-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9irokgtwuzJtohlIgoXwsvtBHY9ozP5qwqzH1XkjsR+eVf/h+jyTl9jRRid2eBX fxcwqjHSdETvWqpBrUR3xw== 0000891618-99-002931.txt : 19990630 0000891618-99-002931.hdr.sgml : 19990630 ACCESSION NUMBER: 0000891618-99-002931 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19990629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH GROWTH FUND II CENTRAL INDEX KEY: 0000810387 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 680088748 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15363 FILM NUMBER: 99654829 BUSINESS ADDRESS: STREET 1: 705 UNIVERSITY AVE CITY: SACRAMENTO STATE: CA ZIP: 95825 BUSINESS PHONE: 9169295433 10-K 1 FORM 10-K FOR PERIOD ENDED DECEMBER 31, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1997 ------------------------------------ or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ------------------------------ Commission file Number 0-15363 ---------------------------- COMMONWEALTH GROWTH FUND II, A CALIFORNIA LIMITED PARTNERSHIP ------------------------------------------------------------- (Exact name of registrant as specified on its charter)
California 68-0088748 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
705 University Ave., Sacramento, California 95825 ------------------------------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 929-5433 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered ------------------- ------------------------ NONE NONE
Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The aggregate market value of the voting units of limited partnership interest held by nonaffiliates of the registrant outstanding at December 31, 1997, was $9,193,960.(1) The number of Units outstanding at December 31, 1997 was 459,698. Documents Incorporated by Reference: NONE - -------- (1) Based solely on the original offering price of $20.00 per unit, as there is no secondary trading market in the Units. 2 COMMONWEALTH GROWTH FUND II December 31, 1997 - --------------------------------------------------------------------------------
Page ---- PART I Item 1. Business 1 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Security Holders 4 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 5 Item 6. Selected Financial Data 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 7 PART III Item 10. Directors and Executive Officers of the Registrant 17 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 19 Item 13. Certain Relationships and Related Transactions 19 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
i 3 - -------------------------------------------------------------------------------- PART I - -------------------------------------------------------------------------------- ITEM 1. BUSINESS Commonwealth Growth Fund II, a California limited partnership (the "Partnership" or "Growth Fund II"), was organized as a California limited partnership in December 1985. The managing general partner and individual general partner are B & B Property Investment, Development and Management Company, Inc. ("B & B" or the "Managing General Partner") and Jeffrey B. Berger, respectively (collectively referred to as, the "General Partners"). The Partnership's primary objectives, in order of priority, are (a) to preserve and protect the invested capital of limited partners; (b) to benefit from appreciation in the value of acquired properties; (c) to generate cash from operations which may be distributed to the partners; and (d) to provide income tax deductions, including depreciation, in excess of income, which deductions, if provided, will shelter the Partnership's cash distributions to the limited partners from income tax. The Partnership operates pursuant to its Agreement of Limited Partnership ("Partnership Agreement") and a statement of investment objectives and policies, which direct the Partnership in acquiring, improving, operating and holding for investment various types of real property investments. In its capacity as Managing General Partner of the Partnership, B & B supervised the sale of the units of limited partnership interest (the "Units") and identified and negotiated investment opportunities for the Partnership. B&B continues to supervise the development, improvement and operation of the Partnership's properties and oversees the refinancing and sale of the Partnership's properties. The Partnership is no longer investing or reinvesting in real property investments. Although the Partnership Agreement permits reinvestment of proceeds from property dispositions, the Partnership has determined not to reinvest such proceeds except to the extent necessary to protect Partnership assets. Accordingly, the Partnership is now in an operating and liquidation phase. Proceeds from the disposition of any of the Partnership's assets will be distributed to partners. During the year ended December 31, 1997, no real property investments were sold. At December 31, 1997, the Partnership owned the notes receivable collateralized by deeds of trust on real property specified in Note 4 of Notes to Financial Statements and in Schedule XII. Since its inception, the Partnership has been involved in only one industry segment: acquiring, operating, developing and holding real properties for investment and making loans collateralized by real property and improvements in connection with these activities. Revenues, net income and assets relating to this industry segment are set forth in the Partnership's financial statements. 1 4 The Partnership offered its Units to California residents from February 14, 1986 until August 3, 1987. During that period, the Partnership sold 459,698 Units for total gross proceeds of $9,193,960. During the last three years, the following sources have contributed to the Partnership's total income:
Years Ended December 31, Percent of Total Income From: 1997 1996 1995 ---- ---- ---- Rental income 0% 0% 1% Interest income 100% 100% 99% Gain on sale -- -- --
