<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
                        COMMISSION FILE NUMBER: 333-80537


                        TRANSITION AUTO FINANCE III, INC.
               (Exact name of registrant as specified in charter)


<TABLE>
<S>                                                                     <C>
                             TEXAS                                                     75-2822804
(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification Number)

              8144 WALNUT HILL LANE., SUITE 680,
                         DALLAS, TEXAS                                                   75231
           (Address of principal executive offices)                                    (Zip code)
</TABLE>


         Issuer's telephone number, including area code: (214) 360-9966

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

<TABLE>
<S>                             <C>
Title of Class:  NONE           Name of each exchange on which registered:  NONE
</TABLE>

        Securities registered pursuant to section 12(g) of the Act: NONE

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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. Yes
[X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part 10-KSB or any amendment to this
Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $1,436,837

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 stock was
sold, or the average bid and asked price of such common equity as of a specified
date within the past 60 days: N/A

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of December 31, 2003, the issuer
had 1,000 shares of common stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                          <C>
PART I......................................................................   3

Item 1. Description of Business.............................................   3
Item 2. Description of Property.............................................   4
Item 3. Legal Proceedings...................................................   4
Item 4. Submission of Matters to a Vote of Security Holders.................   4

PART II.....................................................................   4

Item 5. Market for Common Equity and Related Stockholder Matters............   4
Item 6. Management's Discussion and Analysis or Plan of Operations..........   5
Item 7. Financial Statements and Supplementary Data.........................   7
Item 8. Changes In and Disagreements With Accountants On Accounting and
          Financial Disclosure..............................................  18

PART III....................................................................  18

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(A) of the Exchange Act................  18
Item 10. Executive Compensation.............................................  18
Item 11. Security Ownership of Certain Beneficial Owners and
           Management Principal Stockholders................................  18
Item 12. Certain Relationships and Related Transactions.....................  20
Item 13. Exhibits and Reports on Form 8-K...................................  21
</TABLE>


                                       2
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

      As of January 27, 2000, Transition Auto Finance III, Inc.'s (the
"Company") offering (the "Offering") of 11% Redeemable Secured Notes (the
"Notes") was declared effective by the United States Securities & Exchange
Commission (the "Commission"). As of December 31, 2003, the end of the period
covered by this Report, (i) the Company had sold Notes in an aggregate principal
amount of $6,786,000 and (ii) the Company's operating assets consisted of 159
leased vehicles and the lease contracts related thereto, and three vehicles were
held in inventory following repossession. Of the Company's 159 lease contracts
at December 31, 2003, all were leases newly originated by Transition Leasing
Management, Inc. ("Transition Leasing"). As of December 31, 2003 the Company had
282 and 78 leases that were terminated early for repossession and early payoff
respectively. As of December 31, 2003, the Company had paid as and when due all
installment payments owed on the Notes since their issuance.

      The Company is a wholly owned single-purpose corporate subsidiary of
Transition Leasing and is engaged in the business of purchasing new or
late-model vehicles and concurrently therewith entering into lease contracts of
such vehicles to customers.

      The Company was incorporated under the laws of the State of Texas on June
8, 1999. The Company is a subsidiary of Transition Leasing.

      The Company was established for the sole purposes of purchasing vehicles
from third parties and leasing them to consumers pursuant to lease contracts,
collecting and servicing the lease contracts, obtaining capital through
borrowings or through sale of debt or equity securities to invest in such lease
contracts, remarketing the leased vehicles upon termination of their lease
contracts, and all related business activities. During the year ended December
31, 2003, all vehicles and lease contracts acquired by the Company were acquired
by the Company directly from lease originations by Transition Leasing.

      The funds necessary to purchase the lease contracts or leased vehicles
were initially provided solely from the sale of the Notes in the Offering. In
addition to the proceeds of the Offering, subject to the prior payment of
interest due upon the Notes and payment of certain allowed expenses, the
collection proceeds from the lease contracts have and will continue to be used
by the Company to purchase or acquire additional lease contracts until the
Sinking Fund Trigger Date. The Sinking Fund Trigger Date was originally December
31, 2002 but due to the economy and the events of September 11, the Company
requested and received a majority vote of the Noteholders that permitted the
extension of the Sinking Fund Trigger Date from December 31, 2002 until December
31, 2004. (See Management's Discussion and Analysis). While the Notes remain
outstanding, the Company is prohibited from engaging in any business other than
the purchase and acquisition of the leased vehicles and the lease contracts, the
collection and servicing of the lease contracts (including repossession and
resale of the leased vehicles collateral), remarketing of the leased vehicles
upon termination of the lease contracts, and from incurring any additional
indebtedness other than the allowed expenses permitted under the Indenture and
any other amounts incurred in the ordinary course of its business.

      The Contracts purchased or acquired by the Company relate primarily to
leased vehicles in the middle range of the new and late model automobile market,
where consumer retail prices typically range from $15,000 to $30,000. The
Company purchased most of the new lease contracts originated by Transition
Leasing. Transition Leasing originates automobile lease contracts through new
automobile franchise dealers, independent automobile dealers, independent
leasing companies, automobile auctions, and other sources. Transition Leasing
leases new and late model automobiles to individuals who do not have access to
other sources of consumer credit because they do not meet the credit standards
imposed by automobile retailers or banking institutions, generally because they
have past credit problems or non-prime credit ratings. Frequently, the reason
that such an individual may have a non-prime credit rating is that, at some time
in the past, he has defaulted on one or more financial obligations, or he has
filed for relief under the bankruptcy laws, or both.

      In originating the lease contracts, Transition Leasing takes a more
flexible approach and applies a more subjective analysis than those taken by
traditional automobile financing sources in determining an applicant's
suitability for loan approval. Transition Leasing endeavors to determine whether
the applicant's prior credit problems were a result of job displacement,
financial hardship beyond the applicant's control or other circumstances that
are not indicative of the applicant's current financial


                                       3
<PAGE>
condition or payment performance. In addition, Transition Leasing seeks
customers that have stable employment providing regular income and possess a
strong need to acquire transportation. The Company only purchases or acquires
lease contracts that satisfy the lease criteria established in the Indenture and
the lease Servicing Agreement between the Company and Transition Leasing (as
servicer), and believes that the quality and performance of the lease contracts
are enhanced through the consistent application by Transition Leasing of
predetermined purchasing, origination and collection criteria established in the
Indenture and the Servicing Agreement.

      Transition Leasing and the Company are required to obtain and maintain
certain licenses and qualifications to do business in Texas and other states.
Transition Leasing and the Company have obtained such licenses.

      There is substantial competition in the business of selling and leasing
motor vehicles and the financing thereof. In addition, a number of institutions,
including banks, have entered the automobile financing business with respect to
high risk, non-prime credit borrowers and compete against Transition Leasing and
the Company for the best high risk borrowers. The Company believes, however,
that it currently has few competitors in the leasing of new and late-model used
motor vehicles to individuals who have had prior credit problems. The Company
competes to some extent with providers of alternative financing services,
secondary finance companies such as used car dealer groups, or other firms with
greater financial and marketing resources than the Company.

      As of the end of the period covered by this Report the Company had, and as
of the date of this Report the Company has, no employees and its operations are
conducted through Transition Leasing, which services the vehicle leases pursuant
to which the Company leases and will lease vehicles.

ITEM 2. DESCRIPTION OF PROPERTY

      As of December 31, 2003, the Company's principal executive offices have
been located within the offices of Transition Leasing at 8144 Walnut Hill Lane,
Suite 680, Dallas, Texas 75231, and its telephone number is (214) 360-9966. As
of December 31, 2003, the offices were in suitable condition for the performance
of normal and customary activities of the Company. The offices are leased by the
Company from Prentiss Properties, on a term of three years for $3,626 per month.

ITEM 3. LEGAL PROCEEDINGS

      The Company is not a party to any material legal proceedings, and no
material legal proceedings have been threatened by or, to the best of the
Company's knowledge, instituted against the Company.

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

      No matters were submitted to a vote of the Company's sole stockholder
during the fourth quarter of 2003.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      There is no market for the Company's common stock. All shares of the
common stock are owned by Transition Leasing. No cash dividends have ever been
declared with respect to the common stock. In accordance with the Trust
Indenture, no dividends are allowed.

      The company applied 90% of the gross proceeds from the sale of the Notes
to the purchase or acquisition of the Leased Vehicles and the contracts. The
Company paid to the Underwriter sales commissions of 6% of the principal amount
of the Notes sold by the Underwriter. Additionally, the Company reimbursed the
Underwriter for certain expenses incurred in connection with its due diligence
activities with regard to the Offering of 2% of the aggregate principal amount
of the Notes sold. The


                                       4
<PAGE>
Company also used 2% of the gross proceeds from the sale of the Notes to pay
offering and organizational expenses, including filing and registration fees,
legal fees of the Company's counsel, accounting fees, trustee's fees, escrow
agent's fees, "blue sky" expenses and printing expenses.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

General.

      As of December 31, 2003, the Company had sold $6,786,000 of its 11%
Redeemable Secured Notes and had a total of 159 leases with a net book value of
$2,527,468.

      The automobile finance industry continues to be negatively impacted by the
subsidization of consumer financing by the captive finance arms of major
automobile manufacturers. Low interest, or no interest, are terms that
traditional finance companies cannot compete with. Incentive financing increases
the number of new cars sold and as consumers trade in their used cars it creates
a glut on the used car market, which in turn lowers the value of all used cars.

      In addition, the recent recession and high unemployment rate in the Dallas
area has created financial upheaval among a large number of consumers,
especially those with sub-prime credit. People with damaged credit typically do
not have adequate savings to carry them through economic hard times. Sub-prime
lenders normally do not fare well in economic downturns.

Results of Operations

      For the year ended December 31, 2003, the Company had received monthly
contract lease payments of $1,077,478 and amortization of down payments of
$359,359 compared to $1,601,180 in monthly lease payments and $619,777 in
amortization of down payments for the same period in 2002.

      Operating costs including general and administrative expenses (excluding
depreciation) were $705,398 for the year ended December 31, 2003, compared to
$768,499 for the same period in 2002.

      Depreciation in fiscal 2003 was $834,823 compared to $1,181,745 for the
same period in 2002 The smaller amount of depreciation in 2003 was due to fewer
number of active leases in 2003.

