DEF 14A

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the Registrant   ý                                           Filed by a party other than the Registrant   o

Check the appropriate box:

 o Preliminary proxy statement

  o Confidential, For Use of the Commission Only (as permitted by Rule 14a—6(e)(2))

  ý         Definitive proxy statement

  ¨         Definitive additional materials

  ¨         Soliciting material under Rule 14a-12

AeroCentury Corp.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

ý         No fee required.

¨         Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)              Title of each class of securities to which transaction applies:

(2)              Aggregate number of securities to which transactions applies:

 (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)              Proposed maximum aggregate value of transaction:

(5)              Total fee paid:

¨         Fee paid previously with preliminary materials:

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

(1)              Amount previously paid:

(2)              Form, Schedule or Registration Statement No.:

(3)              Filing Party:

(4)              Date Filed:

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AEROCENTURY CORP.

NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 9, 2013

TO OUR STOCKHOLDERS:

You are cordially invited to attend the 2013 Annual Meeting of Stockholders of AeroCentury Corp. (the “Company”), which will be held at the Hiller Aviation Museum, 601 Skyway Road, San Carlos, California at 12:00 p.m. on May 9, 2013, for the following purposes:

1.           To elect two directors to the Board of Directors;

2. To approve, in an advisory (non-binding) vote, the Company’s executive compensation as disclosed in the accompanying Proxy Statement;

3. To approve an advisory (non-binding) proposal to determine whether the stockholder vote to approve executive compensation (Item 2 above) should occur every 1, 2 or 3 years;

4. To consider and vote upon a proposal to ratify the selection of BDO USA, LLP as independent registered public accounting firm for the Company for the fiscal year ending December 31, 2013; and

5. To act upon such other business as may properly come before the meeting or any adjournment or postponement thereof.

These matters are more fully described in the Proxy Statement accompanying this Notice.

The Board of Directors has fixed the close of business on March 11, 2013, as the record date for determining those stockholders who will be entitled to vote at the 2013 Annual Meeting of Stockholders.  The stock transfer books will not be closed between the record date and the date of the meeting.

A quorum comprising the holders of the majority of the outstanding shares of Common Stock of the Company on the record date must be present or represented by proxy for the transaction of business at the Annual Meeting.  Accordingly, it is important that your shares be represented at the 2013 Annual Meeting of Stockholders.  WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.  Your proxy may be revoked at any time prior to the time it is voted.

If you plan to attend the meeting, please call the Company’s Investor Relations Department at (650) 340-1888, so that your name can be placed on the guest list at the Hiller Aviation Museum entrance.  Please read the proxy material carefully.  Your vote is important and the Company appreciates your cooperation in considering and acting on the matters presented.

Sincerely yours,

/s/ Neal D. Crispin

Neal D. Crispin

CHAIRMAN OF THE BOARD

March 28, 2013

Burlingame, California

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PROXY STATEMENT

FOR

2013 ANNUAL MEETING OF STOCKHOLDERS

OF

AEROCENTURY CORP.

TO BE HELD ON MAY 9, 2013

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of AEROCENTURY CORP. (the “Company”) of proxies to be voted at the 2013 Annual Meeting of Stockholders (the “2013 Annual Meeting” or the “Annual Meeting”), which will be held at 12:00 p.m. on May 9, 2013, at the Hiller Aviation Museum, 601 Skyway Road, San Carlos, California, or at any adjournments or postponements thereof, for the purposes set forth in the accompanying Notice of 2013 Annual Meeting of Stockholders. This Proxy Statement and the proxy card were first mailed to stockholders on or about March 28, 2013.  The Company's 2012 Annual Report was mailed to stockholders concurrently with this Proxy Statement.  The 2012 Annual Report is not to be regarded as proxy soliciting material or as a communication by means of which any solicitation of proxies is to be made.

VOTING RIGHTS AND SOLICITATION

The close of business on March 11, 2013, was the record date for stockholders entitled to notice of, and to vote at, the 2013 Annual Meeting.  As of that date, the Company had 1,543,257 shares of Common Stock, $0.001 par value (the “Common Stock”), issued and outstanding, excluding shares held by the Company as treasury stock.  The presence at the Annual Meeting of a majority of the issued and outstanding Common Stock, or 771,629 shares, either present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting.  All of the shares of the Company's Common Stock outstanding on the record date are entitled to vote at the 2013 Annual Meeting, and stockholders of record entitled to vote at the Annual Meeting will have one vote for each share of Common Stock so held with regard to each matter to be voted upon.  Your proxy may be revoked at any time prior to the time it is voted.

If your shares are registered directly in your name with the Company’s transfer agent, Continental Stock Transfer & Trust Co., you are considered the “stockholder of record” with respect to these shares and the Company is sending these proxy materials directly to you.  As the stockholder of record, you have the right to grant your voting proxy directly to the Company or to vote in person at the Annual Meeting.  To grant your voting proxy, you should return the enclosed proxy card to the Company.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held “in street name” and your broker or nominee, who is considered the stockholder of record with respect to those shares, is forwarding these proxy materials to you.  As the beneficial owner, you have the right to direct your broker on how to vote and are also invited to attend the Annual Meeting.  However, since you are not the stockholder of record, you may not vote those shares in person at the Annual Meeting.  To direct your broker or nominee on how to vote your shares, you must return the enclosed voting instruction card to your broker or nominee.

Shares of the Company's Common Stock represented by proxies in the accompanying form that are properly executed and returned to the Company will be voted at the 2013 Annual Meeting in accordance with the instructions of the stockholder of record contained therein.  In the absence of contrary instructions, shares represented by such proxies will be voted FOR the election of the director nominees as described herein under “Proposal 1: Election of Directors”; FOR approval, in an advisory (non-binding) vote, of the Company’s executive compensation as disclosed in this Proxy Statement as described herein under “Proposal 2:  Advisory Vote on Executive Compensation”; FOR approval of an advisory (non-binding) proposal that the advisory (non-binding) stockholder vote to approve executive compensation occur every year as described herein under “Proposal 3:  Advisory Vote on Frequency of an Advisory Vote on Executive Compensation”; and FOR ratification of the selection of BDO USA, LLP as independent registered public accounting firm as described herein under “Proposal 4: Ratification of Selection of Independent Registered Public Accounting Firm.”  The Company does not know of any matters to be presented at the Annual Meeting other than those set forth in this Proxy Statement and in the Notice accompanying this Proxy Statement.  If other matters should properly come before the Annual Meeting, the proxy holders will vote on such matters in accordance with their best judgment.  Proxies will confer upon the proxy holders discretionary authority to vote upon matters that may properly be raised at the Annual Meeting, but are unknown to the Company as of the date hereof.  In addition, the proxies confer upon the proxy holders the authority to adjourn or postpone the Annual Meeting in order to assure that all stockholders who wish to vote on the matters will be able to cast their votes and to act upon the matters incident to the conduct of the meeting.  Any stockholder of record has the right to revoke his or her proxy at any time before it is voted at the Annual Meeting by: (1) delivering to the Company (to the attention of Toni Perazzo, Secretary, 1440 Chapin Avenue, Suite 310, Burlingame, California 94010) a written notice of revocation, (2) delivering a duly executed proxy or voting instructions bearing a later date before the Annual Meeting (to the attention of Toni Perazzo, Secretary, 1440 Chapin Avenue, Suite 310, Burlingame, California 94010) or (3) attending the Annual Meeting and voting in person.

A “broker non-vote” occurs when a broker lacks discretionary voting power to vote on a “non-routine” proposal and a beneficial owner fails to give the broker voting instructions on that matter.  The rules of the New York Stock Exchange determine whether matters presented at the Annual Meeting are “routine” or “non-routine” in nature.  The election of directors, the advisory vote on executive compensation and the advisory vote on the frequency of the advisory vote on executive compensation are considered “non-routine” matters.  Beneficial owners who hold their shares through a stock brokerage account will have to give voting instructions to their brokers in order for a broker to vote on these non-routine matters.  If you are a beneficial owner, failure to provide instructions to your broker will result in your shares not being voted in connection with these non-routine matters.  The ratification of the selection of BDO USA, LLP as the Company’s independent registered public accounting firm for fiscal year 2013 is currently considered a “routine” matter, and a broker has the discretionary voting power to vote on this matter without any instructions from the beneficial owner.  Broker non-votes are counted for purposes of determining a quorum, but will have no effect on the election of directors, the advisory vote on executive compensation, and the advisory vote on the frequency of the advisory vote on executive compensation.  Broker non-votes will have the same effect as votes against the ratification of the selection of BDO USA, LLP.

Stockholder Vote Required to Approve Proposal 1.  The election of a director by stockholders shall be determined by a plurality of the votes cast by the stockholders of record entitled to vote at the election present in person or represented by proxy, and the nominees receiving the greatest number of affirmative votes of the shares present in person, or represented by proxy, and entitled to vote at the Annual Meeting will be elected, provided a quorum is present.  Abstentions and broker non-votes will not be counted toward a nominee’s total.  Because brokers or other nominees who hold shares “in street name” do not have discretionary voting authority over such shares in an election of directors, shares held “in street name” will not be voted in this election for a director unless the holder specifically instructs the holder’s brokers or other nominees on how to vote.

Stockholder Vote Required to Approve Proposal 2. The proposal on approval of executive compensation will be approved in a non-binding advisory vote if the votes cast in favor exceed the votes cast against approval. Abstentions and broker non-votes will not be counted as either a vote “For” or “Against” Proposal 2.  Because brokers or other nominees who hold shares “in street name” do not have discretionary voting authority over such shares in such non-routine matters, shares held “in street name” will not be voted on this advisory vote on executive compensation unless the holders specifically instruct their brokers or other nominees on how to vote.

Stockholder Vote Required to Approve Proposal 3.  The frequency of the advisory vote on executive compensation will be determined in a non-binding advisory vote by the interval (1, 2 or 3 years) receiving the greatest number of votes cast.  Abstentions and broker non-votes will not be counted as a vote for either 1 year, 2 years or 3 years with respect to Proposal 3.  Because brokers or other nominees who hold shares “in street name” do not have discretionary voting authority over such shares in such non-routine matters, shares held “in street name” will not be voted on this advisory vote on the frequency of the advisory vote on executive compensation unless the holders specifically instruct their brokers or other nominees on how to vote.

Stockholder Vote Required to Approve Proposal 4.  Ratification of the Company’s selection of independent registered public accounting firm will require the affirmative vote of a majority of the shares present in person, or represented by proxy, and entitled to vote at the Annual Meeting, provided a quorum is present.  As a result, abstentions will have the same effect as votes against the proposal.  As stated above, a broker or other nominee that holds shares “in street name” has discretionary voting power to vote on this matter in the absence of instruction from the beneficial owner.

The entire cost of soliciting proxies will be borne by the Company.  Proxies will be solicited principally through the use of the mails, but, if deemed desirable, may be solicited personally or by telephone, facsimile or special letter by officers and Company employees for no additional compensation.  Arrangements may be made with brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy material to the beneficial owners of the Company's Common Stock, and such persons may be reimbursed for their expenses.

HOUSEHOLDING OF ANNUAL MEETING MATERIALS

Some brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports.  This means that only one copy of the proxy statement and annual report may have been sent to multiple stockholders sharing the same household.  The Company will promptly deliver a separate copy of either document to any stockholder requesting such copies who contacts the Company’s Investor Relations Department at (650) 340-1888 or by mail to 1440 Chapin Avenue, Suite 310, Burlingame, California 94010.  If a stockholder is receiving multiple copies of the proxy statement and annual report at the stockholder’s household and would like to receive only a single copy of the proxy statement and annual report for a stockholder’s household in the future, the stockholder should contact the stockholder’s broker, other nominee record holder, or the Company’s Investor Relations Department to request mailing of a single copy of the proxy statement and annual report.

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PROPOSAL 1:

ELECTION OF DIRECTORS

Two of the Company’s five directors will be elected at the 2013 Annual Meeting.  The Board of Directors has nominated the nominees set forth below.  The proxy holders intend to vote all proxies received by them in the accompanying form FOR the nominees for director listed below, unless instructions to the contrary are marked on the proxy.  In the event that a nominee is unable or declines to serve as a director at the time of the 2013 Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy.  In the event that additional persons are nominated for election as director, the proxy holders intend to vote all proxies received by them for the nominees listed below.  As of the date of this Proxy Statement, the Board of Directors is not aware that any nominee is unable or will decline to serve as a director.  The term of office of a person elected as a director at the Annual Meeting will continue until the 2016 Annual Meeting of Stockholders or until the director's resignation, or removal or successor has been elected.

Nominees To Board Of Directors

Mr. Neal D. Crispin, age 67.  Mr. Crispin is Chairman of the Board and President of the Company.  He is a member of the Executive Committee of the Board and has served on the Board since the Company’s inception in 1997.  He has also served as President and Chairman of the Board of JetFleet Management Corp. (“JMC”), the management company for AeroCentury Corp. since the Company’s founding in 1997.  Since 1983, he has been President and Chairman of CMA Consolidated, Inc. (“CMA”), an investment management firm that is no longer active.  Since 2005, he has served as the President of Structured Funding, Inc., an investment management firm.  Since 2007, he has served as the President of Passport Holding Corp., an investment services firm.  Since 2007, he has served as a Director of NuCapital Curaçao B.V., a private energy development company.Prior to forming CMA in 1983, Mr. Crispin spent two years as Vice President-Finance of an oil and gas company.  Previously, Mr. Crispin was a manager with Arthur Young & Co., Certified Public Accountants.  Prior to joining Arthur Young & Co., Mr. Crispin served as a management consultant, specializing in financial consulting.  Mr. Crispin is the husband of Toni M. Perazzo, a director and officer of JMC and the Company.  He received a Bachelor’s Degree in Economics from the University of California at Santa Barbara and a Master’s Degree in Business Administration (specializing in Finance) from the University of California at Berkeley.  Mr. Crispin, a certified public accountant, is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.

The Board of Directors has concluded that Mr. Crispin should serve as a director of the Company because of his knowledge of the Company’s business operations and history, his many years of experience with JMC, and his experience in finance and leasing.

           Mr. Evan M. Wallach, age 58.  Mr. Wallach is President and Chief Executive Officer of Global Airfinance Services, an aviation consulting business he founded in 1998 and returned to in June 2012. Mr. Wallach is a member of the Audit Committee and has served on the Board since 1997.  From December 2009 until June 2012, Mr. Wallach was Managing Director, Aviation/Transportation Markets at Jefferies & Company, Inc.  From 2005 to 2009, Mr. Wallach was a Managing Director, Airline/Aircraft Securities Sales at Guggenheim Capital Markets, LLC, a securities broker/dealer.  From 2001 to 2005, he served as Managing Director, Fixed Income Institutional Sales, at Piper Jaffray LLC, and from 1998 to 2001 he served as Vice President, Finance of C-S Aviation Inc., an aviation consulting firm.  Mr. Wallach has specialized in aircraft and airline financing for over thirty years, having held senior level positions with The CIT Group, Bankers Trust Company, Kendall Capital Partners, Drexel Burnham Lambert, and American Express Aircraft Leasing.  Mr. Wallach received a Bachelor’s Degree in Political Science from State University of New York at Stony Brook and a Master’s Degree in Business Administration from the University of Michigan.

The Board of Directors has concluded that Mr. Wallach should serve as a director of the Company because of his knowledge of the Company’s business and history, and his expertise in aircraft finance.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES LISTED ABOVE.

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PROPOSAL 2:

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Company is requesting your advisory approval of the compensation of the Company’s named executive officers as disclosed in the compensation table and the narrative discussion set forth in this Proxy Statement.  This non-binding advisory vote is commonly referred to as a “say on pay” vote.  Because the Company receives management services from JMC, the Company has no employees and does not pay any compensation to its named executive officers.  Instead, the named executive officers of the Company are compensated in their capacities as employees of JMC. You are encouraged to carefully review the information concerning compensation paid by JMC to the Company’s named executive officers beneath the caption “Executive Compensation” in the section of this Proxy Statement entitled “Information Regarding the Company’s Directors and Officers”.

The Company asks you to indicate your support for the compensation of the Company’s named executive officers as described in this Proxy Statement. This vote is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers and the practices described in this Proxy Statement. Accordingly, the Company requests that you vote, on an advisory basis, “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, is hereby approved.”

While the results of this advisory vote are not binding, the Board of Directors will consider the outcome of the vote in deciding whether to take any action as a result of the vote and when making future compensation decisions for named executive officers.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.

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PROPOSAL 3:

ADVISORY VOTE ON FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION

You are being provided with the opportunity to cast an advisory vote on how frequently the Company should seek an advisory vote on the compensation of its named executive officers, commonly referred to as a “say on pay” vote, as provided in Proposal 2. This non- binding advisory vote is commonly referred to as the “frequency of say on pay” vote.  Under this Proposal 3, you may vote on whether you would prefer to have a “say on pay” vote every year, every 2 years or every 3 years.

The Board of Directors believes that the “say on pay” advisory vote should be conducted every year. An annual advisory vote on executive compensation will allow the Company’s stockholders to provide input on the Company’s compensation practices as disclosed in the proxy statement every year.

You may cast your vote on your preferred “say on pay” voting frequency by choosing the option of 1 year, 2 years or 3 years or abstain from voting when you vote in response to the resolution set forth below.

“RESOLVED, that the option of 1 year, 2 years, or 3 years that receives the highest number of votes cast on this resolution will be determined to be the preferred frequency with which the Company is to hold a stockholder vote to approve the compensation of the named executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules.”

You are not voting to approve or disapprove the Board of Director’s recommendation.

While this advisory vote on the frequency of the “say on pay” vote is non-binding, the Board of Directors will give careful consideration to the choice that receives the most votes when considering the frequency of future “say on pay” votes.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR A “1 YEAR” FREQUENCY FOR FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.

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PROPOSAL 4:

RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The firm of BDO USA, LLP served as independent registered public accounting firm for the Company for the fiscal year ended December 31, 2012.  The Board of Directors desires the firm to continue in this capacity for the current fiscal year.  Accordingly, a proposal will be presented at the Annual Meeting to ratify the selection of BDO USA, LLP by the Board of Directors as independent registered public accounting firm to audit the accounts and records of the Company for the fiscal year ending December 31, 2013, and to perform other appropriate services.  In the event that stockholders fail to ratify the selection of BDO USA, LLP, the Board of Directors will reconsider such selection.

A representative of BDO USA, LLP will be present at the Annual Meeting, will have the opportunity to make a statement if he or she so desires and will be available to respond to appropriate questions.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF BDO USA, LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

INFORMATION REGARDING AUDITORS

Audit and Audit-Related Fees.    The aggregate fees accrued by the Company as payable to BDO USA, LLP (the “Auditor”) for professional services rendered for the audit of the Company's financial statements for the fiscal year ended December 31, 2012, and for the review of the financial statements included in the Company's Forms 10-Q during the 2012 fiscal year was $256,000.  During the fiscal year ended December 31, 2012, the Company did not accrue any fees payable to the Auditor for audit-related services or Sarbanes-Oxley internal controls compliance review.

