UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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(TM)
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 94-3208983
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1440 CHAPIN AVENUE, SUITE 310
BURLINGAME, CALIFORNIA 94010
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (415) 696-3900
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Revenues for the issuer's most recent fiscal year. $789,615
--------
On March 28, 1997 the aggregate market value of the Shares of Common Stock held
by non-affiliates (computed by reference to the price at which the shares were
sold) was $0.
As of March 28, 1997 the Issuer has 613,650 Shares of Common Stock and 184,095
Shares of Series A Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one): Yes No X
PART I
ITEM 1: BUSINESS
JetFleet III(TM) (the "Company") was incorporated in the state
of California on August 23, 1994 ("Inception"). The Company was formed solely
for the purpose of offering up to $20,000,000 in $1,000 Series A Units, each
Unit consisting of one $850 Bond and 15 shares of Preferred Stock (the
"Offering"). Capitalized terms not defined in this report are defined in the
Prospectus for the Offering and are incorporated herein by reference to the
Prospectus. The proceeds of the Offering are being used to purchase Income
Producing Assets ("Income Producing Assets"). The Company anticipates that these
assets will consist mainly of aircraft, aircraft engines, aircraft parts or
other transportation industry equipment subject to operating or full payout
leases with third parties.
All of the Company's outstanding common stock is owned by
JetFleet(TM) Management Corp. ("JMC"), a California corporation formed in
January 1994 (the"Sponsor"). JMC is also the management company for the Company
pursuant to the Management Agreement between JMC and the Company. JMC will have
ultimate responsibility and authority for the selection of Income Producing
Assets to be acquired by the Company and the management, leasing, re-leasing
and/or subsequent sale of the Income Producing Assets.
The directors of the Company are Neal D. Crispin,
Chairman and Edwin S. Nakamura, Director. The officers of the Company are
Neal D. Crispin, President, Marc J. Anderson, Senior Vice President,
Frank Duckstein, Vice President and Brian J. Ginna, Secretary.
The revenue generated from the Income Producing Assets is used
to fund interest payments on the Bonds, reinvestment in additional Income
Producing Assets and, after November 1, 2001, deposits to a sinking fund account
established to facilitate repayment of principal of the Bonds on their maturity
(or such earlier time if the Company decides to make prepayments on the
principal of the Bonds). At the maturity date of the Bonds, the Company will pay
off the outstanding principal using proceeds of the resale of the Company's
Income Producing Assets, the funds in the Sinking Fund Account and/or proceeds
of third-party lender refinancing. When the Company repays the entire Bond
indebtedness, it may also, with such approval of its shareholders as required
under California law, dissolve and liquidate all of its assets. Any remaining
liquidation proceeds would be distributed to the Preferred Shareholders up to
the amount of their liquidation preference, then to the Common Shareholders in
an amount equal to $1.00 per share. Residual proceeds, if any, would be
distributed equally between the Preferred Shareholders, as a class, and the
Common Shareholders, as a class.
The Company received Securities and Exchange Commission
("SEC") clearance for the Offering on February 3, 1995. 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 was restructured. The Company received SEC
clearance on September 27, 1995 for the Offering as amended.
<PAGE>
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") and a Pratt &
Whitney JT8D-9A aircraft engine, serial number 674267 ("S/N 674267").
The Company invested approximately $1,405,000 and $5,400,000,
including reimbursement for chargeable acquisition costs and and brokerage fees
of approximately $106,600 and $427,800, in aircraft assets during 1995 and 1996,
respectively.
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. 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(TM), 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 674267 is subject to a 60-month sublease between the
seller and a Mexican-based regional carrier operating between the United States
and Mexico.
Secured notes receivable
During July, August and September 1996, the Company loaned
$2,400,000 to a United States regional carrier in three separate loans of
$800,000 each. Each loan is secured by a 100% undivided interest in one of three
deHavilland DHC-6-300 aircraft (collectively, the "Dash-6's"). In connection
with these transactions, the Company paid chargeable acquisition expenses and
brokerage fees totaling $184,736. The Security Agreement for each aircraft
contains an option for the Company to purchase the aircraft and simultaneously
lease it back to the seller. The Company recorded $115,146 of interest income
attributable to the secured notes receivable during 1996.
As discussed in Note 6 to the accompanying financial
statements, during January 1997, the Company exercised its options under the
Security Agreement for each of the secured notes to purchase the Dash-6's.
The Company has many competitors in the aircraft leasing
industry, including leasing companies, banks and other financial institutions
and aircraft leasing partnerships. The market is highly competitive. Most of the
Company's competitors have substantially greater financial and other resources
than the Company.
