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 September 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>
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 988,630 $ 1,944,120
Deposits 8,160 -
Rent receivable 41,900 32,220
Accounts receivable 3,660 4,620
---------------- ----------------
Total current assets 1,042,350 1,980,960
Aircraft under operating lease, net of
accumulated depreciation of $182,060
in 1998 and $37,350 in 1997 3,431,460 2,534,560
Debt issue costs, net of accumulated
amortization of $85,360 in 1998
and $27,920 in 1997 504,160 561,600
---------------- ----------------
Total assets $ 4,977,970 $ 5,077,120
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 1,050 $ 5,000
Accounts payable - affiliates 5,480 -
Interest payable 81,150 81,150
Prepaid rents 37,060 -
Maintenance reserves 11,820 -
---------------- ----------------
Total current liabilities 136,560 86,150
Medium-term secured notes 4,869,000 4,869,000
---------------- ----------------
Total liabilities 5,005,560 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 (271,010) (121,450)
---------------- ----------------
Total shareholder's equity (27,590) 121,970
---------------- ----------------
Total liabilities and shareholder's equity $ 4,977,970 $ 5,077,120
================ ================
See accompanying notes.
</TABLE>
<PAGE>
AeroCentury IV, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Period
For the From Inception For the
Nine Months (February 7, 1997) Three Months
Ended September 30, to September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Rent income $ 432,020 $ 32,220 $ 180,360 $ 32,220
Interest income 79,860 21,830 17,860 21,830
------------- ------------- ------------- -------------
511,880 54,050 198,220 54,050
------------- ------------- ------------- -------------
Expenses:
Depreciation expense 144,700 7,730 57,420 7,730
Amortization expense 57,440 8,780 19,140 8,780
Interest expense 365,180 74,170 121,730 72,620
Management fees 73,030 26,890 24,340 24,340
General and
administrative 21,090 10,680 17,150 10,020
------------- ------------- ------------- -------------
661,440 128,250 239,780 123,490
------------- ------------- ------------- -------------
Net loss $ (149,560) $ (74,200) $ (41,560) $ (69,440)
============ ============= ============= =============
Weighted average common
shares outstanding 243,420 41,437 243,420 89,617
============= ============= ============= =============
Net loss per common share $ (0.61) $ (1.79) $ (0.17) $ (0.78)
============= ============= ============= =============
See accompanying notes.
</TABLE>
<PAGE>
AeroCentury IV, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Period
From Inception
For the Nine Months (February 7, 1997)
Ended September 30, to September 30,
1998 1997
<S> <C> <C>
Net cash provided/(used) by operating activities $ 86,120 $ (660)
Investing activities:
Investment in secured promissory note (866,670) -
Repayment of secured promissory note 866,670 -
Purchase of interest in aircraft (1,041,610) -
----------------- ---------------
Net cash used in investing activities (1,041,610) -
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 (955,490) 467,440
Cash, beginning of period 1,944,120 -
------------------ ---------------
Cash, end of period $ 988,630 $ 467,440
================== ===============
See accompanying notes.
</TABLE>
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
September 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 Holding Corp. ("JHC"), a California
corporation formed in January 1994. JetFleet Management Corp. ("JMC"), a
subsidiary of JHC, is the management company for the Company, and 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 both companies.
The accompanying balance sheets at September 30, 1998 and December 31, 1997
and statements of operations and cash flows for the nine months ended September
30, 1998 and the period from Inception (February 7, 1997) to September 30, 1997
and the three months ended September 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 nine 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.
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 etimates.
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 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 Company
also issued 102,620 shares of common stock to JHC as reimbursement of
organization and offering costs JHC 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
September 30, 1998
(Unaudited)
3. Aircraft and Aircraft Engines Under Operating Leases
Aircraft and aircraft engines
The Company's interests in aircraft are recorded at cost, which include
acquisition costs. Depreciation is computed using the straight-line method over
each aircraft's estimated economic life to its estimated residual value.
The Company owns 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"),
a Fairchild Metro III aircraft, serial number AC-647 ("S/N AC-647") 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.
S/N AC-647 is subject to a 36-month lease, expiring on April 13, 2001, with
a regional carrier in Uruguay.
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 was secured by a perfected first lien
security interest in the aircraft. Pursuant to the note's provision for
prepayment at any time without penalty, ACY repaid the note in full during
August 1998.
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 Company's Aggregate Gross Proceeds received through the last day
of such quarter. During the first nine months of 1998 and the period from
Inception (February 7, 1997) to September 30, 1997, the Company paid a total of
$73,030 and $26,890, respectively in management fees to JMC.
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
September 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. The Company paid JMC $58,500 in brokerage
fees during the first nine months of 1998. No such brokerage fees or Chargeable
Acquisition Expenses were paid to JMC during the same period in 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.
Because the Offering was closed to new subscriptions during October 1997, the
Company did not reimburse JHC for any organization and offering expenses during
the first nine months of 1998. During the period from Inception (February 7,
1997) to September 30, 1997, the Company paid $87,760 to JHC.
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. The note was repaid by ACY
during August 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Capital Resources and Liquidity
On September 30, 1998, the Company had cash balances of $996,790. Of this
amount, $8,160 was deposits which represent maintenance reserves collected from
lessees and interest earned on those funds, as applicable. The remainder of the
Company's cash balance was held primarily for the interest payment made to the
Noteholders in November 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 JHC, 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 nine 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 nine months of
1998 consisted of the purchase of S/N AC-647. The Company used no cash in
investing activities during the first nine 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 ($149,560) or ($0.61) and ($74,200) or
($1.79) per share for the nine months ended September 30, 1998 and the period
from Inception (February 7, 1997) to September 30, 1997, respectively, and a net
loss of ($41,560) or ($0.17) per share and ($69,440) or ($0.78) per share for
the three months ended September 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. The increases in revenue and expenses from year to year was a result
of the additional proceeds raised during the third quarter of 1997 and the
aircraft acquired with those proceeds.
Factors that May Affect Future Results
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 a "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 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; however, a formal
study has not yet been undertaken of the aircraft equipment on lease. The
Company will be 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
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.
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' 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 state of Year 2000
readiness of these third parties cannot be assessed by the Company; however,
management believes that a temporary interrruption 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.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
No disclosure required.
Item 2. Changes in Securities
No disclosure required.
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
2. Reports on Form 8-K
None
<PAGE>
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.
November 5, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 996,790
<SECURITIES> 0
<RECEIVABLES> 45,560
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,042,350
<PP&E> 3,613,520
<DEPRECIATION> 182,060
<TOTAL-ASSETS> 4,977,970
<CURRENT-LIABILITIES> 136,560
<BONDS> 4,869,000
0
0
<COMMON> 243,420
<OTHER-SE> (271,010)
<TOTAL-LIABILITY-AND-EQUITY> 4,977,970
<SALES> 0
<TOTAL-REVENUES> 511,880
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 296,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365,180
<INCOME-PRETAX> (149,560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (149,560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,560)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
