<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 1997


              [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 33-67848


                      ESSEX HOSPITALITY ASSOCIATES III L.P.

               (Exact name of registrant as specified in charter)

                                    DELAWARE
         (State or other jurisdiction of incorporation or organization)

                                   16-1422266
                      (I.R.S. Employer Identification No.)

                               100 CORPORATE WOODS
                            ROCHESTER, NEW YORK 14623
                     (Address of principal executive office)

       Registrant's telephone number, including area code: (716) 272-2300

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                         Yes   X          No
                             -----           -----

As of August 1, 1997 a total of 4,000 Limited Partnership Units were
outstanding.
<PAGE>   2
                                     PART 1

                              FINANCIAL INFORMATION

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

                      Essex Hospitality Associates III L.P.
                                 Balance Sheets
                             June 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                            1997               1996
                                                            ----               ----
<S>                                                     <C>                <C>
                  Assets

Investments in real estate, at cost
             Land                                        1,546,151          1,700,151
             Land improvements                             438,234            438,234
             Buildings                                   7,250,564          7,247,114
             Furniture, fixtures and equipment           1,966,558          1,916,671
                                                        ----------         ----------
                                                        11,201,507         11,302,170
             Less:accumulated depreciation                (878,051)          (436,133)
                                                        ----------         ----------
                Net investments in real estate          10,323,456         10,866,037

Cash and cash equivalents                                   61,099            218,478
Restricted cash                                             55,675             17,115
Deferred costs:
             Debt issuance costs                         1,060,289          1,060,289
             Franchise fees                                 85,500             85,500
             Other deferred costs                           70,846             70,846
                                                        ----------         ----------
                Total deferred costs                     1,216,635          1,216,635
             Less: accumulated amortization               (749,613)          (490,701)
                                                        ----------         ----------
                                                           467,022            725,934

Other assets                                               164,312            154,920
                                                        ----------         ----------

Total assets                                            11,071,564         11,982,484
                                                        ----------         ----------

               Liabilities and Partners' Capital

Accounts payable and accrued expenses                      215,947            183,866
Accounts payable - construction                             17,500             17,500
Due to affiliate                                           104,111                 --
Mortgage notes payable                                  10,000,000         10,000,000
                                                        ----------         ----------
                Total liabilities                       10,337,558         10,201,366
                                                        ----------         ----------

Commitments (note 5)

Partners' capital                                          742,315          1,812,660
             Less notes receivable from partners            (8,310)           (31,542)
                                                        ----------         ----------
                Total partners' capital                    734,005          1,781,118
                                                        ----------         ----------

Total liabilities and partners' capital                 11,071,564         11,982,484
                                                        ==========         ==========
</TABLE>



See accompanying notes to unaudited financial statements.
<PAGE>   3
                      Essex Hospitality Associates III L.P.
                              Statements of Income
                  For the Quarters Ended June 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                        1997              1996
                                                        ----              ----
<S>                                                <C>               <C>
INCOME
       Rooms                                         1,068,151           963,990
       Other income                                     55,619            51,551
                                                     ---------         ---------
          Total income                               1,123,770         1,015,541

EXPENSES
       Rooms                                           259,639           228,729
       Administrative and general                      101,285            98,343
       Property taxes                                   70,870            45,637
       Repairs and maintenance                          54,388            40,216
       Advertising and promotion                        50,957            42,598
       Management fees                                  50,731            43,928
       Utilities                                        48,185            52,615
       Commissions expenses                             38,068            40,808
       Franchises fees                                  32,504            31,208
       Partnership management fees                      13,461            12,203
       Insurance                                         4,222             2,363
       Depreciation & amortization                     162,898           146,031
       Miscellaneous                                    12,757            10,484
                                                     ---------         ---------
          Total expenses                               899,965           795,163
                                                     ---------         ---------

             Operating income                          223,805           220,378

       Interest expense                                250,000           250,000
                                                     ---------         ---------

NET INCOME (LOSS)                                      (26,195)          (29,622)
                                                     =========         =========

Net income (loss) - general partners                      (262)             (296)
Net income (loss) - limited partners                   (25,933)          (29,326)
                                                     ---------         ---------
                                                       (26,195)          (29,622)
                                                     =========         =========

Net income (loss) per unit - limited partners               (6)               (7)
                                                     =========         =========

</TABLE>

See accompanying notes to unaudited financial statements.
<PAGE>   4
                      Essex Hospitality Associates III L.P.
                            Statements of Cash Flows
                  For the Quarters Ended June 30, 1997 and 1996



