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UNITED STATES

FORM 10-Q

(Mark one)

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

OR

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

For the transition period from                                to                                .

Commission file no. 0-16851

DEL TACO RESTAURANT PROPERTIES III

(949) 462-9300

     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 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 o

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INDEX

DEL TACO RESTAURANT PROPERTIES III

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DEL TACO RESTAURANT PROPERTIES III

BALANCE SHEETS

(Unaudited)

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

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DEL TACO RESTAURANT PROPERTIES III

STATEMENTS OF INCOME

(Unaudited)

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

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DEL TACO RESTAURANT PROPERTIES III

STATEMENTS OF CASH FLOWS

(Unaudited)

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

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DEL TACO RESTAURANT PROPERTIES III

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2002

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should therefore be read in conjunction with the financial statements and notes thereto contained in the Registrant’s annual report on Form 10-K for the year ended December 31, 2001. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the partnership’s financial position at June 30, 2002, the results of operations and cash flows for the six month periods ended June 30, 2002 and 2001 have been included. Operating results for the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

NOTE 2 — RESTRICTED CASH

At June 30, 2002, the partnership had a restricted cash balance of $97,291. The restricted cash is a death and disability redemption fund. Such fund is maintained in an interest bearing account at a major commercial bank. A limited partner has the right, under certain circumstances involving such limited partner’s death or disability, to tender to the partnership for redemption all of the units owned of record by such limited partner. The redemption price will be equal to the partners capital account balance as of the redemption date. The death and disability fund was established in 1987. The fund was limited to two percent of the gross proceeds from sale of the limited partnership units. Requests for redemption made after the funds in the death and disability fund are depleted will not be accepted.

NOTE 3 — NET INCOME PER LIMITED PARTNERSHIP UNIT

Net income per limited partnership unit is based upon the weighted average number of units outstanding during the periods presented which amounted to 47,331 in 2002 and 2001.

Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to the General Partner and 99 percent to the limited partners. Partnership gains from any sale or refinancing will be allocated one percent to the General Partner and 99 percent to the limited partners until allocated gains and profits equal losses, distributions and syndication costs, and until each class of limited partners receive their priority return as defined in the partnership agreement. Additional gains will be allocated 15 percent to the General Partner and 85 percent to the limited partners.

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DEL TACO RESTAURANT PROPERTIES III

NOTES TO FINANCIAL STATEMENTS — CONTINUED

JUNE 30, 2002

NOTE 4 — LEASING ACTIVITIES

The partnership leases certain properties for operation of restaurants to Del Taco, Inc. (“Del Taco”) on a triple net basis. The leases are for terms of 35 years commencing with the completion of the restaurant facility located on each property and require monthly rentals equal to 12 percent of the gross sales of the restaurants. The leases terminate in the years 2021 to 2024. There is no minimum rental under any of the leases.

For the three months ended June 30, 2002, the nine restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $1,866,006 and net income of $121,254, as compared to $1,699,436 and $94,528, respectively, for the corresponding period in 2001. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense.

For the six months ended June 30, 2002, the nine restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $3,600,693 and net income of $221,014, as compared to $3,307,581 and $182,471, respectively, for the corresponding period in 2001.

For the three months and six months ended June 30, 2002, the East Valley Blvd. restaurant in Walnut, California reported unaudited net income of $3,410 and $7,594 as compared to unaudited net income of $35 and a net loss of $2,352 for the corresponding period in 2001.

For the three months and six months ended June 30, 2002, the East Gale Blvd. restaurant in Puente Hills, California reported unaudited net income of $303 and a net loss of $1,719 as compared to unaudited net losses of $2,032 and $3,768 for the corresponding period in 2001.

NOTE 5 — TRANSACTIONS WITH DEL TACO

The receivable from General Partner consists primarily of rent accrued for the month of June. The June rent was collected on July 15, 2002.

Del Taco, Inc. serves in the capacity of general partner in other partnerships which are engaged in the business of operating restaurants, and three other partnerships which were formed for the purpose of acquiring real property in California for construction of Mexican-American restaurants for lease under long-term agreements to Del Taco, Inc. for operation under the Del Taco trade name.

In addition, see Note 6 with respect to certain distributions to the General Partner.

NOTE 6 — DISTRIBUTIONS

On July 22, 2002, a distribution to the limited partners of $204,503, or approximately $4.32 per limited partnership unit, was approved. Such distribution was paid on July 29, 2002. The General Partner also received a distribution of $2,066 with respect to its 1% partnership interest.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

The partnership offered limited partnership units for sale between February 1986 and June 1987. 14.7% of the $12 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse the General Partner for offering costs incurred. Approximately $9.5 million of the remaining funds were used to acquire sites and build ten restaurants. In February of 1992, approximately $281,000 raised during the offering but not required to acquire sites and build restaurants was distributed to the limited partners. One restaurant was sold in November 1997.

The nine restaurants leased to Del Taco make up almost all of the income producing assets of the partnership. Therefore, the business of the partnership is almost entirely dependent on the success of the Del Taco trade name restaurants that lease the properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.

As described in Note 2 to the Notes to the Financial Statements, the partnership has a death and disability redemption fund totaling $97,291 at June 30, 2002. Investors should contact the General Partner with all questions regarding the eligibility of a limited partner or the estate of a deceased limited partner to participate in the redemption fund.

Results of Operations

The partnership owns nine properties that are under long-term lease to Del Taco for restaurant operations.

The following table sets forth rental revenue earned by restaurant for the three and six months ended June 30, 2002 and 2001:

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued

The partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The partnership earned rental revenue of $223,921 during the three month period ended June 30, 2002, which represents an increase of $19,988 from 2001. The partnership earned rental revenue of $432,083 during the six month period ended June 30, 2002, which represents an increase of $35,173 from 2001. The increases in rental revenue are directly attributable to changes in sales levels at the restaurants under lease.

The following table breaks down general and administrative expenses by type of expense:

General and administrative costs for the six month period ended June 30, increased from 2001 to 2002 due to increased costs for income tax preparation, annual audit fees and the cost to lease software.

For the three month period ended June 30, 2002, net income increased by $16,099 from 2001 to 2002 due to the increase in revenues of $18,266 which was partially offset by the increase in general and administrative expenses of $2,167. For the six month period ended June 30, 2002, net income increased by $27,818 from 2001 to 2002 due to an increase in revenues of $31,518 which was partially offset by an increase in general and administrative expenses of $3,700.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30. It addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company’s results of operations or financial condition.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

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SIGNATURE

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.

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EXHIBIT INDEX