U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended: March 31, 1999
___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _______ to _______.
Commission file number: 0-19154.
AMERICAN ASSET MANAGEMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2902677
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Morristown Road, Suite 108, Bernardsville, New Jersey 07924
(Address of principal executive offices)
Issuer's telephone number, including area code: (908) 766-1701
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES_X_ NO___.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: As
of May 7, 1999 there were 1,315,293 shares outstanding of the
issuer's no par value common stock.
Transitional Small Business Disclosure Format (check one):
YES___ NO_X_
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
_________________________________________________________________
March 31, December 31,
___1999___ ____1998____
_____________ASSETS________________
Cash & cash equivalents $ 628,433 $ 608,085
Mortgage loans held for sale 2,440,085 1,755,009
Notes receivable 62,823 62,822
Prepaid expenses &
other current assets 50,641 86,948
Total current assets 3,181,982 2,512,864
Land development costs 662,746 573,515
Property & Equipment, net of accumulated
depreciation & amortization 6,464 8,251
Total assets 3,851,192 3,094,630
__LIABILITIES AND STOCKHOLDERS' EQUITY__
Current liabilities:
Warehouse finance facility 2,180,464 1,363,236
Deferred income 9,400 55,860
Loans payable 32,285 31,364
Accounts payable, accrued expenses
and other current liabilities $ 126,406 $ 142,539
Total current liabilities 2,348,555 1,592,999
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized;
1,315,293 shares issued
and outstanding 3,852,825 3,845,825
Additional paid-in capital 231,207 231,207
Accumulated deficit (2,581,395) (2,575,401)
Total stockholders' equity 1,502,637 1,501,631
Total liabilities and
stockholders' equity 3,851,192 3,094,630
See accompanying Notes to Consolidated Financial Statements.
<PAGE> -2-
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
_________________________________________________________________
For the Three Months
______Ended March 31,______
____1999____ ____1998____
Revenues:
Mortgage origination fees $ 300,333 $ 306,962
Application and commitment fees 18,800 49,505
Mortgage interest income 30,841 33,151
Total revenues 349,974 389,618
Expenses:
Employee compensation & benefits 124,404 114,857
Commissions 105,806 143,997
Other expenses 134,535 125,819
Total expenses 364,745 384,673
Income/(loss) from operations (14,771) 4,945
Other income 8,772 -0-
Income (loss) before provisions
for income taxes (5,999) 4,945
Provision for income taxes -0- -0-
Net income (loss) (5,999) 4,945
Dividends on Preferred Stock -0- 8,594
LOSS AVAILABLE FOR
COMMON SHAREHOLDERS $ ( 5,999) $ (3,649)
LOSS PER COMMON SHARE, Basic $ (0.005) $ (0.004)
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING, Basic 1,315,293* 936,119*
*The diluted earnings per share are not presented and exclude the
exercise of 331,756 warrants and 50,000 employee stock options
because the effect would be antidilutive.
See accompanying Notes to Consolidated Financial Statements.
<PAGE> -3-
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
_________________________________________________________________
For the Three Months
____Ended March 31,____
____1999___ ____1998___
Cash flows from operating activities:
Net loss $ ( 5,999) $ ( 3,649)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,787 -0-
Changes in assets & liabilities:
(Increase)decrease in:
Notes receivable -0- 45,500
Mortgage loans held for sale (685,076) (1,210,450)
Prepaid expenses & other assets 36,307 (62,481)
Land and development costs (89,231) (36,504)
Increase(Decrease) in:
Accounts payable & accrued expenses (9,133) 42,987
Deferred income (46,460) 9,683
Warehouse finance facility 817,228 1,189,361
Net cash (used in) provided by
operating activities 19,423 (25,553)
Cash flows from financing activities:
Loans payable 921 58,055
Payments of mortgage payable -0- (15,872)
Dividends paid -0- (7,809)
Net cash provided by financing activities 921 34,374
Net increase in cash and cash equivalents 20,343 8,821
Cash and cash equivalents
at beginning of period 608,085 236,103
Cash and cash equivalents
at end of period $ 628,433 $ 244,924
See accompanying Notes to Consolidated Financial Statements.
<PAGE> -4-
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_________________________________________________________________
1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements of
American Asset Management Corporation and subsidiaries (the
"Company") are unaudited. In the opinion of management, all
adjustments and intercompany eliminations necessary for a fair
presentation of the results of operations have been made and were
of a normal recurring nature. These interim consolidated
financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto
contained in the Company's 1998 Annual Report on Form 10-KSB.
