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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 SEPTEMBER 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, L.P.
------------------------------------------------------
(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, L.P.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
--------------------------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 24,129 $ 1,409
Lease income receivable, net of allowance for
doubtful accounts of $428,578 as of
September 30, 2004 and $299,578
as of December 31, 2003 132,076 250,764
Net investment in direct financing lease 15,810 22,585
Prepaid expenses 228 -
Other receivables 213 200
--------------------------------
172,456 274,958
--------------------------------
Computer equipment, at cost 1,400,689 2,610,749
Accumulated depreciation (1,185,381) (2,210,289)
--------------------------------
215,308 400,460
--------------------------------
Equipment acquisition costs and deferred expenses, net 1,199 8,733
--------------------------------
TOTAL ASSETS $ 388,963 $ 684,151
================================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 3,817 $ 2,097
Accounts payable - Affiliated limited partnerships 95,799 124,393
Accounts payable - General Partner 224,735 261,756
Accounts payable - Commonwealth Capital Corp. 1,538 21,220
Accrued expenses 2,000 -
Unearned lease income 20,775 19,769
Notes payable 38,537 168,343
--------------------------------
TOTAL LIABILITIES 387,201 597,578
--------------------------------
PARTNERS' CAPITAL
General partner 1,000 1,000
Limited partners 762 85,573
--------------------------------
TOTAL PARTNERS' CAPITAL 1,762 86,573
--------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 388,963 $ 684,151
================================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND I, L.P.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2004 2003 2004 2003
---------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
INCOME
Lease $ 61,475 $ 80,818 $ 209,932 $ 252,593
Interest and other 793 - 807 -
---------------------------------------------------------------------
TOTAL INCOME 62,268 80,818 210,739 252,593
---------------------------------------------------------------------
EXPENSES
Operating 10,263 36,403 (23,508) 167,862
Equipment management fee - General Partner - 4,041 2,302 12,630
Interest 1,058 5,088 5,345 19,240
Depreciation 54,383 56,477 165,062 182,681
Amortization of equipment
acquisition costs and deferred expenses 2,215 4,115 7,534 12,677
Bad debt expense 129,000 - 129,000 -
Loss/(gain) on sale of computer equipment 10,764 6,421 9,815 (2,486)
---------------------------------------------------------------------
TOTAL EXPENSES 207,683 112,545 295,550 392,604
---------------------------------------------------------------------
NET (LOSS) $ (145,415) $ (31,727) $ (84,811) $ (140,011)
=====================================================================
NET (LOSS) PER EQUIVALENT LIMITED
PARTNERSHIP UNIT $ (0.23) $ (0.05) $ (0.13) $ (0.22)
=====================================================================
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, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 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 (loss) - (84,811) (84,811)
-----------------------------------------------------------------
PARTNERS' CAPITAL - SEPTEMBER 30, 2004 50 631,124 $ 1,000 $ 762 $ 1,762
=================================================================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND I, L.P.
STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
-----------------------------------
OPERATING ACTIVITIES (UNAUDITED) (UNAUDITED)
Net income (loss) $ (84,811) $ (140,011)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 172,596 195,358
Loss (gain) on sale of computer equipment 9,815 (2,486)
Bad debt expense 129,000 -
Other noncash activities included in
determination of net (loss) (123,031) (200,801)
Changes in assets and liabilities
(Increase) decrease in assets
Lease income receivable (10,312) 494
Other receivables (13) -
Prepaid expenses (228) -
Increase (decrease) in liabilities
Accounts payable 1,720 (3,683)
Accounts payable, General Partner (37,021) 98,897
Accounts payable, Commonwealth Capital
Corp. (19,682) 23,925
Accounts payable, Affiliated limited
partnerships (28,594) 20,288
Other accrued expenses 2,000 -
Unearned lease income 1,006 (137)
----------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 12,445 (8,156)
----------------------------------
INVESTING ACTIVITIES:
Capital expenditures - (5,000)
Net proceeds from the sale of computer equipment 10,275 21,493
Equipment acquisition fees paid to General Partner - (200)
----------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 10,275 16,293
----------------------------------
Net increase in cash and cash equivalents 22,720 8,137
Cash and cash equivalents, beginning of period 1,409 438
----------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,129 $ 8,575
==================================
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
$2,000 at September 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 was originally filed in 2001. CCC was
informed on or around August 30, 2004 that the judge
presiding over the case granted summary judgment to
the defendant. It should be noted that the judge had
previously denied the defendant's motions for summary
judgment on two different occasions. CCC and our
attorney feel that the judgment appears faulty in a
number of areas and we have filed an appeal. We are
currently waiting for a court date from the court of
appeals. 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
SIGNIFICANT BASIS OF PRESENTATION
ACCOUNTING
POLICIES 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
accounting principles generally accepted in the
United States. 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 nine-month period ended September 30, 2004 are
not necessarily indicative of financial results that
may be expected for the full year ended December 31,
2004.