<TABLE>
<CAPTION>
                                                               1997              1996
                                                               ----              ----
<S>                                                        <C>               <C>
Cash flows from operating activities
       Cash received from customers                         1,098,488         1,040,143
       Cash paid to suppliers                                (716,201)         (594,195)
       Interest received                                          514               591
       Interest paid                                         (250,000)         (250,000)
                                                            ---------         ---------
          Net cash provided by operating activities           132,801           196,539
                                                            ---------         ---------

Cash flows from investing activities
       Increase in restricted cash                            (38,445)          (17,115)
       Payments for fixed asset additiONS                     (23,251)           (7,278)
                                                            ---------         ---------
          Net cash used in investing activities               (61,696)          (24,393)
                                                            ---------         ---------

Cash flows from financing activities
       Partner capital contributions                            1,010             1,010
       Advances from affiliate                                 59,155                --
       Partner distributions                                 (101,010)         (101,010)
                                                            ---------         ---------
          Net cash used in financing activities               (40,845)         (100,000)
                                                            ---------         ---------

Net increase (decrease) in cash and cash equivalents           30,260            72,146

Cash and cash equivalents - beginning of period                30,839           146,332
                                                            ---------         ---------

Cash and cash equivalents - end of period                      61,099           218,478
                                                            =========         =========

Reconciliation of net income to net cash flows
 from operating activities:

Net loss                                                      (26,195)          (29,622)

Adjustments to reconcile net income (loss) to net
  cash used in operating activities:
       Depreciation and amortization                          162,898           146,031
       Changes in:
          Account payable                                      (1,396)           53,119
          Other assets                                         (2,507)           27,011
                                                            ---------         ---------
                                                              132,801           196,539
                                                            =========         =========
</TABLE>

See accompanying notes to unaudited financial statements.
<PAGE>   5
                      ESSEX HOSPITALITY ASSOCIATES III L.P.
                        (A Delaware Limited Partnership)

                          Notes to Financial Statements
                             June 30, 1997 and 1996

(1)     ORGANIZATION

        Essex Hospitality Associates III L.P. (the Partnership) is a Delaware
        limited partnership formed on August 2, 1993 for the purpose of
        purchasing, leasing or subleasing undeveloped land and constructing,
        owning and operating up to four new Hampton Inn, Homewood Suites or
        Microtel hotels under franchises or licenses to be obtained from these
        national lodging chains. The Partnership financed its activities through
        a public offering of notes and limited partnership units. Microtel
        Hotels were constructed in Birmingham, Alabama and Chattanooga,
        Tennessee and began operations in September 1994 and September 1995,
        respectfully. In April 1995, construction of a Hampton Inn hotel in
        Rochester, New York was completed and the hotel began operations. The
        Partnership does not anticipate raising additional capital and,
        therefore, no additional hotels are expected to be developed.

        The Partnership's general partners are Essex Partners Inc. (Essex
        Partners), a subsidiary of Essex Investment Group, Inc. (Essex), and
        John E. Mooney, President of Essex Partners and Essex. Management of the
        Partnership and the hotels is the sole responsibility of Essex Partners.

        The following is a general description of the allocation of income and
        loss. For a more comprehensive description see the Partnership
        Agreement.

            Income from operations will be allocated 99% to the limited partners
            and 1% to the general partner until the amount allocated to the
            limited partners equals the cumulative annual return of 8% of their
            contribution. Any remaining income from operations is allocated 80%
            to the limited partners and 20% to the general partners. Income on
            the sale of any or all of the hotels is allocated 99% to the limited
            partners until each limited partner has been allocated income in an
            amount equal to $1,000 per Unit owned by the limited partners and 1%
            to the general partners. Thereafter, income on the sale of any or
            all the hotels is allocated in the same manner as income from
            operations.

            Losses from operations will be allocated 80% to the limited partners
            and 20% to the general partner in the amounts sufficient to offset
            all income which was allocated 80% to the limited partners.
            Thereafter, operating losses are allocated 99% to the limited
            partners and 1% to the general partners. Loss on the sale of any or
            all of the hotels will be first allocated in the same manner as
            losses from operations, except that the allocation of such loss
            would be made prior to allocations of income from operations. All
            other losses are allocated 99% to the limited partners and 1% to the
            general partners.
<PAGE>   6
ESSEX HOSPITALITY ASSOCIATES III L.P.
( A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996
PAGE 2

(1)     ORGANIZATION (CONTINUED)

        In 1995 and 1996, losses from operations were allocated 99% to the
        limited partners and 1% to the general partners.

