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, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 333-26933
COMMONWEALTH INCOME & GROWTH FUND III
(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)
1160 West Swedesford Road
Berwyn, Pennsylvania 19312
(Address, including zip code, of principal executive offices)
(610) 647-6800
(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 [ ]
Commonwealth Income & Growth III
Balance Sheets
(AUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
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Assets
Cash and cash equivalents $ 240,725 $ 138,826
Lease income receivable 71,874 108,281
Accounts Receivable - General Partner -- 3,567
Other receivables and deposits -- 37
Computer equipment, at cost 3,507,310 3,355,144
Accumulated depreciation (1,421,713) (949,291)
----------- -----------
2,085,597 2,405,853
Equipment acquisition costs and deferred expenses,
net of accumulated amortization of $102,811 in
2000 and $61,939 in 1999 72,780 89,253
----------- -----------
Total Assets $ 2,470,976 $ 2,745,817
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 19,577 $ 26,785
Accounts payable - General Partner 4,880 --
Accounts payable - Commonwealth Capital Corp. 7,734 --
Unearned lease income -- 59,258
Notes payable 827,755 976,142
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Total liabilities 859,946 1,062,185
Partners' capital:
General partner 1,000 1,000
Limited partner 1,610,030 1,682,632
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Total partners' capital 1,611,030 1,683,632
----------- -----------
Total Liabilities and partners' equity $ 2,470,976 $ 2,745,817
=========== ===========
See accompanying notes
Commonwealth Income & Growth Fund III
Statements of Operations
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
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Income:
Lease $ 359,431 $ 266,838 $ 956,937 $ 608,837
Interest and other 2,349 4,789 8,324 12,106
----------- ----------- ----------- -----------
361,780 271,627 965,261 620,943
Expenses:
Operating, excluding depreciation 76,103 89,133 175,098 144,580
Equipment management fee - General Partner 15,627 14,541 45,478 33,714
Interest 15,343 20,917 49,478 31,414
Depreciation 244,387 245,890 701,868 497,898
Amortization of organization costs, equipment
acquisition costs and deferred expenses 22,694 7,569 50,120 46,988
Loss on sale of computer equipment 118,807 -- 118,807 --
----------- ----------- ----------- -----------
492,961 378,050 1,140,849 754,594
----------- ----------- ----------- -----------
Net income (loss) $ (131,181) $ (106,423) $ (175,588) $ (133,651)
=========== =========== =========== ===========
Net income (loss) per equivalent limited
partnership unit $ (0.93) $ (0.88) $ (1.27) $ (1.15)
=========== =========== =========== ===========
Weighted Average number of equivalent limited
partnership units outstanding during the period 144,218 120,935 138,408 116,378
=========== =========== =========== ===========
See accompanying notes
COMMONWEALTH INCOME & GROWTH FUND III
STATEMENTS OF PARTNERS' CAPITAL
PARTNER UNITS GENERAL LIMITED
GENERAL LIMITED PARTNER PARTNER TOTAL
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Initial contribution - January 27, 1998 50 25 $ 1,000 $ 500 $ 1,500
Contributions 107,117 2,142,340 2,142,340
Offering costs 555 (234,641) (234,641)
Net income 5555 1,691 16,559 18,250
Distributions 555 (1,691) (164,760) (166,451)
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Partners' capital - December 31, 1998 50 107,142 1,000 1,759,998 1,760,998
Contributions 25,792 515,849 515,849
Offering costs (56,486) (56,486)
Net income (loss) 2,191 (310,925) (308,734)
Distributions (2,191) (225,804) (227,995)
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Partners' capital December 31, 1999 50 132,934 1,000 1,682,632 1,683,632
Contributions 18,244 364,880 364,880
Offering costs (39,955) (39,955)
Net income (loss) 2,197 (177,785) (175,588)
Distributions (2,917) (219,742) (221,939)
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Partners' capital September 30, 2000 50 151,178 $ 1,000 $ 1,610,030 $ 1,611,030
====================================================================
See accompanying notes
Commonwealth Income & Growth Fund III
Statement of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
2000 1999
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Operating activities
Net Income (loss) $ (175,588) $ (133,651)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 751,,988 544,886
(Gain) loss on sale of computer equipment 118,807 --
Other noncash activities included in
determination of net income (148,387) (246,591)
Changes in operating assets and liabilities:
(Increase) decrease in lease income receivable 36,407 (23,499)
(Increase) decrease in other receivables 37 (6,966)
Increase (decrease) in accounts payable (7,208) 17,436
Increase (decrease) in accounts payable -
General Partner 8,447 --
Increase (decrease) in accounts payable - --
Commonwealth Capital Corp. 7,734
Increase (decrease) in unearned lease income (59,258) 15,270
Organization cost paid to the General Partner (9,247) --
----------- -----------
Net cash provided by operating activities 523,732 166,885
----------- -----------
Investing activities:
Capital expenditures (560,073) (507,335)
Equipment acquisition fees paid to General Partner (22,172) (66,236)
Net proceeds from the sale of equipment 59,654 --
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Net cash used by investing activities (522,591) (573,571)
----------- -----------
Financing activities:
Partners' contributions 364,880 2,527,203
Offering costs (39,955) (350,337)
Debt placement fees paid to General Partner (2,228) --
Distributions to partners (221,939) (342,430)
----------- -----------
Net cash used by financing activities 100,758 1,834,436
----------- -----------
Net increase (decrease) in cash and equivalents 101,899 (206,829)
Cash and cash equivalents, begining of year 138,826 507,193
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Cash and cash equivalents, end of period $ 240,725 $ 258,217
=========== ===========
See accompanying notes
COMMONWEALTH INCOME & GROWTH FUND III
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
BASIS OF PRESENTATION
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
Commonwealth Income & Growth Fund I (the "Partnership"), but does not include
all disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information for
the periods indicated have been included. For further information regarding the
Partnership's accounting policies, refer to the financial statements and related
notes included in the Partnership's annual report on Form 10-K for the year
ended December 31, 1999.
