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, 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)
94-3208983
(I.R.S. Employer Identification No.)
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
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, 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>
June 30, December 31,
1997 1996
------ -------
(Unaudited)
<BTB>
<S> <C> <C>
Current assets:
Cash $ 2,041,415 $ 255,851
Rent receivable 55,864 13,000
Accounts receivable - 658
----------- -----------
Total current assets 2,097,279 269,509
----------- -----------
Aircraft under operating lease, net of
accumulated depreciation of
$475,672 in 1997 and $258,793 in 1996 9,799,780 6,546,145
Secured notes receivable - 2,311,146
Debt issue costs, net of accumulated
amortization of $215,807 in 1997
and $119,850 in 1996 1,274,328 1,143,335
Other 65,000 184,736
---------- -----------
$ 13,236,387 $ 10,454,871
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 539 $ 12,285
Payable to affiliates 53,379 71
Interest payable 238,498 183,053
Prepaid rent 63,300 -
Maintenance reserves 101,929 -
Other - 13,271
---------- -----------
Total current liabilities 457,645 208,680
Medium-term secured bonds 11,076,350 8,806,850
---------- -----------
Total liabilities 11,533,995 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 1,691,685 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 (602,943) (409,944)
---------- -----------
Total shareholders' equity 1,702,392 1,439,341
---------- -----------
$ 13,236,387 $ 10,454,871
=========== ===========
<FN>
See accompanying notes.
</TABLE>
JETFLEET III
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----- ----- ----- ------
Revenues:
<BTB>
<S> <C> <C> <C> <C>
Rent income, net of
finance charges $ 858,194 $ 241,177 $ 472,650 $ 161,935
Interest income 44,663 4,419 4,013 4,419
-------- --------- --------- ---------
902,857 245,596 476,663 166,354
-------- --------- --------- ---------
Expenses:
Depreciation expense 216,879 286,842 123,438 145,421
Amortization expense 95,957 42,924 49,856 24,794
Interest expense 675,141 183,814 357,885 124,119
Professional fees 7,774 14,260 1,440 8,000
Management fees 96,307 37,864 48,866 24,120
General and
administrative 3,798 4,482 3,310 674
-------- --------- --------- ---------
1,095,856 570,186 584,795 327,128
-------- --------- --------- ---------
Net loss $ (192,999) $(324,590)$(108,132)$(160,774)
======== ========= ========= =========
Weighted average
common shares 580,903 500,000 613,650 500,000
======== ========= ========= =========
Loss per common share $ (0.33) $ (0.65)$ (0.18)$ (0.32)
======== ========= ========= =========
<FN>
See accompanying notes.
</TABLE>
JETFLEET III
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1997 1996
<BTB> ---- ----
<S> <C> <C>
Net cash provided/(used) by
operating activities $ 278,514 $ (151,092)
Investing activities -
Purchase of interests in aircraft (991,550) (3,272,088)
Financing activities:
Proceeds from issuance of medium-term
secured bonds 2,269,500 3,346,450
Debt issue costs (226,950) (334,645)
Proceeds from issuance of
preferred stock 400,500 590,550
Offering costs (40,050) (59,055)
Proceeds from issuance of common stock 95,600 -
---------- ---------
Net cash provided by
financing activities 2,498,600 3,543,300
---------- ---------
Net increase in cash 1,785,564 120,120
Cash, beginning of period 255,851 68,328
---------- ---------
Cash, end of period $ 2,041,415 $ 188,448
========== =========
<FN>
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.
See accompanying notes.
</TABLE>
JETFLEET III
Notes to Financial Statements
June 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 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 June 30, 1997 and December 31, 1996 and
statements of operations and cash flows for the six months and
three months ended June 30, 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.
Between September 1995 and April 1995, 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 will
pay 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 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
JETFLEET III
Notes to Financial Statements
June 30, 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 six
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.
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.
