<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 33-84336-LA
JetFleet III
(Exact name of small business issuer as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
1440 Chapin Avenue, Suite 310
Burlingame, California
(Address of principal executive office)
94010
(Zip Code)
94-3208983
(I.R.S. Employer Identification No.)
(415) 696-3900
Issuer's telephone number, including area code:
Indicate by check mark whether the issuer: (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 the filing
requirements for the past 90 days. Yes /X/ No
On August 14, 1996, 500,000 shares of common stock and 92,475 shares of
preferred stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No /X/
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETFLEET III
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
(Unaudited)
----------- ----------
<S> <C> <C>
Current assets:
Cash $ 188,448 $ 68,328
Accounts receivable - 1,132
------------ -----------
Total current assets 188,448 69,460
Aircraft under operating lease, net of
accumulated depreciation of $333,932
in 1996 and $47,090 in 1995 4,560,633 4,477,120
Debt issue costs, net of accumulated
amortization of $47,805 in 1996
and $4,881 in 1995 802,025 510,304
Other, including deferred taxes,
net of valuation allowance 3,782 -
------------ -----------
$ 5,554,888 $ 5,056,884
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 7,285 $ 7,226
Payable - aircraft - 2,901,733
Payable to affiliates 2,034 223,448
Interest payable 90,552 9,757
Maintenance reserve 5,488 -
Prepaid rent - 18,546
------------ -----------
Total current liabilities 105,359 3,160,710
Medium-term secured bonds 4,673,300 1,326,850
------------ -----------
Total liabilities 4,778,659 4,487,560
Preferred stock, no par value,
300,000 shares authorized, 82,470
shares issued and outstanding in 1996
and 23,415 in 1995 674,730 143,235
Common stock, no par value,
1,000,000 shares authorized, 500,000 shares
issued and outstanding in 1996 and 1995 500,000 500,000
Accumulated deficit (398,501) (73,911)
------------ -----------
Total shareholders' equity 776,229 569,324
------------ -----------
$ 5,554,888 $ 5,056,884
============ ===========
</TABLE>
See accompanying notes.
1
<PAGE> 3
JETFLEET III
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the period For the
Six Months from Inception Three Months
Ended (August 23, 1994) Ended June 30,
June 30, 1996 to June 30, 1995 1996 1995
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rent income,
net of finance charges $ 241,177 $ - $ 161,935 $ -
Interest income 4,419 992 4,419 300
----------- ------------ --------- ------
245,596 992 166,354 300
----------- ------------ --------- ------
Expenses:
Depreciation expense 286,842 - 145,421 -
Amortization expense 42,924 - 24,794 -
Interest expense 183,814 - 124,119 -
Professional fees 14,260 3,970 8,000 1,520
Management fees 37,864 - 24,120 -
General and administrative 4,482 845 674 800
----------- ------------ --------- ------
570,186 4,815 327,128 2,320
----------- ------------ --------- ------
Net loss $ (324,590) $ (3,823) $(160,774) $(2,020)
=========== ============ ========= ======
Weighted average
common shares 500,000 50,000 500,000 50,000
=========== ============ ========= ======
Loss per common share $ (0.65) $ (0.08) $ (0.32) $(0.04)
=========== ============ ========= ======
</TABLE>
See accompanying notes.
2
<PAGE> 4
JETFLEET III
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the For the period
Six Months from Inception
Ended (August 23, 1994)
June 30, 1996 to June 30, 1995
------------ ---------------
<S> <C> <C>
Net cash used in operating activities $ (151,092) $ (3,323)
Investing activities -
Purchase of interests in an aircraft (3,272,088) -
Financing activities:
Proceeds from issuance of medium-term
secured bonds 3,346,450 -
Debt issue costs (334,645) -
Proceeds from issuance of preferred stock 590,550 -
Offering costs (59,055) -
Proceeds from issuance of common stock - 50,000
----------- -----------
Net cash provided by
financing activities 3,543,300 50,000
----------- -----------
Net increase in cash 120,120 46,677
Cash, beginning of period 68,328 0
----------- -----------
Cash, end of period $ 188,448 $ 46,677
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
JETFLEET III
Notes to Financial Statements
June 30, 1996
(Unaudited)
1. Basis of Presentation
JetFleet III (the "Company") was incorporated in the state of California
on August 23, 1994 ("Inception"). All of the Company's outstanding common
stock is owned by JetFleet Management Corp. ("JMC"), a California corporation
formed in January 1994. JMC is an integrated aircraft management, marketing
and financing business, and also manages, on behalf of their respective
general partners, the aircraft assets of JetFleet Aircraft, L.P. and JetFleet
Aircraft II, L.P. ("JetFleet II"), publicly offered limited partnership
programs with objectives similar to the Company's. The accompanying unaudited
financial statements reflect all adjustments (consisting of only normal
recurring accruals) which are, in the opinion of the Company, necessary for a
fair presentation of the financial results. The results of operations of such
periods are not necessarily indicative of results of operations for a full
year. The statements should be read in conjunction with the Summary of
Significant Accounting Policies and other notes to financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995.
2. Organization and Capitalization
The Company was formed solely for the purpose of acquiring Income
Producing Assets. The Company anticipates that these assets will be
Equipment, consisting mainly of aircraft, aircraft engines, aircraft parts or
other transportation industry equipment subject to operating or full payout
leases with third parties.
The Company received Securities and Exchange Commission ("SEC") clearance
on February 3, 1995 for a public offering of up to $20,000,000 in $1,000
Series A Units (the "Offering") consisting of an $850 bond maturing on March
1, 2003 and $150 of preferred stock. Because the structure of the Offering
was somewhat different than traditional bond offerings, the Company
experienced a delay in obtaining clearance from the securities divisions of
some key states. As a result, the Offering has been restructured. The
Company received SEC clearance on September 27, 1995 for the restructured
offering. In the restructured offering, the Company is offering up to
$20,000,000 in $1,000 Series A Units consisting of an $850 bond maturing on
November 1, 2003 (the "Bonds") and $150 of preferred stock (the "Preferred
Stock"). The Bonds bear an annual interest rate of 12.94% from issuance
through October 31, 1998, and thereafter, a variable rate, adjusted annually
on November 1, equal to the one-year United States Treasury bill rate plus 200
basis points, but not less than 8.24%. The Company may prepay all or a
portion of the outstanding principal of the Bonds at any time beginning
November 1, 1998. The Preferred Stock will be issued for $10 per share and is
entitled to receive 50%, in the aggregate, of any remaining proceeds after (1)
the Preferred Stock has been redeemed at $10 per share and (2) the Common
Stock has been redeemed at $1 per share. A dividend can only be paid on the
Common Stock if a dividend has also been paid on each share of Preferred Stock
in an amount equal to ten times the per-share dividend paid on the Common
Stock.
4
<PAGE> 6
JETFLEET III
Notes to Financial Statements
June 30, 1996
(Unaudited)
2. Organization and Capitalization (continued)
JMC has incurred certain costs in connection with the organization of the
Company and the Offering. The Company pays an Organization and Offering
Expense Reimbursement (the "Reimbursement") to JMC in an amount up to 2.0% of
Aggregate Offering Proceeds. The Reimbursement is limited to $400,000 or the
amount paid by JMC in excess of $450,000, whichever is less. JMC has
contributed $450,000 of the total it estimates it will pay for organization
and offering expenses as a common stock investment in the Company. On July
28, 1995, the shareholders of the Company unanimously consented to adopt an
amendment and restatement of the articles of incorporation of the Company to
increase the number of authorized shares of common stock from 300,000 to
1,000,000. On August 1, 1995, the Company issued 450,000 shares of common
stock to JMC in return for the contribution of $450,000 of organization and
offering costs related to the organization of the Company and the Offering
that it has paid on behalf of the Company. JMC is also entitled to receive
common stock in the amount of any unreimbursed organization and offering
costs. The Company has capitalized, and will continue to capitalize, the
portion of the Reimbursement related to the Bonds (85%) and amortize such
costs over the life of the Bonds (approximately 8 years). The remainder of
any such Reimbursement has been deducted, and will continue to be deducted,
from shareholders' equity.
3. Aircraft Under Operating Lease
deHavilland Dash-8
On November 30, 1995, the Company purchased a 100% interest in a
deHavilland DHC-8-100 Model 102 aircraft, serial number 13 ("S/N 13") from
Bombardier, as agent for deHavilland, for $4,200,000 (the "Purchase Price"),
payable in monthly installments as the Company raised funds in the Offering.
The final monthly installment payment for S/N 13 was made on June 4, 1996. In
connection with the acquisition, the Company paid a fee equal to 7.5% of the
Purchase Price ($315,000) to JMC (the "S/N 13 Fee"). The Company also
reimbursed JMC for approximately $17,399 in Chargeable Acquisition Expenses
related to the purchase which had been paid by JMC to third parties (the "S/N
13 Costs"). During 1995, the Company paid to JMC a total of $97,406 of the
S/N 13 Fee and reimbursed JMC for $9,210 of the S/N 13 Costs. During the
first six months of 1996, the Company paid to JMC the balance of $217,594 of
the S/N 13 Fee and reimbursed JMC for $8,189 of the S/N 13 Costs.
Immediately subsequent to the purchase of S/N 13 by the Company, S/N 13
was leased back to Bombardier for a term of 120 months at a monthly rate of
$60,000 (the "S/N 13 Lease"). The S/N 13 Lease may be terminated by either
party, with at least 120 days prior written notice, after the first 36 months
of the lease. The aircraft is subleased by Bombardier to Air Affaires Afrique
("AAA"), a schedule and charter airline operating under Cameroon registration
and French Civil Aviation Authority regulations. During the period that the
Company made installment payments for the purchase of S/N 13, Bombardier
retained a security interest in the aircraft. Monthly finance charges were
paid to Bombardier in the form of the pro-rata rent earned on the portion of
the Purchase Price remaining to be paid to Bombardier. The Company received a
total of $277,788 in rent under the S/N 13 Lease during the first six months
of 1996.
5
<PAGE> 7
JETFLEET III
Notes to Financial Statements
June 30, 1996
(Unaudited)
3. Aircraft Under Operating Lease (continued)
Fairchild Metro II
On June 4, 1996, the Company purchased a 50% undivided interest in a
Fairchild SA226-TC aircraft, serial number TC-370, for $335,567 ("S/N TC-370")
from CMA Capital Management, Inc. ("CMACM"), an affiliate of JMC. CMACM had
purchased the interest in February 1996 from Air Metro III, Inc. ("Air Metro")
for the express purpose of reselling the entire interest to the Company when
the necessary funds had been raised. JetFleet II had purchased the remaining
50% interest at the same time that CMACM purchased its interest. The purchase
price paid by the Company is the same price paid by CMACM ($341,750) reduced
by the net rent received by CMACM during the period the aircraft was held for
resale ($6,183). The Company reimbursed CMACM and JMC $4,533 and $1,561,
respectively, for third party costs incurred in connection with the
acquisition of the interest in the S/N TC-370. The Company also paid a
brokerage fee of $20,505 to JMC. At the time S/N TC-370 was purchased it was
subject to a lease with Sunbird Air Services, Ltd. for a term expiring
September 30, 2000 at a monthly rate of $9,500, of which the Company is
entitled to $4,750 (the "Sunbird Lease"). The Sunbird Lease contains a
guaranty by Air Metro for basic rent in an amount not to exceed a total
aggregate amount of $29,250 (which guaranty is shared equally by the Company
and JetFleet II) (the "Sunbird Guaranty"). As part of the purchase of S/N TC-
370 from CMACM, CMACM assigned its interests and obligations under the Sunbird
Lease and the Sunbird Guaranty to the Company.
4. Medium-term secured bonds
As mentioned above, the Company is currently raising funds through the
Offering. Each $1,000 Unit subscribed in the offering includes an $850
medium-term secured bond maturing on November 1, 2003. During November 1995,
the Company reached the $500,000 minimum amount required to be raised in the
Offering. Through December 31, 1995, the Company had accepted subscriptions
for 1,561 Units aggregating $1,561,000 in Gross Offering Proceeds from 100
Unitholders, and, pursuant to the Prospectus, had subsequently issued
$1,326,850 in Bonds and 23,415 shares of Preferred Stock. During the six
months ended June 30, 1996, the Company accepted subscriptions for 3,937 Units
aggregating $3,937,000 in Gross Offering Proceeds from 260 Unitholders, and,
pursuant to the Prospectus, subsequently issued $3,346,450 in Bonds and 59,055
shares of Preferred Stock. The Bonds bear interest at an annual rate of
12.94% which is due and payable on a quarterly basis, in arrears, on the first
business day of February, May and August and November.