The aggregate fees accrued by the Company as payable to the Auditor for professional services rendered for the audit of the Company's financial statements for the fiscal year ended December 31, 2011, and for the reviews of the financial statements included in the Company's Forms 10-Q during the 2011 fiscal year were $275,000.  During the fiscal year ended December 31, 2011, the Company accrued no fees payable to the Auditor for audit-related services or Sarbanes-Oxley internal controls compliance review.

Tax Fees.  The Company made no payments to the Auditor for tax-related services, including tax planning and preparation of returns, in the fiscal years ended December 31, 2011 and 2012.

All Other Fees.  No other fees were paid to the Auditor in the fiscal years ended December 31, 2011 and 2012.

Audit Committee Approval.  The retainer agreements between the Company and the Auditor containing the terms and conditions and estimated fees to be paid to the Auditor for audit and tax return preparation services were pre-approved by the Audit Committee at the beginning of their respective engagements.The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the Auditor.  These services may include audit services, audit-related services, tax services and other services.  Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.  The Audit Committee has delegated pre-approval authority to its Chair when expedition of services is necessary.  One hundred percent of the audit-related fees and tax fees paid to the Auditor in the fiscal years ended December 31, 2011 and 2012 were pre-approved by the Audit Committee.  The Auditor and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the Auditor in accordance with this pre-approval, and the fees for the services performed to date.  None of the services rendered by the Auditor were rendered pursuant to the de minimis exception established by the Securities and Exchange Commission.

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AUDIT COMMITTEE REPORT

Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any such filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The Audit Committee of the Board of Directors of the Company serves as the representative of the Board of Directors for general oversight of the Company's financial accounting and reporting process, internal controls, audit process and process for monitoring compliance with laws and regulations.  The Audit Committee is responsible for the appointment, compensation and oversight of the work of the Auditor.  The members of the Audit Committee are independent (as defined in Section 803A of the NYSE MKT Company Guide).  The Company's management has primary responsibility for preparing the Company's financial statements and the Company's financial reporting process.  The Company's Auditor, BDO USA, LLP, is responsible for expressing an opinion on the fairness and conformity of the Company's audited financial statements to generally accepted accounting principles.  In this context, the Audit Committee hereby reports as follows:

1.           The Audit Committee reviewed and discussed the audited financial statements with the Company's management.

                2.           The Audit Committee discussed with the Auditor the matters required to be discussed by Statement of Auditing Standards No. 61, as amended (The Auditor’s Communication With Those Charged With Governance) (“SAS 61”), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

3.         The Audit Committee reviewed and discussed with BDO USA, LLP its judgments as to the quality and acceptability of the Company's accounting principles and such other matters as are required to be discussed under generally accepted auditing standards pursuant to SAS 61.

4.           The Audit Committee reviewed and discussed with BDO USA, LLP its independence from the Company and its management.  As part of that review, BDO USA, LLP provided the Audit Committee the written disclosures and letter required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence.

5.           Based on the review and discussion referred to in paragraphs (1) through (4) above, the Audit Committee recommended to the Board of Directors of the Company, and the Board of Directors has approved, that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, for filing with the Securities and Exchange Commission.

The Audit Committee held six meetings during the fiscal year ended December 31, 2012.

Submitted by the Audit Committee of the Board of Directors:

Thomas W. Orr, Chair

Roy E. Hahn

Evan M. Wallach

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INFORMATION REGARDING THE COMPANY’S

DIRECTORS AND OFFICERS

Current Board Of Directors

When considering whether directors and nominees have the experience, qualifications, attributes, skills, diversity of experience and background, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board of Directors focused primarily on the information discussed in each of the directors’ individual biographies set forth below.

The following directors have a term expiring at the Company’s 2013 Annual Meeting:  Neal D. Crispin and Evan M. Wallach.  Each has been nominated for re-election to the Board of Directors.  For biographical information on Messrs. Crispin and Wallach, see “PROPOSAL 1: ELECTION OF DIRECTORS,” above.

The following directors have terms expiring at the Company’s 2014 Annual Meeting of Stockholders:

Mr. Roy E. Hahn, age 61.  Mr. Hahn is a member of the Audit Committee of the Board of Directors and has served on the Board since 2007.  Mr. Hahn is currently Managing Director of Marbridge Group, LLC, an alternative investment management firm he founded in 2004.  Prior to his founding of Marbridge Group, LLC, he was Managing Director of Chenery Associates, an investment management firm.  Mr. Hahn was a Director at Coopers & Lybrand from 1987 to 1988, and a tax partner with that firm from 1989 to 2003.  Prior to Coopers & Lybrand, he was a partner at Arthur Young & Co.  His educational background includes a Bachelor's Degree in Accounting from San Francisco State University.  Mr. Hahn is a certified public accountant and a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.

The Board of Directors has concluded that Mr. Hahn should serve as a director of the Company because of his knowledge of the Company’s business and history, his status as an “audit committee financial expert” and his overall expertise in accounting and finance principles and international finance transactions.

Ms. Toni M. Perazzo, age 66.  Ms. Perazzo is a member of the Executive Committee of the Board of Directors and has served on the Board since the Company’s inception in 1997.  She is the Company’s Chief Financial Officer, Treasurer, Senior Vice President-Finance and Secretary and has held these same positions with JetFleet Management Corp. (“JMC”), the management company for AeroCentury Corp., since 1994, and CMA Consolidated, Inc. (“CMA”), an investment management firm which is no longer active, since 1990.  Since 2005, she has also been Senior Vice President-Finance at Structured Funding, Inc., an investment management firm.  Prior to joining CMA in 1990, she was Assistant Vice President for a savings and loan, controller of an oil and gas syndicator and a senior auditor with Arthur Young & Co., Certified Public Accountants.  Ms. Perazzo is the wife of Neal D. Crispin, a director and officer of JMC and the Company.  She received her Bachelor’s Degree from the University of California at Berkeley, and her Master’s Degree in Business Administration from the University of Southern California.  Ms. Perazzo is a certified public accountant and member of the California Society of Certified Public Accountants and the American Institute of Certified Public Accountants.

The Board of Directors has concluded that Ms. Perazzo should serve as a director of the Company because of her knowledge of the Company’s business and history, capitalization structure and finances, and her accounting and audit experience, as well as her many years of experience with JMC.

The following director has a term expiring at the Company’s 2015 Annual Meeting of Stockholders.

Mr. Thomas W. Orr, age 79.  Mr. Orr has served on the Company’s Board of Directors since 1997, and was also, during that time, Chair of the Audit Committee of the Board of Directors.  Mr. Orr is currently a self-employed consultant on accounting matters.  Since 2003, Mr. Orr has served as a Director of Internet Patents Corp, (formerly known as “InsWeb”), a publicly traded online insurance marketplace.  From 1992 until 2002, Mr. Orr was a partner at the accounting firm of Bregante + Company LLP.  Prior to that, beginning in 1986, Mr. Orr was Vice President, Finance, at Scripps League Newspapers, Inc.  Beginning in 1958, Mr. Orr was in the audit department of Arthur Young & Co., Certified Public Accountants, where he retired as a partner in 1986.  Mr. Orr received his Bachelor’s Degree in Business Administration, with distinction (Accounting major), from the University of Minnesota.  Mr. Orr is a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants, and a former member of the California State Board of Accountancy.

The Board of Directors has concluded that Mr. Orr should serve as a director of the Company because of his knowledge of the Company’s business and history, his status as an “audit committee financial expert,” and his experience with and understanding of corporate governance principles.

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Board Meetings and Committees

The Board of Directors of the Company held a total of five meetings during the fiscal year ended December 31, 2012.  During the last year, no incumbent director attended fewer than 75% of the meetings of the Board of Directors and its committees on which he or she served that were held during the period in which he or she was a director.

The Company has an Audit Committee and an Executive Committee of the Board of Directors.  The Audit Committee operates under a charter approved by the Board of Directors.  The Audit Committee meets with the Company's financial management and its independent registered public accounting firm to review internal financial information, audit plans and results, and financial reporting procedures.  This committee currently consists of Thomas W. Orr, Chair, Roy E. Hahn, and Evan M. Wallach.  The Board has determined that Messrs. Orr, Hahn, and Wallach are independent within the meaning of “independence” as set forth in the NYSE MKT Company Guide.

The Board of Directors has determined that at least two members of the Audit Committee, Messrs. Orr and Hahn, are “audit committee financial experts” within the meaning of Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934, as amended.  Each of Messrs. Orr and Hahn is also an “independent director” within the meaning of Section 803A of the NYSE MKT Company Guide.  Mr. Orr is a self-employed accounting consultant and former partner of the accounting firms Bregante + Company LLP and Arthur Young & Co., Certified Public Accountants.  Mr. Hahn is a founder of Marbridge Group, LLC, an alternative investment management firm, and prior to that was a tax partner in the accounting firms of Coopers & Lybrand and Arthur Young & Co.  In the course of their respective careers, each of Messrs. Orr and Hahn acquired (i) an understanding of generally accepted accounting principles and financial statements, (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves, (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, (iv) an understanding of internal control over financial reporting, and (v) an understanding of audit committee functions.

The Audit Committee held six meetings during the fiscal year ended December 31, 2012.

The Executive Committee has the authority to acquire, dispose of and finance investments for the Company and execute contracts and agreements, including those related to the borrowing of money by the Company, and generally exercises all other powers of the Board of Directors except for those which require action by all of the directors or the independent directors under the Certificate of Incorporation or the Bylaws of the Company, or under applicable law.  The Executive Committee currently consists of two directors, Neal D. Crispin, Chair, and Toni M. Perazzo.

The Company does not have a formal Nominating Committee.  The independent directors separately consider and make recommendations to the full Board of Directors regarding any candidate being considered to serve on the Board of Directors.  The full Board of Directors reviews potential candidates for the Board of Directors.  While the Board of Directors does not have a specific policy for considering nominees recommended by stockholders, this does not mean that a recommendation would not be considered if received from a stockholder.  The Board has not yet considered a procedure for considering nominees recommended by stockholders in addition to the procedures already set forth in the Bylaws of the Company.  It believes that the current informal consideration process has been adequate in light of the historical absence of stockholder proposals.  In any event, there would be no difference between the manner in which the Board of Directors would evaluate a nominee for director whether recommended by a stockholder or recommended by a member of the Board of Directors or one of the Company’s executive officers.  The Company does not pay any third party to identify or assist in identifying or evaluating potential nominees.  Additionally, other than attempting to constitute the Board of Directors with directors who have skills and experience that are relevant and helpful to the Company's industry and operations and who have the desire and capacity to actively serve, the Board of Directors does not have a policy of considering diversity in identifying director nominees.

In reviewing potential candidates for the Board, the Board of Directors considers the individual's experience in the Company's industry, the general business or other experience of the candidate, the needs of the Company for an additional or replacement director, the personality of the candidate, and the candidate's interest in the business of the Company, as well as numerous other subjective criteria.  Of greatest importance is the individual's integrity, willingness to actively participate and ability to bring to the Company his or her experience and knowledge in areas that are most beneficial to the Company.  The Board intends to continue to evaluate candidates for election to the Board on the basis of the foregoing criteria.

Since the Company receives management services from JMC, the Company has no employees and does not pay any compensation to its officers.  As a result, the Company has no compensation committee.

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Board Leadership Structure

The Board believes that the Company’s President is best situated to serve as Chairman of the Board because he is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities for the Company, leading the Board in discussions regarding the Company’s business and industry, and focusing the Board on execution of strategy.  Independent directors and management have different perspectives and roles in strategy development.  The Company’s independent directors bring experience, oversight and expertise from outside the Company and its industry, while the President brings Company-specific and industry-specific experience and expertise.  The Board believes that the combined role of Chairman and President promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

Board of Directors’ Role in Risk Oversight

The Company is exposed to a number of operational and financial risks.  The Board plays an active role in overseeing management of such risks.  The Company’s President (who is himself a member of the Board) is directly responsible for a number of operational risks, such as the risks inherent in acquiring and owning used aircraft or engines, the risks associated with leasing such aircraft or engines to air carriers, and the risks inherent in disposing of such aircraft or engines.  The Board regularly receives reports from the President on these risks and works closely with the Company’s management on strategies to manage these risks and to develop contingency plans.  The Company’s Chief Financial Officer (who is herself a member of the Board) is directly responsible for a number of financial risks, such as the risks associated with the Company’s credit and liquidity.  The Board regularly receives reports from the Chief Financial Officer on these risks and works closely with the Company’s management on strategies to manage these risks and to develop contingency plans.  The Board also meets and confers regularly with the Company’s management to identify other risks faced by the Company.  The Company believes that the inclusion of these members of senior management of the Company on the Board provides the Board with visibility into and access to the details underlying the risks the Company faces, and thereby enhances the quality of the Board’s risk oversight.  Also, the Audit Committee oversees management of certain specific financial risks, such as variable interest rate risk.

Communication between Stockholders and Directors

The Company’s Board of Directors currently does not have a formal process for stockholders to send communications to the Board of Directors and does not believe such procedures are necessary at this time because it believes that informal communications are sufficient to communicate questions, comments and observations that could be useful to the Board.

Director Attendance at Annual Meeting

It is the policy of the Company and Board of Directors that directors attend the Annual Meeting and be available for questions from the stockholders.  All directors, including the director nominated for election, were in attendance at the 2012 Annual Meeting.  It is anticipated that the directors nominated for election at the 2013 Annual Meeting will also be in attendance at that meeting.

Board Independence

If the nominees to the Board of Directors are elected, a majority of the Board of Directors of the Company, consisting of Messrs. Orr, Hahn, and Wallach, will be “independent directors,” as defined in accordance with Section 803A of the NYSE MKT Company Guide.

Involvement in Legal Proceedings

No director or associate of a director is involved in a material proceeding as a party adverse to the Company or with a material interest adverse to the Company.

Director Compensation

Non-employee board members are paid an annual fee in quarterly installments and are also reimbursed for all reasonable out-of-pocket costs incurred in connection with their attendance at such meetings of the Board of Directors.  The Company increased the annual fee payable to non-employee directors from $20,000 to $25,000 effective beginning in the fourth quarter of 2012, resulting in payment of an annual fee of $21,250 to each non-employee director in 2012.  Non-employee members also receive $1,000 annually for each committee membership, and the audit committee chair receives an additional $3,000.  Board members who are officers of the Company do not receive any compensation for Board or committee membership.  No member of the Company’s Board of Directors receives equity compensation in relation to his/her service as a member of the Company’s Board of Directors.

The table below provides the compensation of the Company’s directors for the fiscal year ended December 31, 2012:

FISCAL YEAR 2012 DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($) (1)		Total ($)
Roy E. Hahn		22,250		22,250
Thomas W. Orr		25,250		25,250
Evan M. Wallach		22,250		22,250

(1) Neal Crispin and Toni Perazzo were officers of the Company and JMC during 2012 and therefore did not receive compensation for their respective service as members of the Company’s Board of Directors or committee thereof, in accordance with the Company’s director compensation policy.  Mr. Orr earned $21,250 as a non-employee member of the Board, an additional $1,000 for his membership on the Audit Committee and an additional $3,000 for chairing the Audit Committee.  Each of Messrs. Wallach and Hahn earned $21,250 as a non-employee member of the Board and an additional $1,000 for each of their respective memberships on the Audit Committee.

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Officers And Key Employees

For biographies of Neal D. Crispin, President & Chairman of the Board, and Toni M. Perazzo, Chief Financial Officer, Treasurer, Senior Vice President - Finance, & Secretary, see “Board of Directors” above.  Listed below are the other officers of the Company who are also key officers and employees of JMC, and are responsible for the management of various aspects of the Company’s business:

Mr. Brian J. Ginna, Vice President, Corporate Development, age 44. Mr. Ginna is responsible for all corporate communications, investor relations and public relations of the Company and JMC.  Mr. Ginna joined the Company and JMC in 2001, and has served as Controller for CMA, which he joined in 1991.  Mr. Ginna received a Bachelor’s Degree in Finance from Babson College.

Mr. Jack Humphreys, Vice President, Customer Relations, age 65. Mr. Humphreys is responsible for portfolio aircraftmaintenance and acts as a liaison with manufacturers and the technical departments of lessees.  Mr. Humphreys has over thirty-five years of experience in aviation and has been with the Company and JMC since July 2002.  He has held several positions in the industry in the areas of aviation maintenance management, quality assurance, aviation safety and training development.  Before joining the Company, Mr. Humphreys was an Aviation Quality Control Manager for Raytheon-Range Systems Engineering-Raytheon Corporation from 1992 to 2002, where he was responsible for maintaining airworthiness for a fleet of airplanes and helicopters.  Mr. Humphreys holds a degree in Professional Aeronautics from Embry-Riddle Aeronautical University, a Bachelor’s Degree in Business Management from Columbia College, and an FAA Airframe and Powerplant certification.

Mr. Byron Hurey, Vice President, Aircraft Acquisitions, age 65.  Mr. Hurey is responsible for identifying, recommending and completing aircraft acquisition and lease opportunities.  Mr. Hurey joined the Company and JMC in February 2007.  From 2001 to 2007, Mr. Hurey was a self-employed consultant specializing in equipment leasing.  Mr. Hurey is a former U.S. Navy aviator and has held significant marketing and sales positions in the aerospace and financial community over the past thirty years.  Among his past responsibilities were positions at Gates Learjet, PLM International, ATEL Financial Corporation and Sansome Street Holdings.  Mr. Hurey is a graduate of Cornell University with a degree in Business Administration.

Mr. Harold M. Lyons, Vice President, Finance, age 54.  Mr. Lyons is responsible for overseeing tax accounting and tax analysis as well as Sarbanes-Oxley internal controls compliance review.  Mr. Lyons joined the Company and JMC in October 2003.  Since 2005, Mr. Lyons has also served as the Senior Vice President of Structured Funding, Inc.  Since 1992, Mr. Lyons has also served as the Senior Vice President of CMA.  Prior to joining CMA in 1992, Mr. Lyons was a Manager in the Tax Department of Coopers & Lybrand, Certified Public Accountants and, before that, Mr. Lyons was a Manager in the Tax Department of Arthur Young & Co., Certified Public Accountants.  He received a Bachelors Degree in Business Administration (specializing in Accounting and Applied Economics) and a Masters Degree in Business Administration (specializing in finance and management science) from the University of California, Berkeley.  Mr. Lyons is a certified public accountant, and is a member of the American Institute of Certified Public Accountants (and a member of the Tax Section) and of the California Society of Public Accountants.

Mr. Frank Pegueros, Senior Vice President, Operations, age 53.Mr. Pegueros is responsible for negotiation of aircraft acquisitions and aircraft remarketing and sales, as well as drafting of contractual documents.  Mr. Pegueros joined JMC and the Company in 2007 and was previously in a variety of positions with United Airlines over a twenty-year period.  Initially as power plant engineer and finally as a senior aircraft sales executive, he was a member of the United's aircraft team responsible for aircraft acquisitions and sales as well as lender negotiations.  He is a graduate of Cal Poly State University with BS in Aeronautical Engineering.

