acy10k123120v7

10-K 1 acy10k123120v7.htm AEROCENTURY CORP.10-K 12/31/2020 acy10k123120v7

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

☒

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

For the fiscal year ended December 31, 2020

☐

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)		(IRS Employer Identification No.)

1440 Chapin Avenue, Suite 310

Burlingame, California 94010

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (650) 340-1888

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ACY	NYSE American Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter (based upon the closing sale price of the registrant’s common stock as of such date, as reported by the NYSE American Exchange) was $2,910,200. Shares of common stock held by the registrant's officers and directors and beneficial owners of 10% or more of the outstanding shares of the registrant's common stock have been excluded from the calculation of this amount because such persons may be deemed to be affiliates of the registrant; however, the treatment of these persons as affiliates of the registrant for purposes of this calculation is not, and shall not be considered, a determination as to whether any such person is an affiliate of the registrant for any other purpose.

The number of shares of the registrant’s common stock outstanding as of April 15, 2021 was 1,545,884.

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

This Annual Report on Form 10-K 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"). Any statement in this report other than statements of historical fact may be a forward-looking statement for purposes of these provisions, including any statements of the Company’s plans and objectives for future operations, the Company’s future financial condition 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," “projected,” “intends,” “believes,” 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 approval by the Bankruptcy Court of various first day motions that are intended to enable the Company to continue existing operations without interruption during the pendency of its bankruptcy proceedings;

● the Company’s ability to construct and gain approval from the Bankruptcy Court of its proposed plan of reorganization;

● the expected timing with respect to the Company’s exit from the bankruptcy process;

● the resolution of the Drake Indebtedness (as defined below) through the conduct of an auction sale within the bankruptcy process for the collateral securing such indebtedness;

● the sufficiency of available cash required to fund the Company’s bankruptcy proceeding along with its other ongoing operational costs;

● the Company’s use of the PPP Loan proceeds and the potential forgiveness of principal due under such loans;

● the availability of debt or equity financing to fund the restart of the Company’s aircraft leasing business upon exit from bankruptcy;

● the impact of certain industry trends on the Company and its performance;

● the ability of the Company and its customers to comply with applicable government and regulatory requirements in the numerous jurisdictions in which the Company and its customers operate;

● the 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 business; and

● the impact of any of the foregoing on the prevailing market price and trading volume of the Company’s common stock.

All of the 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 others, the factors that could cause such differences include: the Company’s ability to obtain the Bankruptcy Court approvals for motions necessary for the Company to continue its business and execute its reorganization plan; the ongoing effects on the airline industry and global economy of the COVID-19 pandemic or any other public health emergencies; the impact on the industry from a terrorist attack involving air travel; the ability of the Company to raise debt or equity financing when needed on acceptable terms and in desired amounts, or at all; the Company’s ability to execute its reorganization plan successfully if approved; any noncompliance by the Company's lessees with respect to their obligations under their respective leases, including payment obligations; any economic downturn or other financial crisis; any inability to compete effectively with the Company’s better capitalized competitors; limited trading volume in the Company's stock; and the other factors detailed under "Factors That May Affect Future Results and Liquidity" in Item 7 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 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. We urge you to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. 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 Securities and Exchange Commission (“SEC”) after the date of this report for updated information.

Table of Contents

PART I

Item 1. Business.

Item 1A. Risk Factors.

Item 1B. Unresolved Staff Comments.

Item 2. Properties.

Item 3. Legal Proceedings.

Item 4. Mine Safety Disclosures.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Item 6. Selected Financial Data.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures.

Item 9B. Other Information.

PART III 23

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accountant Fees and Services.

PART IV

Item 15. Exhibits, Financial Statements Schedules.

Item 16. Form 10-K Summary.

PART I

Item 1. Business.

Business of the Company

The Company is engaged in the business of investing in used regional aircraft equipment and leasing the equipment to foreign and domestic regional air carriers. The Company’s principal business objective is to acquire aircraft assets and manage those assets in order to provide a return on investment through lease revenue and, eventually, sale proceeds. The Company strives to achieve this objective by reinvesting cash flow from operations and using short-term and long-term debt and/or equity financing. The Company believes its ability to achieve this objective depends in large part on its success in three areas: asset selection and acquisition, lessee selection and obtaining financing to acquire aircraft and engines. As passive investor interest in aircraft assets has increased, there has been increasing demand from such individual passive investors, or investment fund managers, for professional third-party aircraft leasing and portfolio management. The Company has begun to explore third-party management service contracts as an additional source of revenue that takes advantage of the Company’s reputation, experience and expertise in this area.

As of December 31, 2020, the Company’s aircraft portfolio consisted of (i) six aircraft held for lease, (ii) seven aircraft held for sale and (iii) two aircraft being sold in parts (“Part-out Assets”). Three of the held-for-sale aircraft were sold in March 2021. Most of the Company’s aircraft are mid-life regional aircraft, and its customer base consists of six airlines operating in four countries. The Company also has sales-type finance lease receivables collateralized by two aircraft.

Bankruptcy. As previously reported in our Report on Form 8-K filed with the Securities Exchange Commission on March 30, 2021, the Company and its subsidiaries, JetFleet Holding Corp. and JetFleet Management Corp., filed on March 29, 2021 a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 21-10636 (the “Chapter 11 Case”). The Company also filed motions with the Bankruptcy Court seeking authorization to continue to operate its business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company expects to continue its existing operations without interruption during the pendency of the Chapter 11 Case. To maintain and continue uninterrupted ordinary course operations during the Chapter 11 Case, the Company has filed a variety of “first day” motions seeking approval from the Court for various forms of customary relief. These motions are designed primarily to minimize the effect of bankruptcy on the Company’s operations, customers and employees, copies of which were described in the Company’s Report on Form 8-K filed with the SEC on March 30, 2021. One of the first day orders requested of the Bankruptcy Court was approval of an auction sale (“Auction Sale”) process of the aircraft collateral (the “Drake Collateral”) that secures the indebtedness (the “Drake Indebtedness”) owed by the Company to its single secured creditor, Drake Asset Management Jersey Limited (“Drake”). The Drake Collateral comprises all of the aircraft assets currently owned by the Company, other than two DHC-8 turboprop aircraft on lease to Kenyan lessees, and the Part-out Assets. If completed, the Auction Sale of the Drake Collateral is expected to resolve in full the Company’s obligations under the Drake Indebtedness.

Impact of COVID-19. In March 2020, the World Health Organization (“WHO”) declared the novel strain of coronavirus (“COVID-19”) a pandemic, and since such time the pandemic has continued to have wide-ranging impacts on business activities, social behaviors, government functions and the global economy more broadly. The ongoing pandemic has had an overwhelming effect on all forms of transportation globally, but most acutely for the airline industry. The combined effect of fear of infection during air travel and shifting international and domestic travel restrictions has caused a dramatic decrease in passenger loads in all areas of the world, not just in those countries with active clusters of COVID-19. This has led to significant cash flow issues for airlines, including some of the Company’s customers.

Furthermore, for the duration of the pandemic and a period of financial recovery thereafter, sale and acquisition transactions in the industry have been curtailed entirely or delayed while the industry returns to financial stability. The widespread financial effects of the COVID-19 pandemic on the commercial passenger aviation industry has been a major factor in the Company’s need to seek Chapter 11 bankruptcy protection, as this protection provides the Company the time and means to reorganize its business and enable it to continue as a result of executing its recapitalization and restructuring plan. While the Company’s current intention is that its business model will not significantly change in any recapitalization and restructuring plan, it is possible that upon exit from reorganization there could be substantial revisions to the Company’s business model and changes in the Company’s focus within the aviation leasing or finance industries.

Asset Selection and Acquisition. The Company does not anticipate it will have any acquisition activity during the pendency of the Chapter 11 Case. If the Company exits from the Chapter 11 Case as an operating enterprise, the Company would require a new source of acquisition financing in order to commence rebuilding a new portfolio of assets.

The Company has historically acquired assets in one of three ways. The Company purchased an asset already subject to a lease and assumed the rights and obligations of the seller, as lessor under the existing lease. Additionally, the Company has purchased assets from an air carrier and leased them back to the air carrier. Finally, the Company has occasionally purchased an asset from a seller and then immediately entered into a new lease for the aircraft with a third-party lessee. In this last instance, the Company typically would not purchase an asset unless a potential lessee has been identified and has committed to lease the asset.

In the past, the Company has located customers through marketing efforts utilizing website listings, attendance at industry conferences, referrals from existing industry contacts and current customers, as well as focused advertising.

The Company generally targeted used regional aircraft with purchase prices between $10 million and $20 million and lease terms of three to ten years. In identifying and selecting assets for acquisition, the Company evaluates, among other things, the type of asset, its current price and projected future value, its versatility or specialized uses, the current and projected availability of and demand for that asset, and the type and number of future potential lessees. Because the Company has extensive experience in purchasing, leasing and selling used regional aircraft, it believes it has the expertise and industry knowledge to purchase these assets at appropriate prices and maintain an acceptable overall on-lease rate for them.

In order to improve the remarketability of an aircraft after expiration of a lease, the Company’s leases generally contain provisions that require lessees to either return the aircraft in a condition that allows the Company to expediently re-lease or sell the aircraft, or pay sufficient amounts based on usage under the lease to cover any maintenance or overhaul of the aircraft required to bring the aircraft to such a state.

