<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, 1997
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 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>
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Commonwealth Income & Growth Fund II
BALANCE SHEETS
<TABLE>
<CAPTION>
(AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
Assets
Cash and cash equivalents........................................................... $ 2,628,639 $2,552,352
Lease income receivable............................................................. 117,011 80,014
Accounts receivable--General Partner................................................ 50,433 --
Other receivables and deposits...................................................... 41,010 19,551
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2,837,093 2,651,917
Computer equipment, at cost......................................................... 9,018,778 4,780,075
Accumulated depreciation............................................................ (1,795,034) (1,093,535)
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7,223,744 3,686,540
Organization costs and deferred expenses, net of
accumulated amortization of $143,921 for 1997
and $96,375 for 1996............................................................... 341,358 276,197
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Total assets........................................................................ $ 10,402,195 $6,614,654
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Liabilities and partners' capital
Accounts payable.................................................................... $ 56,183 $ 92,954
Unearned lease income............................................................... 94,882 89,780
Payables for computer equipment..................................................... 3,151,332 --
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Total liabilities................................................................... 3,302,397 182,734
Partners' capital:
General partner................................................................... 1,000 1,000
Limited partners.................................................................. 7,098,798 6,430,920
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Total partners' capital............................................................. 7,099,798 6,431,920
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Total liabilities and partners' capital............................................. $ 10,402,195 $6,614,654
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</TABLE>
See accompanying notes.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ---------- ---------- ----------
Income:
Lease.......................................................... $ 476,392 $ 240,025 $ 844,347 $ 445,596
Interest & other............................................... 39,484 15,136 76,439 23,900
---------- ---------- ---------- ----------
515,876 255,161 920,786 469,496
Expenses:
Operating, excluding depreciation.............................. 13,000 6,837 15,318 13,036
Equipment management fee--General Partner...................... 23,819 12,001 42,217 22,280
Depreciation................................................... 408,373 219,826 727,022 415,200
Amortization of organization costs and deferred expenses....... 20,766 17,782 50,268 34,887
Loss on sale of computer equipment............................. 31,955 -- 31,955 --
---------- ---------- ---------- ----------
497,913 256,446 866,780 485,403
---------- ---------- ---------- ----------
Net (loss) income................................................ $ 17,963 $ (1,285) $ 54,006 $ (15,907)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net (loss) income per equivalent limited partnership unit........ $ 0.04 $ (0.00) $ 0.12 $ (0.06)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of equivalent limited partnership units
outstanding during the periods................................. 454,824 276,102 441,440 247,295
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER GENERAL LIMITED
UNITS UNITS PARTNER PARTNER TOTAL
--------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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................................. -- (487,266) (487,266)
Net income (loss).............................. 6,080 (6,810) (730)
Distributions.................................. (6,080) (601,965) (608,045)
--------------- ------------ --------------- ------------ ------------
Partners' capital-December 31, 1996........ 50 402,519 1,000 6,430,920 6,431,920
Contributions.................................. -- 37,602 -- 752,040 752,040
Offering costs................................. -- (82,348) (82,348)
Net income..................................... 2,132 33,911 36,043
Distributions.................................. (2,132) (211,022) (213,154)
--------------- ------------ --------------- ------------ ------------
Partners' capital--March 31, 1997.......... 50 440,121 1,000 6,923,501 6,924,501
Contributions.................................. -- 21,696 -- 433,745 433,745
Offering costs................................. -- (47,332) (47,332)
Net income..................................... 2,291 15,672 17,963
Distributions.................................. (2,291) (226,788) (229,079)
--------------- ------------ --------------- ------------ ------------
Partners' capital--June 30, 1997........... 50 461,817 $1,000 $ 7,098,798 $ 7,099,798
--------------- ------------ --------------- ------------ ------------
--------------- ------------ --------------- ------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Operating activities
Net (loss) income...................................................................... $ 54,006 $ (15,907)
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization........................................................ 777,290 450,087
Loss on sale of computer equipment................................................... 31,955 --
Other non-cash activities included in determination of net (loss) income............. (77,968) --
Changes in operating assets and liabilities:
Lease income receivables............................................................. (36,997) (19,402)
Interest and other receivables....................................................... (71,892) 3,792
Accounts payable..................................................................... (36,771) (10,329)
Accounts payable -- Commonwealth Capital Corp. ...................................... -- (147,979)
Unearned lease income................................................................ 5,102 26,337
Organization cost paid to the General Partner........................................ (12,451) (23,235)
----------- -----------
Net cash provided by operating activities.............................................. 632,274 263,364
Investing activities
Capital expenditures................................................................... (1,077,466) (963,562)
Net proceeds from sale of computer equipment........................................... 10,585 --
Equipment acquisition fees paid to the General Partner................................. (79,855) (74,388)
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Net cash used in investing activities.................................................. (1,146,736) (1,037,950)
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Financing activities
Partners' contributions................................................................ 1,185,785 2,212,840
Offering costs......................................................................... (129,680) (212,377)
Offering costs paid to the General Partner............................................. (23,123) (43,150)
Distributions to Partners.............................................................. (442,233) (248,428)
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Net cash provided by financing activities.............................................. 590,749 1,708,885
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Net increase in cash and cash equivalents.............................................. 76,287 934,299
Cash and cash equivalents at begining of year.......................................... 2,552,352 251,776
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Cash and cash equivalents at end of period............................................. $ 2,628,639 $ 1,186,075
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</TABLE>
See accompanying notes.
