FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended September 30, 1998

                                       OR

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

For the transition period from ________ to ___________

Commission file number: 001-13387


                                AeroCentury Corp.
             (Exact name of Registrant as specified in its charter)

Delaware                                                     94-3263974
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

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

                                  650-340-1888
               (Registrant's telephone number including area code)

                                 Not applicable
            (Former name, former address, and former fiscal year, if
                           changed since last report)

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

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Check whether the registrant  has filed all documents and reports  required
to be filed by Section 12, 13 or 15(d) of the  Securities  Exchange  Act of 1934
subsequent to the  distribution of securities under a plan confirmed by a court.
Yes ____ No ____

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     State the number of shares  outstanding of each of the issuer's  classes of
common stock, as of the latest practicable date.

Title                                                        Outstanding

Common Stock                                                 1,606,557
Rights to Purchase Series A Preferred Stock                  0


Transitional Small Business Disclosure Format (check one);
Yes___ No X

<PAGE>


Part I.  Financial Information

Item 1.  Financial Statements


                                                           AeroCentury Corp.
                                                            Balance Sheets

                                                                ASSETS
<TABLE>
<CAPTION>


                                                                           September 30,          December 31,
                                                                               1998                   1997
                                                                            (Unaudited)
<S>                                                                      <C>                   <C>    
Cash and cash equivalents                                                $     1,672,200       $         8,000
Deposits                                                                         919,600                     -
Accounts receivable                                                               53,800                     -
Aircraft and aircraft engines under operating leases
     and aircraft held for operating leases, net of
     accumulated depreciation of $15,548,400 in 1998                          16,607,200                     -
Prepaid expenses and other assets                                                109,400                 5,400
Deferred tax asset                                                               268,100                87,800
                                                                         ---------------       --------------- 
Total assets                                                             $    19,630,300       $       101,200
                                                                         ===============       ===============

                                                 LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
     Accounts payable                                                    $       177,000       $       207,700
     Payable to affiliates                                                        41,900               157,100
     Accrued maintenance costs                                                 1,556,000                     -
     Security deposits                                                           143,100                     -
     Prepaid rent received                                                       116,100                     -
     Deferred taxes                                                            3,197,900                     -
     Taxes payable                                                                82,500                   900
                                                                         ---------------       ---------------  
Total liabilities                                                              5,314,500               365,700

Shareholders' 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 and 150,000 shares issued
        and outstanding in 1998 and 1997, respectively                             1,600                   100
     Paid in capital                                                          13,821,200               149,900
     Retained earnings/(accumulated deficit)                                     493,000              (414,500)
                                                                         ---------------       ----------------
Total shareholders' equity                                                    14,315,800              (264,500)
                                                                         ---------------       ---------------- 
Total liabilities and shareholders' equity                               $    19,630,300       $       101,200
                                                                         ===============       ================  
See accompanying notes.

</TABLE>

<PAGE>

                                AeroCentury Corp.
                            Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                           For the Period
                                     For the               from Inception
                                   Nine Months           (February 28, 1997)         For the Three Months
                              Ended September 30,          to September 30,           Ended September 30,
                                      1998                       1997             1998                  1997
<S>                              <C>                        <C>              <C>                   <C> 
Revenues:

   Rent income                  $     2,539,900             $           -    $     865,000         $             -
   Gain on disposal of engine           183,200                         -          183,200                       -
   Other income                          34,700                     1,500           13,300                     600
                                ---------------             -------------    -------------         --------------- 
                                      2,757,800                     1,500        1,061,500                     600

Expenses:

   Management fees                      433,300                         -          145,400                       -
   Depreciation                         513,400                         -          175,300                       -
   Interest                              62,800                         -           28,700                       -
   Professional fees and
      general and administrative        228,800                         -           68,700                       -
   Consolidation offering costs               -                   240,600                -                 109,600
                                ---------------             -------------    -------------         ---------------  


                                      1,238,300                   240,600          418,100                 109,600
                                ---------------             -------------    -------------         ---------------
Income before taxes                   1,519,500                  (239,100)         643,400                (109,000)

Tax provision                           612,100                         -          263,000                       -
                                ---------------             -------------    -------------         ---------------
Net income/(loss)               $       907,400             $   (239,100)    $     380,400         $     (109,000)
                                ===============             =============    =============         ===============
Weighted average common
   shares outstanding                 1,606,557                   150,000        1,606,557                 150,000
                                ===============             =============    =============         =============== 
Earnings/(loss) per share       $          0.57             $      (1.59)    $        0.24         $        (0.73)
                                ===============             =============    =============         ===============   
                              
See accompanying notes.

</TABLE>

<PAGE>

                                                           AeroCentury Corp.
                                                       Statements of Cash Flows
                                                              (Unaudited)

<TABLE>
<CAPTION>
                                                                                          For the Period
                                                                                          from Inception
                                                         For the Nine Months          (February 28, 1997) to
                                                      Ended September 30, 1998          September 30, 1997
<S>                                                        <C>                            <C>   
Net cash provided by operating activities                   $     2,440,800               $        (22,300)

Investing activities:
     Proceeds from disposal of engine                               325,000
     Purchase of aircraft                                        (1,124,400)                             -
                                                            ----------------              ----------------
Net cash used in investing activities                              (799,400)                             -

Financing activities:
     Issuance of secured note                                       866,670                              -
     Repayment of secured note                                     (866,670)                             -
     Sale of common stock                                                 -                        150,000
     Organization costs                                                   -                           (500)
                                                            ----------------              -----------------
Net cash provided by investing activities                                 -                        149,500

Net change from consolidation of partnerships                        22,800                              -

Net increase in cash and cash equivalents                         1,664,200                        127,200

Cash and cash equivalents, beginning of period                        8,000                              -
                                                            ----------------              -----------------
Cash and cash equivalents, end of period                    $     1,672,200               $        127,200
                                                            ================              =================     















See accompanying notes.

</TABLE>


<PAGE>

                                AeroCentury Corp.
                          Notes to Financial Statements
                               September 30, 1998
                                   (Unaudited)


     1. Basis of presentation

     AeroCentury Corp. (the "Company") was incorporated in the state of Delaware
on February 28, 1997. The Company was formed solely for the purpose of acquiring
JetFleet  Aircraft,  L.P. and JetFleet  Aircraft II, L.P.,  partnerships  formed
under California law for the purpose of investing in leased aircraft  equipment,
(collectively,  the "Partnerships") in a statutory merger (the "Consolidation").
A  Registration  Statement  on Form S-4 for the  proposed  Consolidation  became
effective on September 23, 1997 and the  Consolidation  was effective January 1,
1998.  The Company is continuing in the aircraft  leasing  business in which the
Partnerships  engaged and plans to use leveraged financing to acquire additional
aircraft assets on lease.

     Because  greater than 90% of the limited  partnership  units of each of the
Partnerships   agreed  to  the   Consolidation,   it  has  been   treated  as  a
pooling-of-interests  under generally  accepted  accounting  principles with the
assets and liabilities of the combining  entities recorded at historical cost on
the  Consolidation  date.  On January  16,  1998,  the Company was listed on the
American Stock Exchange under the symbol ACY.

     The accompanying balance sheets at September 30, 1998 and December 31, 1997
and statements of operations and cash flows for the nine months ended  September
30, 1998 and the period from inception (February 28, 1997) to September 30, 1997
and the  quarters  ended  September  30, 1998 and 1997  reflect all  adjustments
(consisting of only normal recurring  accruals) which are, in the opinion of the
Company, necessary for a fair presentation of the financial results. The results
of  operations  of such  periods are not  necessarily  indicative  of results of
operations for a full year.

     Organization and capitalization

     At December 31, 1997, all of the Company's  outstanding  stock was owned by
JetFleet  Management Corp.  ("JMC"), a California  corporation formed in January
1994. On January 1, 1998,  1,456,557  additional  common shares were issued as a
result of the Consolidation.

     JMC is an integrated aircraft management, marketing and financing business.
Prior to the Consolidation,  JMC managed the aircraft assets of the Partnerships
on behalf of their general partners and limited  partners.  JMC also manages the
aircraft  assets  of  JetFleet  III  and   AeroCentury   IV,  Inc.,   California
corporations which are affiliates of JMC.