The real estate market is highly competitive and results of operations of the Partnership will depend upon the comparative yields available from time to time on real estate and other investments. These factors, in turn, are influenced to a large extent by the type of investment involved, the condition of the money market, the nature and geographical location of the property, competition and other factors. The success of the Partnership also depends upon factors generally applicable to the real estate investment market, including general trends in the economy, construction costs, changes in income tax laws, increases or decreases in operating expenses, governmental regulations, real estate market fluctuations, shifts in industrial centers, population trends, legislation and the ability of the Partnership to keep its properties leased at profitable levels. The rules and regulations adopted by various agencies of federal, state or local governments relating to environmental controls and the development and operation of real property may adversely affect the properties currently owned by the Partnership. While the Partnership does not believe environmental controls have had a material impact on its activities, there can be no assurance that the Partnership will not be adversely affected by such controls in the future. The Partnership presently has no employees. The Managing General Partner provides administrative services for the Partnership and manages the Partnership's properties. 2 5 Recent And Proposed Tax Legislation Since 1986, significant tax legislation has been enacted into law each year. The Omnibus Budget Reconciliation Act of 1993 enacted significant tax changes that include (i) modifying the passive loss rules for persons in certain real estate trades or businesses, (ii) relaxing the restrictions on pension plan investments in real estate, (iii) extending the depreciable life of nonresidential real estate, (iv) increasing the individual tax rates to 36 percent for certain high income taxpayers and adding a 10 percent surtax for certain higher income taxpayers, for a total possible nominal marginal individual tax rate of 39.6 percent, (v) increasing the tax rate from 34 percent to 35 percent for highly profitable corporations, (vi) reducing the deductible portion of meals and entertainment expenses from 80 percent to 50 percent, (vii) disallowing the deduction for compensation in excess of $1 million to individuals (unless linked to productivity), (viii) improving compliance with the tax laws, (ix) initiating a broad-based tax on all types of energy, including fuel oil, coal and natural gas, (x) creating a permanent small business tax credit and a temporary marginal investment tax credit for all qualifying tangible personal property investments, (xi) simplifying and enhancing depreciation provisions for companies subject to the alternative minimum tax, and (xii) providing relief from a portion of the gain from capital gains tax for investors in small businesses. The Taxpayer Relief Act of 1997 made significant changes to tax rates and holding periods relating to capital assets held by individuals. The Internal Revenue Service ("IRS") has not yet issued regulations to carry out numerous provisions enacted as part of the tax legislation passed since 1986. Nor has the IRS addressed the issues relating to the application of some of the new tax rules to partnerships or their partners. Until such regulations are issued by the IRS, it is difficult to gauge what impact, if any, such new legislation may have on entities such as the Partnership and its partners. ITEM 2. PROPERTIES Recent Dispositions of Partnership Properties No partnership properties were sold during the year ended December 31, 1997. 3 6 ITEM 3. LEGAL PROCEEDINGS On August 29, 1995, the Partnership instituted judicial foreclosure proceedings against W & F Building Maintenance ("W & F"), who was in possession of the property located at 4350 Warehouse Court in Sacramento, California. W & F had defaulted on the Note in favor of the Partnership, and the Partnership sought to enforce the terms of the Deed of Trust also in its favor. On August 31, 1995, the Court appointed a Receiver to operate and manage the property during the pendency of the foreclosure. That appointment was subsequently confirmed by the Court on September 11, 1995. Thus far, the receivership has been in possession of the property, has been collecting rents, and has reported to the court periodically. A Notice of Default was recorded on November 3, 1995. Subsequent to year-end, the foreclosure action against W & F has been resolved. A third party purchased the Note and Deed of Trust from the Partnership, and all disputes, contentions and claims were released as between the litigants to the foreclosure action. The Receivership was thereupon terminated, and the foreclosure proceedings were suspended. On February 14, 1996 the Note was paid off at a discount resulting in a loss to the partnership in the amount of $150,148. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 4 7 - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Partnership offered its Units to California residents from February 1986 until August 1987. There is no public trading market for the Units. As of December 31, 1997, there were 1,632 record holders of Units. There are no outstanding options or warrants to purchase, or securities convertible into, Units. The Partnership has not entered into any agreements to register any Units under the Securities Act of 1933. The Partnership has paid the following distributions since its inception:
Aggregate Distribution Per Record Date Distribution Limited Partner Unit ----------- ------------ -------------------- 9/30/86 $ 23,301 None to $0.20 4/14/90 $ 399,937 $0.87 3/15/91 $ 459,698 $1.00 2/07/92 $ 459,698 $1.00 2/28/93 $1,149,245 $2.50 2/01/94 $ 459,698 $1.00 10/03/94 $2,413,414 $5.25 12/04/95 $ 114,924 $0.25 04/30/96 $1,608,942 $3.50 02/12/97 $ 298,804 $0.65 10/15/97 $ 298,804 $0.65
ITEM 6. SELECTED FINANCIAL DATA The following represents selected financial data for Commonwealth Growth Fund II for the years ended December 31, 1997, 1996, 1995, 1994, and 1993. The data should be read in conjunction with the other financial statements and related notes included elsewhere herein.
