##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-QSB

| |                                                                                    | 
| | ---------------------------------------------------------------------------------- | 
| | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  | 
|
|
|
|
| | For the quarterly period ended September 30, 2000                                  | 
|
|
|
|
| | OR                                                                                 | 
|
|
|
|
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 | 

For the transition period from _____ to _____

Commission file number: 33-77510-C

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

38-3160141
(IRS Employer Identification Number)

24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
(Address of principal executive offices, including zip code)

(734) 994-5505
(Issuers telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last year)

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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to filing
requirements for the past 90 days. Yes X No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court: Not applicable

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: Not applicable

Transitional Small Business Disclosure Format (check one) Yes  No





---

TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                                                                 
|ITEM 1. FINANCIAL STATEMENTS                                                                 
|BALANCE SHEET - SEPTEMBER 30, 2000 AND DECEMBER 31, 1999                                     
|STATEMENT OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999      
|STATEMENT OF CHANGES IN PARTNERS CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000       
|STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999                
|NOTES TO FINANCIAL STATEMENTS                                                                
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II  OTHER INFORMATION                                                                  
|SIGNATURES                                                                                   
|Financial Data Schedule                                                                      



---



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

Index to Form 10-QSB

|           |  |                                                                                         |  |      |       | 
|---------- |  | --------------------------------------------------------------------------------------- |  | ---- | ----- | 
|Item No.   |  |                                                                                         |  | Page
|           |  |                                                                                         |  |     
|PART I     |  | FINANCIAL INFORMATION                                                                  
|          
|          
|          
|          
|Item 1.    |  | Financial Statements:                                                                  
|          
|          
|          
|          
|           |  | Balance Sheet, September 30, 2000 and December 31, 1999                                 |  |      | 3     | 
|          
|          
|          
|          
|           |  | Statement of Operations for the three and nine months
ended September 30, 2000 and 1999 |  |      | 4     | 
|          
|          
|          
|          
|           |  | Statement of Changes in Partners Capital for the nine months
ended September 30, 2000  |  |      | 5     | 
|          
|          
|          
|          
|           |  | Statement of Cash Flows for the nine months
ended September 30, 2000 and 1999           |  |      | 6     | 
|          
|          
|          
|          
|           |  | Notes to Financial Statements                                                           |  |      | 78   | 
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations  
|          
|          
|          
|          
|           |  |                                                                                         |  |      | 911  | 
|          
|          
|          
|          
|PART II    |  | OTHER INFORMATION
Other Information                                                     |  |      | 1213 | 
|          
|          
|          
|          
|SIGNATURES |  |                                                                                         |  |      | 14    | 

