SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [ X ] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------- --------------- Commission File Number: 333-22239 AeroCentury IV, Inc. (Name of small business issuer in its charter) California 94-3260392 (State or other jurisdiction (I.R.S. Employer Identification No.) of 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) 340-1880 Securities registered pursuant to Section 12(b) of the Act: None 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 --- --- On November 15, 2000 the aggregate market value of the voting and non-voting Common equity held by non-affiliates (computed by reference to the price at which the common equity was sold) was $0. As of November 15, 2000 the Issuer has 243,420 Shares of Common Stock outstanding. Transitional Small Business Disclosure Format (check one): Yes No X ---- ---- Part I. Financial Information Item 1. Financial Statements. AEROCENTURY IV, INC. Balance Sheet September 30, 2000

ASSETS Current assets: Cash $ ~~237~~150,~~400~~630 Deposits 88121,~~300~~350 Rent receivable ~~132~~56,~~120~~450 Accounts receivable ~~278~~209,~~620~~510 ------------- Total current assets ~~736~~537,~~440~~940 ~~Receivable from affiliates 190,210~~ Aircraft and aircraft engines under operating leases, net of accumulated depreciation of $~~620~~685,~~840~~670 32,~~652~~994,~~630~~220 Debt issue costs, net of accumulated amortization of $~~219~~238,~~380~~520 ~~370~~351,~~140~~000 ~~Deferred taxes 6,500~~ Other assets 710,~~580~~070 ------------- Total assets $ 43,~~963~~893,~~500~~230 ============= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 23138,~~900~~800 Interest payable 81,150 Prepaid rent 12,500 Security deposits 6030,~~200~~000 Maintenance deposits ~~327~~310,~~990~~850 ------------- Total current liabilities ~~505~~573,~~740~~300 ------------- Medium-term secured notes 4,869,000 ------------- Total liabilities 5,~~374~~442,~~740~~300 ------------- Preferred stock, no par value, 100,000 shares authorized, no shares issued and outstanding - Common stock, no par value, 500,000 shares authorized, 243,420 shares issued and outstanding 243,420 Accumulated deficit (~~654~~1,~~660~~792,490) ------------- Total shareholder's equity (~~411~~1,~~240~~549,070) ------------- Total liabilities and shareholder's equity $ 43,~~963~~893,~~500~~230 ============= See accompanying notes.

AEROCENTURY IV, INC. Statements of Operations

For the ~~Six~~Nine Months Ended ~~June 30,~~ For the Three Months Ended ~~June~~September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: Rent income $ ~~330~~414,~~440~~890 $ ~~330~~513,~~620~~740 $ ~~143~~84,~~560~~450 $ ~~137~~183,~~360~~110 Interest income 813,~~950~~190 1823,~~080~~360 4,~~070~~240 95,~~780~~290 ------------- ------------- ------------- ------------- ~~339~~428,~~390~~080 ~~348~~537,~~700~~100 ~~147~~88,~~630~~690 ~~147~~188,~~140~~400 ------------- ------------- ------------- ------------- Expenses: Depreciation ~~129~~194,~~200~~030 ~~120~~184,~~260~~870 64,840 64,600 60Provision for impairment in value of aircraft 623,~~130~~940 - 623,940 - Amortization 3857,~~290~~440 3857,~~290~~440 19,150 19,~~150~~140 Maintenance 50204,~~330~~620 - 6154,~~850~~280 - Interest ~~243~~365,~~450~~180 ~~243~~365,~~450~~180 121,730 121,730 Management fees 4873,~~690~~030 4873,~~690~~030 24,340 24,340 Professional fees and general and administrative 2244,~~670~~200 2457,~~650~~100 1121,~~060~~530 2332,~~040~~480 ------------- ------------- ------------- ------------- ~~532~~1,~~630~~562,440 ~~475~~737,~~340~~620 ~~247~~1,~~730~~029,810 ~~248~~262,~~390~~290 ------------- ------------- ------------- ------------- Loss before taxes (~~193~~1,~~240~~134,360) (~~126~~200,~~640~~520) (~~100~~941,~~100~~120) (~~101~~73,~~250~~890) Tax provision 28225,~~820~~520 800 60196,~~870~~710 ~~800~~- ------------- ------------- ------------- ------------- Net loss $ (~~222~~1,~~060~~359,880) $ (~~127~~201,~~440~~320) $ (~~160~~1,~~970~~137,830) $ (~~102~~73,~~050~~890) ============= ============= ============= ============= Weighted average common shares outstanding 243,420 243,420 243,420 243,420 ============= ============= ============= ============= Basic loss per common share $ (05.9159) $ (0.5283) $ (04.6667) $ (0.4230) ============= ============= ============= ============= See accompanying notes.

