SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[ X ] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1998
[ ] Transition Report Under 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
(Name of small business issuer 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:(650) 340-1880 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 no disclosure of delinquent filers in response 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: $2,348,390
On March 26, 1999 the aggregate market value of the voting and non voting Common
equity held by non-affiliates (computed by reference to the price at which the
common equity was sold) was $0.
As of March 26, 1999 the Issuer has 815,200 Shares of Common Stock and 195,465
Shares of Series A Preferred Stock outstanding.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I
Item 1. Business.
Business of the Company
JetFleet III (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.
All of the Company's outstanding common stock is owned by JetFleet Holding Corp.
("JHC"), a California corporation formed in January 1994. In May 1998, JetFleet
Management Corp., the sole shareholder of the Company was renamed JetFleet
Holding Corp. The rights and obligations under the management agreement between
the Company and JHC were assigned by JHC to its newly-created wholly-owned
subsidiary named "JetFleet Management Corp." ("JMC"). JMC also manages
AeroCentury Corp., a Delaware corporation, and AeroCentury IV, Inc., a
California corporation, 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 JHC and JMC and owns a significant amount
of the common stock of JHC.
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 and Chief Operating Officer, Frank
Duckstein, Vice President and Glenn Roberts, Secretary.
The Company received Securities and Exchange Commission ("SEC") clearance for
the Offering on September 27, 1995. Between September 1995 and June 1997, the
Company raised $13,031,000 in the Offering. The Bonds bear interest at 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 current interest
rate payable on the Bonds is 8.24%, and the next adjustment date is November 1,
1999. 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 was 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 any amount equal to ten times the per-share dividend paid
on the Common Stock.
The proceeds of the Offering have been used to purchase Income Producing Assets
("Income Producing Assets"). These assets consist of aircraft and aircraft
engines subject to operating leases.
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.
Aircraft and Aircraft Engines
The Company owns a deHavilland DHC-8-100, serial number 13 ("S/N 13"), a Shorts
SD3-60, serial number S/N 3611 ("S/N 3611"), a Pratt & Whitney JT8D-9A aircraft
engine, serial number 674267 ("S/N 674267"), three deHavilland DHC-6-300 ("S/Ns
646, 751 and 696"), a Fairchild Metro III SA-227-AC, serial number AC-621 ("S/N
AC-621"), a Shorts SD-360, serial number S/N 3656 ("S/N 3656") and a 50%
undivided interest in a Shorts SD-360, serial number S/N 3676 ("S/N 3676").
<PAGE>
The Company invested approximately $5,142,000, including reimbursement for
chargeable acquisition costs and brokerage fees of approximately $298,450, in
aircraft assets during 1997. The Company did not invest in any aircraft during
1998. During 1998, the Company sold its 50% interest in a Fairchild Metro II
SA-226-TC, serial number TC-370 to the lessee and recognized a gain in
connection with the sale.
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, at the
end of the first 36 months of the lease. The lessee provided notice to terminate
the lease on November 30, 1998, but subsequently extended the lease through
March 29, 1999. Management is currently negotiating with the sub-lessee, an
Australian carrier, regarding its continued use of S/N 13.
S/N 3611 is subject to a 27-month lease expiring on March 27, 1999 with the
seller, a British regional airline. The lessee of S/N 3611 has provided notice
to terminate the lease and management is currently negotiating the sale of S/N
3611.
S/N 674267 is an engine used on a McDonnell Douglas DC-9 aircraft and is subject
to a 60-month lease with the seller ending on November 1, 2001. S/N 674267 is
subleased by the seller to a Mexican-based regional carrier.
S/Ns 646, 751 and 696 are subject to similar 36-month leases, expiring on July
1, 2001, with a U.S. regional carrier.
S/N AC-621 is subject to a 36-month lease expiring on May 31, 1999 with a
regional carrier in Alaska. Management is currently negotiating a renewal of the
lease with the lessee.
S/N 3656 and S/N 3676 are subject to similar 48-month leases with a British
regional airline.
Purchase of Dash-6's for Cancellation of Indebtedness
During July, August and September 1996, the Company loaned $2,400,000 to a
United States regional carrier in three separate $800,000 loans. Each loan was
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 contained an option for the
Company to purchase the aircraft and simultaneously lease it back to the seller.
As discussed in Note 3 to the accompanying financial statements, during January
1997, the Company exercised its options under the Security Agreements for each
of the secured notes to purchase the Dash-6's.
Factors that May Affect Future Results
General Economic Conditions. The market for used aircraft has been cyclical, and
usually reflects economic conditions and the strength of the travel and
transportation industry. The Company believes that the air transport industry is
currently stable, with demand for aircraft, asset prices and lease rates level,
and in some cases, increasing. Nonetheless at any time, the market for used
aircraft may be adversely affected by such factors as airline financial
difficulties, higher fuel costs, and improved availability and economics of new
replacement aircraft.
