Captec Franchise Capital Partners LP Iii 10QSB 2003 Q3 Quarterly report (small business)

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

Form 10-QSB

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

For the quarterly period ended September 30, 2003

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number: 33-77510-C

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

38-3160141
(IRS Employer Identification Number)

24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
(Address of principal executive offices, including zip code)

(734) 994-5505
(Issuer’s telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last year)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yesx Noo

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court:Not applicable

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:Not applicable

Transitional Small Business Disclosure Format (check one) Yeso Nox

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
	Balance Sheets, September 30, 2003 and December 31, 2002
	Statements of Operations for the three and nine months ended September 30, 2003 and 2002
	Statement of Changes in Partners’ Capital for the nine months ended September 30, 2003
	Statement of Cash Flows for the nine months ended September 30, 2003 and 2002
	Notes to Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Controls and Procedures
PART II — OTHER INFORMATION
SIGNATURES
Certification Pursuant to Section 302
Certification Pursuant to Section 906

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

Index to Form 10-QSB

Item No.		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Balance Sheets, September 30, 2003 and December 31, 2002	3
	Statements of Operations for the three and nine months ended September 30, 2003 and 2002	4
	Statement of Changes in Partners’ Capital for the nine months ended September 30, 2003	5
	Statement of Cash Flows for the nine months ended September 30, 2003 and 2002	6
	Notes to Financial Statements	7-9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-12
Item 3.	Controls and Procedures	12
PART II	OTHER INFORMATION
	Other Information	13
SIGNATURES		14
EX- 31 and 32	Certifications Pursuant to Section 302(a) and 906 of the Sarbanes-Oxley Act of 2002	15-17

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Captec Franchise Capital Partners L.P. III
Balance Sheets

			September 30,		December 31,
			2003		2002
			(Unaudited)
Cash and cash equivalents			$	1,049,855	$	286,511
Restricted cash				641,305		499,863
Investment in leases:
	Operating leases, net			14,545,380		17,285,384
	Financing leases, net			607,912		807,542
	Impaired financing leases, net			12,693		12,693
Accounts receivable				63,091		47,762
Unbilled rent, net				976,740		1,299,690
Due from related parties				4,865		5,733
Deferred financing costs, net				250,902		286,745
		Total assets	$	18,152,743	$	20,531,923
Liabilities and Partners’ Capital
Liabilities:
	Notes payable		$	5,741,602	$	7,864,328
	Accounts payable and accrued expenses			88,323		110,819
	Security deposits held on leases			7,106		31,960
		Total liabilities		5,837,031		8,007,107
Partners’ capital:
Limited partners’ capital accounts				12,301,951		12,519,242
General partner’s capital account				13,761		5,574
		Total partners’ capital		12,315,712		12,524,816
		Total liabilities and partners’ capital	$	18,152,743	$	20,531,923

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

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

			Three months ended					Nine months ended
			September 30,					September 30,
			2003			2002		2003			2002
Operating revenue:
	Rental income		$	449,808		$	463,694	$	1,377,660		$	1,397,132
	Finance income			11,456			17,296		38,272			56,506
		Total operating revenue		461,264			480,990		1,415,932			1,453,638
Operating costs and expenses:
	Interest expense			110,170			121,901		350,750			367,548
	Depreciation			55,995			59,520		175,035			178,560
	General and administrative			38,405			27,244		111,552			73,515
	Provision for impaired financing leases			—			—		—			36,000
		Total operating costs and expenses		204,570			208,665		637,337			655,623
		Income from operations		256,694			272,325		778,595			798,015
Other income:
	Interest and other income			267			4,445		9,745			10,715
	Gain on sale of equipment			—			—		6,177			42,874
		Total other income		267			4,445		15,922			53,589
Income (loss) from continuing operations				256,961			276,770		794,517			851,604
Discontinued Operations:
	Net gain on sale of properties			498,240			—		498,240			—
	Income from discontinued operations, net			15,164			18,516		55,993			52,511
	Debt Retirement Costs			(530,035	)		—		(530,035	)		—
Income (loss) from discontinued operations				(16,631	)		18,516		24,198			52,511
Net Income			$	240,330		$	295,286	$	818,715		$	904,115
Net income allocable to general partner			$	2,403		$	2,953	$	8,187		$	9,041
Net income allocable to limited partners			$	237,927		$	292,333	$	810,528		$	895,074
Net income (loss) per limited partnership unit from continuing operations				12.95			13.85		40.02			42.63
Net income (loss) per limited partnership unit from discontinued operations				(0.84	)		0.93		1.22			2.63
Net income per limited partnership unit			$	12.11		$	14.78	$	41.24		$	45.26
Weighted average number of limited partnership units outstanding				19,653			19,776		19,653			19,776