     On April 17, 1998, in connection with the adoption of a shareholder  rights
plan,  the Company filed a Certificate of  Designation  designating  the rights,
preferences  and privileges of a new Series A Preferred  Stock.  Pursuant to the
plan,  the Company issued rights to its  shareholders  of record as of April 23,
1998, entitling each shareholder to the right to purchase one one-hundredth of a
share of Series A  Preferred  Stock for each  share of Common  Stock held by the
shareholder.  Such  rights  are  exercisable  only under  certain  circumstances
concerning a proposed acquisition or merger of the Company.
                                                          
<PAGE>

                                AeroCentury Corp.
                          Notes to Financial Statements
                               September 30, 1998
                                   (Unaudited)


     1. Basis of presentation (continued)

     Aircraft and aircraft  engines under operating leases and aircraft held for
operating leases

     The  Company's  interests in aircraft and aircraft  engines are recorded at
cost, which includes  acquisition costs and loan fees.  Depreciation is computed
using the  straight-line  method over the  aircraft's  estimated  economic  life
(generally  assumed to be twelve years),  to an estimated  residual  value.  The
depreciable  base of the assets acquired by the Company in the  Consolidation is
equal to the net book value of the assets at December 31, 1997.

     Income taxes

     The Company follows the liability  method of accounting for income taxes as
required by the  provisions of Statement of Financial  Accounting  Standards No.
109 - Accounting for Income Taxes.

     Cash and cash equivalents

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

     Deposits

     As of  September  30,  1998  the  Company  held  deposits  which  represent
maintenance  reserves collected from lessees and interest earned on those funds,
as applicable.  This amount is not included in the cash balance for statement of
cash flow purposes.

     Use of estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect certain  reported amounts and disclosures.  Accordingly,
actual results could differ from those estimates.

     Maintenance reserves

     All  aircraft  are  operated  pursuant to triple net leases under which the
lessee is responsible  for maintenance  and overhaul,  insurance,  and operating
costs. In some cases,  reserves are collected from the lessee based on estimated
maintenance cost. Annually, management reviews the level of maintenance reserves
collected  from  lessees for each asset,  as  applicable,  in order to determine
whether reserves  collected in the future should be adjusted based on changes in
estimated costs.


<PAGE>

                                                         
                                AeroCentury Corp.
                          Notes to Financial Statements
                               September 30, 1998
                                   (Unaudited)


     2. Aircraft and aircraft  engines under operating  leases and aircraft held
for operating leases

     Aircraft acquisitions and dispositions

     There were no asset  acquisitions  during the quarter  ended  September 30,
1998.

     During July 1998,  one of the aircraft  engines owned by the Company failed
during  testing  at a  maintenance  facility.  The  Company  received  proceeds,
representing  the  fair  market  value  of  the  engine,  from  the  maintenance
facility's  insurance  provider.  The Company  replaced the failed engine with a
spare  engine  held in  inventory  and  intends to acquire a  replacement  spare
engine.

     3. Notes payable

     In connection  with its purchase of the Shorts SD-360 during March 1998 the
Company borrowed $866,670 from an affiliate and issued a secured promissory note
bearing interest at the rate of 12% per annum, payable monthly in arrears,  with
a maturity  date of March 31,  1999.  Pursuant to the note's  provision  for the
Company to repay the note at anytime  without  penalty,  the Company  repaid the
note in full during August 1998.

     4. Credit facility

     On June 30,  1998 the  Company  obtained  a $15  million  revolving  credit
facility to acquire  turboprop  aircraft  and engines for lease.  The  facility,
which expires on June 30, 2000, bears interest at either prime or LIBOR plus 200
basis  points and may be renewed  annually.  The facility may be expanded to $30
million with  participation  of additional  banks.  As of September 30, 1998, no
amounts were outstanding under the credit facility.



