Exhibit 21





                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors of
Phoenix Leasing Associates III, Inc.
San Rafael, California

         We have audited the accompanying  consolidated balance sheet of Phoenix
Leasing  Associates  III,  Inc.  (a Nevada  corporation)  and  subsidiary  as of
September  30,  2002.  This  financial  statement is the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial  statement  based on our  audit.  The  consolidated  balance  sheet of
Phoenix  Leasing  Associates  III, Inc. as of September 30, 2001, was audited by
other auditors  whose report dated  November 30, 2001,  expressed an unqualified
opinion on the consolidated balance sheet.

         We conducted our audit in accordance with auditing standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures  in the  balance  sheet.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation.  We
believe that our audit provides a reasonable basis for our opinion.

         In our  opinion,  the  consolidated  balance  sheet  referred  to above
presents fairly,  in all material  respects,  the financial  position of Phoenix
Leasing  Associates  III,  Inc.  and  subsidiary  as of September  30, 2002,  in
conformity with accounting principles generally accepted in the United States.




                                                            ARMANINO McKENNA LLP

San Ramon, California,
December 19, 2002

                                  Page 1 of 8
<PAGE>

               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS



                                     ASSETS

                                                            September 30,
                                                          2002          2001
                                                          ----          ----

Cash ...............................................  $      --     $       241
Due from Phoenix Leasing American Business
  Fund, L.P. .......................................        5,062       160,616
Investment in Phoenix Leasing American Business
  Fund, L.P. .......................................       90,690        93,743
                                                      -----------   -----------

         Total Assets ..............................  $    95,752   $   254,600
                                                      ===========   ===========



                      LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:

     Accounts payable and accrued expenses .........  $     6,000   $     3,334
                                                      -----------   -----------

         Total Liabilities .........................        6,000         3,334
                                                      -----------   -----------

Minority Interest in Consolidated Subsidiary .......          420       153,069
                                                      -----------   -----------


Shareholder's Equity:

     Common stock, without par value, 100 shares
       authorized and outstanding ..................    1,562,343     1,562,343
     Retained earnings .............................      747,322       657,699
     Less:
       Note receivable from Phoenix Leasing
         Incorporated ..............................   (1,562,243)   (1,562,243)
       Due from Phoenix Leasing Incorporated and
         affiliates ................................     (658,090)     (559,602)
                                                      -----------   -----------

         Total Shareholder's Equity ................       89,332        98,197
                                                      -----------   -----------

         Total Liabilities and Shareholder's Equity   $    95,752   $   254,600
                                                      ===========   ===========

                  The accompanying notes are an integral part
                     of these consolidated balance sheets.


                                        2
<PAGE>

Note 1.  Organization and Significant Accounting Policies:

         Phoenix Leasing Associates III, Inc. (the Company) was formed under the
laws of Nevada on November 12, 1992. The Company is a wholly owned subsidiary of
Phoenix Leasing Incorporated (PLI), a California corporation, and was originally
formed to serve as the  general  partner of Phoenix  Leasing  American  Business
Fund, L.P. (the Program), a California limited partnership.

         On December 14, 1992, the Company organized Phoenix Leasing  Associates
III, L.P., a California limited partnership (PLAIIILP) to replace the Company as
the general  partner in the  Program.  The limited  partner of PLAIIILP is Lease
Management  Associates,  Inc., a Nevada corporation  controlled by an officer of
the Company,  who also owns the parent company of PLI. As the general partner of
the Program, PLAIIILP earns the acquisition and management fees and receives the
profits,  losses and distributions  which are allocated to the Company (Note 6).
The Company is the general partner of PLAIIILP and, as of September 30, 2002 and
2001, had a 62.5%  ownership  interest.  This  ownership  interest is subject to
change in  accordance  with the  PLAIIILP  Partnership  Agreement.  Profits  and
distributions  attributable to acquisition  fees paid to PLAIIILP by the Program
are  allocated in proportion to the  partners'  ownership  interests.  All other
profits, losses and distributions are allocated to the Company.

         The Company  records  its  investment  in the Program  under the equity
method of accounting.  As general  partner,  the Company has complete  authority
over,  and  responsibility  for, the overall  management  of the Program,  which
includes  responsibility for supervising the Program's acquisition,  leasing and
remarketing activities, and its sale of equipment.

Note 2.  Principles of Consolidation:

         The  consolidated  balance  sheets as of  September  30,  2002 and 2001
include the accounts of the Company and its subsidiary PLAIIILP. All significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
The  minority  interest  in  consolidated   subsidiary  represents  the  limited
partner's interest in PLAIIILP.