        Under the Partnership agreement, cash distributions will initially be
        made 99% to the limited partners and 1% to the general partners. After
        the limited partners have received a minimum cumulative annual return of
        8% of their contribution, additional distributions may then be made 80%
        to the limited partners and 20% to the general partners. The limited
        partners have received the minimum cumulative return of 8% due as of
        December 31, 1996.

        Under the Partnership's initial offering from 1993 to 1995, limited
        partnership capital of $3,986,320 was raised, less syndication fees
        including selling commissions and legal, accounting, printing and other
        filing costs of $491,473. Cumulative distributions to limited partners
        through June 30, 1997 were $876,718.

        Essex Partners and its affiliates received substantial fees in
        connection with the offering of notes and limited partnership units and
        development of hotels. Management and other fees related to the
        operation of the hotels and the Partnership are due annually to Essex
        Partners (see note 6).


(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Accounting

        The financial statements of the Partnership were prepared on the accrual
        basis of accounting in conformity with generally accepted accounting
        principles.

        Investment in Real Estate

        Investments in real estate are stated at cost. Depreciation is
        calculated using the straight-line method over the estimated useful
        lives of the assets.

        Deferred Costs

        Costs of issuing mortgage notes payable are amortized on a straight-line
        basis over the term of the notes.

        Franchise fees paid for the right to own and operate the hotels will be
        amortized on a straight-line basis over the term of the franchise
        agreement, beginning when a hotel is placed in service.
<PAGE>   7
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996
PAGE 3



        Income Taxes

        No provision for income taxes has been provided since any liability is
        the individual responsible of the partners.

        Recognition of Revenue

        Revenues are recognized as earned in accordance with contractual
        arrangements for each transaction.

        Use of Estimates

        The preparation of the financial statements in conformity with generally
        accepted accounting principles requires the managing general partner to
        make estimates and assumptions that affect the reported amounts of
        assets and liabilities at the date of the financial statements and the
        reported amounts of income and expenses during the reporting period.
        Actual results could differ from those estimates.

        Reclassification

        Certain amounts in the prior year's financial statements were
        reclassified to conform with the current year's presentation.


(3)     SALE OF LAND

        In 1996, the Partnership sold land adjacent to the hotel with final
        settlement in January 1997 of $86,782. A loss of $67,218 was recognized
        on the transaction.


(4)     MORTGAGE NOTES PAYABLE

        Mortgage Notes payable bear interest at 10% per annum and mature
        December 31, 1998, unless extended by the Partnership to December 31,
        1999 upon payment of an extension fee equal to .5% of the principal
        amount outstanding, or December 31, 2000 upon payment of an extension
        fee equal to 1% of the principal amount outstanding. The notes are
        secured by a first mortgage on the hotels and underlying land.
<PAGE>   8
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996
PAGE 4



(5)     FRANCHISE, ROYALTY AND MARKETING FEES

        The Partnership entered into franchise agreements with Microtel
        Franchise and Development Corporation (MFDC) for the Birmingham, Alabama
        and Chattanooga, Tennessee sites. Total initial franchise fees paid were
        $50,500. In addition to the initial fee, the Partnership is required to
        pay a monthly royalty fee of 2.5% of gross room revenues. The monthly
        royalty fee increases to 3% of gross room revenues in the event between
        50 and 100 Microtel hotels are opened for business and 3.5% in the event
        100 or more Microtel hotels are opened. In 1996, the Franchisor
        established a system of advertising, thus requiring the Partnership to
        contribute an additional 1% of gross room revenues to pay for the cost
        of such a system. The franchise agreement also requires the Partnership
        to maintain certain insurance coverage, to meet certain standards with
        respect to furniture, fixtures, maintenance and repair, and to refurbish
        and upgrade the hotel not more than once every 5 years to conform to the
        Microtel hotel's then-current public image. The term of the agreement is
        10 years, with an option to renew for an additional 10 years, subject to
        compliance with certain conditions. Microtel royalty and advertising
        fees totaled $17,006 and $14,564 during the second quarter, 1997 and
        1996, respectfully.

        The Partnership has also entered into a license agreement with Promus
        Corporation (Promus) to operate a Hampton Inn hotel for the Rochester,
        New York site. An initial franchise fee of $35,000 was paid. In addition
        to the initial fee, the Partnership is required to pay Promus a monthly
        royalty fee of 4% of gross room revenues, a monthly
        marketing/reservation fee of 4% of gross room revenue and a monthly
        amount equal to any sales tax or similar tax imposed on Hampton Inn on
        payments received under the license agreement. The Partnership incurred
        royalty and marketing/reservations fees of $20,357 and $20,807 during
        the second quarter 1997 and 1996, respectfully.

