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 September 30, 1997
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 94-3208983
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1440 Chapin Avenue, Suite 310 94010
Burlingame, California (Zip Code)
(Address of principal executive office)
Issuer's telephone number, including area code:
(650) 696-3900
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 November 12, 1997, 815,200 shares of common stock and 195,465
shares of preferred stock were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETFLEET III
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------ ------
(Unaudited)
<BTB>
<S> <C> <C>
Current assets:
Cash $ 552,751 $ 255,851
Rent receivable 64,056 13,000
Accounts receivable 37,848 658
---------- ----------
Total current assets 654,655 269,509
---------- ----------
Aircraft under operating lease, net of
accumulated depreciation of $622,310
in 1997 and $258,793 in 1996 11,323,542 6,546,145
Secured notes receivable - 2,311,146
Debt issue costs, net of accumulated
amortization of $270,678 in 1997
and $119,850 in 1996 1,390,775 1,143,335
Other 65,000 184,736
---------- ----------
$ 13,433,972 $ 10,454,871
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 15,240 $ 12,285
Payable to affiliates 53,378 71
Interest payable 238,880 183,053
Prepaid rent 63,300 -
Maintenance reserves 132,787 -
Other - 13,271
---------- ----------
Total current liabilities 503,585 208,680
Medium-term secured bonds 11,076,350 8,806,850
---------- ----------
Total liabilities 11,579,935 9,015,530
---------- ----------
Preferred stock, no par value,
300,000 shares authorized, 195,465
and 155,415 issued and outstanding
in 1997 and 1996, respectively 1,661,452 1,331,235
Common stock, no par value,
1,000,000 shares authorized, 613,650
and 518,050 issued and outstanding in
1997 and 1996, respectively 815,200 518,050
Accumulated deficit (622,615) (409,944)
---------- ----------
Total shareholders' equity 1,854,037 1,439,341
---------- ----------
$ 13,433,972 $ 10,454,871
========== ==========
See accompanying notes.
JETFLEET III
Statements of Operations
(Unaudited)
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rent income, net of
finance charges $ 1,427,504 $ 435,427 $ 569,310 $ 194,250
Interest income 72,891 52,133 28,228 47,714
---------- -------- -------- ---------
1,500,395 487,560 597,538 241,964
Expenses:
Depreciation expense 363,517 439,808 146,638 152,966
Amortization expense 150,827 75,216 54,871 32,292
Interest expense 1,033,462 381,743 358,320 197,929
Professional fees 11,319 19,499 3,545 5,239
Management fees 145,173 70,909 48,866 33,045
General and
administrative 8,769 9,401 4,971 4,919
--------- -------- -------- --------
1,713,067 996,576 617,211 426,390
--------- -------- -------- --------
Net loss $ (212,672) $ (509,016) $ (19,673) $(184,426)
========= ======== ======== ========
Weighted average
common shares 629,591 500,000 725,379 500,000
========= ======== ======== ========
Loss per common share $ (0.34) $ (1.02) $ (0.03) $ (0.37)
========= ======== ========= ========
<FN>
See accompanying notes.
</TABLE>
JETFLEET III
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1997 1996
---- ----
<BTB>
<S> <C> <C>
Net cash provided/(used)
by operating activities $ 460,250 $ (287,851)
Investing activities -
Purchase of interests in aircraft (2,661,950) (3,272,088)
Loans secured by aircraft - (2,361,635)
----------- -----------
Net cash used in investing
activities (2,661,950) (5,633,723)
Financing activities:
Proceeds from issuance of
medium-term secured bonds 2,269,500 5,746,000
Debt issue costs (226,950) (574,600)
Proceeds from issuance
of preferred stock 400,500 1,014,000
Offering costs (40,050) (101,400)
Proceeds from issuance of
common stock 95,600 -
----------- -----------
Net cash provided
by financing activities 2,498,600 6,084,000
----------- -----------
Net increase in cash 296,900 162,426
Cash, beginning of period 255,851 68,328
----------- -----------
Cash, end of period $ 552,751 $ 230,754
=========== ===========
Supplemental schedule of noncash investing and financing
activities:
During the first quarter of 1997, the Company exercised its option
to purchase three aircraft which previously served as collateral
for loans made by the Company during 1996. The purchase price for
the three aircraft was equal to the unpaid balance, including
principal and interest totalling $2,294,228, on the secured note
for each aircraft, which balances were paid in full by the seller
immediately prior to the Company's purchase of each aircraft.
<FN>
See accompanying notes.
</TABLE>
JETFLEET III
Notes to Financial Statements
September 30, 1997
(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., 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, 1996.
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.
