UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-K





T ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE
REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007





 ̈ 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 ofIncorporation
      or organization)
            (I.R.S.
      Employer Identification Number)





Brandywine
Bldg. One, Suite 200


2 Christy
Drive, Chadds Ford PA 19317


(Address,
including zip code, of principal executive offices)





(610)
594-9600


(Registrant’s
telephone number including area code)





Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            Name
      of exchange which registeredNone
            N/A





Securities
registered pursuant to Section 12(g) of the Act:





Units of Limited Partnership
Interest


(Title
of Class)




Indicate by
check mark if the registrant is a well-known seasoned issuer, (as defined in
Rule 405 of the Act):      YES  ̈    NO
T




Indicate by
checkmark if the registrant is not required to file to file reports pursuant to
Section-13 or Section-15(d) of the Act.     YES  ̈     NO
T




T  ̈












Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K: YES T     NO
 ̈




Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition
of "accelerated filer, “large accelerated filer" and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company T





Do not
check if a smaller reporting company.




Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act):      YES  ̈     NO
T




State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the Registrant’s most recently completed second fiscal
quarter:  N/A




Documents incorporated by
reference: None.


FORM 10-K


DECEMBER
31, 2007





TABLE
OF CONTENTS





PART
      IItem 1.
            Business
            3Item 1A.
            Risk Factors
            10Item 1B.
            Unresolved Staff Comments
            10Item 2.
            Properties
            10Item 3.
            Legal Proceedings
            10Item 4.
            Submission of Matters to a Vote of Security
      Holders
            10PART
      IIItem 5.
            Market for Registrant's Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            11Item 6.
            Selected Financial Data
            13Item 7.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            13Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            16Item 8.
            Financial Statements and Supplementary
    Data
            16Item 9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            16Item 9A.
            Controls and Procedures
            16Item 9A (T).
            Controls and Procedures
            16Item 9B.
            Other Information
            17PART
      IIIItem 10.
            Directors and Executive Officers of the
      Registrant
            17Item 11.
            Executive Compensation
            22Item 12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            22Item 13.
            Certain Relationships and Related Transactions and Director
      Independence
            22Item 14.
            Principal Accountant Fees and Services
            26PART
      IVItem 15.
            Exhibits and Financial Statement
    Schedules
            27Index
      to Exhibits


-2-


Forward-Looking
Statements




From time
to time, we and our representatives may provide information, whether orally or
in writing, including certain statements in this Annual Report on Form 10-K,
which are deemed to be “forward-looking” within the meaning of the Private
Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These
forward-looking statements reflect our current beliefs and expectations with
respect to future events and are based on assumptions and are subject to risks
and uncertainties and other factors outside our control that may cause actual
results to differ materially from those projected.




The words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and
similar expressions, as they relate to us, are intended to identify
forward-looking statements. Such statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended or using other similar expressions. We do not intend to
update these forward-looking statements, except as required by law.




In
accordance with the provisions of the Litigation Reform Act, we are making
investors aware that such forward-looking statements, because they relate to
future events, are by their very nature subject to many important factors that
could cause actual results to differ materially from those contemplated by the
forward-looking statements contained in this Annual Report on Form 10-K, any
exhibits to this Form 10-K and other public statements we make. Such factors
include, but are not limited to: the outcome of litigation and regulatory
proceedings to which we may be a party; actions of competitors; changes and
developments affecting our industry; quarterly or cyclical variations in
financial results; development of new products and services; interest rates and
cost of borrowing; our ability to maintain and improve cost efficiency of
operations; changes in economic conditions, political conditions, trade
protection measures, reliance on third parties for manufacturing of products and
provision of services; and other factors that are set forth in the “Legal
Proceedings” section, the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section and other sections of this Annual
Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K.





PART I





ITEM
1:                      BUSINESS





GENERAL





Commonwealth
Income & Growth Fund III (“CIGF3”) was formed on April 17, 1997, under the
Pennsylvania Revised Uniform Limited Partnership Act.  The Partnership
began offering $15,000,000 of units of Limited Partnership to the public on July
25, 1997.   On January 27, 1998, the Partnership received and
accepted subscription proceeds of $1,526,000, which exceeded the minimum
offering amount of $1,500,000 and the funds were released from
escrow.  The Partnership terminated its offering of units on July 31,
2000, with 151,178 units ($3,023,569) admitted as Limited Partners of the
Partnership.





See “The
Glossary” below for the definition of selected terms not otherwise defined in
the text of this report.





PRINCIPAL
INVESTMENT OBJECTIVES





The
Partnership was formed for the purpose of acquiring various types of equipment,
including computer information technology (I.T.) and other similar capital
equipment.  The Partnership utilized the net proceeds of the offering
to purchase IBM and IBM compatible computer I.T. and other similar capital
equipment.  The Partnership has utilized retained proceeds and debt
financing (not in excess of 30% of the aggregate cost of the equipment owned or
subject to conditional sales contracts by the Partnership at the time the debt
is incurred) to purchase additional equipment.  The Partnership
acquires and leases equipment principally to U.S. corporations and other
institutions pursuant to operating leases. The Partnership retains the
flexibility to enter into full payout net leases and conditional sales
contracts, but has not done so.





The
Partnership’s principal investment objectives are to:




(a)       acquire,
lease and sell equipment to generate revenues from operations sufficient to
provide quarterly cash distributions to Limited Partners;


(b)       preserve
and protect Limited Partners’ capital;


(c)       use
a portion of cash flow and net disposition proceeds derived from the
sale,refinancing or other disposition of equipment to purchase additional
equipment; and


(d)       refinance,
sell or otherwise dispose of equipment in a manner that will maximize the proceeds
to the Partnership.


-3-
 Table of Contents




THERE CAN BE NO ASSURANCE THAT ANY OF
THESE OBJECTIVES WILL BE ATTAINED.





Limited
Partners do not have the right to vote on or otherwise approve or disapprove any
particular investment to be made by the Partnership.





Although
the Partnership generally acquires new equipment, the Partnership may purchase
used equipment.   Generally, equipment is acquired from
manufacturers, distributors, leasing companies, agents, owner-users,
owner-lessors, and other suppliers upon terms that vary depending upon the
equipment and supplier involved.   Manufacturers and distributors
usually furnish a limited warranty against defects in material and workmanship
and some purchase agreements for equipment provide for service and replacement
of parts during a limited period.   Equipment purchases are also
made through lease brokers and on an ad hoc basis to meet the needs of a
particular lessee.





As of
December 31, 2007, all equipment purchased by the Partnership was subject to an
operating lease or an operating lease was already entered into with a third
party when the Partnership acquired an item of equipment.   The
Partnership may also engage in sale/leaseback transactions, pursuant to which
the Partnership would purchase equipment from companies that would then
immediately lease the equipment from the Partnership.   The
Partnership may also purchase equipment which is leased under full payout net
leases or sold under conditional sales contracts at the time of acquisition or
the Partnership may enter into a full payout net lease or conditional sales
contract with a third party when the Partnership acquires an item of
equipment.





The
Partnership may enter into arrangements with one or more manufacturers pursuant
to which the Partnership purchases from such manufacturers equipment that has
previously been leased directly by the manufacturer to third parties (“vendor
leasing agreements”).   The Partnership and manufacturers may
agree to obtain nonrecourse loans from the manufacturers, to finance the
acquisition of equipment.  Such loans would be secured only by the
specific equipment financed and the receivables due to the manufacturers from
users of such equipment.  It is expected that the manufacturers of
equipment will provide maintenance, remarketing and other services for the
equipment subject to such agreements.   As of December 31, 2007,
the Partnership has not entered into any such agreements.





The
General Partner has the discretion, consistent with its fiduciary duty, to
change the investment objectives of the Partnership if it determines that such a
change is in the best interest of the Limited Partners and so long as such a
change is consistent with the partnership agreement.   The
General Partner will notify the Limited Partners if it makes such a
determination to change the Partnership’s investment objectives.





The
Partnership has suffered recurring losses from operations and has a deficit
partners’ capital of approximately $135,000 at December 31, 2007.  The
General Partner and Commonwealth Capital Corp. (CCC) have forgiven amounts
payable by the Partnership to them and have deferred payments on other amounts
to allow for distributions to limited partners.





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 December 31, 2008. No fees will be charged to the
fund by CCC and its affiliates during 2008.  CCC has committed to fund
limited partner distributions through June 2008, at which time CCC will reassess
the operations of the fund.  Thereafter, the General Partner intends
to review and reassess the Partnership’s business plan on a quarterly basis
through 2008.  Additional funds may be utilized to purchase additional
equipment during 2008 as available cash flow permits.





TYPES
OF EQUIPMENT





Computer Information Technology
Equipment.  Computer information technology equipment consists
of devices used to convey information into and out of a central processing unit
(or “mainframe”) of a computer system, such as tape drives, disk drives, tape
controllers, disk controllers, printers, terminals and related control units,
all of which are in some way related to the process of storing, retrieving, and
processing information by computer.




-4-
 Table
of Contents




Computer
technology has developed rapidly in recent years and is expected to continue to
do so.   Technological advances have permitted continued
reductions in the cost of computer processing capacity, thereby permitting
applications not economically feasible a few years ago.   Much of
the older IBM and IBM compatible computer I.T. equipment has not been retired
from service, because software is generally interchangeable between older and
newer equipment, and older equipment is capable of performing many of the same
functions as newer equipment.   The General Partner believes that
historically, values of I.T. equipment have been affected less dramatically by
changes in technology than have the values of central processing
units.   An equipment user who upgrades to a more advanced
central processor generally can continue to use his existing I.T.
equipment.   I.T. equipment nevertheless is subject to declines
in value as new, improved models are developed and become
available.   Technological advances and other factors, discussed
below in Management’s Discussion and Analysis, have at times caused dramatic
reductions in the market prices of I.T. equipment from the prices at which they
were originally introduced.





Other
Equipment-Restrictions.  The Partnership generally acquires
I.T. equipment such as tape drives, disk drives, tape controllers, disk
controllers, printers, terminals and related control units, all of which are in
some way related to the process of storing, retrieving and processing
information by computer.  The General Partner is also authorized to
cause the Partnership to invest in other types of data processing,
telecommunication or medical technology equipment.  The Partnership
may not invest in any of such other types of equipment (i) to the extent that
the purchase price of such equipment, together with the aggregate purchase price
of all such other types of equipment then owned by the Partnership, is in excess
of 25% of the total cost of all of the assets of the Partnership at the time of
the Partnership’s commitment to invest therein; and (ii) unless the General
Partner determines that such purchase is in the best economic interest of the
Partnership at the time of the purchase.  There can be no assurance
that any equipment investments can be found which meet this
standard.  Accordingly, there can be no assurance that investments of
this type will be made by the Partnership.





DIVERSIFICATION





Diversification
is generally desirable to minimize the effects of changes in specific
industries, local economic conditions or similar risks.  However, the
extent of the Partnership’s diversification, in the aggregate and within each
category of equipment, depends in part upon the financing which can be assumed
by the Partnership or borrowed from third parties on satisfactory
terms.  The Partnership’s policy not to borrow on a recourse basis
will further limit its financing options.  Diversification also
depends on the availability of various types of equipment.  Through
December 31, 2007, the Partnership has acquired a diversified equipment
portfolio, which it has leased to 23 different companies located throughout the
United States.   The equipment types comprising the portfolios
are as follows:




Equipment
      Type
            Approximate
      %Small
      & Midrange Servers
            26%High
      End Servers
            23%Workstations
            4%Datacom
            12%Printers
            9%Storage
            15%Tape
      Libraries
            8%Telecom
            3%Total
            100%







-5-
 Table
of Contents




DESCRIPTION
OF LEASES
 
 The
Partnership generally purchases only equipment that is subject to a lease or for
which a lease or similar agreement will be entered into contemporaneously with
the consummation of the Partnership’s acquisition of the
equipment.  The General Partner leases most of the equipment purchased
by the Partnership to third parties pursuant to operating
leases.  Operating leases are relatively short-term (12 to 39 month)
leases under which the aggregate noncancellable rental payments during the
original term of the lease are not sufficient to permit the lessor to recover
the purchase price of the subject equipment.  The equipment may also
be leased pursuant to full payout net leases.  Full payout net leases
are leases under which the aggregate noncancellable rental payments during the
original term of the lease are at least sufficient to recover the purchase price
of the subject equipment.  It is anticipated that the Partnership will
enter into few, if any, full payout net leases.  The General Partner
may also enter into conditional sales contracts for equipment.  A
conditional sales contract generally provides that the noncancellable payments
to the seller over the term of the contract are sufficient to recover the
investment in such equipment and to provide a return on such
investment.  Under a conditional sales contract, the seller reserve
title to, and retains, a security interest in, the equipment until the purchase
price of the equipment is paid.  As of December 31, 2007, the
Partnership has not entered into any full payout net leases or conditional sales
contracts for equipment and does not presently intend to do
so.




In
general, the terms of the Partnership’s leases, whether the equipment is leased
pursuant to an operating lease or a full payout net lease, depend upon a variety
of factors, including:  the desirability of each type of lease from
both an investment and a tax point of view; the relative demand among lessees
for operating or full payout net leases; the type and use of equipment and its
anticipated residual value; the business of the lessee and its credit rating;
the availability and cost of financing; regulatory considerations; the
accounting treatment of the lease sought by the lessee or the Partnership; and
competitive factors.





An
operating lease generally represents a greater risk to the Partnership than a
full payout net lease, because in order to recover the purchase price of the
subject equipment and earn a return on such investment, it is necessary to renew
or extend the operating lease, lease the equipment to a third party at the end
of the original lease term, or sell the equipment.  On the other hand,
the term of an operating lease is generally much shorter than the term of a full
payout net lease, and the lessor is thus afforded an opportunity under an
operating lease to re-lease or sell the subject equipment at an earlier stage of
the equipment’s life cycle than under a full payout net lease.  Also,
the annual rental payments received under an operating lease are ordinarily
higher than those received under a full payout net lease.