REVENUE RECOGNITION
Through September 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 accounting principles generally accepted in the
United States 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 began 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 September 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. The Partnership maintains its
cash balances in a financial institution. At times,
the balances may exceed federally insured limits. The
Partnership has not experienced any losses in such
accounts, and believes it is not exposed to any
significant credit risk.
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
LEASE September 30, 2004 and December 31, 2003:
SEPTEMBER 30, December 31,
2004 2003
--------------------------------------------------------------------
Minimum lease payments receivable
$ 21,063 $ 30,090
Less: Unearned Revenue 5,253 7,505
--------------------------------------------------------------------
Net investment in direct financing
lease $ 15,810 $ 22,585
====================================================================
The following is a schedule of future minimum rentals
on the noncancellable direct financing lease at
September 30, 2004:
Amount
----------------------------------------------------------------
Three Months ending December 31, 2004 $ 3,009
Year Ended December 31, 2005 12,036
Year Ended December 31, 2006 6,018
----------
$ 21,063
================================================================
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
September 30, 2004 and December 31, 2003 was
approximately $448,000 for both periods, 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
September 30, 2004 and December 31, 2003 was
approximately $2,258,000 for both periods. The
Partnership's share of the outstanding debt
associated with this equipment at September 30, 2004
and December 31, 2003 was approximately $15,000 and
$96,000, respectively, which is included in the
Partnership's notes payables on the balance sheet,
and the total outstanding debt at September 30, 2004
and December 31, 2003 related to the equipment shared
by the Partnership was approximately $67,000 and
$537,000, respectively.
The following is a schedule of future minimum rentals
on noncancellable operating leases at September 30,
2004:
Amount
-----------------------------------------------------------------
Three months ending December 31, 2004 $ 22,000
Year ended December 31, 2005 13,000
Year ended December 31, 2006 5,000
------------
$ 40,000
=================================================================
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 nine months ended September 30, 2004 and
2003, the Partnership recorded income of ($13,000)
and expense of $121,000, 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 nine months ended September 30, 2004 and
2003, equipment management fees of approximately
$2,000 and $13,000, 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. As of September 30, 2004 and
December 31, 2003, the unpaid balance was
approximately $31,000 and $29,000, respectively.
7. NOTES PAYABLE Notes payable consisted of the following:
SEPTEMBER 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. $ 18,679 $ 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. 19,858 27,703
---------------------------------------------------------------------------------
$ 38,537 $ 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 September 30,
2004 are as follows:
Amount
-----------------------------------------------------------------
Three months ending December 31, 2004 $ 21,380
Year ended December 31, 2005 11,252
Year ended December 31, 2006 5,905
-------------
$ 38,537
=============
8. SUPPLEMENTAL Other noncash activities included in the
CASH FLOW determination of net income are as follows:
INFORMATION
Nine months ended September 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 $ 123,031 $ 200,801
- --------------------------------------------------------------------------------
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
$121,000 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.
On or around July 28, 2004, the judge presiding over
the case granted summary judgment in favor of
Getronics. We were notified on or approximately
August 30, 2004 and shortly thereafter, we filed an
appeal. We are currently awaiting a court date with
the court of appeals.
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 September 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 sources of capital for the nine months ended September
30, 2004 and 2003 were net proceeds from sale of equipment of approximately
$10,000 and $22,000, respectively and cash generated from operating activities
of approximately $12,000 for the nine months ended September 30, 2004. The
primary uses of cash for the nine months ended September 30, 2003 was for cash
used in operations of approximately $8,000 and for the purchase of computer
equipment in the amount of approximately $5,000. There was no equipment
purchased for the nine months ended September 30, 2004. There were no
distributions paid for the nine months ended September 30, 2004 and 2003.
For the nine-month period ended September 30, 2004, the Partnership generated
cash from operating activities of approximately $12,000, which includes net
operating income of approximately $44,000, a net loss on sale of equipment of
equipment of approximately $10,000 and depreciation and amortization expenses of
approximately $173,000. Other non-cash activities included in the determination
of net income include an allowance for doubtful accounts of approximately
$129,000 and direct payments of lease income by lessees to banks of $123,000.
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, a net gain from the sale of computer equipment of $2,000 and
depreciation and amortization expenses of $195,000. Other noncash activities
included in the determination of net loss include direct payments of lease
income by lessees to banks of $201,000.
