UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 2004

[ ] Transition Report Under 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 small business issuer as specified in its charter)
                Delaware                               94-3263974
     (State or other jurisdiction of      (I.R.S. Employer Identification No.)
     incorporation or organization)

      1440 Chapin Avenue, Suite 310
         Burlingame, California                           94010
(Address of principal executive offices)               (Zip Code)

Issuer'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 Exchange on Which Registered
Common Stock, $0.001 par value               American Stock Exchange

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

Check whether the Issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes   X       No
   -----         -----

As of November 12, 2004 the Issuer had 1,606,557 Shares of Common Stock
outstanding, of which 63,300 are held as Treasury Stock.

Transitional Small Business Disclosure Format (check one): Yes        No   X
                                                               -----     -----








<PAGE>



                                     PART I
                              Financial Information

Forward-Looking Statements

This Quarterly Report on Form 10-QSB includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of 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 Item 1 "Financial Statements,"
statements concerning the Company's anticipation that the Company will generate
adequate future taxable income to realize the benefits of all deferred tax
assets on the balance sheet; the expected sale of a Metro III aircraft in the
fourth quarter of 2004; (ii) in Item 2 "Management's Discussion and Analysis or
Plan of Operation -- Liquidity and Capital Resources," statements concerning the
Company's belief that it will continue to be in compliance with its credit
facility covenants after September 30, 2004; the Company's belief that it will
have adequate cash flow to meet its ongoing operational needs, including credit
facility repayments; the Company's belief that its assumptions used to forecast
cash flow are reasonable; the Company's expectation regarding the long-term
decline of lease rentals from its current portfolio; (iii) in Item 2
"Management's Discussion and Analysis or Plan of Operation -- Outlook,"
statements concerning the Company's anticipation with respect to approval by the
lenders of a July 2004 aircraft acquisition for inclusion in the collateral
base; the expected time for completion of maintenance on the DHC-7 aircraft; the
Company's belief that the DHC-7 aircraft will be difficult to remarket and that
a substantial amount of time will pass before the DHC-7 aircraft generate
revenue; and the adequacy of a $250,000 allowance against the estimated amount
receivable under a note signed by a defaulting lessee; and (iv) in Item 2
"Management's Discussion and Analysis or Plan of Operation -- Factors that May
Affect Future Results," statements regarding the Company's belief that it will
have sufficient cash funds to make any payments that are required under the
credit facility due to collateral pool limitations; the anticipated increased
compliance cost created by the Sarbanes-Oxley Act and the Company's ability to
fund such increased costs; the Company's anticipated purchase of used aircraft
and concentration on turboprop equipment, the Company's intention to concentrate
on future leases to regional air carriers; the Company's belief that overseas
markets present opportunities; and the Company's belief 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.

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 or Plan of Operation --
Factors That May Affect Future Results," including general economic conditions,
particularly those that affect the demand for regional aircraft and engines and
the financial status of the Company's primary customers, foreign regional
passenger airlines; the further disruptions to the air travel industry similar
due to terrorist attacks or wartime hostilities or catastrophic events;
increasing jet fuel costs that weaken the financial health of air carrier; the
Company's ability to renew and enlarge its credit facility on reasonable
business terms at or prior to its expiration; the financial performance of the
Company's lessees and their compliance with rental, maintenance and return
conditions under their respective leases; the availability of suitable aircraft
acquisition transactions in the regional aircraft market; and future trends and
results which cannot be predicted with certainty. The cautionary statements made
in this Quarterly 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.


<PAGE>



Item 1.       Financial Statements

                                AeroCentury Corp.
                      Condensed Consolidated Balance Sheet
                                    Unaudited
<TABLE>
                                     ASSETS


<CAPTION>


                                                                                    September 30,
                                                                                        2004
                                                                                        ----
<S>  <C>                                                                          <C>

Assets:
     Cash and cash equivalents                                                    $     3,656,130
     Accounts receivable, net of allowance for doubtful accounts of $250,000            1,265,790
     Note receivable, net of allowance for doubtful accounts of $195,800                  195,800
     Aircraft and aircraft engines on operating leases,
        net of accumulated depreciation of $19,031,030                                 67,204,430
     Prepaid expenses and other                                                           404,120
                                                                                  ---------------

Total assets                                                                      $    72,726,270
                                                                                  ===============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Accounts payable and accrued expenses                                        $       643,100
     Notes payable and accrued interest                                                40,433,360
     Maintenance reserves and accrued costs                                             9,739,750
     Security deposits                                                                  1,297,150
     Prepaid rent                                                                         185,130
     Deferred taxes                                                                     2,373,970
                                                                                  ---------------

Total liabilities                                                                      54,672,460
                                                                                  ---------------

Stockholders' equity:
     Preferred stock, $.001 par value, 2,000,000 shares
        authorized, no shares issued and outstanding                                            -
     Common stock, $.001 par value, 3,000,000 shares
        authorized, 1,606,557 shares issued and outstanding                                 1,610
     Paid in capital                                                                   13,821,200
     Retained earnings                                                                  4,735,070
                                                                                  ---------------
                                                                                       18,557,880
     Treasury stock at cost, 63,300 shares                                              (504,070)
                                                                                  ---------------

Total stockholders' equity                                                             18,053,810
                                                                                  ---------------

Total liabilities and stockholders' equity                                        $   72,726,270
                                                                                  ===============
</TABLE>


The accompanying notes are an integral part of these statements.


<PAGE>



                                AeroCentury Corp.
                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                   For the Nine Months                 For the Three Months
                                                   Ended September 30,                  Ended September 30,
                                                 2004              2003               2004                2003
                                                 ----              ----               ----                ----
                                                       Unaudited                             Unaudited
<S>  <C>                                    <C>               <C>                   <C>              <C>


Revenues:

     Operating lease revenue                $    6,563,800    $   6,668,020         $   2,246,260    $    2,030,420
     Gain on disposal of aircraft and
       aircraft engines, net                        21,070                -                21,070                 -
     Other income                                  320,270           92,890               205,970            47,530
                                            --------------    -------------         -------------    --------------

                                                 6,905,140        6,760,910             2,473,300         2,077,950
                                            --------------    -------------         -------------    --------------
Expenses:
     Depreciation                                2,638,060        2,520,350               893,700           840,250
     Interest                                    1,730,600        1,395,440               606,510           442,770
     Management fees                             1,459,140        1,441,890               499,730           474,260
     Professional fees and
        general and administrative                 550,820          405,690               256,690           106,720
     Provision for impairment in
       value of aircraft                           463,300                -               463,300                 -
     Maintenance                                   490,850        1,922,890               397,870            84,910
     Insurance                                     202,450          185,590                79,230            66,310
     Bad debt expense                              146,750        1,049,910               146,750                 -
                                            --------------    -------------         -------------    --------------

                                                 7,681,970        8,921,760             3,343,780         2,015,220
                                            --------------    -------------         -------------    --------------

(Loss)/income before taxes                       (776,830)      (2,160,850)             (870,480)            62,730

Tax (benefit)/provision                          (299,830)        (794,910)             (313,240)            12,580
                                            --------------    -------------         -------------    --------------

Net (loss)/income                           $    (477,000)    $ (1,365,940)         $   (557,240)    $       50,150
                                            ==============    =============         =============    ==============

Weighted average common
     shares outstanding                          1,543,257        1,543,257             1,543,257         1,543,257
                                            ==============    =============         =============    ==============

Basic (loss)/earnings per share             $       (0.31)    $      (0.89)         $      (0.36)    $         0.03
                                            ==============    =============         =============    ==============
</TABLE>


The accompanying notes are an integral part of these statements.







<PAGE>



                                AeroCentury Corp.
                 Condensed Consolidated Statements of Cash Flows
                                    Unaudited

<TABLE>
<CAPTION>


                                                                              For the Nine Months Ended September 30,
                                                                                      2004                2003
                                                                                      ----                ----

<S> <C>                                                                         <C>                <C>


Net cash provided by operating activities                                       $     3,405,900    $      2,273,780
                                                                                ---------------    ----------------

Investing activities:
   Payments received on note receivable                                                       -              17,600
   Proceeds from disposal of aircraft and aircraft engines                            2,040,660                   -
   Purchase of aircraft and aircraft engines                                       (10,173,950)                   -
                                                                                ---------------    ----------------
Net cash (used)/provided by investing activities                                    (8,133,290)              17,600
                                                                                ---------------    ----------------

Financing activities:
   Issuance of notes payable                                                          5,200,000                   -
   Repayment of notes payable                                                       (6,265,110)         (1,833,040)
                                                                                ---------------    ----------------
Net cash used by financing activities                                               (1,065,110)         (1,833,040)
                                                                                ---------------    ----------------

Net (decrease)/increase in cash and cash equivalents                                (5,792,500)             458,340

Cash and cash equivalents, beginning of period                                        9,448,630           8,796,000
                                                                                ---------------    ----------------

Cash and cash equivalents, end of period                                        $     3,656,130    $     9,254,340
                                                                                ===============    ================

</TABLE>


During the nine months ended September 30, 2004 and 2003, the Company paid
interest totaling $1,673,940 and $1,460,230, respectively, and income taxes
totaling $1,080 and $176,530, respectively.

The accompanying notes are an integral part of these statements.


<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

1.       Organization and Summary of Significant Accounting Policies

(a)      Basis of Presentation

         AeroCentury Corp. ("AeroCentury"), a Delaware corporation, uses
leveraged financing to acquire leased aircraft assets. The Company purchases
used regional aircraft on lease to foreign and domestic regional carriers.
Financial information for AeroCentury and its wholly-owned subsidiary,
AeroCentury Investments II LLC ("AeroCentury II LLC") (collectively, the
"Company"), is presented on a consolidated basis. All intercompany balances and
transactions have been eliminated in consolidation.

(b)      Capitalization

         In 1998, in connection with the adoption of a stockholder rights plan,
the Company filed a Certificate of Designation, setting forth the rights,
preferences and privileges of a new Series A Preferred Stock. Pursuant to the
plan, the Company issued rights to its stockholders, giving each stockholder the
right to purchase one one-hundredth of a share of Series A Preferred Stock for
each share of Common Stock held by the stockholder. Such rights are exercisable
only under certain circumstances concerning a proposed acquisition or merger of
the Company.

         As discussed above, AeroCentury is the sole member and manager of
AeroCentury II LLC.

(c)      Cash and Cash Equivalents/Deposits

         The Company considers highly liquid investments readily convertible
into known amounts of cash, with original maturities of 90 days or less, as cash
equivalents. Because the Company's leases do not restrict the Company's use of
such amounts, cash previously reported as deposits, representing cash balances
held related to maintenance reserves and security deposits, has been
reclassified to cash and cash equivalents.

(d)      Aircraft and Aircraft Engines On Operating Leases

         The Company's interests in aircraft and aircraft engines are recorded
at cost, which includes acquisition costs. Depreciation is computed using the
straight-line method over the aircraft's estimated economic life (generally
assumed to be twelve years from the date of acquisition), to an estimated
residual value based on appraisal.

(e)      Impairment of Long-lived Assets

         The Company periodically reviews its portfolio of assets for impairment
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets." Such review
necessitates estimates of current market values, re-lease rents, residual values
and component values. The estimates are based on currently available market data
and are subject to fluctuation from time to time. The Company initiates its
review periodically, whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable. Recoverability
of an asset is measured by comparison of its carrying amount to the expected
future undiscounted cash flows (without interest charges) that the asset is
expected to generate. Any impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds its fair market value.
Significant management judgment is required in the forecasting of future
operating results which are used in the preparation of projected undiscounted
cash flows and, should different conditions prevail, material write downs may
occur.




<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

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

(f)      Loan Commitment and Related Fees

         To the extent that the Company is required to pay loan commitment fees
and legal fees in order to secure debt, such fees are amortized over the life of
the related loan.

(g)      Maintenance Reserves and Accrued Costs and  Security Deposits

         Maintenance costs under the Company's triple net leases are generally
the responsibility of the lessees. The accompanying balance sheet reflects
liabilities for maintenance reserves and accrued costs, which include refundable
and non-refundable maintenance payments received from lessees, as well as
security deposits received from lessees. At September 30, 2004, the Company had
accrued liabilities for refundable maintenance reserves of $421,650,
non-refundable maintenance reserves of $8,396,050 and security deposits of
$1,297,150.

         Maintenance reserves which are refundable to the lessee at the end of
the lease may be retained by the Company if such amounts are necessary to meet
the return conditions specified in the lease and, in some cases, to satisfy any
other payments due under the lease.

         Non-refundable maintenance reserves received by the Company are
accounted for as a liability until the aircraft has been returned at the end of
the lease, at which time the Company evaluates the adequacy of the remaining
reserves in light of maintenance to be performed as a result of hours flown. At
that time, any excess is recorded as income. When an aircraft is sold, any
excess non-refundable maintenance reserves are recorded as income.

         The Company periodically reviews maintenance reserves for adequacy in
light of the number of hours flown, airworthiness directives issued by the
manufacturer or government authority, and the return conditions specified in the
lease, as well as the condition of the aircraft upon return or inspection. As a
result of such review, when it is probable that the Company has incurred costs
for maintenance in excess of amounts received from lessees, the Company accrues
its share of costs for work to be performed as a result of hours flown. At
September 30, 2004, the Company had accrued maintenance costs, in excess of
reserve amounts received under the leases, of approximately $922,050 related to
several of its aircraft.

         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.






<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

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

(h)      Income Taxes

         The Company follows the liability method of accounting for income
taxes. Under the liability method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in the tax rates is recognized in income in
the period that includes the enactment date.

(i)      Revenue Recognition

         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. If the Company deems a portion of operating lease revenue as
potentially uncollectible, the Company records an allowance for doubtful
accounts.

(j)      Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 most significant estimates with regard to these financial
statements are the residual values of the aircraft, the useful lives of the
aircraft, the amount and timing of cash flow associated with each aircraft that
are used to evaluate impairment, if any, accrued maintenance costs in excess of
amounts received from lessees, and the amounts recorded as bad debt allowances.

(k)      Comprehensive Income

         The Company does not have any comprehensive income other than the
revenue and expense items included in the consolidated statements of income. As
a result, comprehensive income equals net (loss)/income for the three months and
nine months ended September 30, 2004 and 2003.

(l)      Recent Accounting Pronouncements

         In November 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"). FIN 45 is effective for guarantees issued or modified after
December 31, 2002. The Company had one guarantee, which was issued prior to
December 31, 2002. During the second quarter of 2003, the Company recorded a
liability for the maximum obligation it had assumed under this guarantee and
wrote off the related receivable. During the fourth quarter of 2003, the vendor
waived the amount due, and the Company reversed its accrual.




<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

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

(l)      Recent Accounting Pronouncements (continued)

         In January 2003, the FASB issued interpretation FIN No. 46,
Consolidation of Variable Interest Entities ("FIN 46"), which was subsequently
revised in December 2003 ("FIN 46R"). FIN 46R requires a variable interest
entity to be consolidated by a company if that company is the primary
beneficiary of the entity. A company is a primary beneficiary if it is subject
to a majority of the risk of loss from the variable interest entity's activities
or entitled to receive a majority of the entity's residual returns or both.
 FIN 46R also requires disclosures about variable interest entities that a
company is not required to consolidate but in which it has a significant
variable interest. FIN 46R was applicable immediately to variable interest
entities created after January 31, 2003, and will be effective for all other
existing entities in financial statements for periods ending after December 15,
2004. Certain of the disclosure requirements apply in all financial statements
issued after December 31, 2003, regardless of when the variable interest entity
was established. The Company has no interest in any variable interest entity
and, therefore, the full adoption of FIN 46R had no effect on the Company's
consolidated financial condition or results of operations.

         SFAS 146, Accounting for Costs Associated with Exit or Disposal
Activities, was effective for activities that were initiated after December 31,
2002. SFAS 146 addresses significant issues regarding the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that were previously accounted
for under Emerging Issues Task Force ("EITF") No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The adoption of this
pronouncement had no effect on the Company's financial statements.

         SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equities, addresses how to classify and
measure certain financial instruments with characteristics of both liabilities
(or an asset in some circumstances) and equity. SFAS 150 requirements apply to
issuers' classification and measurement of freestanding financial instruments,
including those that comprise more than one option or forward contract. It
requires that all instruments with characteristics of both liabilities and
equity be classified as a liability and remeasured at fair value on each
reporting date. SFAS 150 was effective immediately for all financial instruments
entered into or modified after May 31, 2003, and for the first interim period
beginning after June 15, 2003 for all other instruments. The adoption of SFAS
150 had no impact on the Company's financial statements.

(m)      Reclassifications

         Certain amounts previously classified as deposits in the accompanying
2003 unaudited condensed consolidated financial statements have been
reclassified to cash and cash equivalents in order to conform to the
presentation of the 2004 unaudited condensed consolidated financial statements.



<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

2.       Aircraft and Aircraft Engines On Operating Leases

         At September 30, 2004, the Company owned six deHavilland DHC-8s, one
deHavilland DHC-7, three deHavilland DHC-6s, one Fairchild Metro III, two Shorts
SD 3-60s, ten Fokker 50s, two Saab 340As and 25 turboprop engines. The Company
acquired one aircraft and sold one turboprop engine during the third quarter of
2004.

         During the third quarter of 2004:

         The Company purchased one deHavilland DHC-8 aircraft and leased it to a
         regional carrier in the Caribbean for a term expiring in November 2007.
         The Company's banks have not yet approved the July transaction for
         inclusion of the purchased aircraft in the credit facility borrowing
         base.

         The Company sold one of its deHavilland DHC-7 aircraft and recorded a
         loss of approximately $151,000. The Company is disputing an overcharge
         of approximately $62,000 of maintenance charges for the aircraft with
         the vendor. The Company is negotiating a reduction of part of this
         amount, which reduction would decrease the loss on sale.

         The Company sold one of its turboprop engines and recorded a gain of
         approximately $172,000.

         The leases for two of the Company's deHavilland DHC-6 aircraft were
         extended for five years, through July 2009.

