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UNITED STATES 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
    
    September 30, 2003


OR

o
    
    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 FloorP.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 o

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 o No x





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TABLE OF CONTENTS



|                                                                                              |                                                                                          |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                                               
|Item 1. Financial Statements                                                                 
|                                                                                              | Balance Sheets, September 30, 2003 and December 31, 2002                                
|                                                                                              | Statements of Operations for the three and nine months ended September 30, 2003 and 2002
|                                                                                              | Statement of Changes in Partners Capital for the nine months ended September 30, 2003  
|                                                                                              | Statement of Cash Flows for the nine months ended September 30, 2003 and 2002           
|                                                                                              | Notes to Financial Statements                                                           
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Controls and Procedures                                                              
|PART II  OTHER INFORMATION                                                                  
|SIGNATURES                                                                                   
|Certification Pursuant to Section 302                                                        
|Certification Pursuant to Section 906                                                        



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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IIIIndex to Form 10-QSB

Item No.
    
    
    
    PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Balance Sheets, September 30, 2003 and December 31, 2002
    
    3Statements of Operations for the three and nine months
ended September 30, 2003 and 2002
    
    4Statement of Changes in Partners Capital for the nine months
ended September 30, 2003
    
    5Statement of Cash Flows for the nine months
ended September 30, 2003 and 2002
    
    6Notes to Financial Statements
    
    7-9Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    9-12Item 3.
    
    Controls and Procedures
    
    12PART II
    
    OTHER INFORMATIONOther Information
    
    13SIGNATURES
    
    
    
    14EX- 31 and 32
    
    Certifications Pursuant to Section 302(a) and 906 of the
Sarbanes-Oxley Act of 2002
    
    15-17


2



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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




Captec Franchise Capital Partners L.P. III
Balance Sheets

September 30,
    
    
    December 31,2003
    
    
    2002(Unaudited)Cash and cash equivalents
    
    $
    1,049,855
    
    
    $
    286,511Restricted cash
    
    
    641,305
    
    
    
    499,863Investment in leases:Operating leases, net
    
    
    14,545,380
    
    
    
    17,285,384Financing leases, net
    
    
    607,912
    
    
    
    807,542Impaired financing leases, net
    
    
    12,693
    
    
    
    12,693Accounts receivable
    
    
    63,091
    
    
    
    47,762Unbilled rent, net
    
    
    976,740
    
    
    
    1,299,690Due from related parties
    
    
    4,865
    
    
    
    5,733Deferred financing costs, net
    
    
    250,902
    
    
    
    286,745Total assets
    
    $
    18,152,743
    
    
    $
    20,531,923Liabilities and Partners CapitalLiabilities:Notes payable
    
    $
    5,741,602
    
    
    $
    7,864,328Accounts payable and accrued expenses
    
    
    88,323
    
    
    
    110,819Security deposits held on leases
    
    
    7,106
    
    
    
    31,960Total liabilities
    
    
    5,837,031
    
    
    
    8,007,107Partners capital:Limited partners capital accounts
    
    
    12,301,951
    
    
    
    12,519,242General partners capital account
    
    
    13,761
    
    
    
    5,574Total partners capital
    
    
    12,315,712
    
    
    
    12,524,816Total liabilities and partners capital
    
    $
    18,152,743
    
    
    $
    20,531,923


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

3



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Captec Franchise Capital Partners L.P. III
Statement of Operations
(Unaudited)

Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002Operating revenue:Rental income
    
    $
    449,808
    
    
    $
    463,694
    
    
    $
    1,377,660
    
    
    $
    1,397,132Finance income
    
    
    11,456
    
    
    
    17,296
    
    
    
    38,272
    
    
    
    56,506Total operating revenue
    
    
    461,264
    
    
    
    480,990
    
    
    
    1,415,932
    
    
    
    1,453,638Operating costs and expenses:Interest expense
    
    
    110,170
    
    
    
    121,901
    
    
    
    350,750
    
    
    
    367,548Depreciation
    
    
    55,995
    
    
    
    59,520
    
    
    
    175,035
    
    
    
    178,560General and administrative
    
    
    38,405
    
    
    
    27,244
    
    
    
    111,552
    
    
    
    73,515Provision for impaired financing leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,000Total operating costs and expenses
    
    
    204,570
    
    
    
    208,665
    
    
    
    637,337
    
    
    
    655,623Income from operations
    
    
    256,694
    
    
    
    272,325
    
    
    
    778,595
    
    
    
