<PAGE>


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

                                   FORM 10-QSB


                  QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002


                                   ----------





                        Commission file number: 333-80537


                        TRANSITION AUTO FINANCE III, INC.
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)



<Table>
<S>                                                                    <C>
                         TEXAS                                                        75-2822804
               (State of incorporation)                                 (I.R.S. employer identification number)


           8144 Walnut Hill Lane, SUITE 680,
                     DALLAS, TEXAS                                                       75231
       (Address of principal executive offices)                                       (Zip code)
</Table>



                  Issuer's telephone number, including area code: (214) 360-9966

Check 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 past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ]  No [X]


State the number of shares outstanding of each of the issuer's classes of Common
equity, as of the latest practicable date: As June 30, 2002, the issuer' had
1,000 shares of common stock



    TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMS (CHECK ONE): YES [ ] NO [X]



================================================================================

<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                                   FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2002


<Table>
<Caption>
                                                                                                           Page No.
                                                                                                           --------
<S>                                                                                                        <C>
PART I.  FINANCIAL INFORMATION

         ITEM 1.  Financial Statements

              Balance Sheets......................................................................................3
                June 30, 2002 (Unaudited) and December 31, 2001

              Statements of Income (Unaudited)....................................................................5
                Quarter and six months ended June 30, 2002 and June 30, 2001

              Statements of Cash Flows (Unaudited)................................................................6
                Six Months ended June 30, 2002 and June 30, 2001

              Notes to Consolidated Financial Statements (Unaudited)..............................................7

         ITEM 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations......................................................................11

PART II. OTHER INFORMATION

         ITEM 1.  Legal Proceedings..............................................................................12

         ITEM 2.  Changes in Securities and Use of Proceeds......................................................13

         ITEM 3.  Defaults Upon Senior Securities................................................................13

         ITEM 4.  Submission of Matters to a Vote of Security Holders............................................13

         ITEM 5.  Other Information..............................................................................13

         ITEM 6.  Exhibits and Reports on Form 8-K...............................................................13


         Signatures..............................................................................................14
</Table>



         In the Opinion of management, all adjustments necessary to a fair
statement of the results for interim periods presented have been reflected in
these financial statements.









                                       2
<PAGE>
                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                        TRANSITION AUTO FINANCE III, INC.

                                 BALANCE SHEETS

                                     ASSETS

<Table>
<Caption>
                                                                            6 months ended              FYE
                                                                               6/30/2002             12/31/2001
                                                                              (unaudited)           (See Note 1)
                                                                             ------------           ------------

<S>                                                                          <C>                    <C>
CURRENT ASSETS
  Cash and cash equivalents                                                  $    185,027           $    181,867
  Other Assets                                                                      4,926                  2,583
  Accounts receivable                                                             428,174                332,026
  Vehicles held for sale                                                          341,379                398,709
                                                                             ------------           ------------
      Total Current Assets                                                        959,506                915,185

PROPERTY, at cost
  Vehicles leased                                                               5,597,724              5,568,662
  Less accumulated depreciation                                                (1,286,836)              (976,390)
                                                                             ------------           ------------
      Net Property                                                              4,310,888              4,592,272
                                                                             ------------           ------------

OTHER ASSETS
  Debt issuance costs, net of amortization of $358,653 and $277,170               407,420                488,904
  Due from Associates                                                              20,620                 39,061
                                                                             ------------           ------------
      Total Other Assets                                                          428,040                527,965
                                                                             ------------           ------------


TOTAL ASSETS                                                                 $  5,698,434           $  6,035,422
                                                                             ============           ============
</Table>



                                       3
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                           BALANCE SHEETS (Continued)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



<Table>
<Caption>
                                                      6 Months Ended              FYE
                                                         6/30/2002             12/31/2001
                                                        (Unaudited)           (See Note 1)
                                                       ------------           ------------
<S>                                                    <C>                    <C>
CURRENT LIABILITIES
  Accrued liabilities                                  $    102,975           $     93,915
  Current portion of deferred revenue                       269,504                282,821
                                                       ------------           ------------
        Total Current Liabilities                           372,479                376,736

OTHER LIABILITIES
  Due to affiliate                                          112,607                 52,255
  Deferred revenue                                          376,816                430,272
  Investor notes payable                                  6,786,000              6,786,000
                                                       ------------           ------------
        Total Other Liabilities                           7,275,423              7,268,527