The
Partnership’s policy is to generally enter into “triple net leases” (or the
equivalent, in the case of a conditional sales contract) which typically provide
that the lessee or some other party bear the risk of physical loss of the
equipment; pay taxes relating to the lease or use of the equipment; maintain the
equipment; indemnify the Partnership-lessor against any liability suffered by
the Partnership as the result of any act or omission of the lessee or its
agents; maintain casualty insurance in an amount equal to the greater of the
full value of the equipment and a specified amount set forth in the lease; and
maintain liability insurance naming the Partnership as an additional insured
with a minimum coverage which the General Partner deems
appropriate.  In addition, the Partnership may purchase “umbrella”
insurance policies to cover excess liability and casualty losses, to the extent
deemed practicable and advisable by the General Partner.  As of
December 31, 2007, all leases that have been entered into are “triple net
leases”.





The
General Partner has not established any standards for lessees to whom it will
lease equipment and, as a result, there is not an investment restriction
prohibiting the Partnership from doing business with any
lessees.  However, a credit analysis of all potential lessees will be
undertaken by the General Partner to determine the lessee’s ability to make
payments under the proposed lease.  The General Partner may refuse to
enter into an agreement with a potential lessee based on the outcome of the
credit analysis.





The terms
and conditions of the Partnership’s leases, or conditional sales contracts, are
each determined by negotiation and may impose substantial obligations upon the
Partnership.  Where the Partnership assumes maintenance or service
obligations, the General Partner generally causes the Partnership to enter into
separate maintenance or service agreements with manufacturers or certified
maintenance organizations to provide such services.  Such agreements
generally require annual or more frequent adjustment of service
fees.   As of December 31, 2007, the Partnership has not entered
into any such agreements.




-6-
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Contents




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 a factor in the negotiation of the
fee.
 
 BORROWING
POLICIES
 
 The
General Partner, at its discretion, may cause the Partnership to incur debt in
the maximum aggregate amount of 30% of the aggregate cost of the equipment owned
by the Partnership, or subject to conditional sales contracts.  The
Partnership will incur only non-recourse debt that is secured by equipment and
lease income therefrom.  Such leveraging permits the Partnership to
increase the aggregate amount of its depreciable assets, and, as a result,
potentially increases both its lease revenues and its federal income tax
deductions above the levels that would be achieved without
leveraging.  There is no limit on the amount of debt that may be
incurred in connection with the acquisition of any single item of
equipment.  Any debt incurred is fully amortized over the term of the
initial lease or conditional sales contract to which the equipment securing the
debt is subject.  The precise amount borrowed by the Partnership
depends on a number of factors, including the types of equipment acquired by the
Partnership; the creditworthiness of the lessee; the availability of suitable
financing; and prevailing interest rates.  There can be no assurance
that credit will be available to the Partnership in the amount or at the time
desired or on terms considered reasonable by the General Partner.  As
of December 31, 2007, the aggregate non-recourse debt outstanding of $1,000 was
approximately 1% of the aggregate cost of equipment owned.




The
Partnership may purchase some items of equipment without leverage.  If
the Partnership purchases an item of equipment without leverage and thereafter
suitable financing becomes available, it may then obtain the financing, secure
the financing with the purchased equipment to the extent practicable and invest
any proceeds from such financing in additional items of equipment, or it may
distribute some or all of such proceeds to the Limited Partners.  Any
such later financing will be on terms consistent with the terms applicable to
borrowings generally.  As of December 31, 2007, the Partnership has
not exercised this option.





The
General Partner may cause the Partnership to borrow funds, to the fullest extent
practicable, at interest rates fixed at the time of
borrowing.  However, the Partnership may borrow funds at rates that
vary with the “prime” or “base” rate.  If lease revenues were fixed, a
rise in the “prime” or “base” rate would increase borrowing costs and reduce the
amount of the Partnership’s income and cash available for
distribution.  Therefore, the General Partner is permitted to borrow
funds to purchase equipment at fluctuating rates only if the lease for such
equipment provides for fluctuating rental payments calculated on a similar
basis.





Any
additional debt incurred by the Partnership must be
nonrecourse.  Nonrecourse debt means that the lender providing the
funds can look for security only to the equipment pledged as security and the
proceeds derived from leasing or selling such equipment.  Neither the
Partnership nor any Partner (including the General Partner) would be liable for
repayment of any non-recourse debt.





Loan
agreements may also require that the Partnership maintain certain reserves or
compensating balances and may impose other obligations upon the
Partnership.  Moreover, since a significant portion of the
Partnership’s revenues from the leasing of equipment will be reserved for
repayment of debt, the use of financing reduces the cash that might otherwise be
available for distributions until the debt has been repaid and may reduce the
Partnership’s cash flow over a substantial portion of the Partnership’s
operating life.  As of December 31, 2007, the Partnership has not
entered into any such agreements.





The
General Partner and any of its affiliates may, but are not required to, make
loans to the Partnership on a short-term basis.  If the General
Partner or any of its affiliates makes such a short-term loan to the
Partnership, the General Partner of affiliate may not charge interest at a rate
greater than the interest rate charged by unrelated lenders on comparable loans
for the same purpose in the same locality.  In no event is the
Partnership required to pay interest on any such loan at an annual rate greater
than three percent over the “prime rate” from time to time announced by PNC
Bank, Philadelphia, Pennsylvania.  All payments of principal and
interest on any financing provided by the General Partner or any of its
affiliates are due and payable by the Partnership within 12 months after the
date of the loan.




-7-
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Contents




REFINANCING
POLICIES
 
 Subject
to the limitations set forth in “Borrowing Policies” above, the Partnership may
refinance its debt from time to time.  With respect to a particular
item of equipment, the General Partner will take into consideration such factors
as the amount of appreciation in value, if any, to be realized, the possible
risks of continued ownership, and the anticipated advantages to be obtained for
the Partnership, as compared to selling such equipment.   As of
December 31, 2007, the Partnership has not refinanced any of its
debt.
  Refinancing,
if achievable, may permit the Partnership to retain an item of equipment and at
the same time to generate additional funds for reinvestment in additional
equipment or for distribution to the Limited Partners.
 
 LIQUIDATION
POLICIES
 
 Particular
items of equipment may be sold at any time if, in the judgment of the General
Partner, it is in the best interest of the Partnership to do so.  The
determination of whether particular items of Partnership equipment should be
sold or otherwise disposed of is made by the General Partner after consideration
of all relevant factors (including prevailing general economic conditions,
lessee demand, the General Partner’s views of current and future market
conditions, the cash requirements of the Partnership, potential capital
appreciation, cash flow and federal income tax considerations), with a view
toward achieving the principal investment objectives of the
Partnership.  As partial payment for equipment sold, the Partnership
may receive purchase money obligations secured by liens on such
equipment.




MANAGEMENT
OF EQUIPMENT





Equipment
management services for the Partnership’s equipment are provided by the General
Partner and its affiliates and by persons employed by the General
Partner.  Such services will consist of collection of income from the
equipment, negotiation and review of leases, conditional sales contracts and
sales agreements, releasing and leasing-related services, payment of operating
expenses, periodic physical inspections and market surveys, servicing
indebtedness secured by equipment, general supervision of lessees to assure that
they are properly utilizing and operating equipment, providing related services
with respect to equipment, supervising, monitoring and reviewing services
performed by others with respect to equipment and preparing monthly equipment
operating statements and related reports.





COMPETITION





The
equipment leasing industry is highly competitive.  The Partnership
competes with leasing companies, equipment manufacturers and their affiliated
financing companies, distributors and entities similar to the Partnership
(including other programs sponsored by the General Partner), some of which have
greater financial resources than the Partnership and more experience in the
equipment leasing business than the General Partner.  Other leasing
companies and equipment manufacturers, their affiliated financing companies and
distributors may be in a position to offer equipment to prospective lessees on
financial terms that are more favorable than those that the Partnership can
offer.  They may also be in a position to offer trade-in privileges,
software, maintenance contracts and other services that the Partnership may not
be able to offer.  Equipment manufacturers and distributors may offer
to sell equipment on terms (such as liberal financing terms and exchange
privileges), which will afford benefits to the purchaser similar to those
obtained through leases. Other competitive factors include pricing,
technological innovation and methods of financing. Certain manufacturer-lessors
maintain advantages through patent protection, where applicable, and through a
policy that combines service and hardware with payment accomplished through a
single periodic charge.  As a result of the advantages that certain of
its competitors may have, the Partnership may find it necessary to lease its
equipment on a less favorable basis than certain of its
competitors.





The
dominant firms in the computer marketplace are Dell, IBM, Hewlett Packard, Sun
Systems and Cisco.  Because of the substantial resources and dominant
position of these companies, revolutionary changes with respect to computer
systems, pricing, marketing practices, technological innovation and the
availability of new and attractive financing plans could occur at any
time.  Significant action in any of these areas by these firms might
materially adversely affect the partnership’s business or that of the other
manufacturers with whom the General Partner might negotiate purchase and other
agreements.  Any adverse affect on these manufacturers could be
reflected in the overall return realized by the Partnership on equipment from
those manufacturers.





-8-
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Contents




INVESTMENTS





The
Partnership, through CCC, participates in the purchase of equipment subject to
associated debt obligations and lease agreements.  The purchase price,
list price and monthly rentals presented below represent the Partnership’s share
of the total amounts, based on CCC’s allocation of the equipment to the
Partnership, and in some instances, other affiliated partnerships.





Through
March 12, 2008, the Partnership has purchased, or has made the commitment to
purchase, the following equipment:





LESSEE
            
            MFG
            
            EQUIPMENT DESCRIPTION
            
            LIST
      PRICE
            
            
            PURCHASE PRICE
            
            
            MONTHLY RENTAL
            
            
            LEASE TERMCharleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            $
            2,038
            
            
            $
            1,871
            
            
            $
            53
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            8,339
            
            
            
            7,655
            
            
            
            217
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            7,439
            
            
            
            6,829
            
            
            
            194
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,163
            
            
            
            1,765
            
            
            
            50
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,292
            
            
            
            1,871
            
            
            
            53
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,292
            
            
            
            1,871
            
            
            
            53
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,163
            
            
            
            1,765
            
            
            
            50
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,163
            
            
            
            1,765
            
            
            
            50
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,292
            
            
            
            1,871
            
            
            
            53
            
            
            
            35GE
      Aviation
            
            Itronix
            
            Laptops
            
            
            6,808
            
            
            
            5,069
            
            
            
            132
            
            
            
            36GE
      Aviation
            
            Itronix
            
            Laptops
            
            
            23,696
            
            
            
            17,644
            
            
            
            458
            
            
            
            36GE
      Aviation
            
            Itronix
            
            Laptops
            
            
            5,924
            
            
            
            4,411
            
            
            
            115
            
            
            
            36GE
      Aviation
            
            Itronix
            
            Laptops
            
            
            5,924
            
            
            
            4,411
            
            
            
            115
            
            
            
            36GE
      Aviation
            
            Itronix
            
            Laptops
            
            
            6,690
            
            
            
            4,982
            
            
            
            129
            
            
            
            36IST
      Management Services
            
            KonicaMinolta
            
            Multifunction
      Printers
            
            
            7,498
            
            
            
            6,883
            
            
            
            239
            
            
            
            29Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            1,922
            
            
            
            1,764
            
            
            
            50
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            1,922
            
            
            
            1,764
            
            
            
            50
            
            
            
            35Charleston Area Medical Center
            
            Canon
            
            Multifunction
      Printers
            
            
            2,292
            
            
            
            1,870
            
            
            
            53
            
            
            
            35




RESERVES





Because
the Partnership’s leases are on a “triple-net” basis, no permanent reserve for
maintenance and repairs has been established.   However, the
General Partner, in its sole discretion, may retain a portion of the cash flow
and net disposition proceeds available to the Partnership for maintenance,
repairs and working capital.   There are no limitations on the
amount of cash flow and net disposition proceeds that may be retained as
reserves.   Since no reserve will be established, if available
cash flow of the Partnership is insufficient to cover the Partnership’s
operating expenses and liabilities, it may be necessary for the Partnership to
obtain funds by refinancing its equipment or borrowing.




-9-
 Table of
Contents




GENERAL
RESTRICTIONS





Under the
partnership agreement, the Partnership is not permitted, among other things,
to:





(a)
            invest
      in junior trust deeds unless received in connection with the sale of an
      item of equipment in an aggregate amount which does not exceed 30% of the
      assets of the Partnership on the date of the
  investment;


(b)
            invest
      in or underwrite the securities of other
  issuers;


(c)
            acquire
      any equipment for units;


(d)
            issue
      senior securities (except that the issuance to lenders of notes or other
      evidences of indebtedness in connection with the financing or refinancing
      of equipment or the Partnership’s business shall not be deemed to be the
      issuance of senior securities);


(e)
            make
      loans to any person, including the General Partner or any of its
      affiliates, except to the extent a  conditional sales contract
      constitutes a loan;


(f)
            sell
      or lease any equipment to, lease any equipment from, or enter into any
      sale-leaseback transactions with, the General Partner or any of its
      affiliates; or


(g)
            give
      the General Partner or any of its affiliates an exclusive right or
      employment to sell the Partnership’s
equipment.




The
General Partner has also agreed in the partnership agreement to use its best
efforts to assure that the Partnership shall not be deemed an “investment
company” as such term is detained in the Investment Company Act of
1940.




The
General Partner and its affiliates may engage in other activities, whether or
not competitive with the Partnership.   The partnership agreement
provides, however, that neither the General Partner nor any of its affiliates
may receive any rebate or “give up” in connection with the Partnership’s
activities or participate in reciprocal business arrangements that circumvent
the restrictions in the partnership agreement against dealings with
affiliates.




EMPLOYEES




The
Partnership had no employees during 2007 and receives administrative and other
services from a related party, CCC, which had 79 employees as of December 31,
2007.




