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

Form 10-QSB

X IN BALLOT BOX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

OR

OPEN BALLOT BOX 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 IN BALLOT BOX
   No OPEN BALLOT BOX

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  OPEN BALLOT BOX   No  X IN BALLOT BOX





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TABLE OF CONTENTS



|                                                                                              |                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                                                
|ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                                                              | BALANCE SHEET, SEPTEMBER 30, 2001 AND DECEMBER 31, 2000                                
|                                                                                              | STATEMENT OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
|                                                                                              | STATEMENT OF CHANGES IN PARTNERS CAPITAL FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 
|                                                                                              | STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000          
|                                                                                              | NOTES TO FINANCIAL STATEMENTS                                                          
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II OTHER INFORMATION                                                                    
|                                                                                              | OTHER INFORMATION                                                                      
|SIGNATURES                                                                                   



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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 Sheet, September 30, 2001 and December 31, 2000                                 |  | 3    
|          
|           |  | Statement of Operations for the three and nine months
ended September 30, 2001 and 2000 |  | 4    
|          
|           |  | Statement of Changes in Partners Capital for the nine months
ended September 30, 2001  |  | 5    
|          
|           |  | Statement of Cash Flows for the nine months
ended September 30, 2001 and 2000           |  | 6    
|          
|           |  | Notes to Financial Statements                                                           |  | 78  
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations   |  | 911 
|          
|PART II    |  | OTHER INFORMATION                                                                       |  |      
|          
|           |  | Other Information                                                                       |  | 1213
|          
|SIGNATURES |  |                                                                                         |  | 14   

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Captec Franchise Capital Partners L.P. III
Balance Sheet

|                                     |                                       |                                       |                                 |            |            |               |            |            |              |  |  | 
|------------------------------------ | ------------------------------------- | ------------------------------------- | ------------------------------- | ---------- | ---------- | ------------- | ---------- | ---------- | ------------ |  |  | 
|                                     |                                       |                                       |                                 |            |            | (Unaudited)   |            |            |              |  | 
|                                     |                                       |                                       |                                 |            |            | September 30, |            |            | December 31, | 
|                                     |                                       |                                       |                                 |            |            | 2001          |            |            | 2000         | 
|                                     |                                       |                                       |                                 |            |            |               |            |            |              | 
|                                     |                                       |                                       |                                 | Assets     |            |               |            |            |              |  |  | 
|Cash and cash equivalents            |                                       | $                                     | 185,897                         |            |            | $             | 95,992     |           
|Restricted cash                      |                                       |                                       | 362,381                         |            |            |               | 269,437    |           
|Investment in property under leases: |                                       |                                       |                                 |            |            |               |            |           
|                                     | Operating leases, net                 |                                       |                                 | 18,588,732 |            |               |            | 18,809,942 |             
|                                     | Financing leases, net                 |                                       |                                 | 1,272,774  |            |               |            | 2,049,441  |             
|                                     | Impaired financing leases, net        |                                       |                                 | 257,260    |            |               |            | 27,492     |             
|Accounts receivable                  |                                       |                                       | 63,426                          |            |            |               | 60,198     |           
|Unbilled rent, net                   |                                       |                                       | 1,134,859                       |            |            |               | 1,074,434  |           
|Due from related parties             |                                       |                                       | 5,524                           |            |            |               |           |           
|Deferred financing costs, net        |                                       |                                       | 346,484                         |            |            |               | 382,327    |           
|                                     |                                       |                                       |                                 |            |            |              
|                                     |                                       | Total assets                          |                                 | $          | 22,217,337 |               |            | $          | 22,769,263   | 
|                                     |                                       |                                       |                                 |            |            |              
|                                     |                                       |                                       | Liabilities & Partners Capital |            |            |               |            |            |              |  | 
|Liabilities:                         |                                       |                                       |                                 |            |            |               |            |           
|                                     | Notes payable                         |                                       | $                               | 8,105,457  |            |               | $          | 8,194,000  |             
|                                     | Accounts payable and accrued expenses |                                       |                                 | 140,686    |            |               |            | 83,147     |             
|                                     | Due to related parties                |                                       |                                 | 154,459    |            |               |            | 3,405      |             
|                                     | Security deposits held on leases      |                                       |                                 | 54,774     |            |               |            | 54,774     |             
|                                     |                                       |                                       |                                 |            |            |              
|                                     |                                       | Total liabilities                     |                                 |            | 8,455,376  |               |            |            | 8,335,326    | 
|                                     |                                       |                                       |                                 |            |            |              
|Partners capital:                   |                                       |                                       |                                 |            |            |               |            |           
|Limited partners capital accounts   |                                       |                                       | 13,728,067                      |            |            |               | 14,407,068 |           
|General partners capital accounts   |                                       |                                       | 33,894                          |            |            |               | 26,869     |           
|                                     |                                       |                                       |                                 |            |            |              
|                                     |                                       | Total partners capital               |                                 |            | 13,761,961 |               |            |            | 14,433,937   | 
|                                     |                                       |                                       |                                 |            |            |              
|                                     |                                       | Total liabilities & partners capital |                                 | $          | 22,217,337 |               |            | $          | 22,769,263   | 
|                                     |                                       |                                       |                                 |            |            |              