6
<PAGE> 8
JETFLEET III
Notes to Financial Statements
June 30, 1996
(Unaudited)
5. Related Party Transactions
The Company's Income Producing Asset portfolio is managed and administered
under the terms of a management agreement with JMC. Under this agreement, on
the last day of each calendar quarter, JMC receives a quarterly management fee
equal to 0.375% of the Company's Aggregate Gross Proceeds received through the
last day of such quarter. During the first six months of 1996, the Company
accrued a total of $37,864 in management fees which were subsequently paid to
JMC.
Capital Managment Associates ("CMA"), an affiliate of JMC, provides
certain administrative services to the Company. The Company does not
reimburse CMA for those services. JMC may pay a portion of its management fee
to CMA in connection with services rendered for the Company.
JMC may receive a brokerage fee for locating assets for the Company,
provided that such fee is not more than the customary and usual brokerage fee
that would be paid to an unaffiliated party for such a transaction. The total
of the Aggregate Purchase Price plus the brokerage fee cannot exceed the fair
market value of the asset based on appraisal. During the first six months of
1996, the Company paid JMC a total of $238,099 in brokerage fees and
reimbursed JMC for $9,750 in Chargeable Acquisition Expenses.
As discussed in Note 3, the Company purchased a Fairchild Metro II
aircraft from CMACM during the second quarter of 1996. As part of the
purchase, the Company reimbursed CMACM $4,533 in Chargeable Acquisition
Expenses.
As discussed in Note 2, the Company reimburses JMC for certain costs
incurred in connection with the organization of the Company and the Offering.
In the first six months of 1996, the Company paid $78,740 to JMC.
6. Subsequent Events
On July 2, 1996, the Company accepted subscriptions for 934 Units
aggregating $934,000 in Gross Offering Proceeds from 59 Unitholders. Pursuant
to the Prospectus, the Company subsequently issued $793,900 in Bonds and
14,010 shares of Preferred Stock. The net proceeds were used to fund a loan
of $800,000 to Aloha IslandAir, Inc. ("Aloha"), secured by a 100% undivided
interest in the first of three deHavilland DHC-6-300 aircraft, to pay JMC
$58,091 in brokerage fees, and to reimburse JMC $5,560 for third party costs
incurred in arranging the loan. The Security Agreement for the aircraft, DHC-
6-300 Serial No. 640, contains an option for the Company to purchase the
aircraft and subsequently lease it back to Aloha.
On August 2, 1996, the Company accepted subscriptions for 667 Units
aggregating $667,000 in Gross Offering Proceeds from 56 Unitholders. Pursuant
to the Prospectus, the Company subsequently issued $556,950 in Bonds and
10,005 shares of Preferred Stock. The net proceeds, along with a short-term
loan of $225,000 from JMC, were used to fund a loan of $800,000 to Aloha for
the second of three aircraft in the same manner as described above and to pay
JMC $39,020 in brokerage fees and to reimburse JMC $3,735 for third party
costs incurred in arranging the loan. The loan from JMC will be repaid as
additional proceeds are raised.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
At the end of the second quarter of 1996, the Company had cash balances of
$188,448. This amount was held for the interest payment made to the
Unitholders in August 1996 and for normally recurring expenses. The Company
also had approximately $50,000 of excess proceeds from the previous month's
closing which were invested in early July 1996.
Since Inception, the Company's source of capital has come in the form of
an initial contribution from JMC, proceeds from the Offering and net rental
revenue from the Income Producing Asset purchased using those proceeds. The
Company's liquidity will vary in the future, increasing to the extent cash
flows from operations exceed expenses, and decreasing as interest payments are
made to the Unitholders and to the extent expenses exceed cash flows from
leases.
JetFleet currently has available adequate reserves to meet its immediate
cash requirements.
