COMMONWEALTH INCOME & GROWTH FUND V - FORM 10-Q

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EX-32.2 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND V	cigf5_ex32-2.htm
EX-32.1 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND V	cigf5_ex32-1.htm
EX-31.2 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND V	cigf5_ex31-2.htm
EX-31.1 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND V	cigf5_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018 or

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

Commission File Number: 333-108057

COMMONWEALTH INCOME & GROWTH FUND V

(Exact name of registrant as specified in its charter)

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

17755 US Highway 19 North

Suite 400

Clearwater, FL 33764

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

(877) 654-1500

(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 ☒ NO ☐

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
(Do not check if a smaller reporting company.)	Emerging growth company ☐

Indicate by check mark whether the registrant is an emerging growth company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

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

FORM 10-Q

JUNE 30, 2018

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Commonwealth Income & Growth Fund V
Condensed Balance Sheets

	June 30,	December 31,
	2018	2017
	(unaudited)
ASSETS
Cash and cash equivalents	$39,663	$12,338
Lease income receivable, net of reserve of approximately $10,000 at June 30, 2018 and December 31, 2017	60,632	88,421
Other receivables	8,997	10,899
Prepaid expenses	165	1,269
	109,457	112,927

Net investment in finance leases	36,639	54,556

Equipment, at cost	6,256,306	6,454,283
Accumulated depreciation	(5,556,148)	(5,552,816)
	700,158	901,467

Total Assets	$846,254	$1,068,950

LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable	$154,087	$136,130
Accounts payable, CIGF, Inc., net	22,732	57,946
Accounts payable, Commonwealth Capital Corp., net	210,552	290,768
Other accrued expenses	2,978	2,980
Unearned lease income	57,427	49,670
Notes payable	441,916	601,736
Total Liabilities	889,692	1,139,230

COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
General Partner	1,000	1,000
Limited Partners	(44,438)	(71,280)
Total Partners' Capital	(43,438)	(70,280)

Total Liabilities and Partners' Capital	$846,254	$1,068,950

see accompanying notes to condensed financial statements

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

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
Revenue
Lease	$145,323	$158,207	$296,835	$299,418
Interest and other	831	1,132	1,853	2,248
Gain on sale of equipment	3,349	645	9,481	682
Total revenue and gain on sale of equipment	149,503	159,984	308,169	302,348

Expenses
Operating, excluding depreciation and amortization	11,757	32,887	65,672	100,809
Interest	6,275	4,272	13,113	8,325
Depreciation	97,702	111,098	202,542	204,212
Total expenses	115,734	148,257	281,327	313,346

Other income (loss)
Gain from insurance recovery	-	-	-	10,863
Total other income	-	-	-	10,863

Net income (loss)	$33,769	$11,727	$26,842	$(135)

Net income (loss) allocated to Limited Partners	$33,769	$11,727	$26,842	$(135)

Net income (loss) per equivalent Limited Partnership unit	$0.03	$0.01	$0.02	$(0.00)

Weighted average number of equivalent Limited Partnership units outstanding during the period	1,236,148	1,236,608	1,236,148	1,236,608

see accompanying notes to condensed financial statements

Commonwealth Income & Growth Fund V
Condensed Statement of Partners' Capital
For the six months ended June 30, 2018
(unaudited)


	General	Limited
	Partner	Partner	General	Limited
	Units	Units	Partner	Partners	Total
Balance, January 1, 2018	50	1,236,148	$1,000	$(71,280)	$(70,280)
Net income	-	-	-	26,842	26,842
Balance, June 30, 2018	50	1,236,148	$1,000	$(44,438)	$(43,438)

see accompanying notes to condensed financial statements

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

	Six months ended
	June 30,
	2018	2017

Net cash (used in) provided by operating activities	$(690)	$38,151

Cash flows from investing activities
Capital expenditures	-	(66,344)
Payments received from finance leases	15,657	18,731
Net proceeds from the sale of equipment	12,358	1,200

Net cash provided by (used in) investing activities	28,015	(46,413)

Net cash used in financing activities	-	-

Net increase (decrease) in cash and cash equivalents	27,325	(8,262)

Cash and cash equivalents, beginning of period	12,338	16,529

Cash and cash equivalents, end of period	$39,663	$8,267

see accompanying notes to condensed financial statements

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Business

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

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

Commonwealth Capital Corp. (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships that it manages based on certain risk factors.