      The operating loss for 2003 was $103,384 compared to $270,713 in operating
income for the same period in 2002. The loss in operating income for 2003 was
due to the decrease in total revenue for 2003 from 2002.

      Loss on sale of inventory for the year ended December 31, 2003 was
$392,209 compared to $470,080 in fiscal 2002. The smaller loss on sale of
property for 2003 was due to fewer number of vehicles being repossessed.

      Interest expense for the twelve months ended December 31, 2003 was
$746,916 compared to $746,829 for the same period in 2002.

      The net loss for fiscal 2003 was $1,230,884 compared to $945,200 for the
same period in 2002. The larger loss in 2003 was due to $784,120 less revenue in
fiscal 2003 than for the same period in 2002.


                                       5
<PAGE>
      On June 30, 2002 Transition Auto Finance II defaulted on its 11%
Redeemable Secured Notes. Due to the recession and September 11 events, TAF II
and TAFIII experienced a larger than normal number of repossessions. The amount
of time necessary to reinvest TAF III proceeds from repossessions substantially
reduced the positive impact of leverage. Leverage in this context is the ability
to turn cash into performing assets by investing in leases.

Extension of Reinvestment Period

      In an attempt to offset this loss of leverage and to minimize the
possibility of a default, the Company requested that the Noteholders consent to
an amendment to the Indenture extending the reinvestment period from December
31, 2002 to December 31, 2004. The Consent Solicitation was approved by a
majority of the Noteholders and the Indenture was amended to reflect the
extended reinvestment period.

Liquidity and Capital Resources

      During the twelve months ended December 31, 2003, the Company received
cash of $108,905 in its investing activities and received cash of $10,940
provided by financing activities. This compares to cash of $239,445 used by
investing activities and $31,114 used in its financing activities during fiscal
2002. The Company's only source of liquidity in the future will be from its
monthly lease payments after interest and other allowed expenses.

The Company's portfolio, which consisted of 159 active leases, and 360 leases
which were the result of early terminations. The information on the Company's
experience with respect to early terminations is set forth below:

<TABLE>
<CAPTION>
                                                                               Vehicle                                   Total
                # of    Gross Cost    Misc.     Total      Down       Sale    Sales Tax Warranty Marketing   Amount     Profit
             Contracts  Of Vehicle  Expenses  Payments    Payment    Amount    Credit    Rebate  Fee Paid   Received    (Loss)
             --------- -----------  --------  --------    -------    ------    ------    ------  --------   --------    ------
<S>          <C>        <C>        <C>       <C>        <C>        <C>        <C>       <C>      <C>       <C>        <C>
Repossession       282  $6,526,318 $ 171,681 $2,039,234 $1,267,132 $3,306,358 $ 143,960 $ 67,513 $ 729,135 $6,095,062 $ (602,937)
Early Payoff        78  $1,641,108 $   1,793 $  799,698 $  329,952 $1,123,848 $  45,725 $  1,399 $ 189,529 $2,111,093 $  468,192
             ---------  ---------- --------- ---------- ---------- ---------- --------- -------- --------- ---------- ----------
Total              360  $8,167,426 $ 173,474 $2,838,932 $1,597,084 $4,430,206 $ 189,685 $ 68,912 $ 918,664 $8,206,155 $ (134,745)
</TABLE>

Note: The above results on early termination does not include any allowance for
interest expense

      Loss on repossessions in 2003 was $602,937 compared to $477,996 for the
same period in 2002. Higher numbers of repossession is due to the weak economy
and the effects of September 11th. The loss of an average of $2,138 per vehicle
in 2003 is lower than most previous periods and is due to the aging of the
portfolio with defaults occurring later in the lease.

      Early payoffs as of December 31, 2003 were 78 compared to 46 at December
31, 2002. Although most early payoffs result in a profit to the Company, a high
percentage of early payoffs is not considered a positive factor by the Company.
Early payoffs take a performing lease off the books and create cash, which until
it is reinvested, is a minimal earning asset.

      The Company believes that early payoffs generally occur as a result of the
customer performing on his lease and consequently rebuilding his credit. Many
times his improved credit will allow him to finance a new vehicle through
traditional sources by trading in his leased vehicle, payoff the lease balance,
and still have a more favorable payment than he currently has with his leased
vehicle with the Company.

This report contains various forward looking statements and information that are
based on management's belief as well as assumptions made by and information
currently available to management. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
expected. Among the key factors that may have a direct bearing on the Company's
operating results are fluctuations


                                       6
<PAGE>
in the economy and in the level of activity in the automobile and consumer
finance industry, demand for the Company's products, the impact of competition
and interest rate fluctuations.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements of the Company are included beginning immediately
following the index to the financial statements.


                                       7
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                        <C>
INDEPENDENT AUDITORS' REPORT ............................................      9

FINANCIAL STATEMENTS

Balance Sheets ..........................................................     10

Statements of Income (Loss) and Changes in Retained Earnings (Deficit) ..     11

Statements of Cash Flows ................................................     12

Notes to Financial Statements ...........................................  13-17
</TABLE>


                                       8
<PAGE>
Board of Directors
Transition Auto Finance III, Inc.


                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheets of Transition Auto Finance III,
Inc. (the Company) as of December 31, 2003 and 2002, and the related statements
of income (loss) and changes in retained earnings and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we 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.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2003 and 2002, and the results of their operations and their cash flows for the
years then in conformity with U.S. generally accepted accounting principles.