Mr. Glenn Roberts, Vice President, Controller, age 48.  Mr. Roberts is responsible for financial accounting and analysis.  Mr. Roberts joined JMC in 1994 and the Company in 1997.  He has been employed by affiliates of the Company since 1989 in various capacities of increasing responsibility.

Mr. Christopher B. Tigno, General Counsel, age 51.  Mr. Tigno is responsible for all legal matters of the Company and JMC and its related companies, including supervision of outside counsel, documentation of aircraft asset acquisition transactions and corporate and securities matters.  He has also served as General Counsel of Structured Funding, Inc. since 2005 and of CMA since 1996.  He joined the Company in 1997 and joined JMC and CMA in 1996.  He was also Senior Counsel with the law firm of Wilson, Ryan & Campilongo from 1992 to 1996, and prior to that was associated with the law firm of Fenwick & West from 1988 to 1992 and the law firm of Morrison & Foerster from 1986 to 1988.  Mr. Tigno received his Juris Doctor Degree from the University of California at Berkeley, Boalt Hall School of Law, and was admitted to the California Bar in 1986.  He also holds a Bachelor's Degree in Chemical Engineering from Stanford University.

Executive Compensation

Because the Company receives management services from JMC, the Company has no employees and does not pay any compensation to its executive officers.  Instead, the executive officers of the Company are compensated in their capacities as employees of JMC.  JMC is an at-will employer, and none of the Company’s current executive officers has an employment agreement with JMC.  The compensation paid by JMC to the Company’s executive officers consists solely of base salary plus bonus payments.  Mr. Neal Crispin, in his capacity as President of JMC, has sole discretion in determining annual salary and bonus payments for the JMC officers and employees, including his own salary and bonus.

The following table sets forth certain information for the fiscal years ending December 31, 2012 and December 31, 2011, concerning compensation paid by JMC to the Company’s executive officers who were serving as such at December 31, 2012:

Name and Position	Year	Salary ($)	Bonus ($)	All Other Compensation ($)	Total ($)
Neal D. Crispin President & Chairman	2012 2011	1 1	0 0	0 0	1 1
Toni M. Perazzo, Senior VP, Finance and CFO	2012 2011	310,208 310,000	100,000 0	0 0	410,208 310,000

JMC Management Fee and Risk Management

Because the Company has no employees, it has no compensation policies or practices that are reasonably likely to have a material adverse effect on the Company.  However, the structure of the Company’s management fee arrangement with JMC may affect the Company’s risk exposure.  All decisions regarding acquisitions and disposal of assets from the Company’s portfolio are made by JMC.  JMC is paid a management fee based on the net asset value of the Company’s portfolio.  JMC also receives a one-time asset acquisition fee upon purchase of an asset by the Company, and a one-time sale fee upon disposal of an asset and may receive a remarketing fee upon the re-lease of an asset.

Under this management fee structure, a larger volume of acquisitions generates acquisition fees and also increases the periodic management fee by increasing the size of the asset portfolio.  This management fee structure may create a situation where a decision by JMC for the Company to forego an asset acquisition transaction deemed to be an unacceptable business risk due to the lessee or the asset type is in conflict with JMC's own pecuniary interest, and conversely a situation where a decision by JMC for the Company to pursue an asset acquisition transaction that presents significant business risk due to the lessee or the asset type furthers JMC’s own pecuniary interest.  As a result, the management fee structure could act to incent greater risk-taking by JMC in asset acquisition decision-making.

The Company has established objective target guidelines for yields on acquired assets.  Further, the Board, including outside independent directors, must approve any acquisition that involves a new asset type.  While the Company currently believes the foregoing are effective mitigating factors against undue compensation-incented risk-taking by JMC, there is no assurance that such mechanisms can entirely and effectively eliminate such risk.

Compensation Committee Interlocks And Insider Participation

Neal D. Crispin and Toni M. Perazzo are executive officers and directors of both the Company and JMC.  As described above under “Employee Compensation,” the Company receives management services from JMC and has no employees and does not pay any compensation to its executive officers.  The Company does not have a compensation committee because it has no employees.  None of the Company’s executive officers serves on a compensation committee (or any other committee of the board of directors performing similar functions), and there were no interlocks or insider participation between any member of the Board of Directors and any member of the board of directors or any compensation committee of another entity.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of the Company's Common Stock as of March 11, 2013, by: (i) each person or entity that is known to the Company to own beneficially more than five percent of the outstanding shares of the Company's Common Stock; (ii) each director; and (iii) all directors and executive officers as a group.

Name,  Position & Address	No. of Shares (1)		Percentage of Common Stock (2)
Neal D. Crispin Chairman of Board of Directors, President, and Principal Stockholder (3)(4)(6)		332,005		20.44	%
Toni M. Perazzo Director, Sr. Vice President-Finance, Secretary and Principal Stockholder (3)(5)(6)		332,005		20.44	%
Thomas W. Orr Director (3)		1,700		*
Evan M. Wallach Director (3)		100		*
Roy E. Hahn Director (3)		0		*
All directors and executive  officers as a group  (5 persons)		333,805		20.55	%
JetFleet Holding Corp. Principal Stockholder (7)		198,067		12.19	%
Seabreeze Capital Management, LLC (8)		248,507		15.30	%
Lee G. Beaumont (9)		152,500		9.39	%
Whitebox Advisors, LLC (10)		81,224		5.00	%

----------------------------------

*  Less than 1%

Footnotes to Security Ownership:

(1)         Except as indicated in the footnotes to this table, the stockholders named in the table are known to the Company to have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.  Beneficial ownership of shares is determined in accordance with the rules of the Securities and Exchange Commission (“SEC”) and generally includes any shares over which a person exercises sole or shared voting or investment power, or of which a person has the right to acquire ownership within 60 days after, March 11, 2013.

(2)         For purposes of calculating percentages, 1,624,481 shares were used as the total outstanding shares, consisting of 1,543,257 shares of outstanding Common Stock (excluding Company treasury stock) as of March 11, 2013, plus 81,224 shares issuable upon exercise of outstanding warrants exercisable on March 11, 2013 or within sixty (60) days thereafter.

(3)         The mailing address is c/o AeroCentury Corp., 1440 Chapin Avenue Suite 310, Burlingame, California 94010.

(4)         Includes 198,067 shares owned by JetFleet Management Corp., a wholly owned subsidiary of JetFleet Holding Corp., of which Mr. Crispin is an officer, director and/or principal shareholder; 49,550 shares held by Applegate Trust, an irrevocable trust, of which Mr. Crispin is a beneficial owner; and 49,550 shares beneficially owned by his spouse, Ms. Toni Perazzo, through the Stargate Trust.

(5)         Includes 198,067 shares owned by JetFleet Management Corp., a wholly owned subsidiary of JetFleet Holding Corp., of which Ms. Perazzo is an officer, director and/or principal shareholder and 49,550 shares held by Stargate Trust, an irrevocable trust, of which Ms. Perazzo is a beneficial owner, and 49,550 shares beneficially owned by her spouse, Mr. Neal D. Crispin, through the Applegate Trust.

(6)         The shares listed for Mr. Crispin and Ms. Perazzo represent the same shares, not separate lots of shares.  Mr. Crispin and Ms. Perazzo are deemed to be beneficial owner of all shares owned by the other.

(7)         Consists of 198,067 shares owned by a wholly owned subsidiary, JetFleet Management Corp.

(8)         Based solely on a Schedule 13G/A filed with the SEC on February 4, 2013, Seabreeze Capital Management, LLC has sole voting power and sole dispositive power with respect to 248,507 shares as of December 31, 2012.  Seabreeze Capital Management, LLC, 3511 Venture Drive, Huntington Beach, CA 92649.

(9)         Based solely on a Schedule 13G/A filed with the SEC on January 3, 2013, Lee G. Beaumont has sole voting power and sole dispositive power with respect to 152,500 shares as of December 31, 2012.  Lee G. Beaumont, 2090 Centro Street, East, Tiburon, CA 94920

(10)         Based solely on a Schedule 13G filed with the SEC on February 14, 2012, Whitebox Advisors, LLC, its affiliates and affiliated funds, together, have shared voting power and dispositive power with respect to 81,224 shares of the Company’s Common Stock as of December 31, 2012.  Includes shares and warrants exercisable for shares owned by Whitebox Multi-Strategy Advisors, LLC, Whitebox Multi-Strategy Partners, L.P.,Whitebox Multi-Strategy Fund, L.P., Whitebox Multi-Strategy Fund, Ltd., Whitebox Small Cap Long Short Equity Advisors, LLC, Whitebox Small Cap Long Short Equity Partners LP, Whitebox Small Cap Long Short Equity Fund LP, Whitebox Small Cap Long Short Equity Fund Ltd., Pandora Select Advisors, LLC; Pandora Select Partners, LP; Pandora Select Fund, LP; and Pandora Select Fund, Ltd.  Whitebox Advisors, LLC, 3033 Excelsior Blvd. Ste 300, Minneapolis, MN 55416.

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RELATED PARTY TRANSACTIONS

Management Agreement. JMC acts as the management company for the Company under the Management Agreement, dated December 31, 1997, as amended on February 3, 1998, between JMC and the Company (the “Management Agreement”).  The officers of the Company are also officers of JMC and two members of JMC’s Board of Directors are on the Board of Directors of the Company.

Under the Management Agreement, the Company pays a monthly management fee to JMC equal to 0.25% of the net book value of the Company’s assets as of the end of the month for which the fee is due.  In addition, JMC may receive an acquisition fee for locating assets for the Company, provided that the aggregate purchase price including chargeable acquisition costs and any acquisition fee does not exceed the fair market value of the asset based on appraisal, and may also receive a remarketing fee in connection with the sale or re-lease of the Company’s assets.  The management fees, acquisition fees, and remarketing fees may not exceed the customary and usual fees that would be paid to an unaffiliated party for such services.  During 2011 and 2012, the Company recognized as expense $3,715,400 and $4,166,200, respectively, of management fees payable to JMC.  In connection with asset purchases during 2011 and 2012, the Company paid JMC a total of $184,000 and $1,066,000, respectively, in acquisition fees, which are included in the capitalized cost of the assets.  Remarketing fees accrued to JMC were $363,500 and $259,000 in 2011 and 2012, respectively.

Office Space.  The Company maintains its principal office at the offices of JMC at 1440 Chapin Avenue, Suite 310, Burlingame, California 94010, without reimbursement to JMC.

Certain Transactions.  In August 2009, the Company entered into an agreement (the "Assignment Agreement") with Lee G. Beaumont in which Mr. Beaumont assigned to the Company his rights to purchase certain aircraft engines from an unrelated third party seller.  In January 2012, Mr. Beaumont became a “related person” with respect to the Company due to his acquisition on the open market of shares representing over 5% of the Company’s Common Stock.  Mr. Beaumont received the second and the third final installments of $66,700 due under the Assignment Agreement from the Company in the years ended December 31, 2011 and 2012, in addition to certain fees paid by JMC to Mr. Beaumont in connection with placement of the engines with new or renewing lessees.

In connection with a subordinated debt financing entered into in 2007 and 2008, the Company issued notes with an aggregate principal amount of $14 million and warrants (“Warrants”) to purchase up to 81,224 shares of the Company’s Common Stock exercisable upon repayment of the notes on December 30, 2011.  The Warrants are now held by various entities affiliated with Whitebox Advisors, LLC (“Whitebox Entities”).  Since the Warrants became exercisable on December 30, 2011, and the shares issuable upon exercise of the Warrants constitute over 5% of the Common Stock of the Company, the Whitebox Entities became “related persons” with respect to the Company on October 31, 2011.  The subordinated debt was fully paid on December 30, 2011, and the Whitebox Entities received $228,200 and $0 in interest payments during 2011 and 2012, respectively.

16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company.  Officers, directors and greater than ten percent stockholders are required by Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) reports they file.

Based solely upon review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that there was compliance for the fiscal year ended December 31, 2012 with all Section 16(a) filing requirements applicable to the Company's officers, directors and greater than ten percent beneficial owners.

STOCKHOLDER PROPOSALS

Requirements for Stockholder Proposals to be Brought Before 2014 Annual Meeting of Stockholders (“2014 Annual Meeting”). For stockholder proposals to be considered properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Company.  To be timely for the 2014 Annual Meeting, notice of stockholder proposals must be delivered to, or mailed and received by, the Secretary of the Company at the principal executive offices of the Company between January 2, 2014 and February 1, 2014.  A stockholder's notice to the Secretary must set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the number of shares of the Company’s Common Stock which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business.

Requirements for Stockholder Proposals to be Considered for Inclusion in the Company's Proxy Materials.  Stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act and intended to be presented at the Company's 2014 Annual Meeting must be received by the Company not later than November 22, 2013, in order to be considered for inclusion in the Company's proxy materials for that meeting.

ANNUAL REPORT ON FORM 10-K

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 is available without charge to each person solicited by this Proxy Statement upon the written request of such person to Investor Relations, AeroCentury Corp., 1440 Chapin Avenue, Suite 310, Burlingame, California 94010.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 9, 2013

The Notice of Annual Meeting, Proxy Statement, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 are available online at:

http://www.aerocentury.com/downloads.htm

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OTHER MATTERS

Management does not know of any matters to be presented at this Annual Meeting other than those set forth herein and in the Notice accompanying this Proxy Statement, nor has it received any notice of any matter by the deadline prescribed by SEC Rule 14a-4(c).  Without limiting the Company’s ability to apply the advance notice provisions in its Amended and Restated Bylaws with respect to the procedures that must be followed for a matter to be properly presented at an annual meeting, if other matters should properly come before the meeting, the proxy holders will vote on such matters in accordance with their best judgment.

It is important that your shares be represented at the Annual Meeting, regardless of the number of shares that you hold.  YOU ARE, THEREFORE, URGED TO EXECUTE PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE THAT HAS BEEN ENCLOSED FOR YOUR CONVENIENCE.  Stockholders of record who are present at the Annual Meeting may revoke their proxies and vote in person or, if they prefer, may abstain from voting in person and allow their proxies to be voted.

By Order of the Board of Directors,

/s/Neal D. Crispin

Neal D. Crispin, President

March 28, 2013

Burlingame, California

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EX-99.1

[front cover]

[graphics omitted]

AeroCentury®

Worldwide ▪ Regional Aircraft ▪ Leasing

2012 Annual Report

TO OUR STOCKHOLDERS

2012 was a rebound year for AeroCentury.  After posting a loss of $0.94 per diluted share in 2011, the Company reported net income of $3.32 per diluted share in 2012 on strong revenue growth and decreased maintenance expense.

A 14% increase in the size of the Company’s lease portfolio and an increase in portfolio utilization, from 78% in 2011 to 86% in 2012, boosted operating lease revenue by 22% in 2012 over 2011.  The Company recorded net income of $5.2 million in 2012, compared to a net loss of $1.5 million in 2011, primarily due to $5.0 million more in lease and maintenance reserves revenue and $6.9 million less in maintenance expense.    

The Company continued to refresh its portfolio in 2012.  The Company acquired a Bombardier Dash-8-Q314 aircraft, two Bombardier Dash-8-Q400 aircraft and two Saab 340B Plus aircraft, all of which are on lease to customers in Asia and Africa.  The Company sold a Bombardier Dash-8-100 aircraft, a Fokker 50 aircraft and a General Electric CT7-9B engine and recorded gains totaling $1.5 million.  The Company’s portfolio now consists of forty-four aircraft, covering nine different aircraft types, and six aircraft engines.  Our customer base continues to consist exclusively of regional carriers – twenty different airlines operating worldwide.

The global downturn resulted in a significant reduction in airline passenger volume and, in reaction to that, a reduction in the number of aircraft and aircraft engines needed for operation by carriers in nearly all geographic areas, especially Europe.  The slow recovery from this downturn and the ongoing European financial crisis have created a challenging environment for the Company and its customers, as evidenced by the bankruptcies of two of the Company’s customers during the second quarter of 2012, and another recently in January 2013.   The Company’s challenge during these times will be to exercise careful portfolio management and seize attractive business opportunities as they present themselves.

The Company took a major step in meeting this challenge in March 2013, when the Company’s credit facility was renewed for an additional 30 month term expiring in September 2015, and the maximum availability was increased from $90 million to $130 million.

I appreciate your interest and support.

/s/Neal D. Crispin

Neal D. Crispin

President and Chairman of the Board

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

o   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	Name of each exchange on which registered
Common Stock, par value $0.001 per share	NYSE MKT Exchange

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

Yes  oNo  x

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  oNo  x

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 xNo  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  

Yes  xNo  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

Large accelerated filer  oAccelerated filer  o

Non-accelerated filer  oSmaller reporting company  x

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

Yes  oNo  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates (based upon the closing price as of June 30, 2012) was $14,368,300.

The number of shares of the Registrant’s Common Stock outstanding as of March 14, 2013 was 1,543,257.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates information by reference from the Registrant’s Proxy Statement for its 2013 Annual Meeting of Stockholders.  Except as expressly incorporated by reference, the Registrant’s Proxy Statement shall not be deemed to be a part of this Annual Report on Form 10-K.

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PART I

FINANCIAL INFORMATION

Forward-Looking Statements

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”). All statements in this Report other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any statements of plans and objectives for future operations and any statements of assumptions underlying any of the foregoing. Statements that include the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof, or other comparable terminology are forward-looking statements. Forward-looking statements include: (i) in Part I, Item 1, “Business,” the Company’s statements regarding its belief that the Company can purchase assets at an appropriate price and maintain an acceptable overall on-lease rate for them; that the Company is able to enter into transactions with a wider range of lessees than its competitors; that the Company expects it will have sufficient cash flow to cover expenses and provide excess cash flow; that the Company expects to have sufficient cash flow or borrowing availability under the Credit Facility to fund unusually large maintenance expenses; that competition may increase if competitors who have traditionally neglected the regional air carrier market begin to focus on that market; that the Company has a competitive advantage due to its experience and operational efficiency in financing the transaction sizes that are desired by many in the regional air carrier market; that the Company has a competitive advantage because JMC has developed a reputation as a global participant in the regional aircraft leasing market; and that neither compliance with laws regulating discharge of greenhouse gas and/or aircraft noise regulations, nor remedial agreements or other actions relating to the environment, are expected to have a material effect on the Company’s capital expenditures, financial condition, and results of operations or competitive position; (ii) in Part I, Item 3, “Legal Proceedings,” the Company’s statement regarding its belief that none of the current lessee collection and lessee vendor mechanic’s lien collection litigation, if resolved adverse to the Company, is anticipated to have a material adverse effect on the Company’s financial condition or results of operations; (iii) in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” the Company’s statements regarding its belief that it will continue to be in compliance with its Credit Facility covenants; and that the Company will have adequate cash flow to fund operational needs and payments required under the Credit Facility and that this belief is based on reasonable assumptions; (iv) in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations –– Outlook,” the Company’s statements that the Company will likely experience lower on-lease utilization rates, longer lead times, as well as lower rental rates for remarketed assets and that this will continue to affect the Company’s operating revenue for the remainder of 2013; that there is likely to be a significant decrease in the pool of customers requiring aircraft; that the availability under the Credit Facility should be sufficient to meet the Company’s continuing obligations as well as fund its anticipated asset acquisitions; and that the Company will be in compliance with all Credit Facility covenants through its term; (v) in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors that May Affect Future Results,” the Company’s statements regarding its belief that it will have sufficient cash funds to make any payment that arises due to any collateral base limitations; that the Company will continue to be in compliance with its Credit Facility covenants; that the availability under the Credit Facility will be sufficient to fund projected acquisitions through the  term of the facility; that the overall industry experience of JMC’s personnel and its technical resources should permit the Company to effectively manage new aircraft types and engines; that there are effective mitigating factors against undue compensation-incented risk-taking by JMC; that the burden and costs of complying with government regulations will fall on the operators of equipment and not the Company, and that future government regulations could cause the value of any non-complying equipment owned by the Company to decline substantially; that it is not expected that the costs of complying with current environmental regulations will have a material adverse effect on the Company; that the Company has sufficient cyber-security measures in place commensurate with the risks to the Company of a successful cyber-attack or breach of security; and that the Company believes that sufficient replacement mechanisms exist in the event of an interruption in its internet communications ability; and (vi) in Part II, Item 8, “Financial Statements,” that if litigation relating to a lessee liability to a vendor is not resolved in the Company’s favor, it will not have a material adverse effect on the Company’s financial condition or results of operations; and that it expects to sell an aircraft that was the subject of now-settled litigation with the lessee in the second quarter of 2013.

