<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-QSB

(Mark One)

[X]      Quarterly Report Under Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the quarterly period ended March 31, 2001

[ ]      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
   ---    ---

On May 15, 2001 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 May 15, 2001 the Issuer has 815,200 Shares of Common Stock and 195,465
Shares of Series A Preferred Stock outstanding.

Transitional Small Business Disclosure Format (check one):  Yes      No  X
                                                               -----   -----



<PAGE>   2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                  JETFLEET III
                                  Balance Sheet
                                 March 31, 2001

<TABLE>
                                          ASSETS

<S>                                                                           <C>
Current assets:
     Cash                                                                     $  2,901,240
     Deposits                                                                    1,399,020
     Accounts receivable                                                           117,050
                                                                              ------------
Total current assets                                                             4,417,310

Aircraft and aircraft engines under operating leases,
     net of accumulated depreciation of 2,180,320                                9,333,920
Debt issue costs, net of accumulated
     amortization of $1,070,850                                                    590,600
Deferred taxes                                                                     327,390
Prepaid taxes                                                                       10,790
Prepaid expenses                                                                     2,100
                                                                              ------------

Total assets                                                                  $ 14,682,110
                                                                              ============

                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                         $     26,790
     Interest payable                                                              152,120
     Prepaid rents                                                                  46,750
     Security deposits                                                             142,960
     Maintenance deposits                                                        1,367,000
                                                                              ------------
Total current liabilities                                                        1,735,620

Medium-term secured bonds                                                       11,076,350
                                                                              ------------

Total liabilities                                                               12,811,970
                                                                              ------------

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                                                               (606,510)
                                                                              ------------
Total shareholders' equity                                                       1,870,140
                                                                              ------------

Total liabilities and shareholders' equity                                    $ 14,682,110
                                                                              ============
</TABLE>



See accompanying notes.



                                        2
<PAGE>   3

                                  JETFLEET III
                            Statements of Operations


<TABLE>
<CAPTION>
                                          For the Three Months Ended
                                                  March 31,
                                             2001            2000
                                         ------------    ------------
<S>                                      <C>             <C>
Revenues:

     Rent income                         $    531,600    $    572,990
     Gain on sale of aircraft                  34,470              --
     Interest income                           56,200          24,390
                                         ------------    ------------

                                              622,270         597,380
                                         ------------    ------------


Expenses:

     Depreciation                             145,540         158,220
     Amortization                              57,150          57,150
     Interest                                 228,170         228,170
     Maintenance                              263,780              --
     Professional fees and
        general and administrative              7,110           3,110
     Management fees                           48,870          48,870
                                         ------------    ------------

                                              750,620         495,520
                                         ------------    ------------

(Loss)/income before taxes                   (128,350)        101,860

Tax (benefit)/provision                       (41,900)         31,010
                                         ------------    ------------

Net (loss)/income                        $    (86,450)   $     70,850
                                         ============    ============

Weighted average common
     shares outstanding                       815,200         815,200
                                         ============    ============

Basic (loss/)earnings per common share   $      (0.11)   $       0.09
                                         ============    ============
</TABLE>



See accompanying notes.



                                        3
<PAGE>   4

                                  JETFLEET III
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                            For the Three Months Ended March 31,
                                                                    2001            2000
                                                                ------------    ------------
<S>                                                         <C>                 <C>
Net cash (used)/provided by operating activities                $    (91,340)   $    180,760
                                                                ------------    ------------

Investing activity -
     Proceeds from sale of aircraft                                  204,490              --
                                                                ------------    ------------
Net cash provided by investing activities                            204,490              --
                                                                ------------    ------------

Net increase in cash                                                 113,150         180,760

Cash, beginning of period                                          2,788,090         888,240
                                                                ------------    ------------

Cash, end of period                                             $  2,901,240    $  1,069,000
                                                                ============    ============

<CAPTION>
Supplemental disclosures of cash flow information:
Cash paid during the period for:                                    2001            2000
                                                                ------------    ------------
<S>                                                             <C>             <C>
     Interest (net of amount capitalized)                       $    228,170    $    228,170
     Income taxes                                                         --           8,500
</TABLE>



See accompanying notes.



                                        4
<PAGE>   5

                                  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 in August 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 JHC 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.

         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
reserves and security deposits and generally are subject to withdrawal
restrictions. As of March 31, 2001, the Company maintained $4,295,300 of its
cash balances in two money market funds held by regional brokerage firms, which
are not federally insured.

         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.

         Impairment of Long-lived Assets

         In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to Be Disposed Of," assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
book value of the asset may not be recoverable. Periodically, the Company
reviews its long-lived assets for impairment based on estimated future
nondiscounted cash flows attributable to the assets.
 In the event such cash flows are not expected to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated
realizable value.

         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").



                                        5
<PAGE>   6

                                  JETFLEET III
                          Notes to Financial Statements

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Organization and Offering Costs (continued)

         JHC contributed $450,000 of the total it paid 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 issued was limited
according to the amount of Aggregate Gross Offering Proceeds raised by the
Company.

         The Company capitalized the portions of both the Reimbursement paid and
the Initial Contribution related to the Bonds (85%) and amortizes such costs
over the life of the Bonds (approximately eight years). The remainder of any of
the Initial Contribution and Reimbursement is deducted from shareholders'
equity.

         Assets Subject to Lien

         The Company's obligations under the Bonds are secured by a security
interest in all of the Company's right, title and interest in the Income
Producing Assets acquired by the Company.

         Income Taxes

         The Company follows the liability method of accounting for income taxes
as required by the provisions of Statement of Financial Accounting Standards No.
109 - Accounting for Income Taxes.

         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.

         Recent Accounting Pronouncements

         SFAS No. 137, which amended the effective date of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued in June
1999. The Company adopted SFAS No. 133 on January 1, 2001. This statement
establishes accounting and reporting standards requiring that all derivative
instruments are recorded on the balance sheet as either an asset or a liability,
measured at fair value. The statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met and such hedge accounting treatment is elected. Because the
Company does not hold any derivatives as defined in SFAS No. 133, the adoption
of SFAS No. 133 did not have a material impact on its results of operations or
financial position.

         In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101, as amended, summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 was adopted by the Company in 2000. The adoption
of the provisions of SAB 101 did not have a material effect on the Company's
consolidated operating results, statement of financial position or cash flow.



                                        6
<PAGE>   7

                                  JETFLEET III
                          Notes to Financial Statements

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 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 Shorts SD3-60,
serial number S/N 3656 ("S/N 3656"), and a Saab 340A, serial number 24 ("S/N
24"). During the first three months of 2001, the Company sold its 50% interest
in a Shorts SD3-60-100, serial number S/N 3676 ("S/N 3676"). The Company did not
purchase any aircraft during the first three months of 2001.

         S/N 13 was re-leased in June 2000 to the same sub-lessee, an Australian
carrier, for a one-year term. In May 2001, the lease has been extended through
July 31, 2001.

         S/N 674267 is used on a McDonnell Douglas DC-9 and is subject to a
60-month sublease, expiring in November 2001, between the seller and a Mexican
based regional carrier.

         S/Ns 646 and 751 are subject to similar 36-month leases, expiring in
July 2001, with a U.S. regional carrier. During the second quarter of 2000, the
Company and the lessee for S/N 696, which had been leased to the same carrier as
S/Ns 646 and 751, agreed to an early termination of the lease for S/N 696. S/N
696 was returned by the lessee and, after undergoing certain maintenance and
upgrade work, was re-leased to a regional carrier in the United Kingdom for a
term expiring in April 2003.

         S/N 3656 is subject to a three-year lease, expiring in May 2003 with a
regional carrier in Ireland. During February 2001, S/N 3656 sustained
significant damage while landing. During May 2001, the Company agreed to a
settlement of $545,000 with the insurer and is currently negotiating the terms
for the sale of certain components of the aircraft. The net book value of S/N
3656 at March 31, 2001 is approximately $729,000. The Company anticipates that
it will record a gain upon receipt of the insurance settlement and estimated
sales proceeds.

         At the time of purchase, S/N 3676 (owned 50% by the Company) was
subject to a 48-month lease, expiring in July 2001, with a British regional
airline. The original lease, entered into in 1997, did not require that the
lessee pay maintenance reserves based on usage because, at the time, the lessee
was considered creditworthy. Subsequent to the Company's purchase of the
aircraft, the airline's management pursued a policy of rapid expansion, which
led to a financial crisis and, on February 24, 2000, the lessee filed for
reorganization.

         The lessee continued to operate, and, under the reorganization plan,
the lessee paid rentals on a month to month basis at the same rent as under the
original lease on S/N 3676. Under the plan, the lessee also began paying monthly
maintenance reserves based on the hours flown. Under British law, the owners
were precluded from repossessing the aircraft so long as the lessee was
operating it and paying rent and maintenance reserves under its reorganization
plan. The lessee notified the owners that the aircraft would be returned to them
during the fourth quarter. The owners agreed that they would realize a greater
benefit if they sold the aircraft "as is" rather than fund the maintenance work
necessary to return the aircraft to a condition which would allow it to possibly
be re-leased to a new lessee. Therefore, the Company reduced the carrying value
of the aircraft to $170,000 and recognized a provision for impairment of
$245,350 during 2000. The aircraft was returned to the Company during the fourth
quarter and, in January 2001 it was sold. The Company received net proceeds of
$167,450 and recognized a gain of $34,470.

         S/N 24 is subject to a lease, expiring in October 2002, with a regional
carrier in North America.

         As a result of the sale of aircraft during 2000 and January 2001 and
the excess cash flow generated by the Company's income producing assets, at
March 31, 2001, the Company has approximately $2,000,000 to invest in additional
assets.



                                        7
<PAGE>   8

                                  JETFLEET III
                          Notes to Financial Statements

2.       AIRCRAFT AND AIRCRAFT ENGINES UNDER OPERATING LEASES (CONTINUED)

         As of March 31, 2001, minimum future lease rent payments receivable
under noncancelable leases were as follows:


<TABLE>
<CAPTION>
                  Year                  Amount
                  ----                  ------
<S>                                 <C>
                  2001              $     884,100
                  2002                    656,250
                  2003                     75,000
                                    -------------

                                    $   1,615,350
                                    =============
</TABLE>

3.       MEDIUM-TERM SECURED BONDS

         The Company raised $13,031,000 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. The Bonds bore 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%. Based on the one-year
Treasury bill rate on October 31, 1999 and October 31, 2000, the Bonds bear
interest at the rate of 8.24% per annum for the periods November 1, 1999 through
October 31, 2000 and November 1, 2000 through October 31, 2001. Interest is due
and payable on a quarterly basis, in arrears, on the first business day of
February, May, August and November. The carrying amount of the Bonds
approximates fair value.

4.       INCOME TAXES

         The items comprising income tax expense are as follows:

<TABLE>
<CAPTION>
                                                   For the three months ended March 31,
                                                           2001            2000
                                                       ------------    ------------
<S>                                                <C>                 <C>
Current tax provision
     Federal                                           $         --    $         --
     State                                                    2,260           1,680
                                                       ------------    ------------
     Current provision                                        2,260           1,680
                                                       ------------    ------------

Deferred tax provision
     Federal                                                (45,580)         32,140
     State                                                    1,420          (3,100)
                                                       ------------    ------------
     Deferred tax provision                                 (44,160)         29,040
                                                       ------------    ------------

Total (benefit)/provision for income taxes             $    (41,900)   $     30,720
                                                       ============    ============
</TABLE>

         The total (benefit)/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>
<CAPTION>
                                                                       For the three months ended March 31,
                                                                               2001            2000
                                                                           ------------    ------------
<S>                                                                    <C>                 <C>
Income tax (benefit)/expense at statutory federal income tax rate          $    (43,640)   $     34,630
State taxes net of federal benefit                                               (1,730)          1,930
Tax rate differences                                                              3,470          (5,840)
                                                                           ------------    ------------
Total (benefit)/provision for income taxes                                 $    (41,900)   $     30,720
                                                                           ============    ============
</TABLE>



                                        8
<PAGE>   9

                                  JETFLEET III
                          Notes to Financial Statements

4.       INCOME TAXES (CONTINUED)

         Temporary differences and carryforwards which gave rise to a
significant portion of deferred tax assets and liabilities as of March 31, 2001
are as follows:

<TABLE>
<S>                                <C>
Deferred tax assets:
     Net operating loss            $  170,500
     Maintenance deposits             440,760
     Prepaid rent and other            16,990
                                   ----------
         Subtotal                     620,070
         Valuation allowance               --
                                   ----------
         Net deferred tax assets      620,070
Deferred tax liability -
     Depreciation of aircraft        (300,680)
                                   ----------
                                   $  327,390
                                   ==========
</TABLE>

         The Company expects to generate adequate future taxable income to
realize the benefits of the remaining deferred tax assets on the balance sheet.
The Company's net operating losses of $324,540 may be carried forward for
fifteen or twenty years, depending on when they were created, and begin to
expire in 2012.

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. In the first three months of 2001
and 2000, the Company accrued a total of $48,870 and $48,870, respectively, in
management fees.

         JMC may receive an acquisition 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 fees that
would be paid to an unaffiliated party for such a transaction. The total of the
Aggregate Purchase Price plus the acquisition 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. Because the Company did not purchase aircraft
during the first three months of 2001 or 2000, it did not pay any acquisition
fees or Chargeable Acquisitions Expenses to JMC. During the first three months
of 2001, remarketing fees of $2,550 were paid to JMC in connection with the sale
of aircraft. No remarketing fees were paid during the first three months of
2000.

         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 2001 or 2000.

6.       SUBSEQUENT EVENTS

         As discussed in Note 2, during February 2001, S/N 3656 sustained
significant damage while landing. During May 2001, the Company agreed to a
settlement of $545,000 with the insurer and is currently negotiating the terms
for the sale of certain components of the aircraft. The net book value of S/N
3656 at March 31, 2001 is approximately $729,000. The Company anticipates that
it will record a gain upon receipt of the insurance settlement and estimated
sales proceeds. Also during May 2001, the lease for S/N 13 was extended through
July 31, 2001.



                                        9
<PAGE>   10

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Forward-Looking Statements

Certain statements contained in this report and, in particular, the discussion
regarding the Company's beliefs, plans, objectives, expectations and intentions
regarding use of excess cash flow and sales proceeds to purchase assets in the
second quarter of 2001, reduction of the impact of a change in the global air
travel industry on the Company by proper asset and lessee selection, the
Company's lack of significant operating expenses in connection with assets that
remain on lease, the adequacy of the Company's reserves to meet its immediate
cash requirements and generation of future taxable income to realize the
benefits of the remaining deferred tax assets on the balance sheet are forward
looking statements. While the Company believes that such statements are
accurate, actual results may differ due to further defaults or terminations by
lessees, failure to recover fully on claims against defaulting lessees,
availability of appropriate assets for acquisition, and general economic
conditions, particularly those that affect the demand for turboprop aircraft and
engines, including competition for turboprop and other aircraft, and future
trends and results that cannot be predicted with certainty. The Company's actual
results could differ materially from those discussed in such forward looking
statements. Factors that could cause or contribute to such differences include
those discussed below in the section entitled "Factors that May Affect Future
Results." The cautionary statements made in this Report should be read as being
applicable to all related forward-looking statements wherever they appear in
this Report.

Results of Operations

The Company recorded net loss of ($86,450) or ($0.11) per share and net income
of $70,850 or $0.09 per share for the three months ended March 31, 2001 and
2000, respectively.

Rent income was approximately $41,000 lower in the first three months of 2001
than 2000, due to the sale of aircraft during the fourth quarter of 2000 and
first quarter of 2001. Gain on sale of aircraft was approximately $34,000 in
2001 due to the sale of S/N 3676 during January. Interest income was higher in
2001 by approximately $32,000 due to higher cash balances as a result of asset
sales.

Depreciation decreased approximately $13,000 due to the asset sales noted above.
Maintenance expense was approximately $264,000 higher in 2001 than in 2000,
primarily because of the purchase of a replacement engine for S/N 3656 in
January 2001. The replacement was necessary because of hours flown by the
previous lessee, which filed for reorganization and returned the aircraft during
2000. Rather than overhaul the original engine, the Company determined that it
was more cost-effective to purchase a replacement, which purchase was partially
funded by maintenance reserves collected from the current lessee.

Capital Resources and Liquidity

Since Inception, the Company's funds have come primarily in the form of an
initial contribution from JHC, proceeds from the Offering and rental revenue
from the Income Producing Assets purchased using those proceeds. The Company's
liquidity varies, 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
has been 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 has not and does not anticipate that it will incur
significant operating expenses in connection with ownership of its Income
Producing Assets while they remain on lease.



                                       10
<PAGE>   11

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 June 2001 and April 2003. During January 2001, the Company sold its 50%
interest in S/N 3676 and received net proceeds of $204,490, including
maintenance reserves retained. The net proceeds of sales of aircraft during the
fourth quarter of 2000 and first quarter of 2001 will be used, along with excess
cash flow, to purchase an additional income-producing asset for approximately
$2,000,000.

As discussed in Item 1, on February 13, 2001, the majority of the creditors of
one of the Company's lessees approved a reorganization plan, which provided that
unsecured creditors, like the Company, would not receive any recovery of
pre-reorganization claims. In projecting its cash reserves, the Company has
always anticipated that these claims would not be collected.

As discussed in Item 1, the interest rate on the Bonds was 12.94% through
October 31, 1998 and is 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%. Based on the one-year Treasury Bill rate at the
measurement dates, the Bonds have borne interest at the rate of 8.24% per annum
for the periods November 1, 1998 through October 31, 2000. The Company has
determined that the rate will remain at 8.24% for the period November 1, 2000
through October 31, 2001.

The decrease in cash flow from operations was partially due to the Company's net
loss during the first quarter of 2001 versus net income during the same period
in 2000. Although the Company had a gain on sale of aircraft during the first
quarter of 2001, the gain was more than offset by the maintenance expense
incurred for S/N 3656. In addition, the Company had a decrease in accounts
payable to affiliates and prepaid rent from year to year, which decreases were
only partially offset by a decrease in accounts receivable.

The increase in cash flow provided by investing activities from year to year was
due to the Company's sale of an aircraft during January 2001. There were no cash
flows from financing activities during 2001 or 2000 because the Offering
terminated during June 1997.

Outlook

As discussed in "Results of Operations", three of the Company's aircraft were
sold during the fourth quarter of 2000 and the first quarter of 2001. The
proceeds of these sales are expected to be combined with existing cash flow
available for reinvestment to purchase additional assets for the Company's
portfolio sometime in the second quarter of 2001. From November 1, 2001 through
the maturity date of the Bonds on November 1, 2003, the Company will place all
excess cash flow in a sinking fund account to be used solely to repay the Bonds
at maturity.

Factors that May Affect Future Results

Ability to Repay Bonds. The Company's ability to repay the Bonds at their
maturity date is dependent in part upon reinvestment of excess cash flows in
additional Income Producing Assets. To the extent that the Company realizes less
than anticipated lease rentals due to lessee rental defaults, early termination
of leases, or lower than expected remarketing proceeds during the term of the
Bonds or realizes significant unexpected expenses due to lessee defaults in rent
or other obligations, this may result in lower than expected excess cash flow
available for reinvestment in additional Assets. As a result, the Company's
ability to repay the Bonds in full at maturity may be negatively affected by
such events even if the Company is able to meet its scheduled interest payments.

The Company's ability to repay the Bonds at their maturity date is also
dependent in part upon its ability to refinance the Bonds or sell its aircraft
portfolio at a price sufficient to retire the outstanding Bond principal. If,
due to the risks described below under "Ownership Risks" and "Leasing Risks",
the values of the Company's aircraft portfolio are in a depressed state at the
maturity date of the Bonds, the Company may be unable to repay the entire Bond
indebtedness on the maturity date.

Risks Related to Regional Air Carriers. Because the Company's leases are all
with 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



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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.

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. 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 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.

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. All 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 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 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 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 its 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. Even if an aircraft can be repossessed, the Company may be unable to
recover damages from the lessee if the condition of the aircraft when
repossessed was worse than that required by the lease.

International Risks. The Company's portfolio includes leases with foreign air
carriers. Leases with foreign lessees 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 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



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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 aircraft 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 in which 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 does 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 would make 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.

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
remarket equipment at acceptable rates may depend on the demand and market
values at the time of remarketing. 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 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
airframe or 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.



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                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on May 15, 2001

                                       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 May 15,
2001.

Signature                              Title

/s/ Neal D. Crispin                    President and Chairman of the
-------------------                    Board of Directors of the Registrant
D. Crispin                             Chief Financial Officer



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