UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB   XANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended August 31, 2006.  ___TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____.  SUNBURST ACQUISITIONS III, INC. (Name of small business in its charter) Colorado0-2355984-14320001(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification Number)  Bellemarc Building, 1912 Sidewinder Drive, Suite 200-A     
Park City, Utah84060(Address of principal executive offices)(Zip Code) Issuer's telephone number, including area code: (435) 615-6585 Securities to be registered under Section 12(b) of the Act: None Title of each class N/A Securities to be registered under Section 12(g) of the Act: Common Stock, no par value (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X ] Yes  [  ] No  - 1 -   Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year: $ 0. 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 sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. [ ]Yes [ ] No (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 31, 2006, the Company had 33,303,840 shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990). Transitional Small Business Disclosure Format (Check one): Yes ____; No _X__   - 2 -   ITEM 1.        DESCRIPTION OF BUSINESS. General The Company was incorporated under the laws of the State of Colorado on August 27, 1997, and is in the early developmental and promotional stages. To date the Company's only activities have consisted of the raising of capital and efforts to seek one or more properties or businesses for acquisition. The Company is not presently engaged in any commercial operations. The Company has no full-time employees and owns no real estate. The Company's business plan has always been to seek, investigate, and, if warranted, acquire one or more properties or businesses. Such an acquisition may be made by purchase, merger, exchange of stock, or otherwise, and may encompass assets or a business entity, such as a corporation, joint venture, or partnership. The Company has very limited capital, and it is unlikely that the Company will be able to take advantage of more than one such business opportunity. The Company intends to seek opportunities demonstrating the potential of long-term growth as opposed to short-term earnings. PRIOR BUSINESS ACTIVITIES As of August 30, 1999, the Company entered into an Agreement and Plan of Reorganization with American Recruitment Conferences, Inc., a California corporation ("ARC"), and Workseek.com, a California corporation ("Workseek"). ARC and Workseek, which are affiliated companies, were to be acquired by the Company in a reverse acquisition transaction, resulting in the shareholders of ARC and Workseek obtaining control over the Company. A series of transactions were contemplated by the Agreement, including implementation of a 16.16-to-1 forward split, voluntary surrender for cancellation of shares by the existing shareholders of the Company, and issuance of new shares to the ARC and Workseek shareholders. In contemplation of the ARC/Workseek acquisition, the contemplated forward split was completed and shares of the Company's Common Stock were sold in a private placement in August and September 1999, with the cash proceeds loaned to ARC. In the private placement, a total of 1,000,000 post-split shares were sold for $1,400,000 in cash and $600,000 in receivables assigned to the Company. Also, in contemplation of completion of the ARC/Workseek acquisition, a total of 8,015,360 common shares were voluntarily surrendered for cancellation by Company officers and other shareholders. The ARC/Workseek acquisition was not completed, and no payments were made under the terms of the promissory note. Collection of the promissory note is considered doubtful. Efforts by Company management to negotiate some type of final resolution of the matter were not successful. As a result, the note has been offset by a full allowance for realization and no further efforts to resolve the matter either through negotiation or legal action are expected or contemplated.  - 3 -   CURRENT BUSINESS ACQUISITION ACTIVITIES As of the end of its fiscal year August 31, 2006, the Company had not identified a business opportunity that it planned to pursue, nor had the Company reached any agreement or definitive understanding with any person concerning an acquisition. No assurance can be given that the Company will be successful in finding or acquiring a desirable business opportunity, given the limited funds that are expected to be available for acquisitions. The Company's search will continue to be directed toward enterprises which have a desire to be become a public corporation and which have a business plan designed to allow them to take advantage of opportunities available to public entities. This includes entities which have been recently organized, with no operating history, or a history of losses attributable to under-capitalization or other factors, entities in need of funds to develop a new product or service or to expand into a new market, entities which desire to use their securities to make acquisitions, and entities which have a combination of these characteristics. In searching for investment opportunities, the Company is not restricted to any particular geographical area or industry. Therefore, subject to economic conditions, limitations on its ability to locate available business opportunities, and other factors, the Company has substantial discretion in selecting an appropriate business opportunity. In connection with any acquisition, it is highly likely that an amount of stock constituting control of the Company would be issued by the Company or purchased from the Company's current principal shareholders by the target entity or its controlling shareholders. Investigation and Selection of Business Opportunities To a large extent, a decision to participate in a specific business opportunity may be made upon management's analysis of the quality of the other company's management and personnel, the anticipated acceptability of new products or marketing concepts, the merit of technological changes, and numerous other factors which are difficult, if not impossible, to analyze through the application of any objective