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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 JUNE 30, 2004
( ) 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 (I.R.S. Employer Identification Number)
incorporation or organization)
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 [ ]
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 I
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2004 2003
------------------------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 6,380 $ 1,409
Lease income receivable, net of allowance for
doubtful accounts of $299,578 as of
June 30, 2004 and December 31, 2003 285,121 250,764
Net investment in direct financing lease 18,068 22,585
Prepaid expenses 457 -
Other receivables - 200
------------------------------
310,026 274,958
------------------------------
Computer equipment, at cost 2,587,773 2,610,749
Accumulated depreciation (2,303,736) (2,210,289)
------------------------------
284,037 400,460
------------------------------
Equipment acquisition costs and deferred expenses, net 3,414 8,733
------------------------------
TOTAL ASSETS $ 597,477 $ 684,151
==============================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 6,136 $ 2,097
Accounts payable - Affiliated limited partnerships 123,122 124,393
Accounts payable - General Partner 270,844 261,756
Accounts payable - Commonwealth Capital Corp. 2,531 21,220
Accrued expenses 2,000 -
Unearned lease income 18,863 19,769
Notes payable 77,013 168,343
------------------------------
TOTAL LIABILITIES 500,509 597,578
------------------------------
PARTNERS' CAPITAL
General partner 1,000 1,000
Limited partners 95,968 85,573
------------------------------
TOTAL PARTNERS' CAPITAL 96,968 86,573
------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 597,477 $ 684,151
==============================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND I
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------ -------------------------
(UNAUDITED) (UNAUDITED)
INCOME
Lease $ 83,518 $ 83,494 $148,471 $ 171,775
Gain on sale of computer equipment 949 3,267 949 8,907
-------- -------- -------- ---------
TOTAL INCOME 84,467 86,761 149,420 180,682
-------- -------- -------- ---------
EXPENSES
Operating, excluding depreciation 6,321 70,658 16,438 131,459
Equipment management fee - General Partner - 4,157 2,302 8,589
Interest 1,755 6,402 4,287 14,152
Depreciation 54,861 59,562 110,679 126,204
Amortization of equipment
acquisition costs and deferred expenses 2,317 4,171 5,319 8,562
-------- -------- -------- ---------
TOTAL EXPENSES 65,254 144,950 139,025 288,966
-------- -------- -------- ---------
NET INCOME (LOSS) $ 19,213 $(58,189) $ 10,395 $(108,284)
======== ======== ======== =========
NET INCOME (LOSS) PER EQUIVALENT LIMITED
PARTNERSHIP UNIT $ 0.03 $ (0.09) $ 0.02 $ (0.17)
======== ======== ======== =========
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 SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNER GENERAL LIMITED
UNITS UNITS PARTNER PARTNER TOTAL
---------------------------------------------------
PARTNERS' CAPITAL - DECEMBER 31, 2003 50 631,124 $ 1,000 $85,573 $86,573
---------------------------------------------------
Net income - 10,395 10,395
---------------------------------------------------
PARTNERS' CAPITAL - JUNE 30, 2004 50 631,124 $ 1,000 $95,968 $96,968
===================================================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND I
STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
2004 2003
-------- ---------
OPERATING ACTIVITIES (UNAUDITED)
Net income (loss) $ 10,395 $(108,284)
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities
Depreciation and amortization 115,998 134,766
(Gain) on sale of computer equipment (949) (8,907)
Other noncash activities included in
determination of net income (loss) (86,813) (134,255)
Changes in assets and liabilities
(Increase) decrease in assets
Lease income receivable (34,357) 648
Other receivables 200 -
Prepaid expenses (457) -
Increase (decrease) in liabilities
Accounts payable 4,039 (2,718)
Accounts payable, General Partner 9,088 69,169
Accounts payable, Commonwealth Capital Corp. (18,689) 27,420
Accounts payable, Affiliated limited partnerships (1,271) 14,539
Other accrued expenses 2,000 -
Unearned lease income (906) (138)
-------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES (1,722) (7,760)
-------- ---------
INVESTING ACTIVITIES:
Capital expenditures - (5,000)
Net proceeds from the sale of computer equipment 6,693 18,374
Equipment acquisition fees paid to General Partner - (200)
-------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,693 13,174
-------- ---------
Net increase in cash and cash equivalents 4,971 5,414
Cash and cash equivalents, beginning of period 1,409 438
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,380 $ 5,852
======== =========
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 CCC. 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. BUSINESS PLAN The Partnership has suffered recurring losses from
operations, declining cash provided by operating
activities, has not paid partner distributions
since June 2001, has a partners' capital of
approximately $97,000 at June 30, 2004 and CCC
filed a lawsuit on the Partnership's behalf (see
Note 9), alleging that the named defendant has not
returned the proper leased equipment.
