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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
March 31, 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

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 X





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TABLE OF CONTENTS



|                                                                                              |                                                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                                                                 
|Item 1. Financial Statements                                                                 
|                                                                                              | Balance Sheets, March 31, 2003 and December 31, 2002                                
|                                                                                              | Statements of Operations for the three months ended March 31, 2003 and 2002         
|                                                                                              | Statements of Changes in Partners Capital for the three months ended March 31, 2003
|                                                                                              | Statements of Cash Flows for the three months ended March 31, 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                                                                    
|                                                                                              | Other Information                                                                   
|SIGNATURES                                                                                   
|Certification Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002                   
|906 Certification of CEO/CFO                                                                 



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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

Index to Form 10-QSB

|              |  |                                                                                       |  |      
|------------- |  | ------------------------------------------------------------------------------------- |  | -----
|Item No.      |  |                                                                                       |  | Page 
|              |  |                                                                                       |  |      
|PART I        |  | FINANCIAL INFORMATION                                                                 |  |      
|              |  |                                                                                       |  |      
|Item 1.       |  | Financial Statements:                                                                 |  |      
|              |  |                                                                                       |  |      
|              |  | Balance Sheets, March 31, 2003 and December 31, 2002                                  |  | 3    
|              |  |                                                                                       |  |      
|              |  | Statement of Operations for the three months
ended March 31, 2003 and 2002            |  | 4    
|              |  |                                                                                       |  |      
|              |  | Statement of Changes in Partners Capital for the three months
ended March 31, 2003   |  | 5    
|              |  |                                                                                       |  |      
|              |  | Statement of Cash Flows for the three months
ended March 31, 2003 and 2002            |  | 6    
|              |  |                                                                                       |  |      
|              |  | Notes to Financial Statements                                                         |  | 7-8  
|              |  |                                                                                       |  |      
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 9-10 
|              |  |                                                                                       |  |      
|Item 3.       |  | Controls and Procedures                                                               |  | 10-11
|              |  |                                                                                       |  |      
|PART II       |  | OTHER INFORMATION                                                                     |  |      
|              |  | Other Information                                                                     |  | 11   
|              |  |                                                                                       |  |      
|SIGNATURES    |  |                                                                                       |  | 12   
|              |  |                                                                                       |  |      
|CERTIFICATION |  | Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002                          |  | 13   

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

|                                   |                                       |                                         |            |            |             |   |            |              |            |  | 
|---------------------------------- | ------------------------------------- | --------------------------------------- | ---------- | ---------- | ----------- | - | ---------- | ------------ | ---------- |  | 
|                                   |                                       |                                         |            |            | March 31,   |   |            | December 31, |           
|                                   |                                       |                                         |            |            | 2003        |   |            | 2002         |           
|                                   |                                       |                                         |            |            | (Unaudited) |   |            |              |           
|Cash and cash equivalents          |                                       | $                                       | 199,456    |            |             | $ | 286,511    |             
|Restricted cash                    |                                       |                                         | 547,017    |            |             |   | 499,863    |             
|Investment in leases:              |                                       |                                         |            |            |             |   |            |             
|                                   | Operating leases, net                 |                                         |            | 17,215,289 |             |   |            | 17,285,384   |           
|                                   | Financing leases, net                 |                                         |            | 731,013    |             |   |            | 807,542      |           
|                                   | Impaired financing leases, net        |                                         |            | 12,693     |             |   |            | 12,693       |           
|Accounts receivable                |                                       |                                         | 50,578     |            |             |   | 47,762     |             
|Unbilled rent, net                 |                                       |                                         | 1,360,814  |            |             |   | 1,299,690  |             
|Due from related parties           |                                       |                                         | 9,043      |            |             |   | 5,733      |             
|Deferred financing costs, net      |                                       |                                         | 274,798    |            |             |   | 286,745    |             
|                                   |                                       |                                         |            |            |             |  
|                                   |                                       | Total assets                            |            | $          | 20,400,701  |   |            | $            | 20,531,923 | 
|                                   |                                       |                                         |            |            |             |  
|Liabilities and Partners Capital 
|Liabilities:                       |                                       |                                         |            |            |             |   |            |             
|                                   | Notes payable                         |                                         | $          | 7,817,386  |             |   | $          | 7,864,328    |           
|                                   | Accounts payable and accrued expenses |                                         |            | 72,328     |             |   |            | 110,819      |           
|                                   | Security deposits held on leases      |                                         |            | 31,960     |             |   |            | 31,960       |           
|                                   |                                       |                                         |            |            |             |  
|                                   |                                       | Total liabilities                       |            |            | 7,921,674   |   |            |              | 8,007,107  | 
|                                   |                                       |                                         |            |            |             |  
|Partners capital:                 |                                       |                                         |            |            |             |   |            |             
|Limited partners capital accounts |                                       |                                         | 12,470,511 |            |             |   | 12,519,242 |             
|General partners capital account  |                                       |                                         | 8,516      |            |             |   | 5,574      |             
|                                   |                                       |                                         |            |            |             |  
|                                   |                                       | Total partners capital                 |            |            | 12,479,027  |   |            |              | 12,524,816 | 
|                                   |                                       |                                         |            |            |             |  
|                                   |                                       | Total liabilities and partners capital |            | $          | 20,400,701  |   |            | $            | 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
Statements of Operations
for the three months ended March 31, 2003 and 2002
(Unaudited)

