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, 2005
( ) 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
(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]
1
FORM 10-Q
SEPTEMBER 30, 2005
TABLE OF CONTENTS
PART I
Item 1. Condensed Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Index to Exhibits 17
Signatures
Certifications
2
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2005 2004
----------- -----------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 2,256 $ 6,000
Lease income receivable, net of reserves of $0 at
September 30, 2005 and December 31, 2004 6,175 5,875
--------- ---------
8,431 11,875
--------- ---------
Computer equipment, at cost 716,616 995,456
Accumulated depreciation (643,105) (844,357)
--------- ---------
73,511 151,099
--------- ---------
Equipment acquisition costs and deferred expenses, net 1,962 4,139
--------- ---------
TOTAL ASSETS $ 83,904 $ 167,113
========= =========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Accounts payable $ 27,304 $ 25,497
Accounts payable - affiliated limited partnerships 50,713 46,723
Accounts payable - General Partner 110,552 102,089
Accounts payable - Commonwealth Capital Corp. 188,809 212,458
Unearned lease income 122 943
Other accrued expenses 10,490 10,491
Notes payable 35,701 60,243
--------- ---------
TOTAL LIABILITIES 423,691 458,444
--------- ---------
PARTNERS' CAPITAL (DEFICIT)
General partner 1,000 1,000
Limited partners (340,787) (292,331)
--------- ---------
TOTAL PARTNERS' CAPITAL (DEFICIT) (339,787) (291,331)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) $ 83,904 $ 167,113
========= =========
see accompanying notes to condensed financial statements
3
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2005 2004 2005 2004
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
INCOME
Lease $ 17,925 $ 33,535 $ 67,686 $ 126,261
Interest and other - 4,729 1,518 4,729
Gain on sale of computer equipment 1,168 2,407 - 6,451
--------- --------- --------- ---------
TOTAL INCOME 19,093 40,671 69,204 137,441
--------- --------- --------- ---------
EXPENSES
Operating, excluding depreciation 5,569 6,436 49,267 (3,436)
Equipment management fee - General Partner 896 1,677 3,384 6,313
Interest 546 769 1,951 3,214
Depreciation 16,479 32,203 56,934 182,811
Amortization of equipment
acquisition costs and deferred expenses 260 1,261 2,176 4,510
Loss on sale of computer equipment - 9,804
--------- --------- --------- ---------
TOTAL EXPENSES 23,750 42,346 123,516 193,412
--------- --------- --------- ---------
NET (LOSS) $ (4,657) $ (1,675) $ (54,312) $ (55,971)
========= ========= ========= =========
NET (LOSS) PER EQUIVALENT LIMITED
PARTNERSHIP UNIT $ (0.03) $ (0.01) $ (0.36) $ (0.37)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF EQUIVALENT LIMITED
PARTNERSHIP UNITS OUTSTANDING DURING THE PERIOD 151,178 151,178 151,178 151,178
========= ========= ========= =========
see accompanying notes to condensed financial statements
4
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNER GENERAL LIMITED
UNITS UNITS PARTNER PARTNER TOTAL
------ ------- ------- ---------- ---------
PARTNERS' CAPITAL (DEFICIT) - DECEMBER 31, 2004 50 151,178 $ 1,000 $ (292,331) $(291,331)
Net income (loss) 1,231 (55,543) (54,312)
Capital contribution 77,771 - 77,771
Forgiveness of payables 52,500 - 52,500
Transfer of partners' capital (130,271) 130,271 -
Distributions (1,231) (123,184) (124,415)
------ ------- ------- ---------- ---------
PARTNERS' CAPITAL (DEFICIT) - SEPTEMBER 30, 2005 50 151,178 $ 1,000 $ (340,787) $(339,787)
====== ======= ======= ========== =========
see accompanying notes to condensed financial statements
5
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
2005 2004
--------- ---------
(UNAUDITED)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 32,050 $ 231,028
--------- ---------
INVESTING ACTIVITIES:
Net proceeds from the sale of computer equipment 10,850 13,743
Capital Expenditures - (2,249)
Equipment acquisition fees paid to General Partner - (832)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 10,850 10,662
--------- ---------
FINANCING ACTIVITIES:
Contributions 77,771 -
Distributions to partners (124,415) (238,124)
Debt Placement fee paid to the General Partner - (186)
--------- ---------
NET CASH (USED IN) FINANCING ACTIVITIES (46,644) (238,310)
--------- ---------
Net increase in cash and cash equivalents 3,744 3,380
Cash and cash equivalents, beginning of period 6,000 557
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,256 $ 3,937
========= =========
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
6
NOTES TO CONDENSED 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 Partnership has suffered recurring losses from
operations and has a deficit partners' capital of
approximately $341,000 at September 30, 2005. 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.