Lessee Selection. The Company’s customer base has primarily consisted of regional commercial aircraft operators located in globally diverse markets and seeking to access aircraft under operating leases. Once it exits bankruptcy, the Company expects to continue to target these customer markets for the foreseeable future. When considering whether to enter into transactions with a lessee, the Company generally reviews the lessee’s creditworthiness, growth prospects, financial status and backing; the experience of its management; and the impact of legal and regulatory matters in the lessee’s market, all of which are weighed in determining the lease terms offered to the lessee. In addition, it is the Company’s policy to monitor the lessee’s business and financial performance closely throughout the term of the lease, and, if requested, provide assistance drawn from the experience of the Company’s management in many areas of the air carrier industry. Because of its “hands-on” approach to portfolio management, the Company believes it is able to enter into transactions with lessees in a wider range of markets than may be possible for traditional, large lending institutions and leasing companies.

Availability of Financing. The Company does not anticipate that any acquisition financing will be available to it during the pendency of the Chapter 11 proceedings. See Item 7 of this report for more information about trends in and expectations about the Company’s performance and liquidity.

Competition. As an aircraft lessor, 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, equipment leasing programs and other parties for its regional air carrier customers. Many of these competitors have longer operating histories, more experience, larger customer bases, more expansive brand recognition, deeper market penetration and significantly greater financial resources. Competition in this industry is based on a number of factors, including price, lease terms, variety of product selection (in other words, the type(s) of aircraft available for lease), reputation, ability to execute transactions as committed, and customer service.

Prior to the COVID-19 pandemic, competition was intense as competitors who have traditionally neglected the regional air carrier market began to focus on this market. The industry also experienced new entrants to the market, as well as a number of consolidations of smaller leasing companies, creating a handful of very large companies operating in this market. The entry of traditional large aircraft lessors into the regional aircraft niche, particularly those with greater access to capital than the Company, led to fewer acquisition opportunities for the Company and lower lease yields to the Company, as well as fewer renewals of existing leases or new leases of existing aircraft.

The COVID-19 pandemic has disrupted the airline industry, as many airline customers have grounded aircraft and are seeking rent holidays or terminating leases, and in the absence of such lessor accommodations are defaulting on lease obligations. Many of the Company’s aircraft leasing competitors have left the market, been acquired, or, like the Company, are shedding assets in order to raise cash to resolve debt non-compliance. In the near and medium term, those lessors with substantial cash reserves and/or available acquisition financing for speedy closings will have opportunities for profitable transactions and will have a significant competitive advantage in the market.

The Company believes that if it can successfully and expeditiously complete its Chapter 11 restructuring process, which would require the resolution of its debt obligations to its single remaining secured creditor, and if the Company is successful in obtaining committed acquisition financing upon its exit from Chapter 11, it may be able to capture some of the opportunities created by the financial fallout from the pandemic, and leverage the Company’s experience and operational efficiency in financing transactions of the size and structure that are often overlooked by larger competitors.

Dependence on Significant Customers

For the year ended December 31, 2020, the Company’s five largest customers accounted for 27%, 23%, 19%, 15%, and 14% of operating lease revenue. For the year ended December 31, 2019, the Company’s five largest customers accounted for 23%, 23%, 16%, 14%, and 10% of operating lease revenue. If the Auction Sale of the Drake Collateral is completed, the Company’s sole customers would be located in Kenya, for which the Company has not received payments due under the two sales-type finance leases since early 2020. Unless and until the Company acquires a significant number of assets with a diverse range of lessees, the Company’s portfolio will carry a high risk of customer and geographic concentration.

Regulations

The Company is subject to compliance with federal, state and local government regulations. Among these, as a company engaged in international trade, these include the Foreign Corrupt Practices Act, and various export control, money laundering, and anti-terrorism laws and regulations promulgated by the U.S. Department of Commerce and the Department of Treasury. Furthermore, as an owner of aircraft, provisions regulating the discharge of greenhouse gas emissions (including carbon dioxide (CO2)) into the environment, aircraft noise regulations, and remedial agreements or other actions relating to these provisions or the environment may become applicable to the Company. To date, the cost of compliance with these laws has not had, and is not expected to have, a material effect on the Company’s capital expenditures, financial condition, results of operations or competitive position.

Human Capital

As of December 31, 2020, the Company had 9 total employees, including 8 full-time employees. Nearly all of the employees of the Company have substantial tenure with the Company and are viewed as a valuable resource for the Company. Therefore, employee retention is an important goal for management, particularly as the Company seeks to restructure and reorganize. Until the acquisition of its management company, JetFleet Management Corp., (“JMC”) in 2018, the Company did not have employees, as management of the Company was provided by employees of JMC. Since acquiring JMC, the Company, under the guidance of the Compensation Committee of the Board of Directors, has adopted annual cash-based discretionary bonus incentive programs, and may adopt a cash program or possibly add a stock-based incentive program to promote employee retention, when and if the Company’s financial circumstances permit.

Patents, Trademarks and Licenses

The Company has a registered trademark for the “AeroCentury” name. The Company relies primarily on trademark and trade secrets law, as well as non-disclosure contracts, to protect its intellectual property and proprietary information.

Available Information

AeroCentury is a Delaware corporation incorporated in 1997. Its headquarters is located at 1440 Chapin Avenue, Suite 310, Burlingame, California 94010. The main telephone number is (650) 340-1888. The Company’s website is located at: http://www.aerocentury.com.

The Company files and furnishes periodic reports, proxy statements and other information with the SEC. Copies of these materials are made available free of charge on the Company’s website through the Investor Relations link (SEC Filings) as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including the Company.

Item 1A. Risk Factors.

Disclosure under this item has been omitted pursuant to the rules of the SEC that permit smaller reporting companies to omit this information. However, please see the description of certain risks and uncertainties that could impact the Company’s performance, liquidity and stock price and volume set forth under Factors that May Affect Future Results and Liquidity in Item 7 of this report.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

As of December 31, 2020, the Company did not own any real property, plant or materially important physical properties. The Company leases its principal executive office space at 1440 Chapin Avenue, Suite 310, Burlingame, California 94010 under a lease agreement that expires on January 31, 2023.

For information regarding the aircraft assets owned by the Company, refer to the information under “Fleet Summary” in Item 7 of this report and Notes 2 and 3 to the Company’s consolidated financial statements in Item 8 of this report.

Item 3. Legal Proceedings.

Voluntary Bankruptcy Filing. See Item 8 - Financial Statements and Supplementary Data – Note 1(e) to Financial Statements.

Ordinary Course Litigation. The Company from time to time engages in ordinary course litigation incidental to the business, typically relating to lease collection matters against defaulting lessees and mechanic’s lien claims by vendors hired by lessees. Although the Company cannot predict the impact or outcome of any of these proceedings, including, among other things, the amount or timing of any liabilities or other costs it may incur, none of the pending legal proceedings to which the Company is a party or any of its property is subject is anticipated to have a material effect on the Company’s business, financial condition or results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The Company’s common stock is traded on the NYSE American Exchange under the symbol “ACY.”

Number of Holders

According to the Company’s transfer agent, the Company had approximately 1,700 stockholders of record as of April 15, 2021. Because brokers and other institutions and nominees hold many of the Company’s shares of Common Stock on behalf of beneficial owners, the Company is unable to estimate the total number of beneficial owners represented by those nominees.

Dividends

Although the Company’s earnings in some periods may indicate an ability to pay cash dividends, the Company has not declared or paid any such dividends to date, and has no plans to do so in the foreseeable future because it intends to re-invest any earnings into the acquisition of additional revenue-generating aircraft and equipment.

Item 6. Selected Financial Data.

Disclosure under this item has been omitted pursuant to the rules of the SEC that permit smaller reporting companies to omit this information.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read together with the Company’s audited consolidated financial statements and the related notes included in this report. This discussion and analysis contains forward-looking statements. Please see the cautionary note regarding these statements at the beginning of this report.

Overview

The Company has historically provided leasing and finance services to regional airlines worldwide and has been principally engaged in leasing mid-life regional aircraft to customers worldwide under operating leases and finance leases. In addition to leasing activities, the Company has also sold 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 composition of its aircraft portfolio, the terms of its leases, and the interest rate of its debt, as well as asset sales.

The COVID-19 pandemic has led to significant cash flow issues for many lessors. Some of the Company’s customers were unable to timely meet their obligations under their lease obligations with the Company during 2020. This in turn has caused those lessees to make requests for lease payment concessions and/or deferrals from the Company, which in turn impacted the Company’s cash flow. The onset of the COVID-19 pandemic substantially impeded the Company’s ability to regain compliance with its debt covenants under its credit facility with lenders led by agent bank MUFG Union Bank (the “MUFG Lenders”), which credit facility was in default prior to the COVID-19 pandemic due to the failure of the Company’s largest customer, a European regional carrier.

Average portfolio utilization was approximately 88% and 95% during 2020 and 2019, respectively. The year-to-year decrease was due to aircraft sales during 2020 and aircraft that were on lease in 2019, but off lease in 2020.

Net loss for 2020 and 2019 was $42.2 million and $16.7 million, respectively, resulting in basic and diluted loss per share of $(27.33) and $(10.78), 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 (284%) and (49%) in 2020 and 2019, respectively.

Due to the Company’s default under its indebtedness, the Company was unable to purchase any aircraft during 2020. During 2020, the Company sold one aircraft that been held for sale and two aircraft that had been held under operating leases. A customer that financed an aircraft that had been held under a sales-type lease and a customer that financed three aircraft under direct financing leases exercised purchase options during 2020. The Company ended the year with a total of six aircraft held for lease, with a net book value of approximately $46 million. This represents a 58% decrease compared to the net book value of the Company’s aircraft and engines held for lease at December 31, 2019. In addition to the aircraft held for lease at year-end, the Company held two aircraft subject to finance leases and held seven aircraft and airframe parts from two aircraft held for sale.

