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.

 

During the threesix months ended March 31,June 30, 2010 limited partners redeemed 3,675 units of the partnership for a total redemption price of approximately $34,000 in accordance with the terms of the limited partnership agreement.

The Partnership used the proceeds of the offering to acquire, own and lease various types of information technology equipment and other similar capital equipment, which is leased primarily to U.S. corporations and institutions. 

Commonwealth Capital Corp. (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires computertechnology 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 General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly ownedwholly-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 December 31, 2015.

 

2. Summary of Significant Accounting Policies

 Basis of Presentation

The financial information presented as of any date other than December 31, 2009 has been prepared from the books and records without audit.  Financial information as of December 31, 2009 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, 2009.  Operating results for the threesix months ended March 31,June 30, 2010 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2010.

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.  The Partnership holds no financial instruments, except notes payable. Cash, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of March 31,June 30, 2010 and December 31, 2009.

The Partnership’s long-term debt consists of notes payable, which are secured by specific computertechnology equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at March 31,June 30, 2010 and December 31, 2009 approximates the carrying value of these instruments, due to the interest rates approximating current market values.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31,June 30, 2010 and 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 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, impairment exists.  The amount of the impairment is determined based on the difference between the carrying value and the fair value.  The fair value is determined based on estimated discounted cash flows to be generated by the asset.  The partnership determined no impairment analysis was necessary at March 31,June 30, 2010 and 2009 as no impairment indicators were noted.

Depreciation on computertechnology equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of three or 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, corres pondence, collection efforts and analysis and staff costs, increase as programs purchase more leases, and decrease as leases terminate and equipment is sold. All of these factors contribute to CCC’s determination as to the amount of expenses to allocate to the Partnership or to other sponsored programs.  For the Partnership, all reimbursable expenses are expensed as they are incurred.

Cash and cash equivalents

At March 31,June 30, 2010 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,June 30, 2010, the total cash bank balance was as follows:of $147,000 did not exceed the federally insured limit of $250,000.

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.

Recent Accounting Pronouncements

3. ComputerInformation Technology Equipment

The Partnership is the lessor of equipment under operating leases with periods that generally will range from 12 to 4836 months.  In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.

Through March 31,June 30, 2010, the Partnership has solely 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 agreements.  

The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee.up-front fee paid to the leasing company.  Remarketing fees incurred in connection with lease extensions are accounted for as operating costs.  Remarketing fees incurred in con nectionconnection with the sale of computertechnology equipment are included in our gain or loss calculations.  For the threesix months ended March 31,June 30, 2010 and 2009, the Partnership incurred remarketing fees of approximately $23,000$43,000 and $7,000,$33,000, respectively. For the threesix months ended March 31,June 30, 2010 and 2009 the Partnership paid approximately $12,000$23,000 and $5,000,$25,000, respectively, in such fees.

CCC, on behalf of the Partnership and on behalf of other affiliated partnerships, acquires computertechnology 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 equipment in which it participates with other partnerships at March 31,June 30, 2010 was approximately $11,691,000$11,942,000 and is included in the Partnership’s fixed assets on its balance sheet.    The Partnership’s share of the outstanding debt associated with this equipment at June 30, 2010 was approximately $301,000.   The total cost of the equipment shared by the Partnership with other partnerships at March 31,June 30, 2010 was approximately $35,417,000.  $36,419,000.  0;The total outstanding debt related to the equipment shared by the Partnership at June 30, 2010 was approximately $1,307,000.

The Partnership’s share of the equipment in which it participates with other partnerships at December 31, 2009 was approximately $11,564,000 and 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 December 31, 2009 was approximately $34,907,000.   The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2009 was $201,000.  The total outstanding debt related to the equipment shared by the Partnership at December 31, 2009 was approximately $973,000.

As the Partnership and the other programs managed by the General Partner increase their overall portfolio size, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the 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.  Thus, total shared equipment and related debt should continue to trend higher for the remainder of 2010 as the Partnership builds its portfolio.

The following is a schedule of future minimum rentals on non-cancellable operating leases at March 31,June 30, 2010:

 

4. Related Party Transactions

Receivables/Payables

As of March 31,June 30, 2010, the Partnership’s related party receivables and payables are short term, unsecured, and non-interest bearing.

 

 

5. Notes Payable

Notes payable consisted of the following amounts:

These notes are secured by specific computertechnology equipment and are nonrecourse liabilities of the Partnership.  As such, the notes do not contain any 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,June 30, 2010 are as follows:

 

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.

At March 31,June 30, 2010, the Partnership wrote-off fully amortized acquisition and finance fees of approximately $107,000.$280,000.

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 withinForward-looking statement disclaimers, or the meaning of“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These1995.

