<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 33-69996
COMMONWEALTH INCOME & GROWTH FUND II
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2735641
(State or other jurisdiction of (I.R.S. Employer Identification Number)
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 (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days:
YES [X] NO [ ]
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
BALANCE SHEETS
<TABLE>
<CAPTION>
(AUDITED)
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 225,065 $ 52,323
Lease income receivable 543,010 300,507
Accounts Receivable - General Partner 9,715 34,918
Other receivables and deposits 30,689 30,689
Computer equipment, at cost 14,381,085 15,099,876
Accumulated depreciation (9,286,171) (8,294,526)
------------ ------------
5,903,393 6,805,350
Equipment acquisition costs and deferred expenses,
net of accumulated amortization of $689,506 in
2000 and $474,458 in 1999 145,615 232,635
------------ ------------
Total Assets $ 6,857,487 $ 7,456,422
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 323,808 $ 87,558
Accounts payable - General Partner -- --
Unearned lease income 157,231 162,934
Notes payable 2,160,896 3,326,191
------------ ------------
Total liabilities 2,641,935 3,576,683
Partners' capital:
General partner 1,000 1,000
Limited partner 3,406,073 3,878,739
------------ ------------
Total partners' capital 3,407,073 3,879,739
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 6,049,008 $ 7,456,422
============ ============
</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,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME:
Lease $ 1,082,858 $ 1,157,489 $ 2,207,606 $ 2,291,383
Interest and other 1,145 2,685 3,269 5,162
Gain on sale of computer equipment 36,925 -- 77,385 --
----------- ----------- ----------- -----------
1,120,928 1,160,174 2,288,260 2,296,545
Expenses:
Operating, excluding depreciation 23,394 84,339 86,902 111,745
Equipment management fee - General Partner 65,599 64,636 125,877 121,331
Interest 44,333 77,810 98,426 160,585
Depreciation 949,031 989,295 1,887,382 1,964,033
Amortization of organization costs, equipment
acquisition costs and deferred expenses 47,142 57,239 100,579 116,453
----------- ----------- ----------- -----------
1,129,499 1,273,319 2,299,166 2,474,147
----------- ----------- ----------- -----------
Net income (loss) $ (8,571) $ (113,145) $ (10,906) $ (177,602)
=========== =========== =========== ===========
Net income (loss) per equivalent limited
partnership unit $ (0.02) $ (0.25) $ (0.02) $ (0.39)
Weighted Average numner of equivalent limited
partnership units outstanding during the period 461,817 461,817 461,817 461,817
</TABLE>
See accompanying notes
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
PARTNER UNITS GENERAL LIMITED
GENERAL LIMITED 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 (487,440) (487,440)
Net income (loss) 6,080 (6,810) (730)
Distribution (6,080) (601,965) (608,045)
------------------------------------------------------------------------------
Partners' capital - December 31, 1996 50 402,519 1,000 6,430,920 6,431,920
Contributions 59,298 1,185,785 1,185,785
Offering costs (129,680) (129,680)
Net income (loss) 9,087 70,924 (61,837)
Distribution (9,087) (899,627) (908,714)
------------------------------------------------------------------------------
Partners' capital - December 31, 1997 50 461,817 1,000 6,516,474 6,517,474
Net income (loss) 9,330 (401,074) (391,744)
Distribution (9,330) (923,634) (932,964)
------------------------------------------------------------------------------
Partners' capital - December 31, 1998 50 461,817 1,000 5,191,766 5,192,766
Net income (loss) 8,917 (430,254) (421,337)
Distribution (8,917) (882,773) (891,690)
------------------------------------------------------------------------------
Partners' capital - December, 1999 50 461,817 1,000 3,878,739 3,879,739
Net income (loss) 4,561 (15,467) (10,906)
Distribution (4,561) (457,199) (461,760)
------------------------------------------------------------------------------
Partners' capital - June 30, 2000 50 461,817 $ 1,000 3,406,073 3,407,073
==============================================================================
</TABLE>
See accompanying notes
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Operating activities
Net income (loss) (10,906) (177,602)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,987,961 2,080,486
(Gain) loss on sale of computer equipment (77,385) --
Other noncash activities included in
determination of net income (1,165,691) (1,210,642)
Changes in operating assets and liabilities:
(Increase) decrease in lease income receivable (242,503) 98,231
(Increase) decrease in other receivables 236,250 3,881
Increase (decrease) in accounts payable 25,203 (41,402)
Increase (decrease) in accounts payable -
General Partner -- 4,500
Increase (decrease) in unearned lease income (5,307) (15,885)
---------- ----------
Net cash provided by operating activities 747,622 741,567
---------- ----------
Investing activities:
Capital expenditures (176,946) (90,014)
Net proceeds from the sale of property 77,385 --
Equipment acquisition fees paid to General Partner (11,698) (121,331)
---------- ----------
Net cash used by investing activities (111,259) (211,345)
Financing activities:
Distributions to partners (461,760) (466,482)
Debt placement fees paid to General Partner (1,861)
---------- ----------
Net cash used by financing activities (463,621) (466,482)
---------- ----------
Net increase (decrease) in cash and equivalents 172,742 63,740
Cash and cash equivalents, begining of year 52,323 136,208
---------- ----------
Cash and cash equivalents, end of year 225,065 199,948
========== ==========
</TABLE>
See accompanying notes
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
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, 1999 .