<PAGE>

                                AeroCentury Corp.
                          Notes to Financial Statements
                               September 30, 1998
                                   (Unaudited)


     5. Income taxes

     The items comprising income tax expense are as follows:
 
         Current tax provision:
                  Federal                                        $        64,700
                  State                                                   17,800
                                                                 ---------------
                  Current tax provision                                   82,500
                                                                 ---------------
         Deferred tax provision:
                  Federal                                                452,000
                  State                                                   77,600
                                                                 ---------------
                  Deferred tax provision                                 529,600
                                                                 ---------------
         Total provision for income taxes                        $       612,100
                                                                 ===============

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

         Income tax expense at
               statutory federal income tax rate                 $       516,600
         State taxes net of federal benefit                               88,600
         Gain on disposition of aircraft                                   6,900
                                                                 ---------------
         Total income tax expense                                $       612,100
                                                                 ===============

     Temporary  differences and  carryforwards  which gave rise to a significant
portion of deferred tax assets and  liabilities  as of September 30, 1998 are as
follows:
 
         Deferred tax assets:
                  Amortization of organizational costs           $        76,100
                  Maintenance reserves                                   145,700
                  Prepaid rent                                            46,300
                                                                 ---------------
                           Net deferred tax assets                       268,100
         Deferred tax liabilities:
                  Depreciation on aircraft and engines               (3,197,900)
                                                                 ---------------
                           Net deferred tax liability            $   (2,929,800)
                                                                 ===============

     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.


<PAGE>

                                AeroCentury Corp.
                          Notes to Financial Statements
                               September 30, 1998
                                   (Unaudited)


     6. Related party transactions

     The  Company's   portfolio  of  leased   aircraft  assets  is  managed  and
administered  under the terms of a  management  agreement  with JMC.  Under this
agreement, JMC receives a monthly management fee based on the net asset value of
the assets under  management.  In addition,  JMC may receive a brokerage fee for
locating  assets for the  Company,  provided  that such fee is not more than the
customary and usual  brokerage fee that would be paid to an  unaffiliated  party
for such a transaction,  and provided further that the aggregate  purchase price
including  chargeable  acquisition  costs and any brokerage fee shall not exceed
the fair market value of the asset based on appraisal.

     In March 1998,  the Company  acquired an aircraft on lease using cash and a
loan of $866,670 from an affiliate. The loan was repaid during August 1998.

     7. Pro forma selected financial information for 1997

     Following is pro forma condensed  information  giving effect to the January
1, 1998 Consolidation as if it had been completed on January 1, 1997.
<TABLE>
<CAPTION>

                                                      Nine months ended            Quarter ended
Summary of Operations:                               September 30, 1997       September 30, 1997
                                                     ------------------       ------------------  
<S>                                                          <C>                        <C>
Revenues                                                     $2,501,000                 $820,400
Net income                                                     $884,400                 $274,200
Earnings per share                                                $0.55                    $0.17
Number of common shares outstanding                           1,606,557                1,606,557

Summary Balance Sheet:                               September 30, 1997
                                                     ------------------  
Total assets                                                $18,242,400
Total liabilities                                             4,568,400
                                                            -----------
Shareholders' equity                                        $13,674,000
                                                            ===========
     The above results include pro forma adjustments for management fees and for
depreciation expense.

</TABLE>
                                                   
<PAGE>

                                AeroCentury Corp.
                          Notes to Financial Statements
                               September 30, 1998
                                   (Unaudited)


     8. Subsequent events

     Sale of aircraft

     On  October 6, 1998 the  Company  sold its  50.00%  interest  in a Metro II
SA-226 aircraft to the lessee.  The Company recognized a gain in connection with
the sale of the aircraft.

     Renewal of leases

     The aircraft lease to a subsidiary of Raytheon Service Company for three of
the Company's  Dash-7  aircraft  expired in September  1998,  but Raytheon has a
two-year renewal option, exercisable on or before the later of (i) July 30, 1998
or (ii) notice to Raytheon of renewal of Raytheon's prime contract with the U.S.
Army.  Raytheon has exercised its two-year  renewal option for two of the Dash-7
aircraft  and  renewed  the  lease for the  third  aircraft  for a period of six
months.  The lease terms for the three  aircraft are  substantially  the same as
those in the lease which  expired  during  September.  If the third  aircraft is
returned after the six-month  renewal period,  then the Company will be required
to remarket it.


