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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 June 30, 2007
 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
 þ o
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 Not applicable
 o o
 APPLICABLE ONLY TO CORPORATE ISSUERS
 Not applicable
 o þ




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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:Statements of Net Assets in Liquidation (liquidation basis)
at June 30, 2007 (unaudited) and December 31, 2006
    
    
    3Statement of Changes in Net Assets in Liquidation
(liquidation basis) (unaudited) for the three and  six months ended
June 30, 2007
    
    
    4Statements of Discontinued Operations (going concern basis)
(unaudited) for the three and six months ended June 30,
2006
    
    
    5Statements of Cash Flows (unaudited) for the six months
ended June 30, 2007 (liquidation basis) and 2006 (going
concern basis)
    
    
    6Notes to Financial Statements
    
    
    7  9Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    9-11Item 3. Controls and Procedures
    
    
    11PART II OTHER INFORMATIONOther Information
    
    
    12SIGNATURES
    
    
    13CERTIFICATION Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 302
    
    
    14-16Certification Pursuant to Section 906Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
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Captec Franchise Capital Partners L.P. III
 
 Statements of Net Assets in Liquidation (Liquidation Basis)
 June 30,
    
    
    December 31,2007
    
    
    2006AssetsCash and cash equivalents
    
    $
    268,587
    
    
    $
    1,531,355Due from related parties
    
    
    151
    
    
    
    151Total assets
    
    
    268,738
    
    
    
    1,531,506Liabilities and Net Assets in LiquidationLiabilities:Reserve for estimated
costs during
liquidation period
    
    
    231,546
    
    
    
    315,782Total liabilities
    
    
    231,546
    
    
    
    315,782Net assets in liquidation
    
    $
    37,192
    
    
    $
    1,215,724
 The accompanying notes are an integral part of the financial statements.
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Captec Franchise Capital Partners L.P. III
 
 Consolidated Statement of Changes in Net Assets in
Liquidation (Liquidation Basis)
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2007
    
    
    June 30, 2007Net assets in liquidation  beginning of period
    
    $
    313,784
    
    
    $
    1,215,724Distributions to limited partners
    
    
    (250,000
    )
    
    
    (1,150,000
    )Net change in net assets in liquidation
    
    
    (26,592
    )
    
    
    (28,532
    )Net assets in liquidation  June 30, 2007
    
    $
    37,192
    
    
    $
    37,192
 The accompanying notes are an integral part of the financial statements.
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##### Table of Contents



Captec Franchise Capital Partners L.P. III
 
 Statements of Discontinued Operations
 (Going Concern Basis)
 Three months
    
    
    Six monthsended
    
    
    endedJune 30,
    
    
    June 30,2006
    
    
    2006Operating revenue:Rental income
    
    $
    33,075
    
    
    $
    66,150Operating costs and expenses:Depreciation
    
    
    5,530
    
    
    
    11,060Provision for impaired operating lease
    
    
    34,978
    
    
    
    34,978General and administrative
    
    
    58,104
    
    
    
    113,350Total operating costs and expenses
    
    
    98,612
    
    
    
    159,388Other income:Gain on sale of real estate
    
    
    
    
    
    
    428,852Interest and other income
    
    
    18,835
    
    
    
    34,295Total other income
    
    
    18,835
    
    
    
    463,147Net (loss) income
    
    $
    (46,702
    )
    
    $
    369,909Net (loss) allocable to general partner
    
    $
    (467
    )
    
    $
    (589
    )Net (loss) income allocable to limited partners
    
    $
    (46,235
    )
    
    $
    370,498Net loss from continued operations per limited partnership unit
    
    $
    (2.35
    )
    
    $
    (2.97
    )Net income from discontinued operations per limited partnership
unit
    
    $
    
    
    
    $
    21.84Net (loss) income per limited partnership unit
    
    $
    (2.35
    )
    
    $
    18.87Weighted average number of limited partnership
units outstanding
    
    
    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
 
 Statements of Cash Flows
  Liquidation
    
    
    Going ConcernBasis
    
    
    Basis2007
    
    
    2006Cash flows from operating activities:Change in net assets in liquidation from operating activity
    
    $
    (28,532
    )
    
    $
    Change in reserve for estimated costs during liquidation period
    
    
    43,289
    
    
    
    Cash payments made against reserve
    
    
    (127,525
    )
    
    
    Net income
    
    
    
    
    
    
    369,909Adjustments to net income:Depreciation
    
    
    
    
    
    
    11,060Provision for impaired operating lease
    
    
    
    
    
    
    34,978Gain on sale of real estate
    
    
    
    
    
