<PAGE>
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 June 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 I
(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 [ ]
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND I
BALANCE SHEETS
<TABLE>
<CAPTION>
(AUDITED)
JUNE 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 145,573 $ 1,565
Lease income receivable 194,222 148,204
Other receivables and deposits 4,273 3,303
Accounts receivable - General Partner - 9,199
Computer equipment, at cost 11,370,806 13,864,309
Accumulated depreciation (7,431,837) (8,306,508)
----------- -----------
3,938,969 5,557,801
Equipment acquisition costs and deferred expenses,
net of accumulated amortization of $426,583 in
1999 and $448,421 in 1998 101,270 169,252
Organization costs, net of accumulated amortization
of $133,032 in 1999 and $121,778 in 1998 6,306 17,560
----------- -----------
Total Assets $ 4,390,613 $ 5,906,884
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 17,290 $ 50,310
Accounts payable - General Partner 82,454 -
Accounts payable - Commonwealth Capital Corp. - 22,480
Unearned lease income 102,569 116,968
Notes payable 1,420,684 2,401,080
----------- -----------
Total liabilities 1,622,997 2,590,838
Partners' capital:
Limited partner 2,766,616 3,315,046
General partner 1,000 1,000
----------- -----------
Total partners' capital 2,767,616 3,316,046
----------- -----------
Total Liabilities and partners' equity $ 4,390,613 $ 5,906,884
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCOME:
Lease $ 805,774 $ 1,361,846 $ 1,613,253 $ 2,574,839
Interest and other 944 2,516 998 5,362
Gain on sale of computer equipment 221,478 -- 221,478 --
----------- ----------- ----------- -----------
1,028,196 1,364,362 1,835,729 2,580,201
EXPENSES:
Operating, excluding depreciation 121,047 28,956 142,268 44,231
Equipment management fee - General Partner 42,122 68,092 82,496 128,742
Interest 29,463 90,708 67,890 160,565
Depreciation 521,401 1,003,139 1,376,190 2,117,484
Amortization of organizastion costs, equipment
acquisition costs and deferred expenses 35,582 60,094 77,581 128,425
Loss on sale of computer equipment 67,389 125,586
----------- ----------- ----------- -----------
749,615 1,318,378 1,746,425 2,705,033
----------- ----------- ----------- -----------
Net income (loss) 278,581 45,984 89,304 (124,832)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per equivalent limited
partnership unit $ 0.44 $ 0.07 $ 0.14 $ 0.20
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average numner of equivalent limited
partnership units outstanding during the period 631,358 631,358 631,358 631,358
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND I
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
PARTNER UNITS
------------------------- GENERAL LIMITED
GENERAL LIMITED PARTNER PARTNER'S TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Partners' capital - December 31, 1995 50 631,358 $ 1,000 $ 9,642,571 $ 9,643,571
Net income (loss) 12,755 (1,332,502) (1,319,747)
Distribution (12,755) (1,262,712) (1,275,467)
--------- -------- ------------- ------------- -------------
Partners' capital - December 31, 1996 50 631,358 1,000 7,047,357 7,048,357
Net income (loss) 12,755 (918,878) (906,123)
Distribution (12,755) (1,262,712) (12,756,467)
--------- -------- ------------- ------------- -------------
Partners' capital - December 31, 1997 50 631,358 1,000 4,865,767 4,866,767
Net income (loss) 12,755 (288,009) (275,254)
Distribution (12,755) (1,262,712) (1,275,467)
--------- -------- ------------- ------------- -------------
Partners' capital - December 31, 1998 50 631,358 1,000 3,315,046 3,316,046
Net income (loss) 6,378 82,926 89,304
Distribution (6,378) 631,356 (637,734)
--------- -------- ------------- ------------- -------------
Partners' capital - June 30, 1999 50 631,358 $ 1,000 $ 2,766,616 $ 2,767,616
--------- -------- ------------- ------------- -------------
--------- -------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANING NOTES.
<PAGE>
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 89,304 $ (124,832)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,453,771 2,245,909
(Gain) loss on sale of computer equipment (221,478) 125,586
Other noncash activities included in
determination of net income (1,046,723) (1,566,915)
Changes in operating assets and liabilities:
Accounts receivable - General Partner 9,199 -
(Increase) decrease in lease income receivable (46,018) (12,050)
(Increase) decrease in other receivables (970) 2,634
Increase (decrease) in accounts payable (33,020) (29,423)
Increase (decrease) in accounts payable -
Commonwealth Capital Corp. (22,480) -
Increase (decrease) in accounts payable -
General Partner 82,454 (10,444)
Increase (decrease) in unearned lease income (14,399) (101,999)
----------- -----------
Net cash provided by operating activities 249,640 528,466
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures - (89,658)
Net proceeds from the sale of property 464,120 104,140
Equipment acquisition fees paid to General Partner 67,982 (12,901)
----------- -----------
Net cash provided by investing activities 532,102 1,581
FINANCING ACTIVITIES:
Distributions to partners (637,734) (637,736)
Debt placement fees paid to General Partner - (2,328)
----------- -----------
Net cash used by financing activities (637,734) (640,064)
----------- -----------
Net increase (decrease) in cash and equivalents 144,008 (110,017)
Cash and cash equivalents, begining of year 1,565 116,259
----------- -----------
Cash and cash equivalents, end of year $ 145,573 $ 6,242
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND I
NOTES TO FINANCIAL STATEMENTS
June 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 I (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 LOSS PER EQUIVALENT LIMITED PARTNERSHIP UNIT
The net 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.