Note 3.  Use of Estimates:

         The preparation of consolidated financial statements in conformity with
accounting   principles   generally  accepted  in  the  United  States  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 consolidated  financial statements.  Actual results could differ
from those estimates.

Note 4.  Note Receivable from Affiliate:

         PLI, the sole shareholder of the Company,  as of September 30, 2002 and
2001 has issued a demand promissory note to the Company totaling $1,562,243. The
note provides that its principal amount automatically  increases to five percent
of the aggregate  capital  contributions to the Program by its limited partners.
There are no restrictions or covenants associated with this note which would


                                       3
<PAGE>

Note 4.  Note Receivable from Affiliate (continued):

preclude the Company from receiving the principal or interest  amounts under the
terms of the note.  The note bears interest at a rate equal to the lesser of ten
percent or the prime rate as determined by Citibank,  N.A.,  New York, New York,
plus one percent.  Interest is payable by PLI on the first  business day of each
calendar  quarter.  The  principal  amount is due and payable upon demand by the
Company.

Note 5.  Income Taxes:

         Effective July 1, 1998, the Company  adopted  treatment as a Subchapter
"S Corporation  pursuant to the Federal Income Tax Regulations for tax reporting
purposes.  Federal and state  income tax  regulations  provide that taxes on the
income or loss of the Company are  reportable  on the  shareholder's  individual
income tax return.

Note 6.  Compensation and Fees:

         PLAIIILP  receives  acquisition  fees  equal  to  four  percent  of the
purchase price of assets  acquired or financed by the Program in connection with
the  analysis,  selection  and  acquisition  or  financing  of  assets,  and the
continuing  analysis of the  overall  portfolio  of the  Program's  assets,  and
management  fees  equal  to two  percent  of the  Program's  gross  revenues  in
connection  with managing the operations of the Program.  In addition,  PLAIIILP
receives  an  interest  in the  Program's  profits,  losses  and  distributions.
Management fees of $5,062 and $7,967 and acquisition fees of $0 and $152,649 are
included in Due from Phoenix Leasing American Business Fund, L.P. on the balance
sheets as of September 30, 2002 and 2001, respectively.

Note 7.  Related Parties:

         The  Company  has  entered  into an  agreement  with PLI,  whereby  PLI
provides  management  services to PLAIIILP in connection  with the operation and
administration of the Program.  In consideration for the services and activities
performed  by PLI  pursuant to this  agreement,  the Company pays PLI fees in an
amount equal to two percent of the Program's  cumulative gross revenues plus the
lesser of two and one half percent of the purchase  price of equipment  acquired
by and  financing  provided to businesses by the Program or 100% of the net cash
attributable to the  acquisition  fee which has been  distributed to the Company
plus 100% of all other net cash from  operations  of PLAIIILP.  Management  fees
paid to PLI equaled  $220,748 and $195,861 for the twelve months ended September
30, 2002 and 2001, respectively.


                                       4
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To the Partners of
Phoenix Leasing Associates III L.P.
San Rafael, California

         We have  audited  the  accompanying  balance  sheet of Phoenix  Leasing
Associates III L.P. (a California limited partnership) as of September 30, 2002.
This financial statement is the responsibility of the Partnership's  management.
Our responsibility is to express an opinion on this financial statement based on
our audit.  The  balance  sheet of Phoenix  Leasing  Associates  III L.P.  as of
September 30, 2001,  was audited by other  auditors  whose report dated November
30, 2001, expressed an unqualified opinion on the balance sheet.

         We conducted our audit in accordance with auditing standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures  in the  balance  sheet.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation.  We
believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the balance sheet referred to above presents fairly, in
all material respects,  the financial position of Phoenix Leasing Associates III
L.P.  as of  September  30,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States.




                                                            ARMANINO McKENNA LLP

San Ramon, California,
December 19, 2002


                                       5
<PAGE>

                       PHOENIX LEASING ASSOCIATES III L.P.

