdecreases in reimbursable expenses and Partnership taxes. See “Summary of the Partnership, without the occurrence of any unusual or unexpected expenses.Significant Accounting Policies - Reimbursable Expenses,” in note 2.

The equipment management fee is approximately 5% of the gross lease revenue attributable to equipment that is subject to operating leases. The equipment management fee decreased 11 %18% to approximately $77,000$66,000 for the three months ended March 31,September 30, 2009, from approximately $86,000$81,000 for the three months ended March 31,September 30, 2008, which is consistent with the decrease in lease revenue.

Depreciation and amortization expenses consist of depreciation on computer equipment and amortization of equipment acquisition fees. These expenses slightly decreasedincreased to approximately $1,438,000$4,549,000 for the threenine months ended March 31,September 30, 2009, from $1,441,000$4,321,000 for the threenine months ended March 31,September 30, 2008. This decrease is primarilyincrease was due to the acquisition of new equipment attributable to equipment being fully amortized and depreciated and not being replaced with as manythe purchase of new leases.

The Partnership sold computer equipment with a net book value of approximately $9,500$143,000 for the threenine months ended March 31,September 30, 2009, for a net gain of approximately $1,500.$17,000.  The Partnership sold computer equipment with a net book value of approximately $10,000$461,000 for the threenine months ended March 31,September 30, 2008, for a net lossgain of approximately $5,000.$85,000.  

Item 4T.  Controls and Procedures

Our management, under the supervision and with the participation of the principal executive officer and principal financial offer, have evaluated the effectiveness of our controls and procedures related to our reporting and disclosure obligations as of March 31,September 30, 2009 which is the end of the period covered by this Quarterly Report on Form 10-Q.  Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are sufficienteffective to provide that (a) material information relating to us, including our consolidated affiliates is made known to these officers by us and our consolidated affiliates’ other employees, particularly material information related to the period for which this periodic report is being prepared; and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission.  There have been no significant changes in the General Partner’s internal controls or in other factors that could significantly affect our disclosure controls and procedures in the firstthird quarter of 2009 or subsequent to the date of the evaluation.

Part II:   OTHER INFORMATION

Changes in economic conditions could materially and negatively affect our business.

 

Our business is directly impacted by factors such as economic, political, and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies, and inflation, all of which are beyond our control.  Beginning in 2008 and continuing through the firstthird quarter of 2009, general worldwide economic conditions experienced a downturn due to the sequential effects of the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, increased energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns.  A deterioration in economic conditions, whether caused by national or local concerns, especially within our market area, could result in the following consequences, any of which could hurt business materially: lease delinquencies may increase; problem leases and defaults could increase; and demand for information technology products generally may decrease as businesses attempt to reduce expenses.

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.