In connection with our audit, nothing came to our attention that caused us to
believe the Company or Transition Leasing Management, Inc., as its servicer,
failed to comply with the terms, covenants, provisions or conditions of section
5.6 of the Indenture with Trust Management, Inc., as Trustee insofar as relate
to accounting matters. However, our audit was not directed primarily toward
obtaining knowledge of such noncompliance.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has suffered recurring losses from operations,
negative working capital, a negative equity position and has investor notes
payable due in 2004. It is uncertain if or when the Company will be able to
repay the investor notes payable and this raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

Austin, Texas
February 27, 2004


                                       9
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                                 BALANCE SHEETS

                           DECEMBER 31, 2003 and 2002


<TABLE>
<CAPTION>
                                                                         2003             2002
                                                                      -----------      -----------
<S>                                                                   <C>              <C>
                                             ASSETS
CURRENT ASSETS
  Cash and cash equivalents .......................................   $   547,096      $   383,300
  Accounts receivable, net of an allowance for doubtful accounts
     Of $385,000 and $276,000 .....................................       242,455          310,316
  Vehicles held for sale ..........................................        41,132          304,538
  Other assets ....................................................        28,370            6,710
                                                                      -----------      -----------
      Total Current Assets ........................................       859,053        1,004,864
                                                                      -----------      -----------

PROPERTY, at cost
  Vehicles leased .................................................     3,511,983        4,711,054
  Less accumulated depreciation ...................................      (984,515)      (1,274,022)
                                                                      -----------      -----------
      Net Property ................................................     2,527,468        3,437,032
                                                                      -----------      -----------

OTHER ASSETS
  Debt issuance costs, net of accumulated amortization of
     $603,105 and $440,137 ........................................       162,969          325,936
  Due from an affiliate ...........................................           -0-           20,620
                                                                      -----------      -----------
       Total Other Assets .........................................       162,969          346,556
                                                                      -----------      -----------
TOTAL ASSETS ......................................................   $ 3,549,490      $ 4,788,452
                                                                      ===========      ===========

                       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Accounts payable and accrued liabilities ........................   $   176,787      $    67,666
  Current portion of deferred revenue .............................       164,830          228,155
  Investor Notes Payable ..........................................     6,786,000              -0-
                                                                      -----------      -----------
       Total Current Liabilities ..................................     7,127,617          295,821
                                                                      -----------      -----------

OTHER LIABILITIES
  Due to an affiliate .............................................        13,640            2,700
  Deferred revenue, net of current portion ........................       194,158          258,972
  Investor notes payable ..........................................           -0-        6,786,000
                                                                      -----------      -----------
      Total Other Liabilities .....................................       207,798        7,047,672
                                                                      -----------      -----------

TOTAL LIABILITIES .................................................     7,335,415        7,343,493
                                                                      -----------      -----------

STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $.10 par value, 1,000 shares
authorized, .......................................................           100              100
      issued and outstanding
   Additional paid-in capital .....................................           900              900
   Retained earnings (deficit) ....................................    (3,786,925)      (2,556,041)
                                                                      -----------      -----------
       Total Stockholders' Equity (Deficit) .......................    (3,785,925)      (2,555,041)
                                                                      -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT) ......................................................   $ 3,549,490      $ 4,788,452
                                                                      ===========      ===========
</TABLE>


                                       10
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                              STATEMENTS OF INCOME

                  FOR THE YEAR ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                              2003              2002
                                           -----------       -----------
<S>                                        <C>               <C>
REVENUES

  Vehicle monthly lease payments .......   $ 1,077,478       $ 1,601,180
   Amortization of down payments .......       359,359           619,777
                                           -----------       -----------
        Total Revenues .................     1,436,837         2,220,957
                                           -----------       -----------

OPERATING EXPENSES

  Operating costs ......................       234,254           392,755
  General and administrative ...........       471,144           375,744
  Depreciation and amortization ........       834,823         1,181,745
                                           -----------       -----------
        Total Operating Expenses .......     1,540,221         1,950,244
                                           -----------       -----------

Operating Income (Loss) ................      (103,384)          270,713
                                           -----------       -----------

OTHER INCOME (EXPENSE)

Investment income ......................         4,038             1,100
Other income (expense) .................         7,587              (104)
Interest expense .......................      (746,916)         (746,829)
Loss on sale of inventory ..............      (392,209)         (470,080)
                                           -----------       -----------
        Total Other Income (Expense) ...    (1,127,500)       (1,215,913)
                                           -----------       -----------

Provision for Federal Income Taxes .....           -0-               -0-
                                           -----------       -----------
                                           $(1,230,884)      $  (945,200)
Net Loss

Beginning retained earnings (deficit) ..    (2,556,041)       (1,610,841)
                                           -----------       -----------

Ending retained earnings (deficit) .....   $(3,786,925)      $(2,556,041)
                                           ===========       ===========

Loss per share (basic and diluted) .....   $     1,230       $       945
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS


                                       11
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                            STATEMENTS OF CASH FLOWS

