[DESCRIPTION] COVER
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10 KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-OR-
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-19154
AMERICAN ASSET MANAGEMENT CORPORATION
(Name of small business issuer in its charter)
NEW JERSEY 22 2902677
(State or other jurisdiction of)(IRS Employer Identification No.)
incorporation or organization)
150 MORRISTOWN ROAD, BERNARDSVILLE, NEW JERSEY 07924
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (908) 766-1701
Securities registered under Section 12(b) of the Exchange
Act: None
Securities registered under Section 12(g) of the Exchange Act:
NO PAR VALUE COMMON STOCK
(Title of Class)
CL. B COM. STOCK PURCHASE WTS. CL. C COM. STOCK PURCHASE WTS.
(Title of Class) (Title of Class)
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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
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 )
For the year ended December 31, 1998, the issuer's revenues were
$2,342,983.
As of March 15, 1999 the aggregate market value of the
issuer's voting stock held by non-affiliates computed by
reference to the average bid and asked prices of such stock, was
$2,471,672.
As of March 15, 1999 the issuer has 1,315,293 shares of its no
par value Common Stock issued and outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format: Yes ___ No _X_
<PAGE>
[DESCRIPTION] 10KSB REPORT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995: Certain statements and
discussions contained in this report are not based on
historical facts and contain forward looking statements
that involve a number of known and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from
any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors
include, but are not limited to, those relating to competition,
the ability of the Company to successfully market new mortgage
products and services, the economic conditions in the markets
served by the Company, the possibility of increased interest
rates which would adversely affect the real estate market, the
ability to hire and retain key personnel, uncertainty relating to
the Company's year 2000 compliance efforts and other risks
detailed in the Company's other filings with the Securities and
Exchange Commission. The words "believe", "expect", "intend",
"anticipate" and "plan" and similar expressions identify forward
looking statements, readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as
of the date the statement was made.
GENERAL
American Asset Management Corporation (the "Company"),
conducts its business through two wholly-owned subsidiaries,
Capital Financial Corp.("Capital"), a licensed mortgage banking
company in New Jersey and American Asset Development Corporation
("Development"), which is engaged in the development of
residential real estate for sale in New Jersey. Unless otherwise
indicated, all references to the Company in this report include
the Company and its subsidiaries.
HISTORY OF THE COMPANY
The Company was incorporated on July 1, 1988 to engage in
real estate financing and investing. In October 1988, the
Company became a limited partner of Murray Hill Estates at
Franklin, L.P. ("Murray Hill"), a New Jersey limited partnership
established for the purpose of acquiring a property ("Property")
located in Hunterdon County, New Jersey. In January 1990, the
Company was elected successor general partner of Murray Hill for
the purpose of obtaining subdivision approvals necessary to
develop the property owned by Murray Hill. In February 1992,
Murray Hill received preliminary approval for the subdivision of
the Property. SEE BUSINESS - AMERICAN ASSET DEVELOPMENT
CORPORATION.
In July 1992, the Company formed Development which acquired
substantially all of the assets of Murray Hill in exchange for an
aggregate of 29,600 shares of Common Stock of the Company and the
assumption of all of the liabilities of Murray Hill.
In July 1989, the Company formed American Asset Mortgage
Corporation ("Mortgage") to provide mortgage banking services in
New Jersey.
In July 1991, the Company acquired all of the outstanding
stock of Capital Financial Corp., a New Jersey licensed mortgage
banking company. In June 1992, Capital was merged with and into
Mortgage and the name of the surviving subsidiary was changed to
Capital Financial Corp.
BUSINESS - CAPITAL FINANCIAL CORP.
The Company, through Capital, is primarily engaged in
mortgage banking activities which involves the origination and
sale of residential first mortgage loans collateralized by one to
four family homes. The Company's service area is the State of
New Jersey and to date, its revenues have primarily consisted of
loan origination fees and interest received on mortgage loans
made primarily for the construction of single family residences.
Capital acts either as a "banker" or as a "banker acting as a
broker". When acting as a banker, Capital closes loans in its
own name. When acting as a broker, Capital does not make
mortgage loans or close loans in its own name, but receives
compensation at closing from the borrower for assisting in
obtaining a mortgage from a third party investor (purchaser of
the mortgage) and/or from the investor for referring the loan to
such investor.
Capital originates mortgage loans through direct
solicitation of borrowers by its own sales force, through media
advertising in its service area and through referrals from
mortgage bankers, credit unions, real estate brokers, accountants
and attorneys. Borrowers submit loan applications which are
processed by the Company's loan processors who conduct credit
checks, arrange for the property to be appraised and submit
fully processed loan application packages to potential investors
for final approval and commitment. After an investor commits to
purchase the loan, the Company either uses its own funds, its
warehouse line of credit as discussed below, to fund and close
the loan or has the loan funded by the investor. The loan
documentation is then prepared and the loan is closed in
Capital's name at which time it is simultaneously assigned to the
investor. When Capital closes a loan with its own funds, or its
warehouse line of credit, the loan is delivered to the investor
after the closing for purchase.
The Company generally sells its loans on a loan-by-loan
basis to mortgage investors, primarily savings banks. The
Company estimates that generally 85% of its loan applications
close within 90 days from the date of application. During 1998,
the Company sold 183, 82, and 72 of its 460 closed loans
(39.7%, 17.8%, and 15.6%), to three investors, which included
one savings bank and two mortgage bankers. The Company believes
that there are numerous other investors to which the Company
could readily sell its loans if, for any reason, it was unable to
sell its loans to the above investors. As of March 15, 1999,
the Company had agreements with approximately 25 investors, to
which the Company may sell its loans or refer applications to.
In May 1995, the Company obtained a $5,000,000 warehouse
line of credit from a mortgage warehouse lender which provides
the Company with a facility to borrow funds secured by originated
residential mortgage loans which will be temporarily warehoused
and then sold. The warehouse line of credit is secured by the
personal guarantees of the Company's President and Executive Vice
President. The Company will borrow only against takeout
commitments issued by qualified investors who have pre-approved
the loans and committed to purchase the closed loan from the
Company. By using the warehouse funds instead of table funding,
the Company has generally been able to receive more favorable
pricing from its investors which the Company believes has made it
more competitive in the market place. The warehouse line has
also allowed the Company to sell loans to investors which do not
table fund and only purchase closed loans from correspondents.
As of December 31, 1997 the warehouse credit line was reduced to
$2,500,000 and in July 1998, the amount was returned to
$5,000,000. As of March 15, 1999, the interest rate charged to
the Company on borrowed warehouse funds outstanding is variable
at 2% over the prime lending rate as quoted by the Wall Street
Journal. 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. The Company is reviewing this commitment and has not
yet determined whether to accept it.
As a result of a general decline in mortgage interest rates
during 1998, the Company saw a resurgence in mortgage
refinancings. This market had been in a general decline since
its three year peak in December 1994 and continued to be less
significant to the Company through 1997. However, during that
period, Capital implemented other methods of securing purchase
loan originations which lessened the Company's dependence on
mortgage refinancings.
In March 1996, the Company hired a Senior Vice
President/Sales Manager with 11 years of mortgage banking
experience to expand its commissioned sales personnel and to
assist management in expanding the Company's relationships with
additional sources of mortgage loan applications.
In October 1996, the Company entered into an agreement to
offer its mortgage products on an electronic network system
("Network") of thirty one mortgage bankers which originated
applications through a real estate broker branch office system
located throughout New Jersey. The applications were forwarded
to Capital for processing and closing. The Company compensated
the Network of originators with a commission based on
closed loans originated by the Network. The Company believes it
was one of approximately twelve lenders which offered mortgage
products through this system. In February 1997, the Network was
acquired by another network which operated in a similar manner
to the original Network. In July 1997, the Company became a
lender on this new network. Both networks operated in a similar
manner but continued as separate entities until July 1997 at
which time a majority of the mortgage bankers from the acquired
Network were terminated. Since July, the Company continues to
receive business from former mortgage Network personnel. In
August 1997, the Company entered into an agreement with a new
network which was formed as an independent unit by former Network
mortgage banking originators. In addition, during July 1997 and
January 1998, the Company employed, as originators, two and one
mortgage bankers respectively, that were formerly originators
with the original Network. There can be no assurance the Company
will be successful in these relationships as it faces intense
competition from the other lenders it competes with for this
business, many of which have greater resources and experience
than the Company.
BUSINESS - AMERICAN ASSET DEVELOPMENT CORPORATION
In May 1992, Development was incorporated as a New Jersey
corporation to acquire Murray Hill, obtain final subdivision
approval, complete physical improvements to the Property and sell
the subdivided lots. The principal asset acquired by Development
from Murray Hill in July 1992, was approximately 40 acres of
undeveloped land located in Franklin Township, Hunterdon County,
New Jersey. In connection with the acquisition of Murray Hill,
Development assumed an existing liability of a loan payable to
Development's parent company which was secured by a first
mortgage on the Property in the principal amount of $667,575 as
of June 1, 1992. Subsequent to the acquisition, the Company
transferred the mortgage receivable in the amount of $675,326 to
Capital. Development continued to seek final subdivision
approval from authorities, which was received in October 1993,
subject to completing certain improvements or by posting
performance bonds or a letter of credit in lieu thereof.
In August 1994, the Company received a commitment from a
commercial bank for two lines of credit aggregating $700,000,
consisting of a $250,000 site improvement loan and a $450,000
revolving line of credit to finance construction of up to three
residences in the subdivision. The site improvement loan which
closed in November 1994, and was refinanced through a different
institution in December 1996, is secured by a first
mortgage on the development and was also secured by the personal
guarantees of the Company's President and Executive Vice
President. The interest rate on the site improvement loan was
the bank's prime interest rate plus 1% and was payable monthly.
The loan was paid in full and extinguished during October 1998.
In February 1995, the Company entered into a revised
contract of sale for a lot included in the Property containing an
uninhabitable farmhouse and a fieldstone barn for $148,000, of
which payments of $10,000 were received. At closing, the Company
received an additional $5,000 and agreed to provide the purchaser
a one-year interest only first mortgage in the principal amount
of $133,000 bearing interest at 9 1/2%. The Company transferred
title to the purchaser in April 1997. In May 1997, the Company
sold the mortgage, without recourse, to a non-affiliate of the
Company for $110,000.
In March 1995, the Company entered into a contract to sell
one three (3) acre building lot for $125,000, for which a down
payment of $25,000 was received. Under the terms of the
contract, the Company agreed to finance $100,000 of the purchase
price for six months, without interest, to be secured by a first
mortgage and personal note on the lot securing the buyers
obligation to the Company.
In May 1995, the Company agreed to sell an additional five
and one half (5 1/2) acre building lot to the same individual it
contracted to sell a lot to during March 1995, for the sum of
$100,000. The Company received a nonrefundable deposit of
$50,000. In December 1995, the Company received a letter from
the individual requesting to void the contract for the 5 1/2 acre
lot and to apply the $50,000 deposit to the March 1995 contract
for the 3 acre lot resulting in a total deposit on the 3 acre lot
of $75,000 with a balance due the Company of $50,000 at closing
of title. During January 1996, the Company consented to the
request and title on this lot 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 $75,000 of the total credit
line provided was a purchase money mortgage taken back by the
Company on the land. The remaining $225,000 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
15, 1999 the buyer is indebted to the Company in the amount of
$192,000. The terms of the mortgage require monthly interest
only payments to the Company. The mortgage matured in January
1999 and was extended by the Company until April 1999. Although
the Company is not required to grant such an extension it
estimates that an 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.
In January 1996, the Company entered into a contract to sell
to a real estate development corporation, 5 building lots which
range in size from 3 to 5 1/2 acres for a total purchase price of
$487,500. The Company received a total of $340,000 in
nonrefundable deposits and in December 1996 the contract was
cancelled and the related deposit was converted to 34,000 shares
of Series A Cumulative Convertible Preferred Stock of the
Company.
In August 1996, the Company entered into a contract to sell
one 3 acre building lot for $110,000 of which a down payment of
$11,000 was received. The contract was amended in September 1996
to provide for cancellation and the return of the buyers deposit
in the event the Company is unable to transfer title on a fully
approved single family building lot. In addition, during
September 1996 the Company, through Capital, agreed to provide
the buyer of this lot with a Construction/Permanent mortgage
loan to construct a single family residence. The Company closed
title to this lot during February 1997 and construction commenced
utilizing the services of an affiliate of the Company to act as
General Contractor. The affiliate company is majority owned by a
director of the Company. The construction of the house was
completed in July 1997.
In October 1996, the Company received approval of and
accepted a commitment issued by a commercial bank for a
construction mortgage financing line of credit in the amount of
$550,000. In December 1996, the Company closed on the
construction mortgage financing line of credit in the amount of
$550,000. The loan provides a letter of credit in the amount of
$111,583 which the Company assigned and deposited in escrow with
municipal authorities during January 1997 to guarantee Franklin
Township adequate funds to complete the balance of required site
improvements on the Property if the Company fails to complete the
required improvements. The mortgage loan further provided
$430,417 which was used to refinance the mortgage loan which was
on the property, funds to complete the balance of required site
improvements and provided an interest reserve. The loan was due
one year from the closing date, however, the bank at the request
of the Company had extended the term through July 1998. The
letter of credit was extended for two additional one year periods
first to December 1998 and then to December 1999. During the
fourth quarter 1998, the Company requested that the municipal
authorities reduce the amount of the letter of credit because
most of the improvements to the property had been completed by
the Company. During March 1999, the Company received a
resolution executed by municipal authorities granting the
Company's request to reduce the letter of credit to $39,000.
The mortgage loan had been secured by the personal guarantees of
the Company's President and Executive Vice President.
In February, March and June 1997, the Company transferred
title to and received payment in full on 3 unimproved building
lots to 3 non-affiliates of the Company in the amount of $97,500,
$110,000 and $110,000 respectively. Proceeds from these sales
were used to pay down mortgage debt owed to a commercial bank and
the balance provided working capital to the Company. On the
first two of three lots sold, the Company arranged construction
financing through Capital and construction management through an
affiliate of the Company. The homes were completed by July of
1997.
In January 1998, the Company executed a contract of sale for
an additional lot in the amount of $110,000 and received $11,000
as a deposit. In April 1998, the Company received an additional
deposit of $70,000 bringing the total deposit to $81,000. In
October 1998, the Company received the balance of the purchase
price and transferred title to this lot to the purchaser. The
Company arranged construction financing through Capital, however,
construction management is through a non-affiliate of the
Company.
In June 1998, the Company completed the private sale of
230,000 shares of its Common Stock at $3.00 per share to a small
number of institutional and other accredited investors. These
investors were granted certain "piggy back" registration rights
with respect to the shares sold in the offering.
On July 1, 1998 holders of the Company's Series A, 5%
Cumulative Convertible Preferred Stock converted all 68,750
shares of the Preferred Stock outstanding into 137,500 shares of
no par value Common Stock. Accordingly the Company paid the last
semi-annual dividend to the holders of the preferred shares on
that date.
In July 1998, the Company executed a contract of sale for a
building lot in the amount of $120,000 and received $12,000 as an
initial deposit. The Company closed on the sale and transferred
title to the purchaser of this lot during September 1998.
As of March 15, 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. 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.
SEASONALITY
The mortgage banking industry and the sale of new homes and
building lots is generally subject to seasonal trends which
reflect the pattern of new home construction and resales of
existing homes. These sales typically peak during the spring and
summer seasons and decline to lower levels in the late fall and
winter seasons.
COMPETITION
The market for mortgage based financing is highly
competitive. The Company competes with numerous entities,
primarily savings institutions, commercial banks, insurance
companies and other mortgage bankers, many of which have more
experience in mortgage based loans and have substantially
greater financial and other resources than the Company.
Competitive factors include the ability to offer competitive
interest rates, various types of loan programs and services
provided. With respect to its real estate activities, generally,
and the development and sale of Murray Hill property,
specifically, the Company competes with other real estate
developments and sellers of individual homes.