Between September 27, 1995 and June 2, 1997, the Company
raised $13,031,000 in $1,000 Series A Units (the "Offering")
consisting of $850 of bonds maturing on November 1, 2003 (the
"Bonds") and $150 of preferred stock (the "Preferred Stock")
pursuant to a prospectus dated September 27, 1995 (the
"Prospectus"). 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 is 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. All of the Company's outstanding common stock is
owned by JMC.
JMC has incurred certain costs in connection with the
organization of the Company and the Offering. The Company has
paid an Organization and Offering Expenses 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 contributed $450,000 of the total it paid for organization and
offering expenses as a common stock investment in the Company (the
"Initial Contribution"). The Company issued 450,000 shares of
common stock to JMC in return for the Initial Contribution. To
the extent that JMC incurred expenses in excess of the 2.0% cash
limit, such excess expenses were repaid to JMC in the form of
Common Stock issued by the Company
JETFLEET III
Notes to Financial Statements
September 30, 1997
(Unaudited)
2. Organization and Capitalization (continued)
at a price of $1.00 per share (the "Excess Stock"), limited
according to the amount of Aggregate Gross Offering Proceeds
raised by the Company. During August 1997, the Company issued
201,550 shares of common stock to JMC as payment for unreimbursed
Organization and Offering Expenses. The Company capitalized the
portions of both the Reimbursement paid by the Company and the
Initial Contribution related to the Bonds (85%) and amortizes such
costs over the life of the Bonds (approximately 8 years). The
remainder of any of the Initial Contribution and Reimbursement is
deducted from shareholders' equity.
On December 31, 1996 and March 4, 1997, JMC purchased an
additional 18,050 and 95,600 shares of common stock, respectively,
in the Company at a price of $1.00 per share in order to maintain
its investment in common stock equal to 5% of the proceeds raised
by the Company.
3. Aircraft and Aircraft Engines Under Operating Leases
Aircraft and aircraft engines
The Company owns a deHavilland DHC-8-100, serial number 13
("S/N 13"), a 50% interest in a Fairchild Metro II SA-226-TC,
serial number TC-370 ("S/N TC-370"), a Shorts SD-360, serial
number S/N 3611 ("S/N 3611"), a Fairchild Metro III SA227-AC,
serial number AC621 ("S/N AC621"), three deHavilland DHC-6-300
aircraft (the "Dash-6's") and a Pratt & Whitney JT8D-9A aircraft
engine, serial number 674267 ("S/N 674267"), and 50% and 100%
interests in two Shorts SD-360 aircraft, serial numbers 3676 and
3656, respectively ("S/N 3676" and "S/N 3656").
The Company invested approximately $2,662,000, including
reimbursement for chargeable acquisition costs and brokerage fees
of approximately $297,000, in aircraft assets during the first
nine months of 1997. The Company also exercised its option to
purchase three aircraft which previously served as collateral for
loans made by the Company during 1996. The purchase price for the
three aircraft was equal to the unpaid balance, including
principal and interest, on the secured note for each aircraft,
which balances were paid in full by the seller immediately prior
to the Company's purchase of each aircraft.
Aircraft and aircraft engines leases
S/N 13 is subject to a 120-month lease with the seller. The
S/N 13 lease may be terminated by either party, with at least 120
days prior written notice, beginning at the end of the first 36
months of the lease.
S/N TC-370 is subject to a lease with a United States charter
operator operating under FAA regulations. The lease contains a
guaranty by the seller 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 co-owner of S/N TC-
370).
S/N 3611 is subject to a 27-month lease with the seller, a
British regional airline.
JETFLEET III
Notes to Financial Statements
September 30, 1997
(Unaudited)
3. Aircraft and Aircraft Engines Under Operating Leases
(continued)
Aircraft and aircraft engines leases (continued)
S/N AC621 is subject to a three year lease with a regional
carrier in Alaska.
The Dash-6's are subject to a 48-month lease with a United
States regional carrier.
S/N 674267 is subject to a 60-month sublease between the
seller and a Mexican based regional carrier which operates between
the United States and Mexico.
S/N 3676 and S/N 3656 are subject to a 48-month lease with a
regional carrier in the United Kingdom.
4. Medium-term secured bonds
As mentioned above, the Company raised funds through the
Offering which closed during June 1997. Each $1,000 Unit
subscribed in the offering includes an $850 medium-term secured
bond maturing on November 1, 2003.
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 nine months of 1997 and 1996,
the Company accrued a total of $145,173 and $70,909, respectively,
in management fees due JMC.
