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, 2001 [ ] 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 14, 2001 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 14, 2001 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, 2001 ASSETS Current assets: Cash $ 1,280,550 Deposits 86,130 Accounts receivable 125,310 Rent receivable 5,000 ------------- Total current assets 1,496,990 Aircraft and aircraft engines under operating leases, net of accumulated depreciation of $406,350 1,232,840 Debt issue costs, net of accumulated amortization of $315,100 274,420 Other assets 10,000 ------------- Total assets $ 3,014,250 ============= LIABILITIES AND SHAREHOLDER'S DEFICIT Current liabilities: Accounts payable $ 1,300 Interest payable 81,150 Prepaid rent 7,500 Security deposits 20,000 Maintenance deposits 191,430 ------------- Total current liabilities 301,380 ------------- Medium-term secured notes 4,869,000 ------------- Total liabilities 5,170,380 ------------- 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 (2,399,550) ------------- Total shareholder's deficit (2,156,130) ------------- Total liabilities and shareholder's deficit $ 3,014,250 =============

See accompanying summary of accounting policies and notes to financial statements. AEROCENTURY IV, INC. Statements of Operations

~~ASSETS~~For ~~Current~~the ~~assets:~~Nine ~~Cash~~Months $For ~~150,630~~the ~~Deposits~~Three ~~121,350~~Months ~~Rent~~Ended ~~receivable~~September 5630,~~450~~ ~~Accounts~~Ended ~~receivable~~September ~~209~~30,~~510~~ 2001 2000 2001 2000 ---- ---- ---- ---- ~~Total~~Revenues: ~~current~~Rent ~~assets~~income ~~537~~$ 233,~~940~~950 ~~Aircraft~~$ ~~and~~414,890 ~~aircraft~~$ ~~engines~~75,000 ~~under~~$ ~~operating leases~~84,450 ~~net~~Gain on sale of ~~accumulated~~aircraft ~~depreciation~~113,000 of- ~~$685~~- - Interest income 44,~~670~~700 213,~~994~~190 12,~~220~~140 ~~Debt issue costs~~4,240 ~~net~~------------- of------------- ~~accumulated~~------------- ~~amortization~~------------- of391,650 ~~$238~~428,~~520~~080 ~~351~~87,~~000~~140 ~~Other~~88,690 ~~assets~~------------- ~~10,070~~------------- ------------- ~~Total~~------------- ~~assets~~Expenses: $Depreciation 387,~~893~~160 194,~~230~~030 ~~=============~~29,050 ~~LIABILITIES~~64,840 ~~AND~~Provision ~~SHAREHOLDER'S~~for ~~EQUITY~~impairment ~~Current~~in ~~liabilities:~~value ~~Accounts~~of ~~payable~~aircraft $- ~~138~~623,~~800~~940 ~~Interest~~- ~~payable~~623,940 81Amortization 57,440 57,440 19,150 ~~Prepaid~~19,150 ~~rent~~Maintenance 128,~~500~~260 ~~Security~~204,620 ~~deposits~~8,260 30154,~~000~~280 ~~Maintenance~~Interest ~~deposits~~365,180 ~~310~~365,~~850~~180 121,730 121,730 Management fees 73,030 73,030 24,340 24,340 Professional fees and general and administrative 14,960 44,200 5,330 21,530 ------------- ~~Total current liabilities 573,300~~ ------------- ~~Medium~~-~~term secured notes 4,869,000~~ ------------- ~~Total liabilities 5,442,300~~ ------------- ~~Preferred stock~~606,030 ~~no par value~~1,562,440 ~~100~~207,~~000~~860 ~~shares authorized~~1,029,810 no------------- ~~shares~~------------- ~~issued~~------------- ~~and outstanding~~ ------------- ~~Common~~Loss ~~stock,~~before notaxes ~~par value~~(214,380) ~~500~~(1,~~000~~134,360) ~~shares authorized~~(120,720) ~~243~~(941,~~420~~120) ~~shares~~Tax ~~issued~~provision ~~and~~800 ~~outstanding 243~~225,~~420~~520 ~~Accumulated~~- ~~deficit (1~~196,~~792,490)~~710 ------------- ~~Total~~------------- ~~shareholder's~~------------- ~~equity (1,549,070)~~ ------------- ~~Total~~Net ~~liabilities~~loss ~~and~~$ ~~shareholder's~~(215,180) ~~equity~~$ (1,359,880) $ 3(120,~~893~~720) $ (1,~~230~~137,830) ============= ~~See~~============= ~~accompanying~~============= ~~notes~~============= Weighted average common shares outstanding 243,420 243,420 243,420 243,420 ============= ============= ============= ============= Basic loss per common share $ (0.88) $ (5.59) $ (0.50) $ (4.67) ============= ============= ============= =============

See accompanying summary of accounting policies and notes to financial statements. AEROCENTURY IV, INC. Statements of Cash Flows

For the Nine Months Ended ~~For the Three Months Ended~~ September 30, ~~September~~2001 ~~30,~~ 2000 ~~1999 2000 1999~~ ---- ---- ~~----~~Net ~~----~~cash ~~Revenues:~~(used)/provided ~~Rent~~by ~~income~~operating $activities ~~414,890~~ $ ~~513~~(195,~~740~~590) $ 8440,~~450~~120 ~~$ 183,110 Interest income 13,190 23,360 4,240 5,290~~ ------------- -~~------------~~ ------------- ~~-------------~~Investing ~~428,080 537,100 88,690 188,400 ------------- ------------- ------------- ------------- Expenses~~activities: ~~Depreciation~~Purchase ~~194,030~~of ~~184,870~~interest ~~64,840 64,600 Provision for impairment~~ in ~~value of~~ aircraft ~~623,940~~ - ~~623~~(659,~~940~~950) -Proceeds ~~Amortization~~from ~~57,440~~disposal ~~57,440~~of ~~19,150~~assets 