                  FOR THE YEAR ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                                                     2003              2002
                                                                 -----------       -----------
<S>                                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .....................................................   $(1,230,884)      $  (945,200)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization ...........................       834,823         1,181,745
     Amortization of down payments ...........................      (359,359)         (619,777)
     Bad debt expense ........................................       406,373           276,523
     Loss on sale of property ................................       392,209           470,080
Net changes in operating assets and liabilities:

     Accounts receivable .....................................      (317,892)         (254,813)
     Other assets ............................................       (21,660)           (4,127)
     Accounts Payable and accrued liabilities ................       109,121           (26,249)
     Deferred revenue ........................................       231,220           393,810
                                                                 -----------       -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................        43,951           471,992
                                                                 -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets ..................................    (1,312,071)       (1,830,940)
   Proceeds from sale of property ............................     1,420,976         1,591,495
                                                                 -----------       -----------
NET CASH USED BY INVESTING ACTIVITIES ........................       108,905          (239,445)
                                                                 -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Net advances (payments) to affiliates .....................        10,940           (31,114)
                                                                 -----------       -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................        10,940           (31,114)
                                                                 -----------       -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .........       163,796           201,433

CASH AND CASH EQUIVALENTS, beginning of year .................       383,300           181,867
                                                                 -----------       -----------
CASH AND CASH EQUIVALENTS, end of year .......................   $   547,096       $   383,300
                                                                 ===========       ===========

CASH PAID DURING THE YEAR FOR
   Interest ..................................................   $   746,916       $   746,828
                                                                 ===========       ===========
   Income taxes ..............................................   $       -0-       $       -0-
                                                                 ===========       ===========

NON-CASH INVESTING ACTIVITIES
Vehicles with a net book value of $41,112 were
reclassified from vehicles leased to vehicles
held for sale at December 31, 2003

Vehicles with a net book value of $329,702 were
reclassified from vehicles leased to vehicles
held for sale at December 31, 2002
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS


                                       12
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 2003 AND 2002

NOTE 1: BUSINESS ACTIVITY

            Transition Auto Finance III, Inc. (the Company) is a Texas
      corporation organized on May 26, 1999. The Company was established to
      purchase motor vehicles and automobile lease contracts, collecting and
      servicing automobile lease contracts and remarketing motor vehicles upon
      termination of their leases. Transition Leasing Management, Inc.
      (Transition Leasing) owns 100% of the Company's common stock.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      CASH AND CASH EQUIVALENTS

            For purposes of the statement of cash flows, the Company considers
            all highly liquid investments with a maturity of three months or
            less when purchased to be cash equivalents.

            The Company maintains cash balances at financial institutions in
            Dallas, Texas. Accounts at the institutions are insured by the
            Federal Deposit Insurance Corporation up to $100,000. The Company
            has not experienced any losses in such accounts and believes it is
            not exposed to any significant credit risk on cash and cash
            equivalents.

      REVENUE

            The vehicles are leased to individuals under leases with terms
            ranging from thirty-six to forty-eight months. The leases are
            considered to be operating leases. At the end of the lease period,
            the lessee may purchase the equipment at the contractual residual
            value plus any other outstanding items due. Monthly lease payments
            are recognized as revenue in the month that the payments are due.
            The vehicle leases require a down payment from the lessee at the
            inception of the lease.

            The down payments are initially recorded as deferred revenue and
            then recognized as income over the term of the leases on a
            straight-line basis.

      ACCOUNTS RECEIVABLE

            The Company provides for uncollectible accounts receivable using the
            allowance method of accounting for bad debts. Under this method of
            accounting, a provision for uncollectible accounts is charged to
            earnings. The allowance account is increased or decreased based on
            past collection history and management's evaluation of accounts
            receivable. All amounts considered uncollectible are charged against
            the allowance account and recoveries of previously charged-off
            accounts are added to the allowance.


                                       13
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

                           DECEMBER 31, 2003 AND 2002

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      VEHICLES HELD FOR SALE

            Vehicles held for sale are leased vehicles in which the lease term
            has expired or that have been repossessed. Vehicles held for sale
            are valued at the lower of cost or fair value. The cost is the net
            book value of the vehicle after it has been returned to the Company
            either through repossession or early termination of the lease.
            Generally these vehicles will be re-leased or sold at auction by the
            Company within a year.

      PROPERTY

            Property consists of leased vehicles, which are stated at cost less
            accumulated depreciation. Depreciation is provided in amounts
            sufficient to relate the cost of depreciable assets to operations
            over their estimated service lives using the straight-line-method.
            Leased vehicle depreciation is calculated over the term of the
            vehicle lease, using the cost of the vehicle less the estimated
            residual value of the vehicle at the end of the lease. Present
            leases have terms ranging from thirty-six to forty-eight months.

      OTHER ASSETS

            Other assets include debt issuance costs incurred in connection with
            the Company's offering of securities filed with the Securities and
            Exchange Commission. These costs are being amortized, on a
            straight-line basis, over the term of the debt securities which
            mature on December 31, 2004.

      DEFERRED REVENUE

            Deferred revenue consists of down payments made by lessees at the
            inception of the lease. The down payments are amortized over the
            lease term. Lease terms range from thirty-six to forty-eight months.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

            Fair values of financial instruments are estimated to approximate
            the related book value, unless otherwise indicated, based on market
            information available to the Company.


                                       14
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

                           DECEMBER 31, 2003 AND 2002


NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      USE OF ESTIMATES

            In preparing the Company's financial statements, management is
            required to make estimates and assumptions that affect the reported
            amounts of assets and liabilities, the disclosure of contingent
            assets and liabilities at the date of the financial statements, and
            the reported amounts of revenues and expenses during the reporting
            period. Actual results could differ from these estimates.

      CONCENTRATION OF CREDIT RISK

            A majority of the lessees are residents of the Dallas/Fort Worth
            Metroplex. Vehicles are used as collateral for leases.

NOTE 3: INCOME TAXES

      The Company is a corporation subject to federal and state income taxes.
      The Company and its parent intend to file a consolidated tax return. Each
      company in the consolidated group determines its taxable income or loss,
      on a separate company basis, and the consolidated tax liability is
      allocated to each company with taxable income in proportion to the total
      of the taxable income amounts.

      The Company has a deferred tax asset as of approximately $1,288,000 and
      $678,000 December 31, 2003 and 2002 (primarily from net operating loss
      carry-forward), which has been completely offset by recognition of a
      valuation allowance.

      The Company has a net operating loss (NOL) carry-forward of approximately
      $3,787,000 and $2,349,000 as of December 31, 2003 and 2002 respectively.
      The Company's NOL carry-forward expires between December 31, 2020 and
      2022.

NOTE 4: INVESTOR NOTES PAYABLE

      The Company has issued $6,786,000 of fixed rate redeemable asset-backed
      notes (Investor Notes) as of December 31, 2003 and 2002.

      These Investor Notes were issued pursuant to a public offering on Form
      SB-2 under the Securities Act of 1933. The Investor Notes bear interest at
      the rate of 11%. Interest is payable monthly on the 15th day of each
      month.


                                       15
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

                           DECEMBER 31, 2003 AND 2002

NOTE 4: INVESTOR NOTES PAYABLE (CONTINUED)

      The Investor Notes were issued at various times during 2001 and 2000,
      however the maturity date for all of the Investor Notes is December 31,
      2004. The Investor Notes are collateralized by the following:

            1.    Automobile contracts for the leasing of new or late model
                  automobiles.

            2.    The leased vehicles.

      The following table represents Investor Notes outstanding at December 31,
      2003 and 2002:

<TABLE>
<CAPTION>
                           Number of
      Origination Date       Notes       Note Amount
      ----------------       -----       -----------
<S>                        <C>           <C>
      February 2000 .....     53          $  827,000
      March 2000 ........    136           1,453,000
      April 2000 ........     57             622,000
      May 2000 ..........     35             354,000
      June 2000 .........     37             427,000
      July 2000 .........     53             722,000
      August 2000 .......     40             332,000
      September 2000 ....     28             290,000
      October 2000 ......     33             311,000
      November 2000 .....     59             509,000
      December 2000 .....     72             644,000
      January 2001 ......     30             295,000
                                          ----------
                                          $6,786,000
                                          ==========
</TABLE>

NOTE 5: RELATED PARTIES

      The Company has entered into a Servicing Agreement with Transition
      Leasing. Transition Leasing will be entitled to a servicing fee of $20 per
      month per contract and a payment of $150 per contract purchased.
      Transition Leasing will receive, as a marketing fee, 57.5% of the down
      payment made by the customers with respect to contracts it originates.
      Transition Leasing will receive from the Company a Releasing Fee of 57.5%
      of the down payment with respect to a new contract following repossession
      of a leased vehicle. The Company paid Transition Leasing $217,310 in 2003
      and $349,800 in 2002 for servicing, documenting and marketing fees. The
      Company has a receivable from Transition Leasing at December 31, 2002 in
      the amount of $20,620. The Company has a payable to an affiliate for
      $13,640 and $2,700 as of December 31, 2003 and 2002, respectively. The
      Company purchases warranties from a related party that amounted to $33,969
      and $81,430 for 2003 and 2002, respectively.


                                       16
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

                           DECEMBER 31, 2003 AND 2002


NOTE 6: GOING CONCERN

      The accompanying financial statements have been prepared in conformity
      with U.S. generally accepted accounting principles, which contemplates
      continuation of the Company as a going concern. The Company has sustained
      recurring losses from operations, negative working capital, a negative
      equity position and has investor notes payable due in 2004. Management
      will attempt to service existing leases and raise additional capital
      and/or secure additional financing in order to repay the investor notes
      payable when mature. Management recognizes that full repayment may take
      several years to complete and that full repayment may not occur. This
      situation raises substantial doubt about the Company's ability to continue
      as a going concern.



                                       17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      None.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

      The following table sets forth information concerning the directors and
executive officers of the Company and their age and position with the Company.
Each director holds office until the next annual stockholders' meeting and
thereafter until the individual's successor is elected and qualified. Officers
serve at the pleasure of the board of directors.

      The names, ages, backgrounds and principal occupations of the directors
and executive officers of the Company as of December 31, 2003 are set forth
below:

      Kenneth C. "Ken" Lowe, age 68, has served as our sole director, President
and Secretary since our inception. Mr. Lowe has served as a director, Vice
President and Secretary of Transition Leasing from October 1994 until July 1996
and as a director, President and Secretary of Transition Leasing since July
1996. Since 1993, Mr. Lowe has been Vice President of Young & Lowe, Inc., a
private investment banking firm. From 1990 to 1992, Mr. Lowe was President of
Custom Data Services, a company that specialized in financial data processing
and from 1988 to 1990, Mr. Lowe was President of Westside Communications, which
provided telephone equipment service to commercial customers. Mr. Lowe has a
Master's of Business Administration from Southern Methodist University and over
20 years of experience in investment banking.