Years Ended -------------------------------------------------------------------------------------- 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 -------- -------- -------- -------- -------- Revenues $ 123,351 175,347 263,293 573,888 722,245 Net (loss) income(1)(2) $ (44,518) (128,259) 112,589 (448,106) 216,177 Total assets $ 1,365,373 2,024,991 3,702,944 3,705,279 7,101,276 Net (loss) income per limited partnership unit $ (.09) (.27) .23 (.98) .40 Cash distributions per limited partnership unit $ 1.30 3.50 .25 6.25 2.50
(1) Includes net (loss) gain from disposal of rental properties and notes receivable of $(150,148), $0, $(627,468), and $(109,528) in 1996, 1995, 1994, and 1993, respectively. 5 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources From February 1986 to August 1987, the Partnership sold 459,698 Units for $20.00 per Unit. The net proceeds from the sale of Units, after deducting selling commissions and other costs of the offering, were $7,663,402. The Partnership has met its liquidity needs through operating income, cash reserves, borrowings collateralized by deeds of trust on its properties, unsecured borrowing and collection of notes receivable. The Partnership has no unfunded material commitments for 1998. The Partnership anticipates that operating income and collection of notes receivable will be adequate to meet future liquidity needs. Results of Operations 1997 vs. 1996 Net loss decreased by $45,415 from 1996 to 1997 as a result of the following: Interest income decreased by $51,997 due to the payment of the Pick Note in full and from less cash held in bank accounts. As the Pick Note was redeemed at face value, the Partnership did not experience a gain or loss on the transaction. General and administrative expenses increased by $52,736, however, $39,553 of this increase was attributable to a one time adjustment to administrative expenses incurred by the general partners in prior years. 1996 vs. 1995 Net income decreased $228,853 from 1995 to 1996 as a result of the following: Net rental income decreased by $3,192 and net rental expenses decreased by $20,411 due to the final disposal of rental property in 1995. The Partnership incurred a loss of $150,148 on the disposal of the Pierce note after finalization and termination of the bankruptcy proceedings surrounding this asset. Interest income decreased by $84,804 from 1995 to 1996 also due to the disposal of the Pierce note. General and administrative expenses increased by $23,165 from 1995 to 1996; however $38,326 of this increase was attributable to a one-time adjustment to accrue expenses incurred by the General Partners in prior years but which had not yet been repaid. 1995 vs. 1994 Net income increased $560,695 from 1994 to 1995 due to the loss on disposal of the Southland Park Drive property in October of 1994. The sale of this property also attributed to the decrease from 1994 to 1995 in rental income ($182,662 or 98%), depreciation ($38,069 or 100%), and operating expenses ($231,044 or 92%). Interest income decreased $127,933 (33%) from 1994 to 1995 as a result of the payoff of a note receivable in August of 1994. General and administrative expenses increased $25,541 (24%) from 1994 to 1995 primarily due to increased legal expenses relating to the foreclosure proceedings as discussed in Item 3. Legal Proceedings. 6 9 Future Operations The Partnership is no longer investing or reinvesting in real property investments, however, it is continuing to improve the investments it already owns. Although the Partnership Agreement permits reinvestment of proceeds from dispositions of Partnerships properties, the Partnership has determined not to reinvest such proceeds except to the extent necessary to protect Partnership assets. Accordingly, the Partnership is now in an operations and liquidation phase. Proceeds from the disposition of any of the Partnership's assets will be distributed to partners. Impact of Inflation The Partnership's operations have not been materially affected by inflation. The rate of inflation has been relatively low since the Partnership commenced operations in May 1986. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Independent Auditors' Report 8 Balance Sheets December 31, 1997 and 1996 9 Statements of Income Years Ended December 31, 1997, 1996 and 1995 10 Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 11 Statements of Partners' Equity Years Ended December 31, 1997, 1996 and 1995 12 Notes to Financial Statements 13-16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 10 [DONALD M. MEYER LETTERHEAD] INDEPENDENT AUDITOR'S REPORT The Partners Commonwealth Growth Fund II: We have audited the accompanying balance sheet of Commonwealth Growth Fund II as of December 31, 1997 and the related statements of operations, partners' equity and cash flows for the year then ended. In connection with our audit of the financial statements, we also have audited the accompanying financial statement schedules as listed in the accompanying index. These financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Growth Fund II at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ DONALD M. MEYER Donald M. Meyer, CPA March 31, 1998 8 11 COMMONWEALTH GROWTH FUND II (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS Land $ 160,000 160,000 Notes receivable 1,096,000 1,454,869 Cash 97,727 364,874 Other assets 11,645 45,198 ----------- ----------- Total assets $ 1,365,372 2,024,941 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 5,002 43,224 Deferred gain 69,739 69,739 ----------- ----------- Total liabilities 74,741 112,963 ----------- ----------- Partners' Equity: General partners' equity (3,265) (21,847) Limited partners' equity; authorized 1,000,000 units; issued and outstanding 459,698 in 1996 and 1994 1,293,896 1,933,825 ----------- ----------- Total partners' equity 1,290,631 1,911,978 ----------- ----------- Total liabilities and partners' equity $ 1,365,372 2,024,941 =========== ===========
