<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                                   FORM 10-Q

               Quarterly Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

                 For the Nine Months Ended September 30, 1997
                       Commission File Number 33-28493-A

                          CONDEV LAND FUND III, LTD.
                          --------------------------
            (Exact name of registrant as specified in its charter)

               FLORIDA                                    59-2943405        
               -------                                    ----------        
   (State or other jurisdiction of                    (I.R.S. Employer    
    incorporation of organization)                   Identification No.) 

                               2487 Aloma Avenue
                          Winter Park, Florida 32792
                   (Address of principal executive offices)

Registrant's telephone number, including area code: (407) 679-1748


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.  YES  X     NO        .
                                       ------     ------

                                       1
<PAGE>
 
                          
                          CONDEV LAND FUND III, LTD.

                                     INDEX

                                                            PAGE
                                                           NUMBER
PART I.  FINANCIAL INFORMATION:

          ITEM 1.  Financial Statements

                   Statement of Assets,
                   Liabilities and Partner's
                   Capital - September 30, 1997 and
                   December 31, 1996                          3

                   Statement of Income & Expense                    
                   Three Months Ended September 30, 1997            
                   and September 30, 1996                     4     
                                                                      
                   Statement of Income & Expense  
                   Nine Months Ended September 30, 1997             
                   and September 30, 1996                     5     
                                                                      
                   Statement of Cash Receipts and                   
                   Disbursements-Nine months ended                  
                   September 30, 1997                         6     
                                                                      
                   Notes to Financial Statements              7 - 9 

          ITEM 2.  Management's Discussion and Analysis
                   of Financial Condition and Results
                   of Operations                              9 - 10

PART II.  OTHER INFORMATION:

          ITEM 6.  Exhibits and Reports on Form 8-K           10

                                       2
<PAGE>
 
                        PART I.  FINANCIAL INFORMATION



Item 1.  Financial Statements:
         ---------------------

The accompanying financial statements, in the opinion of Condev Associates, the
general partner of Condev Land Fund III, Ltd., reflect all adjustments (which
include only normal recurring adjustments) necessary to a fair statement of the
financial position, the results of operations and the changes in cash position
for the periods presented.

                          CONDEV LAND FUND III, LTD.
            STATEMENT OF ASSETS, LIABILITIES AND PARTNER'S CAPITAL
                   SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
 
 
                                    ASSETS
                                    ------
<S>                                <C>                 <C>
 
                                       September 30, 1997  December 31, 1996
                                       ------------------  -----------------
Cash and Cash Equivalents                  $  104,985         $  101,678
Investment in Joint Venture (2)               534,836          1,366,879
Land, at cost (3)                             405,467            405,467
Organization Costs                              2,311              2,311
                                           ----------         ----------
 
Total Assets:                              $1,047,599         $1,876,335
                                           ==========         ==========


                       LIABILITIES AND PARTNER'S CAPITAL
                       ---------------------------------


Liabilities                                $        0         $        0
                                           ----------         ----------
 
Partner's Capital:
    General Partner                        $(     607)        $(     319)
    Limited Partners                        1,848,146          1,876,654
    Less: Distributions                     ( 799,940)                 0
                                           ----------         ----------
 
        Total Partner's Capital:           $1,047,599         $1,876,335
                                           ----------         ----------
 
Total Liabilities and Partner's
 Capital:                                  $1,047,599         $1,876,335
                                           ==========         ==========
</TABLE>

                                       3
<PAGE>
 
                          CONDEV LAND FUND III, LTD.
                        STATEMENT OF INCOME AND EXPENSE
         THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                    September 30, 1997  September 30, 1996
                                    ------------------  ------------------
<S>                                  <C>                 <C>
     INCOME
     ------
 
Interest and Other Income                  $ 1,371             $ 1,286 
                                                                       
Equity in Income of Joint Venture                0              48,009 
                                           -------             ------- 
                                                                       
Total Income                               $ 1,371             $49,295 
                                           -------             -------  
 
 
     OPERATING EXPENSES
     ------------------
 
Professional fees                                0                   0 
                                                                       
Equity in loss of Joint Venture                213                   0 
                                                                       
Management fees                                936                   0 
                                                                       
Other expense                                    9                   0 
                                                                       
Office expense                                 728                 930 
                                           -------             ------- 
                                                                       
    Total Operating Expenses:              $ 1,886             $   930 
                                           -------             -------  
 
    Net Profit/(Loss)                      $(  515)            $48,365
                                           =======             =======
 
</TABLE>

                                       4
<PAGE>
 
                          CONDEV LAND FUND III, LTD.
                        STATEMENT OF INCOME AND EXPENSE
          NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
                                 (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                    September 30, 1997  September 30, 1996
                                    ------------------  ------------------
<S>                                  <C>                  <C>
     INCOME
     ------
 
Interest and Other Income                 $    6,581          $ 5,003   
                                                                        
Equity in Income of Joint Venture                  0           48,009   
                                          ----------          -------   
                                                                        