|                                                                 |                                         |                                    |         |         |         |   |         |         |         | 
|---------------------------------------------------------------- | --------------------------------------- | ---------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                 |                                         |                                    |         | 2003    |         |   | 2002    |        
|                                                                 |                                         |                                    |         |         |         |   |         |        
|Operating revenue:                                               |                                         |                                    |         |         |         |   |         |        
|                                                                 | Rental income                           |                                    | $       | 551,479 |         |   | $       | 552,796 |        
|                                                                 | Finance income                          |                                    |         | 14,052  |         |   |         | 20,369  |        
|                                                                 |                                         |                                    |         |         |         |   |        
|                                                                 |                                         | Total operating revenue            |         |         | 565,531 |   |         |         | 573,165 | 
|                                                                 |                                         |                                    |         |         |         |   |        
|Operating costs and expenses:                                    |                                         |                                    |         |         |         |   |         |        
|                                                                 | Interest expense                        |                                    |         | 176,479 |         |   |         | 180,275 |        
|                                                                 | Depreciation                            |                                    |         | 70,095  |         |   |         | 70,095  |        
|                                                                 | General and administrative              |                                    |         | 40,029  |         |   |         | 19,513  |        
|                                                                 | Provision for impaired financing leases |                                    |         |        |         |   |         | 36,000  |        
|                                                                 |                                         |                                    |         |         |         |   |        
|                                                                 |                                         | Total operating costs and expenses |         |         | 286,603 |   |         |         | 305,883 | 
|                                                                 |                                         |                                    |         |         |         |   |        
|                                                                 |                                         | Income from operations             |         |         | 278,928 |   |         |         | 267,282 | 
|                                                                 |                                         |                                    |         |         |         |   |        
|Other income:                                                    |                                         |                                    |         |         |         |   |         |        
|                                                                 | Gain on sale of equipment               |                                    |         | 6,177   |         |   |         |        |        
|                                                                 | Interest income                         |                                    |         | 173     |         |   |         |        |        
|                                                                 | Other                                   |                                    |         | 8,933   |         |   |         | 887     |        
|                                                                 |                                         |                                    |         |         |         |   |        
|                                                                 |                                         | Total other income                 |         |         | 15,283  |   |         |         | 887     | 
|                                                                 |                                         |                                    |         |         |         |   |        
|Net income                                                       |                                         |                                    | 294,211 |         |         |   | 268,169 |        
|Net income allocable to general partner                          |                                         |                                    | 2,942   |         |         |   | 2,682   |        
|                                                                 |                                         |                                    |         |         |         |   |        
|Net income allocable to limited partners                         |                                         | $                                  | 291,269 |         |         | $ | 265,487 |        
|                                                                 |                                         |                                    |         |         |         |   |        
|Net income per limited partnership unit                          |                                         | $                                  | 14.82   |         |         | $ | 13.42   |        
|                                                                 |                                         |                                    |         |         |         |   |        
|Weighted average number of limited partnership
units outstanding |                                         |                                    | 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
Statements of Changes in Partners Capital
for the three months ended March 31, 2003
(Unaudited)