ITEM
1A:                   RISK
FACTORS




NOT
APPLICABLE




ITEM
1B:              UNRESOLVED
STAFF COMMENTS




NOT
APPLICABLE




ITEM
2:                    PROPERTIES




NOT
APPLICABLE




ITEM
3:                      LEGAL
PROCEEDINGS




NOT
APPLICABLE




ITEM
4:                     SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS




NOT
APPLICABLE




-10-
 Table of
Contents


PART II


ITEM
5: MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 There
is no public market for the units nor is it anticipated that one will
develop.  The units are not listed on any exchange or permitted to
trade on any over-the-counter market.  In addition, there are
substantial restrictions on the transferability of units.  As of
December 31, 2007, there were 172 holders of units.


GENERAL
LIMITATIONS




Units
cannot be transferred without the consent of the General Partner, which may be
withheld in its discretion according to the partnership
agreement.  The General Partner monitors transfers of units in an
effort to ensure that all transfers are within certain safe harbors promulgated
by the IRS to furnish guidance regarding publicly traded
partnerships.   These safe harbors limit the number of transfers
that can occur in any one year.  The General Partner intends to cause
the Partnership to comply with the safe harbor that permits nonexempt transfers
and redemptions of Units of up to five percent of the total outstanding interest
in the Partnership’s capital or profits in any one year.




REDEMPTION
PROVISION




On a
semi-annual basis, the General Partner, at its discretion, may establish an
amount for redemption, generally not to exceed two percent of the outstanding
units per year, subject to the General Partner’s good faith determination that
such redemptions will not (a) cause the Partnership to be taxed as a corporation
under Section 7704 of the Code or (b) impair the capital or operations of the
Partnership.  (The Partnership may redeem units in excess of the two
percent limitation if, in the good faith judgment of the General Partner, the
conditions imposed in the preceding sentence would remain
satisfied.)  The redemption price for units will be 105% of the
selling Limited Partner’s adjusted capital contributions attributable to the
units for sale.   Following the determination of the annual
redemption amount, redemptions will occur on a semi-annual basis and all
requests for redemption, which must be made in writing, must be on file as of
the record date with respect to which the redemption is to
occur.   The General Partner will maintain a master list of
requests for redemption with priority being given to units owned by estates,
followed by IRAs and qualified plans.   All other requests will
be considered in the order received.  Redemption requests made by or
on behalf of Limited Partners who are not affiliated with the General Partner or
its affiliates will be given priority over those made by Limited Partners who
are affiliated with the General Partner or its affiliates.  All
redemption requests will remain in effect until and unless canceled, in writing,
by the requesting Limited Partner(s).




There
will be no limitations on the period of time that a redemption request may be
pending prior to its being granted.   Limited Partners will not
be required to hold their interest in the Partnership for any specified period
prior to their making a redemption request.




In order
to make a redemption request, Limited Partners will be required to advise the
General Partner in writing of such request.   Upon receipt of
such notification, the Partnership will provide detailed forms and instructions
to complete the request.




EXEMPT
TRANSFERS




The
following six categories of transfers are exempt transfers for purposes of
calculating the volume limitations imposed by the IRS and will generally be
permitted by the General Partner:




(1)
            transfers
      in which the basis of the unit in the hands of the transferee is
      determined, in whole or in part, by reference to its basis in the hands of
      the transferor (for example, units acquired by corporations in certain
      reorganizations, contributions to capital, gifts of units, units
      contributed to another partnership, and non-liquidating as well as
      liquidating distributions by a parent partnership to its partners of
      interests in a sub partnership);


(2)
            transfers
      at death;


(3)
            transfers
      between members of a family (which include brothers and sisters, spouse,
      ancestors, and lineal descendants);


(4)
            transfers
      resulting from the issuance of units by the Partnership in exchange for
      cash, property, or services;


(5)
            transfers
      resulting from distributions from qualified plans;
  and


(6)
            any
      transfer by a Limited Partner in one or more transactions during any
      30-day period of units representing in the aggregate more than five
      percent of the total outstanding interests in capital or profits of the
      Partnership.


-11-
 Table of
Contents


ADDITIONAL
RESTRICTIONS ON TRANSFER




Limited
Partners who wish to transfer their units to a new beneficial owner are required
to pay the Partnership up to $50 for each transfer to cover the Partnership’s
cost of processing the transfer application and take such other actions and
execute such other documents as may be reasonably requested by the General
Partner.  There is no charge for re-registration of a unit in the
event of a marriage, divorce, death, or transfer to a trust so long as the
transfer is not a result of a sale of the Units.




In
addition, the following restrictions apply to each transfer: (i) no transfer may
be made if it would cause 25% or more of the outstanding units to be owned by
benefit plans; and (ii) no transfer is permitted unless the transferee obtains
such governmental approvals as may reasonably be required by the General
Partner, including without limitation, the written consents of the Pennsylvania
Securities Commissioner and of any other securities agency or commission having
jurisdiction over the transfer.




ALLOCATION
AND DISTRIBUTION BETWEEN THE GENERAL PARTNER AND THE LIMITED
PARTNERS




Cash
distributions, if any, are made quarterly on March 31, June 30, September 30 and
December 31, of each year.  Distributions are made 99% to the Limited
Partners and one percent to the General Partner until the Limited Partners have
received an amount equal to their capital contributions plus the cumulative
return; thereafter, cash distributions will be made 90% to Limited Partners and
10% to the General Partner.  Distributions made in connection with the
liquidation of the Partnership or a partner’s units will be made in accordance
with the partner’s positive capital account balance as determined under the
partnership agreement and Treasury Regulations.




The
cumulative return is calculated on the Limited Partners’ adjusted capital
contributions for their units.  The adjusted capital contributions
will initially be equal to the amount paid by the Limited Partners for their
units.  If distributions at any time exceed the cumulative return, the
adjusted capital contributions will be reduced by the excess, decreasing the
base on which the cumulative return is calculated.




If the
proceeds resulting from the sale of any equipment are reinvested in equipment,
sufficient cash will be distributed to the Partners to pay the additional
federal income tax resulting from such sale for a Partner in a 35.6% federal
income tax bracket or, if lower, the maximum federal income tax rate in effect
for individuals for such taxable year.




Generally,
the General Partner is allocated net profits equal to its cash distributions
(but not less than one percent of net profits) and the balance is allocated to
the Limited Partners.   Net profits arising from transactions in
connection with the termination or liquidation of the Partnership are allocated
in the following order: (1) First, to each partner in an amount equal to the
negative amount, if any, of his capital account; (2) Second, an amount equal to
the excess of the proceeds which would be distributed to the partners based on
the operating distributions to the partners over the aggregate capital accounts
of all the partners, to the partners in proportion to their respective shares of
such excess, and (3) Third, with respect to any remaining net profits, to the
partners in the same proportions as if the distributions were operating
distributions.   Net losses, if any, are in all cases allocated
99% to the Limited Partners and one percent to the General Partner.




Net
profits and net losses are computed without taking into account, in each taxable
year of the Partnership, any items of income, gain, loss or deduction required
to be specially allocated pursuant to Section 704(b) of the Code and the
Treasury Regulation promulgated thereunder.  No Limited Partner is
required to contribute cash to the capital of the Partnership in order to
restore a closing capital account deficit, and the General Partner has only a
limited deficit restoration obligation under the partnership
agreement.




Quarterly
distributions in the following amounts were declared and paid to the Limited
Partners during 2007 and 2006:




Quarter
      Ended
            
            2007
            
            
            2006March
      31
            
            $
            14,968
            
            
            $
            15,415June
      30
            
            
            14,968
            
            
            
            14,968September
      30
            
            
            14,968
            
            
            
            12,680December
      31
            
            
            14,968
            
            
            
            16,452$
            59,872
            
            
            $
            59,515




-12-
 Table of
Contents


ALLOCATIONS
AND DISTRIBUTIONS AMONG THE LIMITED PARTNERS




Cash
available for distribution, which is allocable to the Limited Partners, is
apportioned among and distributed to them solely with reference to the number of
units owned by each as of the record date for each such
distribution.




Net
profits, net losses and cash available for distribution allocable to the Limited
Partners is apportioned among them in accordance with the number of units owned
by each.




In
addition, where a Limited Partner transfers units during a taxable year, the
Limited Partner may be allocated net profits for a period for which such Limited
Partner does not receive a corresponding cash distribution.




ITEM
6:                     SELECTED
FINANCIAL DATA




NOT
APPLICABLE




ITEM
7:                   MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




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.





REVENUE
RECOGNITION





Through
December 31, 2007, 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.  The Partnership determined that no impairment occurred in
2007 and 2006.




Depreciation
on computer equipment for financial statement purposes is based on the
straight-line method over estimated useful lives of four years.


-13-
 Table of
Contents




REIMBURSABLE
EXPENSES




Reimbursable
expenses, which are charged to the Partnership by CCC in connection with the
administration and operation of the Partnership, are allocated to the
Partnership based upon several factors including, but not limited to, the number
of investors, compliance issues, and the number of existing leases.





RECENT
ACCOUNTING PRONOUNCEMENTS





In
December 2007, the FASB issued SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No. 51
("SFAS No.
160").  The objective of SFAS 160 is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160
is effective for financial statements issued for fiscal years beginning on or
after December 15, 2008 and interim periods within those fiscal
years.  The Partnership does not expect the implementation of SFAS 160
to have a material impact on its financial position or results of
operations.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement No.
115” (“SFAS No. 159”).SFAS No. 159 permits entities to
choose, at specified election dates, to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value. Unrealized gains and losses will be reported on items for which
the fair value option has been elected in earnings at each subsequent reporting
date. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of SFAS No. 157 “Fair Value Measurements” (“SFAS No. 157”). The
Partnership is currently determining whether fair value accounting is
appropriate for any of its eligible items and cannot currently estimate the
impact, if any, which SFAS 159 may have on our results of operation and
financial condition.




In
September 2006, the FASB issued Statement of Financial Accounting Standards 157,
“Fair Value Measurements” (“SFAS 157”), which
provides guidance on measuring the fair value of assets and liabilities. SFAS
157 applies to other accounting pronouncements that require or permit assets or
liabilities to be measured at fair value but does not expand the use of fair
value to any new circumstances. This standard also requires additional
disclosures in both annual and quarterly reports. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007
and will be adopted by the Partnership in the first quarter of its fiscal year
2008.   In February 2008, the FASB issued two Staff Positions on
SFAS 157: (1) FASB Staff Position No. FAS 157-1 (FAS 157-1), “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement Under Statement 13,” and (2) FASB Staff Position
No. FAS 157-2 (FAS 157-2)
, “Effective Date of FASB
Statement No 157.” FAS 157-1 excludes FASB Statement
No. 13, Accounting for
Leases, as well as other accounting pronouncements that address fair
value measurements on lease classification or measurement under Statement 13,
from SFAS 157’s scope. FAS157-2 partially defers Statement 157’s effective
date.  The Partnership is currently determining the effect, if any, that
the adoption of SFAS 157 and 157-1 will have on its financial
statements.





LIQUIDITY
AND CAPITAL RESOURCES





For the
year ended December 31, 2007, the Partnership generated cash flow from operating
activities of $33,000 which includes net loss of $8,000 reduced by depreciation
and amortization expenses of $21,000. Other non-cash activities included in the
determination of net income include direct payments of lease income by lessees
to banks of $12,000.   For the year ended December 31, 2006,
the Partnership generated cash flow from operating activities of $22,000, which
includes net loss of $22,000 reduced by depreciation and amortization expenses
of $27,000. Other non-cash activities included in the determination of net
income include direct payments of lease income by lessees to banks of
$17,000.




The
Partnership’s primary sources of capital for the years ended December 31, 2007
and 2006 were cash from operations of $33,000 and $22,000, respectively, and
proceeds from the sale of computer equipment of $12,000 and $6,000,
respectively.  The primary uses of cash for the years ended December
31, 2007 and 2006 were the payment of distributions to partners totaling
approximately $60,000 for both years.  Capital expenditures for the
year ended 2007 were $67,000. There were no capital expenditures for the year
ended December 31, 2006.




-14-
 Table of
Contents




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
December 31, 2007, the Partnership had future minimum rentals on noncancellable
operating leases of $23,000 for the year ending 2008 and $31,000 thereafter. At
December 31, 2007, the outstanding debt was $1,000 with an interest rate of 5.5%
and was paid in January 2008. At December 31, 2006, the outstanding debt was
$13,500, with an interest rate of 5.5% and was payable through January
2008.





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.   As of December 31,
2007 the Partnership did not have any equipment in which it participated with
other partnerships. The Partnership’s share of the computer equipment in which
it participates with other partnerships at December 31, 2006 was approximately
$4,000 and is included in the Partnership’s fixed assets on its balance sheet.
The total cost of the equipment shared by the Partnership with other
partnerships at December 31, 2006 was approximately $13,000. There was no
outstanding debt at December 31, 2006 related to the equipment shared by the
Partnership.





During
the years ended December 31, 2007 and 2006, the General Partner and one of its
affiliates, CCC, forgave payables owed to them by the Partnership in the amount
of $49,000 and $132,000, respectively, and have deferred payments on other
amounts owed to allow for distributions to limited partners.  Such
amounts have been recorded as contributions to capital.  Also, CCC has
contributed cash in the amount of $91,000 and $25,000 in 2007 and 2006,
respectively.





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 December 31, 2008. No fees will be charged to the
fund by CCC and its affiliates during 2008.  CCC commits to fund
distributions through June 2008. The General Partner intends to review and
reassess the Partnership’s business plan on a quarterly basis through
2008.





RESULTS
FROM OPERATIONS




For the
years ended December 31, 2007 and 2006 the Partnership recognized income of
$42,000 and $44,000 and expenses of $51,000 and $66,000, resulting in net losses
of $9,000 and $22,000, respectively.




Lease
income decreased to $34,000 in 2007, down from $43,000 in 2006 primarily due to
the expiration of older leases and partially offset by newer leases generated in
2007.





The
Partnership sold computer equipment with a net book value of $4,000 during the
year ended December 31, 2007, for a net gain of $8,000. The Partnership sold
computer equipment with a net book value of $6,000 during the year ended
December 31, 2006, for a net gain of $265.




