-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UXhzHdYJU2qbblnJV0hFvrlxt1Rr+Vljzru7engDA9PaS3hht44+7D8bJIm9QHnh wJQv2q9u0oL/jtpEoCsbnw== 0000912057-99-005100.txt : 19991115 0000912057-99-005100.hdr.sgml : 19991115 ACCESSION NUMBER: 0000912057-99-005100 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH INCOME & GROWTH FUND II CENTRAL INDEX KEY: 0000938322 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 232735641 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-89476 FILM NUMBER: 99748174 BUSINESS ADDRESS: STREET 1: 1160 WEST SWEDESFORD RD STREET 2: STE 340 CITY: BERWYN STATE: PA ZIP: 19312 BUSINESS PHONE: 6106476800 MAIL ADDRESS: STREET 1: 1160 WEST SWEDESFORD RD STREET 2: STE 340 CITY: BERWYN STATE: PA ZIP: 19312 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ------------ ------------- Commission File Number: 33-69996 COMMONWEALTH INCOME & GROWTH FUND II (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-2735641 (State or other jurisdiction of (I.R.S. Employer identification No.) incorporation or organization) 1160 West Swedesford Road Berwyn, Pennsylvania 19312 (Address, including zip code, of principal executive offices) (610) 647-6800 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [ X ] NO [ ] COMMONWEALTH INCOME & GROWTH FUND II BALANCE SHEETS
(AUDITED) SEPTEMBER 30, DECEMBER 31, 1999 1998 ----------- ----------- ASSETS Cash and cash equivalents 145,622 136,208 Lease income receivable 246,775 246,930 Other receivables and deposits 21,356 25,237 Computer equipment, at cost 15,212,742 14,085,926 Accumulated depreciation (7,639,330) (4,683,752) ----------- ----------- 7,573,412 9,402,174 Equipment acquisition costs and deferred expenses, net of accumulated amortization of $374,600 in 1999 and $335,040 in 1998 251,919 372,318 Organization costs, net of accumulated amortization of $81,541 in 1999 and $64,366 in 1998 32,928 50,103 ----------- ----------- Total Assets 8,272,012 10,232,970 ----------- ----------- ----------- ----------- LIABILITIES AND PARTNERS' EQUITY Accounts payable 54,618 93,063 Accounts payable - General Partner -- -- Unearned lease income 83,200 177,612 Notes payable 3,478,780 4,769,529 ----------- ----------- Total liabilities 3,616,598 5,040,204 Partners' capital: General partner 1,000 1,000 Limited partner 4,654,414 5,191,766 ----------- ----------- Total partners' capital 4,655,414 5,192,766 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' EQUITY 8,272,012 10,232,970 ----------- ----------- ----------- -----------
See accompanying notes COMMONWEALTH INCOME & GROWTH FUND II STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 --------------------------------- ----------------------------------- INCOME: Lease $ 1,160,498 $ 1,043,818 $ 3,451,987 $ 3,108,323 Interest and other 3,102 12,893 8,264 20,745 Gain on sale of computer equipment 42,826 165,769 42,826 164,716 --------------- --------------- ---------------- ---------------- 1,206,426 1,222,480 3,503,077 3,293,784 Expenses: Operating, excluding depreciation 122,268 49,422 240,500 77,348 Equipment management fee - General Partner 57,525 52,191 172,472 155,416 Interest 66,654 42,394 227,150 121,649 Depreciation 893,264 886,391 2,527,531 2,472,175 Amortization of organizastion costs, equipment acquisition costs and deferred expenses 56,361 59,587 172,814 160,483 Loss on sale of computer equipment - - --------------- --------------- ---------------- ---------------- 1,196,072 1,089,985 3,340,467 2,987,071 --------------- --------------- ---------------- ---------------- Net income (loss) $ 10,354 $ 132,495 $ 162,610 $ 306,713 --------------- --------------- ---------------- ---------------- --------------- --------------- ---------------- ---------------- Net income (loss) per equivalent limited partnership unit $ 0.02 $ 0.29 $ 0.35 $ 0.66 Weighted Average numner of equivalent limited partnership units outstanding during the period 461,817 461,817 461,817 461,817
See accompanying notes COMMONWEALTH INCOME CAPITAL FUND II STATEMENT OF PARTNERS' CAPITAL
PARTNER UNITS GENERAL LIMITED GENERAL LIMITED PARTNER PARTNER TOTAL --------------------------------------------------------------------------------- Partners' capital - December 31, 1995 50 183,947 $ 1,000 $ 3,155,521 $ 3,156,521 Contributions 218,572 4,371,440 4,371,440 Offering costs (487,440) (487,440) Net income (loss) 6,080 (6,810) (730) Distribution (6,080) (601,965) (608,045) --------------------------------------------------------------------------------- Partners' capital - December 31, 1996 50 402,519 1,000 6,430,920 6,431,920 Contributions 59,298 1,185,785 1,185,785 Offering costs (129,680) (129,680) Net income (loss) 9,087 70,924 (61,837) Distribution (9,087) (899,627) (908,714) --------------------------------------------------------------------------------- Partners' capital - December 31, 1997 50 461,817 1,000 6,516,474 6,517,474 Net income (loss) 9,330 (401,074) (391,744) Distribution (9,330) (923,634) (932,964) --------------------------------------------------------------------------------- Partners' capital - December 31, 1998 50 461,817 1,000 5,191,766 5,192,766 Net income (loss) 9,570 162,610 172,180 Distribution (9,570) (699,963) (709,533) --------------------------------------------------------------------------------- Partners' capital - September, 1999 50 461,817 $ 1,000 $ 4,654,413 $ 4,655,413 --------------------------------------------------------------------------------- ---------------------------------------------------------------------------------
