10-Q 1 f10q_june2007-lib3.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-24656 LIBERTY TAX CREDIT PLUS III L.P. (Exact name of registrant as specified in its charter) Delaware 13-3491408 ------------------------------------------------ ------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.) 625 Madison Avenue, New York, New York 10022 ------------------------------------------------ ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 317-5700 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 [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] PART I - Financial Information Item 1. Financial Statements LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Consolidated Balance Sheets

~~=============~~June ~~============== December 31~~30, March 31, ~~2004~~2007 ~~2004~~2007 ------------- ------------- (Unaudited) (Audited) ASSETS Operating ~~Assets~~assets: Property and equipment at cost, net of accumulated depreciation of $~~122~~66,~~997~~909,~~360~~805 and $~~123~~68,~~219~~415,~~520~~555, respectively $ ~~150~~64,~~824~~838,~~263~~658 $ ~~163~~67,~~934~~679,~~774~~479 Cash and cash equivalents 311,~~328~~953,~~060~~152 35,~~656~~256,~~322~~344 Cash held in escrow 135,~~100~~286,~~640~~730 135,~~258~~191,~~260~~046 Deferred costs, net of accumulated amortization of $21,~~234~~192,~~349~~966 and $21,~~172~~226,~~279~~338, respectively 21,~~541~~261,~~062~~376 21,~~670~~354,~~475~~307 Other assets 21,~~969~~269,~~039~~432 21,~~776~~374,~~525~~292 ------------- ------------- Total operating assets ~~172~~84,~~763~~609,~~064~~348 ~~186~~80,~~296~~855,~~356~~468 ------------- ------------- ~~Discontinued~~ Assets from discontinued operations (Note 5): Property and equipment held for sale, net of accumulated depreciation of $520,~~327~~185,~~579~~652 and $030,151,980, respectively 516,~~014~~325,~~661~~396 031,822,485 Net assets held for sale 13,~~670~~001,303 4,864,203 ------------- ------------- Total assets from discontinued operations 19,326,699 36,686,688 ------------- ------------- Total assets $ 103,936,047 $ 117,542,156 0============= ============= LIABILITIES AND PARTNERS' DEFICIT Operating liabilities: Mortgage notes payable $ 83,501,487 $ 85,828,031 Due to debt guarantor 64,813,250 63,943,133 Accounts payable 4,553,584 306,550 Accrued interest payable 16,811,075 16,747,001 Security deposit payable 648,789 669,329 Due to local general partners and affiliates 4,826,344 5,445,990 Due to general partners and affiliates 7,130,738 6,921,475 ------------- ------------- Total operating liabilities 182,285,267 179,861,509 ------------- ------------- Liabilities from discontinued operations (Note 5): Mortgage notes payable of assets held for sale 21,174,672 32,569,200 Net liabilities held for sale including minority interest 5,506,472 15,741,623 ------------- ------------- Total liabilities from discontinued operations 26,681,144 48,310,823 ------------- ------------- Minority interest (660,158) (420,360) ------------- ------------- Commitments and contingencies (Note 6) Partners' deficit: Limited partners (139,~~684~~101.5 BACs issued and outstanding) (105,~~778~~559,923) 0(111,299,062) General Partners 1,189,717 1,089,246 ------------- ------------- Total ~~assets~~partners' deficit (104,370,206) (110,209,816) ------------- ------------- Total liabilities and partners' deficit $ ~~179~~103,~~447~~936,~~842~~047 $ ~~186~~117,~~296~~542,~~356~~156 ============= =============

See accompanying notes to consolidated financial statements. 2 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)

~~=============~~Three ~~==============~~Months ~~December~~Ended ~~31,~~June ~~March 31~~30, ~~2004 2004~~ ------------- ------------- ~~LIABILITIES~~2007 ~~AND~~2006* ~~PARTNERS'~~----------- ~~DEFICIT~~----------- ~~Operating Liabilities~~Operations: ~~Mortgage~~Revenues ~~notes~~Rental ~~payable~~income $ ~~163~~3,~~786~~090,~~053~~174 $ ~~172~~3,~~456~~150,~~295~~906 ~~Due~~Other ~~to debt guarantor 52~~281,~~929,553~~267 49219,~~958,612~~867 ~~Accounts payable and other liabilities 26,772,528 24,044,416 Due to local general partners and affiliates 11,502,911 11,682,238 Due to general partners and affiliates 12,213,958 11,905,206~~ ------------- ------------- Total ~~operating~~Revenues ~~liabilities 267~~3,~~205~~371,~~003~~441 ~~270~~3,~~046~~370,~~767~~773 ------------- ------------- ~~Discontinued~~Expenses ~~Liabilities~~General and administrative 1,123,540 888,845 General and administrative-related parties (Note 52): ~~Mortgage~~514,596 ~~notes~~541,583 ~~payable~~Operating of504,749 ~~assets~~479,152 ~~held~~Repairs ~~for~~and ~~sale~~maintenance 3749,~~527~~292 537,~~256~~026 0Real ~~Net~~estate ~~liabilities~~taxes ~~held~~181,941 ~~for~~174,986 ~~sale~~Insurance 26232,~~575~~790 0224,261 Interest 1,890,399 1,867,939 Depreciation and amortization 1,135,027 1,150,255 ------------- ------------- Total ~~discontinued~~expenses ~~liabilities~~6,332,334 35,~~553~~864,~~831~~047 0 ------------- ------------- ~~Total~~Loss ~~liabilities~~from ~~270~~operations before minority interest (2,~~758~~960,~~834~~893) ~~270~~(2,~~046~~493,~~767~~274) Minority interest in loss of subsidiary partnerships from operations 112,590 80,422 ------------- ------------- ~~Minority~~Loss ~~interest~~from operations (12,~~472~~848,~~059~~303) (12,~~481~~412,~~127~~852) Discontinued operations: Income from discontinued operations (including gain on sale of properties and minority interest) 8,645,413 5,193,998 ------------- ------------- ~~Commitments~~Net ~~and~~income ~~contingencies~~$ ~~(Note~~5,797,110 4)$ ~~Partners'~~2,781,146 ~~deficit:~~=========== ~~Limited~~=========== ~~partners~~Loss ~~(139,101.5~~from ~~BACs~~operations-limited ~~issued~~partners ~~and outstanding)~~ $(872,~~705~~819,~~086~~820) $(802,~~211~~388,~~134~~723) ~~General~~Income ~~Partners~~from discontinued operations (2including gain on sale of properties and minority interest) - limited partners 8,~~133~~558,~~847)~~959 (25,~~058~~142,~~150)~~058 ------------- ----------- Net income-- ~~Total~~limited partners' ~~deficit~~$ ~~(89~~5,~~838~~739,~~933)~~139 ~~(82~~$ 2,~~269~~753,~~284~~335 =========== =========== Number of BACs outstanding 139,101.5 139,101.5 =========== =========== Loss from operations per BAC $ (20.27) $ (17.18) Income from discontinued operations (including gain on sale of properties and minority interest) per BAC 61.53 36.97 ------------- ------------- ~~Total~~Net ~~liabilities~~income ~~and~~per ~~partners'~~BAC ~~deficit~~ $ ~~179,447,842~~41.26 $ ~~186,296,356~~19.79 ============= =============

* Reclassified for comparative purposes. See accompanying notes to consolidated financial statements. 3 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Consolidated Statement of Changes in Partners' (Deficit) Capital (Unaudited)

