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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 III, L.P.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2895714
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
470 John Young Way Suite 300
Exton, PA 19341
(Address, including zip code, of principal executive offices)
(610) 594-9600
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days: YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12c-2 of the Act): YES [ ] NO [X]
COMMONWEALTH INCOME & GROWTH FUND III, L.P.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
---------------------------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 3,937 $ 557
Lease income receivable 5,062 9,181
Prepaid expenses 228 --
---------------------------------
9,227 9,738
---------------------------------
Computer equipment, at cost 957,898 1,955,197
Accumulated depreciation (807,335) (1,635,341)
---------------------------------
150,563 319,856
---------------------------------
Equipment acquisition costs and deferred expenses, net 3,375 6,867
---------------------------------
TOTAL ASSETS $ 163,165 $ 336,461
=================================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 23,813 $ 26,762
Accounts payable - Affiliated limited partnerships 42,869 25,707
Accounts payable - General Partner 348,981 134,524
Accounts payable - Commonwealth Capital Corp. -- 53,648
Unearned lease income 943 1,636
Notes payable 37,906 91,436
---------------------------------
TOTAL LIABILITIES 454,512 333,713
---------------------------------
PARTNERS' CAPITAL
General partner 1,000 1,000
Limited partners (292,347) 1,748
---------------------------------
TOTAL PARTNERS' CAPITAL (291,347) 2,748
---------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 163,165 $ 336,461
=================================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND III, L.P.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2004 2003 2004 2003
----------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
INCOME
Lease $ 33,535 $ 77,429 $ 126,261 $ 324,404
Interest and other 4,729 32 4,729 67
Gain on sale of computer equipment 2,407 13,861 6,451 17,177
----------------------------------------------------------------
TOTAL INCOME 40,671 91,322 137,441 341,648
----------------------------------------------------------------
EXPENSES
Operating 6,436 30,516 (3,436) 144,035
Equipment management fee - General Partner 1,677 3,871 6,313 16,220
Interest 769 2,559 3,214 10,073
Depreciation 32,203 76,011 182,811 294,710
Amortization of equipment
acquisition costs and deferred expenses 1,261 2,445 4,510 9,929
----------------------------------------------------------------
TOTAL EXPENSES 42,346 115,402 193,412 474,967
----------------------------------------------------------------
NET (LOSS) $ (1,675) $ (24,080) $ (55,971) $(133,319)
================================================================
NET (LOSS) PER EQUIVALENT LIMITED
PARTNERSHIP UNIT $ (0.01) $ (0.16) $ (0.37) $ (0.88)
================================================================
WEIGHTED AVERAGE NUMBER OF EQUIVALENT LIMITED
PARTNERSHIP UNITS OUTSTANDING DURING THE PERIOD 151,178 151,178 151,178 151,178
================================================================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND III, 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 50 151,178 $ 1,000 $ 1,748 $ 2,748
Net income (loss) 2,351 (58,322) (55,971)
Distributions (2,351) (235,773) (238,124)
------------------------------------------------------------------------------
PARTNERS' CAPITAL - SEPTEMBER 30, 2004 50 151,178 $ 1,000 $ (292,347) $ (291,347)
==============================================================================
see accompanying notes to financial statements
COMMONWEALTH INCOME & GROWTH FUND III, L.P.
STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
-----------------------------
OPERATING ACTIVITIES (UNAUDITED) (UNAUDITED)
Net (loss) $ (55,971) (133,319)
Adjustments to reconcile net (loss) to net cash
provided by operating activities
Depreciation and amortization 187,321 304,639
(Gain) on sale of computer equipment (6,451) (17,177)
Other noncash activities included in
determination of net (loss) (72,091) (127,582)
Changes in assets and liabilities
(Increase) decrease in assets
Lease income receivable 4,119 (3,705)
Prepaid expenses (228) (1,500)
Increase (decrease) in liabilities
Accounts payable (2,949) (2,151)
Accounts payable, General Partner 146,469 76,268
Accounts payable, Commonwealth Capital Corp. 14,340 94,555
Accounts payable, Affiliated limited partnerships 17,162 22,534
Unearned lease income (693) (34,734)
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 231,028 177,828
-----------------------------
INVESTING ACTIVITIES:
Capital expenditures (2,249) --
Net proceeds from the sale of computer equipment 13,743 60,973
Equipment acquisition fees paid to General Partner (832) --
-----------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 10,662 60,973
-----------------------------
FINANCING ACTIVITIES:
Distributions to partners (238,124) (238,123)
Debt placement fee paid to the General Partner (186) --
-----------------------------
NET CASH (USED IN) FINANCING ACTIVITIES (238,310) (238,123)
-----------------------------
Net increase in cash and cash equivalents 3,380 678
Cash and cash equivalents, beginning of period 557 497
-----------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,937 $ 1,175
=============================
see accompanying notes to financial statements
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS Commonwealth Income & Growth Fund III (the "Partnership") is a
limited partnership organized in the Commonwealth of
Pennsylvania. The Partnership offered for sale up to 750,000
Units of the limited partnership at the purchase price of $20
per unit (the "Offering"). The Offering was terminated at the
close of business on July 31, 2000 by the General Partner. The
Partnership used the proceeds of the Offering 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
that is an indirect wholly owned subsidiary of CCC.