         The leases for two of the Company's Fokker 50 aircraft were extended
         for two years, from their original expiration dates in December 2005
         and October 2006 to December 2007 and October 2008, respectively.

         The lease for 24 of the Company's turboprop engines was extended
         through December 2004.

         The Company and the lessee of the Company's two Saab 340A aircraft
         reached an agreement for the lessee to return the aircraft to a
         maintenance facility, in return for which ACY released the lessee from
         its obligations under the leases. The Company wrote off approximately
         $147,000 of rent receivable. The Company also wrote off approximately
         $33,000 of prepaid legal expenses which would have been amortized over
         the remainder of the leases and accrued approximately $390,000 for
         estimated maintenance to be performed to ready the aircraft for
         re-lease.

         In accordance with its periodic review of its portfolio of assets for
         impairment, during the third quarter of 2004, the Company recorded a
         provision for impairment of approximately $463,000 for one of its
         aircraft, based on the Company's cash flow analysis and third party
         appraisals.

         During the second quarter of 2004, the lessee of the Company's
Fairchild Metro III aircraft filed for bankruptcy protection in Canada. At
September 30, 2004, the lessee owed maintenance reserves of $11,320 attributable
to periods before the filing date. The Company holds a security deposit of
$25,890 from the lessee. During the third quarter, the Company and the lessee
agreed to terminate the lessee's obligation to pay rent as of September 30,
2004. The lessee has paid all rent and reserve amounts due after the filing
date. As discussed in Note 7, in the fourth quarter of 2004, the lessee returned
the aircraft to the Company and the Company signed a purchase agreement for the
sale of the aircraft.



<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

2.       Aircraft and Aircraft Engines On Operating Leases (continued)

         At September 30, 2004, four of the Company's aircraft and one of its
turboprop engines were off-lease. The Company is seeking re-lease or sale
opportunities for the off-lease aircraft and engine.

         The lease for one of the Company's aircraft expired in September 2002,
but the lessee was obligated under the lease to continue to pay rent until
certain return conditions were met. The Company and the lessee have agreed to
certain terms and conditions regarding the return of the aircraft and the
amounts owed by the lessee. Although the Company held a security deposit from
this lessee, the amount of the deposit was not sufficient to pay the rent
accrued through the return date and reimburse the Company for maintenance work
which was performed to meet the return conditions of the lease. The lessee
agreed to deliver a note, with a principal amount equal to the rent and
maintenance in excess of the security deposit. As discussed in Note 7, the
lessee signed a note in the amount of approximately $625,000 in the fourth
quarter of 2004. The Company had previously recorded a $250,000 allowance
against the amount receivable and believes that such allowance is adequate to
cover any shortfall in payment under the note. The aircraft was delivered to a
new lessee in September 2003.

3.       Note Receivable

         During the third quarter of 2003, the Company's two DHC-7 aircraft were
returned to the Company by a defaulted lessee, and a settlement agreement was
reached with the lessee in the amount of $500,000. The lessee paid $20,000 to
the Company at the time of the settlement and signed a note in the amount of
$480,000. The Company recorded an allowance for the full amount of the note and
recorded income as note payments were received. The Company has an agreement
with a third party, who assisted the Company in the protection, management and
recovery of the Company's assets from the lessee, which provides that the third
party receives 40% of all amounts collected under the note. In the first quarter
of 2004, based on the lessee's timely payment history, the Company reversed 5%
of the remaining allowance and recorded it as income. In the third quarter, the
Company reversed an additional amount, which decreased the allowance to 50% of
the note balance. In both instances, the Company also recorded the related
expense for the amount payable to the third party. The Company will continue to
monitor the lessee's payment history and may reverse additional portions of the
allowance as the Company deems appropriate.

4.       Notes Payable and Accrued Interest

(a)      Credit facility

         In August 2003, the Company reached agreement with its lenders to renew
the credit facility through August 31, 2004. In January 2004, a third bank was
added to the Company's credit facility participant group. The new participant
agreed to finance $10 million, bringing the Company's credit facility limit to
$50 million. The facility bears interest, at the Company's option, at either (i)
prime plus a margin of 50 to 150 basis points or (ii) LIBOR plus a margin of 275
to 375 basis points. Both the prime and LIBOR margins are determined by certain
financial ratios. In August 2004, the maturity date was extended to October 29,
2004.

         As discussed in Note 7, the facility was subsequently extended to
November 5, 2004. In November 2004, the credit facility was renewed through
October 31, 2005. The renewal agreement also revised certain pricing and
covenant provisions and waived noncompliance with two covenants at September 30,
2004. In connection with the renewal, the LIBOR margin was set at 375 basis
points through March 2005, after which a margin of 275 to 375 basis points will
be determined by certain financial ratios. As of September 30, 2004, the Company
was in compliance with all other covenants, $38,305,000 was outstanding under
the credit facility, and interest of $160,760 was accrued.


<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

4.       Notes Payable and Accrued Interest (continued)

         In the first nine months of 2004, the Company repaid a total of
$6,050,000 of the outstanding principal under its credit facility.

         The Company's longer term viability will depend upon its ability to
renew the credit facility at its October 2005 expiration with the existing or
replacement lenders, or to refinance the credit facility using equity or
alternative debt financing. Management expects the credit facility to be renewed
on market terms; however, there is no assurance that the Company will be able to
achieve either alternative prior to the currently scheduled expiration.

         If the Company is not able to renew the credit facility for the full
outstanding amount, and cannot find suitable alternative financing, it may be
required to make a principal repayment of the outstanding balance, or that
portion of the balance for which replacement financing is not obtained. The
Company does not have sufficient cash reserves to make a repayment of a
significant portion of the outstanding credit facility indebtedness and would be
forced to sell assets in order to raise funds to make such repayment. Such sales
would likely not be on favorable terms to the Company as the full market value
of the assets sold may not be realized by the Company in order to expedite the
consummation of the sales.

         Even if the Company is able to successfully sell a portion of its
assets and use the proceeds to repay the credit line facility, if a renewed or
replacement facility is not obtained, the Company's future ability to acquire
assets would be significantly impaired, as the credit facility is the Company's
primary means of financing acquisitions and no other sources of acquisition
financing are immediately available. Thus the renewal or replacement of the
Company's credit line facility in an amount equal to or greater than the current
$50 million limit will be critical to the Company's future operations.

 (b)     Special purpose financing

         In September 2000, the Company acquired a deHavilland DHC-8 aircraft
using cash and bank financing separate from its credit facility. The financing
resulted in a note obligation, as amended, in the amount of $3,575,000, due
April 15, 2006, which bears interest at the rate of one-month LIBOR plus 3%. The
note is collateralized by this aircraft and is non-recourse to the Company.
Payments due under the note consist of monthly principal and interest and a
balloon principal payment due on the maturity date. The financing also provides
for a six month remarketing period at the expiration or earlier termination of
the lease. Payments due on the financing are reduced during this remarketing
period and the balloon principal payment is due at the end of the six month
period. The balance of the note payable at September 30, 2004 was $1,965,490 and
interest of $2,110 was accrued. As of September 30, 2004, the Company was in
compliance with all covenants of this note obligation.



<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

5.       Income Taxes

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

<TABLE>
<CAPTION>


                                                                            For the Nine Months Ended September 30,
                                                                                    2004                2003
                                                                                    ----                ----

<S>     <C>                                                                  <C>                <C>

         Current tax provision:
              Federal                                                        $        107,820    $       310,210
              State                                                                     2,830             13,850
                                                                             ----------------    ---------------
              Current tax provision                                                   110,650            324,060
                                                                             ----------------    ---------------

         Deferred tax benefit:
              Federal                                                               (372,910)        (1,048,820)
              State                                                                  (37,570)           (70,150)
                                                                             ----------------    ---------------
              Deferred tax benefit                                                  (410,480)        (1,118,970)
                                                                             ----------------    ---------------
         Total benefit for income taxes                                      $      (299,830)    $     (794,910)
                                                                             ================    ===============

</TABLE>


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

<TABLE>
<CAPTION>


                                                                            For the Nine Months Ended September 30,
                                                                                    2004                2003
                                                                                    ----                ----
<S>      <C>                                                                 <C>                 <C>


         Income tax benefit at statutory federal income tax rate             $      (264,120)    $     (734,690)
         State tax benefit, net of federal benefit                                    (2,320)            (9,160)
         Tax rate differences                                                        (33,390)           (51,060)
                                                                             ----------------    ---------------
         Total income tax benefit                                            $      (299,830)    $     (794,910)
                                                                             ================    ===============
</TABLE>



<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

5.       Income Taxes (continued)

         Temporary differences and carryforwards that gave rise to a significant
portion of deferred tax assets and liabilities as of September 30, 2004 are as
follows:

         Deferred tax assets:
              Bad debt allowance                              $        152,900
              Deferred maintenance                                     480,750
              Maintenance reserves                                   2,714,740
              Prepaid rent and other                                    63,850
                                                              ----------------
                  Deferred tax assets                                3,412,240
         Deferred tax liabilities:
              Depreciation on aircraft and aircraft engines        (5,596,870)
              Unearned income                                          (9,790)
              Other                                                  (179,550)
                                                              ----------------
                  Net deferred tax liabilities                $    (2,373,970)
                                                              ================

         No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance sheet.

