<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 MARCH 31, 2005
                                -----------------

                        Commission file number: 333-80537

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

                  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)

                  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 [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of Common
equity, as of the latest practicable date: As March 31, 2005, 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 MARCH 31, 2005

<TABLE>
<CAPTION>
                                                                                        Page No.
                                                                                        --------
<S>                                                                                     <C>
PART I. FINANCIAL INFORMATION

        ITEM 1.Financial Statements

               Balance Sheets......................................................         3
                 March 31, 2005 (Unaudited) and December 31, 2004

               Statements of Income (Unaudited)....................................         4
                 Quarter ended March 31, 2005 and March 31, 2004

               Statements of Cash Flows (Unaudited)................................         5
                 Three Months ended March 31, 2005 and March 31, 2004

               Notes to Consolidated Financial Statements (Unaudited)..............         6

        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...........................        12

        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.

<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                        TRANSITION AUTO FINANCE III, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                   3 months Ended       FYE
                                                      3/31/2005        12/31/2004
                                                     (unaudited)      (See Note 1)
                                                   --------------     ------------
<S>                                                <C>                <C>
                   ASSETS
CURRENT ASSETS
  Cash and cash equivalents                          $    309,152     $     66,000
  Accounts receivable                                     111,113           91,845
  Other Assets                                              1,659            4,084
  Vehicles held for sale                                  164,518           86,316
                                                     ------------     ------------
                                                          586,442          248,245
                                                     ------------     ------------
PROPERTY, at cost
  Vehicles leased                                       2,427,919        2,759,772
  Less accumulated depreciation                          (781,655)        (752,181)
                                                     ------------     ------------
      Net Property                                      1,646,264        2,007,591
                                                     ------------     ------------

TOTAL ASSETS                                         $  2,232,706     $  2,255,836
                                                     ============     ============

CURRENT LIABILITIES
  Accounts Payable and Accrued liabilities           $    112,561     $    163,255
  Current portion of deferred revenue                     126,483          153,201
  Investor notes payable                                6,786,000        6,786,000
                                                     ------------     ------------
        Total Current Liabilities                       7,025,044        7,102,456
                                                     ------------     ------------

OTHER LIABILITIES
  Due to affiliate                                            -0-            1,335
  Deferred revenue                                        188,898          219,508
                                                     ------------     ------------
      Total Other Liabilities                             188,898          220,843
                                                     ------------     ------------

TOTAL LIABILITIES                                       7,213,942        7,323,299
                                                     ------------     ------------

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)                         (4,982,236)      (5,068,463)
                                                     ------------     ------------
       Total Stockholders' Equity (Deficit)            (4,981,236)      (5,067,463)
                                                     ------------     ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)                                         $  2,232,706     $  2,255,836
                                                     ============     ============
</TABLE>

Note 1: The balance sheet at December 31, 2004, as presented, is derived from
the audited financial statements at that date. See accompanying notes to
financial statements.

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                              STATEMENTS OF INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>
                                         Quarter Ended     Quarter Ended
                                        March 31, 2005     March 31, 2004
                                        --------------     --------------
<S>                                     <C>                <C>
REVENUES

  Vehicle monthly lease payments          $ 176,410          $  258,101
  Amortization of down payments              55,123              73,317
                                          ---------          ----------

        Total Revenues                      231,533             331,418
                                          ---------          ----------

OPERATING EXPENSES

  Operating costs                             9,508              92,828
  General and administrative                 12,382              47,724
  Impairment Loss                           (16,208)                -0-
  Depreciation and amortization             115,270             203,122
                                          ---------          ----------
        Total Operating Expenses            120,952             343,674
                                          ---------          ----------

Operating Income (Loss)                     110,581             (12,256)
                                          ---------          ----------

OTHER INCOME (EXPENSE)

Investment income                                95                 431
Other income (expense)                       (3,819)                  4
Interest expense                                -0-            (186,729)
Loss on sale of inventory                   (20,630)            (48,340)
                                          ---------          ----------

       Total Other Income(Expense)          (24,354)           (234,634)
                                          ---------          ----------

Provision for Federal Income Taxes              -0-                 -0-
                                          ---------          ----------
Net Income (Loss)                         $  86,227          $ (246,890)
                                          =========          ==========

Income (Loss) per share (basic and
diluted)                                  $   86.23          $  (246.89)
                                          =========          ==========
</TABLE>

            See accompanying notes to financial statements.