Since September 2019, the Company has been primarily occupied with the workout of its debt with the MUFG Lenders and with the special purpose debt on six aircraft financed with NordDeutsche Landesbank Girozentrale, New York Branch (“Nord LB”).

The workout with the MUFG Lenders culminated in the sale of the MUFG indebtedness to Drake in October 2020, which consisted of $87.9 million loan indebtedness to the MUFG Lenders, including deferred interest, and approximately $3.1 million owed to MUFG Bank, Ltd for termination of interest rate swaps entered into with respect to the Drake Indebtedness (collectively, the “MUFG Indebtedness”).

The Company’s special purpose financing debt owed to Nord LB related to three of the Company’s assets was repaid in full as a result of dispositions of the three aircraft over the course of the last two years. In March 2021, the Company sold its membership interest in ACY E-175 LLC (“ACY E-175”), and the buyer assumed the last refinancing debt owed to Nord LB.

On March 29, 2021, the Company and its subsidiaries, JetFleet Holding Corp. and JetFleet Management Corp. (“the Debtors”) filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. The Company also filed motions with the Bankruptcy Court seeking authorization to continue to operate its businesses as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. The Company expects to continue existing operations without interruption during the pendency of the Chapter 11 Case. To maintain and continue uninterrupted ordinary course operations during the Chapter 11 Case, the Debtors have filed a variety of “first day” motions seeking approval from the Court for various forms of customary relief. These motions are designed primarily to minimize the effect of bankruptcy on the Company’s operations, customers and employees. The Company intends to conduct an Auction Sale of the collateral securing the Drake Indebtedness, which comprises nearly all of the aircraft assets currently owned by the Company, as part of its Chapter 11 proceeding in order to satisfy the Company’s obligations pursuant to the Drake Indebtedness to Drake, the Company’s sole secured lender. The Company has entered into a stalking horse agreement with an affiliate of Drake for the sale of the Drake Collateral to Drake in full satisfaction of the Company’s obligations under the Drake Indebtedness. If the Auction Sale is completed, the Company would be left with only the Part-out Assets and sales-type finance lease receivables from two customers in Kenya, for which the Company has not received payments since early 2020.

Fleet Summary

(a) Assets Held for Lease

Key portfolio metrics of the Company’s aircraft held for lease as of December 31, 2020 and December 31, 2019 were as follows:

	December 31, 2020	December 31, 2019
Number of aircraft and engines held for lease	6	11

Weighted average fleet age	14.4 years	11.8 years
Weighted average remaining lease term	29 months	41 months
Aggregate fleet net book value	$45,763,100	$108,368,600

	For the Years Ended December 31,
	2020	2019
Average portfolio utilization	88%	95%

The following table sets forth the net book value and percentage of the net book value, by type, of the Company’s assets that were held for lease at December 31, 2020 and December 31, 2019:

	December 31, 2020		December 31, 2019
Type	Number owned	% of net book value	Number owned	% of net book value
Regional jet aircraft:
Canadair 700	3	38%	3	20%
Canadair 900	1	29%	1	13%
Embraer 175	-	-%	3	26%
Canadair 1000	-	-%	2	21%
Turboprop aircraft:
Bombardier Dash-8-400	2	33%	2	20%

The Company did not purchase any aircraft during 2020 and sold one aircraft that been held for sale, one aircraft that had been held under a sales-type lease, three aircraft that had been held under direct financing leases and two aircraft that had been held under operating leases, as well as certain aircraft parts.

During 2019, the Company purchased no aircraft and sold one aircraft that had been held for lease, one aircraft that had been reclassified during the year from held for lease to a sales-type finance lease and two aircraft and an engine that been held for sale, as well as certain aircraft parts. The Company also reclassified three aircraft from held for lease to held for sale.

The following table sets forth the net book value and percentage of the net book value of the Company’s assets that were held for lease at December 31, 2020 and December 31, 2019 in the indicated regions (based on the domicile of the lessee):

	December 31, 2020		December 31, 2019
Region	Net book value	% of net book value	Net book value	% of net book value
North America	$30,433,100	67%	$63,799,600	59%
Europe and United Kingdom	15,330,000	33%	44,569,000	41%
	$45,763,100	100%	$108,368,600	100%

For the year ended December 31, 2020, approximately 50%, 19%, 15% and 14% of the Company’s operating lease revenue was derived from customers in the United States, Spain, Canada and Croatia, respectively. For the year ended December 31, 2019, approximately 30%, 23%, 23% and 10% of the Company’s operating lease revenue was derived from customers in the United States, Spain, Slovenia and Croatia, respectively. Operating lease revenue does not include interest income from the Company’s finance leases. The following table sets forth geographic information about the Company’s operating lease revenue for leased aircraft and aircraft equipment, grouped by domicile of the lessee:

	For the Years Ended December 31,
	2020		2019
Region	Number of lessees	% of operating lease revenue	Number of lessees	% of operating lease revenue
Europe	3	35%	4	59%
North America	3	65%	3	40%
Asia	-	-%	1	1%

At December 31, 2020 and December 31, 2019, the Company also had two aircraft and six finance lease receivables, respectively, collateralized by aircraft. For the year ended December 31, 2020, 100% of the Company’s finance lease revenue was derived from a customer in Europe. For the year ended December 31, 2019, approximately 57% and 43% of the Company’s finance lease revenue was derived from customers in Africa and Europe, respectively.

(b) Assets Held for Sale

Assets held for sale at December 31, 2020 consisted of three Canadair 900 aircraft, three Embraer 175 aircraft, one Bombardier Dash-8-300 aircraft and airframe parts from two turboprop aircraft. The three Embraer 175 aircraft were owned by a special-purpose subsidiary of the Company. The aircraft, restricted cash and debt obligations, including derivative liability, of the subsidiary were classified as held for sale at December 31, 2020, and the subsidiary was sold during March 2021.

Results of Operations

(i) Revenues and Other Income

Revenues and other income decreased by 63% to $16.2 million in 2020 from $43.6 million in 2019. The decrease was primarily a result of decreased operating lease, maintenance reserves and finance lease revenues in 2020.

Operating lease revenue decreased by 40% to $15.5 million in 2020 from $25.6 million in 2019, primarily due to reduced rent income resulting from the early termination of four aircraft leases with one of the Company’s customers in the third quarter of 2019.

Maintenance reserves that are retained by the Company at lease end are recorded as revenue at that time and decreased by 99% in 2020 from 2019. The Company recorded $0.2 million of such revenue during 2020 when an aircraft that had been on lease was returned to the Company and the lease was terminated. During 2019, the Company recorded $17.0 million of such revenue, arising from maintenance reserves retained upon the termination of four aircraft leases with one customer.

Finance lease revenue decreased by 93% to $0.1 million in 2020 from $0.9 million in 2019 as a result of the exercise of purchase options by the customer for three aircraft during the first quarter of 2020 that had been subject to direct finance leases. The Company is accounting for its two sales-type leases on a non-accrual basis as payments are received.

(ii) Expenses

Total expenses decreased by 4% to $62.0 million in 2020 from $64.8 million in 2019. The decrease was primarily a result of decreases in depreciation, asset impairment losses and bad debt expense, the effects of which were partially offset by increases in interest expense and professional fees and general and administrative and other expenses.

Depreciation expense decreased 39% to $7.0 million in 2020 from $11.6 million in 2019 primarily as a result of the reclassification of four aircraft from held for lease to held for sale during the third quarter of 2019, as well as a decrease in depreciation for two aircraft that were written down to their estimated sale values during the second quarter of 2020 and were sold during the fourth quarter.

During 2020, the Company recorded impairment losses totaling $14,639,900 for seven of its aircraft held for lease, comprised of (i) $7,006,600 for two aircraft that were written down to their sales prices, less cost of sale and (ii) $7,633,300 for five aircraft that were written down based on third-party appraisals. The Company also recorded losses of $11,337,200 for a turboprop aircraft and three regional jet aircraft that are held for sale and that were written down based on third-party appraisals and $2,774,700 for three regional jet aircraft and two turboprop aircraft that are being sold in parts based on estimated sales prices, less cost of sale, provided by the part-out vendors. During 2019, the Company recorded impairment charges totaling $31.0 million on four assets held for sale, based on appraised values, and five assets held for sale, based on expected sales proceeds. As a result of four lease terminations during 2019, the appraised values were based on the maintenance-adjusted condition of the aircraft, rather than the previous basis, which reflected future cash flows under the leases.

During 2019, as a result of payment delinquencies by two customers that financed three of the Company’s aircraft under finance leases, one of which was paid in full by the customer in early 2020, the Company recorded a bad debt expense of $2.9 million. During 2020, the Company recorded an additional bad debt expense of $1.5 million related to the finance leases of the two remaining aircraft to these customers.

The Company’s interest expense increased by 49% to $16.8 million in 2020 from $11.3 million in 2019, primarily as a result of a higher average interest rate and interest expense related to the termination of the Company’s two MUFG Swaps in 2020, the effects of which were partially offset by a lower average debt balance.

Professional fees, general and administrative and other expenses increased 15% to $4.6 million in 2020 from $4.0 million in 2019, primarily due to increased legal fees related to the May 2020 MUFG Indebtedness amendment and litigation relating to an activist shareholder, which was completed in 2020, consulting fees related to the May 2020 MUFG Indebtedness amendment and increased amortization related to the Company’s office lease right of use, the effects of which were partially offset by decreased travel expenses.

