<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 March 31, 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 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)
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
Assets
Cash and cash equivalents........................................ $ 2,825,558 $2,552,352
Lease income receivable.......................................... 90,778 80,014
Interest and other receivables................................... 35,377 19,551
------------ ------------
2,951,713 2,651,917
Computer equipment, at cost...................................... 5,257,541 4,780,075
Accumulated depreciation......................................... (1,412,185) (1,093,535)
------------ ------------
3,845,356 3,686,540
Organization costs and deferred expenses, net of
accumulated amortization of $125,878 for 1997
and $96,375 for 1996........................................... 280,044 276,197
------------ ------------
Total assets..................................................... $ 7,077,113 $6,614,654
------------ ------------
------------ ------------
Liabilities and partners' capital
Accounts payable................................................. $ 62,832 $ 92,954
Unearned lease income............................................ 89,780 89,780
------------ ------------
Total liabilities................................................ 152,612 182,734
------------ ------------
Partners' capital:
General partner.................................................. 1,000 1,000
Limited partners................................................. 6,923,501 6,430,920
------------ ------------
Total partners' capital.......................................... 6,924,501 6,431,920
------------ ------------
Total liabilities and partners' capital.......................... $ 7,077,113 $6,614,654
------------ ------------
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</TABLE>
See accompanying notes.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
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<S> <C> <C>
Income:
Lease............................................................... $ 367,955 $ 205,571
Interest............................................................ 36,955 8,764
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404,910 214,335
Expenses:
Operating, excluding depreciation................................... 2,318 6,199
Equipment management fee--General Partner........................... 18,398 10,279
Depreciation........................................................ 318,649 195,374
Amortization of organization costs and deferred
expenses.......................................................... 29,502 17,105
---------- ----------
368,867 228,957
---------- ----------
Net income (loss)..................................................... $ 36,043 $ (14,622)
---------- ----------
Net Income (loss) per equivalent limited partnership unit............. $ 0.08 $ (0.07)
---------- ----------
---------- ----------
Weighted average number of equivalent limited
partnership units outstanding during the period...................... 427,906 218,438
---------- ----------
---------- ----------
</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>
Contributions--September 22, 1995
through December 31, 1995.................................................. $ 1,000 $ 3,677,960 $ 3,678,960
Offering costs.............................................................. -- (425,732) (425,732)
Net income.................................................................. 846 (12,911) (12,065)
Distributions............................................................... (846) (83,796) (84,642)
----------- ------------ ------------
Partners' capital--December 31, 1995........................................ 1,000 3,155,521 3,156,521
Contributions--through December 31, 1996.................................... -- 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........................................ 1,000 6,430,920 6,431,920
Contributions............................................................... -- 752,040 752,040
Offering costs.............................................................. -- (82,348) (82,348)
Net income (loss)........................................................... 2,132 33,911 36,043
Distributions............................................................... (2,132) (211,022) (213,154)
----------- ------------ ------------
Partners' capital--March 31, 1997........................................... $ 1,000 $ 6,923,501 $ 6,924,501
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Operating activities
Net income (loss)................................................. $ 36,043 $ (14,622)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................... 348,151 212,479
Changes in operating assets and liabilities:
Lease income receivables...................................... (10,764) (12,981)
Interst and other receivables................................. (15,826) (3,906)
Accounts payable.............................................. (30,122) 104
------------ ------------
Net cash provided by operating activities......................... 327,482 188,886
Investing activities
Capital expenditures.............................................. (477,465) (383,553)
Payment of accounts payable--Commonwealth Capital Corp............ -- (147,979)
Equipment acquisition fees paid to the General Partner............ (33,349) (44,819)
------------ ------------
Net cash used in investing activities............................. (510,814) (576,351)
Financing activities
Limited partners' contributions................................... 752,040 1,339,180
Offering costs.................................................... (59,787)0 (155,233)
Offering costs paid to the General Partner........................ (22,561) (18,689)
Distributions to Partners......................................... (213,154) (109,744)
------------ ------------
Net cash provided by financing activities......................... 456,538 1,055,514
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Net increase in cash and cash equivalents......................... 273,206 668,049
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........................ $ 2,825,558 $ 919,825
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
Commonwealth Income & Growth Fund II
Notes to Financial Statements
March 31, 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 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 April 14, 1997, subscriptions from investors totaling $180,840 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
$159,139.
<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 March
31, 1997, subscribers owning an additional 314,003 Units were admitted as
Limited Partners.
The Partnership's primary sources of capital for the three months ended March
31, 1997 and 1996, were from Partners' contributions of $752,000 and
$1,339,000, respectively, and cash from operations for the quarter ended
March 31, 1997 and 1996 of $327,000 and $189,000, respectively. The primary
uses of cash for the three months ended March 31, 1997 and 1996 were for
capital expenditures for new equipment totaling $477,000 and $384,000,
respectively, the payment of offering costs of $82,000 and $174,000,
respectively, the payment of preferred distributions to partners of $213,000
and $110,000, respectively, and the payment of acquisition fees of $33,000
and $45,000, respectively. For the quarter ended March 31, 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 March 31, 1997 and December 31, 1996 the
Partnership had approximately $2,826,000 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 March 31, 1997, the Partnership had future minimum rentals
on noncancellable operating leases of $1,240,000 for the year ending December
31, 1997 and $2,040,000, 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 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 79% from $206,000 for the quarter ended March 31,
1996 to $368,000 for the quarter ended March 31, 1997, primarily due to
utilizing cash available from Partners' contributions for the purchase of
Equipment, which in turn generated more lease income. During the three
months ended March 31, 1997, the Partnership expended $477,000 in cash to
acquire one lease, which generated approximately $15,000 in revenue.
Interest income increased 311% from $9,000 for the quarter ended March 31,
1996 to $37,000 for the quarter ended March 31, 1997, is the result of
capital contributions temporarily being invested in money market accounts
until being utilized for equipment purchases.
<PAGE>
The equipment management is equal to 5% of the gross lease revenue
attributable to equipment which is subject to operating leases. The
equipment management fee increased 80% from approximately $10,000 for the
quarter ended March 31, 1996, to $18,000 for the quarter ended March 31,
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 76% from approximately $17,000 for the quarter
ended March 31, 1996, to $30,000 for the quarter ended March 31, 1997 is
attributable to the purchase of approximately $1,876,000 in additional
equipment.
For the three month period ended March 31, 1997, the Partnership generated
cash flows from operating activities of $327,000, which includes net income
of $36,000, and depreciation and amortization expenses of $348,000.
For the three month period ended March 31, 1996, the Partnership generated
cash flows from operating activities of $189,000, which includes a net loss
of $15,000, and depreciation and amortization expenses of $212,000.
<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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,825,558
<SECURITIES> 0
<RECEIVABLES> 126,155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 280,044
<PP&E> 5,257,541
<DEPRECIATION> (1,412,185)
<TOTAL-ASSETS> 7,077,113
<CURRENT-LIABILITIES> 152,612
<BONDS> 0
0
0
<COMMON> 6,924,501
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,077,113
<SALES> 0
<TOTAL-REVENUES> 404,910
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 368,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,043
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,043
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