        Promus requires the Partnership to establish a capital reserve escrow
        account based on a percentage of gross revenues generated by the Hampton
        Inn hotel which will be used for product quality requirements of the
        hotel. Cumulative funding of the reserve for the first five years of
        operation increases from 1% to 5% of gross revenues and stabilizes at 5%
        for the term of the agreement. The capital reserve cash escrow account
        was $55,675 and $17,115 at June 30, 1997 and 1996, respectively.

        The franchise agreement impose certain restrictions on the transfer of
        limited partnership units. MFCD and Promus restrict the sale, pledge or
        transfer of units in excess of 10% and 25%, respectively, without their
        consent.
<PAGE>   9
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996
PAGE 5



(6)     RELATED PARTY TRANSACTIONS

        A summary of the compensation, fees and reimbursements to be received by
        Essex Partners or their affiliates under the terms of the Partnership
        agreement follows:


<TABLE>
<CAPTION>
                                                                       2nd Qtr.      2nd Qtr.
Type of Fee                Amount of Fee                                1997          1996
-----------                -------------                                ----          ----
<S>                        <C>                                        <C>          <C>
Property Management        4.5% of gross operating revenues from        50,731       43,928
Fee                        the hotels

Partnership                1.25% of gross operating revenues            13,461       12,203
Management Fee             from the hotels

Accounting Fee             $675 per month                                6,075        6,075

Refinancing Fee            1% of the gross proceeds of any                   0            0
                           refinancing of any or all of the hotels

Sales Fee                  3% of the gross sale price of any of all          0            0
                           of hotels
                                                                       $70,267      $62,206
                                                                       =======      =======
</TABLE>
<PAGE>   10
Item 2.      Management's Discussion and Analysis or Plan of Operation

The Partnership was formed on August 2, 1993. In 1995, it completed its public
offering of first mortgage notes and limited partnership units, raising
$13,986,320. The first Partnership property, a 102-room Microtel hotel in
Birmingham, Alabama, opened in September, 1994. The two remaining Partnership
properties opened in 1995, a 118-room Hampton Inn in Rochester, New York in
April and a 100-room Microtel in Chattanooga in September.

The major revenue source for the Partnership's properties is room revenues,
which generated 95% of the operating revenues for the Partnership in the second
quarter, 1997. Room revenues generated are dependent on a property's average
occupancy and average daily rate. Room revenues for the second quarter 1997 were
11% higher than the second quarter, 1996. Room revenues at each of the
Partnership's properties increased compared to 1996.

The Birmingham Microtel Inn achieved an average occupancy of 71% for the quarter
with an average daily rate of $35.45, as compared with an average occupancy of
59% in the second quarter, 1996, and an average daily rate of $35.55. The
increase in occupancy produced a $41,000 increase in room revenues. The
property's occupancy started to weaken at the end of 1995. A new manager was
hired in the spring, 1996, and made several changes. Room rates were reduced and
the monthly average occupancy started improve. The housekeeping staff was
retrained and property maintenance was improved. The Birmingham Microtel
generated approximately 22% of the Partnership's room revenues for the quarter,
compared to 20% in the second quarter, 1996.

The Hampton Inn achieved an average occupancy of 81% for the quarter, with an
average daily rate of $66.34, compared with an average occupancy of 77% for the
second quarter 1996 and an average daily rate of $65.09. The increase in
occupancy and average daily rate caused room revenues to increase by $34,000.
The Managing General Partner believes that the increased occupancy is partly due
to the timing of the Easter holiday. Around the holiday, occupancy tends to
decrease as business people reduce their travel. Easter was in April in 1996,
and in March in 1997. March 1997 occupancy was less than March 1996, but the
decrease was made up with increases in April 1997. The Hampton Inn generated
around 55% of the Partnership's room revenues for the quarter, compared to 56%
for the second quarter, 1996.