<PAGE>

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

Liquidity and Capital Resources
 
     During the nine months ended  September  30, 1998,  the  Company's  primary
source of liquidity was cash flow from operating  leases. In connection with the
purchase of an aircraft in March 1998, the Company borrowed  $866,670 and issued
a 12% note due March 31, 1999.  During August 1998, the Company repaid the note,
without penalty, from its net cash flow.
 
     On June 30,  1998,  the  Company  obtained a $15 million  revolving  credit
facility to finance the acquisition of turboprop aircraft and engines for lease.
The  facility may be expanded to $30 million with  participation  of  additional
banks.  As of September 30, 1998, no amounts were  outstanding  under the credit
facility.
 
Results of Operations
 
     The Company had no significant  operations  during the first nine months of
1997 other than incurring costs in connection with the proposed Consolidation.
 
     On a pro forma basis, giving effect to the January 1, 1998 Consolidation as
if it had been completed on January 1, 1997, the Company would have had revenues
of  $2,501,000  and  $820,400  and net income of $884,400  ($0.55 per share) and
$274,200  ($0.17) for the nine  months and quarter  ended  September  30,  1997,
respectively,  versus  revenues of $2,757,800  and  $1,061,500 and net income of
$907,400  ($0.57 per share) and  $380,400  ($0.24 per share) for the nine months
and quarter ended September 30, 1998, respectively.
 
     Pro forma interest  income for the nine month and three month periods ended
September   30,  1997,   is  higher  by   approximately   $63,000  and  $10,000,
respectively,  versus  1998  because  of two  finance  leases  which  expired in
December 1997 and June 1998.  Rent income is  approximately  $137,000  higher in
1998 versus 1997 due to the March 1998  purchase  of an  additional  aircraft on
lease.  Depreciation  and  management  fees combined are  approximately  $61,000
higher in 1998  versus  pro forma  amounts  for 1997  also  because  of the 1998
aircraft acquisition. The Company also recorded a gain during 1998 in connection
with insurance  proceeds received for one of its aircraft engines,  which failed
during testing at a maintenance facility.
 
Factors that May Affect Future Results
 
     Certain  statements  contained  in this  report  and,  in  particular,  the
discussion regarding the Company's beliefs, plans, objectives,  expectations and
intentions  regarding  the  Company's  ability  to meet cash flow  requirements,
obtain  additional  acquisition  or term  indebtedness,  and acquire  additional
assets in the  "Management's  Discussion  and Analysis or Plan of Operation" are
forward-looking statements.  While the Company believes that such statements are
accurate,  the Company's business is dependent upon general economic conditions,
particularly  those that affect the demand for  turboprop  aircraft and engines,
including  competition for turboprop and other  aircraft,  and future trends and
results cannot be predicted with certainty.  The Company's  actual results could
differ materially from those discussed in such forward looking  statements.  The
cautionary  statements made in this Report should be read as being applicable to
all related  forward-looking  statements  wherever  they appear in this  Report.
Factors  that  could  cause or  contribute  to such  differences  include  those
discussed below.
 
     Risks of Debt Financing.  The Company's use of acquisition  financing under
its newly-obtained  revolving credit agreement for a maximum of $15 million will
subject the Company to increased  risks of leveraging.  The revolving loans will
be secured by the Company's existing assets as well as the assets to be acquired
with the  financing.  Any default under the  revolving  credit  agreement  could
result in foreclosure upon not only the asset acquired using such financing, but
also the existing assets of the Company securing the revolving loan.
 
     In order to achieve optimal benefit from the revolving credit facility, the
Company  intends to repay the revolving  loans from proceeds of subsequent  term
debt or equity financings.  Such replacement financing would provide the Company
with more favorable  long-term repayment terms and also would permit the Company
to make  further  draws under the  revolving  credit line equal to the amount of
revolving  debt  refinanced.  There can be no assurance that the Company will be
able to obtain the necessary amount of replacement term debt or equity financing
on  favorable  terms so as to permit  multiple  draws on the  revolving  line of
credit. While the Company intends to request an increase in the revolving credit
facility to $30 million upon reaching the current maximum $15 million  revolving
credit  limit,  such an  increase is  dependent  upon the ability of the current
revolving  credit lender  ("Lender") to find additional loan  participants,  and
there is no assurance that such participants will be located by the Lender.
 
