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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 [Mark One]
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-127891 (1933 Act)
 United Development Funding III, L.P.
  Delaware
    
    20-3269195(State or other jurisdiction of incorporation or
    
    (I.R.S. Employerorganization)
    
    Identification No.)
 1702 N. Collins Boulevard, Suite 100, Richardson, Texas 75080
 Registrants telephone number, including area code: (214) 370-8960
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




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##### Table of Contents



UNITED DEVELOPMENT FUNDING III, L.P.
FORM 10-Q
Quarter Ended March 31, 2006
 PagePART I
FINANCIAL INFORMATIONItem 1. Financial StatementsBalance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
    
    
    1Statement of Operations for the Three Months Ended March 31, 2006 (Unaudited)
    
    
    2Statement of Changes in Partners Capital for the Period from June 13, 2005 (Inception) Through March 31, 2006
    
    
    3Statement of Cash Flows for the Three Months Ended March 31, 2006 (Unaudited)
    
    
    4Notes to Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    6Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    8Item 4. Controls and Procedures
    
    
    9PART II
OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    10Item 1A. Risk Factors
    
    
    10Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    10Item 3. Defaults Upon Senior Securities
    
    
    10Item 4. Submission of Matters to a Vote of Security Holders
    
    
    10Item 5. Other Information
    
    
    10Item 6. Exhibits
    
    
    10Signature
    
    
    11




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PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 UNITED DEVELOPMENT FUNDING III, L.P.
 
 BALANCE SHEETS
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)AssetsPartnership interests subscription receivable
    
    $
    1,000
    
    
    $
    1,000Offering costs
    
    
    588,168
    
    
    
    447,765Total assets
    
    $
    589,168
    
    
    $
    448,765Liabilities and Partners CapitalLiabilities:Accounts payable  related parties
    
    
    588,690
    
    
    
    447,765Total liabilities
    
    
    588,690
    
    
    
    447,765Partners capital:General partners capital
    
    
    100
    
    
    
    100Limited partners capital
    
    
    900
    
    
    
    900Accumulated deficit
    
    
    (522
    )
    
    
    Total partners capital
    
    
    478
    
    
    
    1,000Total liabilities and partners capital
    
    $
    589,168
    
    
    $
    448,765
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 STATEMENT OF OPERATIONS
 For the Three Months Ended March 31, 2006
 General and administrative expenses
    
    $
    (522
    )Net loss
    
    $
    (522
    )
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 STATEMENT OF CHANGES IN PARTNERS CAPITAL
 For the period from June 13, 2005 (Inception) through March 31, 2006
 General
    
    
    Limited
    
    
    TotalPartners
    
    
    Partners
    
    
    PartnersCapital
    
    
    Capital
    
    
    CapitalBalance at June 13, 2005 (Inception)
    
    $
    
    
    
    $
    
    
    
    $
    Partnership interests subscription at Inception
    
    
    100
    
    
    
    900
    
    
    
    1,000Balance at December 31, 2005 (Audited)
    
    
    100
    
    
    
    900
    
    
    
    1,000Net loss
    
    
    (52
    )
    
    
    (470
    )
    
    
    (522
    )Balance at March 31, 2006 (Unaudited)
    
    $
    48
    
    
    $
    430
    
    
    $
    478
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 STATEMENT OF CASH FLOWS
 For the Three Months Ended March 31, 2006
 Operating ActivitiesNet loss
    
    $
    (522
    )Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:Changes in operating assets and liabilities:Other assets
    
    
    (140,403
    )Accounts payable  related parties
    
    
    140,925Net cash provided by operating activities
    
    
    Net change in cash and cash equivalents
    
    
    Cash and cash equivalents at beginning of period
    
    
    Cash and cash equivalents at end of period
    
    $
    
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 NOTES TO FINANCIAL STATEMENTS
 A. Nature of Business
   B. Basis of Presentation
  C. Related Party Transactions
  D. Subsequent Events
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward-Looking Statements
   Critical Accounting Policies and Estimates
  Overview
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Results of Operations
  Deferred Offering Costs
 bona fide
 Liquidity and Capital Resources
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Material Trends Affecting Our Business
      Subsequent Events
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  -8-




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Item 4. Controls and Procedures.
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PART II   OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 bona
fide
 
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
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SIGNATURE
  United Development Funding III, L.P.By:
    
    UMTH Land Development, L.P.Its General PartnerBy:
    
    UMT Services, Inc.Its General PartnerDated: June 29, 2006
    
    By:
    
    /s/ Todd F. Etter

Todd F. Etter, Chairman of UMT Services,
Inc.
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Index to Exhibits
 Exhibit Number
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer32.1*
    
    Section 1350 Certifications of Chief Executive and Financial Officers
 
 *
    
    In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed filed for
purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.
Such certifications will not be deemed incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference.