AMERICAN EQUITIES INCOME FUND INC, 10KSB, 1999-12-29

AMERICAN EQUITIES INCOME FUND INC
10KSB, 1999-12-29
MISCELLANEOUS BUSINESS CREDIT INSTITUTION

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to________

Commission file number 333-2856
--------

AMERICAN EQUITIES INCOME FUND, INC.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 22-3429295
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

80 East Route 4
Paramus, New Jersey 07652
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (201) 368-5900

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 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes NO X
--- ---

Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
---

The issuer's net revenues for its most recent fiscal year was
$1,385,000.

The number of shares outstanding of the registrant's Common Stock,
$1.00 Par Value, as of December 20, 1999 was 1,000 shares.

Documents incorporated by reference: None

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

American Equities Income Fund, Inc. (AEIF or "the Company") was formed in 1996
to provide asset-based financing, primarily secured with accounts receivable, to
growing or emerging businesses and is authorized to have only one outstanding
debt issuance. The Company is a wholly-owned, special purpose, subsidiary of
American Equities Group, Inc. (AEG) which has raised funds in similar types of
investment programs organized to pursue the same type of financing activities
and acts as the manager for AEIF and the other subsidiaries. As compensation,
AEG earns a management fee of 50% of AEIF's gross financing revenue.

AEIF primarily provides accounts receivable financing, also known as factoring.
In addition, AEIF offers other types of financing including credit lines,
purchase order and inventory financing, but always with accounts receivable
financing as the main collateral relationship. The Company also provides
accounts receivable management for its clients that may include invoicing,
collection and customer credit evaluation. Businesses use these programs and
services to accelerate cashflow and supply working capital without increasing
debt or reducing equity.

AEIF's financing marketplace is small-to-medium sized businesses with annual
sales of $500,000 to $25,000,000 seeking working capital to grow or expand. A
financing program is designed to fit the business needs of an individual client,
tailoring the financing relationship toward a customized solution to help the
client achieve its goals. Throughout the relationship, the client's financial
status and other significant issues are monitored with regular reporting to and
from the client and on-going internal monitoring, and audit work is performed as
necessary.

The Company seeks diversification in financing clients in order to limit credit
exposure. The 1998 year-end portfolio of loans demonstrates a diversity of
industry types currently enrolled in AEIF financing and includes clients in
distribution, manufacturing, printing and publishing, service and other
industries. Accounts are regularly analyzed for concentration within a customer
or industry as well as concentration within the total AEG portfolio.
Underwriting standards are thorough, with a complete evaluation of each
company's industry, financial and management situation and appropriate due
diligence activities. These standards minimize risk and ensure the safety and
performance of the working capital.

AEIF provides for collection of regular customer accounts as well as for
delinquent customer accounts, utilizing an in-house collection staff of
experienced individuals trained to monitor and collect the receivables. While
most delinquent collection activity is performed in-house, outside attorneys may
be used for certain collection activity. If there is collateral other than
accounts receivable, the value of this collateral is monitored separately, as
well as evaluated as part of the total client collateral.

COMPETITION

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AEIF, and all the AEG companies, compete in a financing marketplace that
includes other financial services companies, banks and other types of private
financing sources. AEG markets to potential clients in several ways: by using
traditional marketing techniques such as advertising and trade shows, by
marketing to "centers of influence" such as attorneys and accountants who are in
a position to advise clients needing working capital, and by capitalizing on the
Internet as a technological resource for clients seeking financing. Since AEG
targets growing or emerging businesses, in many cases bank financing is not
available or is available with restrictions unfavorable to the client. AEG
establishes an individualized relationship with each client whereby the
financing relationship is developed on a customized basis to help the client
achieve their specific goals. The marketplace for the small-to-medium sized
businesses that AEG targets has continued to grow and the Company believes its
customized approach to financing will allow AEIF and all AEG companies to
continue a pattern of growth.

POTENTIAL CONFLICTS OF INTEREST

There may exist various conflicts of interest in connection with the
relationships among AEIF and the other AEG subsidiaries engaged in a similar
type of activity. AEIF may compete with other affiliates for management services
and for the acquisition of receivables. Also, the same legal counsel represents
all AEG companies. Management believes they have sufficient staff and controls
in place to be fully capable of discharging their responsibilities to all
entities they have organized.

RELIANCE ON MAJOR CUSTOMER(S)

One of AEIF's largest clients owes the Company approximately $3,453,000 as of
12/20/99. This client filed for protection under Chapter 11 and a trustee was
appointed to oversee the sale of the assets and continuation of the client's
business. Pursuant to a Final Secured Financing Order entered by the bankruptcy
court, AEG is allowed the use of its cash collateral and has been providing
debtor in possession financing to enable the trustee to sell the client's plant
and equipment and to outsource the client's brands. See "LEGAL PROCEEDINGS."

EMPLOYEES

As of December 1, 1999, there were twenty-eight (28) full-time employees of AEG
available to work on the business of the Company, five (5) of whom are senior
management and twenty-three (23) of whom are administrative employees. The loss
of the services of one or more members of management could materially adversely
affect the business of the Company.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company shares office space with AEG. AEG believes that the facility is
adequate for its immediate and near-term needs and does not anticipate the need
for significant expansion in the

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near future.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently a party to any material litigation, nor to the
knowledge of management, is there any material litigation threatened or
contemplated against the Company.

A financing client owes the Company approximately $3,453,000 as of December 20,
1999. The client filed for protection under Chapter 11 in November 1998 and a
Trustee was appointed to oversee the sale of assets and continuation of the
client's business. An agreed Final Secured Financing Order was entered by the
Bankruptcy Courts on January 7, 1999 that decreed, among other things, that the
American Equities Group (AEG) companies will allow the use of their cash
collateral and provide debtor-in-possession financing to enable the Trustee to
sell the client's plant and equipment and to outsource the client's brands. AEG
has a first priority security interest in the client's inventory, accounts
receivable and brands, a second lien on the client's equipment and a third lien
on the client's real estate. Additionally, AEG has a personal guaranty from a
principal of the client and certain of his affiliates and a stock pledge of a
minority interest in another company as collateral. AEG has taken an active role
in the orderly liquidation of the assets of the client in order to preserve the
maximum value of the collateral. The Company has established a provision for
credit losses that is an estimate of financial exposure in this situation. If
additional funds are realized, their recovery will have a positive impact on the
results of operations in the year that such recovery takes place. If the funds
realized are less than the current projected amount, a sum greater than the
current provision will be written off and additional losses will be recorded.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

No public trading market currently exists for the Company's common
equity. As of December 27, 1999, the Company had one holder of record for its
shares of common equity.

DIVIDEND POLICY

The Company has never paid cash dividends on its common stock and does
not anticipate paying cash dividends in the foreseeable future, but rather
intends instead to retain future earnings, if any, for reinvestment in its
business. The Company has agreed not to pay dividends, or make distributions on
its stock or purchase, redeem, or otherwise acquire or retire any of its stock
if (a) an Event of Default exists under any of the Notes or (b) it would
reasonably appear that after any such action the Company would not have
sufficient funds to avoid an Event of Default within six (6) months of such
action. In addition, dividends to AEG may only be paid to the extent of such
retained amounts; provided, that after the payment of any dividends the
Company's basis in its Receivables plus cash on hand (less any liabilities)
exceeds the face amount of all Notes outstanding. Any future determination to
pay cash dividends will be in compliance with the Company's contractual
obligations, and otherwise at the discretion of the Board of Directors and based
upon the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes appearing elsewhere in this Form 10-KSB.

This Management's Discussion and Analysis of Financial Condition 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.

RESULTS OF OPERATIONS

For the year ended December 31, 1998 compared to the year ended December 31,
1997:

Financing Income in 1998 from AEIF's financing activity was $2,780,000, an
increase of $1,360,000 or 95.8% over the 1997 income of $1,420,000. This
reflects an increased portfolio of

<PAGE>

loans in diverse industries and a higher volume of financing activity due to the
availability of working capital from additional investment programs. AEIF's fees
and financing rates for clients are determined by contractual agreement and
usually include both an accounts receivable servicing fee and a loan interest
rate component. Additional sources of revenue include income earned from
interest on bank balances and other miscellaneous income.

Management Fees represents the 50% of financing revenues paid to the parent
company, AEG, Inc., as per the fee sharing agreement. The parent company absorbs
most expenses associated with the Company's infrastructure including staff,
office and related expenses. The fee in 1998 was $1,395,000, an increase of
$685,000 or 96.5%, over 1997 levels of $710,000 and the increase is directly
attributable to the increase in financing activity.

General and administrative expenses in 1998 paid directly by AEIF were $76,000
versus $49,000 in 1997 and the growth incurred was a result of the growth in
financing activities.

The Income before interest, depreciation, amortization and provision for credit
losses (EBITDA), was $1,309,000, an increase of $648,000 or 98.0% over 1997
levels of $661,000, and reflects the additional financing activity.