See accompanying notes COMMONWEALTH INCOME & GROWTH FUND II STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998 ------------------------------------ Operating activities Net income (loss) 162,610 306,713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,700,344 2,632,658 (Gain) loss on sale of computer equipment (42,826) (164,716) Other noncash activities included in determination of net income (2,126,736) (1,059,637) Changes in operating assets and liabilities: Accounts receivable - General Partner (2,126,736) -- (Increase) decrease in lease income receivable (155) (257,193) (Increase) decrease in other receivables 3,881 13,469 Increase (decrease) in accounts payable (38,412) (51,031) Increase (decrease) in accounts payable - Commonwealth Capital Corp. -- 3,156 Increase (decrease) in accounts payable - General Partner -- -- Equipment payable -- 502,721 Increase (decrease) in unearned lease income (94,412) (21,028) ---------- ---------- Net cash provided by operating activities 564,261 1,905,112 ---------- ---------- Investing activities: Capital expenditures (90,014) (1,115,991) Payment of computer equipment payable (502,721) Net proceeds from the sale of property -- 701,903 Equipment acquisition fees paid to General Partner (136,458) (198,558) ---------- ---------- Net cash provided by investing activities (226,472) (1,115,367) Financing activities: Distributions to partners (699,963) (699,723) Debt placement fees paid to General Partner -- (11,748) ---------- ---------- Net cash used by financing activities (699,963) (711,471) ---------- ---------- Net increase (decrease) in cash and equivalents 9,414 78,274 Cash and cash equivalents, begining of year 136,208 258,167 ---------- ---------- Cash and cash equivalents, end of year 145,622 336,441 ---------- ---------- ---------- ----------
See accompanying notes COMMONWEALTH INCOME & GROWTH FUND II NOTES TO FINANCIAL STATEMENTS September 30, 1999 BASIS OF PRESENTATION The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. Financial information as of December 31 has been derived from the audited financial statements of Commonwealth Income & Growth Fund II (the "Partnership"), but does not include all disclosures required by generally accepted accounting principles. 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, 1998. 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. Commonwealth Income & Growth Fund II ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership satisfied its minimum offering requirements and commenced operations on September 22, 1995. On that date, subscribers for 126,118 Units were admitted as Limited Partners of the Partnership. On May 12, 1997, the Partnership terminated its offering of Units with 461,817 ($9,235,185) Units sold. The Partnership's primary sources of capital for the nine months ended September 30, 1999 and 1998 were from cash from operations of $564,000 and $1,905,000, respectively. The primary uses of cash for the nine months ended September 30, 1999, and 1998, were for capital expenditures for new equipment totaling $90,000 and $1,115,000, respectively, the payment of preferred distributions to partners of $233,000 for each quarter, the payment of acquisition fees of $29,000 and $22,000 respectively, and the payment of finance fees of $6,000 and $8,000, respectively. Currently, Partners' contributions and rental income from the Partnership's leases are invested in money market accounts investing directly in treasury obligations pending the Partnership's use of such funds to purchase additional computer equipment, to pay Partnership expenses or to make distributions to the Partners. At September 30, 1999 and December 31, 1998 the Partnership had approximately $145,000 and $136,000, respectively, invested in these money market accounts. The Partnership's investment strategy of acquiring computer equipment and generally leasing it under "triple-net leases" to operators who generally meet specified financial standards minimizes the Partnership's operating expenses. As of September 30, 1999, the Partnership had future minimum rentals on noncancellable operating leases of $4,200,000 for the year ending December 31, 1999 and $3,400,000 thereafter. At September 30, 1999, the outstanding debt was 3,000,000, with interest rates ranging from 6.4% to 8.2%, and will be payable through January, 2002. The Partnership's cash from operations is expected to continue to be adequate to cover all operating expenses, liabilities, and preferred distributions to Partners during the next 12 month period. If available Cash Flow or Net Disposition Proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership will attempt to obtain additional funds by disposing of or refinancing Equipment, or by borrowing within its permissible limits. The Partnership may also reduce the distributions to its Partners if it