The lawsuit, which was originally filed in 2001,
still has not been heard by the court due to
several postponements by the judge assigned to the
lawsuit. On June 9, 2004, the court heard oral
arguments on the Defendant's second motion for
summary judgment, which was denied. The Court set
September 7, 2004 as the date for the trial. The
Partnership has made several attempts to transfer
the case to another judge. Due to the ongoing
delays, the General Partner feels that it is in the
best interest of the Partnership to start the
liquidation process and run out naturally all
remaining leases in the portfolio, making
distributions when possible, after expenses have
been satisfied. The General Partner has decided
that if the court continues to delay throughout the
year, then the General Partner will seek to
transfer this litigated lease into a third party
qualified Trusteeship for distribution
(proportionately to investors) after completion of
the lawsuit. If the Partnership's cash is
insufficient from operations or if the trust has
insufficient cash, the General Partner and CCC
intend to pay the legal expenses associated with
the lawsuit on behalf on the Partnership.
The General Partner intends to review and reassess
the Partnership's business plan on a quarterly
basis.
3. SUMMARY OF BASIS OF PRESENTATION
SIGNIFICANT
ACCOUNTING The financial information presented as of any date
POLICIES 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, 2003.
Operating results for the six-month period ended
June 30, 2004 are not necessarily indicative of
financial results that may be expected for the full
year ended December 31, 2004.
REVENUE RECOGNITION
Through June 30, 2004, 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 using
the straight-line method.
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.
LIQUIDATION POLICIES
The Partnership has begun liquidation during the
quarter ended June 30, 2004. Particular items of
equipment may be sold at any time if, in the
judgment of the General Partner, it is in the best
interest of the Partnership to do so. The
determination of whether particular items of
partnership equipment should be sold will be made
by the General Partner after consideration of all
relevant factors (including prevailing economic
conditions, the cash requirements of the
Partnership, potential capital appreciation, cash
flow and federal income tax considerations), with a
view toward achieving the principal investment
objectives of the Partnership.
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 June 30, 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 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.
4. NET INVESTMENT IN The following lists the components of the net
DIRECT FINANCING investment in a direct financing lease as of June
LEASE 30, 2004 and December 31, 2003:
JUNE 30, December 31,
2004 2003
------------------------------------------------------
Minimum lease payments
receivable $24,072 $ 30,090
Less: Unearned Revenue 6,004 7,505
------------------------------------------------------
Net investment in direct
financing lease $18,068 $ 22,585
------------------------------------------------------
The following is a schedule of future minimum rentals
on the noncancellable direct financing lease at June
30, 2004:
Amount
------------------------------------------------------
Six Months Ending December 31, 2004 $ 6,018
Year Ended December 31, 2005 12,036
Year Ended December 31, 2006 6,018
-------
$24,072
------------------------------------------------------
5. COMPUTER The Partnership is the lessor of equipment under
EQUIPMENT 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 it participates with other partnerships at
June 30, 2004 and December 31, 2003 was
approximately $432,000 and $448,000, respectively,
which is included in the Partnership's fixed assets
on its balance sheet, and the total cost of the
equipment shared by the Partnership with other
partnerships at June 30, 2004 and December 31, 2003
was approximately $2,221,000 and $2,258,000,
respectively. The Partnership's share of the
outstanding debt associated with this equipment at
June 30, 2004 and December 31, 2003 was
approximately $42,000 and $96,000, respectively,
which is included in the Partnership's notes
payables on the balance sheet, and the total
outstanding debt at June 30, 2004 and December 31,
2003 related to the equipment shared by the
Partnership was approximately $225,000 and
$537,000, respectively.
The following is a schedule of future minimum
rentals on noncancellable operating leases at June
30, 2004:
Amount
---------------------------------------------------
Six months ending December 31, 2004 $69,000
Year ended December 31, 2005 13,000
Year ended December 31, 2006 5,000
-------
$87,000
=======
6. RELATED PARTY REIMBURSABLE EXPENSES
TRANSACTIONS
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 six months ended June 30, 2004 and 2003,
the Partnership recorded $32,000 and $88,000,
respectively, for reimbursement of expenses to the
General Partner.
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 six months
ended June 30, 2004 and 2003, equipment management
fees of approximately $2,000 and $9,000,
respectively, were earned by the General Partner.
The General Partner has decided, in an effort to
maintain operations of the Partnership, to stop
charging equipment management fees effective
February 29, 2004.
