UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2018~~March 31, 2019

☐ 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: 001-13387

AeroCentury Corp.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		94-3263974
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1440 Chapin Avenue, Suite 310

Burlingame, California 94010

(Address of Principal Executive Offices)

(650) 340-1888

(~~Registrant's~~Registrant’s Telephone Number Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ACY	NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~"large~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting ~~company"~~company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☐☒ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of the ~~registrant's~~registrant’s common stock outstanding as of ~~November 8, 2018~~May 15, 2019 was ~~1,545,924.~~ 1,545,884.

As used in this report, unless the context indicates otherwise, ~~the "Company" and "AeroCentury" refer~~“AeroCentury” refers to AeroCentury Corp. and the “Company” refers to AeroCentury together with its consolidated subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements in this report other than statements of historical fact are forward-looking statements for purposes of these provisions, including any statements of the ~~Company's~~Company’s plans and objectives for future operations, the ~~Company's~~Company’s future financial or economic performance (including known or anticipated trends), and the assumptions underlying or related to the foregoing. Statements that include the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof, or other comparable terminology, are forward-looking statements.

Forward-looking statements in this report include statements about the following matters, although this list is not exhaustive:

·	The ~~Company's~~Company’s business plans and strategies, including its continued focus on acquiring used regional aircraft, any potential for acquiring and managing new types and models of regional aircraft, and its expectation that most of its future growth will be outside of North America;

Matters related to the ~~Company's~~Company’s merger with JetFleet Holding Corp. ("JHC"), which was completed on October 1, 2018, ~~including~~and the anticipated impact of the merger on the Company and its performance, including ~~the amount and nature of merger expenses payable by the Company, certain losses and other accounting effects of the merger,~~ any changes to the ~~Company's~~Company’s risk profile now that the Company has internalized the management services previously performed for the Company by JetFleet Management Corp. ("JMC"), a subsidiary of JHC, and the expectation that the combination effected by the merger could be accretive to the Company and create value for the stockholders of the combined post-merger company;

Certain industry trends and their impact on the Company and its performance, including: increasing competition that results in higher acquisition prices for many of the aircraft types that the Company has targeted to buy and, at the same time, downward pressure on lease rates for these aircraft; increased production of new regional aircraft in competition with used aircraft; relatively lower market demand for older aircraft types that are no longer in production, which could cause certain of the ~~Company's~~Company’s aircraft to remain off lease for significant periods of time; and expectations of shakeouts of weaker carriers in economically troubled regions, which could impact the financial condition and viability of certain of the ~~Company's~~Company’s customers, and as a result, their demand for the ~~Company's~~Company’s aircraft and their ability to fulfill their lease commitments and other obligations to the Company under existing leases;

·	Expectations about the ~~Company's~~Company’s future liquidity, cash flow and capital requirements;

The ~~Company's~~Company’s ability to comply with its ~~existing~~ credit facility (the “Credit Facility”), recently established term loans (the “Term Loans”) and other outstanding debt instruments, including making payments of principal and interest thereunder as and when required and complying with the financial and other covenants included in these instruments and the ~~credit facility;~~Company’s ability to effectively hedge interest rate fluctuation risk;

The ~~Company's~~Company’s ability to access additional sources of capital in the future ~~including through a proposed extension of its existing credit facility~~as and ~~potential new non-recourse term loans, all of which is under negotiation and subject to completion of definitive agreements, which may not occur~~when needed, in ~~a timely manner,~~the amounts desired, on terms ~~anticipated or~~ favorable to the Company, or at all;

·	The expected impact of existing or known threatened legal proceedings;

·	The effect on the Company and its customers of complying with applicable government and regulatory requirements in the numerous jurisdictions in which the Company and its customers operate;

·	The ~~Company's~~Company’s cyber vulnerabilities and the anticipated effects on the Company if a cybersecurity threat or incident were to materialize;

·	General economic, market, political and regulatory conditions, including anticipated changes in these conditions and the impact of such changes on customer demand and other facets of the ~~Company's~~Company’s business; and

·	The impact of the foregoing on the prevailing market price and trading volume of the ~~Company's~~Company’s common stock.

All of the ~~Company's~~Company’s forward-looking statements involve risks and uncertainties that could cause the Company's actual results to differ materially from those projected or assumed by such forward-looking statements. Among the factors that could cause such differences are: the continued availability of financing under the ~~Company's credit facility~~Credit Facility or otherwise; the ~~Company's~~Company’s ability to comply with the ~~debt~~ covenants under its ~~existing credit facility;~~Credit Facility, Term Loans and other debt instruments; the potential impact on the Company’s debt obligations of developments regarding LIBOR, including the potential phasing out of this metric; the Company's ability to locate and acquire appropriate and revenue-producing assets; deterioration of the market for or appraised values of aircraft owned by the Company; a surge in interest rates; any noncompliance by the Company's lessees with obligations under their respective leases, including payment obligations; any economic downturn or other financial ~~crises;~~crisis; the timing, rate and amount of maintenance expenses for the ~~Company's~~Company’s asset portfolio, as well as the distribution of these expenses among the assets in the portfolio; following completion of the merger with JHC, the Company's ability to internalize the management services previously performed by JMC and the costs to the Company to internally perform these services; the Company's ability to raise capital on ~~attractive~~acceptable terms when needed and in desired amounts, or at ~~all, including the Company's ability to execute the proposed extension of its existing credit facility and establishment of new term loans as described above;~~all; limited trading volume in the Company's stock; and the other factors detailed under ~~"Management's Discussion and Analysis of Financial Condition and Results of Operations ––~~ "Factors That May Affect Future Results and Liquidity" in Item 2 of this report. In addition, the Company operates in a competitive and evolving industry in which new risks emerge from time to time, and it is not possible for the Company to predict all of the risks it may face, nor can it assess the impact of all factors on its business or the extent to which any factor or combination of factors could cause actual results to differ from expectations. As a result of these and other potential risks and uncertainties, the ~~Company's~~Company’s forward-looking statements should not be relied on or viewed as predictions of future events.

This cautionary statement should be read as qualifying all forward-looking statements included in this report, wherever they appear. All forward-looking statements and descriptions of risks included in this report are made as of the date hereof based on information available to the Company as of the date hereof, and except as required by applicable law, the Company assumes no obligation to update any such forward-looking statement or risk for any reason. You should, however, consult the risks and other disclosures described in the reports the Company files from time to time with the United States Securities and Exchange Commission (“SEC”) after the date of this report for updated information.

~~TABLE OF CONTENTS~~

~~PART I – FINANCIAL INFORMATION~~

~~Item 1.Financial Statements.~~

~~Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.~~

~~Item 3.~~ ~~Quantitative and Qualitative Disclosures About Market Risk.~~

~~Item 4.~~ ~~Controls and Procedures.~~

~~PART II – OTHER INFORMATION~~

~~Item 6.~~ ~~Exhibits~~

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

AeroCentury Corp.

Condensed Consolidated Balance Sheets

(Unaudited)

ASSETS	ASSETS							ASSETS
		September 30,			December 31,				March 31,			December 31,
		2018			2017				2019			2018
Assets:
Cash and cash equivalents		$	6,769,500		$	8,657,800			$	8,045,200		$	1,542,500
Accounts receivable, including deferred rent of $0 and $707,300 at September 30, 2018 and December 31, 2017, respectively			3,168,000			3,825,100
Securities										121,000			121,000
Accounts receivable, including deferred rent of $1,250,000 and $869,600 at March 31, 2019 and December 31, 2018, respectively										5,131,100			3,967,200
Finance leases receivable			16,055,500			23,561,000				14,249,300			15,250,900
Aircraft and aircraft engines held for lease, net of accumulated depreciation of $33,462,100 and $33,234,200 at September 30, 2018 and December 31, 2017, respectively			187,092,900			195,098,200
Aircraft and aircraft engines held for lease, net of accumulated depreciation of $36,133,500 and $36,675,500 at March 31, 2019 and December 31, 2018, respectively										174,310,900			184,019,900
Assets held for sale			14,511,600			4,966,500				10,134,800			10,223,300
Property, equipment and furnishings, net of accumulated depreciation of $4,000 and $2,200 at March 31, 2019 and December 31, 2018, respectively										68,500			69,100
Lease right of use, net of accumulated amortization of $100,300 at March 31, 2019										1,372,500			-
Favorable lease acquired, net of accumulated amortization of $61,700 at December 31, 2018										-			863,300
Deferred tax asset										315,100			254,900
Prepaid expenses and other assets			353,500			301,300				365,300			840,100
Total assets		$	227,951,000		$	236,409,900			$	214,113,700		$	217,152,200
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY								LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses		$	2,317,600		$	645,200			$	412,100		$	1,025,600
Notes payable and accrued interest, net of unamortized debt issuance costs of $1,078,900 and $2,216,000 at September 30, 2018 and December 31, 2017, respectively			140,247,200			145,598,200
Accrued payroll										100,600			78,600
Notes payable and accrued interest, net of unamortized debt issuance costs of $5,497,700 and $674,300 at March 31, 2019 and December 31, 2018, respectively										131,230,700			131,092,200
Derivative liability										941,000			-
Lease liability										573,900			-
Maintenance reserves			27,030,800			26,942,800				25,796,900			28,527,500
Accrued maintenance costs			260,100			1,275,300				666,700			463,300
Security deposits			3,367,800			3,147,900				3,052,800			3,367,800
Unearned revenues			4,160,400			2,447,500				4,594,600			3,274,800
Deferred income taxes			7,159,000			8,533,700				7,020,400			7,537,100
Income taxes payable			289,000			452,600				172,100			497,400
Total liabilities			184,831,900			189,043,200				174,561,800			175,864,300
Commitments and contingencies (Note 5)
Stockholders' equity:
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and outstanding			-			-				-			-
Common stock, $0.001 par value, 10,000,000 shares authorized, 1,629,999 shares issued, 1,416,699 shares outstanding			1,600			1,600
Common stock, $0.001 par value, 10,000,000 shares authorized, 1,759,216 shares issued and 1,545,884 shares outstanding at March 31, 2019 and December 31, 2018										1,800			1,800
Paid-in capital			14,780,100			14,780,100				16,782,800			16,782,800
Retained earnings			31,374,200			35,621,800				26,232,400			27,540,600
Accumulated other comprehensive income										(427,800	)		-
			46,155,900			50,403,500				42,589,200			44,325,200
Treasury stock at cost, 213,300 shares			(3,036,800	)		(3,036,800	)
Total stockholders' equity			43,119,100			47,366,700
Total liabilities and stockholders' equity		$	227,951,000		$	236,409,900
Treasury stock at cost, 213,332 shares at March 31, 2019 and December 31, 2018, respectively										(3,037,300	)		(3,037,300	)
Total stockholders’ equity										39,551,900			41,287,900
Total liabilities and stockholders’ equity									$	214,113,700		$	217,152,200

The accompanying notes are an integral part of these condensed consolidated financial statements.

AeroCentury Corp.

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Nine Months Ended September 30,						For the Three Months Ended September 30,					For the Three Months Ended March 31,
	2018			2017			2018			2017		2019			2018
Revenues and other income:
Operating lease revenue	$	20,460,000		$	21,995,600		$	7,173,200		$	7,568,500	$	7,148,300		$	6,462,900
Maintenance reserves revenue, net													-			1,050,000
Finance lease revenue		1,002,100			1,173,400			261,700			415,700		236,100			379,000
Maintenance reserves revenue		-			1,035,800			-			349,800
Net gain on sales-type finance leases		-			297,400			-			-
Net (loss)/gain on disposal of assets		(2,374,400	)		(130,400	)		(2,384,300	)		3,500
Net gain/(loss) on disposal of assets													178,300			(8,200	)
Other income		1,632,800			2,300			1,200			1,700		4,200			1,400
		20,720,500			24,374,100			5,051,800			8,339,200		7,566,900			7,885,100
Expenses:
Depreciation		9,420,500			9,037,700			3,328,200			3,158,600		3,200,700			2,941,900
Interest		7,086,600			5,496,400			2,467,200			2,143,400		2,912,400			2,254,100
Provision for impairment in value of aircraft													1,408,400			-
Professional fees, general and administrative and other													825,500			577,400
Salaries and employee benefits													599,000			-
Management fees		4,482,800			4,588,700			1,534,000			1,583,700		-			1,446,800
Professional fees, general and administrative and other		1,373,400			1,357,200			419,400			433,000
Maintenance		405,400			830,600			245,300			169,200		107,400			91,200
Provision for impairment in value of aircraft		2,971,500			523,100			2,673,300			68,800
Insurance		235,400			196,900			77,700			66,000		140,500			79,700
Other taxes		67,700			67,700			22,500			22,500		37,600			22,600
		26,043,300			22,098,300			10,767,600			7,645,200		9,231,500			7,413,700
(Loss)/income before income tax (benefit)/provision		(5,322,800	)		2,275,800			(5,715,800	)		694,000
(Loss)/income before income tax benefit													(1,664,600	)		471,400
Income tax (benefit)/provision		(1,075,200	)		894,100			(1,232,100	)		309,500		(356,400	)		154,100
Net (loss)/income	$	(4,247,600	)	$	1,381,700		$	(4,483,700	)	$	384,500	$	(1,308,200	)	$	317,300
(Loss)/earnings per share:
Basic	$	(3.00	)	$	0.95		$	(3.16	)	$	0.27	$	(0.85	)	$	0.22
Diluted	$	(3.00	)	$	0.95		$	(3.16	)	$	0.27	$	(0.85	)	$	0.22
Weighted average shares used in (loss)/earnings per share computations:
Basic		1,416,699			1,460,655			1,416,699			1,416,699		1,545,884			1,416,699
Diluted		1,416,699			1,460,655			1,416,699			1,416,699		1,545,884			1,416,699

The accompanying notes are an integral part of these condensed consolidated financial statements.

AeroCentury Corp.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended March 31,
	2019			2018
Net (loss)/income	$	(1,308,200	)	$	317,300
Other comprehensive loss:
Unrealized losses on derivative instruments		(544,800	)		-
Tax benefit related to items of other comprehensive loss		117,000			-
Other comprehensive loss		(427,800	)		-
Total comprehensive (loss)/income	$	(1,736,000	)	$	317,300

The accompanying notes are an integral part of these condensed consolidated financial statements.

AeroCentury Corp.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2018 and March 31, 2019

(Unaudited)

	Number of Common Stock Shares Outstanding		Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total
Balance, December 31, 2017		1,416,699	$	1,600	$	14,780,100	$	35,621,800		$	(3,036,800	)	$	-		$	47,366,700
Net income		-		-		-		317,300			-			-			317,300
Balance, March 31, 2018		1,416,699	$	1,600	$	14,780,100	$	35,939,100		$	(3,036,800	)	$	-		$	47,684,000

Balance, December 31, 2018		1,545,884	$	1,800	$	16,782,800	$	27,540,600		$	(3,037,300	)	$	-		$	41,287,900
Net loss		-		-		-		(1,308,200	)		-			-			(1,308,200	)
Accumulated other comprehensive income		-		-		-		-			-			(427,800	)		(427,800	)
Balance, March 31, 2019		1,545,884	$	1,800	$	16,782,800	$	26,232,400		$	(3,037,300	)	$	(427,800	)	$	39,551,900

The accompanying notes are an integral part of these condensed consolidated financial statements.

AeroCentury Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2018			2017			2019			2018
Net cash provided by operating activities	$	14,543,600		$	13,363,000		$	3,957,200		$	4,552,000
Investing activities:
Proceeds from sale of aircraft and aircraft engines held for lease, net of re-sale fees		8,382,000			2,980,000			1,710,600			3,195,000
Proceeds from sale of assets held for sale, net of re-sale fees		4,366,200			160,100			1,079,900			1,683,500
Investment in direct financing leases		-			(7,614,200	)
Investment in aircraft parts and acquisition costs		(22,702,900	)		(32,063,100	)		-			(1,236,000	)
Net cash used in investing activities		(9,954,700	)		(36,537,200	)
Net cash provided by investing activities								2,790,500			3,642,500
Financing activities:
Issuance of notes payable – Credit Facility		21,000,000			35,900,000			5,100,000			-
Repayment of notes payable – Credit Facility		(24,200,000	)		(4,800,000	)		(33,800,000	)		(11,000,000	)
Repayment of notes payable – special purpose financing		(3,207,200	)		(3,066,000	)
Issuance of notes payable – Term Loans								44,310,000			-
Repayment of notes payable - UK LLC SPE Financing								(9,211,100	)
Repayment of notes payable – Term Loans								(1,580,700	)		(1,059,200	)
Debt issuance costs		(70,000	)		(525,000	)		(5,063,200	)		-
Net cash (used in)/provided by financing activities		(6,477,200	)		27,509,000
Net (decrease)/increase in cash and cash equivalents		(1,888,300	)		4,334,800
Net cash used in financing activities								(245,000	)		(12,059,200	)
Net increase/(decrease) in cash and cash equivalents								6,502,700			(3,864,700	)
Cash and cash equivalents, beginning of period		8,657,800			2,194,400			1,542,500			8,657,800
Cash and cash equivalents, end of period	$	6,769,500		$	6,529,200		$	8,045,200		$	4,793,100

During the ~~nine~~three months ended ~~September~~ ~~30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company paid interest totaling ~~$6,059,600~~$2,014,200 and ~~$4,697,000,~~$2,055,100, respectively. The Company paid income taxes of ~~$463,300~~$421,400 and ~~$800~~$0 during the ~~nine~~three months ended ~~September~~ ~~30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

AeroCentury Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~September 30, 2018~~March 31, 2019

1. Organization and Summary of Significant Accounting Policies

(a) The Company and Basis of Presentation

AeroCentury Corp., (“AeroCentury”) is a Delaware corporation incorporated in ~~1997, typically acquires used regional aircraft for lease~~1997. AeroCentury together with its consolidated subsidiaries is referred to ~~foreign and domestic regional carriers.~~ as the “Company.”

In August 2016, AeroCentury ~~Corp.~~ formed two wholly-owned subsidiaries, ACY SN 19002 Limited ("(“ACY ~~19002"~~19002”) and ACY SN 19003 Limited ("(“ACY ~~19003"~~19003”) for the purpose of acquiring aircraft using a combination of cash and third-party financing ("(“UK LLC SPE ~~Financing"~~Financing” or ~~"special~~“special purpose ~~financing"~~financing”) separate from ~~the parent's~~AeroCentury’s credit facility (the ~~"Credit Facility"~~“Credit Facility”). The UK LLC SPE Financing was repaid in full in February 2019 as part of a refinancing involving new non-recourse term loans totaling approximately $44.3 million (“Term Loans”) made to ACY 19002, ACY 19003 and two other newly formed special purpose subsidiaries of AeroCentury. See Note 4(b) for more information about the Term Loans.

On October 1, 2018, AeroCentury acquired JetFleet Holding Corp. (“JHC”) in a reverse triangular merger (“Merger”) for consideration of approximately $2.9 million in cash and 129,217 shares of common stock of AeroCentury, as determined pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into by AeroCentury, JHC and certain other parties in October 2017. JHC is the sole shareholder of JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and the manager of the Company’s assets. Upon completion of the Merger, JHC became a wholly-owned subsidiary of the Company, and as a result, JHC's results are included in the Company's consolidated financial statements beginning on October 1, 2018.

In November 2018, AeroCentury formed two wholly-owned subsidiaries, ACY SN 15129 LLC (“ACY 15129”) and ACY E-175 LLC (“ACY E-175”), for the purpose of refinancing four of the Company’s aircraft using the Term Loans. Because the Term Loans did not close until February 2019, the subject aircraft remained as collateral under the Credit Facility as of December 31, 2018, and ACY 15129 and ACY E-175 had no activity in 2018.

Financial information for AeroCentury ~~Corp., ACY 19002~~ and ~~ACY 19003 (collectively, the "Company")~~its consolidated subsidiaries is presented on a consolidated basis in accordance with accounting principles generally accepted in the United States of America ~~("GAAP"~~(“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- ~~and nine-month periods~~month period ended ~~September~~March ~~30, 2018~~31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018~~2019 or for any other period. All intercompany balances and transactions have been eliminated in consolidation.

As discussed in Note 7, the Company's acquisition of JetFleet Holding Corp. ("JHC") was consummated on October 1, 2018. As a subsidiary of the Company, JHC's results will be included in the Company's consolidated financial statements beginning in the fourth quarter of 2018.

~~For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2017.~~

(b) Use of Estimates

The ~~Company's~~Company’s condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these condensed consolidated financial statements are the residual values and useful lives of the ~~Company's~~Company’s long-lived assets, the amount and timing of future cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, the assumptions used to value the Company’s derivative instruments and the amounts recorded as allowances for doubtful accounts.

The Company reflects changes in the fair value of its interest rate swap derivatives that are designated as hedges in other comprehensive income. Such amounts are reclassified into earnings in the periods in which the hedged transaction occurs, and are included in interest expense.

(d) Finance Leases

As of March 31, 2019, the Company had three aircraft subject to sales-type finance leases and three aircraft subject to direct financing leases. All six leases contain lessee bargain purchase options at prices substantially below the subject asset’s estimated residual value at the exercise date for the option. Consequently, the Company has classified each of these six leases as finance leases for financial accounting purposes. For such finance leases, the Company reports the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option, as a finance lease receivable on its balance sheet, and accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease over the term of the lease. For each of the three sales-type finance leases, the Company recognized as a gain or loss the amount equal to (i) the net investment in the sales-type finance lease plus any initial direct costs and lease incentives less (ii) the net book value of the subject aircraft at inception of the applicable lease.

The Company recognized interest earned on finance leases in the amount of $236,100 and $379,000 in the first quarters of 2019 and 2018, respectively.

(e) Interest Rate Hedging

During the first quarter of 2019, the Company entered into certain derivative instruments to mitigate its exposure to variable interest rates under the Term Loans debt and a portion of the Credit Facility debt. Hedge accounting is applied to such a transaction only if specific criteria have been met, the transaction is deemed to be “highly effective” and the transaction has been designated as a hedge at its inception. Under hedge accounting treatment, generally, the effects of derivative transactions are recorded in earnings for the period in which the hedge transaction affects earnings. A change in value of a hedging instrument is reported as a component of other comprehensive income and is reclassified into earnings in the period in which the transaction being hedged affects earnings.

(f) Recent Accounting Pronouncements

Topic 842

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”) in the Accounting Standards Codification (“ASC”). Topic 842 substantially modifies lessee accounting for leases, requiring that lessees recognize lease assets and liabilities for leases extending beyond one year. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company adopted Topic 842 on January 1, 2019, electing to apply its provisions on the date of adoption and to record the cumulative effect as an adjustment to retained earnings. Lessor accounting under Topic 842 is similar to the prior accounting standard and the Company has elected to apply practical expedients under which the Company will not have to reevaluate whether a contract is a lease, the classification of its existing leases or its capitalized initial direct costs. In addition, the Company, as lessor, has elected the practical expedient to combine lease and non-lease components as one combined component for its leased aircraft for purposes of determining whether that combined component should be accounted for under Topic 606 or Topic 842.

The new standard requires a lessor to classify leases as sales-type, finance, or operating. A lease is treated as sales-type if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a finance lease. If the lessor does not convey risks and rewards or control, an operating lease results. As a result of application of the practical expedients, the Company was not required to alter the classification or carrying value of its leased or finance lease assets.

Lessee reporting was changed by the new standard, requiring that the balance sheet reflect a liability for most operating lease obligations as well as a “right of use” asset. As such, the Company was required to record a lease obligation of approximately $600,000 in connection with the lease of its headquarters office, and to increase the capitalized leasehold interest / right of use asset by a similar amount upon adoption, as discussed in Note 6. There was no effect on retained earnings recorded as a result of adoption of the standard. The Company did not elect the lessee practical expedient to combine the lease and non-lease components.

ASU 2016-13

The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), in June of 2016 (“ASU 2016-13”). ASU 2016-13 provides that financial assets measured at amortized cost are to be presented as a net amount, reflecting a reduction for a valuation allowance to present the amount expected to be collected (the “current expected credit loss” model of reporting). As such, expected credit losses will be reflected in the carrying value of assets and losses will be recognized before they become probable, as is required under the Company’s present accounting practice. In the case of assets held as available for sale, the amount of the valuation allowance will be limited to an amount that reflects the marketable value of the debt instrument. This amendment to GAAP is effective for fiscal years beginning after December 15, 2019 (for the Company, its fiscal year ending December 31, 2020) unless elected earlier, and adoption is to be reflected as a cumulative effect on the first date of adoption. The Company does not expect to early adopt ASU 2016-13.

ASU 2017-12

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 was effective for public companies for years beginning after December 15, 2018, and the Company therefore adopted it on January 1, 2019. The revised guidance includes reduced limitations on items that can be hedged in order to more closely align hedge accounting with entities’ risk management activities through changes to designation and measurement guidance as well as new disclosure requirements of balance sheet and income statement information designed to increase the transparency of the impact of hedging. Since the Company was not a party to any derivative transactions during 2018, there was no effect on its financial statements upon adoption. Derivatives entered into after adoption are accounted for under the new standards.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 was promulgated for the purpose of simplifying disclosures related to fair values by eliminating certain disclosures previously required (including, with respect to public companies, the amount of and reasons for transfers between Level 1 and Level 2 of the hierarchy, the policy for timing of the transfers between levels, and the valuation process for Level 3 fair value measurements and by modifying others), as well as modifying other disclosure requirements. Additional disclosures are also required by ASU 2018-13, including (i) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (although disclosure of other quantitative information in lieu of weighted average is permitted if it is determined that such would be a more reasonable and rational method to reflect distribution of unobservable inputs). Adoption is required for years beginning after December 31, 2019, although early adoption is permitted. The Company has chosen to early adopt ASU 2018-13 and there was no effect on the Company’s financial statements.

2. Aircraft Lease Assets

As discussed in Note 1, the Company adopted Topic 842 on January 1, 2019, and elected to use certain practical expedients that resulted in continuing the classification and capitalized indirect cost associated with its operating and finance leases. As such, there was no adjustment to its accounts related to the carrying value of its sales-type and finance leases or capitalized initial direct costs, and its leases continue to be accounted for the same as they had been before adoption of the new accounting standard.

The Company’s leases are normally “triple net leases” under which the lessee is obligated to bear all costs, including tax, maintenance and insurance, on the leased assets during the term of the lease. In most cases, the lessee is obligated to provide a security deposit or letter of credit to secure its performance obligations under the lease, and in some cases is required to pay maintenance reserves based on utilization of the aircraft, which reserves are available for qualified maintenance costs during the lease term and may or may not be refundable at the end of the lease. Typically, the leases also contain minimum return conditions, as well as one form or another of economic adjustment payable by the lessee (and in some instances by the lessor) for amounts by which the various aircraft or engine components are worse or better than a targeted condition set forth in the lease. Some leases contain renewal or purchase options, although the Company’s sales-type and finance leases all contain a bargain purchase option at lease end which the Company expects the lessees to exercise.

Because all of the Company’s aircraft or engine leases transfer use and possession of the aircraft or engine to the lessee and contain no other substantial undertakings by the Company, the Company has concluded that all of its lease contracts qualify for lease accounting under Topic 842. Certain lessee payments of what would otherwise be lessor costs (such as insurance and property taxes) are excluded from both revenue and expense.

The Company evaluates the expected return on its leased assets by considering both the rents receivable over the lease term, any expected additional consideration at lease end, and the residual value of the asset at the end of the lease. In some cases, the Company depreciates the asset to the expected residual value because it expects to sell the asset at lease end; in other cases, it may expect to re-lease the asset to the same or another lessee and the depreciation term and related residual value will differ from the initial lease term and residual value. Residual value is estimated by considering future estimates provided by independent appraisers, although it may be adjusted by the Company based on expected return conditions or location, specific lessee considerations, or other market information.

Two of the Company’s operating lease assets are subject to manufacturer residual value guarantees at the end of their lease terms in the fourth quarter of 2020 and totaling approximately $20 million. Three additional aircraft are subject to residual value guarantees, but the Company expects to retain the aircraft after the date of such guarantees and re-lease them to the current or other lessees. The Company considers the best market for managing and/or selling its assets at the end of its leases, although it does not expect to retain ownership of the assets under finance leases given the lessees’ bargain purchase options.

(a) Assets Held for Lease

At March 31, 2019 and December 31, 2018, the Company’s aircraft and aircraft engines held for lease consisted of the following:

	March 31, 2019					December 31, 2018
Type	Number Owned		% of net book value			Number owned		% of net book value
Regional jet aircraft		13		85	%		13		81	%
Turboprop aircraft		3		15	%		4		18	%
Engines		-		-	%		1		1	%

The Company purchased no aircraft during the first quarter of 2019.

During the first quarter of 2019, the Company sold one aircraft held for lease for cash and recorded a net gain of $151,600. The Company also reclassified an engine from held for lease to held for sale.

None of the Company’s aircraft and engines held for lease were off lease at March 31, 2019. As discussed below, the Company has three off-lease aircraft that were reclassified in 2018 as held for sale and an engine that was reclassified in the first quarter of 2019 as held for sale.

As of March 31, 2019, minimum future lease revenue payments receivable under noncancelable operating leases were as follows:

Years ending December 31

Remainder of 2019	$	20,493,300
2020		25,701,400
2021		18,600,000
2022		16,642,400
2023		12,959,600
Thereafter		21,547,500
	$	115,944,200

(b)Sales-Type and Finance Leases

At March 31, 2019 and December 31, 2018, the net investment included in sales-type finance leases and direct financing leases receivable were as follows:

	March 31, 2019			December 31, 2018
Gross minimum lease payments receivable	$	15,869,400		$	17,107,100
Less unearned interest		(1,620,100	)		(1,856,200	)
Finance leases receivable	$	14,249,300		$	15,250,900

As of March 31, 2019, minimum future payments receivable under finance leases were as follows:

Years ending December 31

Remainder of 2019	$	3,647,800
2020		4,208,600
2021		4,805,000
2022		3,208,000
	$	15,869,400

3. Assets Held for Sale

During the first quarter of 2019, based on its sales price, the Company reclassified a spare engine that was previously held for lease as being held for sale and recorded an impairment provision of $487,400. The Company also recorded impairment provisions totaling $921,000 for two turboprop aircraft based on expected sales proceeds. The Company expects the sales of the engine and two aircraft to occur during the second quarter.

In addition to the spare engine and two aircraft noted above, assets held for sale at March 31, 2019 consist of airframe parts from two turboprop aircraft and a turboprop aircraft for which a short-term operating lease was entered into during the first quarter.

During the first quarter of 2019, the Company received $216,900 in cash and accrued $94,400 in receivables for parts sales. These amounts were accounted for as follows: $133,100 reduced accounts receivable for parts sales accrued in 2018; $151,500 reduced the carrying value of the parts; and $26,700 was recorded as gains in excess of the carrying value of the parts. During the first quarter of 2018, the Company received $931,800 in cash and accrued $10,600 in receivables for parts sales. These amounts were accounted for as follows: $779,700 reduced accounts receivable for parts sales accrued in 2017; $144,600 reduced the carrying value of the parts; and $18,100 was recorded as gains in excess of the carrying value of the parts.

4. Notes Payable and Accrued Interest

At March 31, 2019 and December 31, 2018, the Company’s notes payable and accrued interest consisted of the following:

	March 31, 2019			December 31, 2018
Credit Facility:
Principal	$	93,700,000		$	122,400,000
Unamortized debt issuance costs		(4,129,200	)		(674,300	)
Accrued interest		180,700			139,300
Special purpose financing:
Principal:
UK SPE Financing		-			9,211,200
Term Loans		42,729,400			-
Unamortized debt issuance costs		(1,368,500	)		-
Accrued interest		118,300			16,000
	$	131,230,700		$	131,092,200

(a) Credit Facility

Before modification, the Company’s Credit Facility was provided by a syndicate of banks and was secured by all of the assets of the Company, including its aircraft and engine portfolio, except for the two aircraft in the UK LLC SPE Financing. In February 2019, the Company entered into a Third Amended and Restated Loan and Security Agreement to the Credit Facility (the “Restated Loan Agreement”) which, among other things, extended the maturity date of the Credit Facility with the lenders thereunder from May 31, 2019 to February 19, 2023; decreased the maximum availability thereunder from $170 million (with the ability for the Company to request an increase up to $180 million) to $145 million (with the ability for the Company to request an increase to up to $160 million); and modified certain of the Company’s financial ratio covenants. Borrowings under the Credit Facility will continue to bear interest at floating rates that reset periodically to a market benchmark rate plus a credit margin, and the Company will also continue to be obligated to pay a quarterly fee on any unused portion of the Credit Facility at a rate of 0.50%. The Credit Facility requires that within 30 days after closing of the financing, the Company enter into an interest rate protection derivative instrument with respect to a minimum $50 million of the outstanding loan balance at closing. In March 2019, the Company entered into interest rate protection instruments with respect to $50 million of its Credit Facility debt.

The borrowings under the Restated Loan Agreement are secured by a first priority lien on all of the Company's assets, including the Company’s aircraft portfolio, except those aircraft that are subject to the Term Loans. The Restated Loan Agreement requires the Company to comply with certain covenants relating to payment of taxes, preservation of existence, maintenance of property and insurance, and periodic financial reporting, as well as compliance with several financial ratio covenants. The Restated Loan Agreement restricts the Company with respect to certain corporate level transactions and transactions with affiliates or subsidiaries without consent of the lenders. Events of default under the Restated Loan Agreement include failure to make a required payment within three business days of a due date or to comply with other obligations under the Restated Loan Agreement (subject to specified cure periods for certain events of default), a default under other indebtedness of the Company, and a change in control of the Company. Remedies for default under the Restated Loan Agreement include acceleration of the outstanding debt and exercise of any remedies available under applicable law, including foreclosure on the collateral securing the borrowings under the Credit Facility.

As of December 31, 2018, the Company was not in compliance with the interest coverage, debt service coverage, no-net-loss and revenue concentration covenants under the Credit Facility. The noncompliance resulted primarily from the Company recording aircraft impairment charges and losses on sale of aircraft totaling $3,408,700 during 2018. The amendments included in the Restated Loan Agreement in February 2019 discussed above cured the December 31, 2018 noncompliance and revised the compliance requirements through the extended maturity date of the Credit Facility.

The unused amount of the Credit Facility was $51,300,000 and $47,600,000 as of March 31, 2019 and December 31, 2018, respectively. The weighted average interest rate on the Credit Facility was 6.00% and 5.92% at March 31, 2019 and December 31, 2018 respectively.

(b)Term Loans

On February 8, 2019, the Company, through four wholly owned subsidiary limited liability companies (“LLC Borrowers”), each entered into a Term Loan Agreement with the U.S. branch of a German bank (“Term Loan Lender”) that provides for six separate term loans with an aggregate principal amount of $44.3 million. Each of the Term Loans is secured by a first priority security interest in a specific aircraft (“Term Loan Collateral Aircraft”) owned by an LLC Borrower, the lease for such aircraft, and a pledge by the Company of its membership interest in each of the LLC Borrowers, pursuant to a Security Agreement (the “Security Agreement”) among the LLC Borrowers and a security trustee, and certain pledge agreements. Two of the Term Loan Collateral Aircraft that are owned by the Company’s two UK special purpose entities were previously financed using special purpose financing. The interest rates payable under the Term Loans vary by aircraft, and are based on a fixed margin above either 30-day or 3-month LIBOR. The proceeds of the Term Loans were used to pay down the Credit Facility and pay off the UK LLC SPE Financing. The maturity of each Term Loan varies by aircraft, with the first Term Loan maturing in October 2020 and the last Term Loan maturing in May 2025. The debt under the Term Loans is expected to be fully amortized by rental payments received by the LLC Borrowers from the lessees of the Term Loan Collateral Aircraft during the terms of their respective leases and remarketing proceeds.

The Term Loans include covenants that impose various restrictions and obligations on the LLC Borrowers, including covenants that require the LLC Borrowers to obtain the Term Loan Lender’s consent before they can take certain specified actions and certain events of default. If such an event of default occurs, subject to certain cure periods for certain events of default, the Term Loan Lender would have the right to terminate its obligations under the Term Loans, declare all or any portion of the amounts then outstanding under the Term Loans to be accelerated and due and payable, and/or exercise any other rights or remedies it may have under applicable law, including foreclosing on the assets that serve as security for the Term Loans.

5. Derivative Instruments

The Company was not party to any derivative instruments in 2018.

In the first quarter of 2019, the Company entered into eight fixed pay/receive variable interest rate swaps (the “Swaps”).

Six of the Swaps were entered into by the�� LLC Borrowers and have reduced notional amounts that mirror the amortization under the six Term Loans entered into by the LLC Borrowers, effectively converting each of the six Term Loans from variable to fixed rate. Each of these six Swaps extend for the duration of the corresponding Term Loan, with maturities from 2020 through 2025.

The other two Swaps were entered into by the Company and have notional amounts that total $50 million and extend through the maturity of the Credit Facility in February of 2023.

The Company entered into the Swaps in order to reduce its exposure to the risk of increased interest rates. With respect to the six Swaps entered into by the LLC Borrowers, it was deemed necessary so that the anticipated cash flows of such entities, which arise entirely from the lease rents for the aircraft owned by such entities, would be sufficient to make the required loan principal and interest payments, thereby preventing default so long as the lessees met their lease rent obligations. The two Swaps entered into by the parent company protect against the exposure to interest rate increases on $50 million of the Company’s Credit Facility debt.

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and uses creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. The Company applies hedge accounting for seven of its eight swaps and accounts for the change in fair value of its cash flow hedges through other comprehensive income for all derivative instruments.

The Company has designated seven of the Swaps as cash flow hedges. Changes in the fair value of the hedged swaps are included in other comprehensive income, which amounts are reclassified into earnings in the period in which the transaction being hedged affects earnings. One of the Swaps is not eligible under its terms for hedge treatment. Changes in fair value of non-hedge derivatives are reflected in earnings in the periods in which they occur. As such, the Company has reflected the following amounts in its income and other comprehensive income amounts:

Change in value of Swaps	$	408,400
Other items		(1,300	)
Included in interest expense	$	407,100

The following amount was included in other comprehensive income, before tax:

Change in value of hedged Swaps	$	(544,800	)

Amounts included in other comprehensive income will be reclassified into earnings in the period in which the hedged item affects earnings, i.e. with future settlements of the Swaps. None of the current balance of accumulated other comprehensive income is expected to be reclassified in the next twelve months.

At March 31, 2019, the fair value of the Company’s Swaps was as follows:

Designated interest rate hedges fair value	$	(895,800	)
Other interest rate swap		(45,200	)
Total derivative (liability)	$	(941,000	)

The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The swap counterparties for the Swaps are large financial institutions in the United States that possessed an investment grade credit rating. Based on this rating, the Company believes that the counterparties were creditworthy and that their continuing performance under the hedging agreements was probable.