The Partnership’s investment objective is to acquire primarily high technology equipment. Information technology has developed rapidly in recent years and is expected to continue to do so. Technological advances have permitted reductions in the cost of information technology processing capacity, speed, and utility. In the future, the rate and nature of equipment development may cause equipment to become obsolete more rapidly. The Partnership also acquires high technology medical, telecommunications and inventory management equipment. The Partnership’s general partner will seek to maintain an appropriate balance and diversity in the types of equipment acquired. The market for high technology medical equipment is growing each year. Generally, this type of equipment will have a longer useful life than other types of technology equipment. This allows for increased re-marketability, if it is returned before its economic or announcement cycle is depleted.

The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly owned subsidiary of CCC. Approximately ten years after the commencement of operations (the “operational phase”), the Partnership intended to sell or otherwise dispose of all of its equipment; make final distributions to partners, and to dissolve. The Partnership was originally scheduled to end its operational phase on February 4, 2017. During the year ended December 31, 2015, the operational phase was officially extended to December 31, 2020 through an investor proxy vote. The Partnership is expected to terminate on December 31, 2022.

For the first and second quarters of 2018, the General Partner elected to forgo distributions and allocations of net income owed to it and suspended limited partner distributions. The General Partner will reassess the funding of limited partner distributions on a quarterly basis, throughout 2018.

Liquidity and Going Concern

The Partnership has incurred recurring losses prior to 2018 and has a working capital deficit at June 30, 2018. The Partnership believes it has alleviated these conditions as discussed below. The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through June 30, 2019. The General Partner and CCC will also determine if related party payables owed to them by the Partnership may be deferred (if deemed necessary) in an effort to further increase the Partnership’s cash flow.

The General Partner will continue to reassess the funding of limited partner distributions throughout 2018 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits. Additionally, the Partnership will seek to enhance portfolio returns and maximize cash flow through the use of leveraged lease transactions: the acquisition of lease equipment through debt financing. This strategy allows the General Partner to acquire additional revenue generating leases thus maximizing overall return.

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial information presented as of any date other than December 31, 2017 has been prepared from the books and records without audit. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Financial information as of December 31, 2017 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. Operating results for the six months ended June 30, 2018 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2018.

Disclosure of Fair Value of Financial Instruments

Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash and cash equivalents, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of June 30, 2018 and December 31, 2017 due to the short term nature of these financial instruments.

The Partnership’s long-term debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at June 30, 2018 and December 31, 2017 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value.

Cash and cash equivalents

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

At June 30, 2018, cash and cash equivalents was held in two accounts maintained at one financial institution with an aggregate balance of approximately $41,000. Bank accounts are federally insured up to $250,000 by the FDIC. At June 30, 2018, the total cash bank balance was as follows:

At June 30, 2018	Balance
Total bank balance	$41,000
FDIC insured	(41,000)
Uninsured amount	$-

The Partnership’s bank balances are fully insured by the FDIC. The Partnership deposits its funds with a Moody's Aaa-Rated banking institution which is one of only three Aaa-Rated banks listed on the New York Stock Exchange. The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amount in such accounts will fluctuate throughout 2018 due to many factors, including cash receipts, equipment acquisitions and interest rates.