TOTAL LIABILITIES                                         7,647,902              7,645,263
                                                       ------------           ------------

STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $.10 par value, 1,000 shares
      authorized, issued and outstanding                        100                    100
   Additional paid-in capital                                   900                    900
   Retained earnings (deficit)                           (1,950,468)            (1,610,841)
                                                       ------------           ------------
        Total Stockholders' Equity (Deficit)             (1,949,468)            (1,609,841)
                                                       ------------           ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)                                           $  5,698,434           $  6,035,422
                                                       ============           ============
</Table>

         Note 1: The balance sheet at December 31, 2001, as presented, is
         derived from the audited financial statements at that date.

         See accompanying notes to financial statements.




                                       4
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                              STATEMENTS OF INCOME

                                   (Unaudited)


<Table>
<Caption>
                                                 Quarter Ended      Six Months Ended       Quarter Ended      Six Months Ended
                                                 June 30, 2002        June 30, 2002        June 30, 2001        June 30, 2001
                                                ---------------     ----------------      ---------------     ----------------

<S>                                             <C>                 <C>                   <C>                 <C>
REVENUES

  Vehicle monthly lease payments                $       406,775      $       828,613      $       363,960      $       728,288
  Amortization of down payments                         152,402              326,429              115,193              285,578
                                                ---------------      ---------------      ---------------      ---------------

        Total Revenues                                  559,177            1,155,042              479,153            1,013,866
                                                ---------------      ---------------      ---------------      ---------------

OPERATING EXPENSES

  Operating costs                                       112,657              225,857              122,678              243,502
  General and administrative                             25,713               65,178               51,679               61,631
  Depreciation and amortization                         298,590              610,671              292,441              582,016
  Impairment loss                                           -0-                  -0-                  -0-                  -0-
                                                ---------------      ---------------      ---------------      ---------------

        Total Operating Expenses                        436,960              901,706              466,798              887,149
                                                ---------------      ---------------      ---------------      ---------------

Operating Income (Loss)                                 122,217              253,336               12,355              126,717
                                                ---------------      ---------------      ---------------      ---------------

OTHER INCOME (EXPENSE)

Investment income                                           227                  411                9,527               22,253
Other income (expense)                                       22                   61                   55                  125
Interest expense                                       (186,667)            (373,370)            (186,674)            (376,151)
Loss on sale of inventory                              (110,976)            (220,064)             (92,953)            (147,203)
                                                ---------------      ---------------      ---------------      ---------------
        Total Other Income (Expense)                   (297,394)            (592,962)            (270,045)            (500,976)
                                                ---------------      ---------------      ---------------      ---------------

Provision for Federal Income Taxes                          -0-                  -0-                  -0-                  -0-
                                                ---------------      ---------------      ---------------      ---------------

Net Loss                                        $      (175,177)     $      (339,626)     $      (257,690)     $      (374,259)
                                                ===============      ===============      ===============      ===============

Profit (Loss) per share (basic and diluted)     $       (175.18)     $       (339.63)     $       (257.69)     $       (374.26)
</Table>



See accompanying notes to financial statements.




                                       5
<PAGE>
                        TRANSITION AUTO FINANCE III, INC.

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)


<Table>
<Caption>
                                                               6 Months Ended    6 Months Ended
                                                               June 30, 2002      June 30, 2001
                                                               --------------    --------------
<S>                                                             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                        $   (339,626)     $   (374,259)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                   610,671           582,016
     Amortization of down payments                                  (326,429)         (285,578)
     Impairment loss                                                     -0-               -0-
     Provision for allowance for doubtful accounts                       -0-               -0-
     (Gain) loss on sale of property                                 220,064           147,203
Net changes in operating assets and liabilities:
     Accounts receivable                                             (96,147)          (14,939)
     Other Assets                                                     (2,343)                0
     Accrued liabilities                                               9,060           168,877
     Deferred revenue                                                259,656           319,765
                                                                ------------      ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                     334,906           543,085
                                                                ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                       (1,151,200)       (1,701,846)
   Cash proceeds from sale of property                               777,543           576,686
                                                                ------------      ------------
NET CASH (USED) BY INVESTING ACTIVITIES                             (373,657)       (1,125,160)
                                                                ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net advances (payments) to affiliates                              41,911           (73,766)
   Debt issuance costs                                                   -0-           (22,799)
   Proceeds from notes payable                                           -0-           295,000
                                                                ------------      ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             41,911           198,435
                                                                ------------      ------------