6. Lease Right of Use Asset and Liability

The Company is a lessee under a lease of the office space it occupies in Burlingame, California, which expires in June of 2020, but also provides for two, successive one-year lease extension options for amounts that are substantially below the market rent for the property. The lease provides for monthly rental payments according to a fixed schedule of increasing rent payments. As a result of the below-market extension options, the Company has determined that it is reasonably certain that it will extend the lease and has, therefore, included such extended term in its calculation of the right of use asset (“ROU Asset”) and lease liability recognized in connection with the lease.

In addition to a fixed monthly payment schedule, the office lease also includes an obligation for the Company to make future variable payments for certain common areas and building operating and lessor costs, which have been and will be recognized as expense in the periods in which they are incurred. As a direct pass-through of applicable expense, such costs have not been allocated as a component of the lease.

The ROU Asset includes the amortized value of both the amount of liability recognized at January 1, 2019 upon adoption of Topic 842 and the amount attributable to the below market lease component recognized upon acquisition of JHC on October 1, 2018.

The lease liability associated with the office lease was calculated by discounting the fixed, minimum lease payments over the remaining lease term, including the below-market extension periods, at a discount rate of 7.25%, which represents the Company’s estimate of the incremental borrowing rate for a collateralized loan for the type of underlying asset that was the subject of the office lease at the time the lease liability was evaluated. The Company estimates that the future minimum lease commitments for base rent of its office space were as follows as of March 31, 2019 and December 31, 2018.:

	March 31, 2019			December 31, 2018
2019	$	145,800		$	193,500
2020		196,400			196,400
2021		199,300			199,300
2022		101,100			101,100
		642,600		$	690,300
Discount		(68,700	)
Lease liability at March 31, 2019	$	573,900

During the quarter ended March 31, 2019, the Company recognized amortization, finance costs and other expense related to the office lease as follows:

Fixed rental expense during the quarter	$	110,900
Variable lease expense		32,000
Total lease expense during the quarter	$	142,900

The Company expects that the variable lease expense will total approximately $10,700 monthly through the end of the lease, including the two extension periods.

7. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The carrying amount of the Company's money market funds included in cash and cash equivalents was $2,155,600 and $6,151,900 at September 30, 2018 and December 31, 2017, respectively. The fair value of the Company's money market funds is categorized as Level 1 under the GAAP fair value hierarchy.

As of ~~September 30, 2018~~March 31, 2019, the Company measured the fair value of its interest rate swaps of $92,729,400 (notional amount) based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. The Swaps had a net fair value of negative $941,000 as of March 31, 2019. In the first quarter of 2019, $408,400 was realized through the income statement as an increase in interest expense.

The following table shows, by level within the fair value hierarchy, the Company’s assets at fair value as of March 31, 2019 and December 31, ~~2017,~~2018:

	March 31, 2019										December 31, 2018
	Total			Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3
Money market funds	$	3,157,500		$	3,157,500	$	-		$	-	$	656,400	$	656,400	$	-	$	-
Derivatives		(941,000	)		-		(941,000	)		-		-		-		-		-
Total	$	2,216,500		$	3,157,500	$	(941,000	)	$	-	$	656,400	$	656,400	$	-	$	-

There were no transfers between Level 1 and Level 2 in either the first quarter of 2019 or 2018, and there were no ~~liabilities that were required to be measured and recorded at fair value on a recurring basis.~~transfers into or out of Level 3 during the same periods.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and these and other assets held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. These are considered Level 3 within the fair value hierarchy. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the ~~asset's~~asset’s carrying value exceeds its fair value. The Company recorded impairment charges totaling ~~$2,673,300~~$1,408,400 on ~~four~~three of its ~~aircraft~~assets held for sale in the ~~three months ended September 30, 2018. The Company also recorded~~first quarter of 2019, which had an ~~impairment charge~~aggregate fair value of ~~$298,200 on one of its aircraft held for lease in the quarter ended June 30, 2018.~~$3,363,000. The Company recorded anno impairment ~~charge~~charges during the first quarter of $68,800 on one of its assets held for lease in the quarter ended September 30, 2017, based on expected sales proceeds. The aircraft was sold in October 2017. The Company also recorded an impairment charge of $454,300 on one of its assets in the quarter ended June 30, 2017, based on its appraised value.2018.

Fair Value of Other Financial Instruments

The ~~Company's~~Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable, amounts borrowed under the Credit Facility, ~~and~~ notes payable under special purpose ~~financing.~~financing and its derivative instruments. The fair value of accounts receivable, accounts payable and the ~~Company's~~Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments because of their short-term maturities. The fair value of finance lease receivables approximates the carrying value as discussed in ~~(d) below.~~Note 1(d). The fair value of the Company’s derivative instruments is discussed in Note 5.

Borrowings under the ~~Company's~~Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin. The Company believes the effective interest rate under the Credit Facility approximates current market rates for such indebtedness at the dates of the condensed consolidated balance ~~sheet date,~~sheets, and therefore that the outstanding principal and accrued interest of ~~$131,004,800~~$93,880,700 and ~~$134,278,900~~$122,539,300 at ~~September~~March ~~30, 2018~~31, 2019 and December 31, ~~2017,~~2018, respectively, approximate their fair values on such dates. The fair value of the ~~Company's~~Company’s outstanding balance of its Credit Facility is categorized as Level 3 under the GAAP fair value hierarchy.

~~The~~Before their repayment in February 2019 in connection with the Term Loans refinancing, the amounts payable under the ~~Company's~~UK LLC SPE Financing ~~are~~were payable through the fourth quarter of 2020 and ~~bear~~bore a fixed rate of interest, as described in Note 4(b) to. As discussed above, during February 2019, the ~~condensed consolidated financial statements.~~UK LLC SPE Financing and four assets that previously served as collateral under the Credit Facility were refinanced using the Term Loans. The Company believes ~~that~~ the effective interest rate under the special purpose ~~financing~~financings approximates current market rates for such indebtedness at the dates of the condensed consolidated balance ~~sheet date,~~sheets, and therefore that the outstanding principal and accrued interest of ~~$10,321,300~~$42,847,700 and ~~$13,535,300~~$9,227,200 approximate their fair values at ~~September~~ March 31~~30, 2018~~, 2019 and December 31, ~~2017,~~2018, respectively. Such fair value is categorized as Level 3 under the GAAP fair value hierarchy.

~~(d) Finance Leases~~

AsThere were no transfers in or out of ~~September~~ ~~30,~~assets or liabilities measured at fair value under Level 3 during 2018 the Company had three aircraft subject to sales-type finance leases and three aircraft subject to direct financing leases. All six leases contain lessee bargain purchase options at prices substantially below the subject assets' estimated residual values at the exercise date for the options. Consequently, the Company has classified each of these six leases as finance leases for financial accounting purposes. For such finance leases, the Company reports the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option as a finance lease receivable on its balance sheet and accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease over the term of the lease. For each ofor the three sales-type finance leases, the Company recognized as a gain or loss the amount equal to (i) the net investment in the sales-type finance lease plus any initial direct costs and lease incentives less (ii) the net book value of the subject aircraft at inception of the applicable lease.months ended March 31, 2019.

~~The~~8. Acquisition of Management Company ~~recognized interest earned on finance leases in the amount of~~ ~~$261,700~~ ~~and $415,700 in the quarters ended September 30, 2018 and 2017, respectively and~~ ~~$1,002,100~~ ~~and $1,173,400 in the nine-month periods ended September 30, 2018 and 2017, respectively.~~

~~(e) Recent Accounting Pronouncements~~ In October 2017, AeroCentury, JHC and certain other parties entered into the Merger Agreement for the acquisition of JHC by AeroCentury for consideration of approximately $2.9 million in cash and 129,217 shares of common stock of AeroCentury, as determined pursuant to the Merger Agreement. JHC is the sole shareholder of JMC, which is the manager of the Company’s assets as described in Note 11 below. The Merger was consummated on October 1, 2018. AeroCentury’s common stock issued as consideration in the Merger was offered and sold pursuant to an exemption from registration under Section 3(a)(10) of the Securities Act of 1933.

~~Topic 606~~

~~In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 that created the new~~ ~~Topic 606~~ ("Topic 606") in the Accounting Standards Codification ("ASC"). Topic 606 also included numerous conforming additions and amendments to other Topics within the ASC. Topic 606 established new rules that affect the amount and timing of revenue recognition for contracts with customers, but does not affect lease accounting and reporting. As such, adoption of these provisions has not affected the Company's lease revenues. On August 12, 2015, the FASB deferred the effective date of the provisions included in Topic 606 to years commencing after December 15, 2017, although early adoption was permitted for the year ended December 31, 2017. As such, the Company adopted Topic 606 as of January 1, 2018. Adoption may be reflected using either a full retrospective method, applying the standard to all periods presented, or a simplified method that does not recast prior periods but does disclose the effect of the adoption on the current period condensed consolidated financial statements. Since most of the Company's revenues arise from its lease contracts, which are not affected by the new standard, and since the Company's revenue recognition for other sources of revenue is generally the same as it was under previous accounting standards, ~~adoption of Topic 606 in the current year, using the modified retrospective approach, has had no effect on its condensed consolidated financial statements.~~

~~ASU 2016-02~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ ("ASU 2016-02"). ASU 2016-02 is effective for public companies for years beginning after December 15, 2018, although early adoption is permitted. ASU 2016-02 substantially modifies lessee accounting for leases, requiring that lessees recognize lease assets and liabilities for leases extending beyond one year. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The new standard requires a lessor to classify leases as sales-type, finance, or operating. A lease will be treated as sales-type if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results. A modified retrospective transition approach is required for lessors for sales-type, finance, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is reviewing those agreements under which it is the lessor and is evaluating the impact of the adoption of ASU 2016-02 on its condensed consolidated financial statements and related disclosures. The Company does not expect to adopt ASU 2016-02 early, and expects to elect practical expedients in connection with its adoption, including not re-evaluating lease classification or capitalized initial direct costs on existing leases.

As of September 30, 2018, the Company was not a lessee under any agreements that would be considered leases under ASU 2016-02, and so would be unaffected with respect to its adoption with respect to lessee accounting. As a result of the ~~Company's acquisition of JHC on October 1, 2018,~~Merger, the Company ~~became~~indirectly assumed all of JHC’s assets, comprised primarily of securities, prepaid expenses and an office lease, as well as liabilities of approximately $0.9 million. As a ~~lessee under a real estate lease and will need to evaluate reporting for that lease under ASU 2016-02.~~

~~ASU 2017-01~~

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805)~~ ("ASU 2017-01"). ASU 2017-01 is effective for public companies for years beginning after December 15, 2017, although early adoption is permitted. ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted ASU 2017-01 effective beginning the quarter ended March 31, 2017, and determined that none of its acquired assets qualify as a business, such that no gain, loss or adjustment to the carrying value of assets was required in connection with such adoption.

~~ASU 2017-04~~

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles -- Goodwill and Other (Topic 350)~~ ~~("ASU 2017-04"), which provides for simplification~~subsidiary of the ~~test for goodwill impairment. Under~~Company, JHC’s results are included in the revised standard, "step 2" of the test under the previous standard is eliminated and (i) the fair value of the reporting unit is compared to its carrying value, with (ii) an impairment charge up to the amount of goodwill recognized for the excess of carrying value over fair value (considering the income tax effects of deductible goodwill, if applicable). The new provisions are required to be adopted for fiscal years beginning after December 15, 2019, although the Company has elected to early adopt the new provisions beginning with its quarter ended March 31, 2017. Adoption of ASU 2017-04 has had no effect on the financial results or position of the Company.

~~SAB 118~~

In December of 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), which had numerous effects on U.S. corporate taxation, including reducing the federal corporate tax rate to 21%, substantially modifying the U.S. taxation of international investments and transactions, and repealing the alternative minimum tax. In December of 2017, the Staff of the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides that companies should reflect in their financial statements the effects of the change in tax law in which the accounting is complete, as such completion occurs; provisional amounts for such effects for which the company can determine a reasonable estimate, as such estimates can be made; and continued accounting under the provisions of the law as it existed before enactment of the Tax Act for such effects for which no reasonable estimate under the new law can be made, until such a reasonable estimate is available and a provisional amount can be reported. Under SAB 118, in no event should the period during which a company is obtaining, preparing, and analyzing the information needed to complete the accounting for the effects of the change in tax law exceed one year from enactment (the "measurement period"), or the fourth quarter of 2018. The Company has reflected the effects of the Tax Act in theseCompany’s condensed consolidated financial statements ~~and does not expect further analysis will be required.~~

~~2. Finance Leases Receivable~~beginning on October 1, 2018.

During the third quarter of 2018, a customer that leased six of the Company's aircraft under sales-type finance leases purchased three of those aircraft in amounts equal to the outstanding balance under the applicable finance leases. The purchase price was paid in the form of (i) $1,088,700 in cash, (ii) $1,675,100 of maintenance reserves previously paid to the Company for one of the purchased aircraftquarters ended March 31, 2019 and (iii) $2,618,100 of maintenance reserves previously paid to the Company for two aircraft that remain under sales-type finance leases with the customer. Such reserves are no longer available to the customer for reimbursement of maintenance claims under the applicable lease provisions pursuant to which the reserves were paid. The Company did not record a gain or loss on the sale of the aircraft.

At ~~September~~ ~~30, 2018 and December 31, 2017, the net investment included in finance leases and direct financing leases receivable were as follows:~~

September 30,
2018

December 31,
2017

Gross minimum lease payments receivable $ 18,160,700 $ 27,074,400
Less unearned interest (2,105,200 ) (3,513,400 )
Finance leases receivable $ 16,055,500 $ 23,561,000

~~As of~~ ~~September~~ ~~30, 2018, minimum future payments receivable under finance leases were as follows:~~

Years ending

Remainder of 2018 $ 1,891,500
2019 4,047,600
2020 4,208,600
2021 4,805,000
2022 3,208,000
$ 18,160,700

~~3. Aircraft and Aircraft Engines Held for Lease or Sale~~

~~(a) Assets Held for Lease~~

At ~~September~~ ~~30, 2018 and December 31, 2017, the Company's aircraft and aircraft engines held for lease consisted of the following:~~

September 30, 2018

December 31, 2017

Type
Number
Owned
% of net book value
Number
owned
% of net book value
Regional jet aircraft 13 81 % 13 82 %
Turboprop aircraft 4 18 % 10 17 %
Engines 1 1 % 1 1 %

~~During the first half of~~ 2018, the Company ~~recorded $1,629,000 in other income resulting from cash received from the previous lessee~~accrued $0 and $200,000, respectively, of three aircraft that were returned to the Company during 2017. Such payments were for unpaid maintenance reserves, as well as amounts due pursuant to the return conditions of the applicable leases. The Company did not accrue unpaid reserves or return condition amounts at the time of lease termination based on management's evaluation of the creditworthiness of the lessee. Therefore, the Company is accounting for payments as they are received and recording the amounts received in other income in the period in which a payment is received. The Company received no such payments during the third quarter of 2018.

The Company acquired no aircraft during the third quarter of 2018. During the third quarter of 2017, the Company used $10,557,400 for the acquisition of an Embraer 175 aircraft on lease to a customer in the United States and acquisition costs related to aircraft acquired earlier in the year.

During the third quarter of 2018, the Company sold two turboprop aircraft and recorded a loss of $2,384,300. During the third quarter of 2017, the Company sold two spare turboprop engines and recorded a loss of $173,700.

~~None of the Company's aircraft and engines held for lease were off lease at~~ ~~September~~ ~~30, 2018. As discussed below, the Company has four off-lease aircraft that were reclassified as held for sale during the third quarter.~~

~~As of~~ ~~September~~ ~~30, 2018, minimum future lease revenue payments receivable under noncancelable operating leases were as follows:~~

Years ending

Remainder of 2018 $ 7,185,500
2019 28,381,100
2020 25,797,800
2021 18,696,400
2022 16,738,800
Thereafter 34,687,700
$ 131,487,300

~~(b)Assets Held for Sale~~

~~Assets held for sale at~~ ~~September~~ 30, 2018 consist of four off-lease turboprop aircraft and airframe parts from two turboprop aircraft. During the third quarter, the Company recorded impairment provisions totaling $2,673,300 for the four aircraft and reclassified them from assets held for lease to assets held for sale.

During the third quarter of 2018, the Company received $89,200 in cash and accrued $92,400 in receivables for parts sales. These amounts were accounted for as follows: $41,100 reduced accounts receivable for parts sales accrued in the second quarter of 2018, $124,500 reduced the carrying value of the parts, and $16,000 was recorded as gains in excess of the carrying value of the parts. During the three months ended September 30, 2017, the Company received $47,500 from the sale of parts. Of such amount, $44,000 reduced the carrying value of the parts and $3,500 was recorded as gains in excess of the carrying value of the parts.

~~4. Notes Payable and Accrued Interest~~

~~At September 30, 2018 and December 31, 2017, the Company's notes payable and accrued interest consisted of the following:~~

September 30,
2018

December 31,
2017

Credit Facility:
   Principal $ 130,800,000 $ 134,000,000
   Unamortized debt issuance costs (1,078,900 ) (2,216,000 )
   Accrued interest 204,800 278,900
Special purpose financing:
   Principal 10,304,700 13,511,900
   Accrued interest 16,600 23,400
$ 140,247,200 $ 145,598,200

~~(a) Credit Facility~~

The Company's $170 million Credit Facility is provided by a syndicate of banks and is secured by all of the assets of the Company, including its aircraft and engine portfolio, except for the aircraft that serve as collateral for the Company's SPE Financing. The Credit Facility, which expires on May 31, 2019, can be expanded to a maximum of $180 million. The Company is negotiating with lenders for an extension of the Credit Facility and a new non-recourse term loan that would be secured by certain of the regional jet aircraft in its portfolio, and expects these transactions, if completed, to close prior to the expiration of the current credit facility.

~~The Company was not in compliance with the interest coverage, debt service coverage and revenue concentration covenants under the Credit Facility at~~ ~~September~~ ~~30, 2018. The Company obtained a waiver from the Credit Facility lenders in November 2018 for the September 30, 2018 non-compliance. There were no fees or penalties~~expenses related to the ~~waiver. In addition, based on appraisals obtained~~Merger transaction. Such expenses are included in ~~October 2018 for four assets held for sale,~~professional fees, general and administrative and other in the ~~Company had a borrowing base deficiency~~Company’s condensed consolidated statements of ~~approximately $1,400,000 at September 30, 2018. The Company cured the deficiency in October by making a principal payment of $2,000,000 on the Credit Facility.~~

~~The Company was in compliance with all covenants under the Credit Facility at December 31, 2017.~~

~~The unused amount of the Credit Facility was $39,200,000 and $36,000,000 as of~~ ~~September~~ ~~30, 2018 and December 31, 2017, respectively.~~operations.