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

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Captec Franchise Capital Partners L.P. III
Statement of Changes in Partners’ Capital
for the nine months ended September 30, 2003
(Unaudited)

	Limited		Limited			General		Total
	Partners'		Partners'			Partner's		Partners'
	Units		Accounts			Account		Capital
Balance, December 31, 2002		19,653	$	12,519,242		$	5,574	$	12,524,816
Distributions — ($52.30 per limited partnership unit)		—		(1,027,819	)		—		(1,027,819	)
Net income		—		810,528			8,187		818,715
Balance, September 30, 2003		19,653	$	12,301,951		$	13,761	$	12,315,712

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

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Captec Franchise Capital Partners L.P. III
Statement of Cash Flows
for the nine months ended September 30, 2003 and 2002
(Unaudited)

			2003			2002
Cash flows from operating activities:
	Net Income		$	818,715		$	904,115
	Adjustments to net income:
		Depreciation		206,759			210,284
		Amortization of debt issuance costs		35,843			35,843
		Gain on sale of equipment		(6,177	)		(42,874	)
		Gain on sale of real estate		(498,240	)		—
		Provision for credit losses		—			36,000
		Increase in unbilled rent		(74,037	)		(94,704	)
		(Increase) decrease in accounts receivable		(15,329	)		18,821
		Decrease in accounts payable and accrued expenses		(22,495	)		(48,114	)
		Increase in restricted cash		(141,442	)		(75,684	)
		Decrease (increase) in due from related parties		868			(4,197	)
		Decrease in due to related parties		—			(14,219	)
		Decrease in security deposits		(24,854	)		(13,647	)
Net cash provided by operating activities				279,611			911,624
Cash flows from investing activities:
	Proceeds from sale of equipment			24,075			85,550
	Proceeds from sale of real estate			3,428,472			—
	Principal payments on financing leases			181,731			191,770
Net cash provided by investing activities				3,634,278			277,320
Cash flows from financing activities:
	Repayments of notes payable			(2,122,726	)		(132,273	)
	Distributions to limited partners			(1,027,819	)		(1,373,588	)
Net cash used in financing activities				(3,150,545	)		(1,505,861	)
Net increase (decrease) in cash and cash equivalents				763,344			(316,917	)
Cash and cash equivalents, beginning of period				286,511			781,658
Cash and cash equivalents, end of period			$	1,049,855		$	464,741

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

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

1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:

Captec Franchise Capital Partners L.P. III (the “Partnership”), a Delaware limited partnership, was formed on February 18, 1994 for the purpose of acquiring income-producing commercial real properties and equipment leased on a “triple net” basis, primarily to operators of national and regional franchised businesses.