AEROCENTURY IV, INC. Statements of Cash Flows

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2000 1999 ---- ---- Net cash used by operating activities $ (~~131~~188,~~930~~320) $ 40,120 Investing activity - Purchase of interest in aircraft (2730,~~300~~380) (659,950) -------------- ------------- Net decrease in cash (~~131~~218,~~930~~700) (27619,~~300~~830) Cash, beginning of period 369,330 988,260 -------------- ------------- Cash, end of period $ ~~237~~150,~~400~~630 $ ~~960~~368,~~960~~430 ============== ============= Supplemental disclosures of cash flow information: Cash paid during the period for: 2000 1999 ---- ---- Interest ~~(net of amount capitalized)~~ $ ~~121~~365,~~730~~180 $ ~~243~~365,~~450~~180 Income taxes 800 800 See accompanying notes.

AEROCENTURY IV, INC. Notes to Financial Statements 1. Summary of Significant Accounting Policies Basis of Presentation AeroCentury IV, Inc. (the "Company") was incorporated in the state of California on February 7, 1997 ("Inception"). The Company was formed solely for the purpose of acquiring Income Producing Assets. The Company offered up to $10,000,000 in $1,000 Secured Promissory Notes maturing on April 30, 2005 (the "Notes") pursuant to a prospectus dated May 21, 1997 (the "Prospectus"). All of the Company's outstanding common stock is owned by JetFleet Holding Corp. ("JHC"), a California corporation formed in January 1994. In May 1998, JetFleet Management Corp., the sole shareholder of the Company was renamed JetFleet Holding Corp. The rights and obligations under the management agreement between the Company and JHC were assigned by JHC to a newly-created wholly-owned subsidiary named "JetFleet Management Corp." ("JMC"). JMC also manages AeroCentury Corp. ("ACY"), a Delaware corporation, and JetFleet III, a California corporation, which are affiliates of JHC and which have objectives similar to the Company's. Neal D. Crispin, the President of the Company, holds the same position with JHC and JMC and owns a significant amount of the common stock of JHC. 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. Deposits represent cash balances held related to maintenance reserves and security deposits and are subject to withdrawal restrictions. As of September 30, 2000, the Company maintained $252,780 of its cash balances in a money market fund held by a regional brokerage firm, which is not federally insured. Aircraft and Aircraft Engines Under Operating Leases The Company's interests in aircraft are recorded at the lower of cost or market value, which include acquisition costs (see Note 2). Depreciation is computed using the straight-line method over each aircraft's estimated economic life to its estimated residual value. Debt Issue Costs Pursuant to the terms of the Prospectus, the Company paid an Organization and Offering Expense Reimbursement to JHC in cash in an amount up to 2.0% of Aggregate Gross Offering Proceeds for reimbursement of certain costs incurred in connection with the organization of the Company and the Offering (the "Reimbursement"). To the extent that JHC incurred expenses in excess of the 2.0% cash limit, such excess expenses were repaid to JHC in the form of Common Stock issued by the Company at a price of $1.00 per share (the "Excess Stock"). The amount of Excess Stock that the Company can issue was limited according to the amount of Aggregate Gross Offering Proceeds raised by the Company. The Company capitalized the Reimbursement paid and amortizes such costs over the life of the Notes (approximately eight years). Assets Subject to Lien The Company's obligations under the Notes are secured by a security interest in all of the Company's right, title and interest in the Income Producing Assets acquired by the Company. AEROCENTURY IV, INC. Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) 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. 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. 2. Aircraft and Aircraft Engines Under Operating Leases Aircraft and Aircraft Engines The Company owns a Shorts SD3-60-100, serial number S/N 3606 ("S/N 3606"), a Pratt & Whitney JT8D-9A aircraft engine, serial number 674452B (the "Engine"), a Fairchild Metro III aircraft, serial number AC-647 ("S/N AC-647"), a 50% undivided interest in a Shorts SD-360, serial number S/N 3676 ("S/N 3676") and a 67% undivided interest in a deHavilland DHC-6, serial number S/N 668 ("S/N 668"). The Company did not purchase any aircraft during the first nine months of 2000, but did capitalize $30,370 of equipment added to S/N 668. Aircraft and Aircraft Engines Leases At the time of purchase, S/N 3606 and S/N 3676 were subject to similar 48-month leases, expiring in July 2001, with a British regional airline. The original lease, entered into in 1997, did not require that the lessee pay maintenance reserves based on usage because, at the