Operating
expenses, excluding depreciation, consist of accounting, legal, outside service
fees and reimbursement of expenses to CCC for administration and operation of
the Partnership. These expenses decreased to $29,000 during the year ended
December 31, 2007, down from $36,000 during the year ended December 31, 2006
respectively. This decrease is primarily attributable to a decrease in
remarketing fees, outside services and interest expense of $13,000 and was
partially offset by an increase in accounting fees of $6,000.




The
equipment management fee is equal to approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating
leases.   The equipment management fee was $800 for the year
ended December 31, 2007, down from $2,000 in 2006.  CCC chose to waive
fees of approximately $900 during 2007.




Interest
expense decreased to $400 for 2007 down from $1,200 for 2006, as a result of
certain notes being satisfied during 2006 and other notes nearing their maturity
date during 2007.





Depreciation
and amortization expenses consist of depreciation on computer equipment,
impairment charges, and amortization of equipment acquisition fees and debt
placement fees. Depreciation and amortization during 2007 decreased to $21,000
from $27,000 in 2006.  This decrease is primarily attributable to
certain computer equipment being fully depreciated in 2006.




-15-
 Table of
Contents


Acquisition
fees are the total of all fees and commissions paid by any party in connection
with the initial purchase of equipment acquired by the
Partnership.   Included in the computation of such fees or
commissions is the equipment acquisition fee, any commission, selection fee,
construction supervision fee, finance fee, non-recurring management fee of a
similar nature, however designated. For 2007 the General Partner chose to waive
these fees of approximately $2,000.  No such fees were earned by the
General Partner in 2006.




NET
LOSS




Net loss
decreased to $8,000 for the year ended December 31, 2007 from $22,000 for the
year ended December 31, 2006. The changes in net loss were attributable to the
changes in revenue and expenses as discussed above.




ITEM
7A:                 QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




NOT
APPLICABLE




ITEM
8:                   
 FINANCIAL STATEMENTS





Our
financial statements for the fiscal years ended December 31, 2007 and 2006, and
the reports thereon of Asher & Company, Ltd. are included in this
annual report.




ITEM 9:  CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE







NOT
APPLICABLE




ITEM 9A: CONTROLS
AND PROCEDURES






Our
management, under the supervision and with the participation of the principal
executive officer and principal financial offer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of December 31, 2007, which is the end of the period
covered by this Annual Report on Form 10-K.  Based on that evaluation,
the principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures are sufficient to provide that (a)
material information relating to us, including our consolidated affiliates is
made known to these officers by us and our consolidated affiliates’ other
employees, particularly material information related to the period for which
this periodic report is being prepared; and (b) this information is recorded,
processed, summarized, evaluated and reported, as applicable, within the time
periods specified in the rules and forms promulgated by the Securities and
Exchange Commission.  There have been no significant changes in the
General Partner’s internal controls or in other factors that could significantly
affect our disclosure controls and procedures in the fourth quarter of 2007 or
subsequent to the date of the evaluation.




ITEM 9A (T): CONTROLS
AND PROCEDURES







Management's Report on Internal
Control over Financial Reporting.     It is the
responsibility of the General Partner to establish and maintain adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The
General Partner’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes policies and
procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Partnership; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Partnership are being made
only in accordance with authorizations of management and directors of the
General Partner; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Partnership’s assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


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Management
assessed the effectiveness of the Partnership’s internal control over financial
reporting at December 31, 2007. Management based this assessment on criteria for
effective internal control over financial reporting described in “Internal
Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management’s assessment included an
evaluation of the design of the Partnership’s internal control over financial
reporting and testing of the operational effectiveness of its internal control
over financial reporting. Management reviewed the results of its assessment with
the board of directors.




Based on
our assessment, management determined that, at December 31, 2007, the
Partnership maintained effective internal control over financial reporting and
the preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles.





This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Partnership’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Partnership to provide only
management's report in this annual report.




ITEM
9B:                      OTHER
INFORMATION




NOT
APPLICABLE




ITEM
10:                DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT




GENERAL




The
Partnership does not have any Directors or executive officers.




The
General Partner, a wholly owned subsidiary of Commonwealth of Delaware, Inc., a
Delaware corporation, which is in turn a wholly-owned subsidiary of CCC, a
Pennsylvania corporation, was incorporated in Pennsylvania on August 26,
1993.  The General Partner also acts as the General Partner for
Commonwealth Income & Growth Fund IV, Commonwealth Income & Growth Fund
V, and Commonwealth Income & Growth Fund VI.  The principal
business office of the General Partner is Brandywine Bldg. One, Suite 200, 2
Christy Drive, Chadds Ford, PA 19317, and its telephone number is
610-594-9600.  The General Partner manages and controls the affairs of
the Partnership and has sole responsibility for all aspects of the Partnership’s
operations.  The officers of the General Partner devote such time to
the affairs of the Partnership as in the opinion of the General Partner is
necessary to enable it to perform its function as General
Partner.  The officers of the General Partner are not required to
spend their full time in meeting their obligations to the Partnership.




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The
directors and officers of the General Partner and key employees of CCC are as
follows:




NAME
              TITLEKimberly
      A. Springsteen
              Chairman
      of the Board, Chief Executive Officer and Chief Compliance Officer of CCC,
      CCSC, & CIGF, Inc.Henry
      J. Abbott
              President
      of CCC & CIGF, Inc. Director of CCC, CCSC & CIGF,
    Inc.William
      Pieranunzi III
              President
      of CCSC, Director of CCC and CCSC.Lynn
      A. Franceschina
              Executive
      Vice President, Chief Operating Officer, and Director of CCC, CCSC &
      CIGF, Inc.Jay
      Dugan
              Executive
      Vice President and Chief Technology Officer of CCC, CCSC & CIGF, Inc.
      and Director of CCCPeter
      Daley
              Director
      of CCCJames
      Pruett
              Senior
      Vice President and Compliance Officer of CCC, CCSC, & CIGF,
      Inc.Mark
      Hershenson
              Senior
      Vice President and Broker Services Manager of CCC, CCSC & CIGF,
      Inc.Richard
      G. Devlin III
              Vice
      President and General Counsel of CCC, CCSC & CIGF,
  Inc.Edmond
      J. Enderle
              Vice
      President and Controller of CCC, CCSC, & CIGF, Inc.Donna
      Abbott
              Vice
      President and Investor Services Manager of CCC, CCSC & CIGF,
      Inc.Richard
      Kizer
              Vice
      President and Portfolio Manager of CCC & CIGF,
  Inc.




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  Kimberly
A. Springsteen,age 48,
joined Commonwealth in 1997, as a founding registered principal and Chief
Compliance Officer of its broker/dealer, Commonwealth Capital Securities Corp.
Ms. Springsteen is the Chief Executive Officer and Chairman of the Board of
Directors of Commonwealth Capital Corp. (the parent corporation); Commonwealth
Capital Securities Corp. (the broker/dealer); and Commonwealth Income &
Growth Fund, Inc. (the general partner). Ms. Springsteen is responsible for
general operations of the equipment leasing/portfolio management side of the
business. Ms. Springsteen oversees all CCC operations, as well as CCSC SEC/FINRA
compliance. For the broker/dealer, she oversees securities policies, company
procedures/operations.  Ms. Springsteen oversees all corporate daily
operations and training, as well as develops long-term corporate growth
strategies. Ms. Springsteen has over 27 years of experience in the financial
services industry, specifically in the real estate, energy and leasing sectors
of Alternative Investments. Ms. Springsteen is the sole shareholder of
Commonwealth Capital Corp. and subsidiaries.  Ms. Springsteen has
served as Executive Vice President, COO.  In 1997, Ms. Springsteen was
elected to the Board of Directors of the parent corporation and founded its
broker/dealer arm (Commonwealth Capital Securities Corp.). She was appointed
President, COO and Compliance Director of the broker/dealer and elected to its
Board of Directors. Her responsibilities included business strategy, product
development, broker/dealer relations development, due diligence, and
compliance.  From 1980 through 1997, Ms. Springsteen was employed with
Wheat First Butcher Singer, a regional broker/dealer located in Richmond,
Virginia.  At Wheat, she served as Senior Vice President &
Marketing Manager for the Alternative Investments Division.  Ms.
Springsteen holds her FINRA Series 7, 63 and 39 licenses.  She is a
member of the Equipment Leasing Association, the Financial Planners Association,
the National Association of Equipment Leasing Brokers and has served on the
Board of Trustees for the Investment Program Association.





Henry J.
Abbott, age 57, joined Commonwealth in 1998, as a Portfolio
Manager.  Mr. Abbott serves as President of CCC and CIGF, Inc and as a
Director of the parent and its affiliates.  Mr. Abbott is a registered
principal of the broker/dealer.  Mr. Abbott is responsible for lease
acquisitions, equipment dispositions and portfolio review. Additionally, Mr.
Abbott is also responsible for oversight of residual valuation, due diligence,
equipment inspections, negotiating renewal and purchase options and remarketing
off lease equipment. Mr. Abbott serves as senior member on the Portfolio
Advisory Committee, the Disaster Recovery Committee and the Facilities
Committee.  Prior to Commonwealth, Mr. Abbott has been active in the
commercial lending industry, working primarily on asset-backed transactions for
more than 30 years.  Mr. Abbott attended St. John’s University and
holds his FINRA Series 7, 63 and 24 licenses.  Mr. Abbott was a
founding partner of Westwood Capital LLC in New York, a Senior Vice President
for IBJ Schroeder Leasing Corporation and has managed a group specializing in
the provision of operating lease finance programs in the high technology
sector.  Mr. Abbott brings extensive knowledge and experience in
leasing and has managed over $1.5 billion of secured transactions. Mr. Abbott is
a member of the Equipment Leasing Association and the Investment Program
Association.





William
Pieranunzi III, age 50, joined Commonwealth in 2007 as President of CCSC,
the broker/dealer affiliate.  Mr. Pieranunzi also serves as a Director
of CCC and CCSC.  Mr. Pieranunzi is responsible for managing due
diligence and broker/dealer development, as well as coordination of the national
marketing effort, syndication and product development.  Mr. Pieranunzi was
elected to the Board of Directors of the parent and its affiliates January 1,
2008.  Mr. Pieranunzi serves on the Disaster Recovery Committee and
the Website committee.  From 1981 to 1995 Mr. Pieranunzi has held his
FINRA series 22 and 63 licenses. Through his employment agreement with
Commonwealth Capital Corp., Mr. Pieranunzi has agreed to re-establish his
licenses.  Prior to Commonwealth, Mr. Pieranunzi in 2005 co-founded
and was Chief Executive Officer and President of Jing Tsai Entertainment
Company, Ltd. in Foshan, Guangdong Province, China; Foshan’s premiere
entertainment company through multiple 99KTV Store Locations.  He retains
his titles and continues to serve on the board OF Jung Tsai.  Prior to
that, from 1996-2004, Mr. Pieranunzi was a private investor. From 1984-1995, Mr.
Pieranunzi worked at PLM International, then a $1.4 billion publicly traded
worldwide provider of transportation equipment and related financial services.
He joined PLM as a junior wholesaler and in 1994 became Executive Vice
President.  Prior to that, from 1981 to 1984 Mr. Pieranunzi worked at
Mutual Benefit Financial Services Company, the registered broker/dealer of
Mutual Benefit Life Insurance Company where he was manager of the mutual funds
and pension divisions.  Mr. Pieranunzi is a Magna cum Laude, Beta
Gamma Sigma graduate of Boston College’s School of Management. Mr. Pieranunzi is
a member of the Equipment Leasing Association, the Investment Program
Association, the National Association of Equipment Leasing Brokers, and the
Financial Planners Association.




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Lynn A.
Franceschina, age 36, joined Commonwealth in 2001 and serves as Executive
Vice President, Chief Operating Officer and Director of the parent and its
affiliates.   Ms. Franceschina is responsible for daily
operations, including oversight of all accounting, financial reporting, and tax
functions, investor communications, and human resources.  During the
period of March 2004 to October 2004, Ms. Franceschina was employed with
Wilmington Trust Corp., where she was a part in the development of policies and
procedures related to Sarbanes Oxley and its documentation.  Prior to
Commonwealth, in 1994 until 1999, Ms. Franceschina served as a Senior Accountant
with Duquesne University, and from 1999 to 2000, a Senior Financial Analyst for
Environ Products.  Ms. Franceschina attended Robert Morris University
and holds a Bachelor of Science in Accounting.  Ms. Franceschina holds
her FINRA 22, 63, and 39 licenses.  Ms. Franceschina serves on the
Portfolio Advisory Committee and the Disaster Recovery Committee, as well as a
member of the Equipment Leasing Association, the Investment Program Association
and the Institute of Management Accountants.





Jay
Dugan, age 59, joined Commonwealth in 2002 and serves as Executive Vice
President and Chief Technology Officer of the parent and its affiliates. Mr.
Dugan is responsible for the information technology vision, security and
operation and ongoing development, including network configurations, protection
of corporate assets and maximizing security and efficiency of information
flow.  Prior to Commonwealth, Mr. Dugan founded First Securities USA,
a FINRA member firm, in 1988 and operated that firm through 1998. From 1999
until 2002, Mr. Dugan was an independent due diligence consultant until he came
to Commonwealth to develop that area of the firm. Mr. Dugan attended St.
Petersburg College and holds an AS Degree in Computer Networking
Technology.  Mr. Dugan is a Microsoft Certified Systems Engineer,
Microsoft Certified Database Administrator and Comp-Tia Certified Computer
Technician.  Mr. Dugan is a senior member of the Disaster Recovery
Committee, as well as oversight member of the Website Committee.