<PAGE>
Commonwealth Income & Growth Fund I
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of capital for the six month period ended
June 30, 1999 and 1998 were cash from operations of $250,000 and $528,000,
respectively; and net proceeds from the sale of computer equipment of $464,000
and $104,000 for the six month period ended June 30, 1999 and 1998. The primary
uses of cash for the six month period ended June 30, 1999 were for capital
expenditures for new equipment totaling $90,000 the payment of acquisition fees
to the General Partner of $13,000, the payment of debt placement fees to the
General Partner of $2,000, and preferred distributions to partners of $638,000.
Currently, 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 June 30,
1999, and December 31, 1998 the Partnership had approximately $56,000 and
$2,000, 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 June 30, 1999, the Partnership had future minimum rentals on noncancellable
operating leases of $2,500,000 for the year ending December 31, 1999 and
$1,500,000, thereafter. At June 30, 1999, the outstanding debt was $1,421,000,
with interest rates ranging from 6.4% to 8.5%, and will be payable through
December 2001. The Partnership intends to continue purchasing additional
computer equipment with existing cash, as well as when future cash becomes
available. In addition, the Partnership may incur additional debt in purchasing
computer equipment in the future.
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 June 30, 1999, the Partnership recognized income of
$1,028,000 and expenses of $750,000, resulting in net income of $278,000. For
the quarter ended June 30, 1998, the Partnership recognized income of $1,364,000
and expenses of $1,318,000, resulting in net income of $46,000.
Lease income decreased by 41% from $1,362,000 for the quarter ended June 30,
1998, to $806,000 for the quarter ended June 30, 1999. During the six months
ended June 30, 1999, the Partnership expended $90,000 in cash to acquire one
lease, which will generate approximately $18,000 in revenue through the end of
1999.
Interest income decreased from $3,000 for the quarter ended June 30, 1998, to
$1000 for the quarter ended June 30, 1999. In addition, the Partnership
recognized a gain on sale of computer equipment of $221,000 for the quarter
ended June 30, 1999.
The operating expenses, excluding depreciation, primarily consist of accounting,
legal and outside office services. The 318% increase from approximately $29,000
for the quarter ended June 30, 1998, to $121,000 for the quarter ended June 30,
1999, is attributable to the accrual of accounting fees.
<PAGE>
Commonwealth Income & Growth Fund I
The equipment management fee is equal to 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee was $42,000 and $68,000, respectively, for the quarters ended
June 30, 1999 and 1998.
Interest expense decreased 68% from approximately $90,000 for the quarter ended
June 30, 1998, to $29,000 for the quarter ended June 30, 1999.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of organizational costs, equipment acquisition fees,
and debt placement fees. These expenses decreased by 48% from approximately
$1,063,000 for the quarter ended June 30, 1998, to $557,000 for the quarter
ended June 30, 1999.
For the six month period ended June 30, 1999, the Partnership generated cash
flows from operating activities of $250,000, which includes a net gain of
$89,000, and depreciation and amortization expenses of $1,387,000. Other noncash
activities included in the determination of net income includes direct payments
of lease income by lessees to banks of $850,000.
For the six month period ended June 30, 1998, the Partnership generated cash
flows from operating activities of $528,000, which includes a net loss of
$125,000, and depreciation and amortization expenses of $2,246,000. Other
noncash activities included in the determination of net income includes direct
payments of lease income by lessees to banks of $1,567,000.
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 June 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 complete by the third quarter of 1999 and
a percentage of these costs will be charged to the Partnership. As of June 30,
1999, the General Partner has not incurred any significant expenses.
<PAGE>
PART II: OTHER INFORMATION
COMMONWEALTH INCOME & GROWTH FUND I
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
<PAGE>
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 I
BY: COMMONWEALTH INCOME & GROWTH
FUND, INC. General Partner
August 12, 1999 By: /s/ George S. Springsteen
- ----------------- ---------------------------
Date George S. Springsteen
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 145,573
<SECURITIES> 0
<RECEIVABLES> 198,495
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 107,576
<PP&E> 11,370,806
<DEPRECIATION> (7,431,837)
<TOTAL-ASSETS> 4,390,613
<CURRENT-LIABILITIES> 1,622,997
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,767,616
<TOTAL-LIABILITY-AND-EQUITY> 4,390,613
<SALES> 0
<TOTAL-REVENUES> 1,835,729
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,678,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,890
<INCOME-PRETAX> 89,304
<INCOME-TAX> 0
<INCOME-CONTINUING> 89,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,304
<EPS-BASIC> .14
<EPS-DILUTED> 0
</TABLE>