~~============================~~Limited ~~============================~~General ~~Three~~Total ~~Months~~Partners ~~Ended~~Partners ~~Nine Months Ended December 31, December 31,~~ ------------- --------------- -------------~~---------------~~ ~~2004~~Partners' 2003*(deficit) ~~2004~~capital 2003* -~~---------------------------~~ ~~----------------------------~~April ~~Operations:~~1, ~~Revenues~~2007 ~~Rental income~~ $ 7(110,~~704~~209,~~403~~816) $ 7(111,~~907~~299,~~480~~062) $ 231,~~040~~089,~~570~~246 $Net ~~23,401,714~~income ~~Other 276,138 331,319 934,114 898,615~~ -~~-----------~~ ~~------------~~Three ~~------------~~months ~~------------~~ended ~~Total~~June ~~revenue 7~~30,~~980,541~~ ~~8,238,799~~2007 ~~23,974,684 24,300,329 ------------ ------------ ------------ ------------ Expenses General and administrative 1,962,826 1,925,971~~ 5,~~551~~797,~~160~~110 5,~~729~~739,~~161~~139 ~~General and administrative- related parties (Note 2) 822~~57,~~118~~971 ~~851,419~~Contribution 2,458,289 2,540,060 Operating 815,502 815,044 2,723,408 2,730,610 Repairs and maintenance 1,280,293 1,332,661 3,900,052 3,805,610 Real estate taxes 496,155 480,394 1,490,889 1,421,790 Insurance 501,107 419,488 1,572,180 1,299,379 Interest 3,292,686 3,258,096 9,667,802 10,023,277 Depreciation and amortization 2,366,943 2,301,329 7,035,667 7,101,625 -~~-----------~~ write-~~-----------~~off ~~------------~~of ~~------------~~related ~~Total~~party ~~expenses~~debt 1142,~~537,630~~500 ~~11,384,402~~0 3442,~~399,447~~500 ~~34,651,512~~ ------------ -~~-----------~~ ------------ -~~-----------~~ ~~Loss from operations before minority interest (3,557,089) (3,145,603) (10,424,763) (10,351,183) Minority interest in losses of subsidiary partnerships from operations 66,507 61,558 206,291 191,256~~ ------------ -~~-----------~~ ~~------------~~Partners' ~~------------ Loss from operations~~ (~~3,490,582~~deficit) ~~(3,084,045)~~capital ~~(10,218,472) (10,159,927)~~ -~~-----------~~ ~~------------~~June ~~------------ ------------ Discontinued Operations: Income from discon- tinued operations (including gain (loss) on sale of properties and minority interest) (Notes 3 and 5) 2~~30,~~365,482~~ ~~127,465~~2007 ~~2,648,823 13,563,269 ------------ ------------ ------------ ------------ Net (loss) income~~ $ (1104,~~125~~370,~~100~~206) $ (2105,~~956~~559,~~580~~923) $ (71,~~569~~189,~~649)~~717 ~~$ 3,403,342~~ ============ =~~===========~~ ============= =============

See accompanying notes to consolidated financial statements. 4 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)

~~============================ ============================~~ Three Months Ended ~~Nine~~June ~~Months Ended December 31~~30, ~~December 31,~~ ---------------------------- 2007 2006* ------------ ------------~~----~~ ~~2004~~Cash 2003*flows ~~2004~~from 2003*operating activities: Net income $ 5,797,110 $ 2,781,146 ------------~~----------------~~ ------------~~----------------~~ ~~Loss~~Adjustments ~~from~~to ~~operations~~reconcile ~~limited~~net ~~partners~~income $to net cash used in operating activities: Gain on sale of properties (36,~~455~~681,~~676~~804) $(791,439) Depreciation and amortization 1,380,593 1,815,829 Minority interest in loss of subsidiaries (32,~~053~~586,~~204~~152) $(105,~~116~~612,~~287~~681) $Increase (10decrease) in accounts payable and other liabilities 602,~~058~~295 (452,~~328~~219) ~~Income~~Increase ~~from~~in ~~discon-~~accrued ~~tinued~~interest ~~operations~~payable 212,139 711,768 Decrease in security deposits payable (~~including~~14,812) ~~gain~~(162,112) (~~loss~~Increase) ondecrease ~~sale~~in ofcash ~~properties~~held in escrow (187,104) -403,979 ~~limited~~Decrease (increase) in other assets 209,472 (60,541) (Decrease) increase in due to general partners 2and affiliates (86,~~341~~981) (336,~~827~~978) ~~126~~Increase in due to local general partners and affiliates 38,~~190~~200 2244,~~622~~793 Decrease in due to local general partners and affiliates (183,~~335~~030) 13(9,~~427~~248) Increase in due to debt guarantor 870,~~637~~117 1,232,059 ------------ ------------ Total adjustments (6,427,067) (3,016,790) ------------ ------------ Net cash used in operating activities (~~loss~~629,957) ~~income~~(235,644) ------------ ~~limited~~------------ ~~partners~~Cash $flows from investing activities: Acquisitions of property and equipment (176,~~113,849~~939) $ (2131,~~927,014~~297) $Proceeds (7from sale of properties 16,~~493~~579,~~952)~~605 ~~$ 3~~4,~~369~~700,~~309~~000 ~~============~~Costs ~~============~~paid ~~============~~relating ~~============~~to ~~Number~~sale of ~~BACs~~properties ~~outstanding 139~~(4,~~101.5 139~~286,~~101.5~~646) ~~139~~(552,~~101.5~~641) ~~139,101.5~~Increase ~~============~~in ~~============~~cash ~~============~~held ~~============~~in ~~Loss~~escrow ~~from~~197,906 ~~operations~~(271,481) ------------ ~~per~~------------ ~~BAC~~Net $cash ~~(24.84)~~provided $by (~~21.95~~used in) $investing ~~(72.73)~~activities $12,413,926 ~~(72.31)~~3,744,581 ~~Income~~------------ ------------ Cash flows from ~~discon-~~financing ~~tinued~~activities: ~~operations~~Principal payments of mortgage notes payable (~~including~~5,201,913) ~~gain~~(3,170,768) Increase in deferred costs (~~loss~~6,198) on0 ~~sale~~Decrease in capitalization of ~~properties)~~consolidated -subsidiaries ~~per~~attributable ~~BAC~~to ~~16.83~~minority ~~0.91~~interest ~~18.85~~(410,107) ~~96.53~~0 ------------ ------------ Net cash used in financing activities (5,618,218) (3,170,768) ------------ ------------ Net ~~(loss)~~increase ~~income~~in cash and cash equivalents 6,165,751 338,169 Cash and cash equivalents at beginning of period 6,222,149 5,435,049 ------------ ~~per~~------------ ~~BAC~~Cash $and ~~(8.01)~~cash $equivalents ~~(21.04)~~at end of period** $ ~~(53.88)~~12,387,900 $ ~~24.22~~5,773,218 ============ ============ ~~============~~Summarized ~~============~~below are the components of the gain on sale of properties: Proceeds from sale of properties $(16,579,605) $ (4,700,000) Costs paid relating to sale of properties 4,286,646 552,641 Property and equipment, net of accumulated depreciation 17,097,985 7,107,440 Prepaid expenses and other assets (353,944) 249,225 Cash held in escrow 1,392,050 1,702,293 Deferred costs 112,887 0 Accounts payable and other liabilities (2,218,094) (575,322) Accrued interest payable (1,588,417) (1,311) Security deposits payable (313,533) (41,448) Mortgage notes payable (8,519,159) (10,130,036) Due to local general partners and their affiliates (43,315) (299,300) Due to general partners and affiliates (2,919,743) (47,500) Capitalization of consolidated subsidiaries attributable to minority interest 2,964,438 5,391,879

* Reclassified for comparative purposes. ** Cash and cash equivalents, end of period, includes cash and cash equivalents from discontinued operations of $434,748 and $330,346, respectively. See accompanying notes to consolidated financial statements 5 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) Note 1 - General The consolidated financial statements for the three months ended June 30, 2007 and 2006, include the accounts of Liberty Tax Credit Plus III L.P. (the "Partnership") and 40 and 46 subsidiary partnerships (the "subsidiary partnerships", "Local Partnerships" or "subsidiaries"), respectively. The Partnership holds a 98% limited partnership interest in all but one subsidiary partnership. The Partnership holds a 27% limited partnership interest in Sartain School Venture (the other 71% limited partnership interest is owned by an affiliate of the Partnership with the same management). Through the rights of the Partnership and/or an affiliate of Related Credit Properties III L.P. and Liberty GP III Inc. (the "General Partners"), which affiliate has a contractual obligation to act on behalf of the Partnership, to remove the general partner of each subsidiary partnership (each a "Local General Partner") and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary partnerships. As of June 30, 2007, the Partnership has disposed of thirty-one of its sixty-two original investments (see Note 3). In addition, as of June 30, 2007, the Partnership has entered into agreements for the sale of three Local Partnerships. For financial reporting purposes, the Partnership's fiscal quarter ends June 30. All subsidiaries have fiscal quarters ending March 31. Accounts of the subsidiaries have been adjusted for intercompany transactions from April 1 through June 30. The Partnership's fiscal quarter ends June 30 in order to allow adequate time for the subsidiaries' financial statements to be prepared and consolidated. All intercompany accounts and transactions have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions from and cash distributions to the minority interest partners. Losses attributable to minority interests which exceed the minority interests' investment in a subsidiary have been charged to the Partnership. There were no such losses for the three months ended June 30, 2007 and 2006, respectively. The Partnership's investment in each subsidiary is generally equal to the respective subsidiary partners' equity less minority interest capital, if any. In consolidation, all subsidiary partnership losses are included in the Partnership's capital account except for losses allocated to minority interest capital. The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles ("GAAP"). In the opinion of the General Partners of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of June 30, 2007, results of its operations and its cash flows for the three months ended June 30, 2007 and 2006. However, the operating results for the three months ended June 30, 2007 may not be indicative of the results for the year. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended March 31, 2007. Note 2 - Related Party Transactions Liberty Associates IV L.P. ("Liberty Associates"), an affiliate of the General Partners, has a 1% and .998% interest as a special limited partner in 38 and 1 of the Local Partnerships, respectively, as of June 30, 2007. Affiliates of the General Partners also have a minority interest in certain Local Partnerships. As of June 30, 2007 and March 31, 2007, the Partnership is owed approximately $2,408,000 and $2,337,000, respectively, from the Local Partnerships for operating advances. These advances are non-interest bearing and have no set repayment terms. As of June 30, 2007 and March 31, 2007, the Partnership has advanced these monies to four and three Local Partnerships, respectively, to fund their operations. The General Partners and their affiliates and the Local General Partners and their affiliates perform services for the Partnership and the Local General Partners, respectively. The costs incurred to related parties from operations for the three months ended June 30, 2007 and 2006 were as follows:

~~=================================================~~Three ~~Limited~~Months ~~General~~Ended ~~Total~~June ~~Partners~~30, ~~Partners~~ ----------------------- 2007 2006* ---------- ----------~~------~~ ~~Partners'~~Partnership ~~deficit~~management -fees ~~April 1, 2004 $~~(~~82,269,284~~a) $~~(80~~ 250,~~211,134)~~000 $ (2287,~~058,150)~~500 ~~Net~~Expense ~~loss~~reimbursement -(b) ~~nine~~90,737 ~~months~~71,231 ~~ended~~Local ~~December~~administrative ~~31,~~fee ~~2004~~ (~~7,569,649~~d) (79,~~493,952)~~126 ~~(75~~8,~~697)~~440 ---------- -- -------- Total general and administrative-General Partners 349,863 367,171 --- ------- ---------- ~~Partners'~~Property ~~deficit~~management -fees ~~December~~incurred ~~31,~~to ~~2004~~affiliates $of the subsidiary partnerships' general partners (89c) 164,~~838~~733 174,~~933)~~412 ---------- ---------- Total general and administrative-related parties $~~(87~~ 514,~~705,086)~~596 $ (2541,~~133,847)~~583 ============ ==========~~== ============~~

* Reclassified for comparative purposes. 6 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) The costs incurred to related parties from discontinued operations for the three months ended June 30, 2007 and 2006 were as follows:

~~===============================~~Three ~~Nine~~ Months Ended ~~December~~June 3130, -----------------------~~--------~~ ~~2004~~2007 ~~2003~~2006* ---------- ----------~~-----------~~ ~~Cash~~Local ~~flows~~administrative ~~from~~fee ~~operating activities: Net~~ (~~loss~~d) ~~income~~ $ (7,~~569,649)~~760 $ ~~3,403,342 Adjustments to reconcile net(loss) income to net cash provided by operating activities: Income from discontinued operations (2,648,823) (~~13,~~563,269)~~810 Depreciation and amortization 7,035,667 7,101,625 Increase in cash held in escrow (951,946) (569,568) Increase in other assets (282,979) (475,139) Increase in due to debt guarantor 2,970,941 2,529,161 Increase in accounts payable and other liabilities 4,475,140 1,150,286 Increase in due to local general partners and affiliates 314,863 331,640 Decrease in due to local general partners and affiliates (458,176) (472,154) Increase in due to general partners and affiliates 390,114 1,308,715 Minority interest in loss of subsidiaries (206,291) (191,256) ------------ ------------ ~~Net~~Total ~~cash~~general ~~provided~~and byadministrative-General ~~operating~~Partners ~~activities 3~~7,~~068,861~~760 ~~553~~13,~~383~~810 ------------ ------------ ~~Cash~~Property ~~flows~~management ~~from~~fees ~~investing~~incurred ~~activities:~~to ~~Acquisition~~affiliates of ~~property~~the ~~and~~Local ~~equipment~~General ~~(1,118,776)~~Partners (~~936,802~~c) ~~Proceeds from sale of properties 690~~101,~~645~~385 ~~0 Decrease (increase) in cash held in escrow 48~~142,~~492~~035 ~~(34,841) Decrease in due to local general partners and affiliates 0 2,427~~ ------------ ------------ ~~Net~~Total ~~cash~~general ~~used~~and inadministrative-related ~~investing~~parties ~~activities~~$ ~~(379~~109,~~639)~~145 ~~(969~~$ 155,~~216)~~845 ~~------------~~========== ~~------------~~==========

* Reclassified for comparative purposes. (a) The General Partners are entitled to receive a partnership management fee after payment of all Partnership expenses, which, together with the local annual administrative fees, will not exceed a maximum of 0.5% per annum of invested assets (as defined in the Partnership's Amended and Restated Agreement of Limited Partnership ("Partnership Agreement")), for administering the affairs of the Partnership. The partnership management fee, subject to the foregoing limitation, will be determined by the General Partners in their sole discretion based upon their review of the Partnership's investments. Unpaid partnership management fees for any year will be accrued without interest and will be payable only to the extent of available funds after the Partnership has made the distributions to the BACs holders of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to the General Partners amounting to approximately $8,053,000 and $7,803,000 were accrued and unpaid at June 30, 2007 and March 31, 2007. Without the General Partners' continued accrual without payment of these fees and expense reimbursements, the Partnership will not be in a position to meet its obligations. (b) The Partnership reimburses the General Partners and their affiliates for actual Partnership operating expenses incurred by the General Partners and their affiliates on the Partnership's behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partners performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships' performance. (c) The subsidiary partnerships incurred property management fees amounting to $341,575 and $453,053 for the three months ended June 30, 2007 and 2006, respectively. Of these fees, $266,118 and $316,447, respectively, were incurred to affiliates of the Local General Partners, which includes $101,385 and $142,035 of fees relating to discontinued operations. (d) Liberty Associates IV L.P., a special limited partner of the subsidiary partnerships, is entitled to receive a local administrative fee of up to $2,500 per year from each subsidiary partnership. Note 3 - Sale of Properties The Partnership is currently in the process of disposing of its investments. It is anticipated that this process will take a number of years. During the three months ended June 30, 2007, the Partnership sold its limited partnership interest in two Local Partnerships and the property and the related assets and liabilities of two Local Partnerships were sold. Through June 30, 2007, the Partnership has sold its limited partnership interest in eighteen Local Partnerships, the property and the related assets and liabilities of twelve Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities of one Local Partnership. In addition, as of June 30, 2007, the Partnership has entered into agreements to sell its limited partnership interests in two Local Partnerships and one Local Partnership has entered into an agreement to sell its property and related assets and liabilities (see Note 4). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. On June 26, 2007, the property and the related assets and liabilities of Conifer James Street Associates ("Schopfer") were sold to an unaffiliated third party purchaser for a sales price of $1,950,000 less the unpaid principal balance of the mortgage. The Partnership did not receive any distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,950,000. The sale resulted in a loss of approximately $109,000 resulting from the write-off of the basis in the property at the date of the sale, which will be recognized in the Partnership's Form 10-Q for the quarter ending September 30, 2007. On June 26, 2007, the Partnership's limited partnership interest in South Toledo Associates, Ltd. ("South Toledo") was sold to the Local General Partner for a sales price of one dollar. The sale resulted in a loss of approximately $13,000 resulting from the write-off of the basis in the property at the date of sale of approximately $13,000, which will be recognized in the Partnership's Form 10-Q for the quarter ending September 30, 2007. On June 15, 2007, the Partnership sold its limited partnership interest in Jefferson Limited Partnership ("Jefferson") for a sales price of $1 plus 50% of 7 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) debt forgiveness which amounted to approximately $680,000 at the date of the sale and 50% of any resale profit in excess of the then mortgage principal on or before December 31, 2009. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Local Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $520,303. The sale resulted in a gain of approximately $1,171,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized in the Partnership's Form 10-Q for the quarter ending September 30, 2007. On May 30, 2007, West 132nd Development Partnership ("Manhattan J") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $3,500,000. The Partnership received $2,027,927 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,472,000. The sale resulted in a gain of approximately $1,675,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized in the Partnership's Form 10-Q for the quarter ending September 30, 2007. On March 21, 2007, the Partnership sold its limited partnership interest in Puerto Rico Historic Zone, Limited Dividend Partnership ("San Justo") to the Local General Partner for a sales price of $874,000. The Partnership received proceeds of $869,305 from this sale after closing costs of approximately $5,000. The sale resulted in a gain of approximately $3,309,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $2,440,000 at the date of the sale and the $869,305 cash received from the sale. The sale also resulted in a non-cash contribution from the Partnership to the Local General Partner of approximately $43,000 as a result of the write-off of fees owed by the Local General Partner to an affiliate of the General Partner. On February 7, 2007, the property and the related assets and liabilities of Cutler Canal III Associates, Ltd. ("Cutler Canal") were sold to an affiliate of the General Partner for a sales price of $11,600,000. The Partnership received $3,624,195 as a distribution from this sale after the repayment of mortgages, other liabilities, closing costs and distributions to minority interests of approximately $7,976,000. The sale resulted in a gain of approximately $2,024,000 resulting from the write-off of the deficit basis in the property at the date of the sale. On February 28, 2007, the Partnership sold its remaining limited partnership interest in Michigan Rural Housing Limited Partnership ("Michigan Rural") to an affiliate of the Local General Partner. The Partnership received $10 from this sale. The sale resulted in a gain of approximately $503,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale. On May 26, 2005, the Partnership had sold 50% of its limited partnership interest in Michigan Rural to an affiliate of the Local General Partner for a sale price of $100,000. The Partnership received proceeds of $100,000 from this sale, which resulted in a gain of $100,000. On January 30, 2007, the property and the related assets and liabilities of 1850 Second Avenue Associates, L.P. ("1850 Second Avenue") were sold to an unaffiliated third party purchaser for a sales price of $25,000, which was used for the payment of closing costs. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $3,126,707. The sale resulted in a gain of approximately $252,000 resulting from the write-off of the deficit basis in the property at the date of the sale. The sale also resulted in a non-cash contribution from the Partnership of approximately $3,342,000 to the General Partner as a result of the write-off of advances owed by the Local Partnership to an affiliate of the General Partner. On January 26, 2007, the property and the related assets and liabilities of C.V. Bronx Associates, L.P./Gerard Gardens ("CV Bronx") were sold to an unaffiliated third party purchaser for a sales price of $4,770,000. The Partnership received $3,228,153 as a distribution from this sale after the payment of other liabilities, closing costs and distribution to minority interests of approximately $742,000. The Partnership will receive an additional $800,000 in guaranteed deferred payments within the next three years. The sale resulted in a gain of approximately $413,000 resulting from the write-off of the deficit basis in the property at the date of the sale. The sale also resulted in a non-cash distribution to the Partnership of approximately $378,000 as a result of the write-off of loans owed to CV Bronx from an affiliate of the General Partner. On October 25, 2006, the property and the related assets and liabilities of Manhattan A Associates ("Manhattan A") were sold to an unaffiliated third party purchaser for a sales price of $7,250,000. The Partnership received $3,950,202 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $3,300,000. The sale resulted in a gain of approximately $3,035,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $345,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $3,380,000. An adjustment to the gain of approximately $7,000 was recorded during the quarter ended June 30, 2007, resulting in an overall gain of approximately $3,387,000. The sale resulted in the liquidation of Manhattan A. On August 22, 2006, the property and the related assets and liabilities of Broadhurst Willows Limited Partnership ("Broadhurst") were sold to an unaffiliated third party purchaser for a sales price of $5,300,000. The Partnership received $4,495,600 as a distribution from this sale after the repayment of other liabilities and closing costs of approximately $804,000. The sale resulted in a gain of approximately $2,171,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of approximately ($142,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $2,029,000. An adjustment to the gain of approximately $20,000 was recorded during the quarter ended June 30, 2007, resulting in an overall gain of approximately $2,049,000. The sale resulted in the liquidation of Broadhurst. 8 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) On June 5, 2006, Weidler Associates Limited Partnership ("Weidler") sold its property and the related assets and liabilities to an affiliate of the Local General Partner for a sales price of $1,900,000. The Partnership received $541,403 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,359,000. The sale resulted in a gain of approximately $787,000, which was recognized during the quarter ended September 30, 2006, resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of approximately $(103,000) was recorded during the quarter ended March 31, 2007, resulting in an overall gain of approximately $684,000. The sale resulted in the liquidation of Weidler. On April 14, 2006, Michigan Rural sold the property and the related assets and liabilities of The Meadowlands Apartments ("Meadowlands") (one of the properties owned by Michigan Rural) to an unaffiliated third party purchaser for a sales price of $1,083,445. The Partnership received $115,844 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $968,000. The sale resulted in a gain of approximately $313,000, which was recognized during the quarter ended September 30, 2006, resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $134,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $447,000. On March 28, 2006, the Local General Partner of Stop 22 Limited Partnership ("Stop 22") purchased the Partnership's remaining interest in Stop 22 for a sales price of $1,800,000. The Partnership received proceeds of $1,800,000 from this sale. The sale resulted in a gain of approximately $5,379,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale of approximately $3,579,000 and $1,800,000 cash received from the sale. On March 1, 2006, Affordable Flatbush Associates ("Affordable Flatbush") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $1,700,000. The Partnership received $157,949 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,542,000. The sale resulted in a gain of approximately $271,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An adjustment to the gain of approximately $(7,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $264,000. An adjustment to the gain of approximately $10,000 was recorded during the quarter ended June 30, 2007 resulting in an overall gain of approximately $274,000. The sale resulted in the liquidation of Affordable Flatbush. On March 1, 2006, Site H Development Co. ("Site H") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $1,200,000. The Partnership received $433,852 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $766,000. The sale resulted in a gain of approximately $554,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of $(42,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of $512,000. The sale resulted in the liquidation of Site H. On January 4, 2006, the Partnership sold its limited partnership interest in Las Camelias Limited Partnership ("Las Camelias") to the Local General Partner for $1 cash plus 30% of any upside profits from the conversion to condos, if the sale price exceeds $92,500 for any of the units. The sale resulted in a gain of approximately $2,828,000, resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale. An adjustment to the gain of approximately $143,000 was recorded during the quarter ended June 30, 2007 resulting in an overall gain of approximately $2,971,000. Note 4 - Assets Held for Sale On March 15, 2007, the Partnership entered into a purchase and sale agreement to sell its limited partnership interest in The Hamlet, Ltd. ("Hamlet") to an affiliate of the Local General Partner for a sales price of $4,397,500. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in September 2007. No assurance can be given that the sale will actually occur. Hamlet is being held as an asset held for sale as of June 30, 2007. As of March 31, 2007, Hamlet had property and equipment, at cost, of approximately $14,765,000, accumulated depreciation of approximately $7,515,000 and mortgage debt of approximately $8,144,000. On February 1, 2007, Williamsburg Residential II, L.P. ("Williamsburg II") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an affiliate of the Local General Partner for a sales price of $1,799,654. The sales documents have been executed and the initial deposit funds are being held in escrow. No assurance can be given that the sale will actually occur. The closing is expected to occur in December of 2007. Williamsburg II is being held as an asset held for sale as of June 30, 2007. As of March 31, 2007, Williamsburg II had property and equipment, at cost, of approximately $1,790,000, accumulated depreciation of approximately $831,000 and mortgage debt of approximately $1,379,000. On July 1, 2006, the Partnership entered into a purchase and sale agreement to sell its limited partnership interest in Driftwood Terrace Associates, Ltd. ("Driftwood") to an affiliate of the Local General Partner for a sales price of $1,986,418. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in the quarter ending September 30, 2007. No assurance can be given that the sale will actually occur. Driftwood is being held as an asset held for sale as of June 30, 2007. As of March 31, 2007, Driftwood had property and equipment, at cost, of approximately $8,325,000, accumulated depreciation of approximately $5,501,000 and mortgage debt of approximately $6,399,000. 9 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) Note 5 - Discontinued Operations The following table summarizes the financial position of the Local Partnerships that are classified as discontinued operations because the respective Local Partnerships were sold or classified as assets held for sale. As of June 30, 2007, Michigan Rural, Cutler Canal, 1850 Second Avenue, CV Bronx, San Justo, Schopfer, Manhattan J, South Toledo, Jefferson, Driftwood, Hamlet and Williamsburg II were classified as discontinued operations on the consolidated balance sheets. As of March 31, 2007, Broadhurst, Cutler Canal, Michigan Rural, Site H, Stop 22, Weidler, Manhattan A, 1850 Second Avenue, Driftwood, CV Bronx, Schopfer, Hamlet, Manhattan J, San Justo and Williamsburg II were classified as discontinued operations on the consolidated balance sheets.