See accompanying notes to financial statements. 9 12 COMMONWEALTH GROWTH FUND II (A LIMITED PARTNERSHIP) STATEMENTS OF INCOME (LOSS) YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995 --------- --------- --------- Rental income $ -- -- 3,192 Expenses: Operating expenses -- -- 20,411 Interest -- -- -- Depreciation and amortization -- -- -- --------- --------- --------- (Loss) income from rental operations -- -- (17,219) Interest income 123,350 175,297 260,101 General and administrative expenses 167,868 153,458 130,293 --------- --------- --------- Net income before loss on sale of rental properties (44,518) 21,839 112,589 Loss on disposal of rental properties and notes receivable -- (150,148) -- --------- --------- --------- Net income (loss) (44,518) (128,309) 112,589 Allocated to general partners (2,226) (6,415) 5,630 --------- --------- --------- Allocated to limited partners $ (42,292) (121,894) 106,959 ========= ========= ========= Net income (loss) per Limited Partnership unit $ (0.09) (0.27) 0.23 ========= ========= =========
See accompanying notes to financial statements. 10 13 COMMONWEALTH GROWTH FUND II (A Limited Partnership) Statements of Cash Flows Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) $ (44,518) (128,309) 112,589 ---------- ---------- ---------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization -- -- -- Loss on disposal of rental properties and notes receivable -- 150,148 -- Changes in other assets and liabilities: (Increase) decrease in other assets 33,553 40,525 (25,910) Increase (decrease) in accounts payable and accrued expenses (38,222) 37,175 6,049 Decrease in security deposits -- -- -- ---------- ---------- ---------- Total adjustments to net income (4,669) 227,848 (19,861) ---------- ---------- ---------- Net cash provided by operating activities (49,187) 99,539 92,728 ---------- ---------- ---------- Cash flows from investing activities: Purchases of and improvements to rental properties -- -- -- Proceeds from the sale of rental properties -- -- -- Acquisition of properties -- -- -- Investment in notes receivable -- -- -- Collections on notes receivable 358,869 1,414,021 35,831 ---------- ---------- ---------- Net cash provided by investing activities 358,869 1,414,021 35,831 ---------- ---------- ---------- Cash flows from financing activities: Distributions to partners (616,382) (1,625,194) (120,973) ---------- ---------- ---------- Contributions 39,553 Net cash used by financing activities (576,829) 38,326 (120,973) ---------- ---------- ---------- Net increase (decrease) in cash (267,147) (73,308) 7,586 Cash, beginning of year 364,874 438,182 430,596 ---------- ---------- ---------- Cash, end of year $ 97,727 364,874 438,182 ========== ========== ==========
See accompanying notes to financial statements. 11 14 COMMONWEALTH GROWTH FUND II (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL LIMITED PARTNERS PARTNERS TOTAL ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1994 (37,087) 3,672,626 3,635,539 Net income 5,630 106,959 112,589 Distributions (6,049) (114,924) (120,973) ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1995 (37,506) 3,664,661 3,627,155 Net Loss (6,415) (121,894) (128,309) Contributions 38,326 -- 38,326 Distributions (16,252) (1,608,942) (1,625,194) ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1996 $ (21,847) 1,933,825 1,911,978 ---------- ---------- ---------- Net Loss (2,226) (42,292) (44,518) Contributions 39,553 39,553 Distributions (18,745) (597,637) (616,382) BALANCE AT DECEMBER 31, 1997 (3,265) 1,293,896 1,290,631 ========== ========== ==========
See accompanying notes to financial statements. 12 15 COMMONWEALTH GROWTH FUND II (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) ORGANIZATION AND PARTNERSHIP AGREEMENT Commonwealth Growth Fund II (the Partnership) is a Limited Partnership organized under the laws of the State of California to acquire, hold for investment, and ultimately sell real property investments. The Partnership was organized in December 1985 and commenced operations in May 1986 when subscription for the minimum of 58,825 ($1,176,500) Limited Partnership units (Units) had been obtained. The Managing General Partner is B&B Property Investment, Development and Management Company, Inc., a California corporation (B&B), and Jeffrey B. Berger is the Individual General Partner. Each general partner made an initial capital contribution of $5,000. Profits, losses and