19283,~~140~~000 ~~Maintenance 204,620~~ - ~~154,280~~ - ~~Interest 365,180 365,180 121,730 121,730 Management fees 73,030 73,030 24,340 24,340 Professional fees and general and administrative 44,200 57,100 21,530 32,480~~ ------------- ------------- ~~-------------~~Net ~~-------------~~cash ~~1,562,440~~provided ~~737,620~~by 1investing activities 283,~~029,810~~000 ~~262~~(659,~~290~~950) ------------- -~~------------~~ ------------- ~~-------------~~Net ~~Loss~~increase/(decrease) ~~before~~in ~~taxes~~cash (187,~~134,360)~~410 (~~200~~619,~~520~~830) ~~(941~~Cash,~~120)~~ ~~(73,890)~~beginning ~~Tax~~of ~~provision~~period ~~225~~1,~~520~~193,140 ~~800 196~~988,~~710~~260 - ------------- ------------- ~~-------------~~Cash, ~~-------------~~end ~~Net~~of ~~loss~~period $ (1,~~359~~280,~~880)~~550 $ ~~(201~~368,~~320)~~430 ~~$ (1,137,830) $ (73,890)~~ ============= =~~============~~ ============= ~~=============~~Supplemental ~~Weighted~~disclosures ~~average~~of ~~common~~cash ~~shares~~flow ~~outstanding~~information: ~~243,420~~Cash ~~243,420~~paid ~~243,420~~during ~~243,420~~the ~~=============~~period ~~=============~~for: ~~=============~~2001 ~~=============~~2000 ~~Basic~~---- ~~loss~~---- ~~per~~Interest ~~common~~(net ~~share~~of $amount ~~(5.59~~capitalized) $ ~~(0.83)~~365,180 $ ~~(4.67)~~365,180 $Income ~~(0.30)~~taxes ~~=============~~800 ~~============= ============= ============= See accompanying notes.~~800

See accompanying summary of accounting policies and notes to financial statements. 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, 2001, the Company maintained $1,340,120 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. Impairment of Long-lived Assets In accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of," assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Periodically, the Company reviews its long-lived assets for impairment based on estimated future non-discounted cash flows attributable to the assets or appraisals. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated realizable 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"). AEROCENTURY IV, INC. Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Debt Issue Costs (continued) 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. 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. Recent Accounting Pronouncements SFAS No. 137, which amended the effective date of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued in June 1999. The Company adopted SFAS No. 133 on January 1, 2001. This statement establishes accounting and reporting standards requiring that all derivative instruments are recorded on the balance sheet as either an asset or a liability, measured at fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met and such hedge accounting treatment is elected. Because the Company does not hold any derivatives as defined in SFAS No. 133, its adoption did not have a material impact on its results of operations or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101, as amended, summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 was adopted by the Company in 2000. The adoption of the provisions of SAB 101 did not have a material effect on the Company's consolidated operating results, statement of financial position or cash flow. AEROCENTURY IV, INC. Notes to Financial Statements 2. Aircraft and Aircraft Engines Under Operating Leases Aircraft and Aircraft Engines At September 30, 2001, the Company owned a Fairchild Metro III aircraft, serial number AC-647 ("S/N AC-647"), and a Pratt & Whitney JT8D-9A aircraft engine, serial number 674452B (the "Engine"). In January 2001, the Company sold its 50% interest in a Shorts SD3-60-100, serial number S/N 3676 ("S/N 3676"). The Company did not purchase any aircraft during the first nine months of 2001. Aircraft and Aircraft Engines Leases 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 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. At the time of purchase, S/N 3676 (owned 50% by the Company) was subject to a 48-month lease, 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. It had recently been named Airline of the Year by the European Regions Airline Association and had its own facility, which was certified to perform any required maintenance. Subsequently, the airline experienced financial difficulties and, on February 24, 2000, filed for reorganization. The lessee continued to operate, and, under the reorganization plan, the lessee paid rentals on a month to month basis at the same rent as under the original lease on S/N 3676. Under the plan, 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 agreed to pay rent and maintenance reserves under its reorganization plan. The lessee notified the owners that the aircraft would be returned to them during the fourth quarter of 2000. The owners agreed that they would realize a greater benefit if they sold 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. Therefore, the Company reduced the carrying value of the aircraft to $170,000 and recognized a provision for impairment estimated to be $245,350 during 2000. The aircraft was returned to the Company and, in January 2001 it was sold. The Company received net proceeds of $167,450 and recognized a gain of $35,980. During the second quarter of 2001, the lessee paid all amounts owed to the Company and, since the aircraft had been sold, the Company recognized an additional gain of $77,020, representing maintenance reserves retained. The lessee also paid two months of rent, which the Company had accrued during 2000, for a second plane it had leased and which was sold during 2000. As of September 30, 2001, minimum future lease rent payments receivable under noncancelable leases were as follows: Year Amount 2001 $ 85,000 2002 192,500 ------------- $ 277,500 ============= AEROCENTURY IV, INC. Notes to Financial Statements 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. As described in Note 6 to the financial statements, there is substantial doubt as to the Company's ability to continue as a going concern. Therefore, the fair value of the Notes is estimated to be approximately $2,428,000, which is $2,441,000 less than the carrying value. The fair value of the notes payable is estimated based upon the net book values of the aircraft and the current net working capital of the Company. 4. Income Taxes

The items comprising income tax expense are as follows: For the Nine Months Ended September 30, 2001 2000 ~~1999~~ ---- ---- ~~Net~~Current ~~cash~~tax ~~used~~provision byFederal ~~operating~~$ ~~activities~~- $ ~~(188,320)~~- $State ~~40,120~~800 ~~Investing~~800 ~~activity~~------------- -------------- ~~Purchase~~Current oftax ~~interest~~provision in800 ~~aircraft~~800 ------------- -------------- Deferred tax provision Federal (3076,~~380~~010) ~~(659~~14,~~950~~080 State (720) 810 -------------- -------------- ~~Net~~Deferred ~~decrease~~tax ~~in cash~~ (~~218,700~~benefit)/provision (~~619~~76,~~830~~730) ~~Cash~~14,890 ~~beginning~~Valuation ofallowance ~~period 369~~76,~~330~~730 ~~988~~209,~~260~~830 -------------- -------------- ~~Cash,~~Total ~~end~~provision offor ~~period~~income taxes $ ~~150,630~~800 $ ~~368~~225,~~430~~520 ============== ============== ~~Supplemental~~Total ~~disclosures~~income oftax ~~cash~~expense ~~flow~~differs ~~information:~~from ~~Cash~~the ~~paid~~amount ~~during~~which would be provided by applying the ~~period~~statutory ~~for~~federal income tax rate to pretax earnings as illustrated below: ~~2000~~For ~~1999~~the Nine Months Ended September 30, 2001 2000 ---- ---- ~~Interest~~Income tax (benefit)/expense at statutory federal income tax rate $ ~~365~~(48,~~180~~060) $ ~~365~~(352,~~180~~490) ~~Income~~State taxes ~~800~~net of federal benefit (120) (240) Prior year adjustment (27,750) - Basis differences - 21,370 Inter-company tax expense - 347,050 Valuation allowance 76,730 209,830 ------------- -------------- Total provision for income taxes $ 800 ~~See~~$ ~~accompanying~~225,520 ~~notes.~~============= ==============

AEROCENTURY IV, INC. Notes to Financial Statements 4. Income Taxes (continued) Temporary differences and carryforwards, which gave rise to a significant portion of deferred tax assets and liabilities as of September 30, 2001 are as follows: Deferred tax assets: Depreciation of aircraft $ 45,370 Maintenance deposits 24,350 Net operating losses 290,090 Other 2,830 ------------- 362,640 Valuation allowance (362,510) ------------- Net deferred tax assets 130 Deferred tax liability- Amortization of organizational costs (130) ------------- $ - =============

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 it 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 arrangement 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 2001 and 2000, the Company accrued 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. During the first nine months of 2001 and 2000, no acquisition fees or reimbursements for Chargeable Acquisition Expenses were paid as the Company did not acquire additional assets. During the first nine months of 2001, remarketing fees of $2,550 were paid to JMC in connection with the sale of aircraft. No remarketing fees were paid during the first nine months of 2000. AEROCENTURY IV, INC. Notes to Financial Statements 5. Related Party Transactions (continued) 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 2001 and 2000. 