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 SEPTEMBER 30, 2003
( ) 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 I
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-2735641 | |||
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
470 John Young Way Suite 300
Exton, Pennsylvania 19341
(Address, including zip code, of principal executive offices)
(610) 594-9600
(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 [ ] |
Commonwealth Income & Growth Fund I
Balance Sheets
| September 30, 2003 |
December 31, 2002 |
||||||
| (unaudited) | |||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 8,575 | $ | 438 | |||
| Lease income receivable, net
of allowance for doubtful accounts reserve of $314,164 as of September 30, 2003 and December 31, 2002 |
249,647 | 250,141 | |||||
| Net investment in direct financing lease | 24,844 | 31,620 | |||||
| Other receivables | 200 | 200 | |||||
| 283,266 | 282,399 | ||||||
| Computer equipment, at cost | 2,610,749 | 2,669,518 | |||||
| Accumulated depreciation | (2,146,970 | ) | (2,009,051 | ) | |||
| 463,779 | 660,467 | ||||||
| Equipment acquisition costs and deferred expenses, net | 12,782 | 25,259 | |||||
| Total assets | $ | 759,827 | $ | 968,125 | |||
| Liabilities and Partners’ Capital | |||||||
| Liabilities | |||||||
| Accounts payable | $ | 1,501 | $ | 5,184 | |||
| Accounts payable – affiliated limited partnerships | 146,814 | 126,526 | |||||
| Accounts payable – General Partner | 252,010 | 153,113 | |||||
| Accounts payable – Commonwealth Capital Corp. | 41,566 | 17,641 | |||||
| Unearned lease income | 19,632 | 19,769 | |||||
| Notes payable | 237,155 | 444,732 | |||||
| Total liabilities | 698,678 | 766,965 | |||||
| Partners’ Capital | |||||||
| General partner | 1,000 | 1,000 | |||||
| Limited partners | 60,149 | 200,160 | |||||
| Total Partners’ Capital | 61,149 | 201,160 | |||||
| Total Liabilities and Partners’ Capital | $ | 759,827 | $ | 968,125 | |||
see accompanying notes to financial statements
Commonwealth Income & Growth Fund I
Statements of Operations
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||
| (unaudited) | (unaudited) | |||||||||||
| Income | ||||||||||||
| Lease | $ | 80,818 | $ | 96,821 | $ | 252,593 | $ | 312,785 | ||||
| Interest and other | — | — | — | 2,573 | ||||||||
| (Loss) gain on sale of computer equipment | (6,421 | ) | — | 2,486 | 17,726 | |||||||
| Total Income | 74,397 | 96,821 | 255,079 | 333,084 | ||||||||
| Expenses | ||||||||||||
| Operating, excluding depreciation | 36,403 | 85,773 | 167,862 | 222,583 | ||||||||
| Equipment management fee – General Partner | 4,041 | 4,841 | 12,630 | 15,639 | ||||||||
| Interest | 5,088 | 9,812 | 19,240 | 30,229 | ||||||||
| Depreciation | 56,477 | 73,055 | 182,681 | 216,965 | ||||||||
Amortization
of equipment acquisition costs and deferred expenses |
4,115 | 4,458 | 12,677 | 12,843 | ||||||||
| Bad debt expense | — | 15,964 | — | 17,272 | ||||||||
| Total expenses | 106,124 | 193,903 | 395,090 | 515,531 | ||||||||
| Net (loss) | $ | (31,727 | ) | $ | (97,082 | ) | $ | (140,011 | ) | $ | (182,447 | ) |
| Net (loss) per equivalent limited partnership unit |
$ | (0.05 | ) | $ | (0.15 | ) | $ | (0.22 | ) | $ | (0.29 | ) |
Weighted
average number of equivalent limited partnership units outstanding during the period |
631,124 | 631,124 | 631,124 | 631,124 | ||||||||
see accompanying notes to financial statements
Commonwealth Income & Growth Fund I
Statements of Partners' Capital
| For the Nine Months ended September 30, 2003 (unaudited) |
||||||||||||||||
| General Partner Units |
Limited Partner Units |
General Partner |
Limited Partner |
Total | ||||||||||||
| Partners’ capital – December 31, 2002 | 50 | 631,124 | $ | 1,000 | $ | 200,160 | $ | 201,160 | ||||||||
Net
(loss) |
— | (140,011 | ) | (140,011 | ) | |||||||||||
| Partners’ capital – September 30, 2003 | 50 | 631,124 | $ | 1,000 | $ | 60,149 | $ | 61,149 | ||||||||
see accompanying notes to financial statements
Commonwealth Income & Growth Fund I
Statements of Cash Flow
For the Nine Months Ended September 30, 2003 and 2002
| 2003 | 2002 | ||||||
| Operating activities | (unaudited) | ||||||
| Net (loss) | $ | (140,011 | ) | $ | (182,447 | ) | |
| Adjustments to reconcile net (loss) to net cash | |||||||
(used
in) provided by operating activities
|
|||||||
Depreciation
and amortization
|
195,358 | 229,808 | |||||
(Gain)
on sale of computer equipment
|
(2,486 | ) | (17,726 | ) | |||
Other
noncash activities included in
|
|||||||
determination
of net (loss)
|
(200,801 | ) | (228,891 | ) | |||
Changes
in assets and liabilities
|
|||||||
(Increase)
decrease in assets
|
