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 MARCH 31, 2006
[_] 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)
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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) YES [_] NO [X]
1
FORM 10-Q
MARCH 31, 2006
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 15
Item 4. Controls and Procedures 15
PART II
Item 1. Legal Proceedings 15
Item 1 A. Risk Factors 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Securities Holders 16
Item 5. Other Information
Item 6. Index to Exhibits
Signatures
Certifications
2
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2006 2005
----------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 3,222 $ 10,333
Lease income receivable, net of reserves of $0 at
March 31, 2006 and December 31, 2005 2,193 3,733
Prepaid Expenses 3,629 --
--------- ---------
9,044 14,066
--------- ---------
Computer equipment, at cost 554,578 738,928
Accumulated depreciation (513,825) (683,254)
--------- ---------
40,753 55,674
--------- ---------
Equipment acquisition costs and deferred expenses, net 1,442 1,702
--------- ---------
TOTAL ASSETS $ 51,239 $ 71,442
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 26,063 $ 26,730
Accounts payable - affiliated limited partnerships 49,657 49,657
Accounts payable - General Partner 87,175 111,352
Accounts payable - Commonwealth Capital Corp. 103,769 122,565
Unearned lease income 122 122
Other accrued expenses 10,490 10490
Notes payable 25,864 30,817
--------- ---------
TOTAL LIABILITIES 303,140 351,733
--------- ---------
PARTNERS' CAPITAL
General partner 1,000 1,000
Limited partners (252,901) (281,290)
--------- ---------
TOTAL PARTNERS' CAPITAL (251,901) (280,290)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 51,239 $ 71,443
========= =========
see accompanying notes to condensed financial statements
3
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31
----------- ---------
2006 2005
----------- ---------
(UNAUDITED)
INCOME
Lease $ 15,268 $ 26,705
Gain on sale of computer equipment 56 --
-------- --------
TOTAL INCOME 15,324 26,705
-------- --------
EXPENSES
Operating, excluding depreciation 6,888 27,857
Equipment management fee - General Partner 763 1,335
Interest 407 786
Depreciation 13,046 23,068
Amortization of equipment
acquisition costs and deferred expenses 260 1,298
Loss on sale of computer equipment -- 9,576
-------- --------
TOTAL EXPENSES 21,364 63,920
-------- --------
NET (LOSS) $ (6,040) $(37,215)
======== ========
NET (LOSS) ALLOCATED TO LIMITED PARTNERS (6,196) (37,998)
======== ========
NET (LOSS) PER EQUIVALENT LIMITED PARTNERSHIP UNIT $ (0.04) $ (0.25)
======== ========
WEIGHTED AVERAGE NUMBER OF EQUIVALENT LIMITED
PARTNERSHIP UNITS OUTSTANDING DURING THE PERIOD 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 THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNER GENERAL LIMITED
UNITS UNITS PARTNER PARTNER TOTAL
------- ------- ------- --------- ---------
PARTNERS' CAPITAL (DEFICIT) - DECEMBER 31, 2005 50 151,178 $ 1,000 $(281,290) $(280,290)
--- ------- ------- --------- ---------
Net income (loss) 156 (6,196) (6,040)
Forgiveness of payables 50,000 -- 50,000
Transfer of partners' capital (50,000) 50,000 --
Distributions (156) (15,415) (15,571)
--- ------- ------- --------- ---------
PARTNERS' CAPITAL (DEFICIT) - MARCH 31, 2006 50 151,178 $ 1,000 $(252,901) $(251,901)
=== ======= ======= ========= =========
see accompanying notes to condensed financial statements
5
COMMONWEALTH INCOME & GROWTH FUND III
CONDENSED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
2006 2005
-------- --------
(UNAUDITED)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,529 $ 7,310
-------- --------
INVESTING ACTIVITIES:
Net proceeds from the sale of computer equipment 1,931 1,089
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,931 1,089
-------- --------
FINANCING ACTIVITIES:
Contributions -- 70,000
Distributions to partners (15,571) (79,374)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (15,571) (9,374)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,111) (975)
Cash and cash equivalents, beginning of period 10,333 6,000
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,222 $ 5,025
======== ========
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 $252,000 at March 31,
2006. 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 have committed to
fund, either through cash contributions and/or
forgiveness of indebtedness, any necessary cash
shortfalls of the Partnership through 2006. No
fees will be charged to the fund during 2006.