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                              STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              3 Months Ended      3 Months Ended
                                                              March 31, 2005      March 31, 2004
                                                              --------------      --------------
<S>                                                           <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit (Loss)                                               $  86,227          $  (246,890)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                115,270              203,122
     Amortization of down payments                                (55,123)             (73,317)
     Impairment loss                                               16,208                  -0-
     Provision for allowance for doubtful accounts                    -0-                  -0-
     (Gain) loss on sale of property                               20,630               48,340
Net changes in operating assets and liabilities:
     Accounts receivable                                          (19,268)              20,319
    Other Assets                                                    2,425               26,437
    Accrued liabilities                                           (50,694)             (77,830)
     Deferred revenue                                              (2,205)             110,623
                                                                ---------          -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                         113,470               10,804
                                                                ---------          -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                           -0-             (432,478)
   Cash proceeds from sale of property                            131,017              179,278
                                                                ---------          -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                  131,017             (253,200)
                                                                ---------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net advances (payments) to affiliates                           (1,335)              (2,722)
   Debt issuance costs                                                -0-                  -0-
   Proceeds from notes payable                                        -0-                  -0-
                                                                ---------          -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                   (1,335)              (2,722)
                                                                ---------          -----------
NET INCREASE (DECREASE) IN CASH                                   243,152             (245,118)

CASH AND CASH EQUIVALENTS, beginning of period                     66,000              547,096
                                                                ---------          -----------

CASH AND CASH EQUIVALENTS, end of period                        $ 309,152          $   301,978
                                                                =========          ===========

CASH PAID DURING THE YEAR FOR
   Interest                                                     $     -0-          $   186,729
                                                                =========          ===========
   Income taxes                                                 $     -0-          $       -0-
                                                                =========          ===========
</TABLE>

See accompanying notes to financial statements.

NON-CASH INVESTING ACTIVITIES
Vehicles with a net book value of $78,202 were reclassified from vehicles leased
to vehicles held for resale as of March 31, 2005.

Vehicles with a net book value of $108,640 were reclassified from vehicles
leased to vehicles held for resale as of March 31, 2004.

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS

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. (Transition Leasing) owns 100% of the Company's
            common stock.

            Trust Management, Inc. serves as the trustee for the Company under
            the Indenture Agreement. The Company defaulted on the investor notes
            administered by Trust Management, Inc. in December 2004. Upon the
            default of the investor notes payable, Trust Management, Inc.
            receives all receipts collected by the Company and approves all of
            the Company's disbursements. Trust Management, Inc. will pay note
            holders any unpaid principal, ratably, without preference as well as
            any other unpaid allowable costs incurred by the Company.

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 these 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 to cash and cash
            equivalents.

            All cash balances starting in 2005 are restricted in nature and
            managed by Trust Management, Inc. due to the Company being in
            default of their Indenture Agreement. All cash distributions from
            these accounts must be authorized by Trust Management, Inc. and are
            for the sole purpose of repaying investor notes payable after any
            authorized expenses have been paid.

            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.

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2:     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

            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.

            ACCOUNTS RECEIVABLE

            The Company provides for uncollectible accounts receivable using the
            allowance method of accounting for bad debts. Under this method of
            accounting, a provision for uncollectible accounts is charged to
            earnings. The allowance account is increased or decreased based on
            past collection history and management's evaluation of accounts
            receivable. All amounts considered uncollectible are charged against
            the allowance account and recoveries of previously charged-off
            accounts are added to the allowance

      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 cost or fair value. The cost is the net
            book value of the vehicle after it has been returned to the Company
            either through repossession or early termination of the lease.
            Generally these vehicles will be released or sold at auction by the
            Company with in a year.

            The Company implemented Financial Accounting Standards Board issued
            Statement No. 144, Impaired Long-Lived Assets and Long-Lived Assets
            to Be Disposed of, which requires impairment losses to be recorded
            on long-lived assets used in operation when indicators of impairment
            are present. An impairment loss of $16,208 has been recorded for two
            vehicles held for sale in these financial statements for the year
            ended December 31, 2004. The impairment was determined based on
            their fair market value and ultimate sales price in 2005.

