<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 September 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 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>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COMMONWEALTH INCOME & GROWTH FUND II
BALANCE SHEETS
<TABLE>
<CAPTION>
(AUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,881,689 $ 251,776
Lease income receivable 88,428 47,119
Other receivables and deposits 10,377 9,576
Computer equipment, at cost 4,780,075 2,998,297
Accumulated depreciation (794,781) (95,827)
---------------------------
3,985,294 2,902,470
Organization costs and deferred expenses, net of
accumulated amortization of $69,889
in 1996 and $12,130 in 1995 262,764 162,466
---------------------------
Total assets $6,228,552 $3,373,407
---------------------------
---------------------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 51,186 $ 30,999
Accounts payable - General Partner 17,092 -
Accounts payable - Commonwealth Capital Corp. - 148,141
Unearned lease income 74,743 37,746
Computer equipment payable 256,422 -
---------------------------
Total liabilities 399,443 216,886
Partners' capital:
General partner 1,000 1,000
Limited partners 5,828,109 3,155,521
---------------------------
Total partners' capital 5,829,109 3,156,521
---------------------------
Total liabilities and partners' capital $6,228,552 $3,373,407
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 22, 1995
THREE MONTHS ENDED NINE MONTHS ENDED (COMMENCEMENT OF
SEPTEMBER 30, SEPTEMBER 30, OPERATIONS) TO
1996 1995 1996 SEPTEMBER 30, 1995
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
INCOME:
Lease $325,441 $ 2,793 $771,037 $ 2,793
Interest and other 22,662 - 46,562 -
--------------------------------------------------------
348,103 2,793 817,599 2,793
EXPENSES:
Operating, excluding depreciation 2,057 100 15,093 100
Equipment management fee - General Partner 16,272 - 38,552 -
Depreciation 283,753 - 698,953 -
Amortization of organization costs and
deferred expenses 22,872 1,301 57,759 1,301
--------------------------------------------------------
324,954 1,401 810,357 1,401
--------------------------------------------------------
Net income $ 23,149 $ 1,392 $ 7,242 $ 1,392
--------------------------------------------------------
--------------------------------------------------------
Net income per equivalent limited
partnership unit $ 0.07 $ 0.01 $ 0.03 $ 0.01
--------------------------------------------------------
--------------------------------------------------------
Weighted average number of equivalent limited
partnership units outstanding during the period 326,478 126,118 273,882 126,118
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS' TOTAL
-------------------------------------
<S> <C> <C> <C>
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 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
Contributions 1,255,420 1,255,420
Offering costs - (137,799) (137,799)
Net income (loss) 1,658 21,491 23,149
Distributions (1,658) (164,130) (165,788)
------------------------------------
Partners' capital - September 30, 1996 $ 1,000 $5,828,109 $5,829,109
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and for the period
September 22, 1995 (commencement of operations) to September 30, 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,242 $ 1,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 756,713 1,301
Other noncash activities included in the
determination of net income (4,290) -
Changes in operating assets and liabilities:
Lease income receivable (41,309) (2,793)
Other receivables (801) -
Accounts payable 20,187 -
Accounts payable - General Partner 17,092 -
Equipment payable (7,076) -
Unearned lease income 36,997 -
----------------------------
Net cash provided by (used in) operating activities 784,755 (100)
INVESTING ACTIVITIES
Capital expenditures (1,513,990) -
Payment of computer equipment payable (148,141) -
Increase in organization costs and
deferred expenses (158,057) (120,557)
----------------------------
Net cash used in investing activities (1,820,188) (120,557)
FINANCING ACTIVITIES
Partners' contributions 3,468,260 2,540,380
Offering costs (388,698) (293,657)
Distributions to partners (414,216) -
----------------------------
Net cash provided by financing activities 2,665,346 2,246,723
----------------------------
Net increase in cash and cash equivalents 1,629,913 2,126,066
Cash and cash equivalents at beginning of period 251,776 -
----------------------------
Cash and cash equivalents at end of period $ 1,881,689 $2,126,066
----------------------------
----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Commonwealth Income & Growth Fund II
Notes to Financial Statements
September 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 October 7, 1996 and November 5, 1996 subscriptions from investors totaling
$203,060 and $359,740, 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 $171,820 and $304,395, respectively.
RECLASSIFICATION
Certain balances in the prior period financial statements have been
reclassified to conform with the current period presentation.
<PAGE>
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. Through
September 30, 1996, subscribers owning an additional 231,242 Units were
admitted as Limited Partners.
The Partnership's primary sources of capital for the nine months ended
September 30, 1996 and for the period ended September 30, 1996, were from
Partners' contributions of $3,468,000 and $2,540,000, respectively, and cash
from operations for the quarter ended September 30, 1996 of $785,000. The
primary uses of cash for the nine months ended September 30, 1996 were for
capital expenditures for new equipment totaling $1,514,000, the payment of
offering costs of $389,000, the payment of preferred distributions to
partners of $414,000, the payment of accounts payable of $148,000 to Com Cap
Corp. for the purchase of Equipment, and the payment of acquisition fees of
$158,000.
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 September 30, 1996 and December 31, 1995
the Partnership had approximately $1,882,000 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 September 30, 1996, the Partnership had future minimum
rentals on noncancellable operating leases of $353,000 for the year ending
December 31, 1996 and $2,772,000, 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.
RESULTS OF OPERATIONS
For the quarter ended September 30, 1996, the Partnership recognized income
of $348,000 and expenses of $325,000, resulting in net income of $23,000.
For the nine months ended September 30, 1996, the Partnership expended
approximately $1,514,000 in cash to acquire six leases, which generated
approximately $150,000 in revenue.
Interest income for the quarter ended September 30, 1996 of $23,000 is the
result of capital contributions temporarily being invested in money market
accounts until being utilized for equipment purchases.
<PAGE>
Commonwealth Income & Growth Fund II
Operating expenses, excluding depreciation, for the quarter ended September
30, 1996 of $2,000, primarily consist of accounting, legal, and outside
service fees.
The equipment management fee for the quarter ended September 30, 1996 of
$16,000, 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 September 30,
1996 of $307,000 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,881,689
<SECURITIES> 0
<RECEIVABLES> 361,569
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,780,075
<DEPRECIATION> 794,781
<TOTAL-ASSETS> 6,228,552
<CURRENT-LIABILITIES> 399,443
<BONDS> 0
0
0
<COMMON> 5,829,109
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,228,552
<SALES> 0
<TOTAL-REVENUES> 817,559
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 810,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,242
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,242
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