2



---



##### Table of Contents









Captec Franchise Capital Partners L.P. III




Balance Sheet

|                                     |                                       |                                       |                                 |            |            |               |            |              |            |  |  | 
|------------------------------------ | ------------------------------------- | ------------------------------------- | ------------------------------- | ---------- | ---------- | ------------- | ---------- | ------------ | ---------- |  |  | 
|                                     |                                       |                                       |                                 |            |            | (Unaudited)  
|                                     |                                       |                                       |                                 |            |            | September 30, |            | December 31,
|                                     |                                       |                                       |                                 |            |            | 2000          |            | 1999        
|                                     |                                       |                                       |                                 |            |            |               |            |             
|                                     |                                       |                                       |                                 | Assets    
|                                    
|                                    
|                                    
|                                    
|Cash and cash equivalents            |                                       | $                                     | 233,849                         |            |            | $             | 327,903    |             
|                                    
|                                    
|                                    
|                                    
|Restricted cash                      |                                       |                                       | 308,565                         |            |            |               | 266,452    |             
|                                    
|                                    
|                                    
|                                    
|Investment in property under leases:
|                                    
|                                    
|                                    
|                                    
|                                     | Operating leases, net                 |                                       |                                 | 18,883,679 |            |               |            | 19,104,889   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Financing leases, net                 |                                       |                                 | 2,165,080  |            |               |            | 2,574,417    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Impaired financing leases, net        |                                       |                                 | 27,492     |            |               |            | 27,492       |           
|                                    
|                                    
|                                    
|                                    
|Accounts receivable                  |                                       |                                       | 5,838                           |            |            |               | 56,405     |             
|                                    
|                                    
|                                    
|                                    
|Unbilled rent, net                   |                                       |                                       | 998,976                         |            |            |               | 816,948    |             
|                                    
|                                    
|                                    
|                                    
|Due from related parties             |                                       |                                       | 14,850                          |            |            |               | 17,184     |             
|                                    
|                                    
|                                    
|                                    
|Deferred financing costs, net        |                                       |                                       | 394,275                         |            |            |               | 430,118    |             
|                                     |                                       |                                       |                                 |            |            |               |            |             
|                                     |                                       | Total assets                          |                                 | $          | 23,032,604 |               |            | $            | 23,621,808 | 
|                                     |                                       |                                       |                                 |            |            |               |            |             
|                                     |                                       |                                       | Liabilities & Partners Capital
|                                    
|                                    
|                                    
|                                    
|Liabilities:                        
|                                    
|                                    
|                                    
|                                    
|                                     | Notes payable                         |                                       | $                               | 8,194,000  |            |               | $          | 8,194,000    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable and accrued expenses |                                       |                                 | 56,549     |            |               |            | 73,796       |           
|                                    
|                                    
|                                    
|                                    
|                                     | Due to related parties                |                                       |                                 | 16,872     |            |               |            | 40,214       |           
|                                    
|                                    
|                                    
|                                    
|                                     | Security deposits held on leases      |                                       |                                 | 54,774     |            |               |            | 54,774       |           
|                                     |                                       |                                       |                                 |            |            |               |            |             
|                                     |                                       | Total liabilities                     |                                 |            | 8,322,195  |               |            |              | 8,362,784  | 
|                                     |                                       |                                       |                                 |            |            |               |            |             
|Partners capital:                  
|                                    
|                                    
|                                    
|                                    
|Limited partners capital accounts   |                                       |                                       | 14,686,693                      |            |            |               | 15,240,812 |             
|                                    
|                                    
|                                    
|                                    
|General partners capital accounts   |                                       |                                       | 23,716                          |            |            |               | 18,212     |             
|                                     |                                       |                                       |                                 |            |            |               |            |             
|                                     |                                       | Total partners capital               |                                 |            | 14,710,409 |               |            |              | 15,259,024 | 
|                                     |                                       |                                       |                                 |            |            |               |            |             
|                                     |                                       | Total liabilities & partners capital |                                 | $          | 23,032,604 |               |            | $            | 23,621,808 | 
|                                     |                                       |                                       |                                 |            |            |               |            |             

The accompanying notes are an integral part of the financial statements.

3



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III




Statement of Operations

(Unaudited)