These forward-looking statements involve risks and uncertainties, and it is important to note that the Company's actual results could differ materially from those projected or assumed in such forward-looking statements. Among the factors that could cause actual results to differ materially are the factors detailed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Results," including the speed of recovery of from the recent downturn on the Company’s customer base of regional air carriers and certain current lessees of the Company, in particular; the compliance of the Company's lessees with obligations under their respective leases; risks related to use of debt financing for acquisitions; the Company’s success in finding appropriate assets to acquire with such financing; deviations from assumptions regarding maintenance cost on returned aircraft and that future major maintenance expenses will be relatively evenly spaced over the entire portfolio; and future trends and results which cannot be predicted with certainty. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear herein. All forward-looking statements and risk factors included in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement or risk factor. You should consult the risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission.

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Item 1.Business.

Business of the Company

AeroCentury Corp., a Delaware corporation incorporated in 1997 (the “Company”), acquires used regional aircraft and aircraft engines for lease to regional carriers worldwide.

The business of the Company is managed by JetFleet Management Corp. ("JMC"), pursuant to a management agreement between the Company and JMC (the “Management Agreement”), which is an integrated aircraft management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC").   Certain officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and the Company.

Since its formation, the Company has been engaged in the business of investing in used regional aircraft equipment leased to foreign and domestic regional air carriers. The Company’s principal business objective is to increase stockholder value by acquiring aircraft assets and managing those assets in order to provide a return on investment through lease revenue and, eventually, sale proceeds.  The Company strives to achieve its business objective by reinvesting cash flow and using short-term and long-term debt and/or equity financing.  

The Company’s success in achieving its objective depends in large part on its success in three areas: asset selection, lessee selection and obtaining financing for acquisition of aircraft and engines.  

The Company typically acquires assets in one of three ways.  The Company may purchase an asset already subject to a lease and assume the rights and obligations of the seller, as lessor under the existing lease.  Additionally, the Company may purchase an asset from an air carrier and lease it back to the seller.  Finally, the Company may purchase an asset from a seller and then immediately enter into a new lease for the aircraft with a third party lessee.  In this last case, the Company typically does not purchase an asset unless a potential lessee has been identified and has committed to lease the asset.  Occasionally, the Company may also acquire an asset for which it does not have a potential lessee.

The Company generally targets used regional aircraft and engines with purchase prices between $3 million and $10 million, and lease terms less than five years.  In determining 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 JMC has extensive experience in purchasing, leasing and selling used regional aircraft, the Company believes it can purchase these assets at an appropriate price and maintain an acceptable overall on-lease rate for the Company’s assets.

In order to improve the remarketability of an aircraft after expiration of the lease, the Company focuses on having lease provisions for its aircraft that contain required maintenance and return conditions such that when the lessee returns the aircraft, the Company receives the aircraft in a condition which allows it to expediently re-lease or sell the aircraft, or receives sufficient payments based on usage over the lease term to cover any maintenance or overhaul of the aircraft required to bring the aircraft to such a state.

When considering whether to accept transactions with a lessee, the Company examines the creditworthiness of the lessee, its short and long-term growth prospects, its 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 deal terms offered to the lessee. In addition, where applicable, 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 and willing to enter into transactions with a wider range of lessees than would be possible for traditional, large lending institutions and leasing companies.

The Company has funded its asset acquisitions primarily through debt financing supplemented by free cash flow.  The Company’s primary source of debt financing has been secured credit facilities.  In March of 2013, the Company's credit facility ("Credit Facility") provided by a syndicate of banks, with Union Bank, N.A. as agent, was amended to extend its expiration date to September 30, 2015.

An additional $14 million in debt financing was raised through the issuance of 16% senior unsecured subordinated notes ("Subordinated Notes") in 2007 and 2008, the proceeds of which were used to pay down amounts previously borrowed under the Credit Facility. The Subordinated Notes were fully repaid as required on December 30, 2011. The Company has also occasionally financed asset acquisitions with lenders through asset-based term loans using special purpose subsidiaries.  

Working Capital Needs

The Company’s portfolio of assets has historically generated revenues that have exceeded the Company’s cash expenses, which consist mainly of management fees, maintenance expense, principal and interest payments on debt, professional fees, and insurance premiums.

The Company's management fees payable to JMC are based upon the size of the asset pool. Maintenance costs for off-lease aircraft and costs funded by non-refundable reserves are recognized as an expense as incurred. Interest expense is dependent on both the outstanding balances of the Company’s indebtedness and the applicable interest rates.  Professional fees are paid to third parties for expenses not covered by JMC under the Management Agreement.  Insurance expense includes amounts paid for directors and officers insurance, as well as product liability insurance and aircraft hull insurance for periods when an aircraft is off lease.  

So long as the Company succeeds in keeping the majority of its assets on lease and interest rates do not rise significantly and rapidly, the Company’s cash flow should continue to be sufficient to cover these expenses and provide excess cash flow.If the Company incurs unusually large maintenance expense in any given period, the Company expects it will have sufficient cash flow, or borrowing availability under its credit facility, to fund such maintenance.

Competition

The Company competes with other leasing companies, banks, financial institutions, and aircraft leasing partnerships for customers that generally are regional commercial aircraft operators seeking to lease aircraft under operating leases.  Management believes that competition may increase if competitors who have traditionally neglected the regional air carrier market begin to focus on that market.  Because competition is largely based on price and lease terms, the entry of new competitors into the market, and/or traditional large aircraft lessors into the regional aircraft niche, particularly those with greater access to capital markets than the Company, could lead to fewer acquisition opportunities for the Company and/or lease terms less favorable to the Company on acquisitions, as well as renewals of existing leases or new leases of existing aircraft, all of which could lead to lower revenues for the Company.  

The Company, however, believes that it has a competitive advantage due to its experience and operational efficiency in financing the transaction sizes that are desired by many in the regional air carrier market.   Management believes that the Company also has a competitive advantage because JMC has developed a presence as a global participant in the regional aircraft leasing market.

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Dependence on Significant Customers

For the year ended December 31, 2012, the Company’s four largest customers accounted for 15%, 13%, 11% and 10% of lease revenue.  Concentration of credit risk with respect to lease receivables will diminish in the future only if the Company is able to re-lease assets currently on lease to significant customers to new customers and/or acquire  assets for lease to new customers.

Environmental Matters

Neither compliance with federal, state and local provisions regulating discharge of greenhouse gas emissions (including carbon dioxide (CO2)) in the environment and/or aircraft noise regulations, nor remedial agreements or other actions relating to the environment, has had, or is expected to have, a material effect on the Company’s capital expenditures, financial condition, results of operations or competitive position.

Employees

Under the Company’s management contract with JMC, JMC is responsible for all administration and management of the Company.  Consequently, the Company does not have any employees.

Available Information

The headquarters of AeroCentury Corp. 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 is subject to the reporting requirements of the Securities Exchange Act (the “Exchange Act”). Therefore, the Company files periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room of the SEC at 100 F Street N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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.

Item 1A.Risk Factors.

Smaller reporting companies are not required to provide this information.

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

As of December 31, 2012, the Company did not own or lease any real property, plant or materially important physical properties.  The Company maintains its principal office at 1440 Chapin Avenue, Suite 310, Burlingame, California 94010.  However, since the Company has no employees and the Company’s portfolio of leased aircraft assets is managed and administered under the terms of the Management Agreement with JMC, all office facilities are provided by JMC.

At December 31, 2012, the Company owned three Bombardier Dash-8-Q400, nine Bombardier Dash-8-300, one deHavilland DHC-8-100, one deHavilland DHC-6, thirteen Fokker 50, one Saab 340A, five Saab 340B, four Saab 340B Plus, and seven Fokker 100 aircraft, as well as three General Electric CF34-8E aircraft engines and one General Electric CT7-9B aircraft engine which are on lease or held for lease.

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Item 3.Legal Proceedings.

The Company from time to time engages in ordinary course litigation relating to lease collection matters against defaulting lessees and mechanic’s lien claims by vendors hired by lessees. None of the current litigation, if resolved adverse to the Company, is anticipated to have a material adverse effect on the Company’s 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.

The shares of the Company’s Common Stock are traded on the NYSE MKT exchange ("NYSE MKT") under the symbol “ACY.”

Market Information

The Company’s Common Stock has been traded on the NYSE MKT since January 16, 1998.  The following table sets forth the high and low sales prices reported on the NYSE MKT for the Company’s Common Stock for the periods indicated:

Period	High		Low
Fiscal year ended December 31, 2012:
Fourth Quarter	$	14.10	$	11.35
Third Quarter		12.95		9.95
Second Quarter		15.60		10.32
First Quarter		11.90		6.00
Fiscal year ended December 31, 2011:
Fourth Quarter		8.20		5.30
Third Quarter		14.48		6.27
Second Quarter		15.00		9.54
First Quarter		24.00		11.51

On March 13, 2013, the closing sale price of the Company’s Common Stock on the NYSE MKT exchange was $16.30 per share.

Number of Security Holders

According to the Company’s transfer agent, the Company had approximately 1,700 stockholders of record as of March 11, 2013.  Because brokers and other institutions on behalf of beneficial stockholders hold many of the Company’s shares of Common Stock, the Company is unable to estimate the total number of beneficial stockholders represented by those record holders.

Dividends

No dividends have been declared or paid to date.  The Company has no plans at this time to declare or pay dividends, and intends to re-invest any earnings into the acquisition of additional revenue-generating aircraft equipment.

The terms of the Credit Facility prohibit the Company from declaring or paying dividends on its Common Stock, except for cash dividends in an aggregate annual amount not to exceed 50% of the Company's net income in the immediately preceding fiscal year so long as immediately prior to and immediately following such dividend the Company is not in default under the Credit Facility.

Stockholder Rights Plan

In December 2009, the Company’s Board of Directors adopted a stockholder rights plan granting a dividend of one stock purchase right for each share of the Company’s common stock outstanding as of December 18, 2009 and the Company entered into a rights agreement dated December 1, 2009 in connection therewith. The rights become exercisable only upon the occurrence of certain events specified in the rights agreement, including the acquisition of 15% of the Company’s outstanding common stock by a person or group in certain circumstances.  Each right allows the holder, other than an “acquiring person,” to purchase one one-hundredth of a share (a unit) of Series A Preferred Stock at an initial purchase price of $97.00 under circumstances described in the rights agreement. The purchase price, the number of units of preferred stock and the type of securities issuable upon exercise of the rights are subject to adjustment. The rights expire at the close of business December 1, 2019 unless earlier redeemed or exchanged. Until a right is exercised, the holder thereof, as such, has no rights as a stockholder of the Company, including the right to vote or to receive dividends.

Item 6.Selected Financial Data.

This report does not include information described under Item 301 of Regulation S-K pursuant to the rules of the SEC that permit “smaller reporting companies” to omit such information.

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

Overview

The Company owns regional aircraft and engines, which are typically leased to customers under triple netleases with terms that are less than the useful life of the assets. A “triple net operating lease” is an operating 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.  The acquisition of such equipment is generally made using debt financing. The Company’s profitability and cash flow are dependent in large part upon its ability to acquire equipment, obtain and maintain favorable lease rates on such equipment, and re-lease or sell equipment that comes off lease.  The Company is subject to the credit risk of its lessees, both as to collection of rental payments and as to performance by lessees of their obligations to maintain the equipment.  Since lease rates for assets in the Company’s portfolio generally decline as assets age, the Company’s ability to maintain and grow revenue and earnings is primarily dependent upon the Company’s ability to acquire and lease additional assets.

The Company’s primary uses of cash are for purchases of aircraft and engines, maintenance expense, debt service payments, management fees, insurance and professional fees.  

The Company's most significant non-cash expenses include aircraft and engine depreciation, amortization of costs associated with the Company’s indebtedness, which is included in interest expense, and, in some years, impairment provisions, which are affected by significant estimates.  

Critical Accounting Policies, Judgments and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the financial statements, 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.  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.

The Company’s significant accounting policies are described in Notes 1 and 3 to the financial statements.  The Company believes that the most critical accounting policies include the following: Aircraft Capitalization and Depreciation; Impairment of Long-lived Assets; Maintenance Reserves and Accrued Costs; Accounting for Income Taxes; and Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts.

a.Aircraft Capitalization and Depreciation

The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs.  Since inception, the Company has purchased only used aircraft and aircraft engines.  It is the Company’s policy to hold aircraft for approximately twelve years unless market conditions dictate otherwise.  Therefore, depreciation on aircraft is initially computed using the straight-line method over the twelve-year period to an estimated residual value based on appraisal.  For an aircraft engine held for lease as a spare, the Company estimates the length of time that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to the appraised residual value over such period using the straight-line method. The amount of the depreciation expense recognized by the Company during any accounting period with respect to a particular asset depends upon the estimated holding period over which such asset is depreciated.

The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as appropriate, the remaining expected holding period for such assets.  Estimated residual values are reviewed and adjusted periodically, based upon updated appraised residual estimates and the expected holding periods.  Decreases in the market value of aircraft assets could affect not only the current value, discussed above, but also the estimated residual value. A change in the estimated residual value of an asset results in a change in the amount of depreciation expense recognized by the Company during the remaining holding period of the asset.

b.Impairment of Long-lived Assets

The Company reviews assets for impairment when there has been an event or a change in circumstances indicating that the carrying amount of a long-lived asset may not be recoverable. In addition, the Company routinely reviews all long-lived assets for impairment annually.  Recoverability of an asset is measured by comparison of its carrying amount to the future estimated undiscounted cash flows (without interest charges) that the asset is expected to generate.  Estimates are based on currently available market data and independent appraisals and are subject to fluctuation from time to time.  If these estimated cash flows are less than the carrying value of an asset at the time of evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Fair value is determined by reference to independent appraisals and other factors considered relevant by management.  Significant management judgment is required in the forecasting of future operating results that are used in the preparation of future estimated undiscounted cash flows and, if different conditions prevail in the future, material write-downs may occur.  No impairment provision was recorded in 2012 or 2011.

c.Maintenance Reserves and Accrued Costs

Maintenance costs under the Company’s triple net operating leases are typically the responsibility of the lessees, and the majority of the Company’s leases require payment of monthly maintenance reserves.  Maintenance reserves and accrued costs in the accompanying balance sheets include: (i) refundable maintenance payments billed to lessees, which are paid out as related maintenance is performed or at the end of the lease, (ii) for lessees that pay non-refundable maintenance reserves, estimated maintenance costs accrued at the time a reimbursement claim or sufficient information is received regarding maintenance work performed, and (iii) maintenance for work performed for off-lease aircraft, which is not related to the release of reserves received from lessees.  

Non-refundable maintenance reserves are reflected as revenue based on reported usage, if collectability is reasonably assured.  The Company uses the direct expense method, under which maintenance costs are expensed as incurred.

Maintenance reserves are determined by mutual agreement of the Company and its lessee at inception of the lease and are based on the Company's estimate of the total maintenance cost at some future point resulting from the lessee’s usage. Reserve rates are typically subject to an annual adjustment provision that accounts for inflation of maintenance costs.   If a lessee is required to repair a component during the lease or perform a repair at lease end in order to comply with aircraft return conditions, it will be entitled to collect the reserves related to that repair from the Company, and any excess costs would then be the responsibility of the lessee.  Therefore, if maintenance rates do not accurately reflect the true cost of a repair, the Company will not incur any financial impact.  If, however, the Company repossesses an aircraft upon a lessee default, and the maintenance reserves collected under that defaulted lease are less than the maintenance costs, the Company is responsible for such excess costs.  It is also possible that, in order to remarket a repossessed aircraft, certain inspections and repairs may need to be performed earlier than otherwise required by the manufacturer or regulatory specifications.  In such a case, the collected reserves from the defaulted lessee, which were established assuming a normal interval between repairs, would likely be insufficient to cover the total cost incurred by the Company.   

In 2010 and 2012, several aircraft were returned to the Company prior to their respective lease expirations.  The Company incurred significant maintenance expense in 2011 and 2012 as a result of the returns, and, in some cases, the reserves retained by the Company at the time of the returns were insufficient to cover the required maintenance.

d.Accounting for Income Taxes

As part of the process of preparing the Company’s financial statements, management is required to estimate income taxes in each of the jurisdictions in which the Company operates.  This process involves estimating the Company’s current tax exposure under the most recent tax laws and assessing temporary and permanent differences resulting from differing treatment of items for tax and accounting principles generally accepted in the United States of America (“GAAP”) purposes.  These differences result in deferred tax assets and liabilities, which are included in the balance sheet.  Management also assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and, to the extent management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized, the Company establishes a valuation allowance.  To the extent the Company establishes a valuation allowance or changes the allowance in a period, the Company reflects the corresponding increase or decrease in the tax provision in the statements of operations. The Company had no material unrecognized tax positions in 2012 or 2011, and had valuation allowances of $158,600 in both 2012 and 2011.  

Significant management judgment is required in estimating the Company’s future taxable income for purposes of assessing the Company’s ability to realize any benefit from its deferred taxes. If actual taxable income is less than these estimates or if the Company adjusts its estimates of future taxable income, the Company may realize less or no benefit from its deferred tax assets and its financial results and financial condition could be materially affected.

e.Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts

Revenue from leasing of aircraft assets is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements.  A receivable for deferred rent is recorded when the cash rent received is lower than the straight-line revenue recognized. Such receivables decrease over the term of the applicable leases.  Interest income is recognized on finance leases based on the interest rate implicit in the lease and the outstanding balance of the lease receivable.  Non-refundable maintenance reserves billed to lessees are accrued as maintenance reserves revenue based on aircraft usage.  In instances where collectability is not reasonably assured, the Company recognizes revenue as cash payments are received. The Company estimates and charges to income a provision for bad debts based on its business experience and, with each specific customer, the level of past due accounts, and the Company's analysis of the lessee’s overall financial condition. If the financial condition of the Company’s customers deteriorates, it could result in actual losses exceeding the estimated allowances.

