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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 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
  Delaware
  38-3160141
  th  P.O. Box 544, Ann Arbor, Michigan 48106-0544
  (734) 994-5505
  Not Applicable
 R  £
 o o
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 Not applicable
 APPLICABLE ONLY TO CORPORATE ISSUERS
 Not applicable
 £ R




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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
 Index to Form 10-QSB
 Item No.
    
    
    
    PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Balance Sheets, September 30, 2005 and December 31, 2004
    
    
    3Statements of Discontinued Operations for the three and nine months
ended September 30, 2005 and 2004
    
    
    4Statement of Changes in Partners Capital for the nine months
ended September 30, 2005
    
    
    5Statements of Cash Flows for the nine months
ended September 30, 2005 and 2004
    
    
    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
    
    
    13PART II
    
    OTHER INFORMATIONOther Information
    
    
    14SIGNATURES
    
    
    
    
    15CERTIFICATION
    
    Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
    
    
    16  18Section 302 Certification of Chief Executive & Chief Financial OfficersSection 906 Certification of Chief Executive & Chief Financial Officers
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##### Table of Contents



Captec Franchise Capital Partners L.P. III
 
 Balance Sheets
 September 30
    
    
    December 31,2005
    
    
    2004(Unaudited)AssetsCash and cash equivalents
    
    $
    2,949,599
    
    
    $
    1,556,320Restricted cash
    
    
    
    
    
    
    664,680Assets Held for Sale:Operating leases, net
    
    
    1,970,377
    
    
    
    12,987,161Financing leases, net
    
    
    48,258
    
    
    
    267,429Unbilled rent, net
    
    
    124,870
    
    
    
    955,171Deferred financing costs, net
    
    
    
    
    
    
    191,163Accounts receivable
    
    
    
    
    
    
    4,228Due from related parties
    
    
    151
    
    
    
    151Total assets
    
    $
    5,093,255
    
    
    $
    16,626,303Liabilities and Partners CapitalLiabilities:Notes payable
    
    $
    
    
    
    $
    5,548,515Accounts payable and accrued expenses
    
    
    73,012
    
    
    
    126,361Security deposits held on leases
    
    
    
    
    
    
    7,106Total liabilities
    
    
    73,012
    
    
    
    5,681,982Partners capital:Limited partners capital accounts
    
    
    4,989,815
    
    
    
    10,919,279General partners capital account
    
    
    30,428
    
    
    
    25,042Total partners capital
    
    
    5,020,243
    
    
    
    10,944,321Total liabilities and partners capital
    
    $
    5,093,255
    
    
    $
    16,626,303
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Captec Franchise Capital Partners L.P. III
 
 Statements of Discontinued Operations
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenue:Rental income
    
    $
    91,599
    
    
    $
    448,780
    
    
    $
    864,734
    
    
    $
    1,346,326Finance income
    
    
    1,259
    
    
    
    5,393
    
    
    
    7,827
    
    
    
    19,979Total operating revenue
    
    
    92,858
    
    
    
    454,173
    
    
    
    872,561
    
    
    
    1,366,305Operating costs and expenses:Interest expense
    
    
    
    
    
    
    129,769
    
    
    
    232,123
    
    
    
    391,760Depreciation
    
    
    
    
    
    
    59,520
    
    
    
    
    
    
    
    178,559General and administrative
    
    
    44,578
    
    
    
    42,565
    
    
    
    154,855
    
    
    
    132,974Debt Retirement Costs
    
    
    
    
    
    
    
    
    
    
    905,118
    
    
    
    Total operating costs and expenses
    
    
    44,578
    
    
    
    231,854
    
    
    
    1,292,096
    
    
    
    703,293Income (loss) from discontinued
operations before other income
    
    
    48,280
    
    
    
    222,319
    
    
    
    (419,535
    )
    
    
    663,012Other income (expense):Loss on sale of equipment
    
    
    
    
    
    
    
    
    
    
    (581
    )
    
    
    (3,938
    )Gain on sale of assets
    
    
    526,332
    
    
    
    
    
    
    
    4,957,450
    
    
    
    Interest and other income
    
    
    52,095
    
    
    
    171
    
    
    
    53,553
    
    
    
    7,406Total other income (expense)
    
    
    578,427
    
    
    
    171
    
    
    
    5,010,422
    
    
    
    3,468Net Income from discontinued operations
    
    $
    626,707
    
    
    $
    222,490
    
    
    $
    4,590,887
    
    
    $
    666,480Net income from discontinued operations allocable to general partner
    