An adverse change in the global air travel industry, however, could result in
reduced carrier revenue and excess capacity and increase the risk of failure of
some weaker regional air carriers. While the Company believes that with proper
asset and lessee selection in the current climate, as well as during such
downturns, the impact of such changes on the Company can be reduced, there is no
assurance that the Company's business will escape the effects of such a global
downturn, or a regional downturn in an area where the Company has placed a
significant amount of its assets.
<PAGE>
Reliance on JMC. All management of the Company is performed by JMC pursuant to a
management agreement between JMC and the Company. The Board of Directors does,
however, have ultimate control and supervisory responsibility over all aspects
of the Company and does owe fiduciary duties to the Company and its
stockholders. In addition, while JMC may not owe any fiduciary duties to the
Company by virtue of the management agreement, the officers of the Company are
also officers or employees of JMC, and in that capacity owe fiduciary duties to
the Company and the stockholders by virtue of holding such offices. Although the
Company has taken steps to prevent such conflicts, such conflicts of interest
arising from such dual roles may still occur.
Ownership Risks. Most of the Company's portfolio is leased under operating
leases, where the terms of the leases do not take up the entire useful life of
an asset. The Company's ability to recover its purchase investment in an asset
subject to an operating lease is dependent upon the Company's ability to
profitably re-lease or re-sell the asset after the expiration of the initial
lease term. Some of the factors that have an impact on the Company's ability to
re-lease or re-sell include worldwide economic conditions, general aircraft
market conditions, regulatory changes that may make an asset's use more
expensive or preclude use unless the asset is modified, changes in the supply or
cost of aircraft equipment and technological developments which cause the asset
to become obsolete. In addition, a successful investment in an asset subject to
an operating lease depends in part upon having the asset returned by the lessee
in serviceable condition as required under the lease. If the Company is unable
to remarket or sell its aircraft equipment on favorable terms when the operating
lease for such equipment expires, the Company's business, financial condition,
cash flow, ability to service debt and results of operation could be adversely
affected.
Lessee Credit Risk. If a lessee defaults upon his obligations under a lease, the
Company may be limited in its ability to enforce remedies. Most of the Company's
lessees are small domestic and foreign regional passenger airlines, which may be
even more sensitive to airline industry market conditions than the major
airlines. As a result, the Company's inability to collect rent under a
significant lease or to repossess equipment in the event of a default by a
lessee could have a material adverse effect on the Company's revenue. If a
lessee that is a certified U.S. airline is in default under the lease and seeks
protection under Chapter 11 of the United States Bankruptcy Code, under Section
1110 of the Bankruptcy Code, the Company would be automatically prevented from
exercising any remedies for a period of 60 days. By the end of the 60 day
period, the lessee must agree to perform the obligations and cure any defaults,
or the Company would have the right to repossess the equipment. This procedure
under the Bankruptcy Code has been subject to significant recent litigation,
however, and it is possible that the Company's enforcement rights may still be
further adversely affected by a declaration of bankruptcy by a defaulting
lessee.
International Risks. The Company's portfolio includes leases with foreign air
carriers. Leases with foreign lessees, however, may present somewhat different
credit risks than those with domestic lessees.
Foreign laws, regulations and judicial procedures may be more or less protective
of lessor rights as those which apply in the United States. The Company could
experience collection problems related to the enforcement of its lease
agreements under foreign local laws and the attendant remedies in foreign
jurisdictions. The protections potentially offered by Section 1110 of the
Bankruptcy Code would not apply to non-U.S. carriers, and applicable local law
may not offer similar protections. Certain countries do not have a central
registration or recording system with which to locally establish the Company's
interest in equipment, and related leases. This could add difficulty in
recovering an engine in the event that a foreign lessee defaults.
Leases with foreign lessees are subject to risks related to the economy of the
country or region that such lessee is located even if the U.S. economy remains
strong. On the other hand, a foreign economy may remain strong even though the
domestic U.S. economy is not. A foreign economic downturn may occur and impact a
foreign lessee's ability to make lease payments, even though the U.S. and other
economies remain stable. Furthermore, foreign lessees are subject to risks
related to currency conversion fluctuations. Although the Company's current
leases are all payable in U.S. dollars, in the future, the Company may agree to
leases that permit payment in foreign currency, which would subject such lease
revenue to monetary risk due to currency fluctuations. Even with
dollar-denominated lease payment provisions, the Company could still be affected
by a devaluation of the lessee's local currency which makes it more difficult
for a lessee to meet its dollar-denominated lease payments, increasing the risk
of default of that lessee, particularly if that carrier's revenue is primarily
derived in the local currency.
Competition. 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>
Casualties, Insurance Coverage. The Company, as owner of transportation
equipment, could be held liable for injuries or damage to property caused by its
assets. Though some protection may be provided by the United States Aviation Act
with respect to its aircraft assets, it is not clear to what extent such
statutory protection would be available to the Company and such act may not
apply to aircraft operated in foreign countries. Though the Company may carry
insurance or require a lessee to insure against a risk, some risks of loss may
not be insurable. An uninsured loss with respect to the Equipment or an insured
loss for which insurance proceeds are inadequate, would result in a possible
loss of invested capital in and any profits anticipated from such equipment.
Leasing Risks. The Company's successful negotiation of lease extensions,
re-leases and sales may be critical to its ability to achieve its financial
objectives, and will involve a number of substantial risks. Demand for lease or
purchase of the assets depends on the economic condition of the airline industry
which is in turn highly sensitive to general economic conditions. Ability to
re-lease or re-sell equipment at acceptable rates may depend on the demand and
market values at the time of re-lease or re-sale. The market for used aircraft
is cyclical, and generally, but not always, reflects economic conditions and the
strength of the travel and transportation industry. The demand for and re-sale
value of many types of older aircraft in the recent past has been depressed by
such factors as airline financial difficulties, increased fuel costs, the number
of new aircraft on order and the number of older aircraft coming off lease. The
Company's concentration in a limited number of airframe and aircraft engine
types (generally, turboprop equipment) subjects the Company to economic risks if
those aircraft engine types should decline in value. The recent introduction of
"regional jets" to serve on short routes previously thought to be economical
only for turboprop aircraft operation could decrease the demand for turboprop
aircraft, while at the same time increasing the supply of used turboprop
aircraft. This could result in lower lease rates and values for the Company's
turboprop aircraft.
Risks Related to Regional Air Carriers. Because the Company has concentrated its
existing leases on leases to regional air carriers, it will be subject to
certain risks. First, lessees in the regional air carrier market include a
number of companies that are start-up, low capital, low margin operations.
Often, the success of such carriers is dependent upon arrangements with major
trunk carriers, which may be subject to termination or cancellation by such
major carrier. This market segment is also characterized by low entry costs, and
thus, there is strong competition in this industry segment from start-ups as
well as major airlines. Thus, leasing transactions with these types of lessees
results in a generally higher lease rate on aircraft, but may entail higher risk
of default or lessee bankruptcy.
Year 2000 Considerations. Management of the Company has directed its information
technology ("IT") manager to require any software or hardware purchased for use
by the Company to have a warranty of Year 2000 compliance. It has also directed
its IT manager to study any systems that may require Year 2000 remediation. The
IT manager has determined that, because the Company's IT system is based on the
"MacOS" system, the Company's internal technology systems are ready for Year
2000, and there should not be any material costs associated with such
remediation. Furthermore, the phone and internet access systems have been
warranted by their vendors for Year 2000 compliance. The Company's internal and
administrative operations are not highly dependent on any other advanced
technology system, and, consequently, management believes that the Company's
exposure to loss as a result of Year 2000 issues in its internal and
administrative operations is not significant.
Management believes that the electronic systems used in the equipment leased by
the Company to lessees will not be materially affected by the Year 2000 and that
any remediation of the technology systems embedded in the aircraft that it
leases will not be a material expense to the Company. The Company has notified
all lessees of the Year 2000 problem and has requested information on the status
of each lessee's study and remediation plans. The Company believes that there
should not be any material costs in connection with such a study. The Company is
consulting with all the manufacturers of its leased equipment to confirm Year
2000 compliance. Since the Company's leases generally place all maintenance and
repair obligations on the lessees, to the extent that the aircraft are on lease
when the Year 2000 problem is identified, it would generally be the lessee's and
not the Company's responsibility to remediate any Year 2000 problem with the
leased aircraft.
To the extent that a lessee has Year 2000 problems that significantly adversely
affect its overall financial status, such material problems may affect the
lessee's operations and increase the risk of default by a lessee under its lease
with the Company. Furthermore, Year 2000 issues may have a material impact on
FAA operations and the operations of certain air carriers, which in turn would
negatively affect the aircraft industry in general.
<PAGE>
The Company's essential functions are not dependent upon any key third party
vendors or service providers related to the leasing or finance business, and
consequently, the interruption of goods and services from any such industry
specific third party vendor or service provider to the Company is not likely to
cause a material loss to the Company. Of course, the Company's ordinary business
operation is dependent upon vendors that provide basic services to businesses
generally, such as utility companies, phone and long distance companies, courier
services, banking institutions. The Company is in the process of inquiring with
such providers regarding their respective Year 2000 readiness. The state of Year
2000 readiness of these third parties cannot be assessed by the Company;
however, management believes that a temporary interruption in services to the
Company by these types of service providers caused by Year 2000 problems would
not cause material losses to the Company. An extended loss of these services,
however, could adversely affect the Company's business and financial
performance. The Company has not yet made any contingency plans for the extended
loss of these basic services.
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 Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Common Equity and Related Stockholder 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 26, 1999: 799
Dividends
The Company has not declared a dividend on either the Preferred Stock or Common
Stock since Inception. 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. Under the Indenture under which the Bonds were
issued, dividends may not be paid until the Bonds are repaid in full.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
Capital Resources and Liquidity
At the end of 1998, the Company had cash balances of $1,639,760 and deposits of
$244,400. The Company's cash balances were held for the interest payment made to
the Unitholders in February 1999, for normally recurring expenses and for
investment in additional Income Producing Assets.