    798,015Other income:Interest and other income
    
    
    267
    
    
    
    4,445
    
    
    
    9,745
    
    
    
    10,715Gain on sale of equipment
    
    
    
    
    
    
    
    
    
    
    6,177
    
    
    
    42,874Total other income
    
    
    267
    
    
    
    4,445
    
    
    
    15,922
    
    
    
    53,589Income (loss) from continuing operations
    
    
    256,961
    
    
    
    276,770
    
    
    
    794,517
    
    
    
    851,604Discontinued Operations:Net gain on sale of properties
    
    
    498,240
    
    
    
    
    
    
    
    498,240
    
    
    
    Income from discontinued operations, net
    
    
    15,164
    
    
    
    18,516
    
    
    
    55,993
    
    
    
    52,511Debt Retirement Costs
    
    
    (530,035
    )
    
    
    
    
    
    
    (530,035
    )
    
    
    Income (loss) from discontinued operations
    
    
    (16,631
    )
    
    
    18,516
    
    
    
    24,198
    
    
    
    52,511Net Income
    
    $
    240,330
    
    
    $
    295,286
    
    
    $
    818,715
    
    
    $
    904,115Net income allocable to general partner
    
    $
    2,403
    
    
    $
    2,953
    
    
    $
    8,187
    
    
    $
    9,041Net income allocable to limited partners
    
    $
    237,927
    
    
    $
    292,333
    
    
    $
    810,528
    
    
    $
    895,074Net income (loss) per limited partnership unit
from continuing operations
    
    
    12.95
    
    
    
    13.85
    
    
    
    40.02
    
    
    
    42.63Net
income (loss) per limited partnership unit
from discontinued operations
    
    
    (0.84
    )
    
    
    0.93
    
    
    
    1.22
    
    
    
    2.63Net income per limited partnership unit
    
    $
    12.11
    
    
    $
    14.78
    
    
    $
    41.24
    
    
    $
    45.26Weighted average number of limited partnership
units outstanding
    
    
    19,653
    
    
    
    19,776
    
    
    
    19,653
    
    
    
    19,776


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

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Captec Franchise Capital Partners L.P. III
Statement of Changes in Partners Capital
for the nine months ended September 30, 2003
(Unaudited)

Limited
    
    
    Limited
    
    
    General
    
    
    TotalPartners'
    
    
    Partners'
    
    
    Partner's
    
    
    Partners'Units
    
    
    Accounts
    
    
    Account
    
    
    CapitalBalance, December 31, 2002
    
    
    19,653
    
    
    $
    12,519,242
    
    
    $
    5,574
    
    
    $
    12,524,816Distributions  ($52.30 per limited partnership unit)
    
    
    
    
    
    
    (1,027,819
    )
    
    
    
    
    
    
    (1,027,819
    )Net income
    
    
    
    
    
    
    810,528
    
    
    
    8,187
    
    
    
    818,715Balance, September 30, 2003
    
    
    19,653
    
    
    $
    12,301,951
    
    
    $
    13,761
    
    
    $
    12,315,712


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

5



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Captec Franchise Capital Partners L.P. III
Statement of Cash Flows
for the nine months ended September 30, 2003 and 2002
(Unaudited)

2003
    
    
    2002Cash flows from operating activities:Net Income
    
    $
    818,715
    
    
    $
    904,115Adjustments to net income:Depreciation
    
    
    206,759
    
    
    
    210,284Amortization of debt issuance costs
    
    
    35,843
    
    
    
    35,843Gain on sale of equipment
    
    
    (6,177
    )
    
    
    (42,874
    )Gain on sale of real estate
    
    
    (498,240
    )
    
    
    Provision for credit losses
    
    
    
    
    
    
    36,000Increase in unbilled rent
    
    
    (74,037
    )
    
    
    (94,704
    )(Increase) decrease in accounts receivable
    
    
    (15,329
    )
    
    
    18,821Decrease in accounts payable and accrued expenses
    
    
    (22,495
    )
    
    
    (48,114
    )Increase in restricted cash
    
    
    (141,442
    )
    
    
    (75,684
    )Decrease (increase) in due from related parties
    
    
    868
    
    
    
    (4,197
    )Decrease in due to related parties
    
    
    
    
    
    
    (14,219
    )Decrease in security deposits
    
    
    (24,854
    )
    
    
    (13,647
    )Net cash provided by operating activities
    
    
    279,611
    
    
    
    911,624Cash flows from investing activities:Proceeds from sale of equipment
    
    
    24,075
    
    
    