~~===============================~~Consolidated ~~Nine~~Balance ~~Months~~Sheets: ~~Ended~~June ~~December~~30, March 31, ~~-------------------------------~~2007 ~~2004~~2007 2003* ----------- -----------~~---------~~ ~~Cash~~Assets ~~flows~~Property ~~from~~and ~~financing~~equipment ~~activities:~~- ~~Principal~~less ~~payments~~accumulated depreciation of ~~mortgage notes payable (2~~$20,~~950~~185,~~086)~~652 (1and $30,~~451~~151,~~264)~~980, ~~Decrease~~respectively ~~in due to local general partners and affiliates (2~~$16,~~438)~~325,396 ~~(12~~$31,~~817)~~822,485 ~~Decrease~~Cash inand ~~capitalization~~cash ofequivalents ~~consolidated subsidiaries attributable to minority interest (64~~434,~~960)~~748 ~~(363~~965,~~785)~~805 ~~------------~~Cash ~~------------~~held ~~Net cash used~~ in ~~financing~~escrow ~~activities~~757,575 (32,~~017~~256,~~484)~~111 (1Deferred costs,~~827,866)~~ ~~------------~~net ~~------------~~of ~~Net~~accumulated ~~decrease~~amortization inof ~~cash~~$620,536 and ~~cash~~$1,001,285 ~~equivalents (328~~448,~~262)~~088 (2530,~~243,699)~~727 ~~Cash~~Other ~~and~~assets ~~cash equivalents at beginning of period 3~~1,~~656~~360,~~322~~892 51,~~098~~111,~~740~~560 ------------ ------------ ~~Cash~~Total ~~and~~assets ~~cash equivalents at end of period~~ $ 319,~~328~~326,~~060~~699 $ 236,~~885~~686,~~041~~688 ============ ============ ~~Summarized~~Liabilities ~~below~~Mortgage ~~are~~notes ~~the~~payable ~~components of discontinued operations: Decrease in property and equipment, net of accumulated depreciation~~ $ 221,~~304~~174,~~990~~672 $ 432,~~098~~569,~~721~~200 ~~Increase~~Accounts inpayable ~~cash held in escrow (261~~773,~~661)~~151 ~~(239~~6,~~644) Decrease in deferred costs 0 223~~641,~~110~~137 ~~Decrease~~Accrued ininterest ~~prepaid expenses and other assets 52,847 123,735 Decrease in accounts~~ payable, ~~accrued expenses and other liabilities (~~1,~~573~~767,~~979)~~494 ~~(329~~3,~~420)~~207,846 ~~Decrease~~Security indeposits ~~mortgage notes~~ payable (2223,~~192,900)~~271 ~~(11~~531,~~078,432)~~076 ~~Decrease~~Due ~~in due~~ to local general partners and ~~their~~ affiliates ~~(33~~543,~~576)~~074 (6111,~~366,557)~~573 ~~Decrease~~Due ~~in due~~ to general partners and affiliates ~~(73~~1,~~862)~~568,048 (24,~~013)~~826,537 ~~(Decrease)~~Minority ~~increase~~interest in631,434 ~~capitalization~~423,454 of----------- ~~consolidated~~----------- ~~subsidiaries~~Total ~~attributable~~liabilities ~~to minority interest (180~~$26,~~037)~~681,144 7$48,~~231~~310,823 =========== ===========

The following table summarizes the results of operations of the Local Partnerships that are classified as discontinued operations. For the three months ended June 30, 2007, Manhattan J, Jefferson, South Toledo and Schopfer, which were sold during the three months ended June 30, 2007, CV Bronx, Michigan Rural, 1850 Second Avenue, Cutler Canal and San Justo, which were sold during the year ended March 31, 2007, and Driftwood, Hamlet and Williamsburg II, which were classified as assets held for sale, were all classified as discontinued operations on the consolidated financial statements. For the three months ended June 30, 2006, Weidler, which was sold during the three months ended June 30, 2006, Affordable Flatbush, Site H, Las Camelias and Stop 22, which were sold during the year ended March 31, 2006, Broadhurst, Cutler Canal, Manhattan A and Michigan Rural, which were classified as assets held for sale, and CV Bronx, 1850 Second Avenue, San Justo, Driftwood, Schopfer, Hamlet, South Toledo, Manhattan J, Jefferson and Williamsburg II, in order to present comparable results to the three months ended June 30, 2007, were all classified as discontinued operations on the consolidated financial statements. 10 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited)

~~Three~~Consolidated ~~Months~~Statements ~~Ended~~of ~~Nine~~Discontinued Operations: Three Months Ended ~~December~~June 3130, ~~December 31,~~ ------------------------- --- 2007 2006* ------------ ------------ ~~2004~~Revenues ~~2003~~Rental ~~2004~~income ~~2003~~$ 2,176,234 $ 3,308,994 Other 107,914 94,473 Gain on sale of properties 6,681,804 791,439 ------------ ------------- Total revenue 8,965,952 4,194,906 ------------ ------------- ~~Partnership~~Expenses ~~management~~General ~~fees~~and ~~(a)~~administrative $475,678 ~~257~~954,~~250~~738 $General ~~354,000~~and $administrative-related ~~903~~parties (Note 2) 109,~~250~~145 $1155,~~062~~845 Operating 261,~~000~~815 ~~Expense~~688,852 ~~reimbursement~~Repairs ~~(b)~~and ~~121~~maintenance 620,~~825~~898 53634,~~378~~727 ~~277~~Real estate taxes 168,~~919~~902 ~~205~~220,~~276~~857 ~~Local~~Insurance ~~administrative~~248,691 ~~fee~~255,941 ~~(d)~~Interest 23663,~~000~~406 23956,~~000~~633 68Depreciation and amortization 245,~~000~~566 68665,~~000~~574 ---------- --~~--------~~ ---------- --~~--------~~ Total ~~general~~expenses ~~and ad- ministrative-General Partners 402~~2,~~075 430~~794,~~378~~101 14,~~249~~533,~~169~~167 ~~1,335,276~~ ---------- --~~--------~~ ---------- --~~--------~~ ~~Property~~Income ~~management~~(loss) ~~fees~~before ~~incurred~~minority tointerest ~~af-~~6,171,851 ~~filiates~~(338,261) ofMinority ~~the~~interest ~~subsidi-~~in ~~ary~~loss ~~partnerships'~~of ~~general~~subsidiaries ~~partners~~from ~~(c)~~discontinued ~~420,043~~operations ~~421~~2,~~041 1~~473,~~209,120~~562 15,~~204~~532,~~784~~259 ---------- --~~--------~~ ---------- --~~--------~~ Total ~~general~~income ~~and~~from ~~ad-~~discontinued ~~ministrative-related~~operations ~~parties~~ $ ~~822~~8,~~118~~645,413 $ ~~851~~5,~~419~~193,998 ============ ============ Income - limited partners from discontinued operations $2 8,~~458~~558,~~289~~959 $2 5,~~540~~142,~~060~~058 ============ ============ Number of BACs outstanding 139,101.5 139,101.5 ============ ============ Income discontinued operations per BAC $ 61.53 $ 36.97 ============ ============

* Reclassified for comparative purposes.