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Results of Operations

The Company recorded net income of $5.2 million in 2012 compared to a net loss of $1.5 million in 2011.  

Annual operating lease revenue increased 22% from $19.4 million in 2011 to $23.7 million in 2012.  The increase primarily reflects higher portfolio utilization and an increase in the average size of the Company’s lease portfolio.   The average net book value of lease equipment during 2012 and 2011 was approximately $138.6 million and $122.0 million, respectively, representing an increase of 14%.  The average utilization during 2012 and 2011 was 86% and 78%, respectively. At December 31, 2012 and 2011, respectively, approximately 87% and 83% of equipment held for lease, based on net book value, was on lease.

Maintenance reserve revenue for the year ended December 31, 2012 increased 23% to $4.1 million from $3.3 million in 2011. The increase was principally due to revenues generated by assets that were acquired during 2012 and by reserves generated by assets that were off-lease in 2011.

The Company’s maintenance expense decreased 63% to $4.1 million in 2012 from $10.9 million in 2011, primarily as a result of a decrease in maintenance performed on off-lease aircraft and a decrease in maintenance performed by lessees using non-refundable reserves.  During 2012 and 2011, $1.8 million and $7.8 million, respectively, of the Company’s maintenance expense for off-lease aircraft and maintenance performed by lessees were funded by non-refundable maintenance reserves that had been previously recorded as revenue when earned.

During 2012 and 2011, the Company added equipment to the lease portfolio of approximately $30.5 million and $7.2 million, respectively.  The Company sold approximately $4.9 million and $4.2 million during 2012 and 2011, respectively.  As a result, depreciation and management fees increased by 9% and 12%, respectively, from year to year.

Interest expense increased by 18% to $4.6 million in 2012 from $3.9 million in 2011, primarily as a result of higher fee amortization related to the one-year extension of the Company’s Credit Facility in March 2012, and a higher average Credit Facility balance in 2012 as a result of aircraft acquisitions since late 2011.  The effects of these increases were partially offset by the absence in 2012 of interest expense and fee amortization related to the Company’s Subordinated Notes, which were fully repaid in December 2011.

Liquidity and Capital Resources

The Company is currently financing its assets primarily through debt financing and excess cash flows.  

(a)Credit Facility

In March 2013, the Company’s Credit Facility provided by a syndicate of banks was increased to $130 million and extended to September 30, 2015 on terms similar to the original agreement. The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.  

The Company borrowed $19.9 million and $6.5 million during 2012 and 2011, respectively, under the Credit Facility.   The Company repaid $17.3 million and $4.3 million of its Credit Facility debt during 2012 and 2011, respectively.  During 2011, the Company also repaid the $2.3 million balance of its Subordinated Notes, which matured in December 2011.

As of March 14, 2013, the Company had an outstanding balance of $67.5 million under the Credit Facility.  Although the unused amount of the Credit Facility is currently $62.5 reduced advance rates for certain assets included in the borrowing base has decreased the available credit to $12.9 million

As of December 31, 2012 and 2011, the Company was in compliance with all covenants under the Credit Facility agreement.  Although the Company believes it will continue to be in compliance with all of the Credit Facility covenants, there can be no assurance of such compliance. Any default under the Credit Facility, if not waived by the lenders, could result in foreclosure upon any or all of the assets of the Company. 

The Company’s interest expense generally increases and decreases with prevailing interest rates. The Company has the ability to enter into interest rate swaps to economically hedge against interest rate increases in its floating rate debt under the Credit Facility and has done so in the past.  

(b)Cash flow

The Company’s primary sources of cash are (i) rent payments due under the Company’s operating and finance leases and (ii) refundable and non-refundable maintenance reserves billed monthly to lessees based on aircraft usage. Cash collected by the Company for maintenance reserves and security deposits is not required by the leases to be segregated and is included in cash and cash equivalents on the Company’s balance sheets.

The Company’s primary uses of cash are for purchase of aircraft and engines, maintenance expense, management fees, professional fees, insurance, and Credit Facility interest and principal payments.  The amount of interest paid by the Company depends on the outstanding balance of its Credit Facility, which carries a floating interest rate as well as an interest rate margin, and is therefore also dependent on changes in prevailing interest rates.

The timing and amount of the Company’s payments for maintenance vary, depending on the timing of lessee-performed maintenance that is eligible for reimbursement, the aggregate amount of such claims and the timing and amount of maintenance incurred in connection with preparation of off-lease assets for re-lease to new customers.  The Company’s maintenance payments typically constitute a large portion of its cash needs, and the Company may from time to time borrow additional funds under the Credit Facility to provide funding for such payments.

Management believes that the Company will have adequate cash flow to meet its ongoing operational needs, including any required repayments under the Credit Facility due to borrowing base limitations, based upon its estimates of future revenues and expenditures, which include assumptions regarding (i) revenues for assets to be re-leased, (ii) required debt payments, (iii) interest rates, (iv) the cost and anticipated timing of maintenance to be performed, and (v) timely use of proceeds of unused debt capacity toward additional acquisitions of income producing assets.

Although the Company believes that the assumptions it has made in forecasting its cash flow are reasonable in light of experience, actual results could deviate from such assumptions.  Among the more significant factors that could have an impact on the accuracy of cash flow assumptions are (i) lessee non-performance or non-compliance with lease obligations, (ii) inability to locate new lessees for returned equipment within a reasonable remarketing period, or at a rent level consistent with projected rental rates for the asset, (iii) lessee performance of maintenance, and payment of related maintenance claims, earlier than anticipated, (iv) inability to locate and acquire a sufficient volume of additional assets at prices that will produce acceptable net returns, (v) an increase in interest rates and (vi) any one or a combination of the above factors that causes the Company to violate covenants of the Credit Facility agreement, which may in turn require repayment of some or all of the amounts outstanding under the Credit Facility.

(i)Operating activities

The Company’s cash flow from operations increased by $21.3 million in 2012 compared to 2011.  As discussed below, the change in cash flow was primarily a result of an increase in payments received for rent and maintenance reserves and a decrease in expenditures for maintenance.

Payments for operating lease revenue and maintenance reserves revenue

Payments received from lessees for rent increased by $4.6 million in 2012 compared to 2011 primarily due to rent for several assets that were on lease in 2012 had been off lease for all or part of 2011, as well as rent on seven aircraft purchased by the Company beginning in late 2011. Payments received for maintenance reserves increased by $8.6 million in 2012 compared to 2011, as a result of asset acquisitions and a $6.5 million payment, based on the condition of the aircraft, received from a lessee when its two aircraft leases were assigned to a new lessee upon sale of the original lessee's assets.  Such payment will be recognized as maintenance reserves revenue in the first quarter of 2013, upon termination of the leases.

The Company is receiving no lease revenue for its assets that are currently off lease, which assets are comprised of five Fokker 50, four Saab 340B and four Fokker 100 aircraft.

Payments for maintenance

Payments for maintenance decreased by $8.0 million in 2012 compared to 2011 as a result of a decrease in maintenance costs for off-lease aircraft.  The amount of payments for maintenance in future periods will depend on the amount and timing of maintenance paid as reimbursement to lessees for maintenance reserves claims, which are dependent upon utilization and required maintenance intervals, and maintenance paid for off-lease assets.

(ii)Investing activities

During 2012 and 2011, the Company received cash of $5.0 million and $2.1 million, respectively, from the sale of aircraft.  During the same time periods, the Company used cash of $30.4 million and $7.5 million, respectively, for the purchase and capital improvement of aircraft.

(iii)Financing activities

The Company borrowed $19.9 million and $6.5 million under the Credit Facility during 2012 and 2011, respectively.  In these same time periods, the Company repaid $17.3 million and $6.6 million, respectively, of its total outstanding debt under the Credit Facility.  Such repayments were funded by excess cash flow.   During 2012, the Company paid $1.6 million of fees related to the extension of the Company’s Credit Facility.  Such fees are amortized over the term of the Credit Facility.

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Outlook  

(a) General

The global downturn has resulted in a significant reduction in airline passenger volume and, in reaction to that, a reduction in the number of aircraft and aircraft engines needed for operation by carriers in nearly all geographic areas, especially Europe.  The slow recovery from this downturn and the ongoing European financial crisis have created a challenging environment for the Company in three respects:  

•The global economic situation has increased the possibility of an unanticipated lessee default, as evidenced by the bankruptcies of two of the Company’s customers during the second quarter of 2012, and another recently in January 2013.  A lessee’s default and the unscheduled return of an asset to the Company for remarketing could result not only in reduced operating lease revenue but also in unanticipated, unrecoverable expenses arising from the lessee’s default on its maintenance and return condition obligations. The Company monitors the performance of all of its customers and has noted that several of the Company’s customers have experienced weakened financial conditions and operating results and have not yet achieved financial stability.

•The reduction in demand for aircraft and aircraft engines has increased the possibility that the Company’s current lessees will choose to return leased assets at lease expiration rather than renew the existing leases, notwithstanding that any such lessee may incur significant expenses to satisfy return conditions.  Due to decreased demand for aircraft capacity, it is likely that the Company will experience lower on-lease utilization rates and longer lead times for remarketing of returned assets, as well as lower rental rates for remarketed assets, as was the case with several lease extensions and re-leases since 2011. This trend is expected to continue to affect the Company’s operating revenue for the remainder of 2013.

•Finally, the downturn and slow recovery creates fewer opportunities for acquisitions for the Company.  The Company’s customers are generally carriers needing additional aircraft to expand their route systems or increase frequencies.  In the current environment of diminished demand for leisure and business air travel and consequently reduced capacity by carriers, there is likely to be a significant decrease in the pool of such customers requiring aircraft.  

(b)Remarketing Efforts

Unless they are renewed, leases for fiveof the Company’s assets will expire during the first half of 2013.

The Company is seeking remarketing opportunities for the following assets, which are off lease as of March 14, 2013:

•Five of the six Fokker 50 aircraft that were returned in the second quarter of 2012 after the lessee declared bankruptcy;

•Four Saab 340B aircraft, which were also returned in the second quarter of 2012 after the lessee declared bankruptcy; and

•Four Fokker 100 aircraft, two of which were returned to the Company in 2010 prior to lease expiration due to the lessee’s cessation of business and two of which were returned to the Company in early 2013 prior to lease expiration due to the lessee’s cessation of business.

The Company is considering selling some or all of its off-lease aircraft.  The Company is analyzing the amount and timing of maintenance required to remarket the aircraft, the amount of which may differ significantly if the aircraft are sold rather than re-leased.

(c)Credit Facility

The Company’s Credit Facility was recently extended to September 30, 2015 and increased to $130 million.

Under the Credit Facility, the amount available to be borrowed is limited to the total amount of asset-specific advance rates (expressed as a percentage of each asset's net book or appraised value).  Lessee arrearages or asset off-lease periods may reduce the advance rate for the related assets and, therefore, the permitted borrowing under the facility.  Additionally, the Credit Facility contains financial and other covenants.

The Company believes that available borrowings under the Credit Facility, considering possible lessee arrearages or off-lease periods, will be sufficient to meet its continuing obligations and repayment obligations as well as fund anticipated acquisitions.  However, there can be no assurance the Company's beliefs will prove to be correct and that the Company will have sufficient cash to make any required repayments.

Although the Company believes it will be in compliance with the covenants of the Credit Facility through its term, as discussed below in “Factors that May Affect Future Results – Credit Facility Obligations,” there can be no assurance of such compliance.  Any default under the Credit Facility, if not cured in the time permitted under the facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company. 

 (d)Deferral Agreements

The Company regularly evaluates the financial performance of all of its lessees and is closely monitoring two customers in particular.  In the past, the Company has granted deferral of certain overdue and/or future rental or reserves payment obligations pursuant to agreements with certain customers that had experienced financial difficulties. The Company currently has no deferral agreement balances outstanding. The Company may agree to deferral agreements with certain lessees in the future, which would reduce the Company’s borrowing ability under the Credit Facility.  

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Factors that May Affect Future Results

Credit Facility Obligations. Under the Credit Facility, the amount available to be borrowed is limited to the total amount of asset-specific advance rates (expressed as a percentage of each asset's net book or appraised value).  Lessee arrearages or asset off-lease periods may reduce the advance rate for the related assets and, therefore, the permitted borrowing under the facility.  Amounts subject to deferral agreements also reduce the borrowing base.  The Company believes it will have sufficient cash funds to make any required principal repayment that arises due to any such borrowing base limitations. Although the Company believes, based in part on certain assumptions discussed below, that it will continue to be in compliance with the covenants of the Credit Facility, there can be no assurance that the Company’s assumptions will be correct, and if not, the Company will need to seek waivers from its lenders if such compliance failure is not timely remedied.  Any default under the Credit Facility, if not waived by the lenders, could result in foreclosure upon any or all of the existing assets of the Company. 

The Company’s beliefs regarding compliance with its Credit Facility covenants are based on certain assumptions regarding the timing of the incurrence of maintenance expense, remarketing of off-lease assets within the time period anticipated by the Company, certain lease renewals, interest rate levels, the Company’s profitability, lessee defaults or bankruptcies, and certain other matters that the Company deems reasonable in light of its experience in the industry (See “Liquidity and Capital Resources – Cash flow,” above). There can be no assurance that the Company’s assumptions will prove to be correct.  If the assumptions are incorrect and the Company has not obtained an applicable waiver or amendment of applicable covenants from its lenders to mitigate the situation, the Company may have to sell a significant portion of its portfolio in order to avoid or cure a default under the Credit Facility agreement.

Risks of Debt Financing.  The Company’s use of debt as the primary form of acquisition financing subjects the Company to increased risks associated with leveraging.  In addition to payment obligations, the Credit Facility also requires the Company to comply with certain financial covenants, including a requirement of positive earnings and compliance with interest coverage ratios and required net worth.  The Company’s assets secure its debt financing, and any default in payment obligations or other covenants under the Credit Facility, if not waived by the lenders, could result in foreclosure upon any or all of the assets of the Company.

General Economic Conditions and Lowered Demand for Travel. The Company’s business is dependent upon general economic conditions and the strength of the travel and transportation industry.  The industry is continuing to experience financial difficulty and contraction due to the downturn and slow recovery in the global economy. Passenger volume has fallen significantly for carriers, and the loss of revenue has affected many carriers’ financial condition.  The slow recovery from the credit crisis has made it difficult or impossible for many regional carriers to find the additional debt financing on which they have traditionally relied.  The confluence of these economic factors increases the likelihood of failures among the Company’s customers.  The spread of a disease epidemic, the threat or execution of a terrorist attack against aviation, a worsening financial/bank crisis in Europe, a natural event that interrupts air traffic (such as the 2010 Iceland volcano eruption), political crises or other events that cause a prolonged spike in fuel prices, or other like events could exacerbate an already weakened condition and lead to widespread failures in the air carrier industry.  If lessees experience financial difficulties and are unable to meet lease obligations, this will, in turn, negatively affect the Company’s financial performance.  

During the current period of economic weakness, many airlines have reduced capacity in response to lower passenger loads, and as a result, there has been reduced demand for aircraft and aircraft engines and a corresponding decrease in market lease rental rates and aircraft values for many aircraft types.  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 on its balance sheet is appropriate. Furthermore, if older, expiring leases are replaced with leases at decreased lease rates, the lease revenue from the Company’s existing portfolio is likely to decline, with the magnitude of the decline dependent on the length of the downturn and the depth of the decline in market rents.  

Economic downturns can affect certain regions of the world more than others.  As the Company’s portfolio is not entirely globally diversified, a localized downturn in one of the key regions in which the Company leases assets could have a significant adverse impact on the Company. Currently, 29%, 29%, 19% and 16% of the Company’s lease revenue comes from theCaribbean, African, Asian and European regions, respectively, with two, two, four and five lessees, respectively.

Over the last few years, several of the Company’s customers have experienced financial difficulties arising from a combination of the weakened air carrier market and their own unique financial circumstances and have requested and been granted deferral of certain overdue and/or future rental or reserve payment obligations.  It is possible that the Company may enter into additional deferral agreements if the current weakened air carrier environment continues. 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 will be repaid according to the agreed schedule.  The Company may elect to record the deferred rent and reserve payments from the lessee on a cash basis, which could have a material effect on the Company’s financial results in the applicable periods.   

Availability of Financing. The Company believes that the availability of financing under the current Credit Facility should be sufficient to fund anticipated asset acquisitions through the term of such facility, which was recently extended to September 30, 2015. The Company’s continued growth will depend on its ability to continue to obtain capital, either through debt or equity financings. The financial markets have experienced significant setbacks that have made access to capital more costly and difficult. As a result, commercial lending origination has dramatically decreased, and asset-based debt financing remains difficult to obtain.  There can be no assurance that the rent arrearages by certain of the Company’s lessees will be cured in the near term, that the Company’s belief regarding the availability of financing under the current Credit Facility will prove to be correct, or that the Company will succeed in finding additional funding, and if such financing is found, it may be on terms less favorable than the Company’s current debt financings.

Ownership Risks.  The Company’s leases are typically less than the entire anticipated remaining useful life of the leased assets.  The Company’s ability to recover its investment in an asset subject to such a lease is dependent upon the Company’s ability to profitably re-lease or sell the asset after the expiration of the lease term.  Some of the factors that have an impact on the Company’s ability to re-lease or sell the asset include worldwide economic conditions, general aircraft market conditions, regulatory changes that may make an asset’s use more expensive or preclude use unless the asset is modified, changes in the supply or cost of aircraft equipment and technological developments that 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 business, financial condition, cash flow, ability to service debt and results of operations could be adversely affected.  

The Company acquires used aircraft equipment.  The market for used aircraft equipment has been cyclical, and generally reflects economic conditions and the strength of the travel and transportation industry.  The demand for and value of many types of used aircraft in the recent past has been depressed by such factors as airline financial difficulties, increased fuel costs, the number of new aircraft on order and the number of aircraft coming off lease.  Values may also increase for certain aircraft types that become desirable based on market conditions and changing airline capacity.  If the Company were to purchase an aircraft during a period of increasing values, it would in turn need to lease such aircraft at a corresponding higher lease rate to compensate for its higher purchase price.  

In addition, a successful investment in an asset subject to a lease depends in part upon having the asset returned by the lessee in the condition as required under the lease.  Each lease typically obligates a customer to return an asset to the Company in a specified condition, which generally requires it be returned in equal or better condition than at delivery to the lessee.  If the lessee becomes insolvent during the term of its lease and the Company has to repossess the asset from the lessee, it is unlikely that the lessee will have the financial ability to meet these return obligations and it is likely that the Company would be required to expend funds in excess of the maintenance reserves collected to return the asset to a remarketable condition.  If the lessee declares bankruptcy and rejects the aircraft lease, although the lessee is required to return the aircraft, the lessee is relieved from all further obligations under the lease, including the obligation to return the aircraft in the condition required under the lease.  In that case, it is also likely that the Company would be required to expend funds in excess of the 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 occurs under such a lease, the Company will be left with the expense for the costs of unperformed repair and maintenance under the applicable lease and the Company may 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 flows generated from an asset may result in an asset impairment charge against the Company’s earnings. The Company periodically reviews long-term assets for impairment, in particular, when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of an asset is estimated to be not recoverable and exceeds its fair value. The Company may be required to recognize asset impairment charges in the future as a result of a prolonged weak economic environment, challenging market conditions in the airline industry or events related to particular lessees, assets or asset types.