(See note 5)
The General Partner and CCC will continue to fund, either
through cash contributions and/or forgiveness of
indebtedness, any necessary cash shortfalls of the
Partnership.
The General Partner and CCC may fund, either through cash
contributions and/or forgiveness of indebtedness, the
amounts necessary to fund, if any, distributions to limited
partners.
Due to the recurring losses from operations, the General
Partner feels that it may be in the best interest of the
Partnership to start the liquidation process in 2005 and
run out naturally all remaining leases in the portfolio,
making distributions when possible, after expenses have
been satisfied.
The General Partner intends to review and reassess the
Partnership's business plan during the remainder of 2005 to
make this determination.
7
3. SUMMARY OF BASIS OF PRESENTATION
SIGNIFICANT
ACCOUNTING The financial information presented as of any date other
POLICIES than December 31 has been prepared from the books and
records without audit. Financial information as of December
31 has been derived from the audited financial statements
of the Partnership, but does not include all disclosures
required by generally accepted accounting principles. In
the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods
indicated have been included. For further information
regarding the Partnership's accounting policies, refer to
the financial statements and related notes included in the
Partnership's annual report on Form 10-K for the year ended
December 31, 2004. Operating results for the nine-month
period ended September 30, 2005 are not necessarily
indicative of financial results that may be expected for
the full year ended December 31, 2005.
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. The Partnership determined that no
impairment existed as of September 30, 2005.
Depreciation on computer equipment for financial statement
purposes is based on the straight-line method over
estimated useful lives of four years.
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.
8
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.
Through September 30, 2005, 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.
Remarketing fees are paid to the leasing companies from
which the Partnership purchases leases. These are fees that
are earned by the leasing companies when the initial terms
of the lease have been met. The General Partner believes
that this strategy adds value since it entices the leasing
company to "stay with the lease" for potential extensions,
remarketing or sale of equipment. This strategy potentially
minimizes any conflicts the leasing company may have with a
potential new lease and will potentially assist in
maximizing overall portfolio performance. The remarketing
fee is tied into lease performance thresholds and is
factored in the negotiation of the fee. Remarketing fees
incurred in connection with lease extensions are accounted
for as operating costs. Remarketing fees incurred in
connection with the sale of computer equipment are included
in our gain or loss calculations. For the nine-month period
ended September 30, 2005 and 2004, remarketing fees were
paid in the amount of $12,000 and $700, respectively.
The Partnership's share of the computer equipment in which
they participate with other partnerships at September 30,
2005 and December 31, 2004 was approximately $89,000 and
$137,000, respectively, which is included in the
Partnership's fixed assets on their balance sheet, and the
total cost of the equipment shared by the Partnership with
other partnerships at September 30, 2005 and December 31,
2004 was approximately $1,741,000 and $1,859,000,
respectively. The Partnership's share of the outstanding
debt associated with this equipment at September 30, 2005
and December 31, 2004 was approximately $0 for both
periods, and the total outstanding debt at September 30,
2005 and December 31, 2004 related to the equipment shared
by the Partnership was approximately $0 and $1,000,
respectively.
The following is a schedule of future minimum rentals on
noncancellable operating leases at September 30, 2005:
Amount
-------------------------------------------- ---------
Three months ended December 31, 2005 $ 16,000
Year Ended December 31, 2006 28,000
Year Ended December 31, 2007 13,000
Year Ended December 31, 2008 1,000
--------
$ 58,000
========================================================
9
5. RELATED PARTY FORGIVENESS OF RELATED PARTY PAYABLES
TRANSACTIONS
During the nine months ended September 30, 2005, CCC
forgave payables owed to them by the Partnership in the
amount of approximately $53,000. During the nine months
ended September 30, 2005, CCC, through the General Partner,
made a capital contribution in the amount of approximately
$78,000.
REIMBURSABLE EXPENSES
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,
2005 and 2004, the Partnership recorded $14,000 and
$18,000, respectively, for reimbursement of expenses to the
General Partner.
EQUIPMENT MANAGEMENT FEE
The General Partner is entitled to be paid a monthly fee
equal to the lesser of (i) the fees which would be charged
by an independent third party for similar services for
similar equipment or (ii) the sum of (a) two percent of (1)
the gross lease revenues attributable to equipment which is
subject to full payout net leases which contain net lease
provisions plus (2) the purchase price paid on conditional
sales contracts as received by the Partnership and (b) 5%
of the gross lease revenues attributable to equipment which
is subject to operating and capital leases. During the nine
months ended September 30, 2005 and 2004, equipment
management fees of approximately $3,000 and $6,000,
respectively, were earned by the General Partner.