|||||||
Lease
income receivable
|
494 | 44,170 | |||||
Prepaid
items
|
— | (3,000 | ) | ||||
Increase
(decrease) in liabilities
|
|||||||
Accounts
payable
|
(3,683 | ) | (7,807 | ) | |||
Accounts
payable, General Partner
|
98,897 | 84,420 | |||||
Accounts
payable, Common Capital Corp.
|
23,925 | 39,904 | |||||
Accounts
payable, affiliated limited partnerships
|
20,288 | 1,246 | |||||
Unearned
lease income
|
(137 | ) | 52,368 | ||||
| Net cash (used in) provided by operating activities | (8,156 | ) | 12,045 | ||||
| Investing activities: | |||||||
| Capital expenditures | (5,000 | ) | (25,000 | ) | |||
| Net proceeds from the sale of computer equipment | 21,493 | 23,914 | |||||
| Equipment acquisition fees paid to General Partner | (200 | ) | (9,145 | ) | |||
| Net cash provided by(used in) investing activities | 16,293 | (10,231 | ) | ||||
| Financing activities: | |||||||
| Debt placement fee paid to the General Partner | — | (2,036 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 8,137 | (222 | ) | ||||
| Cash and cash equivalents, beginning of period | 438 | 1,082 | |||||
| Cash and cash equivalents, end of period | $ | 8,575 | $ | 860 | |||
see accompanying notes to financial statements
NOTES TO FINANCIAL STATEMENTS
| 1. | Business | Commonwealth Income & Growth Fund I (the “Partnership”) is a limited partnership organized in the Commonwealth of Pennsylvania to acquire, own and lease various types of computer peripheral equipment and other similar capital equipment, which will be leased primarily to U.S. corporations and institutions. Commonwealth Capital Corp (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly owned subsidiary of Commonwealth Capital Corp. Approximately ten to twelve years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its computer equipment, make final distributions to partners, and to dissolve. Unless sooner terminated, the Partnership will continue until approximately December 31, 2006. | ||||
| 2. | Summary of Significant Accounting Policies |
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 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, 2002. Operating results for the nine-month period ended September 30, 2003 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2003. |
| Revenue Recognition Through September 30, 2003, the Partnership’s leasing operations consist substantially of operating leases and one direct financing lease. Operating lease revenue is recognized on a monthly basis in accordance with the terms of the lease agreement. Unearned revenue from direct financing agreements is amortized to revenue over the lease term. The Partnership reviews a customer’s credit history before extending credit and establishes a provision for uncollectible accounts receivable based upon the credit risk of specific customers, historical trends and other information. |
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| Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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| Long-Lived Assets The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether an impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then an impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset. As of September 30, 2003, there is no impairment. |
||||||
| Depreciation on computer equipment for financial statement purposes is based on the straight-line method over estimated useful lives of four years. | ||||||
| Intangible Assets Equipment acquisition costs and deferred expenses are amortized on a straight-line basis over two- to-four year lives. Unamortized acquisition fees and deferred expenses are charged to amortization expense when the associated leased equipment is sold. |
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| Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Cash equivalents have been invested in a money market fund investing directly in Treasury obligations. |
| Income Taxes The Partnership is not subject to federal income taxes; instead, any taxable income (loss) is passed through to the partners and included on their respective income tax returns. |
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| Taxable income differs from financial statement net income as a result of reporting certain income and expense items for tax purposes in periods other than those used for financial statement purposes, principally relating to depreciation, amortization, and lease income. | ||||||