6. Going Concern As shown in the accompanying financial statements, as of September 30, 2001, the Company's total liabilities exceeded its total assets by $2,156,130. In addition, although the Company has recently sold several aircraft, it does not believe that it has sufficient total proceeds to invest in another income producing asset and, therefore, it anticipates using such proceeds to fund a principal prepayment to Noteholders during the first quarter of 2002. The Company's cash flow projections show that it will not have sufficient cash balances to fund the required interest payment of approximately $122,000 on February 1, 2002. The Company has informed the Trustee that it will be unable to make such payment and that it will, therefore, be in default under the Trust Indenture at that time. Under the Trust Indenture, 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. These factors create a substantial uncertainty about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 7. Subsequent Event After consultation, and with the consent of the Trustee, on November 1, 2001, the Company's Board of Directors approved a resolution authorizing a prepayment of $1,150,000 of principal to the Noteholders during the first quarter of 2002. As required under the Indenture, the Company, in conjunction with the Trustee, plans to notify the Noteholders of the prepayment during the fourth quarter of 2001. 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: realization of benefits of its deferred tax assets, collection of intercompany tax receivables under its tax sharing agreement, using sales proceeds of certain aircraft to fund a principal prepayment in the first quarter of 2002, the Company's inability to fund the February 2002 interest payment, the incurring of significant operating expenses for assets on lease, the insufficiency of sales proceeds from asset sales to invest in additional assets, anticipated disposition of the assets by the Trustee, and the Trustee's actions after a February 2002 default to take control of the Company's assets; are forward looking statements. While the company believes that such statements are accurate, actual results may differ due to further defaults by existing lessees, general economic conditions, particularly those that affect the re-sale value of turboprop aircraft and engines, including competition for turboprop and other aircraft, the ability to keep the Company's assets under lease, 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. Results of Operations The Company recorded a net loss of ($215,180) and ($1,359,880) or ($0.88) and ($5.59) per share for the nine months ended September 30, 2001 and 2000, respectively, and ($120,720) and ($1,137,830) or ($0.50) and ($4.67) per share for the three months ended September 30, 2001 and 2000, respectively. Rental income decreased by approximately $182,000 and $9,000 in the nine months and three months, respectively, of 2001 due to the sale of aircraft during the fourth quarter of 2000 and January 2001. Gain on sale of aircraft was approximately $113,000 in the nine month period of 2001 due to the sale of S/N 3676 and the associated reserves retained. There were no asset dispositions during the first nine months of 2000. Interest income was higher in 2001 by approximately $32,000 and $8,000 in the nine month and three periods, respectively, due to higher cash balances in 2001 as a result of asset sales. Depreciation decreased approximately $107,000 and $36,000 in the same periods due to the asset sales noted above. Maintenance expense was approximately $196,000 and $146,000 lower in the nine months and three months, respectively, ended September 30, 2001 than in 2000 as a result of maintenance work performed on an aircraft upon its return during 2000. Under the terms of a tax sharing arrangement 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 this agreement, the Company does not expect its inter-company receivable to be collected because it does not expect to generate adequate future taxable income. Capital Resources and Liquidity The Company's current financial condition is a result of several factors, primarily the default on lease obligations by the original lessees of four of the Company's five aircraft. As a result of such defaults, the aircraft were repossessed by the Company or returned early by the lessees, which meant that the Company had to sell the aircraft earlier than anticipated or negotiate lease terms with new lessees. See "Factors that May Affect Future Results," below, for a complete discussion of factors affecting the Company's cash flow. At September 30, 2001, the Company had cash balances of $1,280,550 and deposits of $86,130. Approximately $122,000 of the Company's cash balances were held for the interest payment made to the Noteholders in November 2001. The remaining cash, which was the result of aircraft sales during the fourth quarter 2000 and first quarter of 2001, is being held for transmittal to the Trustee as required under the terms of the Trust Indenture. Since its formation, the Company's capital has come in the form of equity contributions from JHC, proceeds from the Offering, rental revenue from the Income Producing Assets purchased using those proceeds, and, most recently, proceeds from the sale of assets. 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. 