<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, 2001

                                -----------------

                        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, 2001, 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, 2001

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

         ITEM 1.  Financial Statements

                  Balance Sheets......................................................   3
                    March 31, 2001 (Unaudited) and December 31, 2000

                  Statements of Income (Unaudited)....................................   5
                   Quarter ended March 31, 2001 and March 31, 2000

                  Statements of Cash Flows (Unaudited)................................   6
                    Three Months ended March 31, 2001 and March 31, 2000

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

         ITEM 3.  Defaults Upon Senior Securities.....................................  12

         ITEM 4.  Submission of Matters to a Vote of Security Holders.................  12

         ITEM 5.  Other Information...................................................  12

         ITEM 6.  Exhibits and Reports on Form 8-K....................................  12

         Signatures...................................................................  13
</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>
                                                                       3 months ended        FYE
                                                                          3/31/2001       12/31/2000
                                                                        (unaudited)      (See Note 1)
<S>                                                                    <C>               <C>
CURRENT ASSETS
  Cash and cash equivalents                                             $ 1,056,557      $ 1,314,761
  Accounts receivable                                                       218,355          156,729
  Vehicles held for sale                                                    701,714          536,354
                                                                        -----------      -----------
      Total Current Assets                                                1,976,626        2,007,844
                                                                        -----------      -----------
PROPERTY, at cost
  Vehicles leased                                                         4,949,194        4,494,590
  Less accumulated depreciation                                            (675,679)        (470,077)
                                                                        -----------      -----------
      Net Property                                                        4,273,515        4,024,513
                                                                        -----------      -----------
OTHER ASSETS
  Debt issuance costs, net of amortization of $153,505 and $108,446         612,568          634,828
                                                                        -----------      -----------
TOTAL ASSETS                                                            $ 6,862,709      $ 6,667,185
                                                                        ===========      ===========
</TABLE>


                                       3
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                           BALANCE SHEETS (Continued)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                            3 Months Ended        FYE
                                                               3/31/2001       12/31/2000
CURRENT LIABILITIES                                           (Unaudited)     (See Note 1)
                                                              -----------     ------------
<S>                                                         <C>               <C>
  Accrued liabilities                                         $   172,362      $   127,343
  Current portion of deferred revenue                             288,349          283,331
                                                              -----------      -----------
        Total Current Liabilities                                 460,711          410,674
                                                              -----------      -----------

OTHER LIABILITIES
  Due to affiliate                                                 47,703           82,213
  Deferred revenue                                                451,007          449,441
  Investor notes payable                                        6,786,000        6,491,000
                                                              -----------      -----------
      Total Other Liabilities                                   7,284,710        7,022,654
                                                              -----------      -----------

TOTAL LIABILITIES                                               7,745,421        7,433,328
                                                              -----------      -----------

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)                                   (883,712)        (767,143)
                                                              -----------      -----------
       Total Stockholders' Equity (Deficit)                      (882,712)        (766,143)
                                                              -----------      -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)                                                  $ 6,862,709      $ 6,667,185
                                                              ===========      ===========
</TABLE>

      Note 1: The balance sheet at December 31, 2000, as presented, is derived
      from the audited financial statements at that date.


                                       4
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                              STATEMENTS OF INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Quarter Ended     Quarter Ended
                                                 March 31, 2001    March 31, 2000
                                                 --------------    --------------
<S>                                              <C>               <C>
REVENUES
  Vehicle monthly lease payments                     $ 364,328         $  4,223
   Amortization of down payments                       170,385            1,229
                                                     ---------         --------

        Total Revenues                                 534,713            5,452
                                                     ---------         --------

OPERATING EXPENSES

  Operating costs                                      120,824           19,629
  General and administrative                             9,952            5,574
  Depreciation and amortization                        289,575           13,105
  Impairment loss                                           -0-              -0-
                                                     ---------         --------

        Total Operating Expenses                       420,351           38,308
                                                     ---------         --------

Operating Income (Loss)                                114,362          (32,856)
                                                     ---------         --------

OTHER INCOME (EXPENSE)

Investment income                                       12,726            4,442
Other income (expense)                                      70               -0-
Interest expense                                      (189,477)              -0-
Loss on sale of inventory                              (54,250)              -0-
                                                     ---------         --------

        Total Other Income (Expense)                  (230,931)           4,442
                                                     ---------         --------

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

Net Loss                                             $(116,569)        $(28,414)
                                                     =========         ========

Loss per share (basic and diluted)                   $  116.57         $  28.41
</TABLE>