cash distributions from operations for financial and income tax reporting purposes are allocated 5% to the General Partners and 95% to the Limited Partners. Profits, losses and cash distributions from sale or refinancing of Partnership properties are allocated in accordance with the Partnership Agreement. (b) BASIS OF PRESENTATION The Partnership prepares its financial statements in accordance with generally accepted accounting principles. Accordingly, revenues are recognized when earned and expenses are recognized when incurred. (c) NET INCOME PER LIMITED PARTNERSHIP UNIT The net income per Limited Partnership unit is computed based on the weighted average number of Units outstanding during the year. The weighted average number of units were 459,698 for 1997, 1996, and 1995. According to Gemisys, Inc., the transfer agent, some transfers of units took place. Source of the transfers appear to have been made to already existing unit holders, thereby reducing the number of holders by four (4) from a total of 1637 to 1632. 13 16 COMMONWEALTH GROWTH FUND II (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (d) INCOME TAXES A provision for federal and state income taxes is not included in the accompanying financial statements because the Partnerships' income, deductions, credits and other items are allocated to the individual partners for inclusion in their income tax returns. (e) LEASING COMMISSIONS AND LOAN FEES Leasing commissions and loan fees paid are included in other assets. Leasing commissions are amortized over the lease term and loan fees are amortized over the term of the loan using the straight-line method. (f) SALES OF REAL ESTATE The Partnership complies with the provisions of Financial Accounting Standards Board Statement No. 66, "Accounting for Sales of Real Estate." Accordingly, the recognition of gains on certain transactions are deferred until such transactions have complied with the criteria for full profit recognition under the statement. (2) TRANSACTIONS WITH THE MANAGING GENERAL PARTNER The Managing General Partner is entitled to receive a 3% fee on a sale of Partnership property provided all Limited Partners have received distributions equal to their original capital contributions plus a 6% cumulative return. Property management responsibilities of the Partnership are provided by B&B Property Investments, Inc. (B&B Property), a wholly-owned subsidiary of B&B. Property management fees were $7,920, $11,222 and $12,957 for 1997, 1996 and 1995, respectively. 14 17 COMMONWEALTH GROWTH FUND II (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (3) RENTAL PROPERTIES At December 31, 1997, 1996 and 1995, respectively, the Partnership had no investments in rental properties. (4) NOTES RECEIVABLE The Partnership has invested in a variety of notes collateralized by deeds of trust. Generally, the notes are collateralized by properties in California. Notes receivable consist of the following:
December 31, ------------------------- 1997 1996 ---------- ---------- Note receivable, interest at 10% per annum payable monthly, principal due and payable October, 1996, collateralized by a first deed of trust $ 358,869 Note receivable, interest at 8.5% per annum payable monthly, principal due and payable October, 2001, collateralized by a first deed of trust 1,096,000 1,096,000 ---------- ---------- $1,096,000 1,454,869 ========== ==========
15 18 COMMONWEALTH GROWTH FUND II (A Limited Partnership) Notes to Financial Statements (5) RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING A reconciliation of the financial statement method of accounting to the income tax method of accounting is as follows:
1997 1996 1995 ----------- ----------- ----------- Net income(loss) - financial $ (44,518) $ (128,309) $ (112,589) Increases (reductions) to taxable income resulted from: Tax gain (loss) in excess of book from gain on sale of properties -- 33,268 Accelerated depreciation -- -- -- ----------- ----------- ----------- Net income(loss) - income tax method $ (44,518) (128,309) (79,321) =========== =========== =========== Taxable income per Limited Partnership Unit after giving effect to the taxable income allocated to the general partner $ (.09) (.27) .23 =========== =========== =========== Partners' equity $ 1,290,631 1,911,978 3,627,156 Increases (reductions) resulting from: Tax gain in excess of book gain on sale of properties 547,158 547,158 547,158 Nondeductible valuation losses and reserves 153,783 153,783 153,783 Accelerated depreciation (51,443) (51,443) (51,443) Selling expenses for Partnership units 1,530,546 1,530,546 1,530,546 ----------- ----------- ----------- Partners' equity - income tax method $ 3,470,675 4,092,022 5,807,200 =========== =========== ===========
