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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, 2004
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Number)
incorporation or organization)
470 John Young Way Suite 300
Exton, PA 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12c-2 of the Act): YES [ ] NO [X]
COMMONWEALTH INCOME & GROWTH FUND II
BALANCE SHEETS
MARCH 31 DECEMBER 31,
2004 2003
----------- -----------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 5,977 $ 37,758
Lease income receivable 8,587 4,550
Net investment in direct financing leases 131,481 146,478
Other receivables - affiliated partnerships 7,888 7,888
Prepaid expenses 8,432 3,200
----------- -----------
162,365 199,874
----------- -----------
Computer equipment, at cost 5,048,476 5,409,223
Accumulated depreciation (3,907,936) (4,013,668)
----------- -----------
1,140,540 1,992,457
----------- -----------
Equipment acquisition costs and deferred expenses, net 30,683 42,906
Accounts receivable, Commonwealth Capital Corp 229,610 354,122
----------- -----------
260,293 397,028
----------- -----------
TOTAL ASSETS $ 1,563,198 $ 1,992,457
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 54,479 $ 53,606
Accounts payable - General Partner 27,061 20,065
Other accrued expenses 3,500 5,938
Unearned lease income 92,996 100,040
Notes payable 531,198 728,365
----------- -----------
TOTAL LIABILITIES 709,234 908,014
----------- -----------
PARTNERS' CAPITAL
General partner 1,000 1,000
Limited partners 852,964 1,083,443
----------- -----------
TOTAL PARTNERS' CAPITAL 853,964 1,084,443
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,563,198 $ 1,992,457
=========== ===========
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2004 2003
--------- --------
(unaudited)
INCOME
Lease $ 232,774 $542,526
Interest and other 137 175
--------- --------
TOTAL INCOME 232,911 542,701
--------- --------
EXPENSES
Operating, excluding depreciation 111,440 193,764
Equipment management fee - General Partner 11,639 27,127
Interest 11,027 29,950
Depreciation 191,730 266,262
Amortization of equipment
acquisition costs and deferred expenses 12,223 16,378
Loss on sale of computer equipment 9,891 5,291
--------- --------
TOTAL EXPENSES 347,950 538,772
--------- --------
NET (LOSS) INCOME $(115,039) $ 3,929
========= ========
NET (LOSS) INCOME PER EQUIVALENT LIMITED
PARTNERSHIP UNIT $ (0.25) $ .01
========= ========
WEIGHTED AVERAGE NUMBER OF EQUIVALENT LIMITED
PARTNERSHIP UNITS OUTSTANDING DURING THE PERIOD 460,067 460,067
========= ========
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNER GENERAL LIMITED
UNITS UNITS PARTNER PARTNER TOTAL
--------------- ------- ------- ---------- -----------
PARTNERS' CAPITAL - DECEMBER 31, 2003 50 460,067 $ 1,000 $1,083,443 $ 1,084,443
Net income (loss) 1,154 (116,193) (115,039)
Distributions (1,154) (114,286) (115,440)
--------------- ------- ------- ---------- -----------
PARTNERS' CAPITAL - MARCH 31, 2004 50 460,067 $ 1,000 $ 852,964 $ 853,964
=============== ======= ======= ========== ===========
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND II
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
--------- ---------
OPERATING ACTIVITIES (UNAUDITED)
Net (loss) income $(115,039) $ 3,929
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Depreciation and amortization 203,953 282,640
Loss on sale of computer equipment 9,891 5,291
Other noncash activities included in
determination of net (loss) income (183,325) (275,213)
Changes in assets and liabilities
(Increase) decrease in assets
Lease income receivable (4,037) 692
Minimum lease receivables 1,155 504
Other receivable, General Partner - 53,669
Other receivables - affiliated partnerships - (3,401)
Prepaid expenses (5,232) 3,019
Increase (decrease) in liabilities
Accounts payable 873 132,131
Accounts payable, General Partner 60,674 (6,318)
Other accrued expenses (2,438) -
Unearned lease income (7,044) (41,112)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (40,569) 155,831
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures - (15,000)
Net proceeds from the sale of computer equipment 53,394 2,800
Equipment acquisition fees paid to General Partner - (600)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 53,394 (12,800)
--------- ---------
FINANCING ACTIVITIES:
Distributions to partners (115,440) (115,440)
Other receivables-Commonwealth Capital Corp 70,834 (9,998)
--------- ---------
NET CASH (USED IN) FINANCING ACTIVITIES (44,606) (125,438)
--------- ---------
Net (decrease) increase in cash and equivalents (31,781) 17,593
Cash and cash equivalents, beginning of period 37,758 33,361
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,977 $ 50,954
========= =========
see accompanying notes to financial statements
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS Commonwealth Income & Growth Fund II (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 CCC. CCC is a member of the Investment Program Association
(IPA), Financial Planning Association (FPA), and the Equipment Leasing
Association (ELA). Approximately ten 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
December 31, 2006.