|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |           |  
|---------------------------------------------------------------- | --------------------------- | ---------------------------------- | ------- | ------------------ | ------- | ----------------- | ------- | ------- | ------- | ---- | --------- | --------- | --------- | - | ------- | --------- | --------- | -
|                                                                 |                             |                                    |         | Three months ended |         | Nine months ended
|                                                                 |                             |                                    |         | September 30,      |         | September 30,    
|                                                                 |                             |                                    |         |                    |         |                  
|                                                                 |                             |                                    |         | 2000               |         | 1999              |         | 2000    |         | 1999
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |     
|Operating revenue:                                              
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Rental income               |                                    | $       | 573,732            |         |                   | $       | 571,628 |         |      | $         | 1,732,360 |           |   | $       | 1,704,590 |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Finance income              |                                    |         | 48,158             |         |                   |         | 66,116  |         |      |           | 154,887   |           |   |         | 143,262   |          
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|                                                                 |                             | Total operating revenue            |         |                    | 621,890 |                   |         |         | 637,744 |      |           |           | 1,887,247 |   |         |           | 1,847,852 |  
|                                                                
|                                                                
|                                                                
|                                                                
|Operating costs and expenses:                                   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest expense            |                                    |         | 179,276            |         |                   |         | 183,920 |         |      |           | 552,166   |           |   |         | 510,430   |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Depreciation                |                                    |         | 73,737             |         |                   |         | 72,870  |         |      |           | 221,210   |           |   |         | 217,041   |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | General and administrative  |                                    |         | 19,955             |         |                   |         | 13,352  |         |      |           | 51,964    |           |   |         | 56,497    |          
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|                                                                 |                             | Total operating costs and expenses |         |                    | 272,968 |                   |         |         | 270,142 |      |           |           | 825,340   |   |         |           | 783,968   |  
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|                                                                 |                             | Income from operations             |         |                    | 348,922 |                   |         |         | 367,602 |      |           |           | 1,061,907 |   |         |           | 1,063,884 |  
|                                                                
|                                                                
|                                                                
|                                                                
|Other income (expense):                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest and other income   |                                    |         | 3,150              |         |                   |         | 1,685   |         |      |           | 6,059     |           |   |         | 9,998     |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Gain on sale of equipment   |                                    |         |                   |         |                   |         | 6,528   |         |      |           | 15,000    |           |   |         | 1,012     |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Loss on sale of real estate |                                    |         |                   |         |                   |         |        |         |      |           |          |           |   |         | (159,422  | )        
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|                                                                 |                             | Total other income (expense)       |         |                    | 3,150   |                   |         |         | 8,213   |      |           |           | 21,059    |   |         |           | (148,412  | )
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|Net income                                                       |                             |                                    | 352,072 |                    |         |                   | 375,815 |         |         |      | 1,082,966 |           |           |   | 915,472 |          
|                                                                
|                                                                
|                                                                
|                                                                
|Net income allocable to general partner                          |                             |                                    | 3,521   |                    |         |                   | 3,758   |         |         |      | 10,830    |           |           |   | 9,155   |          
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|Net income allocable to limited partners                         |                             | $                                  | 348,551 |                    |         | $                 | 372,057 |         |         | $    | 1,072,136 |           |           | $ | 906,317 |          
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|Net income per limited partnership unit                          |                             | $                                  | 17.53   |                    |         | $                 | 18.64   |         |         | $    | 53.92     |           |           | $ | 45.40   |          
|                                                                 |                             |                                    |         |                    |         |                   |         |         |         |      |           |           |           |   |         |           |          
|Weighted average number of limited partnership
units outstanding |                             |                                    | 19,884  |                    |         |                   | 19,963  |         |         |      | 19,884    |           |           |   | 19,963  |          

The accompanying notes are an integral part of the financial statements.

4



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III




Statement of Changes in Partners Capital
for the nine months ended September 30, 2000

(Unaudited)

|                                  |  |           |        |           |  |           |            |           |  |   |        |   |  |   |            |  
|--------------------------------- |  | --------- | ------ | --------- |  | --------- | ---------- | --------- |  | - | ------ | - |  | - | ---------- | -
|                                  |  | Limited   |        | Limited   |  | General   |            | Total    
|                                  |  | Partners |        | Partners |  | Partners |            | Partners
|                                  |  | Units     |        | Accounts  |  | Accounts  |            | Capital  
|                                  |  |           |        |           |  |           |            |          
|Balance, December 31, 1999        |  |           | 19,884 |           |  | $         | 15,240,812 |           |  | $ | 18,212 |   |  | $ | 15,259,024 |  
|                                 
|                                 
|                                 
|                                 
|Distributions  ($81.79 per unit) |  |           |       |           |  |           | (1,626,255 | )         |  |   | (5,326 | ) |  |   | (1,631,581 | )
|                                 
|                                 
|                                 
|                                 
|Net income                        |  |           |       |           |  |           | 1,072,136  |           |  |   | 10,830 |   |  |   | 1,082,966  |  
|                                  |  |           |        |           |  |           |            |           |  |   |        |   |  |   |            |  
|Balance, September 30, 2000       |  |           | 19,884 |           |  | $         | 14,686,693 |           |  | $ | 23,716 |   |  |   | 14,710,409 |  
|                                  |  |           |        |           |  |           |            |           |  |   |        |   |  |   |            |  

The accompanying notes are an integral part of the financial statements.