CCC commits to fund distributions through June
2006, at which time we will reassess the
operations of the fund. CCC will continue to
reassess the operations on a quarterly basis
throughout 2006.
7
3. SUMMARY OF SIGNIFICANT BASIS OF PRESENTATION
ACCOUNTING POLICIES
The financial information presented as of any
date other than December 31 has been prepared
from the books and records without audit.
Financial information as of December 31 has
been derived from the audited financial
statements of the Partnership, but does not
include all disclosures required by generally
accepted accounting principles in the United
States of America. 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, 2005. Operating
results for the three-month period ended March
31, 2006 are not necessarily indicative of
financial results that may be expected for the
full year ended December 31, 2006.
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 March 31, 2006.
Depreciation on computer equipment for
financial statement purposes is based on the
straight-line method over estimated useful
lives of four years.
FORGIVENESS OF RELATED PARTY PAYABLES
In accordance with Accounting Principles Board
Opinion No. 26, Early Extinguishment of Debt,
the Partnership accounts for forgiveness of
related party payables as partner's capital
transactions.
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 EQUIPMENT The Partnership is the lessor of equipment
under operating 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 March 31, 2006, 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 three-month period ended March 31, 2006 and
2005, remarketing fees were paid in the amount
of $1,000 and $12,000, respectively.
The Partnership's share of the computer
equipment in which they participate with other
partnerships at March 31, 2006 and December 31,
2005 was approximately $94,000 and $111,000,
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 March 31, 2006 and December 31,
2005 was approximately $510,000 and $1,434,000,
respectively. There was no outstanding debt
associated at March 31, 2006 and December 31,
2005. The total outstanding debt at March 31,
2006 and December 31, 2005 related to the
equipment shared by the Partnership was $0 for
both periods.
The following is a schedule of future minimum
rentals on noncancellable operating leases at
March 31, 2006:
Amount
-------
Nine Months ended December 31, 2006 $17,000
Year Ended December 31, 2007 13,000
Year Ended December 31, 2008 1,000
-------
$31,000
=======
5. RELATED PARTY FORGIVENESS OF RELATED PARTY PAYABLES
TRANSACTIONS
During the three months ended March 31, 2006,
CCC and the General Partner, forgave payables
owed to them by the Partnership in the amount
of $50,000.
9
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 three
months ended March 31, 2006 and 2005, the
Partnership recorded $1,000 and $7,000,
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 three
months ended March 31, 2006 and 2005, equipment
management fees of approximately $1,000 and
$1,000, respectively, were earned by the
General Partner.
6. NOTES PAYABLE Notes payable consisted of the following:
MARCH 31, DECEMBER 31,
2006 2005
--------- ------------
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. $ 3,459 $ 5,528
Installment notes payable to banks;
interest at 5.5%, due in monthly
installments of $1,073, including
interest, with final payments in
January 2008. 22,405 25,289
------- -------
$25,864 $30,817
======= =======
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
March 31, 2006 are as follows:
Amount
-------
Nine months ended December 31, 2006 $12,353
Year ended December 31, 2007 12,443
Year ended December 31, 2008 1,068
-------
$25,864
=======
7. SUPPLEMENTAL CASH FLOW Other noncash activities included in the
INFORMATION determination of net loss are as follows:
Three months ended March 31, 2006 2005
- ----------------------------------------------- ------- -------
Lease income, net of interest expense on
notes payable realized as a result of direct
payment of principal by lessee to bank $4,954 $14,102
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:
Three months ended March 31, 2006 2005
- ----------------------------------------------- ------- -------
Forgiveness of related party payables recorded
as a capital contribution $50,000 $52,500
======= =======
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
11
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 March 31, 2006, 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 three months ended March
31, 2006 and March 31, 2005 was cash from operations of approximately $7,000 and
$7,000, respectively, and a capital contribution from the General Partner of
$70,000 for the quarter ended March 31, 2005. The primary uses of cash for the
three months ended March 31, 2006 and 2005 was for payments of preferred
distributions to partners of approximately $16,000 and $79,000, respectively.
