<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 March 31, 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
(State or other jurisdiction
of incorporation or organization)
1440 Chapin Avenue, Suite 310
Burlingame, California
(Address of principal executive office)
94010
(Zip Code)
Issuer's telephone number, including area code: (415) 696-3900
94-3208983
(I.R.S. Employer Identification No.)
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 May 14, 1997, 613,650 shares of common stock and 195,030 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
March 31, December 31,
1997 1996
(Unaudited)
----- -----
<S> <C> <C>
Current assets:
Cash $ 1,180,552 $ 255,851
Rent receivable 35,500 13,000
Accounts receivable - 658
------------ ------------
Total current assets 1,216,052 269,509
Aircraft under operating lease, net of
accumulated depreciation of
$352,234 in 1997 and $258,793 in 1996 9,923,218 6,546,145
Secured notes receivable - 2,311,146
Debt issue costs, net of accumulated
amortization of $165,950 in 1997
and $119,850 in 1996 1,259,755 1,143,335
Other 65,000 184,736
------------- ------------
$ 12,464,025 $ 10,454,871
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 8,524 $ 12,285
Payable to affiliates 4,513 71
Interest payable 217,165 183,053
Prepaid rent 63,300 -
Other 30,278 13,271
------------- ------------
Total current liabilities 323,780 208,680
Medium-term secured bonds 10,432,050 8,806,850
------------- ------------
Total liabilities 10,755,830 9,015,530
Preferred stock, no par value,
300,000 shares authorized, 184,095
and 155,415 issued and outstanding
in 1997 and 1996, respectively 1,589,355 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 613,650 518,050
Accumulated deficit <494,810> <409,944>
------------- -----------
Total shareholders' equity 1,708,195 1,439,341
------------- -----------
$ 12,464,025 $ 10,454,871
============= ==============
<FN>
See accompanying notes.
</TABLE>
<PAGE> 3
JETFLEET III
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1997 1996
----- ------
<S> <C> <C>
Revenues:
Rent income, net of finance charges $ 385,544 $ 79,242
Interest income 40,650 -
------------- ------------
426,194 79,242
------------- ------------
Expenses:
Depreciation expense 93,441 141,421
Amortization expense 46,100 18,130
Interest expense 317,257 59,695
Professional fees 6,334 6,260
Management fees 47,441 13,744
General and administrative 488 3,808
511,061 243,058
------------- ------------
Net loss $ <84,867> $ <163,816>
=========== ==============
Weighted average common shares 547,792 500,000
=========== ==============
Loss per common share $ <0.15> $ <0.33>
=========== ==============
<FN>
See accompanying notes.
</TABLE>
<PAGE> 4
JETFLEET III
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Net cash provided/<used> by
operating activities $ 99,851 $ <68,056>
Investing activities -
Purchase of interests in aircraft <991,550> <1,162,605>
Financing activities:
Proceeds from issuance of medium-term
secured bonds 1,625,200 1,179,800
Debt issue costs <162,520> <117,980>
Proceeds from issuance of
preferred stock 286,800 208,200
Offering costs <28,680> <20,820>
Proceeds from issuance of common stock 95,600 -
------------- ------------
Net cash provided by
financing activities 1,816,400 1,249,200
------------- ------------
Net increase in cash 924,701 18,539
------------- ------------
Cash, beginning of period 255,851 68,328
Cash, end of period $ 1,180,552 $ 86,867
============== ==============
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>
<PAGE> 5
JETFLEET III
Notes to Financial Statements
March 31, 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 Companys outstanding 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
balance sheets at March 31, 1997 and December 31, 1996 and statements of
operations and cash
flows for the quarters ended March 31, 1997 and 1996 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.
The Company is currently offering up to $20,000,000 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 will pay 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 contributed $450,000 of the total it estimates it will
pay 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 incurs expenses in excess of the 2.0%
cash limit, such
excess expenses will be repaid to JMC in the form of Common Stock issued by
the Company at a
price of $1.00 per share (the "Excess Stock"). The amount of Excess Stock
that the Company can
issue is limited according to the amount of Aggregate Gross Offering Proceeds
raised by the
<PAGE> 6
JETFLEET III
Notes to Financial Statements
March 31, 1997
(Unaudited)
2. Organization and Capitalization (continued)
Company. 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
make 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 interests in a deHavilland DHC-8-100, serial number 13
("S/N 13"), 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").