NET INCREASE (DECREASE) IN CASH                                        3,160          (383,640)

CASH AND CASH EQUIVALENTS, beginning of period                       181,867         1,314,761
                                                                ------------      ------------

CASH AND CASH EQUIVALENTS, end of period                        $    185,027      $    931,121
                                                                ============      ============

CASH PAID DURING THE YEAR FOR
   Interest                                                     $    311,824      $    370,216
                                                                ============      ============
   Income taxes                                                 $        -0-      $        -0-
                                                                ============      ============
</Table>


See accompanying notes to financial statements.

NON-CASH INVESTING ACTIVITIES

Vehicles with a net book value of $275,544 were reclassified from vehicles
leased to vehicles held for resale as of June 30, 2002.

NON-CASH INVESTING ACTIVITIES

Vehicles with a net book value of $7,480 were reclassified from vehicles leased
to vehicles held for resale as of June 30, 2001.




                                       6
<PAGE>



                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                  JUNE 30, 2002

NOTE 1:  BUSINESS ACTIVITY

         Transition Auto Finance III, Inc. (the Company) is a Texas corporation
         organized May 26, 1999. The Company was established to purchase motor
         vehicles and automobile lease contracts, collecting and servicing
         automobile lease contracts and remarketing motor vehicles upon
         termination of their leases. Transition Leasing Management, Inc. (TLMI)
         owns 100% of the Company's common stock.

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CASH AND CASH EQUIVALENTS

                  For purposes of the statement of cash flows, the Company
                  considers all highly liquid investments with a maturity of
                  three months or less when purchased to be cash equivalents.

                  The Company maintains cash balances at financial institutions
                  in Dallas, Texas. Accounts at the institutions are insured by
                  the Federal Deposit Insurance Corporation up to $100,000. The
                  Company has not experienced any losses in such accounts and
                  believes it is not exposed to any significant credit risk on
                  cash and cash equivalents.

         REVENUE

                  The vehicles are leased to individuals under leases with terms
                  ranging from thirty-six to forty-eight months. The leases are
                  considered to be operating leases. At the end of the lease
                  period, the lessee may purchase the equipment at the
                  contractual residual value plus any other outstanding items
                  due. Monthly lease payments are recognized as revenue in the
                  month that the payments are due. The vehicle leases require a
                  down payment from the lessee at the inception of the lease.

                  The down payments are initially recorded as deferred revenue
                  and then recognized as income over the term of the leases on a
                  straight-line basis.

         VEHICLES HELD FOR SALE

                  Vehicles held for sale are leased vehicles in which the lease
                  term has expired or that have been repossessed. Vehicles held
                  for sale are valued at the lower of book value or market
                  value. Generally these vehicles will be sold at auction by the
                  Company.




                                       7
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                  JUNE 30, 2002


NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         EQUIPMENT AND LEASED VEHICLES

                  Equipment and leased vehicles are stated at cost less
                  accumulated depreciation. Depreciation is provided in amounts
                  sufficient to relate the cost of depreciable assets to
                  operations over their estimated service lives using the
                  straight-line-method. Leased vehicle depreciation is
                  calculated over the term of the vehicle lease, using the cost
                  of the vehicle less the estimated residual value of the
                  vehicle at the end of the lease. Present leases have terms
                  ranging from thirty-six to forty-eight months.


         OTHER ASSETS

                  Other assets include debt issuance costs incurred in
                  connection with the Company's offering of securities filed
                  with the Securities and Exchange Commission. These costs are
                  being amortized, on a straight-line basis, over the term of
                  the debt securities, which mature on December 31, 2004.

         DEFERRED REVENUE

                  Deferred revenue consists of down payments made by lessees at
                  the inception of the lease. The down payments are amortized
                  over the lease term. Lease terms range from thirty-six to
                  forty-eight months.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

                  Fair values of financial instruments are estimated to
                  approximate the related book value, unless otherwise
                  indicated, based on market information available to the
                  Company.

         USE OF ESTIMATES

                  In preparing the Company's financial statements, management is
                  required to make estimates and assumptions that affect the
                  reported amounts of assets and liabilities, the disclosure of
                  contingent assets and liabilities at the date of the financial
                  statements, and the reported amounts of revenues and expenses
                  during the reporting period. Actual results could differ from
                  these estimates.