time, the lessee was considered creditworthy and had its own facility which was certified to perform any required maintenance. On February 24, 2000, the lessee filed for reorganization. The lessee has continued to operate, and, under the reorganization plan, the lessee is continuing to lease S/N 3676, in which the Company owns a 50% interest, on a month-to-month basis at the same rent as under the original lease. The lessee also began paying monthly maintenance reserves based on the hours flown. Under British law, the owners were precluded from repossessing the aircraft so long as the lessee was operating it and paying rent and maintenance reserves under its reorganization plan. The owners of the aircraft now believe that S/N 3676 will be returned by the lessee by year-end 2000 and that collection on any claim for the maintenance related to usage by the lessee prior to the reorganization date but not required to be performed until after the reorganization date is doubtful. The owners believe that they will realize a greater benefit if they sell the aircraft "as is" rather than fund the maintenance work necessary to return the aircraft to a condition which would allow it to possibly be re-leased to a new lessee. Because such maintenance will likely not be performed, the Company believes that there has been an impairment of the asset. The Company has, therefore, reduced the carrying value of the aircraft from $425,700 to $275,000 and recognized a provision for impairment estimated to be $150,700 at September 30, 2000. (See also Note 6, Subsequent Events.) The same British regional airline was lessee of S/N 3606 and operated it through April 24, 2000 at the same rent. The aircraft was subsequently returned to the Company. In order to bring the aircraft to a condition required to lease it to a new lessee, the Company would have had to spend more on maintenance than it could afford. The Company decided to attempt to sell the aircraft "as is", which sale was completed in October 2000. Therefore, the Company reduced the carrying value of the aircraft from $873,200 to $400,000, the sales price, and recognized a provision for impairment of $473,200 at September 30, 2000. AEROCENTURY IV, INC. Notes to Financial Statements 2. Aircraft and Aircraft Engines Under Operating Leases (continued) Aircraft and Aircraft Engines (continued) When S/N AC-647 was acquired, it was subject to a 36-month lease, expiring in April 2001, with a regional carrier in Uruguay. During June 1999, however, management repossessed the aircraft due to non-payment of rent. In connection with the repossession, the Company recorded a write-off of approximately $4,300 which represented rent receivable in excess of the letter of credit held by the Company, which the Company collected during August 1999. In June 2000, S/N AC-647 was re-leased to a U.S. carrier for a two-year term, expiring in June 2002. The Engine is used on a McDonnell Douglas DC-9 aircraft and is subject to a 60-month lease with the seller, expiring in November 2002. The Engine is subleased by the seller to a Mexican-based regional carrier. S/N 668, in which the Company owns a 67% interest, was subject to a 60-month lease, expiring in July 2004, with a regional carrier in Colombia. During the third quarter of 2000, due to non-payment of rent and reserves by the lessee, the Company notified the lessee of its intent to repossess the aircraft. The Company recorded a write-off of $93,120 of rent receivable which amount was net of the security deposit held by the Company, and reduced its reserves receivable and related liability by $122,600. During November, the owners repossessed S/N 668. At September 30, 2000, the Company has also accrued $134,000 of estimated maintenance to be performed on S/N 668 related to usage by the lessee. The owners believe that there are limited re-lease opportunities for this type of aircraft. Therefore, in November 2000, the owners signed a non-binding term sheet for the sale of the aircraft to be consummated on November 30, 2000 which, if successful, would allow the Company to realize a gain on the sale of approximately $71,000. (See also Note 6, Subsequent Events.) 3. Medium-Term Secured Notes As mentioned above, the Company raised funds through the Offering from May 1997 to August 1997. During 1997, the Company accepted subscriptions for 4,869 Notes aggregating $4,869,000 in Gross Offering Proceeds. Pursuant to the Prospectus, the Company subsequently issued $4,869,000 in Notes due April 30, 2005. The Notes bear interest at an annual rate of 10.00% which is due and payable on a quarterly basis, in arrears, on the first business day of February, May, August and November. AEROCENTURY IV, INC. Notes to Financial Statements 4. Income Taxes The items comprising income tax expense are as follows:

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2000 1999 ---- ---- Current tax provision Federal $ - $ - State 800 800 ------------- -------------- Current tax provision 800 800 ------------- -------------- Deferred tax provision Federal 2714,~~190~~080 (4368,~~600~~720) State ~~830~~810 17,~~140~~020 ------------- -------------- Deferred tax provision 2814,~~020~~890 (2651,~~460~~700) Valuation allowance -209,830 2651,~~460~~700 ------------- -------------- Total provision for income taxes $ 28225,~~820~~520 $ 800 ============= ==============

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: 2000 1999 ---- ---- Income tax expense at statutory federal income tax rate $ (352,490) $ (68,180) State taxes net of federal benefit (240) (320) Tax rate differences - 17,340 Basis differences 21,370 - California franchise tax - 260 Inter-company tax expense 347,050 - Valuation allowance 209,830 51,700 ------------- -------------- Total provision for income taxes $ 225,520 $ 800 ============= ==============

Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities as of September 30, 2000 are as follows: Depreciation on aircraft $ 130,010 Maintenance deposits 64,930 Prepaid rent 4,260 Net operating losses 10,530 State franchise taxes 270 ------------- Subtotal 210,000 Valuation allowance (209,830) ------------- Net deferred tax assets 170 Deferred tax liabilities: Amortization of organizational costs (170) ------------- Net deferred tax asset $ - =============

AEROCENTURY IV, INC. Notes to Financial Statements 4. Income Taxes (continued) The Company does not anticipate generating adequate future taxable income to realize the benefits of the remaining deferred tax assets on the balance sheet. Therefore, the Company has recognized a valuation allowance equal to the net deferred tax asset. As discussed in Note 1 the Company is a subsidiary of JHC. JHC files a consolidated tax return that includes the Company as a member of the consolidated group. The current and deferred taxes of the consolidated group are allocated to members of the group in their separately issued financial statements. Current and deferred income taxes are allocated to members of the group by applying FAS 109 as if each were a separate taxpayer. In addition, the members of the group record inter-company receivables and payables to reflect the tax benefits of net operating losses used in the consolidated tax return. However, under the terms of the tax sharing agreement with other members of the consolidated group, the Company does not expect its inter-company receivable to be collected because it does not expect to generate adequate future taxable income. The Company's current net operating losses may be carried forward for twenty years and begin to expire in 2020. 5. Related Party Transactions The Company's Income Producing Asset portfolio is managed and administered under the terms of a management agreement with JMC. Under this agreement, on the last day of each calendar quarter, JMC receives a quarterly management fee equal to 0.5% of the Company's Aggregate Gross Proceeds received through the last day of such quarter. In the first nine months of 2000 and 1999, the Company paid a total of $73,030 and $73,030, respectively, in management fees to JMC. JMC may receive an acquisition fee for locating assets for the Company and a remarketing fee in connection with the sale of the Company's assets, provided that such fees are not more than the customary and usual fees that would be paid to an unaffiliated party for such a transaction. The total of the Aggregate Purchase Price plus the acquisition fee cannot exceed the fair market value of the asset based on appraisal. JMC may also receive reimbursement of Chargeable Acquisition Expenses incurred in connection with a transaction which are payable to third parties. Because the Company did not purchase aircraft during the first nine months of 2000, it did not pay any acquisition fees or Chargeable Acquisitions Expenses to JMC. During the first nine months of 1999, the Company paid JMC a total of $36,280 in acquisition fees. As discussed in Note 1, the Company reimbursed JHC for certain costs incurred in connection with the organization of the Company and the Offering. The Company made no such payments during the first nine months of 2000 or 1999. 