The Company had a tax benefit of $3.6 million for the year ended December 31, 2020 compared to tax benefit of $4.5 million for the year ended December 31, 2019. The effective tax rate for the year ended December 31, 2020 was a 7.8% tax benefit compared to a 21.3% tax benefit for the year ended December 31, 2019. The difference in the effective income tax rate from the normal statutory rate was primarily related to recording a $7.5 million valuation allowance in the current period on the Company’s U.S. and foreign deferred tax assets after concluding that the Company’s net U.S. and foreign deferred tax assets are not supported by either future taxable income or availability of future reversals of existing taxable temporary differences, or available refunds from carryback of foreign operating losses.

In March of 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) became law. The CARES Act included tax provisions under which net operating losses from 2018, 2019 and 2020 can be carried back for five years, modifying the law that had previously not permitted any carryback, and also increased the amount of deductible interest from 30% to 50% of adjusted taxable income for the 2019 and 2020 years. These changes have not had any effect on the Company’s expected cash tax expenditures or income tax expense. The CARES Act also accelerated the ability to receive refunds of alternative minimum tax credits from prior years, which allowed the Company to accelerate $11,400 of the refund of such credit into its 2019 return.

Liquidity and Capital Resources

At December 31, 2020, the Company had total book assets of approximately $93.4 million and liabilities of $111 million, resulting in a negative book equity of $17.6 million. The largest portion, $92.4 million, of the Company’s debt is owed to Drake and was payable with accrued interest on March 31, 2021.

The Company did not have the resources to meet its obligations to repay the Drake debt when due on March 31, 2021, which is a principal reason for its decision to file for protection under Chapter 11 of the bankruptcy code, as discussed in Note 1(e). Management has also recognized that the Company requires additional funding to continue its operations and has not identified a source for such funding to date. Although management plans include securing additional funding, it cannot conclude that it is probable that such plan will be achieved and mitigate the conditions that led to substantial doubt about the Company’s ability to continue as a going concern. The Company’s poor financial position, including its poor short-term liquidity given the impending maturity of the Drake debt, the amount of liability under the Drake debt in relation to the fair value of the Company’s assets and the uncertainty of generating sufficient funds over the year after publication of its financial statements to continue operations have led the Company to conclude that there is substantial doubt about its ability to continue as a going concern.

The accompanying audited consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to successfully implement a plan of reorganization, among other factors, and the realization of assets and the satisfaction of liabilities are subject to uncertainty. Further, any plan of reorganization could materially change the amounts of assets and liabilities reported in the accompanying consolidated financial statements. The consolidated financial statements presented in this Annual Report on Form 10-K have been prepared on a going concern basis and do not include any adjustments that might arise as a result of uncertainties about the Company’s ability to continue as a going concern or as a consequence of its Chapter 11 filing.

(a) MUFG Credit Facility and Drake Indebtedness

On May 1, 2020, the Company and the MUFG Lenders entered into a Fourth Amended and Restated Loan and Security Agreement (the "MUFG Loan Agreement") that amended and restated the existing agreement regarding the Company's indebtedness to the MUFG Lenders and granted forbearances of the existing defaults and events of default under the MUFG Loan Agreement. On October 30, 2020, Drake purchased all of the indebtedness of the Company under the MUFG Loan, totaling approximately $87.9 million as well as all of the Company's indebtedness to MUFG Bank, Ltd. of approximately $3.1 million for termination of interest rate swaps entered into with respect to such MUFG Loan Agreement indebtedness. The purchase and sale was consented to by the Company pursuant to a Consent and Release Agreement of Borrower Parties, entered into by the Company and its subsidiaries.

On the same day, the Company entered into an Amendment No. 1 to the MUFG Loan Agreement (“Amendment No. 1”) with Drake and UMB Bank, N.A., the replacement Administrative Agent under the MUFG Loan Agreement, to amend the MUFG Loan Agreement to: (i) defer the cash component of any monthly interest payments due under the MUFG Loan Agreement, commencing with the payments due for March 2020, and capitalize and add such deferred interest to the principal balance of the indebtedness until such time as the indebtedness is repaid; (ii) require lender approval for any material changes in lease terms with respect to the collateral; and (iii) delete certain financial reporting requirements and change required frequency of certain other surviving reporting requirements. The indebtedness continues to be secured by a first priority lien on all of the Company's assets, including the Company’s aircraft portfolio.

The Company and Drake have entered into an Asset Purchase Agreement (“Stalking Horse Agreement”) for the sale of the Drake Collateral, subject to better and higher offers. The Stalking Horse Agreement was entered into in conjunction with the filing by the Company of its Chapter 11 Case. The Company has requested the Court approve certain bidding procedures with respect to the Auction Sale for the Drake Collateral and other Company’s assets, in order to fund repayment of its indebtedness to Drake, as its sole secured lender. The consummation of a sale of Drake Collateral in the Auction Sale on terms as set forth in the Stalking Horse Agreement, or pursuant to higher and better offers, is expected to resolve in full the Company’s obligations owed pursuant to the Drake Indebtedness.

Following is a summary of the principal terms and conditions of the Stalking Horse Agreement:

● Assets Covered. The Stalking Horse Agreement covers the Drake Collateral, consisting of ten aircraft assets and related leases (“Assumed Leases”) over which Drake holds a first priority lien that secures the Drake Indebtedness.

●

Purchase Price. The aggregate consideration for the purchase of the Drake Collateral is an amount equal to the amount of the outstanding secured obligations.

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Sale Order Approval Required. The mutual obligations for the purchase and sale of the Drake Collateral is subject to the entry of an order by the Bankruptcy Court authorizing the purchase transaction as the best and highest offer available with respect to such assets.

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Excluded Assets. Certain assets are not being sold to Drake pursuant to the Stalking Horse Agreement (“Excluded Assets”), including two aircraft on lease to Kenyan lessees, and certain aircraft and an engine that are being parted out under consignment arrangements, which Excluded Assets shall remain free and clear of Drake claims, if and when the sale of the Drake Collateral pursuant to the Stalking Horse Agreement or to another higher and better offer is consummated.

●

Economic Closing Date Allocation. Lease revenue received with respect to the Drake Collateral shall be allocated based on a February 1, 2021 economic closing date (the “ECD”). Any lease revenue received by the Company for periods prior to the ECD shall be the property of the Company. Any lease revenue received that relates to any period after the ECD (“Post-ECD Proceeds”) shall be held by the Company for the benefit of Drake and remitted to Drake pursuant to terms of the cash collateral order entered into in connection with the Company's Chapter 11 Case.

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Assumed Liabilities. Drake shall assume liability for (a) any amounts required to be paid by the Company pursuant to section 365 of the Bankruptcy Code in connection with the assumption and assignment of the Assumed Leases; (b) all costs of obtaining necessary consents to assignment of the Assumed Leases (to the extent not assignable pursuant to contract or applicable law); (c) all of the legal fees payable to lessees under the Assumed Leases incurred in connection with legal review and negotiation of the lease novation or assignment documents for the Assumed Leases, and 50% of the Company’s legal fees for such legal review and negotiation; (d) sales, use, documentary, transfer, property, bulk, stamp, ad valorem or similar tax imposed on the assignment and transfer of the Drake Collateral, and any related penalties, or interest incurred; (e) reimbursements payable to a lessee upon completion of specific qualified maintenance projects, as defined and specified under any Assumed Lease; and (f) any unsatisfied liabilities with respect to certain programs that the Company maintains in connection with its leasing business in respect of the Assumed Leases.

●

Release of Secured Lender Claims on Company Assets. On the date that the transfer of title to all Drake Collateral shall have been completed, the Drake Indebtedness shall be deemed satisfied in full and canceled, and Drake shall release any claims it may otherwise have in: (a) any cash held in the Company’s bank accounts that are not Post-ECD Proceeds; (b) any proceeds received by the Company under any consignment contract with respect to Excluded Assets; (c) all assets of the Company other than the Drake Collateral; and (d) any proceeds of sale or other funds received in respect of the foregoing items listed in (a)-(c).

(b) Special-purpose Financing and Nord 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-purpose financing” or “UK LLC SPE Financing”) separate from the MUFG Credit Facility.

In February 2019, the UK LLC SPE Financing was repaid as part of a refinancing involving the Nord Loans, which were made to two other special-purpose subsidiaries of AeroCentury (the “LLC Borrowers”). Under the Nord Loans, four aircraft that previously served as collateral under the MUFG 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 Nord Loans. The Nord Loans were unaffected by the Company’s default under the MUFG Credit Facility.

Collectively, the LLC Borrowers entered into six interest rate derivatives, or interest rate swaps. Each such interest rate swap had a notional amount that mirrored the amortization under the corresponding Nord Loan entered into by the LLC Borrowers, effectively converting each of the six Nord Loans from a variable to a fixed interest rate. Each of these six interest rate swaps extend for the length of the corresponding Nord Loan, with maturities from 2020 through 2025. One of the aircraft that was subject to Nord Loan financing was sold during the fourth quarter of 2019 and the related Nord Loan and interest rate swap were terminated. Accumulated other comprehensive loss of $896,800 related to the Nord Swaps was recognized as an expense in the 2020.

In October 2020, the Company sold two regional jet aircraft to the lessee, and fully repaid the indebtedness on such aircraft with the sale proceeds. The excess proceeds from the sale were held as restricted cash by another special-purpose subsidiary of the Company and were retained by the special purpose entity holding the remaining three aircraft subject to the Nord Loans upon its sale in March 2021.