<PAGE>
ITEM 2: PROPERTIES
The Company does not own or lease any real property, plant or
materially important physical properties other than equipment under operating
lease as set forth in Item 1.
The Company maintains its principal office at 1440 Chapin
Avenue, Suite 310, Burlingame, California, 94010. All office facilities are
provided by JMC without reimbursement by the Company.
ITEM 3: LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
ITEM 4: SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5: MARKET FOR THE COMPANY'S UNITS AND RELATED SECURITYHOLDER MATTERS
General
There is no established trading market for the Units and their
constituent securities (collectively, the "Securities"), and none of the
Securities are listed on any securities exchange.
Number of Security Holders
Number of holders of Series A
Units ("Unitholders") as of March 28, 1997: 753
Dividends
The Company has not declared a dividend on either the
Preferred Stock or Common Stock since Inception. Holders of shares of Common
Stock and Preferred Stock are entitled to dividends when, as, and if declared by
the Board of Directors out of funds legally available therefor. The Company is
not permitted to pay any dividends on the Common Stock unless the shares of
Preferred Stock also receive a per share dividend equal to ten times the per
share dividend paid to the Common Stock. The Company intends to retain earnings,
if any, to finance the development and expansion of its business. Future
dividend policy is subject to the discretion of the Board of Directors and will
depend upon a number of factors, including future earnings, capital
requirements, and the financial condition of the Company.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Although the Company was formed during August 1994, it had no
significant operations until the fourth quarter of 1995. Management's discussion
and analysis, therefore, addresses changes in capital resources and results of
operations for the years ended December 31, 1995 and 1996.
Capital Resources and Liquidity
At the end of 1996, the Company had cash balances of $255,851.
This amount was held primarily for the interest payment made to the Unitholders
in February 1997 and for normally recurring expenses.
Since Inception, the Company's capital has come in the form of
an initial contribution from JMC, proceeds from the Offering and rental revenue
from the Income Producing Assets 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.
The Company currently has available adequate reserves to meet
its immediate cash requirements.
Cash flow from operations decreased approximately $275,000
from 1995 to 1996. The decrease was primarily a result of paying the balance of
the purchase price for S/N 13 which had been accrued at December 31, 1995 and
which was paid in monthly installments during the first half of 1996.
If inflation in the general economy becomes significant, it
may affect the Company inasmuch as the residual values and rates on re-leases of
its aircraft may increase as the costs of similar assets increase. However, the
Company's revenues from existing leases would not increase, as such rates are
generally fixed for the terms of the leases without adjustment for inflation. At
the same time, any significant inflation in the general economy may cause an
increase in professional fees.
If interest rates increase significantly, the lease rates that
the Company can obtain on future leases would be expected to increase as the
cost of capital is a significant factor in the pricing of lease financing.
Leases already in place, for the most part, would not be affected by changes in
interest rates.
Results of Operations
Rental income was $655,677 and $11,286 in 1996 and 1995. The
increase was due to the rental income received as a result of the additional
aircraft acquired and leased during 1996.
Depreciation was $211,703 and $47,090 in 1996 and 1995,
respectively. The increase from 1995 to 1996 was due to the additional
aircraft acquired during 1996.
Management fees were $112,009 and $5,854 in 1996 and 1995.
Because management fees are based on funds raised, the increase was due to the
additional funds raised by the Company during 1996. General and administrative
expenses and professional fees were $41,552 and $18,649 in 1996 and 1995. The
increase was a result of the Company having a full year of operations during
1996 versus one quarter in 1995.
The Company recorded a net loss of ($336,033) or ($0.67) per
share and ($73,745) or ($0.31) per share for the years ended December 31, 1996
and 1995, respectively. 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 purchasing additional aircraft, the Company incurred
considerably greater expenses in 1996. Results for 1996 included depreciation
for S/N 13, which had been fully capitalized during 1995, but which was paid for
in monthly installments through June 1996 and, therefore, generated gradually
increased monthly rent during the year. However, the Company's secured notes
receivable which were issued during 1996 generated interest income comparable to
the lease rates on the Company's other assets, with no related increase in
depreciation.
The Company uses substantially all its operating cash flow to
make interest payments to its Unitholders. 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.