(6) STATEMENTS OF CASH FLOWS SUPPLEMENTARY INFORMATION None. 16 19 - -------------------------------------------------------------------------------- PART III - -------------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Management of the Partnership The Managing General Partner has exclusive management and control of the affairs of the Partnership and has general responsibility for and final authority in all matters affecting the Partnership's business. In order to protect the limited partners from personal liability as general partners, the limited partners have no right to participate in management or control of the Partnership's business or affairs other than to exercise limited voting rights as provided in the Partnership Agreement. Historically, the Managing General Partner's specific responsibilities have included (1) locating and evaluating properties suitable for investment; (2) negotiating and entering into agreements on behalf of the Partnership with respect to the acquisition, development and disposition of such properties; and (3) operating the properties owned by the Partnership. The Managing General Partner determines, based upon a regular review of available financing and of the real estate markets in the areas in which the Partnership's properties are located and elsewhere, whether or not and at what time it is in the best interests of the Partnership to sell or refinance properties. At such time as the Managing General Partner determines to sell or refinance a property, it may employ others, including its affiliates, to locate potential purchasers or lenders and otherwise assist in the sale or refinancing. By executing the Subscription Agreement and the Partnership Agreement, limited partners granted the Managing General Partner the right to admit, in its sole discretion without further concurrence of the limited partners, any person, including any affiliate, as an additional general partner of the Partnership so long as such action does not increase the interest of the General Partners as a group or the fees, commissions and other payments to the General Partners as a group over the amounts provided for in the Partnership Agreement. The officers and directors of the Managing General Partner are as follows:
Served as Officer Name Age Position or Director Since - ---- --- -------- ----------------- Jeffrey B. Berger 45 Chairman of the 1976 Board and President
17 20 Resumes of Managing General Partner's Key Management The following is a brief description of the background and experience of the officers and directors of the Managing General Partner: Jeffrey B. Berger. Mr. Berger is the Chairman of the Board of Directors of the Managing General Partner and the individual General Partner of the Partnership. He was President of the Managing General Partner from 1976 until 1990 and from 1992 to date. Mr. Berger has over 23 years of experience in real estate and business management and marketing. Mr. Berger served as Chairman of the Board of Trustees of Commonwealth Equity Trust USA, a California real estate investment trust ("CET USA") from 1986 to 1991, as Chairman of the Board of Trustees of Cal REIT from 1988 to 1991 and as Chairman of the Board of Director of BBR from 1988 to 1991. Mr. Berger also formerly was President and Chairman of the Board of Directors of The B.B. Real Estate Investment Corporation ("B.B. Real Estate"), a majority owned subsidiary of CET, which merged with and into Cal REIT in July 1989. Mr. Berger holds a B.A. degree from the University of California at Davis and a J.D. degree from Western State University College of Law. He is a member of the State Bar of California and the American Bar Association. The business address of the foregoing person is in care of the Managing General Partner. ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any employees. The Partnership's business is conducted by the Managing General Partner, which is entitled to acquisition fees, property management fees, sales fees, placement fees, a subordinated incentive fee and an interest in the Partnership. All of such fees are provided for in Article 6 of the Partnership Agreement. The Managing General Partner's fees totalled $7,920 in 1997. In addition, the General Partners are entitled to be reimbursed for out-of-pocket expenses incurred on behalf of the Partnership and paid to non-affiliated persons. To partially defray the direct costs to the Managing General Partner of performing administrative and transfer agency services for the Partnership, including non-supervisory salaries incurred in performing such services for the Partnership and salaries for those who perform services for the Partnership which could be performed by independent parties, such as legal, accounting, transfer agent, partner relations, data processing, duplicating, tax return preparation and reporting services, the Partnership advanced 5% of the gross proceeds of the offering of the Units to the Managing General Partner during the offering period. 18 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No executive officer or director of the Managing General Partner owns any Units. The Managing General Partner and Mr. Berger each contributed $5,000 to Partnership capital accounts; however, no securities were issued in respect thereof. No person is known to the Partnership to own beneficially more than 5% of the Units. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 19 22 - -------------------------------------------------------------------------------- PART IV - -------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Page - ---------------------------- ---- Independent Auditors' Report 8 Balance Sheets December 31, 1997 and 1996 9 Statements of Operations Years ended December 31, 1997, 1996 and 1995 10 Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995 11 Statements of Partners' Equity Years ended December 31, 1997, 1996 and 1995 12 Notes to Financial Statements 13-16 (a) (2) Financial Statement Schedules Schedule X Supplementary Income Statement Information 23 Schedule XI Real Estate and Accumulated Depreciation 24-25 Schedule XII Mortgage Loans on Real Estate 26-27