JETFLEET III
Notes to Financial Statements
June 30, 1997
(Unaudited)
4. Medium-term secured bonds
As mentioned above, the Company raised funds through the
Offering which closed during April 1997. Each $1,000 Unit
subscribed in the offering includes an $850 medium-term secured
bond maturing on November 1, 2003. During the second quarter of
1997, the Company accepted subscriptions for 758 Units aggregating
$758,000 in Gross Offering Proceeds and, pursuant to the
Prospectus, issued $644,300 in Bonds and 11,370 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 Company's Aggregate Gross Proceeds received through the
last day of such quarter. During the first six months of 1997
and 1996, the Company accrued a total of $96,307 and $37,864,
respectively, in management fees due JMC.
Capital Management Associates ("CMA"), an affiliate of JMC,
provides certain administrative services to the Company. The
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 six months of 1997 and 1996, the Company paid JMC a total of
$73,200 and $238,099, respectively, in brokerage fees, and
reimbursed JMC for $3,350 and $9,750, 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 six months of 1997 and 1996, the
Company paid $53,400 and $78,740, 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 $314,960 in commissions and
underwriter, due diligence and marketing fees during the first six
months of 1997 and 1996, respectively.
5. Subsequent Events
During July 1997, JetFleet III purchased 100% and 50%
undivided interests in two Shorts 360 aircraft, serial numbers
SH3656 ("S/N SH3656") and SH3676 ("S/N SH3676"), respectively.
The remaining undivided interest in SH3676 is owned by
AeroCenturyIV, Inc., an affiliate of JetFleet III. Both aircraft
are subject to a 48-month lease with a regional carrier in the
United Kingdom.
As discussed in Note 2, JMC is entitled to receive Excess
Stock in the Company, issued at a price of $1.00 per share, as
repayment for Organization and Offering Expenses it incurs in
excess of the 2.0% Reimbursement. Pursuant to this arrangement,
on August 11, 1997, the Company issued an additional 201,550
shares of common stock in the Company to JMC, as repayment of an
equal amount of expenses incurred by JMC.
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 1997, the Company had cash
balances of $2,041,415. This amount was held for the interest
payments to the Unitholders, for the purchase of additional
aircraft in July 1997 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 $278,514 and ($151,092) for
thesix months ended June 30, 1997 and 1996, respectively. The
increase from year to year was partially due to a decrease in net
loss of approximately $132,000, discussed below. During 1997,
JetFleet III had cash inflows of approximately $89,000 and $63,000
for maintenance reserves and prepaid rent, respectively, and
payments on receivables of approximately $18,000. JetFleet III
also recorded payables of $97,000, which was offset by recording
receivables of $108,000. During 1996, JetFleet III had
cash outflows of approximately $165,000 as a result of a net
change in payables, with no offsetting cash inflows.
Results of Operations
The Company recorded net losses of ($192,999) or ($0.33) per
share and ($324,590) or ($0.65) per share for the six months ended
June 30, 1997 and 1996, respectively and ($108,132) or ($0.18) per
share and ($160,774) or ($0.32) per share for the three months
ended June 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 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 increased approximately $617,000 and $311,000
for the six 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 $70,000 and $22,000 lower in
the six and three month periods ended June 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
quarter of 1997.
Management fees increased approximately $58,000 and $25,000
for the six and three month periods ended June 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 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.
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, 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 August 14, 1997.
Signature Title
<TABLE>
<S> <C>
/s/ Neal D. Crispin President and Chairman of the
- ------------------------- Board of Directors of the Registrant
Neal D. Crispin 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,041,415
<SECURITIES> 0
<RECEIVABLES> 120,864
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,097,279
<PP&E> 10,275,452
<DEPRECIATION> (475,672)
<TOTAL-ASSETS> 13,236,387
<CURRENT-LIABILITIES> 457,645
<BONDS> 11,076,350
<COMMON> 613,650
0
1,691,685
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,236,387
<SALES> 0
<TOTAL-REVENUES> 902,857
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 420,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 675,141
<INCOME-PRETAX> (192,999)
<INCOME-TAX> 0
<INCOME-CONTINUING> (192,999)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,999)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