~~The weighted average interest rate on the Credit Facility was 5.61%~~9. Commitments and ~~5.21% at September 30, 2018 and~~ Contingencies~~December~~ ~~31, 2017, respectively.~~

~~(b)SPE Financing~~

In August 2016, the Company acquired two regional jet aircraft using cash and financing separate from its Credit Facility. The separate SPE Financing resulted in note obligations of $9,805,600 and $9,804,300, which are being paid from a portion of the rent payments on the related aircraft leases through October 3, 2020 and November 7, 2020, respectively, and which bear interest at the rate of 4.455% per annum. The borrower under each note obligation is the special purpose entity that owns each aircraft. The notes are collateralized by the aircraft and are recourse only to the special purpose entity borrower and its aircraft asset, subject to standard exceptions for this type of financing. Payments due under the notes consist of quarterly principal and interest. The combined balance of the principal amount and accrued interest owed on these notes at September 30, 2018 and December 31, 2017 was ~~$10,321,300~~ ~~and $13,535,300, respectively.~~

~~5. Contingencies~~

In the ordinary ~~conduct~~course of the ~~Company's~~Company’s business, the Company may be subject to lawsuits, arbitrations and administrative proceedings from time to time. The Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on the Company's business, financial condition, liquidity or results of operations.

10. Computation of (Loss)/Earnings Per Share

Basic and diluted earnings per share are calculated as follows:

	For the Nine Months Ended September 30,					For the Three Months Ended September 30,					For the Three Months Ended March 31,
	2018			2017		2018			2017		2019			2018
Net (loss)/income	$	(4,247,600	)	$	1,381,700	$	(4,483,700	)	$	384,500	$	(1,308,200	)	$	317,300
Weighted average shares outstanding for the period		1,416,699			1,460,655		1,416,699			1,416,699
Weighted average shares outstanding for the period used in computation of basic and diluted (loss)/earnings per share												1,545,884			1,416,699
Basic (loss)/earnings per share	$	(3.00	)	$	0.95	$	(3.16	)	$	0.27	$	(0.85	)	$	0.22
Diluted (loss)/earnings per share	$	(3.00	)	$	0.95	$	(3.16	)	$	0.27	$	(0.85	)	$	0.22

Basic (loss)/earnings per common share is computed using net (loss)/income and the weighted average number of common shares outstanding during the period. Diluted (loss)/earnings per common share ~~are~~is computed using net (loss)/income and the weighted average number of common shares outstanding, assuming dilution. Weighted average common shares outstanding, assuming dilution, include potentially dilutive common shares outstanding during the period.

~~7. Acquisition of Management Company~~

In October 2017, the Company and JetFleet Holding Corp. ("JHC") entered into an Agreement and Plan of Merger (the "Merger Agreement") for the acquisition of JHC by the Company in a reverse triangular merger ("Merger") for consideration of approximately $2.8 million in cash and 129,286 shares of common stock of the Company, as determined pursuant to the Merger Agreement. JHC is the sole shareholder of JetFleet Management Corp, ("JMC"), which is the manager of the Company's assets as described in Note 8 below. ~~The Merger was consummated on October 1, 2018.~~ The Company's common stock issued as consideration in the Merger was offered and sold pursuant to an exemption from registration under Section 3(a)(10) of the Securities Act of 1933, as the California Department of Business Oversight (the "DBO") had issued a permit for the issuance of such securities to JHC's shareholders on February 22, 2018 after a fairness hearing before the DBO.

As a subsidiary of the Company, JHC's results will be included in the Company's consolidated financial statements beginning in the fourth quarter of 2018. The Company will be responsible for all expenses incurred by JMC in managing the Company, including employee salaries, office rent and all other general and administrative expenses. As a result of the Merger, the Company assumed all of JHC's assets, comprised primarily of marketable securities, prepaid expenses and an office lease, as well as liabilities of approximately $0.9 million.

~~During the quarter and nine months ended~~ ~~September~~ ~~30, 2018, the Company accrued $77,200 and $341,400, respectively, of expenses related to the proposed Merger transaction. During the quarter and nine months ended~~ ~~September~~ 30, 2017, the Company accrued $161,800 and $287,700, respectively, of expenses related to the Merger transaction. Such expenses are included in professional fees, general and administrative and other in the Company's condensed consolidated statements of operations.

811. Related Party Transactions

See the description of the Merger Agreement between the Company and JHC in Note 78 above, pursuant to which the Company acquired JHC in the Merger and JHC became a wholly owned subsidiary of the Company on October 1, 2018.

Before completion of the Merger, the ~~Company's~~Company’s portfolio of ~~leased~~ aircraft assets ~~were~~was managed and administered under the terms of a management agreement ~~(the "Management Agreement")~~ with JMC ~~which is an integrated aircraft management, marketing and financing business.~~(the “Management Agreement”). Certain officers of the Company were also officers of JHC and JMC and held significant ownership positions in both JHC and the ~~Company.~~Company, and JHC was also a significant stockholder of AeroCentury. Under the Management Agreement, JMC received a monthly management fee based on the net asset value of the Company’s assets under management. JMC also received an acquisition fee for locating assets for the Company. Acquisition fees were included in the cost basis of the asset purchased. JMC also received a remarketing fee in connection with the re-lease or sale of the ~~Company's~~Company’s assets. Remarketing fees were amortized over the applicable lease term or included in the gain or loss on sale.

In April 2018, subsequent to the execution of the Merger Agreement, the Company, JHC and JMC entered into a waiver and reimbursement agreement (the "Waiver/Reimbursement Agreement"), pursuant to which JHC and JMC agreed to waive their right to receive management and acquisition fees ("Contract Fees") otherwise owed by the Company to JMC pursuant to the Management Agreement for all periods after March 31, 2018 and until the consummation of the Merger, and in return, the Company agreed to reimburse JMC for expenses ("Management Expense") incurred in providing management services set forth under the Management Agreement. As a result, the Company has been responsible for all expenses incurred by JMC in managing the Company's assets beginning April 1, 2018 and will continue to be responsible for all such expenses in all periods after the Merger, and no Contract Fees have been or will be payable by the Company to JMC for those periods.

Notwithstanding the Waiver/Reimbursement Agreement, the Company accrued as an expense the Contract Fees that would have been due under the Management Agreement through September 30, 2018. For the quarter ended ~~September~~ 30, 2018, Contract Fees exceeded the Management Expense by $525,900 of management fees. For the nine months ended September 30, 2018, Contract Fees exceeded the Management Expense by $1,023,100 of management fees and $494,400 of acquisition fees (collectively, the "JMC Margin"). The amount of the JMC Margin will be considered in the acquisition accounting for the calculation of the settlement loss that will be recognized by the Company in the fourth quarter of 2018, upon closing of the Merger.

~~Contract~~ Fees incurred during the three months ~~and nine months~~ ended ~~September~~ ~~30,~~March 31, 2018 ~~and 2017 were as follows:~~

For the Nine Months Ended September 30,

For the Three Months
Ended September 30,

2018 2017 2018 2017
Management fees $ 4,482,800 4,588,700 $ 1,534,000 $ 1,583,700
Acquisition fees 494,400 850,500 - 208,600
Remarketing fees - 51,100 - -

~~In March 2017, the Company exchanged one~~consisted of ~~its engines for 150,000 shares~~$1,446,800 of ~~common stock of the Company held by a holder of more than 5% of the Company's then-outstanding common stock. The Company recorded no gain or loss related to the exchange.~~management fees.

~~9. Subsequent Events~~

As discussed in Notes 7 and 8, the Company's acquisition of JHC was consummated on October 1, 2018, for consideration of approximately $2.8 million in cash and 129,286 shares of common stock of the Company. As a subsidiary of the Company, JHC's results will be included in the Company's consolidated financial statements beginning in the fourth quarter of 2018. As a result of the Merger, the Company assumed JHC liabilities of approximately $0.9 million. The Company also became a lessee under a real estate lease and will need to evaluate reporting for that lease under ASU 2016-2.

Item 2.~~Management's~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read ~~in conjunction~~together with the ~~Company's Form 10-K for the year ended December 31, 2017 and the~~Company’s unaudited condensed consolidated financial statements and the related notes ~~that appear elsewhere~~included in this report. ~~Pursuant to Instruction 2 to Item 303(b) of Regulation S-K promulgated by the Securities~~This discussion and Exchange Commission, in preparing this discussion, the Company has presumed that readers have access to and have read the discussion under the same heading that appears in the Company's Form 10-K for the year ended December 31, 2017. The following discussionanalysis contains forward-looking statements. Please see the cautionary note regarding these statements at the beginning of this report.

Overview

~~AeroCentury~~The Company provides leasing and finance services to regional airlines worldwide. The Company is principally engaged in leasing its aircraft portfolio, primarily consisting of mid-life regional aircraft, through operating leases and finance leases to isits globally diverse customer base of eleven ~~lessees~~airlines in nine countries. In addition to leasing activities, the Company sells aircraft from its operating lease portfolio to third parties, including other leasing companies, financial services companies, and airlines. Its operating performance is driven by the ~~growth~~composition of its aircraft portfolio, the terms of its leases, the interest rate of its debt, as well as asset sales.

The Company ~~did not purchase any~~purchased no aircraft during the ~~third~~first quarter of ~~2018, but~~2019. During the same period, the Company sold ~~two~~one aircraft ~~during this quarter.~~for cash, and reclassified an engine from held for lease to held for sale. The Company ended the ~~period~~quarter with a total of ~~seventeen~~sixteen aircraft ~~and one engine~~ held for lease, with a net book value of approximately ~~$187~~$174 million. This 4%represents a 5% decrease compared to the net book value of the Company’s aircraft and engines held for lease at December 31, ~~2017 is a result of~~2018. In addition to the aircraft ~~purchases in the second quarter of 2018, four asset sales during the first nine months of 2018, depreciation on the Company's remaining assets~~ held for lease ~~and~~at quarter-end, the ~~reclassification in the third quarter of four assets from~~Company held ~~for lease to held for sale. The Company also owns~~ six aircraft subject to finance leases and three ~~of which were acquired in 2017.~~aircraft and an engine held for sale.

Average portfolio utilization was approximately ~~93% during the third quarter of 2018 compared to approximately 93% during the same period in 2017,~~98% and ~~approximately 91%~~90% during the first ~~nine months~~quarters of 2019 and 2018, ~~compared to approximately 94% during the first nine months of 2017.~~respectively. The ~~decrease between the nine-month periods~~year-to-year increase was due to ~~asset~~ sales during 2018 of ~~previously-leased~~ assets ~~during 2017 and~~that were off lease in the 2018 ~~as well as the return of several aircraft at lease -end in 2017.~~period.

~~In July 2017, the Company expanded its revolving credit facility (referred to as the "Credit Facility" or the "credit facility") from $150 million to $170 million.~~ The unused ~~amount of~~available borrowing capacity under the Company’s Credit Facility was ~~$39.2~~$51.3 million as of ~~September~~ ~~30, 2018. The~~March 31, 2019, and the weighted average interest rate onwas 6%. In February 2019, the Credit Facility, which was ~~5.61% at~~to expire on May 31, 2019, was extended to February 19, 2023 and was amended in certain other respects as described under ~~September~~ Liquidity and Capital Resources,~~30, 2018.~~ [~~The~~ below. Also in February 2019, the Company ~~is negotiating~~refinanced, using new non-recourse Term Loans with ~~lenders for~~ an ~~extension~~aggregate principal of $44.3 million, four aircraft that previously served as collateral under the Credit Facility and ~~a new non-recourse term loan~~two aircraft that ~~would be secured by certain of the regional jet aircraft~~ ~~in its portfolio~~previously served as collateral under special purpose subsidiary financing.~~, and expects these transactions, if completed, to close prior to expiration of the current credit facility.~~

Net loss for the first quarter ~~ended~~ ~~September~~ ~~30, 2018~~of 2019 was ~~$4.5~~$1.3 million, compared to net income of ~~$0.4~~$0.3 million in the ~~same period~~first quarter of ~~2017,~~2018, resulting in basic and diluted (loss)/earnings per share of ~~$(3.16)~~$(0.85) and ~~$0.27 respectively. Net loss for the nine months ended~~ ~~September~~ ~~30, 2018 was $4.2 million, compared to net income of $1.4 million in the same period of 2017, resulting in basic and diluted (loss)/earnings per share of $(3.00) and $0.95,~~$0.22, respectively. Pre-tax profit margin (which the Company calculates as its (loss)/income before income tax (benefit)/provision as a percentage of its revenues and other income) was (22%) in the first quarter of 2019 compared to 6% for the ~~quarter ended~~ ~~September~~ ~~30, 2018 was (113%) compared to 8% for the third~~first quarter of ~~2017, and pre-tax profit margin for the nine months ended~~ ~~September~~ ~~30, 2018 was (26%) compared to 9% for the same period of 2017.~~

2018.

On October 1, 2018, the Company acquired JHC by way of ~~a reverse triangular merger (the "Merger"), JetFleet Holding Corp. ("JHC").~~the Merger. JHC is the owner of ~~JetFleet Management Corp. ("JMC"),~~JMC, the integrated aircraft management, marketing and financing business that manages and administers the Company's portfolio of ~~leased~~ aircraft assets. Before the Merger, such management and administration ~~was~~were performed pursuant to the terms of ~~a management agreement (the "Management Agreement")~~the Management Agreement between the Company and JMC. ~~Post-Merger,~~After the Merger, the management and administration services provided under the Management Agreement have become internalized and under the control and management of the Company itself. Expenses incurred by JMC in providing services under the Management Agreement are, as of October 1, 2018, expenses of the Company reflected in the ~~Company's~~Company’s financial statements. In addition, after October 1, 2018, the management, acquisition and remarketing fees previously paid by the Company to JMC as an unconsolidated third party ~~will~~are no longer be reflected in the ~~Company's~~Company’s financial statements; rather, the expenses incurred by JMC in managing and administering the ~~Company's~~Company’s assets ~~will be~~are borne by the Company directly and reflected in its financial statements accordingly.

Fleet Summary

(a) Assets Held for Lease

Key portfolio metrics of the ~~Company's~~Company’s aircraft held for lease as of ~~September~~ March 31~~30, 2018~~, 2019 and December 31, ~~2017~~2018 were as follows:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Number of aircraft and engines held for lease		18		24		16		18

Weighted average fleet age	10.8 years		11.4 years		11.1 years		11.1 years
Weighted average remaining lease term	61 months		58 months		57 months		58 months
Aggregate fleet net book value	$	187,093,000	$	195,098,200	$	174,310,900	$	184,019,900

For the Nine Months
Ended September 30,

For the Three Months
Ended September 30,

2018 2017 2018 2017

Average portfolio utilization
91 % 94 % 93 % 93 %

	For the Three Months Ended March 31,
	2019	2018
Average portfolio utilization	98%	90%

~~Average portfolio utilization remained flat between the third quarters of 2018 and 2017.~~ The ~~decrease in average portfolio utilization between the first nine months of 2017 and the first nine months of 2018~~year-to-year increase was primarily due to ~~asset~~ sales during ~~late 2017 and~~ 2018 ~~as well as~~of assets that were off lease in the ~~return of several aircraft at lease end in 2017.~~2018 period.

The following table sets forth the net book value and percentage of the net book value, by type, of the ~~Company's~~Company’s assets that were held for lease at ~~September~~ March 31~~30, 2018~~, 2019 and December 31, ~~2017:~~2018:

September 30, 2018
December 31, 2017
Type
Number
owned
% of net book value
Number
owned
% of net book value
Turboprop aircraft:
  Bombardier Dash-8-400 2 13 % 2 7 %
  Bombardier Dash-8-300 2 5 % 3 6 %
  Saab 340B Plus - - % 4 3 %
  Saab 340B - - % 1 1 %

Regional jet aircraft:
  Canadair 900 (*) 5 39 % 5 38 %
  Embraer 175 3 16 % 3 16 %
  Canadair 1000 2 14 % 2 15 %
  Canadair 700 3 12 % 3 13 %

Engines:
  Pratt & Whitney 150A 1 1 % 1 1 %

~~(*) Amounts for December 31, 2017 include a Canadair 705 that was converted to a Canadair 900 in 2018.~~

	March 31, 2019					December 31, 2018
Type	Number owned		% of net book value			Number owned		% of net book value
Turboprop aircraft:
Bombardier Dash-8-400		2		14	%		2		13	%
Bombardier Dash-8-300		1		2	%		2		5	%
Saab 340B Plus		-		-	%		-		-	%
Saab 340B		-		-	%		-		-	%

Regional jet aircraft:
Canadair 900		5		40	%		5		39	%
Embraer 175		3		17	%		3		16	%
Canadair 1000		2		14	%		2		14	%
Canadair 700		3		13	%		3		12	%

Engines:
Pratt & Whitney 150A		-		-	%		1		1	%

During the ~~third~~first quarter of 2019, the Company purchased no aircraft, and sold one aircraft and certain aircraft parts. During the first quarter of 2018, the Company purchased no aircraft and sold two aircraft. During the first nine months of 2018, the Company purchased two aircraft subject to operating leases and sold four aircraft and certain aircraft parts. During the third quarter of 2017, the Company purchased one aircraft subject to an operating lease and sold no aircraft. During the first nine months of 2017, the Company purchased three aircraft subject to operating leases and three aircraft that ~~the Company leased pursuant to direct financing leases in a sale and leaseback transaction, and sold one aircraft pursuant to a sales-type finance~~were held for lease ~~three spare engines~~ and parts from ~~two~~ assets that ~~are~~were held for sale.

The following table sets forth the net book value and percentage of the net book value of the ~~Company's~~Company’s assets that were held for lease at ~~September~~ March 31~~30, 2018~~, 2019 and December 31, ~~2017~~2018 in the indicated regions (based on the domicile of the lessee):

	September 30, 2018					December 31, 2017					March 31, 2019					December 31, 2018
Region	Net book value		% of net book value			Net book value		% of net book value			Net book value		% of net book value			Net book value		% of net book value
Europe	$	111,920,600		60	%	$	92,108,500		47	%	$	107,953,500		62	%	$	110,069,000		60	%
North America		69,431,700		37	%		72,270,700		37	%		66,357,400		38	%		68,485,400		37	%
Asia		5,740,600		3	%		6,082,100		3	%		-		-	%		5,465,500		3	%
Off lease		-		-	%		24,636,900		13	%
	$	187,092,900		100	%	$	195,098,200		100	%	$	174,310,900		100	%	$	184,019,900		100	%

For the ~~quarter~~three months ended ~~September~~March ~~30, 2018,~~31, 2019, approximately 29%, 27% and 20% of the ~~Company's~~Company’s operating lease revenue was derived from customers in Slovenia, the United States and Spain, respectively. Operating lease revenue does not include interest income from the ~~Company's~~Company’s finance leases. The following table sets forth geographic information about the ~~Company's~~Company’s operating lease revenue for leased aircraft and aircraft equipment, grouped by domicile of the lessee:

	For the Three Months Ended September 30,										For the Three Months Ended March 31,
	2018					2017					2019					2018
Region	Number of lessees		% of operating lease revenue			Number of lessees		% of operating lease revenue			Number of lessees		% of operating lease revenue			Number of lessees		% of operating lease revenue
Europe		4		60	%		4		48	%		4		60	%		3		56	%
North America		4		35	%		4		33	%		4		36	%		4		39	%
Africa		-		-			1		11	%
Asia		1		5	%		1		4	%		1		4	%		1		5	%
Australia		-		-			1		4	%

At ~~September~~ March 31~~30, 2018~~, 2019 and December 31, ~~2017,~~2018, the Company also had six aircraft ~~and nine aircraft, respectively,~~ subject to finance leases. For the quarter ended ~~September~~ March 31~~30, 2018,~~, 2019, approximately ~~61%~~62% and ~~39%~~38% of the ~~Company's~~Company’s finance lease revenue was derived from customers in Africa and Europe, respectively.