ITEM 7: FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of JetFleet III(TM)
We have audited the accompanying balance sheets of JetFleet III(TM), a
California corporation, as of December 31, 1996 and December 31, 1995 and the
related statements of operations, shareholder's equity and cash flows for the
years ended December 31, 1996 and December 31, 1995 and for the period from
Inception (August 23, 1994) to December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JetFleet III(TM), at December
31, 1996 and December 31, 1995 and the results of its operations and its cash
flows for the years ended December 31, 1996 and December 31, 1995 and for the
period from Inception (August 23, 1994) to December 31, 1994, in conformity with
generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
March 4, 1997
San Mateo, California
<PAGE>
<TABLE>
<CAPTION>
JETFLEET III(TM)
Balance Sheets
ASSETS
December 31,
1996 1995
<S> <C> <C>
Current assets:
Cash $ 255,851 $ 68,328
Rent receivable 13,000 -
Accounts receivable 658 1,132
----------- ----------
Total current assets 269,509 69,460
----------- ----------
Aircraft under operating lease, net of
accumulated depreciation of $258,793
in 1996 and $47,090 in 1995 6,546,145 4,477,120
Secured notes receivable 2,311,146 -
Debt issue costs, net of accumulated
amortization of $119,850 in 1996
and $4,881 in 1995 1,143,335 510,304
Other, including deferred tax asset
net of valuation allowance 184,736 -
----------- ----------
Total assets $10,454,871 $5,056,884
============ ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 12,285 $ 7,226
Payable - aircraft - 2,901,733
Payable to affiliates 71 223,448
Interest payable 183,053 9,757
Other 13,271 18,546
----------- ----------
Total current liabilities 208,680 3,160,710
----------- ----------
Medium-term secured bonds 8,806,850 1,326,850
----------- ----------
Total liabilities 9,015,530 4,487,560
----------- ----------
Preferred stock, no par value,
300,000 shares authorized, 155,415 and
23,415 issued and outstanding in 1996
and 1995, respectively 1,331,235 143,235
Common stock, no par value,
1,000,000 shares authorized, 518,050
and 500,000 issued and outstanding in
1996 and 1995, respectively 518,050 500,000
Accumulated deficit (409,944) (73,911)
Total shareholder's equity 1,439,341 569,324
----------- ----------
Total liabilities and shareholder's equity $10,454,871 $5,056,884
=========== ==========
</TABLE>
See accompanying notes.
<PAGE>
JETFLEET III(TM)
Statements of Operations
<TABLE>
<CAPTION>
For the Period
For the Year Ended from Inception
December 31, (August 23, 1994)
1996 1995 to December 31, 1994
---- ---- --------------------
<S> <C> <C> <C>
Revenues:
Rent income, net of
finance charges $ 655,677 $ 11,286 $ -
Interest income 133,938 1,200 379
---------- -------- -------
789,615 12,486 379
---------- -------- -------
Expenses:
Depreciation expense 211,703 47,090 -
Amortization expense 114,969 4,881 -
Interest expense 645,415 9,757 -
Professional fees 27,999 17,080 500
Management fees 112,009 5,854 -
General and administrative 13,553 1,569 45
---------- -------- -------
1,125,648 86,231 545
---------- -------- -------
Net loss $(336,033) $(73,745) $ (166)
========== ======== =======
Weighted average common shares 500,049 238,630 17,945
========== ======== =======
Net loss per common share $ (0.67) $ (0.31) $ (0.01)
========== ======== =======
</TABLE>
See accompanying notes.
<PAGE>
JETFLEET III(TM)
Statements of Shareholder's Equity
For the Period From Inception (August 23, 1994)
to December 31, 1994 and
for the Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Total
Common Preferred Accumulated Shareholder's
Stock Stock Deficit Equity
<S> <C> <C> <C> <C>
Issuance of 50,000
shares of common stock $ 50,000 $ - $ - $ 50,000
Net loss for the period - - (166) (166)
-------- ---------- --------- ---------
Balance,
December 31, 1994 50,000 - (166) 49,834
Issuance of 23,415
shares of preferred
stock, net of offering costs - 143,235 - 143,235
Issuance of 450,000
shares of common stock 450,000 - - 450,000
Net loss for the period - - (73,745) (73,745)
-------- ---------- ---------- ----------
Balance,
December 31, 1995 500,000 143,235 (73,911) 569,324
Issuance of 132,000
shares of preferred
stock, net of offering costs - 1,188,000 - 1,188,000
Issuance of 18,050
shares of common stock 18,050 - - 18,050
Net loss for the period - - (336,033) (336,033)
-------- ---------- ---------- ----------
Balance,
December 31, 1996 $518,050 $1,331,235 $(409,944) $1,439,341
======== ========== ========= ==========
</TABLE>
See accompanying notes.