    85,550Proceeds from sale of real estate
    
    
    3,428,472
    
    
    
    Principal payments on financing leases
    
    
    181,731
    
    
    
    191,770Net cash provided by investing activities
    
    
    3,634,278
    
    
    
    277,320Cash flows from financing activities:Repayments of notes payable
    
    
    (2,122,726
    )
    
    
    (132,273
    )Distributions to limited partners
    
    
    (1,027,819
    )
    
    
    (1,373,588
    )Net cash used in financing activities
    
    
    (3,150,545
    )
    
    
    (1,505,861
    )Net increase (decrease) in cash and cash equivalents
    
    
    763,344
    
    
    
    (316,917
    )Cash and cash equivalents, beginning of period
    
    
    286,511
    
    
    
    781,658Cash and cash equivalents, end of period
    
    $
    1,049,855
    
    
    $
    464,741


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

6



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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 basis, primarily to operators of
national and regional franchised businesses.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The initial General Partners of the Partnership were Captec Franchise
Capital Corporation III (the Corporation), a wholly-owned subsidiary of
Captec Financial Group, Inc. (Captec), an affiliate, and Patrick L.
Beach, the Chairman of the Board of Directors, President and Chief
Executive Officer of the Corporation and Captec. In August 1998, Captec
Net Lease Realty, Inc. (Captec Net Lease Realty), an affiliate,
acquired the General Partnership interests of the Partnership. In
December 2001, Captec Net Lease Realty merged with and into Commercial
Net Lease Realty, Inc. (Commercial Net Lease). In connection with the
merger, Commercial Net Lease agreed to sell and assign its General
Partnership interest in the Partnership to GP3 Asset Acquisition, LLC
(GP3 Asset Acquisition), which is wholly-owned by Mr. Beach and is an
affiliate of Captec. Effective January 15, 2002, the limited partners
consented to the transfer of the General Partnership interest. On
September 11, 2003, the Partnerships secured lender consented to the
transfer of the general partnership interest to GP3 Asset Acquisition.
Upon receipt of the secured lenders consent, the general partnership
interest was immediately transferred to GP3 Asset Acquisition.
Therefore, as of September 11, 2003, GP3 Asset Acquisition became the
general partner of the Partnership.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnership commenced a public offering (the Offering) of up to
20,000 units (the Units) of limited partnership interests, priced at
$1,000 per Unit, by means of a Registration Statement on Form SB-2, under
the Securities Act of 1933, as amended, which was declared effective by
the Securities and Exchange Commission on August 12, 1994. The
Partnership accepted subscriptions for the minimum number of Units on
January 24, 1995 and immediately commenced operations. The Offering was
fully subscribed in August 1996. Since 1997, 347 Units have been
repurchased by the Partnership pursuant to the terms of the Repurchase
Plan set forth in the Partnerships August 12, 1994 prospectus with
respect to the Offering. At September 30, 2003, the Partnership had
19,653 Units issued and outstanding.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of cash flow
generated by the Partnerships leases; (iii) capital appreciation of the
Partnerships properties; (iv) generation of increased income and
protection against inflation through contractual escalation of base rents
or participation in gross revenues of tenants of the Partnerships
properties; and (v) deferred taxation of cash distributions to the
limited partners.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Net income per limited partnership interest is calculated using the
weighted average number of limited partnership Units outstanding during
the period and the limited partners allocable share of the net income.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Distributions per limited partnership Unit are calculated using the
actual distributions disbursed during the period to the weighted average
number of limited partnership Units during the period. Actual individual
limited partner distributions realized may vary from this calculation as
a result
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | of a variety of factors including: (i) actual distributions are computed
based on quarterly operating results and outstanding limited partnership
Units, which are disbursed in the subsequent quarter; (ii) certain
limited partners have elected to receive monthly distribution versus
quarterly distributions which creates timing differences between
comparative calculations, and (iii) the calculation ignores the timing of
repurchases.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The balance sheet of the Partnership as of September 30, 2003, the
statements of operations and cash flows for the periods ending September
30, 2003 and September 30, 2002 and the statement of changes in partners
capital for the period ending September 30, 2003 have not been audited.
In the opinion of 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, 2002 filed
with the United States Securities and Exchange Commission on March 31,
2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | The net investment in operating leases as of September 30, 2003 and
December 31, 2002 is composed of the following:
| |  | -------------------------------------------------------------------------------------------------------------------