     The revolving line of credit has an initial term of two years, renewable at
the  sole  discretion  of  Lender  and its  participants,  if any.  There  is no
assurance that the line of credit will be renewed.  If the revolving loan is not
renewed by the  Lender and its  participants,  then all  indebtedness  under the
revolving loan agreement will become  immediately  due and payable.  There is no
assurance that the Company will have adequate replacement  financing in place in
order to meet such accelerated repayment obligations.
 
     Acquisition of Additional  Assets.  The Company intends to use the proceeds
of its revolving credit facility to acquire additional assets for the purpose of
generating income for the Company.  The Company anticipates that it will be able
to expend the entire net  financing  proceeds on the  acquisition  of additional
assets on terms  favorable to the Company,  but the Company has not entered into
any contracts for acquisition of any assets,  and there is no assurance that the
Company will be able to purchase assets or lease such assets on favorable terms.
 
     Reliance on JMC.  All  management  of the Company  will be performed by JMC
pursuant to a  Management  Agreement  between  JMC and the  Company  which has a
20-year term and provides for an asset-based  management  fee. JMC will not be a
fiduciary  to the  Company or its  stockholders.  The Board of  Directors  will,
however,  have ultimate control and supervisory  responsibility over all aspects
of  the  Company  and  will  owe  fiduciary   duties  to  the  Company  and  its
stockholders.  In addition,  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.  There may,
however, be conflicts of interest arising from such dual roles.
 
     The  Management   Agreement  may  be  terminated  upon  a  default  in  the
obligations of JMC to the Company,  and provides for  liquidated  damages in the
event of a wrongful  termination  of the  agreement by the Company.  Many 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  over  obligations
between the Company and JMC.
 
     Ownership Risks. Most of the Company's  portfolio is leased under operating
leases,  where the terms of the leases do not take up the entire  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
re-lease or resell the asset  after the  expiration  of the initial  lease term.
Some of the factors that have an impact on the  Company's  ability to release or
re-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
marketable  condition as required  under the lease.  If the Company is unable to
remarket or sell its aircraft  equipment on favorable  terms when the  operating
lease for such equipment expires,  the Company's business,  financial condition,
cash flow,  ability to service debt and results of operation  could be adversely
affected.
 
     Raytheon Lease Renewal.  Raytheon has exercised its two-year renewal option
for two of the Dash-7  aircraft and renewed the lease for the third aircraft for
a period of six months.  If the third  aircraft is returned  after the six-month
renewal  period,  then the Company will be required to remarket it. Any re-lease
may require some  refurbishment,  which may be at the Company's  expense even if
the aircraft is returned by lessee in complete  compliance with the lease. While
such  refurbishment  is being performed and until the aircraft is delivered to a
new lessee, the Company may experience a loss of revenue.

     Lessee  Credit Risk.  If a lessee  defaults  upon his  obligations  under a
lease,  the Company may be limited in its ability to enforce  remedies.  Most of
the  Company's  lessees  are  small  domestic  and  foreign  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 significant 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, under Section
1110 of the Bankruptcy Code, the Company would be  automatically  prevented from
exercising  any  remedies  for a  period  of 60  days.  By the end of the 60 day
period,  the lessee must agree to perform the obligations and cure any defaults,
or the Company would have the right to repossess the  equipment.  This procedure
under the  Bankruptcy  Code has been subject to significant  recent  litigation,
however,  and it is possible that the Company's  enforcement rights may still be
further  adversely  affected by a  declaration  of  bankruptcy  by a  defaulting
lessee.
 
     International  Risks.  Leases with  foreign  lessees  may present  somewhat
greater  credit risks because  certain  foreign laws,  regulations  and judicial
procedures may not be as protective of lessor rights as those which apply in the
United  States.  Although the Company's  current  leases are all payable in U.S.
dollars,  in the future,  it may agree to leases which permit payment in foreign
currency, which would subject such foreign currency-denominated lease revenue to
monetary risk due to currency  fluctuations.  The Company could also  experience
collection  problems  related to the enforcement of its lease  agreements  under
foreign  local laws and the  attendant  remedies in foreign  jurisdictions.  The
protections potentially offered by Section 1110 of the Bankruptcy Code would not
apply to  non-U.S.  carriers,  and  applicable  local law may not offer  similar
protections.  Certain  countries  do not have a reliable  registration  or other
recording  system  with which to locally  establish  the  Company's  interest in
equipment, and related leases. This could add difficulty in recovering an engine
in the event that a foreign lessee defaults.
 