<PAGE>
JETFLEET III(TM)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
For the Year Ended from Inception
December 31, (August 23, 1994)
1996 1995 to December 31, 1994
---- ---- --------------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (336,033) $ (73,745) $ (166)
Adjustments to reconcile net loss to
net cash (used)/provided by
operating activities:
Depreciation of aircraft 211,703 47,090 -
Amortization of organization costs 114,969 4,881 -
Change in operating assets and liabilities:
Rent receivable (13,000) - -
Accounts receivable 474 (1,132) -
Accounts payable - trade 5,059 6,726 500
Payable to affiliates (223,377) 5,854 -
Interest payable 173,296 9,757 -
Other assets (184,736) - -
Other liabilities (5,275) 18,546 -
----------- ----------- -------
Net cash (used)/provided by
operating activities (256,925) 17,977 334
----------- ----------- -------
Investing activities:
Purchase of interests in aircraft (2,280,728) (1,404,883) -
Accounts payable - aircraft (2,901,733) - -
Issuance of secured notes receivable (2,400,000) - -
Payments received on
secured notes receivable 88,854 - -
----------- ----------- -------
Net cash used in investing activities 7,493,607 (1,404,883) -
----------- ----------- -------
Financing activities:
Proceeds from issuance of medium-term
secured bonds 7,480,000 1,326,850 -
Debt issue costs (748,000) (132,685) -
Proceeds from issuance of preferred stock 1,320,000 234,150 -
Offering costs (132,000) (23,415) -
Proceeds from issuance of common stock 18,050 - 50,000
----------- ----------- -------
Net cash provided by financing activities 7,938,050 1,404,900 50,000
----------- ----------- -------
Net increase in cash 187,523 17,994 34
Cash, beginning of period 68,328 50,334 0
----------- ----------- -------
Cash, end of period $ 255,851 $ 68,328 $50,334
=========== =========== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for: 1996 1995 1994
---- ---- ----
Interest (net of amount capitalized) $ 475,687 $ 1,132 $ -
Income taxes 1,783 800 -
</TABLE>
Supplemental schedule of noncash investing and financing activities:
JMC contributed $450,000 of the total it has paid for organization and offering
expenses as a common stock investment in the Company (( the "Initial
Contribution"). During 1995, the Company issued 450,000 shares of common stock
to JMC in return for the Initial Contribution.
The Company purchased a 100% interest in a deHavilland DHC-8 aircraft during
1995 on an installment basis for a total purchase price of $4,200,000. During
1995, the Company paid $1,298,267 towards the purchase price to the seller in
connection with the financing. During 1996, the Company paid the balance of the
purchase price ($2,901,733) to the seller. In addition to the payment of the
purchase price, the Company paid JMC a brokerage fee of $315,000. During 1995
and 1996, the Company paid $97,406 and $217,594 of the brokerage fee to JMC.
See accompanying notes.
<PAGE>
JETFLEET III(TM)
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation
JetFleet III(TM) (the "Company") was incorporated in the state of
California on August 23, 1994 ("Inception"). The Company was formed solely for
the purpose of acquiring Income Producing Assets. 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"). All of the Company's outstanding common stock is
owned by JetFleet(TM) Management Corp. ("JMC"), a California corporation formed
in January 1994. JMC is the management company for the Company, and also
manages, on behalf of their respective general partners, the aircraft assets of
JetFleet(TM) Aircraft, L.P. and JetFleet(TM) Aircraft II, L.P. ("JetFleet II"),
publicly offered limited partnership programs which are affiliates of the
Company and which have objectives similar to the Company's. Neal D. Crispin, the
President of the Company, holds the same position with JMC and owns a
significant amount of the common stock of JMC. CMA Consolidated, Inc. ("CMA"),
an affiliated California corporation owned by Mr. Crispin, provides certain
accounting and investor-related services for the Company. CMA Capital
Management, Inc., a subsidiary of CMA ("CMACM") purchased a Fairchild Metro
aircraft in February 1996 and subsequently resold the aircraft to the Company in
June 1996. The Company also has significant transactions with deHavilland Inc.
("deHavilland") and its affiliate, Bombardier Regional Aircraft Division
("Bombardier").
Aircraft and aircraft engines under operating leases
The Company's interests in aircraft are recorded at cost, which include
acquisition costs (see Note 2). Depreciation is computed using the straight-line
method over each aircraft's estimated economic life.