This section, as well as other portions of this document, includes certain forward-looking statements are being made pursuant to the PSLRA, with the intentionabout our business and our prospects, tax treatment of obtaining the benefitscertain transactions and accounting matters, sales of the “safe harbor” provisions of the PSLRA,securities, expenses, cash flows, distributions, investments and other than as required by law, we assume no obligation to update or supplement such statements. Forward-lookingoperating and capital requirements. Such 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 implyto: acquisition policies of our general partner; the nature of present and future results, performance, achievements or events.leases; provisions for uncollectible accounts; the strength and sustainability of the U.S. economy; the continued difficulties in the credit markets and their impact on the economy in general; and the level of future cash flow, debt levels, revenues, operating expenses, amortization and depreciation expenses. You can identify thesethose statements by the use of words such as “could,” & #8220;should,” “would,” “may,” “will,” “could,“project,” “believe,” “anticipate,” “b elieve,“expect,” “plan,” “estimate,” “expects,“forecast,” “potential,” “intend,” “predict” or “project”“continue” and variations of these“contemplate,” as well as similar words or comparable words or phrases of similar meaning. Theseand expressions.

Actual results may differ materially from those in any forward-looking statements reflect our current beliefsbecause any such statements involve risks and expectations with respect to future events and are based on assumptionsuncertainties and are subject to change based upon various important factors, including, but not limited to, nationwide economic, financial, political and regulatory conditions; the health of debt and equity markets, including interest rates and credit quality; the level and nature of spending in the information, medical and telecommunications technologies markets; and the effect of competitive financing alternatives and lease pricing.

Readers are also directed to other risks and uncertainties anddiscussed in other factors outsidedocuments we file with the SEC, including, without limitation, those discussed in Item 1A. “Risk Factors.” of our control that may cause actual resultsAnnual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC. We undertake no obligation to differ materially from those projected.update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

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.

COMPUTERINFORMATION TECHNOLOGY EQUIPMENT

 

Commonwealth Capital Corp.CCC., on our behalf and on behalf of other affiliated partnerships, acquires computerinformation technology 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 computerinformation technology equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of twothree to four years.

 REVENUE RECOGNITION

Through March 31,June 30, 2010, we have solely entered into operating leases.  Lease revenue is recognized on a monthly straight-line basis which is in accordance with the terms of the lease agreement.

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

LONG-LIVED ASSETS

We evaluate our long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable.  We determine 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.  The fair value is determined based on estimated discounted cash flows to be generated by the asset. We determined no impairment analysis was necessary at March 31,June 30, 2010 and 2009 as no impairment indicators were noted.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of cash for the threesix months ended March 31,June 30, 2010 was provided by operating activities of approximately $409,000$890,000 and from the proceeds from the sale of equipment of approximately $103,000.$137,000.  This compares to the threesix months ended March 31,June 30, 2009 where our primary sourcesources of cash waswere from operating activities of approximately $627,000$1,415,000 and proceeds from the sale of equipment of approximately $53,000.

Our cash from operations decreased by approximately $525,000 for the six months ended June 30, 2010 from the six months ended June 30, 2009 due to several prepayments of cash from lessees in 2009 that were approximately $11,000.attributable to 2010 rentals. Additionally we experienced an increase in accounts receivable during the six months ended June 30, 2010.

Our primary use of cash for the threesix months ended March 31,June 30, 2010 was for distributions to partners of approximately $1,239,000 and for the purchase of new information technology equipment of approximately $128,000 and also for distributions to partners of approximately $619,000.$164,000.  For the threesix months ended March 31,June 30, 2009 distributions to partners were approximately $623,000,$1,244,000, and our capital expenditures were approximately $1,125,000.$3,108,000.

Capital expenditures and distributions are expected to increase overallgenerally remain constant during the remainder of 2010, as management focuses on additional equipment acquisitions and funding limited partner distributions.2010. We intend to invest approximately $1,350,000$350,000 in additional equipment during the remainder of 2010.  The acquisition of this equipment will be primarily funded by debt financing. Any debt service will be funded from cash flows from lease rental payments, and not from public offering proceeds.

Cash was provided by operating activities for the threesix months ended March 31,June 30, 2010 of approximately $409,000,$890,000, which includes a net loss of approximately $382,000$868,000 and depreciation and amortization expenses of approximately $1,108,000.$2,136,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $78,000.$145,000. Additionally we had a gain on the sale of equipment in the amount of $82,000$91,000 and an increase in receivables of lease revenue of $72,000.  $212,000.  

For the threesix months ended March 31,June 30, 2009 cash was also generated by operating activities of approximately $627,000,$1,415,000, which includes a net loss of approximately $375,000$844,000, a gain on sale of equipment of $19,000 and depreciation and amortization expenses of approximately $1,438,000.$2,949,000. Other non-cash activities included in the determination of net loss incl udeinclude direct payments of lease income by lessees to banks of approximately $435,000.$736,000.

AsTo the extent that we continue to increase the size of our equipment portfolio, operating expenses will increase, which reflects the administrative costs of servicing the portfolio, but becauseportfolio. Because of our investment strategy of leasing technology equipment primarily through triple-net leases, we avoid operating expenses related to equipment maintenance or taxes.taxes when we add equipment to the portfolio.  Depreciation expenses will likely increase more rapidly than operating expenses asif we add technology equipment to our portfolio.