| Offering Costs Offering costs were payments for selling commissions, dealer manager fees, professional fees and other offering expenses relating to the syndication. Selling commissions were 7% of the partners’ contributed capital and dealer manager fees were 2% of the partners’ contributed capital. These costs have been deducted from partnership capital in the accompanying financial statements. |
||||||
| 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 limited partner units outstanding during the period. Reimbursable Expenses Reimbursable expenses, which are charged to the Partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases. |
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| 3. | Net Investment in Direct Financing Lease |
The following lists the components of the net investment in a direct financing lease as of September 30, 2003 and December 31, 2002: |
| September 30, 2003 |
December 31, 2002 |
|||||||||||
| Minimum lease payments receivable | $ | 33,099 | $ | 42,126 | ||||||||
| Less: Unearned Revenue | 8,255 | 10,506 | ||||||||||
| Net investment in direct financing lease | $ | 24,844 | $ | 31,620 | ||||||||
| |
||||||||||||
| The following is a schedule of future minimum rentals on the noncancellable direct financing lease at September 30, 2003: | |||||||||
| Amount | |||||||||
| Three Months Remaining December 31, 2003 | $ | 3,009 | |||||||
| Year Ended December 31, 2004 | 12,036 | ||||||||
| Year Ended December 31, 2005 | 12,036 | ||||||||
| Year Ended December 31, 2006 | 6,018 | ||||||||
| $ | 33,099 | ||||||||
| 4. | Computer Equipment |
The Partnership is the lessor of equipment under operating leases with periods ranging from 14 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee. The Partnership’s share of the computer equipment in which they participate with other partnerships at September 30, 2003 and December 31, 2002 was approximately $448,000 and $443,000, respectively, which is included in the Partnership’s fixed assets on their balance sheet, and the total cost of the equipment shared by the Partnership with other partnerships at September 30, 2003 and December 31, 2002 was approximately $2,258,000 and $2,210,000, respectively. The Partnership’s share of the outstanding debt associated with this equipment at September 30, 2003 and December 31, 2002 was approximately $129,000 and $233,000, respectively, which is included in the Partnership’s liabilities on the balance sheet, and the total outstanding debt at September 30, 2003 and December 31, 2002 related to the equipment shared by the Partnership was approximately $702,000 and $1,197,000, respectively. |
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| The following is a schedule of future minimum rentals on noncancellable operating leases at September 30, 2003: |
| Amount | |||||||||
| Three months ended December 31, 2003 | $ | 80,000 | |||||||
| Year ended December 31, 2004 | 173,000 | ||||||||
| Year ended December 31, 2005 | 9,000 | ||||||||
| Year ended December 31, 2006 | 3,000 | ||||||||
| $ | 265,000 | ||||||||
| 5. | Notes Payable | Notes payable consisted of the following: |
| September 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| Installment notes payable to Banks, interest ranging from 7.50% to 9.50%; due in monthly installments ranging from $182 to $1,320, including interest, with final payments due from January through December 2003. |
$ | 3,147 | $ | 20,977 | ||||||||
| Installment notes payable to Banks, interest ranging from 6.25% to 9.25%; due in monthly installments ranging from $138 to $7,720, including interest, with final payments due from January through December 2004. |
203,774 | 386,168 | ||||||||||
| Installment note payable to a Bank, interest at 6.50%; due in monthly installments of $1,003, including interest, with final payment due June 2006. | 30,234 | 37,587 | ||||||||||
| $ | 237,155 | $ | 444,732 | |||||||||
| These notes are secured by specific computer equipment and are nonrecourse liabilities of the Partnership. Aggregate maturities of notes payable for each of the periods subsequent to September 30, 2003 are as follows: | ||||||||||
| Amount | ||||||||||
| Three months ended December 31, 2003 | $ | 68,813 | ||||||||
| Year ended December 31, 2004 | 151,185 | |||||||||
| Year ended December 31, 2005 | 11,252 | |||||||||
| Year ended December 31, 2006 | 5,905 | |||||||||
| $ | 237,155 | |||||||||
| 6. | Supplemental Cash Flow Information |
Other noncash activities included in the determination of net income are as follows: |
| Nine months ended September 30, | 2003 | 2002 | |||||
Lease
income, net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank |
$ | 200,801 | $ | 228,891 | |||
| No interest or principal on notes payable was paid by the Partnership because direct payment was made by lessee to the bank in lieu of collection of lease income and payment of interest and principal by the Partnership. | ||||||||||||||||||||||