<PAGE>
Commonwealth Income & Growth Fund II
Notes to Financial Statements
June 30, 1997
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, 1996.
Net (Loss) Income per Equivalent Limited Partnership Unit
The net (loss) income per equivalent limited partnership unit is computed
based upon net (loss) income allocated to the limited partners and the
weighted average number of equivalent units outstanding during the period.
<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. 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 six months ended June
30, 1997 and 1996, were from Partners' contributions of $1,186,000 and
$2,213,000, respectively, and cash from operations for the quarter ended June
30, 1997 and 1996 of $645,000 and $435,000, respectively. The primary uses
of cash for the six months ended June 30, 1997 and 1996 were for capital
expenditures for new equipment totaling $1,077,000 and $964,000,
respectively, the payment of offering costs of $192,000 and $276,000,
respectively, the payment of preferred distributions to partners of $442,000
and $248,000, respectively, and the payment of acquisition fees of $53,000
and $74,000, respectively. For the quarter ended June 30, 1996, the
Partnership made a payment of accounts payable of $148,000 to Com Cap Corp.
for the purchase of Equipment.
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, 1997 and December 31, 1996 the
Partnership had approximately $2,629,000 and $2,552,000, 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, 1997, the Partnership had future minimum rentals on
noncancellable operating leases of $1,618,000 for the year ending December
31, 1997 and $5,523,000 , 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 June 30, 1997, the Partnership recognized income of
$516,000 and expenses of $498,000, resulting in net income of $18,000. For
the quarter ended March 31, 1997, the Partnership recognized income of
$405,000 and expenses of $369,000, resulting in net income of $36,000.
Lease income increased by 98% from $240,000 for the quarter ended June 30,
1996 to $476,000 for the quarter ended June 30, 1997, primarily due to
utilizing cash available from Partners' contributions for the purchase of
Equipment, which in turn generated more lease income. During the six months
ended June 30, 1997, the Partnership expended $1,077,000 and incurred a
computer equipment payable of $3,151,000 to acquire five leases, which
generated approximately $139,000 in revenue.
<PAGE>
Interest income increased 161% from $15,000 for the quarter ended June 30,
1996 to $39,000 for the quarter ended June 30, 1997. This increase is the
result of capital contributions temporarily being invested in money market
accounts until being utilized for equipment purchases. In addition, the
Partnership recognized a loss on sale of computer equipment of $32,000 for
the quarter ended June 30, 1997.
Operating expenses, excluding depreciation, primarily consist of accounting,
legal, and outside service fees. The 90% increase from approximately $7,000
for the quarter ended June 30, 1996 to $13,000 for the quarter ended June 30,
1997 is attributable to an increase in outside services 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 98% from approximately $12,000 for the
quarter ended June 30, 1996, to $24,000 for the quarter ended June 30,
1997, which is consistent with the increase in lease income.
Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organizational costs, and equipment acquisition
fees. The expenses increased 86% from approximately $220,000 for the
quarter ended June 30, 1996, to $408,000 for the quarter ended June 30, 1997,
which is attributable to the purchase of approximately $4,307,000 in
additional equipment.
For the six month period ended June 30, 1997, the Partnership generated cash
flow from operating activities of $645,000, which includes net income of
$54,000, and depreciation and amortization expenses of $777,000. Other
noncash activities included in the determination of net income includes lease
income paid to original lessors in lieu of cash payments for computer
equipment of $78,000.
For the six month period ended June 30, 1996, the Partnership generated cash
flows from operating activities of $435,000, which includes a net loss of
$16,000, and depreciation and amortization expenses of $450,000.
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,628,639
<SECURITIES> 0
<RECEIVABLES> 208,454
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 341,358
<PP&E> 9,018,778
<DEPRECIATION> (1,795,034)
<TOTAL-ASSETS> 10,402,195
<CURRENT-LIABILITIES> 3,302,397
<BONDS> 0
0
0
<COMMON> 7,099,798
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,402,195
<SALES> 0
<TOTAL-REVENUES> 920,786
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 866,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,006
<INCOME-TAX> 0
<INCOME-CONTINUING> 54,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,006
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