      Randall K. Lowe, age 35, has served as our Vice President since our
inception and Vice President of Transition Leasing since July 1998. Prior to
joining us and since 1994, Mr. Lowe served as a credit analyst for Bank One in
New Orleans, Louisiana and Dallas, Texas. From 1991 to 1994 Mr. Lowe was a
credit analyst and branch office manager for Whitney National Bank, N.A. in New
Orleans. Mr. Lowe holds a Bachelor of Science degree from Tulane University.
Randall Lowe is the son of Ken Lowe.

      William H. Dreger, age 60, joined us in September 1999 and serves as our
Controller and Chief Accounting Officer. Prior to joining the Company, Mr.
Dreger was Chief Financial Officer and Chief Information Officer for Down to
Earth, Inc. in Garland, Texas from 1994 to 1999. From 1985 to 1992, Mr. Dreger
was President of Stephenson Financial Services, Inc. in North Hollywood,
California. Mr. Dreger has a Bachelor of Business Administration from the
University of North Texas at Denton, is a Certified Public Accountant and has
over 30 years of experience in accounting and systems.

      None of the directors or the executive officers receives any compensation
from the Company, other than reimbursement of their expenses incurred on behalf
of the Company. All the officers and directors are paid by Transition Leasing.

      Except as disclosed above, there are no family relationships among the
directors and any of the executive officers of the Company. The Company's
directors do not hold any directorship in any company with a class of securities
registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any company registered as
an investment company under the Investment Company Act of 1940, as amended.
Except for the officers set forth above, there are no employees of the Company.

ITEM 10. EXECUTIVE COMPENSATION

      The executive officers and sole director of the Company receive no
compensation, cash or otherwise, from the Company. The executive officers and
sole director of the Company are employed by Transition Leasing.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         PRINCIPAL STOCKHOLDERS

      The following table sets forth information, as of December 31, 2003,
relating to the beneficial ownership of


                                       18
<PAGE>
the Company's Common Stock by any person or "group," as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), known to the Company to own beneficially 5% or more of the
outstanding shares of Common Stock, and known to the Company to be owned by each
director of the Company and by all officers and directors of the Company as a
group. Except as otherwise indicated, each of the persons named below is
believed by the Company to possess sole voting and investment power with respect
to the shares of Common Stock beneficially owned by such person.

<TABLE>
<CAPTION>
                                                Shares of          Percentage of
       Name of Shareholder                   Common Stock(1)       Common Stock
       -------------------                   ---------------       ------------
<S>                                          <C>                   <C>
Transition Leasing Management, Inc. ......          1000                 100%
8144 Walnut Hill Lane
Suite 680
Dallas, Texas 75231

Kenneth C. Lowe ..........................             0 (2)               0
Randall K. Lowe ..........................             0                   0
William H. Dreger ........................             0                   0

Total ....................................          1000                 100%

All officers and directors as a group ....             0                 100%
                                                    ----                 ---
</TABLE>

-------------
(1)   The information as to beneficial ownership of Common Stock has been
      furnished by the respective shareholders, directors and officers of the
      Company.

(2)   The directors of Transition Leasing could be deemed to share voting and
      investment powers over the shares of Common Stock owned of record by
      Transition Leasing. The sole director of Transition Leasing is Kenneth C.
      Lowe. The sole owners of the common stock of Transition Leasing are
      Kenneth C. Lowe and Randall K. Lowe. Transition Leasing has a number of
      preferred shareholders, who have limited voting rights and who may convert
      their preferred shares into shares of Transition Leasing common stock. The
      preferred shareholders, on a fully diluted basis, will not own more than
      20% of Transition Leasing's voting securities.


                                       19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Transition Leasing owns 100% of our Common Stock. Our officers are also
officers of Transition Leasing. Mr. Kenneth Lowe is President and Secretary and
a director of Transition Leasing and a director, the President, Chief Financial
Officer and Secretary of our company, Transition Auto Finance II, and Transition
Auto Finance IV. These officers will devote as much of their time to our
business as, in their judgment, is reasonably required. We have real and ongoing
conflicts of interest with Transition Auto Finance II, Transition Auto finance
IV and Transition Leasing in allocating management time, services, overhead and
functions among ourselves, Transition Auto Finance II and Transition Leasing.
Management of Transition Auto Finance II and Transition Leasing intends to
resolve any such conflicts in a manner that is fair and equitable to us.
However, there can be no assurance that Transition Leasing will not form
additional subsidiaries engaged in the same business as Transition Auto Finance
III or that any particular conflict may be resolved in a manner that does not
adversely affect the noteholders. Neither Transition Auto Finance II nor
Transition Leasing has guaranteed or is otherwise liable for the debts and
liabilities of the Company.