Interest expense in 1998, including all paid, accrued and capitalized interest,
was $1,354,000, an increase of $668,000 or 97.4% over the 1997 expense of
$686,000. The increase is due to additional noteholder obligations for
investments received until the close of the program in third quarter 1998. Based
on the options in the AEIF investment program, an investor may select to have
their interest paid on a regular schedule or reinvested until the promissory
note matures. Reinvested interest represents $233,000, an increase of $116,000
or 99.1% over the 1997 expense of $117,000.

Amortization expense of $466,000 represents the amortization of the note
origination costs, which include commissions and fees associated with the
raising of funds. This increased $239,000 or 105.3% in 1998 versus the 1997
expense of $227,000 and was incurred as additional funds were raised through the
close of the program in third quarter 1998.

The Company's provision for credit losses in 1998 was $545,000, an increase of
$410,000 over the 1997 provision. Over 80% of the provision is attributable to a
single client where AEG is actively involved in a workout situation. During
1998, a financing client filed a voluntary Chapter 11 bankruptcy petition and
the established provision represents management's estimate of AEIF's exposure in
the situation.

The Net Loss in 1998 was $1,056,000, an increase of $669,000 over the 1997 loss
of $387,000.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

AEIF raised $12,644,000 from investors in a program that opened in August 1996
and closed in August 1998. Investors were issued 12% promissory notes due
September 30, 2006, with the opportunity for accelerated redemption by the
noteholder on the first day of the fifth, sixth, seventh, eighth and ninth year
subsequent to issuance. The notes are repayable at any time by the Company. The
Company maintains a 100% record of prompt payment of interest to investors in
the fund.

AEIF invested the funds raised in the note offering in finance receivables and
anticipates reinvesting payments received as these receivables are repaid in
additional finance receivables until such time as the notes payable mature.
Under the terms of its by-laws, the Company may not issue any additional debt;
therefore, as the debt matures and is repaid, the Company will have fewer assets
available for reinvestment.

During 1998, financing activities provided $3,517,000 from the issuance of notes
payable. Operating activities used $3,695,000 of which $2,844,000 was used to
increase the outstanding finance receivables.

The Company's principal sources of liquidity have been through the funds raised
through the public offering and through internally generated funds provided
through the financing operation. It is anticipated that funds from operations
will provide the Company with sufficient liquidity to meet its debt service and
operating requirements for at least the next twelve months.

The AEIF investment program was offered with a ten-year term and profit
projections were based on the utilization of the funds throughout the life of
the program. Losses are projected during the early years because the cost of
raising capital is paid at the beginning of a program, leaving a reduced base of
working capital yet incurring investor payments based on the full investment
amount. In addition, the impact of an accelerated amortization schedule records
this expense during the early years instead of spreading it over the life of a
program. These factors significantly impact the offering in the first half of
the program. The projection of a deficit in the initial years has been
anticipated and Company projections include the recovery of the cost of raising
the capital during the term of the program.

YEAR 2000 COMPLIANCE

AEIF is a wholly owned subsidiary of American Equities Group, Inc. which has
established an overall plan to address the Y2K compliance issue within the
operations of the organization. The Y2K Compliance Plan focuses on several
strategic concerns related to Y2K compliance: the ability to deliver services to
customers and investors, the corporate legal liabilities, and concerns related
to computer or mechanical systems failure within the organization. Appropriate
resources have been applied to the project including the allocation of staff
time and the hiring of an outside systems consultant. Progress is reported
regularly to the senior management of the company.

AEG uses computerized technology to process information throughout the company.
The company uses computerized record-keeping of accounts receivable invoices,
client account reporting and collections; financing delivered through an on-line
banking system interface; investor distributions generated from a computerized
system; and general office and accounting systems. In addition to an overall
strategic focus, AEG has implemented a Y2K Compliance Project with the goal to
assure uninterrupted service delivery to AEG's clients and investors.

<PAGE>

The Y2K Compliance Project is being managed within the Technology Task Force.
This Task Force is staffed with members from all major departments and includes
the Manager of Information Technology and the company's General Counsel. Two
additional members have joined the Y2K Project : the Chief Financial Officer and
an outside systems consultant who is familiar with both AEG systems and Y2K
compliance issues. The committee meets regularly, at least monthly, with interim
written communication, to assess and limit the impact of potential Y2K failures
and to prepare for the consequences of the internal and external failures that
could occur. The outside consultant retained by the company is writing the Y2K
Compliance Plan document based on overall and company-specific issues.

The Y2K Compliance Project for all AEG companies recognizes that verification of
compliance must be addressed on several levels: the readiness of computer
hardware systems, software systems and equipment containing embedded chips, the
impact of third-parties related to vendors and clients, the legal issues, the
Company's financial exposure and contingency plans for failure. All systems
development and purchases within the last year have been evaluated for Y2K
compliance. Y2K indemnification and protection clauses are incorporated into
contracts for new clients and client renewals. Company exposure has been
risk-assessed and ranked, and significant risks with important business partners
may require additional verification. The Y2K Compliance Plan includes a
timetable for implementation and an estimate of any associated costs. Issues
related to financial exposure will also be addressed. A test of all systems,
both partition testing and fully integrated testing, has been completed
successfully. Other IT projects have not been delayed because additional
resources and staff hours have been assigned to address the issue.

AEG has committed additional financial resources to implement the Y2K Compliance
Project. A separate budget, in addition to the regular operating budget, has
been identified to implement the Plan. Incremental amounts include the cost of
the outside systems consultant and an amount for the verification of readiness
for significant AEG business partners. At this time, the incremental cost is
estimated to be $25,000, with the cost will be born by the parent company,
American Equities Group, Inc.

AEIF and all AEG companies bear some risk related to the unreadiness of third
parties which would expose the Company to the potential for loss and impairment
of business processes and activities. The Y2K Compliance Project has developed a
business contingency plan to address the possibility of the failure of systems
or processes and will continue to assess the level and magnitude of these risks.

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

PAGE
NUMBER
------
<S> <C>
Financial Statements:

Independent Auditors' Report F - 2

Balance Sheets as of December 31, 1998 and 1997 F - 4

Statements of Operations and accumulated deficits for the
years ended December 31, 1998 and 1997 F - 5

Statements of Cash Flows for the year ended
December 31, 1998 F - 6

Notes to the Financial Statements F - 7
</TABLE>

F-1

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INDEPENDENT AUDITORS REPORT

Board of Directors and Stockholders
American Equities Income Fund, Inc.

We have audited the accompanying balance sheet of American Equities Income Fund,
Inc., as of December 31, 1998, and the related statements of operations and
accumulated deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of American Equities Income Fund, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.

Richard A. Eisner & Company, LLP

Florham Park, New Jersey
May 27, 1999

F-2

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SPECTOR, ROTHENBERG & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
1979 MARCUS AVENUE
LAKE SUCCESS, N.Y. 11042
TEL NO. (516) 437-3800 AND (212) 986-2626
FAX NO. (516) 437-2235

INDEPENDENT AUDITOR'S REPORT

To the Shareholders/Partners of
American Equities Income Fund
Paramus, New Jersey 07652

We have audited the accompanying balance sheet of American Equities Income Fund,
LTD. as of December 31, 1997 and the related statements of income and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Equities Income Fund.
as of December 31, 1997 and the results of its operation and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

Spector, Rothenberg & Co., LLP

Lake Success, New York

April 16, 1998

F-3
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AMERICAN EQUITIES INCOME FUND, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash $ 455 $ 633
Finance receivables, net 8,466 6,167
Note origination costs, net 1,479 1,513
Due from affiliates 1,422 141
Other assets 42
----------- -----------
$ 11,822 $ 8,496
====== ========

LIABILITIES

Accounts payable and accrued expenses $ 3 $ 21
Escrow payable 411
Notes payable 12,994 8,401
Due to affiliates 227 9
----------- -----------
13,224 8,842
----------- -----------

CAPITAL
Common stock, $1.00 par value; authorized, issued and outstanding
1,000 shares 1 1
Additional paid-in capital 39 39
Accumulated deficit (1,442) (386)
----------- -----------
(1,402) (346)
----------- ------------

$ 11,822 $ 8,496
========= =========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

STATEMENTS OF OPERATIONS AND CHANGES IN ACCUMULATED DEFICIT

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Financing income $ 2,780 $ 1,420
Management fees 1,395 710
---------- ----------

Net financing income 1,385 710
General and administrative expenses 76 49
---------- ----------

Income before interest, amortization and provision for credit losses 1,309 661
---------- ----------

Interest expense, including reinvested in the notes payable of
$233 in 1998 and $117 in 1997 1,354 686
Amortization 466 227
Provision for credit losses 545 135
---------- ----------
2,365 1,048
---------- ----------

NET LOSS (1,056) (387)

Accumulated deficit, beginning of year (386) 1
----------- ----------

ACCUMULATED DEFICIT, END OF YEAR $ (1,442) $ (386)
======== ======
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:

Net loss $ (1,056) $ (387)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization 466 227
Provision for credit losses 545 135
Interest expense capitalized into notes payable 233 117
Changes in:
Finance receivables (2,844) (5,620)
Other assets 42 292
Accounts payable and accrued expenses (18) (9)
Due from/to affiliates (1,063) (241)
----------- -----------

Net cash used in operating activities (3,695) (5,486)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable 3,517 4,672
Escrow payable 195

Net cash provided by financing activities 3,517 4,867
----------- -----------

NET DECREASE IN CASH (178) (619)
Cash, beginning of year 633 1,252
----------- -----------

CASH, END OF YEAR $ 455 $633
===== ====

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,122 $569

In connection with the 1997 acquisition by the Company's Parent of the business
of a customer of the Company, finance receivables of $99 became obligations
of the Parent and are included in due to affiliates

SEE NOTES TO FINANCIAL STATEMENTS

</TABLE>

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF PRESENTATION:

American Equities Income Fund, Inc. (the "Company") principally originates loans
and factors receivables, generally on a recourse basis, and is a wholly owned
subsidiary of American Equities Group, Inc. (the "Parent").