On March 16, 2021, the Company sold ACY E-175, the debtor under the Nord Loans secured by the three remaining E-175 aircraft that were refinanced through the Nord Loans, which were assumed by the buyer. The Company received a $2.1 million cash payment, the balance of the sales proceeds were used to reduce the Drake Indebtedness and the Company was released from all obligations with respect to the Nord Loan indebtedness and the related interest swaps. In December 2020, the Company determined that it was probable that the remaining interest payments subject to the ACY E-175 LLC swaps occurring after January 2021 would not occur, and accumulated other comprehensive income related to such payments was recognized in ordinary income in December 2020.

On May 20, 2020, JetFleet Management Corp. (the “PPP Borrower”), a subsidiary of AeroCentury Corp., was granted a loan (the “PPP Loan”) from American Express National Bank in the aggregate amount of $276,353, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted on March 27, 2020. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner not significantly detrimental to the business. The forgiveness of the related loan is dependent on the Company having initially qualified for the loan and then qualifying for loan forgiveness based on its future adherence to the forgiveness criteria.

The PPP Loan, which was in the form of a Note dated May 18, 2020 issued by the PPP Borrower, matures on April 22, 2022 and bears interest at a rate of 1.00% per annum, payable in 18 monthly payments commencing on October 19, 2021.

In February 2021, the Company was granted a second PPP Loan (“Second PPP Loan”) (collectively, with the initial PPP Loan, the “PPP Loans”) in the aggregate amount of $170,002. The Second PPP Loan, in the form of a Note dated February 11, 2021, matures on February 11, 2026 and bears interest at a rate of 1.00% per annum, payable in monthly payments commencing 30 days after the Small Business Administration has made its final determination that any part of the loan will not be forgiven.

The PPP Loans may be prepaid by the PPP Borrower at any time prior to maturity with no prepayment penalties. Funds from the PPP Loans may only be used for payroll costs and any payments of certain covered interest, lease and utility payments. The Company intends to use the entire PPP Loans for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. Although the Company expects that all or a significant portion of the PPP Loans will be forgiven, no assurance can be provided that the Company will obtain such forgiveness.

(d) Cash Flow

The Company’s primary sources of cash from operations are payments due under the 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 primary uses of cash are for (i) salaries, employee benefits and general and administrative expenses, (ii) professional fees and legal expenses with respect to the Company’s Chapter 11 Case and restructuring and recapitalization effort; (iii) maintenance expense and (iv) reimbursement to lessees from collected maintenance reserves. The Company’s cash flow is subject to a cash collateral order issued by the Bankruptcy Court.

During 2019, the Company engaged B. Riley Securities, Inc. as an investment banking advisor to help (i) negotiate with the Company’ stakeholders and formulate and analyze the Company’s various strategic financial alternatives with respect to its plan of reorganization and (ii) locate and negotiate with potential lenders, investors or transaction partners who would play a role in recapitalization of the Company.

The Company’s ability to develop and obtain approval for its plan of reorganization is subject to a variety of factors, as discussed under Factors that May Affect Future Results and Liquidity – Risks Related to Chapter 11 Case.

The 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.

Though the Company’s maintenance payments typically constitute a large portion of its cash outflow, this is not likely to be the case in the near term. Only three lessees of the Company’s aircraft pay maintenance reserves under their leases. One lessee has agreed with the Company that if the Company is unable or unwilling to repay its maintenance reimbursement obligations to the lessee, the reimbursement obligation will be offset against the lessee’s monthly rental obligations to the Company until such maintenance reimbursement obligations are repaid in full. The two other lessees that pay maintenance reserves are currently in arrearage under their leases and will not be eligible to submit maintenance reserve claims until they have cured their arrearages. When and if the Auction Sale of the Company’s aircraft portfolio is consummated, any existing reimbursement obligations under the Company’s leases sold at the Auction Sale will be assumed by the asset buyer.

Actual results could deviate substantially from the assumptions management has made in forecasting the Company’s future cash flow. As discussed in Liquidity and Capital Resources – (a) MUFG Credit Facility and Drake Indebtedness and 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 these forecasts. If these assumptions prove to be incorrect and the Company’s cash requirements exceed its cash 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 for more information about financing risks and limitations.

(i) Operating activities

The Company’s cash flow from operations decreased by $4.2 million in 2020 compared to 2019. As discussed below, the decrease in cash flow was primarily a result of decreases in payments received for rent, maintenance reserves and finance lease interest, the effects of which were partially offset by decreases in payments made for interest and maintenance.

(A) Payments for rent

Receipts from lessees for rent decreased by $7.5 million in 2020 compared to 2019, primarily due to delinquencies related to one of the Company’s customers, the repossession of four aircraft during the third quarter of 2019, the sale of an aircraft during each of the first and fourth quarters of 2019 and the sale of two aircraft in the fourth quarter of 2020.

(B) Payments for maintenance reserves

Receipts from lessees for maintenance reserves decreased by $2.4 million in 2020 compared to 2019, primarily due to the repossession of four aircraft during the third quarter of 2019.

Payments received for finance lease interest decreased by $0.7 million in 2020 compared to 2019 as a result of the sale during the first quarter of 2020 of four aircraft that were subject to finance leases and a decrease in payments received from two lessees which have been impacted by the COVID 19 pandemic.

(D) Payments for interest

Payments made for interest decreased by $4.7 million in 2020 compared to 2019 as a result the deferral of a portion of the interest due on the Company’s MUFG Indebtedness and Drake Indebtedness.

(E) Payments for maintenance

Payments made for maintenance decreased by $1.6 million in 2020 compared to 2019 as a result of decreased maintenance performed by the Company on off-lease aircraft to prepare them for sale or re-lease and decreased lessee maintenance reserves claims in 2020.

(ii) Investing activities

The Company did not acquire any aircraft during 2020 or 2019. During 2020 and 2019, the Company received net cash of $17.1 million and $16.8 million, respectively, from asset sales.

(iii) Financing activities

During 2020, the Company borrowed $5.6 million, in the form of paid-in-kind interest that was added to the outstanding principal balance under the MUFG Indebtedness and Drake Indebtedness. During 2019, the Company borrowed $6.0 million under the MUFG Credit Facility. In 2020 and 2019, the Company repaid $1.2 million and $44.3 million, respectively, of its total outstanding debt under the MUFG Indebtedness and Drake Indebtedness. Such repayments were funded by excess cash flow, the sale of assets and, in 2019, a portion of the $44.3 million in proceeds from the Nord Loans. During 2020 and 2019, the Company’s special-purpose entities repaid $16.8 million and $13.4 million, respectively, of the Nord Loans. During 2019, the Company also repaid $9.2 million of UK LLC SPE Financing. During 2020 and 2019, the Company paid approximately $1.7 million and $6.5 million, respectively, for debt issuance and amendment fees.

(iv) Off balance sheet arrangements

The Company has no material off -balance sheet arrangements.

Critical Accounting Policies, Judgments and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the 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 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 consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

Outlook

Bankruptcy Process. The Company filed for protection under Chapter 11 of Title 11 of the U.S. Code on March 29, 2021, in the U.S. Bankruptcy Court for the District of Delaware, (Case No. 21-10636). Immediately prior to the filing, the Company completed the sale of its ACY E-175 LLC subsidiary, thereby resolving $13.4 million in financing debt that was remaining due under the Nord Loans, and also generated $2.1 million in cash proceeds for the Company. As part of the bankruptcy proceedings, the Company intends to conduct an Auction Sale of the Drake Collateral to generate proceeds to be applied to the satisfaction of the Drake Indebtedness. The Company has in place a stalking horse agreement with Drake that provides that if Drake prevails at the Auction Sale as the approved buyer for the Drake Collateral, the purchase would fully resolve the Company’s obligations under the Drake Indebtedness, or, in the alternative, if the Bankruptcy Court and Drake approve a more favorable bid than Drake’s bid, then Drake would waive any deficiency between the winning bid and the amount of the Drake Indebtedness. If the Auction Sale is approved by the Bankruptcy Court and consummated, the Company anticipates that this will fully resolve the Drake Indebtedness, but it will also result in the Company’s disposition the Drake Collateral as revenue-generating assets of the Company, and would leave the Company with minimal cash-generating assets, and the Company’s only source of cash would be the remainder of the Company’s cash on hand upon the conclusion of the Chapter 11 Case.

Based on the Company’s current projections, the Company anticipates that the Company’s current cash position should be sufficient to fund the Company through a planned exit from its bankruptcy process sometime in the late second or early third quarter of 2021, assuming no significant unexpected expenses are incurred during the bankruptcy process. The Company is currently developing its plan of reorganization and is seeking debt or equity investors to provide capital to the Company to fund its business plan to restart its aircraft leasing business upon exit from bankruptcy. If the Company is unsuccessful in timely exiting its Chapter 11 proceeding, or has insufficient cash to complete its reorganization, or is unable to find post-exit funding, the Company will likely be forced to cease operations and liquidate and distribute any remaining assets toward satisfaction of the Company’s creditors.

Factors that May Affect Future Results and Liquidity

The 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 and liquidity.