The Company invested approximately $992,000, including reimbursement for
chargeable
acquisition costs and brokerage fees of approximately $77,000, in aircraft
assets during the first
quarter 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.
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.
<PAGE> 7
JETFLEET III
Notes to Financial Statements
March 31, 1997
(Unaudited)
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 the first quarter of 1997, the Company accepted
subscriptions for
1,912 Units aggregating $1,912,000 in Gross Offering Proceeds and, pursuant to
the Prospectus,
issued $1,625,200 in Bonds and 28,680 shares of Preferred Stock.
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
Companys Aggregate
Gross Proceeds received through the last day of such quarter. In the first
quarter of 1996 and
1997, the Company accrued a total of $13,744 and $47,441, respectively, in
management fees due
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 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 quarter of
1996 and 1997, the Company paid JMC a total of $131,289 and $77,622,
respectively, in
brokerage fees, and reimbursed JMC for $8,189 and $3,350, 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 quarter
of 1996 and 1997, the
Company paid $42,080 and $38,240, 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 $168,320 and $152,960 in commissions and underwriter, due diligence
and marketing fees
during the first quarter of 1996 and 1997, respectively.
6. Subsequent Events
On April 2, 1997 and May 2, 1997 the Company accepted subscriptions for
378 and 351 Units,
respectively, aggregating $378,000 and $351,000, respectively. The offering
period closed during
May 1997, and the Company expects to accept subscriptions for additional Units
upon receipt of
the proceeds for all remaining subscriptions. Management is negotiating the
purchase of an asset
using the proceeds from the April and May closings, as well as excess cash
reserves.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
At the end of the first quarter of 1997, the Company had cash balances of
$1,180,552. This
amount was held for the interest payment made to the Unitholders in May 1997,
for the purchase
of additional aircraft 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 $99,851 and ($68,056) for the quarters ended
March 31, 1997
and 1996, respectively. The increase from year to year was due to a decrease
in net loss of
approximately $79,000, discussed below, and a decrease in payables to
affiliates of approximately
$83,000.
Results of Operations
The Company recorded a net loss of ($84,867) or ($0.15) per share and
($163,816) or ($0.33)
per share for the quarters ended March 31, 1997 and 1996, respectively. The
decreased loss was a
result of lease-related revenue from additional assets purchased during 1996
and the first quarter of
1997, as well as a higher average lease rate. These increases were only
partially offset by a related
increase in interest expense and management fees.
1997 versus 1996
Rental income was $385,544 and $79,242 for the quarters ended March 31,
1997 and 1996,
respectively. The increase from 1996 to 1997 was due to the rental income
received as a result of
the purchase of additional aircraft. In 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.
Depreciation was $93,441 and $141,421 in the quarters ended March 31, 1997
and 1996,
respectively. The decrease from 1996 to 1997 was due to a change in estimate
of the salvage value
of S/N 13, which change was only partially offset by depreciation associated
with the additional
assets purchased during 1996 and the first quarter of 1997.
<PAGE> 9
Management fees were $47,441 and $13,744 in the quarters ended March 31,
1997 and 1996,
respectively. The increase in management fees was due to the additional
proceeds raised by the
Company in the Offering during 1996 and the first quarter of 1997. General
and administrative
expenses and professional fees decreased from $10,068 in the quarter ended
March 31, 1996 to
$6,822 in the quarter ended March 31, 1997, as a result of lower miscelleneous
expenses incurred
by the Company.
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.
<PAGE> 10
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
May 14, 1997.
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 May 14, 1997.
<TABLE>
<S> <C>
Signature Title
/s/ Neal D. Crispin President and Chairman of the
- --------------- Board of Directors of the Registrant
Neal D. Crispin Chief Financial Officer
</TABLE>
<PAGE> 11
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------ ------------ ---------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,180,552
<SECURITIES> 0
<RECEIVABLES> 35,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,216,052
<PP&E> 10,275,452
<DEPRECIATION> 352,234
<TOTAL-ASSETS> 12,464,025
<CURRENT-LIABILITIES> 323,780
<BONDS> 10,432,050
<COMMON> 613,650
0
1,589,355
<OTHER-SE> (494,810)
<TOTAL-LIABILITY-AND-EQUITY> 12,464,025
<SALES> 0
<TOTAL-REVENUES> 426,194
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 193,804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317,257
<INCOME-PRETAX> (84,867)
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,867)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