      PROPERTY

            Property consists of leased vehicles, which 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 thity-six to forty-eight months.

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2:     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
            (CONTINUED)

      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.

      CONCENTRATION OF CREDIT RISK

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

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.

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

            The Company has a deferred tax asset as of approximately $1,720,000
            and $1,288,000 December 31, 2004 and 2003 (primarily from net
            operating loss carry-forward), which has been completely offset by
            recognition of a valuation allowance.

            The Company has a net operating loss (NOL) carry-forward of
            approximately $5,787,000 and $4,680,000 as of December 31, 2004 and
            2003 respectively. The Company's NOL carry-forward expires between
            December 31, 2020 and 2022.

NOTE 4:     INVESTOR NOTES PAYABLE

            The Company has issued $6,786,000 of fixed rate redeemable
            asset-backed notes (Investor Notes) as of March 31, 2005 and
            December 31, 2004.

            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 payments ceased after the 2004
            default.

            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.

            The following table represents Investor Notes outstanding at
            December 31, 2004 and March 31, 2005:

<TABLE>
<CAPTION>
Origination Date        Number of Notes        Note Amount
----------------        ---------------        -----------
<S>                     <C>                    <C>
February 2000                 53               $   827,000
March 2000                   136                 1,453,000
April 2000                    57                   622,000
May 2000                      35                   354,000
June 2000                     37                   427,000
July 2000                     53                   722,000
August 2000                   40                   332,000
September 2000                28                   290,000
October 2000                  33                   311,000
November 2000                 59                   509,000
December 2000                 72                   644,000
January 2001                  30                   295,000
                                               -----------
                                               $ 6,786,000
                                               ===========
</TABLE>

<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                   (Continued)

NOTE 4:     INVESTOR NOTES PAYABLE (CONTINUED)

            The Investor Notes matured on December 31, 2004, and the Company was
            unable to pay the remaining debt. The Company defaulted on the
            investor notes as of December 31, 2004. As of that date, all income
            from leasing activities is used to repay Investor Notes. All Company
            disbursements require approval of Trust Management, Inc.

NOTE 5:     RELATED PARTIES

            The Company has entered into a Servicing Agreement with Transition
            Leasing. Transition Leasing will be entitled to a servicing fee of
            $20 per month per contract and a payment of $150 per contract
            purchased. Transition Leasing will receive, as a marketing fee,
            57.5% of the down payment made by the customers with respect to
            contracts it originates. Transition Leasing 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. The
            Company paid Transition Leasing $243,480 in 2004 and $217,310 in
            2003 for servicing, documentation and marketing fees. The Company
            has a payable to an affiliate for $1,335 and $13,640 at December 31,
            2004 and 2003, respectively.

NOTE 6:     GOING CONCERN

            The accompanying financial statements have been prepared in
            conformity with U.S. generally accepted accounting principles, which
            contemplates continuation of the Company as a going concern. The
            Company has sustained recurring losses from operations, negative
            working capital, a negative equity position and has defaulted on
            investor notes payable due in 2004. Management will attempt to
            service existing leases and raise additional capital and/or secure
            additional financing in order to repay the investor notes payable.
            Management recognizes that full repayment may take several years to
            complete and that full repayment may not occur. This situation
            raises substantial doubt about the Company's ability to continue as
            a going concern.

<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 March 31,
2005. The balance sheet at December 31, 2004, as presented, is derived from the
audited financial statements at that date.

General.

      As of March 31, 2005, the Company had sold $6,786,000 of its 11%
Redeemable Secured Notes and had 158 active leases with a net book value of
$1,646,264.

Results of Operations: Three months ended March 31, 2005, compared to three
months ended March 31, 2004.

      For the three months ended March 31, 2005, the company had received
monthly contract lease payments of $176,410 and amortization of down payments of
$55,123. This compares to contract lease payments of $258,101 and amortization
of down payments of $73,317 for the same period in 2004. The decrease in monthly
contract lease payments for the first quarter of 2005 was primarily the result
of fewer active leases for the 2005 period.

      Operating costs including general and administrative expenses were $21,890
for the three-month period ended March 31, 2005. This compares to $140,552 for
the same period in 2004. The decrease in operating expenses for the first
quarter of 2005, compared to the same period for 2004, was due to higher
marketing fees and higher costs of serving a greater number of active leases in
the 2004 period.