~~===========~~Cash ~~===========~~flows ~~December~~from ~~31,~~Discontinued ~~March~~Operations: ~~31,~~Three ~~2004~~Months ~~2004~~Ended December 31, ----------- ----------------- ~~Assets~~2007 ~~Property~~2006* ~~and~~------------ ~~equipment~~ ------------ ~~less~~Net ~~accumulated~~cash ~~depreciation~~provided ofby ~~$5,327,579~~(used ~~and~~in) ~~$0,~~operating ~~respectively~~activities $ 54,~~014~~098,~~661~~421 $ ~~0 Cash and cash equivalents 306~~(4,~~385 0 Cash held in escrow 1~~627,~~322,735~~732) 0------------ ~~Deferred~~------------ ~~costs,~~Net ~~net~~cash ofprovided ~~accumul-~~by ~~ated~~investing ~~amortization~~activities of $~~64,414~~ ~~and $0~~12, ~~respectively 3~~348,~~379~~204 0$ ~~Other assets 37~~13,~~618~~114,256 0 ------------ ------------ ~~Total~~Net ~~assets~~cash $used ~~6,684,778~~in $financing 0activities ~~=========== =========== Liabilities Mortgage notes payable 3~~$(13,~~527~~113,~~256~~898) ~~0 Accounts payable and other 479,431 0 Due to general partners and affiliates 7,500 0 Minority interest~~ $(~~460~~22,~~356~~740,060) 0 ------------ ----------- ~~Total liabilities $ 3,553,831 $ 0 =========== ===========~~-