September 2003
    
    
    December 2002Land
    
    $
    6,540,896
    
    
    $
    7,695,896Building and improvements
    
    
    9,522,381
    
    
    
    11,214,34416,063,277
    
    
    
    18,910,240Less accumulated depreciation
    
    
    (1,517,897
    )
    
    
    (1,624,856
    )Total
    
    $
    14,545,380
    
    
    $
    17,285,384




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



| |  | The net investment in financing leases as of September 30, 2003 and
December 31, 2002 is composed of the following:
| |  | -------------------------------------------------------------------------------------------------------------------

September 2003
    
    
    December 2002Minimum lease payments to be received
    
    $
    677,425
    
    
    $
    897,429Estimated residual value
    
    
    30,736
    
    
    
    48,736Gross investment in financing leases
    
    
    708,161
    
    
    
    946,165Less unearned income
    
    
    (96,091
    )
    
    
    (121,994
    )Less direct origination costs
    
    
    (4,158
    )
    
    
    (16,629
    )Net investment in financing leases
    
    $
    607,912
    
    
    $
    807,542




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



| |  | In November 1998, the Partnership entered into a $6.2 million term note.
The note has a ten-year term, is collaterized by certain properties
subject to operating leases, and bears interest at a rate of 8.37% per
annum. In September 2003, the partnership defeased approximately
$1,979,000 of this notes payable with proceeds from the sale of the Red
Robin property. The partnership incurred approximately $481,000 of yield
maintenance costs and $49,000 of professional fees related to the
defeasance.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | In March 1999, the Partnership entered into an additional $2.0 million
term note. The note has a ten-year term, is collaterized by certain
properties subject to operating leases, and bears interest at a rate of
8.50% per annum.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Aggregate debt issuance costs of approximately $478,000 were incurred in
connection with the issuance of the notes, and are being amortized to
interest expense over the ten-year term of the notes using the
straight-line method which is not materially different than the interest
rate method.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | EARNINGS FROM DISCONTINUED OPERATIONS:
|-- |  | --------------------------------------



| |  | In accordance with SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, the Company has classified the operations of the
property sold during 2003 as discontinued operations. Accordingly, the
results of operations related to the property have been reclassified to
earnings from discontinued operations. Interest expenses has been
allocated on a pro-rata basis. Management fees are a specific charge
based on rental income. The following is a summary of
earnings from discontinued operations:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2003
    
    2002
    
    
    
    2003
    
    
    
    2002Revenues:Operating lease rents
    
    $
    76,995
    
    
    $
    86,472
    
    
    $
    252,102
    
    
    $
    257,307Expenses:Interest expense
    
    
    50,486
    
    
    
    56,516
    
    
    
    161,864
    
    
    
    170,498Provision for depreciation
    
    
    10,575
    
    
    
    10,575
    
    
    
    31,724
    
    
    
    31,724Management Fees
    
    
    770
    
    
    
    865
    
    
    
    2,521
    
    
    
    2,573Income from discontinued operation, net
    
    $
    15,164
    
    
    $
    18,516
    
    
    $
    55,993
    
    
    $
    52,511





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



| |  | When used in this discussion, words such as intends, anticipates,
expects, will, could, estimate, 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 described herein. Such risks and
uncertainties, some of which are beyond the Partnerships control,
include, but are not limited to, the following: (i) the possibility that
tenants and lessees may default in making rent payments, (ii) the risk of
fire or other casualty interrupting cash flow from a property, (iii) the
inability to enter into leases at the assumed rental rates, (iv)
unexpected expenses, and (v) the inability to sell properties at
anticipated prices and/or 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. Any statements contained in
this report or any documents incorporated herein by reference that are
not statements of historical fact may be deemed to be forward-looking
statements. These statements by their nature involve substantial risks
and uncertainties, some of which are beyond the Partnerships control,
and actual results may differ materially depending on a variety of
important factors, many of which are also beyond the Partnerships
control. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The
Partnership disclaims, except as may be required by law, any obligations
to update or release revisions to these forward-looking statements
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | to reflect events or circumstances after the date of this report or to
reflect the occurrence of unanticipated events.
| |  | ----------------------------------------------------------------------------------------------------------------------