GOVERNMENT REGULATION AND ENVIRONMENTAL LAWS
The Company's mortgage origination activities are subject to
a variety of Federal regulations, including but not limited to,
the Equal Credit Opportunity Act, Federal Truth-In-Lending Act
and the Real Estate Settlement Procedures Act and the regulations
promulgated thereunder which prohibit discrimination and require
the disclosure of certain basic information to applicants
concerning credit terms and settlement costs. Additionally,
pursuant to the regulations adopted by the State of New Jersey,
the State has the right to conduct financial and regulatory
audits of loans under its jurisdiction and to determine
compliance with state disclosure requirements and usury laws. If
the Company decides to expand its operations into other states,
it is anticipated that it will have to obtain the necessary
permits and/or licenses before it can commence operations in such
states. There can be no assurance that the Company will be able
to obtain such permits and/or licenses in any additional state
which the Company may plan to operate.
With respect to its real estate development activities,
the Company is responsible for Development's compliance with
Federal, State and local regulations concerning protection of
the environment, including but not limited to, the New Jersey
Fresh Water and Wetlands Act, soil erosion, sedimentation and
storm water management controls, various stream encroachment
regulations and local health department and zoning regulations.
The Company believes it has complied with all necessary material
regulations pertaining to its material real estate development
activities.
Amendments to existing regulations and statutes, changes in
regulatory policies, adoption of new statutes and regulations
applicable to the Company and the Company's need to comply with
additional regulations should the Company expand into other
jurisdictions could materially adversely affect the Company's
business in the future.
EMPLOYEES
As of March 15, 1999, the Company had 17 employees,
of whom 3 were executives, 8 were employed in the processing of
mortgage loans and other clerical positions and 6 were loan
officers. None of the Company's employees are covered by
collective bargaining agreements and the Company believes that
its relations with its employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices occupy approximately 700
square feet of a total area of approximately 2,800 square feet of
office space it shares with Capital that is located in
Bernardsville, New Jersey. The 2,800 sq. ft. office is leased
from an unaffiliated third party pursuant to a lease which
expires in March 2001. The lease provides for a monthly rental
of $5,017, $5,250 and $5,484 through March 2000, 2001 and 2002
respectively.
As described in ITEM 1, "Business - American Asset
Development Corporation", as of March 15, 1999, the Company
owns 4 unimproved building lots within a subdivision consisting
of approximately 20 acres of land in Franklin Township,
Hunterdon County, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
In March 1993, an action was commenced against the Company,
its President, Richard G. Gagliardi, and the brokerage firms of
G. K. Scott & Co., Inc. and L. C. Wegard & Co., Inc. in the
Supreme Court of the State of New York, Queens County, by two
individuals who invested a total of $250,000 in the Company's
1989 private offering of Common Stock (the "1989 Offering"). The
plaintiffs alleged that, in connection with their investments in
the 1989 Offering, certain of the defendants misrepresented or
failed to disclose certain material facts concerning the Company
and the 1989 Offering. The plaintiffs are seeking damages
against the parties, including compensatory damages of $1,000,000
and punitive damages of $5,000,000. The Company and its
President subsequently moved to dismiss the complaint, and, by
Order dated January 10, 1994, the Court dismissed with prejudice
the motion filed by the Company and Mr. Gagliardi and dismissed
with prejudice the claims of unjust enrichment and conversion
contained in the complaint and dismissed the plaintiffs' breach
of contract claims with leave to amend. On February 25, 1994,
plaintiffs filed an amended complaint containing allegations
similar to the original breach of contract allegations, which the
Company again moved to dismiss. In August 1994, the Court
reaffirmed its dismissal of the unjust enrichment and conversion
claims but allowed the breach of contract and fraud claims to
proceed. The Company believes that the claims are totally
without merit and intends to continue to vigorously defend the
action.
In August, 1996, the Company and its President and Executive
Vice President were named in a National Association of Securities
Dealers (NASD) complaint by two individuals who allegedly lost
money by investing in shares of the Company's 1989 offering of
Common Stock. The case was decided during March 1999 and the
decision by the NASD's arbitration panel dismissed without
prejudice all claims against the Company and denied all claims
against the Company's President and Executive Vice President in
their entirety.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its
security holders during the fourth quarter of the year ended
December 31, 1998.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In January 1999, the Company extended the expiration date
of the Company's Class B and Class C Common Stock Purchase
Warrants from January 29, 1999 until January 29, 2000.
The Directors of the Company authorized the issuance of an
aggregate of 1,696 shares of Common Stock as payment in lieu of
cash to the members of the board of directors for attending board
meetings for the year ended December 31, 1998. During the fourth
quarter 1998 the Board of Directors approved the resumption of
cash payments to be made for attendance of directors meetings for
1999.
During the year ended December 31, 1998, the Company issued
warrants to purchase 30,000 shares of Common Stock at $4.00 per
share to a consultant for public relations service. These
warrants expire in May 2001.
The issuances of these shares of Common Stock and warrants
described above were made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of
1933.
MARKET INFORMATION
The Company's Common Stock is traded in the over-the-counter
market and since December 8, 1994, has been quoted on the OTC
Bulletin Board of the NASD under the symbol "AAMC".
The following table sets forth, for the periods indicated,
the range of the high and low bid prices for the Company's Common
Stock as reported by the OTC Bulletin Board. OTC Bulletin Board
prices reflect inter-dealer quotations, which do not reflect
mark-ups, mark-downs or commissions and may not represent actual
transactions.
1998 PRICES FOR THE QUARTER ENDED
March 31 June 30 Sept. 30 Dec. 31
High Low High Low High Low High Low
Common
Stock 5.00 3.00 7.75 4.75 5.25 2.75 3.00 2.00
1997 PRICES FOR THE QUARTER ENDED
March 31 June 30 Sept. 30 Dec. 31
High Low High Low High Low High Low
Common
Stock 4.50 1.25 3.50 2.50 3.50 2.50 3.75 2.50
HOLDERS
The number of record holders of the Company's Common Stock
was approximately 125 as of March 15, 1999. The Company believes
that, in addition, there are in excess of 300 beneficial owners
of its Common Stock whose shares are held in "street name".
DIVIDENDS
To date, the Company has not paid any cash dividends on its
Common Stock. The payment of dividends, if any, in the future is
within the discretion of the Board of Directors and will depend
upon the Company's earnings and will also be subject to the
rights of any holders of stock, such as Preferred Stock, having
preference of payment of dividends over holders of Common Stock.
The Company's Board does not intend to declare any dividends on
the Common Stock in the foreseeable future, but instead intends
to retain all earnings, if any, for use in the Company's business
operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1997
Total revenues for the year ended December 31, 1998 were
$2,342,983 compared to $2,400,727 for the year ended December 31,
1997, a decrease of $57,744 or 2.4%. The decrease is primarily
attributable to a decrease in revenues generated from land sales
made by Development of $150,500 from $505,500 to $355,000 and a
decrease in mortgage interest income of $122,974 from $303,946 to
$180,972, which was partially offset by an increase in mortgage
origination fee income of $193,875 from $1,358,621 to $1,552,496.
The increase in mortgage related revenues was the result of an
increased amount of mortgage closings during the year that
resulted from the Company's continuing efforts to establish
outside sources of mortgage loan applications, increase its
profit margins on origination fees while maintaining
competitiveness in the marketplace and controlling expenses of
its mortgage banking business. The decrease in mortgage interest
income was a direct result of the reduction in residential new
construction loans due to the increased costs of warehouse
borrowing to support such loans. For the year ended December 31,
1998, Capital closed 460 residential mortgage loans in the
principal amount of approximately $97,265,964 compared to
447 loans in the principal amount of approximately $80,462,896 in
the prior year, an increase in number of 13, or approximately
2.9%, and an increase in amount of $16,803,068 or approximately
20.8%. At December 31, 1998, the Company had approximately 77
mortgage loan applications in process in the amount of
approximately $17,355,469 compared to approximately 78 mortgage
loan applications in process in the approximate amount of
$15,714,607 at December 31, 1997, a decrease in number of
approximately 1.4% and an increase in dollar amount of
approximately $1,640,862 or 10.4%. The increase in the dollar
amount of loan closings for the year ended December 31, 1998,
while maintaining approximately the same number of loans closed,
was due to generally higher real estate values and a higher
average loan size, in the area in which the Company serves as
compared to the prior year.