The 1997 financial statements have been reclassified to conform to the current
year's presentation.

INCOME RECOGNITION:

The Company recognizes factoring fees when earned.

Interest income from loans is recognized using the interest method. Accrual of
interest income on loans is suspended when a loan is contractually delinquent
more than 90 days. Accrual is resumed when the loan becomes contractually
current and past due interest income is recognized at that time. In addition, a
detailed review of loans will cause earlier suspension if collection is
doubtful.

CREDIT LOSSES:

Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance at a level considered adequate to cover the losses on the
existing portfolios of factored accounts and loans. The Company's charge-off
policy is based on an account-by-account review for all factored receivables and
loans.

The Company has defined the population of impaired loans to be loans in
liquidation, including factored accounts. The impaired loan portfolio is
primarily collateral-dependent and is individually assessed to determine that
each loan's carrying value does not exceed the fair value of the related
collateral or the present value of the expected future cash flows.

NOTE ORIGINATION:

Note origination costs, commissions and fees from the issuance of the notes
payable are being amortized over the period from the date of issuance to the
earliest date that the note holder can accelerate the maturity date of the note.

INCOME TAXES:

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

Beginning in 1998, the Company's results of operations were included in the
Parent's consolidated federal income tax return. The provisions for income taxes
have been computed on a separate company basis.

NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.

USE OF ESTIMATES:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

NOTE B - FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

Finance receivables as of December 31, 1998 and 1997 consist of the following:

<TABLE>
1998 1997
------- ------
<S> <C> <C>
Collateralized loans $ 3,634 $1,796
Factored accounts receivable, primarily with
recourse 5,512 4,506
------- -----
Total finance receivables 9,146 6,302
Allowance for credit losses (680) (135)
---- ----

Finance receivables, net $ 8,466 $ 6,167
======= =======
</TABLE>

The impaired loan portfolio and related allocated allowance for credit losses as
of December 31, 1998 are $2,872 and $448, respectively. The average impaired
loan balance for the year ended December 31, 1998 is $718. There were no
impaired loans during 1997.

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

Changes in the allowance for credit losses were as follows:

<TABLE>
<S> <C>
BALANCE AS OF DECEMBER 31, 1996
Provision for credit losses $ 135
------------

BALANCE AS OF DECEMBER 31, 1997 135
Provision for credit losses 545
------------

BALANCE, DECEMBER 31, 1998 $ 680
============
</TABLE>

NOTE C - FINANCING

Notes payable are collateralized by substantially all of the assets of the
Company. The notes bear interest at 12% and mature between October 2006 and
September 2008. However, the notes may be redeemed by the holder on January 1
following the fifth anniversary of the issue date. Interest on the notes is
payable in kind at the option of each noteholder.

Escrow payable as of December 31, 1997 represents funds received from potential
noteholders. During 1998, such amounts were converted into notes payable.

The annual maturities of the notes, based upon the earliest accelerated maturity
date, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2001 $2,278
2002 6,234
2003 4,482
</TABLE>

NOTE D - INCOME TAXES

The significant components of the deferred income tax asset as of December 31,
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 357 $ 100
Allowance for credit losses 272 54
--- --
629 154
Valuation allowance (629) (154)
--- --
Net deferred tax asset $ 0 $ 0
=== ===
</TABLE>

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

The significant components of the provision for income taxes for the years ended
December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred :
Federal $ 368 $ 119
State 107 35
Change in valuation allowance (475) (154)
------ ------
Provision for income taxes $ 0 $ 0
======== ======
</TABLE>

As of December 31, 1998, the Company has net operating loss carryforwards for
income tax purposes of $893 expiring through 2018.

NOTE D - INCOME TAXES (CONTINUED)

The following is the reconciliation of the federal statutory income tax rate to
the Company's effective federal income tax rate for the years ended December 31,
1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Benefit at statutory rate (34)% (34)%
Change in deferred tax asset valuation
allowance 34 34
-- ---
Effective federal income tax rate 0 % 0 %
=== ====
</TABLE>

NOTE E - RELATED PARTY TRANSACTIONS

The Parent provides all management, credit, collection and other operational
services for the Company. In accordance with the management agreement, the
Company pays 50% of its financing income to the Parent as compensation for the
services provided.

The due from affiliates as of December 31, 1998 represents primarily prepaid
management fees paid to the Parent and short-term advances to other affiliates.
The due from affiliates as of December 31, 1997 and the due to affiliates as of
December 31, 1998 and 1997 represent short-term advances. These advances are
noninterest bearing.

Additionally, in connection with the Company issuing the notes payable, it paid
the Parent fees aggregating $750 in 1996 and 1997.

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

NOTE F - FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and finance receivables. The Company maintains
its cash in highly rated financial institutions. As of December 31, 1998, the
Company had bank deposits exceeding federally insured limits by approximately
$355.

As of December 31, 1998, distribution and manufacturing industries represent
approximately 50% and 42% of the Company's finance receivables, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because no
market exists for certain of the Company's assets and liabilities, fair value
estimates are based upon judgements regarding credit risk, investor expectation
of economic conditions, normal cost of administration and other risk
characteristics, including interest rate and prepayment risk. These estimates
are subjective in nature and involve uncertainties and matters of judgement
which significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
The tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have not
been considered in the estimates.

The following summarizes the information about the fair value of the financial
instruments recorded on the Company's financial statements in accordance with
FAS 107:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
<S> <C> <C> <C> <C>
Cash $ 455 $ 455 $ 633 $ 633
Finance receivable 8,466 8,466 6,167 6,167
Due from/to affiliates, net 1,195 1,195 132 132
Accounts payable and
accrued expenses 3 3 21 21
Notes payable 12,994 12,994 8,401 8,401
</TABLE>

<PAGE>

AMERICAN EQUITIES INCOME FUND, INC.

The methodology and assumptions utilized to estimate the fair values of the
Company's financial instruments are as follows:

Cash:

The carrying amount of cash approximates fair value.

Finance receivables:

Due to the short-term nature of the asset the carrying value approximates fair
value.

Due from/to affiliates, net:

Due to the short-term nature of these items, the carrying value approximates
fair value.

Accounts payable and accrued expenses:

The carrying amount of accounts payable and accrued expenses approximates fair
value.

Notes payable:

The Company has estimated the fair value based upon similar securities currently
being offered by the Parent.

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

As disclosed in the 8-K filing in November 1998, the Company engaged new
independent auditors, Richard A. Eisner & Company, LLP, replacing the Company's
former principal accountants, Spector, Rothenberg & Co., LLP.

In connection with the audits of the two most recent fiscal years ended
(December 31, 1997 and December 31, 1996) and any subsequent interim period
preceding the dismissal, there were no disagreements with Spector, Rothenberg on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, either resolved or unresolved, which
disagreements if not resolved to the satisfaction of Spector, Rothenberg would
have caused them to make reference in connection with their report to the
subject matter of the disagreement.

The previous reports prepared by Spector, Rothenberg & Co., LLP did not contain
an adverse opinion or disclaimer of opinion, and were not qualified as to
uncertainty, audit scope or accounting principles.

(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)

<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a)
OFFICERS AND DIRECTORS

The Company is wholly-owned by AEG. The Company's business will be
managed by AEG and the Company's officers and directors. The following persons
are the officers, directors and shareholders of AEG and officer and directors of
the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Phillip C. Goldstick 68 Director and Chairman of AEG
and the Company

David S. Goldberg 39 CEO, Secretary, Treasurer
and Director of AEG and the Company

M. Ellen Donnelly 47 Chief Financial Officer of AEG

J. Scott MacKay 37 General Counsel of AEG

Sam A. Awar 44 Operations Manager of AEG
</TABLE>

Set forth below is a brief background of the executive officers and
directors of AEG:

PHILLIP C. GOLDSTICK has served as a Director and Chairman of the Board
of AEG since 1992 and of the Company since inception. Since 1975, Mr. Goldstick
has served, and continues to serve, as the Chairman of G Equity Investment
Group, Ltd., an NASD Broker-Dealer. Mr. Goldstick is also the Senior Partner of
the Law Firm of Phillip C. Goldstick & Associates, Ltd., located in Chicago,
Illinois, where he has practiced real estate, tax and corporate law for over 40
years. Mr. Goldstick received a bachelors degree from the University of Illinois
(1953) and his law degree from DePaul University (1956). Formerly, Mr. Goldstick
was a member of the Illinois General Assembly, Chairman of the Gateway National
Bank of Chicago, and President for the Calumet Area Industrial Commission. He
also serves as a Director of the University of Illinois Foundation where he is
an active member of the Investment Policy Committee. Mr. Goldstick has been
elected to the Chicago Area Entrepreneurship Hall of Fame and is also a member
of the Cook County, Illinois Economic Development Advisory Committee.