Peter
Daley, age 68, joined Commonwealth in 2006 as a director.  Mr.
Daley is an Accredited Senior Appraiser for the discipline of Machinery and
Equipment with a specialty in High-Technology for the valuation of computer
equipment.  Mr. Daley has been in the computer business since 1965,
first with IBM as a computer broker/lessor and then with Daley Marketing
Corporation (DMC), a firm he founded in July 1980 to publish reports about
computer equipment, including “Market Value Reports” and “Residual Value
Reports.”   In January 2001 Mr. Daley acquired Computer
Economics, merged DMC into CEI and in April 2005 sold the IT Management Company
and created a new company focused on the fair market value
business.  Additionally, Mr. Daley remains President of DMC Consulting
Group, a separate company that specializes in writing Appraisals, Portfolio
Analysis and Property Tax Valuation from Fair Market Value to Residual Value
valuations. Mr. Daley has developed a database of “Fair Market Value” equipment
values from 1980 to the present, utilizing a variety of reports and publications
along with the DMC and CEI Market Value Reports.  This database has
been successfully used in the valuation of computer equipment in the settlement
of a number of Virginia tax cases.  He has also previously testified
in California, Minnesota, Michigan, New York, and the Virginia Courts as an
expert in the field of valuation of computer equipment.  Mr. Daley has
a full repertoire of lectures, seminars, presentations, and publications that he
has conceived and shared with the public.  From 1994 to present he has
been writing computer appraisals and reports for Fortune 500
companies.  From 2005 to present as president of DMC Valuations Group,
Mr. Daley has been publishing, both on the web and in print, fair market values,
residual values, and manufacturer’s price lists to existing valuation clients
around the world. Mr. Daley graduated from Pepperdine University in 1991 with a
Masters of Business Administration, and from Cal State Northridge with a
Bachelor of Science in Business Administration in 1965.  Mr. Daley is
also an Accredited Senior Appraiser with the American Society of
Appraisers.





James
Pruett, age 42, joined Commonwealth in 2002 and serves as Senior Vice
President and Compliance Officer of the parent and its
affiliates.  Mr. Pruett is responsible for management of regulatory
policies and procedures, assisting in compliance internal audit, associate
regulatory filings, broker/dealer registrations, state and broker/dealer
financial regulatory reporting requirements.  Mr. Pruett assists in
the management of shareholder records and updates.  Mr. Pruett is a
member of the Website Committee.  Mr. Pruett holds his FINRA Series
22, 63 and 39 licenses.  Prior to joining Commonwealth, Mr. Pruett
served as Managing Editor/Associate Publisher for Caliber Entertainment, a
publishing and entertainment licensing company.  Mr. Pruett’s
responsibilities included oversight of production of publishing library, as well
as serving as Editor-in-Chief for all publications and additionally served as
Media Relations Liaison.  Mr. Pruett is a member of the Equipment
Leasing Association and the Investment Program Association.




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Mark
Hershenson, age 42, joined Commonwealth in 2002 and serves as Senior Vice
President and Broker Dealer Manager of the parent and its
affiliates.  Mr. Hershenson is responsible for management of all
custodial relationships, broker services in the areas of product education and
production goals, wholesaler scheduling/support and internal sales
staff.  Prior to Commonwealth, Mr. Hershenson served as part of a
financial planning practice at American United Life from 1999 through
2002.  He has written a book for the Florida Insurance Commissioner on
how to sell insurance products.  Additionally, in 1991 through 1998,
Mr. Hershenson served as sales trainer for MetLife for over 100 registered
representatives.  Mr. Hershenson attended Stonehill College and holds
a Bachelor’s in Psychology, with a concentration in Marketing/Organizational
Behaviorism and Master’s level coursework in Financial Planning through American
College.  Mr. Hershenson holds his FINRA Series 6, 7, 39 and 63
licenses.  Mr. Hershenson is a member of the Equipment Leasing
Association and the Investment Program Association.  Mr. Hershenson is
also a member of the Website Committee.





Richard
G. Devlin III,age 36, joined
Commonwealth in October 2006 and serves as Vice President and General
Counsel.  Mr. Devlin is responsible for all Blue Sky activities, FINRA
and SEC registrations, and legal opinions for our funds, syndication, and
general legal matters.  Mr. Devlin also assists with broker-dealer
compliance functions. Mr. Devlin holds his FINRA Series 22 and 63
licenses.  Prior to joining Commonwealth, Mr. Devlin was employed
since December 2000 as an associate with the law firm Reed Smith, LLP in
Philadelphia, where he was responsible for all elements of public and private
securities offerings as issuer’s counsel.  Also, as part of Reed
Smith’s Securitization Practice Group, Mr. Devlin managed a team of
professionals in a high volume commercial loan servicing
practice.  Mr. Devlin has developed programs and advised clients
regarding compliance with the Sarbanes-Oxley Act of 2002 and related corporate
governance and disclosure regulations.  Mr. Devlin has advised both
foreign and domestic entities on US securities law compliance in the context of
IPOs, exchange listing, private placements, mergers, and employee benefit
plans.  In 1997 Mr. Devlin graduated Magna Cum Laude from the
University of Pittsburgh School of Law with a Juris Doctorate and in 1994 he
completed his Bachelor of Science in Business Administration and Finance at The
American University.  Mr. Devlin is admitted to the bar in New Jersey
and Pennsylvania.  Mr. Devlin has also advised MBA students at Drexel
University as a judge of the 2006 Business Plan Competition at the Baiada Center
for Entrepreneurship at Drexel’s LeBow College of Business, and was a recipient
of the 2006 MS Leadership Award from the National Multiple Sclerosis Society.
Mr. Devlin serves as a member of the Website Committee.





Edmond J.
Enderle,age 61,
joined Commonwealth in 2006 and serves as Vice President and
Controller.  Mr. Enderle is responsible for Regulatory Filings,
Internal Controls, Budgeting, Forecasting, Cash Flow Projections and all
accounting related to Syndication.  Mr. Enderle also functions as the Audit
Liaison.  Prior to Commonwealth, Mr. Enderle worked most recently at
Sunoco Logistics Partners LP located in Philadelphia.  This company
boasted $4.5 billion in revenue, and here Mr. Enderle served as the Accounting
Manager where he was responsible for SEC reporting, financial accounting,
reporting and analysis, preparation of annual revenue and expense budgets and
managing the monthly close process ensuring adherence to GAAP. Mr. Enderle also
conducted environmental and legal reserve analysis, wrote, reviewed and
certified various Sarbanes Oxley procedures and system narratives, and reported
to management for strategic planning and executive presentations. Prior to
Sunoco Logistics, Mr. Enderle worked at Sunoco Inc. (GP of Sunoco Logistics an
Operator of 5 Oil Refineries) as the Accounting Manager in the Supply Chain
department where his responsibilities included management of the Crude and
Refined Oil Pools, departmental budgeting, monthly closing processes, and
financial analysis and reporting.  Mr. Enderle attended St. Josephs
University in Philadelphia and holds a Bachelor of Science in Accounting and
also attended Widener University in Chester, Pennsylvania and holds an MBA in
Finance/Taxation





Donnamarie
D. Abbott, age 49, joined Commonwealth in 2001 and serves as Vice
President and Investor Services Manager of the parent and its
affiliates.  Ms. Abbott is responsible for management of daily
operations in Investor Services, from pre-formation stage through issuance of
investors’ final distribution, communication, audited financial report,
including fund masters, blue sky coordination, subscription processing,
distributions, transfers of interest, redemptions, reporting and tax
reporting.  Ms. Abbott is a member of the Office Development
Committee, the Website Committee and the Disaster Recovery
Committee.  Ms. Abbott holds her FINRA Series 22 and 63
licenses.  Prior to joining Commonwealth, Ms. Abbott served as a
Pennsylvania licensed realtor.  Ms. Abbott is a member of the
Equipment Leasing Association and a member of the Investment Program
Association.




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Richard
Kizer, age 51, joined Commonwealth in 2006 and serves Vice President and
Portfolio Manager of CCC and CIGF, Inc.  Mr. Kizer is responsible for lease
acquisitions, equipment research and evaluation, lease pricing, portfolio
analysis, and asset remarketing and disposition.  Prior to joining
Commonwealth, from 2004 until 2005, Mr. Kizer was employed as a Vertical Account
Executive at Nextel Partners where he was responsible for selling wireless
products and services to major utilities and colleges and universities in the
southeast.  In 2003, he worked as the Area Sales Manager for Alltel
Communications and was responsible for business sales in Pensacola, Florida and
Mobile, Alabama.  In 1996, he founded and operated the GlobalKnow
Corporation, an educational product design and marketing company, where he
worked until 2003.  Mr. Kizer was also employed as the Manager for Product
Marketing at GTE Telecommunications Services from 1991 until 1996 where he was
responsible for managing a large inventory of wireless voice and data products
for GTE stores and agents nationwide.  Before reentering the private
sector in 1991, Mr. Kizer served in the South Carolina Governor’s Office as the
Deputy Director of Public Safety where he helped coordinate federal, state and
local response to two Presidentially-declared natural disasters including
Hurricane Hugo.  He also served four years on active duty as a First
Lieutenant in the United States Army.   Mr. Kizer received his
Master of Public Administration degree from the College of Charleston in 1987
and Bachelor of Arts from the University of South Carolina in 1978.





The
directors and officers of the General Partner are required to spend only such
time on the Partnership’s affairs as is necessary in the sole discretion of the
directors of the General Partner for the proper conduct of the Partnership’s
business.  A substantial amount of time of such directors and officers
is expected to be spent on matters unrelated to the Partnership, particularly
after the Partnership’s investments have been selected.  Under certain
circumstances, such directors and officers are entitled to indemnification from
the Partnership.





The
Partnership has no audit committee financial expert, as defined in item 401 of
Regulation S-K (17 CFR § 229.401) under the Exchange Act, serving on its audit
committee.  An audit committee is not required because the Partnership
is not a listed security (as defined by 17 CFR § 240.10A-3); therefore, no audit
committee financial expert is required.





CODE
OF ETHICS





In view
of the fiduciary obligation that the General Partner has to the Partnership, the
General Partner believes an adoption of a formal code of ethics is unnecessary
and would not benefit the Partnership, particularly in light of Partnership's
limited business activities.




ITEM
11:               EXECUTIVE
COMPENSATION





The
Partnership does not have any directors or executive officers.




ITEM
12:                  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT




NONE




ITEM
13:                CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS




The
following table summarizes the types, amounts and recipients of compensation to
be paid by the Partnership directly or indirectly to the General Partner and its
affiliates.  Some of these fees are paid regardless of the success or
profitability of the Partnership’s operations and investments.  While
such compensation and fees were established by the General Partner and are not
based on arm’s-length negotiations, the General Partner believes that such
compensation and fees are comparable to those that would be charged by an
unaffiliated entity or entities for similar services.  The partnership
agreement limits the liability of the General Partner and its affiliates to the
Partnership and the Limited Partners and provides indemnification to the General
Partner and its affiliates under certain circumstances.


AMOUNT
            AMOUNTENTITY
      RECEIVING
            
            INCURRED
            INCURREDCOMPENSATION
            TYPE
      OF COMPENSATION
            DURING
      2007
            DURING
      2006The
      General Partner and its Affiliates
            Reimbursable Expenses.
      The General Partner and its affiliates are entitled to reimbursement by
      the Partnership for the cost of goods, supplies or 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 of certain expenses incurred by the General
      Partner and its affiliates in connection with the administration and
      operation of the Partnership. The amounts set forth on this table do not
      include expenses incurred in the offering of units.
            $ 31,000
            $ 24,000The
      General Partner
            Equipment Acquisition
      Fee. An equipment acquisition fee of four percent of the purchase
      price of each item of equipment purchased as compensation for the
      negotiation of the acquisition of the equipment and the lease thereof or
      sale under a conditional sales contract. The fee was paid upon each
      closing of the Offering with respect to the equipment purchased by the
      Partnership with the net proceeds of the offering available for investment
      in equipment. If the Partnership acquires equipment in an amount exceeding
      the net proceeds of the offering available for investment in equipment,
      the fee will be paid when such equipment is acquired.
            $  -
            $   -The
      General Partner
            Debt Placement Fee. As
      compensation for arranging term debt to finance the acquisition of
      equipment to the Partnership, a fee equal to one percent of such
      indebtedness; provided, however, that such fee is reduced to the extent
      the Partnership incurs such fees to third Parties, un- affiliated with the
      General Partner or the lender, with respect to such indebtedness and no
      such fee is paid with respect to borrowings from the General Partner or
      its affiliates.
            $  -
            $  
      -The
      General Partner
            Equipment Management
      Fee. 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) five
      percent of the gross lease revenues attributable to equipment which is
      subject to operating leases.
            $  
      800
            $ 2,000The
      General Partner
            Equipment Liquidation
      Fee. With respect to each item of equipment sold by the General
      Partner (other than in connection with a conditional sales contract), a
      fee equal to the lesser of (i) 50% of the competitive equipment sale
      commission or (ii) three percent of the sales price for such equipment.
      The payment of such fee is subordinated to the receipt by the Limited
      Partners of (i) a return of their capital contributions and 10% annum
      cumulative return, compounded daily, on adjusted capital contributions and
      (ii) the net disposition proceeds from such sale in accordance with the
      partnership agreement. Such fee is reduced to the extent any liquidation
      or resale fees are paid to unaffiliated parties.
            $ 
      400
            $ 
      200The
      General Partner
            Partnership Income and
      Distribution. The General Partner has a present and continuing one
      percent interest of $1,000 in the Partnership’s item of income, gain,
      loss, deduction, credit, and tax preference. In addition, the General
      Partner receives one percent of cash available for distribution until the
      Limited Partners have received distributions of cash available for
      distribution equal to their capital contributions plus the 10% cumulative
      return and thereafter, the General Partner will receive 10% of cash
      available for distribution.
            $ 
      600
            $   
      600




CONFLICTS
OF INTEREST




The
Partnership is subject to various conflicts of interest arising out of its
relationships with the General Partner and its affiliates.  These
conflicts include the following:




COMPETITION
WITH GENERAL PARTNER AND AFFILIATES:  COMPETITION FOR MANAGEMENT’S
TIME




The
General Partner and its affiliate sponsor other investor programs that are
potentially in competition with the Partnership in connection with the purchase
of equipment as well as opportunities to lease and sell such
equipment.  Competition for equipment has occurred and is likely to
occur in the future.  The General Partner and its affiliates may also
form additional investor programs that may be competitive with the
Partnership.