1996 versus 1995
Cash flow from operations was ($151,092) and ($3,323) for the six months
ended June 30, 1996 and for the period from Inception (August 23, 1994) to
June 30, 1995, respectively. There were no significant operations in 1995
until the fourth quarter. In addition, during the first six months of 1996,
the Company paid to JMC the balance of a previously accrued brokerage fee
related to the S/N 13 acquisition.
Beginning in the third quarter of 1996, the Company will use the net
proceeds of the Offering to fund loans to Aloha secured by three deHavilland
aircraft which the Company intends to eventually purchase from and lease back
to Aloha. The Company will continue to identify additional investments to be
made.
Results of Operations
The Company recorded a net loss of ($324,590) and ($3,823) or ($0.65) and
($0.08) per share for the six months ended June 30, 1996 and for the period
from Inception (August 23, 1994) to June 30, 1995, respectively, and a net
loss of ($160,774) and ($2,020) or ($0.32) and ($0.04) per share for the three
months ended June 30, 1996 and 1995. As mentioned above, the Company did not
have significant operations until the fourth quarter of 1995. As a result of
the Company raising funds in the Offering and the S/N 13 and S/N TC-370
purchases, the Company incurred considerably greater operating expenses,
primarily depreciation, in 1996. This increase in expenses was only partially
offset by the receipt of rental income received from the S/N 13 Lease and the
Sunbird Lease.
8
<PAGE> 10
1996 versus 1995
Rental income was $241,177 and $0 for the six months ended June 30, 1996
and for the period from Inception (August 23, 1994) to June 30, 1995,
respectively, and $161,935 and $0 for the three months ended June 30, 1996 and
1995. The increases for both the three and six month periods from 1995 to
1996 was due to the rental income received as a result of the purchases of S/N
13 and S/N TC-370.
Depreciation was $286,842 and $0 in the six months ended June 30, 1996 and
the period from Inception (August 23, 1994) to June 30, 1995, respectively,
and $145,421 and $0 for the three months ended June 30, 1996 and 1995. The
increases for both the three and six month periods from 1995 to 1996 was due
to purchases of S/N 13 and S/N TC-370.
Management fees were $37,864 and $0 for the six months ended June 30, 1996
and for the period from Inception (August 23, 1994) to June 30, 1995,
respectively, and $24,120 and $0 for the three months ended June 30, 1996 and
1995. The increase in management fees for both the three and six month
periods was due to the Company raising funds in the Offering during the fourth
quarter of 1995 and the first two quarters of 1996.
General and administrative expenses and professional fees were $18,742 and
$4,815 for the six months ended June 30, 1996 and for the period from
Inception (August 23, 1994) to June 30, 1995, respectively, and $8,674 and
$2,320 for the three months ended June 30, 1996 and 1995. The increases for
both the three and six month periods from 1995 to 1996 was primarily a result
of the Company beginning operations in the fourth quarter of 1995.
The Company uses substantially all its operating cash flow to make
interest payments to its Unitholders. Any excess funds, after interest
payment, will be aggregated and invested in additional Income Producing
Assets. Since the Company plans to acquire Income Producing Assets which are
subject to triple net leases (the lessee pays operating and maintenance
expenses, insurance and taxes), the Company does not anticipate that it will
incur significant operating expenses in connection with ownership of its
Income Producing Assets as long as they remain on lease.
9
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on August 14, 1996.
JETFLEET III
<TABLE>
<S> <C>
By: /s/ Neal D. Crispin
Neal D. Crispin
Title: President
</TABLE>
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities indicated on
August 14, 1996.
<TABLE>
<S> <C>
Signature Title
/s/ Neal D. Crispin President and Chairman of the
Neal D. Crispin Board of Directors of the Registrant
/s/ Toni M. Perazzo Vice President - Finance
Toni M. Perazzo and Director of the Registrant
<PAGE> 12
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
EX-27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 188,448
<SECURITIES> 0
<RECEIVABLES> 3,782
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 188,448
<PP&E> 4,894,565
<DEPRECIATION> 333,932
<TOTAL-ASSETS> 5,554,888
<CURRENT-LIABILITIES> 105,359
<BONDS> 4,673,300
<COMMON> 500,000
0
674,730
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,554,888
<SALES> 0
<TOTAL-REVENUES> 245,596
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 386,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,814
<INCOME-PRETAX> (324,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (324,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (324,590)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
