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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-2856
American Equities Income Fund, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3429295
(State of incorporation) (I.R.S. Employer Identification No.)
East 80 Route 4, Suite 202, Paramus, New Jersey 07652
(Address of principal executive offices) (Zip Code)
(201) 368-5900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past
90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: As of September 30, 1998, the Company had 1,000 shares of common stock, $1.00 par
value, issued and outstanding.
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AMERICAN EQUITIES INCOME FUND, INC.
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet as at September 30, 1998 3
Statement of Cash Flows as at September 30, 1998 4
Statement of Operations as at September 30, 1998 5
Statement of Stockholders' Equity as at September 30, 1998 6
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities. 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K. 10
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AMERICAN EQUITIES INCOME FUND, INC.
BALANCE SHEET
(Unaudited)
As of September 30
1998 1997
Assets
Current Assets:
Cash in banks $1,081,007 $1,992,314
Financed receivables - Net 9,711,739 4,024,151
Other current assets 1,249,833 495,077
Total current assets $12,042,579 $6,511,542
Deferred Costs:
Deferred organizational costs $ 766,915 $ 925,629
Deferred note costs 869,715 232,785
Less accumulated amortization (427,567) (20,150)
Total other assets $1,209,063 $1,138,264
Total Assets $13,251,642 $7,649,806
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and accrued expenses $ 37,119 $ 14,035
Interest Payable 122,825 2,907
Other current liabilities 605,708 77,684
Total current liabilities $ 765,652 $ 94,626
Other liabilities:
Notes payable $12,644,000 $6,864,000
Escrow payable 0 723,200
Other Long term liabilities 169,207 0
Total long-term liabilities $12,813,207 $7,587,200
Total liabilities $13,578,859 $7,681,826
Stockholders' Equity:
Common Stock, $1 par value,
1,000 shares authorized, 1,000 shares
issued and outstanding $ 1,000 $ 1,000
Additional paid-in capital 39,000 39,000
Accumulated profit (loss) (367,217) (72,020)
Total Stockholders' Equity $ (327,217) $ (32,020)
Total Liabilities and Stockholders' Equity $ 13,251,642 $7,649,806
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AMERICAN EQUITIES INCOME FUND, INC.
STATEMENT OF CASH FLOWS
As of September 30,
1998 1997
Net Income (loss) ($ 104,518) $ (58,435)
Adjustments to reconcile Net Income to Net Cash
from Operating Activities:
Depreciation and amortization $ 304,329 $ 0
Increase in financed receivables (3,445,656) (3,444,177)
Increase in other current assets (603,713) (495,077)
Increase in accrued expenses 27,473 35
Increase in other current liabilities 498,215 20,008
Total Adjustments ($3,127,909) ($3,919,211)
Net cash flows from (used in) operating activities ($3,323,870) ($3,977,646)
Cash Flows from (used in) Investing Activities:
Payment of organizational costs (352,765) (814,779)
Net cash flows from (used in) Investing Activities ($352,765) ($814,779)
Cash Flows from (used in) Financing Activities:
Decrease in Escrow payables $(411,000) $507,200
Increase in interest payable 174,350 (1,333)
Proceeds from notes payable 4,361,000 4,647,000
Net cash flows from financing activities $4,124,350 $5,152,867
Net Increase in Cash $ 447,715 $ 360,442
Cash at beginning of period $ 633,292 $1,631,872
Cash at end of period $1,081,007 $1,992,314
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AMERICAN EQUITIES INCOME FUND, INC.
STATEMENT OF OPERATIONS
Nine months ended September 30,
1998 1997
Revenues:
Fee income $1,152,685 $287,183
Other income 17,445 57,265
Total Revenues $1,170,130 $344,448
Operating Expenses:
General & administrative expenses $ 5,548 $ 42,011
Interest expense 964,771 360,872
Total expenses $970,319 $402,883
Net Income
before depreciation, amortization,
and provision for income taxes $199,811 $(58,435)
Net Income
after depreciation, amortization,
and provision for income taxes ($104,518) ($58,435)<PAGE>
AMERICAN EQUITIES INCOME FUND, INC.
STATEMENT OF STOCKHOLDER' EQUITY
Additional
Number Paid in Net
of shares Value Capital Loss Total
Date of incorporation 0 $0 $0 $0 $0
(March 11, 1996)
Shares issued for cash on 1,000 $1,000 $39,000 $0 $40,000
March 22, 1996
Accumulated loss as of (367,217) (367,217)
9/30/98
Total Stockholders' Equity 1,000 $1,000 $39,000 ($367,217) ($327,217)
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AMERICAN EQUITIES INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - FORMATION AND OPERATION OF THE COMPANY
American Equities Income Fund, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on March 11, 1996.
The Company is in the business of factoring accounts receivable (the "Receivables") and
providing other financial services to client companies.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
Accounting records of the Company and financial statements are maintained and prepared on the
accrual basis.
Year End
The Company's year end for financial reporting tax purposes is December 31.
Cash Equivalents
For financial statement purposes, with respect to the Statement of Cash Flows, cash equivalents
include time deposits and all highly liquid investments with original maturities of three months
or less. The amount included on the Company's Statement of Cash Flows is comprised of
exclusively of cash.