|                                                      |  |           |        |  |           |   |            |           |  |   |           |  |  |   |            |  
|----------------------------------------------------- |  | --------- | ------ |  | --------- | - | ---------- | --------- |  | - | --------- |  |  | - | ---------- | -
|                                                      |  | Limited   |        |  | Limited   |   |            | General   |  |   | Total     | 
|                                                      |  | Partners |        |  | Partners |   |            | Partners |  |   | Partners | 
|                                                      |  | Units     |        |  | Accounts  |   |            | Account   |  |   | Capital   | 
|                                                      |  |           |        |  |           |   |            |           |  |   |           | 
|Balance, December 31, 2002                            |  |           | 19,653 |  |           | $ | 12,519,242 |           |  | $ | 5,574     |  |  | $ | 12,524,816 |  
|                                                      |  |           |        |  |           |   |            |           |  |   |           | 
|Distributions  ($17.30 per limited partnership unit) |  |           |       |  |           |   | (340,000   | )         |  |   |          |  |  |   | (340,000   | )
|Net income                                            |  |           |       |  |           |   | 291,269    |           |  |   | 2,942     |  |  |   | 294,211    |  
|                                                      |  |           |        |  |           |   |            |           |  |   |           | 
|Balance, March 31, 2003                               |  |           | 19,653 |  |           | $ | 12,470,511 |           |  | $ | 8,516     |  |  | $ | 12,479,027 |  
|                                                      |  |           |        |  |           |   |            |           |  |   |           | 

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

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Captec Franchise Capital Partners L.P. III
Statements of Cash Flows
for the three months ended March 31, 2003 and 2002
(Unaudited)

|                                             |                                        |                                                   |          |          |         |   |          |          |         |  
|-------------------------------------------- | -------------------------------------- | ------------------------------------------------- | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                             |                                        |                                                   |          | 2003     |         |   | 2002     |         
|Cash flows from operating activities:        |                                        |                                                   |          |          |         |   |          |         
|                                             | Net Income                             |                                                   | $        | 294,211  |         |   | $        | 268,169  |        
|                                             | Adjustments to net income:             |                                                   |          |          |         |   |          |          |        
|                                             |                                        | Depreciation                                      |          |          | 70,095  |   |          |          | 70,095  |  
|                                             |                                        | Amortization of debt issuance costs               |          |          | 11,948  |   |          |          | 11,948  |  
|                                             |                                        | Gain on sale of equipment                         |          |          | (6,177  | ) |          |          |        |  
|                                             |                                        | Provision for impaired financing leases           |          |          |        |   |          |          | 36,000  |  
|                                             |                                        | Increase in unbilled rent                         |          |          | (61,124 | ) |          |          | (33,072 | )
|                                             |                                        | Increase in accounts receivable                   |          |          | (2,816  | ) |          |          | (8,763  | )
|                                             |                                        | Decrease in accounts payable and accrued expenses |          |          | (38,491 | ) |          |          | (18,013 | )
|                                             |                                        | Increase in restricted cash                       |          |          | (47,154 | ) |          |          | (46,980 | )
|                                             |                                        | Increase in due from related parties              |          |          | (3,310  | ) |          |          | (3,509  | )
|                                             |                                        | Increase in due to related parties                |          |          |        |   |          |          | (12,850 | )
|                                             |                                        |                                                   |          |          |         |   |         
|Net cash provided by operating activities    |                                        |                                                   | 217,182  |          |         |   | 263,025  |         
|                                             |                                        |                                                   |          |          |         |   |         
|Cash flows from investing activities:        |                                        |                                                   |          |          |         |   |          |         
|                                             | Net proceeds from sale of equipment    |                                                   |          | 24,075   |         |   |          |         |        
|                                             | Principal payments on financing leases |                                                   |          | 58,630   |         |   |          | 62,362   |        
|                                             |                                        |                                                   |          |          |         |   |         
|Net cash provided by investing activities    |                                        |                                                   | 82,705   |          |         |   | 62,362   |         
|                                             |                                        |                                                   |          |          |         |   |         
|Cash flows from financing activities:        |                                        |                                                   |          |          |         |   |          |         
|                                             | Repayments of notes payable            |                                                   |          | (46,942  | )       |   |          | (43,172  | )      
|                                             | Distributions to limited partners      |                                                   |          | (340,000 | )       |   |          | (690,446 | )      
|                                             | Distributions to general partner       |                                                   |          |         |         |   |          |         |        
|                                             |                                        |                                                   |          |          |         |   |         
|Net cash used in financing activities        |                                        |                                                   | (386,942 | )        |         |   | (733,618 | )       
|                                             |                                        |                                                   |          |          |         |   |         
|Net decrease in cash and cash equivalents    |                                        |                                                   | (87,055  | )        |         |   | (408,231 | )       
|Cash and cash equivalents, beginning of year |                                        |                                                   | 286,511  |          |         |   | 781,658  |         
|                                             |                                        |                                                   |          |          |         |   |         
|Cash and cash equivalents, end of year       |                                        | $                                                 | 199,456  |          |         | $ | 373,427  |         
|                                             |                                        |                                                   |          |          |         |   |         