Total operating expenses for the year ended December 31,
1998 were $2,276,883, a decrease of $119,398 or 4.9% from the
$2,396,281 incurred in the prior year. The decrease in operating
expenses was the result of a $110,146 decrease, or approximately
20%, in land development costs from $553,083 in the prior year to
$442,937 in the current period, a decrease in interest expense of
$122,908, or approximately 45.2%, to $148,640 from $271,548 in
the prior year and no loss from the sale of mortgages for the
year ended December 31, 1998 compared to a $23,000 loss in the
prior year. The decrease in operating expenses was partially
offset by an increase of $10,240 or approximately 2%, in employee
compensation and benefits to $526,130 from $515,890 in the prior
year, increases in commissions of $37,497 or approximately 6.1%,
to $647,654 compared to $610,157 in the prior year and increases
in other expenses of $88,920 or 21% , to $511,523 from $422,603
in the prior year. Expressed as a percentage of revenues,
operating expenses decreased to approximately 97.2% in 1998 from
99.8% in 1997, reflecting expenses decreasing at a greater rate
than the decrease in revenues.
Due to the foregoing, the Company incurred income from
operations of $66,100, prior to Preferred Stock dividends of
$17,967 resulting in net income available for common shareholders
of $48,133 or $0.04 earnings per share basic and $0.04 earnings
per share diluted, for the year ended December 31, 1998. Net
income for 1997 was $5,666, prior to Preferred Stock dividends of
$30,909 resulting in a net loss available to common shareholders
of $25,243 or $0.03 loss per share in the prior year. There was
no other income in 1998 compared to $1,220 in 1997.
The Company had a deferred tax asset of $992,000 at December
31, 1998, arising from net operating loss ("NOL") carry forwards
of approximately $2,254,000. The NOL carryforwards expire
between 2001 and 2011. A valuation allowance has been recorded
in the amount of $992,000 at December 31, 1998, due to the
uncertainty of future utilization of the Company's NOL carry
forwards.
No provision for income taxes was made in 1998 and 1997 due
to the utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Throughout 1998 the Company continued to take actions that
are intended to improve operating results. Such actions
included, but were not limited to, adding new originators of
mortgage loans to its sales staff and seeking additional outside
sources of mortgage loans. During the fourth quarter of 1998,
the Company sold sufficient building lots to pay in full the
mortgage on its real estate subdivision and applied for an
additional warehouse credit line through a major financial
institution at more favorable terms than the Company's present
mortgage warehouse lender. During March 1999, the Company
received a $5,000,000 warehouse loan commitment from the
institution and is in the process of evaluating the terms of the
commitment to determine if it will accept the commitment. There
is no assurance that the Company will eventually accept the
warehouse credit line and that it will prove, if accepted,
beneficial to the Company.
The Company's capital resources during the year ended
December 31, 1998, have primarily been derived from the sale of
Common Stock, revenues generated by its mortgage banking
operations, and to a lesser extent land sales. The Company's
cash position improved in 1998 primarily as a result of the
private sale of 230,000 shares of Common Stock at $3.00 per
share, and to a lesser extent the result of operations and the
mid-year elimination of further dividend expense by the
conversion of 68,750 shares of 5% non-voting Series A Cumulative
Convertible Preferred Stock to Common Stock. On December 31,
1998 the Company had working capital of $919,865 compared to a
working capital deficit of $310,128 on December 31, 1997.
As of December 31, 1998, the Company had cash and cash
equivalents of $608,085 compared to $236,103 at December 31,
1997, an increase of $371,982, or approximately 257%. The
increase was primarily attributable to net cash provided by
financing activities of $405,287, offset by net cash used in
operating activities of $34,743 and net cash provided by
investing activities of $1,438. Net cash used in operating
activities was the result of utilization of lot deposits of
$75,000, the decrease of warehouse finance facilities of $522,804
and cash used for accounts payable and accrued expenses of
$43,180 and prepaid expenses and other assets of $18,642. This
was offset by cash provided by operating activities by the net
income of $66,100, depreciation and amortization of $6,634, the
allocation of land and development costs to lots sold of
$436,180, a decrease in mortgage loans held for sale of $171,991
and an increase in deferred income of $49,690. Net cash
was provided by investing activities for the purchase of fixed
assets of $6,662, a collection of commission advances of $4,600
and proceeds from notes receivable of $3,500.
Cash provided by financing activities was derived from the
proceeds received from issuance of Common Stock of $690,000.
This was offset in part by the principal payments of the mortgage
payable of $163,790, payments for loans payable of $86,553 and
payments of Preferred Stock dividends of $34,370.
At December 31, 1998, the Company had commenced construction
of a single family home on one of the four unimproved building
lots owned by the Company contained in it's Hunterdon County
subdivision, which when completed will be offered for sale. As
of December 31, 1998, the Company has approximately $4,000
invested in the home, excluding land and development costs and
approximately $89,000 as of March 15, 1999.
During the third quarter of 1998 the Company commenced
conducting an internal review of its software system as part of
its efforts to address the issue of being Year 2000 ("Y2K")
compliant. Many existing computer software programs use only two
digits to identify the year in date fields and, as such, could
fail or create erroneous results by or at the year 2000. The
Company utilizes a number of software systems to process mortgage
loans, close mortgage loans and manage its mortgage assets. In
addition, the Company uses software systems for accounting,
marketing and communications. The Company has made and will
continue to make investments in its software systems to become
Y2K compliant. As a result of its internal review, the Company
has identified certain areas of its computer systems that need to
be upgraded for Y2K compliance and estimates the associated cost
to upgrade will be approximately $25,000. The Company
anticipates making the necessary upgrades to its systems during
the second quarter of 1999 and complete the testing thereof by
the end of 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 is also contacting all of its software suppliers
to determine the areas of exposure to Y2K issues. Moreover, the
Company is contacting the vendors and institutions it utilizes in
various capacities to determine whether they are taking the
necessary steps to also become Y2K compliant.
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 existing
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.
In the event the Company's plans change, its assumptions
change or prove to be inaccurate due to unanticipated expenses,
delays, problems or otherwise, the Company could be required to
seek additional financing beyond the amounts management currently
estimates is needed to meet its capital requirements.
ITEM 7. FINANCIAL STATEMENTS
This information appears in a separate section of this
report following Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
The Company's executive officers and directors are as follows:
POSITION WITH
NAME AGE THE COMPANY
Richard G. Gagliardi 52 Chairman of the Board,
President and Chief
Executive Officer
Lynn K. Gagliardi 41 Executive Vice President,
Secretary and Director
Bernard Gitlow 72 Director
Theodore P. Rica, Jr. 37 Director
RICHARD G. GAGLIARDI has been Chairman, President and Chief
Executive Officer of the Company since its inception on July 1,
1988. Mr. Gagliardi was employed as a Registered Representative
at the investment banking firm of L. C. Wegard & Co., Inc.
("Wegard") from October 1989 to September 1991, and served as a
Vice President of Wegard from October 1989 to July 1991.
LYNN K. GAGLIARDI has been Secretary and a director of the
Company since its inception and Executive Vice President from
July 1992. From October 1989 to June 1991, Ms. Gagliardi served
as Assistant Operations Manager and a Registered Representative
of Wegard. Lynn K. Gagliardi is the wife of Richard G.
Gagliardi.
BERNARD GITLOW has been a director of the Company since June
1993. He has been Executive Vice President of Victor Kramer,
Co., Inc. a consulting company in the laundry and linen supply
industry since August 1990. Since January 1988, Mr. Gitlow has
also served as a consultant to the linen supply, laundry and dry
cleaning industry.
THEODORE P. RICA, JR. has been a director of the Company
since August 1995. He has been employed by Pitney Bowes since
1984 as a salesman of office equipment and has also been self
employed as a builder of single family homes in New Jersey since
September 1985.
Directors are elected to serve until the next annual meeting
of shareholders or until their respective successors are elected
and qualified.
The executive officers of the Company are elected by the
Company's Board of Directors. Each executive officer will hold
office until his successor is duly elected and qualified, until
his resignation or until he shall be removed in the manner
provided by in the Company's By-Laws.
KEY EMPLOYEE
ANGELO PENNISI, 40, was employed by Capital from March 1996
through August 1996 as a Vice President and Sales Manager. In
August 1996, he was promoted to Senior Vice President of Capital
where he currently is in charge of secondary marketing, which
includes the selling of mortgages to investors in order to
maximize the Company's earnings potential and oversees the
pricing of mortgage loans and mortgage product lines. He was
Vice President Sales and Marketing for Sterling National Mortgage
Co., Inc. from August 1994 to February 1996 and Regional Manager
and Vice President for Meridian Mortgage Corporation from July
1987 to August 1994.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth for the periods presented the
compensation paid by the Company and its subsidiaries for
services rendered during the fiscal year ended December 31, 1998
to the Company's Chief Executive Officer (the "named executive").
No other executive officer of the Company received an annual
salary, bonus or other compensation in excess of $100,000 for the
fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Principal Other Annual
Position Year Salary Compensation
Richard G. Gagliardi 1998 $100,000 $ 9,431(1)
Chairman of the Board, 1997 92,500 6,900(1)
President and Chief 1996 90,000 6,900(1)
Executive Officer
(1) Represents the approximate reimbursement cost of an
automobile leased and insured by Mr. Gagliardi for business
purposes. Also includes a 2% contribution, aggregating $1,230.78,
in the Simple IRA retirement plan established in June 1998, by
Capital for all employees. See "Compensation of Directors" for a
description of certain shares of Common Stock received by Mr.
Gagliardi in his capacity as a director of the Company.
No options or stock appreciation rights were granted to or
exercised by the named executive during the fiscal year ended
December 31, 1998. In addition, the named executive did not own
any options to purchase Common Stock of the Company or stock
appreciation rights as of December 31, 1998.
COMPENSATION OF DIRECTORS
In October 1996, the board of directors agreed to forego
receiving cash compensation and to receive Common Stock of the
Company in lieu of cash for attendance at the Company's future
Board of Directors and Stockholders meetings. During the fiscal
years ended December 31, 1996 and December 31, 1997, an
aggregate of 8,753 shares of Common Stock and 2,921 shares of
Common Stock, respectively, was issued to the members of the
board of directors for attending board meetings. During 1998,
the board of directors fees for the fiscal year ended December
31, 1998 an aggregate of 1,646 shares of Common Stock accrued to
the members of the board of directors for attending board
meetings which was issued in 1999. Subsequently in December
1998, the board of directors agreed to return to cash
compensation for attendance at all future board of directors
meetings commencing on January 1, 1999. Pursuant to the
Company's 1992 Stock Option Plan (the "Plan"), directors are
eligible to receive non-qualified options, and in addition,
directors who are employees of the Company are also eligible to
receive incentive options.
STOCK OPTION PLAN
In July 1992, shareholders of the Company ratified the
adoption by the Board of Directors of the Plan. The Plan
authorizes the grant of incentive and non-qualified options to
purchase up to 100,000 shares of the Company's Common Stock and
is administered by the Board of Directors. Only employees of the
Company are eligible to receive incentive stock options pursuant
to the Plan. As of December 31, 1998, options to purchase 67,000
shares of the Company's Common Stock have been granted pursuant
to the Plan and options to purchase 33,000 shares of the
Company's Common Stock were available for grant under the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of
March 15, 1999 based on information obtained from the persons
named below, with respect to the beneficial ownership of shares
of Common Stock by (i) each person known by the Company to be the
beneficial owner of more than five percent of the outstanding
shares of Common Stock, (ii) the named executive, (iii) each of
the Company's directors and (iv) all directors and executive
officers as a group:
<PAGE>
AMOUNT AND NATURE PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP (2) SHARES OWNED
Richard G. Gagliardi(1) 503,490 (3)(7) 38.3%
Lynn K. Gagliardi 12,911 (4)(7) *
Theodore P. Rica, Jr. 23,478 (5)(7) 1.8%
Bernard Gitlow 9,177 (6)(7) *
Nathan Low 179,000 (1)(8) 13.3%
Sunrise Foundation Trust 68,000 (1)(9) 5.2%
Brian Gonnelli 68,000 (1) 5.2%
All directors and executive
officers as a group (four persons) 547,360 (5)(6)(7) 41.6%
* less than 1%
- ---------------------------------
(1) The address of Mr. Gagliardi is 150 Morristown Road, Suite
108, Bernardsville, New Jersey 07924. The address of Mr. Low and
Sunrise Foundation Trust is 135 E. 57th Street, New York, NY
10022. The address of Mr. Gonnelli is 22 Kathryn Drive,
Whippany, NJ 07981.
(2) Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by
them.
(3) Does not include shares beneficially owned by Lynn K.
Gagliardi, Mr. Gagliardi's wife, as to which he disclaims
beneficial ownership.
(4) Does not include shares owned by Richard G. Gagliardi, Ms.
Gagliardi's husband, as to which she disclaims beneficial
ownership.
(5) Includes 20,000 shares of Common Stock which may be
purchased by Mr. Rica upon exercise of immediately exercisable
options.
(6) Includes 3,426 shares of Common Stock which may be purchased
by Mr. Gitlow upon exercise of immediately exercisable warrants.
(7) Includes 424 shares to be issued in lieu of cash compensation
for attendance at directors meetings.
(8) According to a joint Schedule 13D filed with the Securities
and Exchange Commission represents (i) 31,000 shares of Common
Stock owned by Mr. Low (ii) 30,000 shares of Common Stock
issuable upon the exercise of warrants owned by Mr. Low (iii)
68,000 shares of Common Stock owned by the Sunrise Foundation
Trust, of which Mr. Low is a trustee and (iv) 50,000 shares of
Common Stock owned by the Nathan Low Individual Retirement
Account f/b/o Low.
(9) According to a joint Schedule 13D filed with the Securities
and Exchange Commission these shares are also beneficially owned
by Nathan Low as reflected in footnote 8(iii) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1998, the Company had outstanding
borrowings aggregating $31,364 from various stockholders,
including but not limited to Alice E. Gagliardi, Mr. Gagliardi's
mother and Lynn K. Gagliardi an officer of the Company. The
loans bear interest at the rate of 12%. See Note 10 of notes to
the financial statements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENT
PAGE NO.
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements--
Consolidated Balance Sheets - December 31, 1998 and 1997 F-3
Consolidated Statements of Operations -
for the years ended December 31, 1998 and 1997 F-4
Consolidated Statement of Changes In Stockholders'
Equity - for the years ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows - for the years
ended December 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-19
(b) CURRENT REPORTS ON FORM 8-K
On December 4, 1998 the Company filed on Form 8-K under
Item 4, to report the dismissal on November 30, 1998 of it's
principal independent auditor, R. D. Hunter & Company, LLP. On
December 10, 1998 an amended Form 8-K was filed under Items 4 &
7. Subsequently 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.
(c) EXHIBITS
*3.1(a) Certificate of Incorporation as Amended
***3.1(b) Amendment to Certificate of Incorporation filed
February 1995
*3.2 By-Laws
*4.3 Form of Warrant Agreement between the Company and
Continental Stock Transfer and Trust Company, as
Warrant Agent
**10.5 1992 Stock Option Plan
10.6 Lease agreement for Capital Financial Corp. -
Bernardsville, NJ
21 Subsidiaries of the Company
27 Financial Data Schedule - For SEC Use Only
_________________________
* Incorporated by reference to the corresponding exhibits in
the Company's Registration Statement of Form S-1 (SEC File
No. 33-34145).
** Incorporated by reference to the corresponding exhibit in the
Company's Form 10-KSB for the year ended December 31, 1992.
*** Incorporated by reference to the corresponding exhibit in the
Company's Form 10-KSB for the year ended December 31, 1994.
<PAGE>
<AUDIT-REPORT> REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of
American Asset Management Corporation and Subsidiaries as of
December 31, 1998 and the related consolidated statements of
operations, stockholders' equity, 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. The
consolidated financial statements of American Asset Management
Corporation and Subsidiaries for the year ended December 31, 1997
were audited by other auditors whose report dated March 27, 1998,
expressed an unqualified opinion on those statements.