criteria. In many instances, it is anticipated that the historical operations of a specific firm may not necessarily be indicative of the potential for the future because of the possible need to shift marketing approaches substantially, expand significantly, change product emphasis, change or substantially augment management, or make other changes. Because the Company may participate in a business opportunity with a newly organized firm or with a firm which is entering a new phase of growth, it should be emphasized that the Company will incur further risks, because management in many instances will not have proved its abilities or effectiveness, the eventual market for such company's products or services will likely not be established, and such company may not be profitable when acquired. It is anticipated that the Company will not be able to diversify, but will essentially be limited to one such venture because of the Company's limited financing. This lack of diversification will not permit the Company to offset potential losses from one business opportunity against profits  - 4 -   from another, and should be considered an adverse factor affecting any decision to purchase the Company's securities. It is emphasized that management of the Company may effect transactions having a potentially adverse impact upon the Company's shareholders pursuant to the authority and discretion of the Company's management to complete acquisitions without submitting any proposal to the stockholders for their consideration. Company management does not generally anticipate that it will provide holders of the Company's securities with financial statements, or any other documentation, concerning a target company or its business prior to any merger or acquisition. In some instances, however, the proposed participation in a business opportunity may be submitted to the stockholders for their consideration, either voluntarily by Company management which elects to seek the stockholders' advice and consent, or because state law so requires. The analysis of business opportunities will be undertaken by or under the supervision of the Company's executive officers and directors. Although there are no current plans to do so, Company management might hire an outside consultant to assist in the investigation and selection of business opportunities, and in that event, might pay a finder's fee. Since Company management has no current plans to use any outside consultants or advisors to assist in the investigation and selection of business opportunities, no policies have been adopted regarding use of such consultants or advisors, the criteria to be used in selecting such consultants or advisors, the services to be provided, the term of service, or regarding the total amount of fees that may be paid. However, because of the limited resources of the Company, it is likely that any such fee the Company agrees to pay would be paid in stock and not in cash. Otherwise, the Company anticipates that it will consider, among other things, the following factors:  (1) Potential for growth and profitability, indicated by new technology, anticipated market expansion, or new products; (2) Strength and diversity of existing management, or management prospects that are scheduled for recruitment; (3) Capital requirements and anticipated availability of required funds, to be provided from operations, through the sale of additional securities, through joint ventures or similar arrangements, or from other sources; (4) The Company's perception of how any particular business opportunity will be received by the investment community and by the Company's stockholders; (5) The availability of audited financial statements for the business opportunity; and (6) Whether, following the business combination, the financial condition of the business opportunity would be, or would have a significant prospect in the foreseeable future of becoming sufficient to enable the securities of the Company to qualify for listing on an exchange or on a national automated securities quotation system, such as NASDAQ.  - 5 -   No one of the factors described above will be controlling in the selection of a business opportunity, and management will attempt to analyze all factors appropriate to the opportunity and make a determination based upon reasonable investigative measures and available data. Potential investors must recognize that, because of the Company's limited capital available for investigation and management's limited experience in business analysis, the Company may not discover or adequately evaluate adverse facts about the opportunity to be acquired. The Company is unable to predict when it may participate in a business opportunity and it has not established any deadline for completion of a transaction. It expects, however, that the process of seeking candidates, analysis of specific proposals and the selection of a business opportunity may require several additional months or more. Company management believes that various types of potential merger or acquisition candidates might find a business combination with the Company to be attractive. These include acquisition candidates desiring to create a public market for their shares in order to enhance liquidity for current shareholders, acquisition candidates which have long-term plans for raising equity capital through the public sale of securities and believe that the possible prior existence of a public market for their securities would be beneficial, and acquisition candidates which plan to acquire additional assets through issuance of securities rather than for cash, and believe that the possibility of development of a public market for their securities will be of assistance in that process. Acquisition candidates which have a need for an immediate cash infusion are not likely to find a potential business combination with the Company to be an attractive alternative. Form of Acquisition It is impossible to predict the manner in which the Company may participate in a business opportunity. Specific business opportunities will be reviewed as well as the respective needs and desires of the Company and the promoters of the opportunity and, upon the basis of that review and the relative negotiating strength of the Company