Organization and offering costs
Pursuant to the terms of the Prospectus, the Company pays an
Organization and Offering Expense Reimbursement to JMC in cash in an amount up
to 2.0% of Aggregate Gross Offering Proceeds for reimbursement of certain costs
incurred in connection with the organization of the Company and the Offering
(the "Reimbursement").
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 Company.
<PAGE>
JETFLEET III(TM)
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
Organization and offering costs (continued)
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 eight years). The
remainder of any of the Initial Contribution and Reimbursement is deducted from
shareholders' equity.
Assets subject to lien
The Company's obligations under the Bonds are secured by a security
interest in all of the Company's right, title and interest in the Income
Producing Assets acquired by the Company.
Income taxes
The Company follows the liability method of accounting for income taxes
as required by the provisions of Statement of Financial Accounting Standards
No.109 - Accounting for Income Taxes.
Cash balances
As of December 31, 1996, the Company maintained $211,741 of its cash
balances in a large open-end money fund which is not federally insured.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
2. 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") and a Pratt & Whitney
JT8D-9A aircraft engine, serial number 674267 ("S/N 674267").
The Company invested approximately $1,405,000 and $5,400,000, including
reimbursement for chargeable acquisition costs and brokerage fees of
approximately $106,600 and $427,800, in aircraft assets during 1995 and 1996,
respectively.
<PAGE>
JETFLEET III(TM)
Notes to Financial Statements
2. Aircraft and Aircraft Engines Under Operating Leases (continued)
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(TM), 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 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.
Future minimum rents
The following is a schedule of future gross minimum rental payments by year
under the existing leases:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C> <C>
1997 $1,203,000
1998 1,143,000
1999 280,500
2000 198,750
2001 143,000
----------
2,968,250
==========
</TABLE>
Detail of investment
The following schedule provides an analysis of the Company's investment
in aircraft under operating leases and the related accumulated depreciation for
the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
<S> <C> <C> <C>
Balance,
December 31, 1994 $ - $ - $ -
Additions 4,524,210 (47,090) 4,477,120
---------- --------- ----------
Balance,
December 31, 1995 4,524,210 (47,090) 4,477,120
Additions 2,280,728 (211,703) 2,069,025
---------- --------- ----------
Balance,
December 31, 1996 $6,804,938 $(258,793) $6,546,145
========== ========= ==========
</TABLE>
<PAGE>
JETFLEET III(TM)
Notes to Financial Statements
3. Secured notes receivable
During July, August and September 1996, the Company loaned $2,400,000
to a United States Regional carrier in three separate loans of $800,000 each.
Each loan is secured by a 100% undivided interest in one of three de Havilland
DHC-6-300 aircraft. In connection with these transactions, the Company paid
chargeable acquisition expenses and brokerage fees totaling $184,736. The
Security Agreement for each aircraft contains an option for the Company to
purchase the aircraft and subsequently lease it back to the seller. The Company
recorded $115,146 of interest income attributable to the secured notes
receivable during 1996.
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 1996, the Company
accepted subscriptions for 8,800 Units aggregating $8,800,000 in Gross Offering
Proceeds. Pursuant to the Prospectus, the Company subsequently issued $7,480,000
in Bonds and 132,000 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 November, February, May and August.
5. Income taxes
The components of the provision for income taxes for the year ended
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Current Tax Provision
Federal $ 0
State 1,038
---------
Current Tax Provision $ 1,038
---------
Deferred Tax Provision
Federal $(271,218)
State (48,881)
---------
Deferred Tax Provision $(320,099)
Valuation Allowance 320,099
---------
Total Provision for
Income Taxes $ 1,038
=========
</TABLE>
The difference between income tax expense (benefit) and the amount
computed by applying the statutory U.S. federal income tax rate then in effect
consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Statutory U.S. federal income tax expense / (benefit) $(270,257)
State franchise tax, net of federal benefit (48,804)
Valuation allowance 320,099
---------
Actual tax expense / (benefit) $ 1,038
=========
</TABLE>
<PAGE>
JETFLEET III(TM)
Notes to Financial Statements
5. Income taxes (continued)
The tax effects of temporary differences and carryforwards that give
rise to deferred tax assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Depreciation (73,713)
Net operating loss carryforward (246,386)
Valuation allowance 320,099
---------
Net current and noncurrent deferred tax assets $ 0
=========
</TABLE>
As of December 31, 1996 the Company has approximately $800,000 of
federal operating loss carryforwards which begin to expire in 2008.
For income tax purposes, the treatment of organization and offering
costs is consistent with treatment for financial accounting purposes.