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 September 30, 2004, the Partnership had future minimum rentals on
non-cancelable operating leases of $22,000 for the balance of the year ending
December 31, 2004 and $18,000 thereafter. At September 30, 2004, outstanding
debt was approximately $39,000, 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 September 30, 2004 and December 31, 2003 was approximately
$448,000 for both periods, 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 September 30, 2004 and December 31, 2003
was approximately $2,258,000 for both periods. The Partnership's share of the
outstanding debt associated with this equipment at September 30, 2004 and
December 31, 2003 was approximately $15,000 and $96,000, respectively, which is
included in the Partnership's notes payables on the balance sheet, and the total
outstanding debt at September 30, 2004 and December 31, 2003 related to the
equipment shared by the Partnership was approximately $67,000 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 partners' capital of approximately $2,000 at September 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 was originally filed in 2001. CCC was informed on or around August
30, 2004 that the judge presiding over the case granted summary judgment to the
defendant. It should be noted that the judge had previously denied the
defendant's motions for summary judgment on two different occasions. CCC and our
attorney feel that the judgment appears faulty in a number of areas and we have
filed an appeal. We are currently waiting for a court date from the court of
appeals. 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 began 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 September 30, 2004 compared to Three Months Ended September
30, 2003
For the quarter ended September 30, 2004, the Partnership recognized income of
approximately $62,000 and expenses of approximately $208,000, resulting in a net
loss of approximately $146,000. For the quarter ended September 30, 2003, the
Partnership recognized income of approximately $81,000 and expenses of
approximately $113,000, resulting in a net loss of approximately $32,000.
Lease income decreased by 24% to approximately $61,000 for the quarter ended
September 30, 2004, from approximately $81,000 for the quarter ended September
30, 2003, primarily due to the fact that lease agreements terminated since
September 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 72% to
approximately $10,000 for the quarter ended September 30, 2004, from $36,000 for
the quarter ended September 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 $3,000, a decrease in postage of
approximately $2,000, an increase in legal fees of approximately $4,000 and an
increase in remarketing fees of approximately $1,000.
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 September 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
7% to approximately $57,000 for the quarter ended September 30, 2004, from
approximately $61,000 for the quarter ended September 30, 2003 due to the older
equipment becoming fully depreciated and certain acquisition and finance fees
being fully amortized.
The Partnership recorded an allowance for doubtful accounts reserve for
approximately $129,000 for the quarter ended September 30, 2004 relating the
pending lawsuit discussed in Footnote 9 of the financial statements. There was
no reserve booked for the quarter ended September 30, 2003.
The Partnership sold computer equipment with a net book value of approximately
$14,000 for the quarter ended September 30, 2004, for a net loss of
approximately $11,000. The Partnership sold computer equipment with a net book
value of approximately $9,000 for the quarter ended September 30, 2003, for a
net loss of approximately $6,000.
Interest expense decreased 79% to approximately $1,000 for the quarter ended
September 30, 2004 from approximately $5,000 for the quarter ended September 30,
2003, primarily due to older equipment's associated debt being fully paid.
Nine Months Ended September 30, 2004 compared to Nine Months Ended September 30,
2003
For the nine months ended September 30, 2004, the Partnership recognized income
of approximately $211,000 and expenses of approximately $296,000, resulting in a
net loss of approximately $85,000. For the nine months ended September 30, 2003,
the Partnership recognized income of approximately $255,000 and expenses of
approximately $395,000, resulting in a net loss of approximately $140,000.
Lease income decreased by 17% to approximately $210,000 for the nine months
ended September 30, 2004, from approximately $253,000 for the nine months ended
September 30, 2003, primarily due to the fact that lease agreements terminated
since September 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 114% to
approximately ($24,000) of income for the nine months ended September 30, 2004,
from $168,000 for the nine months ended September 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 $124,000.
There was also a decrease in printing services of approximately $8,000, a
decrease in professional services of approximately $7,000, a decrease in outside
office services of approximately $8,000, a decrease in insurances of
approximately $8,000, a decrease in due diligence of approximately $10,000, a
decrease in postage of approximately $5,000, a decrease in office equipment
rental of approximately $2,000, a decrease in office supplies of approximately
$6,000 and a decrease in partnership taxes of approximately $5,000.
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 nine months ended
September 30, 2004, from approximately $13,000 for the nine months ended
September 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
12% to approximately $173,000 for the nine months ended September 30, 2004, from
approximately $195,000 for the nine months ended September 30, 2003 due to the
older equipment becoming fully depreciated and certain acquisition and finance
fees being fully amortized.
The Partnership recorded an allowance for doubtful accounts reserve for
approximately $129,000 for the nine months ended September 30, 2004 relating the
pending lawsuit discussed in Footnote 9 of the financial statements. There was
no reserve booked for the nine months ended September 30, 2003.
The Partnership sold computer equipment with a net book value of approximately
$20,000 for the nine months ended September 30, 2004, for a net loss of
approximately $10,000. 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.
Interest expense decreased 72% to approximately $5,000 for the nine months ended
September 30, 2004 from approximately $19,000 for the nine months ended
September 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
September 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.
On or around July 28, 2004, the judge presiding over the case
granted Summary Judgment in favor of Getronics. We were
notified on or approximately August 30, 2004 and shortly
thereafter, we filed an appeal. We are currently awaiting a
court date with the court of appeals.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
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
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
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 15, 2004 By: /s/ George S. Springsteen
- ----------------- ---------------------------
Date George S. Springsteen
President