5



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III




Statement of Cash Flows
for the nine months ended September 30, 2000 and 1999

(Unaudited)

|                                                     |                                                                               |                                                   |            |            |          |      |            |            |          |  
|---------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------- | ---------- | ---------- | -------- | ---- | ---------- | ---------- | -------- | -
|                                                     |                                                                               |                                                   |            | 2000       |          | 1999
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net Income                                                                    |                                                   | $          | 1,082,966  |          |      | $          | 915,472    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to net income:                                                   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Depreciation                                      |            |            | 221,210  |      |            |            | 217,041  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Amortization of debt issuance costs               |            |            | 35,843   |      |            |            | 35,538   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Gain on sale of equipment                         |            |            | (15,000  | )    |            |            | (1,012   | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Loss on sale of real estate                       |            |            |         |      |            |            | 159,422  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Increase in unbilled rent                         |            |            | (182,028 | )    |            |            | (203,784 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Decrease in accounts receivable                   |            |            | 50,567   |      |            |            | 57,373   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Decrease in security deposits                     |            |            |         |      |            |            | (4,555   | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Decrease in accounts payable and accrued expenses |            |            | (17,247  | )    |            |            | (78,751  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Increase in restricted cash                       |            |            | (42,113  | )    |            |            | (22,624  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Decrease in due from related parties              |            |            | 2,334    |      |            |            | 128,118  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                               | Decrease in due to related parties                |            |            | (23,342  | )    |            |            | (32,551  | )
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Net cash provided by operating activities            |                                                                               |                                                   | 1,113,190  |            |          |      | 1,169,687  |           
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase and construction advances for properties subject
to operating leases |                                                   |            |           |          |      |            | (1,127,119 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from disposition of properties subject to operating leases           |                                                   |            |           |          |      |            | 912,128    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of equipment                                               |                                                   |            | 75,000     |          |      |            | 98,389     |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of equipment for financing leases                                    |                                                   |            |           |          |      |            | (1,955,999 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal payments on financing leases                                        |                                                   |            | 349,337    |          |      |            | 401,568    |         
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Net cash used in investing activities                |                                                                               |                                                   | 424,337    |            |          |      | (1,671,033 | )         
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of notes payable                                       |                                                   |            |           |          |      |            | 1,994,000  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Debt issuance costs                                                           |                                                   |            |           |          |      |            | (83,771    | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distributions to limited partners                                             |                                                   |            | (1,626,255 | )        |      |            | (1,473,986 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distributions to general partner                                              |                                                   |            | (5,326     | )        |      |            | (35,663    | )       
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Net cash provided by financing activities            |                                                                               |                                                   | (1,631,581 | )          |          |      | 400,580    |           
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Net (decrease) increase in cash and cash equivalents |                                                                               |                                                   | (94,054    | )          |          |      | (100,766   | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                                               |                                                   | 327,903    |            |          |      | 493,136    |           
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         
|Cash and cash equivalents, end of period             |                                                                               | $                                                 | 233,849    |            |          | $    | 392,370    |           
|                                                     |                                                                               |                                                   |            |            |          |      |            |            |         

The accompanying notes are an integral part of the financial statements.

6



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III




NOTES TO FINANCIAL STATEMENTS



| | 1. |  | THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
| | -- |  | ----------------------------------------------------------