7. NOTES PAYABLE Notes payable consisted of the following:
JUNE 30, December 31,
2004 2003
----------------------------------------------------------
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. $54,497 $140,640
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. 22,516 27,703
------- --------
$77,013 $168,343
======= ========
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 June 30, 2004 are as follows:
Amount
----------------------------------------------------------
Six months ending December 31, 2004 $59,856
Year ended December 31, 2005 11,252
Year ended December 31, 2006 5,905
-------
$77,013
=======
8. SUPPLEMENTAL Other noncash activities included in the
CASH FLOW determination of net income are as follows:
INFORMATION
Six months ended June 30, 2004 2003
- ----------------------------------------------------------------------------
Lease income, net of interest expense on
notes payable realized as a result of
direct payment of principal by lessee to
bank
$86,813 $134,255
- ----------------------------------------------------------------------------
No interest or principal on notes payable was paid
by the Partnership because direct payment was made
by lessees to the bank in lieu of collection of
lease income and payment of interest and principal
by the Partnership.
9. 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.
The lawsuit had been scheduled for February 9,
2004, but that has been postponed. On June 9, 2004,
the court heard oral arguments on the Defendant's
second motion for summary judgment, which the court
denied. The Court set September 7, 2004 as the date
for the trial.
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 3 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 June 30, 2004, 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 source of capital for the six months ended June 30,
2004 and 2003 was net proceeds from sale of equipment of approximately $7,000
and $18,000, respectively. The primary uses of cash for the six months ended
June 30, 2004 and 2003 was for cash used in operations of approximately $2,000
and $8,000, respectively, and for the purchase of computer equipment in the
amount of approximately $5,000 for the six months ended June 30, 2003. There was
no equipment purchased for the six months ended June 30, 2004. There were no
distributions paid for the six months ended June 30, 2004 and 2003.
For the six-month period ended June 30, 2004, the Partnership used cash from
operating activities of approximately $2,000, which includes net operating
income of approximately $10,000 and depreciation and amortization expenses of
approximately $116,000. Other non-cash activities included in the determination
of net income include direct payments of lease income by lessees to banks of
$87,000.
For the six-month period ended June 30, 2003, the Partnership used cash for
operating activities of $8,000, which includes a net operating loss of $108,000,
a net gain from the sale of computer equipment of $9,000 and depreciation and
amortization expenses of $135,000. Other noncash activities included in the
determination of net loss include direct payments of lease income by lessees to
banks of $134,000.
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, 2004, the Partnership had future minimum rentals on non-cancelable
operating leases of $69,000 for the balance of the year ending December 31, 2004
and $18,000 thereafter. At June 30, 2004, outstanding debt was approximately
$77,000, with interest rates ranging from 6.25% to 9.25%, payable through June
2006.
The Partnership's share of the computer equipment in which it participates with
other partnerships at June 30, 2004 and December 31, 2003 was approximately
$432,000 and $448,000, respectively, which is included in the Partnership's
fixed assets on its balance sheet, and the total cost of the equipment shared by
the Partnership with other partnerships at June 30, 2004 and December 31, 2003
was approximately $2,221,000 and $2,258,000, respectively. The Partnership's
share of the outstanding debt associated with this equipment at June 30, 2004
and December 31, 2003 was approximately $42,000 and $96,000, respectively, which
is included in the Partnership's notes payables on the balance sheet, and the
total outstanding debt at June 30, 2004 and December 31, 2003 related to the
equipment shared by the Partnership was approximately $225,000 and $537,000,
respectively.
The Partnership, has suffered recurring losses from operations, declining cash
provided by operating activities, has not paid partner distributions since June
2001, has a partners' capital of approximately $97,000 at June 30, 2004 and CCC
filed a lawsuit on the Partnership's behalf (see Note 9), alleging that the
named defendant has not returned the proper leased equipment.
The lawsuit, which was originally filed in 2001, still has not been heard by the
court due to several postponements by the judge assigned to the lawsuit. On June
9, 2004, the court heard oral arguments on the Defendant's second motion for
summary judgment, which was denied. The Court set September 7, 2004 as the date
for the trial. The Partnership has made several attempts to transfer the case to
another judge. Due to the ongoing delays, the General Partner feels that it is
in the best interest of the Partnership to start the liquidation process and run
out naturally all remaining leases in the portfolio, making distributions when
possible, after expenses have been satisfied. The General Partner has decided
that if the court continues to delay throughout the year, then the General
Partner will seek to transfer this litigated lease into a third party qualified
Trusteeship for distribution (proportionately to investors) after completion of
the lawsuit. If the Partnership's cash is insufficient from operations or if the
trust has insufficient cash, the General Partner and CCC intend to pay the legal
expenses associated with the lawsuit on behalf on the Partnership.
The General Partner intends to review and reassess the Partnership's business
plan on a quarterly basis.
The Partnership has begun liquidation during the quarter ended June 30, 2004.