                                 BALANCE SHEETS


                                     ASSETS

                                                              September 30,
                                                           2002          2001
                                                           ----          ----

Cash .................................................   $    --      $     148
Investment in Phoenix Leasing American Business
  Fund, L.P. .........................................      90,690       93,743
Due from Phoenix Leasing American Business
  Fund, L.P. .........................................       5,062      160,616
                                                         ---------    ---------

         Total Assets ................................   $  95,752    $ 254,507
                                                         =========    =========


                       LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

     Accounts payable and accrued expenses ...........   $   3,000    $   1,667
     Due to General Partner ..........................     423,539      430,767
                                                         ---------    ---------

         Total Liabilities ...........................     426,539      432,434
                                                         ---------    ---------


Partners' Capital (Deficit):

     General Partner (70 partnership units) ..........    (331,207)    (330,996)
     Limited Partner (42 partnership units) ..........         420      153,069
                                                         ---------    ---------

         Total Partners' Capital (Deficit) ...........    (330,787)    (177,927)
                                                         ---------    ---------

         Total Liabilities and Partners' Capital .....   $  95,752    $ 254,507
                                                         =========    =========

      The accompanying notes are an integral part of these balance sheets.

                                       6
<PAGE>

                       PHOENIX LEASING ASSOCIATES III L.P.

                           NOTES TO THE BALANCE SHEETS

                           September 30, 2002 and 2001


Note 1.  Organization and Significant Accounting Policies:

         Phoenix Leasing Associates III L.P., a California  limited  partnership
(the  Partnership),  was  formed  under the laws of the State of  California  on
December 14, 1992,  to act as the general  partner of Phoenix  Leasing  American
Business Fund, L.P. (the Program), a California limited partnership. The general
partner of the Partnership is Phoenix Leasing Associates III, Inc.  (PLAIII),  a
Nevada corporation and wholly owned subsidiary of Phoenix Leasing  Incorporated,
a  California  corporation.  The  limited  partner of the  Partnership  is Lease
Management  Associates,  Inc., a Nevada corporation  controlled by an officer of
PLAIII, who owns the ultimate parent of PLAIII.

         The Partnership  records its investment in the Program under the equity
method of accounting. As general partner, the Partnership has complete authority
over,  and  responsibility  for, the overall  management  of the Program,  which
includes  responsibility for supervising the Program's acquisition,  leasing and
remarketing activities, and its sale of equipment.

Note 2.  Income Taxes:

         The Partnership is not subject to federal and state income taxes on its
income  except for an $800  minimum  state  tax.  Federal  and state  income tax
regulations provide that items of income, gain, loss and deductions, credits and
tax preference  items of limited  partnerships  are reportable by the individual
partners in their respective income tax returns.  Accordingly,  no liability for
such taxes will be recorded on the Partnership's balance sheets.

Note 3.  Use of Estimates:

         The  preparation of financial  statements in conformity with accounting
principles  generally accepted in the United States 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. Actual results could differ from those estimates.

Note 4.  Compensation and Fees:

         The Partnership  receives acquisition fees equal to four percent of the
purchase price of assets  acquired or financed by the Program in connection with
the  analysis,  selection  and  acquisition  or  financing  of  assets,  and the
continuing  analysis of the  overall  portfolio  of the  Program's  assets,  and
management  fees  equal  to two  percent  of the  Program's  gross  revenues  in
connection  with  managing  the  operations  of the Program.  In  addition,  the
Partnership   receives  an  interest  in  the  Program's  profits,   losses  and
distributions.  Management fees of $5,062 and $7,967 and acquisition  fees of $0
and $152,649 are included in Due from Phoenix  Leasing  American  Business Fund,
L.P. on the balance sheets as of September 30, 2002 and 2001, respectively.


                                       7
<PAGE>

               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                           September 30, 2002 and 2001



Note 5.  Allocation of Profits, Losses and Distributions:

         Profits  and  losses  attributable  to  acquisition  fees  paid  to the
Partnership  by the Program are allocated to the partners in proportion to their
ownership  interests.  All other  profits  and losses are  allocated  to PLAIII.
Distributions  are  made  in  accordance  with  the  terms  of  the  partnership
agreement.

Note 6.  Related Parties:

         PLAIII has entered into an agreement with Phoenix Leasing  Incorporated
(PLI), whereby PLI provides management services to the Partnership in connection
with the operations and administration of the Program.  In consideration for the
services and activities performed by PLI pursuant to this agreement, PLAIII pays
PLI fees in an amount equal to: two percent of the  Program's  cumulative  gross
revenues  plus the lesser of two and one half percent of the  purchase  price of
equipment  acquired by and  financing  provided to  businesses by the Program or
100%  of the net  cash  attributable  to the  acquisition  fee  which  has  been
distributed  to PLAIII  plus 100% of all other net cash from  operations  of the
Partnership.  Management fees paid to PLI equaled  $220,748 and $195,861 for the
twelve months ended September 30, 2002 and 2001, respectively.




                                       8