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COMMONWEALTH INCOME & GROWTH FUND V - 10-Q - : Management's Discussion and Analysis of Financial Condition and Results of Operations

August 14, 2014

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, 2013 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, which reports economic activity for the $827 billion equipment finance sector showed overall new business volume for June 30, 2014 was $9 billion, up 5% from new business volume in June 2013. Month over month, new business volume was up 30% from May. Year to date, cumulative new business volume increased 3% compared to 2013. Receivables over 30 days decreased from the previous month at 1.6%, and were up from 1.4% in the same period in 2013. Charge-offs remain unchanged at the all-time low of 0.2%. Credit approvals totaled 80.1% in June, an increase from 76.1% the previous month. Total headcount for equipment finance companies was up 1.0% year over year. Separately, the Equipment Leasing & Finance Foundation's Monthly Confidence Index for July is 61.4, unchanged from the previous month.

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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, 2014, the Partnership has 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.

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. 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, 2014 was approximately $9,000. For the six months ended June 30, 2013, the Partnership did not recognize any gain from the termination of leases.

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.

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, 2014 were provided by operating activities of approximately $56,000, payments from finance leases of approximately $7,000 and proceeds from the sale of equipment of approximately $1,000. This compares to the six months ended June 30, 2013 where our primary sources of cash were provided by operating activities of approximately $127,000 and proceeds from the sale of equipment of approximately $11,000.

Our primary uses of cash for the six months ended June 30, 2014 were for the purchase of new equipment of approximately $40,000 and the purchase of finance leases of approximately $45,000. For the six months ended June 30, 2013, our primary uses of cash were for the purchase of new equipment of approximately $42,000 and payments on a payable to Affiliate of approximately $105,000.

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 provided by operating activities for the six months ended June 30, 2014 of approximately $56,000, which includes a net loss of approximately $67,000 and depreciation and amortization expenses of approximately $516,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $340,000. For the six months ended June 30, 2013, cash was provided by operating activities of approximately $127,000, which includes a net loss of approximately $38,000 and depreciation and amortization expenses of approximately $560,000. Other non-cash activities included in the determination of net loss include direct payments of lease income by lessees to banks of approximately $301,000 and bad debt recovery of approximately $19,000.

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

At June 30, 2014, cash was held in two accounts maintained at one financial institution with an aggregate balance of approximately $9,000. Bank accounts are federally insured up to $250,000 by the FDIC. At June 30, 2014, the total cash bank balance was as follows:

At June 30, 2014 Amount Total bank balance $ 9,000FDIC insured (9,000 )



Uninsured amount $ -

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

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, 2014, we had future minimum rentals on non-cancelable operating leases of approximately $485,000 for the balance of the year ending December 31, 2014 and approximately $707,000 thereafter. As of June 30, 2014, we had future minimum rentals on non-cancelable finance leases of approximately $10,000 for the balance of the year ending December 31, 2014 and approximately $65,000 thereafter.

During June 2013, CCC, on behalf of the Partnership, negotiated a settlement with a significant lessee related to the buy-out of several operating leases. The Partnership received consideration of approximately $68,000 as a result of the settlement. This consideration is recorded as a receivable from CCC in the Partnership's condensed balance sheet at June 30, 2013 as CCC remitted the proceeds to the Partnership in July 2013.

As of June 30, 2014, our non-recourse debt was approximately $801,000, with interest rates ranging from 1.6% to 5.6%, and will be payable through May 2017.

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

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, 2015. The General Partner will continue to reassess the funding of limited partner distributions throughout 2014 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.

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RESULTS OF OPERATIONS

Three months ended June 30, 2014 compared to three months ended June 30, 2013

Lease Revenue

Our lease revenue increased to approximately $305,000 for the three months ended June 30, 2014, from approximately $264,000 for the three months ended June 30, 2013. This increase was primarily due to the acquisition of new lease agreements and the associated increase in lease revenue.

The Partnership had 96 and 85 operating leases during the three months ended June 30, 2014 and 2013, respectively. The increase in the amount of active leases is consistent with the overall increase in lease revenue. Management expects to add new leases to our portfolio throughout the remainder of 2014, funded primarily through debt financing.

Sale of Equipment

We sold equipment with a net book value of approximately $1,000 for the three months ended June 30, 2014, for a net loss of approximately $500. This compared to equipment that we sold for the three months ended June 30, 2013 with a net book value of approximately $8,000, for a net gain of approximately $13,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses increased to approximately $39,000 for the three months ended June 30, 2014, from approximately $20,000 for the three months ended June 30, 2013. This increase is primarily attributable to an increase in legal fees, partially offset by a decrease in accounting fees.

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 increased to approximately $8,000 for the three months ended June 30, 2014 from approximately $7,000 for the three months ended June 30, 2013. This increase is consistent with the increase in overall lease revenue.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $256,000 for the three months ended June 30, 2014, from $261,000 for the three months ended June 30, 2013. This decrease is due an increase in the amount of equipment that is fully depreciated, partially offset by new equipment acquisitions and the sale of equipment related to the buy-out with the significant lessee as discussed in Note 3 of our condensed financial statements.

Net Income (Loss)

For the three months ended June 30, 2014, we recognized revenue of approximately $307,000 and expenses of approximately $313,000, resulting in a net loss of approximately $6,000. For the three months ended June 30, 2013, we recognized revenue of approximately $277,000 and expenses of approximately $283,000, resulting in a net loss of approximately $6,000. This change in net income is due to the changes in revenue and expenses as described above.

Six months ended June 30, 2014 compared to six months ended June 30, 2013



Lease Revenue

Our lease revenue decreased to approximately $590,000 for the six months ended June 30, 2014, from approximately $594,000 for the six months ended June 30, 2013. This decrease was primarily due to fewer acquisitions of new leases during the six months ended June 30, 2014 compared to the termination of leases. Lease revenue was also negatively impacted by the reduction of revenue producing leases as a result of the June 2013 buy-out as described in note 3 above.

The Partnership had 98 and 85 operating leases during the six months ended June 30, 2014 and 2013, respectively. Although the number of active leases increased from the six months ended June 30, 2013 to the six months ended June 30, 2014, revenue generated from active leases declined. Management expects to add new leases to our portfolio throughout the remainder of 2014, funded primarily through debt financing.

Sale of Equipment

We sold equipment with a net book value of approximately $1,000 for the six months ended June 30, 2014, for a net loss of approximately $500. This compared to equipment that we sold for the six months ended June 30, 2013 with a net book value of approximately $9,000, for a net gain of approximately $14,000.

Operating Expenses

Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses increased to approximately $111,000 for the six months ended June 30, 2014, from approximately $78,000 for the six months ended June 30, 2013. This increase is primarily attributable to an increase in legal fees, partially offset by a decrease in accounting fees.

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. Equipment management fees remained unchanged at approximately $15,000 for the six months ended June 30, 2014 and 2013.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately $516,000 for the six months ended June 30, 2014, from $560,000 for the six months ended June 30, 2013. This change is primarily due to an increase in the amount of equipment that is fully depreciated, partially offset by new equipment acquisitions.

Net (Loss)

For the six months ended June 30, 2014, we recognized revenue of approximately $594,000 and expenses of approximately $662,000, resulting in a net loss of approximately $68,000. For the six months ended June 30, 2013, we recognized revenue of approximately $625,000 and expenses of approximately $663,000, resulting in a net loss of approximately $38,000. This change in net loss is due to the changes in revenue and expenses as described above.

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