 

We deposit our 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.  We have not experienced any losses in such accounts, and believes it isbelieve we are not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2010 due to many factors, including the pace of additional cash receipts, equipment acquisitions and distributions to investors.

Our investment strategy of acquiring computer 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,June 30, 2010, we had future minimum rentals on non-cancelable operating leases of approximately $1,651,000$1,350,000 for the balance of the year ending December 31, 2010 and approximately $1,494,000$1,693,000 thereafter.  

As of March 31,June 30, 2010, our debt was approximately $183,000,$331,000, with interest rates ranging from 5.40% to 6.21%7.50%, and will be payable through May 2012.April 2013.

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 equipment 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.  Since our leases are on a triple-net basis,leases, and therefore no reserve for maintenance and repairs is deemed necessary.  

 

RESULTS OF OPERATIONS

 

Three months ended March 31,June 30, 2010 compared to three months ended March 31,June 30, 2009

For the three months ended March 31,June 30, 2010, we recognized revenue of approximately $1,046,000$792,000 and expenses of approximately $1,428,000,$1,278,000, resulting in a net loss of approximately $382,000.$486,000.  This net loss is primarily due to depreciation and amortization expenses for the three months ended March 31,June 30, 2010 which were greater than lease revenue for the same period.  We depreciate equipment over its useful life, usually 48 months while lease revenue is recognized over the term of the lease which is typically 36 months.  Several of our leases reached the end of their lease term but equipment continued being depreciated therefore depreciation expense was greater than lease revenue.  For the three months ended March 31,June 30, 2009, we recognized revenue of approximately $1,550,000$1,489,000 and expenses of approximately $ 1,925,000,1,958,00 0, resulting in a net loss of approximately $ 375,000.469,000.  

Our lease revenue decreased to approximately $937,000$777,000 for the three months ended March 31,June 30, 2010, from approximately $1,528,000$1,459,000 for the three months ended March 31,June 30, 2009.  This decrease was primarily due to more lease agreements ending versus new lease agreements being acquired during the three months ended March 31,June 30, 2010.

Interest and other revenue increasedfrom cash held at financial institutions decreased to $26,000approximately $5,000 for the three months ended March 31,June 30, 2010 from $21,000approximately $12,000 for the three months ended March 31,June 30, 2009 which is consistent with the decrease in cash due to an increase in other income from our lessees, related to damagednew equipment partially offset by lower interest income attributable to decreased cash balances held in financial institutions.purchases and distributions for the same period. The amounts in our banksuch accounts that generate interest revenue will fluctuate throughout 2010 due to many factors, including the pace of cash receipts, equipment acquisitions and distributions to limited partners.

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 decreased to approximately $269,000$182,000 for the three months ended March 31,June 30, 2010, from approximately $375,000$360,000 for the three months ended March 31,June 30, 2009.  This decrease is primarily attributable to decreases in accounting, legal remarketing and various administrative expenses due to enhanced operating efficiencies.expenses. This decrease was partially offset by an increase in investor services related expenses.

 

We pay an equipment management fee to our general partner for managing our equipment portfolio. 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 to approximately $47,000$39,000 for the three months ended March 31,June 30, 2010 from approximately $77,000$72,000 for the three months ended March 31,June 30, 2009, which is consistent with the decrease in lease revenue.

Depreciation and amortization expenses consist of depreciation on computerinformation technology equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $1,108,000$1,028,000 for the three months ended March 31,June 30, 2010, from $1,438,000$1,510,000 for the three months ended March 31,June 30, 2010. This decrease was due to equipment being fully depreciated and not being replaced with new equipment, and to the full amortization of acquisition fees.

Depreciation and amortization expenses consist of depreciation on information technology equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $2,136,000 for the six months ended June 30, 2010, from $2,949,000 for the six months ended June 30, 2010. This decrease was due to equipment and acquisition fees being fully depreciated/amortizeddepreciated and not being replaced with as many new equipment, purchases.and to the full amortization of acquisition fees.

We sold equipment with a net book value of approximately $21,000$42,000 for the threesix months ended March 31,June 30, 2010, for a net gain of approximately $82,000.$91,000. This compared to equipment that we sold for the threesix months ended March 31,June 30, 2009 with a net book value of approximately $9,500,$34,000, for a net gain of approximately $1,500.$19,000.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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,June 30, 2010 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 effective 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 recorde d,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 firstsecond quarter of 2010 or subsequent to the date of the evaluation.

Part II:   OTHER INFORMATION

The Partnership’s legal proceedings against the City of Tempe, Arizona remain open.  Please see the description of the MobilePro/Tempe proceedings in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 under the heading “Legal Proceedings” for a more complete description of this matter.  The parties are currently engagedhave each submitted motions for summary judgment, as well as briefs in the discovery process and have set a tentative trial datesupport of September 13, 2010.these motions.  Our General Partner may engage in settlement discussions with the City of Tempe prior to trial.  To date, the Partnership has taken reserves against outstanding rentals of approximately $31,000 to cover potential loss exposure.

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.