| |  |  | Captec Franchise Capital Partners L.P. III (the Partnership), a
Delaware limited partnership, was formed on February 18, 1994 for the
purpose of acquiring income-producing commercial real properties and
equipment leased on a triple net or double net basis, primarily to
operators of national and regional chain and nationally franchised fast
food and family style restaurants, as well as other national and regional
retail chains. The general partners of the Partnership upon formation of
the Partnership were Captec Franchise Capital Corporation III (the
Corporation), a wholly owned subsidiary of Captec Financial Group, Inc.
(Captec), and Patrick L. Beach, an individual, hereinafter collectively
referred to as the Sponsor. Patrick L. Beach is also the Chairman of the
Board of Directors, President and Chief Executive Officer of the
Corporation and Captec. In August, 1998 the general partnership interest
of the Partnership was acquired by Captec Net Lease Realty, Inc., an
affiliate of Captec, for $1,483,000.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Partnership commenced a public offering of 20,000 limited partnership
interest units on August 12, 1994 and reached final funding in August,
1996. Net proceeds after offering expenses were approximately $17.4
million. During 1997, the Partnership repurchased a total of 37 units
for $31,450, or 85% of the investors capital account. An additional 79
units were repurchased during 1999 for $59,625, or 75% of the investors
capital account. The repurchase of the units was completed pursuant to
the terms of the Repurchase Plan set forth in the Partnerships
Prospectus. At September 30, 2000, the Partnership had 19,884 units
issued and outstanding.                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Allocation of profits, losses and cash distributions from operations and
cash distributions from sale or refinancing are made pursuant to the
terms of the Partnership Agreement. Profits and losses from operations
are allocated among the limited partners based upon the number of Units
owned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | The balance sheet of the Partnership as of September 30, 2000 and the
statements of operations and cash flows for the periods ending September
30, 2000 and 1999 have not been audited. In the opinion of the
Management, these unaudited financial statements contain all adjustments
necessary to present fairly the financial position and results of
operations and cash flows of the Partnership for the periods then ended.
Results of operations for the interim periods are not necessarily
indicative of results for the full year. These unaudited financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Partnerships annual report on Form
10-KSB for the year ended December 31, 1999 filed with the United States
Securities and Exchange Commission on March 30, 2000.                                                                                                                                                                                                                



| | 2. |  | LAND AND BUILDING SUBJECT TO OPERATING LEASES:
| | -- |  | ----------------------------------------------



| |  |  | The net investment in operating leases as of September 30, 2000 is
comprised of the following:
| |  |  | ----------------------------------------------------------------------------------------------

|                              |  |   |            |  
|----------------------------- |  | - | ---------- | -
|Land                          |  | $ | 8,163,346  |  
|                             
|                             
|                             
|                             
|Building and improvements     |  |   | 11,796,894 |  
|                              |  |   |            |  
|                              |  |   | 19,960,240 |  
|                             
|                             
|                             
|                             
|Less accumulated depreciation |  |   | (1,076,561 | )
|                              |  |   |            |  
|Total                         |  | $ | 18,883,679 |  
|                              |  |   |            |  

7



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

NOTES TO FINANCIAL STATEMENTS



| | 3. |  | NET INVESTMENT IN FINANCING LEASES:
| | -- |  | -----------------------------------



| |  |  | The net investment in financing leases as of September 30, 2000 is
comprised of the following:
| |  |  | ----------------------------------------------------------------------------------------------

|                                      |  |   |           |  
|------------------------------------- |  | - | --------- | -
|Minimum lease payments to be received |  | $ | 2,551,019 |  
|                                     
|                                     
|                                     
|                                     
|Estimated residual value              |  |   | 117,101   |  
|                                      |  |   |           |  
|Gross investment in financing leases  |  |   | 2,668,120 |  
|                                     
|                                     
|                                     
|                                     
|Less unearned income                  |  |   | (416,678  | )
|                                     
|                                     
|                                     
|                                     
|Less direct origination costs         |  |   | ( 86,362  | )
|                                      |  |   |           |  
|Net investment in financing leases    |  | $ | 2,165,080 |  
|                                      |  |   |           |  



| | 4. |  | NOTES PAYABLE:
| | -- |  | --------------



| |  |  | In November, 1998, the Partnership entered into a $6.2 million term note,
the proceeds of which were used to acquire additional properties. The
note has a 10-year term, is collaterized by certain properties subject to
operating leases, and bears an interest rate of 8.37% per annum.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In March, 1999, the Partnership entered into an additional $2.0 million
term note. The note also has a 10-year term, is collaterized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.                                                     
|
| |  |  | Debt issuance costs of approximately $478,000 in aggregate were incurred
in connection with the issuance of the notes, and are being amortized
using the straight-line method over the 10-year term.                                                                                      

8



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

PART I  FINANCIAL INFORMATION




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When used in this discussion, the words, intends, anticipates, expects,
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected. Such risks and
uncertainties include the following: (i) a tenant may default in making rent
payments, (ii) a fire or other casualty may interrupt the cash flow stream from
a property, (iii) the properties may not be able to be leased at the assumed
rental rates, (iv) unexpected expenses may be incurred in the ownership of the
properties, and (v) properties may not be able to be sold at the presently
anticipated prices and times.