      Due to excessive cost, and oftentimes dealer fraud, the Company no longer
purchases extended warranties from dealers who refer customers to the Company
when used cars are involved. The Company now purchases extended warranties from
Newcastle Services, Inc. where the cost of the warranty is substantially less
and the potential for dealer fraud is eliminated. Dealer fraud is a common
problem on extended warranties. The Company does not anticipate that extended
warranties will be purchased in large quantities since the majority of its
leases involve new vehicles that are covered by the stated manufacturers
warranty. Newcastle Services, Inc. is owned by Ken Lowe, the majority owner of
Transition Leasing Management, Inc., who owns 100% of the stock of the Company.

      Under the terms of the Servicing Agreement and the Purchasing Agreement,
Transition Leasing will be paid various fees and be entitled to reimbursement
for its expenses incurred in connection with the repossession, remarketing,
repair and resale of vehicles out of the proceeds from such resales. The terms
of the Servicing Agreement and the Purchasing Agreement were not negotiated at
arm's-length but were determined unilaterally by the management of Transition
Leasing. Thus, there are real and ongoing conflicts of interest with respect to
these agreements. We did not and do not intend to seek competitive bids from
other providers of lease purchasing, administration and collection services.
There has been no independent determination of the fairness and reasonableness
of the terms of these transactions and relationships. Thus, there is no
assurance that such services could not have been obtained from an unaffiliated
third party in arm's-length negotiations on terms more favorable to us.

      In addition, the terms of the lease contracts to be originated by
Transition Leasing will not have been negotiated at arm's-length but will be
determined unilaterally by Transition Leasing. Transition Leasing will receive
57.5% of each customer's down payment as a marketing fee.

      Transition Leasing currently provides purchase and collection services for
Transition Auto Finance II, Inc., but does not provide such services to any
other party, including affiliates. Transition Leasing, however, may agree in the
future, to purchase and service lease contracts for itself, its affiliates and
other

      The Company used 2% or $135,720 of the gross proceeds from the Offering to
reimburse Transition Leasing, the Company's parent, for offering and
organizational expenses paid by it.

      The Company has joined in a Tax Sharing Agreement with Transition Leasing.
In general, under the terms of this agreement, Transition Leasing is responsible
for making all payments of federal income taxes due with respect to the
Affiliated Group to the Internal Revenue Service and all payments of state and
local consolidated, combined and unitary income taxes due with respect to the
Affiliated Group to the applicable state and local authorities. Under applicable
federal tax laws; however, if Transition Leasing fails to make such payments of
tax, the other members of the Affiliated Group, including the Company, would be
responsible for making such payments. The Company has a net operating loss (NOL)
carry-forward of approximately $3,787,000 and $2,349,000 as of December 31, 2003
and 2002 respectively. The Company's NOL carry-forward expires between December
31, 2020 and 2022.


                                       20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Financial Statements

      The following financial statements are filed as a part of this Form
      10-KSB:

            The Index to Financial Statements is set out in Item 7 herein.

      Exhibits

      The following exhibits are filed as exhibits to this report on Form
      10-KSB:

            The information required is set forth in the Index to Exhibits
      accompanying this Form 10-KSB.

(b)   Reports on Form 8-K

      No reports on Form 8-K were filed during the last quarter of 2003.

                                   SIGNATURES

      In accordance with section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                 (Registrant) Transition Auto Finance III, Inc.


                                 By   /s/ Kenneth C. Lowe
                                      -------------------------------------
                                      Kenneth C. Lowe,
                                      President/Chief Executive Officer

                                 Date March 25, 2004
                                      -------------------------------------

      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.

                                 By   /s/ Kenneth C. Lowe
                                      -------------------------------------
                                      Kenneth C. Lowe,
                                      President/Chief Financial Officer

                                 Date March 25, 2004
                                      -------------------------------------


                                 By   /s/ Kenneth C. Lowe
                                      -------------------------------------
                                      Kenneth C. Lowe, Director

                                 Date March 25, 2004
                                      -------------------------------------


                                       21
<PAGE>
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                DESCRIPTION
------                                -----------
<S>         <C>
 3.1        Articles of Incorporation of Transition Auto Finance III, Inc. *

 3.2        Bylaws of Transition Auto Finance III, Inc. *

 4.1        Form of Indenture between Transition Auto Finance III, Inc. and
            Trust Management, Inc., as Trustee ***

 4.2        Form of Secured Note Due December 31, 2004 (included in Article Two
            of Indenture filed as Exhibit 4.1)

10.1        Form of Master Contract Purchase Agreement between Transition Auto
            Finance III, Inc. and Transition Leasing Management, Inc.**

10.2        Form of Servicing Agreement between Transition Leasing Management,
            Inc. and Transition Auto Finance III, Inc. **

  31        Certification of Reporting Officer Pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

  32        Certification of Reporting Officer Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002
</TABLE>

*     Incorporated by reference from Registration Statement on Form SB-2 of
      Transition Auto Finance III, Inc. Registration No. 333-80537, filed
      January 24, 2000.

**    Incorporated by reference from Amendment No. 1 to Registration Statement
      on Form SB-2 of Transition Auto Finance III, Inc. Registration No.
      333-80537 filed January 24, 2000.

***   Incorporated by reference from Amendment No. 3 to Registration Statement
      on Form SB-2 of Transition Auto Finance III, Inc. Registration No.
      333-80537 filed January 24, 2000.


                                       22