                                       5
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              3 Months Ended   3 Months Ended
                                                              March 31, 2001   March 31, 2000
                                                              --------------   --------------
<S>                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                        $  (116,569)     $   (28,414)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                  289,575           13,105
     Amortization of down payments                                 (170,385)          (1,229)
     Impairment loss                                                     -0-              -0-
     Provision for allowance for doubtful accounts                       -0-              -0-
     (Gain) loss on sale of property                                 54,250               -0-
Net changes in operating assets and liabilities:
     Accounts receivable                                            (61,626)             -0-
     Accrued liabilities                                             45,019          139,024
     Deferred revenue                                               176,969           46,392
                                                                -----------      -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                    217,233          168,878
                                                                -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                        (939,127)        (230,446)
   Cash proceeds from sale of property                              225,999               -0-
                                                                -----------      -----------
NET CASH (USED) BY INVESTING ACTIVITIES                            (713,128)        (230,446)
                                                                -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of common stock                                -0-              -0-
   Net advances (payments) to affiliates                            (34,510)         100,609
   Debt issuance costs                                              (22,799)        (250,662)
   Proceeds from notes payable                                      295,000        2,361,000
                                                                -----------      -----------
NET CASH PROVIDED  BY FINANCING ACTIVITIES                          237,691        2,210,947
                                                                -----------      -----------

NET INCREASE (DECREASE)  IN CASH                                   (258,204)       2,149,379
CASH AND CASH EQUIVALENTS, beginning of period                    1,314,761              897
                                                                -----------      -----------

CASH AND CASH EQUIVALENTS, end of period                        $ 1,056,557      $ 2,150,276
                                                                ===========      ===========

CASH PAID DURING THE YEAR FOR
   Interest                                                     $   184,029      $        -0-
                                                                ===========      ===========
   Income taxes                                                 $        -0-     $        -0-
                                                                ===========      ===========
</TABLE>

Non-cash investing activities

Vehicles purchased during the quarter ended March 31, 2001 with a net book value
of $165,360 were reclassified from vehicles leased to vehicles held for sale.

Vehicles purchased during the quarter ended March 31, 2000 with a net book value
of $38,083 were reclassified from vehicles leased to vehicles held for sale.


                                       6
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 2001

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)

                                 MARCH 31, 2001

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)

                                 MARCH 31, 2001

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.

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, 2000
            (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 $382,000 and $1,800 for the year ended December 31,
            2000 and 1999 respectively. The Company's NOL carryforward expires
            on December 31, 2020.

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, 2001. Note sales
            were terminated on December 31, 2000. All remaining note sale
            proceeds were collected during January of 2001 and the Company will
            not have any additional note sales.

            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 the quarter
            ended March 31, 2001, 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.


                                       9
<PAGE>

                        TRANSITION AUTO FINANCE III, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 2001

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 March 31,
2001. At March 31, 2000, the company had just started its operations and had
only leased 10 vehicles, consequently any comparisons between the first quarter
of 2001and the same period in 2000 would be misleading. The balance sheet at
December 31, 2000, as presented, is derived from the audited financial
statements at that date.

General.

      As of March 31, 2001, the Company had sold $6,786,000 of its 11%
Redeemable Secured Notes and had originated a total of 263 leases at a cost of
$5,361,672.

Results of Operations

      For the three months ended March 31, 2001, the company had received
monthly contract lease payments of $364,328 and amortization of down payments of
$170,385.

      Operating costs including general and administrative expenses were
$130,776 for the three-month period ended March 31, 2001.

      Depreciation and amortization was $289,575 for the three months ended
March 31, 2001.

      Interest expense for the three months ended March 31, 2001, was $189,477.

      Loss on sale of inventory for the quarter ended March 31, 2001, was
$54,250.

      The net loss for the quarter ended March 31, 2001, was $116,569.

Liquidity and Capital Resources

      During the Three months ended March 31 2001, the Company used cash of
$713,128 in its investing activities and received $237,691 in its financing
activities.

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

      The Company's portfolio, which consisted of 263 leases, included 17 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     14      $330,184     $8,614    $24,516   $81,192   $217,200   $ 9,372     $4,201     $46,685   $289,796   ($49,001)
Early Payoff      3      $ 53,437     $    0    $13,638   $13,337   $ 45,504   $ 2,844     $    0     $ 7,669   $ 67,654   $ 14,217
                 --      --------     ------    -------   -------   --------   -------     ------     -------   --------   --------
Total            17      $383,621     $9,614    $38,154   $94,529   $262,704   $12,216     $4,201     $54,354   $357,450   ($34,784)
</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


                                       11
<PAGE>

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.

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 First quarter of 2001.

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,
2001


                                       12
<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: March 19, 2002                              /s/KENNETH C. LOWE
     -------------------------            --------------------------------------
                                                Kenneth C. Lowe, President/
                                                Chief Executive Officer


Date: March 19, 2002                              /s/KENNETH C. LOWE
     -------------------------            --------------------------------------
                                                Kenneth C. Lowe, President/
                                                Chief Operating Officer


Date: March 19, 2002                              /s/KENNETH C. LOWE
     -------------------------            --------------------------------------
                                                Kenneth C. Lowe, President/
                                                Chief Financial Officer


                                       13
<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. **
</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.