Reference is made to the Company's annual financial statements
for the year ended December 31, 1997, for a description of the
accounting policies which have been continued without change.
Also refer to the footnotes with those annual statements for
additional details of the Company's financial condition, results
of operations and changes in cash flows. The details in those
notes have not changed except as a result of normal transactions
in the interim. The results of the three months ended March 31,
1999 are not necessarily indicative of the results of the full
year.
2. SEGMENT REPORTING
The Company has two primary operating segments including
originating and selling loans secured primarily by first
mortgages on one-to-four family residential properties (CFC) and
real estate development (AADC). Segment selection was based upon
the nature of operations as determined by management and all of
the operations of these segments are conducted in New Jersey.
Certain selected financial information of these segments is
described below:
CFC AADC Parent Total
March 31, 1999
Revenues 349,974 349,974
Segment Profit (Loss) 22,991 (351) (28,639) (5,999)
Net identifiable assets 3,094,472 720,591 36,129 3,851,192
CFC AADC Parent Total
March 31, 1998
Revenues 389,618 389,618
Segment Profit (Loss) 50,616 (36) (45,635) 4,945
Net identifiable assets 3,435,613 1,143,552 56,949 4,636,114
-5-
<PAGE>
Item 2.
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
_________________________________________________________________
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to the Three Months
Ended March 31, 1998.
Total revenues for the three months ended March 31, 1999
were $349,974 compared to $389,618 for the three months ended
March 31, 1998, a decrease of $39,644 or approximately 10.2%. The
decrease was primarily attributable to a reduction of $30,705 in
application fees to $18,800 from $49,505 in the comparable 1998
period and to a lesser extent a decrease in origination fees of
$6,629 and a decrease of $2,310 in mortgage interest income of
Capital Financial Corp. ("Capital"), the Company's mortgage
banking subsidiary. The reduction in applications was a result
of increased mortgage interest rates during the period which
sharply reduced the number of refinance applications the Company
received, as well as a reduction in real estate sales in
the Company's service area primarily due to a reduction in the
available supply of homes for sale. During the three months
ended March 31, 1999 Capital closed 72 residential mortgage loans
in the principal amount of $17,061,628 compared to 101 loans
closed in the principal amount of $19,980,646 in the three months
ended March 31, 1998. At March 31, 1999, the Company had
approximately 60 residential mortgage applications in process in
the principal amount of $14,312,085 compared to 164 residential
mortgage applications in process in the principal amount of
$37,320,199, at March 31, 1998.
Total expenses for the three months ended March 31, 1999
were $364,740, a decrease of $19,933 or approximately 5.3% from
$384,673 in the comparable 1998 period due to a decrease of
$38,191 in the Company's sales compensation which was partially
offset by an increase in employee compensation of $9,547 and an
increase in other expenses of $8,716 as a result of Capital's
modification in the compensation structure for loan originators
and certain other employees. As a percentage of revenues,
Expenses were approximately 104.2% in the current period
compared to 98.8% before payment of dividends on Preferred Stock
in the comparable 1998 period.
As a result of the foregoing, the Company's net loss for the
three months ended March 31, 1999 was $5,999 or $0.005 per common
share, compared to net income of $4,945 before preferred stock
dividends and a net loss after preferred stock dividends of
$3,649 or $0.004 per common share for the comparable 1998 period.
The Company did not have any preferred stock outstanding during
the period ended March 31, 1999 compared to the same period in
1998, as all outstanding preferred shares were converted to
common stock on July 1, 1998.
During the period ending March 31, 1999, the Company
expanded its Internet presence by creating a website home page on
a major website belonging to a national provider of mortgage
loans and other financial statistics. The Company's website
provides the public with its lending programs and interest rates
on a daily basis, in addition to the rates of other lenders that
the Company competes with. During the 3 month period ending
March 31, 1999 the Company has received numerous inquiries which
has resulted in mortgage loan applications from persons seeking
mortgage financing.
The Company has been encouraged with the results the
Internet has provided as an additional source of mortgage
applications and is currently in the process of updating its own
website. Once the changes have been made the Company's website
will be linked to its homepage on the national provider's website
utilizing an on line mortgage application and streamlined
internet mortgage approval process. The Company expects to
complete these website changes during the second quarter of 1999.
In addition, the Company has identified and intends to link its
website with other national and regional websites that provide
mortgage rate listings and information to the public as
additional potential sources of mortgage applications.
To date, the number of domestic mortgages originated over
the Internet, relative to the total mortgage origination market
is very small. In 1998, only 0.7% of total mortgage originations
were generated via the Internet. The Company believes this is
about to change dramatically. Estimates made by the mortgage
banking industry believe that by the year 2005, the Internet
could comprise 25% to 30% of total mortgage originations. The
Company's marketing strategy is to supplement its current
personal relationship based origination business with the
Internet.