NOTE C - STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000 shares of common stock at $1.00 par value. On June
30, 1998, there were 1,000 shares of common stock issued and outstanding.
The holders of the common stock are entitled to one vote per share on all matters to be voted
on by shareholders.
NOTE D - SECURED NOTE OFFERING
On August 26, 1996, the Company commenced offering subscriptions for up to $15,000,000
aggregate principal amount of its 12% Notes in denominations of $1,000 each, or any integral
multiple thereof. The Notes bear simple interest at 12% per annum, payable interest only
monthly, annually or upon maturity, at the option of the investor, with all principal and accrued
interest, if any, due on September 30, 2006. Accrued but unpaid interest will be compounded
monthly at the rate of 12% per annum. The Notes may be accelerated by the Note Holders on
the first day of the fifth, sixth, seventh eighth and ninth years upon six months written notice
to the Company. The Notes will be secured by the Receivables acquired with the proceeds of
the offering or funds obtained from the repayment of such Receivables or any after acquired
Receivables. The Notes are prepayable in whole or in part at any time without premium or
penalty.
The offering terminated on August 26, 1998. An aggregate of $12,928,208 principal amount
of Notes were issued as of September 30, 1998.
NOTE E - RELATED PARTY TRANSACTIONS
The Company and American Equities Group, Inc. will share the fees charged, 50% to the
Company and 50% to American Equities Group, Inc. American Equities Group, Inc. will pay
all overhead, expenses and salaries of the Company from its portion of the fees as relates to the
ongoing business of the Company, except for legal, accounting, filing fees, taxes and other
administrative expenses related to the Company.
NOTE F - ACCOUNTS RECEIVABLE
The Company's policy is to record the accounts receivable it purchases from borrowers at the
face amount, less the portion held back by the Company as a loss reserve.
At September 30, 1998, the financed receivables are as follows:
September 30, 1998
Face Amount $32,068,451
Less Reserve (22,356,712)
Net $ 9,711,739
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Form 10-QSB.
This management's discussion and analysis of financial conditions and results of
operations contains certain "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Such statements relating to future events and financial
performance are forward-looking statements that involve risks and uncertainties, detailed from
time to time in the Company's various Securities and Exchange Commission filings. No
assurance can be given that any such matters will be realized.
Nine months ended September 30, 1998 compared to the nine months ended September
30, 1997.
Gross revenues increased to $1,170,130 or 240% for the nine months ended September
30, 1998 from $344,448 for the nine months ended September 30, 1997, primarily because of
the increase in funds available through the Company's initial public offering which enabled the
Company to purchase more accounts receivable and therefore generate more fee income.
Net income before depreciation, amortization, and provision for income taxes increased
by $258,246 to $199,811, or 17.1% of gross revenues, for the nine months ended September
30, 1998 from $(58,435) or (.17)% of gross revenues for the nine months ended September 30,
1997. This increase was primarily due to the increase in funds available through the Company's
public offering of notes which enabled the Company to purchase more accounts receivable and
therefore generate more fee income.
Operating expenses decreased by $36,463, to $5,548, or .5% of gross revenues, for the
nine months ended September 30, 1998, from $42,011 for the nine months ended September 30,
1997. This decrease was primarily due to decreased legal and accounting expenses, as well as
the absence of securities filing fees, related to the Company's public offering of promissory
notes.
Interest expense increased $603,899 to $964,771 or 82.4% of gross revenues, for the
nine months ended September 30, 1998, compared to $360,872, for the nine months ended
September 30, 1997. This increase was primarily due to the increase in investors notes
outstanding.
Liquidity and Capital Resources
The Company's principal sources of liquidity have been internally generated funds and
through the public offering of its 12% Notes. It is anticipated that funds from operations and
the receipt of the net proceeds of such offering will provide the Company with sufficient
liquidity to meet its debt service and operating requirements for at least the next 12 months.
The ability of the Company to meet operating forecasts included in its expansion plans
will depend in part upon the successful completion of this offering and its ability to develop and
implement new or additional financial services.
Year 2000 Compliance
American Equities Income Fund, Inc. is a wholly owned subsidiary of American Equities
Group, Inc. ("AEG") which has established an overall plan to address the Year 2000
compliance issue ("Y2K") within the operations of the organization. The Y2K Compliance Plan
(the "Plan") focuses on several strategic concerns related to Y2K compliance: the ability to
deliver services to customers and investors, the corporate legal abilities, and concerns related
to computer or mechanical systems failure within the organization. Appropriate resources have
been applied to the Plan 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 the Plan with the goal
to assure uninterrupted service delivery to AEG'S clients and investors.
The Plan is being managed within the AEG's Technology Task Force. This Task Force
is staffed with members from all AEG areas 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 of AEG 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 Plan 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 AEG 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 will be risk-assessed and ranked, and significant risks with
important business partners may require additional verification. Issues related to financial
exposure are also be addressed. It is anticipated that a test of all systems, both partition testing
and fully integrated testing, will be completed by August 15. 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 Plan. 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.
AEG bears 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. AEG is
developing 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly cause this to be signed on its behalf by the undersigned thereunto duly authorized.
Date: March 2, 1999 By:S/S DAVID S. GOLDBERG
David S. Goldberg
Chief Executive Officer and
Chief Financial Officer
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