 6.      Related Party Transactions

         Since the Company has no employees, 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 may also
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 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. The Company recorded management fees of $1,459,140 and
$1,441,890 during the nine months ended September 30, 2004 and 2003,
respectively. The Company paid acquisition fees of $260,000 and $160,000 to JMC
in April and August 2004, respectively, in connection with the Company's
purchase of five aircraft. Because the Company did not acquire any aircraft
during the first nine months of 2003, no acquisition fees were paid to JMC. No
remarketing fees were accrued to JMC during the first nine months of 2004 or
2003.



<PAGE>



                                AeroCentury Corp.
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2004
                                    Unaudited

7.       Subsequent Events

         In October 2004, the Company signed a purchase agreement for the sale
of its Fairchild Metro III aircraft. The Company expects the sale to be complete
in the fourth quarter and that the sale will result in a gain of approximately
$130,000.

         In November 2004, the former lessee of one of the Company's aircraft
signed a note in the amount of approximately $625,000 for rent and maintenance
owed to the Company in excess of the security deposit held by the Company. The
note provides for eighteen monthly principal and interest payments beginning in
November 2004.

         In October 2004, the maturity date of the Company's credit facility was
extended through November 5, 2004. In November 2004, the Company reached
agreement with its lenders to renew its credit facility through October 31,
2005. The renewal agreement also revised certain pricing and covenant provisions
and waived compliance with two covenants at September 30, 2004.





<PAGE>



Item 2.  Management's Discussion and Analysis or Plan of Operation.

Overview

The Company is a lessor of turboprop aircraft and engines which are used by
customers pursuant to triple net operating leases. 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 owned
equipment that comes off lease. The Company is subject to the credit risk of its
lessees, both as to collection of rent and to performance by the lessees of
obligations for maintaining the aircraft. Since lease rates for assets in the
Company's portfolio generally decline as the assets age, the Company's ability
to maintain revenue and earnings over the medium and long term is dependent upon
the Company's ability to grow its asset portfolio.

The Company's principal expenditures are for interest costs on its financing,
management fees, and maintenance of its aircraft assets. Maintenance
expenditures are generally incurred only when aircraft are off lease, are being
prepared for re-lease, or require maintenance in excess of lease return
conditions.

The most significant non-cash expenses include accruals of maintenance costs to
be borne by the Company and aircraft depreciation, both of which are the result
of significant estimates. Maintenance expenses are estimated and accrued based
upon utilization of the aircraft. Depreciation is recognized based upon the
estimated residual value of the aircraft at the end of their estimated lives.
Deviation from these estimates could have a substantial effect on the Company's
cash flow and profitability.

Critical Accounting Policies

In response to the Securities and Exchange Commission's Release No. 33-8040,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies," the
Company has identified the most critical accounting policies upon which its
financial status depends. It determined the critical policies by considering
those that involve the most complex or subjective decisions or assessments. The
Company identified these policies to be those related to valuation of aircraft,
depreciation, maintenance reserves and accrued costs, and lease rental revenue
recognition.

a.       Use of Estimates

In preparing its financial statements, as well as in evaluating future cash
flow, the Company makes significant estimates, including the residual values of
the aircraft, the useful lives of the aircraft, the amount and timing of cash
flow associated with each aircraft that are used to evaluate impairment, if any,
accrued maintenance costs in excess of amounts received from lessees, and
amounts recorded as bad debt allowances. Actual results will likely vary from
estimates.

The Company continually evaluates both short and long term maintenance expected
to be required for each of its aircraft, including the estimated cost thereof,
and compares it to the maintenance reserves established for each aircraft. With
respect to estimated maintenance costs, the Company has found its accruals to be
generally accurate. Nevertheless, the Company has incurred significant
maintenance expense in connection with (i) aircraft which were returned early in
a condition worse than required by the lease and (ii) aircraft which were
returned at lease end in better condition than required by the lease which under
the terms of the lease required that the Company compensate the lessee for the
better condition. Specifically, the Company incurred maintenance expense of
approximately $442,000 and $1,864,000 in connection with the early return of
aircraft in 2004 and 2003, respectively.

b.       Impairment of Long-lived Assets

The Company periodically reviews its portfolio of assets for impairment in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets." Such review
necessitates estimates of current market values, re-lease rents, residual values
and component values. The estimates are based on currently available market data
and third-party appraisals and are subject to fluctuation from time to time. The
Company initiates its review periodically, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset may not be
recoverable. Recoverability of an asset is measured by comparison of its
carrying amount to the expected future undiscounted cash flows (without interest
charges) that the asset is expected to generate. Any impairment to be recognized
is measured by the amount by which the carrying amount of the asset exceeds its
fair market value. Significant management judgment is required in the
forecasting of future operating results which are used in the preparation of
projected undiscounted cash flows and should different conditions prevail,
material write downs may occur. In accordance with its periodic review of its
portfolio of assets for impairment, during the third quarter of 2004, the
Company recorded a provision for impairment of approximately $463,000 for one of
its aircraft, based on the Company's cash flow analysis and third party
appraisals.

<PAGE>


c.       Depreciation Policies

The Company's interests in aircraft and aircraft engines are recorded at cost,
which includes acquisition costs. Depreciation is computed using the
straight-line method over the aircraft's estimated economic life (generally
assumed to be twelve years from the date of acquisition), to an estimated
residual value based on appraisal.

d.       Maintenance Reserves and Accrued Costs

Maintenance costs under the Company's triple net leases are generally the
responsibility of the lessees. Maintenance reserves and accrued costs in the
accompanying balance sheet include refundable and non-refundable maintenance
payments received from lessees. The Company periodically reviews maintenance
reserves for each of its aircraft for adequacy in light of the number of hours
flown, airworthiness directives issued by the manufacturer or government
authority, and the return conditions specified in the lease, as well as the
condition of the aircraft upon return or inspection. As a result of such review,
if it is probable that the Company has incurred costs for maintenance in excess
of amounts received from lessees, the Company accrues its share of costs for
work to be performed.

e.       Revenue Recognition

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. If
the Company deems a portion of operating lease revenue as potentially
uncollectible, the Company records an allowance for doubtful accounts.

Results of Operations

a.       Revenues

Operating lease revenue was approximately $104,000 lower in the nine months
ended September 30, 2004, versus the same period in 2003, primarily because of
lower lease rates for aircraft re-leased during 2003 and 2004 and the effect of
aircraft off lease during 2004. These decreases, totaling approximately
$928,000, were partially offset by an increase of approximately $824,000
resulting from aircraft purchased during 2004 and the re-lease of several
aircraft which had been off lease in 2003. Operating lease revenue was
approximately $216,000 higher in the three months ended September 30, 2004
versus 2003 primarily because of the combined effect, totaling approximately
$502,000, of operating lease revenue from aircraft purchased during 2004 and the
re-lease of several aircraft which had been off lease in 2003. These increases
were partially offset by lower lease rates for aircraft re-leased after the
third quarter of 2003 and the effect of aircraft off lease during the third
quarter of 2004, the sum of which was a total of approximately $286,000.

Gain on sale of aircraft and aircraft engines was approximately $21,000 higher
in the nine months and three months ended September 30, 2004 versus the same
periods in 2003 as a result of the sale of one of the Company's turboprop
engines, which resulted in a gain of approximately $172,000, the effect of which
was partially offset by the sale of one of the Company's deHavilland DHC-7
aircraft, which resulted in a loss of approximately $151,000. There were no
sales in the same periods of 2003.

<PAGE>


Other income was approximately $227,000 and $158,000 higher in the nine months
and three months, respectively, ended September 30, 2004 versus the same periods
in 2003 because of note payments received from a former lessee on a fully
reserved note and because, in 2004, based on the lessee's payment history to
date, the Company reversed a portion of the allowance, which decreased the
allowance to 50% of the note balance. The Company continues to monitor the
lessee's payment timeliness and will evaluate further reversals of the allowance
as the Company deems appropriate.

b.       Expense items

Depreciation was approximately $118,000 and $53,000 higher in the nine months
and three months ended September 30, 2004 versus the same periods in 2003,
respectively, primarily because of the purchase of aircraft in April and July
2004, the effect of which was partially offset by the sale of two assets in the
third quarter of 2004. Management fees were approximately $17,000 and $25,000
higher in the nine month and three month periods of 2004 compared to 2003,
respectively, for the same reasons.

Interest expense was approximately $335,000 and $164,000 higher in the nine
months and three months ended September 30, 2004, respectively, versus the same
periods in 2003, primarily as a result of higher average interest rates arising
from changes in the Company's credit facility in the third quarter of 2003 and
higher market interest rates, the effect of which was partially offset by a
lower average principal balance in 2004 compared to 2003.

Professional fees and general and administrative expenses were approximately
$145,000 and $150,000 higher in the nine months and three months ended September
30, 2004, respectively, primarily as a result of higher accounting fees and fees
accrued in connection with the reversal of a portion of the allowance on a note
receivable which had been fully reserved previously. In addition, legal fees
were higher in the three month period of 2004 as a result of the early return of
two aircraft by a lessee.