2. SUMMARY OF BASIS OF PRESENTATION
SIGNIFICANT
ACCOUNTING The financial information presented as of any date other than December 31
POLICIES 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, 2003. Operating
results for the three-month period ended March 31, 2004 are not
necessarily indicative of financial results that may be expected for the
full year ended December 31, 2004.
REVENUE RECOGNITION
Through March 31, 2004, the Partnership's leasing operations consist
substantially of operating leases and seven direct-financing leases.
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.
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.
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. The fair
value is determined based on estimated discounted cash flows to be
generated by the asset. As of March 31, 2004, 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.
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.
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 are 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 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.
3. NET INVESTMENT IN The following lists the components of the net investment in direct
DIRECT FINANCING financing leases as of March 31, 2004 and December 31, 2003:
LEASES
MARCH 31, December 31,
2004 2003
-------- --------
Minimum lease payments receivable $158,008 $176,035
Less: Unearned revenue 26,527 29,557
-------- --------
Net investment in direct financing leases $131,481 $146,478
======== ========
The following is a schedule of future minimum
rentals on noncancellable direct financing
leases at March 31, 2004
Amount
--------
Nine Months Remaining December 31, 2004 $ 54,081
Year Ended December 31, 2005 70,183
Year Ended December 31, 2006 33,744
--------
$158,008
========
4. COMPUTER The Partnership is the lessor of equipment under operating leases with
EQUIPMENT periods ranging from 24 to 48 months. In general, the lessee pays
associated costs such as repairs and maintenance, insurance and property
taxes.
The Partnership's share of the computer equipment in which they
participate with other partnerships at March 31, 2004 and December 31,
2003 was approximately $1,660,000 for both period ends, 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
March 31, 2004 and December 31, 2003 was approximately $2,813,000 for both
period ends. The Partnership's share of the outstanding debt associated
with this equipment at March 31, 2004 and December 31, 2003 was
approximately $295,000 and $422,000, respectively, which is included in
the Partnership's liabilities on the balance sheet, and the total
outstanding debt at March 31, 2004 and December 31, 2003 related to the
equipment shared by the Partnership was approximately $475,000 and
$696,000, respectively.
The following is a schedule of future minimum rentals on noncancellable
operating leases at March 31, 2004:
Amount
--------
Nine Months ended December 31, 2004 $474,000
Year Ended December 31, 2005 47,000
Year Ended December 31, 2006 13,000
--------
$534,000
========
5. RELATED PARTY OTHER RECEIVABLES
TRANSACTIONS
As of March 31, 2004, the Partnership has a non-interest bearing
receivable from CCC, a related party to the Partnership, in the amount of
approximately $230,000. CCC, through its indirect subsidiaries, including
the General Partner of the Partnership, earns fees based on revenues and
new lease purchases from this fund. This receivable has been reduced by
approximately $125,000 in the three months ending March 31, 2004 by the
offsetting of equipment management and acquisition fees and payments by
CCC. CCC intends to repay the balance of the receivable, through
acquisition and debt placement fees, over approximately the next several
fiscal years, with a minimum payment of $10,000 per month, commencing
March 1, 2004.
REIMBURSABLE EXPENSES
The General Partner and its affiliates are entitled to reimbursement by
the Partnership for the cost of supplies and services obtained and used by
the General Partner in connection with the administration and operation of
the Partnership from third parties unaffiliated with the General Partner.
In addition, the General Partner and its affiliates are entitled to
reimbursement for certain expenses incurred by the General Partner and its
affiliates in connection with the administration and operation of the
Partnership. During the three months ended March 31, 2004 and 2003, the
Partnership recorded $63,000 and $84,000, respectively, for reimbursement
of expenses to the General Partner.