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

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

|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |           |           |   |           |           |           | 
|---------------------------------------------------------------- | --------------------------------------- | ---------------------------------- | ------- | ------------------ | ------- | - | ----------------- | ------- | ------- | ---- | ------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                 |                                         |                                    |         | Three months ended |         |   | Nine months ended |        
|                                                                 |                                         |                                    |         | September 30,      |         |   | September 30,     |        
|                                                                 |                                         |                                    |         |                    |         |   |                   |        
|                                                                 |                                         |                                    |         | 2001               |         |   | 2000              |         |         | 2001 |         |           | 2000      |  
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |           |           |  
|Operating revenue:                                               |                                         |                                    |         |                    |         |   |                   |         |         |      |         |           |           |   |           |          
|                                                                 | Rental income                           |                                    | $       | 546,900            |         |   | $                 | 573,732 |         |      | $       | 1,628,887 |           |   | $         | 1,732,360 |          
|                                                                 | Finance income                          |                                    |         | 28,325             |         |   |                   | 48,158  |         |      |         | 96,496    |           |   |           | 154,887   |          
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|                                                                 |                                         | Total operating revenue            |         |                    | 575,225 |   |                   |         | 621,890 |      |         |           | 1,725,383 |   |           |           | 1,887,247 | 
|Operating costs and expenses:                                    |                                         |                                    |         |                    |         |   |                   |         |         |      |         |           |           |   |           |          
|                                                                 | Interest expense                        |                                    |         | 185,133            |         |   |                   | 179,276 |         |      |         | 551,757   |           |   |           | 552,166   |          
|                                                                 | Depreciation                            |                                    |         | 73,737             |         |   |                   | 73,737  |         |      |         | 221,210   |           |   |           | 221,210   |          
|                                                                 | General and administrative              |                                    |         | 28,879             |         |   |                   | 19,955  |         |      |         | 69,845    |           |   |           | 51,964    |          
|                                                                 | Provision for unbilled rent             |                                    |         |                   |         |   |                   |        |         |      |         | 92,908    |           |   |           |          |          
|                                                                 | Provision for impaired financing leases |                                    |         |                   |         |   |                   |        |         |      |         | 77,000    |           |   |           |          |          
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|                                                                 |                                         | Total operating costs and expenses |         |                    | 287,749 |   |                   |         | 272,968 |      |         |           | 1,012,720 |   |           |           | 825,340   | 
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|                                                                 |                                         | Income from operations             |         |                    | 287,476 |   |                   |         | 348,922 |      |         |           | 712,663   |   |           |           | 1,061,907 | 
|Other income (expense):                                          |                                         |                                    |         |                    |         |   |                   |         |         |      |         |           |           |   |           |          
|                                                                 | Interest and other income               |                                    |         | 3,550              |         |   |                   | 3,150   |         |      |         | 8,075     |           |   |           | 6,059     |          
|                                                                 | (Loss) gain on sale of equipment        |                                    |         |                   |         |   |                   |        |         |      |         | (18,271   | )         |   |           | 15,000    |          
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|                                                                 |                                         | Total other income (expense)       |         |                    | 3,550   |   |                   |         | 3,150   |      |         |           | (10,196   | ) |           |           | 21,059    | 
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|Net income                                                       |                                         |                                    | 291,026 |                    |         |   | 352,072           |         |         |      | 702,467 |           |           |   | 1,082,966 |          
|Net income allocable to general partner                          |                                         |                                    | 2,910   |                    |         |   | 3,521             |         |         |      | 7,025   |           |           |   | 10,830    |          
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|Net income allocable to limited partners                         |                                         | $                                  | 288,116 |                    |         | $ | 348,551           |         |         | $    | 695,442 |           |           | $ | 1,072,136 |          
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|Net income per limited partnership unit                          |                                         | $                                  | 14.52   |                    |         | $ | 17.53             |         |         | $    | 35.05   |           |           | $ | 53.92     |          
|                                                                 |                                         |                                    |         |                    |         |   |                   |         |         |      |         |          
|Weighted average number of limited partnership
units outstanding |                                         |                                    | 19,842  |                    |         |   | 19,884            |         |         |      | 19,842  |           |           |   | 19,884    |          