DAVID S. GOLDBERG, has served as CEO, Secretary, Treasurer and a
Director of the Company since its inception and of AEG since 1992. In addition,

11
<PAGE>

Mr. Goldberg has served as the President of Genesis Ventures Limited since 1992
which corporation acts as consultant to companies seeking financial and
marketing advice. Mr. Goldberg advises and consults with corporate clients in
the areas of financial management, finance, corporate structure, marketing
strategies, and corporate fund raising. Over the past 15 years, Mr. Goldberg
and his affiliates have successfully arranged for over $250 million of equity
financing for corporations, limited partnerships, trusts, and individuals in
businesses ranging from real estate, cable television, equipment leasing, energy
development and medical technology. Most of this activity was accomplished
through Capital Planning Equity Corp. where Mr. Goldberg was the President and
sole shareholder from 1985 to 1990. Mr. Goldberg was President of an affordable
housing syndicator from 1989 through April 1993, where he raised over $20
million in investor capital. Mr. Goldberg founded and operated Capital Planning
Services Inc., from 1981 to 1985, a financial planning firm and registered
investment advisor. Mr. Goldberg is President and a registered principal of G
Equity Investment Group, Ltd., a NASD member firm headquartered in Chicago, IL.
Mr. Goldberg received his B.S. degree in management from Fairleigh
Dickinson University.

M. ELLEN DONNELLY, has served as the Chief Financial Officer of
AEG since November 1998. Ms. Donnelly joined AEG in 1997 as its Controller.
She was appointed Chief Financial Officer of AEG in November 1998. She is
responsible for several operating areas of AEG including the Financial Services
Department: accounting, financial reporting and financial planning; the Investor
Services Department; and the Human Resources Department. Prior to joining AEG,
Ms. Donnelly worked in financial management for several organizations. From 1990
to 1997, Ms. Donnelly served as Controller and Chief Financial Officer of
NewBridge Services, Inc. During the years 1981 to 1989, she served in various
financial management positions at CBS, Inc., including Director of Financial
Analysis, Broadcast Group (1988 to 1989), Director of Financial Analysis,
Entertainment Division (1985 to 1988), and in several Broadcast Operations
financial management positions (1981 to 1985). Ms.Donnelly received her Bachelor
of Arts degree from the University of Toledo (1974) and her Master of Business
Administration degree in finance from Rutgers University Graduate School of
Management (1981).

J. SCOTT MACKAY, has served as General Counsel to AEG since July, 1997.
From November 1992 until July, 1997, Mr. MacKay was a corporate/transactional
attorney with Cuyler Burk. From 1991 to November 1992, Mr. MacKay was associated
with the firm of Saiber Schlesinger Satz & Goldstein while earning an MBA degree
in finance and management from Columbia Business School. Mr. MacKay was a
corporate associate with Riker Danzig Scherer Hyland & Perretti from 1987 to
1990 after earning his JD degree (magna cum laude) from Rutgers University
School of Law (Newark). He received an AB degree (magna cum laude) from Bowdoin
College in 1984.

SAM A. AWAR, has served as Director of Operations of AEG since February
1996. As the

12
<PAGE>

Director of Operations, Mr. Awar is fully responsible for the Accounts
Receivable Management area of the business. This includes the Accounts
Receivable Financing, Outsourcing and Third Party Collection. Prior to joining
AEG, Mr. Awar was the President of ARMC Accounts Receivable Management
Consulting which specialized in startup, expansion and turnaround projects. From
1988 to 1992 Mr. Awar served as Corporate Credit and Collections Manager for a
Regional Bell Operating Company. From 1981 to 1988 Mr. Awar was the Operations
Manager for the largest private financial services firm specializing in accounts
receivable management and collection systems development. Mr. Awar has a
Bachelor of Business Administration degree (1981) and has completed one year of
an MBA program Operations Research from Loyola Marymount University, Los
Angeles, California. Mr. Awar is a lecturer on the topic of credit and
collection at several colleges, and a member of the Bergen Community College's
Banking, Credit and Finance Committee.

ITEM 10. EXECUTIVE COMPENSATION

The Company does not pay salaries to Management. All members of
management receive salaries only from AEG.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table identifies each person or entity known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock on December 20, 1999, each director of the Company and all the
directors and officers of the Company as a group, and sets forth the number of
shares of the Company's Common Stock beneficially owned by each such person and
such group and the percentage of the shares of the Company's outstanding Common
Stock owned by each such person and such group. In all cases, the named person
has sole voting power and sole investment power of the securities.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE OF
NAME AND ADDRESS OF OF THE COMPANY OUTSTANDING
BENEFICIAL OWNER (1) BENEFICIALLY OWNED(2) COMMON STOCK OWNED
- --------------------- --------------------- ------------------
<S> <C> <C>
American Equities Group, Inc. 1,000 100%

Phillip C. Goldstick(3) 412 41.1%
20 N. Clark Street
Chicago, IL 60602

David S. Goldberg(4) 412 41.1%

<PAGE>

Officers and Directors 824 82.2%
as a group (five
persons)(3)(4)

</TABLE>

(1) The address of AEG and Mr. Goldberg is 80 East Route 4, Paramus, NJ 07652.

(2) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as consisting of
sole or shared voting power (including the power to vote or direct the vote)
and/or sole or shared investment power (including the power to dispose or direct
the disposition of) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, including a right to
acquire such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment rights.

(3) Represents the indirect ownership in the Company of the Phillip C. Goldstick
Revocable Trust U/A Dtd. 8/2/89 through the ownership of an aggregate of
9,006,250 shares of AEG common stock.

(4) Represents the indirect ownership in the Company of the David S. Goldberg
Family Trust, an affiliate of David S. Goldberg, through the ownership of an
aggregate of 9,006,250 shares of AEG common stock.

The Company is wholly-owned by AEG and the Company has the same
directors and officers as AEG.

Other than as set forth above, the Company is not aware of any other
shareholders who beneficially own, individually or as a group, 5% or more of the
outstanding shares of Common Stock of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company paid a management fee of 50% of gross financing revenues to the
parent company, per the management agreement, totaling $1,395,000 in 1998 and
$710,000 in 1997, with the increase directly related to increased financing
activity.

During 1997 and 1998, AEIF also paid $470,000 to the parent company for fees in
connection with the Company issuing the notes payable.

In addition, as of 12/31/98, a balance of $1,195,00 was due to AEIF from
affiliates. Subsequently, this amount was reduced to approximately $350,000 and
management anticipates that this balance will be paid in full within a short
period of time.

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A. EXHIBITS

<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company.(1)

3.2 By-Laws of the Company.(1)

4.1 Form of 12% Promissory Note.(1)

4.2 Form of Security Agreement by and between the Company and James E. Morris ("Morris"). (1)

4.3 Form of Indenture of Trust, by and between the Company and Morris.(1)

10.1 Management Agreement, dated as of August 1, 1996, by and between the Company and AEG.(2)

10.2 Form of Master Purchase & Sale Agreement utilized by AEG to acquire Receivables.

10.3 Form of Master Purchase & Sale Agreement utilized by AEG to acquire Receivables of publishing clients.

10.4 Form of Master Purchase & Sale Agreement utilized by AEG in credit line transactions.

27 Financial Data Schedule (included in EDGAR Filing Only).
</TABLE>

- ------------------

(1) Incorporated by reference, filed as an exhibit to the Company's
Registration Statement as filed with the Securities and Exchange Commission
on March 29, 1996.

(2) Incorporated by reference, filed as an exhibit to Amendment No. 5 to the
Company's Registration Statement as filed with the Securities and Exchange
Commission on August 26, 1996.

B. REPORTS ON FORM 8-K.

None.

SIGNATURES

<PAGE>

In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Dated: December 23, 1999 AMERICAN EQUITIES INCOME FUND, INC.

By: /s/ DAVID S. GOLDBERG
--------------------------
David S. Goldberg, Chief Executive Officer

In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ DAVID S. GOLDBERG Chief Executive Officer, December 23, 1999
- ------------------------ Director, Treasurer and Secretary
David S. Goldberg

/s/ PHILLIP C. GOLDSTICK Chairman of the Board December 23, 1999
- ------------------------ and Director
Phillip C. Goldstick
</TABLE>

<PAGE>

Exhibit 10.2

MASTER PURCHASE & SALE AGREEMENT

BY AND BETWEEN

[COMPANY NAME]

- and -

AMERICAN EQUITIES GROUP, INC.

