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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-2856
American Equities Income Fund, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3429295
(State of incorporation) (I.R.S. Employer Identification No.)
East 80 Route 4, Suite 202, Paramus, New Jersey 07652
(Address of principal executive offices) (Zip Code)
(201) 368-5900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: As of December 8, 1998, the Company had 1,000 shares of
common stock, $1.00 par value, issued and outstanding.<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet as at September 30, 1998 3
Statement of Cash Flows as at September 30, 1998 4
Statement of Operations as at September 30, 1998 5
Statement of Stockholders' Equity as at September 30, 1998 6
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities. 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K. 10
<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
BALANCE SHEET
(Unaudited)
As of September 30
1998 1997
Assets
Current Assets:
Cash in banks $1,081,007 $1,992,314
Financed receivables - Net 9,711,739 4,024,151
Other current assets 1,249,833 495,077
Total current assets $12,042,579 $6,511,542
Deferred Costs:
Deferred organizational costs $ 766,915 $ 925,629
Deferred note costs 869,715 232,785
Less accumulated amortization (427,567) (20,150)
Total other assets $1,209,063 $1,138,264
Total Assets $13,251,642 $7,649,806
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and accrued expenses $ 37,119 $ 14,035
Interest Payable 122,825 2,907
Other current liabilities 605,708 77,684
Total current liabilities $ 765,652 $ 94,626
Other liabilities:
Notes payable $12,644,000 $ 6,864,000
Escrow payable 0 723,200
Other Long term liabilities 169,207 0
Total long-term liabilities $12,813,207 $ 7,587,200
Total liabilities $13,578,859 $ 7,681,826
Stockholders' Equity:
Common Stock, $1 par value,
1,000 shares authorized, 1,000 shares
issued and outstanding $ 1,000 $ 1,000
Additional paid-in capital 39,000 39,000
Accumulated profit (loss) (367,217) (72,020)
Total Stockholders' Equity $ (327,217) $ (32,020)
Total Liabilities and Stockholders' Equity $ 13,251,642 $ 7,649,806
<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
STATEMENT OF CASH FLOWS
As of September 30,
1998 1997
Net Income (loss) ($ 104,518) $ (58,435)
Adjustments to reconcile Net Income to Net Cash
from Operating Activities:
Depreciation and amortization $ 304,329 $ 0
Increase in financed receivables (3,445,656) (3,444,177)
Increase in other current assets (603,713) (495,077)
Increase in accrued expenses 27,473 35
Increase in other current liabilities 498,215 20,008
Total Adjustments ($3,127,909) ($3,919,211)
Net cash flows from (used in) operating activities ($3,323,870) ($3,977,646)
Cash Flows from (used in) Investing Activities:
Payment of organizational costs (352,765) (814,779)
Net cash flows from (used in) Investing Activities ($352,765) ($814,779)
Cash Flows from (used in) Financing Activities:
Decrease in Escrow payables $(411,000) $507,200
Increase in interest payable 174,350 (1,333)
Proceeds from notes payable 4,361,000 4,647,000
Net cash flows from financing activities $4,124,350 $5,152,867
Net Increase in Cash $ 447,715 $ 360,442
Cash at beginning of period $ 633,292 $1,631,872
Cash at end of period $1,081,007 $1,992,314
<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
STATEMENT OF OPERATIONS
Nine months ended September 30,
1998 1997
Revenues:
Fee income $1,152,685 $287,183
Other income 17,445 57,265
Total Revenues $1,170,130 $344,448
Operating Expenses:
General & administrative expenses $ 5,548 $ 42,011
Interest expense 964,771 360,872
Total expenses $970,319 $402,883
Net Income
before depreciation, amortization,
and provision for income taxes $199,811 $(58,435)
Net Income
after depreciation, amortization,
and provision for income taxes ($104,518) ($58,435)
<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
STATEMENT OF STOCKHOLDER' EQUITY
Additional
Number Paid in Net
of shares Value Capital Loss Total
Date of incorporation 0 $0 $0 $0 $0
(March 11, 1996)
Shares issued for cash on 1,000 $1,000 $39,000 $0 $40,000
March 22, 1996
Accumulated loss as of (367,217) (367,217)
9/30/98
Total Stockholders' Equity 1,000 $1,000 $39,000 ($367,217) ($327,217)
<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - FORMATION AND OPERATION OF THE COMPANY
American Equities Income Fund, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on March 11, 1996.
The Company is in the business of factoring accounts receivable (the "Receivables") and
providing other financial services to client companies.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
Accounting records of the Company and financial statements are maintained and prepared on
the accrual basis.
Year End
The Company's year end for financial reporting tax purposes is December 31.
Cash Equivalents
For financial statement purposes, with respect to the Statement of Cash Flows, cash
equivalents include time deposits and all highly liquid investments with original maturities of
three months or less. The amount included on the Company's Statement of Cash Flows is
comprised of exclusively of cash.