6. NOTES PAYABLE Notes payable consisted of the following:
SEPTEMBER 30, DECEMBER 31,
2005 2004
----------------------------------------------------------------------------------
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 $ - $10,305
Installment notes payable to banks; interest at
6.0%, due in monthly installments ranging from
$320 to $394, including interest, with final
payments from March through December
2006 7,567 13,503
Installment notes payable to banks; interest at
5.5%, due in monthly installments of $1,073,
including interest, with final payments in
January 2008 28,134 36,438
------- -------
$35,701 $60,246
======= =======
10
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, 2005 are as
follows:
Amount
-----------------------------------------------------------------
Three months ended December 31, 2005 $ 4,883
Year ended December 31, 2006 17,307
Year ended December 31, 2007 12,443
Year ended December 31, 2008 1,068
-------
$35,701
=======
7. SUPPLEMENTAL Other noncash activities included in the determination of
CASH FLOW net loss are as follows:
INFORMATION
Nine months ended September 30, 2005 2004
- ---------------------------------------------------------------------------------------------
Lease income, net of interest expense on
notes payable realized as a result of
direct payment of principal by lessee to bank
$ 24,542 $ 72,091
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, 2005 2004
- ---------------------------------------------------------------------------------------------
Forgiveness of related party payables recorded as a
capital contribution $ 52,500 $ 132,165
=============================================================================================
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
The Partnership's discussion and analysis of its financial condition and results
of operations are based upon its financial statements which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the Partnership
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. The Partnership bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Partnership believes that its critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.
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, 2005, 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.
12
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of capital for the nine months ended September
30, 2005 was a capital contribution from the General Partner of approximately
$78,000. The Partnership's primary source of capital for the nine months ended
September 30, 2004 was cash from operations of approximately $74,000 and a
capital contribution from the General Partner of $157,000. The primary use of
cash for the nine months ended September 30, 2005 and 2004 was for payments of
preferred distributions to partners of approximately $124,000 and $238,000,
respectively.
For the nine month period ending September 30, 2005, the Partnership generated
cash flow from operating activities of approximately $32,000, which includes net
loss of approximately $54,000, a loss on sale of equipment of approximately
$10,000 and depreciation and amortization expenses of approximately $59,000.
Other non-cash activities included in the determination of net income include
direct payments of lease income by lessees to banks of approximately $25,000.
For the nine month period ending September 30, 2004, the Partnership generated
cash flow from operating activities of approximately $231000, which includes net
loss of approximately $56,000, a gain on sale of equipment of approximately
$6,000 and depreciation and amortization expenses of approximately $187,000.
Other non-cash activities included in the determination of net loss include
direct payments of lease income by lessees to banks of approximately $72,000.
The Partnership sold computer equipment for the nine months ending September 30,
2005 with a net book value of approximately $21,000 for a net loss on sale of
equipment of approximately $10,000. For the period ended September 30, 2004, the
Partnership sold computer equipment with a net book value of approximately
$7,000 for a net gain on sale of equipment of approximately $6,000.
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, 2005, the Partnership had future minimum rentals on
non-cancelable operating leases of $16,000 for the balance of the year ending
December 31, 2005 and $42,000 thereafter. At September 30, 2005, the outstanding
debt was $36,000, with interest rates ranging from 5.5% to 6.00%, and will be
payable through January 2008.
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 they participate with
other partnerships at September 30, 2005 and December 31, 2004 was approximately
$89,000 and $137,000, respectively, which is included in the Partnership's fixed
assets on their balance sheet, and the total cost of the equipment shared by the
Partnership with other partnerships at September 30, 2005 and December 31, 2004
was approximately $1,741,000 and $1,859,000, respectively. The Partnership's
share of the outstanding debt associated with this equipment at September 30,
2005 and December 31, 2004 was approximately $0 for both periods, and the total
outstanding debt at September 30, 2005 and December 31, 2004 related to the
equipment shared by the Partnership was approximately $0 and $1,000,
respectively.
13
During the period ended September 30, 2005 CCC, forgave payables owed to them by
the Partnership in the amount of approximately $53,000. CCC has also made a
capital contribution in the amount of approximately $78,000.
The General Partner and CCC have forgiven amounts payable by the Partnership to
them and have deferred payments on other amounts owing to allow for
distributions to limited partners. 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 and CCC will continue to fund, either through cash
contributions and/or forgiveness of indebtedness, any necessary cash shortfalls
of the Partnership. The General Partner and CCC may fund, either through cash
contributions and/or forgiveness of indebtedness, the amounts necessary to fund,
if any, distributions to limited partners.