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Risks related to the Chapter 11 Case

Chapter 11 Effect on Common Stock Value. As previously disclosed, on March 29, 2021, the Company and its subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, thereby commencing the Chapter 11 Case. The price of the Company’s common stock has been volatile following the commencement of the Chapter 11 Case and the Company’s common stock may decrease in value or become worthless. Accordingly, any trading in the Company’s common stock during the pendency of the Company’s Chapter 11 Case is highly speculative and poses substantial risks to purchasers of the Company’s common stock. As discussed below, recoveries in the Chapter 11 Case for holders of common stock, if any, will depend upon the Company’s ability to negotiate and confirm a plan, the terms of such plan, the recovery of the Company’s business from its loan default and the COVID-19 pandemic, if any, and the value of the Company’s assets. Although the Company cannot predict how its common stock will be treated under a plan, the Company expects that common stockholders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured indebtedness, are paid in full, which would require a significant, rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels. Consequently, there is a significant risk that the holders of the Company’s common stock will receive no recovery under the Chapter 11 Case and that the Company’s common stock will be worthless.

Impact of Chapter 11 on Business Strategy. For the duration of the Chapter 11 Case, the Company’s operations and ability to execute its business strategy will be subject to the risks and uncertainties associated with bankruptcy. These risks include:

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the ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 Case from time to time;

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the ability to comply with and operate under the requirements and constraints of the Bankruptcy Code and under any cash management, adequate protection, or other orders entered by the Bankruptcy Court from time to time;

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the ability to fund operations from cash on hand;

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the ability to negotiate and consummate a Chapter 11 plan; and

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the ability to develop, fund, and execute a business plan.

These risks and uncertainties could affect the Company’s business and operations in various ways. For example, negative events or publicity associated with the Chapter 11 Case could adversely affect the Company’s relationships with its suppliers, customers and employees. In particular, critical vendors, suppliers, and/or customers may determine not to do business with the Company due to the Chapter 11 Case and the Company may not be successful in securing alternative sources or relationships. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit the Company’s ability to respond timely to certain events or take advantage of opportunities. Because of the risks and uncertainties associated with the Chapter 11 Case, the Company cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 process may have on the Company’s business, financial condition and results of operations.

Adverse Impact of Chapter 11 Case on Business and Human Resources. While the Chapter 11 Case continues, the Company’s management will be required to spend a significant amount of time and effort focusing on the case. This diversion of attention may materially adversely affect the conduct of the Company’s business, and, as a result, the Company’s financial condition and results of operations, particularly if the Chapter 11 Case becomes protracted. During the Chapter 11 Case, the Company’s employees will face considerable distraction and uncertainty and the Company may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on the Company’s ability to meet customer expectations, thereby adversely affecting its business and results of operations. The failure to retain or attract members of the Company’s management team and other key personnel could impair its ability to execute its strategy and implement operational initiatives and the Company’s reorganization plan, thereby having a material adverse effect on its financial condition and results of operations.

Inability to Confirm Chapter 11 Plan of Reorganization; Conversion to Chapter 7. As part of the Chapter 11 process, the Company will need to negotiate a plan of reorganization with its creditors. If the Company is unable to negotiate a plan of reorganization that will result in it remaining a going concern, upon a showing of cause, the Bankruptcy Court may convert the Chapter 11 Case to a case under Chapter 7 proceeding. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Company’s assets for distribution to creditors in accordance with the priorities established by the Bankruptcy Code. Holders of the Company’s common stock could lose their entire investment in a Chapter 7 bankruptcy.

Change in Capital Structure Upon Bankruptcy Exit. The Company’s post-bankruptcy capital structure has yet to be determined and will be set pursuant to the reorganization plan (“Reorganization Plan”) that requires Bankruptcy Court approval. The reorganization of the Company’s capital structure may include exchanges or new issuances of new debt or equity securities for existing securities, debt or claims against the Company. Existing equity securities are subject to risk of being cancelled. The success of a reorganization through any such exchanges or modifications will depend on approval by the Bankruptcy Court and the willingness of existing stakeholders to agree to the exchange or modification, subject to the provisions of the Bankruptcy Code, and there can be no guarantee of success. If such exchanges or modifications are successful, holders of the Company’s debt or of claims against it may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or may be modified or replaced by debt with a principal amount that is less than the outstanding principal amount, longer maturities and reduced interest rates. Holders of common stock may also find that their holdings no longer have any value and face highly uncertain or no recoveries under a Reorganization Plan.

There can be no assurance that any newly issued debt or equity securities issued for existing securities will maintain their value at the time of issuance. If existing debt or equity holders are adversely affected by a reorganization, it may adversely affect the Company’s ability to issue new debt or equity in the future. Although the Company cannot predict how the claims and interests of stakeholders in the Chapter 11 Case, including holders of common stock, will ultimately be resolved, the Company expects that common stockholders will not receive a recovery through any Reorganization Plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness, are paid in full. Consequently, there is a significant risk that the holders of the Company’s common stock would receive no recovery under the Chapter 11 Case and that the Company’s common stock will be worthless.

Plan Assumptions May Prove Inaccurate. Any Chapter 11 Reorganization Plan that the Company may implement will affect both its capital structure and the ownership, structure and operation of its business and will likely reflect assumptions and analyses based on its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company considers appropriate under the circumstances. Whether actual future results and developments will be consistent with management’s expectations and assumptions depends on a number of factors, including but not limited to (i) the Company’s ability to substantially change its capital structure; and (ii) the overall strength and stability of general economic conditions, both in the U.S. and in global markets. The failure of any of these factors could materially adversely affect the successful reorganization of the Company’s businesses.

In addition, any Reorganization Plan will likely rely upon financial projections, including with respect to revenues, consolidated adjusted EBITDA, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In the Company’s case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of the Company’s capital structure. Additionally, the impact of the COVID-19 pandemic on the aviation and travel industry in general, and on the Company, make it even more challenging than usual to develop business forecasts. Accordingly, the Company expects that its actual financial condition and results of operations will differ, perhaps materially, from what is anticipated. Consequently, there can be no assurance that the results or developments contemplated by any Reorganization Plan will occur or, even if they do occur, that they will have the anticipated effects on the Company’s businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any Reorganization Plan.

Non-dischargeable Claims. The Bankruptcy Code provides that the confirmation of a debtor’s Reorganization Plan by the Bankruptcy Court discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to confirmation of the Reorganization Plan (i) would be subject to compromise and/or treatment under the Reorganization Plan and (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the Reorganization Plan. Any claims not ultimately discharged through the Company’s Chapter 11 Reorganization Plan could be asserted against the reorganized entities and may have an adverse effect on the Company’s financial condition and results of operations on a post-reorganization basis.

Protracted Chapter 11 Case Adverse to Business. A long period of operations under Bankruptcy Court protection could have a material adverse effect on the Company’s business, financial condition, results of operations, and liquidity. So long as the Chapter 11 Case continues, senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success of the Company’s business. In addition, the longer the Chapter 11 Case continues, the more likely it is that customers and suppliers will lose confidence in the Company’s ability to reorganize its business successfully and will seek to establish alternative commercial relationships.

So long as the Chapter 11 Case continues, the Company will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Case, including potentially the cost of litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly affect the Company’s financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims under a Reorganization Plan. It is not possible to predict the potential litigation that the Company may become party to, nor the final resolution of such litigation. The impact of any such litigation on the Company’s business and financial stability, however, could be material. Should the Chapter 11 Case be protracted, the Company may also need to seek new financing to fund operations. If the Company is unable to obtain such financing on favorable terms or at all, the chances of confirming a Reorganization Plan may be seriously jeopardized and the likelihood that we will instead be required to liquidate the Company’s assets may increase.

Court-ordered Restrictions on Trading Common Stock. In connection with the Chapter 11 Case, the Bankruptcy Court entered an order that, among other things, imposes certain trading restrictions on holders of greater than 4.9% of the Company’s common stock. The restrictions in this order are intended to preserve certain of the Company’s tax attributes, including tax losses and carryforwards. There can be no assurance that the existing restrictions will remain in place or that additional or modified trading restrictions will not be implemented with respect to the Company’s common stock, nor can there be any assurance of the Company’s ability to use its tax attributes.

Impact of Further Equity Financings on Existing Stockholders and Market Price. In order to raise additional capital to execute its Reorganization Plan, the Company may in the future issue additional shares of its common stock or other securities convertible into or exchangeable for its common stock at prices that may not be the same as quoted on the NYSE American Stock Exchange at the time of issuance. Investors acquiring shares or other securities in the future could have rights superior to existing stockholders.

Sales of a substantial number of shares of the Company’s common stock, whether in a private placement or in the public markets, or the perception that such sales could occur, could depress the market price of the Company’s common stock and impair the Company’s ability to raise capital through the sale of additional equity securities. The Company cannot predict the effect that future sales of its common stock would have on the market price of its common stock.

No Committed Operating Capital or Acquisition Financing. The Company has no current and no committed capital financings available to it. If the Company succeeds in exiting the Chapter 11 Case, it is unlikely to have available cash to fund long term operations and new aircraft acquisitions. The Company will need to obtain new capital to fund its reorganization and the restart of its aircraft leasing business. There can be no assurance that the Company will be able to obtain such additional capital when needed in the amounts desired or on favorable terms. If it is unable to find suitable post-exit funding, the Company will likely be forced to cease operations and liquidate and distribute any remaining assets toward satisfaction of the Company’s creditors.

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Leasing Industry and Aviation Related Risks.