     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 of
complying with such  requirements will fall primarily upon lessees of equipment,
there  can be no  assurance  that the cost of  complying  with  such  government
regulations  will  not  fall  on the  Company.  Furthermore,  future  government
regulations  could cause the value of any  non-complying  equipment owned by the
Company to substantially decline.
 
     Competition.  The  aircraft  leasing  industry is highly  competitive.  The
Company will compete 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. The Company,  however,  believes
that it has a  competitive  advantage  in its  niche  market of  financing  used
turbo-prop  aircraft to regional air  carriers.  This market  segment,  which is
characterized  by transaction  sizes of less than $10 million and lessee credits
that are strong,  but generally  unrated and more  speculative  than that of the
major air carriers,  is not well served by the Company's  larger  competitors in
the  aircraft  industry.  JMC,  the  management  company  for the  Company,  has
developed a reputation  as a global  participant  in this segment of the market,
and the Company  believes  this will benefit the Company.  There is 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 and benefit the Company.
 
     Casualties,  Insurance  Coverage.  The Company,  as owner of transportation
equipment, could be held liable for injuries or damage to property caused by its
assets. Though some protection may be provided by the United States Aviation Act
with  respect  to its  aircraft  assets,  it is not  clear to what  extent  such
statutory  protection  would be  available  to the  Company and such act may not
apply to aircraft  operated in foreign  countries.  Though the Company may carry
insurance or require a lessee to insure  against a risk,  some risks of loss may
not be insurable.  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.
 
     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 will involve a number of substantial risks. Demand for lease or
purchase of the assets depends on the economic condition of the airline industry
which is in turn highly  sensitive to general  economic  conditions.  Ability to
re-lease or resell  equipment at  acceptable  rates may depend on the demand and
market values at the time of re-lease or resale.  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,  but not always,  reflects
economic conditions and the strength of the travel and transportation  industry.
The demand for and resale  value of many types of older  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
older  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 aircraft engine types
should decline in value. The recent  introduction of "regional jets" to serve on
short routes  previously  thought to be economical  only for turboprop  aircraft
operation  could decrease the demand for turboprop  aircraft,  while at the same
increasing  the supply of used  turboprop  aircraft.  This could result in lower
lease rates and values for the Company's existing turboprop aircraft.
 
     Risks   Related  to  Regional  Air   Carriers.   Because  the  Company  has
concentrated  its  existing  leases  and  intends  to  concentrate  on leases to
regional air carriers,  it will be subject to certain risks.  First,  lessees in
the regional air carrier market include a number of 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.  This market segment is also
characterized by low entry costs, and thus, there is strong  competition in this
industry  segment  from  start-ups  as well as  major  airlines.  Thus,  leasing
transactions  with these types of lessees  results in a generally  higher  lease
rate on aircraft,  but may entail  higher risk of default or lessee  bankruptcy.
The Company  will  evaluate the credit risk of each lessee  carefully,  and will
attempt to obtain  third  party  guaranties,  letters of credit or other  credit
enhancements,  if it deems such is necessary.  There is no  assurance,  however,
that such  enhancements  will be available  or that even if obtained  will fully
protect the Company from losses  resulting  from a lessee default or bankruptcy.
Second,  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 the United States.
 
     Possible  Volatility  of Stock  Price.  The market  price of the  Company's
Common Stock could be subject to fluctuations  in response to operating  results
of the Company,  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  1.6 million shares,  there is a correspondingly
limited amount of trading of the shares.  Consequently, a single or small number
of trades  could result in a market  fluctuation  not related to any business or
financial development relating to the Company.
 