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. Excess cash flow from operations, after interest payments on the Notes, has been held as cash because it was, in the aggregate, insufficient to purchase additional Income Producing Assets. In addition, although the Company has recently sold several aircraft that were returned after lessee defaults, it does not believe that the total proceeds of such sales are sufficient to invest in a desirable Income Producing Asset. The Company anticipates that it will use these proceeds to make a principal prepayment to Noteholders in the first quarter of 2002. During the second quarter of 2001, the Company received payment of the past due rent and reserves from the previous lessee of S/N 3606 and S/N 3676. The receipt of such funds enabled the Company to make the required interest payments of approximately $122,000 on August 1, 2001 and November 1, 2001. However, the Company's cash flow projections show that it will not have sufficient cash balances to fund the required interest payment of approximately $122,000 on February 1, 2002. The Company's decrease in cash flow from operations was due primarily to a larger net loss, excluding the gain on sale of aircraft, during 2001 versus 2000 and the effect of the change in deposits and accounts receivable, which effects were only partially offset by a change in payable to affiliate and maintenance deposits from year to year. The increase in cash flow provided by investing activities was the result of the Company's sale of an aircraft in January 2001. There was no cash flow from financing activities in 2001 or 2000 because the Offering terminated in August 1997. Outlook The Company currently has Notes outstanding with an aggregate principal face value of $4,869,000. As discussed in Note 3, the fair value of the Notes, based upon the net book values of the aircraft and the current net working capital of the Company, is estimated to be approximately $2,428,000, which is approximately 50% of the face value of the Notes. Through November 1, 2001, the Company has paid to Noteholders an aggregate of approximately $2,069,300 in interest on the Notes, or approximately 42% of the face value of the Notes. After consultation, and with the consent of the Trustee, on November 1, 2001, the Company's Board of Directors approved a resolution authorizing a prepayment of $1,150,000 of principal to the Noteholders during the first quarter of 2002. As required under the Indenture, the Company, in conjunction with the Trustee, plans to notify the Noteholders of the prepayment during the fourth quarter of 2001. Upon the Company's anticipated default in its interest payment on February 1, 2002, the Trustee will likely immediately repossess the Company's assets and assume responsibility for their administration. The Company's two assets are each currently on lease until June 2002 and November 2002, at a monthly lease rate of $10,000 and $15,000, respectively. Upon repossession by the Trustee, the Trustee would have discretion as to the disposition of each asset. It could choose to sell an asset to a third party and immediately distribute the proceeds of such sale to the Noteholders. In order to achieve an immediate liquidation of the asset, however, the Trustee may have to accept a price that is substantially less than the net book value of the asset. Alternatively, the Trustee may decide to continue to hold an asset for the benefit of Noteholders and collect rent for such asset until the underlying user lease expires, or until the Trustee determines that the asset can be sold at an acceptable price. While the Trustee holds such assets, rental income received by the Trustee would be held and distributed to Noteholders by the Trustee. If the Trustee were to retain both assets until lease end, from February 2002 until the assets' lease expirations, a total of approximately $165,000 could be collected under the leases; however, the amount of rental income received would nonetheless be insufficient to permit the Trustee to make net cash distributions to Noteholders at a rate of 10% per annum on unpaid Note principal (the stated interest rate under the Notes). In either case, any distributions to Noteholders of sales and/or rent proceeds would be net of legal and administrative expenses incurred by the Trustee. Factors that May Affect Future Results Anticipated Default; Trustee's Ability to Maximize Returns. As discussed above, due to cash flow problems created by lessee rental defaults, early termination of leases, and lower than expected remarketing proceeds described above, it is anticipated that the Company will be in default under its Indenture upon its failure to make the February 1, 2002 interest payment. At that time, it is believed that the Trustee, Wells Fargo Bank Northwest (formerly known as First Security Bank, N.A.), will take control of the Company's assets securing the Indenture, namely the aircraft portfolio and leases and any