As a result of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", the Company is required to recognize deferred tax
assets and liabilities resulting from temporary differences and operating loss
and tax credit carryforwards. For the current year the Company has not
recognized a deferred tax asset for its current year operating loss because
based on the available evidence, it is not more likely than not that all of the
deferred tax asset will be realized. In accordance with the requirements of
FAS 109, the Company has recognized a valuation allowance for the deferred tax
asset sufficient to reduce it to the amount more likely than not to be realized.
6. Related Party Transactions
The Company's Income Producing Asset portfolio will be 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. In 1995 and 1996, the Company
accrued a total of $5,854 and $112,009, respectively, in management fees due
JMC. As mentioned above, CMA 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. JMC may also receive reimbursement
of Chargeable Acquisition Expenses incurred in connection with a transaction
which are payable to third parties. During 1995 and 1996, the Company paid JMC a
total of $97,406 and $385,338 in brokerage fees, respectively, and reimbursed
JMC for $9,210 and $37,884, respectively, for Chargeable Acquisition Expenses.
During 1996, the Company reimbursed CMACM for $4,533 for Chargeable Acquisition
Expenses.
<PAGE>
JETFLEET III(TM)
Notes to Financial Statements
6. Related Party Transactions (continued)
As discussed in Note 2, the Company purchased a 50% undivided interest
in a S/N TC-370 during 1996. The Company purchased its interest from CMACM,
which had purchased the interest in February 1996 for the express purpose of
reselling the entire interest to the Company when the necessary funds had been
raised. The purchase price paid by the Company is the same price paid by CMACM
reduced by the net rent received by CMACM during the period the aircraft was
held for resale.
As discussed in Note 1, the Company reimburses JMC for certain costs
incurred in connection with the organization of the Company and the Offering. In
1995 and 1996, the Company paid $31,220 and $176,000, respectively, to JMC. In
addition, during 1995, 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. On December 31, 1996, JMC purchased an additional 18,050 shares of
common stock 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.
7. Subsequent Events
On January 3, 1997, February 4, 1997 and March 4, 1997, the Company
accepted subscriptions for 599, 978 and 335 Units, respectively, aggregating
$599,000, $978,000 and $335,000, respectively.
On January 30, 1997 and January 31, 1997, the Company exercised its
options under the Security Agreements for the three deHavilland DHC-6-300
aircraft to purchase the three aircraft and lease them back to the seller. The
purchase price for each 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.
On March 25, 1997, the Company purchased a Fairchild Metro III
SA-227-AC, Serial No. AC-621 ("S/N AC-621") which is subject to lease with a
United States regional carrier expiring on May 31, 1999.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS
General
Pursuant to a Management Agreement between the Company and
JMC, JMC is responsible for most management decisions, has responsibility for
supervising the Company's day-to-day operations, including compliance with legal
and regulatory requirements, and is responsible for cash management and
communications between the Company and the holders of Bonds and Preferred Stock.
The Management Agreement authorizes JMC, in its sole discretion, to acquire,
hold title to, sell, lease, re-lease or otherwise dispose of Income Producing
Assets or any interest therein, on behalf of the Company when and upon such
terms as JMC determines to be in the best interests of the Company, subject to
certain limitations set forth in the Prospectus.
The JMC Advisory Board, consisting of distinguished industry
experts, has responsibilities including, but not limited to, attendence at
meetings of the Board of Directors and its committees in a non-voting, advisory
capacity, giving advice to the Directors and officers and reviewing JMC's
strategic plans, financial affairs and offering advice, analysis and insight
about them.
Directors and Officers
The directors, executive officers and key employees of the
Company and JMC, each of whom serves until his successor is elected and
qualified, are as follows:
Name Position Held
Neal D. Crispin President and Chairman of the Board of
Directors of the Company and JMC and
Chief Financial Officer of the Company
Edwin S. Nakamura Director of the Company
Marc J. Anderson Senior Vice President of the Company
and JMC
Frank Duckstein Vice President of the Company and JMC
Brian J. Ginna Secretary of the Company
Richard D. Fitzsimmons Member of JMC's Advisory Board
Sidney F. Gage Member of JMC's Advisory Board
Neal D. Crispin, age 51, President and Chairman of the Board
of Directors. He is also President and Director of JMC and Chief Executive
Officer and Chairman of the Board of Directors of CMA Consolidated, Inc.
("CMA"), and the Chief Executive Officer of CMA's wholly-owned subsidiaries,
Capital Management Associates, founded in 1983, and CMA Capital Management, Inc.