Since Inception, the Company's funds have 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's primary use of its operating cash flow is interest payments to its
Unitholders. Excess cash flow, after payment of interest and operating expenses
is held for investment in additional Income Producing Assets. Since the Company
has acquired 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.
The Company currently has available adequate reserves to meet its immediate cash
requirements. The leases for the Company's aircraft expire at varying times
between March 1999 and November 2001. Leases expiring during 1999 include those
for S/N 13, S/N 3611 and S/N AC-621. Management is currently negotiating
extensions of the leases for S/N 13 S/N AC-621. S/N 3611was sold on March 16,
1999 and the sales proceeds are being held for investment in additional Income
Producing Assets.
As discussed in Item 1, the interest rate on the Bonds was 12.94% through
October 31, 1998 and a variable rate thereafter, calculated annually on November
1. The variable rate is equal to the higher of (i) 2% plus the annual yield rate
on one-year U.S. Treasury Bills on the last business day of October of that year
or (ii) 8.24%. On October 31, 1998, the one-year United States Treasury bill
rate was 4.10% which would result in a bond rate of 6.10%. Therefore, for the
period November 1, 1998 through October 31, 1999, the variable rate is equal to
8.24%.
1998 versus 1997
The increase in cash flow from operations was due partially to a decreased net
loss (see Results of Operations, below). Other significant factors were an
increase in maintenance deposits collected from lessees and an increase in the
collection of accounts receivable and rent receivable. These increases were
partially offset by a decrease in prepaid rent and interest payable.
The decrease in cash flow used by investing activities was due to the Company's
purchase of aircraft during 1997 versus no purchases and the sale of one
aircraft during 1998. The decrease in cash flow from financing activities was
because the Offering terminated during June 1997.
Although the Company has positive cash flow from operations, the Company
operates at a net loss due to depreciation and interest expense.
Results of Operations
The Company recorded a net loss of ($53,680) or ($0.07) per share and ($284,150)
or ($0.42) per share for the years ended December 31, 1998 and 1997,
respectively.
1998 versus 1997
Rental income increased by approximately $285,000 during 1998 as a result of the
additional rent received from aircraft purchased during 1997. Interest income
decreased by approximately $27,000 in 1998 because, during January 1997, the
Company exercised its purchase options for three aircraft which previously
served as collateral for secured loans (See Business - Purchase of Dash 6's for
Cancellation of Indebtedness, above). As a result, the Company had one month of
interest income from the secured loans during 1997 and no such interest income
during 1997. During 1998, the Company recognized a gain in connection with the
sale of an aircraft.
<PAGE>
Depreciation and amortization increased by approximately $95,000 and $21,000,
respectively, from year to year as a result of the additional funds raised
during 1997 and the depreciable aircraft purchased with those funds. Interest
expense decreased by approximately $45,000 during 1998 due to the decrease in
the rate payable on the Company's Bonds from 12.94% to 8.24%, effective November
1, 1998. Management fees and general and administrative expenses were
approximately the same from year to year.
Item 7. Financial Statements.
(a) Financial Statements and Schedules
(1) Financial statements for JetFleet III:
Report of Independent Auditors, Vocker Kristofferson
and Co. Balance Sheet as of December 31, 1998
Statements of Operations for the Years Ended December
31, 1998 and 1997 Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1998 and 1997
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997
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.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of JetFleet III
We have audited the accompanying balance sheet of JetFleet III, a California
corporation, as of December 31, 1998 and the related statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1998 and
1997. 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, at December 31,
1998 and the related statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1998 and December 31, 1997, in conformity
with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
/s/ Vocker Kristofferson and Co.
February 4, 1999
San Mateo, California
<PAGE>
<TABLE>
<CAPTION>
JETFLEET III
Balance Sheet
December 31, 1998
ASSETS
<S>
<C> <C>
Current assets:
Cash $ 1,639,760
Deposits 244,400
Rent receivable 24,560
-------------
Total current assets 1,908,720
Aircraft and aircraft engines under operating leases,
net of accumulated depreciation of $1,325,420 10,259,760
Debt issue costs, net of accumulated
amortization of $556,450 1,105,000
Other assets 900
-------------
Total assets $ 13,274,380
============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Accounts payable $ 14,250
Interest payable 152,120
Prepaid rents 57,680
Maintenance deposits 245,100
-------------
Total current liabilities 469,150
Medium-term secured bonds 11,076,350
Total liabilities 11,545,500
Preferred stock, no par value,
300,000 shares authorized, 195,465
issued and outstanding 1,661,450
Common stock, no par value,
1,000,000 shares authorized, 815,200
issued and outstanding 815,200
Accumulated deficit (747,770)
-------------
Total shareholders' equity 1,728,880
-------------
Total liabilities and shareholders' equity $ 13,274,380
=============
</TABLE>
See accompanying notes.