The average occupancy for the Chattanooga Microtel Inn for the quarter was 78%
with an average daily rate of $36.30, compared to the second quarter 1996 when
occupancy was 64% with an average daily rate of $39.33. The improvement in
occupancy caused room revenues for the quarter to exceed the second quarter 1996
by $30,000. The manager at the Chattanooga Microtel Inn was also replaced in
1996. The new manager hired is from the Chattanooga area and has several years
of experience in the hotel industry. The new manager instituted extensive
marketing programs to build the awareness of the hotel within the Chattanooga
market. Occupancies began to improve in January, 1997. The Chattanooga Microtel
Inn generated around 24% of the Partnership's room revenues for the quarter,
compared to 24% for the second quarter, 1996.
<PAGE>   11
Operating income for the second quarter increased $3,000 over the second quarter
1996, to $224,000. Interest expense remained at $250,000, since the
partnership's mortgages require payments of interest only at a fixed rate of
10%. The Partnership's net loss for the quarter was $26,000 compared to a net
loss of $30,000 in the second quarter, 1996. The Partnership generated $133,000
from operations, compared to$197,000 in the second quarter, 1996. Investing
activities required cash of $62,000 in the second quarter 1997, which was
composed of asset replacements of $23,000 and an increase in the Hampton Inn
restricted cash account of $39,000. In 1996, investing activities required cash
of $24,000 in the second quarter, which was composed of asset replacements of
$7,000 and an increase in the Hampton Inn restricted cash account of $17,000.
The funding required for the restricted cash account increased because the
amount required for the capital reserve account for Hampton Inn increased from
1% of previous twelve months' room revenues to 2%. Financing activities used
$41,000 in cash in the second quarter, 1997. Significant financing activities
for the second quarter 1997 included the payment of $100,000 in limited partner
distributions and the receipt of $59,000 in advances from the Managing General
Partner. The advances from the Managing General Partner are expected to be
repaid in the third quarter. The second quarter 1996 financing activities were
primarily composed of the payment of $100,000 in limited partner distributions.
The Partnership generated $30,000 in cash in the second quarter, 1997, which was
$42,000 lower than the second quarter 1996.

Total assets decreased $911,000 in 1997 due primarily to the $701,000 increase
in depreciation and amortization and a $119,000 decrease in cash. Total
liabilities increased $136,000 from an increase in accounts payable and accrued
expenses and in due to affiliate. Partners' equity decreased $1,047,000 from two
factors, the payment of $400,000 in distributions to limited partners and the
net losses of $647,000 generated between July 1, 1996 and June 30, 1997.

CAPITAL RESOURCES AND LIQUIDITY

The Partnership expects to obtain sufficient liquidity from operations to fund
all operating costs. In addition to operations, the Partnership will require
liquidity to provide for repayment of outstanding debt. The Partnership's first
mortgage notes in the principal amount of $10,000,000 mature on December 31,
1998. The Managing General Partner would prefer to replace the notes with
conventional financing from a bank or other institutional lender. The Managing
General Partner believes the environment for conventional financing for hotels
has improved such that there is reasonable probability that the Partnership
would be able to obtain sufficient conventional financing to replace its first
mortgage notes. However, if conventional financing is not available, the
Partnership can extend the maturity date of the first mortgage notes for up to
two years upon payment of extension fees.

The Microtel franchise agreements require the Partnership to refurbish and
upgrade its Microtel Inn hotels not more than every five years. The upgrade
would include replacing soft goods such as bedspreads and drapes, new carpeting,
equipment such the front desk system, telephone system and the key system. The
Partnership is replacing soft goods as needed and expects it will satisfy the
Microtel franchisor's requirements without any major additional expenditures.
The front desk system, telephone system and key system at the Partnership's
properties were new at the time the properties were constructed and are expected
to meet Franchisor specifications for the next several years. Equipment such as
televisions and heating and cooling units are expected to have a life of
<PAGE>   12
between five and ten years and can replaced as required. Not all units will need
to be replaced in the same year, so that management expects that the
expenditures can be spread over several years.

The Hampton Inn license agreement requires the Partnership to establish a
capital reserve escrow account based on a percentage of gross revenues generated
by the Hampton Inn hotel which will be used for product quality requirements of
the hotel. Cumulative funding of the reserve for the first five years increases
from 1% to 5% of gross revenues and stabilizes at 5% for the term of the
agreement. The Partnership expects to fund the reserve from cash from
operations, and the reserve should be sufficient to fund major capital
improvements as required. At June 30, 1997, the capital reserve escrow account
was $55,675.
<PAGE>   13
                                     PART II

                                OTHER INFORMATION


Item 6.       Exhibits and Reports on Form 8-K

         a.   Exhibits

              None

         b.   Reports on Form 8-K

              None



                                   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 thereunto duly authorized.


                                     ESSEX HOSPITALITY ASSOCIATES III L.P.
                                                 Registrant



Dated:   August 14, 1997             /s/ Lorrie L. LoFaso
                                     -------------------------------------------
                                     Essex Hospitality Associates III L.P.
                                     Essex Partners Inc.
                                     Lorrie L. LoFaso
                                     Vice President and Chief Accounting Officer