     Year 2000  Considerations.  Management  of the  Company  has  directed  its
information  technology  ("IT")  manager to require  any  software  or  hardware
purchased for use by the Company to have a warranty of Year 2000 compliance.  It
has also directed its IT manager to study any systems that may require Year 2000
remediation. The IT manager has determined that, because the Company's IT system
is based on a "MacOS"  system,  the Company's  internal  technology  systems are
ready for Year 2000, and there should not be any material costs  associated with
such  remediation.  Furthermore,  the  phone  and  internet  systems  have  been
warranted by their vendors for Year 2000 compliance.  The Company's internal and
administrative  operations  are  not  highly  dependent  on any  other  advanced
technology system,  and,  consequently,  management  believes that the Company's
exposure  to  loss  as a  result  of  Year  2000  issues  in  its  internal  and
administrative operations is not significant.
 
     Management  believes  that the  electronic  systems  used in the  equipment
leased by the  Company to lessees  will not be  materially  affected by the Year
2000 and that any remediation of the technology systems embedded in the aircraft
that it leases will not be a material expense to the Company;  however, a formal
study has not yet been  undertaken  of the  aircraft  equipment  on  lease.  The
Company  believes that there should not be any material costs in connection with
such a study.  The Company will be consulting with all the  manufacturers of its
leased  equipment to confirm Year 2000  compliance.  Since the Company's  leases
generally place all maintenance  and repair  obligations on the lessees,  to the
extent that the aircraft are on lease when the Year 2000 problem is  identified,
it would  generally  be the  lessee's and not the  Company's  responsibility  to
remediate any Year 2000 problem with the leased aircraft.
 
     Of  course,  to the  extent  that a lessee  has  Year  2000  problems  that
significantly  adversely  affect its overall  financial  status,  such  material
problems may affect the lessee's  operations and increase the risk of default by
a lessee  under its lease with the  Company.  Furthermore,  Year 2000 issues may
have a material  impact on FAA  operations  and the  operations  of certain  air
carriers,  which in turn  would  negatively  affect  the  aircraft  industry  in
general.
 
     The Company's  essential  functions  are not  dependent  upon any key third
party vendors or service  providers  related to the leasing or finance business,
and  consequently,  the  interruption  of  goods  and  services  from  any  such
industry-specific  third party vendor or service  provider to the Company is not
likely  to cause a  material  loss to the  Company.  Of  course,  the  Company's
ordinary  business  operation  is dependent  upon  vendors  that  provide  basic
services to  businesses  generally,  such as utility  companies,  phone and long
distance companies,  courier services,  banking institutions.  The state of Year
2000  readiness  of these  third  parties  cannot be  assessed  by the  Company;
however,  management believes that a temporary  interrruption in services to the
Company by these types of service  providers  caused by Year 2000 problems would
not cause material  losses to the Company.  An extended loss of these  services,
however,   could   adversely   affect  the  Company's   business  and  financial
performance. The Company has not yet made any contingency plans for the extended
loss of these basic services.

Part II.  Other Information

Item 1.  Legal Proceedings

         No disclosure required.
 
Item 2.  Changes in Securities

         No disclosure required.

Item 3.  Defaults Upon Senior Securities

         No disclosure required.

Item 4.  Submission of Matters to a Vote of Security Holders

         No disclosure required.

Item 5.  Other Information
 
         No disclosure required.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibit 27.  Financial Data Schedule

(b)      Reports on Form 8-K

         None.


<PAGE>

                                   SIGNATURES

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

                                         AeroCentury Corp.

October 26, 1998                    By:   /s/ Neal D. Crispin
Date                                   ---------------------------------------
                                       Neal D. Crispin, Director, President and 
                                       chairman of the Board of Directors of the
                                       Registrant (Principal Executive Officer)

 

October 26, 1998                    By:   /s/ Toni M. Perazzo
Date                                    --------------------------------------- 
                                        Toni M. Perazzo, Director,
                                        Vice President - Finance and Secretary
                                        of the Registrant (Principal Financial
                                        and Accounting Officer)



October 26, 1998                     By:  /s/ Marc J. Anderson
Date                                    ---------------------------------------
                                        Marc J. Anderson, Director, Chief
                                        Operating Officer, Senior Vice President