Impact of COVID-19 Pandemic. The ongoing COVID-19 pandemic has had an overwhelming adverse effect on the Company, as it has had on all forms of transportation globally, but most acutely for the airline industry. The combined effect of fear of infection during air travel, quarantines, and shifting international and domestic travel restrictions has caused a dramatic decrease in passenger loads in all areas of the world, not just in those countries with active clusters of COVID-19. This has led to significant cash flow issues for airlines, including some of the Company’s customers, and some airlines have been unable to timely meet their obligations under their lease obligations with the Company. Any significant nonpayment or late payment of lease payments by a significant lessee or combination of lessees could in turn impose limits on the Company’s ability to fund its ongoing operations. Furthermore, for the duration of the pandemic and a period of financial recovery thereafter, sale transactions and financing availability could be curtailed entirely or delayed while the industry returns to financial stability, which could impact the Company’s ability to implement any restart of its leasing business following exit from its Chapter 11 Case.

General Economic Conditions and Lowered Demand for Travel. Because of the international nature of the Company’s business, a downturn in the health of the global economy could have a negative impact on the Company’s financial results, as demand for air travel generally decreases during slow or no-growth periods, and thus demand by airlines for aircraft capacity is also decreased. As discussed above, the COVID-19 pandemic has caused significant disruptions to the global supply chain, the stock market and consumer and business-to-business commerce, the effects of which may endure well beyond the current pandemic’s life cycle and result in low or negative growth in future periods. According to current reports, scheduled airline flights have been significantly reduced. While lower demand for air travel may actually lead to business opportunities as airlines turn to smaller aircraft to right-size capacity, it also presents potential challenges for the Company as it may impact the values of aircraft in the Company’s portfolio, lower market rents for aircraft that are being offered for lease by the Company, cause Company customers to be unable to meet their lease obligations, or reduce demand by airlines that would be potential customers for additional or replacement regional aircraft offered by the Company.

A downturn in the Chinese domestic or export economy that reduces demand for imported raw materials, such as an extended period of economic slowdown associated with the COVID-19 pandemic, could have a significant negative longer-term impact on the demand for business and regional aircraft in developing countries, including in some of the markets in which the Company seeks to do business.

Furthermore, instability arising from new U.S. sanctions or trade wars against U.S. trading partners, and the global reaction to such sanctions, or due to other factors, could have a negative impact on the Company’s customers located in regions affected by such sanctions.

Also, the withdrawal of the United Kingdom (“UK”) from the European Union, known as “Brexit,” could threaten “open-sky” policies under which UK-based carriers operate throughout the European Union, and European Union-based carriers operate between the UK and other European Union countries. Losing open-sky flight rights could have a significant negative impact on the health of the 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, terrorist attacks involving aircraft or airports occur, or if another major flu or new pandemic occurs, air travel could be severely affected. Any such occurrence would have an adverse impact on many of the 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 results if the market value of an asset or assets in the Company’s portfolio falls below carrying value, and the Company determines that a write-down of the value is appropriate. Furthermore, if older, expiring leases are replaced with leases at decreased lease rates, the lease revenue from the 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.

Lessee Credit Risk. The Company carefully evaluates the credit risk of each customer and attempts to obtain a 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 defaults under a lease and 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 enforcement rights would be further adversely affected in 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 lessee default. A customer’s insolvency or bankruptcy usually results in the Company’s total loss of the receivables from that customer, as well as additional costs in order to repossess and, in some cases, repair the 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 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 otherwise 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 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 financial results in the applicable periods.

Lack of Portfolio Diversification. Because of the diminished size of the Company’s portfolio relative to its historical size, the Company’s current portfolio lacks diversification and any default by a lessee would have a significant impact on the Company’s financial results. If the Auction Sale of the Drake Collateral is consummated, the Company’s portfolio of leased aircraft will shrink even further and be limited to two lessees located in one country. This risk of non-diversification is likely to last for a considerable time through and after the Company’s exit from its Chapter 11 Case as it may take a number of years for the Company, if and when it is able to continue its aircraft leasing business, to rebuild its portfolio to a size that reflects diversification in terms of lessees and geographic location.

Concentration of Aircraft Type. The Company’s aircraft portfolio is likely to remain focused on a small number of aircraft types and models relative to the variety of aircraft used in the commercial air carrier market, most of these types are used extensively by regional airlines. 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 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 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 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 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, equipment leasing programs and other parties engaged in leasing, managing or remarketing aircraft. Many of these competitors have longer operating histories, more experience, larger customer bases, more expansive brand recognition, deeper market penetration and significantly greater financial resources.

Prior to the COVID pandemic, competition was intense as competitors who have traditionally neglected the regional air carrier market began to focus on this market. The industry also experienced a number of consolidations of smaller leasing companies, creating a handful of very large companies operating in this market, as well as new entrants to the market. The entry of traditional large aircraft lessors into the regional aircraft niche, particularly those with greater access to capital than the Company, led to fewer acquisition opportunities for the Company and lower lease yields to the Company, as well as fewer renewals of existing leases or new leases of existing aircraft.

The current COVID pandemic has disrupted the airline industry and many of its competitors, as many airline customers have grounded aircraft and are seeking rent holidays or terminating leases, and in the absence of such lessor accommodations are defaulting on lease obligations. Many of the Company’s aircraft leasing competitors have left the market, been acquired, or, like the Company, are shedding assets in order to raise cash to resolve debt non-compliance. In the near and medium term, those lessors with substantial cash reserves and/or available acquisition financing for speedy closings will have opportunities for profitable transactions and will have a significant competitive advantage in the market that the Company cannot currently match unless and until it obtains readily drawable acquisition financing. There is no assurance that the Company will be able to find such financing.

Risks Related to Regional Air Carriers. The Company’s continued focus on its customer base of regional air carriers subjects the Company to 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 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, performance and liquidity.

International Risks. The Company leases some assets in overseas markets. Leases with foreign lessees, however, may present different risks than those with domestic lessees.

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 ability to make lease payments, even if the U.S. and other foreign economies remain strong and stable.

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 a foreign lessee’s local currency relative to the U.S. dollar, which would make it more difficult for the lessee to meet its U.S. dollar-denominated payments and increase the risk of default of that lessee, particularly if its revenue is primarily derived in 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 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 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. Any such challenge could result in increased tax obligations in these jurisdictions going forward or assessments of liability by the taxing authority, in which case the Company may be required to pay penalties and interest on the assessed amount that would not give rise to a corresponding foreign tax credit on the Company’s U.S. tax returns.

Significant changes in U.S. trade policy 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 could have a financial impact on the Company. Such changes in U.S. trade policy could trigger retaliatory actions by affected countries, including China, resulting in “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 the Company’s customers, thereby increasing costs of operations for 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, which in turn could have a negative impact on the Company’s business opportunities, and if the Company’s lessees are significantly affected, could have a direct impact on the Company’s financial results. Furthermore, the Company often incurs maintenance or repair expenses not covered by lessees in foreign countries, which expenses could increase if such countries are affected by such a trade war.

Ownership Risks. The 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 recovery of its investment and realization of its expected yield in such a leased asset is dependent upon the 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 financial condition, cash flow, ability to service debt, and results of operations could be adversely affected.

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 aircraft and any resulting decline in market demand for these aircraft could materially adversely affect the Company’s revenues, performance and liquidity.

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 a lessee becomes insolvent during the term of its lease and the Company has to repossess the asset, it is unlikely that the lessee would have the financial ability to meet these return obligations. In addition, if a lessee files for bankruptcy and 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 leases do not require payment of monthly maintenance reserves, which serve as the 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 need to pay the costs of unperformed repair and maintenance under the applicable lease and 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 estimates of expected cash flow from an asset could result in an asset impairment charge against the 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 as recently as the fourth quarter of 2020 and may be required to record asset impairment charges in the future as a result of the Auction Sale of the Drake Collateral, the impact of COVID-19 on the aviation industry, 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.

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 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 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, because the lessee would be responsible for, insure against and indemnify the Company for such claims. A “triple net 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 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 the provisions of this law may not apply.

The 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 losses or liabilities are not entirely covered by the lessee or its insurance. Although the Company believes the possibility of such an event is remote, any such uninsured loss 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 the applicable aircraft, as well as potential claims directly against the Company.

Compliance with Environmental Regulations. Compliance with environmental regulations may harm the 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. and foreign governments of additional regulation of carbon emissions, including requirements to adopt technology to reduce the amount of carbon emissions or imposing a fee or tax system on carbon emitters. Any such regulation could be directed at the Company’s customers, as operators of aircraft, at the Company, as an owner of aircraft, and/or on the manufacturers of aircraft. Under the Company’s triple-net lease arrangements, the Company would likely try to shift responsibility for compliance to its lessees; however, it may not be able to do so due to competitive or other market factors, and there might be some compliance costs that the Company could not 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 financial position, results of operations, or liquidity, there is no assurance that the costs of complying with environmental regulations as amended or adopted in the future will not have such an effect.

Cybersecurity Risks. The Company believes that its main vulnerabilities to a cyber-attack would be interruption of the Company’s email communications internally and with third parties, loss of customer and lease archives, and loss of document sharing between the Company’s offices and remote workers. Such an attack could temporarily impede the efficiency of the 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 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 data network. Such a breach could harm the Company’s reputation and result in competitive disadvantages, litigation, lost revenues, additional costs, or liability to third parties. While to date the Company has not experienced a material cyber-attack and the Company believes that it has sufficient 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.

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Risks Related to the Company’s Common Stock

Listing Compliance Deficiency Notice from NYSE American. On September 11, 2020, the Company received a deficiency letter from NYSE American Stock Exchange notifying that the Company was not in compliance with the continued listing standards as set forth in Section 1003(a)(i) – (iii) of the NYSE American Company Guide (the “Company Guide”). The noncompliance arose from the Company’s financial statement showing a stockholders’ equity deficiency as of June 30, 2020 combined with net losses for the most recent fiscal years ended December 31, 2018 and December 31, 2019.