                                       8
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                  JUNE 30, 2002

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         CONCENTRATION OF CREDIT RISK

                  A majority of the lessees are residents of the Dallas/Fort
                  Worth Metroplex. Vehicles are used as collateral for leases.

         ACCOUNTING PRONOUNCEMENTS

                  During 2001, the Financial Accounting Standards Board (FASB)
                  issued SFAS No. 143, "Accounting for Asset Retirement
                  Obligations," which is effective for financial statements
                  issued for fiscal years beginning after June 15, 2002. The
                  pronouncement addresses the recognition and remeasurement of
                  obligations associated with the retirement of tangible
                  long-lived assets. In 2001, the FASB issued SFAS No. 144,
                  "Accounting for the Impairment or Disposal of Long-Lived
                  Assets," which is effective for financial statements issued
                  for fiscal years beginning after December 15, 2001. SFAS No.
                  144 supersedes SFAS No. 121, "Accounting for the Impairment of
                  Long-Lived Assets and for Long-Lived Assets to be Disposed
                  Of," and applies to all long-lived assets (including
                  discontinued operations). The Company does not expect these
                  standards to have a material impact on future financial
                  statements or results of operations.


NOTE 3:  INCOME TAXES

         The Company is a corporation subject to federal and state income taxes.
         The Company and its parent intend to file a consolidated tax return.
         Each company in the consolidated group determines its taxable income or
         loss, on a separate company basis, and the consolidated tax liability
         is allocated to each company with taxable income in proportion to the
         total of the taxable income amounts.

         The Company has a deferred tax asset as of December 31, 2001 (primarily
         from net operating loss carryforward), which has been completely offset
         by recognition of a valuation allowance.

         The Company has a net operating loss (NOL) carryforward of
         approximately $951,992 and $382,000 as of December 31, 2001 and 2000
         respectively. The Company's NOL carryforward expires on December 31,
         2021.




                                       9
<PAGE>

NOTE 4:  INVESTOR NOTES PAYABLE

         The Company has issued $6,786,000 of fixed rate redeemable asset-backed
         notes (Investor Notes) as of June 30, 2002.

         These Investor Notes were issued pursuant to a public offering on Form
         SB-2 under the Securities Act of 1933. The Investor Notes bear interest
         at the rate of 11%. Interest is payable monthly on the 15th day of each
         month.

         The Investor Notes were issued at various times during 2001 and 2000,
         however the maturity date for all of the Investor Notes is December 31,
         2004. The Investor Notes, are collateralized by the following:

                  1.       Automobile contracts for the leasing of new or late
                           model automobiles.

                  2.       The leased vehicles.


NOTE 5:  RELATED PARTIES

         The Company has entered into a Servicing Agreement with TLMI. TLMI will
         be entitled to a servicing fee of $20 per month per contract and a
         payment of $150 per contract purchased. TLMI will receive, as a
         marketing fee, 57.5% of the down payment made by the customers with
         respect to contracts it originates. TLMI will receive from the Company
         a Releasing Fee of 57.5% of the down payment with respect to a new
         contract following repossession of a leased vehicle.






                                       10
<PAGE>



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



         The following discussions and analysis relates to factors that have
affected the operating results of the Company for the quarter ended June 30,
2002. The balance sheet at December 31, 2001, as presented, is derived from the
audited financial statements at that date.

General.

         As of June 30, 2002, the Company had sold $6,786,000 of its 11%
Redeemable Secured Notes and had 253 active leases with a net book value of
$4,652,267.

Results of Operations: Three months ended June 30, 2002, compared to three
months ended June 30, 2001

         For the three months ended June 30, 2002, the company had received
monthly contract lease payments of $406,775 and amortization of down payments of
$152,402. This compares to contract lease payments of $363,960 and amortization
of down payments of 115,193 for the same period in 2001. The nominal increase in
monthly contract lease payments for the second quarter of 2002 was primarily the
result of timing.

         Operating costs including general and administrative expenses were
$138,370 for the three-month period ended June 30, 2002. This compares to
$174,357 for the same period in 2001. The decrease in operating expenses for the
second quarter of 2002, compared to the same period for 2001, was due to higher
professional fees in the second quarter of 2001.