    
    (428,852
    )Decrease in unbilled rent
    
    
    
    
    
    
    770Decrease in accounts payable and accrued expenses
    
    
    
    
    
    
    (507
    )Decrease in due to related parties
    
    
    
    
    
    
    (142,002
    )Net cash used in operating activities
    
    
    (112,768
    )
    
    
    (154,644
    )Cash flows from investing activities:Net proceeds from sale of real estate
    
    
    
    
    
    
    1,601,950Net cash provided by investing activities
    
    
    
    
    
    
    1,601,950Cash flows from financing activities:Distributions to limited partners
    
    
    (1,150,000
    )
    
    
    (1,880,000
    )Net cash used in financing activities
    
    
    (1,150,000
    )
    
    
    (1,880,000
    )Net (decrease) in cash and cash equivalents
    
    
    (1,262,768
    )
    
    
    (432,694
    )Cash and cash equivalents, beginning of period
    
    
    1,531,355
    
    
    
    935,510Cash and cash equivalents, end of period
    
    $
    268,587
    
    
    $
    502,816
 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 upon formation of the Partnership were Captec Franchise
Capital Corporation III (the Corporation), a wholly-owned subsidiary of Captec Financial
Group, Inc. (Captec), an affiliate, and Patrick L. Beach, the Chairman of the Board of
Directors, President and Chief Executive Officer of the Corporation and Captec. In August
1998, Captec Net Lease Realty, Inc. (Captec Net Lease Realty), an affiliate, acquired the
general partnership interests of the Partnership. In December 2001, Captec Net Lease Realty
merged with and into Commercial Net Lease Realty, Inc. (Commercial Net Lease). In
connection with the merger, Commercial Net Lease agreed to sell and assign its general
partnership interest in the Partnership to GP3 Asset Acquisition, LLC (GP3 Asset
Acquisition), which is wholly-owned by Mr. Beach and is an affiliate of Captec. Effective
January 15, 2002, the limited partners consented to the transfer of the general partnership
interest. On September 11, 2003, the Partnerships secured lender consented to the
transfer of the general partnership interest to GP3 Asset Acquisition. Upon receipt of the
secured lenders consent, the general partnership interest was immediately transferred to
GP3 Asset Acquisition. Therefore, as of September 11, 2003, GP3 Asset Acquisition became
the general partner of the Partnership.The Partnership commenced a public offering (the Offering) of up to 20,000 units (the
Units) of limited partnership interests, priced at $1,000 per Unit, by means of a
Registration Statement on Form SB-2, under the Securities Act of 1933, as amended, which
was declared effective by the Securities and Exchange Commission on August 12, 1994. The
Partnership accepted subscriptions for the minimum number of Units on January 24, 1995 and
immediately commenced operations. The Offering was fully subscribed in August 1996. Since
1997, 367 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 June 30, 2007, the Partnership had 19,633 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
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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,
(iii) the calculation ignores the timing of repurchases, and (iv) liquidating distributions
are determined based on the tax account balances of the partners per the Partnership
agreement.
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KSB for the year ended December 31, 2006 filed with the United States Securities and
Exchange Commission on March 29, 2007.2.
    
    LAND AND BUILDING SUBJECT TO OPERATING LEASES:As of June 30, 2007 and December 31, 2006, the Partnership has liquidated all of its land
and buildings subject to operating leases.LeasesReal Estate Leases:All of the properties were subject to triple net leases pursuant to
which the tenant was responsible for all expenses related to the cost of operating the
Properties, including real estate taxes, insurance, maintenance and repair costs.
Certain of the leases provided the tenant with one or more options to renew the lease upon
expiration of the base term at predetermined or market rental rates.On January 3, 2006, the Partnership sold the property located in Ewing, New Jersey and the
related lease for net sale proceeds of approximately $1.6 million, resulting in a gain of
approximately $429,000. There were no debt retirement costs associated with the disposition
of this property.
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
 Three Months Ended June 30, 2007
  Three Months Ended June 30, 2006
     Six Months Ended June 30, 2007
  Six months ended June 30, 2006
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LIQUIDITY AND CAPITAL COMMITMENTS
   
 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 March 31, 1999 between Registrant and National Realty
Funding L.C. (Incorporated by reference to the corresponding exhibit in the
Registrants Form 10-QSB for the quarter ended March 31, 1999)31
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
  By:
    
    Captec Franchise Capital Partners L.P. IIIGP3 Asset Acquisition, LLCIts ManagerBy:
    
    /s/ Patrick L. BeachPatrick L. BeachPresidentDate:
    
    August 10, 2007
 13