Recent Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued Accounting Standards Update No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities- the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01. Our evaluation of this guidance is ongoing and the impact that this new guidance will have on our financial statements has not yet been determined.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) Section A—Leases: Amendments to the FASB Accounting Standards Codification® Section B—Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification® Section C—Background Information and Basis for Conclusions- Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). The new standard requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. We have begun accumulating the information related to leases and are evaluating our internal processes and controls with respect to lease administration activities. Additionally, our business involves lease agreements with our customers whereby we are the lessor in the transaction. Accounting guidance for lessors is largely unchanged. Our evaluation of this guidance is ongoing and the impact that this new guidance will have on our financial statements has not yet been determined.

Included within the scope of FASB Accounting Standards Update No. 2016-02, Leases (Topic 842) is FASB Accounting Standards Update No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842); Accounting Standards Update No. 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update)(“ASC 606”);FASB Accounting Standards Update No. 2018-10, Codification Improvements- Leases (Topic 842) . The Partnership has determined that its income streams fall outside the scope of ASC 606.

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

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

Remarketing fees are paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with the lessee and encourages potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. Remarketing fees incurred in connection with lease extensions are accounted for as operating costs. Remarketing fees incurred in connection with the sale of equipment are included in the gain or loss calculations. For the six months ended June 30, 2018 and 2017, no remarketing fees were incurred or paid.

Gains from the termination of leases are recognized when the lease is modified and terminated concurrently. Gains from lease termination included in lease revenue for the six months ended June 30, 2018 and 2017 were approximately $3,000 and $1,000, respectively.

CCC, on behalf of the Partnership and on behalf of other affiliated companies and partnerships (“partnerships”), acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various companies based on certain risk factors.

The Partnership’s share of the cost of the equipment in which it participates with other partnerships at June 30, 2018 was approximately $3,567,000 and is included in the Partnership’s equipment on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at June 30, 2018 was approximately $12,260,000. The Partnership’s share of the outstanding debt associated with this equipment at June 30, 2018 was approximately $320,000 and is included in the Partnership’s notes payable on its balance sheet. The total outstanding debt related to the equipment shared by the Partnership at June 30, 2018 was approximately $2,369,000.

The Partnership’s share of the cost of the equipment in which it participates with other partnerships at December 31, 2017 was approximately $3,569,000 and is included in the Partnership’s equipment on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 2017 was approximately $12,263,000. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2017 was approximately $421,000 and is included in the Partnership’s notes payable on its balance sheet. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2017 was approximately $3,035,000.

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

The following is a schedule of approximate future minimum rentals on non-cancellable operating leases at June 30, 2018:

For the period ended December	Amount
Six months ended December 31, 2018	$216,000
Year Ended December 31, 2019	227,000
Year Ended December 31, 2020	89,000
Year Ended December 31, 2021	7,000
	$539,000

Finance Leases:

The following lists the approximate components of the net investment in direct financing leases:

	June 30, 2018	December 31, 2017
Total minimum lease payments to be received	$ 26,000	$ 42,000
Estimated residual value of leased equipment (unguaranteed)	12,000	16,000
Less: unearned income	(1,500)	(3,000)
Net investment in finance leases	$ 36,500	$ 55,000

We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credits scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. Factors taken into consideration when assessing risk include both general and industry specific qualitative and quantitative metrics. We separately take into consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category.

A reserve for credit losses is deemed necessary when payment has not been received for one or more months of receivables due on the equipment held under finance leases. At the end of each period, management evaluates the open receivables due on this equipment and determines the need for a reserve based on payment history and any current factors that would have an impact on payments.

The following table presents the credit risk profile, by creditworthiness category, of our direct finance lease receivables at June 30, 2018:

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

As of June 30, 2018 and December 31, 2017, we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive, with no late payments.

The following is a schedule of approximate future minimum rentals on non-cancellable finance leases at June 30, 2018:

	Amount
Six months ended December 31, 2018	$11,000
2019	9,000
2020	6,000
Total	$26,000

4. Related Party Transactions

Receivables/Payables

As of June 30, 2018 and December 31, 2017, the Company’s related party receivables and payables are short term, unsecured and non-interest bearing.