| Noncash investing and financing activities include the following: | ||||||||||||||||||||||
| Nine months ended September 30, | 2003 | 2002 | |||||||
Debt
assumed in connection with purchase of computer equipment |
$ | — | $ | 203,627 | |||||
| 7. | Litigation | The Partnership, through CCC, has initiated a lawsuit against a customer for the non-return of leased equipment. Management believes that the Partnership will prevail in this matter and that the outcome of this uncertainty is not expected to have a material adverse impact to the financial statements of the Partnership. The Partnership has approximately $250,000 of unreserved accounts receivable relating to this matter. The complaint alleges that the named defendant has not returned the proper equipment stated in the master lease agreement and is seeking restitution for lost monthly rentals, taxes, attorney fees and costs, plus interest. A court date was scheduled for September 8, 2003, and the judge granted a new 30-day discovery period for both parties. The lawsuit has been scheduled for January 26, 2004. |
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our significant accounting policies are described in Note 1 of the Notes to the Financial Statements. The significant accounting policies that we believe are the most critical to aid in fully understanding our reported financial results include the following:
COMPUTER EQUIPMENT
Commonwealth Capital Corp, on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. Depreciation on computer equipment for financial statement purposes is based on the straight-line method over estimated useful lives of four years.
REVENUE RECOGNITION
Through September 30, 2003, the Partnership’s leasing operations consist substantially of operating leases and one direct financing lease. Operating lease revenue is recognized on a monthly basis in accordance with the terms of the lease agreement. Unearned revenue from direct financing agreements is amortized to revenue over the lease term.
The Partnership reviews a customer’s credit history before extending credit and establishes a provision for uncollectible accounts receivable based upon the credit risk of specific customers, historical trends and other information.
LONG-LIVED ASSETS
The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether an impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then an impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset.
Liquidity and Capital Resources
The Partnership’s primary sources of capital for the nine months ended September 30, 2003 was net proceeds received from the sale of equipment totaling approximately $21,000. Primary sources of capital for the nine months ended September 30, 2002 were cash from operations of $12,000, and the net proceeds received from sale of equipment of approximately $24,000. The primary use of cash for the nine months ended September 30, 2003 was for operating activities of approximately $8,000 and the purchase of computer equipment in the amount of approximately $5,000. The primary use of cash for the nine months ended September 30, 2002 was for the purchase of computer equipment in the amount of approximately $25,000. There were no distributions paid for the nine months ended September 30, 2003 and 2002.
For the nine-month period ended September 30, 2003, the Partnership used cash for operating activities of $8,000, which includes a net operating loss of $140,000 and depreciation and amortization expenses of $196,000. Other noncash activities included in the determination of net income include direct payments of lease income by lessees to banks of $201,000.
For the nine-month period ended September 30, 2002, the Partnership generated cash flows from operating activities of $12,000, which includes a net operating loss of $182,000, a net gain from the sale of computer of $18,000 and depreciation and amortization expenses of $230,000. Other noncash activities included in the determination of net income include direct payments of lease income by lessees to banks of $229,000.
Cash is invested in money market accounts that invest 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.
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, 2003, the Partnership had future minimum rentals on non-cancelable operating leases of $80,000 for the balance of the year ending December 31, 2003 and $185,000 thereafter. At September 30, 2003, outstanding debt was $237,000, with interest rates ranging from 6.25% to 9.50%, payable through June 2006.