deems necessary. Since the Partnership's leases are on a "triple-net" basis, no reserve for maintenance and repairs are deemed necessary. RESULTS OF OPERATIONS For the quarter ended September 30, 1999, the Partnership recognized income of $1,206,000 and expenses of $1,196,000, resulting in net income of $10,000. For the quarter ended September 30, 1998, the Partnership recognized income of $1,222,000 and expenses of $1,089,000, resulting in net income of $132,000. Lease income increased by 11% from $1,043,000 for the quarter ended September 30, 1998, to $1,160,000 for the quarter ended September 30, 1999, primarily due to utilizing cash available from Partners' contributions for the purchase of Equipment, which in turn generated more lease income. During the nine months ended September 30, 1999, the Partnership expended $90,000 to acquire one lease, which will generate approximately $10,800 in revenue in 1999. Interest income decreased 76% from $12,893 for the quarter ended September 30, 1998 to $3,000 for the quarter ended September 30, 1999, primarily due to a lower monthly average balance in the money market accounts for the quarter ended September 30, 1999. Commonwealth Income & Growth Fund II Operating expenses, excluding depreciation, primarily consist of accounting, legal, and outside service fees. The expense increased 62% from approximately $49,000 for the quarter ended September 30, 1998, to $128,000 for the quarter ended September 30, 1999, which is primarily attributable to the accrual of accounting fees. The equipment management fee is equal to 5% of the gross lease revenue attributable to equipment which is subject to operating leases. The equipment management fee increased 9% from approximately $52,000 for the quarter ended September 30, 1998, to $57,000 for the quarter ended September 30, 1999. Depreciation and amortization expenses consist of depreciation on computer equipment, amortization of organizational costs, and equipment acquisition fees. The expenses increased 1% from approximately $945,000 for the quarter ended September 30, 1998, to $949,000 for the quarter ended September 30, 1999. For the nine month period ended September 30, 1999, the Partnership generated cash flow from operating activities of $564,000, which includes a net income of $10,000, and depreciation and amortization expenses of $949,000. Other noncash activities included in the determination of net income includes direct payments of lease income by lessees to banks of $2,126,000. For the nine month period ended September 30, 1998, the Partnership generated cash flow from operating activities of $1,900,000, which includes net income of $306,000, and depreciation and amortization expenses of $2,600,000. Other noncash activities included in the determination of net income includes direct payments of lease income by lessees to banks of $1,000,000 and lease income paid to original lessors in lieu of cash payments for computer equipment of $10,000. YEAR 2000 ISSUE The Partnership and the General Partner are not responsible for ensuring that the computer peripheral equipment that it leases to customers is Year 2000 compliant, however, this equipment may be subject to declines in value or technological obsolescence. Management has considered these factors in determining the recovery of its equipment at September 30, 1999, in accordance with FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Based on its current assessment, the Partnership does not believe that the reduction in carrying values of equipment, if any, due to the Year 2000 issues, will have a significant effect on operations. Based on recent assessments, the General Partner has determined that it will be required to modify or replace portions of its own system so that its operation will function properly with respect to dates in the year 2000 and thereafter. The General Partner presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue will not pose significant operational problems for its computer system. The General Partner expects that its modifications will be completely operational by the end of 1999 and a percentage of these costs will be charged to the Partnership. As of September 30, 1999, the General Partner has not incurred any significant expenses. PART II: OTHER INFORMATION COMMONWEALTH INCOME & GROWTH FUND II Item 1. LEGAL PROCEEDINGS. Inapplicable Item 2. CHANGES IN SECURITIES. Inapplicable Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. Inapplicable Item 5. OTHER INFORMATION. Inapplicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits: None b) Report on Form 8-K: None
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMMONWEALTH INCOME & GROWTH FUND II BY: COMMONWEALTH INCOME & GROWTH FUND, INC. General Partner By: - ----------------- --------------------------- Date George S. Springsteen President EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANYS FORM 10Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 145,622 0 268,131 0 0 284,847 15,212,742 (7,639,330) 8,272,012 3,616,599 0 0 0 0 4,655,414 8,272,013 0 3,503,077 0 0 3,113,317 0 227,150 162,610 0 162,610 0 0 0 162,610 .35 0
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