In accordance with its periodic review of its portfolio of assets for
impairment, during the third quarter of 2004, the Company recorded a provision
for impairment of approximately $463,000 for one of its aircraft, based on the
Company's cash flow analysis and third party appraisals.

Maintenance expense was approximately $1,432,000 lower in the nine month period
of 2004 versus 2003, primarily as a result of the default on two leases and
subsequent return of the aircraft and the early return of a third aircraft by a
carrier in the second quarter of 2003 and the accrued maintenance related to
making the aircraft ready for re-lease or sale. Maintenance expense was
approximately $313,000 higher in the three month period of 2004 versus 2003,
primarily as a result of estimated costs necessary to ready two aircraft, which
were returned early by a lessee, for re-lease.

Insurance expense was approximately $17,000 and $13,000 higher in the nine month
and three month periods of 2004 primarily as a result of having to provide owner
coverage on aircraft for more off-lease days in 2004 as compared to 2003. This
increase was partially offset by lower rates per dollar of coverage in 2004
versus 2003.

Bad debt expense was approximately $903,000 lower and $147,000 higher in the
nine month and three month periods ended September 30, 2004, respectively,
versus the same periods in 2003. In the first six months of 2003, the Company
recorded bad debt expense in connection with the default described above, as
well as a write-off of accrued rent and estimated maintenance work performed in
connection with the end-of-lease return of an aircraft from another regional air
carrier in 2003. In the third quarter of 2004, the Company recorded bad debt
expense for rent and reserves written off in connection with the early return of
two aircraft by a lessee.

The Company's effective tax rates in the nine months ended September 30, 2004
and 2003 were approximately 39% and 37%, respectively. The change in rate was
primarily a result of the recognition of tax benefits relating to different
state tax rates than had been accrued in prior years. Since the Company incurred
a loss for both nine month periods, the recognition of tax benefits related to
the reduced state tax rates increased the Company's tax benefit from the loss
and its effective tax rate. The loss for the nine month period ended September
30, 2004 was less than the loss for the nine month period ended September 30,
2003. As a result, the recognition of tax benefits related to the reduced state
tax rates increased the effective tax rates more for the nine month period ended
September 30, 2004, than for the nine month period ended September 30, 2003.

<PAGE>


For the three month periods ending September 30, 2004 and 2003 the Company's
effective tax rates were 36% and 20%, respectively. Since the Company had income
for the three month period ended September 30, 2003, the recognition of tax
benefits related to the reduced state tax rates decreased the Company's
effective tax rate for that period. Conversely, the Company incurred a loss for
the three month period ended September 30, 2004, so that the recognition of the
tax benefits related to reduced state tax rates increased the Company's tax
benefit from the loss and its effective tax rate for that three month period.

Liquidity and Capital Resources

The Company is currently financing its assets primarily through credit facility
borrowings, special purpose financing and excess cash flow.

a.       Credit facility

In August 2003, the Company reached agreement with its lenders to renew the
credit facility through August 31, 2004. In January 2004, a third bank was added
to the Company's credit facility participant group. The new participant agreed
to finance $10 million, bringing the Company's credit facility limit to $50
million. The facility bears interest, at the Company's option, at either (i)
prime plus a margin of 50 to 150 basis points or (ii) LIBOR plus a margin of 275
to 375 basis points. Both the prime and LIBOR margins are determined by certain
financial ratios. In August 2004, the maturity date was extended to October 29,
2004 and was subsequently extended to November 5, 2004.

In November 2004, the credit facility was renewed through October 31, 2005. In
connection with the renewal, certain covenant provisions were revised and the
LIBOR margin was set at 375 basis points through March 2005, after which a
margin of 275 to 375 basis points will be determined by certain financial
ratios.

In accordance with the agreement for the credit facility, the Company must
maintain compliance with certain financial covenants. The Company was out of
compliance with a financial ratio covenant on September 30, 2004, as well as a
covenant which requires positive quarterly earnings. As part of the credit
facility renewal, the banks waived those covenants at September 30, 2004. The
Company was in compliance with all other covenants, $38,305,000 was outstanding
under the credit facility, and interest of $160,760 was accrued at September 30,
2004.

In the first nine months of 2004, the Company repaid a total of $6,050,000 of
the outstanding principal under its credit facility. Based on its current
projections, the Company believes it will continue to be in compliance with all
covenants of its credit facility on measurement dates after September 30, 2004,
but there can be no assurance of such compliance. See "Factors That May Affect
Future Results - 'Credit Facility Obligations' and 'Risks of Debt Financing',"
below.

The Company's interest expense in connection with the credit facility generally
moves up or down with prevailing interest rates, as the Company has not entered
into any interest rate hedge transactions for the credit facility indebtedness.
Because aircraft owners seeking financing generally can obtain financing through
either leasing transactions or traditional secured debt financings, prevailing
interest rates are a significant factor in determining market lease rates, and
market lease rates generally move up or down with prevailing interest rates,
assuming supply and demand of the desired equipment remain constant. However,
because lease rates for the Company's assets typically are fixed under existing
leases, the Company normally does not experience any positive or negative impact
in revenue from changes in market lease rates due to interest rate changes until
existing leases have terminated.

b.       Special purpose financing

In September 2000, the Company acquired a deHavilland DHC-8 aircraft using cash
and bank financing separate from its credit facility. The financing resulted in
a note obligation, as amended, in the amount of $3,575,000, due April 15, 2006,
which bears interest at the rate of one-month LIBOR plus 3%. The note is
collateralized by this aircraft and is non-recourse to the Company. Payments due
under the note consist of monthly principal and interest and a balloon principal
payment due on the maturity date. The financing also provides for a six month
remarketing period at the expiration or earlier termination of the lease.
Payments due on the financing are reduced during this remarketing period and the
balloon principal payment is due at the end of the six month period. The balance
of the note payable at September 30, 2004 was $1,965,490 and interest of $2,110
was accrued. As of September 30, 2004, the Company was in compliance with all
covenants of this note obligation.

<PAGE>


The availability of special purpose financing in the future will depend on
several factors including (1) the availability of funds to be used for the
equity portion of the financing, (2) the type of asset being financed and, (3)
the creditworthiness of the underlying lessee. The availability of funds for the
equity portion of the financing will be dependent on the Company's cash flow, as
discussed in "Cash Flow," below.

c.       Cash flow

The Company's primary source of revenue is lease rentals of its aircraft assets.
It is the Company's policy to monitor each lessee's needs in periods before
leases are due to expire. If it appears that a customer will not be renewing its
lease, the Company immediately initiates marketing efforts to locate a potential
new lessee or purchaser for the aircraft. The goal of this procedure is to
reduce the time that an asset will be off lease. The Company's aircraft are
subject to leases with varying expiration dates through July 2009.

Management believes that the Company will have adequate cash flow to meet its
ongoing operational needs, including required repayments under its credit
facility, based upon (i) its estimates of future revenues and expenditures and
(ii) the expectation that the credit facility will be renewed on or before
expiration. The Company's expectations concerning such cash flows are based on
existing lease terms and rents, as well as numerous estimates, including (i)
rents on assets to be re-leased, (ii) sale proceeds of certain assets currently
under lease, (iii) the cost and anticipated timing of maintenance to be
performed and (iv) acquisition of additional aircraft and the lease thereof at
favorable lease terms. While 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 external
factors outside the Company's control that could have an impact on the accuracy
of cash flow assumptions are (i) an increase in interest rates that negatively
affects the Company's GAAP profitability and causes the Company to violate
covenants of its credit facility, requiring repayment of some or all of the
amounts outstanding under its credit facility, (ii) lessee non-performance or
non-compliance with lease obligations (which may affect credit line collateral
limitations as well as revenue and expenses) and (iii) an unexpected
deterioration of demand for aircraft equipment.

(i)      Operating activities

The Company's cash flow from operations for the nine months ended September 30,
2004 versus the nine months ended September 30, 2003 increased by approximately
$1,132,000. The change in cash flow is a result of changes in several cash flow
items during the period, including principally the following:

         Lease rents, maintenance reserves and security deposits

Although lease revenue was lower in the nine months ended September 30, 2004
versus the nine months ended September 30, 2003, lease rental collections were
approximately $470,000 higher in 2004, primarily as a result of cash payments
received for rent deferred during 2003. It is expected that rental rates on
aircraft to be re-leased will continue to decline, so that, absent additional
acquisitions by the Company, aggregate lease revenues for the current portfolio
can be expected to decline over the long term.

Payments received from lessees for maintenance reserves increased by
approximately $1,289,000 in the nine months ended September 30, 2004 versus the
same period in 2003, reflecting principally an increase in usage by lessees of
the aircraft that are owned and on lease by the Company and reserves received
from the seller of the aircraft purchased by the Company in July 2004. Security
deposits collected from lessees decreased by approximately $125,000 in 2004
primarily as a result of deposits refunded to lessees at lease expiration or
applied to past due amounts.

<PAGE>


         Expenditures for maintenance

Expenditures for maintenance were approximately $78,000 more in the nine months
ended September 30, 2004 than in the nine months ended September 30, 2003
primarily as a result of the payment of a portion of maintenance accruals
recorded in 2003 in connection with the return of three aircraft from a lessee
declared in default of its obligations.