6. Subsequent Events At the time of purchase in July 1997, S/N 3676, in which the Company owns a 50% interest, was under a lease, expiring July 2001, with a British regional airline. The original lease, entered into in 1997, did not require that the lessee pay maintenance reserves based on usage because, at the time, the lessee was considered creditworthy and had its own facility which was certified to perform any required maintenance. In February 2000, the lessee filed for reorganization. The lessee has continued to operate, and, under the reorganization plan, the lessee has continued to lease S/N 3676 on a month-to-month basis at the same rent as under the original lease. The lessee also began paying monthly maintenance reserves based on the hours flown. Under British law, the owners were precluded from repossessing the aircraft so long as the lessee was operating it and paying rent and maintenance reserves under its reorganization plan. The owners of the aircraft now believe that S/N 3676 will be returned by the lessee by year-end AEROCENTURY IV, INC. Notes to Financial Statements 6. Subsequent Events (continued) 2000 and that collection on any claim for the maintenance related to usage by the lessee prior to the reorganization date but not required to be performed until after the reorganization date is doubtful. The owners believe that they will realize a greater benefit if they sell the aircraft "as is" rather than fund the maintenance work necessary to return the aircraft to a condition which would allow it to possibly be re-leased to a new lessee. Because such maintenance will likely not be performed, the Company believes that there has been an impairment of the asset. The Company has, therefore, reduced the carrying value of the aircraft from $425,700 to $275,000 and recognized a provision for impairment estimated to be $150,700 at September 30, 2000. If, as the Company anticipates, it is unable to collect a substantial portion of its claim in bankruptcy for unfunded maintenance requirements, this possibility, along with the asset impairment for S/N 3676 recognized during the third quarter of 2000, will have a material adverse affect upon the Company's ability to meet its scheduled interest payments, as well as repayment in full of the Notes at maturity. The same British regional airline was lessee of S/N 3606 and operated it through April 24, 2000 at the same rent. The aircraft was subsequently returned to the Company. In order to bring the aircraft to a condition required to lease it to a new lessee, the Company would have had to spend more on maintenance than it could afford. The Company decided to attempt to sell the aircraft "as is", which sale was completed in October 2000. Therefore, the Company reduced the carrying value of the aircraft from $873,200 to $400,000, the sales price, and recognized a provision for impairment of $473,200 at September 30, 2000. The Company owns a 67% interest in S/N 668. Over the last several months, the owners of the aircraft have tried to work out a payment plan under which the lessee of S/N 668, a Colombian regional carrier, could continue to use the aircraft while paying reduced rent and deferring the shortfall until the lessee became more profitable. The owners attempted to perfect a first priority secured interest in real estate owned by the lessee, the estimated fair market value of which approximated the monies owed the owners. However, after protracted negotiations, the lessee failed to sign the necessary documents, and the owners began repossession efforts which were completed in November 2000. The owners believe that there are limited re-lease opportunities for this type of aircraft. Therefore, in November 2000, the owners signed a non-binding term sheet for the sale of the aircraft to be consummated on November 30, 2000 which, if successful, would allow the Company to realize a gain on the sale of approximately $71,000. The total proceeds from the sale of S/N 3606 and the sale of S/N 668, if it occurs, will probably not be adequate to invest in another income producing asset. Under the Trust Indenture Agreement, the proceeds would then be turned over to the Trustee to distribute to the Noteholders. AEROCENTURY IV, INC Notes to Financial Statements 7. Going Concern As shown in the accompanying financial statements, the Company incurred a net loss of ($1,359,880) for the nine months ended September 30, 2000, and as of that date, the Company's total liabilities exceeded its total assets by $1,549,070. In addition, the Company does not anticipate having sufficient total potential proceeds to invest in another income producing asset and, therefore, under the Trust Indenture, it anticipates turning over those proceeds to the Trustee. Further, the Company estimates that it may not have sufficient cash balances to fund the required interest payment of approximately $122,000 on February 1, 2001. These factors create a substantial uncertainty about the Company's ability to continue as a going concern. Therefore, the Company intends to notify the Trustee that a default under the Trust Indenture Agreement is likely and, upon such default, the Trustee would then have the right to manage the Company's assets, all of which are collateral for the notes obligation. Management of the Company's assets and extinguishment of its liabilities would then become the responsibility of the Trustee. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Item 2. Management's Discussion and Analysis or Plan of Operation. Forward-Looking Statements Certain statements contained in this report and, in particular, the discussion regarding the Company's beliefs, plans, objectives, expectations and intentions regarding the return of S/N 3676 and the collection of unfunded maintenance requirements, realization of a greater benefit from sale rather than re-lease of S/N 3676, the limited re-lease opportunities for S/N 668, the possible sale of S/N 668, the generation of future taxable income, the Company's lack of significant operating expenses in connection with assets that remain on lease, the collection of its inter-company receivable related to its tax sharing agreement, and the inadequacy of cash reserves to meet short-term immediate requirements are forward looking statements. While the Company believes that such statements are accurate, actual results may differ due to further defaults by existing lessees, recovery of maintenance claims from certain defaulting lessees, time required to re-lease any returned aircraft, 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 that cannot be predicted with certainty. The Company's actual results could differ materially from those discussed in such forward looking statements. Factors that could cause or contribute to such differences include those discussed below in the section entitled "Factors that May Affect Future Results." 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. Capital Resources and Liquidity At September 30, 2000, the Company had cash balances of $150,630 and deposits of $121,350. The Company's cash balances were held for the interest payment made to the Noteholders in November 2000 and for normally recurring expenses. Since its formation, the Company's capital has come in the form of equity contributions from JHC, proceeds from the Offering and rental revenue from the Income Producing Assets purchased using those proceeds. The Company's liquidity varies, increasing to the extent cash flows from operations exceed expenses, and decreasing as interest payments are made to the Noteholders and to the extent expenses exceed cash flows from leases. The Company's primary use of its operating cash flow is interest payments to its Noteholders. Excess cash flow, after payment of interest and operating expenses is held for investment in additional Income Producing Assets. Since the Company has acquired Income Producing Assets which are subject to triple net leases (the lessee pays operating and maintenance expenses, insurance and taxes), the Company does not anticipate that it will incur significant operating expenses in connection with ownership of its Income Producing Assets as long as they remain on lease. The Company currently estimates that it may not have available adequate reserves to meet its short term immediate cash requirements for normal operating costs and interest on the secured notes due February 1, 2001. See "Factors that May Affect Future Results", below, for a discussion of factors affecting the Company's cash flow. The decrease in cash flow used by investing activities from 1999 to 2000 was due to the Company's purchase of an aircraft during August 1999 versus no such purchases, other than capitalizing the cost of equipment added to a plane already owned, in 2000. There was no cash flow from financing activities in the first nine months of 2000 or 1999 because the Offering terminated in August 1997. The Company had negative cash flow from operations for the first nine months of 2000 because the total paid for interest, maintenance and operating expenses exceeded revenues collected. However, even when the Company had positive cash flow from operations, it typically operated at a net loss due to depreciation and interest expense. Results of Operations The Company recorded a net loss of ($1,359,880) and ($201,320) or ($5.59) and ($0.83) per share for the nine months ended September 30, 2000 and 1999, respectively, and ($1,137,830) and ($73,890) or ($4.67) and ($0.30) per share for the three months ended September 30, 2000 and 1999, respectively. Rental income decreased by approximately $99,000 in the nine month and three month periods of 2000 versus 1999, due to the repossession of S/N 668 and the associated write-off of rent receivable during the third quarter of 2000. Depreciation increased by approximately $9,000 during the nine months ended September 30, 2000 versus 1999 as a result of the depreciation expense associated with the purchase of S/N 668 during July 1999. Maintenance expense increased by approximately $205,000 and $154,000 in the nine month and three periods of 2000 as a result of maintenance work performed on S/N 647 prior to its re-lease and the accrual of estimated maintenance to be performed on S/N 668, as a result of reserves which the Company was unable to