<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 MARCH 31, 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 23-2795120
(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>
MARCH 31, MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents 36,191 128,081
Lease income receivable 404,570 134,868
Accounts Receivable - General Partner 34,918 20,448
Other receivables and deposits 30,689 20,350
Computer equipment, at cost 15,119,323 15,212,742
Accumulated depreciation (9,232,877) (6,086,536)
----------- -----------
5,886,446 9,126,206
Equipment acquisition costs and deferred expenses,
net of accumulated amortization of $630,900 in
2000 and $374,600 in 1999 182,454 --
Organization costs -- 397,247
----------- -----------
Total Assets 6,575,268 9,827,200
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable 96,760 60,037
Accounts payable - General Partner -- --
Unearned lease income 169,425 131,404
Notes payable 2,662,556 4,741,700
----------- -----------
Total liabilities 2,928,741 4,933,141
Partners' capital:
General partner 1,000 1,000
Limited partner 3,645,527 4,893,059
----------- -----------
Total partners' capital 3,646,527 4,894,059
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY 6,575,268 9,827,200
=========== ===========
</TABLE>
See accompanying notes
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- ----------
<S> <C> <C>
INCOME:
Lease $ 1,124,748 $1,133,893
Interest and other 2,124 1,427
Gain on sale of computer equipment 40,460 --
----------- ----------
1,167,332 1,135,320
Expenses:
Operating, excluding depreciation 63,508 27,361
Equipment management fee - General Partner 60,278 56,695
Interest 54,093 82,778
Depreciation 938,351 974,737
Amortization of organizastion costs, equipment
acquisition costs and deferred expenses 53,437 59,215
Loss on sale of computer equipment --
----------- ----------
1,169,667 1,200,786
----------- ----------
Net income (loss) $ (2,335) $ (65,466)
=========== ==========
Net income (loss) per equivalent limited
partnership unit $ (0.004) $ (0.14)
Weighted Average numner of equivalent limited
partnership units outstanding during the period 461,817 454,824
</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) 2,280 (4,615) (2,335)
Distribution (2,280) (228,600) (230,880)
-----------------------------------------------------------------------------------
Partners' capital - March 31,2000 50 461,817 $ 1,000 3,645,524 3,646,524
===================================
</TABLE>
See accompanying notes
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ----------
<S> <C> <C>
Operating activities
Net income (loss) (2,335) (65,466)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 991,788 1,033,952
(Gain) loss on sale of computer equipment (40,460) --
Other noncash activities included in
determination of net income (547,200) (636,584)
Changes in operating assets and liabilities:
Accounts receivable - General Partner -- --
(Increase) decrease in lease income receivable (269,702) 112,062
(Increase) decrease in other receivables (10,339) (15,561)
Increase (decrease) in accounts payable 36,724 (33,026)
Increase (decrease) in accounts payable -
Commonwealth Capital Corp. -- --
Increase (decrease) in accounts payable -
General Partner -- --
Equipment payable -- --
Increase (decrease) in unearned lease income 38,021 (46,208)
--------- ----------
Net cash provided by operating activities 196,497 349,169
--------- ----------
Investing activities:
Capital expenditures (19,449) (90,014)
Payment of computer equipment payable -- --
Net proceeds from the sale of property 40,460 --
Equipment acquisition fees paid to General Partner (2,760) (27,951)
--------- ----------
Net cash provided by investing activities 18,251 (117,965)
Financing activities:
Distributions to partners (230,880) (233,241)
Debt placement fees paid to General Partner -- (6,090)
--------- ----------
Net cash used by financing activities (230,880) (239,331)
--------- ----------
Net increase (decrease) in cash and equivalents (16,132) (8,127)
Cash and cash equivalents, begining of year 52,323 128,081
--------- ----------
Cash and cash equivalents, end of year 36,191 119,954
========= ==========
</TABLE>
See accompanying notes
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND II
NOTES TO FINANCIAL STATEMENTS
March 31, 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 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 three months ended March
31, 2000 and 1999 were from cash from operations of $196,000 and $349,000,
respectively. The primary uses of cash for the three months ended March 31,
2000, and 1999, were for capital expenditures for new equipment totaling $19,000
and $90,000 respectively, the payment of preferred distributions to partners of
$233,000 for the quarter, the payment of acquisition fees of $2,760 and $13,000
respectively, and the payment of finance fees of $500 and $2,000, 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 March 31, 2000 and December 31, 1999 the Partnership had
approximately $36,000 and $52,000, 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, 2000, the Partnership had future minimum rentals on noncancellable
operating leases of $2,658,000 for the year ending December 31, 2000 and
$840,000 thereafter. At March 31, 2000, the outstanding debt was 2,900,000, 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 March 31, 2000, the Partnership recognized income of
$1,167,000 and expenses of $1,170,000, resulting in net loss of $2,335. For the
quarter ended March 31, 1999, the Partnership recognized income of $1,135,000
and expenses of $1,200,000, resulting in net loss of $65,000.
Lease income decreased by .8% from $1,134,000 for the quarter ended March 31,
1999, to $1,125,000 for the quarter ended March 31, 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 March 31, 2000, the Partnership expended $19,000 to acquire one lease,
which will generate approximately $144,800 in revenue.
Interest income increased 48% from $1,427 for the quarter ended March 31, 1999
to $2,124 for the quarter ended March 31, 2000, primarily due to a higher
monthly average balance in the money market accounts for the quarter ended March
31, 2000.
<PAGE>
Commonwealth Income & Growth Fund II
Operating expenses, excluding depreciation, primarily consist of accounting,
legal, and outside service fees. The expense increased 57% from approximately
$27,000 for the quarter ended March 31, 1999, to $64,000 for the quarter ended
March 31, 2000, which is primarily attributable to the accrual of accounting
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 5% from approximately $57,000 for the quarter ended
March 31, 1999, to $60,000 for the quarter ended March 31, 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 $974,000 for the quarter ended
March 31, 1999, to $938,000 for the quarter ended March 31, 2000.
For the three month period ended March 31, 2000, the Partnership generated cash
flow from operating activities of $196,000, which includes a net loss of $2,000,
and depreciation and amortization expenses of $9991,000. Other noncash
activities included in the determination of net income includes direct payments
of lease income by lessees to banks of $702,000.
For the three month period ended March 31, 1999, the Partnership generated cash
flow from operating activities of $259,000, which includes net loss of $65,000,
and depreciation and amortization expenses of $897,000. Other noncash activities
included in the determination of net income includes direct payments of lease
income by lessees to banks of $545,000.
<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
May 15, 2000 By: /s/ George S. Springsteen
- ---------------- ------------------------------
Date George S. Springsteen
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 & 4 OF
THE COMPANYS 10Q FORM FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 36,191
<SECURITIES> 0
<RECEIVABLES> 439,488
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 506,368
<PP&E> 15,119,323
<DEPRECIATION> (9,232,877)
<TOTAL-ASSETS> 6,575,268
<CURRENT-LIABILITIES> 2,928,741
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,646,527
<TOTAL-LIABILITY-AND-EQUITY> 6,575,268
<SALES> 0
<TOTAL-REVENUES> 1,167,332
<CGS> 0
<TOTAL-COSTS> 1,115,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,093
<INCOME-PRETAX> (2,335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,335)
<EPS-BASIC> (.004)
<EPS-DILUTED> 0
</TABLE>