Total Income                              $    6,581          $53,012   
                                          ----------          -------   
                                                                        
                                                                        
     OPERATING EXPENSES                                                 
     ------------------
                                                                        
Professional fees                              7,000            7,000   
                                                                        
Equity in loss of Joint Venture               22,043              990   
                                                                        
Management fees                                2,808                0   
                                                                        
Other expense                                     60                0   
                                                                        
Office expense                                 3,466            4,638   
                                          ----------          -------   
                                                                        
        Total Operating Expenses:         $   35,377          $12,628   
                                          ----------          -------   
                                                                        
        Net Profit (Loss)                  ($ 28,796)         $40,384   
                                                              =======    
 
</TABLE>

                                       5
<PAGE>
 
                          CONDEV LAND FUND III, LTD.
                            STATEMENT OF CASH FLOWS
                     NINE MONTHS ENDED SEPTEMBER 30, 1997


  Cash Flows from Operating Activities:

     Net Income                                                   $( 28,796)
     Adjustments to Reconcile Net Income
     To Net Cash Provided by Operating
     Activities:
          Equity in income of joint venture                          22,043
          Cash Provided by Changes in:
                    Accounts receivable                                   0
                                                                  ---------

  Net Cash Provided in Operating Activities:                      $(  6,753)


  Cash Flows from Investing Activities:

          Distributions from Joint Venture, net                    $810,000
          Investments In Joint Ventures                            $      0
                                                                   --------
                                                                           
Net Cash Used in Investing Activities:                             $810,000
                                                                   --------
                                                                           
Cash Flows from Financing Activities:                                      
           Distributions to Partners                               (799,940)
                                                                  ----------
                                                                           
Net Cash Provided by Financing Activities:                         $(99,940)
                                                                  --------- 
Net increase in Cash                                               $  3,307
                                                                           
Cash and Cash Equivalents at Beginning of Year                     $101,678
                                                                   --------
                                                                           
Cash and Cash Equivalents at End of Period                         $104,985
                                                                   ======== 

                                       6
<PAGE>
 
Note 1    BUSINESS:
          -------- 

          Condev Land Fund III, Ltd. (the "Partnership") was formed on February
          15, 1989  pursuant to the provisions of the Florida Revised
          Uniform Limited Partnership Act for the purpose of acquiring and
          holding for investment unimproved land in Central Florida.

          The Offering Period for the Partnership originally scheduled to expire
          on July 2, 1990 was extended to June 30, 1991.  As of June 30,
          1991, the Partnership had received $2,446,000 in partnership
          capital, represented by 9,784 units of Limited Partnership
          interest.

          The Partnership has made two investments.  Refer to Note 2 INVESTMENT
          IN JOINT VENTURE and Note 3 INVESTMENT IN LAND for details.
 
          As provided under the terms of the Partnership Agreement, the
          Partnership was to be in existence until December 31, 1996.  In
          accordance with Florida Limited Partnership Law and the
          Partnership Agreement, after December 31, 1996 the Partnership
          has been in liquidation with no change in the status of the
          limited partners of general partner.


Note 2    INVESTMENT IN JOINT VENTURE:
          --------------------------- 

          The Partnership owns a 90% interest in Condev Osceola Joint Venture.
          The joint venture partner, Condev Osceola, Ltd., is a private
          partnership sponsored by the general partner. On May 31, 1991,
          Condev Osceola Joint Venture purchased two parcels of land
          aggregating 8.6 acres and related sewer capacity within the
          Kyng's Heath commercial subdivision on S.R. 535 near its
          intersection with Highway 192 in Osceola County, Florida.  The
          property is zoned tourist-commercial in Osceola County, Florida.

          The purchase price of this property was $1,740,000 or $4.64 per square
          foot, and the purchase price for the sewer capacity was $22,400.
          The Partnership received an appraisal on this property of
          $2,260,000 or $6.02 per square foot.

          On February 28, 1996, Condev Osceola Joint Venture entered into a
          Contract for Sale of Real Estate with a timeshare developer and
          operator for 5.08 acres of this site and the related sewer
          capacity. On August 28, 1996, the Joint Venture concluded the
          sale.  The buyer was Orlando Resort Development Group, which
          intends to build 92 time-share units and related amenities on the
          site.

          The purchase price was $1,250,000, or approximately $250,000 per acre.
          In addition, the buyer reimbursed the Joint Venture $22,400 for
          sewer capacity reserved for the site.  The buyer made a cash
          payment at closing of $350,000, and issued its promissory note in
          the amount of $900,000 to the 

                                       7
<PAGE>
 
          Joint Venture. The mortgage note was repaid, together with accrued
          interest, on April 2, 1997. After expenses, which included a deferred
          5% real estate commission, the net cash received by the Joint Venture
          was $861,270. A total of $810,000 was distributed by the Joint Venture
          to the Partnership, and $799,940 was distributed to limited partners.
          As provided in the Partnership Agreement, the balance of $10,060 was
          added to Partnership reserves to provide for future expenses.