Prior to forming CMA, Mr. Crispin was vice president - finance of an oil and gas
company. Previously, Mr. Crispin had been associated with Arthur Young & Co.,
Certified Public Accountants. Prior to joining Arthur Young & Co., Mr. Crispin
served as a management consultant, specializing in financial consulting. Mr.
Crispin is the husband of Toni M. Perazzo, a Director and Officer of JMC. He
received a Bachelors degree in Economics from the University of California,
Santa Barbara and a Masters degree in Business Administration (specializing in
Finance) from the University of California at Berkeley. Mr. Crispin, a certified
public accountant, is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants.
Marc J. Anderson, age 60, Senior Vice President is also Senior
Vice President of JMC. Mr. Anderson is in charge of portfolio management and
aircraft marketing and financing. Prior to joining the Company, Mr. Anderson
spent seven years as Senior Vice President-Marketing for PLM International, a
transportation equipment leasing company which is also the sponsor of syndicated
investment programs. While at PLM, he established the company's first aircraft
marketing group, closing in excess of 150 aircraft transactions representing
over $400 million. He was responsible for the acquisition, modification, leasing
and remarketing of all aircraft. During his tenure, Mr. Anderson had an average
on-lease record of 96%. Previously, he was with two aircraft manufacturers where
he was responsible for customer contracting, negotiation and documentation of
sales agreements and leases and in obtaining debt and lease financing. Prior to
that, Mr. Anderson was with several airlines in various roles of increasing
responsibility.
Frank Duckstein, age 43, Vice President is also Vice President
of JMC. Mr.Duckstein is in charge of market development and remarketing of
aircraft portfolios. Prior to joining the Company, Mr.Duckstein spent five
years as Director of Marketing for PLM International, a transportation equipment
leasing company. While at PLM, he was responsible for sales and remarketing,
market research and development, both domestically and internationally, of PLM's
corporate and commuter aircraft, as well as their helicopter fleet. Previously,
he was with international and regional airlines operating within Europe and the
U.S. with responsibility for operation, market development and sales. He was
involved in the development of several turn-key, start-up operations in Berlin,
Germany and the United States. Mr. Duckstein attended the Technical University
of Berlin, majoring in Economics.
Brian J. Ginna, age 28, Secretary, is Controller of CMA.
Mr. Ginna has been employed with CMA in various capacities since 1991. He is
responsible for day - to - day accounting, finance and cash management
activities of the Company and JMC as well as assisting in portfolio
management. He is also the Manager - Information Systems for CMA.
Mr. Ginna received his Bachelor's Degree in Finance from Babson College.
Richard D. Fitzsimmons, age 72, Member of the JMC Advisory
Board. He has over 38 years of experience in the aircraft industry. From 1972
until his retirement in 1983, Mr. Fitzsimmons served McDonnell Douglas
Corporation in various capacities of increasing responsibility, including
Director of Advanced Engineering - Commercial Programs and Director of Advanced
Program Engineering. From 1970 to 1972, Mr. Fitzsimmons served as Assistant for
Aeronautics, National Aeronautics and Space Council, in the Executive Office of
the President of the United States, with principal responsibility for the
content and preparation of a comprehensive report to the President on the
aerospace manufacturing and air transport industries. Prior to 1980, Mr.
Fitzsimmons spent 24 years at The Boeing Company in various positions of
increasing responsibility including Director - Product Research. Mr. Fitzsimmons
has served as an advisor to the Federal Aeronautics Administration. He received
a Bachelor of Science degree in Aeronautical Engineering from the University of
Washington in 1946.
Sidney F. Gage, age 53, Member of JMC Advisory Board. Mr. Gage
is a partner of Gage & Baumgarten, a management consulting firm specializing in
strategic business planning. Previously, he was Executive Vice President and
Director of Mission Resources, Inc., the managing general partner of Mission
Resource Partners, an oil and gas company on the American Stock Exchange, and
President of Mission Securities, Inc., its NASD broker-dealer affiliate. Mr.
Gage is also a member of the advisory board of Bakersfield Energy Resources,
Inc., a privately held oil and gas concern. He is a CPA with degrees from the
University of Notre Dame and the Stanford University Graduate School of
Business. Mr.Gage has served as a consultant to the CMA Group of companies
since 1990.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers, directors and persons who own more than 10% of the
Company's Units, to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of Units and
other equity securities of the Company. Officers and directors and 10%
Unitholders are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely upon a review of
Forms 3 furnished to the Company pursuant to Rule 16a-3(e) during 1996, no
person who, at any time during 1996, was an officer or director or beneficial
owner of more than 10% of the Units failed to file on a timely basis, as
disclosed in the above forms, reports required by Section 16(a) during 1996 or
prior years.