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, 2001
(Unaudited)

|                                  |  |           |        |  |           |   |            |           |  |   |           |  |  |   |            |  
|--------------------------------- |  | --------- | ------ |  | --------- | - | ---------- | --------- |  | - | --------- |  |  | - | ---------- | -
|                                  |  | Limited   |        |  | Limited   |   |            | General   |  |   | Total     | 
|                                  |  | Partners' |        |  | Partners' |   |            | Partner's |  |   | Partners' | 
|                                  |  | Units     |        |  | Accounts  |   |            | Accounts  |  |   | Capital   | 
|                                  |  |           |        |  |           |   |            |           |  |   |           | 
|Balance, December 31, 2000        |  |           | 19,842 |  |           | $ | 14,407,068 |           |  | $ | 26,869    |  |  | $ | 14,433,937 |  
|Distributions  ($69.27 per unit) |  |           |       |  |           |   | (1,374,443 | )         |  |   |          |  |  |   | (1,374,443 | )
|Net income                        |  |           |       |  |           |   | 695,442    |           |  |   | 7,025     |  |  |   | 702,467    |  
|                                  |  |           |        |  |           |   |            |           |  |   |           | 
|Balance, September 30, 2001       |  |           | 19,842 |  |           | $ | 13,728,067 |           |  | $ | 33,894    |  |  | $ | 13,761,961 |  
|                                  |  |           |        |  |           |   |            |           |  |   |           | 

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

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Captec Franchise Capital Partners L.P. III
Statement of Cash Flows
for the nine months ended September 30, 2001 and 2000
(Unaudited)

|                                               |                                        |                                                              |            |            |         |   |            |            |          |  
|---------------------------------------------- | -------------------------------------- | ------------------------------------------------------------ | ---------- | ---------- | ------- | - | ---------- | ---------- | -------- | -
|                                               |                                        |                                                              |            | 2001       |         |   | 2000       |           
|                                               |                                        |                                                              |            |            |         |   |            |           
|Cash flows from operating activities:          |                                        |                                                              |            |            |         |   |            |           
|                                               | Net Income                             |                                                              | $          | 702,467    |         |   | $          | 1,082,966  |         
|                                               | Adjustments to net income:             |                                                              |            |            |         |   |            |            |         
|                                               |                                        | Depreciation                                                 |            |            | 221,210 |   |            |            | 221,210  |  
|                                               |                                        | Amortization of debt issuance costs                          |            |            | 35,843  |   |            |            | 35,843   |  
|                                               |                                        | Loss (gain) on sale of equipment                             |            |            | 18,271  |   |            |            | (15,000  | )
|                                               |                                        | Provision for credit losses                                  |            |            | 77,000  |   |            |            |         |  
|                                               |                                        | Increase in unbilled rent                                    |            |            | (60,425 | ) |            |            | (182,028 | )
|                                               |                                        | (Increase) decrease in accounts receivable                   |            |            | (3,228  | ) |            |            | 50,567   |  
|                                               |                                        | Increase (decrease) in accounts payable and accrued expenses |            |            | 57,539  |   |            |            | (17,247  | )
|                                               |                                        | Increase in restricted cash                                  |            |            | (92,944 | ) |            |            | (42,113  | )
|                                               |                                        | (Increase) decrease in due from related parties              |            |            | (5,524  | ) |            |            | 2,334    |  
|                                               |                                        | Increase (decrease) in due to related parties                |            |            | 151,054 |   |            |            | (23,342  | )
|                                               |                                        |                                                              |            |            |         |  
|Net cash provided by operating activities      |                                        |                                                              | 1,101,263  |            |         |   | 1,113,190  |           
|                                               |                                        |                                                              |            |            |         |  
|Cash flows from investing activities:          |                                        |                                                              |            |            |         |   |            |           
|                                               | Proceeds from sale of equipment        |                                                              |            | 267,745    |         |   |            | 75,000     |         
|                                               | Principal payments on financing leases |                                                              |            | 183,883    |         |   |            | 349,337    |         
|                                               |                                        |                                                              |            |            |         |  
|Net cash provided by investing activities      |                                        |                                                              | 451,628    |            |         |   | 424,337    |           
|                                               |                                        |                                                              |            |            |         |  
|Cash flows from financing activities:          |                                        |                                                              |            |            |         |   |            |           
|                                               | Repayments of notes payable            |                                                              |            | (88,543    | )       |   |            |           |         
|                                               | Distributions to limited partners      |                                                              |            | (1,374,443 | )       |   |            | (1,626,255 | )       
|                                               | Distributions to general partner       |                                                              |            |           |         |   |            | (5,326     | )       
|                                               |                                        |                                                              |            |            |         |  
|Net cash used in financing activities          |                                        |                                                              | (1,462,986 | )          |         |   | (1,631,581 | )         
|                                               |                                        |                                                              |            |            |         |  
|Net increase in cash and cash equivalents      |                                        |                                                              | 89,905     |            |         |   | (94,054    | )         
|Cash and cash equivalents, beginning of period |                                        |                                                              | 95,992     |            |         |   | 327,903    |           
|                                               |                                        |                                                              |            |            |         |  
|Cash and cash equivalents, end of period       |                                        | $                                                            | 185,897    |            |         | $ | 233,849    |           
|                                               |                                        |                                                              |            |            |         |  

