<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, 1996
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: 33-89476
COMMONWEALTH INCOME & GROWTH FUND II
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2795120
(State or other jurisdiction of (I.R.S. Employer indentification
incorporation or organization) No.)
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>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COMMONWEALTH INCOME & GROWTH FUND II
BALANCE SHEETS
(AUDITED)
JUNE 30, DECEMBER 31,
1996 1995
------------------------------------
ASSETS
Cash and cash equivalents $ 1,186,075 $ 251,776
Lease income receivable 66,521 47,119
Other receivables and deposits 5,784 9,576
------------------------------------
1,258,380 308,471
Computer equipment, at cost 3,961,860 2,998,297
Accumulated depreciation (511,028) (95,827)
-------------------------------------
3,450,832 2,902,470
Organization costs and deferred
expenses, net of accumulated
amortization of $47,016 for 1996
and $12,130 for 1995. 229,830 162,466
------------------------------------
Total assets $ 4,939,042 $ 3,373,407
------------------------------------
------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 20,832 $ 30,999
Accounts payable - Commonwealth
Capital Corp. - 148,141
Unearned lease income 64,083 37,746
------------------------------------
Total liabilities 84,915 216,886
Partners' capital:
General partner 1,000 1,000
Limited partners 4,853,127 3,155,521
------------------------------------
Total partners' capital $ 4,854,127 $ 3,156,521
Total liabilities and
partners' capital $ 4,939,042 $ 3,373,407
------------------------------------
------------------------------------
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF OPERATIONS
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1996
INCOME:
Lease $ 240,025 $ 445,596
Interest 15,136 23,900
------------------------------------
255,161 469,496
EXPENSES:
Operating, excluding
depreciation 6,837 13,036
Equipment management fee -
General Partner 12,001 22,280
Depreciation 219,826 415,200
Amortization of organization
costs and deferred expenses 17,782 34,887
------------------------------------
256,446 485,403
------------------------------------
Net loss $ (1,285) $ (15,907)
------------------------------------
------------------------------------
Net loss per equivalent limited
partnership unit $ (0.00) $ (0.06)
------------------------------------
------------------------------------
Weighted average number of
equivalent limited partnership
units outstanding during the
periods 276,102 247,295
------------------------------------
------------------------------------
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENT OF PARTNERS' CAPITAL
GENERAL LIMITED
PARTNER PARTNER TOTAL
------------------------------------------
Partners' capital -
December 31, 1995 $ 1,000 $ 3,155,521 $ 3,156,521
Contributions - 1,339,180 1,339,180
Offering costs - (155,233) (155,233)
Net income (loss) 1,097 (15,719) (14,622)
Distributions (1,097) (108,647) (109,744)
------------------------------------------
Partners' capital -
March 31, 1996 1,000 4,215,102 4,216,102
Contributions - 873,660 873,660
Offering costs - (95,666) (95,666)
Net income (loss) 1,387 (2,672) (1,285)
Distributions (1,387) (137,297) (138,684)
------------------------------------------
Partners' capital -
June 30, 1996 $ 1,000 $ 4,853,127 $ 4,854,127
------------------------------------------
------------------------------------------
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and for the period
January 13, 1995 (date of inception) to June 30, 1995
1996 1995
----------------------------------
OPERATING ACTIVITIES
Net loss $ (15,907) $ -
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 450,087 -
Changes in operating assets
and liabilities:
Lease income receivables (19,402) -
Interest and other receivables 3,792 -
Accounts payable (10,329) -
Unearned lease income 26,337 -
----------------------------------
Net cash provided by operating
activities 434,578 -
INVESTING ACTIVITIES
Capital expenditures (963,562) -
Payment of accounts payable -
Commonwealth Capital Corp (147,979) -
Equipment acquisition fees paid
to the General Partner (74,388) -
----------------------------------
Net cash used in investing activities (1,185,929) -
FINANCING ACTIVITIES
Partners' contributions 2,212,840 1,500
Offering costs (250,899) -
Offering costs paid to the General
Partner (27,863) -
Distributions to Partners (248,428) -
Net cash provided by financing ----------------------------------
activities 1,685,650 1,500
----------------------------------
Net increase in cash and cash
equivalents 934,299 1,500
Cash and cash equivalents at
begining of year 251,776 -
Cash and cash equivalents at ----------------------------------
end of period $ 1,186,075 $ 1,500
----------------------------------
----------------------------------
<PAGE>
Commonwealth Income & Growth Fund II
Notes to Financial Statements
June 30, 1996
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, 1995.