The Company Guide requires a minimum stockholders’ equity of $2.0 million or more if it has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years; Stockholders’ equity of $4.0 million or more if it has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years (Section 1003(a)(ii)); and Stockholders’ equity of $6.0 million or more if it has reported losses from continuing operations and/or net losses in its five most recent fiscal years (Section 1003(a)(iii)).

The letter had no immediate effect on the listing of the Company’s common stock on the NYSE American and the Company’s common stock will continue to trade on the NYSE American while the Company takes measures to regain compliance with the continued listing standards. As required by Company Guide, the Company has submitted a detailed plan of compliance to the NYSE American, advising the NYSE American of the actions the Company has taken, or plans to take, that would bring it into compliance with the continued listing standards within 18 months of receipt of the Deficiency Letter and must periodically report on its progress or any deviation from its plan.

If the Company fails to return to compliance by the end of that eighteen-month period, the NYSE American exchange could de-list the Company’s stock. If that occurs, liquidity of common stock held by the shareholders of the Company could be significantly impacted, as any trading in the Company’s securities would no longer be executed over the NYSE American Exchange but would have to be transacted through over-the-counter exchanges or pink sheets. This could depress the Company’s market price substantially. De-listing may also make further equity financing of the Company more difficult by eliminating as potential investors those who are seeking immediate liquidity in their investment.

Possible Volatility of Stock Price. The market price of the Company’s common stock is subject to fluctuations following developments relating to the 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, including changes in investor perception on competitor’s stock prices and operating results, or arising from other investor sentiment unknown to the Company. The Chapter 11 Case may also contribute significantly to market price volatility of the Company’s common stock due to investors’ perceptions of the Company’s equity value in light of the Chapter 11 Case and speculation on the impact of the plan of reorganization that will be proposed and the Court’s decision on such plan. Because the Company has a relatively small capitalization of approximately 1.55 million shares outstanding, there is a correspondingly limited amount of trading and float of the Company’s shares. Consequently, the 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 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 performance, growth prospects and liquidity.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Disclosure under this item has been omitted pursuant to the rules of the SEC that permit smaller reporting companies to omit this information.

Item 8. Financial Statements and Supplementary Data.

Disclosure of certain supplementary financial data has been omitted pursuant to the rules of the SEC that permit smaller reporting companies to omit such information.

The following financial statements and schedules are included in this report below:

(1) Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’ (Deficit)/Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

(2) Schedules:

All schedules have been omitted because the required information is presented in the consolidated financial statements or is not applicable.

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

AeroCentury Corp.

Burlingame, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of AeroCentury Corp. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity/(deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, is in default of its debt obligations under the credit facility, has a net capital deficiency and has filed for protection under the bankruptcy code that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Aircraft for Aircraft Held for Sale, Aircraft Held for Lease, and Finance Lease Receivable

As described in Notes 1, 2, 3, and 9 at December 31, 2020, the Company has assets held for sale totaling $38.1 million, aircraft held for lease totaling $45.8 million, and finance lease receivables totaling $2.5 million, net of allowance for doubtful accounts of $1.5 million. During 2020, the Company recognized impairment losses on assets held for sale totaling $14.2 million including $11.3 million resulting from appraised values for four aircraft that are held for sale. During 2020, the Company recognized impairment losses on aircraft held for lease totaling $14.6 million including $7.6 million resulting from appraised values for five aircraft held for lease. During 2020, the Company recorded bad debt allowance totaling $1.5 million based on the appraised value of the two aircraft collateralizing the finance leases.

Management, with the assistance of a third-party specialist, estimated the fair value of certain aircrafts held for sale, aircrafts held for lease, and aircrafts subject to finance leases by using a market approach. The market approach uses recent sales of comparable assets, making appropriate adjustments to reflect differences between them and the subject property being analyzed.

We identified the valuation of certain aircrafts held for sale, aircrafts held for lease, and aircrafts collateralizing finance lease receivables as a critical audit matter. Certain assumptions used in the Company’s estimate of the fair value of aircraft including the adjustments made to comparable assets required significant management judgment. Auditing these assumptions involved subjective and challenging auditor judgments and increased audit effort, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

●

Testing the existence, completeness, and accuracy of the underlying data used to determine the fair value of the aircraft.

●

Utilizing personnel with specialized knowledge and skills in asset valuation to assist in assessing the reasonableness of the adjustments to comparable assets effecting the valuations.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2006.

San Francisco, California

April 15, 2021

AeroCentury Corp.

Consolidated Balance Sheets

ASSETS
	December 31,	December 31,
	2020	2019
Assets:
Cash and cash equivalents	$2,408,700	$2,350,200
Cash and cash equivalents held for sale	345,900	-
Restricted cash	-	1,076,900
Restricted cash held for sale	2,346,300	-
Accounts receivable, including deferred rent of $0 and $828,000 at December 31, 2020 and December 31, 2019, respectively	256,600	1,139,700
Finance leases receivable, net of allowance for doubtful accounts of $1,503,000 and $2,908,600 at December 31, 2020 and December 31, 2019, respectively	2,547,000	8,802,100
Aircraft held for lease, net of accumulated depreciation of $21,001,300 and $31,338,700 at December 31, 2020 and December 31, 2019, respectively	45,763,100	108,368,600
Assets held for sale	38,146,700	26,036,600
Property, equipment and furnishings, net of accumulated depreciation of $16,400 and $9,600 at December 31, 2020 and December 31, 2019, respectively	14,900	62,900
Office lease right of use, net of accumulated amortization of $27,400 and $524,500 at December 31, 2020 and December 31, 2019, respectively	142,400	948,300
Deferred tax asset	1,150,900	517,700
Prepaid expenses and other assets	255,300	292,800
Total assets	$93,377,800	$149,595,800
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY
Liabilities:
Accounts payable and accrued expenses	$367,700	$736,000
Accrued payroll	190,100	164,200
Notes payable and accrued interest, net of unamortized debt issuance costs of $780,900 and $3,825,700 at December 31, 2020 and December 31, 2019, respectively	88,793,200	111,638,400
Notes payable and accrued interest held for sale, net of unamortized debt issuance costs of $313,400 at December 31, 2020	13,836,900	-
Derivative liability	-	1,824,500
Derivative liability held for sale	767,900	-
Derivative termination liability	3,075,300	-
Lease liability	172,000	336,400
Maintenance reserves	2,000,600	4,413,100
Accrued maintenance costs	46,100	446,300
Security deposits	716,000	1,034,300
Unearned revenues	1,027,400	3,039,200
Deferred income taxes	-	2,529,800
Income taxes payable	900	175,000
Total liabilities	110,994,100	126,337,200
Commitments and contingencies (Note 10)
Stockholders’ (deficit)/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, 1,545,884 shares outstanding at December 31, 2020 and December 31, 2019	1,800	1,800
Paid-in capital	16,782,800	16,782,800
(Accumulated deficit)/retained earnings	(31,361,600)	10,882,100
Accumulated other comprehensive loss	(2,000)	(1,370,800)
	(14,579,000)	26,295,900
Treasury stock at cost, 213,332 shares at December 31, 2020 and December 31, 2019	(3,037,300)	(3,037,300)
Total stockholders’ (deficit)/equity	(17,616,300)	23,258,600
Total liabilities and stockholders’ (deficit)/equity	$93,377,800	$149,595,800

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

AeroCentury Corp.

Consolidated Statements of Operations

	For the Years Ended December 31,
	2020	2019
Revenues and other income:
Operating lease revenue	$15,468,100	$25,609,000
Maintenance reserves revenue, net	221,400	16,968,400
Finance lease revenue	56,200	852,600
Net gain on disposal of assets	133,000	326,900
Net loss on sales-type leases	-	(170,600)
Other income	278,000	12,800
	16,156,700	43,599,100
Expenses:
Interest	16,819,300	11,302,900
Impairment in value of aircraft	28,751,800	31,007,400
Depreciation	7,027,200	11,587,500
Professional fees, general and administrative and other	4,617,300	4,005,100
Bad debt expense	1,503,000	2,908,600
Salaries and employee benefits	2,043,700	2,367,500
Insurance	797,600	621,300
Maintenance	302,000	850,800
Other taxes	103,200	114,300
	61,965,100	64,765,400
Loss before income tax benefit	(45,808,400)	(21,166,300)
Income tax benefit	(3,564,700)	(4,507,800)
Net loss	$(42,243,700)	$(16,658,500)
Loss per share:
Basic	$(27.33)	$(10.78)
Diluted	$(27.33)	$(10.78)
Weighted average shares used in loss per share computations:
Basic	1,545,884	1,545,884
Diluted	1,545,884	1,545,884

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

AeroCentury Corp.

Consolidated Statements of Comprehensive Loss

	For the Years Ended December 31,
	2020	2019
Net loss	$(42,243,700)	$(16,658,500)
Other comprehensive loss:
Unrealized losses on derivative instruments	(575,000)	(1,887,900)
Reclassification of net unrealized losses on derivative instruments to interest expense	2,318,600	142,200
Tax benefit/(expense) related to items of other comprehensive loss	(374,800)	374,900
Other comprehensive income/(loss)	1,368,800	(1,370,800)
Total comprehensive loss	$(40,874,900)	$(18,029,300)

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

AeroCentury Corp.

Consolidated Statements of Stockholders’ Equity/(Deficit)

For the Years Ended December 31, 2019 and 2020

Number of Common Stock Shares Outstanding

Common

Stock

SEC Form 10-K filed by AeroCentury Corp.