(b) Assets Held for Sale

~~At September 30, 2018, the Company also had four aircraft~~Assets held for sale ~~comprised~~at March 31, 2019 consisted of two Saab 340B Plus turboprop aircraft, one Bombardier Dash-8-300 aircraft, one Pratt & Whitney 150A engine and ~~one Bombardier Dash-8-400~~airframe parts from two turboprop aircraft.

Results of Operations

(a) ~~Quarter ended September 30, 2018 compared to the quarter ended September 30, 2017~~

~~(i)~~ Revenues and Other Income

Revenues and other income ~~for the quarter ended~~ ~~September~~ ~~30, 2018~~ decreased by ~~$3.3~~4% to $7.6 million ~~compared to~~in the ~~third~~first quarter of ~~2017.~~2019 from $7.9 million in the first quarter of 2018. The decrease was primarily a result of ~~losses incurred~~decreased maintenance reserves and finance lease revenues, the effects of which were partially offset by increases in operating lease revenues and gains on the sale of ~~two assets, decreased operating lease revenues and decreased maintenance reserves revenues.~~older assets.

Operating lease revenue ~~decreased~~increased by 5%11% to ~~$7.2~~$7.1 million in the ~~third~~first quarter of 2019 from $6.5 million in the first quarter of 2018, ~~from $7.6 million in the third quarter of 2017,~~ primarily due to (i) the loss of revenue from assets that were on lease during the 2017 quarter, but off lease in 2018 and (ii) the loss of revenue from aircraft that were sold during 2017. Such decreases were partially offset by revenue from assets purchased in ~~mid-2017 and in~~ the ~~first six months~~second quarter of 2018.

Finance lease revenue decreased by ~~37%~~38% to ~~$0.3~~$0.2 million in the ~~third~~first quarter of ~~2018,~~2019 from $0.4 million in the ~~third~~first quarter of ~~2017,~~2018, primarily due to a lower finance lease receivables balance in the ~~2018 period.~~2019 period and the purchase by the lessee of three aircraft subject to finance leases during the third quarter of 2018.

Maintenance reserves that are retained by the Company at lease end are recorded as revenue at that time. The Company recorded no such revenue during the ~~third~~first quarter of ~~2018.~~2019. During the ~~third~~first quarter of ~~2017,~~2018, the Company recorded ~~maintenance reserves~~$1.1 million of such revenue, arising from cash received from the former lessee of ~~$0.3 million related~~three aircraft after such aircraft were returned to ~~retained maintenance reserves~~the Company by the lessee during 2017. Such amounts were not accrued at ~~the time of~~ lease termination ~~for two aircraft.~~based on management’s evaluation of the creditworthiness of the lessee.

During the ~~third~~first quarter of 2019, the Company recorded gains totaling approximately $0.2 million on the sale of an aircraft and aircraft parts. During the first quarter of 2018, the Company sold two aircraft and recorded ~~losses totaling $2.4 million.~~a net loss of $8,200.

(b) Expenses

~~(ii) Expenses~~

~~Expenses for the quarter ended~~ ~~September~~ ~~30, 2018~~Total expenses increased by ~~$3.1~~25% to $9.2 million ~~compared to~~in the ~~third~~first quarter of ~~2017.~~2019 from $7.4 million in the first quarter of 2018. The increase was primarily a result of increases in ~~asset impairment provisions,~~ interest ~~expenses~~expense, salaries and ~~maintenance expenses between periods, partially offset by decreases in management fees~~employee benefits and professional fees, general and administrative and other ~~expenses.~~expenses and asset impairment provisions. These increases were partially offset by a decrease in management fees.

The ~~Company's~~Company’s interest expense increased by ~~15%~~29% to ~~$2.5~~$2.9 million in the ~~third~~first quarter of ~~2018,~~2019 from ~~$2.1~~$2.3 million in the same period of ~~2017,~~2018, primarily as a result of ~~both~~a higher average debt balance, a higher average interest rate and ~~higher fee amortization in~~$0.4 million of valuation charges related to the ~~2018 period, the effects of which were partially offset by a lower average debt balance in the 2018 period.~~Company’s interest rate swaps.

~~The average net book value~~Until the acquisition of ~~assets held for lease during the third quarters of~~JHC on October 1, 2018, ~~and 2017 was approximately $201.6 million and $207.9 million, respectively. Management~~management fees ~~which are~~paid to JMC were based on the net book value of the ~~Company's~~Company’s aircraft and engines as well as finance lease receivable ~~balances, were 3% lower~~balances. After the Merger, JMC’s operating expenses, including salaries and employee benefits, became the responsibility of the Company. The total of management fees, salaries and employee benefits and professional fees, general and administrative and other expenses was approximately $1.4 million and $2.0 million in the ~~third quarter~~first quarters of 2019 and 2018, ~~as compared to the same period of 2017.~~

respectively. Professional fees, general and administrative and other expenses ~~for~~in the ~~quarters ended~~ ~~September~~ ~~30,~~ 2018 ~~and 2017~~period included ~~$77,200 and $161,800, respectively,~~$200,000 incurred in connection with the acquisition of JHC.

~~The Company's maintenance expense increased by 45% to $0.2 million in~~During the ~~third~~first quarter of ~~2018 from $0.2 million in the same period of 2017, primarily as a result of maintenance performed by the Company in the 2018 period on an off-lease aircraft to prepare it for sale or re-lease.~~

~~During the third quarter of 2018,~~2019, the Company recorded impairment ~~provisions~~charges totaling ~~$2.7~~$1.4 million on ~~four of its~~two aircraft and an engine held for sale, based on ~~appraised values. During the third quarter of 2017, the Company recorded an impairment provision of $0.1 million for one of its turboprop aircraft held for lease, based on its~~ expected sales ~~value.~~

~~(iii) Income tax (benefit)/provision~~

The Company's (benefit)/provision for income taxes changed from a provision of $0.3 million in the third quarter of 2017 to a benefit of $1.2 million in the same period of 2018. This change was primarily attributable to the losses on sale and provisions for impairment discussed above, as well as a decrease in the Company's effective tax rate from year to year.

~~(b)Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017~~

~~(i) Revenues and Other Income~~

~~Revenues and other income for the nine months ended~~ ~~September~~ 30, 2018 decreased by $3.7 million compared to the first nine months of 2017. The decrease was primarily a result of losses incurred on the sale of assets, decreased operating lease revenues and decreased maintenance reserves revenues, partially offset by increased other income.

Operating lease revenue decreased 7% to $20.5 million in the first nine months of 2018, from $22.0 million in the same period of 2017, primarily due to (i) the loss of revenue from assets that were on lease during the 2017 period, but off lease in 2018 and (ii) the loss of revenue from aircraft that were sold during 2017. Such decreases were partially offset by revenue from assets purchased in mid-2017 and in the second quarter of 2018.

Finance lease revenue decreased by 15% to $1.0 million in the nine months ended September 30, 2018, from $1.2 million in the nine months ended September 30, 2017, primarily due to a lower finance lease receivables balance in the 2018 period.

~~Maintenance reserves that are retained by the Company at lease end are recorded as revenue at that time.~~proceeds. The Company recorded no ~~such revenue~~impairment provisions during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Company recorded maintenance reserves revenue of $0.4 million related to an economic adjustment due from the lessee when an aircraft was returned at lease expiration and $0.6 million of retained maintenance reserves when four aircraft were returned at or prior to lease expiration.

~~During the nine months ended~~ ~~September~~ ~~30, 2018, the Company recorded gains totaling of approximately $90,000 on the sale of an aircraft and aircraft parts and losses totaling approximately $2.5 million on the sale of three aircraft.~~

~~During the nine months ended~~ ~~September~~ 30, 2017, the Company recorded a gain of $297,400 on the sale of an aircraft pursuant to a sales-type finance lease, gains totaling $43,200 related to the sale of parts from two assets that are held for sale, and a loss of $0.2 million on the sale of two spare engines. Also in the 2017 period, the Company exchanged one of its spare engines for 150,000 shares of the Company's common stock held by a stockholder, and recorded no gain or loss related to the exchange.

~~During the nine months ended~~ ~~September~~ 30, 2018, the Company recorded $1.6 million in other income resulting from cash received from the previous lessee of three aircraft that were returned to the Company during 2017. Such payments were for unpaid maintenance reserves, as well as amounts due pursuant to the return conditions of the applicable leases. The Company did not accrue unpaid reserves or return condition amounts at the time of lease termination based on management's evaluation of the creditworthiness of the lessee. Therefore, the Company is accounting for payments as they are received and is recording the amount in other income in the period in which a payment is received.

~~(ii) Expenses~~

~~Expenses for the nine months ended~~ ~~September~~ 30, 2018 increased by $3.9 million compared to the nine months ended September 30, 2017. The increase was primarily a result of increases in asset impairment provisions and interest expenses between periods, partially offset by decreases in management fees and maintenance fees.

~~The Company's interest expense increased by 29% to $7.1 million in the nine months ended~~ ~~September~~ 30, 2018 from $5.5 million in the same period of 2017, primarily as a result of both a higher average debt balance and a higher average interest rate in the 2018 period, as well as higher fee amortization.

~~The average net book value of assets held for lease during the nine months ended~~ ~~September~~ 30, 2018 and 2017 was approximately $198.4 million and $195.8 million, respectively. Management fees, which are based on the net book value of the Company's aircraft and engines as well as finance lease receivable balances, were 2% lower in the first ~~nine months of 2018 as compared to the same period of 2017.~~

~~Professional fees, general and administrative and other expenses for the nine months ended~~ ~~September~~ ~~30, 2018 and 2017 included $341,400 and $287,700, respectively, incurred in connection with the acquisition of JHC.~~

The Company's maintenance expense decreased by 51% to $0.4 million in the first nine months of 2018, from $0.8 million in the same period of 2017, as a result of a decrease in maintenance work performed by the Company on off-lease aircraft to prepare them for sale or re-lease.

~~During the nine months ended~~ ~~September~~ 30, 2018, the Company recorded impairments totaling $3.0 million on four aircraft held for sale, based on appraised values. During the nine months ended September 30, 2017, the Company recorded impairment provisions of $0.4 million for one of its aircraft held for lease, based on its appraised value, and $0.1 million on another aircraft, which was sold in October 2017, based on the net sales value agreed with the buyer during the third quarter of ~~2017.~~

~~(iii) Income tax (benefit)/provision~~

~~The Company's (benefit) provision for income taxes changed from a provision of $0.9 million in the nine months ended~~ ~~September~~ ~~30, 2017 to a benefit of $1.1 million in the same period of~~ 2018. ~~This change was primarily attributable to the losses on sale and provisions for impairment discussed above, as well as a decrease in the Company's effective tax rate from year to year.~~

Liquidity and Capital Resources

The Company is currently financing its assets and operations primarily through debt financing and excess cash ~~flows.~~flow from operations.

(a) Credit Facility

The Company has a ~~$170 million~~ Credit Facility, ~~that matures on May 31, 2019,~~ as described in Note 4(a) to the ~~Company's~~Company’s condensed consolidated financial statements in ~~Item 1 of~~ this ~~Quarterly Report on Form 10-Q. The Company is negotiating with lenders for an extension of~~report. In February 2019, the Credit Facility, which had availability of $170 million (with the ability for the Company to request an increase up to $180 million) and ~~a new non-recourse term loan that would be secured by~~was to mature on May 31, 2019, was extended to February 19, 2023, reduced to $145 million (with the ability for the Company to request an increase up to $160 million) and amended in certain other respects, including with respect to certain of the ~~regional jet aircraft in its portfolio~~, and expects these transactions, if completed, to close prior to expiration of the current credit facility. However, these transactions may not be completed when expected, on terms anticipated or favorable to the Company, or at all.Company’s financial covenants thereunder.

In addition to payment obligations (including principal and interest payments on outstanding borrowings and commitment fees based on the amount of any unused portion of the Credit Facility), the Credit Facility contains financial covenants with which the Company must comply, including, but not limited to, positive earnings requirements, minimum net worth standards and certain ratios, such as debt to equity ratios.

The Company was in compliance with all covenants under the Credit Facility at March 31, 2019. The Company was not in compliance with the interest coverage, debt service coverage, no-net-loss and revenue concentration covenants under the Credit Facility at ~~September~~ December 31~~30,~~, 2018. The ~~Company obtained a waiver from~~December 31, 2018 noncompliance was cured by the February 2019 amendment and restatement of the agreement governing the Credit Facility, ~~lenders in November 2018 for~~which also revised certain of these financial covenants requirements through the ~~September 30, 2018 non-compliance. There were no fees or penalties related to~~February 2023 maturity date of the waiver. In addition, based on appraisals obtained in October 2018 for four assets held for sale, the Company had a borrowing base deficiency of approximately $1,400,000 at September 30, 2018. The Company cured the deficiency in October by making a principal payment of $2,000,000 on theextended Credit Facility.

~~The Company was in compliance with all covenants under the Credit Facility at December 31, 2017.~~

If the Company ~~were to be~~is out of compliance with any of its Credit Facility covenants at future calculation dates, ~~the Company~~it would need to request waivers or amendments of applicable covenants from ~~its~~the lenders if such compliance failure ~~were~~is not timely cured. Any such future ~~non-compliance~~noncompliance that is not timely cured or waived would result in a default under the Credit Facility, which could have material negative consequences, as described further below.

The ~~Company's~~Company’s ability to ~~regain and~~ maintain compliance with its covenants in the Credit Facility is subject to a variety of factors, including, among others (i) unanticipated decreases in the market value of the ~~Company's~~Company’s assets, or in the rental rates deemed achievable for such assets, that cause the Company to record an impairment charge against earnings, (ii) lessee ~~non-compliance~~noncompliance with lease obligations, (iii) inability to locate new lessees for returned aircraft or equipment within a reasonable remarketing period, or at a rent level consistent with projected rates, (iv) inability to locate and acquire a sufficient volume of additional assets at prices that will produce acceptable net returns, (v) increases in interest rates, orand (vi) inability to timely dispose of off-lease assets at prices commensurate with their market value.

Any default under the Credit Facility, if not cured in the time permitted ~~under the facility~~ or waived by the lenders, could result in the ~~Company's~~Company’s inability to borrow any further amounts under the Credit Facility, the acceleration of the ~~Company's~~Company’s obligation to repay amounts borrowed under the Credit Facility, or foreclosure upon any or all of the assets of the Company.

In order to reduce its exposure to the risk of increased interest rates The Company entered into two Swaps in March 2019, which have an aggregate total notional amount equal to $50 million and extend through the maturity of the Credit Facility in February of 2023.

(b) Special ~~purpose financings~~Purpose Financing and Term Loans

In August 2016, the Company acquired, using wholly-owned special purpose entities, two regional jet aircraft, using cash and third-party financing (referred to as ~~"special~~“special purpose ~~financing~~financing” or ~~"SPE Financing"~~“UK LLC SPE Financing”) separate from ~~its~~the Credit Facility, as described in Note 4(b) to the ~~Company's~~Company’s condensed consolidated financial statements in ~~Item 1 of~~ this ~~Quarterly Report on Form 10-Q.~~report.

In February 2019, the UK LLC SPE Financing was repaid as part of a refinancing involving the Term Loans, which were made to special purpose subsidiaries of the Company. Under the Term Loans, four aircraft that previously served as collateral under the Credit Facility were moved into newly formed special purpose subsidiaries and, along with the aircraft owned by the two existing special purpose subsidiaries, were pledged as collateral under the Term Loans.

All of the Term Loans contain cross-default provisions, so that any default by a lessee of any of the subject aircraft could result in the Term Loan lender exercising its remedies under the Term Loan agreement, including, but not limited to, possession of the aircraft that is subject to a lessee default. In addition, a default under the Term Loan agreement would be a default under the Credit Facility agreement.

Collectively, the LLC Borrowers entered into six interest rate derivatives, or Swaps. Each such swap has a notional amount that mirrors the amortization under the corresponding Term Loan entered into by the LLC Borrowers, effectively converting each of the six Term Loans from variable rate to fixed rate. Each of these six Swaps extend for the length of the corresponding Term Loan, with maturities from 2020 through 2025.

The ~~Company's~~Company’s primary sources of cash from operations are payments due under the ~~Company's~~Company’s operating and finance leases, maintenance reserves, which are billed monthly to lessees based on asset usage, and proceeds from the sale of aircraft and engines.

The ~~Company's~~Company’s primary uses of cash are for (i) purchases of assets, (ii) Credit Facility and ~~special purpose~~Term Loans financing interest, principal and ~~principal~~interest swap payments, (iii) ~~maintenance expense and reimbursement to lessees from collected maintenance reserves, (iv)~~before completion of the Merger, management fees and expense reimbursement owed to JMC, (iv) after completion of the Merger, salaries, employee benefits and general and administrative expenses, (v) professional fees, including legal, accounting and ~~directors'~~directors’ fees ~~costs.~~costs and maintenance expense and (vi) reimbursement to lessees from collected maintenance reserves.

The ~~Company's~~Company’s payments for maintenance consist of reimbursements to lessees for eligible maintenance costs under their leases and maintenance incurred directly by the Company for preparation of off-lease assets for re-lease to new customers. The timing and amount of such payments may vary widely between quarterly and annual periods, as the required maintenance events can vary greatly in magnitude and cost, and the performance of the required maintenance events by the lessee or the Company, as applicable, are not regularly scheduled calendar events and do not occur at uniform intervals. The ~~Company's~~Company’s maintenance payments typically constitute a large portion of its cash needs, and the Company may from time to time borrow additional funds under the Credit Facility, if available, or seek alternative sources of financing to provide funding for ~~such~~these payments.

Prior to the ~~Company's~~Company’s acquisition of JHC on October 1, 2018, the ~~Company's~~Company’s portfolio of ~~leased~~ aircraft assets was managed and administered under the terms of the Management Agreement with JMC. Under the Management Agreement, JMC received a monthly management fee based on the net asset value of the Company’s assets under management. JMC also received an acquisition fee for locating assets for the ~~Company.~~Company to acquire. Acquisition fees were included in the cost basis of the asset purchased. JMC also received a remarketing fee in connection with the re-lease or sale of the ~~Company's~~Company’s assets. Remarketing fees were amortized over the applicable lease term or included in the gain or loss on sale.

In April 2018, subsequent to the execution of the merger agreement for the acquisition of JHC (the "Merger Agreement"), which was signed in October 2017, the Company, JHC and JMC entered into a waiver and reimbursement agreement (the "Waiver/Reimbursement Agreement"), pursuant to which JHC and JMC agreed to waive their right to receive management and acquisition fees ("Contract Fees") otherwise owed by the Company to JMC pursuant to the Management Agreement for all periods after March 31, 2018 and until the consummation ofFollowing the Merger, ~~and in return,~~ the Company agreed to reimburse JMC for expenses ("Management Expense") incurred in providing management services set forth under the Management Agreement. As a result, the Company has been responsible for all expenses incurred by JMC in managing the Company beginning April 1, 2018 and will continue to be responsible for all such expenses in all periods after the Merger. The risk of increased ~~costs for these~~JMC expenses, including employee salaries and benefits, worldwide travel related to the management of the Company's aircraft portfolio, office rent, outside technical experts and other overhead expenses, is now the responsibility of the ~~Company rather than JMC.~~Company. In addition, because the management and administrative services previously performed by JMC are now internalized, the Company is no longer paying management or acquisition fees to ~~an unconsolidated third party~~JMC in exchange for the performance of these services. As a result, the Company expects the types, timing and amounts of, and patterns and trends with respect to, its recorded expenses to change as a result of the Merger, but the manner and extent of these changes remains uncertain until the Company has performed and controlled these functions for some period of time.