EQUIPMENT ACQUISITION FEE
The General Partner is entitled to be paid an equipment acquisition fee of
4% of the purchase price of each item of equipment purchased as
compensation for the negotiation of the acquisition of the equipment and
lease thereof or sale under a conditional sales contract. During the three
months ended March 31, 2003, equipment acquisition fees of approximately
$1,000 were earned by the General Partner. There were no equipment
acquisition fees earned by the General Partner during the three months
ended March 31, 2004.
EQUIPMENT MANAGEMENT FEE
The General Partner is entitled to be paid a monthly fee equal to the
lesser of (i) the fees which would be charged by an independent third
party for similar services for similar equipment or (ii) the sum of (a)
two percent of (1) the gross lease revenues attributable to equipment
which is subject to full payout net leases which contain net lease
provisions plus (2) the purchase price paid on conditional sales contracts
as received by the Partnership and (b) 5% of the gross lease revenues
attributable to equipment which is subject to operating and capital
leases. During the three months ended March 31, 2004 and 2003, equipment
management fees of approximately $12,000 and $27,000, respectively, were
earned by the General Partner.
EQUIPMENT LIQUIDATION FEE
With respect to each item of equipment sold by the General Partner (other
than in connection with a conditional sales contract), a fee equal to the
lesser of (i) 50% of the competitive equipment sale commission or (ii)
three percent of the sales price for such equipment is payable to the
General Partner. The payment of such fee is subordinated to the receipt by
the limited partners of the net disposition proceeds from such sale in
accordance with the Partnership Agreement. Such fee will be reduced to the
extent any liquidation or resale fees are paid to unaffiliated parties.
During the three months ended March 31, 2004, equipment liquidation fees
of approximately $2,000 were earned by the General Partner. There were no
equipment liquidation fees earned by the General Partner during the three
months ended March 31, 2003.
6. NOTES PAYABLE Notes payable consisted of the following:
MARCH 31, DECEMBER 31,
2004 2003
-------- ------------
Installment notes payable to banks; interest
ranging from 6.50% to 8.75%, due in monthly
installments ranging from $96 to $22,799,
including interest, with final payments due from
February through November 2004. $330,706 $ 498,520
Installment notes payable to banks; interest
ranging from 6.25% to 6.75%, due in monthly
installments ranging from $240 to $1,875,
including interest, with final payments due from
February through April 2005. 59,342 74,204
Installment notes payable to banks, interest
ranging from 5.95% to 6.50%: due in monthly
installments ranging from $507 to $1,892,
including interest, with final payments due June,
2006. 141,150 155,641
-------- ------------
$531,198 $ 728,365
======== ============
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 March 31, 2004 are as follows:
Amount
------------
Nine months ended December 31, 2004 $ 421,597
Year ended December 31, 2005 76,535
Year ended December 31, 2006 33,066
------------
$ 531,198
------------
7. SUPPLEMENTAL Other noncash activities included in the determination of net loss are as
CASH FLOW follows:
INFORMATION
Three months ended March 31, 2004 2003
- --------------------------- -------- --------
Lease income, net of interest expense on
notes payable realized as a result of
direct payment of principal by lessee to bank $183,325 $275,213
======== ========
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:
Three months ended March 31, 2004 2003
- ---------------------------- -------- --------
Net book value of equipment converted to
direct financing leases $ - $ 3,346
-------- --------
Offsetting of receivables from CCC with
payables to General Partner $ 53,678 $ -
======== ========
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.
REVENUE RECOGNITION
Through March 31, 2004, the Partnership's leasing operations consist
substantially of operating leases and seven direct-financing leases. 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. Depreciation on computer
equipment for financial statement purposes is based on the straight-line method
over estimated useful lives of four years.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of capital for the three months ended March
31, 2004 and 2003 were net proceeds received from sale of equipment totaling
approximately $53,000 and $3,000, respectively, the repayment of receivables
from CCC of approximately $71,000 for the period ending March 31, 2004 and cash
from operations of approximately $156,000 for the period ending March 31, 2003.
The primary uses of cash for the three months ended March 31, 2004 and 2003 were
for the payment of preferred distributions to partners of approximately $115,000
for both period ends, cash used in operations of approximately $41,000 for the
period ending March 31, 2004 and capital expenditures for new equipment totaling
approximately $15,000 for the period ending March 31, 2003. There were no
capital expenditures for the period ending March 31, 2004.