For the three month period ending March 31, 2006, the Partnership generated cash
flow from operating activities of approximately $7,000, which includes a net
loss of approximately $6,000 and depreciation and amortization expenses of
approximately $13,000. Other non-cash activities included in the determination
of net income include direct payments of lease income by lessees to banks of
approximately $5,000.
For the three month period ending March 31, 2005, the Partnership generated cash
flow from operating activities of approximately $7,000, which includes net loss
of
12
approximately $37,000, a loss on sale of equipment of approximately $10,000 and
depreciation and amortization expenses of approximately $24,000. Other non-cash
activities included in the determination of net income include direct payments
of lease income by lessees to banks of approximately $14,000.
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 March 31, 2006, the Partnership had future minimum rentals on non-cancelable
operating leases of $17,000 for the balance of the year ending December 31, 2006
and $14,000 thereafter. At March 31, 2006, the outstanding debt was $26,000,
with interest rates ranging from 5.5% to 6.0%, 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 March 31, 2006 and December 31, 2005 was approximately
$94,000 and $111,000, 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 March 31, 2006 and December 31, 2005 was
approximately $507,000 and $1,434,000, respectively. The Partnership's share of
the outstanding debt associated with this equipment at March 31, 2006 and
December 31, 2005 was $0 for both periods, and the total outstanding debt at
March 31, 2006 and December 31, 2005 related to the equipment shared by the
Partnership was $0 for both periods.
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. During the period ended March 31, 2006, CCC
and the General Partner forgave payables owed to them by the Partnership in the
amount of $50,000. 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 June 30, 2006.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2006 compared to Three Months Ended March 31, 2005
For the quarter ended March 31, 2006, the Partnership recognized income of
approximately $15,000 and expenses of approximately $21,000, resulting in a net
loss of approximately $6,000. For the quarter ended March 31, 2005, the
Partnership recognized income of approximately $27,000 and expenses of
approximately $64,000 resulting in a net loss of approximately $37,000.
Lease income decreased by 43% to approximately $15,000 for the quarter ended
March 31, 2006, from approximately $27,000 for the quarter ended March 31, 2005,
primarily
13
due to the fact that more lease agreements ended than new lease agreements
acquired since the quarter ended March 31, 2005.
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 75% to approximately $7,000 for the quarter
ended March 31, 2006, from $28,000 for the quarter ended March 31, 2005, which
is primarily attributable to a decrease in accounting fees of approximately
$4,000 and a decrease in remarketing fees of approximately $7,000.
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 43% to approximately $800 for the quarter ended March
31, 2006, from approximately $1,000 for the quarter ended March 31, 2005, 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
45% to approximately $13,000 for the quarter ended March 31, 2006, from
approximately $23,000 for the quarter ended March 31, 2005 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 three months ending March 31,
2006 with a net book value of approximately $2,000 for a net gain on sale of
equipment of approximately $100. For the period ended March 31, 2005, the
Partnership sold computer equipment with a net book value of approximately
$11,000 for a net loss on sale of equipment of approximately $10,000.
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 Financial Officer of the Partnership have
conducted a review of the Partnership's disclosure controls and procedures as of
March 31, 2006.
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.
14
Based upon this review, the Partnership's Chief Executive Officer and 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 March 31, 2006, that have materially affected or
are reasonably likely to materially affect the General Partner's internal
controls over financial reporting.