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 1998 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of American Asset Management Corporation and
Subsidiaries as of December 31, 1998 and the consolidated results
of their operations and their consolidated cash flows for the
year then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, NY
February 9, 1999, except for Note 13, as
to which the date is March 18, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of
American Asset Management Corporation and Subsidiaries as of
December 31, 1997 and the related consolidated statement of
operations, changes in stockholders' equity, 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of American Asset Management Corporation and
Subsidiaries as of December 31, 1997 and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements,
the Company is involved in litigation relating to the Company's
1989 private offering of Common Stock. The outcome of the
litigation cannot presently be determined. Accordingly, no
provision for any liability that may result upon adjudication has
been made in the accompanying consolidated financial statements.
Paramus, New Jersey RD Hunter & Company LLP
March 27, 1998 Certified Public Accountants
<PAGE>
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
Years Ended December 31, 1998 and 1997
ASSETS: 1998 1997
CURRENT ASSETS:
Cash & cash equivalents (Note 1) $ 608,085 $ 236,103
Mortgage loans held for sale
(Notes 1, 2 & 5) 1,755,009 1,927,000
Notes receivable (Notes 1 & 9) 62,822 66,322
Prepaid expenses &
other current assets 86,948 72,907
--------- ---------
Total current assets 2,512,864 2,302,332
Land and development costs
(Notes 1, 4 & 6) 573,515 1,041,803
PROPERTY AND EQUIPMENT, net of accumulated
depreciation & amortization (Notes 1 & 3) 8,251 8,223
--------- ---------
$3,094,630 $3,352,358
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Warehouse finance facility (Notes 2&5) 1,363,236 $1,886,040
Deferred income (Note 1) 55,860 6,170
Loans payable (Note 9) 31,364 281,707
Accounts payable, accrued expenses &
other current liabilities 142,539 433,943
--------- ---------
Total current liabilities 1,592,999 2,607,860
COMMITMENTS AND CONTINGENCIES (Notes 1, 5 & 10)
STOCKHOLDERS' EQUITY (Notes 1 & 8)
Preferred stock no par value;
68,750 shares 5% Non-voting
Series A Cumulative Convertible
aggregate liquidation value 687,500
Common stock, no par value;
10 mil. shares authorized;
issued & outstanding: 1,315,293
shares in 1998 and 936,119
shares in 1997 3,845,825 2,449,325
Additional paid-in capital 231,207 231,207
Accumulated deficit (2,575,401) (2,623,534)
--------- ---------
Total stockholders' equity 1,501,631 744,498
TOTAL: $3,094,630 $3,352,358
========= =========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1998 and 1997
1998 1997
REVENUES:
Mortgage origination fees (Note 1) $1,552,496 $1,358,621
Land sales (Note 4) 355,000 505,500
Application & commitment fees (Note 1) 254,515 232,660
Mortgage interest income 180,972 303,946
--------- ---------
Total revenues 2,342,983 2,400,727
--------- ---------
EXPENSES:
Employee compensation & benefits 526,130 515,890
Commissions 647,654 610,157
Other expenses 511,523 416,350
Land development costs (Note 4) 442,937 553 083
Interest expense 148,640 277,801
Loss from sale of mortgage -0- 23,000
--------- ---------
Total expenses 2,276,883 2,396,281
--------- ---------
Income from operations 66,100 4,446
Other Income -0- 1,220
--------- ---------
Income before provision
for income taxes 66,100 5,666
Provision for income taxes (Notes 1 & 7) -0- -0-
-------- ---------
Net income 66,100 5,666
Dividends on Preferred Stock 17,967 30,909
-------- ---------
Income (loss) available
for common stockholders $ 48,133 $ (25,243)
======== =========
Earnings (loss) per common share (Note 1)
Basic $ .04 $ (.03)
======== =========
Diluted $ .04
========
Weighted average number of shares of
Common stock outstanding (Note 1)
Basic 1,131,563 936,119
========= ========
Diluted 1,176,286
=========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
COMMON STOCK PREF'D STOCK ADDTN'L
---------------- --------------- PAID-IN $ ACCUM'D
SHARES $AMOUNT SHARES $AMOUNT CAPITAL DEFICIT $TOTAL
------ ------- ------ ------- ------- --------- -------
Balance, January 1, 1997:
936,119 $2,449,325 56,500 $565,000 $231,207 $(2,598,291) $647,241
Issuance of Preferred Stock
-- -- 12,250 122,500 -- -- 122,500
Preferred Stock dividends:
-- -- -- -- -- (30,909) (30,909)
Net income for year ended 1997:
-- -- -- -- -- 5,666 5,666
- ------- -------- ------ ------ ------ ------- -------
BALANCE, December 31, 1997:
936,119 2,449,325 68,750 687,500 231,207 (2,623,534) 744,498
Conversion of Preferred Stock
for Common Stock (Note 8):
137,500 687,500 (68,750)(687,500) -- -- --
Issuance of Common Stock as a result
of a private placement (Note 8):
230,000 690,000 -- 690,000
Issuance of Common Stock in lieu
of cash for directors' fees (Note 8):
11,674 19,000 -- -- -- -- 19,000
Preferred stock dividends:
-- -- -- -- -- (17,967) (17,967)
Net income:
-- -- -- -- -- 66,100 66,100
- ------- ------- ------ ------- ------- --------- ---------
BALANCE, December 31, 1998:
1,315,293 3,845,825 -0- -0- $231,207 $(2,575,401)$1,501,631
========= ========= ==== ===== ======= ========== =========
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 66,100 $ 5,666
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Depreciation & amortization 6,634 9,222
Reserve for bad debts -0- (3,283)
Allowance for net realizable value -0- (158,000)
Discount on sale of mortgage -0- 23,000
CHANGES IN ASSETS & LIABILITIES:
(INCREASE)DECREASE IN:
Mortgage loans held for sale 171,991 (613,125)
Notes receivable -0- (37,667)
Prepaid expenses & other
current assets (18,642) (4,730)
Land & development costs 436,180 650,800
INCREASE (DECREASE) IN:
Warehouse finance facility (522,804) 575,912
Deferred income 49,690 (17,179)
Accounts payable & accrued expenses (148,892) (170,860)
Utilization of lot deposits (75,000) (16,000)
--------- ---------
Net cash (used in) provided by (34,743) 243,756
operating activities --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of commission advances 4,600 4,950
Purchases of fixed assets (6,662) (1,308)
Proceeds from notes receivable 3,500 -0-
-------- --------
Net cash provided by investing activities 1,438 3,642
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of mortgage payable (163,790) (265,448)
Proceeds from issuance of Common Stock 690,000 -0-
Proceeds from issuance of pref'd stock -0- 100,000
Payments for loans payable (86,553) (52,074)
Payments of Preferred Stock dividends (34,370) (14,506)
Net cash provided by -------- -------
(used in) financing activities 405,287 (232,028)
--------- ---------
Net increase in cash & cash equivalents 371,982 15,370
Cash and cash equivalents, 236,103 220,733
at beginning of year --------- ---------
CASH & CASH EQUIVALENTS, END OF YEAR $ 608,085 $ 236,103
SUPPLEMENTAL NON-CASH INVESTING ========= =========
& FINANCING ACTIVITIES:
Reduction in land & development $ 32,108
costs accrued at December 31, 1997 =========
Issuance of Common Stock in lieu $ 19,000
of cash for directors' fees =========
Cash paid during the year for interest $ 148,640 $243,323
========= ========
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
American Asset Management Corporation (the "Company") through its
two wholly owned subsidiaries, Capital Financial Corp. ("CFC")
and American Asset Development Corporation ("AADC"), is engaged
in originating and selling loans secured primarily by first
mortgages on one-to-four family residential properties (CFC) and
real estate financing and development (AADC). The Company's
mortgage banking subsidiary is a licensed mortgage banker in the
State of New Jersey. The real estate project involves a parcel
of land being developed for subdivision and sale in Hunterdon
County, New Jersey.
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
B. GEOGRAPHIC AND CUSTOMER CONCENTRATION, SIGNIFICANT RISKS AND
USE OF ESTIMATES
The Company's mortgage banking activities are primarily
concentrated in the New Jersey market.
During 1998, the Company's origination revenues were derived from
loan sales to various investors. Three of the investors
comprised revenue percentages of 39.7%, 17.8% and 15.6%. The
remaining sixteen investors purchased less than 10% each of the
loans.