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, will fully protect the Company from losses resulting from a lessee default or bankruptcy.

If a lessee that is a certified U.S. airline were in default under a lease and sought 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.  This procedure under the Bankruptcy Code has been subject to significant litigation, however, and it is possible that the Company’s enforcement rights may be further adversely affected by a declaration of bankruptcy by a defaulting lessee.

Since 2009, the majority of the Company’s customers have experienced a weakening in their financial condition and operating results.  Several of the Company’s customers have experienced significant financial difficulties, become insolvent and/or filed for bankruptcy.  Such an insolvency or bankruptcy filing usually discharges all unpaid obligations of the customer to the Company existing at the time of the filing, resulting in a total loss of those receivables.  The Company closely monitors the performance of all of its lessees and the Company’s risk exposure to any lessee that may be facing financial difficulties, in order to guide decisions with respect to such lessee that would mitigate losses in the event the lessee becomes insolvent or files for bankruptcy and is unable to meet or rejects its lease obligations.  There can be no assurance that additional customers will not become insolvent or file for bankruptcy or that the Company will be able to mitigate any of the resultant losses.

International Risks.  The Company leases assets primarily in overseas markets.  Leases with foreign lessees, however, may present different risks than those with domestic lessees.  Most of the Company’s current and expected growth is expected outside of the United States, and non-U.S. 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 with which to locally establish 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.

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 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 stable.

Foreign lessees are subject to risks related to currency conversion fluctuations.  Although the Company’s current leases are all payable in U.S. dollars, the Company may agree in the future to leases that permit payment in foreign currency, which would subject such lease revenue to monetary risk due to currency fluctuations.  In addition, if the Company undertakes certain obligations under a lease to contribute to a repair or improvement and if the work is performed in a foreign jurisdiction and paid for in foreign currency, currency fluctuations resulting in a weaker dollar between the time such agreement is made and the time payment for the work is made may result in an unanticipated increase in U.S. dollar-denominated cost for the Company.

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

Finally, 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.  If the taxing authority later assesses a liability, the Company may be required to pay penalties and interest on the assessed amount, which penalties and interest would not give rise to a corresponding foreign tax credit on the Company’s U.S. tax return.

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Concentration of Lessees and Aircraft Type. For the month ended February 28, 2013, based on monthly operating lease revenue and interest income from finance leases, the Company’s four largest customers were located in Mozambique, Antigua, Norway and the Netherlands Antilles and accounted for a total of approximately 62% of the Company’s monthly lease revenue.  A lease default by or collection problem with one or a combination of any of these significantcustomers could have a disproportionate negative impact on the Company’s financial results and borrowing base under the Credit Facility, and, therefore, the Company’s operating results are especially sensitive to any negative developments with respect to these customers in terms of lease compliance or collection. Such concentration of lessee credit risk decreases as the Company leases additional assets to new lessees.

As of February 28, 2013, the Company owned nine Bombardier Dash-8-300, seven Fokker 100, three Bombardier Dash-8-Q400 and thirteen Fokker 50 aircraft, making these four aircraft types the dominant types in the portfolio and representing 25%, 22%, 19% and 14%, respectively, of net book value.As a result, a change in the desirability and availability of any of these types of aircraft, which would in turn affect valuations of such aircraft, would have a disproportionately significant impact on the Company’s portfolio value. Such aircraft type concentration will diminish if the Company acquires additional assets of other types. Conversely, acquisition of these types of aircraft will increase the Company’s risks related to its concentration of those aircraft types.

Risks Related to Regional Air Carriers.  The Company’s continued focus on its customer base of regional air carriers subjects the Company to additional risks.  Some of the lessees in the regional air carrier market are companies that are start-up, low-capital, and/or low-margin operators.  Often, the success of such carriers depends on contractual arrangements with major trunk carriers or franchises from governmental agencies that provide subsidies for operating essential air routes, both of which may be subject to termination or cancellation with short notice periods.   Regional carriers, even if financially strong, that are owned by, or are a sister corporation of, an established major carrier can also be swept into bankruptcy if the major carrier files for bankruptcy or becomes insolvent.    Two of the Company's regional air carriers located in the United States and Sweden filed for bankruptcy in 2012, and one located in Germany has filed for bankruptcy in 2013.

Leasing Risks.  The Company’s successful negotiation of lease extensions, re-leases and sales is critical to achieving its financial objectives and involves a number of risks.  Demand for lease or purchase of the assets depends on the economic condition of the airline industry, which is, in turn, sensitive to general economic conditions.  The ability to re-lease equipment at acceptable rates may depend on the demand and market values at the time of remarketing.

Investment in New Aircraft Types and Engines.  The Company intends to continue to focus solely on regional aircraft and engines. Although the Company has traditionally invested in a limited number of types of turboprop aircraft and engines, the Company has also acquired several Fokker 100 regional jet aircraft and regional jet aircraft engines, and may continue to seek acquisition opportunities for new types and models of regional jet and turboprop aircraft and engines used in the Company’s targeted customer base of regional air carriers. Acquisition of aircraft types and engines not previously acquired by the Company entails greater ownership risk due to the Company's lack of experience managing those aircraft and engine types. The Company believes, however, that the overall industry experience of JMC’s personnel and its technical resources should permit the Company to effectively manage such new aircraft types and engines.  Further, the broadening of the asset types in the aircraft portfolio may have a benefit of diversifying the Company’s portfolio (see “Factors That May Affect Future Results – Concentration of Lessees and Aircraft Type,” above).

Engine Leasing Risk.  The Company currently has six engines in its portfolio, making up 8% of the Company’s total net book value of aircraft and aircraft engines held for lease. The Company may from time to time lease one or more of these engines under industry standard short-term engine leases, which place the risk of an engine failure not caused by lessee negligence or foreign object damage upon the lessor.  It is not economically practicable for an engine lessor to insure against that risk.  If an engine failure occurs and is not covered by a manufacturer’s warranty or is not otherwise caused by circumstances that the lessee is required to cover, the Company’s investment in the engine could be a significant loss or the Company might incur a significant maintenance expense.

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

Reliance on JMC.  All management of the Company is performed by JMC under a twenty-year Management Agreement between the Company and JMC that expires in April of 2018 and provides for an asset-based management fee.  JMC is not a fiduciary to the Company or its stockholders. The Company’s Board of Directors (the “Board”) has ultimate control and supervisory responsibility over all aspects of the Company and owes fiduciary duties to the Company and its stockholders. The Board has no control over the internal operations of JMC, but the Board does have the ability and responsibility to manage the Company’s relationship with JMC and the performance of JMC's obligations to the Company under the Management Agreement, as it would have for any third party service provider to the Company.  While JMC may not owe any fiduciary duties to the Company by virtue of the Management Agreement, all of the officers of JMC are also officers of the Company, and in that capacity owe fiduciary duties to the Company and its stockholders.  In addition, certain officers of the Company hold significant ownership positions in the Company and JHC, the parent company of JMC.

The Management Agreement may be terminated if JMC defaults on its obligations to the Company.  However, the agreement provides for liquidated damages in the event of its wrongful termination by the Company.  Certain directors of the Company are also directors of JMC and, as discussed above, the officers of the Company are also officers of JMC and certain officers hold significant ownership positions in both the Company and JHC, the holding company for JMC.  Consequently, the directors and officers of JMC may have a conflict of interest in the event of a dispute between the Company and JMC.  Although the Company has taken steps to prevent conflicts of interest arising from such dual roles, such conflicts may still occur.

JMC has acted as the management company for two other aircraft portfolio owners, JetFleet III, which raised approximately $13 million in bond issuance proceeds, and AeroCentury IV, Inc. (“AeroCentury IV”), which raised approximately $5 million in bond issuance proceeds.  In the first quarter of 2002, AeroCentury IV defaulted on certain bond obligations.  In June 2002, the indenture trustee for AeroCentury IV’s bondholders repossessed AeroCentury IV’s assets and took over management of AeroCentury IV’s remaining assets.  JetFleet III defaulted on its bond obligation of $11.1 million in May 2004.  The indenture trustee for JetFleet III bondholders repossessed JetFleet III’s unsold assets in late May 2004.  

Management Fee Structure. All decisions regarding acquisitions and disposal of aircraft from the Company’s portfolio are made by JMC.  JMC is paid a management fee based on the net asset value of the Company’s portfolio.  It may also receive a one-time asset acquisition fee upon purchase of an asset by the Company, and a one-time remarketing fee in connection with the sale or re-lease of an asset.  Optimization of the results of the Company depends on timing of the acquisition, lease yield on the acquired assets, and re-lease or sale of its portfolio assets.  Under the current management fee structure, a larger volume of acquisitions generates acquisition fees and also increases the periodic management fee by increasing the size of the aircraft portfolio.  Since the Company’s current business strategy involves continued growth of its portfolio and a “buy and hold” strategy, a compensation structure that results in greater compensation with an increased portfolio size is not inherently inconsistent with that strategy.  The compensation structure does, nonetheless, create a situation where a decision by JMC for the Company to forego an asset transaction deemed to be an unacceptable business risk due to the lessee or the aircraft type is in conflict with JMC’s own pecuniary interest.  As a result, the compensation structure could act to incent greater risk-taking by JMC in asset acquisition decision-making.  The Company has established objective target guidelines for yields on acquired assets.  Further, the Company’s Board, including a majority of the outside independent directors, must approve any acquisition that involves a new asset type.  While the Company currently believes the foregoing are effective mitigating factors against undue compensation-incented risk-taking by JMC, there is no assurance that such mechanisms can entirely and effectively eliminate such risk.

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 and aircraft noise requirements.  Although it is contemplated that the burden and cost of complying with such requirements will fall primarily upon lessees of equipment, there can be no assurance that the cost will not fall on the Company.  Furthermore, future government regulations could cause the value of any non-complying equipment owned by the Company to decline substantially.

Competition.  The aircraft leasing industry is highly competitive.  The Company competes with aircraft manufacturers, distributors, airlines and other operators, equipment managers, leasing companies, equipment leasing programs, financial institutions and other parties engaged in leasing, managing or remarketing aircraft, many of which have significantly greater financial resources.  Nevertheless, the Company believes that it is competitive because of JMC’s experience and operational efficiency in identifying and obtaining financing for the transaction types desired by regional air carriers.  This market segment, which is characterized by transaction sizes of less than $10 million and in many cases customers that are private companies without well-established third party credit ratings, is not well served by the Company’s larger competitors.  JMC has developed a reputation as a global participant in this segment of the market, and the Company believes that JMC’s reputation benefits the Company.  There is, however, no assurance that competition from larger aircraft leasing companies will not increase significantly or that JMC’s reputation will continue to be strong in this market segment.

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Casualties, Insurance Coverage.  The Company, as owner of transportation equipment, may be named in a suit claiming damages for injuries or damage to property caused by its assets.  As a triple-net lessor, the Company is generally protected against such claims, since 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 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 most of the Company’s assets, which are operated in foreign countries where such provisions of the United States Aviation Act 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 tracks receipt of the certificates and calendars their expiration dates.  Prior to the expiration of an insurance certificate, if a replacement certificate has not been received, the Company reminds the lessee of its obligation to provide current insurance certificates to avoid a default under the lease.

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

Compliance With Future Environmental Regulations.  Compliance with future environmental regulationsmay 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, aimed at either requiring adoption of technology to reduce the amount of carbon emissions or putting in place a fee or tax system on carbon emitters. It is likely that any such regulation will be directed at the Company’s customers, as operators of aircraft, or at the Company, as owners of aircraft.  Under the Company’s triple-net arrangements, the Company would likely shift responsibility for compliance to its lessees, but there might be some costs of regulation that the Company could not shift 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 cash flows, no assurance can be given that the costs of complying with environmental regulations adopted in the future will not have such an effect.

Cyber-Security Risks.   The Company believes that it has sufficient cyber-security measures in place commensurate with the risks to the Company of a successful cyber-attack or breach of security.  The Company’s main vulnerability to a cyber-attack would be interruption of the Company’s email communications internally and with third parties, 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 mechanisms exist in the event of such an interruption that there would not be a material adverse financial impact on the Company’s business.  

Warrant Issuance.  As part of the Subordinated Notes financing, warrants were issued to the holders of Subordinated Notes to purchase up to 81,224 shares of the Company’s common stock that are currently exercisable (and expire on December 31, 2015) and represent approximately 5% of the post-exercise fully diluted capitalization of the Company.  The exercise price under the warrants is $8.75 per share.  If the warrants to purchase shares are exercised at a time when the exercise price is less than the fair market value of the Company’s common stock, there will be dilution to the existing holders of common stock.  This dilution of the Company’s common stock could depress its trading price.

Possible Volatility of Stock Price.  The market price of the Company’s common stock may be subject to fluctuations following developments relating to the Company’s operating results, changes in general conditions in the economy, the financial markets, the airline industry, changes in accounting principles or tax laws applicable to the Company or its lessees, or other developments affecting the Company, its customers or its competitors, or arising from other investor sentiment unknown to the Company.  Because the Company has a relatively small capitalization of approximately 1.5 million shares outstanding, there is a correspondingly limited amount of trading and float of the Company’s 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.

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

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

Item 8.Financial Statements and Supplementary Data.

(a)Financial Statements and Schedules

(1)Financial statements for the Company:

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2012 and 2011

Statements of Operations for the Years Ended December 31, 2012 and 2011

Statements of Stockholders’ Equity for the Years Ended December 31, 2012 and 2011

Statements of Cash Flows for the Years Ended December 31, 2012 and 2011

Notes to Financial Statements

(2)Schedules:

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

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

AeroCentury Corp.

Burlingame, California

We have audited the accompanying balance sheets of AeroCentury Corp. (the “Company”) as of December 31, 2012 and 2011 and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AeroCentury Corp. at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

San Francisco, California

March 14, 2013

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AeroCentury Corp.

Balance Sheets

ASSETS
	December 31,			December 31,
	2012			2011
Assets:
Cash and cash equivalents	$	1,596,800		$	995,500
Accounts receivable, including deferred rent of $985,300 and $1,923,300, net of allowance for doubtful accounts of $2,419,400 and $1,924,400 at      December 31, 2012 and December 31, 2011, respectively		3,196,200			2,936,100
Finance leases receivable		1,557,200			1,271,400
Aircraft and aircraft engines held for lease, net of accumulated    depreciation of $52,244,500 and $48,935,200 at      December 31, 2012 and December 31, 2011, respectively		143,667,700			124,245,000
Assets held for sale		745,400			-
Prepaid expenses and other		1,663,200			1,378,000
Total assets	$	152,426,500		$	130,826,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	1,133,600		$	368,100
Notes payable and accrued interest		67,865,700			65,672,700
Maintenance reserves and accrued maintenance costs		15,356,100			5,814,700
Security deposits		7,001,200			5,607,300
Unearned revenues		752,400			558,200
Deferred income taxes		14,419,200			12,094,400
Income taxes payable		19,100			20,400
Total liabilities		106,547,300			90,135,800
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 2,000,000 shares    authorized, no shares issued and outstanding		-			-
Common stock, $0.001 par value, 10,000,000 shares    authorized, 1,606,557 shares issued and outstanding		1,600			1,600
Paid-in capital		14,780,100			14,780,100
Retained earnings		31,601,600			26,412,600
		46,383,300			41,194,300
Treasury stock at cost, 63,300 shares		(504,100	)		(504,100	)
Total stockholders’ equity		45,879,200			40,690,200
Total liabilities and stockholders’ equity	$	152,426,500		$	130,826,000

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Operations

	For the Years Ended December 31,
	2012		2011
Revenues and other income:
Operating lease revenue, net	$	23,662,300	$	19,403,900
Maintenance reserves revenue, net		4,099,100		3,340,100
Gain on disposal of assets		1,486,000		1,371,000
Other income		110,700		437,700
		29,358,100		24,552,700
Expenses:
Depreciation		6,126,900		5,598,900
Interest		4,627,000		3,934,800
Management fees		4,166,200		3,715,400
Maintenance		4,082,100		10,933,700
Professional fees, general and administrative and other		1,513,000		1,333,400
Insurance		866,000		878,900
Other taxes		90,200		90,200
		21,471,400		26,485,300
Income/(loss) before income tax provision/(benefit)		7,886,700		(1,932,600	)
Income tax provision/(benefit)		2,697,700		(482,200	)
Net income/(loss)	$	5,189,000	$	(1,450,400	)
Earnings/(loss) per share:
Basic	$	3.36	$	(0.94	)
Diluted	$	3.32	$	(0.94	)
Weighted average shares used in earnings/(loss) per share computations:
Basic		1,543,257		1,543,257
Diluted		1,563,054		1,543,257

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Stockholders’ Equity

For the Years Ended December 31, 2012 and 2011

	Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Total
Balance, December 31, 2010	$	1,600	$	14,780,100	$	27,863,000		$	(504,100	)	$	42,140,600
Net loss		-		-		(1,450,400	)		-			(1,450,400	)
Balance, December 31, 2011		1,600		14,780,100		26,412,600			(504,100	)		40,690,200
Net income		-		-		5,189,000			-			5,189,000
Balance, December 31, 2012	$	1,600	$	14,780,100	$	31,601,600		$	(504,100	)	$	45,879,200

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Cash Flows

	For the Years Ended December 31,
	2012			2011
Operating activities:
Net income/(loss)	$	5,189,000		$	(1,450,400	)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Gain on disposal of assets		(1,486,100	)		(1,371,000	)
Depreciation		6,126,900			5,598,900
Non-cash interest		1,667,000			1,338,900
Deferred income taxes		2,324,800			(672,100	)
Changes in operating assets and liabilities:
Accounts receivable		(260,100	)		(928,900	)
Finance lease receivable		60,900			225,200
Income taxes receivable		(300	)		6,000
Prepaid expenses and other		(221,200	)		(152,200	)
Accounts payable and accrued expenses		741,000			(194,400	)
Accrued interest on notes payable		(407,000	)		349,900
Maintenance reserves and accrued costs		9,541,400			(889,800	)
Security deposits		1,447,100			1,048,100
Prepaid rent		194,200			(19,000	)
Income taxes payable		(1,300	)		20,400
Net cash provided by operating activities		24,916,300			2,909,600
Investing activities:
Proceeds from sale of aircraft and aircraft engine, net of re-sale fees		5,322,200			2,101,500
Proceeds from insurance		-			1,699,900
Purchases of aircraft and aircraft engines		(30,632,200	)		(7,521,400	)
Net cash used in investing activities		(25,310,000	)		(3,720,000	)
Financing activities:
Borrowings under Credit Facility		19,900,000			6,500,000
Repayments of Credit Facility		(17,300,000	)		(4,300,000	)
Debt issuance costs		(1,605,000	)		-
Repayments of Subordinated Notes		-			(2,343,500	)
Net cash provided by/(used in) financing activities		995,000			(143,500	)
Net increase/(decrease) in cash and cash equivalents		601,300			(953,900	)
Cash and cash equivalents, beginning of year		995,500			1,949,400
Cash and cash equivalents, end of year	$	1,596,800		$	995,500

During the years ended December 31, 2012 and 2011, the Company paid interest totaling $3,572,600 and $3,048,600, respectively. During the years ended December 31, 2012 and 2011, the Company paid income taxes totaling $2,100 and $0, respectively.  