| |  | RESULTS OF OPERATIONS
| |  | ---------------------



| |  | Three Months Ended September 30, 2003.During the three months ended
September 30, 2003 total operating revenue including discontinued
operations, was approximately $538,000, compared to $567,000 for the
three months ended September 30, 2002. Rental revenue from operating
leases for the three months ended September 30, 2003 decreased 4.2% to
approximately $527,000, compared to $550,000 for the three months ended
September 30, 2002 due to the disposition of a Red Robin property in
September 2003. The sale of the Red Robin property was triggered by the
tenants exercise of a purchase option clause in the lease agreement.
The sale also triggered the early repayment of debt secured by the Red
Robin property and the associated debt retirement costs discussed below.
Earned income from financing leases for the three months ended September
30, 2003 decreased 33.8% to approximately $11,000 compared to
approximately $17,000 for the three months ended September 30, 2002 as a
result of the amortization of the principal balances on the financing
leases and the disposition of an equipment lease in the first quarter of
2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Operating expenses including discontinued operations were approximately
$796,000 for the three months ended September 30, 2003 compared to
approximately $277,000 for the three months ended September 30, 2002. The
increase in operating expenses for the three months ended September 30,
2003 compared to the prior period is primarily due to the debt retirement
costs of approximately $530,000 associated with the disposition of the
Red Robin property in September 2003. Interest expense decreased due to
the amortization of principal balances. General and administrative
expenses increased as a result of increased professional fees partially
offset by the decrease in depreciation expense due to the disposition of
the Red Robin property in September 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Other income including discontinued operations for the three months ended
September 30, 2002 was approximately $499,000 primarily due to a gain on
the disposition of the Red Robin property in September 2003.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As a result of the foregoing, the Partnerships net income decreased
18.6% to approximately $240,000 for the three months ended September 30,
2003 compared to approximately $295,000 for the three months ended
September 30, 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnership announced third quarter distributions of $1,044,000, of
which $996,816 was distributed to limited partners on October 15, 2003.
The balance of $47,184 was distributed on August 15, 2003 and September
15, 2003 to those partners who elected to receive distributions on a
monthly basis.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Nine Months Ended September 30, 2003.During the nine months ended
September 30, 2003 total operating revenue including discontinued
operations, was approximately $1,668,000, compared to $1,711,000 for the
nine months ended September 30, 2002. Rental revenue from operating
leases for the nine months ended September 30, 2003 decreased 1.5% to
approximately $1,630,000, compared to $1,654,000 for the nine months
ended September 30, 2002 due to the disposition of a Red Robin property
in September 2003. The sale of the Red Robin property was triggered by
the tenants exercise of a purchase option clause in the lease agreement.
The sale also triggered the early repayment of debt secured by the Red
Robin property and the associated debt retirement costs discussed below.
Earned income from financing leases for the nine months ended September
30, 2003 decreased 32.3% to approximately $38,000 compared to
approximately $57,000 for the nine months ended September 30, 2002 as a
result of the amortization of the principal balances on the financing
leases and the disposition of an equipment lease in the first quarter of
2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Operating expenses including discontinued operations were approximately
$1,363,000 for the nine months ended September 30, 2003, compared to
approximately $860,000 for the nine months ended September 30, 2002. The
increase in operating expenses for the nine months ended September 30,
2003 compared to the prior period is primarily due to the debt retirement
costs of approximately $530,000 associated with the disposition of the
Red Robin property in September 2003. Interest expense decreased due to
the amortization of principal balances. General and administrative
expenses increased as a result of increased professional fees partially
offset by the decrease in depreciation expense due to the disposition of
the Red Robin property in September 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Other income including discontinued operations for the nine months ended
September 30, 2003 was approximately $514,000 compared to approximately
$54,000 for the nine months ended September 30, 2002. Other income for
the nine months ended September 30, 2003 is principally due to the sale
the Red Robin property for net cash proceeds of approximately $3,428,000
in 2003, resulting in a gain of approximately $498,000, the sale of an
equipment lease for net cash proceeds of approximately $24,000, resulting
in a gain of approximately $6,000, and miscellaneous income from late
charges of approximately $9,000. Other income for the nine months ended
September 30, 2002 is primarily due to a gain on the disposition of an
equipment lease in April 2002.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As a result of the foregoing, the Partnerships net income decreased 9.4%
to approximately $819,000 for the nine months ended September 30, 2003
compared to approximately $904,000 for the nine months ended September
30, 2002.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | LIQUIDITY AND CAPITAL COMMITMENTS
| |  | ---------------------------------