Six months ended June 30,	2018	2017
Reimbursable Expenses
The General Partner and its affiliates are entitled to reimbursement by the Partnership for the cost of goods, supplies or services obtained and used by the General Partner in connection with the administration and operation of the Partnership from third parties unaffiliated with the General Partner. In addition, the General Partner and its affiliates are entitled to reimbursement of certain expenses incurred by the General Partner and its affiliates in connection with the administration and operation of the Partnership. For the three months ended June 30, 2018 and 2017, the General Partner waived certain reimbursable expenses due to it by the Partnership. For the six months ended June 30, 2018 and 2017, the Partnership was charged approximately $0 in Other LP expense.	$57,000	$93,000

Equipment Management Fee
The General Partner is entitled to be paid for managing the equipment portfolio a monthly fee equal to the lesser of (i) the fees which would be charged by an independent third party for similar services for similar equipment or (ii) the sum of (a) two percent of (1) the gross lease revenues attributable to equipment which is subject to full payout net leases which contain net lease provisions plus (2) the purchase price paid on conditional sales contracts as received by the Partnership and (b) 5% and 2% of the gross lease revenues attributable to equipment which is subject to operating leases, respectively. In an effort to increase future cash flow for the fund our General Partner had elected to reduce the percentage of equipment management fees paid to it from 5% to 2.5% of the gross lease revenues attributable to equipment which is subject to operating leases. The reduction was effective beginning in July 2010 and remained in effect for the six months ended June 30, 2018 and 2017. For the three months ended June 30, 2018, equipment management fees of approximately $4,000 were earned but were waived by the General Partner.	$-	$-

5. Notes Payable

Notes payable consisted of the following approximate amounts:

	June 30,	December 31,
	2018	2017
Installment note payable to bank; interest at 4.23%, due in quarterly installments of $9,663, including interest, with final payment in February 2018	-	10,000
Installment notes payable to bank; interest at 4.23%, due in quarterly installments of $278, including interest, with final payment in March 2018	-	1,000
Installment notes payable to bank; interest at 4.23%, due in quarterly installments of $278, including interest, with final payment in April 2018	-	1,000
Installment note payable to bank; interest at 4.23% due in quarterly installments of $2,797, including interest, with final payment in June 2018	-	6,000
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $296 to $458, including interest, with final payment in September 2018	2,000	2,000
Installment notes payable to bank; interest at 6.00% due in monthly installments ranging from $132 to $1,479, including interest, with final payment in September 2018	500	6,000
Installment notes payable to bank; interest at 4.23% due in quarterly installments of $458, including interest, with final payment in October 2018	2,000	5,000
Installment note payable to bank; interest at 4.23% due in quarterly installments of $208, including interest, with final payment in November 2018	500	1,000
Installment note payable to bank; interest at 4.47% due in monthly installments of $2,208, including interest, with final payment in February 2019	15,000	28,000
Installment notes payable to bank; interest at 6.00%, due in monthly installments ranging from $803 to $1,216, including interest, with final payment in February 2019	9,000	16,000
Installment note payable to bank; interest at 1.80% due in monthly installments of $2,116, including interest, with final payment in February 2019	17,000	29,000
Installment note payable to bank; interest at 1.80% due in monthly installments of $175, including interest, with final payment in March 2019	2,000	3,000
Installment notes payable to bank; interest at 1.80% due in monthly installments ranging from $121 to $175, including interest, with final payment in April 2019	5,000	7,000
Installment note payable to bank; interest at 4.98% due in monthly installments of $2,847, including interest, with final payment in December 2019	49,000	65,000
Installment note payable to bank; interest at 5.25% due in quarterly installments of $8,102, including interest, with final payment in December 2019	46,000	61,000
Installment note payable to bank; interest at 4.87% due in quarterly installments of $11,897, including interest, with final payment in January 2020	79,000	101,000
Installment note payable to bank; interest at 5.25% due in monthly installments of $679, including interest, with final payment in June 2020	15,000	19,000
Installment note payable to bank; interest at 5.56% due in monthly installments of $2,925, including interest, with final payment in June 2020	66,000	82,000
Installment note payable to bank; interest at 4.87% due in monthly installments of $1,902, including interest, with final payment in July 2020	16,000	21,000
Installment note payable to bank; interest at 6.28% due in quarterly installments of $722, including interest, with final payment in September 2020	7,000	8,000
Installment note payable to bank; interest at 5.75% due in monthly installments of $857, including interest, with final payment in November 2020	23,000	27,000
Installment note payable to bank; interest at 5.31% due in quarterly installments of $4,618, including interest, with final payment in January 2021	47,000	55,000
Installment note payable to bank; interest at 4.70% due in monthly installments of $1,360, including interest, with final payment in February 2021	41,000	48,000
	$442,000	$602,000