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 or double net basis, primarily to
operators of national and regional chain and nationally franchised fast
food and family style restaurants, as well as other national and regional
retail chains. The general partners of the Partnership upon formation of
the Partnership were Captec Franchise Capital Corporation III (the
Corporation), a wholly owned subsidiary of Captec Financial Group, Inc.
(Captec), and Patrick L. Beach, an individual, hereinafter collectively
referred to as the Sponsor. Patrick L. Beach is also the Chairman of the
Board of Directors, President and Chief Executive Officer of the
Corporation and Captec. In August, 1998 the general partnership interest
of the Partnership was acquired by Captec Net Lease Realty, Inc., an
affiliate of Captec, for $1,483,000.
|  
|   |  | The Partnership commenced a public offering of 20,000 limited partnership
interest units on August 12, 1994 and reached final funding in August,
1996. Net proceeds after offering expenses were approximately $17.4
million. During 1997, the Partnership repurchased a total of 37 units
for $31,450, or 85% of the investors capital account. During 1999, the
Partnership repurchased 79 units for $59,625, or 75% of the investors
capital account. An additional 42 Units were repurchased in December 2000
for $28,432, or 69% of the investors capital account. The repurchase of
the units was completed pursuant to the terms of the Repurchase Plan set
forth in the Partnerships Prospectus. At September 30, 2001, the
Partnership had 19,842 units issued and outstanding.                                                                                                                                                                                                                                                                      
|  
|   |  | Allocation of profits, losses and cash distributions from operations and
cash distributions from sale or refinancing are made pursuant to the
terms of the Partnership Agreement. Profits and losses from operations
are allocated among the limited partners based upon the number of Units
owned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The balance sheet of the Partnership as of September 30, 2001 and the
statements of operations and cash flows for the periods ending September
30, 2001 and 2000 have not been audited. In the opinion of the
Management, these unaudited financial statements contain all adjustments
necessary to present fairly the financial position and results of
operations and cash flows of the Partnership for the periods then ended.
Results of operations for the interim periods are not necessarily
indicative of results for the full year. These unaudited financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Partnerships annual report on Form
10-KSB for the year ended December 31, 2000 filed with the United States
Securities and Exchange Commission on March 30, 2001.                                                                                                                                                                                                                
|  
|2. |  | LAND AND BUILDING SUBJECT TO OPERATING LEASES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | The net investment in operating leases as of September 30, 2001 is
comprised of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                              |  |   |            |  
|----------------------------- |  | - | ---------- | -
|Land                          |  | $ | 8,163,346  |  
|Building and improvements     |  |   | 11,796,894 |  
|                              |  |   |           
|                              |  |   | 19,960,240 |  
|Less accumulated depreciation |  |   | (1,371,508 | )
|                              |  |   |           
|Total                         |  | $ | 18,588,732 |  
|                              |  |   |           