NET LOSS PER EQUIVALENT LIMITED PARTNERSHIP UNIT
The net loss per equivalent limited partnership unit is computed based upon net
loss allocated to the limited partners and the weighted average number of
equivalent units outstanding during the period.
SUBSEQUENT EVENT
On July 2, 1996, and August 2, 1996, subscriptions from investors totaling
$358,780 and $219,280, respectively, were released by the escrow agent and
accepted by the Partnership. The net proceeds to the Partnership available for
investment in computer equipment after payment of offering expenses and the
equipment acquisition fees were $303,583 and $185,545, respectively.
RECLASSIFICATION
Certain balances in the prior period financial statements have been reclassified
to conform with the current period presentation.
<PAGE>
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. Through June 30, 1996,
subscribers owning an additional 168,471 Units were admitted as Limited
Partners.
The Partnership's primary sources of capital for the six months ended June 30,
1996 and for the period ended June 30, 1995, were from Partners' contributions
of $2,213,000 and $2,000, respectively, and cash from operations for the
quarter ended June 30, 1996 of $435,000. The primary uses of cash for the six
months ended June 30, 1996 were for capital expenditures for new equipment
totaling $964,000, the payment of offering costs of $279,000, the payment of
preferred distributions to partners of $248,000, the payment of accounts payable
of $148,000 to Com Cap Corp. for the purchase of Equipment, and the payment of
acquisition fees of $74,000.
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 June 30, 1996 and December 31, 1995 the Partnership had
approximately $1,186,000 and $252,000, 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, 1996, the Partnership had future minimum rentals on
noncancellable operating leases of $524,000 for the year ending December 31,
1996 and $1,986,000, thereafter. 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 debt in purchasing
computer equipment after the net proceeds of the Offering are fully invested in
Equipment.
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.
<PAGE>
RESULTS OF OPERATIONS
For the quarter ended June 30, 1996, the Partnership recognized income of
$255,000 and expenses of $256,000, resulting in a net loss of $1,000.
For the quarter ended March 31, 1996, the Partnership expended approximately
$964,000 in cash to acquire three leases, which generated approximately $53,000
in revenue.
Interest income for the quarter ended June 30, 1996 of $15,000 is the result of
capital contributions temporarily being invested in money market accounts until
being utilized for equipment purchases.
Operating expenses, excluding depreciation, for the quarter ended June 30, 1996
of $7,000, primarily consist of accounting, legal, and outside service fees.
The equipment management fee for the quarter ended June 30, 1996 of $12,000, is
equal to 5% of the gross lease revenue attributable to equipment which is
subject to operating leases.
Depreciation and amortization expenses for the quarter ended June 30, 1996 of
$237,000 consist of depreciation on computer equipment, amortization of
organizational costs, and equipment acquisition fees.
<PAGE>
Commonwealth Income & Growth Fund II
PART II: OTHER INFORMATION
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 II
BY: COMMONWEALTH INCOME & GROWTH
FUND, INC. General Partner
_________________ By:_______________________
Date David A. Kintzer, CPA
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000938322
<NAME> CIGF-II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,186,075
<SECURITIES> 0
<RECEIVABLES> 72,305
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,258,380
<PP&E> 4,238,706
<DEPRECIATION> 558,044
<TOTAL-ASSETS> 4,939,042
<CURRENT-LIABILITIES> 84,915
<BONDS> 0
0
0
<COMMON> 4,854,127
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,939,042
<SALES> 0
<TOTAL-REVENUES> 469,496
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 485,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,907)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,907)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,907)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