and such promoters, the legal structure or method deemed by management to be suitable will be selected. Such structure may include, but is not limited to leases, purchase and sale agreements, licenses, joint ventures and other contractual arrangements. The Company may act directly or indirectly through an interest in a partnership, corporation or other form of organization. Implementing such structure may require the merger, consolidation or reorganization of the Company with other corporations or forms of business organization. In addition, the present management and stockholders of the Company most likely will not have control of a majority of the voting shares of the Company following a reorganization transaction. As part of such a transaction, the Company's directors may resign and new directors may be appointed without any vote by stockholders. It is likely that the Company will acquire its participation in a business opportunity through the issuance of Common Stock or other securities of the Company. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under the Internal Revenue Code of 1986, depends upon the acquisition by the acquiring company of at least 80% of the outstanding shares of the Company to be acquired. In order to acquire 80% or more of the outstanding stock of a business to be acquired, it is likely that the Company would  - 6 -   be required to issue a substantial number of shares. This could result in substantial additional dilution in the equity of those who were stockholders of the Company prior to such reorganization. Any such issuance of additional shares might also be done simultaneously with a sale or transfer of shares representing a controlling interest in the Company by the current officers, directors and principal shareholders. (See "Description of Business - General"). It is anticipated that any securities issued in any reorganization would be issued in reliance upon exemptions, if any are available, from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of the transaction, the Company may agree to register such securities either at the time the transaction is consummated, or under certain conditions at specified times thereafter. The issuance of substantial additional securities and their potential sale into any trading market that might develop in the Company's securities may have a depressive effect upon such market. The Company will participate in a business opportunity only after the negotiation and execution of a written agreement. Although the terms of such agreement cannot be predicted, generally such an agreement would require specific representations and warranties by all of the parties thereto, specify certain events of default, detail the terms of closing and the conditions which must be satisfied by each of the parties thereto prior to such closing, outline the manner of bearing costs if the transaction is not closed, set forth remedies upon default, and include miscellaneous other terms. Competition The Company expects to encounter substantial competition in its efforts to locate attractive opportunities, primarily from business development companies, venture capital partnerships and corporations, venture capital affiliates of large industrial and financial companies, small investment companies, and wealthy individuals. Many of these entities will have significantly greater experience, resources and managerial capabilities than the Company and will therefore be in a better position than the Company to obtain access to attractive business opportunities. The Company also will experience competition from other public "blind pool" companies, many of which may have more funds available than does the Company. Administrative Offices The Company currently maintains a mailing address Bellemarc Building, 1912 Sidewinder Drive, Suite 200-A, Park City, Utah 84060, which is the office address of its President. The Company's telephone number there is (435) 615-6585. Other than this mailing address, the Company does not currently maintain any other office facilities, and does not anticipate the need for maintaining office facilities at any time in the foreseeable future. The Company pays no rent or other fees for the use of this mailing address, but for financial statement purposes, is recording $600 per year for the value of the office space.  - 7 -   Employees The Company is a development stage company and currently has no employees. Management of the Company expects to use consultants, attorneys and accountants as necessary, and does not anticipate a need to engage any full-time employees so long as it is seeking and evaluating business opportunities. The need for employees and their availability will be addressed in connection with the decision whether or not to acquire or participate in specific business opportunities. No remuneration will be paid to the Company's officers except as set forth under "Executive Compensation" and under "Certain Relationships and Related Transactions."  CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the matters discussed in this Form 10-KSB are forward-looking statements based on current expectations, and involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following headings: (i)         "Description of Business - General" - the general description of the Company's plan to seek a merger or acquisition candidate, and the types of business opportunities that may be pursued. (ii)         "Description of Business - Investigation and Selection of Business Opportunities" - the steps which may be taken to investigate prospective business opportunities, and the factors which may be used in selecting a business opportunity. (iii)         "Description of Business - Form of Acquisition" - the manner in which the Company may participate in a business acquisition. The Company wishes to caution the reader that there are many uncertainties and unknown factors which could affect its ability to carry out its business plan in the manner described herein.  ITEM 2.         