For the three month period ended March 31, 2004, the Partnership used cash flows
from operating activities of approximately $41,000, which includes a net loss of
approximately $115,000 and depreciation and amortization expenses of
approximately $204,000. Other noncash activities included in the determination
of net income include direct payments of lease income by lessees to banks of
approximately $183,000.
For the three month period ended March 31, 2003, the Partnership generated cash
flows from operating activities of approximately $156,000, which includes net
income of approximately $4,000 and depreciation and amortization expenses of
approximately $283,000. Other noncash activities included in the determination
of net loss include direct payments of lease income by lessees to banks of
approximately $275,000.
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.
As of March 31, 2004, the Partnership has a non-interest bearing receivable from
CCC, a related party to the Partnership, in the amount of approximately
$230,000. CCC, through its indirect subsidiaries, including the General Partner
of the Partnership, earns fees based on revenues and new lease purchases from
this fund. This receivable has been reduced by approximately $125,000 in the
three months ending March 31, 2004 by the offsetting of equipment management and
acquisition fees and payments by CCC. CCC intends to repay the balance of the
receivable, through acquisition and debt placement fees, over approximately the
next several fiscal years, with a minimum payment of $10,000 per month,
commencing March 1, 2004.
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, 2004, the Partnership had future minimum rentals on non-cancelable
operating leases of $474,000 for the balance of the year ending December 31,
2004 and $60,000 thereafter. As of March 31, 2004, the Partnership had future
minimum rentals on noncancellable capital leases of $54,000 for the balance of
the year ending December 31, 2004 and $104,000 thereafter. At March 31, 2004,
the outstanding debt was $531,000, with interest rates ranging from 5.95% to
8.75%, and will be 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 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, from time to time,
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.
The Partnership's share of the computer equipment in which they participate with
other partnerships at March 31, 2004 and December 31, 2003 was approximately
$1,660,000 for both period ends, 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 March 31, 2004 and December 31, 2003 was
approximately $2,813,000 for both period ends. The Partnership's share of the
outstanding debt associated with this equipment at March 31, 2004 and December
31, 2003 was approximately $295,000 and $422,000, respectively, which is
included in the Partnership's liabilities on the balance sheet, and the total
outstanding debt at March 31, 2004 and December 31, 2003 related to the
equipment shared by the Partnership was approximately $475,000 and $696,000,
respectively.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 compared to Three Months Ended March 31, 2003
- -------------------------------------------------------------------------------
For the quarter ended March 31, 2004, the Partnership recognized income of
approximately $233,000 and expenses of approximately $348,000, resulting in a
net loss of approximately $115,000. For the quarter ended March 31, 2003, the
Partnership recognized income of approximately $543,000 and expenses of
approximately $538,000, resulting in net income of approximately $4,000.
Lease income decreased by 57% to approximately $233,000 for the quarter ended
March 31, 2004, from approximately $543,000 for the quarter ended March 31,
2003, primarily due to the fact that more lease agreements ended since the
quarter ended March 31, 2003.
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 43% to
approximately $111,000 for the quarter ended March 31, 2004, from approximately
$194,000 for the quarter ended March 31, 2003, which is primarily attributable
to a decrease in the amount charged by CCC, a related party, to the Partnership
for the administration and operation of approximately $14,000, a decrease in
remarketing fees of approximately $79,000 and an increase in professional fees
of approximately $14,000.
The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee decreased 57% to approximately $12,000 for the quarter ended
March 31, 2004, from approximately $27,000 for the quarter ended March 31, 2003,
which is consistent with the decrease in lease income.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses decreased
28% to approximately $204,000 for the quarter ended March 31, 2004, from
approximately $282,000 for the quarter ended March 31, 2003 due to equipment and
acquisition fees being fully depreciated/amortized and not being replaced with
new purchases.
The Partnership sold computer equipment with a net book value of approximately
$63,000 for the quarter ended March 31, 2004, for a net loss of approximately
$10,000. The Partnership sold computer equipment with a net book value of
approximately $8,000 for the quarter ended March 31, 2003, for a net loss of
approximately $5,000.
Interest expense decreased 63% to approximately $11,000 for the quarter ended
March 31, 2004 from approximately $30,000 for the quarter ended March 31, 2003,
primarily due to the decrease in debt relating to the purchase of computer
equipment.
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
March 31, 2004.
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 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
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:
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 II
BY: COMMONWEALTH INCOME &
GROWTH FUND, INC. General Partner
May 24, 2004 By: /s/ George S. Springsteen
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Date George S. Springsteen
President