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

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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. The limited partners of the Partnership have
consented to the transfer of the General Partner interest. In accordance
with the terms of an agreement with Commercial Net Lease, immediately
upon the closing of the merger and until such time as the consent of the
Partnerships secured lender is obtained, GP3 Asset Acquisition has
assumed all of the General Partners obligations and liabilities
prescribed under the terms of the Partnership Agreement.
|  
|   |  | 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
March 24, 1995 and immediately commenced operations. The Offering reached
final funding in August 1996 having received subscriptions for the entire
20,000 Units. 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
March 31, 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 is 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 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 distributions 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 March 31, 2003, the statements
of operations and cash flows for the periods ending March 31, 2003 and
March 31, 2002 and the statement of changes in partners capital for the
period ending March 31, 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-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|   |  | 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 March 31, 2003 and December 31, 2002 is comprised
of the following:           

|                              |  |            |            |   |               |   |            |  
|----------------------------- |  | ---------- | ---------- | - | ------------- | - | ---------- | -
|                              |  | March 2003 |            |   | December 2002
|                              |  |            |            |   |              
|Land                          |  | $          | 7,695,896  |   |               | $ | 7,695,896  |  
|Building and improvements     |  |            | 11,214,344 |   |               |   | 11,214,344 |  
|                              |  |            |            |   |               |  
|                              |  |            | 18,910,240 |   |               |   | 18,910,240 |  
|Less accumulated depreciation |  |            | (1,694,951 | ) |               |   | (1,624,856 | )
|                              |  |            |            |   |               |  
|Total                         |  | $          | 17,215,289 |   |               | $ | 17,285,384 |  
|                              |  |            |            |   |               |  



|3. |  | NET INVESTMENT IN FINANCING LEASES:                                                                             
|-- |  | ----------------------------------------------------------------------------------------------------------------
|  
|   |  | The net investment in financing leases as of March 31, 2003 and December 31, 2002 is comprised
of the following:

|                                      |  |            |          |   |               |   |          |  
|------------------------------------- |  | ---------- | -------- | - | ------------- | - | -------- | -
|                                      |  | March 2003 |          |   | December 2002
|                                      |  |            |          |   |              
|Minimum lease payments to be received |  | $          | 824,745  |   |               | $ | 897,429  |  
|Estimated residual value              |  |            | 30,736   |   |               |   | 48,736   |  
|                                      |  |            |          |   |               |  
|Gross investment in financing leases  |  |            | 855,481  |   |               |   | 946,165  |  
|Less unearned income                  |  |            | (111,996 | ) |               |   | (121,994 | )
|Less direct origination costs         |  |            | (12,472  | ) |               |   | (16,629  | )
|                                      |  |            |          |   |               |  
|Net investment in financing leases    |  | $          | 731,013  |   |               | $ | 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 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
8.5% per annum.
|  
|   |  | Debt issuance costs of approximately $477,909 in aggregate were incurred
in connection with the issuance of the notes, and are being amortized to
interest expense using the straight-line method over the ten-year term.         