Through its Internet presence, the Company has experienced
that e-commerce allows the Company to compete with entities much
larger and with greater resources than itself. Further, the
Company believes that this technology is becoming increasingly
important as an acceptable form of commerce, while providing the
Company with a cost effective method to potentially increase its
business.
During March 1999, the Company has made application to
license itself as a mortgage banker in the State of Connecticut
and has identified and is considering applying for licensing in
other states. Accordingly the Company plans on using the
Internet to offer its mortgage products and services within those
states as the Company becomes licensed to do so. There can be no
assurance the Company will be successful in using the Internet as
a source of mortgage loan applications or that the Company will
be granted licenses in the one or more states that it has or may
make applications for licensing in.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash and cash
equivalents of $628,433 compared to $608,085 at December 31,
1998, an increase of $20,348. The increase is primarily
attributable to cash provided in operating activities.
The Company utilizes a $5,000,000 warehouse line of credit
for its daily mortgage loan funding operations and whenever
possible the Company employs its available cash to
fund mortgage loans which generates mortgage interest income, as
well as save interest costs and other fees associated with
utilizing its warehouse credit line. This warehouse
line is maintained with a mortgage warehouse lender which enables
the Company to borrow funds secured by residential mortgage loans
which will be temporarily accumulated or warehoused and then
sold. At March 31, 1999 the Company had borrowed $2,180,464 from
its warehouse line of credit which represented approximately 6
closed loans ready for sale.
Of the total loans in the warehouse at March 31, two loans
were new construction loans aggregating approximately $320,000.
These loans will remain in the warehouse until such time that all
construction work is completed, the balance of approximately
$100,000 in disbursements are made and the loans are sold to an
institutional investor.
During March 1999, the Company received a commitment from
another warehouse credit line lender to provide the Company with
an additional warehouse credit line in the amount of $5,000,000.
In April 1999, the Company decided not to accept this credit line
as the terms offered by the new warehouse lender were not
beneficial to the Company.
In December 1996, the Company accepted a commitment issued
by a commercial bank for a construction mortgage financing line
of credit in the amount of $550,000 for use in the Company's real
estate development located in Hunterdon County, New Jersey, known
as Murray Hill Estates. The loan provided a letter of credit in
the amount of $111,583 which the Company assigned and deposited
in escrow with certain municipal authorities during January 1997
to guarantee the township adequate funds to complete the balance
of required site improvements on the property if the Company
fails to complete the required improvements. During March 1999,
the Company received a resolution executed by municipal
authorities granting the Company's request to reduce to letter of
credit to $39,000 since 90% of all improvements to the property
have been completed. The Company anticipates completing the
balance of the required improvements, which total approximately
$35,000, during the first quarter of 2000, when the balance of
all residential construction should also be completed. The loan
matured on December 31, 1997, and was extended by the bank until
July 31, 1998, except for the letter of credit which was extended
for an additional one year term through December 31, 1998 and
again extended until June 30, 1999. As of October 1998, the
Company has fully repaid the mortgage loan on its subdivision.
In May 1995, the Company contracted to sell a lot for the
sum of $125,000. The Company received nonrefundable deposits of
$75,000 with a balance due the Company of $50,000 at closing of
title. Title was transferred to the buyer during August 1998.
At this time the Company also provided the buyer with a $330,000
credit line secured by a five month first mortgage on the
property and its improvements and the personal guarantee of the
buyer. The first $50,000 of the total credit line provided was a
purchase money mortgage taken back by the Company on the land.
The remaining $280,000 is for the construction costs of a new
single family home which is expected to be completed during the
second quarter of 1999. As of March 31, 1999 the buyer is
indebted to the Company in the amount of $214,000. The terms of
the mortgage require monthly interest only payments to the
Company at an interest rate of 3% over the Wall Street Journal
prime rate. The mortgage matured in January 1999 and was
extended by the Company until April 1999 and extended again until
July 4, 1999. Although the Company is not required to grant such
an extension it estimates that the additional extension of three
months will be necessary for the buyer to complete all
construction. The Company anticipates it will receive full
repayment of its mortgage during the third quarter of 1999.