Approximately ten years after the commencement of operations,
the Partnership intends to sell or otherwise dispose of all of
its computer equipment, make final distributions to partners,
and to dissolve. Unless sooner terminated, the Partnership
will continue until December 31, 2009.
2. BUSINESS PLAN The General Partner and CCC have forgiven amounts payable by
the Partnership to them and have deferred payments on other
amounts to allow for distributions to limited partners. The
General Partner and CCC have committed to fund, either through
cash contributions and/or forgiveness of indebtedness, any
necessary cash shortfalls of the Partnership, including the
amounts necessary to fund, if any, distributions to limited
partners, through December 31, 2004.
The Partnership intends to purchase additional equipment once
funds become available through either future rentals from
existing leases, extensions from those existing leases, or
through sale of equipment.
The General Partner intends to review and reassess the
Partnership's business plan quarterly.
3. SUMMARY OF BASIS OF PRESENTATION
SIGNIFICANT
ACCOUNTING The financial information presented as of any date other than
POLICIES 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 has only entered
into operating leases. Lease revenue is recognized on a
monthly basis in accordance with the terms of the operating
lease agreements.
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.
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 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
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, the Partnership recorded an impairment
charge of approximately $28,000 to record the assets at their
estimated fair value. Such amounts have been included in
depreciation expense in the accompanying financial statements.
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 Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents. 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 are payments for selling commissions, dealer
manager fees, professional fees and other offering expenses
relating to the syndication. Selling commissions were 7% of
the partners' contributed capital and dealer manager fees were
2% of partners' contributed capital. These costs were deducted
from partnership capital in the accompanying financial
statements.
NET INCOME (LOSS) PER EQUIVALENT LIMITED PARTNERSHIP UNIT
The net income (loss) per equivalent limited partnership unit
is computed based upon net income (loss) allocated to the
limited partners and the weighted average number of equivalent
units outstanding during the period.
REIMBURSABLE EXPENSES
Reimbursable expenses, which are charged to the Partnership by
CCC in connection with the administration and operation of the
Partnership, are allocated to the Partnership based upon
several factors including, but not limited to, the number of
investors, compliance issues, and the number of existing
leases.
4. COMPUTER The Partnership is the lessor of equipment under operating
EQUIPMENT leases with periods ranging from 24 to 36 months. In general,
the lessee pays associated costs such as repairs and
maintenance, insurance and property taxes.
The Partnership's share of the computer equipment in which it
participates with other partnerships at September 30, 2004 and
December 31, 2003 was approximately $277,000 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 $2,156,000 for both
period ends. The Partnership's share of the outstanding debt
associated with this equipment at September 30, 2004 and
December 31, 2003 was approximately $2,000 and $37,000,
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 $69,000
and $510,000, 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 23,000
Year Ended December 31, 2006 6,000
----------
$ 51,000
-----------------------------------------------------------
5. 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, the Partnership recorded
income of $18,000 and for the nine months ended September 30,
2003 recorded expense of approximately $60,000 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 $6,000 and $16,000, respectively, were earned by
the General Partner. As of September 30, 2004 and December 31,
2003, the unpaid balance was approximately $32,000 and $9,000,
respectively.
EQUIPMENT LIQUIDATION FEE
With respect to each item of equipment sold by the General
Partner (other than in connection with a conditional sales
contract), a fee equal to the lesser of (i) 50% of the
competitive equipment sale commission or (ii) three percent of
the sales price for such equipment is payable to the General
Partner. The payment of such fee is subordinated to the
receipt by the limited partners of the net disposition
proceeds from such sale in accordance with the Partnership
Agreement. Such fee will be reduced to the extent any
liquidation or resale fees are paid to unaffiliated parties.