* Reclassified for comparative purposes. 11 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) Note 6 - Commitments and Contingencies The following disclosures include changes and/or additions to disclosures regarding the subsidiary partnerships which were included in the Partnership's Annual Report on Form 10-K for the year ended March 31, 2007. (a) Subsidiary Partnership - Going Concerns and Uncertainties R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") -------------------------------------------------------------------------------- River Place has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, through February 1, 2006. GRS has not granted an extension to its waiver to foreclose beyond February 1, 2006 and can exercise its right to foreclose at any time. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $63,943,133, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. Management anticipates that River Place will be unable to make all of the required debt service payments during 2007. However, there is no guarantee that GRS, or any other person, will continue to make these payments on behalf of River Place. Additionally, because River Place has been declared in default of its obligations under the guarantor agreement, the Authority could elect to declare River Place to be in default under the loan agreements pursuant to certain provisions contained therein but have elected not to do so as a result of GRS making the required debt service payments. Accordingly, it is uncertain whether River Place will be able to continue as a going concern. The financial statements of River Place have been prepared assuming that River Place will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in River Place has been written down to zero by prior years' losses and the minority interest balance was approximately $883,000 at both June 30, 2007 and March 31, 2007. The net loss after minority interest for River Place amounted to approximately $1,453,000 and $1,101,000 for the three months ended June 30, 2007 and 2006, respectively. On May 30, 2007, River Place's 2000 Bonds were re-funded in the amount of $21,280,000. Since the bonds have been re-funded, the current mortgage held on the property by MSHDA and US Bank, the Bond Trustee on the former bonds, has been discharged. New bonds in the amount of $25,000,000 have been issued in the name of GRS River Place Corporation. This entity will be the fee holder of the apartments. Longfellow Heights Apartments, L.P. ("Longfellow") -------------------------------------------------- The financial statements of Longfellow have been prepared assuming that it will continue as a going concern. Longfellow's note with Hallmark Corporate Foundation matures September 1, 2007. The principal balance of the note at December 31, 2006 was $1,237,648 and based on historical operations of Longfellow, it is not expected to be able to pay the principal balance in 2007. Longfellow intends to rehabilitate the property and to restructure its debt during 2007. Longfellow has Tax Credits approved, but is waiting on a bond allocation. This is expected to occur prior to September 1, 2007. The Partnership's investment in Longfellow was written down to zero by prior years' losses and the minority interest was $0 at both June 30, 2007 and March 31, 2007. The net loss after minority interest for Longfellow amounted to approximately $94,000 and $71,000 for the three months ended June 30, 2007 and 2006, respectively. Citrus Meadows Apartments, LTD. ("Citrus Meadows") -------------------------------------------------- The financial statements of Citrus Meadows have been prepared assuming that it will continue as a going concern. Citrus Meadows incurred a net loss of $398,878 during 2006 and has incurred a Partner's deficit of $7,522,047 since inception. Current economic conditions have limited the ability of Citrus Meadows to increase tenant occupancy. In response to economic conditions, management has reduced expenses and increased advertising to attract new tenants. Also, nonessential capital expenditures have either been eliminated or postponed. Also, in 2006, Citrus Meadows' status as a tax credit project has expired allowing it to provide rental opportunities to a wider range of possible tenants through the use of market value rents. Citrus Meadows has the ability to rent up to 60% of the 200 units to non-income restricted tenants. Current occupancy rates are near 80%, and management has secured several new move-in tenants for the 2007 fiscal year. At this time, the Local General Partner is funding the deficit. Because it is unclear whether Citrus Meadows will be successful in accomplishing these objectives, there is uncertainty about Citrus Meadow's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should Citrus Meadows be unable to continue as a going concern. The Partnership's investment in Citrus Meadows has been written down to zero by prior years' losses and the minority interest balance was $0 at both June 30, 2007 and March 31, 2007. The net loss after minority interest amounted to approximately $133,000 and $89,000 for the three months ended June 30, 2007 and 2006, respectively. Puerto Rico Historic Zone Dividend Partnership ("San Justo") ------------------------------------------------------------ The financial statements of San Justo have been prepared assuming that it will continue as a going concern. San Justo has suffered recurring losses from operations. At December 31, 2006, San Justo had a partners' deficit of $2,339,601 and has not complied with the total interest payment requirement of its mortgage note with the Puerto Rico Housing Finance Authority that raise substantial doubt about San Justo's ability to continue as a going concern. In addition, at December 31, 2006, there was a claim from Caribe Rum, Inc. (a related company of the Local General Partner) for, allegedly, an outstanding liability for $1,000,000. The related promissory note, in support of the claim, 12 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) issued by San Justo, was dated on September 30, 1991 and was originally payable to Puerto Rico Housing Finance Corporation (PRHFC); and subsequently endorsed to Popular Mortgage, Inc. on February 19, 2004 and; to Miramar Real Estate Management, Inc. (a related party), allegedly on October 19, 2006. The promissory note due date was July 1, 1992. San Justo's management did not have knowledge of the existence of such debt until October 2006. The related debt for $1,000,000 is not presented as a liability in the accompanying balance sheet. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Partnership's minority interest balance in San Justo was approximately $0 at both June 30, 2007 and March 31, 2007. The net loss after minority interest for San Justo was approximately $162,000 and $67,000 for the three months ended June 30, 2007 and 2006, respectively. The Partnership's limited partnership interest in San Justo was sold on March 21, 2007 (see Note 3). Jefferson Limited Partnership ("Jefferson") ------------------------------------------- At December 31, 2006 and 2005, Jefferson's current liabilities exceeded its current assets by approximately $1,337,000 and $1,289,000, respectively and has sustained a net loss of $696,283 for the year ended December 31, 2006. Those financial statements have been prepared assuming Jefferson will continue as a going concern. Jefferson has suffered recurring losses and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management is taking measures to increase occupancy and reduce operating expenses. In addition, management is looking into alternatives regarding refinancing the existing debt. If profitable operations cannot be obtained, Jefferson will be financially dependent on its partners. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in Jefferson was written down to zero by prior years' losses and the minority interest balance was $0 at both June 30, 2007 and March 31, 2007. The net loss after minority interest for Jefferson amounted to approximately $62,000 and $47,000 for the three months ended June 30, 2007 and 2006, respectively. The Partnership's limited partnership interest in Jefferson was sold on June 15, 2007 (see Note 3). b) Subsidiary Partnership - Other Redemptorist Limited Partnership ("Redemptorist") ------------------------------------------------- Redemptorist is located in the areas affected by Hurricane Katrina in August 2005 that sustained major damage and has remained completely vacant since then. The Local General Partner is still evaluating whether Redemptorist will be rebuilt or not. Redemptorist is close to the end of its Compliance Period and has third-party debt. Redemptorist anticipates that the insurance proceeds will be sufficient to pay off all debt. Currently, Redemptorist does not expect that there will be financial exposure related to Redemptorist. At March 31, 2007, Redemptorist's property and equipment net of accumulated depreciation, were approximately $2,774,000. The insurance coverage is approximately $6,500,000 for property, $5,000,000 for flood and wind coverage and $860,000 for rent loss. Driftwood --------- On October 24, 2005, Driftwood suffered damage caused by Hurricane Wilma. Driftwood has claimed and recovered $864,651 of insurance proceeds and has made repairs of $668,094 as of December 31, 2006. Driftwood has established a deferred charges account in the amount of $422,294 which represents the unspent insurance proceeds to be used on additional repairs. Driftwood has submitted a supplemental insurance claim in the amount of $224,737. The resolution of the supplemental claim and the amount of any casualty loss suffered by Driftwood cannot be determined at this time. On July 1, 2007, the Partnership entered into an assignment and assumption agreement to sell its limited partnership interest in Driftwood to an affiliate of the Local General Partner. Leases ------ One subsidiary partnership is leasing the land on which the property is located on a noncancelable lease for a term of 50 years, expiring in 2033. At December 31, 2006, this subsidiary partnership was committed to minimum future annual rentals on the leases aggregating approximately $50,000 for each of the next five years, and $2,250,000 total thereafter. One Local Partnership has entered into an agreement ("Master Lease") with an affiliate that expires in 2012, wherein the Local Partnership is guaranteed annual rental revenue. The following is a schedule by year of future minimum rentals to be received under the Master Lease as of December 31, 2006: Year Ended December 31, ----------------------- 2007 $ 158,370 2008 164,863 2009 171,458 2010 178,316 2011 and thereafter 186,594 ------------ $ 859,601 ============ c) Uninsured Cash and Cash Equivalents The Partnership maintains its cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. 13 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2007 (Unaudited) d) Cash Distributions Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective agreements of .limited partnership of the Local Partnerships and/or the U.S. Department of Housing and Urban Development ("HUD"). Such cash distributions are typically made from surplus cash flow. e) Tax Credits A portion of Tax Credits are subject to recapture in future years if (1) the Local Partnership ceases to meet qualification requirements, (2) there is a decrease in the qualified basis of the Property, or (3) there is a reduction in the taxpayer's interest in the Property at any time during the 15-year Compliance Period that began with the first tax year of the Credit Period. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. The Credit Periods expired at various times through December 31, 2003 with respect to the Local Partnerships depending upon when the Credit Period commenced. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. f) Other The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 19% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. In order for certain Subsidiaries to qualify for the Section 421A Program and the Inclusionary Zoning Program, they are subject to certain requirements by local authorities as to the level of rent that may be charged to tenants, the tenants' incomes, the obligation to operate the Property in accordance with rent stabilization guidelines, and restrictions on the rate at which housing units may be released from such guidelines. Also, certain subsidiary partnerships obtain grants from local authorities to fund construction costs of the Properties and in order to qualify must maintain the low-income nature of the Property, among other provisions. River Place ----------- In order to enhance the marketability of its Variable Rate Limited Obligation Multifamily Housing Revenue Refunding Bonds (the "2000 Bonds"), GRS entered into an agreement with a bank whereby the bank issued a direct-pay letter of credit on the account of River Place in favor of the Authority in the initial stated amount equal to approximately $22,000,000 and $23,000,000 as of December 31, 2006 and 2005, respectively. The letter of credit, which was due to expire May 16, 2005, was extended through May 16, 2007. On May 30, 2007, River Place's 2000 Bonds were refunded in the amount of $21,280,000. Since the bonds have been refunded, the current mortgage held on the property by MSHDA and US Bank, the Bond Trustee on the former bonds, has been discharged. New Bonds in the amount of $25,000,000 have been issued in the name of GRS River Place Corporation. This entity will be the fee holder of the apartments. On June 1, 2007 a new letter of credit was issued by the Bank of New York. This letter of credit will expire on May 31, 2012. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources ------------------------------- The Partnership has invested all of the net proceeds of its original offering in 62 Local Partnerships. Approximately $58,000 of the purchase price remains to be paid (all of which is being held in escrow). As of June 30, 2007, the Partnership sold its limited partnership interest in eighteen Local Partnerships, the property and the related assets and liabilities of twelve Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities of one Local Partnership. In addition, the Partnership has entered into agreements for the sale of three Local Partnerships. Off-Balance Sheet Arrangements ------------------------------ The Partnership has no off-balance sheet arrangements. Tabular Disclosure of Contractual Obligations --------------------------------------------- The Partnership discloses in Item 7 of the Partnership's Annual Report on Form 10-K for the year ended March 31, 2007, the Partnership's commitments to make future payments under its debt agreements and other contractual obligations. There are no material changes to such disclosure or amounts as of June 30, 2007. Short-Term ---------- The Partnership's primary sources of funds include: (i) working capital reserves; (ii) interest earned on the working capital reserves; (iii) cash distributions from operations of the Local Partnerships; and (iv) sales proceeds and distributions. Such funds are available to meet the obligations of the Partnership. During the three months ended June 30, 2007 and 2006, distributions from operations of the Local Partnerships amounted to approximately $25,000 and $132,000, respectively. In addition, during the three months ended June 30, 2007 and 2006, distributions from the sales of properties and their related assets and liabilities amounted to approximately $2,123,000 and $588,000. Additionally, during the three months ended June 30, 2007 and 2006, the Partnership received approximately $869,000 and $1,800,000 of proceeds from the sale of limited partnership interests. During the three months ended June 30, 2007, cash and cash equivalents of the Partnership and its consolidated Local Partnerships increased approximately $6,166,000. This increase was attributable to proceeds from sale of properties of approximately ($16,580,000) and a decrease in cash held in escrow relating to investing activities of approximately ($198,000) which exceeded cash used in operating activities of approximately ($630,000), acquisitions of property and equipment of approximately ($77,000), principal payments of mortgage notes payable of approximately ($5,202,000), costs paid related to the sale of properties of approximately ($4,287,000), an increase in deferred costs relating to financing activities of approximately ($6,000) and a decrease in the capitalization of consolidated subsidiaries attributable to minority interest of approximately ($410,000). Included in the adjustments to reconcile the net income to net cash used in operating activities are depreciation and amortization of approximately $1,381,000, an increase in due to debt guarantor of approximately $870,000 and gain on sale of properties of approximately $6,681,000. The Partnership has a working capital reserve of approximately $12,514,000 at June 30, 2007. Total expenses for the three months ended June 30, 2007 and 2006, excluding depreciation and amortization, interest and general and administrative-related parties, totaled $2,792,312 and $2,304,270, respectively. Accounts payable and other liabilities as of June 30, 2007 and March 31, 2007 were $4,553,584 and $306,550, respectively, which includes $71,000 and $721,000 in deferred gain on sales. Accounts payable are short term liabilities which are expected to be paid from operating cash flows, working capital balances at the Local Partnership level, Local General Partner advances and, in certain circumstances, advances from the Partnership. The Partnership believes it (and the applicable Local Partnerships) has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term. In addition, accounts payable from discontinued operations as of June 30, 2007 and March 31, 2007, totaled $773,151 and $6,641,137, respectively. Accrued interest payable as of June 30, 2007 and March 31, 2007 was $16,811,075 and $16,747,001, respectively. Accrued interest payable represents the accrued interest on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. Furthermore, each Local Partnership's mortgage notes are collateralized by the land and buildings of the respective Local Partnership, and are without further recourse to the Partnership. In addition, accrued interest payable from discontinued operations, as of June 30, 2007 and March 31, 2007, totaled $1,767,494 and $3,207,846, respectively. Long-Term --------- Partnership management fees owed to the General Partners amounting to approximately $8,053,000 and $7,803,000 were accrued and unpaid at June 30, 2007 and March 31, 2007, respectively. During the year ended March 31, 2007, management deemed the unpaid partnership management fees that were related to sold properties uncollectible and, as a result, wrote them off in the amount of approximately $3,405,000, resulting in a non-cash General Partner contribution of the same amount. Without the General Partners' continued accrual without payment of these fees and expense reimbursements, the Partnership will not be in a position to meet its obligations. Unpaid partnership management fees for any year will be accrued without interest and will be payable only to the extent that funds are available after the Partnership has made distributions to the limited partners of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). 15 For a discussion of contingencies affecting certain Local Partnerships, see Item 1, Note 6 to the financial statements. Since the maximum loss the Partnership would be liable for is its net investment in the respective Local Partnerships, the resolution of the existing contingencies is not anticipated to impact future results of operations, liquidity or financial condition in a material way. However, the Partnership's loss of its investment in a Local Partnership may result in recapture of Tax Credits if the investment is lost prior to the end of the fifteenth anniversary after the beginning of the Compliance Period. The Local Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally to reflect the impact of higher operating and replacement costs. Furthermore, inflation generally does not impact the fixed long-term financing under which real property investments were purchased. Inflation also affects the Local Partnerships adversely by increasing operating costs, such as fuel, utilities, and labor. Since revenues from sales of assets are driven by market conditions, inflation has little impact on sales. Management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. The summary should be read in conjunction with the more complete discussion of the Company's accounting policies included in Item 8, Note 2 to the consolidated financial statements which are included in the Partnership's Annual Report on Form 10-K for the year ended March 31, 2007. Critical Accounting Policies ---------------------------- Property and Equipment ---------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. In accordance with SFAS 144, the results of discontinued operations are reported as a separate component of income before extraordinary items on the consolidated statements of operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financial statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the consolidated balance sheets. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the quarter ended June 30, 2007, Partnership has not recorded any loss on impairment of assets. Through June 30, 2007, the Partnership has recorded approximately $29,172,000 as a loss on impairment of assets. At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. Such assets would be classified as property and equipment-held for sale and are not depreciated. Property and equipment that are held for sale are included in discontinued operations. The Local Partnerships whose assets are classified as property and equipment-held for sale as of June 30, 2007 are: Driftwood, Hamlet and Williamsburg II (see Item 1, Note 4). Revenue Recognition ------------------- Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and as rents become due and charged to tenants' accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned. Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income, and other rental related miscellaneous items. 16 Income Taxes ------------ No provision has been made for income taxes in the accompanying consolidated financial statements since such taxes, if any, are the responsibility of the individual partners. For income tax purposes, the Partnership has a fiscal year ending December 31. Results of Operations --------------------- Results of operations for the three months ended June 30, 2007 and 2006 consisted primarily of the results of the Partnership's investment in the consolidated Local Partnerships, excluding the results of its discontinued operations which are not reflected in the following discussion (see Item 1, Note 5). Rental income decreased approximately 2% for the three months ended June 30, 2007 as compared to the corresponding period in 2006, primarily due to an increase in vacancies at one Local Partnership and a decrease in rental subsidies at a second Local Partnership partially offset by an increase in rental rates at other Local Partnerships. Other income increased approximately $61,000 for the three months ended June 30, 2007 as compared to the corresponding period in 2006, primarily due to an increase in interest income earned on higher cash and cash equivalent balances resulting from the sale of properties at the Partnership level offset by an insurance reimbursement received in 2006 due to hurricane damages at one Local Partnership. Total expenses, excluding general and administrative and repairs and maintenance, remained fairly consistent with increases of less than 1% for the three months ended June 30, 2007 as compared to the corresponding periods in 2006. General and administrative increased approximately $235,000 for the three months ended June 30, 2007 as compared to the corresponding period in 2006, primarily due to an increase in office salaries and bad debt expense at one Local Partnership and an increase in accounting expense at the Partnership level resulting from the sale of properties. Repairs and maintenance increased approximately $212,000 for the three months ended June 30, 2007 as compared to the corresponding period in 2006, primarily due to an increase in security contract and fire prevention costs at one Local Partnership, an increase in repair contracts at a second Local Partnership, an increase in carpet, maintenance materials and other exterior costs at a third Local Partnership and an increase in grounds maintenance at a fourth Local Partnership. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Partnership has mortgage notes that are payable in aggregate monthly installments including principal and interest at rates varying from 0% to 11.5% per annum. The Partnership does not believe there is a material risk associated with the various interest rates associated with the mortgage notes as the majority of the Local Partnership mortgage notes have fixed rates. The Partnership disclosed in Item 8, Note 3 to consolidated financial statements in the Partnership's Annual Report on Form 10-K for the year ended March 31, 2007, the fair value of the mortgage notes payable. There are no material changes to such disclosure or amounts as of June 30, 2007. The Partnership does not have any other market risk sensitive instruments. Item 4. Controls and Procedures. (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive Officer and the Chief Financial Officer of Related Credit Properties III Inc., the general partner of Related Credit Properties III L.P. and of Liberty GP III Inc., each of which is a general partner of the Partnership, have evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in the Partnership's internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 1A. Risk Factors - No Changes Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - 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 31.1 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) 31.2 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) 32.1 Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350) 18 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. LIBERTY TAX CREDIT PLUS III L.P. -------------------------------- (Registrant) By: RELATED CREDIT PROPERTIES III L.P., a General Partner By: Related Credit Properties III Inc., its general partner Date: August 13, 2007 --------------- By: /s/ Robert L. Levy ------------------ Robert L. Levy Chief Financial Officer Date: August 13, 2007 --------------- By: /s/ Andrew J. Weil ------------------ Andrew J. Weil President and Chief Executive Officer By: LIBERTY GP III INC., a General Partner Date: August 13, 2007 --------------- By: /s/ Robert L. Levy ------------------ Robert L. Levy Chief Financial Officer Date: August 13, 2007 --------------- By: /s/ Andrew J. Weil ------------------ Andrew J. Weil President and Chief Executive Officer 19 Exhibit 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Robert L. Levy, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2007 of Liberty Tax Credit III L.P..; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2007 By: /s/ Robert L. Levy --------------- ------------------ Robert L. Levy Chief Financial Officer 20 Exhibit 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Andrew J. Weil, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2007 of Liberty Tax Credit III L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2007 By: /s/ Andrew J. Weil --------------- ------------------ Andrew J. Weil Chief Executive Officer 21 Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Quarterly Report of Liberty Tax Credit III L.P. on Form 10-Q for the period ended June 30, 2007 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, Robert L. Levy, and I, Andrew J. Weil, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the registrant. A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. By: /s/ Robert L. Levy By: /s/ Andrew J. Weil ------------------ ------------------ Robert L. Levy Andrew J. Weil Chief Financial Officer Chief Executive Officer August 13, 2007 August 13, 2007 22