If one or
more investor programs and the Partnership are in a position to acquire the same
equipment, the General Partner will determine which program will purchase the
equipment based upon the objectives of each and the suitability of the
acquisition in light of those objectives.  The General Partner will
generally afford priority to the program or entity that has had funds available
to purchase equipment for the longest period of time.  If one or more
investor programs and the Partnership are in a position to enter into lease with
the same lessee or sell equipment to the same purchaser, the General Partner
will generally afford priority to the equipment which has been available for
lease or sale for the longest period of time.




Certain
senior executives of the General Partner and its affiliates also serve as
officers and directors of the other programs and are required to apportion their
time among these entities.  The Partnership is, therefore, in
competition with the other programs for the attention and management time of the
General Partner and affiliates.  The officers and directors of the
General Partner are not required to devote all or substantially all of their
time to the affairs of the Partnership.




ACQUISITIONS




CCC and
the General Partner or other affiliates of the General Partner may acquire
equipment for the Partnership provided that (i) the Partnership has insufficient
funds at the time the equipment is acquired, (ii) the acquisition is in the best
interest of the partnership and (iii) no benefit to the General Partner or its
affiliates arises from the acquisition except for compensation paid to CCC, the
General Partner or such other affiliate as disclosed in this report. CCC, the
General Partner or their affiliates will not hold equipment for more than 60
days prior to transfer to the Partnership.  If sufficient funds become
available to the Partnership within such 60 day period, such equipment may be
resold to the Partnership for a price not in excess of the sum of the cost of
the equipment to such entity and any accountable acquisition expenses payable to
third parties which are incurred by such entity and interest on the purchase
price from the date of purchase to the date of transfer to the
Partnership.  CCC, the General Partner or such other affiliate will
retain any rent or other payments received for the equipment, and bear all
expenses and liabilities, other than accountable acquisition expenses payable to
third parties with respect to such equipment, for all periods prior to the
acquisition of the equipment by the Partnership.  Except as described
above, there will be no sales of equipment to or from any affiliate of
CCC.




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In
certain instances, the Partnership may find it necessary, in connection with the
ordering and acquisition of equipment, to make advances to manufacturers or
vendors with funds borrowed from the General Partner for such
purpose.  The Partnership does not borrow money from the General
Partner or any of its affiliates with a term in excess of twelve
months.  Interest is paid on loans or advances (in the form of
deposits with manufacturers or vendors of equipment or otherwise) from the
General Partner of its affiliates from their own funds at a rate equal to that
which would be charged by third party financing institutions on comparable loans
from the same purpose in the same geographic area, but in no event in excess of
the General Partner’s or affiliate’s own cost of funds.  In addition,
if the General Partner or its affiliates borrow money and loan or advance it on
a short-term basis to or on behalf of the Partnership, the General Partner or
such affiliates shall receive no greater interest rate and financing charges
from the Partnership than that which unrelated lenders charge on comparable
loans.  The Partnership will not borrow money from the General Partner
or any of its affiliates for a term in excess of twelve months.




If the
General Partner or any of its affiliates purchases equipment in its own name and
with its own funds in order to facilitate ultimate purchase by the Partnership,
the purchaser is entitled to receive interest on the funds expended for such
purchase on behalf of the Partnership.  Simple interest on any such
temporary purchases is charged on a floating rate basis not in excess of three
percent over the “prime rate” from time to time announced by PNC Bank, from the
date of initial acquisition to the date of repayment by the Partnership and
ownership transfer.




The
Partnership does not invest in equipment limited partnerships, general
partnerships or joint ventures, except that (a) the Partnership may invest in
general partnerships or joint ventures with persons other than equipment
Programs formed by the General Partner or its affiliates, which partnerships or
joint ventures invest in specific equipment; provided that (i) the Partnership
has or acquires a controlling interest in such ventures or partnerships, (ii)
the non-controlling interest is owned by a non-affiliate, and (iii) there are no
duplicate fees; and (b) the Partnership may invest in joint venture arrangements
with other equipment programs formed by the General Partner or its affiliates if
such action is in the best interest of  all Programs and if all the
following conditions are met: (i) all the Programs have substantially identical
investment objectives; (ii) there are no duplicate fees; (iii) the sponsor
compensation is substantially identical in each program; (iv) the Partnership
has a right of first refusal to buy another program’s interest in a joint
venture if the other program wishes to sell equipment held in the joint venture;
(v) the investment of each program is on substantially the same terms and
conditions; and (vi) the joint venture is formed either for the purpose of
effecting appropriate diversification for the programs or for the purpose of
relieving the General Partner or its affiliates from a commitment entered into
pursuant to certain provisions of the partnership agreement.




GLOSSARY




The
following terms used in this report shall (unless otherwise expressly provided
herein or unless the context otherwise requires) have the meanings set forth
below.




“Acquisition
Expenses” means expenses relating to the prospective selection and acquisition
of or investment in equipment, whether or not actually acquired, including, but
not limited to, legal fees and expenses, travel and communication expenses,
costs of appraisals, accounting fees and expenses and miscellaneous
expenses.




“Acquisition
Fee” means the total of all fees and commissions paid by any party in connection
with the initial purchase of equipment acquired by the
Partnership.   Included in the computation of such fees or
commissions shall be the equipment acquisition fee, any commission, selection
fee, construction supervision fee, finance fee, non-recurring management fee of
a similar nature, however designated.




“Adjusted
Capital Contributions” means capital contributions of the Limited Partners
reduced to not less than zero by any cash distribution received by the Limited
Partners pursuant to Sections 4.1 or 8.1 of the partnership agreement, to the
extent such distributions exceed any unpaid cumulative return as of the date
such distributions were made.




“Affiliate”
means, when used with reference to a specified person, (i) any person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with the specified person, (ii) any
person that is a director or an executive officer of, partner in, or serves in a
similar capacity to, the specified person, or any person which the specified
person is an executive officer of partner or with respect to which the specified
person serves in a similar capacity, (iii) any person owning or controlling 10%
or more of the outstanding voting securities of such specified person, or (iv)
if such person is an officer, director or partner, any entity for which such
person acts in such capacity.




-23-
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“Capital
Account” means the separate account established for each partner pursuant to
Section 4.1.




“Capital
Contributions” means, in the case of the General Partner, the total amount of
money contributed to the Partnership by the General Partner, and, in the case of
the Limited Partners, $20 for each unit or where the context requires, the total
capital contributions of all the partners.




“Cash
Available for Distribution” means cash flow plus net disposition proceeds plus
cash funds available for distribution from Partnership reserves, less such
amounts as the General Partner, in accordance with the partnership agreement,
causes the Partnership to reinvest in equipment or interests therein, and less
such amounts as the General Partner, in its sole discretion, determines should
be set aside for the restoration or enhancement of Partnership
reserves.




“Cash
Flow” for any fiscal period means the sum of (i) cash receipts from operations,
including, but not limited to, rents or other revenues arising from the leasing
or operation of the equipment and interest, if any, earned on funds on deposit
for the Partnership, but not including net disposition proceeds, minus (ii) all
cash expenses and costs incurred and paid in connection with the ownership,
lease, management, use and/or operation of the equipment, including, but not
limited to, fees for handling and storage; all interest expenses paid and all
repayments of principal regarding borrowed funds; maintenance; repair costs;
insurance premiums; accounting and legal fees and expenses; debt collection
expenses; charges, assessments or levies imposed upon or against the equipment;
ad valorem, gross receipts and other property taxes levied against the
equipment; and all costs of repurchasing units in accordance with the
partnership agreement; but not including depreciation or amortization of fees or
capital expenditures, or provisions for future expenditures, including, without
limitation, organizational and offering expenses.




“Code”
means the Internal Revenue Code of 1986, as amended, and as may be amended from
time to time by future federal tax statues.




“Competitive
Equipment Sale Commission” means that brokerage fee paid for services rendered
in connection with the purchase or sale of equipment that is reasonable,
customary, and competitive in light of the size, type, and location of the
equipment.




“Conditional
Sales Contract” means an agreement to sell equipment to a buyer in which the
seller reserves title to, and retains a security interest in, the equipment
until the purchase price of the equipment is paid.




“Cumulative
Return” means an amount equal to a return at a rate of 10% per annum, compounded
daily, on the adjusted capital contribution for all outstanding units, which
amount shall begin accruing at the end of the calendar quarter in which such
units are sold by the Partnership.




“Equipment”
means each item of and all of the computer I.T. and other similar capital
equipment purchased, owned, operated, and/or leased by the Partnership or in
which the Partnership has acquired a direct or indirect interest, as more fully
described in the partnership agreement, together with all appliances, parts,
instruments, accessories, furnishings, or other equipment included therein and
all substitutions, renewals, or replacements of, and all additions,
improvements, and accessions to, any and all thereof.




“Full
Payout Net Lease” means an initial net lease of the equipment under which the
non-cancelable rental payments due (and which can be calculated at the
commencement of the net lease) during the initial noncancellable fixed term (not
including any renewal or extension period) of the lease or other contract for
the use of the equipment are at least sufficient to recover the purchase price
of the equipment.




“General
Partner” means Commonwealth Income & Growth Fund, Inc. and any additional,
substitute or successor general partner of the Partnership.




“Gross
Lease Revenues” means Partnership gross receipts from leasing or other operation
of the equipment, except that, to the extent the Partnership has leased the
equipment from an unaffiliated party, it shall mean such receipts less any lease
expense.




“IRA”
means an Individual Retirement Arrangement as described in Section 408 of the
Code.




-24-
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Contents




“IRS”
means the Internal Revenue Service.




“Limited
Partner” means a Person who acquires units and who is admitted to the
Partnership as a limited partner in accordance with the terms of the partnership
agreement.




“Net
Disposition Proceeds” means the net proceeds realized by the Partnership from
the refinancing, sale or other disposition of equipment, including insurance
proceeds or lessee indemnity payments arising from the loss or destruction of
equipment, less such amounts as are used to satisfy Partnership
liabilities.




“Net
Lease” means a lease or other contract under which the owner provides equipment
to a lessee or other operator in return for a payment, and the lessee assumes
all obligations and pays for the operation, repair, maintenance, taxes and
insuring of the equipment, so that the non-cancelable rental payments under the
lease are absolutely net to the lessor.




“Net
Profits” or “Net Losses” shall be computed in accordance with Section 703(a) of
the Code (including all items of income, gain, loss or deduction required to be
stated separately pursuant to Section 703(a) (1) of the Code) for each taxable
year of the Partnership or shorter period or subsequent to an interim closing of
the Partnership’s books with the following adjustments: (i) any income of the
Partnership that is exempt from federal income tax and not otherwise taken into
account in computing net profits and net loss pursuant to this definition shall
be added to such taxable income of shall reduce such taxable loss; (ii) any
expenditure of the Partnership described in Code Section 705(a) (2) (B) or
treated as Code Section 705(a) (2) (B) expenditures pursuant to Treasury
Regulations Section 1.704-1(b) (2) (iv) (I) and not otherwise taken into account
in computing net profits and net losses pursuant to this definition shall be
subtracted from such taxable income or loss; (iii) items of income, gain, loss
and deduction specially allocated pursuant to Section 7.3 of the partnership
agreement shall not be included in the computation of net profits or net loss;
and if property is reflected on the books of the Partnership at a book value
that differs from the adjusted tax basis of the property in accordance with
Treasury Regulation Section 1.704-1 (b) (2) (iv) (d) or (f), depreciation,
amortization, and gain or loss with respect to such property shall be determined
by reference to such book value in a manner consistent with Treasury Regulation
Section 1.704-1 (b) (2) (iv) (g).   The terms “net profit” or
“net losses” shall include the Partnership’s distributive share of the profit or
loss of any partnership or joint venture in which it is a partner or joint
venturer.




“Offering”
means the initial public offering of the units in the Partnership.




“Operating
Distributions” means the quarterly distributions made to the Partners pursuant
to Article 8 of the   partnership agreement.




“Operating
Lease” means a lease or other contractual arrangement under which an
unaffiliated party agrees to pay the Partnership, directly or indirectly, for
the use of the equipment, and which is not a full payout net lease.




“Organizational
and Offering Expenses” means the expenses incurred in connection with the
organization of the Partnership and in preparation of the offering for
registration and subsequently offering and distributing it to the public,
including underwriting commissions, listing fees and advertising expenses except
advertising expenses related to the leasing of the program’s
equipment.




“Partners”
means any one or more of the General Partner and the Limited
Partners.




“Partnership”
means Commonwealth Income & Growth Fund III, a Pennsylvania Limited
Partnership.




“Person”
means an individual, partnership, joint venture, corporation, trust, estate or
other entity.




“Proceeds”
means proceeds from the sale of the units.




“Program”
means a limited or general partnership, joint venture, unincorporated
association or similar organization, other than a corporation formed and
operated for the primary purpose of investment in and the operation of or gain
from an interest in equipment.




-25-
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“Purchase
Price” means, with respect to any equipment, an amount equal to the sum of (i)
the invoice cost of such equipment or any other such amount paid to the seller,
(ii) any closing, delivery and installation charges associated therewith not
included in such invoice cost and paid by or on behalf of the Partnership, (iii)
the cost of any capitalized modifications or upgrades paid by or on behalf of
the Partnership in connection with its purchase of the equipment, and (iv) the
amount of the equipment acquisition fee and any other acquisition fees, but
excluding points and prepaid interest.




“Term
Debt” means debt of the Partnership with a term in excess of twelve months,
incurred with respect to acquiring or investing in equipment, or refinancing
non-term debt, but not debt incurred with respect to refinancing existing
partnership term debt.




“Underwriting
Commissions” mean selling commissions and dealer-manager fees paid to
broker-dealers by the Partnership in connection with the offer and sale of
units.




“Unit”
means a limited partnership interest in the Partnership.




ITEM
14:                PRINCIPAL
ACCOUNANT FEES AND SERVICES





AUDIT
FEES





The
aggregate fees billed for each of the fiscal years ended December 31, 2007 and
2006 for professional services rendered by the Partnership’s independent
registered public accounting firm for the audit of our annual financial
statements and review of the financial statements included in our Form 10-K or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years were
$13,000 and $7,000 respectively.