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

1.Organization and Summary of Significant Accounting Policies

(a)The Company and Basis of Presentation

AeroCentury Corp. (the “Company”), a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

(b)Use of Estimates

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

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flow associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

(c)Cash and Cash Equivalents

The Company considers highly liquid investments readily convertible into known amounts of cash, with original maturities of 90 days or less from the date of acquisition, as cash equivalents.

(d)Aircraft Capitalization and Depreciation

The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs.  Since inception, the Company has purchased only used aircraft and aircraft engines.  It is the Company’s policy to hold aircraft for approximately twelve years unless market conditions dictate otherwise.  Therefore, depreciation of aircraft is initially computed using the straight-line method over the twelve-year period to an estimated residual value based on appraisal.  For an aircraft engine held for lease as a spare, the Company estimates the length of time that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to the appraised residual value over such period using the straight-line method.

The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as appropriate, the remaining expected holding period for such assets.  Estimated residual values are reviewed and adjusted periodically, based upon updated estimates obtained from an independent appraiser.  Decreases in the fair value of aircraft could affect not only the current value, discussed below, but also the estimated residual value.  

Assets that are held for sale are not subject to depreciation and are separately classified on the balance sheet.  At December 31, 2012, the airframe from one of the Company’s Saab 340B aircraft has been reclassified to assets held for sale.  The airframe is expected to be sold pursuant to a consignment agreement executed with a maintenance vendor in October 2012.  There were no assets held for sale at December 31, 2011.  

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AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

1.Organization and Summary of Significant Accounting Policies (continued)

(e)Fair Value Measurements

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

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

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

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

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

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	December 31, 2012								December 31, 2011
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds included in cash and cash equivalents	$	1,239,500	$	1,239,500	$	-	$	-	$	736,000	$	736,000	$	-	$	-
Total	$	1,239,500	$	1,239,500	$	-	$	-	$	736,000	$	736,000	$	-	$	-

As of December 31, 2012 and 2011, there were no liabilities required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value. During the years ended December31, 2012 and 2011, there was no recorded impairment of long-lived assets.

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AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

1.Organization and Summary of Significant Accounting Policies (continued)

(e)Fair Value Measurements (continued)

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of accounts receivable, finance leases receivable, accounts payable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 6).  The fair value of accounts receivable, finance leases receivable, and accounts payable approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the fair value hierarchy.

 (f)Impairment of Long-lived Assets

The Company reviews assets for impairment when there has been an event or a change in circumstances indicating that the carrying amount of a long-lived asset may not be recoverable. In addition, the Company routinely reviews all long-lived assets for impairment annually. Recoverability of an asset is measured by comparison of its carrying amount to the future estimated undiscounted cash flows (without interest charges) that the asset is expected to generate.  Estimates are based on currently available market data and independent appraisals and are subject to fluctuation from time to time.  If these estimated future cash flows are less than the carrying value of an asset at the time of evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Fair value is determined by reference to independent appraisals and other factors considered relevant by management. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of estimated future undiscounted cash flows and, if different conditions prevail in the future, material write-downs may occur.  

(g)Deferred Financing Costs and Commitment Fees

Costs incurred in connection with debt financing are deferred and amortized over the term of the debt using the effective interest method or, in certain instances where the differences are not material, using the straight-line method.  Costs incurred in connection with the Company’s Credit Facility are deferred and amortized using the straight-line method.  

Commitment fees for unused funds are expensed as incurred.  

(h)Security deposits

The Company’s leases are typically structured so that if any event of default occurs under a lease, the Company may apply all or a portion of the lessee’s security deposit to cure such default.  If such application of the security deposit is made, the lessee typically is required to replenish and maintain the full amount of the deposit during the remaining term of the lease.  All of the security deposits received by the Company are refundable to the lessee at the end of the lease, upon satisfaction of all lease terms.

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AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

1.Organization and Summary of Significant Accounting Policies (continued)

(i)Taxes

As part of the process of preparing the Company’s financial statements, management estimates income taxes in each of the jurisdictions in which the Company operates.  This process involves estimating the Company’s current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and GAAP purposes.  These differences result in deferred tax assets and liabilities, which are included in the balance sheet.  Management also assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and, to the extent management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized, the Company establishes a valuation allowance.  To the extent the Company establishes a valuation allowance or changes the allowance in a period, the Company reflects the corresponding increase or decrease within the tax provision in the statement of operations. Significant management judgment is required in determining the Company’s future taxable income for purposes of assessing the Company’s ability to realize any benefit from its deferred taxes.

The Company accrues non-income based sales, use, value added and franchise taxes as other tax expense in the statements of operations.

(j)Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts

Revenue from leasing of aircraft assets is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements. Deferred payments are recorded as accrued rent when the cash rent received is lower than the straight-line revenue recognized. Such receivables decrease over the term of the applicable leases.  Interest income is recognized on finance leases based on the interest rate implicit in the lease and the outstanding balance of the lease receivable.  Non-refundable maintenance reserves are based on usage and are accrued as maintenance reserves revenue.  

In instances where collectability is not reasonably assured, the Company recognizes revenue as cash payments are received.  The Company estimates and charges to income a provision for bad debts based on its experience with each specific customer, the amount and length of payment arrearages, and its analysis of the lessee’s overall financial condition.  If the financial condition of any of the Company’s customers deteriorates, it could result in actual losses exceeding any estimated allowances.  

The Company’s allowance for doubtful accounts was $2,419,400 and $1,924,400 at December 31, 2012 and 2011, respectively.

(k)Comprehensive Income

The Company does not have any comprehensive income other than the revenue and expense items included in the statements of operations.  As a result, comprehensive income equals net income for the years ended December 31, 2012 and 2011.

- 21 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

1.Organization and Summary of Significant Accounting Policies (continued)

(l)Finance Leases

The leases for one of the Company’s aircraft and one General Electric CT7-9B engine contain lessee purchase options at a price substantially below the asset’s estimated residual value at the exercise date for the option.  Consequently, the Company considers the purchase options to be “bargain purchase options” and has classified such leases as finance leases for financial accounting purposes.  The Company also had a second aircraft subject to a finance lease that was terminated in June 2011 as a result of the disposal of the asset.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, for any finance lease, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the lease.  The Company recognized interest earned on finance leases as “other income” in the amount of $93,800 and $243,500 in 2012 and 2011, respectively.

2.Aircraft and Aircraft Engines Held for Lease or Sale

(a)Assets Held for Lease

At December 31, 2012 and December 31, 2011, the Company’s aircraft and aircraft engines, which were on lease or held for lease consisted of the following:   

	December 31, 2012					December 31, 2011
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		25	%		8		23	%
Fokker 100		7		22	%		7		28	%
Bombardier Dash-8-Q400		3		19	%		1		8	%
Fokker 50		13		14	%		14		18	%
General Electric CF34-8E5 engine		3		7	%		3		8	%
Saab 340B		5		5	%		6		6	%
Saab 340B Plus		4		6	%		2		4	%
deHavilland DHC-8-100		1		1	%		2		4	%
deHavilland DHC-6		1		1	%		1		1	%
Saab 340A		1		-			1		-
General Electric CT7-9B engine		1		-			-		-

Net book value excludes the Company’s Saab 340A aircraft and General Electric CT7-9B engine, which are subject to finance leases.

During 2012, the Company sold a Bombardier Dash-8-100, a Fokker 50 aircraft and a General Electric CT7-9B engine and recorded gains totaling $1.4 million.  The Company also leased an engine pursuant to a finance lease and recorded an associated gain of $0.1 million.  During 2012, the Company used cash of $30.4 million for the purchase and capital improvement of aircraft and for acquisition costs related to two aircraft purchased in late 2011.

During 2011, the Company sold two of its deHavilland DHC-6 aircraft to the lessee and recorded a gain of $1.1 million. The Company also recorded a gain on insurance proceeds of approximately $0.3 million in connection with the total loss of an asset that was subject to a finance lease.

- 22 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

2.Aircraft and Aircraft Engines Held for Lease or Sale (continued)

During 2011, the Company used cash of $7.5 million for the purchase of two aircraft and for equipment that was installed on several aircraft, as well as for an engine maintenance contract related to an aircraft that was purchased in December 2010 and leased in August 2011.

During 2012, the Company extended the leases for two of its assets and leased one asset that had been off lease at December 31, 2011.

At December 31, 2012, ten of the Company’s assets, comprised of five Fokker 50, three Saab 340B and two Fokker 100 aircraft, were off lease. The Company is seeking re-lease opportunities for the off-lease aircraft, which represented 13% of the Company’s aircraft net book value at December 31, 2012.

(b)Assets Held for Sale

The airframe and one engine from one of the Company’s Saab 340B aircraft were classified as assets held for sale during the third quarter of 2012.  The airframe is expected to be sold pursuant to a consignment agreement executed with a maintenance vendor in October 2012.  The engine was sold in December 2012 at a gain of $50,900.  In October 2012, the second engine from this aircraft was leased to a current customer for a term of five years.

3.Maintenance Reserves and Accrued Maintenance Costs

Maintenance costs under the Company’s triple net leases are generally the responsibility of the lessees.  Most of the Company’s leases require payment of maintenance reserves, which are based upon lessee-reported usage and billed monthly, and are intended to accumulate funds that are expected to cover most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases.  Some of these payments for maintenance reserves are refundable, and some are non-refundable.

Refundable maintenance reserves received by the Company are accounted for as a liability, which is reduced when maintenance work is performed during the lease and reimbursement to the lessee is paid. Such reserves are refunded after all return conditions and, in some cases, any other payments due under the lease are satisfied.  Any refundable reserves retained by the Company to satisfy return conditions are recorded as revenue when the aircraft is returned.

Non-refundable maintenance reserves are recorded as maintenance reserves revenue (assuming cash is received or collections are reasonably assured).  The timing difference between recording maintenance reserves revenue as usage occurs and recording maintenance expense as maintenance is performed can have material effects on the volatility of reported earnings.

- 23 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

3.Maintenance Reserves and Accrued Maintenance Costs (continued)

At December 31, 2012 and 2011, the liability for maintenance reserves and accrued maintenance costs consisted of refundable maintenance payments billed to lessees based on usage and accrued maintenance costs for both off-lease aircraft and lessee maintenance claims for non-refundable maintenance reserves.   Refundable maintenance reserves at December 31, 2012 also included a $6.5 million payment received from a lessee when its two aircraft leases were assigned to a new lessee upon sale of the original lessee's assets.  As discussed in Note 11, the subject aircraft were returned to the Company in the first quarter of 2013.  

	December 31, 2012		December 31, 2011
Refundable maintenance reserves	$	14,477,400	$	4,801,300
Accrued maintenance costs		878,700		1,013,400
	$	15,356,100	$	5,814,700

Additions to and deductions from the Company’s accrued maintenance costs during the years ended December 31, 2012 and 2011 for aircraft maintenance were as follows:

	For Years Ended December 31,
	2012			2011
Balance, beginning of period	$	1,013,400		$	2,446,800
Additions:
Charged to expense		4,198,800			11,466,100
Reversals of previously accrued maintenance costs		(116,700	)		(532,400	)
Total maintenance expense		4,082,100			10,933,700
Capital equipment		52,200			487,800
Accrued claims related to refundable maintenance reserves		763,900			83,500
Prepaid maintenance and other		239,700			-
Total additions		5,137,900			11,505,000
Deductions:
Payments		4,614,900			11,785,300
Prepaid maintenance		-			374,200
Other		657,700			778,900
Total deductions		5,272,600			12,938,400
Net decrease in accrued maintenance costs		(134,700	)		(1,433,400	)
Balance, end of period	$	878,700		$	1,013,400

- 24 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

4.Operating Segments

The Company operates in one business segment, the leasing of regional aircraft to foreign and domestic regional airlines, and therefore does not present separate segment information for lines of business.

Approximately 4% and 9%of the Company’s operating lease revenue was derived from lessees domiciled in the United States during 2012 and 2011, respectively.  All revenues relating to aircraft leased and operated internationally are denominated and payable in U.S. dollars.

The tables below set 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,
Operating Lease Revenue	2012		2011
Europe and United Kingdom	$	6,366,500	$	8,335,400
Caribbean		5,402,400		4,725,800
Africa		4,401,600		1,998,100
Asia		4,143,100		1,336,600
North America		2,707,100		2,726,200
South America		641,600		281,800
	$	23,662,300	$	19,403,900

	December 31,
Net Book Value of Aircraft and Aircraft Engines Held for Lease	2012		2011
Africa	$	32,962,100	$	16,392,100
Asia		27,577,900		11,072,400
Caribbean		27,145,800		23,585,000
Europe and United Kingdom		25,012,300		38,875,100
Off lease		20,359,600		20,657,100
North America		7,386,800		11,623,700
South America		3,223,200		2,039,600
	$	143,667,700	$	124,245,000

5.Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits and receivables.  The Company places its deposits with financial institutions and other creditworthy issuers and limits the amount of credit exposure to any one party.

For the year ended December 31, 2012 the Company had four significant customers, which accounted for 15%, 13%, 11% and 10%, respectively, of lease revenue.  For the year ended December 31, 2011 the Company had three significant customers, which accounted for 19%, 14% and 13%, respectively, of lease revenue.

- 25 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

5.Concentration of Credit Risk (continued)

At December 31, 2012, the Company had a receivable from one lessee of $3,300,000, representing 71% of the Company’s total receivables. Of that amount, $180,000 was paid in early 2013.  At December 31, 2011, the Company had a receivable from the same lessee of $2,246,800, representing 76% of the Company’s total receivables.  Of that amount, $130,400 was paid in early 2012.  At December31, 2012, the Company had an allowance for doubtful accounts totaling $2,419,400 related to this customer for the amount owed in excess of the security deposits held by the Company.  

As of December 31, 2012, minimum future lease revenue payments receivable under noncancelable leases were as follows:

	Operating		Finance
Years ending	leases		leases
2013	$	16,916,900	$	296,700
2014		10,941,200		84,000
2015		6,747,000		84,000
2016		5,389,200		84,000
2017 and thereafter		2,728,300		73,500
	$	42,722,600	$	622,200

Minimum lease payments due under the Company’s finance lease include interest income totaling $211,700.

6.Notes Payable and Accrued Interest

At December 31, 2012 and December 31, 2011, the Company’s notes payable and accrued interest consisted of the following:

	December 31,		December 31,
	2012		2011
Credit Facility principal	$	67,800,000	$	65,200,000
Credit Facility accrued interest		65,700		472,700
	$	67,865,700	$	65,672,700

In March 2013, the Company’s $90 million Credit Facility provided by a syndicate of banks was increased to $130 million and extended to September 30, 2015 (the “Credit Facility”) on terms similar to the original agreement. The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

Although the unused amount of the Credit Facility was $22.2 million and $24.8 million as of December31, 2012 and December 31, 2011, respectively, the amount available was limited to $1.1 million and $17.4 million, respectively, because of exclusions of certain assets from the borrowing base.

The weighted average interest rate on the Credit Facility was 4.00% and 4.17% at December 31, 2012 and December 31, 2011, respectively.

The Company’s subordinated notes (“Subordinated Notes”) were fully repaid in December 2011.  The Subordinated Notes purchasers hold warrants to purchase up to 81,224 shares of the Company's common stock at an exercise price of $8.75 per share.  The warrants are exercisable through December 31, 2015.

- 26 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

7.Stockholder Rights Plan

In December 2009, the Company’s Board of Directors adopted a stockholder rights plan granting a dividend of one stock purchase right for each share of the Company’s common stock outstanding as of December 18, 2009 and the Company entered into a rights agreement dated December 1, 2009 in connection therewith. The rights become exercisable only upon the occurrence of certain events specified in the rights agreement, including the acquisition of 15% of the Company’s outstanding common stock by a person or group in certain circumstances.  Each right allows the holder, other than an “acquiring person,” to purchase one one-hundredth of a share (a unit) of Series A Preferred Stock at an initial purchase price of $97.00 under circumstances described in the rights agreement. The purchase price, the number of units of preferred stock and the type of securities issuable upon exercise of the rights are subject to adjustment. The rights expire at the close of business December 1, 2019 unless earlier redeemed or exchanged. Until a right is exercised, the holder thereof, as such, has no rights as a stockholder of the Company, including the right to vote or to receive dividends.

8. Income Taxes

The items comprising the income tax provision/(benefit) are as follows:

	For the Years Ended December 31,
	2012		2011
Federal	$	1,000	$	-
State		800		800
Foreign		371,100		189,100
Current tax provision		372,900		189,900
Deferred tax provision:
Federal		2,310,100		(837,400	)
State		14,700		6,700
Increase in valuation allowance		-		158,600
Deferred tax provision/(benefit)		2,324,800		(672,100	)
Total income tax provision/(benefit)	$	2,697,700	$	(482,200	)

Total income tax expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below:

	For the Years Ended December 31,
	2012			2011
Income tax provision/(benefit) at statutory federal income tax rate	$	2,681,500		$	(657,100	)
State tax provision/(benefit), net of federal benefit		33,200			(7,700	)
Increase in valuation allowance		-			158,600
Other		(17,000	)		24,000
Total income tax provision/(benefit)	$	2,697,700		$	(482,200	)

- 27 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

8. Income Taxes (continued)

Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2012 and 2011 were as follows:

	December 31,
	2012			2011
Net operating loss carryovers	$	932,000		$	2,520,200
Foreign tax credit carryover		1,830,000			1,459,000
Maintenance		-			305,700
Prior year minimum tax credit		100,800			100,800
Bad debt allowance and other		936,500			921,300
Deferred tax assets		3,799,300			5,307,000
Deferred tax liabilities:
Accumulated depreciation on aircraft and aircraft engines		(17,471,100	)		(16,403,900	)
Minimum lease payments receivable		(533,200	)		(437,300	)
Deferred income		(55,600	)		(401,600	)
Net deferred tax liabilities before valuation allowance		(14,260,600	)		(11,935,800	)
Valuation allowance		(158,600	)		(158,600	)
Net deferred tax liabilities	$	(14,419,200	)	$	(12,094,400	)

The net operating loss carryovers will be available to offset federal taxable income in the two preceding years and in future years through 2031.  The Company expects to utilize the net operating loss carryovers remaining at December 31, 2012 in future years. The foreign tax credit carryover will be available to offset federal tax expense in the first preceding tax year and in future years.  The foreign tax credit carryover expires beginning in 2013 and extends through 2022.  The minimum tax credit will be available to offset federal tax expense in excess of the alternative minimum tax in future years and does not expire.