Capital Management 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 receives 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 and provided that the total of the
Aggregate Purchase Price plus the brokerage fee does not exceed
the fair market value of the asset based on appraisal. During the
first nine months of 1997 and 1996, the Company paid JMC a total
of $276,200 and $406,697, respectively, in brokerage fees, and
reimbursed JMC for $20,750 and $25,788, respectively, 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 nine months of 1997 and 1996, the
Company paid $53,400 and $135,200 , respectively, to JMC.
Crispin Koehler Securities (formerly CKS Securities,
Incorporated), a member of the National Association of Securities
Dealers, Inc. and a related party of JMC, serves as underwriter of
the Offering and, as such, receives retail commissions and
underwriter, due diligence and marketing fees, portions of which
are paid to third parties. The Company paid Crispin Koehler
Securities a total of $213,600 and $540,800 in commissions and
underwriter, due diligence and marketing fees during the first
nine months of 1997 and 1996, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
At the end of the third quarter of 1997, the Company had cash
balances of $552,751. This amount was held for the interest
payments to the Unitholders and for normally recurring expenses.
Since Inception, the Company's source of capital has come in
the form of an initial contribution from JMC, proceeds from the
Offering and 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.
1997 versus 1996
Cash flow from operations was $460,250 and ($287,851) for the
nine months ended September 30, 1997 and 1996, respectively. The
increase from year to year was partially due to a decrease in net
loss of approximately $296,000, discussed below. During 1997,
JetFleet III had cash inflows of approximately $133,000 and
$63,000 for maintenance reserves and prepaid rent, respectively.
JetFleet III also recorded payables of $112,000, which was offset
by recording receivables of $136,000. During 1996, JetFleet III
received approximately $10,000 in receivables and recorded
payables of approximately $129,000. These items were offset by
payment of previously accrued amounts due affiliates totalling
approximately $230,000 and costs associated with loans
collateralized by three aircraft totalling approximately $185,000.
Results of Operations
The Company recorded net losses of ($212,672) or ($0.34) per
share and ($509,016) or ($1.02) per share for the nine months
ended September 30, 1997 and 1996, respectively and ($19,673) or
($0.03) per share and ($184,426) or ($0.37) per share for the
three months ended September 30, 1997 and 1996, respectively. The
decreased loss was a result of lease-related revenue from
additional assets purchased during the latter part of 1996 and the
first nine months of 1997, as well as a higher average lease rate.
These increases were only partially offset by a related increase
in interest expense, depreciation and management fees.
1997 versus 1996
Rental income increased approximately $992,000 and $375,000
for the nine and three month periods. The increase from 1996 to
1997 was due to the rental income received as a result of the
purchase of additional aircraft. During the first quarter of
1997, the Company also recorded $23,882 of interest income
attributable to secured loans which were made by the Company
during the second half of 1996. As discussed in Note 3, during
the first quarter of 1997, JetFleet III exercised its purchase
options for the three aircraft which previously served as
collateral for the secured loans and capitalized its investment in
the three aircraft.
Depreciation was approximately $76,000 and $6,000 lower in the
nine and three month periods ended September 30, 1997,
respectively, than in the same periods of 1996. The decrease from
1996 to 1997 was due to a change in estimate of the residual value
of S/N 13, which change was only partially offset by depreciation
associated with the additional assets purchased during 1996 and
the first nine months of 1997.
Management fees increased approximately $74,000 and $16,000
for the nine and three month periods ended September 30, 1997,
over the same periods in 1996. The increase in management fees
was due to the additional proceeds raised by the Company in the
Offering during 1996 and 1997.
The Company uses substantially all its operating cash flow to
make interest payments to its Unitholders. Any excess funds,
after interest payments, are 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.
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 November 12, 1997.
<TABLE>
<CAPTION>
JETFLEET III
<BTB>
<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 November 12, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<BTB>
<S> <C> <C>
/s/ Neal D. Crispin President and Chairman of the
---------------------- Board of Directors of
Neal D. Crispin the Registrant
Chief Financial Officer
</TABLE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------ ------------ ---------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 552,751
<SECURITIES> 0
<RECEIVABLES> 101,904
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 654,655
<PP&E> 11,945,852
<DEPRECIATION> (622,310)
<TOTAL-ASSETS> 13,433,972
<CURRENT-LIABILITIES> 503,585
<BONDS> 11,076,350
<COMMON> 815,200
0
1,661,452
<OTHER-SE> (622,615)
<TOTAL-LIABILITY-AND-EQUITY> 13,433,972
<SALES> 0
<TOTAL-REVENUES> 1,500,395
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 679,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,033,462
<INCOME-PRETAX> (212,672)
<INCOME-TAX> 0
<INCOME-CONTINUING> (212,672)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212,672)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