During the nine months ended September 30, 2004 and 2003,
equipment liquidation fees of approximately $1,000 and $2,000,
respectively, were earned by the General Partner.
6. NOTES PAYABLE Notes payable consisted of the following:
SEPTEMBER 30, DECEMBER 31,
2004 2003
-------------------------------------------------------------------------------
Installment notes payable to banks;
interest ranging from 6.75% to 8.00%,
due in monthly installments ranging
from $382 to $3,831, including
interest, with final payments due
from January through November 2004. 1,199 38,222
Installment notes payable to banks;
interest ranging from 6.25% to 6.75%,
due in monthly installments ranging
from $123 to $1,735, including
interest, with final payments due
from February through April 2005. 21,284 53,214
Installment notes payable to
banks; interest at 6.00%, due in
monthly installments ranging from
$320 to $394, including interest, with
final payments due from March through
December 2006. 15,423 -
---------- -----------
$ 37,906 $ 91,436
========== ===========
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 $ 14,102
Year ended December 31, 2005 18,276
Year ended December 31, 2006 5,528
--------
$ 37,906
========
7. SUPPLEMENTAL Other noncash activities included in the determination of
CASH FLOW net loss 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 $ 72,091 $ 127,582
No interest or principal on notes payable was paid by the
Partnership because direct payment was made by lessee to the bank
in lieu of collection of lease income and payment of interest and
principal by the Partnership.
Non-cash operating, investing and financing activities include the following:
Nine months ended September 30, 2004 2003
- --------------------------------------------------------------------------------
Forgiveness of related party payables
recorded as a capital contribution - $45,028
- --------------------------------------------------------------------------------
Debt assumed in connection with purchase
of computer equipment $ 18,561 $ -
- --------------------------------------------------------------------------------
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
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. 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 has only entered into operating
leases. Lease revenue is recognized on a monthly basis in accordance with the
terms of the operating lease agreements.
The Partnership reviews a customer's credit history extending credit and
establishes provisions for uncollectible accounts 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 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 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 cash from operations of approximately $74,000 and
$178,000, respectively, net proceeds received from sales of equipment of
approximately $14,000 and $61,000, respectively and cash advances from the
General Partner of approximately $157,000 for the nine months ended September
30, 2004. There were no capital advances from the General Partner during the
nine months ended September 30, 2003. The primary uses of cash for the nine
months ended September 30, 2004 and 2003 were for payments of preferred
distributions to partners of approximately $238,000 for both periods and for the
purchase of computer equipment of approximately $2,000 for the nine months ended
September 30, 2004. There was no equipment purchased for the nine months ended
September 30, 2003.
The Partnership sold computer equipment for the nine months ending September 30,
2004 with a net book value of approximately $7,000 for a net gain on sale of
equipment of approximately $6,000. For the nine months ended September 30, 2003,
the Partnership sold computer equipment with a net book value of approximately
$44,000 for a net gain on sale of equipment of approximately $17,000.
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 approximately $22,000 for the balance of the
year ending December 31, 2004 and $29,000 thereafter. At September 30, 2004, the
outstanding debt was approximately $38,000, with interest rates ranging from
6.00% to 8.00%, and will be payable through December 2006.
The Partnership's cash from operations is expected to continue to be adequate to
cover all operating expenses, liabilities, and preferred distributions to
Partners during the next 12-month period. If available Cash Flow or Net
Disposition Proceeds are insufficient to cover the Partnership expenses and
liabilities on a short and long term basis, the Partnership will attempt to
obtain additional funds by disposing of or refinancing Equipment, or by
borrowing within its permissible limits. The Partnership may, from time to time,
reduce the distributions to its Partners if it deems necessary. Since the
Partnership's leases are on a "triple-net" basis, no reserve for maintenance and
repairs are deemed necessary.
The Partnership's share of the computer equipment in which it participates with
other partnerships at September 30, 2004 and December 31, 2003 was approximately
$277,000 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 $2,156,000 for both period ends. The Partnership's share of the
outstanding debt associated with this equipment at September 30, 2004 and
December 31, 2003 was approximately $2,000 and $37,000, 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 $69,000 and $510,000,
respectively.
The General Partner and CCC have forgiven amounts payable by the Partnership to
them and have deferred payments on other amounts to allow for distributions to
limited partners. The General Partner and CCC have committed to fund, either
through cash contributions and/or forgiveness of indebtedness, any necessary
cash shortfalls of the Partnership, including the amounts necessary to fund, if
any, distributions to limited partners, through December 31, 2004. The
Partnership intends to purchase additional equipment once funds become available
through either future rentals from existing leases, extensions from those
existing leases, or through sale of equipment.