These notes are secured by specific equipment with a carrying value of approximately $593,000 as of June 30, 2018 and are nonrecourse liabilities of the Partnership. As such, the notes do not contain any financial debt covenants with which we must comply on either an annual or quarterly basis. Aggregate approximate maturities of notes payable for each of the periods subsequent to June 30, 2018 are as follows:

	Amount
Six months ended December 31, 2018	$138,000
Year ended December 31, 2019	213,000
Year ended December 31, 2020	84,000
Year ended December 31, 2021	7,000
	$442,000

During 2015, the General Partner executed a collateralized debt financing agreement on behalf of certain affiliates for a total shared loan amount of approximately $847,000, of which the Partnership’s share was approximately $101,000. The Partnership’s portion of the current loan amount at June 30, 2018 and December 31, 2017 was approximately $9,000 and $21,000, respectively, and is secured by specific equipment under both operating and finance leases. The carrying value of the secured equipment under operating leases at June 30, 2018 and December 31, 2017 is $3,000 and $4,000, respectively. The carrying value of the secured equipment under finance leases at June 30, 2018 and December 31, 2017 is approximately $38,000 and $63,000, respectively.

6. Supplemental Cash Flow Information

No interest or principal on notes payable was paid by the Partnership during 2018 and 2017 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.

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

Six months ended June 30,	2018	2017
Lease revenue net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank	$160,000	$160,000

Noncash investing and financing activities include the following:

Six months ended June 30,	2018	2017
Debt assumed in connection with purchase of equipment	$-	$310,000

During the six months ended June 30, 2018 and 2017, the Partnership wrote-off fully depreciated equipment of approximately $188,000 and $53,000, respectively.

7. Commitments and Contingencies

FINRA

On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming Commonwealth Capital Securities Corp. (“CCSC”) and the owner of the firm, Kimberly Springsteen-Abbott, as respondents; however on October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Ms. Springsteen-Abbott. The sole remaining charge was that Ms. Springsteen-Abbott had approved the misallocation of some expenses to certain Funds. Management believes that the expenses at issue include amounts that were proper and that were properly allocated to Funds, and also identified a smaller number of expenses that had been allocated in error, but were adjusted and repaid to the affected Funds when they were identified in 2012. During the period in question, Commonwealth Capital Corp. (“CCC”) and Ms. Springsteen-Abbott provided important financial support to the Funds, voluntarily absorbed expenses and voluntarily waived fees in amounts aggregating in excess of any questioned allocations. A Hearing Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should be barred from the securities industry because the Panel concluded that she allegedly misallocated approximately $208,000 of expenses involving certain Funds over the course of three years. As such, management had allocated approximately $87,000 of the $208,000 in allegedly misallocated expenses back to the affected funds as a contingency accrual in CCC’s financial statements and a good faith payment for the benefit of those Income Funds.

The decision of the Hearing Panel was stayed when it was appealed to FINRA's National Adjudicatory Council (the “NAC”) pursuant to FINRA Rule 9311. The NAC issued a decision that upheld the lower panel’s ruling and the bar took effect on August 23, 2016. Ms. Springsteen-Abbott appealed the NAC’s decision to the U.S. Securities and Exchange Commission (the “SEC”). On March 31, 2017, the SEC criticized that decision as so flawed that the SEC could not even review it, and remanded the matter back to FINRA for further consideration consistent with the SEC’s remand, but did not suggest any view as to a particular outcome.