A significant portion of the deferred tax assets recognized relates to net operating loss and foreign tax credit carryovers.  A valuation allowance was deemed necessary at December 31, 2012 and 2011, as the Company has concluded that, based on an assessment of all available evidence, it is more likely than not that future taxable income will not be sufficient to realize the tax benefits associated with certain foreign tax credit carryovers. Where a valuation allowance was not recorded, the Company believes that it is more likely than not that future taxable income will be sufficient to realize the tax benefits for the balance of deferred tax assets on the balance sheets at December 31, 2012 and December 31, 2011.

At December 31, 2012 and December 31, 2011, the Company had no material unrecognized tax positions.

The Company accounts for interest related to uncertain tax positions as interest expense, and for income tax penalties as tax expense.

All of the Company's tax years remain open to examination other than as barred in the various jurisdictions by statutes of limitation.

- 28 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

9.Computation of Earnings/(Loss) Per Share

Basic and diluted earnings/(loss) per share are calculated as follows:

	For the Years Ended December 31,
	2012		2011
Net income/(loss)	$	5,189,000	$	(1,450,400	)
Weighted average shares outstanding for the period		1,543,257		1,543,257
Dilutive effect of warrants		19,797		-
Weighted average diluted shares used in calculation    of diluted earnings/(loss) per share		1,563,054		1,543,257
Basic earnings/(loss) per share	$	3.36	$	(0.94	)
Diluted earnings/(loss) per share	$	3.32	$	(0.94	)

Basic earnings/(loss) per common share is computed using net income/(loss) and the weighted average number of common shares outstanding during the period.  Diluted earnings per common share are computed using net income and the weighted average number of common shares outstanding, assuming dilution.  Weighted average common shares outstanding, assuming dilution, includes potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of warrants using the treasury stock method.  For the year ended December31, 2011, the potential dilutive effect of outstanding warrants was 22,921 shares.  However, the effect of these potentially outstanding shares was not included in the calculation of diluted loss per share for that period because the effect would have been anti-dilutive.

10.Related Party Transactions

The Company’s portfolio of leased aircraft assets is managed and administered under the terms of a management agreement with JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC").  Certain officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and the Company. Under the Management Agreement, JMC receives a monthly management fee based on the net asset value of the assets under management. JMC also receives an acquisition fee for locating assets for the Company, provided that the aggregate purchase price, including chargeable acquisition costs and any acquisition fee, does not exceed the fair market value of the asset based on appraisal, and may receive a remarketing fee in connection with the sale or re-lease of the Company’s assets. The Company recorded management fees of $4,166,200 and $3,715,400 during the years ended December 31, 2012 and 2011, respectively.  The Company paid acquisition fees totaling $1,066,000 and $184,000 during the years ended December 31, 2012 and 2011, which were included in the cost basis of the asset purchased. The Company paid remarketing fees of $259,000 and $363,500 to JMC during the years ended December 31, 2012 and 2011, respectively.  Such fees are amortized over the applicable lease term or included in the gain on sale recognized upon sale of the applicable asset.

In August 2009, the Company entered into an agreement (the "Assignment Agreement") with Lee G. Beaumont in which Mr. Beaumont assigned to the Company his rights to purchase certain aircraft engines from an unrelated third party seller.  In January 2012, Mr. Beaumont became a “related person” with respect to the Company due to his acquisition on the open market of shares representing over 5% of the Company’s Common Stock.  Mr. Beaumont received the second and the third final installments of $66,700 due under  the Assignment Agreement from the Company in the years ended December 31, 2011 and 2012, in addition to certain fees paid by JMC to Mr. Beaumont in connection with placement of the engines with new or renewing lessees.

- 29 -

AeroCentury Corp.

Notes to Financial Statements

December 31, 2012

10.Related Party Transactions (continued)

In connection with its Subordinated Notes financing entered into 2007 and 2008, the Company issued warrants to purchase up to 81,224 shares of the Company’s common stock.  The warrants became exercisable on December 30, 2011, and the shares issuable upon exercise of the warrants constitute over 5% of the common stock of the Company.  As a result, the Subordinated Notes purchasers became “related persons” with respect to the Company.   During the years ended December 31, 2012 and 2011, the Company made interest payments totaling $0 and $228,200, respectively, to the Subordinated Notes purchasers.  

11.Subsequent Events

In January 2013, the lessee of two of the Company’s Fokker 100 aircraft declared bankruptcy and is in the process of returning the aircraft prior to the scheduled lease expirations in March 2013.  The Company holds $660,000 of security deposits and $6,528,500 received from the prior lessee when its two aircraft leases were assigned to the new lessee upon sale of the original lessee's assets in 2012.  Such payment will be recognized as maintenance reserves revenue in the first quarter of 2013, upon termination of the leases.

In January 2013, the Company purchased two spare TAY650 engines, which will be held and used in connection with maintenance on the Company’s Fokker 100 aircraft.

In January 2013, the Company received notice that a vendor contracted by one of the Company's former customers, which filed for bankruptcy in April 2012, had filed suit against the Company to enforce a lien placed on the aircraft by the vendor for unpaid maintenance work.  The Company intends to contest the basis for the Company's liability for the amount claimed, as well as the validity of the amount of the lien.  The Company believes that if the litigation is not resolved in the Company’s favor, it will not have a material adverse effect on the Company’s financial condition or results of operations.

During February 2013, the Company and the lessee for one of the Company's aircraft reached a settlement in connection with litigation initiated by the lessee in 2012 regarding the return of the aircraft.  Pursuant to the settlement, the Company and the lessee have agreed to a sale of the aircraft to the lessee.  The Company has received a non-refundable deposit and expects the sale to occur in the second quarter of 2013.

In March 2013, the Company’s Credit Facility was increased to $130 million and extended to September 30, 2015, on terms similar to the original agreement.

In March 2013, the Company received proceeds for the sale of one of its Fokker 50 aircraft, which is expected to close by month-end.

- 30 -

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

None.

Item 9A.Controls and Procedures.

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

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

The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s Disclosure Controls and concluded that the Company’s Disclosure Controls were effective as of December 31, 2012.

Management’s Annual Report on the Company’s Internal Control Over Financial Reporting. Internal control over financial reporting (“Internal Control”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.  The Company’s management is responsible for establishing and maintaining adequate Internal Control. Management evaluated the Company’s Internal Control based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework and concluded that the Company’s Internal Control was effective as of December 31, 2012.  This report does not include an attestation report on Internal Control by the Company’s independent registered public accounting firm since the Company is a smaller reporting company under the rules of the SEC.

Changes in Internal Control Over Financial Reporting.  No change in Internal Control occurred during the fiscal quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s Internal Control.

Item 9B.Other Information.

None.

- 31 -

PART III

Item 10.Directors, Executive Officers and Corporate Governance.

The information required by this item is included under (i) “Proposal 1: Election of Directors” as it relates to members of the Company’s Board of Directors, including the Company’s Audit Committee and the Company’s Audit Committee financial experts, any changes to procedures by which security holders may recommend nominees to the Company’s Board of Directors, (ii) “Information Regarding the Company’s Directors and Officers” as it relates to the Company’s executive officers, and (iii) “Section 16(a) Beneficial Ownership Reporting Compliance” as it relates to information concerning Section 16(a) beneficial ownership reporting compliance, in the Company’s definitive proxy statement (“Proxy Statement”), to be filed in connection with the Company’s 2013 Annual Meeting of Stockholders, and is incorporated herein by reference.

The Company has adopted a code of business conduct and ethics, or code of conduct.  The code of conduct qualifies as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. A copy of the code of conduct is available on the Company’s website at http://www.aerocentury.com or upon written request to the Investor Relations Department, 1440 Chapin Avenue, Suite 310, Burlingame, California 94010.  To the extent required by law, any amendments to, or waivers from, any provision of the code will be promptly disclosed publicly. To the extent permitted by such requirements, the Company intends to make such public disclosure on its website in accordance with SEC rules.

Item 11.  Executive Compensation.

Incorporated by reference to the section of the Proxy Statement entitled “Information Regarding the Company’s Directors and Officers — Employee Compensation.”

Item 12.Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters.

Incorporated by reference to the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

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

Incorporated by reference to the section of the Proxy Statement entitled “Related Party Transactions.”

Item 14.Principal Accountant Fees and Services.

Incorporated by reference to the section of the Proxy Statement entitled “Information Regarding Auditors – Audit Fees.”

- 32 -

PART IV

Item 15.Exhibits.

(b)Exhibits

3.1 Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.08 to the registration statement on Form S-4/A filed with the Securities and Exchange Commission on July 24, 1997 SEC File No. 333-24743, Film No. 97644740.

3.2 Form of Certificate of Amendment of Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.07 to the registration statement on Form S-4/A filed with the Securities and Exchange Commission on June 10, 1997 SEC File No. 333-24743, Film No. 97622056.

3.3 Amended and Restated Bylaws of the Company dated January 22, 1999, incorporated by reference to Exhibit 3.1 to the Report on Form 10-KSB for the fiscal year ended December 31, 1998 filed with the Securities and Exchange Commission on March 22, 1999, SEC File No. 001-13387 Film No. 98581428

3.4 Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated May 6, 2008, incorporated by reference to Exhibit 99.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on May 7, 2008

3.5 Amendment to Bylaws, dated January 30, 2009, incorporated by reference to Exhibit 3.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on February 3, 2009

3.6A mended and Restated Certificate of Designation of the Company dated December 1, 2009, incorporated by reference to Exhibit 3.1 to the Report on Form 8-K filed with the Securities Exchange Commission on December 7, 2009

4.1 Reference is made to Exhibit 3.6

4.2 Rights Agreement by and between the Company and Continental Stock Transfer & Trust Company dated December 1, 2009, incorporated by reference to Exhibit 4.1 to the Report on Form 8-K filed with the Securities Exchange Commission on December 7, 2009

10.1 Form of Indemnification Agreement between the Company and each of its directors and officers, incorporated by reference to Exhibit 10.03 to the Report on Form 10-KSB for the fiscal year ended December 31, 1997 filed with the Securities and Exchange Commission on March 31, 1998, SEC File No. 001-13387 Film No. 98581428

10.2 Amended and Restated Management Agreement, dated April 23, 1998, between the Company and JetFleet Management Corp., incorporated by reference to Exhibit 10.5 to the Report on Form 10-KSB for the fiscal year ended December 31, 1999 filed with the Securities and Exchange Commission on March 10, 2000 SEC File No. 001-13387 Film No. 566570

10.3 Aircraft Sale and Purchase Agreement with Denim Air Lease & Finance B.V. incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on December 28, 2005, SEC File No. 001-13387 Film No. 051288291

10.4  Aircraft Sale and Purchase Agreement with VLM Airlines, N.V. incorporated by reference to Exhibit 10.2 to the Report on Form 8-K filed with the Securities and Exchange Commission on December 28, 2005, SEC File No. 001-13387 Film No. 051288291

10.5  Securities Purchase Agreement between Satellite Fund II, LP, Satellite Fund IV, LP, The Apogee Group LLC, and Satellite Fund V, LLC (collectively the "Subordinated Lenders") and the Company, incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2007

10.6  Form of Warrant issued to the Subordinated Lenders incorporated by reference to Exhibit 10.2 to the Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2007

10.7  Investors Rights Agreement between the Company and the Subordinated Lenders incorporated by reference to Exhibit 10.3 to the Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2007

10.8 Amendment to Securities Purchase Agreement between the Subordinated Lenders and the Company, incorporated by reference to Exhibit 99 to the Report on Form 8-K filed with the Securities and Exchange Commission on June 19, 2008

10.9 Second Amendment to Securities Purchase Agreement between the Subordinated Lenders and the Company, incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2008

10.10 Form of Amended and Restated Warrant issued to the Subordinated Lenders incorporated by reference to Exhibit 10.4 to the Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2008

10.11 Loan and Security Agreement, between the Company, Union Bank, N.A. as agent, and the participating lenders thereunder, dated April 28, 2010, incorporated by reference to Exhibit 10.13 to the Report on Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange Commission on February 14, 2011

 10.12 Subordination and Intercreditor Agreement, between the Company, Union Bank, N.A. as agent, and the Subordinated Creditors thereunder, dated April 28, 2010, incorporated by reference to Exhibit 10.14 to the Report on Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange Commission on February 14, 2011

 10.13 Management Fee Subordination Agreement, between the Company, JetFleet Management Corp. and Union Bank, N.A. as agent, dated April 28, 2010, incorporated by reference to Exhibit 10.15 to the Report on Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange Commission on February 14, 2011

10. 14  Form of Revolving Note dated June 4, 2010, delivered to Umpqua Bank, issued under the Loan and Security Agreement between the Company and Union Bank, as Agent, dated April 28, 2010, incorporated by reference to Exhibit 10.15 to the Report on Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange Commission on February 14, 2011

10.15 Loan Modification Agreement, between the Company, Union Bank, N.A., California Bank & Trust, Umpqua Bank and U.S. Bank National Association, dated May 13, 2011, incorporated by reference to Exhibit 10.17 to the Report on Form 10-Q for the quarter ended June 30, 2011, filed with the Securities and Exchange Commission on August 21, 2011

10.16  Second Loan Modification Agreement, between the Company, Union Bank, N.A., California Bank & Trust, Umpqua Bank and U.S. Bank National Association, dated March 8, 2012, incorporated by reference to Exhibit 10.18 to the Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on March 9, 2012

10.17  Amended and Restated Loan and Security Agreement between Union Bank, N.A., and the participating lenders thereunder, dated March 13, 2013, incorporated by reference to Exhibit 99.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2013  

31.1  Certification of Neal D. Crispin, Chief Executive Officer of AeroCentury Corp., dated March 14, 2013, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2Certification of Toni M. Perazzo, Chief Financial Officer of AeroCentury Corp., dated March 14, 2013, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1Certification of Neal D. Crispin, Chief Executive Officer of AeroCentury Corp., dated March 14, 2013, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2Certification of Toni M. Perazzo, Chief Financial Officer of AeroCentury Corp., dated March 14, 2013, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INSXBRL Instance Document

101.SCHXBRL Schema Document

101.CALXBRL Calculation Linkbase Document

101.LABXBRL Label Linkbase Document

101.PRE XBRL Presentation Linkbase Document

101.DEF XBRL Definition Linkbase Document

- 33 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AEROCENTURY CORP.

By/s/ Toni M. Perazzo

Toni M. Perazzo

Senior Vice President-Finance and

Chief Financial Officer

DateMarch 14, 2013

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Neal D. Crispin and Toni M. Perazzo, and each of them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.  

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.

Signature	Title	Dated
/s/ Neal D. Crispin	Director, President and Chairman of the Board of	March 14, 2013
Neal D. Crispin	Directors of the Registrant (Principal Executive Officer)
/s/ Toni M. Perazzo	Director, Senior Vice President-Finance and Secretary of the	March 14, 2013
Toni M. Perazzo	Registrant (Principal Financial and Accounting Officer)
/s/ Roy E. Hahn	Director	March 14, 2013
Roy E. Hahn
/s/ Thomas W. Orr	Director	March 14, 2013
Thomas W. Orr
/s/ Evan M. Wallach	Director	March 14, 2013
Evan M. Wallach

[Inside Back Cover]

CORPORATE INFORMATION

Officers and Directors

Neal D. Crispin

President and Chairman of the Board

Toni M. Perazzo

Director, Chief Financial Officer, Secretary, and Senior Vice President - Finance

Christopher B. Tigno

General Counsel

Roy E. Hahn Director and

Managing Director of Marbridge Group, LLC

Thomas W. Orr

Director, Audit Committee Chair and Accounting Consultant

Evan M. Wallach Director and

President and Chief Executive Officer of Global Airfinance Corporation

Transfer Agent and Registrar

Continental Stock Transfer and Trust Company 17 Battery Place, 8th Floor

New York, NY 10004

Legal Counsel

Morrison & Foerster LLP 755 Page Mill Road

Palo Alto, CA 94304

Registered Independent Public Accountants

BDO USA, LLP

One Market - Spear Tower, Suite 1100 San Francisco, CA 94105

Corporate Headquarters

AeroCentury Corp.

1440 Chapin Ave., Suite 310

Burlingame, CA 94010

Annual Meeting

The Annual Meeting of Stockholders will be held at: The Hiller Aviation Museum

601 Skyway Road

San Carlos, CA, on May 9, 2013 at 12:00 P.M.

Form 10-K

The Company’s Annual Report on Form 10-K for 2012 may be obtained by writing: AeroCentury Corp.

1440 Chapin Ave., Suite 310

Burlingame, CA 94010

Stock Price and Shareholder Data

The Company’s common stock is traded on the NYSE MKT exchange under

the symbol ACY.

[OUTSIDE BACK COVER]

AeroCentury Corp.

1440 Chapin Ave., Suite 310

Burlingame, CA94010

650-340-1888

Fax: 650-696-3929

www.aerocentury.com

EX-99.2

PROXY

AeroCenturyCorp.                                                                                                                This Proxy is Solicited on Behalf of the Board of Directors.

1440 Chapin Avenue, Suite 310, Burlingame, California 94010                                                      

The undersigned hereby appoints Toni M. Perazzo and Christopher B. Tigno, as Proxies, with full power of substitution, and hereby authorizes them to represent and to vote, as designated below, all of the shares of Common Stock of AeroCentury Corp. (the “Company”) held of record by the undersigned on March 11, 2013, at the 2013 Annual Meeting of Stockholders of the Company to be held on May 9, 2013, or at any adjournment or postponement thereof.

1.   ELECTION OF  DIRECTORS	FOR the nominees listed below	WITHHOLD AUTHORITY
	(except as marked to the contrary below)	to vote for the nominees listed below

(Instruction: To withhold authority to vote for any individual nominee strike a line through the nominee’s name in the list below)

Neal D. CrispinEvan M. Wallach

2.   PROPOSAL TO APPROVE, by non-binding vote, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement.FOR o            AGAINST o         ABSTAIN  o

3.   PROPOSAL TO RECOMMEND, by non-binding vote, as the frequency of future advisory votes on executive compensation.

 1 YEAR  o  2 YEARS o     3 YEARS  o   ABSTAIN  o

  4.   PROPOSAL TO RATIFY THE APPOINTMENT OF BDO USA, LLP as independent auditors for the Company for the fiscal year ending December 31, 2013.

FORoAGAINST o   ABSTAIN  o

  5.   In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS NO. 1, 2 AND 4 AND A VOTE FOR “1 YEAR” FOR PROPOSAL NO. 3

PLEASETURNOVER,DATEANDSIGNREVERSESIDE

PLEASEMARK,SIGNANDDATEANDRETURNTHIS PROXYCARDPROMPTLY

USING THE ENCLOSED ENVELOPE

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO SPECIFICATION IS MADE, THEN THIS PROXY WILL BE VOTED “FOR” THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND “FOR”  PROPOSALS NO. 2 AND 4 AND A VOTE FOR “1 YEAR” FOR PROPOSAL NO. 3.

Please sign exactly as your name appears on the attached label. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer.  If a partnership, please sign in partnership name by authorized

person.

 Change of Address (if applicable):

    SIGNATURE(S) (below)

  Title (if any) Date 

Title (if any) Date 

(Second Signature, if held jointly)