          The Joint Venture continues to own 2.94 acres of land in this
          location.

     A summary of the assets, liabilities and venturers' capital of Condev
     Osceola Joint Venture as of September 30, 1997 are as follows:

<TABLE>
<CAPTION>
 
 
                         ASSETS
                         ------                                 
      <S>                                               <C>           
                                                                      
           Cash                                            $   5,286  
           Investments in land                               589,965  
                                                           ---------  
                                                                      
                                                           $ 595,251  
                                                           =========  
                                                                      
                  LIABILITIES AND VENTURERS' CAPITAL                  
                  ----------------------------------                  
                                                                      
            Accounts Payable                                     988   
            Venturers Capital                                618,755   
            Current Profit/(Loss)                          (  24,492)  
                                                           ---------   
                                                                      
                                                          $  595,251  
                                                          ==========  
</TABLE> 

Note 3    INVESTMENT IN LAND:
          -------------------

          In 1993, the Partnership purchased a 10-acre parcel of commercially
          zoned land fronting on the east side of U.S. Highway 27 in Lake
          County, Florida, approximately 1.5 miles north of the U.S. 192 and
          U.S. 27 intersection.

          The purchase price of the property was $400,000 or $.92 per square
          foot.  The Partnership received a $400,000 appraisal of the land
          at the time of acquisition.

Note 4    DISTRIBUTIONS TO PARTNERS:
          --------------------------

          Pursuant to the partnership agreement, cash flow generated each year
          by the Partnership is to be distributed 99% to the limited partners
          and 1% to the general partner. There were no cash flow distributions
          during the first nine months of 1997.

                                       8
<PAGE>
 
          Pursuant to the partnership agreement, proceeds realized from the sale
          of properties, after the establishment of reserves for future
          operating costs, are to be distributed at least annually. There was a
          distribution to limited partners during the second quarter of 1997 in
          the amount of $799,940 relating to the repayment of the mortgage note
          described in Note 2 above.

 
Note 4    RELATED PARTY TRANSACTIONS:
          ---------------------------

          The Partnership Agreement provides for the reimbursement to the
          general partner of administrative expenses incurred in the
          direct operation of the partnership.  For the nine months ended
          September 30, 1997, a total of $3,466 was reimbursed to the
          general partner for direct expenses incurred.

          When properties are sold, an affiliate of the general partner may
          be paid real estate commissions in amounts customarily charged by
          others rendering similar services with such commissions plus
          commissions paid to nonaffiliated brokers not to exceed 10% of
          the gross sales price.  No real estate commissions were paid to
          the general partner or any affiliate during the nine months ended
          September 30, 1997.

          The general partner is obligated to loan up to $100,000 to the
          Partnership during its term to meet working capital requirements.
          No such loans were made to the Partnership during the nine months
          ended September 30, 1997.


Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          -----------------------------------------------------------
          AND RESULTS OF OPERATIONS
          -------------------------

 
          For the nine months ended September 30, 1997 total income was
          $6,581.  This came from interest earned on deposits and short-
          term investments.  For the nine months ended June 30, 1996, total
          income was $53,012. There were no sales of property during the
          1997 period. However, the 1996 period included $48,009 in income
          in the equity of Condev Osceola Joint Venture, which recorded a
          profit on the sale of property during the third quarter of 1996.
          Expenses for the nine months ended September 30, 1997 were
          $35,377 compared to total expenses of $12,628 in 1996. The major
          component of these expenses in 1997 was equity in the loss of
          Condev/Osceola Joint Venture, which paid deferred real estate
          commissions due to a non-affiliated broker upon repayment of the
          Orlando Resort Development Group mortgage. Other expenses were
          relatively unchanged. The net loss for the nine months ending
          September 30, 1997 was $ 28,796, compared to a net income of
          $40,384 for the comparable period in 1996.

                                       9
<PAGE>
 
          Total assets decreased from $1,876,335 at December 31, 1996 to
          $1,047,599 at September 30, 1997.  This reflects the net results
          of operations for the period, less distributions to limited
          partners.  Assets can be expected to decline in the future as
          properties are sold and distributions are made to limited
          partners.

          Liquidity remained at a satisfactory level. Cash and equivalents
          increased slightly from $101,678 at 1996 year-end to $104,985 at
          September 30, 1997.
          
                                    PART II

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K:
         ---------------------------------

         (A)  Exhibits/Index
 
              None

         (B)  Reports on Form 8-K

              There were no reports of Form 8-K for the period ended September
              30, 1997.

                                       10
<PAGE>
 
                          CONDEV LAND FUND III, LTD.
                                  SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned.


                               CONDEV LAND FUND III, LTD.
                               BY: Condev Associates, General Partner






October 27, 1997               /s/ Robert N. Gardner
----------------------         ---------------------------------
      DATE                     Robert N. Gardner, Partner



October 27, 1997               /s/ Joseph J. Gardner
----------------------         ----------------------------------
      DATE                     Joseph J. Gardner, Partner

                                       11