The initial General Partners of the Partnership were Captec Franchise Capital Corporation III (the “Corporation”), a wholly-owned subsidiary of Captec Financial Group, Inc. (“Captec”), an affiliate, and Patrick L. Beach, the Chairman of the Board of Directors, President and Chief Executive Officer of the Corporation and Captec. In August 1998, Captec Net Lease Realty, Inc. (“Captec Net Lease Realty”), an affiliate, acquired the General Partnership interests of the Partnership. In December 2001, Captec Net Lease Realty merged with and into Commercial Net Lease Realty, Inc. (“Commercial Net Lease”). In connection with the merger, Commercial Net Lease agreed to sell and assign its General Partnership interest in the Partnership to GP3 Asset Acquisition, LLC (“GP3 Asset Acquisition”), which is wholly-owned by Mr. Beach and is an affiliate of Captec. Effective January 15, 2002, the limited partners consented to the transfer of the General Partnership interest. On September 11, 2003, the Partnership’s secured lender consented to the transfer of the general partnership interest to GP3 Asset Acquisition. Upon receipt of the secured lender’s consent, the general partnership interest was immediately transferred to GP3 Asset Acquisition. Therefore, as of September 11, 2003, GP3 Asset Acquisition became the general partner of the Partnership.

The Partnership commenced a public offering (the “Offering”) of up to 20,000 units (the “Units”) of limited partnership interests, priced at $1,000 per Unit, by means of a Registration Statement on Form SB-2, under the Securities Act of 1933, as amended, which was declared effective by the Securities and Exchange Commission on August 12, 1994. The Partnership accepted subscriptions for the minimum number of Units on January 24, 1995 and immediately commenced operations. The Offering was fully subscribed in August 1996. Since 1997, 347 Units have been repurchased by the Partnership pursuant to the terms of the Repurchase Plan set forth in the Partnership’s August 12, 1994 prospectus with respect to the Offering. At September 30, 2003, the Partnership had 19,653 Units issued and outstanding.

The principal investment objectives of the Partnership are: (i) preservation and protection of capital; (ii) distribution of cash flow generated by the Partnership’s leases; (iii) capital appreciation of the Partnership’s properties; (iv) generation of increased income and protection against inflation through contractual escalation of base rents or participation in gross revenues of tenants of the Partnership’s properties; and (v) deferred taxation of cash distributions to the limited partners.

Allocation of profits, losses and cash distributions from operations and cash distributions from sale or refinancing are made pursuant to the terms of the Partnership Agreement. Profits and losses from operations are allocated among the limited partners based upon the number of Units owned.

Net income per limited partnership interest is calculated using the weighted average number of limited partnership Units outstanding during the period and the limited partners’ allocable share of the net income.

Distributions per limited partnership Unit are calculated using the actual distributions disbursed during the period to the weighted average number of limited partnership Units during the period. Actual individual limited partner distributions realized may vary from this calculation as a result

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of a variety of factors including: (i) actual distributions are computed based on quarterly operating results and outstanding limited partnership Units, which are disbursed in the subsequent quarter; (ii) certain limited partners have elected to receive monthly distribution versus quarterly distributions which creates timing differences between comparative calculations, and (iii) the calculation ignores the timing of repurchases.

The balance sheet of the Partnership as of September 30, 2003, the statements of operations and cash flows for the periods ending September 30, 2003 and September 30, 2002 and the statement of changes in partners’ capital for the period ending September 30, 2003 have not been audited. In the opinion of management, these unaudited financial statements contain all adjustments necessary to present fairly the financial position and results of operations and cash flows of the Partnership for the periods then ended. Results of operations for the interim periods are not necessarily indicative of results for the full year. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership’s annual report on Form 10-KSB for the year ended December 31, 2002 filed with the United States Securities and Exchange Commission on March 31, 2003.

2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:

The net investment in operating leases as of September 30, 2003 and December 31, 2002 is composed of the following:

	September 2003			December 2002
Land	$	6,540,896		$	7,695,896
Building and improvements		9,522,381			11,214,344
		16,063,277			18,910,240
Less accumulated depreciation		(1,517,897	)		(1,624,856	)
Total	$	14,545,380		$	17,285,384

3. NET INVESTMENT IN FINANCING LEASES:

The net investment in financing leases as of September 30, 2003 and December 31, 2002 is composed of the following:

	September 2003			December 2002
Minimum lease payments to be received	$	677,425		$	897,429
Estimated residual value		30,736			48,736
Gross investment in financing leases		708,161			946,165
Less unearned income		(96,091	)		(121,994	)
Less direct origination costs		(4,158	)		(16,629	)
Net investment in financing leases	$	607,912		$	807,542

4. NOTES PAYABLE:

In November 1998, the Partnership entered into a $6.2 million term note. The note has a ten-year term, is collaterized by certain properties subject to operating leases, and bears interest at a rate of 8.37% per annum. In September 2003, the partnership defeased approximately $1,979,000 of this notes payable with proceeds from the sale of the Red Robin property. The partnership incurred approximately $481,000 of yield maintenance costs and $49,000 of professional fees related to the defeasance.

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In March 1999, the Partnership entered into an additional $2.0 million term note. The note has a ten-year term, is collaterized by certain properties subject to operating leases, and bears interest at a rate of 8.50% per annum.

Aggregate debt issuance costs of approximately $478,000 were incurred in connection with the issuance of the notes, and are being amortized to interest expense over the ten-year term of the notes using the straight-line method which is not materially different than the interest rate method.

5. EARNINGS FROM DISCONTINUED OPERATIONS:

In accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” the Company has classified the operations of the property sold during 2003 as discontinued operations. Accordingly, the results of operations related to the property have been reclassified to earnings from discontinued operations. Interest expenses has been allocated on a pro-rata basis. Management fees are a specific charge based on rental income. The following is a summary of earnings from discontinued operations:

		Three months ended				Nine months ended
		September 30,				September 30,
		2003			2002		2003		2002
Revenues:
	Operating lease rents	$	76,995	$	86,472	$	252,102	$	257,307
Expenses:
	Interest expense		50,486		56,516		161,864		170,498
	Provision for depreciation		10,575		10,575		31,724		31,724
	Management Fees		770		865		2,521		2,573
Income from discontinued operation, net		$	15,164	$	18,516	$	55,993	$	52,511

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

When used in this discussion, words such as “intends,” “anticipates,” “expects,” “will,” “could,” “estimate,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those described herein. Such risks and uncertainties, some of which are beyond the Partnership’s control, include, but are not limited to, the following: (i) the possibility that tenants and lessees may default in making rent payments, (ii) the risk of fire or other casualty interrupting cash flow from a property, (iii) the inability to enter into leases at the assumed rental rates, (iv) unexpected expenses, and (v) the inability to sell properties at anticipated prices and/or times.

As a result of these and other factors, the Partnership may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition and operating results. Any statements contained in this report or any documents incorporated herein by reference that are not statements of historical fact may be deemed to be forward-looking statements. These statements by their nature involve substantial risks and uncertainties, some of which are beyond the Partnership’s control, and actual results may differ materially depending on a variety of important factors, many of which are also beyond the Partnership’s control. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Partnership disclaims, except as may be required by law, any obligations to update or release revisions to these forward-looking statements

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to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2003.During the three months ended September 30, 2003 total operating revenue including discontinued operations, was approximately $538,000, compared to $567,000 for the three months ended September 30, 2002. Rental revenue from operating leases for the three months ended September 30, 2003 decreased 4.2% to approximately $527,000, compared to $550,000 for the three months ended September 30, 2002 due to the disposition of a Red Robin property in September 2003. The sale of the Red Robin property was triggered by the tenant’s exercise of a purchase option clause in the lease agreement. The sale also triggered the early repayment of debt secured by the Red Robin property and the associated debt retirement costs discussed below. Earned income from financing leases for the three months ended September 30, 2003 decreased 33.8% to approximately $11,000 compared to approximately $17,000 for the three months ended September 30, 2002 as a result of the amortization of the principal balances on the financing leases and the disposition of an equipment lease in the first quarter of 2003.