NET INCOME (LOSS) PER EQUIVALENT LIMITED PARTNERSHIP UNIT
The net income (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 II
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 months ended June 30,
2000 and 1999 were from cash from operations of $747,000 and $741,000,
respectively. The primary uses of cash for the six months ended June 30, 2000,
and 1999, were for capital expenditures for new equipment totaling $177,000 and
$90,000 respectively, the payment of preferred distributions to partners of
$462,000 for the quarter, the payment of acquisition fees of $9,000 and $28,000
respectively, and the payment of finance fees of $1,000 and $6,000,
respectively.
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, 2000 and December 31, 1999 the Partnership had
approximately $134,000,000 and $200,000, 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, 2000, the Partnership had future minimum rentals on non cancellable
operating leases of $3,159,000 for the year ending December 31, 2000 and
$959,000 thereafter. At June 30, 2000, the outstanding debt was 2,161,000, with
interest rates ranging from 6.4% to 8.2%, and will be payable through January,
2002.
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, 2000, the Partnership recognized income of
$1,121,000 and expenses of $1,129,000, resulting in net loss of $8,000. For the
quarter ended June 30, 1999, the Partnership recognized income of $1,160,000 and
expenses of $1,273,000, resulting in net loss of $113,000.
Lease income decreased by 6% from $1,157,000 for the quarter ended June 30,
1999, to $1,081,000 for the quarter ended June 30, 2000, primarily due to
utilizing cash available from Partners' contributions for the purchase of
Equipment, which in turn generated less lease income. During the three months
ended June 30, 2000, the Partnership expended $24,000 to acquire one lease,
which will generate approximately $142,000 in revenue.
Interest income decreased 57% from $2,685 for the quarter ended June 30, 1999 to
$1,145 for the quarter ended June 30, 2000, primarily due to a lower monthly
average balance in the money market accounts for the quarter ended June 30,
2000.
Operating expenses, excluding depreciation, primarily consist of accounting,
legal, and outside service fees. The expense decreased 36% from approximately
$284,000 for the quarter ended June 30, 1999, to $180,000 for the quarter ended
June 30, 2000, which is primarily attributable to the accrual of accounting
fees.
<PAGE>
Commonwealth Income & Growth Fund II
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 increased 1% from approximately $65,000 for the quarter ended
June 30, 1999, to $66,000 for the quarter ended June 30, 2000.
Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organizational costs, and equipment acquisition fees.
The expenses decreased 3% from approximately $1,046,000 for the quarter ended
June 30, 1999, to $996,000 for the quarter ended June 30, 2000.
For the six month period ended June 30, 2000, the Partnership generated cash
flow from operating activities of $748,000, which includes a net loss of $8,000,
and depreciation and amortization expenses of $996,000. Other noncash activities
included in the determination of net income includes direct payments of lease
income by lessees to banks of $502,000.
<PAGE>
PART II: OTHER INFORMATION
COMMONWEALTH INCOME & GROWTH FUND II
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
August 14, 2000 By: /s/ George S. Springsteen
------------------ --------------------------------
Date George S. Springsteen
President