DESCRIPTION OF PROPERTY. The Company currently maintains a mailing address at Bellemarc Building, 1912 Sidewinder Drive, Suite 200-A, Park City, Utah 84060, which is the address of its President. The Company pays no rent for the use of this mailing address, however, for financial statement purposes, the Company is accruing $50 per month as additional paid-in capital for this use. The Company does not believe that it will need to maintain an office at any time in the foreseeable future in order to carry out its plan of operations described herein. The Company's telephone number is (435) 615-6585. The Company currently has no investments in real estate, real estate mortgages, or real estate securities, and does not anticipate making any such investments in the future. However, the policy of the Company with respect to investment in real estate assets could be changed in the future without a vote of security holders.  - 8 -   ITEM 3.        LEGAL PROCEEDINGS. The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than five percent (5%) of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.  ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year, which ended August 31, 2006.  PART II  ITEM 5.         MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Although the Company's shares were approved for trading on the OTC Bulletin Board on approximately November 19, 1998, under the trading symbol "SBSQ," no actual public trading of such shares has ever occurred and no bid or asked prices have been posted. It is not anticipated that any actual trading activity will occur until the Company has completed a merger or acquisition transaction. The Company's securities are currently held of record by a total of approximately 62 persons. No dividends have been declared or paid on the Company's securities, and it is not anticipated that any dividends will be declared or paid in the foreseeable future.  ITEM 6.         MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Certain statements in this report, including statements in the following discussion which are not statements of historical fact, are what are known as "forward looking statements," which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as "plans," "intends," "will," "hopes," "seeks," "anticipates," "expects "and the like often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10KSB and in the Company's other filings with the Securities  - 9 -   and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results. Liquidity and Capital Resources As of August 31, 2006, the Company remains in the development stage. For the fiscal year ended August 31, 2006, the Company's balance sheet reflects current asset and total assets of $1,542, and total current liabilities of $48,499. Results of Operations During the period from August 27, 1997 (inception) through August 31, 2006, the Company has accumulated a deficit of $2,119,560. This deficit is primarily the result of a $2,000,000 valuation allowance taken against a promissory note from American Recruitment Conferences, Inc., a California corporation ("ARC") and Workseek.com, Inc., a California corporation ("Workseek"). The promissory note was issued to the Company to evidence a loan made in conjunction with execution of an Agreement and Plan of Reorganization with ARC and Workseek, dated August 30, 1999. The proposed transaction was not consummated and recovery of the amount due under the promissory note was doubtful. As a result, as of August 31, 2000, the promissory note receivable was offset by a full allowance for realization. During the period from inception to August 31, 2006, the Company has engaged in no significant operations other than organizational activities, acquisition of capital, preparation and filing of the registration of its securities under the Securities Exchange Act of 1934, as amended, compliance with its periodical reporting requirements, and efforts to locate a suitable merger or acquisition candidate including the Workseek transaction disclosed above. No revenues were received by the Company during this period. Plan of Operations From the date of filing of its registration statement under the Securities Exchange Act of 1934 (December 29, 1997) until the end of the fourth quarter of its 2001 fiscal year, the Company filed all required periodic reports under the Securities Exchange Act of 1934. After completing the filing of the report on Form 10KSB for the fiscal year ended August 31, 2001, the Company ceased filing reports in order to avoid incurring additional legal and accounting expenses.  The Company recently resumed reporting under the Exchange Act. After the 2001 fiscal year, the Company remained dormant throughout the fiscal years ending August 31, 2002 and August 31, 2003. The Company incurred total of $3,344 and $3,413 in legal and professional fees in 2005 and 2006, related primarily to catch-up filings with the Securities and Exchange Commission. The Company's plan of operations since August 31, 2001 was to remain dormant in order to avoid incurring legal and accounting fees related to compliance with its reporting obligations. However, in February 2004 there was a change of control, and the Company elected to begin taking the steps necessary to file all delinquent reports and to once again become current in  - 10 -   compliance with its reporting obligations under the Securities Exchange Act of 1934. As of the date of filing of this report on Form 10KSB for the fiscal year ended August 31, 2006, the Company is continuing with its efforts at compliance with its reporting obligations under the Securities Exchange Act of 1934. For the fiscal year ending August 31, 2006, the Company's plan of operations is to remain current in compliance with its reporting obligations under the Securities Exchange Act of 1934 and to engage in efforts to locate a suitable merger or acquisition candidate. The Company will require additional capital in order to pay the costs associated with making required filings and seeking out suitable merger or acquisition candidates. Need for Additional Financing The Company will require additional capital in order to meet its cash needs for the next year, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934, as amended. Current management and certain principal shareholders have made a commitment to provide funding for the administration of the Company, including the location of a merger or acquisition candidate.  The funding was provided in the form of secured promissory notes convertible to the Companys common stock.  