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, the Partnership will attempt to obtain additional funds by disposing of or refinancing Equipment, or by borrowing within its permissible limits. The Partnership may, and did, reduce the distributions to its Partners as it deems necessary. Since the Partnership’s leases are on a “triple-net” basis, no reserve for maintenance and repairs are deemed necessary.
The Partnership’s share of the computer equipment in which they participate with other partnerships at September 30, 2003 and December 31, 2002 was approximately $448,000 and $443,000, respectively, which is included in the Partnership’s fixed assets on their balance sheet, and the total cost of the equipment shared by the Partnership with other partnerships at September 30, 2003 and December 31, 2002 was approximately $2,258,000 and $2,210,000, respectively. The Partnership’s share of the outstanding debt associated with this equipment at September 30, 2003 and December 31, 2002 was approximately $129,000 and $233,000, respectively, which is included in the Partnership’s liabilities on the balance sheet, and the total outstanding debt at September 30, 2003 and December 31, 2002 related to the equipment shared by the Partnership was approximately $702,000 and $1,197,000, respectively.
Results of Operations
Three Months Ended September 30, 2003 compared to Three Months Ended September 30, 2002
For the quarter ended September 30, 2003, the Partnership recognized income of $74,000 and expenses of $106,000, resulting in a net loss of $32,000. For the quarter ended September 30, 2002, the Partnership recognized income of $97,000 and expenses of $194,000, resulting in a net loss of $97,000.
Lease income decreased by 17% to $81,000 for the quarter ended September 30, 2003, from $97,000 for the quarter ended September 30, 2002, primarily due to the fact that more lease agreements terminated than new lease agreements entered into since the quarter ended September 30, 2002.
Operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. The expense decreased 58% to approximately $36,000 for the quarter ended September 30, 2003, from $86,000 for the quarter ended September 30, 2002, which is primarily attributable to an decrease in the amount charged by CCC, a related party, to the Partnership for the administration and operation of approximately $27,000. There was also a decrease in outside office services of approximately $14,000, a decrease in accounting fees of approximately $2,000, a decrease in other insurances of approximately $3,000, a decrease in recruiting fees of approximately $2,000 and a decrease in due diligence of approximately $2,000.
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 decreased 17% to approximately $4,000 for the quarter ended September 30, 2003, from $5,000 for the quarter ended September 30, 2002, which is consistent with the decrease in lease revenue.
Depreciation and amortization expenses consist of depreciation on computer equipment and amortization of equipment acquisition fees. The expenses decreased 22% to approximately $61,000 for the quarter ended September 30, 2003, from $77,000 for the quarter ended September 30, 2002 due to the older equipment becoming fully depreciated and certain acquisition and finance fees being fully amortized and only a small amount of new additions.
The partnership did not record bad debt expenses for the quarter ended September 30, 2003. The partnership recorded bad debt expenses of approximately $16,000 related to disputed accounts receivables balances for the nine months ended September 30, 2002.
The Partnership sold computer equipment with a net book value of $10,000 for the quarter ended September 30, 2003, for a net loss of $6,000. The Partnership did not sell any computer equipment for the quarter ended September 30, 2002.
Interest expense decreased 48% to $5,000 for the quarter ended September 30, 2003 from $10,000 for the quarter ended September 30, 2002; primarily due to the decrease in equipment purchased that has an outstanding debt and older equipment’s associated debt being fully paid.
Nine Months Ended September 30, 2003 compared to Nine Months Ended September 30, 2002
For the nine months ended September 30, 2003, the Partnership recognized income of $255,000 and expenses of $395,000, resulting in a net loss of $140,000. For the nine months ended September 30, 2002, the Partnership recognized income of $333,000 and expenses of $515,000, resulting in a net loss of $182,000.
Lease income decreased by 19% to $253,000 for the nine months ended September 30, 2003, from $313,000 for the nine months ended September 30, 2002, primarily due to the fact that more lease agreements terminated than new lease agreements entered into since the nine months ended September 30, 2002.
Operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. The expenses decreased 25%, to approximately $168,000 for the nine months ended September 30, 2003, from $223,000 for the nine months ended September 30, 2002. There was a decrease in reimbursable expenses with the administration and operation of the Partnership charged by CCC, a related party, of approximately $17,000, a decrease in conventions of approximately $4,000, a decrease in remarketing fees of approximately $3,000, a decrease in recruiting fees of approximately $7,000 and a decrease in accounting fees of approximately $21,000.