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|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 document
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 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 March 31, 2003

During the three months ended March 31, 2003 total operating revenue was
approximately $566,000, as compared to $573,000 for the three months ended
March 31, 2002. Rental revenue from operating leases for the three months
ended March 31, 2003 was approximately $551,000, nearly unchanged as compared
to approximately $553,000 for the three months ended March 31, 2002. Earned
income from financing leases for the three months ended March 31, 2003
decreased 31.0% to approximately $14,000 as compared to approximately $20,000
for the three months ended March 31, 2002 as 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 decreased 6.3% to approximately $287,000 for the three
months ended March 31, 2003, as compared to approximately $306,000 for the
three months ended March 31, 2002. The decrease is principally due to a decline
of approximately $36,000 in charges related to a reserve for defaults on an
impaired financing lease that occurred in prior years partially offset by an
increase in general and administrative expenses of approximately $20,000 due to
increased professional fees.

Other income for the three months ended March 31, 2003 increased by
approximately $14,000, as compared with the same period in 2002, principally
due to the sale of an equipment lease for net cash proceeds of approximately
24,000 in the 2003 period, resulting in a gain of approximately $6,000, and
miscellaneous income from late charges of approximately $8,000.

As a result of the foregoing, the Partnerships net income increased 9.7% to
approximately $294,000 for the three months ended March 31, 2003, as compared
to approximately $268,000 for the three months ended March 31, 2002.

The Partnership announced first quarter distributions of $344,000, of which
$296,635 was distributed to its limited partners on April 15, 2003. The
balance of $47,365 was distributed to limited partners who elected to receive
distributions on a monthly basis on February 15, 2003 and March 15, 2003.

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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 reached final funding on August 12, 1996, having
received subscriptions for the entire 20,000 Units and funds totaling
$20,000,000. 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
8.5% per annum, respectively. 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.

As of March 31, 2003, the Partnership had invested $18.9 million in 14 net
leased real estate properties and $1.7 million in 6 performing equipment
leases. The remaining net investment in the Partnerships leased equipment is
approximately $731,000, after cumulative principal collections of approximately
$1.0 million. Inclusive of the above amount, the Partnership has received
approximately $3.1 million of 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 March 31, 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
prospectus with respect to the Offering. Since 1997, a total of 347 Units have
been repurchased by the Partnership. During 1997, the Partnership repurchased a
total of 37 Units for $31,450, or an average of $850 per Unit. In 1999 the
Partnership repurchased a total of 79 Units for $59,625, or an average of $755
per Unit. During 2000, the Partnership repurchased 42 Units for $28,432, or an
average of $677 per Unit and, in 2001, the Partnership repurchased 66 Units for
$42,839, or an average of $649 per Unit. During 2002, the Partnership
repurchased 123 Units for $74,789, or an average of $608 per Unit. The
Partnership expects to fund any future Unit repurchases out of working capital
reserves and Net Sale or 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 a date within 45 days prior to the
filing date of 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.

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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.




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 |  | Exhibit                                                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                          
|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)                                    
|       |  |                                                                                                                                                                                                                          
|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)   
|       |  |                                                                                                                                                                                                                          
|99     |  | 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 March 31,
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 Manager
|
| | By:   | /s/ Patrick L. BeachPatrick L. Beach
President                                   
|
| | Date: | May 15, 2003                                                                     

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CERTIFICATIONS

I, Patrick L. Beach, certify that:

1. I have reviewed this annual report on Form 10-QSB of Captec Franchise
Capital Partners L.P. III;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 45 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

|    |  |                                                                           
|--- |  | --------------------------------------------------------------------------
|By: |  | /s/ Patrick L. BeachPatrick L. Beach
President, GP3 Asset Acquisition, LLC

The foregoing certification is as required by Section 302(a) of the
Sarbanes-Oxley Act of 2002 and amended Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934, which state that the wording of such
certification may not be changed in any respect, even if such change would
appear inconsequential in nature. GP3 Asset Acquisition, LLC is a single member
limited liability company, the sole member of which is a limited liability
company of which Patrick L. Beach is the sole and managing member. As a result,
neither the Partnership or GP3 Asset Acquisition, LLC has a board of directors
or audit committee and Patrick L. Beach is only certifying officer and is
ultimately responsible for establishing and maintaining the registrants
disclosure controls.

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EXHIBIT INDEX

|            |  |                                                                                                                         |  |  |  | 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|EXHIBIT NO. |  | DESCRIPTION                                                                                                             |  |  |  | 
|            |  |                                                                                                                         |  |  |  | 
|99          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.