The statements and schedules referred to above should be read in conjunction with the financial statements and notes to financial statements included in Part II of this Form 10-K. Schedules not included in this item have been omitted because they are not applicable or because the required information is presented in the financial statements or notes thereto. 20 23 (a) (3) List of Exhibits
Item Number Description ----------- ----------- 3 Second Amended and Restated Agreement of Limited Partnership of Commonwealth Growth Fund II (previously filed with the Commission as Exhibit 3.0 to the Partnership's Form 10-K for the year ended December 31, 1987 and incorporated herein by reference) 4 See Sections 5, 7, 8 and 9 of Exhibit 3 10.1 Purchase and Sale Agreement for 700 University Avenue dated January 6, 1989 by and between Commonwealth Growth Fund II, as seller, and Max H. Hoseit, as buyer (previously filed with the Commission as Exhibit 10 to the Partnership's Form 10-K for the year ended December 31, 1988 and incorporated herein by reference) 10.2 Real Estate Purchase Contract and Deposit Receipt for Warehouse Court dated July 31, 1989 by and between Commonwealth Growth Fund II, as seller, and Joseph H. and Nancy B. Pierce and W. & F. Building Maintenance Company, Inc., as buyers (previously filed with the Commission as Exhibit 10.2 to the Partnership's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference) 10.3 Purchase and Sale Agreement for 7200 Southland Park Drive dated July 27, 1989 by and between Commonwealth Growth Fund II, as seller, and Andrew M. Hazen, as buyer (previously filed with the Commission as Exhibit 10.3 to the Partnership's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference) 10.4 Purchase and Sale Agreement for 715-735 University Avenue dated March 30, 1989 by and between Commonwealth Growth Fund II, as seller, and David Pick, as buyer (without exhibits) (previously filed with the Commission as Exhibit 10.4 to the Partnership's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference)
21 24 10.5 Purchase and Sale Agreement for 4210 Roseville Road dated May 18, 1992 by and between Commonwealth Growth Fund II, as seller, and John and Marian Fox, as buyer (without exhibits) (previously filed with the Commission as Exhibit 10.5 to the Partnership's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference) 10.6 Purchase and Sale Agreement for 9700 Goethe Road dated April 12, 1993 by and between Commonwealth Growth Fund II, as seller, and Steve Gold and Howard Goldenberg, as buyers (previously filed with the Commission as Exhibit 10.6 to the Partnership's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference) 27 Financial Data Schedule
(b) Reports on Form 8-K There were no reports on Form 8-K filed during the last quarter of the period covered by this report. 22 25 - -------------------------------------------------------------------------------- COMMONWEALTH GROWTH FUND II SCHEDULE X - SUPPLEMENTARY STATEMENT OF INCOME INFORMATION - --------------------------------------------------------------------------------
Charged to Costs and Expenses Item Years Ended December 31, - ----------------------- ---------------------------- 1997 1996 1995 ------ ------ ------ Real estate taxes $2,750 2,087 2,342 Repairs and maintenance -- -- --
23 26 - -------------------------------------------------------------------------------- COMMONWEALTH GROWTH FUND II SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 - --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Cost Capitalization Gross Amount at Which Initial Cost to Partnership Subsequent to Acquisition Carried at Close of Period Buildings, Improvements, and Personal Buildings and Description Encumbrances Land Property Improvements Carrying Cost Land Improvements LAND: Sunrise Blvd. & Whiterock Rd Sacramento, California None $160,000 -- -- -- 160,000 --
Column A Column F Column G Column H Column I Life on Which Depreciation in Latest Statement Accumulated Date of Date of Income is Description Total Depreciation Construction Acquired Computed LAND: Sunrise Blvd. & Whiterock Rd Sacramento, California 160,000 -- -- 10/94 n/a
24 27 - -------------------------------------------------------------------------------- COMMONWEALTH GROWTH FUND II SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION - -------------------------------------------------------------------------------- Reconciliation of total real estate carrying values for the three years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 -------- -------- -------- ASSET RECONCILIATION: BALANCE, BEGINNING OF YEAR $160,000 160,000 160,000 Additions: Cost of real estate acquired -- -- -- Deletions: Cost of properties sold -- -- -- -------- -------- -------- BALANCE, END OF YEAR $160,000 160,000 160,000 ======== ======== ========