The notes can be converted in whole or in part at the option of the holder into common stock of the Company at a conversion price of $0.0015 per share.  The holders of the notes have the right to require the Company to register the conversion shares on future registration statements filed by the Company.  Approximately $48,500 including $6,295 of accrued interest was advanced to the Company through August 31, 2006.  Management has made no firm formal commitment to advance funds to the Company.  Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover its expenses. Notwithstanding the foregoing, to the extent that additional funds are required, the Company anticipates receiving such funds in the form of loans or advancements from current shareholders, or through the private placement of restricted securities rather than through a public offering. The Company may also seek to compensate providers of services by issuances of stock in lieu of cash. For information as to the Company's policy in regard to payment for consulting services, see "Certain Relationships and Transactions."  ITEM 7.        FINANCIAL STATEMENTS. See the following pages.    - 11 -   SUNBURST ACQUISITIONS III, INC. (A Development Stage Company) Index  PageReport of Independent Registered Public Accounting Firm13Balance Sheet14Statements of Operations15Statement of Stockholders' Equity (Deficit)16Statements of Cash Flows19Notes to Financial Statements21               - 12 -   Larry O'Donnell, CPA, P.C. Telephone (303) 745-4545                                                                          2228 South Fraser Street Unit 1 Aurora, Colorado 80014    Report of Independent Registered Public Accounting Firm    Board of Directors Sunburst Acquisition III, Inc.  I have audited the accompanying balance sheet of Sunburst Acquisition III, Inc. as of August 31, 2006, and the related statements of operations, changes in stockholders equity and cash flows for each of the two fiscal years then ended and for the period from inception August 27, 1997 to August 31, 2006.  These financial statements are the responsibility of the Companys management.  My responsibility is to express an opinion on these financial statements based on my audits.  I conducted my audit in accordance with standards of the Public Company Accounting Oversight Board (United States).   Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  I believe that my audits provide a reasonable basis for my opinion.  In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sunburst Acquisition III, Inc. as of August 31, 2006, and the results of its operations and their cash flows for each of the two fiscal years then ended and for the period from inception August 27, 1997 to August 31, 2006, in conformity with generally accepted accounting principles in the United States of America.   Larry O'Donnell, CPA, P.C.  November 17, 2005    - 13 -   Sunburst Acquisitions III, Inc. (A Development Stage Company) BALANCE SHEET August 31, 2006 ASSETSCURRENT ASSETSCash and cash equivalents$     1,542Total current assets1,542TOTAL ASSETS$      1,542LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIESNotes payable  related party$  48,499Total current liabilities48,499STOCKHOLDERS' DEFICITPreferred stock, no par value; 20,000,000 sharesauthorized; No shares issued and outstanding-Common stock, no par value; 100,000,000shares authorized; 33,303,840 shares issued andoutstanding2,020,435Additional paid-in capital52,168Deficit accumulated during the development stage(2,119,560)Total stockholders' deficit(46,957)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT$            1,542    The accompanying notes are an integral part of the financial statements.  - 14 -   Sunburst Acquisitions III, Inc. (A Development Stage Company) STATEMENTS OF OPERATIONS  For the periodfrom inceptionFor the yearFor the year(August 27, 1997)endedendedTo August 31August 31,August 31,200620062005REVENUES$ 1,067$          -$          -EXPENSESAmortization300--Consulting fees14,8497,2962,618General office
Interest2,474
6,29595
6,295153
-Legal fees49,0151,4331,694Professional fees30,0101,9801,650Rent5,400600600Taxes and licenses132--Transfer agent12,1521,2251,379Valuation allowance2,000,000--Total expenses2,120,62718,9248,094NET LOSS(2,119,560)(18,924)(8,094)Accumulated deficitBalance, beginning of period-(2,100,636)(2,092,542)Balance, end of period$ (2,119,560)$ (2,119,560)$ (2,100,636)NET LOSS PER SHARE$          (0.06)$          (0.00)$          (0.00)WEIGHTED AVERAGE NUMBER OFSHARES OF COMMON STOCKAND COMMON STOCKEQUIVALENTS OUTSTANDING33,944,20833,303,84033,303,840 The accompanying notes are an integral part of the financial statements.   - 15 -   Sunburst Acquisitions III, Inc. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)  DeficitaccumulatedTotalPreferred stockCommon stockCommonAdditionalduring thestockholders'Number ofNumber ofStockpaid-indevelopmentequitysharesAmountsharesAmountSubscribedcapitalstage(deficit)Preferred stock issued for cash,August 27,1997 at $0.001 per share80,000$ 8,000-$ --$ -$ -$ 8,000Common stock issued for services,August 27, 1997 at $0.000062 per share--31,269,6001,935---1,935Net loss for the period ended August 31, 1997------(1,935)(1,935)Balance, August 31, 199780,0008,00031,269,6001,935--(1,935)8,000Rent at no charge-----600-600Common stock issued for services,July 1998 at $0.00186 per share--1,616,0003,000---3,000Net loss for the year ended August 31, 1998------(10,305)(10,305)Balance, August 31, 199880,0008,00032,885,6004,935-600(12,240)1,295Rent at no charge-----600-600Common stock issued for cash,January 1999 at $0.00155 per share--4,848,0007,500---7,500Preferred stock converted to common,May 1999 at $0.00309 per share(80,000)(8,000)2,585,6008,000----Common stock  - 16 -     subscribed,year ended August 31, 1999----2,000,000--2,000,000Net loss for the year ended August 31, 1999------(9,031)(9,031)Balance, August 31, 1999--40,319,20020,4352,000,0001,200(21,271)2,000,364Issuance of common stock subscribed,September 1999 at $2.00 per share-$ -1,000,000$2,000,000(2,000,000)$ -$ -$ -Voluntary cancellation of outstanding shares,September 1999--(8,015,360)-----Rent at no charge-----600-600Expenses paid by shareholder-----1,444-1,444Net