On July 21, 2017, FINRA reduced the list of 1,840 items totaling $208,000 to a remaining list of 84 items totaling $36,226 (which includes approximately $30,000 of continuing education expenses for personnel providing services to the Funds), and reduced the proposed fine from $100,000 to $50,000, but reaffirmed its position on the bar from the securities industry. Respondents promptly appealed FINRA’s revised ruling to the SEC. That appeal is pending as of August 14, 2018. All requested or allowed briefs have been filed with the SEC. Management believes that whatever final resolution of this may be, it will not result in any material adverse financial impact on the Funds, although a final assurance cannot be provided until the legal matter is resolved.

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

FORWARD LOOKING STATEMENTS

This section, as well as other portions of this document, includes certain forward-looking statements about our business and our prospects, tax treatment of certain transactions and accounting matters, sales of securities, expenses, cash flows, distributions, investments and operating and capital requirements. Such forward-looking statements include, but are not limited to: acquisition policies of our general partner; the nature of present and future 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 those statements by the use of words such as “could,” “should,” “would,” “may,” “will,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and “contemplate,” as well as similar words and expressions.

Actual results may differ materially from those in any forward-looking statements because any such statements involve risks and uncertainties 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 discussed in other documents we file with the SEC, including, without limitation, those discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC. We undertake no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

INDUSTRY OVERVIEW

The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $1 trillion equipment finance sector, showed their overall new business volume for June was $9.1 billion, down 7% year-over-year from new business volume in June 2017. Volume was up 18% month-to-month from $7.7 billion in May. Year to date, cumulative new business volume was up 4% compared to 2017. Receivables over 30 days were 1.40%, down from 1.60% the previous month and up from 1.30% the same period in 2017. Charge-offs were 0.33%, up from 0.31% the previous month, and down from 0.38% in the year-earlier period. Credit approvals totaled 75.8% in June, down from 76.8% in May. Total headcount for equipment finance companies was down 0.2% year over year. During 2017, headcount was elevated due to acquisition activity at an MLFI reporting company. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in July is 62.8, easing from the June index of 66.2.

CRITICAL ACCOUNTING POLICIES

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

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

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

LEASE INCOME RECEIVABLE

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

The Partnership reviews a customer’s credit history before extending credit. When the analysis indicates that the probability of full collection is unlikely, the Partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers, historical trends and other information. The Partnership writes off its lease income receivable when it determines that it is uncollectible and all economically sensible means of recovery have been exhausted.

REVENUE RECOGNITION

Through June 30, 2018, the Partnership’s lease portfolio consisted of operating and finance leases. For operating leases, lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreements.

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

Upon the end of the lease term, if the lessee has not met the return conditions as set out in the lease, the Partnership is entitled, in certain cases, to additional compensation from the lessee. The Partnership’s accounting policy for recording such payments is to treat them as revenue.

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

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

Gains from the termination of leases are recognized when the lease is modified and terminated concurrently. Gains from lease termination included in lease revenue for the six months ended June 31, 2018 and 2017 were approximately $3,000 and $1,000, respectively.

LONG-LIVED ASSETS

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

The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset, third party appraisals or comparable sales of similar assets, as applicable, based on asset type.

Residual values are determined by management and are calculated using information from both internal and external sources, as well as other economic indicators.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of cash for the six months ended June 30, 2018 were payments from finance leases of approximately $16,000 and net proceeds from the sale of equipment of approximately $12,000. This compares to the six months ended June 30, 2017 were net cash provided by operating activities of approximately $38,000, payments from finance leases of approximately $19,000 and net proceeds from the sale of equipment of approximately $1,000.