25 28 - -------------------------------------------------------------------------------- COMMONWEALTH GROWTH FUND II SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized by Deeds of Trust) DECEMBER 31, 1997 - --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Final Interest Maturity Prior Description Rate Date Periodic Payment Terms Liens FIRST DEEDS OF TRUST: Commercial building 8.50% 2001 Monthly interest payments only - Sacramento, California
Column A Column F Column G Column H Carrying Principal Amount of Face Amount Amount of Loan Subject to of Note Note Delinquent Principal Description Receivable Receivable or Interest FIRST DEEDS OF TRUST: Commercial building 1,096,000 1,096,000 None Sacramento, California $ 1,096,000 1,096,000 0
26 29 - -------------------------------------------------------------------------------- COMMONWEALTH GROWTH FUND II SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized by Deeds of Trust) - -------------------------------------------------------------------------------- A summary of activity for notes receivable collateralized by deeds of trust for the three years ended December 31, 1997, 1996, and 1995 are as follows:
1997 1996 1995 ----------- ----------- ----------- BALANCE, BEGINNING OF YEAR $ 1,454,869 3,019,038 3,054,869 Additions: New loans -- -- -- Deletions: Collections of principal (358,869) (1,564,169) (35,831) ----------- ----------- ----------- BALANCE, END OF YEAR $ 1,096,000 1,454,869 3,019,038 =========== =========== ===========
27 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 GROWTH FUND II, a California Limited Partnership Dated: April 15, 1998 By: /s/ JEFFREY B. BERGER ------------------------------------- Jeffrey B. Berger, General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. COMMONWEALTH GROWTH FUND II, a California Limited Partnership By: B & B Property Investment, Development and Management Company, Inc., Its General Partner Dated: April 15, 1998 /s/ JEFFREY B. BERGER ------------------------------------- Jeffrey B. Berger, Chairman of the Board of Directors and President By: Jeffrey B. Berger, Its Individual General Partner Dated: April 15, 1998 /s/ JEFFREY B. BERGER ------------------------------------- Jeffrey B. Berger 28 31 ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 EXHIBIT INDEX For COMMONWEALTH GROWTH FUND II EXHIBIT INDEX
Exhibit Sequentially Number Exhibit Numbered Page - ------ ------- ------------- 3 Second Amended and Restated Agreement of N/A Limited Partnership of Commonwealth Growth Fund II (previously filed with the Commission as Exhibit 3.0 to the Partnership's Form 10-K for the year ended December 31, 1987 and incorporated herein by reference) 4 See Sections 5, 7, 8 and 9 of Exhibit 3 N/A 10.1 Purchase and Sale Agreement for 700 N/A University Avenue dated January 6, 1989 by and between Commonwealth Growth II, as Seller, and Max H. Hoseit, as Buyer (previously filed with the Commission as Exhibit 10 to the Partnership's Form 10-K for the year ended December 31, 1988 and incorporated herein by reference) 10.2 Real Estate Purchase Contract and Deposit N/A Receipt for Warehouse Court dated July 31, 1989 by and between Commonwealth Growth Fund II, as seller, and Joseph H. and Nancy B. Pierce and W. & F. Maintenance Company, Inc., as buyers (previously filed with the Commission as Exhibit 10.2 to the Partnership's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference) 10.3 Purchase and Sale Agreement for 7200 N/A Southland Park Drive dated July 27, 1989 by and between Commonwealth Growth Fund II as seller, and Andrew M. Hazen, as buyer (previously filed with the Commission as Exhibit 10.3 to the Partnership's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference)
29 32 10.4 Purchase and Sale Agreement for 715-735 N/A University Avenue dated March 31, 1989 by and between Commonwealth Growth Fund II, as seller, and David Pick, as buyer (without exhibits) (previously filed with the Commission as Exhibit 10.4 to the Partnership's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference) 10.5 Purchase and Sale Agreement for 4210 N/A Roseville Road dated May 18, 1992 by and between Commonwealth Growth Fund II, as seller, and John and Marian Fox, as buyer (without exhibits) (previously filed with the Commission as Exhibit 10.5 to the Partnership's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference) 10.6 Purchase and Sale Agreement for 9700 Goethe N/A Road dated April 12, 1993 by and between Commonwealth Growth Fund II, as seller, and Steve Gold and Howard Goldenberg, as buyers (previously filed with Commission as Exhibit 10.6 to the Partnership's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference) 27 Financial Data Schedule
30 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT DECEMBER 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL 1997 10-K. YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 97,727 0 1,096,000 0 0 1,205,372 160,000 0 1,365,372 74,741 0 0 0 0 1,290,631 1,365,372 0 123,350 0 0 167,868 0 0 (44,518) 0 (44,518) 0 0 0 (44,518) (.09) (.09)
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