<PAGE>
JETFLEET III
Statements of Operations
<TABLE>
For the Year Ended December 31,
<S> <C> <C>
1998 1997
Revenues:
Rent income $ 2,262,990 $ 1,978,270
Gain on sale of aircraft 30,830 -
Interest income 54,570 81,650
------------- -------------
2,348,390 2,059,920
------------- -------------
Expenses:
Depreciation 597,500 502,810
Amortization 228,620 207,980
Interest 1,346,510 1,391,780
Professional fees and general and administrative 33,970 47,460
Management fees 194,390 192,910
------------- -------------
2,400,990 2,342,940
------------- -------------
Loss before taxes (52,600) (283,020)
Provision for income taxes 1,080 1,130
------------- -------------
Net loss $ (53,680) $ (284,150)
============= =============
Weighted average common shares outstanding 815,200 674,527
============= =============
Basic loss per common share $ (0.07) $ (0.42)
============= =============
</TABLE>
See accompanying notes.
<PAGE>
JETFLEET III
Statements of Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C>
Total
Preferred Common Accumulated Shareholders'
Stock Stock Deficit Equity
Balance, December 31, 1996 $ 1,331,230 $ 518,050 $ (409,940) $ 1,439,340
Issuance of 40,050 shares of
preferred stock, net of offering costs 330,220 - - 330,220
Issuance of 297,150 shares of
common stock - 297,150 - 297,150
Net loss for the period - - (284,150) (284,150)
------------- ------------- ------------- -------------
Balance, December 31, 1997 1,661,450 815,200 (694,090) 1,782,560
Net loss for the period - - (53,680) (53,680)
------------- ------------- ------------ -------------
Balance, December 31, 1998 $ 1,661,450 $ 815,200 $ (747,770) $ 1,728,880
============= ============= ============= =============
</TABLE>
See accompanying notes.
<PAGE>
JETFLEET III
Statements of Cash Flows
<TABLE>
<S> <C> <C>
For the Year Ended December 31,
1998 1997
Operating activities:
Net loss $ (53,680) $ (284,150)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 597,500 502,810
Amortization 228,620 207,980
Gain on sale of aircraft (30,830) -
Change in operating assets and liabilities:
Deposits (136,490) (94,640)
Rent receivable 24,340 (35,900)
Accounts receivable 19,880 (19,220)
Other assets 64,100 119,730
Accounts payable (3,180) 5,080
Prepaid rents - 57,680
Interest payable (86,760) 55,830
Maintenance deposits 117,310 114,510
-------------- -------------
Net cash provided by operating activities 740,810 629,710
Investing activities:
Purchase of interests in aircraft - (5,142,410)
Proceeds from sale of aircraft 359,330 -
Payments received on secured notes receivable - 2,311,140
-------------- -------------
Net cash provided/(used) by investing activities 359,330 (2,831,270)
Financing activities:
Proceeds from issuance of medium-term secured bonds - 2,269,500
Debt issue costs - (226,950)
Proceeds from issuance of preferred stock - 400,500
Offering costs - (40,050)
Proceeds from issuance of common stock - 95,600
-------------- -------------
Net cash provided by financing activities - 2,498,600
Net increase in cash 1,100,140 297,040
Cash, beginning of period 539,620 242,580
-------------- -------------
Cash, end of period $ 1,639,760 $ 539,620
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for: 1998 1997
---- ----
Interest (net of amount capitalized) $ 1,433,280 $ 1,335,950
Income taxes 1,080 1,130
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During 1997, JHC contributed $201,550 of the total it paid for debt issue costs
as a common stock investment in the Company.
See accompanying notes.
<PAGE>
JETFLEET III
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
JetFleet III (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 offered 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
Holding Corp. ("JHC"), a California corporation formed in January 1994. In May
1998, JetFleet Management Corp., the sole shareholder of the Company was renamed
JetFleet Holding Corp. The rights and obligations under the management agreement
between the Company and JHC were assigned by JHC to its newly-created
wholly-owned subsidiary named "JetFleet Management Corp." ("JMC"). JMC also
manages AeroCentury Corp., a Delaware corporation, and AeroCentury IV, Inc., a
California corporation, 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 JHC and JMC and owns a significant amount
of the common stock of JHC.
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 to its estimated residual
value.
As the Company has substantial amounts of long-lived assets that are
potentially subject to impairment, FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" has been applied
for the year ending December 31, 1998. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and the carrying value of
the asset. There were no write-downs required during 1998.
Organization and Offering Costs
Pursuant to the terms of the Prospectus, the Company paid an
Organization and Offering Expense Reimbursement to JHC 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").
JHC contributed $450,000 of the total it estimated it would 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 JHC in return for the Initial Contribution. To the extent that JHC incurred
expenses in excess of the 2.0% cash limit, such excess expenses were repaid to
JHC 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.
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.