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS



|3. |  | NET INVESTMENT IN FINANCING LEASES:                                                           
|-- |  | ----------------------------------------------------------------------------------------------
|  
|   |  | The net investment in financing leases as of September 30, 2001 is
comprised of the following:

|                                      |  |   |           |  
|------------------------------------- |  | - | --------- | -
|Minimum lease payments to be received |  | $ | 1,411,696 |  
|Estimated residual value              |  |   | 89,678    |  
|                                      |  |   |          
|Gross investment in financing leases  |  |   | 1,501,374 |  
|Less unearned income                  |  |   | (183,106  | )
|Less direct origination costs         |  |   | (45,494   | )
|                                      |  |   |          
|Net investment in financing leases    |  | $ | 1,272,774 |  
|                                      |  |   |          



|4. |  | NOTES PAYABLE:                                                                                                                                                                                                                                                                              
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In November, 1998, the Partnership entered into a $6.2 million term note,
the proceeds of which were used to acquire additional properties. The
note has a 10-year term, is collateralized by certain properties subject to
operating leases, and bears an interest rate of 8.37% per annum.
|  
|   |  | In March, 1999, the Partnership entered into an additional $2.0 million
term note. The note also has a 10-year term, is collateralized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.                                                     
|  
|   |  | Debt issuance costs of approximately $478,000 in aggregate were incurred
in connection with the issuance of the notes, and are being amortized
using the straight-line method over the 10-year term.                                                                                        

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I  FINANCIAL INFORMATION






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

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

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

RESULTS OF OPERATIONS

Three Months Ended September 30, 2001.During the three months ended
September 30, 2001 total operating revenue decreased 7.5% to approximately
$575,000 as compared to approximately $622,000 for the three months ended
September 30, 2000. Rental revenue from operating leases for the three months
ended September 30, 2001 decreased 4.7% to approximately $547,000 as compared
to approximately $574,000 for the three months ended September 30, 2000 due to the impairment of the Raleigh, North Carolina Boston Market property.
Earned income from financing leases for the three months ended September 30,
2001 decreased 41.2% to approximately 28,000 as compared to approximately
$48,000 for the three months ended September 30, 2000 as a result of the
disposition of one equipment lease in January 2001 as well as amortization of
principal balances.

Operating expenses increased 5.4% to approximately $288,000 for the three
months ended September 30, 2001 as compared to approximately $273,000 for the
three months ended September 30, 2000. The increase in operating expenses for
the three months ended September 30, 2001 is due to real estate taxes paid for
the impaired Boston Market property.

Other income for the three months ended September 30, 2001 was approximately
$4,000 as compared to approximately $3,000 for the three months ended September
30, 2000. Other income includes late fees and miscellaneous income.

As a result of the foregoing, the
Partnerships net income decreased 17.3% to
approximately $291,000 for the three months ended September 30, 2001 as
compared to approximately $352,000 for the three months ended September 30,
2000.

Nine Months Ended September 30, 2001.During the nine months ended September
30, 2001 total operating revenue decreased 8.6% to approximately
$1,725,000 as
compared to approximately $1,887,000 for the nine months ended September 30,
2000. Rental revenue from operating leases for the nine months ended September
30, 2001 decreased 6.0% to approximately $1,629,000 as compared to
approximately

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I  FINANCIAL INFORMATION

$1,732,000 for the nine months ended September 30, 2000 due to the impairment of
the Raleigh, North Carolina Boston Market property. Earned income from
financing leases for the nine months ended September 30, 2001 decreased 37.7%
to approximately $96,000 as compared to approximately $155,000 for the nine
months ended September 30, 2000 as a result of the disposition of two equipment
leases, one in April 2000 and the other in January 2001, as well as the
amortization of principal balances.

Operating expenses increased 22.7% to approximately $1,013,000 for the nine
months ended September 30, 2001, as compared to approximately $825,000 for the
nine months ended September 30, 2000. The increase is principally due to a
reserve for unbilled rent of approximately $93,000 and a reserve for impaired
financing leases of $77,000, both of which were non-recurring charges incurred
in the first quarter of 2001.