Particular items of equipment may be sold at any time if, in the judgment of the
General Partner, it is in the best interest of the Partnership to do so. The
determination of whether particular items of partnership equipment should be
sold will be made by the General Partner after consideration of all relevant
factors (including prevailing economic conditions, the cash requirements of the
Partnership, potential capital appreciation, cash flow and federal income tax
considerations), with a view toward achieving the principal investment
objectives of the Partnership.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2004 compared to Three Months Ended June 30, 2003
- -----------------------------------------------------------------------------
For the quarter ended June 30, 2004, the Partnership recognized income of
approximately $84,000 and expenses of approximately $65,000, resulting in net
income of approximately $19,000. For the quarter ended June 30, 2003, the
Partnership recognized income of approximately $87,000 and expenses of
approximately $145,000, resulting in a net loss of approximately $58,000.
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 91% to
approximately $6,000 for the quarter ended June 30, 2004, from $71,000 for the
quarter ended June 30, 2003, which is primarily attributable to a decrease in
the amount charged by CCC, a related party, to the Partnership for its
administration and operation of approximately $22,000. There was also a decrease
in printing services of approximately $6,000, a decrease in professional
services of approximately $12,000, a decrease in office supplies of
approximately $2,000, a decrease in outside office services of approximately
$6,000, a decrease in partnership tax of approximately $5,000, a decrease in
postage of approximately $2,000 and a decrease in due diligence expenses of
approximately $7,000.
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 for the quarter ended June 30, 2003 was approximately $4,000. The
General Partner decided, in an effort to maintain operations of the Partnership,
to stop charging equipment management fees effective February 29, 2004.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses decreased
10% to approximately $57,000 for the six months ended June 30, 2004, from
approximately $64,000 for the quarter ended June 30, 2003 due to the older
equipment becoming fully depreciated and certain acquisition and finance fees
being fully amortized.
The Partnership sold computer equipment with a net book value of approximately
$6,000 for the quarter ended June 30, 2004, for a net gain of approximately
$1,000. The Partnership sold computer equipment with a net book value of
approximately $9,000 for the quarter ended June 30, 2003, for a net gain of
approximately $3,000.
Interest expense decreased 73% to approximately $2,000 for the quarter ended
June 30, 2004 from approximately $6,000 for the quarter ended June 30, 2003;
primarily due to older equipment's associated debt being fully paid.
Six Months Ended June 30, 2004 compared to Six Months Ended June 30, 2003
- -------------------------------------------------------------------------
For the six months ended June 30, 2004, the Partnership recognized income of
approximately $149,000 and expenses of approximately $139,000, resulting in net
income of approximately $10,000. For the six months ended June 30, 2003, the
Partnership recognized income of approximately $181,000 and expenses of
approximately $289,000, resulting in a net loss of approximately $108,000.
Lease income decreased by 14% to approximately $148,000 for the six months ended
June 30, 2004, from approximately $172,000 for the six months ended June 30,
2003, primarily due to the fact that lease agreements terminated since the six
months ended June 30, 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 87% to
approximately $16,000 for the six months ended June 30, 2004, from $131,000 for
the six months ended June 30, 2003, which is primarily attributable to a
decrease in the amount charged by CCC, a related party, to the Partnership for
its administration and operation of approximately $52,000. There was also a
decrease in outside office services of approximately $6,000, a decrease in other
insurances of approximately $8,000, a decrease in taxes of approximately $5,000,
a decrease in printing of approximately $5,000, a decrease in professional
services of approximately $11,000, a decrease in communications of approximately
$2,000, a decrease in conventions of approximately $2,000, a decrease in office
supplies of approximately $4,000, a decrease in postage of approximately $3,000
and a decrease in due diligence expenses of approximately $9,000.
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 73% to approximately $2,000 for the six months ended
June 30, 2004, from approximately $9,000 for the six months ended June 30, 2003.
The General Partner decided, in an effort to maintain operations of the
Partnership, to stop charging equipment management fees effective February 29,
2004.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses decreased
14% to approximately $116,000 for the six months ended June 30, 2004, from
approximately $135,000 for the six months ended June 30, 2003 due to the older
equipment becoming fully depreciated and certain acquisition and finance fees
being fully amortized.
The Partnership sold computer equipment with a net book value of approximately
$6,000 for the six months ended June 30, 2004, for a net gain of approximately
$1,000. The Partnership sold computer equipment with a net book value of
approximately $9,000 for the six months ended June 30, 2003, for a net gain of
approximately $9,000.
Interest expense decreased 70% to approximately $4,000 for the six months ended
June 30, 2004 from approximately $14,000 for the six months ended June 30, 2003;
primarily due to 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
June 30, 2004.
The Partnership'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 quarters.
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 Rule 13a-14c 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 I
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. The lawsuit had been scheduled
for February 9, 2004, but that has been postponed.
A date of June 9, 2004 was scheduled, but that also
has been postponed. The current trial date is
scheduled for September 7, 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
August 13, 2004 By: /s/ George S. Springsteen
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Date George S. Springsteen
President