As a result of these and other factors, the Partnership may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition and
operating results. These forward-looking statements speak only as of the date
hereof. The Partnership undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2000.During the three months ended
September 30, 2000 total operating revenue decreased 2.5% to approximately
$622,000 as compared to approximately $638,000 for the three months ended
September 30, 1999. Rental revenue from operating leases for the three months
ended September 30, 2000 increased to approximately $574,000 as compared to
approximately $572,000 for the three months ended September 30, 1999. Earned
income from financing leases for the three months ended September 30, 2000
decreased 27.2% to approximately $48,000 as compared to approximately $66,000
for the three months ended September 30, 1999 as a result of the disposition of
one equipment lease in August, 1999 and one equipment lease in April, 2000 as
well as amortization of principal balances.

Operating expenses were approximately $273,000 for the three months ended
September 30, 2000 as compared to approximately $270,000 for the three months
ended September 30, 1999. Total operating expenses for the three months ended
September 30, 2000 is comprised of approximately $74,000 of depreciation
expense, approximately $20,000 of general and administrative expenses, and
approximately $179,000 of interest expense.

Other income for the three months ended September 30, 2000 decreased to
approximately $3,000 as compared to approximately $8,000 for the three months
ended September 30, 1999. The decrease in other income is primarily due to a
gain on the sale of equipment during the three months ended September 30, 1999.

As a result of the foregoing, the Partnerships net income decreased 6.3% to
approximately $352,000 for the three months ended September 30, 2000 as
compared to approximately $376,000 for the three months ended September 30,
1999.

Nine Months Ended September 30, 2000.During the nine months ended September
30, 2000 total operating revenue increased 2.1% to $1.89 million as compared to
$1.85 million for the nine months ended September 30, 1999. Rental revenue
from operating leases for the nine months ended September 30, 2000 increased
1.6% to $1.73 million as compared to $1.70 million for the nine months ended
September 30, 1999 primarily from the benefit of a full period of rental
revenue from properties acquired and leased in

9



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

PART I  FINANCIAL INFORMATION

preceding periods. Earned income from financing leases for the nine months
ended September 30, 2000 increased 8% to approximately $155,000 as compared to
approximately $143,000 for the nine months ended September 30, 1999 as a result
of a full period of financing income on the seven equipment leases acquired
during 1999 offset by the loss of income from one equipment lease sold in
August, 1999 and amortization of principal balances.

Operating expenses were approximately $825,000 for the nine months ended
September 30, 2000 as compared to approximately $784,000 for the nine months
ended September 30, 1999. Total operating expenses for the nine months ended
September 30, 2000 is comprised of approximately $221,000 of depreciation
expense, approximately $52,000 of general and administrative expenses, and
approximately $552,000 of interest expense. The increase in operating expenses
for the nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999 is primarily due to additional interest expense for
the note payable issued in March, 1999.

Other income for the nine months ended September 30, 2000 is comprised
primarily of a $15,000 gain on the sale of equipment and approximately $6,000
of interest and other income. Other expense for the nine months ended
September 30, 1999 is comprised primarily of a net loss of approximately
$158,000 on the disposition of vacant property and impaired equipment leases,
offset by approximately $10,000 in interest and other income.

As a result of the foregoing, the Partnerships net income increased 18% to
$1.1 million for the nine months ended September 30, 2000 as compared to
approximately $915,000 for the nine months ended September 30, 1999.

Distributions.The Partnership announced third quarter distributions of
$565,000, including net sale proceeds of $75,000, of which $493,871 was
distributed to its Limited Partners on October 15, 2000. The balance of
$71,129 was distributed to those partners who elected to receive distributions
on a monthly basis on August 15, 2000 and September 15, 2000.

