<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------------------- -----------------
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 No.)
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 (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
YES [ X ] NO [ ]
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Commonwealth Income & Growth Fund III
Balance Sheet
June 30, 1998
<TABLE>
<S> <C>
Assets
Cash and cash equivalents $ 913,764
Lease income receivables 15,976
Other receivables 4,160
Computer equipment, at cost 1,377,369
Accumulated depreciation (40,889)
-----------
1,336,480
Organization costs and deferred expenses,
net of accumulated amortization of $11,122 in 1998 79,801
-----------
Total assets $ 2,350,181
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-----------
Liabilities and partners' capital
Accounts payable $ 2,768
Accounts payable - Commonwealth Capital
Corp. 3,125
Accounts payable - General Partner 3,616
Unearned lease income 23,964
Payables for computer equipment 529,989
Partners' capital:
General partner 1,000
Limited partners 1,785,719
-----------
Total liabilities and partners' capital $ 2,350,181
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-----------
</TABLE>
See accompanying notes.
<PAGE>
Commonwealth Income & Growth Fund III
Income Statement
From January 27, 1998 (commencement of operations) to June 30, 1998
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1998 June 30, 1998
-------------- -------------
<S> <C> <C>
Income:
Lease $ 62,315 $ 62,315
Interest and other 14,663 26,937
-------- --------
76,978 89,252
Expenses:
Operating, excluding depreciation 3,177 3,189
Equipment management fee - General Partner 3,116 3,116
Depreciation 40,889 40,889
Amortization of organization costs and deferred expenses 4,894 11,122
-------- --------
52,076 58,316
-------- --------
Net income $ 24,902 $ 30,936
-------- --------
-------- --------
Net income per equivalent limited partnership units $ 0.24 $ 0.38
-------- --------
-------- --------
Weighted average number of equivalent limited partnership
units outstanding during the period 102,024 82,279
-------- --------
-------- --------
</TABLE>
See accompanying notes.
<PAGE>
Commonwealth Income & Growth Fund III
Statement of Partners' Capital
From January 27, 1998 (commencement of operations) to June 30, 1998
<TABLE>
<CAPTION>
General Limited
Partner Partner General Limited
Units Units Partner Partner Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial contribution 50 25 $ 1,000 $ 500 $ 1,500
Contributions -- 101,574 -- 2,031,480 2,031,480
Offering costs -- (222,501) (222,501)
Net income 269 5,765 6,034
Distributions (269) (26,593) (26,862)
------- ------- -------- ------------ -----------
Partners' capital - March 31, 1998 50 101,599 1,000 1,788,651 1,789,651
Contributions -- 916.627 -- 18,333 18,333
Offering costs -- (2,007) (2,007)
Net income 442 24,460 24,902
Distributions (442) (43,718) (44,160)
------- ------- -------- ------------ -----------
Partners' capital - June 30, 1998 50 102,516 $ 1,000 $ 1,785,719 $1,786,719
------- ------- -------- ------------ -----------
------- ------- -------- ------------ -----------
</TABLE>
See accompanying notes.
<PAGE>
Commonwealth Income & Growth Fund III
Statement of Cash Flows
From January 27, 1998 (commencement of operations) to June 30, 1998
<TABLE>
<S> <C>
Operating activities
Net income $ 30,936
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 52,011
Other non-cash activities included in determination of net income (14,579)
Changes in operating assets and liabilities:
Other receivables and deposits (20,136)
Accounts payable 2,768
Accounts payable - Commonwealth Capital Corp. 3,125
Accounts payable - General Partner 3,616
Unearned lease income 23,964
Organization cost paid to the General Partner (21,528)
-----------
Net cash provided by operating activities 60,177
Investing activities
Capital expenditures (832,801)
Equipment acquisition fees paid to the General Partner (69,395)
------------
Net Cash used in investing activities (902,196)
Financing activities
Partners' contributions 2,051,313
Offering costs (202,622)
Offering costs paid to the General Partner (21,886)
Distributions to partners (71,022)
-----------
Net cash provided by financing activities 1,755,783
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Cash and cash equivalents at June 30, 1998 $ 913,764
-----------
-----------
</TABLE>
See accompanying notes.
<PAGE>
Commonwealth Income & Growth Fund III
Notes to Financial Statements
June 30, 1998
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, 1997.
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.
Subsequent Event
On July 1, 1998, reinvestment subscriptions from investors totaling $1,214 were
released by the escrow agent and accepted by the Partnership. The net proceeds
to the Partnership available for investment in computer equipment after payment
of offering expenses and the equipment acquisition fees were $1,028.
<PAGE>
Commonwealth Income & Growth Fund III
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, 1998. On that date, subscribers for 76,284 Units were
admitted as Limited Partners of the Partnership. Through March 31, 1998,
subscribers owning an additional 26,232 Units were admitted as Limited Partners.
The Partnership's primary sources of capital for the six months ended June 30,
1998, were from Partners' contributions of $2,051,000. The primary uses of cash
for the six months ended June 30, 1998, were for the payment of offering costs
of $225,000, the payment of preferred distributions to partners of $71,000, and
the payment of acquisition fees of $69,000.
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 June 30,
1998, the Partnership had approximately $914,000 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 June 30, 1998, the Partnership had future minimum rentals on noncancellable
operating leases of $228,000 for the year ending December 31, 1998 and $867,000,
thereafter. The Partnership intends to continue purchasing additional computer
equipment with existing cash, as well as when future cash becomes available. In
addition, the Partnership may incur debt in purchasing computer equipment after
the net proceeds of the Offering are fully invested in Equipment.
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 June 30, 1998, the Partnership recognized income of
$89,000 and expenses of $58,000, resulting in net income of $31,000. For the
quarter ended March 31, 1998, the Partnership recognized income of $12,000, and
expenses of $6,000, resulting in net income of $6,000.
During the six months ended June 30, 1998, the Partnership expended $833,000 and
incurred a computer equipment payable of $530,000 to acquire five leases, which
generated approximately $62,000 in revenue.
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 six months ended June 30, 1998, was approximately $3,000.
Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organizational costs, and equipment acquisition fees.
The expense for the six months ended June 30, 1998, was approximately $11,000.
For the six month period ended June 30, 1998, the Partnership generated cash
flow from operating activities of $60,000, which includes net income of $31,000,
and depreciation and amortization expenses of $52,000. Other noncash activities
included in the determination of net income includes lease income paid to
original lessors in lieu of cash payments for computer equipment of $15,000.
<PAGE>
Commonwealth Income & Growth Fund III
Part II: OTHER INFORMATION
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
<PAGE>
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
By:
------------------------
Date George S. Sprinsteen
Presiden
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001038878
<NAME> CIGF3
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 913,764
<SECURITIES> 0
<RECEIVABLES> 20,136
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,801
<PP&E> 1,377,369
<DEPRECIATION> 40,889
<TOTAL-ASSETS> 2,350,181
<CURRENT-LIABILITIES> 563,462
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,786,719
<TOTAL-LIABILITY-AND-EQUITY> 2,350,181
<SALES> 0
<TOTAL-REVENUES> 89,252
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 58,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,936
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
</TABLE>