Dated: []

<PAGE>

<TABLE>

<S> <C>
DEFINITIONS.......................................................................................................1

1. PURCHASE AND SALE OF INVOICES............................................................................1

2. SELLER'S REPRESENTATIONS AND WARRANTIES..................................................................3

3. AFFIRMATIVE COVENANTS....................................................................................4

4. NEGATIVE COVENANTS.......................................................................................5

5. SECURITY.................................................................................................5

6. RECOURSE.................................................................................................6

7. EVENTS OF DEFAULT........................................................................................6

8. REMEDIES.................................................................................................7

9. GOVERNING LAW............................................................................................8

10. JURISDICTION.............................................................................................8

11. SEVERABILITY OF PROVISIONS...............................................................................8

12. COLLECTION...............................................................................................8

13. INDEMNIFICATION..........................................................................................8

14. PURCHASER CHARGES........................................................................................8

15. COMPLETE AGREEMENT.......................................................................................8

16. TERM.....................................................................................................9

17. EFFECTIVE DATE...........................................................................................9

18. SURVIVAL. .............................................................................................9

19. BINDING EFFECT...........................................................................................9

20. FURTHER ASSURANCES. ....................................................................................9

21. COUNTERPARTS; TELECOPIES.................................................................................9
</TABLE>

<PAGE>

MASTER PURCHASE & SALE AGREEMENT

This Master Purchase & Sale Agreement (the "Agreement") is made and
entered into by [COMPANY NAME], a [STATE OF ORGANIZATION] corporation (the
"Seller"), having an office at [COMPANY ADDRESS] and AMERICAN EQUITIES GROUP,
INC., a New York corporation ("AEG"and/or "Purchaser"), having an office at
80 East Route 4, Suite 202, Paramus, New Jersey 07652. The Seller and AEG hereby
agree to the terms and conditions contained herein and in any Addendums and/or
Attachments to this Agreement.

DEFINITIONS

The following definitions shall apply to this Agreement:

a. "Advance Rate Percentage" shall mean [ADVANCE RATE
PERCENTAGE].
b. "Account Debtor" shall mean any third party who is indebted to
Seller on account of products and/or services provided by
Seller.
c. "Administrative Fee" shall mean ten percent (10%) of (A) the
Net Invoice Value of any Receivable which Seller does not sell
to AEG in accordance with the terms of this Agreement, or (B)
any amounts paid to or collected by Seller with respect to any
Receivable which are not remitted to AEG in accordance with
the terms of this Agreement.
d. "Book Account" shall mean the account maintained by Purchaser
for the Seller pursuant to Section 1(c).
e. "Charge-back Payment" shall have the meaning set forth in
Section 6(b).
f. "Client Risk Receivable" shall have the meaning set forth in
Section 1(b).
g. "Collateral" shall mean those assets owned by Seller which are
subject to Purchaser's security interest granted in Section
5(b).
h. "Discount Fee" shall have the meaning set forth in
Section 1(b).
i. "Dispute" shall mean a dispute, deduction, claim, offset,
defense or counterclaim of any kind, whether bona fide or not,
including, without limitation, any dispute relating to goods
or services already paid for or relating to Receivables other
than the Receivable on which payment is being withheld.
j. "Factor Risk Receivables" shall have the meaning set forth in
Section 1(b).
k. "Maximum Permitted Advance" shall be the amount obtained by
multiplying the Advance Rate Percentage by the sum of the Net
Invoice Values of all Factor Risk Receivables in a
Receivable Pool.
l. "Net Invoice Value" shall mean, as to any Receivable, the
amount shown on the original invoice therefore as being
payable in cash by the customer owing the same, net of all
commissions, discounts (other than prompt payment discounts),
allowances, and credits granted by Seller or claimed by the
Account Debtor.
m. "Obligations" shall have the meaning set forth in
Section 5(b).
n. "Overdraft" shall mean any negative balance in Seller's Book
Account.
o. "Receivable" or "Receivables" shall have the meaning set forth
in Section 1(a).
p. "Residual" shall have the meaning set forth in
Section 1(b)(ii).
q. "Seller" shall mean [COMPANY NAME], and its subsidiaries,
if any.
r. "Service Fee" shall have the meaning set forth in
Section 1(b).
s. "Supporting Documents" shall mean original invoices, confirmed
purchase orders, insertion orders, contracts, approvals,
shipping documents, and any other documents which AEG may
require or specify with respect to a Receivable.
t. "Termination Fee" shall mean the fee which may become payable
to Purchaser on termination of this Agreement pursuant to
Section 16.

1. PURCHASE AND SALE OF INVOICES.

<PAGE>

distribution of goods or the performance of services, including, but not limited
to, [DESCRIPTION OF PRODUCT/SERVICE] and related products, supplies, and
services, together with all collection rights in connection therewith, as well
as Seller's interest in any goods represented by its receivables and all goods
returned by customers and Seller's rights against any unpaid vendor(s)
(collectively, the "Receivables"). In purchasing Receivables, AEG has or will
materially rely upon the documents and other information provided by Seller and
on Seller's representations, warranties and covenants contained in this
Agreement. AEG shall be the absolute owner of all Receivables purchased under
this Agreement. As owner, AEG shall have the sole and exclusive power and
authority to collect each Receivable through legal action or otherwise,
including, in its sole determination, the right to settle, compromise, or assign
(in whole or part) any of the Receivables.

(b) PURCHASE PRICE. AEG will purchase all the Receivables presented on
a weekly basis and will consider them to be a pool of Receivables (a "Receivable
Pool"). Seller each week will forward the Supporting Documents with respect to
each Receivable Pool to AEG by a national overnight delivery service for
delivery by 10:00 AM the next business day. As to any Receivable within a
Receivable Pool, if Seller fails to deliver Supporting Documents with respect to
that Receivable, if the Receivable is with an Account Debtor which has any
invoice which is outstanding more than 90 days, or if AEG determines in the
exercise of its reasonable discretion that the customer has unacceptable credit,
AEG shall have the right to declare the Receivable to be an unacceptable client
risk (a "Client Risk Receivable") and shall not advance any monies against the
Client Risk Receivable. Notwithstanding a Client Risk Receivable designation,
AEG shall be deemed to have purchased the Receivable, shall have the right to
collect the Receivable, and shall have the right to charge Service Fees and
Discount Fees on the Receivable. The Receivables upon which AEG advances money
at the Advance Rate Percentage shall be deemed factor risk Receivables (the
"Factor Risk Receivables"). The amount which AEG advances with respect to any
Receivable Pool shall not exceed the amount of the Maximum Permitted Advance for
that Receivable Pool. AEG will charge Seller a Service Fee equal to (i) [SERVICE
FEE PURCHASE] of the sum of the Net Invoice Values of all Receivables in a
Receivable Pool at the time a Receivable Pool is purchased, and (ii) [SERVICE
FEE - DAYS 31 AND 61] of the sum of the Net Invoice Values of any unpaid and
outstanding Receivables within a Receivable Pool on each of the 31st and 61st
days next following AEG's purchase of a particular Receivable Pool (each, a
"Service Fee") for the production, collection, accounting and administrative
services rendered by AEG under this Agreement. In addition, AEG will charge
Seller a Discount Fee equal to [DISCOUNT FEE] of the sum of the Net Invoice
Values of any unpaid and outstanding Receivables within a Receivable Pool on
each of the 31st and 61st days next following AEG's purchase of a particular
Receivable Pool (each, a "Discount Fee").

Upon AEG'S acceptance of a Receivable Pool and its receipt of all
Supporting Documents from Seller concerning that Receivable Pool, AEG shall be
deemed to have purchased the Receivable Pool and Seller shall be paid by check
or wire transfer as follows:

(i) the Maximum Permitted Advance less the Service Fee and any
other applicable charges then due within two (2) business days.

(ii) the Residual, as defined below, shall be payable monthly
with regard to each Receivable Pool. With regard to each Receivable Pool, the
amounts collected in excess of the Maximum Permitted Advance less the sum of
(A) all prior payments on account of the Residual for the Receivable Pool, and
(B) any offsets, charges, charge-backs, or other obligations that Seller shall
have to AEG, shall be the Residual.

<PAGE>

paid in full at the rate of twenty four percent (24%) per annum. Interest shall
be charged daily and posted to the Book Account monthly. AEG each month shall
provide Seller with an account statement which lists all charges and credits to
the Book Account in the previous month. Each account statement shall be
conclusively presumed to be correct in all respects, except for specific
objections which the Seller makes in writing within fifteen (15) days from the
date upon which the account statement is sent.