During 1997, the Company's origination revenues were derived from
loan sales to various investors. Four of the investors comprised
revenue percentages of 43.2%, 15.9% 6.5% and 4%.
The Company receives all of its funds for mortgage banking
activities from one mortgage warehouse lender (see Note 5).
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions in determining the reported amounts of assets and
liabilities and disclosures 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.
F-7
<PAGE>
C. FIXED ASSETS AND DEPRECIATION AND AMORTIZATION
Fixed assets are stated at cost. Depreciation and amortization
are computed by using the straight-line method over the estimated
useful lives of three years for computer equipment and leasehold
improvements and five years for furniture and equipment, for both
financial reporting and income tax purposes.
D. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are reported at the lower of cost or
market value which approximates fair value (see Note 2).
Management establishes a reserve allowance when needed, for
potential losses on a loan-by-loan basis. No reserve was
required for the mortgages held for sale at December 31, 1998 and
1997.
E. REVENUE RECOGNITION
GAIN ON SALE
The gain or loss on sales of mortgage loans to investors is
recognized upon purchase of the loan by the investor. In June
1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125 "Accounting For
Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("SFAS No. 125"), which was effective for
transactions occurring after December 31, 1996. SFAS No. 125
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities.
This statement also provides standards for distinguishing
transfers of financial assets that are sales from transfers that
are secured borrowings. The adoption of SFAS No. 125 on January
1, 1997 did not have a material effect on the Company's financial
statements.
ORIGINATION FEES
The Company accounts for origination fee income on mortgages held
for sale in conformity with Statement of Financial Accounting
Standards No. 91. This statement requires that origination fees
be offset by their direct loan costs and the net deferred income
is recognized over the life of the loan.
F-8
<PAGE>
APPLICATION FEES
The Company's application fees for processing mortgage
applications and commitment fees for committing to fund a loan
are recorded in the statement of operations upon receipt.
F. INCOME TAXES
The Company files its Federal income tax return on a consolidated
basis and its state income tax returns on an entity basis.
Deferred income tax assets and liabilities are computed for
differences between financial statement and tax bases of assets
and liabilities that will result in future taxable and deductible
amounts, based on enacted tax laws and rates to periods in which
the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred
tax assets to the amounts expected to be realized.
G. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be
cash equivalents. The Company invests its cash in high-quality
financial institutions, which at times may be in excess of
Federal Deposit Insurance Corporation insurance limits. The
Company has not incurred any losses in such accounts and believes
it is not exposed to any significant credit risk on cash.
H. EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average
number of common shares outstanding. In March 1997, the
Financial Accounting Standards Board issued Statement No. 128
("SFAS No. 128"), "Earnings Per Share", which requires dual
presentation of the basic and diluted earnings per share on the
face of the statements of operations. Basic earnings per share
excludes dilution and is computed by dividing income available
to common stockholders less Preferred Stock dividends by the
weighted number of common shares outstanding. Diluted
F-9
<PAGE>
earnings per share for 1998 reflects the dilution that would
occur if the 67,000 employee stock options were to be exercised
or otherwise resulted in the issuance of Common Stock that then
shared in the earnings of the Company less 22,277 shares which
would be available to be purchased from the proceeds from the
exercise. The 1997 diluted earnings per share are not presented
because the effect of exercising options would be antidilutive.
The Company adopted SFAS No. 128 for the year ended December 31,
1997.
I. RESERVE FOR BAD DEBTS
A reserve for bad debts has been provided for on all commission
advances and notes receivable turned over for collection. The
reserve was $13,531 and $21,100 at December 31, 1998 and 1997
respectively.
J. RECLASSIFICATION
Certain assets, liabilities, revenues and expenses for 1997 have
been reclassified to conform to the 1998 presentation.
K. ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131")
which establishes standards for the way public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures for products and services,
geographic areas, and major customers. The Company has adopted
SFAS 131 effective January 1, 1998 and, as required, the
financial statement disclosures for 1997 are restated to reflect
this adoption. The adoption of SFAS 131 will have no impact on
the Company's consolidated results of operations, financial
position or cash flows.
F-10
<PAGE>
NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments as of December 31, 1998 is made by the Company using
available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimated fair
value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize
in a current market exchange. The use of different market
assumptions and/or methodologies may have a material effect on
the estimated fair value amounts. The amounts listed below as of
December 31, 1998 are in thousands.
Carrying Estimated
Amount Fair Value
-------- ----------
Assets
Mortgage loans held for sale $1,148 $1,157
Liabilities
Warehouse finance facility 1,363 1,363
The fair value estimates as of December 31, 1998 are based on
pertinent information available to management as of December 31,
1998. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of
these financial statements since those dates and, therefore,
current estimate of fair value may differ significantly from the
amounts presented herein. The following describes the methods
and assumptions used by the Company in estimating fair values:
Mortgage loans held for sale - Fair value is estimated
using the quoted market prices from investors and
commitments to purchase loans on a non-servicing basis.
Warehouse finance facility - Rates currently available to
the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing
debt.
F-11
<PAGE>
NOTE 3 - FIXED ASSETS
Fixed assets at December 31 consist of:
1998 1997
------- -------
Computer equipment $ 46,433 $ 46,433
Furniture and fixtures 19,291 19,291
Office equipment 44,075 37,413
Leasehold improvements 2,240 2,240
------- -------
112,039 105,377
Less, Accumulated depreciation
and amortization 103,788 97,154
------- -------
NET FIXED ASSETS $ 8,251 $ 8,223
======= =======
Depreciation and amortization expense was $6,634 and $9,222 for
the years ended December 31, 1998 and 1997 respectively.
NOTE 4 - LAND AND DEVELOPMENT COSTS
Land and development costs are comprised of an initial investment
in capitalized loans of $675,000 to acquire the land, issuance of
148,000 shares of Common Stock in 1992 with a fair market value
of $259,000 to acquire the minority interest and cumulative
development costs incurred of $635,535 through December 31,
1998. During 1998 and 1997, $442,937 and $553,083 of land and
development costs were charged to expense, respectively, for the
lots sold during the year. At December 31, 1998 and 1997, no
allowance for net realizable value was established as revenues
from the remaining land and development are anticipated to exceed
related costs.
During December 1998, AADC commenced construction of a single-
family home on one of the remaining four lots for available sale.
Management intends to construct homes on the remaining three lots
during 1999 to be sold to the public.
F-12
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
WAREHOUSE LINE OF CREDIT
On March 3, 1995, the Company entered into a warehouse line of
credit of $5,000,000 with a financial institution. At December
31, 1997 the commitment was reduced to $2,500,000 and
subsequently increased back to $5,000,000 effective August 3,
1998. Funds from this line of credit are used for short term
financing of mortgages held for sale and are secured by
residential mortgage loans. The investor repays the line of
credit at the time of the closing. As of December 31, 1998, six
loans aggregating $1,389,009 had yet to be delivered to investors
resulting in a warehouse loan payable of $1,363,236. As of
December 31, 1997, seven loans had yet to be delivered to
investors aggregating $1,927,000 resulting in a warehouse loan
payable of $1,886,040. Interest expense under this warehouse
line of credit was $148,640 and $271,548 for the years ended
December 31, 1998 and 1997, respectively.
OPERATING LEASES
The Company has entered into various operating lease agreements
for office space and office equipment. The leases expire
periodically through July 2002.
The future minimum rental commitments under noncancelable
operating leases are as follows:
Year Amount
1999 $19,413
2000 5,941
2001 5,941
2002 2,476
-------
$33,771
=======
Rental costs under operating leases included in other operating
expenses amounted to $63,816 and $60,929 for the years ended
December 31, 1998 and 1997, respectively.
F-13
<PAGE>
NOTE 6 - MORTGAGE PAYABLE
During December 1996, the company refinanced a site improvement
loan from a commercial bank, which was evidenced by a note and
collateralized by a mortgage creating a valid first lien on ten
of the Company's eleven land development lots. Interest was
charged at a rate equal to one and one-half percent (1.5%) per
annum above the Wall Street Journal prime rate. The principal
portion of the debt was to be paid down with the use of proceeds
obtained from the sale of the ten real estate lots. Interest was
to be paid from a $50,000 escrow account set up by the bank and
included in the principal balance. The balance due at December
31, 1997 was $163,790. The Company repaid the remaining
principal balance of the mortgage not payable during 1998 and
escrow balances were returned.