AUDIT-RELATED
FEES





There
were no aggregate fees billed in the fiscal years ended December 31, 2007 and
2006 for assurance and related services by the Partnership’s independent
registered public accounting firm that are reasonably related to the performance
of the audit or review of the registrant's financial statements and are not
reported under the paragraph captioned “Audit Fees.”





TAX
FEES





The
aggregate fees billed in the fiscal year ended December 31, 2007 for
professional services rendered by the Partnership’s independent registered
public accounting firm for tax compliance, tax advice and tax planning were
$3,000, respectively.  There were no aggregate fees billed in the
fiscal year ended December 31, 2006 for professional services rendered by the
Partnership’s independent registered public accounting firm for tax compliance,
tax advice and tax planning.





ALL
OTHER FEES





The were
no aggregate fees billed in the fiscal years ended December 31, 2007 and 2006
for products and services provided by the Partnership’s independent registered
public accounting firm, other than the services reported above under other
captions of this Item 14.





PRE-APPROVAL
POLICIES AND PROCEDURES





All audit
related services, tax planning and other services were pre-approved by the Board
of Directors of the General Partner, which concluded that the provision of such
services by the Partnership’s independent registered public accounting firm was
compatible with the maintenance of that firm's independence in the conduct of
its auditing functions. The policy of the General Partner provides for
pre-approval of these services and all audit related, tax or other services not
prohibited under Section 10A(g) of the Securities Exchange Act of 1934, as
amended to be performed for us by our independent auditors, subject to the de
minimus exception described in Section 10A(i)(1)(B) of the Exchange Act on an
annual basis and on individual engagements if minimum thresholds are
exceeded.





The
percentage of audit-related, tax and other services that were approved by the
board of directors is zero, as no such fees were paid.




-26-
 Table of
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PART IV




ITEM
15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
10-K





(a)
      (1)
            Financial
      StatementsReport of Independent Registered Public Accounting
      Firm
            F 1Balance Sheets as of December 31, 2007 and
      2006
            F 2Statements of Operations for the years ended
      December 31, 2007 and 2006
            F 4Statements of Partners’ Capital (Deficit) for the years ended
      December 31, 2007 and 2006
            F 5Statements of Cash Flows for the years ended December 31,
      2007 and 2006
            F 6Notes to Financial Statements
            F 7(a)
      (2)
            SchedulesSchedules
      are omitted because they are not applicable, not required, or because the
      requiredinformation is included in the financial statements and notes
      thereto.







(a)
      (3)
            Exhibits*3.1
            Certificate
      of Limited Partnership*3.2
            Agreement
      of Limited Partnership31.1
            Rule
      13a-14(a)/15d-14(a) Certifications by the Principal Executive
      Officer31.2
            Rule
      13a-14(a)/15d-14(a) Certifications by the Principal Financial
      Officer32
            Section
      1350 Certifications by the Principal Executive Officer and Principal
      Financial Officer*Incorporated
      by reference from the Partnership’s Registration Statement on Form S-1
      (Registration No. 333-26933)





SIGNATURES




Pursuant
to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its
behalf on March 20, 2008 by the undersigned thereunto duly
authorized.




COMMONWEALTH
      INCOME & GROWTH FUND IIIBy:  COMMONWEALTH
      INCOME & GROWTH FUND,INC., General PartnerBy:  /s/
      Kimberly A. SpringsteenKimberly
      A. SpringsteenChief
      Executive Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March 20, 2008.




SIGNATURE
            CAPACITY/s/ Kimberly A.
      Springsteen
            Chairman,
      Chief Executive Officer,Kimberly
      A. Springsteen
            Commonwealth
      Income & Growth Fund, Inc.







/s/Henry J.
      Abbott
            Director,
      President,Henry
      J. Abbott
            Commonwealth
      Income & Growth Fund, Inc.


-27-
 Table of
Contents


Commonwealth Income
 &
Growth Fund III
 
 
 
 
 
 
 Financial
Statements
 Years Ended December 31, 2007
and 2006
 
 
 
 
 
  Table of Contents
 Commonwealth
Income & Growth Fund III
 
 
 Contents
  Report
      of Independent Registered Public Accounting Firm
                F
      1Financial
      statementsBalance
      sheets
                F
      2Statements
      of operations
                F
      4Statements
      of partners’ capital (deficit)
                F
      5Statements
      of cash flows
                F
      6Notes
      to financial statements
                F
      7
  
   Report of Independent
Registered Public Accounting Firm
 The
Partners
 Commonwealth
Income & Growth Fund III
 Chadds
Ford, Pennsylvania
  
  We have
audited the accompanying balance sheets of Commonwealth Income & Growth Fund
III (“Partnership”) as of December 31, 2007 and 2006, and the related statements
of operations and Partners’ capital and cash flows for each of the years in the
two-year period ended December 31, 2007. The Partnership’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
  We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Partnership is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  As discussed
in Note 2 to the accompanying financial statements, the Partnership has suffered
recurring losses from operations and has a deficit partners’ capital of
approximately $135,000 at December 31, 2007.  The General Partner and
its parent company have committed to fund, either through cash contributions
and/or forgiveness of indebtedness, any operating cash shortfalls of the
Partnership through December 31, 2008.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Commonwealth Income & Growth
Fund III as of December 31, 2007 and 2006, and the results of its operations and
its cash flows for each of the years in the two year period ended December 31,
2007 in conformity with accounting principles generally accepted in the United
States of America.
  
  /s/ ASHER
& COMPANY, Ltd.
  Philadelphia,
Pennsylvania
 March 18,
2008
  F
1
 Commonwealth
Income & Growth Fund III
 
 
 Balance
Sheets
   
 December
      31,
              
              2007
              
              
              2006AssetsCash
      and cash equivalents
              
              $
              10,925
              
              
              $
              2,878Lease
      income receivable, net of reserve of $0 at December 31, 2007 and
      2006
              
              
              9,869
              
              
              
              4,285Prepaid
      Expenses
              
              
              -
              
              
              
              36320,794
              
              
              
              7,526Computer equipment, at
      cost
              
              
              109,296
              
              
              
              364,796Accumulated
      depreciation
              
              
              (42,358
              )
              
              
              (341,135
              )66,938
              
              
              
              23,661Equipment acquisition costs and
      deferred expenses, net ofaccumulated
      amortization of $374 and $2,052, atDecember 31, 2007
      and 2006, respectively
              
              
              9
              
              
              
              654Total
      assets
              
              $
              87,741
              
              
              $
              31,841
  F
2
 Commonwealth
Income & Growth Fund III
 
 
 Balance
Sheets
  
 December
      31,
              2007
              
              2006Liabilities
      and Partners' CapitalLiabilitiesAccounts
      payable
              $      13,933
              
              $      26,094Accounts
      payable, Commonwealth Capital Corp.
              32,875
              
              37,099Accounts
      payable, General Partner
              100,943
              
              100,576Accounts
      payable, affiliated limited partnerships
              68,750
              
              49,700Unearned
      lease income
              -
              
              122Other
      accrued expenses
              5,243
              
              10,487Notes
      payable
              1,068
              
              13,511Total
      liabilities
              222,812
              
              237,589Partners'
      capital (deficit)General
      partner
              1,000
              
              1,000Limited
      partners
              (136,071)
              
              (206,748)Total
      partners' capital (deficit)
              (135,071)
              
              (205,748)Total
      liabilities and partners' capital
              $      87,741
              
              $      31,841
 
 see
accompanying notes to financial statements
  F
3
 Commonwealth
Income & Growth Fund III
 
 
 Statements
of Operations
  Years
      ended December 31,
              
              2007
              
              
              2006RevenueLease
              
              $
              34,101
              
              
              $
              43,323Interest
      and other
              
              
              -
              
              
              
              397Gain
      on sale of computer equipment
              
              
              8,045
              
              
              
              265Total
      revenue
              
              
              42,146
              
              
              
              43,985ExpensesOperating,
      excluding depreciation
              
              
              28,666
              
              
              
              35,702Equipment
      management fee, General Partner
              
              
              823
              
              
              
              2,166Depreciation
              
              
              19,998
              
              
              
              26,167Amortization
      of equipment acquisition costs   and deferred
      expenses
              
              
              645
              
              
              
              1,047Interest
              
              
              433
              
              
              
              1,257Other
              
              
              3
              
              
              
              -Total
      expenses
              
              
              50,568
              
              
              
              66,339Net
      (loss)
              
              $
              (8,422
              )
              
              $
              (22,354
              )Net
      (loss) allocated to limited partners
              
              $
              (
      9,026
              )
              
              $
              (22,954
              )Net
      (loss) per equivalent limited partnership unit
              
              $
              (0.06
              )
              
              $
              (0.15
              )Weighted
      average number of equivalent limited partnership units outstanding during
      the year
              
              
              151,178
              
              
              
              151,178
 
 see
accompanying notes to financial statements
  F
4
 Commonwealth
Income & Growth Fund III
 
 
 Statements
of Partners’ Capital (Deficit)
  General
              
              
              LimitedPartner
              
              
              Partner
              
              
              General
              
              
              LimitedUnits
              
              
              Units
              
              
              Partner
              
              
              Partners
              
              
              TotalBalance,
      January 1, 2006
              
              
              50
              
              
              
              151,178
              
              
              $
              1,000
              
              
              $
              (281,289
              )
              
              $
              (280,289
              )Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              600
              
              
              
              (22,954
              )
              
              
              (22,354
              )Contributions
      - Cash
              
              
              -
              
              
              
              -
              
              
              
              25,000
              
              
              
              -
              
              
              
              25,000Contributions
      - Forgiveness of Fees
              
              
              -
              
              
              
              -
              
              
              
              107,010
              
              
              
              -
              
              
              
              107,010Contributions
      - Forgiveness of Expenses
              
              
              -
              
              
              
              -
              
              
              
              25,000
              
              
              
              -
              
              
              
              25,000Transfer
      of partners' capital
              
              
              -
              
              
              
              -
              
              
              
              (157,010
              )
              
              
              157,010
              
              
              
              -Distributions
              
              
              -
              
              
              
              -
              
              
              
              (600
              )
              
              
              (59,515
              )
              
              
              (60,115
              )Balance,
      December 31, 2006
              
              
              50
              
              
              
              151,178
              
              
              $
              1,000
              
              
              $
              (206,748
              )
              
              $
              (205,748
              )Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              604
              
              
              
              (9,026
              )
              
              
              (8,422
              )Contributions
      - Cash
              
              
              -
              
              
              
              -
              
              
              
              90,697
              
              
              
              -
              
              
              
              90,697Contributions
      - Forgiveness of Fees
              
              
              -
              
              
              
              -
              
              
              
              48,878
              
              
              
              -
              
              
              
              48,878Transfer
      of partners' capital
              
              
              -
              
              
              
              -
              
              
              
              (139,575
              )
              
              
              139,575
              
              
              
              -Distributions
              
              
              -
              
              
              
              -
              
              
              
              (604
              )
              
              
              (59,872
              )
              
              
              (60,476
              )Balance,  December
      31, 2007
              
              
              50
              
              
              
              151,178
              
              
              $
              1,000
              
              
              $
              (136,071
              )
              
              $
              (135,071
              )
 
 see
accompanying notes to financial statements
  F
5
 Commonwealth
Income & Growth Fund III
 
 
 Statements
of Cash Flows
  Years
      ended December 31,
              
              2007
              
              
              2006Cash
      flows from operating activitiesNet
      (loss)
              
              $
              (8,422
              )
              
              $
              (22,354
              )Adjustments
      to reconcile net (loss) to net cash provided by operating
      activitiesDepreciation
      and amortization
              
              
              20,643
              
              
              
              27,214(Gain)
      on sale of computer equipment
              
              
              (8,045
              )
              
              
              (265
              )Other
      noncash activities included in determination of net (loss)
              
              
              (12,443
              )
              
              
              (17,307
              )Changes
      in assets and liabilitiesLease
      income receivable
              
              
              (5,584
              )
              
              
              (551
              )Prepaid
      expenses
              
              
              363
              
              
              
              (363
              )Accounts
      payable
              
              
              24,944
              
              
              
              (636
              )Accounts
      payable, Commonwealth Capital Corp.
              
              
              (4,224
              )
              
              
              (60,465
              )Accounts
      payable, General Partner
              
              
              44,001
              
              
              
              96,232Accounts
      payable, affiliated limited partnerships
              
              
              (18,055
              )
              
              
              (43
              )Unearned
      lease income
              
              
              (122
              )
              
              
              -Net
      cash provided by operating activities
              
              
              33,056
              
              
              
              21,550Cash
      flows from investing activitiesCapital
      expenditures
              
              
              (67,026
              )
              
              
              -Net
      proceeds from sale of computer equipment
              
              
              11,796
              
              
              
              6,111Net
      cash (used in) provided by investing activities
              
              
              (55,230
              )
              
              
              6,111
  Cash
      flows from financing activitiesContributions
              
              
              90,697
              
              
              
              25,000Distributions
      to partners
              
              
              (60,476
              )
              
              
              (60,115
              )Net
      cash provided by (used in) financing activities
              
              
              30,221
              
              
              
              (35,115
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              8,047
              
              
              
              (7,454
              )Cash
      and cash equivalents at beginning of year
              
              
              2,878
              
              
              
              10,333Cash
      and cash equivalents at end of year
              
              $
              10,925
              
              
              $
              2,878
 
 see
accompanying notes to financial statements
 
  F
6
 Commonwealth
Income & Growth Fund III
 
 
 Notes
to Financial Statements
  1.  The
Partnership
 
 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 is 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
that it manages 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.
 
 Allocations
of income and distributions of cash are based on the Partnership’s Limited
Partnership Agreement (the “Agreement”).  The various allocations
under the Agreement prevent any limited partner’s capital account from being
reduced below zero and ensure the capital accounts reflect the anticipated
sharing ratios of cash distributions, as defined in the
Agreement.  During 2007 and 2006, the Partnership distributed to the
limited partners $59,872 and $59,515, respectively.  The 2007 and 2006
distributions were at an annual rate of 2% of the limited partners’ original
contributed capital.  Distributions during 2007 and 2006 reflect an
annual return of capital in the amount of approximately $0.40 and $0.39,
respectively, per limited partnership unit.
 
