<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 March 31, 1999
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>
COMMONWEALTH INCOME & GROWTH FUND III
BALANCE SHEETS
<TABLE>
<CAPTION>
(AUDITED)
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 336,420 $ 507,193
Lease income receivable 54,305 65,729
Accounts receivable - General Partner 11,014 --
Other receivables 9,371 1,912
Computer equipment, at cost 2,156,537 1,453,742
Accumulated depreciation (355,464) (238,240)
----------- -----------
1,801,073 1,215,502
Equipment acquisition costs, net of accumulated
amortization of $27,344 for 1999, and $20,779 for 1998 58,917 51,748
Organization costs, net of accumulated amortization of
$5,670 for 1999, and $4,248 for 1998 22,333 18,252
----------- -----------
Total assets $ 2,293,433 $ 1,860,336
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,790 $ 38,355
Accounts payable - General Partner -- 349
Unearned lease income 53,101 52,192
Note payable 469,735 8,442
----------- -----------
Total liabilites 525,626 99,338
PARTNERS' CAPITAL:
General partner 1,000 1,000
Limited partners 1,766,807 1,759,998
----------- -----------
Total partners' capital 1,767,807 1,760,998
----------- -----------
----------- -----------
Total liabilities and partners' capital $ 2,293,433 $ 1,860,336
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND III
Statements of Operations
For March 31, 1999 and for the period from January 27, 1999
(commencement of operations) to March 31, 1998
<TABLE>
<CAPTION>
1998 1998
---- ----
<S> <C> <C>
Income:
Lease $154,905 $ --
Interest and other 3,262 12,274
-------- --------
158,167 12,274
Expenses:
Operating, excluding depreciation 15,473 12
Equipment management fee - General Partner 7,745 --
Derpreciation 117,224 --
Amortization of organization costs and deferred expenses 7,987 6,228
Interest 2,927 --
-------- --------
151,356 6,240
-------- --------
Net income $ 6,811 $ 6,034
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND III
STATEMENT OF PARTNERS' CAPITAL
<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 -- 107,117 -- 2,142,340 2,142,340
Offering costs -- (234,641) (234,641)
Net income 1,691 16,559 18,250
Distributions (1,691) (164,760) (166,451)
------ ------- ----- --------- ---------
Partners' capital - December 31, 1998 50 107,142 1,000 1,759,998 1,760,998
Contributions -- 2,921 -- 58,418 58,418
Offering costs -- (6,397) (6,397)
Net income 510 6,301 6,811
Distributions (510) (51,513) (52,023)
------ ------- ----- --------- ---------
Partners' capital - December 31, 1998 50 110,063 $ 1,000 $ 1,766,807 $ 1,767,807
------ ------- ----- --------- ---------
------ ------- ----- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND III
STATEMENTS OF CASH FLOWS
For the quarter ended March 31, 1998 and for the period from
January 27, 1998 (commencement of operations) to March 31, 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,811 $ 6,034
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 125,211 6,228
Other non-cash activities included in determination of net income (27,673) --
Changes in operating assets and liabilities: $ --
Lease income receivable 11,424 --
Other receivables and deposits (7,454) (7,343)
Accounts receivable - General Partner (11,363) --
Accounts payable (35,565) 1,846
Unearned lease income 909 --
Organization cost paid to the General Partner (613) (21,336)
----------- -----------
Net cash provided by operating activities 61,682 (14,571)
INVESTING ACTIVITIES
Capital expenditures (213,829) --
Equipment acquisition fees paid to the General Partner (13,735) (68,775)
----------- -----------
Net cash used in investing activities (227,564) (68,775)
FINANCING ACTIVITIES
Partners' contributions 58,418 2,032,980
Offering costs (4,645) (201,165)
Offering costs paid to the General Partner (1,752) (21,336)
Distributions to partners (52,023) (26,862)
Debt placement fee paid to the General Partner (4,889) --
----------- -----------
Net cash provided by financing activities (4,891) 1,783,617
Net increase (decrease) in cash and cash equivalents (170,773) 1,700,271
Cash and cash equivalents at begining of year 507,193 --
----------- -----------
----------- -----------
Cash and cash equivalents at end of period $ 336,420 $ 1,700,271
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
COMMONWEALTH INCOME & GROWTH FUND III
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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, 1998.
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 April 2, 1999, reinvestment subscriptions from investors totaling $1,456 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 $1,232.
On April 15, 1999, May 3, 1999, and May 11, 1999, subscriptions from investors
totaling $108,000 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 $91,385.
<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, 1999,
subscribers owning an additional 33,779 Units were admitted as Limited Partners.
The Partnership's primary sources of capital for the three months ended March
31, 1999 and 1998 were from Partners' contributions of $58,000 and $2,033,000,
respectively. The primary uses of cash for the three months ended March 31, 1999
and 1998 were for the payment of offering costs of $6,000 and $223,000,
respectively, the payment of preferred distributions to partners of $52,000 and
$27,000, respectively, the payment of acquisition fees of $13,000 and $69,000,
respectively, and capital expenditures of $214,000 for the purchase of computer
equipment for the three months ended March 31, 1999.
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 March 31,
1999 and December 31, 1998 the Partnership had approximately $336,000 and
$507,000, 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 March 31, 1999, the Partnership had future minimum rentals on noncancellable
operating leases of $539,000 for the year ending December 31, 1999 and $897,000,
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 March 31, 1999, the Partnership recognized income of
$158,000 and expenses of $151,000, resulting in net income of $7,000. 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 three months ended March 31, 1999, the Partnership expended $214,000
and assumed debt of $489,000 to acquire three leases, which generated
approximately $32,000 in revenue.
Interest income decreased 75% from $12,000 for the quarter ended March 31, 1998
to $3,000 for the quarter ended March 31, 1999, primarily due to cash being
utilized to purchase computer equipment.
Operating expenses, excluding depreciation, primarily consist of accounting,
legal and outside service fees. The expense for the three months ended March 31,
1999 was approximately $15,000.
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 three months ended March 31, 1999, was approximately $8,000.
Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organizational costs, and equipment acquisition fees.
The expense for the three months ended March 31, 1999, was approximately
$125,000.
For the three month period ended March 31, 1999, the Partnership generated cash
flow from operating activities of $62,000, which includes net income of $7,000,
and depreciation and amortization expenses of $125,000. Other noncash activities
included in the determination of net income includes direct payments of lease
income by lessees to banks of $28,000.
<PAGE>
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
<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
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK>0001038878
<NAME>CIGF3
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 336,420
<SECURITIES> 0
<RECEIVABLES> 74,690
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,250
<PP&E> 2,156,537
<DEPRECIATION> (355,464)
<TOTAL-ASSETS> 2,293,433
<CURRENT-LIABILITIES> 525,626
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,767,807
<TOTAL-LIABILITY-AND-EQUITY> 2,293,433
<SALES> 0
<TOTAL-REVENUES> 158,167
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 148,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,927
<INCOME-PRETAX> 6,811
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,811
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