         Depreciation and amortization was $298,590 for the three months ended
June 30, 2002 compared to $292,441 for the second quarter of 2001.

         Interest expense for the three months ended June 30, 2002, was $186,667
compared to $186,674 for the same period in 2001.

         Loss on sale of inventory for the quarter ended June 30, 2002, was
$110,976 compared to $92,953 for the second quarter of 2001. The increased loss
on sale of inventory was due to an increase in the number of defaults early in
the lease term when losses are greater and the decrease in used car prices.

         The net loss for the quarter ended June 30, 2002, was $175,177 compared
to $257,690 for the same period in 2001. The decrease in loss for the quarter
ended June 30, 2002, was due to an increase in lease payments and amortization
of deferred revenue.

         On June 30, 2002, Transition Auto Finance II, Inc. defaulted on
$6,280,000 of its 11% Redeemable Secured Notes. Due to the recession and
September 11 events, TAF II and TAF III experienced a larger than normal number
of repossessions. The amount of time necessary to reinvest TAF III proceeds from
repossessions substantially reduced the positive impact of leverage. Leverage in
this context is the ability to turn cash into performing assets by investing in
new leases.

Proposed Extension of Reinvestment Period

           In an attempt to offset this loss of leverage and to avoid a possible
default, the Company will likely request that the reinvestment period be
extended for an additional year. It is the Company's belief that a one year
extension of the leverage period should increase the amount of funds available
to retire the TAF III notes.

Results of Operations: Six- month period ended June 30, 2002, compared to six
months ended June 30, 2001

         Total revenue for the six-months ended June 30, 2002 was $1,155,042
compared to $1,013,866 for the same period in 2001. The nominal increase in 2002
revenue was due to timing of regularly scheduled payments in conjunction with an
increase in Amortization of down payments.

         Operating costs and expenses were $291,035 for the six-month period
ended June 30, 2002 compared to $305,133 for the same period in 2001. The
nominal reduction was primarily the result of the reduction in marketing fees
paid during 2002.




                                       11
<PAGE>
         Depreciation and amortization for the six-months ended June 30, 2002
was $610,671 compared to $582,016 for the same period in 2001. The increase in
2002 reflects the higher number of active leases for the 2002 period.

         Loss on sale of inventory for the six-months ended June 30, 2002 was
$220,064 compared to $147,203 loss for the same period in 2001. The loss on sale
of inventory for the six-months ended June 30, 2002 was the result of an
increase in repossessions. If the economy continues to weaken, the Company
anticipates that repossessions will continue to increase.

         The Company had a loss of $339,626 for the Six-months ended June 30,
2002 compared to a loss of $374,259 for the same period in 2001. The decrease in
the loss in 2002 was primarily the result of the aforementioned increase in
revenues.


Liquidity and Capital Resources

         During the six months ended June 30, 2002, the Company used cash of
$373,657 in its investing activities and received $41,911 from its financing
activities. For the same period in 2001, the Company used $1,125,160 in its
investing activities and received $198,435 from its financing activities.

         The Company's only source of liquidity in the future will be from
proceeds from the sale of repossessed vehicles, early terminations, and its
monthly lease payments after interest and other allowed expenses.

         The Company's portfolio, which consisted of 423 leases, included 170
leases, which resulted in early terminations. The information on the Company's
experience with respect to early terminations is set forth below:

<Table>
<Caption>
                                                                                            Vehicle
                    # of       Gross Cost        Misc.          Total          Down           Sale         Sales Tax
                 Contracts     Of Vehicle      Expenses       Payments        Payment        Amount         Credit
<S>            <C>            <C>            <C>            <C>            <C>            <C>            <C>
Repossession            138   $  3,164,414   $     79,156   $    713,022   $    629,491   $  1,785,163   $     75,374
Early Payoff             32   $    694,814   $        715   $    236,886   $    143,010   $    540,225   $     18,795
               ------------   ------------   ------------   ------------   ------------   ------------   ------------
Total                   170   $  3,859,228   $     79,871   $    949,908   $    772,501   $  2,325,388   $     94,169


<Caption>
                                                Total
                 Warranty       Marketing       Amount         Profit
                  Rebate        Fee Paid       Received        (Loss)
<S>            <C>            <C>            <C>            <C>
Repossession   $     16,290   $    362,130   $  2,857,211   $   (386,359)
Early Payoff   $          0   $     82,038   $    856,877   $    161,349
               ------------   ------------   ------------   ------------
Total          $     16,290   $    444,168   $  3,714,088   $   (225,010)
</Table>




Note: The above results on early termination does not include any allowance for
interest expense


         This report contains various forward looking statements and information
that are based on management's belief as well as assumptions made by and
information currently available to management. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those expected. Among the key factors that may have a direct
bearing on the Company's operating results are fluctuations in the economy and
in the level of activity in the automobile and consumer finance industry, demand
for the Company's products, the impact of competition and interest rate
fluctuations.



PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

         The Company is not a party to any material legal proceedings, and no
material legal proceedings have been threatened by or, to the best of the
Company's knowledge, instituted against the Company.



                                       12
<PAGE>




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS


         (a) Not Applicable

         (b) Not Applicable

         (c) Not Applicable

         (d) The company applied 90% of the gross proceeds from the sale of the
         Notes to the purchase or acquisition of the Leased Vehicles and the
         contracts. The Company paid to the Underwriter sales commissions of 6%
         of the principal amount of the Notes sold by the Underwriter.
         Additionally, the Company reimbursed the Underwriter for certain
         expenses incurred in connection with its due diligence activities with
         regard to the Offering of 2% of the aggregate principal amount of the
         Notes sold. The Company also used 2% of the gross proceeds from the
         sale of the Notes to pay offering and organizational expenses,
         including filing and registration fees, legal fees of the Company's
         counsel, accounting fees, trustee's fees, escrow agent's fees, "blue
         sky" expenses and printing expenses.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Company's sole stockholder
during the second quarter of 2002.


ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)    Financial Statements

       The following financial statements are filed as a part of this Form
10-KSB:

             The Index to Financial Statements is set out in Item 7 herein.

       Exhibits

       The following exhibits are filed as exhibits to this report on Form
10-KSB:

             The information required is set forth in the Index to Exhibits
accompanying this Form 10-QSB.

(b)    Reports on Form 8-K

       No reports on Form 8-K were filed during the three months ended June 30,
2002







                                       13
<PAGE>
                                   SIGNATURES

         In accordance with section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



<Table>
<S>                                  <C>
                                          TRANSITION AUTO FINANCE III, INC.
                                     ----------------------------------------------
                                                    (Registrant)


Date:       9/19/02                             /s/ KENNETH C. LOWE
      --------------------           ----------------------------------------------
                                             Kenneth C. Lowe, President/
                                                  Chief Executive Officer


Date:       9/19/02                             /s/ KENNETH C. LOWE
      --------------------           ----------------------------------------------
                                             Kenneth C. Lowe, President/
                                                  Chief Operating Officer


Date:       9/19/02                             /s/ KENNETH C. LOWE
      --------------------           ----------------------------------------------
                                             Kenneth C. Lowe, President/
                                                  Chief Financial Officer
</Table>



                                       14
<PAGE>






                                INDEX TO EXHIBITS

<Table>
<Caption>
        EXHIBIT
        NUMBER                             DESCRIPTION
        -------                            -----------
<S>               <C>
         3.1      Articles of Incorporation of Transition Auto Finance III,
                  Inc.*

         3.2      Bylaws of Transition Auto Finance III, Inc.*

         4.1      Form of Indenture between Transition Auto Finance III, Inc.
                  and Trust Management, Inc., as Trustee***

         4.2      Form of Secured Note Due December 31, 2004 (included in
                  Article Two of Indenture filed as Exhibit 4.1)

         10.1     Form of Master Contract Purchase Agreement between Transition
                  Auto Finance III, Inc. and Transition Leasing Management,
                  Inc.**

         10.2     Form of Servicing Agreement between Transition Leasing
                  Management, Inc. and Transition Auto Finance III, Inc. **

         99.1     Certification of Reporting Officer
</Table>




*        Incorporated by reference from Registration Statement on Form SB-2 of
         Transition Auto Finance III, Inc. Registration No. 333-80537, filed
         January 24, 2000.

**       Incorporated by reference from Amendment No. 1 to Registration
         Statement on Form SB-2 of Transition Auto Finance III, Inc.
         Registration No. 333-80537 filed January 24, 2000.

***      Incorporated by reference from Amendment No. 3 to Registration
         Statement on Form SB-2 of Transition Auto Finance III, Inc.
         Registration No. 333-80537 filed January 24, 2000.





                                       15