Operating expenses including discontinued operations were approximately $796,000 for the three months ended September 30, 2003 compared to approximately $277,000 for the three months ended September 30, 2002. The increase in operating expenses for the three months ended September 30, 2003 compared to the prior period is primarily due to the debt retirement costs of approximately $530,000 associated with the disposition of the Red Robin property in September 2003. Interest expense decreased due to the amortization of principal balances. General and administrative expenses increased as a result of increased professional fees partially offset by the decrease in depreciation expense due to the disposition of the Red Robin property in September 2003.

Other income including discontinued operations for the three months ended September 30, 2002 was approximately $499,000 primarily due to a gain on the disposition of the Red Robin property in September 2003.

As a result of the foregoing, the Partnership’s net income decreased 18.6% to approximately $240,000 for the three months ended September 30, 2003 compared to approximately $295,000 for the three months ended September 30, 2002.

The Partnership announced third quarter distributions of $1,044,000, of which $996,816 was distributed to limited partners on October 15, 2003. The balance of $47,184 was distributed on August 15, 2003 and September 15, 2003 to those partners who elected to receive distributions on a monthly basis.

Nine Months Ended September 30, 2003.During the nine months ended September 30, 2003 total operating revenue including discontinued operations, was approximately $1,668,000, compared to $1,711,000 for the nine months ended September 30, 2002. Rental revenue from operating leases for the nine months ended September 30, 2003 decreased 1.5% to approximately $1,630,000, compared to $1,654,000 for the nine months ended September 30, 2002 due to the disposition of a Red Robin property in September 2003. The sale of the Red Robin property was triggered by the tenant’s exercise of a purchase option clause in the lease agreement. The sale also triggered the early repayment of debt secured by the Red Robin property and the associated debt retirement costs discussed below. Earned income from financing leases for the nine months ended September 30, 2003 decreased 32.3% to approximately $38,000 compared to approximately $57,000 for the nine months ended September 30, 2002 as a result of the amortization of the principal balances on the financing leases and the disposition of an equipment lease in the first quarter of 2003.

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Operating expenses including discontinued operations were approximately $1,363,000 for the nine months ended September 30, 2003, compared to approximately $860,000 for the nine months ended September 30, 2002. The increase in operating expenses for the nine months ended September 30, 2003 compared to the prior period is primarily due to the debt retirement costs of approximately $530,000 associated with the disposition of the Red Robin property in September 2003. Interest expense decreased due to the amortization of principal balances. General and administrative expenses increased as a result of increased professional fees partially offset by the decrease in depreciation expense due to the disposition of the Red Robin property in September 2003.

Other income including discontinued operations for the nine months ended September 30, 2003 was approximately $514,000 compared to approximately $54,000 for the nine months ended September 30, 2002. Other income for the nine months ended September 30, 2003 is principally due to the sale the Red Robin property for net cash proceeds of approximately $3,428,000 in 2003, resulting in a gain of approximately $498,000, the sale of an equipment lease for net cash proceeds of approximately $24,000, resulting in a gain of approximately $6,000, and miscellaneous income from late charges of approximately $9,000. Other income for the nine months ended September 30, 2002 is primarily due to a gain on the disposition of an equipment lease in April 2002.

As a result of the foregoing, the Partnership’s net income decreased 9.4% to approximately $819,000 for the nine months ended September 30, 2003 compared to approximately $904,000 for the nine months ended September 30, 2002.

LIQUIDITY AND CAPITAL COMMITMENTS

The Partnership commenced the Offering of up to 20,000 Units, priced at $1,000 per Unit, on August 12, 1994. The Partnership accepted subscriptions for the minimum number of Units on January 24, 1995, and immediately commenced operations. The Offering was fully subscribed on August 12, 1996. Net proceeds after Offering expenses were $17.4 million.

In November 1998, the Partnership entered into a $6.2 million term note. The Partnership entered into an additional $2.0 million term note in March 1999. Proceeds from the notes were used to acquire additional properties and equipment. The notes have a 10-year term, are collateralized by certain properties subject to operating leases, and bear interest at rates of 8.37% and 8.50% per annum, respectively. In September 2003, the partnership defeased approximately $1,979,000 of this notes payable with proceeds from the sale of the Red Robin property. The partnership incurred a loss of approximately $530,000 related to the defeasance. Debt issuance costs of approximately $478,000 incurred in connection with the issuance of the notes are being amortized over the life of the notes to interest expense using the straight-line method, which is not materially different than the interest rate method.