The General Partner intends to review and reassess the Partnership's business
plan annually.
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 $41,000 and expenses of approximately $43,000, resulting in a net
loss of approximately $2,000. For the quarter ended September 30, 2003, the
Partnership recognized income of approximately $91,000 and expenses of
approximately $115,000, resulting in a net loss of approximately $24,000.
Lease income decreased by 57% to approximately $34,000 for the quarter ended
September 30, 2004, from approximately $77,000 for the quarter ended September
30, 2003, primarily due to the fact that more lease agreements ended than new
lease agreements were acquired since the quarter ended 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. With the exception of legal and
accounting fees, CCC has determined that in the best interest of the
Partnership, the majority of shared expenses will not be allocated to the
Partnership. The expenses decreased 79% to approximately $6,000 for the quarter
ended September 30, 2004, from $31,000 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 administration and operation of
approximately $13,000, a decrease in outside services of approximately $3,000, a
decrease in due diligence of approximately $4,000, a decrease in postage of
approximately $1,000 and a decrease in office supplies of approximately $2,000.
The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee decreased 57% to approximately $2,000 for the quarter ended
September 30, 2004, from approximately $4,000 for the quarter ended September
30, 2003, which is consistent with the decrease in lease income.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses decreased
57% to approximately $33,000 for the quarter ended September 30, 2004, from
approximately $78,000 for the quarter ended September 30, 2003 due to equipment
and acquisition fees being fully depreciated/amortized and not being replaced
with as many new purchases.
The Partnership sold computer equipment for the quarter ended September 30, 2004
with a net book value of approximately $4,000 for a net gain on sale of
equipment of approximately $2,000. For the quarter ended September 30, 2003, the
Partnership sold computer equipment with a net book value of approximately
$9,000 for a net gain on sale of equipment of approximately $14,000.
Interest expense decreased 70% to approximately $1,000 for the quarter ended
September 30, 2004, from approximately $3,000 for the quarter ended September
30, 2003, primarily due to the decrease in debt relating to the purchase of
computer equipment.
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 $137,000 and expenses of approximately $193,000, resulting in a
net loss of approximately $56,000. For the nine months ended September 30, 2003,
the Partnership recognized income of approximately $342,000 and expenses of
approximately $475,000, resulting in a net loss of approximately $133,000.
Lease income decreased by 61% to approximately $126,000 for the nine months
ended September 30, 2004, from approximately $324,000 for the nine months ended
September 30, 2003, primarily due to the fact that more lease agreements ended
than new lease agreements were acquired since the nine months ended 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. With the exception of legal and
accounting fees, CCC has determined that in the best interest of the
Partnership, the majority of shared expenses will not be allocated to the
Partnership. The expenses decreased 102% to income of approximately ($3,000) for
the nine months ended September 30, 2004, from $144,000 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 administration
and operation of approximately $76,000, a decrease in professional services of
approximately $13,000, a decrease in outside services of approximately $9,000, a
decrease in due diligence of approximately $15,000, a decrease in communication
expenses of approximately $3,000, a decrease in printing services of
approximately $6,000, a decrease in remarketing fees of approximately $2,000, a
decrease in insurance of approximately $8,000 and a decrease in office supplies
of approximately $6,000.
The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee decreased 61% to approximately $6,000 for the nine months ended
September 30, 2004, from approximately $16,000 for the nine months ended
September 30, 2003, which is consistent with the decrease in lease income.
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses decreased
39% to approximately $187,000 for the nine months ended September 30, 2004, from
approximately $305,000 for the nine months ended September 30, 2003 due to
equipment and acquisition fees being fully depreciated/amortized and not being
replaced with as many new purchases. Included in the September 30, 2004 amount
of $187,000 is an impairment charge of approximately $28,000, which is to adjust
an asset to its estimated fair value.
Interest expense decreased 68% to approximately $3,000 for the nine months ended
September 30, 2004, from approximately $10,000 for the nine months ended
September 30, 2003, primarily due to the decrease in debt relating to the
purchase of computer equipment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership believes its exposure to market risk is not material due to the
fixed interest rate of its long- term debt and its associated fixed revenue
streams.
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 III
Item 1. LEGAL PROCEEDINGS.
Inapplicable
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 III
BY: COMMONWEALTH INCOME &
GROWTH FUND, INC. General Partner
November 15, 2004 By: /s/ George S. Springsteen
- ----------------- ------------------------------
Date George S. Springsteen
President