The amount of interest paid by the Company depends primarily on the outstanding balance of its Credit Facility. Although the amounts owed under the Credit Facility ~~which carries~~accrue interest at a floating ~~interest~~ rate ~~as well as~~plus an interest rate margin, and ~~is therefore also~~are thus dependent on ~~changes~~fluctuations in prevailing interest ~~rates.~~rates, in March 2019 the Company entered into two interest rate swap transactions for the variable interest rate payment amounts due for $50 million of the outstanding Credit Facility debt. As a result, although the amount of interest paid by the Company under the Credit Facility will fluctuate depending on prevailing interest rates, the swap will offset some of this variability such that the Company will be affected by interest rate fluctuations under the Credit Facility only to the extent of any excess of the outstanding balance under the Credit Facility over the amount covered by the related interest rate swap. Interest related to the ~~Company's special purpose financings~~Company’s Term Loans also accrues at variable rates, but the Company has entered into interest rate swaps that effectively convert the Term Loans interest payments to fixed rate payments.

The Credit Facility and the Term Loans, as well as their related interest rate swap transactions, use LIBOR as a benchmark for establishing the rates at which interest accrues. LIBOR is ~~payable at~~the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. Although the consequences of these developments cannot be entirely predicted, they could include an increase in the cost to the Company of its LIBOR debt or even an acceleration of maturity of such debt if a ~~fixed rate.~~ suitable replacement index cannot be agreed upon or is not available.

Management believes that the Company will have adequate cash flow to meet its ongoing operational needs, including any required repayments under the Credit Facility ~~special purposes financings~~ and ~~any future term loans,~~Term Loans, for at least the next 12 months from the issuance of this Quarterly Report, based upon its current estimates of future revenues and expenditures. These estimates reflect assumptions about, among other things, (i) revenues ~~for~~from assets to be re-leased, (ii) ~~costs~~the amount, timing and patterns of ~~administering~~management and ~~managing~~administrative expenses being borne by the ~~Company's portfolio of assets~~Company after the Merger rather than ~~relying on an outside~~a third -party management company, (iii) cost and anticipated timing of aircraft maintenance to be performed, (iv) required debt payments, (v) timely use of proceeds of unused debt capacity for additional acquisitions of ~~income producing~~income-producing assets, and (vi) interest ~~rates and (vii) the amount, timing and patterns of management and administrative expenses to be borne by the Company after completion of the Merger.~~rates. Although the Company believes that the assumptions it has made in forecasting its cash flow are reasonable in light of experience, actual results could deviate from such assumptions. As discussed above, in ~~"Liquidity~~Liquidity and Capital Resources – (a) Credit Facility", and below in "Outlook" and "Factors that May Affect Future Results and Liquidity," there are a number of factors that may cause actual results to deviate from ~~such~~these forecasts. If these assumptions ~~turn out~~prove to be incorrect and the ~~Company's~~Company’s cash requirements exceed its cash ~~flows,~~flow, the Company would need to pursue additional sources of financing to satisfy these requirements, which may not be available when needed, on acceptable terms or at all. See "Factors that May Affect Future Results and Liquidity" below for more information about financing risks and limitations.

(i) Operating activities

The ~~Company's~~Company’s cash flow from operations ~~increased~~decreased by ~~$1.2~~$0.6 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to the ~~same period in 2017.~~first quarter of 2018. As discussed below, the increase in cash flow was primarily a result of ~~increases~~decreases in payments received for ~~other income,~~rent and maintenance reserves, as well as ~~a decrease in payments for management fees and maintenance. This positive effect was partially offset by~~ increases in payments made for ~~interest,~~salaries and employee benefits, professional fees and general and administrative expenses and income taxes. This positive effect was partially offset by a decrease in payments made for maintenance.

(A) Payments for ~~other income~~rent

~~During~~Receipts from lessees for rent decreased by $1.4 million in the first ~~nine months~~quarter of 2019 compared to the same period of 2018, primarily due to delinquencies related to one of the ~~Company recorded $1.6~~Company’s customers, and a decrease in the rent payable by another lessee, the effects of which were partially offset by rent for two aircraft acquired during the second quarter of 2018.

(B)Payments for maintenance reserves

Receipts from lessees for maintenance reserves decreased by $1.8 million in ~~other income resulting from~~the first quarter of 2019 compared to the same period of 2018, primarily due to delinquencies related to one of the Company’s customers, as well as cash received in the 2018 period from the ~~previous~~former lessee of three aircraft that were returned to the Company during 2017. Such payments were for unpaid maintenance reserves, as well as amounts due pursuant to the return conditions of the applicable leases. The Company did not accrue unpaid reserves or return condition amounts at the time of lease termination based on ~~management's~~management’s evaluation of the creditworthiness of the lessee. Therefore, the Company ~~is accounting~~has accounted for payments as they are received and recording the amount in ~~other income~~maintenance reserves revenue in the period in which a payment is received.

~~(B)~~(C) Payments for management fees, salaries and employee benefits and JMC expense reimbursement~~maintenance reserves~~

~~Receipts from lessees~~Payments made for ~~maintenance reserves~~management fees decreased by ~~$0.5~~$0.4 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to the same period in 2017, primarily due to assets for which the Company collects maintenance reserves that were on lease in the 2017 period, but off lease in 2018, the effect of which was partially offset by reserves collected in 2018 for aircraft acquired in the second quarter of 2018.

~~(C)Payments for~~ ~~finance lease interest~~

~~Receipts for finance lease interest decreased by $0.2 million in the first nine months~~ of 2018, ~~compared to the same period in 2017, primarily due to the sale of three aircraft that were subject to finance leases in the 2017 period, but were sold to the lessee during the third quarter of 2018.~~

~~(D)Payments for management fees~~

~~Payments for management fees decreased by $1.2 million in the first nine months of 2018 compared to the same period in 2017,~~ primarily as a result of ~~a difference in~~ the ~~timing~~Company’s acquisition of ~~payments from year to year.~~

~~(E)~~JHC on October 1, 2018. Payments made for ~~interest~~

~~Payments for interest increased by $1.3~~salaries and employee benefits, which became the responsibility of the Company after the Merger, were $0.7 million in the first ~~nine months~~quarter of ~~2018 compared to the first nine months of 2017 as a result of a higher average debt balance and higher rates during the 2018 period.~~

2019.

~~(F)~~(D) Payments for maintenance

Payments made for maintenance decreased by ~~$1.6~~$2.6 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to the ~~same period in 2017 period~~first quarter of 2018 as a result of decreased maintenance performed by the Company on off-lease aircraft to prepare them for sale or re-lease.

~~(G)~~(E) Payments for ~~professional fees, general and administrative expenses~~income taxes

Payments made for ~~professional fees, general and administrative expenses~~income taxes increased by $0.4 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to the same period ~~in 2017, primarily as a result of amounts related to the Company's acquisition of JHC.~~

~~(H)Payments for income taxes~~

~~Payments for income taxes increased by $0.5 million in the first nine months~~ of 2018 ~~compared to the same period in 2017~~ as a result of foreign income taxes ~~paid~~ related to the ~~Company's~~Company’s UK LLC SPE Financing entities.

(ii) Investing activities

During the ~~nine months ended~~ ~~September~~ ~~30,~~first quarters of 2019 and 2018, ~~and 2017,~~ the Company received net cash of ~~$12.7~~$2.8 million and ~~$3.1~~$4.9 million, respectively, from the sale of assets. During the first ~~nine months~~quarter of 2018, ~~and 2017,~~ the Company used cash of ~~$22.7 million and $32.1 million, respectively, for acquisitions of aircraft. During the 2017 period, the Company also used $7.6~~$1.2 million for ~~the acquisition of three~~deposits on two aircraft that ~~are subject to direct-financing leases.~~it acquired during the second quarter.

(iii) Financing activities

During the first ~~nine months~~quarters of ~~2018~~2019 and ~~2017,~~2018, the Company borrowed ~~$21.0~~$5.1 million ~~and $35.9 million,~~$0, respectively, under the Credit Facility. In the ~~first nine months~~same periods of ~~2018~~2019 and ~~2017,~~2018, the Company repaid ~~$24.2~~$33.8 million and ~~$4.8~~$11.0 million, respectively, of its total outstanding debt under the Credit Facility. Such repayments were funded by excess cash flow, ~~and, in the 2018 period,~~ the sale of ~~assets.~~assets and, in 2019, proceeds from the Term Loans. During the first ~~nine months~~quarters of 2019 and 2018, ~~and 2017,~~ the ~~Company's~~Company’s special purpose entities repaid ~~$3.2~~$9.2 million and ~~$3.1~~$1.1 million, respectively, of UK LLC SPE ~~Financing~~Financing. During the 2019 period, the Company also repaid $1.6 million of Term Loans principal. During the first quarters of 2019 and 2018, the Company paid $5.1 million and $0, respectively, for debt issuance and amendment fees.

(iv) Off balance sheet arrangements

The Company has no material off balance sheet arrangements.

Outlook

The Company has identified four principal factors that it believes may materially affect the ~~Company's~~Company’s growth and operating results in the near term. These and other factors that could impact the ~~Company's~~Company’s business, performance and liquidity are described in more detail under "Factors that May Affect Future Results and Liquidity" below.

• The Company must source additional capital, though equity financings, additional debt financings or other alternatives, in order to grow. One of the motivations for AeroCentury’s acquisition of JHC was to remove the outside management structure of the Company, which was believed to be an impediment to attracting capital sources. There can be no assurance that the Company will be able to obtain additional capital when needed, in the amounts desired or on favorable terms, as a successful capital-raising transaction depends on many factors, some of which are outside the Company’s control.

• On October 1, 2018, the Company acquired JHC, the parent of JMC, which has acted as the management company for the Company since the ~~Company's~~Company’s inception. The Company believes that the combination of the management function performed by JMC and the portfolio held by the Company could be accretive to the Company and could create value for the ~~shareholders~~stockholders of the combined post-Merger company, but such accretion may not be realized until after transaction and integration costs in connection with the Merger have been incurred, or at all. ~~In addition,~~Most of the ~~Company has incurred certain non-recurring, non-tax deductible Merger expenses in the periods leading up to~~one-time costs associated with the Merger, ~~and will continue to do so immediately following the Merger, as well as having to record, for accounting purposes,~~including a settlement loss atof $2.5 million, were recognized by the ~~time of consummation of the Merger~~, ~~which could negatively affect the Company's results for those~~Company in 2018, though there may be some additional costs recognized in future periods.

• Increased production of aircraft types in the ~~Company's~~Company’s market niche of worldwide regional aircraft has resulted in some manufacturers offering more competitive pricing for new aircraft to regional aircraft customers. In addition, notwithstanding recent interest rate increases in the United States, competition for assets in ~~the Company's~~this market niche ~~of worldwide regional aircraft~~ has continued to increase. Some of the ~~Company's~~Company’s newer competitors are funded by investment banks and private equity firms seeking higher yields on investment assets than are currently available from traditional income investment types. The increased competition has resulted in higher acquisition prices for many of the aircraft types that the Company has targeted to buy and, at the same time, downward pressure on lease rates for these aircraft, resulting in lower revenues and margins and, therefore, fewer acceptable acquisition opportunities for the Company. The Company anticipates this trend will continue for the short- to medium-term, but could change if and when yields on alternative investments return to a more normal historical range.

• The Company has not identified sale customers for ~~four~~three turboprop aircraft that are currently off lease and classified as held for sale. These aircraft are older types that are no longer in production, and as a result, the Company does not view it as unusual that market demand for ~~them~~these aircraft is weak and ~~therefore,~~ expects that they may remain unsold for a significant ~~periods~~period of ~~time~~time..

• The Company is negotiating with lenders for an extension of the Credit Facility and a new non-recourse term loan that would be secured by certain of the regional jet aircraft in its portfolio, and expects these transactions, if completed, to close prior to the May 2019 expiration of the current credit facility. The new credit facility is expected to incorporate changes in financial covenants from the current facility that will allow the Company to maintain compliance with the new credit facility and access additional acquisition financing. However, there is no assurance that transactions may be completed when expected, or on terms anticipated or favorable to the Company, or at all.

Critical Accounting Policies, Judgments and Estimates

The ~~Company's~~Company’s discussion and analysis of its financial condition and results of operations are based upon the condensed consolidated financial statements included in this report, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements or during the applicable reporting period. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the ~~Company's~~Company’s operating results and financial position could be materially affected. For a further discussion of Critical Accounting Policies, Judgments and Estimates, refer to Note 1 to the ~~Company's~~Company’s financial statements in ~~Item 1 of~~ this ~~Quarterly Report on Form 10-Q.~~report.

Factors that May Affect Future Results and Liquidity

The ~~Company's~~Company’s business, financial condition, results of operations, liquidity, prospects and reputation could be affected by a number of factors. In addition to matters discussed elsewhere in this discussion, the Company believes the following are the most significant factors that may impact the Company; however, additional or other factors not presently known to the Company or that management presently deems immaterial could also impact the Company and its ~~performance.~~performance and liquidity.

Availability of Financing. The Company's credit facility expires on May 31, 2019. The Company's continued growth will depend on its ability to continue to obtain capital, either through debt or equity financings. The Company ~~is negotiating with lenders for an~~ ~~extension of~~ ~~the Credit Facility and~~ ~~a new non-recourse term loan~~ ~~that would be~~ ~~secured by~~ ~~certain of the~~ ~~regional jet aircraft in its portfolio,~~ ~~and expects these transactions, if completed, to close prior to the May 2019 expiration of the current credit facility.~~

One of the current primary limiters on the Company's ability to draw under the current credit facility or incur any other additional debt is the covenant limitation on the Company's maximum debt to equity ratio. Under the proposed terms for the extended credit facility,As described above, the Company would have more favorable financial covenants not limited by the Company's current equity capitalization. However, these terms of the credit facility renewal and term loan financings have not been finalized in definitive agreements, and the final terms agreed to may not be as favorable to the Company as anticipated.

If the Company is not successful in completing these transactions or locating other alternative sources of financing prior to the May 21, 2019 expiration of the current credit facility, the Company may be required to dispose of assets in order to repay its debt, and its ability to maintain or grow its operations could be jeopardized, any of which could result in material negative effects on the Company and its business.

~~Additionally, even if the credit facility extension and new term loans are effected, the Company will still need to~~must source additional capital, ~~though~~through equity financings, additional debt financings or other alternatives, in order to grow. One of the current primary limitations on the Company’s ability to draw under its Credit Facility or incur any other additional debt financing is the covenant limitation on the Company’s maximum debt to equity ratio. As a result, unless this ratio changes due to equity financing or otherwise, the Company’s ability to rely upon the Credit Facility as a capital resource will remain limited. Additionally, although one of the motivations for ~~the Company to acquire~~AeroCentury’s acquisition of JHC was to remove the outside management structure of the Company, which was believed to be an impediment to attracting capital ~~sources. There~~sources, there could be other material factors, some of which are outside of the Company’s control, that prevent or limit the Company’s ability to access additional capital. As a result, there can be no assurance that the Company will be able to obtain ~~such~~ additional capital when needed, in the ~~future, as a successful capital raising transaction depends~~amounts desired or on ~~many factors, some of which are outside~~favorable terms in the ~~Company's control.~~future.

Noncompliance with Debt Financial Covenants. The ~~Company's~~Company’s use of debt as ~~the~~its primary form of acquisition financing subjects the Company to increased risks associated with leverage. In addition to payment obligations, the ~~Company's~~Company’s debt agreements include financial covenants, including some requiring the Company to have positive earnings, meet minimum net worth standards and ~~be in compliance~~comply with certain other financial ratios. The Company was not in compliance with ~~the interest coverage, debt service coverage~~certain of these standards and ~~revenue concentration covenants~~ratios under the Credit Facility as of ~~September 30,~~December 31, 2018. ~~The~~Although this noncompliance was ~~waived by~~cured with the ~~lenders in anticipation~~February 2019 amendments to the Credit Facility agreement, which revised certain of these financial covenants to better accommodate the ~~renewal of the credit facility on terms under which~~Company’s financial circumstances as a post-Merger entity with unified asset and portfolio management and to position the Company ~~would been in compliance as of September 30, 2018. Until the renewed credit facility agreement is in effect,~~for future growth, the Company may be subject to additional compliance failures of these or other debt covenants at future calculation dates, and the lenders are under no obligation to forbear or waive any such future noncompliance. Any default under the Credit Facility or ~~another~~any other debt agreement, if not cured in the time permitted or waived by the respective lender, could result in the ~~Company's~~Company’s inability to borrow under the debt instrument, the acceleration of the ~~Company's~~Company’s debt obligations, or the foreclosure upon any or all of the assets of the Company.

Credit Facility Debt Limitations. The amount available to be borrowed under the Credit Facility is limited by asset-specific advance rates. Lease arrearages or off-lease periods for a particular asset that serves as collateral under the Credit Facility may reduce the loan advance rate permitted with respect to that asset and, therefore, reduce the permitted borrowing under the facility or require repayments. Amounts subject to payment deferral agreements also reduce the amount of permitted borrowing. The Company believes it will have sufficient borrowing availability under the Credit Facility to meet its anticipated capital needs in the near term in spite of these limitations and it will have sufficient cash funds to make any required principal repayment that arises due to any such borrowing limitations, but actual cash levels could deviate from these assumptions.

Term Loan Debt Limitations. The special purpose subsidiaries, ACY 19002 Limited, ACY 19003 Limited, ACY SN 15129 LLC, and ACY E-175 LLC, that own the six aircraft serving as collateral for the Term Loans are the named borrowers (“Borrower LLCs”) under the Term Loans, and each Term Loan is secured by the corresponding aircraft owned by the applicable Borrower LLC. AeroCentury, as the parent corporation of each Borrower LLC, is not a party to the Term Loan agreements, but has entered into agreements with lessees of the Borrower LLCs to guarantee certain obligations to such lessees under each lessee’s lease agreement with a Borrower LLC and with the Term Loan Lender to guarantee certain representations, warranties and covenants delivered by the Borrower LLCs to the Term Loan Lender in connection with the refinancing transaction. As a result, although the Term Loans are non-recourse to AeroCentury, AeroCentury could become directly responsible for the Borrower LLCs’ obligations under the Term Loans and the related lease agreements pursuant to these guaranty arrangements. Moreover, any noncompliance under the Term Loans by a Borrower LLC could negatively affect the liquidity, aircraft portfolio and reputation of the Company as a whole.

The required payments under each Term Loan are expected to be funded by the operating lease rental revenue received from the lessee of the corresponding aircraft, and each Borrower LLC’s continued compliance with its Term Loan will depend upon the lessee’s compliance with its lease payment obligations. Failure by a lessee to make timely payments could result in a default under the applicable Term Loan and could result in an acceleration of all Term Loan indebtedness of the applicable Borrower LLC or foreclosure by the Term Loan lender on the applicable aircraft. Furthermore, a default by any Borrower LLC under its Term Loan would also constitute a default under the Credit Facility, and therefore any failure by a Borrower LLC’s lessee to comply with its lease payment obligations or any other compliance failure by a Borrower LLC under its Term Loan could result in the Company’s noncompliance under several of its debt agreements, which could have a material negative adverse effect on the Company’s liquidity and capital resources.