As of September 30, 2003, the Partnership had invested $16.1 million in 13 net leased real properties and $1.7 million in 6 performing equipment leases. The remaining net investment in the Partnership’s leased equipment is approximately $608,000, after cumulative principal collections of approximately $1.1 million. Inclusive of the above amount, the Partnership has received approximately $3.2 million in aggregate principal collections on its financing leases during the life of those investments. The Partnership also has a net investment of approximately $13,000 in a repossessed equipment package, net of an allowance for loss of approximately $169,000. As of September 30, 2003, the Partnership has not made any commitments to purchase additional properties or equipment, nor does it intend to make any such commitments.

The Partnership annually considers written requests to repurchase Units pursuant to the terms of the repurchase plan set forth in the Partnership’s August 12, 1994 prospectus with respect to the Offering. Since 1997, a total of 347 Units have been repurchased by the Partnership. At September 30, 2003, the Partnership has 19,653 Units issued and outstanding. The Partnership expects to fund any future Unit repurchases out of working capital reserves and net sale or

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refinancing proceeds, but may also fund such repurchases out of cash flow. The Partnership is not obligated to accept Unit repurchase requests if the General Partner determines that such purchases would impair the capital or operation of the Partnership and the Partnership may suspend or cancel the repurchase plan at any time in its sole discretion.

The Partnership expects that only limited amounts of liquid assets will be required for existing properties since its property and equipment leases require tenants and lessees to pay all taxes and assessments, maintenance and repairs and insurance premiums, including casualty insurance, thereby minimizing the Partnership’s operating expenses and capital requirements. The General Partner expects that the cash flow to be generated by the Partnership’s properties and equipment will provide adequate liquidity and capital resources to pay operating expenses and provide distributions to Limited Partners.

ITEM 3. CONTROLS AND PROCEDURES

Mr. Beach, acting in his capacity as the principal executive officer of GP3 Asset Acquisition, is ultimately responsible for the disclosure controls and procedures of the Partnership. Disclosure controls and procedures are established and maintained by the Partnership to ensure the information required to be disclosed by the Partnership in the reports that it files or submits pursuant to the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Mr. Beach has evaluated the effectiveness of the Partnership’s disclosure controls and procedures as of the end of the period covered by this report, and has determined that the Partnership’s disclosure controls and procedures effectively communicate the information required to be disclosed by the Partnership in the report it files or submits under the Act in a manner that allows timely decisions regarding such disclosure.

There have been no significant changes in the Partnership’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date, including, but not limited to any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.None.

ITEM 2. CHANGES IN SECURITIES.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.None.

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

ITEM 5. OTHER INFORMATION.None

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

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

Number	Exhibit
4	Amended Agreement of Limited Partnership of Registrant. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-KSB for the year ended December 31, 1998)
10.1	Promissory Note dated November 28, 1998 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-KSB for the year ended December 31, 1998)
10.2	Promissory Note dated March 31, 1999 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-QSB for the quarter ended March 31, 1999)
31	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification Pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K:

     There were no reports filed on Form 8-K for the quarter ended September 30, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

By:	Captec Franchise Capital Partners L.P. III GP3 Asset Acquisition, LLC Its Manager
By:	/s/ Patrick L. Beach Patrick L. Beach President
Date:	November 14, 2003

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10-Q EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
EX-4	Amended Agreement of Limited Partnership of Registrant. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-KSB for the year ended December 31, 1998)
EX-10.1	Promissory Note dated November 28, 1998 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-KSB for the year ended December 31, 1998)
EX-10.2	Promissory Note dated March 31, 1999 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-QSB for the quarter ended March 31, 1999)
EX-31	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32	Certification Pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002