LIQUIDITY AND CAPITAL COMMITMENTS

The Partnership commenced the offering of up to 20,000 limited partnership
units registered under the Securities Act of 1933, as amended, by means of a
Registration Statement which was declared effective by the Securities and
Exchange Commission on August 12, 1994. The offering reached final funding on
August 12, 1996 with subscriptions for the entire offering of 20,000 units.
Net proceeds after offering expenses were approximately $17.4 million.

In November, 1998 the Partnership entered into a $6.2 million term note. The
Partnership entered into an additional $2.0 million term note in March, 1999.
Proceeds from the notes were used to acquire additional properties. The notes
have a 10-year term, are collaterized by certain properties subject to
operating leases, and bear interest at rates ranging from 8.37 to 8.5% per
annum. Debt issuance costs of approximately $478,000 in aggregate incurred in
connection with the issuance of the notes are being amortized into interest
expense over the life of the notes using the straight-line method.

At September 30, 2000 the Partnership had a portfolio of 15 properties located
in 10 states, with a cost of $20.0 million, and 10 performing equipment leases
with an original investment of $2.9 million. As of September 30, 2000 the
Partnerships investments were allocated approximately 87% to properties and
13% to equipment.

10



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

PART I  FINANCIAL INFORMATION

The Partnership expects to require limited amounts of liquid assets since the
properties and equipment leases require the lessees to pay all taxes and
assessments, maintenance and repair items (except, with respect to double net
properties, costs associated with maintenance and repair of the exterior walls
and roof of the property) and insurance premiums, including casualty insurance.
The general partners expect that the cash flow to be generated by the
Partnerships properties and equipment will be adequate to pay operating
expenses and provide distributions to Limited Partners.

11



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS. None.

ITEM 2. CHANGES IN SECURITIES. None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.

ITEM 5. OTHER INFORMATION. None.

12



---



##### Table of Contents



CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III




PART II  OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) The following exhibits are included herein or incorporated by
reference:

|       |  |                                                                                                                                                                                                                                                                                             
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                                                                                                                                                                                     
|      
|      
|      
|      
|4      |  | Agreement of Limited Partnership of Registrant. (Incorporated by reference
from Exhibit B of the final Prospectus dated August 12,
1994, as supplemented and filed with the Securities and
Exchange Commission, SEC File No. 33-77510C)                                                     
|      
|      
|      
|      
|4.1    |  | Amended Agreement of Limited Partnership of Registrant.
(Incorporated by reference to the corresponding exhibit in the
Registrants Form 10-K for the year ended December 31, 1998)                                                                                                         
|      
|      
|      
|      
|10.1   |  | Promissory Note dated November 28, 1998 between Registrant
and National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-K for the year
ended December 31, 1998)                                                                     
|      
|      
|      
|      
|10.2   |  | Promissory Note dated March 31, 1999 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-QSB for the
quarter ended March 31, 1999)                                                                      
|      
|      
|      
|      
|27     |  | Financial Data Schedule                                                                                                                                                                                                                                                                     
|      
|      
|      
|      
|99.1   |  | Pages 12-16 of the final Prospectus dated August 12, 1994, as
supplemented. (Incorporated by reference from the final Prospectus
filed with the Securities and Exchange Commission pursuant to Rule
424(b) promulgated under the Securities Act of 1933, as amended.
SEC File No. 33-77510C)

b) Reports on Form 8-K:

There were no reports filed on Form 8-K for the quarter ended September
30, 2000.

13



---



##### Table of Contents






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.

| |       |  |                                                                                                     
| | ----- |  | ----------------------------------------------------------------------------------------------------
| | By:   |  | Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. III
|
| | By:   |  | /s/ W. Ross Martin
W. Ross Martin
Executive Vice President,
Chief Financial Officer                 
|
| | Date: |  | November 14, 2000                                                                                   

14



---



##### Table of Contents



Exhibit Index

|            |  |                        
|----------- |  | -----------------------
|Exhibit No. |  | Description            
|            |  |                        
|27          |  | Financial Data Schedule