(d) INVOICING. All invoices shall be sent from AEG directly to the
Account Debtors. Each invoice shall state in a manner satisfactory to AEG that
the Receivable is payable to AEG or an agreed upon trade style (D/B/A), in US
Dollars only, at an address specified by AEG and shall be accompanied by all
other Supporting Documents with respect to that invoice. Seller shall, and
hereby does, grant AEG a license to use Seller's name and trade names, if any,
in one or more alternate names or D/B/As for the purpose of administering,
managing, and collecting Receivables. This license may not be modified or
revoked until all Receivables purchased by AEG under this Agreement have been
collected and any and all Obligations of Seller to AEG have been paid in full.
At AEG's election Seller shall execute a Bill of Sale (without representation or
warranty except as is expressly set forth in this Agreement) to AEG transferring
ownership of all Receivables within a Receivable Pool.

2. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to AEG the following which shall be continuing representations and
warranties for so long as this Agreement is in effect or AEG shall have any
commitment under this Agreement:

(a) OWNERSHIP OF RECEIVABLES. Seller is the sole owner of the
Receivables and none of the Receivables has been previously assigned or
encumbered in any manner. Seller has full power and authority to sell each of
the Receivables and has duly authorized their sale to AEG pursuant to this
Agreement.

(b) CURRENT RECEIVABLES. Each Receivable is for the amount stated on
the invoice. As of the date of sale of the Receivable there are no prepays,
set-offs, deductions, disputes, contingencies or counterclaims against any of
the Receivables or against Seller in connection therewith. Each Receivable is
currently due to Seller and is by its terms collectable in full no later than
thirty (30) days after the date of invoice.

(c) CORPORATE STRUCTURE. Seller is a corporation duly organized and
existing and in good standing under the laws of the State of [STATE OF
ORGANIZATION] and is qualified and authorized to do business in the State of
[STATE OF ORGANIZATION] and in all other states in which it is currently
conducting business and qualification is required. Seller does not have any
subsidiaries or affiliates. Seller is not a partner in any partnership or a
participant in any joint ventures.

(d) PROPER EXECUTION. The execution, delivery and performance of this
Agreement by Seller has been duly authorized by all necessary corporate action
and does not and will not: (i) require any consent or approval of its
stockholders, (ii) contravene its corporate charter or by-laws, (iii) violate
any provision of any law, rule, regulations or any order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to it and of which it has notice; or (iv) result in any breach of
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which it is a party or by which it or
its properties may be bound or affected.

(e) BINDING OBLIGATIONS. This Agreement is, and when delivered will be,
a legal, valid and binding obligation of the Seller enforceable against the
Seller in accordance with its terms.

(f) LIENS. Seller has no liens of any kind on any of its assets, and
Seller will not grant or suffer any such liens hereafter without AEG's prior
written consent.

<PAGE>

materially adversely affect the financial condition, operations, properties or
the business of Seller or the ability of the Seller to perform its obligations
under this Agreement.

(h) PLACE OF BUSINESS; BOOKS AND RECORDS. Seller's principal place of
business and its chief executive offices are located at [COMPANY ADDRESS].
Seller has no other offices or places of business. Seller's books and records
and all of its assets are located at its principal place of business. Seller
maintains its books and records in accordance with Generally Accepted Accounting
Principles ("GAAP").

(i) CORPORATE NAME, MERGER, ACQUISITION. Seller has not (i) changed its
name or been known by any other name, (ii) been the surviving corporation of a
merger or consolidation, (iii) acquired all or substantially all of the assets
of any person or entity, or (iv) obtained assets in a transaction subject to any
bulk transfer laws.

(j) NO DEFAULT; NO VIOLATION. Seller is not (A) in default under or in
breach of any indenture or loan or credit agreement or any other agreement,
lease or instrument to which it is a party or by which it or its properties may
be bound or affected, or (B) in violation of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination, or award presently in effect
having applicability to it and of which it has notice.

(k) YEAR 2000. To the best of Seller's knowledge, all software utilized
in the conduct of Seller's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after January
1, 2000, and all information pertaining to such calendar dates, in the same
manner and with the same functionality as the software does with respect to
calendar dates falling on or before December 31, 1999.

3. AFFIRMATIVE COVENANTS. So long as this Agreement shall remain in
effect or AEG shall have any commitment under this Agreement, Seller
covenants and agrees that it:

(a) will not, nor consent or permit any of its shareholders, directors,
officers, employees or agents to, deposit in any bank or other depository, any
check, remittance or other payment for or on account of any Receivable, nor
attempt to collect any payment from an Account Debtor.

(b) will, within 24 hours of its receipt of payment with respect to any
Receivable, forward such payment to AEG by regular mail.

(c) will preserve and maintain its corporate existence, in good
standing in the jurisdiction of its incorporation, and in each foreign
jurisdiction in which it owns property or conducts business, and maintain all of
its properties, necessary or useful in the proper conduct of its business, in
good working order and condition, ordinary wear and tear excepted.

(d) will keep adequate records and books of account in accordance with
GAAP and will maintain such books and records at its principal place of business
as specified in Section 2(h).

(e) will at its own expense, maintain insurance with respect to its
real and personal properties against such risks, in such commercially reasonable
form and with such insurers, as shall be reasonably satisfactory to AEG from
time to time and shall cause AEG to be named as an additional insured and as
loss payee on such policies.

(f) will at any reasonable time, and at Seller's expense, permit AEG or
any agent or representative thereof, to examine and make copies and abstracts
from the records and books of account of, and visit the properties of the Seller
and to discuss its affairs, finances and accounts with any of its officers and
directors and independent accountants.

(g) will furnish to AEG:

<PAGE>

(A) promptly after the commencement thereof, written notice of
all actions, suits, and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, in
excess of $10,000 affecting Seller.

(B) written notice of any change in the officers or owners of
Seller within five (5) days of the occurrence of any such change.

(C) such other information respecting the condition or
operations financial or otherwise, of the Seller as AEG may from time to time
reasonably request.

(h) will maintain, preserve, and keep its buildings, machinery, and
equipment in good condition, repair, and working order for the proper and
efficient operation of its business.

(i) will comply in all respects with all applicable laws, rules,
regulations, and orders.

4. NEGATIVE COVENANTS. So long as this Agreement is in effect, or AEG
shall have any commitment under this Agreement, Seller shall not:

(a) organize or cause to exist any subsidiaries or affiliates without
AEG's prior written consent, which consent may be conditioned, without
limitation, upon such subsidiary or affiliate guarantying all of the Seller's
obligations under this Agreement.

(b) remove any inventory of raw materials or completed products from
its business premises other than on shipment to Account Debtors in the ordinary
course of business without the prior written consent of AEG.

(c) invest in or otherwise acquire any shares or substantially all of
the assets of any corporation, firm, or business, or division thereof.

(d) change the general character of its business as conducted at the
date hereof, or engage in any type of business not reasonably related to its
business as normally conducted.

(e) increase the salaries, expense accounts, or bonuses presently being
paid to its officers or directors or shareholders except for reasonable
increases made in the ordinary course of business.

(f) declare or pay any dividend on its capital shares of any class or
make any distribution to any shareholders as such or purchase, redeem, or
otherwise acquire for value any shares of any class.

(g) merge with or consolidate into any other entity or change its
corporate name or do business under any name other than its corporate name.

(h) permit any lien, security interest or other encumbrance of any
nature whatsoever to be placed on the Collateral other than the lien in favor of
AEG.

(i) change the location of its principal place of business or the
location of its chief executive offices without providing AEG with thirty (30)
days' prior written notice; PROVIDED, HOWEVER, no change in location may be
effected until all filings required to be made to evidence AEG's ownership of
the Receivables and its first priority security interest in the Collateral have
been made.

(j) sell, lease, transfer, abandon, or otherwise dispose of any of its
assets except in the ordinary course of business.

(k) grant, or attempt to grant, any discount, credit, or allowance on
any Receivable that has been

<PAGE>

purchased by AEG without AEG's prior written consent.

5. SECURITY.

(a) In the event that AEG's interest in the Receivables purchased under
this Agreement is deemed by a court of competent jurisdiction to be a security
interest instead of a purchase, then this Agreement shall be deemed to
constitute a security agreement under Article 9 of the New Jersey Uniform
Commercial Code and AEG shall have all rights of a secured party thereunder with
respect to the Receivables so purchased, and the Collateral.

(b) As security for the payment and performance of Seller's obligations
under or in connection with (i) any Overdraft, (ii) any other obligation of
Seller to AEG under or in connection with this Agreement, including, but not
limited to, any attorneys' fees or other expenses incurred by AEG in enforcing
or amending this Agreement and any Termination Fee, and (iii) and any and all
other obligations of Seller to AEG, whether now existing or arising in the
future (such obligations, collectively, the "Obligations"), Seller does hereby
assign, transfer, and grant to AEG a lien upon and a valid first priority
security interest in the following assets (the "Collateral"): the Receivables,
and all books and records pertaining to such Receivables, all machinery and
equipment, fixtures, inventory, trademarks, patents, copyrights, contract rights
and all other general intangibles, and all other personal property and assets of
Seller, all as more particularly described on Schedule A which is attached
hereto and made a part hereof.