collect from the lessee. The company wrote off the receivable for uncollected maintenance during September 2000. During the third quarter of 2000, the Company recorded a provision for impairment in value of S/N 3676 based on its estimated fair value and a provision for impairment in value of S/N 3606 based on its sale during October 2000. If, as the Company anticipates, it is unable to collect a substantial portion of its claim in bankruptcy for unfunded maintenance requirements, this possibility, along with the asset impairment for S/N 3676 and S/N 3606 recognized during the third quarter of 2000, will have a material adverse affect upon the Company's ability to meet its scheduled interest payments, as well as repayment in full of the Notes at maturity. Under the terms of a tax sharing agreement between the members of the consolidated group with which the Company files a consolidated tax return, in the event that the Company has taxable income, the Company will be credited for the tax benefits provided by the use of the Company's prior year net operating losses. However, under the terms of the tax sharing agreement with other members of the consolidated group, the Company does not expect its inter-company receivable to be collected because it does not expect to generate adequate future taxable income. Factors that May Affect Future Results Lessee Defaults; Need for Debt Restructuring. As described below in "Risks Related to Regional Air Carriers", the Company's primary customers are regional air carriers who generally pay a higher lease rate, but entail a higher risk of default or lessee bankruptcy compared to major carriers. To date, though the Company carefully analyzed the financial risk of its lessees prior to entering into lease transactions, the Company has unfortunately experienced defaults with respect to lessees of four of five aircraft that it owns or co-owns. The most recent bankruptcy of a lessee that leases two aircraft from the Company, one entirely owned by the Company and the other half-owned, described below in "Bankruptcy of Certain Lessee" was a substantial setback to the Company, given the Company's modest portfolio size. This, combined with the prior defaults by other lessees, has eroded the Company's financial status. Though the Company has, to date, been able to make its required interest payments to the Noteholders, other lessee defaults and the failure to recover on claims made against defaulting lessees and/or promptly re-lease repossessed aircraft, have adversely affected the Company's ability to continue to meet its interest obligations, and may also result in the Company's inability to fully repay the principal due under the Notes at maturity, absent substantial restructuring of the debt obligations. Bankruptcy of Certain Lessee. The lessee for two of the Company's aircraft, a British regional carrier, filed for reorganization in February 2000. The Company owns a 50% interest of one aircraft (S/N 3676) and 100% of the other (S/N 3606). The lessee is continuing to operate, and, under a reorganization plan adopted by the trustee managing the reorganization, the lessee agreed to continue leasing S/N 3676, on a month-to-month basis at the same rent as under the original lease. The lessee also agreed to begin paying monthly maintenance reserves based on the hours flown. In April 2000, the lessee suspended payments on the second aircraft, S/N 3606, and returned the aircraft to the Company. The Company has claims for unfunded maintenance related to periods prior to the reorganization, and any unpaid lease rentals for both aircraft, which will be considered an unsecured claim against the lessee. It is unlikely, however, that the Company will recover the full amount of such claims from the lessee. If there is a substantial deficiency in the recovery of its claims against such lessee, or if the Company is unable to maintain S/N 3676 on lease with the British regional air carrier, the Company's ability to meet its scheduled interest payments may be impaired. Risks Related to Regional Air Carriers. Because the Company's leases are all with 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, and 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. Ability to Repay Notes. The Company's ability to repay the Notes at their maturity date is dependent in part upon reinvestment of excess cash flows in additional Income Producing Assets. The Company has realized less than anticipated lease rentals due to an unanticipated number of lessee rental defaults, early termination of leases and significant unexpected expenses due to lessee defaults in rent or other obligations. This has resulted in lower than expected excess cash flow available for reinvestment in additional Assets and a smaller than anticipated portfolio value. As a result, the Company's ability to repay the Notes in full at maturity has been negatively affected by such events and, absent a restructuring of such debt, repayment in full at maturity is not likely, even if the Company is able to meet its scheduled interest payments. Ownership Risks. 