| |  | The Partnership commenced the Offering of up to 20,000 Units, priced at
$1,000 per Unit, on August 12, 1994. The Partnership accepted
subscriptions for the minimum number of Units on January 24, 1995, and
immediately commenced operations. The Offering was fully subscribed on
August 12, 1996. Net proceeds after Offering expenses were $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 and equipment. The notes have a 10-year term, are
collateralized by certain properties subject to operating leases, and
bear interest at rates of 8.37% and 8.50% per annum, respectively. In
September 2003, the partnership defeased approximately $1,979,000 of this
notes payable with proceeds from the sale of the Red Robin property. The
partnership incurred a loss of approximately $530,000 related to the
defeasance. Debt issuance
costs of approximately $478,000 incurred in connection with the issuance
of the notes are being amortized over the life of the notes to interest
expense using the straight-line method, which is not materially different
than the interest rate method.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of September 30, 2003, the Partnership had invested $16.1 million in
13 net leased real properties and $1.7 million in 6 performing equipment
leases. The remaining net investment in the Partnerships leased
equipment is approximately $608,000, after cumulative principal
collections of approximately $1.1 million. Inclusive of the above amount,
the Partnership has received approximately $3.2 million in aggregate
principal collections on its financing leases during the life of those
investments. The Partnership also has a net investment of approximately
$13,000 in a repossessed equipment package, net of an allowance for loss
of approximately $169,000. As of September 30, 2003, the Partnership has
not made any commitments to purchase additional properties or equipment,
nor does it intend to make any such commitments.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnership annually considers written requests to repurchase Units
pursuant to the terms of the repurchase plan set forth in the
Partnerships August 12, 1994 prospectus with respect to the Offering.
Since 1997, a total of 347 Units have been repurchased by the
Partnership. At September 30, 2003, the Partnership has 19,653 Units
issued and outstanding. The Partnership expects to fund any future Unit
repurchases out of working capital reserves and net sale or
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | refinancing proceeds, but may also fund such repurchases out of cash
flow. The Partnership is not obligated to accept Unit repurchase requests
if the General Partner determines that such purchases would impair the
capital or operation of the Partnership and the Partnership may suspend
or cancel the repurchase plan at any time in its sole discretion.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnership expects that only limited amounts of liquid assets will
be required for existing properties since its property and equipment
leases require tenants and lessees to pay all taxes and assessments,
maintenance and repairs and insurance premiums, including casualty
insurance, thereby minimizing the Partnerships operating expenses and
capital requirements. The General Partner expects that the cash flow to
be generated by the Partnerships properties and equipment will provide
adequate liquidity and capital resources to pay operating expenses and
provide distributions to Limited Partners.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 3. CONTROLS AND PROCEDURES



| |  | Mr. Beach, acting in his capacity as the principal executive officer of
GP3 Asset Acquisition, is ultimately responsible for the disclosure
controls and procedures of the Partnership. Disclosure controls and
procedures are established and maintained by the Partnership to ensure
the information required to be disclosed by the Partnership in the
reports that it files or submits pursuant to the Securities Exchange Act
of 1934, as amended (the Act), is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
United States Securities and Exchange Commission. Mr. Beach has evaluated
the effectiveness of the Partnerships disclosure controls and procedures
as of the end of the period covered by this report, and has determined
that the Partnerships disclosure controls and procedures effectively
communicate the information required to be disclosed by the Partnership
in the report it files or submits under the Act in a manner that allows
timely decisions regarding such disclosure.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | There have been no significant changes in the Partnerships internal
controls or in other factors that could significantly affect these
controls subsequent to the evaluation date, including, but not limited to
any corrective actions with regard to significant deficiencies and
material weaknesses.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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

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

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

Number
    
    Exhibit4
    
    Amended Agreement of Limited Partnership of Registrant.
(Incorporated by reference to the corresponding exhibit in the
Registrants Form 10-KSB 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-KSB 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)31
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(b)
    
    Reports on Form 8-K:


There were no reports filed on Form 8-K for the quarter ended September 30, 2003.

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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 Franchise Capital Partners L.P. III
GP3 Asset Acquisition, LLC
Its ManagerBy:
    /s/ Patrick L. BeachPatrick L. Beach
PresidentDate:
    November 14, 2003


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10-Q EXHIBIT INDEX

EXHIBIT NO.
    
    DESCRIPTIONEX-4
    
    Amended Agreement of Limited Partnership of Registrant.
(Incorporated by reference to the corresponding exhibit in the
Registrants Form 10-KSB for the year ended December 31, 1998)EX-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-KSB for the year
ended December 31, 1998)EX-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)EX-31
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-32
    
    Certification Pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002