PART II: OTHER INFORMATION
COMMONWEALTH INCOME & GROWTH FUND III
Item 1. LEGAL PROCEEDINGS.
N/A
Item 1 A. RISK FACTORS
THERE IS NO PUBLIC MARKET FOR THE UNITS, AND YOU MAY BE UNABLE TO SELL OR
TRANSFER YOUR UNITS AT A TIME AND PRICE OF YOUR CHOOSING.
There exists no public market for the units, and the General Partner does not
expect a public market for units to develop. The units cannot be pledged or
transferred without the consent of the General Partner. The units should be
purchased as a long-term investment only. The General Partner limits the number
of transfers to no more than that number permitted by one of the safe harbors
available under the tax laws and regulations to prevent CIGF3 from being taxed
as a corporation. Generally, these safe harbors require that all nonexempt
transfers and redemptions of units in any calendar year not exceed two percent
of the outstanding interests in the capital or profits of CIGF3.
The General Partner has sole discretion in deciding whether we will redeem units
in the future. Consequently, you may not be able to liquidate your investment in
the event of an emergency. You must be prepared to hold your units for the life
of CIGF3. You may be able to resell your units, if at all, only at a discount to
the offering price, which may be significant, and the redemption or sale price
may be less than the price you originally paid for your units.
15
INFORMATION TECHNOLOGY EQUIPMENT WE PURCHASE WILL DEPRECIATE IN VALUE AND/OR
BECOME OBSOLETE OR LOSE VALUE AS NEW TECHNOLOGY IS DEVELOPED, WHICH CAN REDUCE
THE VALUE OF YOUR UNITS AND YOUR ULTIMATE CASH RETURN.
Residual value is the amount realized upon the sale or release of equipment when
the original lease has expired. The residual value of our equipment may decline
if technological advancements make it obsolete or change market preferences. The
residual value depends on, among other factors, the condition of the equipment,
the cost of comparable new equipment, the technological obsolescence of the
equipment and supply and demand for the equipment.
In either of these events, the equipment we purchased may have little or no
residual value. This will result in insufficient assets for us to distribute
cash in a total amount equal to the invested capital of the Limited Partners
over the term of our existence. Also, such an occurrence may reduce the value of
the units. There is no limitation on the amount of used equipment which CIGF3
may acquire. The acquisitions of used equipment may increase the risk that such
equipment will become obsolete so that it will have little or no residual value.
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
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
16
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
May 15, 2006 By: /s/ Kimberly A. Springsteen
Date ------------------------------------
Kimberly A. Springsteen
Chief Executive Officer
17
31.1 THE RULE 15D-14(A)
I, Kimberly A. Springsteen certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commonwealth Income &
Growth Fund III (the Registrant);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Kimberly A. Springsteen
- -----------------------------------
Kimberly A. Springsteen
Chief Executive Officer
May 15, 2006
18
31.2 THE RULE 15D-14(A)
I, Kimberly A. Springsteen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commonwealth Income &
Growth Fund III (the Registrant);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Kimberly A. Springsteen
- -----------------------------------
Kimberly A. Springsteen
Principal Financial Officer
May 15, 2006
19
32.1 SECTION 1350 CERTIFICATION OF CEO
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Commonwealth Income & Growth Fund
III, (the "Company") on Form 10-Q for the quarter ending March 31, 2006, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Kimberly A. Springsteen, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kimberly A. Springsteen
- -----------------------------------
Kimberly A. Springsteen
Chief Executive Officer
May 15, 2006
20
32.2 SECTION 1350 CERTIFICATION OF CFO
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Commonwealth Income & Growth Fund
III, (the "Company") on Form 10-Q for the quarter ending March 31, 2006, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Kimberly A. Springsteen, Principal Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kimberly A. Springsteen
- -----------------------------------
Kimberly A. Springsteen
Principal Financial Officer
May 15, 2006
21