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 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 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. Lessee Credit Risk. If a lessee defaults upon its 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. Even if an aircraft can be repossessed, the Company may be unable to recover damages from the lessee if the condition of the aircraft when repossessed was worse than that required by the lease. General Economic Conditions. The market for used aircraft has been cyclical, and usually reflects economic conditions and the strength of the travel and transportation industry. At any time, the market for used aircraft may be adversely affected by such factors as airline financial difficulties, higher fuel costs, and improved availability and economics of new replacement aircraft. An adverse change in the global air travel industry, however, could result in reduced carrier revenue and excess capacity and increase the risk of failure of some weaker regional air carriers. While the Company believes that with proper asset and lessee selection the impact of such changes on the Company can be reduced, there is no assurance that the Company's business will escape the effects of such a global downturn, or a regional downturn in an area where the Company has placed a significant amount of its assets. Reliance on JMC. All management of the Company is performed by JMC pursuant to a management agreement between JMC and the Company. The Board of Directors does, however, have ultimate control and supervisory responsibility over all aspects of the Company and does 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 the Company are also officers or employees of JMC, and in that capacity owe fiduciary duties to the Company and the stockholders by virtue of holding such offices. Although the Company has taken steps to prevent such conflicts, such conflicts of interest arising from such dual roles may still occur. International Risks. The Company's portfolio currently consists of leases with primarily foreign air carriers. Leases with foreign lessees 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 as those which apply in the United States. The Company could experience collection 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 would 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 add difficulty in recovering an aircraft in the event that a foreign lessee defaults. Leases with foreign lessees are subject to risks related to the economy of the country or region in which such lessee is located even if the U.S. economy remains strong. On the other hand, a foreign economy may remain strong even though the domestic U.S. economy does not. A foreign economic downturn may occur and 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 currency conversion fluctuations. Although the Company's current leases are all payable in U.S. dollars, in the future, the Company may agree to leases that permit payment in foreign currency, which would subject such lease revenue to monetary risk due to currency fluctuations. Even with dollar-denominated lease payment provisions, the Company could still be affected by a devaluation of the lessee's local currency which would make it more difficult for a lessee to meet its dollar-denominated lease payments, increasing the risk of default of that lessee, particularly if that carrier's revenue is primarily derived in the local currency. Competition. The Company has many competitors in the aircraft leasing industry, including leasing companies, banks and other financial institutions and aircraft leasing partnerships. The market is highly competitive. Most of the Company's competitors have substantially greater financial and other resources than 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 remarket equipment at acceptable rates may depend on the demand and market values at the time of remarketing. 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 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 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. 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 turboprop aircraft. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 15, 2000. AEROCENTURY IV, INC. By: /s/ Neal D. Crispin -------------------- Neal D. Crispin Title: President Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities indicated on November 15, 2000. Signature Title /s/ Neal D. Crispin President and Chairman of the ------------------- Board of Directors of the Registrant Neal D. Crispin Chief Financial Officer

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