The General Partner intends to review and reassess the Partnership's business
plan during the remainder of 2005.
RESULTS OF OPERATIONS
Three months Ended September 30, 2005 compared to Three months Ended
September 30, 2004
For the quarter ended September 30, 2005, the Partnership recognized income of
approximately $19,000 and expenses of approximately $24,000, resulting in a net
loss of approximately $5,000. 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.
Lease income decreased by 47% to approximately $18,000 for the quarter ended
September 30, 2005, from approximately $34,000 for the quarter ended September
30, 2004, primarily due to the fact that more lease agreements ended than new
lease agreements acquired since the quarter ended September 30, 2004.
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 13% to approximately $5,500 for the quarter
ended September 30, 2005, from $6,400 for the quarter ended September 30, 2004,
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 $4,000 and an increase in outside service fees of $1,000.
14
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 50% to approximately $1,000 for the quarter ended
September 30, 2005, from approximately $2,000 for the quarter ended September
30, 2004, 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
50% to approximately $17,000 for the quarter ended September 30, 2005, from
approximately $34,000 for the quarter ended September 30, 2004 due to equipment
and acquisition fees being fully depreciated/amortized and not being replaced
with as many new purchases.
The Partnership sold computer equipment with a net book value of approximately
$2,000 for the quarter ended September 30, 2005, for a net gain of approximately
$1,000. The Partnership sold computer equipment with a net book value of
approximately $4,000 for the quarter ended September 30, 2004, for a net gain of
approximately $2,000.
Nine months Ended September 30, 2005 compared to Nine months Ended
September 30, 2004
For the nine months ended September 30, 2005, the Partnership recognized income
of approximately $69,000 and expenses of approximately $123,000, resulting in a
net loss of approximately $54,000. 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.
Lease income decreased by 46% to approximately $68,000 for the nine months ended
September 30, 2005, from approximately $126,000 for the nine months ended
September 30, 2004, primarily due to the fact that more lease agreements ended
than new lease agreements were acquired since the nine months ended September
30, 2004.
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 increased to approximately $49,000 for the nine months
ended September 30, 2005, from ($3,000) for the nine months ended September 30,
2004, which is primarily attributable to an increase in the amount charged by
CCC, a related party, to the Partnership for administration and operation of
approximately $23,000 and an increase in accounting fees of approximately
$14,000.
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 50% to approximately $3,000 for the nine months ended
September 30, 2005, from approximately $6,000 for the nine months ended
September 30, 2004, which is consistent with the decrease in lease income.
15
Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees. The expenses decreased
68% to approximately $59,000 for the nine months ended September 30, 2005, from
approximately $187,000 for the nine months ended September 30, 2004 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 record
an asset at its estimated fair value.
The Partnership sold computer equipment with a net book value of approximately
$21,000 for the nine months ended September 30, 2004, for a net loss of
approximately $10,000. The Partnership sold computer equipment with a net book
value of approximately $7,000 for the nine months ended September 30, 2004, for
a net gain of approximately $6,000.
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 General Partner have
conducted a review of the Partnership's disclosure controls and procedures as of
September 30, 2005.
The Company'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 periods.
Based upon this review, the General Partner's Chief Executive Officer and the a
Financial Officer have concluded that the Partnership's disclosure controls (as
defined in pursuant to Rule 13a-14 c 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.
There have been no changes in the General Partner's internal controls or in
other factors that could materially affect our disclosure controls and
procedures in the quarter ended September 30, 2005, that have materially
affected or are reasonably likely to materially affect the General Partner's
internal controls over financial reporting.
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PART II: OTHER INFORMATION
COMMONWEALTH INCOME & GROWTH FUND III
Item 1. LEGAL PROCEEDINGS.
N/A
Item 2. CHANGES IN SECURITIES.
N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES.
N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
N/A
Item 5. OTHER INFORMATION.
N/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
31.1 THE RULE 15D-14(A)
31.2 THE RULE 15D-14(A)
32.1 SECTION 1350 CERTIFICATION OF CEO
32.2 SECTION 1350 CERTIFICATION OF CFO
b) Report on Form 8-K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMONWEALTH INCOME & GROWTH FUND III
BY: COMMONWEALTH INCOME &
GROWTH FUND, INC. General Partner
November 10, 2005 By: /s/ Kimberly A. Springsteen
- ----------------- ---------------------------
Date Kimberly A. Springsteen
President
17