The reserve for unbilled rent is for the Raleigh, North Carolina Boston Market
property, which was vacated by Platinum Properties in January 2001. The
Partnership recognized a one-time charge of approximately $93,000 to write-off
the unbilled rent related to this lease and is seeking a new tenant for the property.

The reserve for impaired financing leases relates to the equipment contract
with Olajuwon Holdings, which has filed under Chapter 11 bankruptcy. The
Partnership is in the process of selling the equipment and has reserved for a
loss of $77,000, based upon the estimated proceeds expected to be realized from
that sale.

Other expense for the nine months ended September 30, 2001 was approximately
$10,000 as compared to other income of approximately $21,000 for the nine
months ended September 30, 2000. The other expense is primarily due to a loss
on the sale of equipment during the nine months ended September 30, 2001. The
other income for the nine months ended September 30, 2000 is primarily due to a
gain on the sale of equipment.

As a result of the foregoing, the Partnerships net income decreased 35.1% to
approximately $702,000 for the nine months ended September 30, 2001 as compared
to approximately $1,083,000 for the nine months ended September 30, 2000.
Exclusive of non-recurring items described above, the Partnerships net income
decreased approximately 19.4% for the nine months ended September 30, 2001 as
compared to the same period in 2000.

Distributions.The Partnership announced third quarter distributions of
$340,000, of which $289,933 was distributed to its Limited Partners on October
15, 2001. The balance of $50,067 was distributed to those partners who elected
to receive distributions on a monthly basis on August 15, 2001 and September
14, 2001.

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I  FINANCIAL INFORMATION

LIQUIDITY AND CAPITAL COMMITMENTS

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

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

At September 30, 2001 the Partnership had a portfolio of 15 properties located
in 10 states, with a cost of $20.0 million, and 8 performing equipment leases
with an original investment of $2.3 million. As of September 30, 2001 the
Partnerships investments were allocated approximately 87% to properties and
13% to equipment.

In December of 2000, Platinum Properties, LLC abandoned the Boston Market
property in Raleigh, North Carolina. Annualized rent prior to abandonment was
approximately $124,000. The Partnership is seeking a new tenant for the property.

The Partnership has two impaired equipment leases at September 30, 2001, with a
recorded investment of $488,097 offset by an impairment allowance of $230,837.
The net investment in the impaired leases represent the estimated net proceeds
that the Partnership expects to receive from the sale or re-leasing of these
assets.

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

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.None.

ITEM 2. CHANGES IN SECURITIES.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.None.

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

ITEM 5. OTHER INFORMATION.Captec Net Lease Realty, Inc. (CRRR), the general
partner of Captec Franchise Capital Partners L.P. III (the Partnership), has
entered into a definitive merger agreement with Commercial Net Lease Realty,
Inc. (NYSE: NNN). The proposed merger is expected to close in the fourth
quarter of 2001. In connection with the merger, CRRR has agreed to sell its
general partnership interest in the partnership to a wholly-owned subsidiary of
CRC Asset Acquisition LLC which is a Michigan limited liability company of
which Patrick L. Beach, the Chairman of the Board of Directors and President
and Chief Executive Officer of CRRR, is the sole member. This will insure
continuity of the management of the Partnership following the acquisition of
CRRR by CNL pursuant to the merger.

In recognition of the above facts and to facilitate the transaction, an
affiliate of Mr. Beach will purchase, immediately after the closing of the
merger, certain non-real estate assets of CRRR and assume liabilities
associated with those assets. The assets to be purchased by Mr. Beach include
the general partners interest in the Partnership.

In order to complete this transition, the limited partners will need to consent
to the transfer of the general partner interest to the affiliate of Mr. Beach.
A proxy statement regarding this consent has been filed with the Securities and
Exchange Commission. Once declared effective, the proxy statement will be
mailed to all limited partners.

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART II  OTHER INFORMATION

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



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

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



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

There were no reports filed on Form 8-K for the quarter ended September
30, 2001.

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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 Net Lease Realty, Inc.             
| |       |  | Managing General Partner of               
| |       |  | Captec Franchise Capital Partners L.P. III
|
| | By:   |  | /s/ W. Ross Martin                        
|
| |       |  | W. Ross Martin                            
| |       |  | Executive Vice President,                 
| |       |  | Chief Financial Officer                   
|
| | Date: |  | November 14, 2001                         

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