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 decreased 19% to approximately $13,000 for the nine months ended September 30, 2003, from $16,000 for the nine months ended September 30, 2002, which is consistent with the decrease in lease revenue.
Depreciation and amortization expenses consist of depreciation on computer equipment and amortization of equipment acquisition fees. The expenses decreased 15% to approximately $195,000 for the nine months ended September 30, 2003, from $230,000 for the nine months ended September 30, 2002 due to the older equipment becoming fully depreciated and certain acquisition and finance fees being fully amortized and only a small amount of new additions.
The partnership did not record bad debt expenses for the nine months ended September 30, 2003. The partnership recorded bad debt expenses of approximately $17,000 related to disputed accounts receivables balances for the nine months ended September 30, 2002.
The Partnership sold computer equipment with a net book value of approximately $19,000 for the nine months ended September 30, 2003, for a net gain of approximately $2,000. The Partnership sold computer equipment with a net book value of approximately $6,000 for the nine months ended September 30, 2002, for a net gain of $18,000.
Interest expense decreased 36% to $19,000 for the nine months ended September 30, 2003 from $30,000 for the nine months ended September 30, 2002; primarily due to the decrease in equipment purchased that has an outstanding debt and older equipment’s associated debt being fully paid.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership believes its exposure to market risk is not material due to the fixed interest rate of its long-term debt.
Item 4. Controls and Procedures
The Chief Executive Officer and a Financial Officer of the Partnership have conducted a review of the Partnership’s disclosure controls and procedures as of September 30, 2003.
The Company’s disclosure controls and procedures include the Partnership’s controls and other procedures designed to ensure that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is accumulated and communicated to the Partnership’s management, including its chief executive officer and a financial officer, to allow timely decisions regarding required disclosure and to ensure that such information is recorded, processed, summarized and reported with the required time periods.
Based upon this review, the Partnership’s Chief Executive Officer and a Financial Officer of the Partnership have concluded that the Partnership’s disclosure controls (as defined in pursuant to Rule 13a-14 c promulgated under the Exchange Act) are sufficiently effective to ensure that the information required to be disclosed by the Partnership in the reports it files under the Exchange Act is recorded, processed, summarized and reported with adequate timeliness.
Part II: OTHER INFORMATION
| Item 1. | Legal Proceedings. | |||||
| On or about May 8, 2000, a complaint captioned Commonwealth Capital Corp V. Getronics, Inc. was filed by Commonwealth Capital Corp against Getronics, Inc. (formerly known as Wang Laboratories, Inc.) with the Federal District Court of the Eastern District of Pennsylvania, No. 00-CV-2381 on behalf of the Partnership. The complaint alleges that the named defendant has not returned the proper equipment stated in the master lease agreement and is seeking restitution for lost monthly rentals, taxes, attorney fees and costs, plus interest. | ||||||
| The defendant filed for a Summary Judgment on February 20, 2001, and the plaintiff filed an opposition to this Summary Judgment. On September 29, 2001, the Federal District Court of the Eastern District of Pennsylvania denied the defendant’s request for Summary Judgment. As of March 29, 2002, the pre-trial conference was completed. On February 13, 2003, the Federal District Court of the Eastern District of Pennsylvania originally assigned a trial date for May 14, 2003, and then rescheduled for June 9, 2003. A court date was scheduled for September 8, 2003, and the judge granted a new 30-day discovery period for both parties. The lawsuit has been scheduled for January 26, 2004. |
| 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: | ||||||
| 31.1 THE RULE 15d-14(a) | |||||||
| 31.2 THE RULE 15d-14(a) | |||||||
| 32.1 SECTION 1350 CERTIFICATION OF CEO | |||||||
| 32.2 SECTION 1350 CERTIFICATION OF CFO | |||||||
| b) | Report on Form 8-K: None | ||||||
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 I | ||
| BY: COMMONWEALTH INCOME & GROWTH FUND, INC. General Partner | ||
| November 10, 2003 | By: /s/ | George S. Springsteen |
| Date | George S. Springsteen | |
| President |