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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 June 30, 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
 N/A
 þ o
  o o þ
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UNITED DEVELOPMENT FUNDING III, L.P.
FORM 10-Q
Quarter Ended June 30, 2006
 PagePART IFINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Balance Sheets as of June 30, 2006 (Unaudited) and December 31, 2005 (Audited)
    
    
    3Statements of Operations for the Three and Six Months Ended June 30, 2006
(Unaudited) and for the Period from June 13, 2005 (Inception)
Through June 30, 2005 (Unaudited)
    
    
    4Statements of
Changes in Partners Capital for the Six Months Ended
June 30, 2006 (Unaudited) and the Period from June 13, 2005
(Inception) Through December 31, 2005 (Audited)
    
    
    5Statements of Cash Flows for the Six Months Ended June 30, 2006 and for the
Period from June 13, 2005 (Inception) Through June 30, 2005 (Unaudited)
    
    
    6Notes to Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    8Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    11Item 4.
    
    Controls and Procedures.
    
    
    11PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    13Item 1A.
    
    Risk Factors.
    
    
    13Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    13Item 3.
    
    Defaults Upon Senior Securities.
    
    
    13Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    13Item 5.
    
    Other Information.
    
    
    13Item 6.
    
    Exhibits.
    
    
    13Signature
    
    
    14Rule 13a-14(a)/15d-14(a) CertificationRule 13a-14(a)/15d-14(a) CertificationSection 1350 Certifications




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PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 UNITED DEVELOPMENT FUNDING III, L.P.
 
 BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)AssetsRestricted cash
    
    $
    1,479,462
    
    
    $
    Limited partnership interests subscription
receivable
    
    
    1,000
    
    
    
    1,000Offering costs
    
    
    831,076
    
    
    
    447,765Total assets
    
    $
    2,311,538
    
    
    $
    448,765Liabilities and Partners CapitalLiabilities:Accounts payable  related party
    
    $
    831,598
    
    
    $
    447,765Escrow payable
    
    
    1,479,462
    
    
    
    Total liabilities
    
    
    2,311,060
    
    
    
    447,765Commitments and contingencies
    
    
    
    
    
    
    Partners Capital:General partners capital
    
    
    48
    
    
    
    100Limited partners capital
    
    
    430
    
    
    
    900Total partners capital
    
    
    478
    
    
    
    1,000Total liabilities and partners capital
    
    $
    2,311,538
    
    
    $
    448,765
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 STATEMENTS OF OPERATIONS
 (Unaudited)
 Three
    
    
    
    
    
    
    Period fromMonths
    
    
    Six Months
    
    
    June 13, 2005Ended
    
    
    Ended
    
    
    (Inception) ThroughJune 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2005General and administrative expenses
    
    $
    
    
    
    $
    (522
    )
    
    $
    Net loss
    
    $
    
    
    
    $
    (522
    )
    
    $
    
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 STATEMENTS OF CHANGES IN PARTNERS CAPITAL
 For
the Six Months Ended June 30, 2006 and the Period from June 13, 2005 (Inception) Through December 31, 2005
 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 June 30, 2006 (Unaudited)
    
    $
    48
    
    
    $
    430
    
    
    $
    478
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UNITED DEVELOPMENT FUNDING III, L.P.
 
 STATEMENTS OF CASH FLOWS
 (Unaudited)
 Period FromSix Months
    
    
    June 13, 2005Ended
    
    
    (Inception)June 30,
    
    
    Through June 30,2006
    
    
    2005Operating ActivitiesNet loss
    
    $
    (522
    )
    
    $
    Change in accounts payable  related party
    
    
    522
    
    
    
    Net cash (used in) 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. Restricted Cash
  D. Related Party Transactions
  E. Registration Statement
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F. Subsequent Events
     
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward-Looking Statements
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Critical Accounting Policies and Estimates
  Overview
     Results of Operations
  Deferred Offering Costs
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Cash Flow Analysis
    Liquidity and Capital Resources
    Material Trends Affecting Our Business
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Subsequent Events
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     
 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 PartnerDated: August 14, 2006
    
    By:
    
    /s/ Jeff W. ShirleyJeff W. ShirleyPresident and Chief Executive Officer
(Principal Executive Officer)By:
    
    /s/ Cara D. ObertCara D. ObertChief Financial Officer of UMT Holdings,
L.P.,limited partner of UMTH Land
Development, L.P.(Principal Financial Officer)
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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 of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference.