SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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: 333-22239
AeroCentury IV, Inc.
(Exact name of Registrant as specified in its charter)
California 94-3260392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
(Address of principal executive offices) (Zip code)
650-340-1880
(Registrant's telephone number including area code)
Not applicable (Former name, former address, and former fiscal year, if
changed since last report)
Check 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 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 ____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Outstanding
Common Stock 243,420
Transitional Small Business Disclosure Format (check one);
Yes___ No X
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
AeroCentury IV, Inc.
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 1,129,593 $ 1,944,123
Rent receivable 7,500 32,220
Accounts receivable 15,000 4,619
---------------- ----------------
Total current assets 1,152,093 1,980,962
Aircraft under operating lease, net of
accumulated depreciation of $124,641
in 1998 and $37,353 in 1997 2,447,270 2,534,558
Debt issue costs, net of accumulated
amortization of $66,214 in 1998
and $27,923 in 1997 523,306 561,597
Note receivable 866,667 -
---------------- ----------------
Total assets $ 4,989,336 $ 5,077,117
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 1,050 $ 5,000
Interest payable 81,150 81,150
Prepaid rents 24,165 -
---------------- ----------------
Total current liabilities 106,365 86,150
Medium-term secured notes 4,869,000 4,869,000
---------------- ----------------
Total liabilities 4,975,365 4,955,150
---------------- ----------------
Preferred stock, no par value,
100,000 shares authorized,
no shares issued and outstanding - -
Common stock, no par value,
500,000 shares authorized, 243,420
shares issued and outstanding 243,420 243,420
Accumulated deficit (229,449) (121,453)
---------------- ----------------
Total shareholder's equity 13,971 121,967
---------------- ----------------
Total liabilities and shareholder's equity $ 4,989,336 $ 5,077,117
================ ================
See accompanying notes.
</TABLE>
<PAGE>
AeroCentury IV, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Period
For the From Inception For the
Six Months (February 7, 1997) Three Months
Ended June 30, to June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Rent income $ 251,655 $ - $ 141,660 $ -
Interest income 62,004 - 37,049 -
------------- -------------- --------------- ---------------
313,659 - 178,709 -
------------- -------------- --------------- ---------------
Expenses:
Depreciation expense 87,288 - 43,644 -
Amortization expense 38,291 - 19,145 -
Interest expense 243,450 1,555 121,725 1,555
Management fees 48,690 2,545 24,345 2,545
General and administrative 3,936 660 3,671 611
------------- -------------- --------------- ---------------
421,655 4,760 212,530 4,711
------------- -------------- --------------- ---------------
Net loss $ (107,996) $ (4,760) $ (33,821) $ (4,711)
============= ============== =============== ===============
Weighted average common
shares outstanding 243,420 10,000 243,420 10,000
============= ============== =============== ===============
Net loss per common share $ (0.44) $ (0.48) $ (0.14) $ (0.47)
============= ============== =============== ===============
See accompanying notes.
</TABLE>
<PAGE>
AeroCentury IV, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Period
From Inception
For the Six Months (February 7, 1997)
Ended June 30, to June 30,
1998 1997
<S> <C> <C>
Net cash provided/(used) by operating activities $ 52,137 $ (660)
Investing activity -
Investment in secured promissory note (866,667) -
Financing activities:
Proceeds from issuance of medium-term
secured promissory notes - 509,000
Debt issue costs - (50,900)
Proceeds from issuance of common stock - 10,000
------------ ------------------
Net cash provided by financing activities - 468,100
------------ ------------------
Net (decrease)/increase in cash (814,530) 467,440
Cash, beginning of period 1,944,123 -
------------ ------------------
Cash, end of period $ 1,129,593 $ 467,440
============ ==================
See accompanying notes.
</TABLE>
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
June 30, 1998
(Unaudited)
1.Summary of Significant Accounting Policies
Basis of presentation
AeroCentury IV, Inc. (the "Company") was incorporated in the state of
California on February 7, 1997 ("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 the management company for the
Company, and also manages AeroCentury Corp., a Delaware corporation ("ACY"), and
JetFleet III, 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 JMC and owns a significant amount
of the common stock of JMC.
The accompanying balance sheets at June 30, 1998 and December 31, 1997 and
statements of operations and cash flows for the six months ended June 30, 1998
and the period from Inception (February 7, 1997) to June 30, 1997 and the three
months ended June 30, 1998 and 1997 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
the six months of 1998 are not necessarily indicative of results of operations
for a full year. The statements should be read in conjunction with the Summary
of Significant Account Policies and other notes to financial statements included
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1997.
2. Organization and Capitalization
The Company was formed solely for the purpose of acquiring Income Producing
Assets, 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 raised $4,869,000 in $1,000 Secured Promissory
Notes maturing on April 30, 2005 (the "Notes") pursuant to a prospectus dated
May 21, 1997 (the "Prospectus").
Debt issue costs
Pursuant to the terms of the Prospectus, the Company paid an Organization
and Offering Expense Reimbursement to JMC in cash in an amount up to 2.0% of
Aggregate Gross Offering Proceeds for reimbursement of certain costs incurred in
connection with the organization of the Company and the Offering. The Company
also issued 102,620 shares of common stock to JMC as reimbursement of
organization and offering costs JMC incurred in excess of the 2.0% cash
reimbursement (collectively, the "Reimbursement").
The Company capitalized the Reimbursement paid by the Company and amortizes
such costs over the life of the Notes (approximately eight years).
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
June 30, 1998
(Unaudited)
3. Aircraft and Aircraft Engines Under Operating Leases
Aircraft and aircraft engines
The Company owns a 100% interest in a Shorts SD3-60-100, serial number S/N
3606 ("S/N 3606"), a Pratt & Whitney JT8D-9A aircraft engine, serial number
674452B (the "Engine") and a 50% undivided interest in a Shorts SD-360, serial
number S/N 3676 ("S/N 3676")
Aircraft and aircraft engines leases
S/N 3606 and S/N 3676 are subject to similar 48-month leases with a British
regional airline.
The Engine is used on a McDonnell Douglas DC-9 aircraft operated by a
Mexican regional passenger airline serving Mexico and the United States. The
Engine is subject to a 60 month term expiring on November 4, 2002, with the
seller, which in turn subleases the Engine to the operator. The seller's lease
obligations are secured by an assignment of its rights under the sublease,
including the guaranty of sublease obligations by the operator's parent
corporation.
4. Medium-term secured Notes
From May 1997 to October 1997 the Company accepted subscriptions for 4,869
Notes aggregating $4,869,000 in Gross Offering Proceeds. Pursuant to the
Prospectus, the Company subsequently issued $4,869,000 in Notes due April 30,
2005. The Notes bear interest at an annual rate of 10.00% which 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 notes payable approximates
fair value.
5. Secured note receivable
As provided in the prospectus for the Offering, the Company may invest in
Financial Assets, including indebtedness secured by Equipment. On March 4, 1998
the Company loaned $866,667 to ACY in connection with ACY's purchase of a Shorts
SD-360 aircraft. ACY issued a secured promissory note (the "ACY Note") to the
Company in the amount of the loan, which is secured by a perfected first lien
security interest in the aircraft. The ACY Note bears interest at the rate of
12% per annum, payable monthly in arrears. The Note is due on March 31, 1999,
but may be prepaid without penalty at any time.
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 0.5% of the Compan's Aggregate Gross Proceeds received through the last day
of such quarter. During the first six months of 1998 and the period from
Inception (February 7, 1997) to June 30, 1997, the Company paid a total of
$48,690 and $2,545, respectively in management fees to JMC.
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
June 30, 1998
(Unaudited)
6. Related Party Transactions (continued)
JMC may receive a brokerage fee for locating assets for the Company,
provided that such fee is not more than the customary and usual brokerage fee
that would be paid to an unaffiliated party for such a transaction. The total of
the Aggregate Purchase Price plus the brokerage fee cannot exceed the fair
market value of the asset based on appraisal. JMC may also receive reimbursement
of Chargeable Acquisition Expenses incurred in connection with a transaction
which are payable to third parties. Because the Company did not purchase
aircraft during the first six months of 1998 or during the period from Inception
(February 7, 1997) to June 30, 1997, no brokerage fees or Chargeable Acquisition
Expenses were paid to JMC.
As discussed in Note 1, the Company reimbursed JMC for certain costs
incurred in connection with the organization of the Company and the Offering.
Because the Offering was closed to new subscriptions during October 1997, the
Company did not reimburse JMC for any organization and offering expenses during
the first six months of 1998. During the period from Inception (February 7,
1997) to June 30, 1997, the Company paid $10,180 to JMC.
As discussed in Note 5, the Company loaned funds to ACY during March 1998
in connection with ACY's purchase of an aircraft. The Company received a
promissory note, secured by the aircraft, from ACY.
7. Subsequent event
On July 16, 1998, the Company purchased a Fairchild Metro III aircraft,
serial number AC-647 ("S/N AC-647"). S/N AC-647 is subject to a 36-month lease,
expiring on April 13, 2001, with a regional carrier in Uruguay. The lease
contains a provision for a personal guaranty by a principal officer of the
lessee, as well as a U.S. bank letter of credit.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Capital Resources and Liquidity
On June 30, 1998, the Company had cash balances of $1,129,593 This balance
was held primarily for the interest payment made to the Noteholders in August
1998, 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 Noteholders
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 July 2001 and November 2002.
Cash flows from operations during the first six months of 1998 were
primarily from rent received for the Company's aircraft leases, including
prepaid rent and rent accrued as receivable at December 31, 1997. The Company
had no significant operations until the third quarter of 1997.
Cash flows used in investing activities during the first six months of 1998
consisted of a loan to AeroCentury Corp. in connection with its purchase of an
aircraft. The Company used no cash in investing activities during the first six
months of 1997.
The decrease in cash flows from financing activities from year to year was
a result of the termination of the Offering during October 1997.
Results of Operations
The Company recorded a net loss of ($107,995) or ($0.44) and ($4,760) or
($0.48) per share for the three six months ended June 30, 1998 and the period
from Inception (February 7, 1997) to June 30, 1997, respectively, and a net loss
of ($33,821) or ($0.14) per share and ($4,711) or ($0.47) per share for the
three months ended June 30, 1998 and 1997, respectively. The losses were a
result of management fees and depreciation, amortization and interest expense,
which more than offset the rental income received for the Company's aircraft. As
discussed above, the Company had no significant operations until the third
quarter of 1997.
Factors that May Affect Future Results
Year 2000 Considerations. The Company's internal and administrative
operations are not highly dependent on advanced technological computer or other
electronic systems, and, consequently, management believes that the Company's
exposure to loss as a result of Year 2000 issues is not significant. Further,
management believes that the electronic systems used in the equipment leased by
the Company to lessees will not be affected by the Year 2000 issue, and,
therefore, this issue should not directly affect the Company's financial
performance or the lessees' ability to comply with their respective lease
obligations. Of course, 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.
Part II. Other Information
Item 1. Legal Proceedings
None.
tem 2. Changes in Securities and Use of Proceeds
The effective date of the Form SB-2 Registration Statement for AeroCentury
IV was May 21, 1997, and assigned Commission File No. 333-22239. The offering
terminated on October 3, 1997. Of the $10,000,000 in 10% Secured Promissory
Notes ($1,000 principal amount per Note) registered, $5,254,000 were sold. The
Dealer Manager for the offering was Crispin Koehler Securities. The gross
proceeds of the offering of the Notes was $4,869,000, representing 4,869 Notes
sold, each with a principal amount of $1,000. The amount of expenses incurred in
connection with the issuance and distribution consisted of sale commissions of
$389,542 and offering expenses of $97,380. Of the remaining $4,382,100 in
proceeds, $3,482,100 was applied toward purchase of aircraft equipment, of which
$299,000 consisted of brokerage fees paid to JetFleet Management Corp., the sole
common shareholder of and management company for the Company. The remaining
$899,879 was applied toward working capital of the Company to be invested in
additional equipment.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
No disclosure required.
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibit 27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AeroCentury IV, Inc.
August 10, 1998 By: /s/ Neal D. Crispin
Date ----------------------------------------
Neal D. Crispin, President and Chairman
of the Board of Directors of the
Registrant, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,129,593
<SECURITIES> 0
<RECEIVABLES> 889,167
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,152,093
<PP&E> 2,615,554
<DEPRECIATION> 168,284
<TOTAL-ASSETS> 4,989,336
<CURRENT-LIABILITIES> 106,365
<BONDS> 4,869,000
0
0
<COMMON> 243,420
<OTHER-SE> (229,449)
<TOTAL-LIABILITY-AND-EQUITY> 4,989,336
<SALES> 0
<TOTAL-REVENUES> 313,659
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 178,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243,450
<INCOME-PRETAX> (107,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> (107,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,996)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