NOTE C - STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000 shares of common stock at $1.00 par value. On
June 30, 1998, there were 1,000 shares of common stock issued and outstanding.
The holders of the common stock are entitled to one vote per share on all matters to be voted
on by shareholders.
NOTE D - SECURED NOTE OFFERING
On August 26, 1996, the Company commenced offering subscriptions for up to $15,000,000
aggregate principal amount of its 12% Notes in denominations of $1,000 each, or any
integral multiple thereof. The Notes bear simple interest at 12% per annum, payable interest
only monthly, annually or upon maturity, at the option of the investor, with all principal and
accrued interest, if any, due on September 30, 2006. Accrued but unpaid interest will be
compounded monthly at the rate of 12% per annum. The Notes may be accelerated by the
Note Holders on the first day of the fifth, sixth, seventh eighth and ninth years upon six
months written notice to the Company. The Notes will be secured by the Receivables
acquired with the proceeds of the offering or funds obtained from the repayment of such
Receivables or any after acquired Receivables. The Notes are prepayable in whole or in part
at any time without premium or penalty.
The offering terminated on August 26, 1998. An aggregate of $12,928,208 principal amount
of Notes were issued as of September 30, 1998.
NOTE E - RELATED PARTY TRANSACTIONS
The Company and American Equities Group, Inc. will share the fees charged, 50% to the
Company and 50% to American Equities Group, Inc. American Equities Group, Inc. will
pay all overhead, expenses and salaries of the Company from its portion of the fees as relates
to the ongoing business of the Company, except for legal, accounting, filing fees, taxes and
other administrative expenses related to the Company.
NOTE F - ACCOUNTS RECEIVABLE
The Company's policy is to record the accounts receivable it purchases from borrowers at
the face amount, less the portion held back by the Company as a loss reserve.
At September 30, 1998, the financed receivables are as follows:
September 30, 1998
Face Amount $32,068,451
Less Reserve (22,356,712)
Net $ 9,711,739
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Form 10-QSB.
This management's discussion and analysis of financial conditions and results of
operations contains certain "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Such statements relating to future events and financial
performance are forward-looking statements that involve risks and uncertainties, detailed
from time to time in the Company's various Securities and Exchange Commission filings.
No assurance can be given that any such matters will be realized.
Nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997.
Gross revenues increased to $1,170,130 or 240% for the nine months ended
September 30, 1998 from $344,448 for the nine months ended September 30, 1997,
primarily because of the increase in funds available through the Company's initial public
offering which enabled the Company to purchase more accounts receivable and therefore
generate more fee income.
Net income before depreciation, amortization, and provision for income taxes
increased by $258,246 to $199,811, or 17.1% of gross revenues, for the nine months ended
September 30, 1998 from $(58,435) or (.17)% of gross revenues for the nine months ended
September 30, 1997. This increase was primarily due to the increase in funds available
through the Company's public offering of notes which enabled the Company to purchase
more accounts receivable and therefore generate more fee income.
Operating expenses decreased by $36,463, to $5,548, or .5% of gross revenues, for
the nine months ended September 30, 1998, from $42,011 for the nine months ended
September 30, 1997. This decrease was primarily due to decreased legal and accounting
expenses, as well as the absence of securities filing fees, related to the Company's public
offering of promissory notes.
Interest expense increased $603,899 to $964,771 or 82.4% of gross revenues, for the
nine months ended September 30, 1998, compared to $360,872, for the nine months ended
September 30, 1997. This increase was primarily due to the increase in investors notes
outstanding.
Liquidity and Capital Resources
The Company's principal sources of liquidity have been internally generated funds
and through the public offering of its 12% Notes. It is anticipated that funds from operations
and the receipt of the net proceeds of such offering will provide the Company with sufficient
liquidity to meet its debt service and operating requirements for at least the next 12 months.
The ability of the Company to meet operating forecasts included in its expansion plans
will depend in part upon the successful completion of this offering and its ability to develop
and implement new or additional financial services.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K relating to the replacement of its independent
auditors on November 19, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly cause this to be signed on its behalf by the undersigned thereunto duly authorized.
Date: December 18, 1998 By:/S/ David S. Goldberg
David S. Goldberg
Chief Executive Officer and
Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> $ 1,081,007
<SECURITIES> 0
<RECEIVABLES> $ 9,711,739
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $12,042,579
<PP&E> $ 766,915
<DEPRECIATION> 0
<TOTAL-ASSETS> $13,251,642
<CURRENT-LIABILITIES> $ 765,652
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0
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<COMMON> $1,000
<OTHER-SE> $39,000
<TOTAL-LIABILITY-AND-EQUITY> $13,251,642
<SALES> $1,152,685
<TOTAL-REVENUES> $1,170,130
<CGS> $ 5,548
<TOTAL-COSTS> $970,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $964,771
<INCOME-PRETAX> $199,811
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<NET-INCOME> $(104,518)
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