         Aircraft insurance

Expenditures for aircraft insurance increased by approximately $220,000 during
the nine months ended September 30, 2004 compared to the same period in 2003,
primarily as a result of higher prepayments, which are based on the Company's
estimated off-lease aircraft at the time of the policy's renewal in April of
each year. Actual insurance expense depends on the aircraft which are off lease
in any given period.

         Expenditures for interest

Expenditures for interest expense increased by approximately $191,000 in the
nine months ended September 30, 2004 versus the nine months ended September 30,
2003, primarily as a result of changes in the Company's credit facility in the
third quarter of 2003 and higher market interest rates. Interest expenditures in
future periods will be a product of prevailing interest rates and the
outstanding principal balance on financings, which may be influenced by future
acquisitions and/or required repayments resulting from changes in the collateral
base.

         Prepaid expenses

Expenditures for prepaid costs were approximately $89,000 lower in 2004 than in
2003, primarily as a result of amounts paid in 2003 for equipment added to
aircraft and capitalized in 2004.

         Income taxes

Current income tax payments decreased by approximately $173,000, as a result of
decreased taxable income, resulting from increased depreciation on aircraft
acquired in 2004, increased interest deductions primarily as a result of higher
average interest rates arising from changes in the Company's credit facility in
the third quarter of 2003, and increased maintenance expense related to
off-lease aircraft. In addition, decreased lease revenue during 2004 contributed
to the decrease in taxable income. The effect of these items was partially
offset by a decrease in bad debt expense from year to year.

(ii)     Investing activities

The increase in cash flow used for investing activities for the nine months
ended September 30, 2004 versus the same period in 2003 was primarily due to the
Company's purchase of aircraft in April and July 2004 versus no purchases in
2003.

(iii)    Financing activities

Although the Company borrowed $5,200,000 on its credit facility to fund the
purchase of four aircraft in April 2004, it also repaid approximately $4,432,000
more of its outstanding debt in the nine months ended September 30, 2004 than it
repaid in 2003, resulting in an increase in cash provided by financing
activities of approximately $768,000.



<PAGE>



Outlook

The Company continually monitors the financial condition of its lessees in order
to minimize the likelihood of significant defaults. In particular, the Company
is currently monitoring the performance of a lessee of two of the Company's
aircraft. These leases were recently amended to remedy an arrearage of rent,
which was paid during the third quarter, and to defer a portion of rent payments
due during the second half of 2004 to the first half of 2005. Any further
weakening in the aircraft industry may also affect the performance of lessees
that currently appear creditworthy. See "Factors that May Affect Future Results
- General Economic Conditions," below.

Although the Company purchased four aircraft in April 2004 and one aircraft in
July 2004, additional acquisitions of leased assets will be necessary to offset
the anticipated decreased lease rates which will result from the re-lease of the
Company's current portfolio. The Company's banks have not yet approved the July
transaction for inclusion of the purchased aircraft in the credit facility
borrowing base. Until such approval, the Company's ability to borrow is more
limited that it otherwise would be, which will affect the Company's results. The
Company expects the lenders to reach a decision on this transaction in the first
quarter of 2005.

In accordance with its periodic review of its portfolio of assets for
impairment, the Company recorded a provision for impairment of approximately
$463,000 for one of its aircraft, based on the Company's cash flow analysis and
third party appraisals. Any future adjustments, if necessary, would negatively
affect the Company's financial results and the collateral available for the
Company's credit facility. In addition, the Company's periodic review of the
adequacy of its maintenance reserves, as well as routine and
manufacturer-required maintenance for any off-lease aircraft, may result in
changes to estimated maintenance expense, further reducing earnings.

Maintenance on one of the three aircraft which were returned early by a
defaulted lessee was completed and the aircraft was delivered to a new lessee in
the first quarter of 2004. Maintenance on one of the other two returned assets,
both of which are DHC-7 aircraft, was completed in the third quarter of 2004 and
the aircraft was sold. Maintenance on the second DHC-7 aircraft has begun and is
expected to be complete in the fourth quarter of 2004. The Company believes that
the aircraft, once ready, will be relatively difficult to remarket based on
prior experience with this type of aircraft. Therefore, the Company anticipates
that a substantial amount of time may pass before this aircraft returns to
revenue-generating status. See "Factors that May Affect Future Results -
Remarketing of Repossessed Dash 7 Aircraft," below.

As a result of depreciation and borrowing base restrictions with respect to
aircraft having leases expiring in 2004 and early 2005, the Company may be
required to make principal repayments under its credit facility. A focus of the
Company, therefore, continues to be re-leasing aircraft that come off lease to
limit the amount of any required repayment. Management believes that the Company
will have sufficient cash to fund any required repayments resulting from
scheduled lease expirations.

The former lessee of one of the Company's aircraft has signed a note in the
amount of approximately $625,000 for rent and maintenance in excess of the
security deposit which was held by the Company. Previously, the Company had
recorded a $250,000 allowance against the amount receivable and believes this
allowance is adequate to cover any shortfall in payment under the note.

Factors that May Affect Future Results

Covenant Compliance in the Fourth Quarter. The Company was not in compliance
with two financial covenants under the credit facility measured at September 30,
2004, relating to the Company's quarterly net loss and EBITDA-to-interest ratio.
In the agreement renewing the credit facility entered into as of November 4,
2004, the lenders waived compliance with those covenants for the September 30
measurement. The Company will be required to be in compliance with all covenants
as of December 31, 2004. While the Company believes its financial results for
the fourth quarter will comply with applicable financial ratio covenants, there
can be no assurance that the Company's assumptions relating to fourth quarter
results will prove accurate. If the Company is not in compliance with the
financial covenants in the credit facility, the lenders may declare the Company
in default of the credit facility and accelerate all indebtedness under the
facility. If this occurs, the Company would need to find replacement financing
immediately, or if none were available, sell its assets to fund repayment of the
accelerated debt. See, "Risks of Debt Financing", below.

<PAGE>


Term of Credit Facility. As discussed in "Liquidity and Capital Resources --
Credit Facility" above, the term of the credit facility was extended for one
year, until October 31, 2005. The Company's longer term viability will depend
upon its ability to renew the credit facility at its expiration with the
existing or replacement lenders, or to refinance the credit facility using
equity or alternative debt financing. There is no assurance that the Company
will be able to achieve either alternative prior to the currently scheduled
expiration of the credit line on October 31, 2005.

If the Company is not able to renew the credit facility for the full outstanding
amount, and cannot find suitable alternative financing, it may be required to
repay the outstanding balance, or that portion of the balance for which
replacement financing is not obtained. The Company does not have sufficient cash
reserves to make a repayment of a significant portion of the outstanding credit
facility indebtedness and would be forced to sell assets in order to raise funds
to make such repayment. Such sales would likely not be on favorable terms to the
Company as the full market value of the assets sold may not be realized by the
Company in order to expedite the consummation of the sales.

In any event, if a renewed or replacement facility is not obtained, the
Company's future ability to acquire assets will be significantly impaired, as
the credit facility is the Company's primary means of financing acquisitions and
no other sources of acquisition financing are immediately available. Thus the
renewal or replacement of the Company's credit line facility in an amount equal
or greater than the current $50 million limit will be critical to the Company's
asset and revenue growth. The approval of the banks for the inclusion of the
aircraft purchased by the Company in July 2004 in the credit facility collateral
base will be a critical factor in the Company's ability to acquire additional
assets in the short term. If such approval is not received, it is likely the
Company will not be able to acquire any assets unless the credit facility is
increased. See "Outlook," above.

Credit Facility Obligations. The Company is obligated to make repayment of
principal under the credit facility in order to maintain certain debt ratios
with respect to its assets in the borrowing base. Assets that come off lease and
remain off-lease for a period of time are removed from the borrowing base The
Company believes it will have sufficient cash funds to make any payment that
arises due to borrowing base limitations caused by assets scheduled to come off
lease in the near term. The Company's belief is based on certain assumptions
regarding renewal of existing leases, a lack of extraordinary interest rate
increases, continuing GAAP profitability, no lessee defaults or bankruptcies,
and certain other matters that the Company deems reasonable in light of its
experience in the industry. There can be no assurance that the Company's
assumptions will prove to be correct. If the assumptions are incorrect (for
example, if an asset in the collateral base unexpectedly goes off lease for an
extended period of time) and the Company has not obtained an applicable waiver
or amendment of applicable covenants from its lenders to deal with the
situation, the Company may have to sell a significant portion of its portfolio
in order to maintain compliance with covenants or face default on its credit
facility.

Factors that negatively affect the Company's GAAP profitability could in turn
cause non-compliance by the Company with financial covenants of its credit
facility. Unless the violated covenants are waived or amended, lenders could
require the Company to make a principal repayment of the outstanding balance, or
that portion of the balance for which replacement financing is not obtained.
"Covenant Compliance in the Fourth Quarter"

Concentration of Lessees and Aircraft Type. The Company's four biggest customers
now comprise approximately 60% of the Company's current monthly lease revenue.
The lessees, doing business in Taiwan, Sweden, Indonesia and the US, constitute
approximately 22%, 18%, 10% and 10% of the Company's monthly lease revenue,
respectively. A lease default by or collection problems with one of these
customers could have a disproportionate negative impact on the Company's
financial results, and therefore, the Company's operating results will be
especially sensitive to any negative developments with respect to these
significant customers in terms of lease compliance or collection. Such
concentration of lessee credit risk will diminish in the future only if the
Company is able to lease additional assets to new lessees.