(c) Seller also hereby grants AEG an irrevocable power of attorney,
which shall be deemed coupled with an interest and shall be irrevocable so long
as this Agreement is in force and thereafter until all Obligations have been
fully paid, for the purpose of collecting the Receivables assigned hereunder and
exercising all of its rights with respect to the Collateral such rights to
include, but not be limited to, the right to sign Seller's name on any UCC
financing statement or any amendment thereto relating to Collateral.

6. RECOURSE.

(a) AEG shall have recourse against Seller with respect to any
Receivable not paid within 90 days from its invoice date. In addition, AEG shall
have recourse against Seller, if Seller: (i) is in breach of this Agreement;
(ii) has breached any representations, warranties or covenants with respect to
any unpaid Receivable; (iii) has contributed to or aggravated any Account
Debtor's financial inability to pay; (iv) is involved with any Account Debtor in
a Dispute of any kind, regardless of validity; or (v) any Account Debtor has
asserted a claim of loss or offset of any kind against Seller or AEG.

(b) AEG shall have the right to charge the amount of any Receivable for
which AEG has recourse against Seller back to Seller's Book Account and to
require Seller to immediately pay to AEG an amount equal to the number obtained
by multiplying the Net Invoice Value of such Receivable by the Advance Rate
Percentage (a "Charge-back Payment"); PROVIDED, HOWEVER, if the sum of (A) the
Charge-back Payment plus (B) all amounts collected to date with respect to the
Receivable Pool which included such Receivable exceeds the Maximum Permitted
Advance for that Receivable Pool, then the amount of the Charge-back Payment
shall be reduced to an amount which shall cause such sum to equal such Maximum
Permitted Advance. The charge-back of a Receivable shall reduce the purchase
price for the Receivable Pool which included that Receivable. The charge-back of
a Receivable shall not constitute a reassignment thereof, and the title thereto
and the goods represented thereby shall remain in AEG until all Obligations are
paid in full.

7. EVENTS OF DEFAULT.

Each of the following shall constitute an event of default under this
Agreement an ("Event of Default"):

(a) any covenant, representation, or warranty made in this
Agreement or which is contained in any certificate, document,
opinion, financial or other statement

<PAGE>

furnished under or in connection with this Agreement shall be
found to have been incorrect or breached in any material
respect;

(b) Seller shall fail to pay any amount outstanding under or in
connection with this Agreement when due including, but not
limited to, any payment of an Overdraft or any other amount
which may be due upon the demand of AEG;

(d) Seller shall make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a
custodian, receiver, or trustee for it or for a substantial
part of its assets; or shall commence any proceeding under
any bankruptcy reorganization, arrangements, readjustment
of debt, dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or shall
have any petition or application filed or any such
proceeding commenced against it in which an order for
relief is entered or adjudication or appointment is made,
and such involuntary petition or application is not
overturned or stayed within 60 days of entry; or by any act
of omission shall indicate its consent to, approval of, or
acquiescence in any such petition, application, proceeding,
receiver, or trustee for all or any substantial part of its
properties; or shall suffer any such custodianship,
receivership, or trusteeship; or the Seller shall
discontinue its operations;

(e) any security interest or other document delivered by Seller
pursuant to this Agreement shall at any time after its
execution and delivery and for any reason cease: (A) to create
a valid and perfected lien upon and first priority security
interest in and to the property covered therein; or (B) to be
in full force and effect or shall be declared null and void,
or shall be terminated, or the validity or enforceability
thereof shall be contested by Seller or Seller shall deny it
has any further liability or obligation under this Agreement,
or the Seller shall fail to perform any of its obligations
under any of its agreements with AEG.

(f) any guaranty of the Seller's obligations executed in favor of
AEG shall at any time after its execution and delivery and for
any reason cease to be in full force and effect or shall be
declared null and void, or the validity or enforceability
thereof shall be contested by the guarantor, or the guarantor
shall deny he has any further liability or obligation
thereunder or shall fail to perform his obligations
thereunder;

(g) a material adverse change in the condition (financial or
otherwise), business, operations or prospects of the Seller
shall have occurred;

then, and in any such event, AEG may, in its sole discretion, by notice to the
Seller, (A) terminate its obligation to (i) purchase Receivables, and (ii) make
advances or credit accommodations under any loans or other credit facilities
provided under or in connection with this Agreement, and (B) declare the
outstanding balance of any Overdraft and any and all other Obligations to be
immediately due and payable, without presentment, demand, protest or further
notice of any kind, including notice of dishonor, all of which are expressly
waived by the Seller.

8. REMEDIES. AEG shall have the following rights, in addition to its
rights at law and in equity.

<PAGE>

notice to Seller, receive, open, copy and distribute all mail addressed to
Seller, retaining all mail related to the Collateral and forwarding all other
mail to Seller; (iii) enter any and all premises where any of the Collateral is
located and take possession of the Collateral; (iv) require Seller, at Seller's
expense, to assemble the Collateral and make it available to AEG at a place or
places designated by AEG, and (v) sell any or all of the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Seller's premises) as in AEG's opinion is commercially reasonable. Should AEG
exercise its rights to possession, Seller hereby waives its right, if any, to
cause AEG to post a bond or any other type of security. Any requirement of
reasonable notice regarding disposition of the Collateral by AEG shall be
conclusively met if notice is given to Seller in writing at least five (5) days
before the date fixed for a public sale or after which a private sale or other
disposition is to be made. AEG shall be entitled to purchase the Collateral at
any public sale. It is not necessary that the Collateral be present at any sale
by AEG hereunder. Any deficiency in the amount Seller owes to AEG which exists
after the disposition of the Collateral will be paid immediately by Seller to
AEG. Any excess of sale proceeds over the amounts owing by Seller to AEG shall
be returned to Seller, subject however, to applicable law and the rights of the
holders of other liens on the property.

(b) AEG may set off, exercise any lien or other right of attachment or
garnishment, and apply any and all monies, balances, credits, accounts and
deposits any time owing by AEG to or for Seller's account against any of
Seller's obligations to AEG.

9. GOVERNING LAW. THIS AGREEMENT AND ALL TRANSACTIONS OCCURRING
HEREUNDER SHALL BE DEEMED MADE IN AND GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REGARD TO ITS CONFLICTS OF
LAWS PRINCIPLES.

10. JURISDICTION. The Parties consent to the non-exclusive
jurisdiction and venue of the state or federal courts located in New Jersey.
Service of process on either party in connection with any dispute shall be
binding on such party if sent to it by Registered or Certified Mail at the
address specified above. SELLER WAIVES ANY RIGHT SELLER MAY HAVE TO A TRIAL
BY JURY FOR ANY DISPUTE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.

11. SEVERABILITY OF PROVISIONS. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction. Without limiting the generality of the foregoing,
should this Agreement call for the payment of monies in excess of the maximum
legally permitted rate of interest, then this Agreement shall be deemed
automatically amended so as to not require payment of monies in excess of the
maximum lawfully permitted rate of interest.

12. COLLECTION. AEG will undertake collection efforts for all
Receivables and use its best efforts to collect them in accordance with
normal industry practice. Notwithstanding the foregoing, AEG shall have the
full power and authority to collect each Receivable, through legal action or
otherwise, and may, in its sole discretion, settle, compromise, or assign (in
whole or in part) any of the Receivables, or otherwise exercise any other
right with respect to any of the Receivables if such action will facilitate
collection. AEG shall have the right to endorse Seller's name and trade names
(if any) upon any and all checks, drafts, money orders, and other instruments
for the payment of money that are payable to Seller which AEG receives in
connection with its collection of Seller's accounts receivable under or in
connection with this Agreement.

13. INDEMNIFICATION. Seller agrees to indemnify and hold AEG harmless
from and against any and all claims, losses, expenses, costs, obligations and
liabilities (including court costs and reasonable attorney's fees at the
trial, appellate and post-judgment levels) that AEG may incur by reason of:
(i) Seller's breach of or failure to perform any of its representations,
warranties, commitments or covenants in this Agreement, or (ii) AEG's
collecting or attempting to collect any Receivable. To the maximum extent
permitted by applicable law, Seller hereby releases AEG and its officers,
attorneys, agents and employees from all claims for loss or damage caused by
any act or omission on the part of any of them except for actions or
omissions which constitute willful misconduct.

8
<PAGE>

14. PURCHASER CHARGES. AEG will charge Seller a [UNDERWRITING FEE]
underwriting fee to cover AEG's legal and accounting costs and expenses in
connection with the closing. In addition, Seller shall reimburse AEG for all
out of pocket expenses and costs incurred in connection with this Agreement
including, but not limited to, wire transfer fees, search fees, and filing
fees. Seller already has paid $1,000 of these fees and charges to AEG as a
deposit. The balance of these fees and charges will be paid in two (2) equal
installments which will be deducted from each of AEG's first two (2) advances
to Seller. AEG also shall charge Seller for its direct out-of-pocket costs
for wire transfers, mail, overnight delivery, lien searches, credit reports,
accounting fees, consultant fees, and all legal and other expenses,
including, but not limited to, reasonable attorneys' fees, incurred by AEG in
administering, enforcing, or amending this Agreement. In addition, AEG will
charge Seller an (A) an Administrative Fee with respect to (i) any Receivable
Seller fails to sell to AEG, or (ii) any payment made to Seller with respect
to a Receivable which is not remitted to AEG, in accordance with the
provisions of this Agreement, and (B) any Termination Fee payable pursuant to
Section 16 of this Agreement.