NET INCOME PER EQUIVALENT LIMITED PARTNERSHIP UNIT
The net income per equivalent limited partnership unit is computed based upon
net income allocated to the limited partners and the weighted average number of
equivalent units outstanding during the period.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership satisfied its minimum offering requirements and commenced
operations on January 27, 1999. On that date, subscribers for 76,284 Units were
admitted as Limited Partners of the Partnership. Through September 30, 2000,
subscribers owning an additional 74,894 Units were admitted as Limited Partners.
The Partnership's primary sources of capital for the nine months ended September
30, 2000 and 1999 were from Partners' contributions of $365,000 and $357,000,
respectively. The primary uses of cash for the nine months ended September 30,
2000 and 1999 were for the payment of offering costs of $40,000 and $40,000,
respectively, the payment of preferred distributions to partners of $222,000 and
$173,000, respectively, the payment of acquisition fees of $22,000 and capital
expenditures of $560,000 for the purchase of computer equipment for the nine
months ended September 30, 2000.
Currently, Partners' contributions from the Partnership's leases are invested in
money market accounts investing directly in treasury obligations pending the
Partnership's use of such funds to purchase additional computer equipment, to
pay Partnership expenses or to make distributions to the Partners. At September
30, 2000 and December 31, 1999 the Partnership had approximately $240,000 and
$129,000, respectively, invested in these money market accounts.
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, 2000, the Partnership had future minimum rentals on
non-cancelable operating leases of $1,137,000 for the year ending December 31,
2000 and $1,000,000, thereafter. The Partnership intends to continue purchasing
additional computer equipment with existing cash, as well as when future cash
becomes available.
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 also 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.
RESULTS OF OPERATIONS
For the quarter ended September 30, 2000, the Partnership recognized income of
$362,000 and expenses of $493,000, resulting in net loss of $131,000. For the
three months ended September 30, 1999, the Partnership recognized income of
$272,000, and expenses of $378,000, resulting in a net loss of $106,000.
During the nine months ended September 30, 2000, the Partnership expended
$318,000 and assumed debt of $358,000 to acquire seven leases, which generated
approximately $16,000 in revenue.
Interest income decreased 150% from $5,000 for the quarter ended September 30,
1999 to $2,000 for the quarter ended September 30, 2000, primarily due to
decreased cash balances in interest bearing accounts.
Operating expenses, excluding depreciation, primarily consist of accounting,
legal and outside service fees. The expense for the quarter ended September 30,
2000 was approximately $76,000.
The equipment management fee is equal to 5% of the gross lease revenue
attributable to equipment, which is subject to operating leases. The expense for
the quarter ended September 30, 2000, was approximately $16,000.
Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organizational costs, and equipment acquisition fees.
The expense for the quarter ended September 30, 2000, was approximately
$267,000.
For the nine month period ended September 30, 2000, the Partnership generated
cash flow from operating activities of $524,000, which includes net loss of
$176,000, and depreciation and amortization expenses of $751,988. Other noncash
activities included in the determination of net income include direct payments
of lease income by lessees to banks of $148,000.
PART II: OTHER INFORMATION
COMMONWEALTH INCOME & GROWTH FUND III
Item 1. LEGAL PROCEEDINGS.
Inapplicable
Item 2. CHANGES IN SECURITIES.
Inapplicable
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Inapplicable
Item 5. OTHER INFORMATION.
Inapplicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits: None
b) Report on Form 8-K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMONWEALTH INCOME & GROWTH FUND III
BY: COMMONWEALTH INCOME & GROWTH
FUND, INC. General Partner
November 13, 2000 By: /s/ George S. Sprinsteen
- ------------------ --------------------------
Date George S. Sprinsteen
President