<PAGE>
JETFLEET III
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
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 and Cash Equivalents/Deposits
The Company considers highly liquid investments readily convertible
into known amounts of cash, with original maturities of 90 days or less, as cash
equivalents. Deposits represent cash balances held related to maintenance and
are subject to withdrawal restrictions. As of December 31, 1998, the Company
maintained $965,080 of its cash balances in a money market fund held by a
regional brokerage firm, 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 a deHavilland DHC-8-100, serial number 13 ("S/N 13"),
a Shorts SD3-60, serial number S/N 3611 ("S/N 3611"), a Pratt & Whitney JT8D-9A
aircraft engine, serial number 674267 ("S/N 674267"), three deHavilland
DHC-6-300 aircraft ("S/Ns 646, 751 and 696"), a Fairchild Metro III SA-227-AC,
Serial No. AC-621 ("S/N AC-621") a Shorts SD3-60, serial number S/N 3656 ("S/N
3656") and a 50% undivided interest in a Shorts SD3-60, serial number S/N 3676
("S/N 3676").
The Company did not invest in any aircraft during 1998. During 1998,
the Company sold its 50% interest in a Fairchild Metro II SA-226-TC, serial
number TC-370 to the lessee. The Company recognized a gain of approximately
$30,830 in connection with the sale.
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, at the end of the first 36 months of the lease. The lessee provided
notice to terminate the lease on November 30, 1998, but subsequently extended
the lease through March 29, 1999. Management is currently negotiating with the
sub-lessee, an Australian carrier, regarding its continued use of S/N 13.
S/N 3611 is subject to a 27-month lease expiring on March 27, 1999 with
the seller, a British regional airline. As discussed in Note 7, S/N 3611 was
sold on March 16, 1999.
<PAGE>
JETFLEET III
Notes to Financial Statements
2. Aircraft and Aircraft Engines Under Operating Leases (continued)
Aircraft and Aircraft Engines Leases (continued)
S/N 674267 is used on a McDonnell Douglas DC-9 and is subject to a
60-month sublease, expiring on November 1, 2001, between the seller and a
Mexican based regional carrier.
S/Ns 646, 751 and 696 are subject to similar 36-month leases,
expiring on July 1, 2001, with a U.S. regional carrier.
S/N AC-621 is subject to a 36-month lease expiring on May 31, 1999 with
a U.S. regional carrier in Alaska. Management is currently negotiating a renewal
of the lease with the lessee.
S/N 3656 and S/N 3676 are subject to similar 48-month leases,
expiring on July 27, 2001, with a Scottish regional airline.
Certain of the Company's aircraft are leased and operated
internationally. All leases relating to these aircraft are denominated and
payable in U.S. dollars.
The Company leases its aircraft to lessees domiciled in four geographic
areas. The tables below set forth geographic information about the Company's
operating leased aircraft equipment grouped by domicile of the lessee:
<TABLE>
<S> <C> <C>
For the Years Ended December 31,
Region 1998 1997
- ------ ---- ----
Operating lease revenue:
United States $ 730,350 $ 657,490
Australia 720,000 720,000
Europe 656,640 444,780
Mexico 156,000 156,000
---------------- ------------------
Total $ 2,262,990 $ 1,978,270
================ ==================
Operating lease revenue less depreciation:
United States $ 541,780 $ 491,100
Australia 521,090 521,080
Europe 473,730 334,390
Mexico 128,890 128,890
---------------- ------------------
Total $ 1,665,490 $ 1,475,460
================ ==================
Net book value of operating leased assets:
United States $ 3,140,840
Australia 3,888,690
Europe 2,567,600
Mexico 662,630
----------------
Total $ 10,259,760
================
</TABLE>
<PAGE>
JETFLEET III
Notes to Financial Statements
2. Aircraft and Aircraft Engines Under Operating Leases (continued)
Aircraft and Aircraft Engines Leases (continued)
As of December 31, 1998, minimum future lease rent payments receivable
under noncancelable leases were as follows:
Year Amount
1999 $ 1,362,240
2000 1,032,240
2001 607,140
2002 -
2003 -
-------------
$ 3,001,620
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, 1997 and 1998:
<TABLE>
<S> <C> <C> <C>
Accumulated
Cost Depreciation Net
Balance, December 31, 1996 $ 6,804,940 $ (258,790) $ 6,546,150
Additions 5,142,410 (502,810) 4,639,600
------------ ------------- -------------
Balance, December 31, 1997 11,947,350 (761,600) 11,185,750
Additions - (597,500) (597,500)
Disposals (362,170) 33,680 (328,490)
------------ -------------- -------------
Balance, December 31, 1998 $ 11,585,180 $ (1,325,420) $ 10,259,760
============ ============== =============
</TABLE>
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 was secured by a 100% undivided interest in one of three deHavilland
DHC-6-300 aircraft. In connection with these transactions, the Company paid
chargeable acquisition expenses and brokerage fees totaling $184,736. On January
30, 1997 and January 31, 1997, the Company exercised its options under the
Security Agreements 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.