remaining cash held by the Company. At that point, the Trustee will have the power to direct disposition of the collateral with the goal of maximizing value to the Noteholders. This could entail an immediate or staged disposition of all the assets or retention of the assets on lease for the benefit of the Noteholders, or a combination thereof. While the Trustee is unlikely to realize sufficient proceeds to enable repayment of the entire Note Indebtedness, its ability to maximize repayment to Noteholders will depend on the risk factors described below, particularly those that affect asset values of the Company's portfolio. Re-lease of Assets or Sale. The ability to maximize return to the Noteholders on the remaining assets of the Company will depend upon general economic conditions and the speed of recovery of the air transport industry. The industry is currently experiencing a cyclical downturn which has been exacerbated greatly by the terrorist attacks of September 11, 2001 and their aftermath. As a result, there has been a severe reduction in air travel and less revenue and less demand for aircraft capacity by the major air carriers, particularly those that serve U.S. markets. One of the Company's assets is a regional aircraft leased to a U.S. regional freight carrier. The second is a jet engine leased to a Mexican regional air carrier. It is not clear whether and to what extent the current downturn will have on these lessees. If the Company's lessees experience a corresponding downturn in their own businesses, they may be at risk of failure, and default under their respective leases. See "Risks Related to Regional Air Carriers", below. Even if the Company's lessees remain in compliance with their lease through expiration, the industry downturn may result in the lessees deciding not to renew the leases for an additional term. In that case the assets would likely be re-leased to another lessee; however, if the financial condition of the air travel industry does not improve within the next year, it may be very difficult to find a new lessee for the Company's assets. An unimproved or worse industry financial condition would also tend to result in lower amounts realizable on the assets if they are sold upon return from the lessee (See "Leasing Risks" and "Ownership Risks", below). Leasing Risks. The Company's successful negotiation of lease extensions, re-leases and sales for its two assets may be critical to its ability to achieve a maximum return of principal to its Noteholders, and will involve a number of risks. Demand for lease or purchase of the assets depends on the economic condition of the airline industry, which is in turn sensitive to general economic conditions. 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. As discussed above, The demand for and value of many types of older aircraft has been depressed by current 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 limited portfolio of two assets subjects the Company to economic risks if those particular airframe or engine types should decline in value. Risks Related to Regional Air Carriers. Because the Company's leases are 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. 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. 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. The Company's portfolio currently includes a lease with a foreign air carrier. 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. As a result of the terrorist attacks of September 11, 2001, certain insurance carriers have instituted a new $50 million limitation on war risk liability coverage. To the extent that the $50 million coverage is not sufficient to comply with lease obligations, the Company will require that its lessees acquire additional insurance, to bring coverage up to the required limits. To date, the Company believes that all of its lessees who have received notices of the new limitation have either obtained the additional coverage required or will do so before the limitation takes effect. If the additional insurance or government indemnity is not acquired in time, then the Company may ground any aircraft until it is adequately insured. 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. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEROCENTURY IV, INC. (Registrant) Date: November 14, 2001 By: /s/ Neal D. Crispin ------------------------------- Neal D. Crispin Title: President

For the Nine Months Ended September 30, 2000 1999 ---- ---- Current tax provision Federal $ - $ - State 800 800 ------------- -------------- Current tax provision 800 800 ------------- -------------- Deferred tax provision Federal 14,080 (68,720) State 810 17,020 ------------- -------------- Deferred tax provision 14,890 (51,700) Valuation allowance 209,830 51,700 ------------- -------------- Total provision for income taxes $ 225,520 $ 800 ============= ==============

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