Our primary uses of cash for the six months ended June 30, 2018 was cash used in operating activities of approximately $1,000. Our primary uses of cash for the six months ended June 30, 2017 was the purchase of new equipment of approximately $66,000.

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

Cash was used in operating activities for the six months ended June 30, 2018 of approximately $1,000, which includes net income of approximately $27,000 and depreciation and amortization expenses of approximately $203,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $160,000. Cash was provided by operating activities for the six months ended June 30, 2017 of approximately $38,000, which includes a net loss of approximately $135 and depreciation and amortization expenses of approximately $204,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $160,000.

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

At June 30, 2018	Balance
Total bank balance	$41,000
FDIC insured	(41,000)
Uninsured amount	$-

Our investment strategy of acquiring equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes our operating expenses. As of June 30, 2018, we had future minimum rentals on non-cancelable operating leases of approximately $216,000 for the balance of the year ending December 31, 2018 and approximately $323,000 thereafter. As of June 30, 2018, we had future minimum rentals on non-cancelable finance leases of approximately $11,000 for the balance of the year ending December 31, 2018 and approximately $15,000 thereafter.

As of June 30, 2018, our non-recourse debt was approximately $442,000, with interest rates ranging from 1.8% to 6.28%, and will be payable through February 2021.

The Partnership was originally scheduled to end its operational phase on February 4, 2017. During the year ended December 31, 2015, the operational phase was officially extended to December 31, 2020 through an investor proxy vote. The Partnership is expected to terminate on December 31, 2022. As such, the Partnership will continue to report its financial statements on a going concern basis until a formal plan of liquidation is approved by the General Partner.

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 in fiscal 2018, as the Partnership builds its portfolio.

Our cash flow from operations is expected to continue to be adequate to cover all operating expenses and liabilities during the next 12-month period. If available cash flow or net disposition proceeds are insufficient to cover our expenses and liabilities on a short and long term basis, we will attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.

The General Partner elected to forgo distributions and allocations of net income owed to it, and suspended limited partner distributions for the six months ended June 30, 2018. The General Partner will continue to reassess the funding of limited partner distributions throughout 2018 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.

The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through June 30, 2018. The General Partner will continue to reassess the funding of limited partner distributions throughout 2018 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits. Additionally, the Partnership will seek to enhance portfolio returns and maximize cash flow through the use of leveraged lease transactions; the acquisition of lease equipment through financing. This strategy allows the General Partner to acquire additional revenue generating leases without the use of investor funds, thus maximizing overall return.

RESULTS OF OPERATIONS

Three months ended June 30, 2018 compared to three months ended June 30, 2017

Lease Revenue

Our lease revenue decreased to approximately $145,000 for the three months ended June 30, 2018, from approximately $158,000 for the three months ended June 30, 2017. This decrease is primarily due to more lease agreements ending versus new lease agreements being acquired.

The Partnership had 74 and 77 operating leases during the three months ended June 30, 2018 and 2017, respectively. The decline in number of active leases is consistent with the overall decrease in lease revenue. Management expects to add new leases to our portfolio throughout the remainder of 2018, funded primarily through debt financing. As the operational phase of the Partnership has been extended to December 31, 2020, management will continue to seek lease opportunities to enhance portfolio returns and cash flow.

Sale of Equipment

For the three months ended June 30, 2018, the Partnership sold equipment with a net book value of approximately $2,000 for a net gain of approximately $3,000. For the three months ended June 30, 2017, the Partnership sold equipment with a net book value of approximately $0 for a net gain of approximately $1,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses decreased to approximately $12,000 for the three months ended June 30, 2018, from approximately $33,000 for the three months ended June 30, 2017. This decrease is primarily attributable to a decrease in reimbursable expenses in connection with the administration and operation of the Partnership of approximately $21,000, principally due to a decrease in legal expenses of approximately $6,000 and accounting fees of approximately $5,000.