ITEM 10: EXECUTIVE COMPENSATION
The Company has no employees. The following is a summary of
the compensation and reimbursements paid to the parent of the Company and
related parties by the Company for the years ended December 31, 1995 and 1996.
Because the Company had no significant operations until the fourth quarter of
1995, no compensation was paid to JMC or related parties during 1994.
Compensation
The Company's Income Producing Asset portfolio are 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. In 1995 and 1996, the Company
accrued a total of $5,854 and $112,009 in management fees due JMC. As mentioned
above, CMA provides certain administrative services to the Company. The Company
does not reimburse CMA for those services. JMC may reallow 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
shall not exceed the fair market value of the asset based on appraisal. The
Company paid JMC a total of $97,406 and $385,338 in brokerage fees and
reimbursed JMC for $9,210 and $37,884 in Chargeable Acquisition Expenses during
1995 and 1996, respectively.
The Company reimburses JMC for certain costs incurred in
connection with the organization of the Company and the Offering (the
"Reimbursement"). In 1995, the Company paid $31,220 to JMC and issued 450,000
shares of common stock to JMC in relation to the Reimbursement. During 1996, the
Company paid $176,000 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 $124,880 and $704,000 in commissions and underwriter, due
diligence and marketing fees during 1995 and 1996, respectively.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person is known to the Company to be the beneficial owner
of more than 5% of the Units. No officer or director of JMC or any of its
related parties beneficially owns any Units.
Mr. Crispin and Ms. Perazzo collectively own 91% of the
issued and outstanding common stock of JMC. Richard D. Koehler, the
President of Crispin Koehler Securities, owns the remaining 9% of JMC which,
in turn, owns 100% of the issued and outstanding common stock of the Company.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Crispin Koehler Securities, the managing broker-dealer of the
Offering, is a wholly-owned subsidiary of Crispin Koehler Holding Corp. Crispin
Koehler Securities was formerly named CKS Securities, Incorporated, but changed
its name in connection with its sale by CMA Capital Corporation during 1996.
Crispin Koehler Holding Corp., in turn, is owned 9% and 91% by Messrs Crispin
and Koehler, respectively. Crispin Koehler Securities has acted as the
dealer-manager with respect to the vast majority of the prior programs sponsored
by related parties of JMC.
CMA Consolidated, Inc., which provides certain
administrative services for the Company, is owned 100% by Mr. Crispin.
Over the term of the Offering, compensation will be paid to
JMC for non-accountable organization and offering costs, management fees,
brokerage fees and remarketing fees and to Crispin Koehler Securities for sales
commissions, investment banking and due diligence fees in accordance with the
Prospectus dated September 27, 1995.
<PAGE>
PART IV
ITEM 13: EXHIBITS AND FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) Financial Statements for JetFleet III(TM)
Report of Independent Auditors - Vocker Kristofferson and Co.
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996
and 1995 and for the Period from Inception (August 23, 1994)
to December 31, 1994
Statements of Shareholder's for the year ended December 31, 1995
and for the Period from Inception (August 23, 1994) to
December 31, 1994
Statements of Cash Flows for the years ended December 31, 1996
and 1995 and for the Period from Inception (August 23, 1994)
to December 31, 1994
Notes to Financial Statements
(2) Schedules:
All schedules have been omitted since the required
information is presented in the financial statements
or is not applicable.
(b) Reports on Form 8-K for the Fourth Quarter of 1996
None
(c) Exhibits
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 27, 1997.
JETFLEET III(TM)
By:
By: /s/ Neal D. Crispin
Neal D. Crispin
Title: President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities indicated on March 28, 1997.
Signature Title
/s/ Neal D. Crispin President and Chairman of the
Neal D. Crispin Board of Directors of the Registrant
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 255,851
<SECURITIES> 0
<RECEIVABLES> 13,658
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 269,509
<PP&E> 6,804,938
<DEPRECIATION> (258,793)
<TOTAL-ASSETS> 10,454,871
<CURRENT-LIABILITIES> 208,680
<BONDS> 8,806,850
<COMMON> 518,050
0
1,331,235
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,454,871
<SALES> 0
<TOTAL-REVENUES> 789,615
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,125,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (336,033)
<INCOME-TAX> 0
<INCOME-CONTINUING> (336,033)
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