Consummation of Merger May Subject the Company to Additional Risks. On October 1, 2018 the Company acquired JHC, the parent of the ~~Company's~~Company’s management company, ~~JMC, by way of a reverse triangular merger.~~JMC. The acquisition of JHC subjects the Company to ~~additional~~certain risks, including the following:

• ~~Merger Expenses~~. In addition to legal, accounting and financial advisory fees incurred prior to completion of the Merger, the Company will need to incur significant additional expenses, including legal, accounting, and third-party consulting fees in order to comply with disclosure and other requirements pertaining to the Mergers and pay the management and administrative expenses, including employment and other compensation expenses, that were previously paid by an unconsolidated third party.

• ~~Settlement Loss Effect on Debt Covenant Compliance.~~ The Company will need to record a settlement loss as of the closing date of the Merger related to its prior obligations under the Management Agreement with JMC, in an amount equal to a substantial portion of the purchase consideration paid in the Merger. The Company is in the process of determining the amount of the loss and the accounting treatment thereof. In December 2017, the Company obtained the consent of the Credit Facility lenders to the Merger, and modifications to the Credit Facility for post-Merger periods to prevent certain expense items arising from the Merger causing a default under the Credit Facility agreement covenants. The modifications impose a limit on the amount of settlement loss and merger costs that will be disregarded for covenant purposes, but the Company believes that they are sufficient to avoid these from causing a further default under the Credit Facility financial covenants.

• Assumption of Expenses Covered under Management Agreement. Under the Management Agreement with JMC, the Company paid management fees to JMC based upon the book value of the ~~Company's~~Company’s aircraft assets, an acquisition fee for each asset purchased by the Company, and a remarketing/re-lease fee for each sale or re-lease transaction entered into with respect to the ~~Company's~~Company’s aircraft. In return, JMC provided the Company with comprehensive management services, under which JMC had full responsibility for payment of all employee salaries and benefits, outside technical services, worldwide travel needed to promote the Company's business, office space, utilities, IT and communications, furniture and fixtures, and other general administrative and overhead costs. Under the Management Agreement, if the fees collected were not ~~enough~~adequate to cover ~~JMC's~~JMC’s expenses in managing the ~~Company's~~Company’s portfolio, such losses were borne entirely by JMC.

~~As a result~~Upon completion of the ~~Waiver/Reimbursement Agreement,~~Merger on October 1, 2018, the Company ~~has been~~became responsible for all expenses that were previously incurred by JMC in managing the ~~Company beginning April 1, 2018 and will continue to be responsible for all such expenses in all periods after the Merger.~~Company. The risk of increased costs for these expenses is now the responsibility of the Company, ~~rather than JMC,~~ and such costs are no longer limited to the amount of the management fee, as was the case under the third ~~party~~-party management structure with JMC. Consequently, the risk of any cost overruns or unanticipated expenses in asset management ~~since April 1, 2018 have been~~are borne solely by the Company and are no longer shifted to an unconsolidated ~~third-party management company.~~third party. As a result, the ~~Company's~~Company’s expense categories, amounts, timing and patterns could change significantly in ~~future periods.~~post-Merger periods and could be subject to increased period-to-period fluctuations.

• ~~AeroCentury's Management Will Become Internalized.~~Internalization of Management. JHC is now a wholly-owned subsidiary of the Company, and sole responsibility for management of the combined company ~~will fall~~now falls upon ~~its and JMC's~~the Company’s management. If the Company is dissatisfied with management services, the Company will have to address the shortcomings internally, and if they cannot be resolved with ~~the~~ existing management and personnel, the Company may be required to reorganize its management structure and/or replace personnel or seek new third ~~party~~-party management services, either of which could result in the Company incurring significant expense and use of resources.

• Assumption of JHC Liabilities. By acquiring JHC in ~~a reverse triangular merger,~~the Merger, JHC has become a wholly-owned subsidiary of the Company. To the extent that JHC or any of its subsidiaries have liabilities, these ~~will~~have become liabilities of the Company on a consolidated basis. While the Merger Agreement provides for limited indemnification by JHC shareholders for certain liabilities of JHC or its subsidiaries that arise from pre-Merger occurrences and the Company ~~has~~ performed due diligence reviews of the liabilities of JHC and its subsidiaries before completion of the Merger, the indemnification is limited to the consideration paid by the Company to ~~JHC~~JHC’s shareholders and such due diligence reviews are inherently non-exhaustive and may not have uncovered all known or contingent liabilities or presently unknown liabilities that may emerge after the ~~October 1, 2018 Merger.~~Merger’s completion.

~~Credit Facility Debt Limitations.~~ The amount available to be borrowed under the Credit Facility is limited by asset-specific advance rates. Lease arrearages or off-lease periods for a particular asset that is collateral under the Credit Facility may reduce the loan advance rate permitted with respect to that asset and, therefore, reduce the permitted borrowing under the facility or require repayments. Amounts subject to payment deferral agreements also reduce the amount of permitted borrowing. The Company believes it will have sufficient borrowing availability under the Credit Facility to meet its anticipated capital needs in the near term in spite of these limitations and it will have sufficient cash funds to make any required principal repayment that arises due to any such borrowing limitations, but actual cash levels could deviate from these assumptions.

Ownership Risks. The ~~Company's~~Company’s leases typically are for a period shorter than the entire, anticipated, remaining useful life of the leased assets. As a result, the ~~Company's~~Company’s recovery of its investment and realization of its expected yield in such a leased asset is dependent upon the ~~Company's~~Company’s ability to profitably re-lease or sell the asset following the expiration of the lease. This ability is affected by worldwide economic conditions, general aircraft market conditions, regulatory changes, changes in the supply or cost of aircraft equipment, and technological developments that may cause the asset to become obsolete. If the Company is unable to remarket its assets on favorable terms when the leases for such assets expire, the ~~Company's~~Company’s financial condition, cash flow, ability to service debt, and results of operations could be adversely affected.

The Company typically acquires used aircraft equipment. The market for used aircraft equipment has been cyclical, and generally reflects economic conditions and the strength of the travel and transportation industry. The demand for and value of many types of used aircraft in the recent past has been depressed by such factors as airline financial difficulties, airline consolidations, the number of new aircraft on order, an excess supply of newly manufactured aircraft or used aircraft coming off lease, as well as introduction of new aircraft models and types that may be more technologically advanced, more fuel efficient and/or less costly to maintain and operate. Values may also increase or decrease for certain aircraft types that become more or less desirable based on market conditions and changing airline capacity. Declines in the value of the ~~Company's~~Company’s aircraft and any resulting decline in market demand for these aircraft could materially adversely affect the ~~Company's~~Company’s revenues, performance and liquidity. Also, because the ~~Company's~~Company’s ability to borrow under the current terms of its ~~credit facility~~Credit Facility is subject to a covenant setting forth a maximum ratio of (i) the outstanding debt under the facility to (ii) the appraised value of the collateral base of aircraft assets securing the ~~credit facility,~~Credit Facility, a significant drop in the appraised market value of the portfolio could require the Company to make a substantial prepayment of outstanding principal under the ~~credit facility~~Credit Facility in order to avoid a default under the ~~credit facility~~Credit Facility and limit the utility of the ~~credit facility~~Credit Facility as a source of future funding.

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 the condition as required under the lease. Each operating lease obligates a customer to return an asset to the Company in a specified condition, generally in a condition that will allow the aircraft to be readily re-leased to a new lessee, and/or pay an economic settlement for redelivery that is not in compliance with such specified conditions. The Company strives to ensure this result through onsite management during the return process. However, if ~~the~~a lessee ~~were to become~~becomes insolvent during the term of its lease and the Company ~~had~~has to repossess the asset, it is unlikely that the lessee would have the financial ability to meet these return obligations. In addition, if ~~the~~a lessee ~~filed~~files for bankruptcy and ~~rejected~~rejects the aircraft lease, the lessee would be required to return the aircraft but would be relieved from further lease obligations, including return conditions specified in the lease. In either case, it is likely that the Company would be required to expend funds in excess of any maintenance reserves collected to return the asset to a remarketable condition.

Several of the ~~Company's~~Company’s leases ~~with financially strong lessees~~ do not require payment of monthly maintenance reserves, which serve as the ~~lessee's~~lessee’s advance payment for its future repair and maintenance obligations. If repossession due to lessee default or bankruptcy occurred under such a lease, the Company would ~~be left with~~need to pay the costs of unperformed repair and maintenance under the applicable lease and ~~the Company~~ would likely incur an unanticipated expense in order to re-lease or sell the asset.

Furthermore, the occurrence of unexpected adverse changes that impact the ~~Company's~~Company’s estimates of expected cash ~~flows generated~~flow from an asset could result in an asset impairment charge against the ~~Company's~~Company’s earnings. The Company periodically reviews long-term assets for impairment, particularly when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment charge is recorded when the carrying amount of an asset is estimated to be not recoverable and exceeds its fair value. The Company recorded impairment charges for some of its aircraft in ~~2016, 2017~~2018 and ~~2018,~~2019, and may be required to record asset impairment charges in the future as a result of a prolonged weak economic environment, challenging market conditions in the airline industry, events related to particular lessees, assets or asset types or other factors affecting the value of aircraft or engines.

Interest Rate Risk. ~~The~~Although the debt under the Term Loans is fully covered by interest rate swaps that effectively convert the variable interest rate Term Loan payments to fixed rate payments, only approximately half of the Credit Facility ~~carries a floating~~debt currently outstanding is subject to such an interest rate ~~based upon short-term~~swap. As a result, the amount of interest paid by the Company under the Credit Facility will fluctuate depending on prevailing interest rates to the extent of any excess of the outstanding balance under the Credit Facility over the amount covered by the related interest rate ~~indices.~~ swap. Consequently, interest rate increases could materially increase the Company’s interest payment obligations under the Credit Facility and thus could have a material adverse effect on the Company’s liquidity and financial condition. Further, because the interest rates under the Credit Facility and the Term Loans are based on LIBOR, which is the subject of recent national, international and other regulatory guidance and proposals for reform, the amount of the Company’s interest payments under these arrangements could increase if LIBOR is phased out or performs differently than in the past.

Lease rates typically, but not always, move over time with interest rates, but market demand and numerous other asset-specific factors also affect lease rates. Because the ~~Company's~~Company’s typical lease rates are fixed at lease origination, interest rate changes during the lease term have no effect on existing lease rental payments. Therefore, if interest rates rise significantly and there is relatively little lease origination by the Company following such rate increases, the Company could experience decreased net income as additional interest expense outpaces revenue growth. Further, even if significant lease origination occurs following such rate increases, other contemporaneous aircraft market forces may result in lower or flat rental rates, thereby decreasing net income.

Lessee Credit Risk. The Company carefully evaluates the credit risk of each customer and attempts to obtain a ~~third party~~third-party guaranty, letters of credit or other credit enhancements, if it deems them necessary, in addition to customary security deposits. There can be no assurance, however, that such enhancements will be available, or that, if obtained, they will fully protect the Company from losses resulting from a lessee default or bankruptcy.

If a U.S. lessee ~~that is a certified U.S. airline were in default~~defaults under a lease and ~~sought~~seeks protection under Chapter 11 of the United States Bankruptcy Code, Section 1110 of the Bankruptcy Code would automatically prevent the Company from exercising any remedies against such lessee for a period of 60 days. After the 60-day period had passed, the lessee would have to agree to perform the lease obligations and cure any defaults, or the Company would have the right to repossess the equipment. However, this procedure under the Bankruptcy Code has been subject to significant litigation, and it is possible that the ~~Company's~~Company’s enforcement rights would be further adversely affected byin the event of a bankruptcy filing by a defaulting lessee.

Lessees located in low-growth or no-growth areas of the world carry heightened risk of ~~an unanticipated~~ lessee default. The Company has had customers that have experienced significant financial difficulties, become insolvent, or have entered bankruptcy proceedings. AnA customer’s insolvency or bankruptcy ~~of a customer~~ usually results in athe Company’s total loss of the receivables from that customer, as well as ~~the Company incurring~~ additional costs in order to repossess and, in some cases, repair the ~~aircraft.~~aircraft leased by the customer. The Company closely monitors the performance of all of its lessees and its risk exposure to any lessee that may be facing financial difficulties, in order to guide decisions with respect to such lessee ~~that could~~in an attempt to mitigate losses in the event the lessee is unable to meet or rejects its lease obligations. There can be no assurance, however, that additional customers will not become insolvent, file for bankruptcy or ~~will~~ otherwise ~~be able~~fail to perform their lease obligations, or that the Company will be able to mitigate any of the resultant losses.

It is possible that the Company may enter into deferral agreements for overdue lessee obligations. When a customer requests a deferral of lease obligations, the Company evaluates the ~~lessee's~~lessee’s financial plan, the likelihood that the lessee can remain a viable carrier, and whether the deferral is likely to be repaid according to the agreed schedule. The Company may elect to record the deferred rent and reserves payments from the lessee on a cash basis, which could have a material effect on the ~~Company's~~Company’s financial results in the applicable periods. Deferral agreements with lessees also reduce the ~~Company's~~Company’s borrowing capacity under its Credit Facility.

Concentration of Lessees and Aircraft Type. For the ~~month~~quarter ended ~~September~~March ~~30, 2018,~~31, 2019, the ~~Company's~~Company’s four largest customers accounted for a total of approximately ~~77%~~76% of the ~~Company's~~Company’s monthly operating lease revenue. A lease default by or collection problem with one or a combination of any of these significant customers could have a ~~disproportionate~~disproportionately negative impact on the ~~Company's~~Company’s financial results and borrowing base under the Credit Facility, and, therefore, the ~~Company's~~Company’s operating results are especially sensitive to any negative developments with respect to these customers in terms of lease compliance or collection. In addition, if the ~~Company's~~Company’s revenues become overly concentrated in a small number of lessees, the Company could fail to comply with certain financial covenants in its Credit Facility related to customer concentration, which could result in the negative effects ~~upon~~of such a default as described under "Noncompliance with Debt Financial Covenants," above.

The ~~Company's~~Company’s aircraft portfolio is currently focused on a small number of aircraft types and models ~~compared~~relative to the variety of aircraft used in the commercial air carrier market. A change in the desirability and availability of any of the particular types and models of aircraft owned by the Company could affect valuations and future rental revenues of such aircraft, and would have a disproportionately significant impact on the ~~Company's~~Company’s portfolio value. In addition, the Company is dependent on the third-party companies that manufacture and provide service for the aircraft types in the ~~Company's~~Company’s portfolio. The Company has no control over these companies, and they could decide to curtail or discontinue production of or service for these aircraft types at any time or significantly increase their costs, which could negatively impact the ~~Company's~~Company’s prospects and performance. These effects would diminish if the Company acquires assets of other types. Conversely, acquisition of additional aircraft of the types currently owned by the Company will increase the ~~Company's~~Company’s risks related to its concentration of those aircraft types.

Competition. The aircraft leasing industry is highly competitive. The Company competes with other leasing companies, banks, financial institutions, private equity firms, aircraft leasing syndicates, aircraft manufacturers, distributors, airlines and aircraft operators, equipment managers, ~~leasing companies,~~ equipment leasing programs ~~financial institutions~~ and other parties engaged in leasing, managing or remarketing ~~aircraft, many~~aircraft. Many of ~~which~~these competitors have longer operating histories, more experience, larger customer bases, more expansive brand recognition, deeper market penetration and significantly greater financial resources. Further, competition in the Company's market niche of regional aircraft has increased significantly recently as a result of increased focus on regional air carriers by competitors who have traditionally neglected this market, new entrants to the acquisition and leasing market and consolidation of certain competitors. If and as competition continues to increase, it has and will likely continue to create upward pressure on acquisition prices for many of the aircraft types that the Company has targeted to buy and, at the same time, create downward pressure on lease rates, resulting in lower revenues and margins for the Company and, therefore, fewer acceptable acquisition opportunities for the Company.

Risks Related to Regional Air Carriers. The ~~Company's~~Company’s continued focus on its customer base of regional air carriers subjects the Company to ~~additional~~certain risks. Many regional airlines rely heavily or even exclusively on a code-share or other contractual relationship with a major carrier for revenue, and can face financial difficulty or failure if the major carrier terminates or fails to perform under the relationship or ~~if the major carrier~~ files for bankruptcy or becomes insolvent. Some regional carriers may depend on contractual arrangements with industrial customers such as mining or oil companies, or franchises from governmental agencies that provide subsidies for operating essential air routes, which may be subject to termination or cancellation on short notice. Furthermore, many lessees in the regional air carrier market are start-up, low-capital, and/or low-margin operators. A current concern for regional air carriers is the supply of qualified pilots. Due to recently imposed regulations of the U.S. Federal Aviation Administration requiring a higher minimum number of hours to qualify as a commercial passenger pilot, many regional airlines have had difficulty meeting their business plans for expansion. This could in turn affect demand for the aircraft types in the Company’s portfolio and the ~~Company's business.~~Company’s business, performance and liquidity.

General Economic Conditions and Lowered Demand for Travel. While the ~~United States~~global economy has seen substantial improvement since ~~its most recent~~the 2008 financial crisis and global recession, not all global regions are experiencing growth, and some ~~remain in~~have not fully recovered. There are indications that after recent periods of economic growth, major world economies may be headed into a period of slower growth or even recession. The Company does not anticipate any worsening of the financial condition of its overall customer base in the near term, but believes that there may be further shakeouts of weaker carriers in economically troubled ~~regions.~~regions, particularly if the world economy experiences a slowdown. Any such shakeouts or any continued or new economic recession or downturn in the regions in which the ~~Company's~~Company’s lessees operate could negatively impact the financial condition and viability of certain of the ~~Company's~~Company’s customers and, in turn, the ~~Company's~~Company’s business and performance.

A growing concern arises from the fact that much of the recent growth in demand for regional aircraft in developing countries has ~~arisen from~~been driven by mining or other resource extraction operations by Chinese enterprises in these countries. A ~~future~~ downturn in the Chinese domestic economy that reduces demand for imported raw materials could have a significant negative impact on the demand for business and regional aircraft in these developing countries, including in some of the markets in which the Company does, or seeks to do, business.

Furthermore, instability in Europe due to newly imposed U.S. sanctions against Russia and Iran, and the Russian, Iranian and European reaction to such sanctions, or due to other factors, could have a negative impact on intra-European carriers with which the Company does business. Also, Brexit and any further departures from the European Union ~~("EU"~~(“EU”) could threaten ~~"open-sky"~~“open-sky” policies under which EU ~~based~~-based carriers operate freely within the EU. Losing open-sky flight rights could have a significant negative impact on the health of the ~~Company's~~Company’s European lessees and, as a result, the financial performance and condition of the Company.

If international conflicts erupt into military hostilities, heightened visa requirements make international travel more difficult, or terrorist attacks involving aircraft or airports occur, or a major flu outbreak occurs, passengers may avoid air travel altogether, and global air travel worldwide could be significantly affected. ~~This~~Any such occurrence would have an adverse impact on many of the ~~Company's~~Company’s customers.

Airline reductions in capacity in response to lower passenger loads can result in reduced demand for aircraft and aircraft engines and a corresponding decrease in market lease rental rates and aircraft values. This reduced market value could affect the ~~Company's~~Company’s results if the market value of an asset or assets in the ~~Company's~~Company’s portfolio falls below carrying value, and the Company determines that a write-down of the value ~~on its balance sheet~~ is appropriate. Furthermore, if older, expiring leases are replaced with leases at decreased lease rates, the lease revenue from the ~~Company's~~Company’s existing portfolio is likely to decline, with the magnitude of the decline dependent on the length of the downturn and the depth of the decline in market rents.