    $
    1,004
    
    
    $
    2,225
    
    
    $
    5,386
    
    
    $
    6,665Net income from discontinued operations allocable to limited partners
    
    $
    625,703
    
    
    $
    220,265
    
    
    $
    4,585,501
    
    
    $
    659,815Net income from discontinued operations per limited partnership unit
    
    $
    31.87
    
    
    $
    11.22
    
    
    $
    233.56
    
    
    $
    33.61Weighted average number of limited partnership
units outstanding
    
    
    19,633
    
    
    
    19,633
    
    
    
    19,633
    
    
    
    19,633
 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
 Limited
    
    
    Limited
    
    
    General
    
    
    TotalPartners
    
    
    Partners
    
    
    Partners
    
    
    PartnersUnits
    
    
    Accounts
    
    
    Account
    
    
    CapitalBalance, December 31, 2004
    
    
    19,633
    
    
    $
    10,919,279
    
    
    $
    25,042
    
    
    $
    10,944,321Distributions  ($535.58 per weighted average limited partnership unit)
    
    
    
    
    
    
    (10,514,965
    )
    
    
    
    
    
    
    (10,514,965
    )Net income from discontinued operations
    
    
    
    
    
    
    4,585,501
    
    
    
    5,386
    
    
    
    4,590,887Balance, September 30, 2005
    
    
    19,633
    
    
    $
    4,989,815
    
    
    $
    30,428
    
    
    $
    5,020,243
 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
 2005
    
    
    2004Cash flows from operating activities:Net Income from discontinued operations
    
    $
    4,590,887
    
    
    $
    666,480Adjustments to net income:Depreciation
    
    
    
    
    
    
    178,559Amortization of debt issuance costs
    
    
    19,912
    
    
    
    35,843Loss on sale of equipment
    
    
    581
    
    
    
    3,938Gain on sale of real estate
    
    
    (4,957,450
    )
    
    
    Loss on investments in financing leases
    
    
    17,515
    
    
    
    Increase in unbilled rent
    
    
    (24,791
    )
    
    
    (60,908
    )Decrease in accounts receivable
    
    
    4,228
    
    
    
    18,168(Decrease) increase in accounts payable and accrued expenses
    
    
    (53,349
    )
    
    
    23,976Decrease (increase) in restricted cash
    
    
    664,680
    
    
    
    (125,289
    )Decrease in due from related parties
    
    
    
    
    
    
    3,200Net cash provided by operating activities
    
    
    262,213
    
    
    
    743,967Cash flows from investing activities:Net proceeds from sale of real estate
    
    
    16,993,471
    
    
    
    Net proceeds from sale of equipment
    
    
    101,812
    
    
    
    149,315Principal payments on financing leases
    
    
    99,263
    
    
    
    96,730Net cash provided by investing activities
    
    
    17,194,546
    
    
    
    246,045Cash flows from financing activities:Repayments of notes payable
    
    
    (5,548,515
    )
    
    
    (115,817
    )Distributions to limited partners
    
    
    (10,514,965
    )
    
    
    (1,171,203
    )Net cash used in financing activities
    
    
    (16,063,480
    )
    
    
    (1,287,020
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,393,279
    
    
    
    (297,008
    )Cash and cash equivalents, beginning of year
    
    
    1,556,320
    
    
    
    537,442Cash and cash equivalents, end of period
    
    $
    2,949,599
    
    
    $
    240,434
 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:
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2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
  Land
    
    $
    721,665Building and improvements
    
    
    1,580,985$
    2,302,650Less accumulated depreciation
    
    
    (332,273
    )Total
    
    $
    1,970,377
 3. NET INVESTMENT IN FINANCING LEASES:
  Minimum lease payments to be received
    
    $
    68,872Less unearned income
    
    
    (20,614
    )Net investment in financing leases
    
    $
    48,258
 4. NOTES PAYABLE:
    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
 Three Months Ended September 30, 2005
     10




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Nine Months Ended September 30, 2005
      11




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LIQUIDITY AND CAPITAL COMMITMENTS
        12




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ITEM 3. CONTROLS AND PROCEDURES
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PART
II  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS.
 ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 ITEM 5. OTHER INFORMATION.
 ITEM 6. EXHIBITS
  Number
    
    Exhibit2
    
    Plan of Liquidation and Dissolution (Incorporated by reference to the
Registrants Definitive Proxy Statement on Schedule 14A, filed on September 21, 2004)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 June 30, 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 June 30, 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
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SIGNATURES
  By:
    
    Captec Franchise Capital Partners L.P. IIIGP3 Asset Acquisition, LLCIts ManagerBy:
    
    /s/ Patrick L. BeachPatrick L. BeachPresidentDate:
    
    November 14, 2005
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EXHIBIT INDEX
 Number
    
    Exhibit31
    
    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
 16