loss for the year ended August 31, 2000------(2,022,917)(2,022,917)Balance, August 31, 2000--33,303,8402,020,435-3,244(2,044,188)(20,509)Rent at no charge-----600-600Expenses paid by shareholder-----30,962-30,962Net loss for the year ended August 31, 2001------(14,361)(14,361)Balance, August 31, 2001--33,303,8402,020,435-34,806(2,058,549)(3,308)Rent at no charge-----600-600Expenses paid by shareholder-----11,884-11,884Net loss for the year ended August 31, 2002------(9,168)(9,168)Balance, August 31, 2002--33,303,8402,020,435-47,290(2,067,717)8Rent at no charge-----600-600  - 17 -    Net loss for the year ended August 31, 2003------(2,478)(2,478)Balance, August 31, 2003--33,303,8402,020,435-47,890(2,070,195)(1,870)Rent at no charge-----600-600Expenses paid by shareholder-----1,5401,540Net loss for the year ended August 31, 2004------(22,348)(22,348)Balance, August 31, 2004--33,303,8402,020,435-50,030(2,092,542)(22,078)Rent at no charge-----600-600Expenses paid by shareholder-----100100Net loss for the year ended August 31, 2005------(8,094)(8,094)Balance, August 31, 2005--33,303,8402,020,435-50,730(2,100,636)(29,472)Rent at no charge-----600-600Expenses paid by shareholder-----838838Net loss for the year ended August 31, 2006------(18,924)(18,924)Balance, August 31, 2006--33,303,840$2,020,435-$  52,168$(2,119,560)$  (46,957) The accompanying notes are an integral part of the financial statements.  - 18 -   Sunburst Acquisitions III, Inc. (A Development Stage Company) STATEMENTS OF CASH FLOWS  For the periodfrom inceptionFor the yearFor the   year(August 27, 1997)endedendedTo August 31,August 31,August 31,200620062005CASH FLOWS FROM OPERATING ACTIVITIESNet loss$ (2,119,560)$ (18,924)$ (8,094)Adjustments to reconcilenet loss to net cash flowsfrom operating activities:Amortization300--Rent expense4,200600600Stock issued for consulting fees4,935--Increase (decrease) in accounts payable-(2,618)(2,977)Increase (decrease) in notes payable48,50021,65010,367Net cash flows from operating activities(2,061,625)708(104)CASH FLOWS FROM INVESTING ACTIVITIESIncrease in organization costs(300)--Net cash flows from investing activities(300)--CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock2,007,500--Issuance of preferred stock8,000--  - 19 -    Additional paid-in capital47,967838100Net cash flows from financing activities2,063,467838100NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS1,5421,546(4)CASH AND CASH EQUIVALENTS,BEGINNING OF PERIOD-(4)-CASH AND CASH EQUIVALENTS,END OF PERIOD$        1,542$      1,542$             (4)               The accompanying notes are an integral part of the financial statements.   - 20 -   Sunburst Acquisitions III, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS August 31, 2006 1.        Summary of Significant Accounting PoliciesDevelopment Stage Company Sunburst Acquisitions III, Inc. (a development stage company) (the "Company") was incorporated under the laws of the State of Colorado on August 27, 1997. The initial principal office of the corporation is 2082 Cherry Street, Denver, Colorado 80207. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board. It has no full-time employees and owns no real property. The Company intends to operate as a capital market access corporation by registering with the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934. After this, the Company intends to seek to acquire one or more existing businesses, which have existing management, through merger or acquisition. Management of the Company will have virtually unlimited discretion in determining the business activities in which the Company might engage. In 1999, the Company invested $2,000,000 in an acquisition candidate as more fully described in footnote 6. There has been no further activity in the Company since this investment. Accounting Method The Company records income and expenses on the accrual method. Loss per Share Loss per share was computed using the weighted average number of shares of common stock outstanding during the period. Organization Costs Costs to incorporate the Company were originally capitalized to be amortized over a sixty-month period. With the adoption of SOP 98-5, the unamortized portion of these costs was written off to expense during the year ended August 31, 1999. Financial Instruments Unless otherwise indicated, the fair value of all reported assets and liabilities which represents financial instruments (none of which are held for trading purposes) approximate the carrying values of such amounts.  - 21 -   Statements of Cash Flows For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Use of Estimates The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that effect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Consideration of Other Comprehensive Income Items SFAF 130 - Reporting Comprehensive Income, requires companies to present comprehensive income (consisting primarily of net income plus other direct equity changes and credits) and its components as part of the basic financial statements. For the year ended August 31, 2005, the Company's financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income. Stock Basis Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange. 2.        Recently Issued Accounting Pronouncements In May 2005, the FASB issued SFAS No. 154,  "Accounting Changes and Error - an amendment of APB Opinion No. 29." This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the usual instance that the pronouncement does not include specific transition provisions.  When a pronouncement includes specific transition provisions, those provisions should be followed.  Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle.  This Statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects of the cumulative effect of the change. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect application of SFAS No. 154 to have a material affect on its financial statements. In February 2006, the FASB issued SFAS No. 155.  This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.  The  - 22 -   Company does not expect application of SFAS No. 155 to have a material affect on its financial statements. In March 2006, the FASB issued SFAS No. 156.  This Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of its first fiscal year that begins after September 15, 2006.   