<PAGE>


The acquisition of four Fokker 50 aircraft in April 2004 also makes this
aircraft type the dominant aircraft in the portfolio, constituting 10 of the 25
aircraft in the portfolio. As a result, a change in the desirability and
availability of Fokker 50 aircraft, which would in turn affect valuations of
such aircraft, would have a disproportionately large 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 additional
Fokker 50 aircraft will increase the Company's risks related to its
concentration of aircraft type.

Increased Compliance Costs. Due to new Sarbanes-Oxley requirements applicable to
the Company by December 2005 relating to internal controls and auditors'
responsibilities to review and opine on those controls, the Company anticipates
that the fees and expenses in connection with audit services are likely to
significantly increase. The increase will generally arise from increased auditor
responsibilities as well as an increased scope of examination of the Company
which will broaden to include the Company's internal controls. Audit fees are
expected to increase by approximately 100% and there may be additional costs
arising from mandated testing of internal controls that will begin to take place
in 2005 and be performed on a continual basis thereafter. The Company does not
have an exact figure on the increased costs, as this amount can only be
determined as the Company proceeds further with its analysis of current internal
controls. The Company, however, anticipates that it will have sufficient funds
to pay for the increased compliance cost.

Remarketing of Repossessed Dash 7 Aircraft. In 2003, the Company repossessed two
deHavilland DHC-7 aircraft, one of which was sold in July 2004. The remaining
DHC-7 is a special purpose aircraft with short take-off and landing abilities,
which makes it attractive to specific niche operators. Because it has four
engines, however, it is relatively more expensive to operate than two-engine
50-passenger turboprop aircraft and, therefore, unattractive to operators who do
not require the aircraft's special characteristics. Thus, it has been the
Company's experience that the remarketing period for DHC-7 aircraft may be
significantly longer than for other similar turboprop aircraft. Consequently, a
significant amount of time may pass before the DHC-7 aircraft begins to generate
cash flow and contribute to earnings for the Company either through a re-lease
or sale of the aircraft.

Risks of Debt Financing. The Company's use of acquisition financing under its
credit facility and its special purpose financings subject the Company to
increased risks of leveraging. If, due to a lessee default, the Company is
unable to repay the debt secured by the aircraft acquired, then the Company
could lose title to the acquired aircraft in a foreclosure proceeding. With
respect to the credit facility, the loans are secured by the Company's existing
assets as well as the specific assets acquired with each financing. In addition
to payment obligations, the credit facility also requires the Company to comply
with certain financial covenants, including a requirement of positive quarterly
earnings, interest coverage and net worth ratios. Any default under the credit
facility, if not waived by the lenders, could result in foreclosure upon not
only the asset acquired using such financing, but also the existing assets of
the Company securing the loan.

General Economic Conditions. The Company's business is dependent upon general
economic conditions and the strength of the travel and transportation industry.
The industry recently experienced a severe cyclical downturn which began in
2001. This downturn was exacerbated by the terrorist attacks of September 11,
2001 and a reduction in airline passenger loads caused by Severe Acute
Respiratory Syndrome ("SARS") in 2002. As a result, there was an overall
significant reduction in air travel and less demand for aircraft capacity by the
major air carriers. There are signs that the industry is beginning to recover
from the downturn, but it is unclear whether any recovery will be a sustained
one. Any recovery could be stalled or reversed by any number of events or
circumstances, including the global economy slipping back into recession, or
specific events related to the air travel industry, such as further weakening of
the air carrier or travel industries as a result of terrorist attacks, or an
increase in operational or labor costs. Recent spikes in oil prices, if they
persist, may have a particularly deleterious effect on airline revenue and
increase the likelihood of weakening results for airlines that have not hedged
aircraft fuel costs, and in the most extreme cases, may initiate or accelerate
the failure of many already marginal carriers.

Since regional carriers are generally not as well-capitalized as major air
carriers, any economic setback in the industry may result in the increased
possibility of an economic failure of one or more of the Company's lessees,
particularly since many carriers are undertaking expansion of capacity to
accommodate the recovering air passenger traffic. If lessees experience
financial difficulties, this could, in turn, affect the Company's financial
performance.

<PAGE>


During any periods of economic contraction, carriers generally reduce capacity,
in response to lower passenger loads, and as a result there is a reduced demand
for aircraft and a corresponding decrease in market lease rental rates and
aircraft values. This reduced market value for aircraft could affect the
Company's results if the market value of an asset or assets in the Company's
aircraft portfolio falls below book value, and the Company determines that a
write-down of the value on the Company's balance sheet is appropriate.
Furthermore, as older leases expire and are replaced by lease renewals or
re-leases at decreasing lease rates, the lease revenue of the Company on its
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 specific regions of the world exclusively. As the
Company's portfolio is not entirely globally diversified, a localized downturn
in one of the key regions in which the Company leases aircraft (e.g., Europe or
Asia) could have a significant adverse impact on the Company.

Interest Rate Risk. All of the Company's current credit facility indebtedness
carries a floating interest rate based upon either the lender's prime rate or a
floating LIBOR rate. Lease rates, generally, but not always, move with interest
rates. Because lease rates are fixed at the origination of leases, interest rate
increases during the term of a lease have no effect on existing lease 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 lower net earnings. The Company has not hedged its interest
rate obligations. Consequently, if an interest rate increase were great enough,
the Company might not be able to generate sufficient lease revenue to meet its
interest payment and other obligations and comply with the net earnings covenant
of its credit facility.

Leasing Risks. The Company's successful negotiation of lease extensions,
re-leases and sales may be critical to its ability to achieve 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 remarket
equipment at acceptable rates may depend on the demand and market values at the
time of remarketing. The Company anticipates that the bulk of the equipment it
acquires will be used aircraft equipment. The market for used aircraft is
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. The Company's expected
concentration in a limited number of airframe and aircraft engine types
(generally, turboprop equipment) subjects the Company to economic risks if those
airframe or engine types should decline in value. If "regional jets" were to be
used on short routes previously served by turboprops, even though regional jets
are more expensive to operate than turboprops, the demand for turboprops could
lessen. This could result in lower lease rates and values for the Company's
existing turboprop aircraft.

Lessee Credit Risk. If a customer defaults upon its lease obligations, the
Company may be limited in its ability to enforce remedies. Most of the Company's
lessees are small regional passenger airlines, which may be even more sensitive
to airline industry market conditions than the major airlines. As a result, the
Company's inability to collect rent under a lease or to repossess equipment in
the event of a default by a lessee could have a material adverse effect on the
Company's revenue. If a lessee that is a certified U.S. airline is in default
under the lease and seeks protection under Chapter 11 of the United States
Bankruptcy Code, Section 1110 of the Bankruptcy Code would automatically prevent
the Company from exercising any remedies for a period of 60 days. After the
60-day period has passed, the lessee must agree to perform the obligations and
cure any defaults, or the Company will have the right to repossess the
equipment. This procedure under the Bankruptcy Code has been subject to
significant recent 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. Most of the Company's lessees are foreign and
not subject to U.S. bankruptcy laws but there may be similar applicable foreign
bankruptcy debtor protection schemes available to foreign carriers.

<PAGE>


Risks Related to Regional Air Carriers. Because the Company has concentrated its
existing leases and intends to concentrate on future leases to regional air
carriers, it is subject to certain risks. Some of the lessees in the regional
air carrier market are companies that are start-up, low capital, low margin
operations. Often, the success of such carriers is dependent upon arrangements
with major trunk carriers, which may be subject to termination or cancellation
by such major carrier. These types of lessees result in a generally higher lease
rate on aircraft, but may entail higher risk of default or lessee bankruptcy.
The Company evaluates the credit risk of each lessee carefully, and attempts to
obtain a third party guaranty, letters of credit or other credit enhancements,
if it deems them necessary. There is no assurance, however, that such
enhancements will be available or that if obtained they will fully protect the
Company from losses resulting from a lessee default or bankruptcy. Also, a
significant area of growth of this market is in areas outside of the United
States, where collection and enforcement are often more difficult and
complicated than in the United States.

Reliance on JMC. All management of the Company is performed by JMC under a
management agreement which is in the seventh year of a 20-year term 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 has ultimate control and
supervisory responsibility over all aspects of the Company and owes fiduciary
duties to the Company and its stockholders. While JMC may not owe any fiduciary
duties to the Company by virtue of the management agreement, the officers of JMC
are also officers of the Company, and in that capacity owe fiduciary duties to
the Company and the stockholders by virtue of holding such offices with the
Company. In addition, certain officers of the Company hold significant ownership
positions in JHC and the Company.

The JMC 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. All of the
officers of JMC are also officers of the Company, and certain directors of the
Company are also directors of 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 management company for two other aircraft portfolio owners,
JetFleet III, which raised approximately $13,000,000 from investors, and
AeroCentury IV, Inc. ("AeroCentury IV"), which raised approximately $5,000,000
from investors.