      Depreciation and amortization was $115,270 for the three months ended
March 31, 2005, compared to $203,122 for the first quarter of 2004. The decrease
in depreciation for the 2005 period was due to fewer active leases than in the
2004 period.

      Interest expense for the three months ended March 31, 2005, was $-0-
compared to $186,729 for the same period in 2004. On December 31, 2004,
Transition Auto Finance III defaulted on its 11% Redeemable Secured Notes. All
payments to Noteholders following a default are treated as principal payments
consequently no interest expense is recorded.

      Loss on sale of inventory for the quarter ended March 31, 2005, was
$20,630 compared to $48,340 for the first quarter of 2004. The decreased loss on
sale of inventory was primarily due to fewer vehicles sold and the fact that
repossessions that were sold had been on the books longer and consequently were
generally sold at smaller losses per vehicle in the 2005 period.

      The net profit for the quarter ended March 31, 2005 was $ 86,227 compared
to a loss of 246,897 for the same period in 2004. The profit for the 2005 period
was primarily due to no new leases written in 2005 and no interest expense due
to the default on the notes.

      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.

Extension of Reinvestment Period

      In an attempt to offset this loss of leverage in TAF III and to minimize
the possibility of a default, the company requested that the Noteholders consent
to an amendment to the Indenture, which would extend the reinvestment period
from December 31, 2002 to December 31, 2004. The Consent solicitation was
approved by a majority of the Noteholders and the Indenture was amended to
reflect the extended reinvestment period. On December 31, 2004, TAF III
defaulted on $6,786,000 of its 11 % Redeemable Secured Notes. The default
notwithstanding, the company believes that the extension of the reinvestment
period enhanced the total amount of funds that will ultimately be returned to
the Noteholders.

<PAGE>

Liquidity and Capital Resources

      During the three months ended March 31, 2005, the Company provided cash of
$131,017 from its investing activities and used $1,335 from its financing
activities. For the same period in 2004, the Company used $253,200 in its
investing activities and used $2,722 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 other allowed expenses.

      The Company's portfolio, which consisted of 543 leases, included 448
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                                    Total
               # of    Gross Cost   Misc.      Total      Down       Sale    Sales Tax Warranty Marketing    Amount     Profit
             Contracts Of Vehicle  Expenses  Payments   Payment     Amount    Credit    Rebate   Fee Paid   Received    (Loss)
<S>          <C>       <C>         <C>      <C>        <C>        <C>        <C>       <C>      <C>        <C>         <C>
Repossession    345    $ 7,868,992 $201,635 $2,678,935 $1,507,280 $3,895,708 $ 173,964 $ 83,038 $  861,955 $ 7,476,970 ($593,657)
Early Payoff    103    $ 2,173,115 $  2,918 $1,153,624 $  424,073 $1,432,058 $  57,708 $  1,399 $  243,649 $ 2,825,213  $649,180
                ---    ----------- -------- ---------- ---------- ---------- --------- -------- ---------- ----------- ---------
Total           448    $10,042,107 $204,553 $3,832,559 $1,931,353 $5,327,766 $ 231,672 $ 84,437 $1,105,604 $10,302,183  $ 55,523
</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.

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.

<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      On December 31, 2004, the Company defaulted on its $6,786,000 redeemable
secured notes.

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 first quarter of 2005.

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
      March 31, 2005

<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.

                                      TRANSITION AUTO FINANCE III, INC.
                                    ------------------------------------
                                                (Registrant)

Date:  April 30, 2005                      /s/  Kenneth C. Lowe
                                    ------------------------------------
                                         Kenneth C. Lowe, President/
                                         Chief Executive Officer

Date: April 30,2005                        /s/ _Kenneth C. Lowe
                                    ------------------------------------
                                         Kenneth C. Lowe, President/
                                         Chief Operating Officer

Date: April 30, 2005                       /s/  Kenneth C. Lowe
                                    ------------------------------------
                                         Kenneth C. Lowe, President/
                                         Chief Financial Officer

<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. **

31          Certification of Reporting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32          Certification of Reporting Officer pursuant to Section 906 of the Sarbanes-Oxley
            Act of 2002
</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.