Equipment Management Fees

We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 2.5% of the gross lease revenue attributable to equipment that is subject to operating leases. An equipment management fee of approximately $4,000 was earned but waived by the General Partner for both the three months ended June 30, 2018 and 2017.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $98,000 for the three months ended June 30, 2018, from $111,000 for the three months ended June 30, 2017. This decrease is primarily due to significant leases that became fully depreciated, partially offset by new equipment acquisitions.

Net Income (Loss)

For the three months ended June 30, 2018, we recognized revenue of approximately $150,000 and expenses of approximately $116,000, resulting in net income of approximately $34,000. For the three months ended June 30, 2017, we recognized revenue of approximately $160,000 and expenses of approximately $148,000, resulting in net income of approximately $12,000. This change in net loss is due to the changes in revenue and expenses as described above.

Six months ended June 30, 2018 compared to six months ended June 30, 2017

Lease Revenue

Our lease revenue decreased to approximately $297,000 for the six months ended June 30, 2018, from approximately $299,000 for the six months ended June 30, 2017. The Partnership had 78 and 79 operating leases during the six months ended June 30, 2018 and 2017, respectively. The decline in number of active leases is consistent with the overall decrease in lease revenue. Management expects to add new leases to our portfolio throughout the remainder of 2018, funded primarily through debt financing. As the operational phase of the Partnership has been extended to December 31, 2020, management will continue to seek lease opportunities to enhance portfolio returns and cash flow.

Sale of Equipment

The Partnership sold equipment with net book value of approximately $3,000 for the six months ended June 30, 2018 for a net gain of approximately $9,000. This compared to equipment sold for the six months ended June 30, 2017 with net book value of approximately $1,000, for a net gain of approximately $1,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses decreased to approximately $66,000 for the six months ended June 30, 2018, from approximately $101,000 for the six months ended June 30, 2017. This decrease is primarily attributable to a decrease in reimbursable expenses in connection with the administration and operation of the Partnership of approximately $35,000, principally due to a decrease in accounting fees of approximately $7,000.

Equipment Management Fees

We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 2.5% of the gross lease revenue attributable to equipment that is subject to operating leases. The equipment management fee of approximately $7,000 and $5,000 for the three months ended June 30, 2018 and 2017 was earned but waived by the General Partner.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $203,000 for the six months ended June 30, 2018, from $204,000 for the six months ended June 30, 2017.

Net Income (Loss)

For the six months ended June 30, 2018, we recognized revenue of approximately $308,000 and expenses of approximately $281,000, resulting in net income of approximately $27,000. For the six months ended June 30, 2017, we recognized revenue of approximately $302,000, expenses of approximately $313,000 and an insurance recovery of approximately $11,000, resulting in a net loss of $135. This change in net loss is due to the changes in revenue and expenses as described above.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

N/A

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of the General Partner’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures related to our reporting and disclosure obligations as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the General Partner’s Chief Executive Officer and Principal Financial Officer have concluded that, as of June 30, 2018, our disclosure controls and procedures are effective in ensuring that information relating to us which is required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) accumulated and communicated to management, including the General Partner’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in the Partnership’s internal control over financial reporting during the second quarter of 2018 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

Part II: OTHER INFORMATION

Item 1. Legal Proceedings

FINRA

Item 1A. Risk Factors

N/A

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

N/A

Item 3. Defaults Upon Senior Securities

N/A

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

NONE

Item 6. Exhibits

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

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

32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

32.2 SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

SIGNATURES

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

	COMMONWEALTH INCOME & GROWTH FUND V
	BY: COMMONWEALTH INCOME & GROWTH FUND, INC., General Partner


August 14, 2018	By: /s/ Kimberly A. Springsteen-Abbott
	Kimberly A. Springsteen-Abbott
	Chief Executive Officer Commonwealth Income & Growth Fund, Inc.


August 14, 2018	By: /s/ Lynn A. Whatley
	Lynn A. Whatley
	Executive Vice President, Chief Operating Officer

Attached files

COMMONWEALTH INCOME & GROWTH FUND V Reports

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