1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
(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 November 14, 1996, 500,000 shares of common stock and 145,665 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
September 30, December 31,
1996 1995
(Unaudited)
Current assets:
Cash $ 230,754 $ 68,328
Accounts receivable - 1,132
---------- ----------
Total current assets 230,754 69,460
Aircraft under operating lease, net of
accumulated depreciation of $486,898
in 1996 and $47,090 in 1995 4,407,667 4,477,120
Debt issue costs, net of accumulated
amortization of $80,097 in 1996
and $4,881 in 1995 1,009,688 510,304
Secured notes receivable 2,361,635 -
Other, including deferred taxes,
net of valuation allowance 184,736 -
---------- ----------
$8,194,480 $5,056,884
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 285 $ 7,226
Payable - aircraft - 2,901,733
Payable to affiliates 71 223,448
Interest payable 138,833 9,757
Maintenance reserve 9,533 -
Prepaid rent - 18,546
---------- ----------
Total current liabilities 148,722 3,160,710
Medium-term secured bonds 7,072,850 1,326,850
---------- ----------
Total liabilities 7,221,572 4,487,560
---------- ----------
Preferred stock, no par value,
300,000 shares authorized, 124,815
shares issued and outstanding in 1996
and 23,415 in 1995 1,055,835 143,235
Common stock, no par value,
1,000,000 shares authorized, 500,000 shares
issued and outstanding in 1996 and 1995 500,000 500,000
Accumulated deficit ( 582,927) ( 73,911)
----------- -----------
Total shareholders' equity 972,908 569,324
----------- -----------
$8,194,480 $5,056,884
=========== ==========
<FN>
See accompanying notes.
JETFLEET III
Statements of Operations
(Unaudited)
For the For the period For the
Nine Months from Inception Three Months
Ended (August 23, 1994) Ended
September 30, to September 30, September 30,
1996 1995 1996 1995
Revenues:
Rent income, net
of finance charges $ 435,427 $ - $ 194,250 $ -
Interest income 52,133 1,277 47,714 285
----------- --------- ----------- ---------
487,560 1,277 241,964 285
Expenses:
Depreciation expense 439,808 - 152,966 -
Amortization expense 75,216 - 32,292 -
Interest expense 381,743 - 197,929 -
Professional fees 19,499 9,620 5,239 5,650
Management fees 70,909 - 33,045 -
General and
administrative 9,401 850 4,919 5
----------- --------- ----------- ---------
996,576 10,470 426,390 5,655
----------- --------- ----------- ---------
Net loss $( 509,016) $( 9,193) $( 184,426) $( 5,370)
=========== ========= =========== =========
Weighted average
common shares 500,000 117,946 500,000 348,370
=========== ========= =========== =========
Loss per
common share $ ( 1.02) $ ( 0.08) $ ( 0.37) $ ( 0.02)
=========== ========= =========== =========
<FN>
See accompanying notes.
JETFLEET III
Statements of Cash Flows
(Unaudited)
For the For the period
Nine Months from Inception
Ended (August 23, 1994)
September 30, to September 30,
1996 1995
Net cash used in operating activities $ ( 287,851) $( 458,693)
Investing activities -
Purchase of interests in an aircraft ( 3,272,088) -
Loans secured by aircraft ( 2,361,635) -
------------- -----------
Net cash used in investing activities ( 5,633,723) -
Financing activities:
Proceeds from issuance of medium-term
secured bonds 5,746,000 -
Debt issue costs ( 574,600) -
Proceeds from issuance of preferred stock 1,014,000 -
Offering costs ( 101,400) -
Proceeds from issuance of common stock - 500,000
------------- -----------
Net cash provided by financing activities 6,084,000 500,000
------------- -----------
Net increase in cash 162,426 41,307
Cash, beginning of period 68,328 -
------------- -----------
Cash, end of period $ 230,754 $ 41,307
============= ===========
<FN>
See accompanying notes.
JETFLEET III
Notes to Financial Statements
September 30, 1996
(Unaudited)
1. Basis of Presentation
JetFleet III (the "Company") was incorporated in the state of California
on August 23, 1994 ("Inception"). All of the Company's outstanding common
stock is owned by JetFleet Management Corp. ("JMC"), a California corporation
formed in January 1994. JMC is an integrated aircraft management, marketing
and financing business, and also manages, on behalf of their respective
general partners, the aircraft assets of JetFleet Aircraft, L.P. and JetFleet
Aircraft II, L.P. ("JetFleet II "), publicly offered limited partnership
programs with objectives similar to the Company's. The accompanying unaudited
financial statements reflect all adjustments (consisting of only normal
recurring accruals) which are, in the opinion of the Company, necessary for a
fair presentation of the financial results. The results of operations of such
periods are not necessarily indicative of results of operations for a full
year. The statements should be read in conjunction with the Summary of
Significant Accounting Policies and other notes to financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995.
2. Organization and Capitalization
The Company was formed solely for the purpose of acquiring Income
Producing Assets. The Company anticipates that these assets will be
Equipment, consisting mainly of aircraft, aircraft engines, aircraft parts or
other transportation industry equipment subject to operating or full payout
leases with third parties.
The Company received Securities and Exchange Commission ("SEC") clearance
on February 3, 1995 for a public offering of up to $20,000,000 in $1,000
Series A Units (the "Offering") consisting of an $850 bond maturing on March
1, 2003 and $150 of preferred stock. 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, and the Company
received SEC clearance on September 27, 1995 for the restructured offering.
In the restructured offering, the Company is offering up to $20,000,000 in
$1,000 Series A Units consisting of an $850 bond maturing on November 1, 2003
(the "Bonds") and $150 of preferred stock (the "Preferred Stock"). 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 will be 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.
JETFLEET III
Notes to Financial Statements
September 30, 1996
(Unaudited)
2. Organization and Capitalization (continued)
JMC has incurred certain costs in connection with the organization of the
Company and the Offering. The Company pays an Organization and Offering
Expense Reimbursement (the "Reimbursement") to JMC in an amount up to 2.0% of
Aggregate Offering Proceeds. The Reimbursement is limited to $400,000 or the
amount paid by JMC in excess of $450,000, whichever is less. JMC has
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 July
28, 1995, the shareholders of the Company unanimously consented to adopt an
amendment and restatement of the articles of incorporation of the Company to
increase the number of authorized shares of common stock from 300,000 to
1,000,000. On August 1, 1995, the Company issued 450,000 shares of common
stock to JMC in return for the contribution of $450,000 of organization and
offering costs related to the organization of the Company and the Offering
that it has paid on behalf of the Company. JMC is also entitled to receive
common stock in the amount of any unreimbursed organization and offering
costs. The Company has capitalized, and will continue to capitalize, the
portion of the Reimbursement related to the Bonds (85%) and amortize such
costs over the life of the Bonds (approximately 8 years). The remainder of
any such Reimbursement has been deducted, and will continue to be deducted,
from shareholders' equity.
3. Aircraft Under Operating Lease
deHavilland Dash-8
On November 30, 1995, the Company purchased a 100% interest in a
deHavilland DHC-8-100 Model 102 aircraft, serial number 13 ("S/N 13") from
Bombardier, as agent for deHavilland, for $4,200,000 (the "Purchase Price"),
payable in monthly installments as the Company raised funds in the Offering.
The final monthly installment payment for S/N 13 was made on June 4, 1996. In
connection with the acquisition, the Company paid a fee equal to 7.5% of the
Purchase Price ($315,000) to JMC (the "S/N 13 Fee"). The Company also
reimbursed JMC for approximately $17,399 in Chargeable Acquisition Expenses
related to the purchase which had been paid by JMC to third parties (the "S/N
13 Costs"). During 1995, the Company paid to JMC a total of $97,406 of the
S/N 13 Fee and reimbursed JMC for $9,210 of the S/N 13 Costs. During 1996,
the Company paid to JMC the balance of $217,594 of the S/N 13 Fee and
reimbursed JMC for $8,189 of the S/N 13 Costs.
Immediately subsequent to the purchase of S/N 13 by the Company, S/N 13
was leased back to Bombardier for a term of 120 months at a monthly rate of
$60,000 (the "S/N 13 Lease"). The S/N 13 Lease may be terminated by either
party, with at least 120 days prior written notice, after the first 36 months
of the lease. The aircraft is subleased by Bombardier to Air Affaires Afrique
("AAA"), a schedule and charter airline operating under Cameroon registration
and French Civil Aviation Authority regulations. During the period that the
Company made installment payments for the purchase of S/N 13, Bombardier
retained a security interest in the aircraft. Monthly finance charges were
paid to Bombardier in the form of the pro-rata rent earned on the portion of
the Purchase Price remaining to be paid to Bombardier. The Company received a
total of $480,000 in rent under the S/N 13 Lease during the first nine months
of 1996.
JETFLEET III
Notes to Financial Statements
September 30, 1996
(Unaudited)
3. Aircraft Under Operating Lease (continued)
Fairchild Metro II
On June 4, 1996, the Company purchased a 50% undivided interest in a
Fairchild SA226-TC aircraft, serial number TC-370, for $335,567 ("S/N TC-370")
from CMA Capital Management, Inc. ("CMACM"), an affiliate of JMC. CMACM had
purchased the interest in February 1996 from Air Metro III, Inc. ("Air Metro")
for the express purpose of reselling its interest to the Company when the
necessary funds had been raised. JetFleet II owns the remaining 50% interest
which it purchased at the same time that CMACM purchased its interest. The
purchase price paid by the Company is the same price paid by CMACM ($341,750)
reduced by the net rent received by CMACM during the period the aircraft was
held for resale ($6,183). The Company reimbursed CMACM and JMC $4,533 and
$1,561, respectively, for third party costs incurred in connection with the
acquisition of the interest in the S/N TC-370. The Company also paid a
brokerage fee of $20,505 to JMC. S/N TC-370 is subject to a lease with Sunbird
Air Services, Ltd. for a term expiring September 30, 2000 at a monthly rate of
$9,500, of which the Company is entitled to $4,750 (the "Sunbird Lease"). The
Sunbird Lease contains a guaranty by Air Metro 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 "Sunbird Guaranty"). As part of
the purchase of S/N TC-370 from CMACM, CMACM assigned its interests and
obligations under the Sunbird Lease and the Sunbird Guaranty to the Company.
4. Secured Notes Receivable
On July 2, 1996, the Company loaned $800,000 to Aloha IslandAir, Inc.
("Aloha"), secured by a 100% undivided interest in the first of three
deHavilland DHC-6-300 aircraft. In connection with this transaction, the
Company paid JMC $58,091 in brokerage fees, and reimbursed JMC $5,560 for
third party costs incurred in arranging the loan. The Security Agreement for
the aircraft, DHC-6-300 Serial No. 640, contains an option for the Company to
purchase the aircraft and subsequently lease it back to Aloha.
On August 2, 1996, the Company loaned $800,000 to Aloha for the second of
three aircraft, DHC-6-300 Serial No. 751 ("S/N 751"), mentioned above. In
connection with this transaction, the Company paid JMC $39,020 in brokerage
fees and reimbursed JMC $3,735 for third party costs incurred in arranging the
loan. In connection with the loan to Aloha for S/N 751, the Company borrowed
$225,000 from JMC, which was repaid as additional proceeds were raised.
On September 16, 1996, the Company loaned $800,000 to Aloha for the third
of three aircraft, DHC-6-300 Serial No. 696, mentioned above. In connection
with this transaction, the Company paid JMC $71,487 in brokerage fees and
reimbursed JMC $6,843 for third party costs incurred in arranging the loan.
JETFLEET III
Notes to Financial Statements
September 30, 1996
(Unaudited)
5. 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 November 1995,
the Company reached the $500,000 minimum amount required to be raised in the
Offering. Through December 31, 1995, the Company accepted subscriptions for
1,561 Units aggregating $1,561,000 in Gross Offering Proceeds from 100
Unitholders, and, pursuant to the Prospectus, subsequently issued $1,326,850
in Bonds and 23,415 shares of Preferred Stock.During the nine months ended
September 30, 1996, the Company accepted subscriptions for 6,760 Units
aggregating $6,760,000 in Gross Offering Proceeds from 430 Unitholders, and,
pursuant to the Prospectus, subsequently issued $5,746,000 in Bonds and
101,400 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 February, May and August and November each year.
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. During the first nine months
of 1996, the Company accrued and paid to JMC a total of $70,909 in management
fees.
Capital Management Associates ("CMA"), an affiliate of JMC, provides
certain administrative services to the Company. The Company does not
reimburse CMA for those services. JMC may pay a portion of its management fee
to CMA in connection with services rendered for the Company.
JMC 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. During the first nine months of
1996, the Company paid JMC a total of $406,697 in brokerage fees and
reimbursed JMC for $25,788 in Chargeable Acquisition Expenses.
As discussed in Note 3, the Company purchased a Fairchild Metro II
aircraft from CMACM during the second quarter of 1996. As part of the
purchase, the Company reimbursed CMACM $4,533 in Chargeable Acquisition
Expenses.
As discussed in Note 2, the Company reimburses JMC for certain costs
incurred in connection with the organization of the Company and the Offering.
In the first nine months of 1996, the Company paid $135,200 to JMC.
JETFLEET III
Notes to Financial Statements
September 30, 1996
(Unaudited)
7. Subsequent Events
On October 2, 1996, October 17, 1996 and November 4, 1996, the Company
accepted subscriptions for 491, 324 and 575 Units, respectively, aggregating
$491,000, $324,000 and $575,000, respectively, from a total of 108
Unitholders. On November 6, 1996, a portion of the net proceeds were used to
purchase a Pratt & Whitney JT8D-9A engine Serial No. P-674267B for $675,000
(the "Engine") from Interglobal, Inc. ("Interglobal"). The Engine is leased
back to Interglobal for sixty months at a monthly rate of $13,000. The Engine
is sub-leased to and is being operated by Aero California S.A. de CV. As part
of the purchase of the Engine, Interglobal assigned its rights under this
sublease to the Company.
In addition to the purchase price, the Company paid a brokerage fee of
$41,239 to JMC and reimbursed JMC $5,134 for third party costs.
After the purchase of the Engine, approximately $540,000 in net proceeds
are available for investment in additional assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
At the end of the third quarter of 1996, the Company had cash balances
of $230,754. This amount was held for the interest payment made to the
Unitholders in November 1996 and for normally recurring expenses.
Since Inception, the Company's source of capital has been in the form of
an initial contribution from JMC, proceeds from the Offering and net 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.
JetFleet currently has available adequate reserves to meet its immediate
cash requirements.
Cash flow from operations was ($287,851) and ($458,693) for the nine
months ended September 30, 1996 and for the period from Inception (August 23,
1994) to September 30, 1995, respectively. There were no significant
operations in 1995 until the fourth quarter.
Results of Operations
The Company recorded a net loss of ($509,016) and ($9,193) or ($1.02)
and ($0.08) per share for the nine months ended September 30, 1996 and for the
period from Inception (August 23, 1994) to September 30, 1995, respectively,
and a net loss of ($184,426) and ($5,370) or ($0.37) and ($0.02) per share for
the three months ended September 30, 1996 and 1995. 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, beginning in the
fourth quarter of 1995, the Company incurred considerably greater operating
expenses, primarily depreciation and interest expense, in 1996. This increase
in expenses was only partially offset by the receipt of rental income received
from the leases on the assets purchased.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on November 14, 1996.
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
November 14, 1996.
Signature Title
/s/ Neal D. Crispin President and Chairman of the
- -------------------
Neal D. Crispin Board of Directors of the Registrant
/s/ Toni M. Perazzo Vice President-Finance and Director
- -------------------
Toni M. Perazzo of the Registrant
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EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
EX-27 Financial Data Schedule