As of May 4, 1999, the Company owns 4 unimproved building
lots in its Hunterdon County, New Jersey real estate development
and does not have any contracts of sale pending. However, in
September 1998, the Board of Directors authorized the Company to
build up to two, at any one time, single family, colonial style
homes, on speculation and offer them for sale to prospective
buyers. The Company believes that construction costs for each
home to be built will be approximately $225,000 and it will
afford it a better opportunity to obtain a profit from the
transaction then if it sold an undeveloped lot. Although there
can be no assurance that the Company will be successful in this
undertaking, the Company commenced construction during December
of 1998 of one such home. As of March 31, 1999 the Company has
invested approximately $89,400 in the residence. The Company
has retained an on-site construction manager who is a non-
affiliate of the Company, to assist the Company in this
construction project.
During April 1999, the Company concluded the major part of
its study concerning its internal operating systems becoming Y2K
compliant. As a result of its internal review, in April 1999,
the Company ordered new computer software and hardware from
suppliers that will make the Company Y2K compliant in addition to
upgrading its systems to be state of the art in the area of
mortgage processing, closing, and portfolio management of its
mortgage banking businesses. The costs associated with the
upgrading of the Company's hardware and software is not expected
to exceed the budgeted $25,000. The Company anticipates having
all of its Y2K upgrades and changes installed and tested during
the second quarter of 1999.
The major processing software systems utilized by the
Company are run internally and independently of outside vendors.
In addition, the Company has manual systems and equipment in
place as a back up to manage the flow of business until such time
as a system failure could be corrected, should one occur. The
Company continues to monitor the progress of its vendors Y2K
compliance in an effort to avoid a potential system failure.
Although the Company believes the costs associated with its
internal operating systems becoming Y2K compliant is known at
this time, the financial impact to the Company of the potential
failure by outside vendors and institutions, which are beyond the
control of the Company, to become Y2K compliant could result in
an interruption in, or a failure of, certain normal business
operations or activities. Such failures could materially and
adversely affect the Company's results of operations, liquidity
and financial condition.
The Company estimates that it will require additional
capital in order to successfully implement its future operational
plans. As a result, the Company is seeking additional capital
through, among other means, an infusion of noncollateralized
loans and the sale of additional equity in the Company. However,
there can be no assurance that the Company will be able to obtain
additional capital on terms acceptable to the Company.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On March 25, 1999, a derivative action on behalf of two New
Jersey limited liability companies (the "LLC's") was commenced
against certain defendants, including the Company, its President,
the Company's wholly-owned subsidiaries (collectively, the
"Company Defendants"); and one of the Company's directors,
Theodore P. Rica, Jr. ("Rica") in the chancery Division of the
Superior Court of New Jersey, Union County. The plaintiffs
allege that Rica and certain defendants other than the Company
Defendants ("non-Company defendants"), misappropriated assets and
opportunities of the LLC's for their own use, engaged in
self-dealing with respect to the LLC's, breached the operating
agreements of the LLC's, and converted and embezzled assets and
funds of the LLC's.
The Company Defendants are alleged to have aided and abetted
Rica in converting the assets of the LLC's by accepting loans and
payments from the LLC's and Rica and repaying the loans to Rica
in the form of cash and Company stock.
The plaintiffs seek declaratory and injunctive relief
against the Company Defendants; an accounting of (i) all shares
of Company stock purchased by Rica and certain non-Company
defendants and (ii) all payments to or from the Company and Rica
and certain non-Company defendants; imposition of a lien or
equitable trust in favor of the LLC's on shares of Company stock
issued in the names of Rica and certain non-Company defendants;
and certain unspecified compensatory and punitive damages,
attorneys' fees and costs.
In April 1999, the Court granted a preliminary injunction,
which, among other things, enjoins the Company Defendants from
allowing the transfer of any Company stock held in the name of
Rica and certain other non-Company defendants and directs the
Company Defendants to provide an accounting of all such stock.
The Company, while adamantly denying any wrongdoing, did not
oppose plaintiffs' application, as it did not adversely impact
the Company.
In April 1999, the plaintiffs filed lis pendens with respect
to four parcels of real property owned by the Company. The
Company believes that the lis pendens are unlawful and is taking
steps in an effort to have them voluntarily withdrawn or vacated
by court order.
The Company denies any wrongdoing and believes that the
claims against the Company Defendants are without merit, and
intends to defend the action vigorously.
On May 18, 1999, Rica submitted to the Company his
resignation from the Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule (For SEC use only)
(b) On January 7, 1999 the Company filed on Form 8-K
under Item 4 to report the engagement of Grant Thornton, LLP as
the Company's new principal independent auditor.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ASSET MANAGEMENT CORPORATION
(Registrant)
Date: May 21, 1999 By:_s/Richard G. Gagliardi____________
Richard G. Gagliardi
Chairman, President and Chief
Executive Officer (Principal
Executive and Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR FIRST QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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