In the first quarter of 2002, AeroCentury IV defaulted on certain obligations to
noteholders. In June 2002, the indenture trustee for AeroCentury IV's
noteholders repossessed AeroCentury IV's assets and took over management of
AeroCentury IV's remaining assets. JetFleet III defaulted on its Bond obligation
of $11,076,350 in May 2004. The indenture trustee for JetFleet III bondholders
repossessed JetFleet III's unsold assets in late May 2004.

Ownership Risks. Most of the Company's portfolio is leased under operating
leases, where the terms of the leases are less than the entire anticipated
useful life of an asset. The Company's ability to recover its purchase
investment in an asset subject to an operating lease is dependent upon the
Company's ability to profitably re-lease or sell the asset after the expiration
of the initial lease term. Some of the factors that have an impact on the
Company's ability to re-lease or sell 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 which cause
the asset to become obsolete. In addition, a successful investment in an asset
subject to an operating lease depends in part upon having the asset returned by
the lessee in serviceable condition as required under the lease. If the Company
is unable to remarket its aircraft equipment on favorable terms when the
operating leases for such equipment expire, the Company's business, financial
condition, cash flow, ability to service debt and results of operations could be
adversely affected.

Furthermore, during the ownership of an asset, an asset impairment charge
against the Company's earnings may result from the occurrence of unexpected
adverse changes that impact the Company's estimates of expected cash flows
generated from such asset. The Company periodically reviews long-term assets for
impairments, 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 not recoverable and exceeds
its fair value. The Company may be required to recognize asset impairment
charges in the future as a result of the continued weak economic environment,
challenging market conditions in the airline industry or events related to
particular lessees, assets or asset types.

<PAGE>


International Risks. The Company has focused on leases in overseas markets,
which the Company believes present opportunities. Leases with foreign lessees,
however, may present somewhat different credit risks than those with domestic
lessees.

Foreign laws, regulations and judicial procedures may be more or less protective
of lessor rights than those which apply in the United States. The Company could
experience collection or repossession problems related to the enforcement of its
lease agreements under foreign local laws and the remedies in foreign
jurisdictions. The protections potentially offered by Section 1110 of the
Bankruptcy Code do not apply to non-U.S. carriers, and applicable local law may
not offer similar protections. 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.

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. On the other hand, a foreign economy may remain strong even though
the U.S. economy does not. A foreign economic downturn may impact a foreign
lessee's ability to make lease payments, even though the U.S. and other
economies remain stable. Furthermore, 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. 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 lease payments,
increasing the risk of default of that lessee, particularly if its revenue is
primarily derived in the local currency.

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 and more experience than the Company. However, 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 lessee credits that may be
strong, but are generally unrated, is not well served by the Company's larger
competitors in the aircraft industry. JMC has developed a reputation as a global
participant in this segment of the market, and the Company believes that JMC's
reputation will benefit the Company. There is, however, no assurance that the
lack of significant competition from the larger aircraft leasing companies will
continue or that the reputation of JMC will continue to be strong in this market
segment.

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. Further, some protection may
be provided by the United States Aviation Act with respect to the Company's
aircraft assets. It is, however, not clear to what extent such statutory
protection would be available to the Company, and the United States Aviation Act
may not apply to aircraft operated in foreign countries. Also, although the
Company's leases generally require a lessee to insure against likely risks,
there may be certain cases where the loss is not entirely covered by the lessee
or its insurance. Though this is a remote possibility, an uninsured loss with
respect to the equipment, or an insured loss for which insurance proceeds are
inadequate, would result in a possible loss of invested capital in and any
profits anticipated from, such equipment, as well as a potential claim directly
against the Company.

<PAGE>


Possible Volatility of Stock Price. The market price of the Company's common
stock could be subject to fluctuations in response 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, some of which may be unrelated to the Company's
performance. Also, because the Company has a relatively small capitalization of
approximately 1.5 million shares, there is a correspondingly limited amount of
trading of the Company's shares. Consequently, a single or small number of
trades could result in a market fluctuation not related to any business or
financial development concerning the Company.

Item 3. Controls and Procedures

Quarterly evaluation of the Company's Disclosure Controls and Internal Controls.
As of the end of the period covered by this report, the Company evaluated the
effectiveness of the design and operation of its "disclosure controls and
procedures" ("Disclosure Controls"), and its "internal controls over financial
reporting" ("Internal Controls"). This evaluation (the "Controls Evaluation")
was done under the supervision and with the participation of management,
including the Company's Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"). Rules adopted by the SEC require that in this section of the
Report the Company present the conclusions of the CEO and the CFO about the
effectiveness of our Disclosure Controls and Internal Controls based on and as
of the date of the Controls Evaluation.

CEO and CFO Certifications. Attached as exhibits to this report are two separate
forms of "Certifications" of the CEO and the CFO. The first form of
Certification is required in accordance with Section 302 of the Sarbanes-Oxley
Act of 2002 (the "Section 302 Certification"). This section of the report which
you are currently reading is the information concerning the Controls Evaluation
referred to in the Section 302 Certifications and this information should be
read in conjunction with the Section 302 Certifications for a more complete
understanding of the topics presented.

Disclosure Controls and Internal Controls. Disclosure Controls are procedures
that are designed with the objective of ensuring 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 Securities and
Exchange Commission's ("SEC") rules and forms. Disclosure Controls are also
designed with the objective of ensuring 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. Internal
Controls are procedures which are designed with the objective of providing
reasonable assurance that (1) the Company's transactions are properly
authorized; (2) the Company's assets are safeguarded against unauthorized or
improper use; and (3) the Company's transactions are properly recorded and
reported, all to permit the preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that its Disclosure Controls or its
Internal Controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

<PAGE>


Scope of the Controls Evaluation. The CEO/CFO evaluation of the Company's
Disclosure Controls and the Company's Internal Controls included a review of the
controls objectives and design, the controls implementation by the Company and
the effect of the controls on the information generated for use in this report.
In the course of the Controls Evaluation, we sought to identify data errors,
controls problems or acts of fraud and to confirm that appropriate corrective
action, including process improvements, were being undertaken. This type of
evaluation will be done on a quarterly basis so that the conclusions concerning
controls effectiveness can be reported in the Company's quarterly reports on
Form 10-QSB and annual report on Form 10-KSB. The Company's Internal Controls
are also evaluated on an ongoing basis by other personnel in the Company's
finance organization and by the Company's independent auditors in connection
with their audit and review activities. The overall goals of these various
evaluation activities are to monitor the Company's Disclosure Controls and the
Company's Internal Controls and to make modifications as necessary; the
Company's intent in this regard is that the Disclosure Controls and the Internal
Controls will be maintained as dynamic systems that change (including with
improvements and corrections) as conditions warrant.

Among other matters, the Company sought in its evaluation to determine whether
there were any "significant deficiencies" or "material weaknesses" in the
Company's Internal Controls, or whether the Company had identified any acts of
fraud involving personnel who have a significant role in the Company's Internal
Controls. This information was important both for the Controls Evaluation
generally and because item 5 in the Section 302 Certifications of the CEO and
CFO require that the CEO and CFO disclose that information to the Audit
Committee of the Company's Board and to the Company's independent auditors and
to report on related matters in this section of the report. In the professional
auditing literature, "significant deficiencies" are referred to as "reportable
conditions"; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize and report financial data in
the financial statements. A "material weakness" is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions. The
Company also sought to deal with other controls matters in the Controls
Evaluation, and in each case if a problem was identified, the Company considered
what revision, improvement and/or correction to make in accordance with our
ongoing procedures.

In accordance with SEC requirements, the CEO and CFO note that, there has been
no significant change in Internal Controls that occurred during our most recent
fiscal quarter that has materially affected or is reasonably likely to
materially affect our Internal Controls.

Conclusions. Based upon the Controls Evaluation, the Company's CEO and CFO have
concluded that, subject to the limitations noted above, the Company's Disclosure
Controls are effective to ensure that material information relating to the
Company and its consolidated subsidiaries is made known to management, including
the CEO and CFO, particularly during the period when periodic reports are being
prepared, and that the Company's Internal Controls are effective to provide
reasonable assurance that the Company's consolidated financial statements are
fairly presented in conformity with generally accepted accounting principles.



<PAGE>



                                     PART II
                                OTHER Information


Items 1, 2, 3, 4 and 5 have been omitted as they are not applicable.

Item 6.  Exhibits

Exhibits

   Exhibit
   Number                                       Description

    31.1          Certification of Neal D. Crispin, Chief Executive Officer,
                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    31.2          Certification of Toni M. Perazzo, Chief Financial Officer,
                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    32.1*         Certification of Neal D. Crispin, Chief Executive Officer,
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    32.2*         Certification of Toni M. Perazzo, Chief Financial Officer,
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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




<PAGE>



                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  AEROCENTURY CORP.


Date:    November 12, 2004        By:    /s/ Toni M. Perazzo
                                         -------------------------------
                                         Toni M. Perazzo

                                  Title: Senior Vice President-Finance and
                                         Chief Financial Officer