 2.  Business
Plan
 
 The
Partnership has suffered recurring losses from operations and has a deficit
partners’ capital of approximately $135,000 at December 31, 2007.  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 operational cash
shortfalls of the Partnership through December 31, 2008. No fees will be charged
to the Partnership during 2008.  CCC has committed to fund limited
partner distributions through June 2008, at which time CCC will reassess the
operations of the Partnership.  CCC will continue to reassess the
operations on a quarterly basis throughout 2008.
 
 3.  Summary
of Significant Accounting Policies
 
 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 occurred in 2007
and 2006.
 F
7
  Depreciation
on computer equipment for financial statement purposes is based on the
straight-line method over estimated useful lives of four years.
 
 Intangible
Assets
 
 Equipment
acquisition costs and deferred expenses are amortized on a straight-line basis
over two- to-four year lives.  Unamortized acquisition fees and
deferred expenses are charged to amortization expense when the associated leased
equipment is sold.
 
 Fair
Value of Financial Instruments
 
 Statement
of Financial Accounting Standards (“SFAS”) No.107, Disclosures About Fair Value of
Financial Instruments, requires disclosure of the fair value of certain
instruments.  The carrying values of cash, receivables and payables
approximate fair value due to the short term maturity of these
instruments.  For debt, the carrying amounts approximate fair value
because the interest rates approximate current market rates.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Cash
and Cash Equivalents
 
 The
Partnership considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.  Cash equivalents have been
invested in a money market account investing directly in Treasury
obligations.   Cash at December 31, 2007 and 2006 was held in the
custody of one financial institution.  At times, the balances may
exceed federally insured limits.  The Partnership mitigates this risk
by depositing funds with a major financial institution. The Partnership has not
experienced any losses in such accounts, and believes it is not exposed to any
significant credit risk.
 
 Accounts
Receivable
 
 Accounts
receivable includes current accounts receivable, net of allowances and other
accruals.  The Partnership regularly reviews the collectability of its
receivables and the creditworthiness of its customers and adjusts its allowance
for doubtful accounts accordingly.  The Partnership determined that no
allowance was necessary at December 31, 2007 and 2006.
 
 Income
Taxes
 
 The
Partnership is not subject to federal income taxes; instead, any taxable income
(loss) is passed through to the partners and included on their respective income
tax returns.
 
 Taxable
income differs from financial statement net income as a result of reporting
certain income and expense items for tax purposes in periods other than those
used for financial statement purposes, principally relating to depreciation,
amortization, and lease income.
 
 Net
Loss Per Equivalent Limited Partnership Unit
 
 The net
loss per equivalent limited partnership unit is computed based upon net loss
allocated to the limited partners and the weighted average number of equivalent
limited partner units outstanding during the year.
  F
8
 Reimbursable
Expenses
 
 Reimbursable
expenses, which are charged to the Partnership by CCC in connection with the
administration and operation of the Partnership, are allocated to the
Partnership based upon several factors including, but not limited to, the number
of investors, compliance issues, and the number of existing leases.
 
 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.
 
 Recent
Accounting Pronouncements
 
 In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51”(“SFAS 160”).  The objective of
SFAS 160 is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 160 is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008 and interim periods within
those fiscal years.  The Partnership does not expect the
implementation of SFAS 160 to have a material impact on its financial position
or results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement No.
115” (“SFAS No. 159”).
SFAS No. 159 permits entities to choose, at specified election dates, to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. Unrealized gains and losses
will be reported on items for which the fair value option has been elected in
earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year that begins on or before November 15, 2007, provided
the entity also elects to apply the provisions of SFAS No. 157 “Fair Value
Measurements” (“SFAS No. 157”). The Partnership is currently determining whether
fair value accounting is appropriate for any of its eligible items and cannot
currently estimate the impact, if any, which SFAS 159 may have on our results of
operation and financial condition.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards 157,
“Fair Value Measurements” (“SFAS 157”), which provides guidance on
measuring the fair value of assets and liabilities. SFAS 157 applies to other
accounting pronouncements that require or permit assets or liabilities to be
measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also requires additional disclosures in both annual
and quarterly reports. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and will be adopted by the
Partnership in the first quarter of its fiscal year 2008.   In
February 2008, the FASB issued two Staff Positions on SFAS 157:
(1) FASB Staff Position No. FAS 157-1 (FAS 157-1), “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement Under Statement 13,” and (2) FASB Staff Position
No. FAS 157-2 (FAS 157-2),“Effective Date of FASB Statement
No 157.” FAS 157-1 excludes FASB Statement No. 13, Accounting for Leases, as
well as other accounting pronouncements that address fair value measurements on
lease classification or measurement under Statement 13, from SFAS 157’s
scope. FAS157-2 partially defers Statement 157’s effective date.  The
Partnership is currently determining the effect, if any, that the adoption of
SFAS 157 and 157-1 will have on its financial statements.
 
 4.  Computer
Equipment
 
 The
Partnership is the lessor of equipment under operating leases with periods
ranging from 29 to 36 months.  In general, associated costs such
as repairs and maintenance, insurance and property taxes are paid by the
lessee.
 
 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.  For the years ended December 31, 2007 and 2006 the Partnership
paid $1,000 and $6,000, respectively, in remarketing fees.
 F
9
 The
Partnership participates in leases that are shared with other affiliated
partnerships.  The Partnership did not participate in shared leases at
December 31, 2007. At December 31, 2006 the Partnership’s share of the computer
equipment in which it participates was approximately $4,000 and is included in
the Partnership’s fixed assets on their balance sheet.  Total cost at
December 31, 2006 was approximately $13,000 and there was no outstanding debt or
total outstanding debt associated with this equipment at December 31,
2006.
 
 The
following is a schedule of future minimum rentals on noncancelable operating
leases at December 31, 2007:
 
 Year
      ending December 31,
              
              Amount2008
              
              $
              23,3552009
              
              
              22,2822010
              
              
              8,248$
              53,885
 
 Significant
Customers
 
 Lessees
exceeding 10% of lease income for the years ended:
 
 Lessee
              
              2007
              
              
              2006Lessee
      A
              
              
              38
              %
              
              
              30
              %Lessee
      B
              
              
              28
              %
              
              
              34
              %Lessee
      C
              
              
              -
              %
              
              
              23
              %Lessee
      D
              
              
              -
              %
              
              
              11
              %Lessee
      E
              
              
              25
              %
              
              
              -
              %Total
      % of Lease Income
              
              
              91
              %
              
              
              98
              %
 
 Lessees
exceeding 10% of accounts receivable at December 31:
 
 Lessee
              
              2007
              
              
              2006Lessee
      A
              
              
              86
              %
              
              
              89
              %Lessee
      B
              
              
              -
              %
              
              
              11
              %Lessee
      C
              
              
              14
              %
              
              
              -
              %Total
      % of Accounts Receivable
              
              
              100
              %
              
              
              100
              %
 
 5.  Related
Party Transactions
 
 Forgiveness
of Related Party Payables
 
 During
the year ended December 31, 2007 and 2006 the General Partner and one of its
affiliates, CCC, in their discretion, forgave payables owed to them by the
Partnership in the amount of approximately $49,000 and $132,000,
respectively.  These amounts have been recorded as contributions to
capital.  Cash was contributed by CCC in the amount of $91,000 and
$25,000, in 2007 and 2006, respectively.
 
 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 2007and 2006, expenses were incurred by the General Partner
and its affiliates on behalf of the Partnership in the amounts of $31,000 and
$24,000, respectively.
 F
10
 Equipment
Acquisition Fee
 
 The
General Partner is entitled to be paid an equipment acquisition fee of 4% of the
purchase price of each item of equipment purchased as compensation for the
negotiation of the acquisition of the equipment and lease thereof or sale under
a conditional sales contract.  The fee was paid upon each closing of
the offering with respect to the equipment to be purchased by the Partnership
with the net proceeds for the offering available for investment in
equipment.  If the Partnership acquires equipment in an amount
exceeding the net proceeds of the offering available for investment in
equipment, the fee will be paid when such equipment is acquired.  In
2007, the General Partner chose to waive acquisition fees of approximately
$2,000. No such fees were earned by the General Partner in 2006.
 
 Debt
Placement Fee
 
 As
compensation for arranging term debt to finance the acquisition of equipment by
the Partnership, the General Partner is paid a fee equal to 1% of such
indebtedness; provided, however, that such fee shall be reduced to the extent
the Partnership incurs such fees to third parties, unaffiliated with the General
Partner or the lender, with respect to such indebtedness and no such fee will be
paid with respect to borrowings from the General Partner or its
affiliates.  No debt placement fees were earned by the General Partner
in 2007 and 2006.
 
 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
leases.  During 2007 and 2006, equipment management fees of
approximately $800 and $2,000 were earned by the General Partner as determined
pursuant to section (ii) above.
 
 Equipment
Liquidation Fee
 
 With
respect to each item of equipment sold by the General Partner (other than in
connection with a conditional sales contract), a fee equal to the lesser of (i)
50% of the competitive equipment sale commission or (ii) three percent of the
sales price for such equipment is payable to the General Partner.  The
payment of such fee is subordinated to the receipt by the limited partners of
the net disposition proceeds from such sale in accordance with the Partnership
Agreement.  Such fee will be reduced to the extent any liquidation or
resale fees are paid to unaffiliated parties.  During 2007 and 2006
equipment liquidation fees of approximately $400 and $200 respectively, were
earned by the General Partner.
  6.  Notes
Payable
 
 Notes
Payable Consisted of the following:
 
 December
      31,
                
                2007
                
                
                2006Installment
      note payable to banks; interest at 5.5%, due in monthly installments of
      $1,073, including interest with final payments in January
      2008.
                
                $
                1,068
                
                
                $
                13,511
 
 This note
is secured by specific computer equipment and is a nonrecourse liability of the
Partnership. Aggregate maturities of the note payable for each year subsequent
to December 31, 2007 are as follows:
  Year
      Ending December 31,2008
                  
                  $
                  1,068$
                  1,068
  F
11
 7.  Supplemental
Cash Flow Information
 
 Other
noncash activities included in the determination of net income are as
follows:
 
 Year
      ended December 31,
                
                2007
                
                
                2006Lease
      income, net of interest expense on notes payable realized as a result of
      direct payment of principal by lessee to bank
                
                $
                12,443
                
                
                $
                17,307
 
 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.
 
 Noncash
investing and financing activities include the following:
 
 Year
      ended December 31,
                
                2007
                
                
                2006Forgiveness
      of payables by related parties recorded as capital contributions (see Note
      5)
                
                $
                48,878
                
                
                $
                132,010
  8.  Reconciliation
of Net (Loss) Reported for Financial Reporting Purposes to Taxable Income (Loss)
on the Federal Partnership Return
  Year
      Ended December 31,
              
              2007
              
              
              2006Net
      (loss) for financial reporting purposes to taxable income
      (loss)
              
              $
              (8,422
              )
              
              $
              (22,354
              )AdjustmentsGain
      (loss) on sale of computer equipment
              
              
              1,243
              
              
              
              (32,740
              )Depreciation
              
              
              7,645
              
              
              
              (1,433
              )Amortization
              
              
              525
              
              
              
              758Unearned
      lease income
              
              
              (120
              )
              
              
              -Other
              
              
              -
              
              
              
              2,082Taxable
      Income (loss) on the FederalPartnership Return
              
              $
              871
              
              
              $
              (57,851
              )
  Adjustment
or (loss) on sale of equipment is due to longer useful lives for tax reporting
purpose.
  F
12
  9.  Quarterly
Results of Operation (Unaudited)
 
 Summarized
quarterly financial data for the years ended December 31, 2007 and 2006 is
as follows:
 
 Quarter
      endedMarch
      31
              
              
              June
      30
              
              
              September
      30
              
              
              December
      312007RevenuesLease and other
              
              $
              6,869
              
              
              $
              9,594
              
              
              $
              9,377
              
              
              $
              8,394(Loss)
      gain on sale of computer equipment
              
              
              (262
              )
              
              
              546
              
              
              
              7,760
              
              
              
              -Total
      revenues
              
              
              6,607
              
              
              
              10,140
              
              
              
              17,137
              
              
              
              8,394Total
      costs and expenses
              
              
              18,020
              
              
              
              16,321
              
              
              
              10,341
              
              
              
              6,018Net
      (loss) income
              
              $
              (11,413
              )
              
              $
              (6,181
              )
              
              $
              6,796
              
              
              $
              2,376Net
      (loss) income allocated to limited partners
              
              $
              (11,564
              )
              
              $
              (6,332
              )
              
              $
              6,645
              
              
              $
              2,225Net
      (loss) income per limited partner unit
              
              $
              (0.08
              )
              
              $
              (0.04
              )
              
              $
              0.04
              
              
              $
              0.01
  
 Quarter
      endedMarch
      31
              
              
              June
      30
              
              
              September
      30
              
              
              December
      312006RevenuesLease and other
              
              $
              15,268
              
              
              $
              12,776
              
              
              $
              8,071
              
              
              $
              7,605Gain
      on sale of computer equipment
              
              
              56
              
              
              
              113
              
              
              
              96
              
              
              
              -Total
      revenues
              
              
              15,324
              
              
              
              12,889
              
              
              
              8,167
              
              
              
              7,605Total
      costs and expenses
              
              
              21,364
              
              
              
              24,016
              
              
              
              13,523
              
              
              
              7,436Net
      (loss) income
              
              $
              (6,040
              )
              
              $
              (11,127
              )
              
              $
              (5,356
              )
              
              
              169Net
      (loss) allocated to limited partners
              
              $
              (6,196
              )
              
              $
              (11,277
              )
              
              $
              (5,484
              )
              
              $
              -Net
      (loss) per limitedpartner
      unit
              
              $
              (0.04
              )
              
              $
              (0.07
              )
              
              $
              (0.04
              )
              
              $
              -
 
 The
cumulative gain or loss on sale of equipment is included in revenue or cost, as
appropriate.
  F
13