An entity should apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions after the effective date of this Statement.  The Company does not expect application of SFAS No. 156 to have a material affect on its financial statements. 3.        Stockholders' Equity A total of 33,303,840 common shares were outstanding at August 31, 2006. As of August 31, 2006, all shares of the Company's no par value Series A preferred stock have been converted to common stock. 4.        Related Party Transactions On September 6, 2004, two promissory notes were issued to shareholders of the Company in the amount of $22,203.86 for the conversion of related party accounts payable.  On September 22, 2005, a promissory note was issued to Financial Media Relations, LLC, in the amount of $20,000.00 for the conversion of related party accounts payable.  The note payable to related party balance of $48,499 includes accrued interests of $6,295 at August 31, 2006.  The notes, plus interest at 10%, are due upon demand within thirty days after such demand is made in writing by the holders.  The notes are secured by all assets of the Company.  The notes can be converted in whole or in part at the option of the holder into common stock of the Company at a conversion price of $0.0015 per share.  The holders of the notes have the right to require the Company to register the conversion shares on future registration statements filed by the Company. The Company's President is providing office space at no charge to the Company. For purposes of the financial statements, the Company is accruing $50 per month as additional paid-in capital for this use. 5.        Income Taxes The Company has Federal net operating loss carryforwards of approximately $2,116,500 expiring during the years 2018 and 2026. The tax benefit of these net operating losses is approximately $401,000 and has been offset by a full allowance for realization. This carryforward may be limited upon the consummation of a business combination under IRC Section 381.  For the years ended August 31, 2006 and 2005, the valuation allowance increased by approximately $3,600 and $1,500, respectively.  - 23 -   ITEM 8.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 8A.         CONTROLS AND PROCEDURES. The Securities and Exchange Commission defines the term disclosure controls and procedures to mean a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. The Company maintains such a system of controls and procedures in an effort to ensure that all information, which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms. Based on an evaluation performed, the Company's certifying officers have concluded that the disclosure controls and procedures were effective as of August 31, 2006, to provide reasonable assurance of the achievement of these objectives. There was no change in the Company's internal control over financial reporting during the fiscal year ended August 31, 2006, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.  PART III ITEM 9.         DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The director(s) and executive officer(s) currently serving the Company are as follows: Name                                    AgePositions Held and TenureScott Mac Caughern              50Principal Executive Officer, Chief Financial Officer, and Director since February 8, 2005 The director(s) named above will serve until the next annual meeting of the Company's stockholders. Thereafter, director(s) will be elected for one-year terms at the annual stockholders' meeting. Officer(s) will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding between any of the director(s) or officer(s) of the Company and  - 24 -   any other person pursuant to which any director or officer was or is to be selected as a director or officer. The director(s) and officer(s) will devote their time to the Company's affairs on an "as needed" basis, which, depending on the circumstances, could amount to as little as two hours per month, or more than forty hours per month, but more than likely will fall within the range of five to ten hours per month. Biographical Information Mr. MacCaughern has served as Chairman of Corridor Communications Corp. since April 28, 2003. OTC BB  (CORR) Mr. MacCaughern resigned from Corridor Communications Corp. in August 2005. Mr. MacCaughern is an emerging growth investor in both private and public companies and has funded and contributed to the success of many companies in the past decade.  He has held various senior executive positions within the securities industry and is an expert in developing innovative financial solutions.  Since 1993, Mr. MacCaughern has been president of MacCaughern   Trade   Development, which is a national full service communications company to the capital markets.  MacCaughern Trade Development has focused on management and financial consulting services, specializing in strategic marketing, establishing distribution channels for products, mergers and acquisitions and financial public relations.  Mr. MacCaughern has held various senior executive positions within the securities industry including running his own OSJ Securities firm for Roundhill Securities, in Park City, Utah.  After resigning from Roundhill Securities in 1997, Mr. MacCaughern has focused on identifying unique opportunities in the public markets and has implemented his innovative financial solutions for client companies.  Additionally, since October 2001, Mr. MacCaughern has been a Professional Services Reserve for the Orange County Sheriff's Department in Orange County California. Audit Committee. As of the date of this Annual Report, we have not appointed members to an audit committee and, therefore, the respective role of an audit committee has been conducted by our Board of Directors. When established, the audit committee's primary function will be to provide advice with respect to our financial matters and to assist the Board of Directors in fulfilling oversight responsibilities regarding finance, accounting, tax and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide and open avenue of communication among the independent accountants, management and the board of directors. Our Board of Directors has considered whether the regulatory provision of non-audit service is compatible with maintaining the principal independent accountant's independence.  - 25 -   Code of Ethics The Company has not yet adopted a code of ethics, which applies to the chief executive officer, or principal financial and accounting officer or controller, or persons performing similar functions. The Company is a "blind pool" or "blank check" company whose shares are not yet trading. Compliance With Section 16(a) of the Exchange Act. The Company's officers and directors plan to file an Annual Statement of Changes in Beneficial Ownership.  ITEM 10.         EXECUTIVE COMPENSATION. No officer or director received any remuneration from the Company during the fiscal year. Until the Company acquires additional capital, it is not intended that any officer or director will receive compensation from the Company other than reimbursement for out-of-pocket expenses incurred on behalf of the Company. See "Certain Relationships and Related Transactions." The Company has no stock option, retirement, pension, or profit-sharing programs for the benefit of directors, officers or other employees, but the Board of Directors may recommend adoption of one or more such programs in the future.  ITEM 11.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth, as of the end of the Companys fiscal year ended August 31, 2006, the stock ownership of each executive officer and director of the Company, of all executive officers and directors as a group, and of each person known by the Company to be a beneficial owner of 5% or more of its Common Stock.  Unless otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power with respect to such shares, to the best of the Companys knowledge.   Title of ClassName and Address of Beneficial OwnerAmount and Nature of Beneficial OwnershipPercent of ClassCommonPaul Kessler
The Bristol Group of Companies
10990 Wilshire Blvd., Suite 1410
Los Angeles, CA 9002425,282,240 (1)75.91%CommonDianna Derycz Kessler
The Bristol Group of Companies
10990 Wilshire Blvd., Suite 1410
Los Angeles, CA 9002425,282,240 (2)75.91%  - 26 -    CommonScott MacCaughern
Financial Media Relations, LLC
1912 Sidewinder Drive, Suite 200-A
Park City, UT 84060 (3)00%CommonAll Officers and Directors (1 in number)00% (1) This figure includes 12,641,120 shares owned directly by Dianna Derycz Kessler, Paul Kesslers wife, of which Mr. Kessler may be deemed to be the beneficial owner. (2) This figure includes 12,641,120 shares owned directly by Paul Kessler, Dianna Derycz Kesslers Husband, of which Mrs. Kessler may be deemed to be the beneficial owner. (3) The named individual is an officer or director of the Company.  ITEM 12.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. No officer, director, promoter, affiliate or beneficial owner of the Company has, has had, or proposes to have, any direct or indirect material interest in any asset proposed to be acquired by the Company through security holdings, contracts, options, or otherwise. The Company has adopted a policy under which any consulting or finder's fee that may be paid to a third party for consulting services to assist management in evaluating a prospective business opportunity would be paid in stock rather than in cash. Any such issuance of stock would be made on an ad hoc basis. Accordingly, the Company is unable to predict whether, or in what amount, such stock issuance might be made. It is not currently anticipated that any salary, consulting fee, or finder's fee shall be paid to any of the Company's directors or executive officers, or to any other affiliate of the Company except as described under "Executive Compensation" above. Although management has no current plans to cause the Company to do so, it is possible that the Company may enter into an agreement with an acquisition candidate requiring the sale of all or a portion of the Common Stock held by the Company's current stockholders to the acquisition candidate or principals thereof, or to other individual or business entities, or requiring some other form of payment to the Company's current stockholders, or requiring the future employment of specified officers and payment of salaries to them. It is more likely than not that any sale of securities by the Company's current stockholders to an acquisition candidate would be at a price substantially higher than that originally paid by such stockholders. Any payment to current stockholders in the context of an acquisition involving the Company would be determined entirely by the largely unforeseeable terms of a future agreement with an unidentified business entity.  - 27 -   ITEM 13.        EXHIBITS (a) The Exhibits listed below are filed as part of this Annual Report. 3.1        Articles of Incorporation (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 29, 1997). 3.2        Bylaws (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 29, 1997). 31.1         Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 32.1         Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees / Audit Related-Fees The aggregate audit and audit related fees billed by Larry O'Donnell, CPA, P.C. for audit of the Company's annual financial statements and for review of the Company's quarterly financial statements filed on Form 10-QSB were $ 1,980.00 for the fiscal year ended August 31, 2006. For the fiscal year ended August 31, 2005, audit related fees were $1,650. Tax Fees The aggregate fees billed by Larry O'Donnell, CPA, P.C. for tax compliance, advice and planning were $ 0 for the fiscal year ended August 31, 2006, and $0 for the fiscal year ended August 31, 2005. All Other Fees Larry O'Donnell, CPA, P.C. did not bill the Company for any products and services other than the foregoing during the fiscal years ended August 31, 2006 and August 31, 2005.  - 28 -    SIGNATURES  In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.   SUNBURST ACQUISITIONS III, INC.   By: /S/ Scott MacCaughern
Principal Executive Officer, Chief Financial Officer, and Director  Date: 11/29/2006   In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   SUNBURST ACQUISITIONS III, INC.   By: /S/ Scott MacCaughern
Principal Executive Officer, Chief Financial Officer, and Director  Date: 11/29/2006       - 29 -