15. COMPLETE AGREEMENT. This Agreement is the complete and entire
understanding between Seller and AEG and may only be modified by a written
instrument signed by the party to be bound thereby.

16. TERM. The term of this Agreement shall commence on the effective
date hereof and continue in effect for a period of two (2) years and shall be
automatically renewed from year to year thereafter unless terminated as
provided in this Section.

(a) Provided Seller is not in default of its obligations under this
Agreement, Seller may terminate this Agreement prior to the end of the term
without penalty upon one-hundred eighty (180) days' written notice to AEG. If
the Agreement is terminated by AEG because of Seller's default, AEG shall charge
Seller a termination fee equal to the number obtained by multiplying (i) the
daily average of the sum of all Service Fees, Discount Fees, and other fees and
charges charged by AEG to Seller from the effective date of this Agreement to
the date of termination by (ii) one hundred and twenty (120).

(b) Upon the expiration of the initial two (2) year term of this
Agreement, either party may terminate this Agreement through ninety (90) days'
written notice to the other party.

(c) AEG may terminate this Agreement through written notice to Seller
if AEG is unable, after good faith attempts to do so, to secure funds with which
to purchase Seller's Receivables in accordance with the terms of this Agreement.

(d) Upon any termination of this Agreement, (i) the aggregate amount of
any and all outstanding Receivables shall be charged back to Seller's Book
Account, (ii) any and all Obligations (including, but not limited to, any
Overdraft created through the charge back of Receivables upon termination) shall
be immediately due and payable in full, and (iii) AEG's obligation to purchase
Receivables and to make advances or credit accommodations under any other credit
facilities provided under or in connection with this Agreement shall terminate.
Notwithstanding the termination of this Agreement, all rights of AEG shall
survive the termination or expiration of the term of this Agreement until all of
the Obligations have been satisfied in full to AEG's satisfaction. In
recognition of AEG's right to have all its attorneys' fees and expenses incurred
under or in connection with this Agreement secured by the Collateral,
notwithstanding payment in full of the Obligations by Seller, AEG shall not be
required to record any terminations or satisfactions of any of its liens on the
Collateral unless and until Seller and any and all Guarantors have executed and
delivered to AEG a Release And Covenant Not To Sue in a form acceptable to AEG.
AEG's security interest in, and rights in connection with, the Collateral shall
remain in effect until Seller has paid all of the Obligations in full. Upon
payment of the Obligations in full, AEG shall promptly reconvey all outstanding
and unpaid Receivables to Seller together with the underlying documentation with
respect to such Receivables.

17. EFFECTIVE DATE. This Agreement shall be effective when (i) AEG has
received written confirmation from the appropriate state, county, and local
filing offices that it holds a first priority lien on the Collateral, or, in
the alternative, and in its sole discretion, AEG elects to waive this
condition to the effectiveness of this Agreement with respect to all or any
part of the Collateral, and (ii) it is executed and accepted by AEG in its
office in Paramus, New Jersey.

<PAGE>

18. SURVIVAL. All representations, warranties, indemnities and
covenants of the Seller under this Agreement shall survive the making of
payment and the expiration or earlier termination of this Agreement.

19. BINDING EFFECT. The terms, covenants and conditions of this
Agreement shall be upon and shall enure to the benefit of each of the parties
hereto, their respective successors, and assigns.

20. FURTHER ASSURANCES. At anytime, upon the request of AEG, Seller
shall make, execute, and deliver any and all such additional documents and
instruments and do such further acts and things as AEG may reasonably require
to effect, or to effectuate more fully, the purposes of this Agreement.

21. COUNTERPARTS; TELECOPIES. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. Signatures
delivered by telecopier or other electronic device shall be binding and
enforceable against the party as if an original signed counterpart had been
delivered.

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized corporate officers on the day and year first
above written.

AS TO PURCHASER: AS TO SELLER:

AMERICAN EQUITIES GROUP, INC. [COMPANY NAME]

By:______________________________ By:_______________________
DAVID S. GOLDBERG, C.E.O. [COMPANY'S CEO/PRESIDENT]

By:______________________________ By:_______________________
DAVID S. GOLDBERG, SECRETARY [COMPANY'S SECRETARY]

<PAGE>

SCHEDULE A

The "Collateral" shall mean the following, whether now or hereafter
existing or created or now or hereafter acquired by [COMPANY NAME] (the
"Debtor"):

(i) The Accounts Receivable (as hereafter defined);

(ii) The Inventory (as hereinafter defined;

(iii) The Equipment (as hereinafter defined);

(iv) Any claims of the Debtor against third parties for loss
or damage to, or destruction of, any and all of the foregoing, all guarantees,
security and liens for payment of any Accounts Receivable and documents of
title, policies, certificates of insurance, insurance proceeds, securities,
chattel paper, and other documents and instruments evidencing or pertaining
thereto; and all files, correspondence, computer programs (whether software,
firmware or operating systems), tapes, discs and related data processing
software or media owned by the Debtor or in which the Debtor has an interest
which contain information identifying or pertaining to any one or more of the
items in (i), (ii) and (iii) above, or (v) and (vi) below, or any account
debtor, showing the amounts owed by each, payment thereon or otherwise necessary
or helpful in the realization thereon or the collection thereof.

(v) Any and all moneys, securities, drafts, notes,
choses-in-action, items and other property or the Debtor, including, but not
limited to, customer lists, contract rights, leases, licenses (to the extent
said licenses permit assignment), all general intangibles (including, but not
limited to, trademarks, trade names, patents, copyrights, and all other forms of
intellectual property, and tax refunds), and all proceeds and products thereof,
now or hereafter held or received by or in transit to Lender from or for the
Debtor, or which may now or hereafter be in the possession of Lender, or as to
which Lender may now or hereafter control possession, by documents of title or
otherwise, whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and any and all deposits, general or special, balances, sums,
proceeds and credits of the Debtor, and all rights and remedies which the Debtor
might exercise with respect to any of the foregoing but for execution of this
Agreement; and

(vi) All proceeds and products of the Equipment, the Accounts
Receivable and the Inventory, said proceeds and products to include without
limitation, any "Collateral" as used in clauses (i), (ii), (iii), (iv) or (v)
above.

The term "Accounts Receivable" shall mean, in addition to
the definition of the terms "Accounts" and "General Intangibles" contained in
the Uniform Commercial Code, of the State of New Jersey, any and all obligations
of any kind at any time due and/or owing to the Debtor and all rights of the
Debtor to receive payment or any other consideration (whether classified under
the Uniform Commercial Code of the State of New Jersey or any other State as
accounts, contract rights, chattel paper, general intangibles, or otherwise)
including without limitation, invoices, contract rights (including without
limitation contracts for time or services from service bureaus and others,
licenses and agreements for computer hardware and/or software), accounts
receivable, acceptances, instruments and all other debts, obligations and
liabilities in whatever form owing to the Debtor from any person, firm,
governmental authority, corporation or any other entity, all security therefor,
and all the Debtor's rights to goods sold (whether delivered, undelivered, in
transit or returned), which may be represented thereby, whether now existing or
hereafter arising, together with all proceeds and products of any and all of the
foregoing.

The term "Inventory" shall mean, in addition to the
definition thereof contained in the Uniform Commercial Code, of the State of New
Jersey, all goods, merchandise or other personal property held by the Debtor for
sale or lease or to be furnished under labels and other devices, names or marks
affixed thereto for purposes of selling or identifying the same or the seller or
manufacturer thereof, and all right, title and interest of the Debtor therein
and thereto, all raw materials, work or goods in process or materials and
supplies of every nature used, consumed or to be consumed in the Debtor's
business, all packaging and shipping materials.

<PAGE>

The term "Equipment" shall mean, in addition to the definition
thereof contained in the Uniform Commercial Code of the State of New Jersey, all
equipment, machinery, furniture, fixtures, and all other tangible assets
(including motor vehicles, if any) and all replacements, repairs, modifications,
alterations, additions, controls and operating accessories therefor, all
substitutions and replacements therefor, and all accessions and additions
thereto and all proceeds and products of the foregoing now owned or hereafter
acquired by the Debtor.

The term "Lender" means American Equities Group, Inc. and its
successors and assigns.

[COMPANY NAME]

By:
---------------------------------
Name: [COMPANY'S CEO/PRESIDENT]
Title:

<PAGE>

Exhibit 10.3

MASTER PURCHASE & SALE AGREEMENT

BY AND BETWEEN

[COMPANY NAME]

- and -

AMERICAN EQUITIES GROUP, INC.

Dated: []

<PAGE>

<TABLE>
<S> <C>
DEFINITIONS.......................................................................................................1