============================== ============================== Three Months Ended Nine Months Ended December 31, December 31, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------------------------ ------------------------------ Revenues $ 705,132 $ 657,825 $ 2,175,594 $ 2,933,780 Gain (loss) on sale of properties (Note 3) 2,124,097 (5,830) 2,124,097 13,942,678 ------------ ------------ ------------ ------------ Total revenue 2,829,299 651,995 4,299,691 16,876,458 ------------ ------------ ------------ ------------ Total expenses 463,414 522,109 1,644,193 3,306,598 ------------ ------------ ------------ ------------ Income before minority interest 2,365,815 129,886 2,655,498 13,569,860 Minority interest in income of sub- sidiaries from discontinued operations (333) (2,421) (6,675) (6,591) ------------ ------------ ------------ ------------ Total income from discontinued operations (includ- ing gain (loss) on sale of properties) $ 2,365,482 $ 127,465 $ 2,648,823 $ 13,563,269 ============ ============ ============ ============ Income - limited partners from discontinued operations (in- cluding gain (loss) on sale of properties) $ 2,341,827 $ 126,190 $ 2,622,335 $ 13,427,637 ============ ============ ============ ============ Number of BACs outstanding 139,101.5 139,101.5 139,101.5 139,101.5 ============ ============ ============ ============ Income from dis- continued oper- ations (includ- ing gain (loss) on sale of properties) per BAC $ 16.83 $ 0.91 $ 18.85 $ 96.53 ============ ============ ============ ============

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