Economic downturns can affect certain regions of the world more than others. As the ~~Company's~~Company’s portfolio is not entirely globally diversified, a localized downturn in one of the key regions in which the Company leases assets could have a disproportionately significant adverse impact on the Company. The ~~Company's~~Company’s significant sources of operating lease revenue by region are summarized in "Fleet Summary – Assets Held for Lease," above.

International Risks. The Company leases assets in overseas markets. Leases with foreign lessees, however, may present different risks than those with domestic lessees. Most of the ~~Company's~~Company’s expected growth is outside of North America.

A lease with a foreign lessee is subject to risks related to the economy of the country or region in which such lessee is located, which may be weaker or less stable than the U.S. economy. An economic downturn in a particular country or region may impact a foreign ~~lessee's~~lessee’s ability to make lease payments, even if the U.S. and other foreign economies remain strong and stable.

~~Foreign lessees are~~The Company is subject to certain risks related to currency conversion fluctuations. The Company currently has one customer with rent obligations payable in Euros, and the Company may, from time to time, agree to additional leases that permit payment in foreign currency, which would subject such lease revenue to monetary risk due to currency exchange rate fluctuations. During the periods covered by this report, the Company considers the estimated effect on its revenues of foreign currency exchange rate fluctuations to be immaterial; however, the impact of these fluctuations may increase in future periods if additional rent obligations become payable in foreign currencies.

Even with U.S. dollar-denominated lease payment provisions, the Company could still be negatively affected by a devaluation of ~~the lessee's~~a foreign lessee’s local currency ~~and a stronger~~relative to the U.S. dollar, ~~that~~which would make it more difficult for athe lessee to meet its U.S. dollar-denominated payments ~~increasing~~and increase the risk of default of that lessee, particularly if its revenue is primarily derived in ~~the~~its local currency.

Foreign lessees that operate internationally may also face restrictions on repatriating foreign revenue to their home country. This could create a cash flow crisis for an otherwise profitable carrier, affecting its ability to meet its lease obligations. Foreign lessees may also face restrictions on payment of obligations to foreign vendors, including the Company, which may affect their ability to timely meet lease obligations to the Company.

Foreign lessees are not subject to U.S. bankruptcy laws, although there may be debtor protection similar to U.S. bankruptcy laws available in some jurisdictions. Certain countries do not have a central registration or recording system which can be used to locally record the ~~Company's~~Company’s interest in equipment and related leases. This could make it more difficult for the Company to recover an aircraft in the event of a default by a foreign lessee. In any event, collection and enforcement may be more difficult and complicated in foreign countries.

Ownership of a leased asset operating in a foreign country and/or by a foreign carrier may subject the Company to additional tax liabilities that are not present with aircraft operated in the United States. Depending on the jurisdiction, laws governing such tax liabilities may be complex, not well formed or not uniformly enforced. In such jurisdictions, the Company may decide to take an uncertain tax position based on the best advice of the local tax experts it engages, which position may be challenged by the taxing authority. IfAny such challenge could result in increased tax obligations in these jurisdictions going forward or assessments of liability by the taxing authority, ~~later assesses a liability,~~in which case the Company may be required to pay penalties and interest on the assessed amount ~~which penalties and interest~~that would not give rise to a corresponding foreign tax credit on the ~~Company's~~Company’s U.S. tax ~~return.~~returns.

The Trump administration and members of the U.S. Congress have made public statements about significant changes in U.S. trade policy and have taken certain actions that materially impact U.S. trade, including terminating, renegotiating or otherwise modifying U.S. trade agreements with countries in various regions and imposing tariffs on certain goods imported into the United States. These changes in U.S. trade policy have triggered and could continue to trigger retaliatory actions by affected countries, including China, resulting in ~~"trade wars."~~“trade wars” with these countries. These trade wars could generally increase the cost of aircraft, aircraft and engine components and other goods regularly imported by ~~our~~the Company’s customers, thereby increasing costs of operations for ~~our~~its air carrier customers that are located in the affected countries. The increased costs could materially and adversely impact the financial health of affected air carriers, ~~generally,~~ which in turn could have a negative impact on the ~~Company's~~Company’s business opportunities, and if the ~~Company's~~Company’s lessees are significantly affected, could have a direct impact on the ~~Company's~~Company’s financial results. Furthermore, the Company often incurs maintenance or repair ~~expense~~expenses not covered by lessees in foreign countries, which expenses could increase ~~the Company's own maintenance and repair expense~~ if such countries are affected by such a trade war.

Level of Portfolio Diversification. The Company intends to continue to focus solely on regional aircraft. Although the Company invested in a limited number of turboprop aircraft types in the past, including two in the second quarter of 2018, the Company has also acquired several regional jet aircraft types, which now comprise a larger percentage of the ~~Company's~~Company’s portfolio based on number of aircraft and net book value. The Company may continue to seek acquisition opportunities for new types and models of aircraft used inby the ~~Company's~~Company’s targeted customer base of regional air carriers. Acquisition of aircraft types not previously ~~acquired~~owned by the Company entails greater ownership risk due to the ~~Company's~~Company’s lack of experience managing those assets and the potentially different types of customers that may lease them. Conversely, the ~~Company's~~Company’s focus on a more limited set of aircraft types and solely on regional aircraft subjects the Company to risks that disproportionately impact these aircraft markets, which are described elsewhere in this discussion. As a result, the level of asset and market diversification the Company chooses to pursue could have a significant impact on its performance and results.

Transition to LIBOR alternative reference rate. The London Inter-bank Offered Rate (“LIBOR”) represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans, and is the index rate of the Company’s Credit Facility debt and the Term Loan Indebtedness of the LLC Borrower subsidiaries. Beginning in 2008, concerns were expressed that some of the member banks surveyed by the British Bankers’ Association (the “BBA”) in connection with the calculation of LIBOR rates may have been under-reporting or otherwise manipulating the interbank lending rates applicable to them. Regulators and law enforcement agencies from a number of governments have conducted investigations relating to the calculation of LIBOR across a range of maturities and currencies. If manipulation of LIBOR or another inter-bank lending rate occurred, it may have resulted in that rate being artificially lower (or higher) than it otherwise would have been. Responsibility for the calculation of LIBOR was transferred to ICE Benchmark Administration Limited, as independent LIBOR administrator, effective February 1, 2014. On July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021 (the “July 27th Announcement”). The July 27th Announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable benchmark, what rate or rates may become accepted alternatives to LIBOR or the effect of any such changes in views or alternatives on the value of LIBOR-linked securities.

Although the Financial Stability Oversight Council has recommended a transition to an alternative reference rate in the event LIBOR is no longer available after 2021, which would affect the Company’s Credit Facility and some of its Term Loans, such plans are still in development and, if enacted, could present challenges. Moreover, contracts linked to LIBOR are vast in number and value, are intertwined with numerous financial products and services, and have diverse parties. The downstream effect of unwinding or transitioning such contracts could cause instability and negatively impact the financial markets and individual institutions. The uncertainty surrounding the sustainability of LIBOR more generally could undermine market integrity and threaten individual financial institutions and the U.S. financial system more broadly.

With respect to the Company’s indebtedness, the inability of the Company and its lenders to agree on a mutually acceptable LIBOR index for any debt outstanding if LIBOR is no longer published after 2021 could cause the debt to be terminated and repayment of the indebtedness being accelerated and immediately due and payable to the Lender. This could also lead to substantial breakage fees being payable by the Company in addition to the outstanding principal of such debt.

Swap Counterparty Credit Risks. The Company and its LLC Borrowers have entered into certain interest rate swaps to hedge the interest rate risk associated with a portion of the Credit Facility and all of Borrower LLC’s Term Loan indebtedness. These interest rate swap agreements effectively convert the variable rate interest payments to a fixed rate. If an interest rate swap counterparty cannot perform under the terms of the interest rate swap due to insolvency, bankruptcy or other reasons, the Company would not receive payments due from the counterparty under that swap, and, depending on interest rate conditions at the time of such default, that could render the Company unable to meet its variable interest rate debt obligations, leading to a default under one or more loan agreements. In such a case, the collateral securing the loan indebtedness could be foreclosed upon, and/or the Company might incur a loss on the fair market value of the interest rate swap agreement.

Swap Breakage Fees. To reduce the amount of interest that accrues under the Company’s Credit Facility and/or Term Loans, the Company could choose to prepay certain amounts borrowed under such loans. Because the Company has hedged its variable rate indebtedness, in addition to prepayment fees that might be payable to the lender under the underlying indebtedness, the Company may also be obligated to pay certain swap breakage fees to the swap counterparty in order to unwind the interest rate swap on the indebtedness that is being prepaid. Thus interest rate swaps could reduce the economic benefit that the Company might otherwise achieve through prepayment or could render an otherwise advantageous debt prepayment uneconomical.

Government Regulation. There are a number of areas in which government regulation may result in costs to the Company. These include aircraft registration safety requirements, required equipment modifications, maximum aircraft age, and aircraft noise requirements. Although it is contemplated that the burden and cost of complying with such requirements will fall primarily upon lessees, there can be no assurance that the cost will not fall on the Company. Additionally, even if lessees are responsible for the costs of complying with these requirements, changes to the requirements to make them more stringent or otherwise increase these costs could negatively impact the Company’s customers’ businesses, which could result in nonperformance under their lease agreements or decreased demand for the Company’s aircraft. Furthermore, future government regulations could cause the value of any ~~non-complying~~noncomplying equipment owned by the Company to decline substantially. Moreover, any failure by the Company to comply with the government regulations applicable to it could result in sanctions, fines or other penalties, which could harm the ~~Company's~~Company’s reputation and performance.

Casualties and Insurance Coverage. The Company, as an owner of transportation equipment, may be named in a suit claiming damages for injuries or damage to property caused by its assets. As a triple-net lessor, the Company is generally protected against such claims, ~~since~~because the lessee would be responsible for, insure against and indemnify the Company for such claims. A ~~"triple~~“triple net ~~lease"~~lease” is a lease under which, in addition to monthly rental payments, the lessee is generally responsible for the taxes, insurance and maintenance and repair of the aircraft arising from the use and operation of the aircraft during the term of the lease. Although the United States Aviation Act may provide some additional protection with respect to the ~~Company's~~Company’s aircraft assets, it is unclear to what extent such statutory protection would be available to the Company with respect to its assets that are operated in foreign countries where ~~such~~the provisions of ~~the United States Aviation Act~~this law may not apply.

The ~~Company's~~Company’s leases generally require a lessee to insure against likely risks of loss or damage to the leased asset and liability to passengers and third parties pursuant to industry standard insurance policies, and require lessees to provide insurance certificates documenting the policy periods and coverage amounts. The Company has adopted measures designed to ensure these insurance policies continue to be maintained, including tracking receipt of the insurance certificates, calendaring their expiration dates, and reminding lessees of their obligations to maintain such insurance and provide current insurance certificates to the Company if a replacement certificate is not timely received prior to the expiration of an existing certificate.

Despite these requirements and procedures, there may be certain cases where ~~the loss is~~losses or liabilities are not entirely covered by the lessee or its insurance. ~~The~~Although the Company believes the possibility of such an event is remote, ~~but~~ any such uninsured loss ~~with respect to the equipment~~or liability, or insured loss or liability for which insurance proceeds are inadequate, might result in a loss of invested capital in and any profits anticipated from ~~such equipment,~~the applicable aircraft, as well as a potential ~~claim~~claims directly against the Company.

Compliance with Environmental Regulations. Compliance with environmental regulations may harm the ~~Company's~~Company’s business. Many aspects of aircraft operations are subject to increasingly stringent environmental regulations, and growing concerns about climate change may result in the imposition by the ~~U.S~~U.S. and foreign governments of additional regulation of carbon emissions, including requirements to adopt technology to reduce the amount of carbon emissions or ~~putting in place~~imposing a fee or tax system on carbon emitters. ~~It is likely that any~~Any such regulation ~~would~~could be directed at the ~~Company's~~Company’s customers, as operators of aircraft, or at the Company, as an owner of aircraft, and/or on the manufacturers of aircraft. Under the ~~Company's~~Company’s triple-net lease arrangements, the Company would likely try to shift responsibility for compliance to its ~~lessees, but~~lessees; however, it may not be able to do so due to competitive or other market factors, and there might be some compliance costs ~~of complying with these regulations~~ that the Company could not ~~shift~~pass through to its customers and would itself have to bear. Although it is not expected that the costs of complying with current environmental regulations will have a material adverse effect on the ~~Company's~~Company’s financial position, results of operations, or ~~cash flows,~~liquidity, there is no assurance ~~can be given~~ that the costs of complying with environmental regulations as amended or adopted in the future will not have such an effect.

~~Cyber-Security~~Cybersecurity Risks. The Company believes that its main ~~vulnerability~~vulnerabilities to a cyber-attack would be interruption of the ~~Company's~~Company’s email communications internally and with third parties, loss of customer and lease archives, and loss of document sharing between the ~~Company's~~Company’s offices and remote workers. Such an attack could temporarily impede the efficiency of the ~~Company's~~Company’s operations; however, the Company believes that sufficient replacement and backup mechanisms exist in the event of such an interruption such that there would not be a material adverse financial impact on the ~~Company's~~Company’s business. A cyber-hacker could also gain access to and release proprietary information of the Company, its customers, suppliers and employees stored on the ~~Company's~~Company’s data network. Such a breach could harm the ~~Company's~~Company’s reputation and result in competitive disadvantages, litigation, lost revenues, additional costs, or liability to third parties. While the Company believes that it has sufficient ~~cyber-security~~cybersecurity measures in place commensurate with the risks to the Company of a successful cyber-attack or breach of its data security, its resources and technical sophistication may not be adequate to prevent or adequately respond to and mitigate all types of cyber-attacks.

Possible Volatility of Stock Price. The market price of the ~~Company's~~Company’s common stock is subject to fluctuations following developments relating to the ~~Company's~~Company’s operating results, changes in general conditions in the economy, the financial markets or the airline industry, changes in accounting principles or tax laws applicable to the Company or its lessees, or other developments affecting the Company, its customers or its competitors, or arising from other investor sentiment unknown to the Company. Because the Company has a relatively small capitalization of approximately 1.5 million shares outstanding, there is a correspondingly limited amount of trading and float of the ~~Company's~~Company’s shares. Consequently, the ~~Company's~~Company’s stock price is more sensitive to a single large trade or a small number of simultaneous trades along the same trend than a company with larger capitalization and higher trading volume and float. This stock price and trading volume volatility could limit the ~~Company's~~Company’s ability to use its capital stock to raise capital, if and when needed or desired, or as consideration for other types of transactions, including strategic collaborations, investments or acquisitions. Any such limitation could negatively affect the ~~Company's~~Company’s performance, growth prospects and liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This report does not include information described under Item 305 of Regulation S-K pursuant to the rules of the Securities and Exchange Commission that permit ~~"smaller~~“smaller reporting ~~companies"~~companies” to omit such information.

Item 4. Controls and Procedures.

CEO and CFO Certifications. Attached as exhibits to this Quarterly Report on Form 10-Q (the ~~"Report"~~“Report”) are certifications of the ~~Company's~~Company’s Chief Executive Officer (the ~~"CEO"~~“CEO”) and the ~~Company's~~Company’s Chief Financial Officer(the ~~"CFO"~~“CFO”), which are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the ~~"Section~~“Section 302 ~~Certifications"~~Certifications”). This section of the Report includes information concerning the evaluation of disclosure controls and procedures referred to in the Section 302 Certifications and this should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Evaluation of the ~~Company's~~Company’s Disclosure Controls and Procedures. Disclosure controls and procedures ("(“Disclosure ~~Controls"~~Controls”) are controls and other procedures that are designed to ensure that information required to be disclosed in the ~~Company's~~Company’s reports filed or submitted under the Securities Exchange Act of 1934, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the ~~Company's~~Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

In the course of the review of the consolidated financial results of the Company for the three months and six months ended June 30, 2018, wethe Company identified a material weakness in ~~our~~its internal control over financial reporting (“Internal Control”) at June 30, 2018 related to the ~~Company's~~Company’s incorrect accounting for management fees and acquisition fees associated with the ~~management agreement~~Management Agreement between ~~JetFleet Holding Corp ("JHC")~~JHC and the Company.

Although the Company implemented controls over identifying the proper accounting treatment over the JHC acquisition and those controls operated as of December 31, 2018, the Company’s tax review control did not identify a complex component resulting in an adjustment to the tax expense in 2018. Management has determined that this deficiency ~~constituted~~constitutes a material weakness as of ~~September 30, 2018.~~March 31, 2019. Management is in the process of ~~conducting~~enhancing the ~~controls~~tax review control related to unusual transactions the ~~acquisition accounting over the JHC Merger, which was consummated on October 1, 2018.~~Company may encounter.

The ~~Company's~~Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the ~~Company's~~Company’s Disclosure Controls and concluded that the ~~Company's~~Company’s Disclosure Controls were not effective as of ~~September 30, 2018~~March 31, 2019 due to the material weakness described above.

Changes in Internal ~~Control Over Financial Reporting~~Control. . No change in the ~~Company's internal control over financial reporting~~Company’s Internal Control occurred during the fiscal quarter ended ~~September 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the ~~Company's internal control over financial reporting.~~Company’s Internal Control.

Inherent Limitations of Disclosure Controls and Internal ~~Control Over Financial Reporting~~Control. . In designing its Disclosure Controls and ~~internal control over financial reporting,~~Internal Control, the ~~Company's~~Company’s management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of the ~~Company's~~Company’s controls and procedures must reflect the fact that there are resource constraints, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of these inherent limitations, the ~~Company's~~Company’s Disclosure Controls and ~~internal control over financial reporting~~Internal Control may not prevent or detect all instances of fraud, misstatements or other control issues. In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks, including, among others, that controls may become inadequate because of changes in conditions or that compliance with policies or procedures may deteriorate.

Item 9B. Other Information.

None.

PART II – OTHER INFORMATION

Item 6. Exhibits. ~~Exhibits~~

Exhibit Number	Description
~~10.1~~	~~Employment Agreement dated September 1, 2016 between Michael G. Magnusson and JetFleet Management Corp.~~
31.1	Certification of Michael G. Magnusson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Toni M. Perazzo, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Michael G. Magnusson, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Toni M. Perazzo, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

* These certificates are furnished to, but shall not be deemed to be filed with, the ~~Securities and Exchange Commission.~~SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AEROCENTURY CORP.
Date: ~~November 8, 2018~~May 15, 2019	By:	/s/ Toni M. Perazzo
		Name: Toni M. Perazzo
		Title: Senior Vice President-Finance and
		Chief Financial Officer

	September 30, 2018			December 31, 2017
Gross minimum lease payments receivable	$	18,160,700		$	27,074,400
Less unearned interest		(2,105,200	)		(3,513,400	)
Finance leases receivable	$	16,055,500		$	23,561,000

Years ending

Remainder of 2018	$	1,891,500
2019		4,047,600
2020		4,208,600
2021		4,805,000
2022		3,208,000
	$	18,160,700

Years ending

Remainder of 2018	$	7,185,500
2019		28,381,100
2020		25,797,800
2021		18,696,400
2022		16,738,800
Thereafter		34,687,700
	$	131,487,300

	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2018		2017		2018		2017
Management fees	$	4,482,800		4,588,700	$	1,534,000	$	1,583,700
Acquisition fees		494,400		850,500		-		208,600
Remarketing fees		-		51,100		-		-