FORM 10-QSB
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 March 31, 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
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,134,575 $ 1,944,123
Rent receivable - 32,220
Accounts receivable - 4,619
---------------- ----------------
Total current assets 1,134,575 1,980,962
Aircraft under operating lease, net of
accumulated depreciation of $124,640
in 1998 and $80,996 in 1997 2,490,914 2,534,558
Debt issue costs, net of accumulated
amortization of $47,069 in 1998
and $27,923 in 1997 542,451 561,597
Note receivable 866,667 -
---------------- ----------------
Total assets $ 5,034,607 $ 5,077,117
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 5,000 $ 5,000
Interest payable 81,150 81,150
Prepaid rents 31,665 -
---------------- ----------------
Total current liabilities 117,815 86,150
Medium-term secured notes 4,869,000 4,869,000
---------------- ----------------
Total liabilities 4,986,815 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 (195,628) (121,453)
---------------- ----------------
Total shareholder's equity 47,792 121,967
---------------- ----------------
Total liabilities and shareholder's equity $ 5,034,607 $ 5,077,117
================ ================
</TABLE>
See accompanying notes.
<PAGE>
AeroCentury IV, Inc.
Statement of Operations
For the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Revenues:
Rent income $ 109,995
Interest income 24,954
----------
134,949
----------
Expenses:
Depreciation expense 43,644
Amortization expense 19,146
Interest expense 121,725
Management fees 24,345
General and administrative 264
----------
209,124
----------
Net loss $ (74,175)
==========
Weighted average common shares outstanding 243,420
==========
Net loss per common share $ (0.30)
==========
</TABLE>
See accompanying notes.
<PAGE>
AeroCentury IV, Inc.
Statement of Cash Flows
For the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Net cash provided by operating activities $ 57,119
Investing activity -
Investment in secured promissory note (866,667)
--------------
Net decrease in cash (809,548)
Cash, beginning of period 1,944,123
--------------
Cash, end of period $ 1,134,575
==============
</TABLE>
See accompanying notes.
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
March 31, 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 March 31, 1998 and December 31, 1997 and
statements of operations and cash flows for the quarter ended March 31, 1998
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. Because the Company had no operations until the second
quarter of 1997, no comparative results are presented for the first three months
of 1997. The results of operations of the first quarter 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
March 31, 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 50% undivided interest in a Shorts SD-360, serial
number S/N 3676 ("S/N 3676") and a Pratt & Whitney JT8D-9A aircraft engine,
serial number 674452B (the "Engine").
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. 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 Company's Aggregate Gross Proceeds received through the last day
of such quarter. During the first quarter of 1998, the Company paid a total of
$24,345 in management fees to JMC.
<PAGE>
AeroCentury IV, Inc.
Notes to Financial Statements
March 31, 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 quarter of 1998, no brokerage fees or Chargeable
Acquisition Expenses were paid to JMC.
As discussed in Note 1, the Company reimburses 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 quarter of 1998.
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 secured
promissory note, secured by the aircraft, from ACY.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources and Liquidity
On March 31, 1998, the Company had cash balances of $1,134,575. This
balance was held primarily for the interest payment made to the Noteholders in
May 1998 and for normally recurring expenses.
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 quarter 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.
Cash flows used in investing activities consisted of a loan to AeroCentury
Corp. in connection with its purchase of an aircraft. The Company had no cash
flows from financing activities because the Offering terminated during October
1997.
Results of Operations
The Company recorded a net loss of ($74,175) or ($0.30) per share for the
three months ended March 31, 1998. The loss was a result of management fees and
depreciation, amortization and interest expense, which more than offset the
rental income received for the Company's aircraft.
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.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
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
a. Exhibits
Exhibit 27. Financial Data Schedule
b. 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.
May 14, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,134,575
<SECURITIES> 0
<RECEIVABLES> 866,667
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,134,575
<PP&E> 2,615,554
<DEPRECIATION> 124,640
<TOTAL-ASSETS> 5,034,607
<CURRENT-LIABILITIES> 117,815
<BONDS> 4,869,000
0
0
<COMMON> 243,420
<OTHER-SE> (195,628)
<TOTAL-LIABILITY-AND-EQUITY> 5,034,607
<SALES> 0
<TOTAL-REVENUES> 134,949
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 87,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,725
<INCOME-PRETAX> (74,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,175)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