<PAGE>
JETFLEET III
Notes to Financial Statements
4. Medium-term secured bonds
As mentioned above, the Company raised funds through the Offering from
November 1995 to June 1997. Each $1,000 Unit subscribed in the offering included
an $850 medium-term secured bond maturing on November 1, 2003. During 1997, the
Company accepted subscriptions for 2,310 Units aggregating $2,310,000 in Gross
Offering Proceeds. Pursuant to the Prospectus, the Company subsequently issued
$1,963,500 in Bonds and 40,050 shares of Preferred Stock. The Bonds bear
interest at an annual rate of 12.94% 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 2%, but not less than 8.24%. Interest is due and
payable on a quarterly basis, in arrears, on the first business day of February,
May, August and November. Based on the one-year Treasury bill rate on October
31, 1998, the Bonds bear interest at the rate of 8.24% per annum for the period
November 1, 1998 through October 31, 1999. The carrying amount of the Bonds
approximates fair value.
5. Income taxes
The items comprising income tax expense are as follows:
<TABLE>
<S> <C> <C>
1998 1997
Current tax provision
Federal $ - $ -
State 1,080 1,130
------------- --------------
Current provision 1,080 1,130
------------- --------------
Deferred tax provision
Federal (18,250) (235,990)
State (2,360) (37,170)
------------ --------------
Deferred tax provision (20,610) (273,160)
Valuation allowance 20,610 273,160
------------- --------------
Total provision for income taxes $ 1,080 $ 1,130
============= ==============
</TABLE>
The total provision for income taxes differs from the amount which
would be provided by applying the statutory federal income tax rate to pretax
earnings as illustrated below:
<TABLE>
<S> <C> <C>
Income tax expense at statutory federal income tax rate $ (17,880) $ (235,990)
State taxes net of federal benefit (2,730) (37,170)
State franchise taxes 1,080 1,130
Valuation allowance 20,610 273,160
------------- --------------
Total provision for income taxes $ 1,080 $ 1,130
============= ==============
</TABLE>
<PAGE>
JETFLEET III
Notes to Financial Statements
5. Income taxes (continued)
Temporary differences and carryforwards which gave rise to a
significant portion of deferred tax assets and liabilities as of December 31,
1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss $ 550,190
Maintenance deposits 49,150
Prepaid rent 22,660
Amortization of organization costs 140
-------------
Subtotal 622,140
Valuation allowance (293,780)
-------------
Net deferred tax assets 328,360
Deferred tax liability:
Depreciation on aircraft (328,360)
------------
$ -
=============
</TABLE>
The Company anticipates that the deferred tax liability will be offset
by deferred tax assets and has recorded a valuation allowance for the remaining
portion of deferred tax assets as the Company does not anticipate generating
adequate future taxable income to realize the benefits of the remaining deferred
tax assets on the balance sheet. The Company's net operating losses may be
carried forward for fifteen or twenty years depending on when they were created,
and begin to expire in 2009.
6. 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. In 1998 and 1997, the Company
accrued a total of $195,460 and $194,040, respectively, in management fees due
JMC.
JMC may receive a brokerage fee for locating assets for the Company
and a remarketing fee in connection with the sale of the Company's assets,
provided that such fees are not more than the customary and usual brokerage
fees 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 1998, the Company
paid no brokerage or remarketing fees or reimbursements to JMC. During 1997,
the Company paid JMC a total of $276,200 in brokerage fees and reimbursed JMC
$22,250 for Chargeable Acquisition Expenses. No remarketing fees were paid
during 1997.
As discussed in Note 1, the Company reimbursed JHC for certain costs
incurred in connection with the organization of the Company and the Offering.
The Company made no such payments during 1998. During 1997, the Company
reimbursed JHC $46,200. In addition, during 1997, JHC contributed $201,550 of
the total it paid for organization and offering expenses as a common stock
investment in the Company. An additional 95,600 shares of common stock in the
Company at a price of $1.00 per share were purchased by JHC on March 4, 1997, in
order to make JHC's investment in common stock equal to 5% of the proceeds
raised by the Company.
7. Subsequent Event
As discussed in Note 2, the lease for S/N 3611 was to expire on March
27, 1999. On March 16, 1999, the Company sold S/N 3611 to a third party and
recognized a gain of approximately $12,930.
<PAGE>
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
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 has responsibilities including, but not limited to,
attendance 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 Chief Financial Officer of the Company
Edwin S. Nakamura Director of the Company
Marc J. Anderson Senior Vice President of the Company
Frank Duckstein Vice President of the Company
Glenn Roberts Secretary of the Company
Sidney F. Gage Member of JMC's Advisory Board
Neal D. Crispin, age 53. Mr. Crispin is Chairman of the Board of Directors and
President of the Company. He is also President and a Director of ACY, JHC, JMC
and CMA Consolidated, Inc. ("CMA"). Prior to forming CMA in 1983, Mr. Crispin
was vice president-finance of an oil and gas company. Previously, Mr. Crispin
was a manager with Arthur Young & Co., Certified Public Accountants. Mr. Crispin
is the husband of Toni M. Perazzo, a Director and Officer of JHC and JMC. He
received a Bachelors degree in Economics from the University of California at
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.
Edwin S. Nakamura, age 61, Director. Mr. Nakamura holds a B.S. in Business from
San Francisco State University. A certified public accountant, Mr. Nakamura has
been the Chief Executive Officer and owner of U.S.A. Publishing, Inc. since
1981.
<PAGE>
Marc J. Anderson, age 62. Mr. Anderson is the Company's Senior Vice President
and is also Senior Vice President of JHC, JMC and ACY and a Director of ACY.
Prior to joining JMC in 1994, Mr. Anderson was an aviation consultant (1992 to
1994) and prior to that spent seven years (1985 to 1992) as Senior Vice
President-Marketing for PLM International, a transportation equipment leasing
company. He was responsible for the acquisition, modification, leasing and
remarketing of all aircraft. Prior to PLM, Mr. Anderson served as
Director-Contracts for Fairchild Aircraft Corp., Director of Aircraft Sales for
Fairchild SAAB Joint Venture, and Vice President, Contracts for SHORTS Aircraft
USA, Inc. Prior to that, Mr. Anderson was employed with several airlines in
various roles of increasing responsibility beginning in 1959.
Frank Duckstein, age 44. Mr. Duckstein is the Company's Vice President,
Remarketing. He holds the same position with JMC. Mr. Duckstein has been in
charge of market development for JMC since joining JMC 1995. From 1989 to 1995,
Mr. Duckstein served 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 the following international and
regional airlines operating within Europe and the U.S. with responsibility for
operation, market development and sales: Direct Air (Berlin, Germany); Air
Berlin (Berlin, Germany), and Aeroamerica (Berlin, Germany). Mr. Duckstein
attended the Technical University of Berlin, majoring in Economics.
Glenn Roberts, age 34, Secretary, is also the Controller of JMC and ACY. Mr.
Roberts has been employed by JMC and CMA since 1989. He has also served as
Manager of Investor Relations for several equipment leasing programs sponsored
by JMC and CMA and as a financial analyst for JMC. Mr. Roberts was previously
employed as a production manager for a database publishing firm specializing in
company and industry research reports.
Sidney F. Gage, age 55, Member of JMC Advisory Board. Mr. Gage has been a
partner of Gage & Baumgarten, a management consulting firm specializing in
strategic business planning, since 1990. 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. He is a certified public accountant 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.
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, 1997 and 1998.
Compensation
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. In 1997 and 1998, the Company accrued a total of $194,040 and
$195,470 in management fees due JMC.
JMC may receive a brokerage fee for locating assets for the Company and a
remarketing fee in connection with the sale of the Company's assets, provided
that such fees are 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. During 1998, the Company paid no
brokerage or remarketing fees or reimbursements to JMC. During 1997, the Company
paid JMC a total of $276,200 in brokerage fees and reimbursed JMC for $22,250 in
Chargeable Acquisition Expenses.
The Company reimbursed JHC for certain costs incurred in connection with the
organization of the Company and the Offering (the "Reimbursement"). The Company
made no such payments during 1998. During 1997, the Company paid $46,200 to JHC.
In addition, during 1997, JHC contributed $201,550 of the total it paid for
organization and offering expenses as a common stock investment in the Company.
<PAGE>
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 JHC or JMC or any of its related parties
beneficially owns any Units.
JHC owns 100% of the issued and outstanding common stock of the Company. Mr.
Crispin, President of JHC, and Toni M. Perazzo, Vice President-Finance of JHC,
collectively own the majority of the issued and outstanding common stock of JHC,
including shares owned by CMA Consolidated, an affiliated company controlled by
Mr. Crispin. Marc J. Anderson, Senior Vice President of JMC owns approximately
1% of JHC's common stock.
Item 12. Certain Relationships and Related Transactions.
See Item 10, above.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K for the Fourth Quarter of 1998
None
<PAGE>
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 March 26, 1999.
JETFLEET III
By: /s/ Neal D. Crispin
--------------------
Neal D. Crispin
Title: President
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 March 26,
1999.
Signature Title
/s/ Neal D. Crispin President and Chairman of the
- ------------------- Board of Directors of the Registrant
Neal D. Crispin Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000930832
<NAME> JetFleet III
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,884,160
<SECURITIES> 0
<RECEIVABLES> 24,560
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,908,920
<PP&E> 11,585,180
<DEPRECIATION> 1,325,420
<TOTAL-ASSETS> 13,274,380
<CURRENT-LIABILITIES> 469,150
<BONDS> 11,076,350
0
1,661,450
<COMMON> 815,200
<OTHER-SE> (747,770)
<TOTAL-LIABILITY-AND-EQUITY> 13,274,380
<SALES> 0
<TOTAL-REVENUES> 2,348,390
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,054,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,346,510
<INCOME-PRETAX> (52,600)
<INCOME-TAX> 1,080
<INCOME-CONTINUING> (53,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,680)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