NOTE 7 - INCOME TAXES
The Company had current income tax expense of approximately
$26,000 and $2,000 for the year ended December 31, 1998 and 1997,
respectively, which has been offset by the utilization of net
operating loss carry forwards. Therefore, the Company's
effective income tax rate of 40% has been reduced to zero.
The Company had a deferred tax asset of $992,000 at December 31,
1998, arising from net operating loss ("NOL") carry forwards of
approximately $2,254,000. The NOL carryforwards expire
between 2001 and 2011. A valuation allowance has been recorded
in the amount of $992,000 at December 31, 1998, due to the
uncertainty of future utilization of the Company's NOL carry
forwards.
NOTE 8 - STOCKHOLDERS' EQUITY
Through a public offering in April 1991, the Company sold 150,878
units (unadjusted), each unit consisting of three shares of
Common Stock, one Class A Common Stock Purchase Warrant, one
Class B Common Stock Purchase Warrant and one Class C Common
Stock Purchase Warrant. Net proceeds of the offering were
$1,089,821. Each Class A Warrant entitled the holder to purchase
one share of Common Stock at an exercise price of $17.50
(adjusted) until January 29, 1994, when the unexercised warrants
expired. Each Class B Warrant entitles the holder to purchase
.20941 share (adjusted) of Common Stock at an exercise price of
$19.10 per whole share until January 29, 1999. Each Class C
Warrant entitles the holder to purchase .20977 share (adjusted)
of Common Stock at an exercise price of $21.45 per whole share
until January 29, 1999. (See Note 13.)
F-14
<PAGE>
As of December 31, 1996, the Company received stock subscriptions
to convert $565,000 of debt into 56,500 shares of 5% Non-voting
Series A Cumulative Convertible Preferred Stock. During 1997,
the Company received additional stock subscriptions of $122,500
for 12,250 shares of the Preferred Stock. Each preferred
share accrued $.50 in annual dividends, payable semi-annually
commencing July 1, 1997. Effective July 1, 1998, the preferred
stockholders converted 68,750 shares of Non-voting Series A
Cumulative Convertible Preferred Stock into 137,500 shares of
Common Stock of the Company.
The Company completed a private placement effective June 17, 1998
whereby the Company sold 230,000 shares of Company Common Stock
at $3.00 per share to one stockholder and their related entities
and received net proceeds of $690,000. Effective March 26, 1998,
the Company issued a warrant to purchase up to 30,000 shares of
the outstanding Common Stock of the Company at $4.00 per share in
consideration for certain research and public relations services
performed by the aforementioned stockholder. These warrants are
exercisable upon issuance and expire in March 2001.
The Company issued 8,753 and 2,921 shares of Common Stock during
1998 to satisfy an obligation for 1997 and 1996 for directors'
fees payable of $10,200 and $8,800, respectively.
NOTE 9 - RELATED PARTIES
A. Notes receivable includes a demand note from the Company's
former Chief Financial Officer. The note accrues interest at 8%
per annum and the outstanding principal balance was $20,446 and
$23,946 as of December 31, 1998 and 1997, respectively. An
allowance of $7,569 as of December 31, 1998 and 1997 has been
established for the amount deemed to be uncollectible.
F-15
<PAGE>
NOTE 9 (Continued)
B. Loans payable as of December 31, included the following
related party demand notes:
ANNUAL
INTEREST
RELATED PARTY 1998 1997 RATE
Stockholders $ 11,370 $ 84,214 12%
Chief Executive Officer 6,378 12%
Executive Vice President 19,994 27,325 12%
C. Included in accrued expenses as of December 31, 1997 are
salaries owed to the Chief Executive Officer and the Executive
Vice President for $30,231 and $24,256, respectively.
NOTE 10 - LITIGATION:
The Company is party to various proceedings arising out of the
ordinary course of its business including an arbitration with the
National Association of Securities Dealers (NASD) (See Note 13)
and a complaint filed in the State of New York. These proceedings
are seeking claims of $60,000 for the NASD arbitration and
$250,000 for the other matter, plus punitive damages. Management
believes that these actions, individually or in the aggregate,
will not have a material adverse effect on the results of
operations or the financial condition of the Company.
NOTE 11 - SUBSEQUENT EVENTS
a. Stock Options
The Company adopted a 1992 Stock Option Plan, effective November
22, 1992, whereby the Company may grant incentive and new
qualified options to eligible participants that vest upon grant
date. The plan provides for the issuance of options with terms
of not more than ten years. The plan includes a provision
whereby stock options granted by the Company may not exceed
100,000 shares of Common Stock. The plan shall terminate on May
22, 2002, unless terminated sooner; and no option shall be
granted after that date. The plan is administered by the Board
of Directors.
F-16
<PAGE>
NOTE 11 (Continued)
There were no options granted during 1998. A summary of the
stock option plan activity for the years ended December 31, 1998
and 1997 is presented below:
Options
shares at Options
price range shares
$1.25 - $1.50 at $3.75
------------- --------
Outstanding and exercisable
at January 1, 1997: 59,000 6,000
Granted 10,000 -
Exercised - -
Expired (6,000)
Forfeited - -
------------- --------
Outstanding and exercisable
at December 31, 1997 69,000 -
Granted - -
Exercised - -
Expired - -
Forfeited (2,000) -
------------- --------
Outstanding and exercisable
at December 31, 1998 67,000 -
============= ========
The fair value of each stock option granted is estimated on the
date of grant using the Black-Scholes option pricing model with
the following assumptions for grants in 1997 and 1998:
a dividend yield of 0%, a risk-free interest rate range of
4.95% - 6.27%, an expected life of three years, and a volatility
range from 1.46 - 3.09.
Options outstanding and exercisable as of December 31, 1997 are
summarized below:
Weighted-average
-----------------------
Remaining
Range of Number contractual Exercise
exercise prices Outstanding life price
--------------- ----------- ----------- --------
$1.25 - $1.50 69,000 1.45 $1.35
F-17
<PAGE>
NOTE 11 (Continued)
Options outstanding and exercisable as of December 31, 1998 are
summarized below:
Weighted-average
-----------------------
Remaining
Range of Number contractual Exercise
exercise prices Outstanding life price
--------------- ----------- ----------- --------
$1.25 - $1.50 67,000 .44 $1.35
The Company applies APB Opinion No. 25 and related
interpretations in accounting for the plan.
NOTE 12 - 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). The basis of accounting and
summary of accounting policies is described in Note 1 to the
financial statements. 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 are
described below:
1998 CFC AADC PARENT TOTAL
---------- -------- ---------- ----------
Revenues $1,807,011 $380,972 $ - $2,187,083
Interest income 180,972 - - 180,972
Interest expense 148,640 - - 148,640
Depreciation expense 6,634 - - 6,634
Segment profit(loss) 341,215 (94,822) (120,066) 66,100
Identifiable assets 3,569,021 652,066 1,326,894 5,547,981
Elimination of inter
company receivable (1,147,793) - (1,305,558) (2,453,351)
Net identifiable
assets $2,421,228 $652,066 $ 21,336 $3,094,630
========== ======== ========== ===========
F-18
<PAGE>
NOTE 12 (Continued)
1997 CFC AADC PARENT TOTAL
---------- -------- ---------- ----------
Revenues $1,591,281 $505,500 $ - $2,096,781
Interest income 303,946 - - 303,946
Interest expense 271,548 - 6,253 277,801
Depreciation expense 5,137 - 4,085 9,222
Segment profit(loss) 420,583 (57,187) (357,730) 5,666
Identifiable assets 2,923,059 1,116,291 1,332,867 5,372,217
Elimination of inter
company receivable (684,473) (27,500) (1,307,886) (2,019,859)
Net identifiable ---------- -------- ---------- -----------
assets $2,238,586 $1,088,791 $ 24,981 $3,352,358
========== ========= ========= ==========
NOTE 13 - SUBSEQUENT EVENTS
Effective January 29, 1999, the expiration date for the Class B
warrants and the Class C warrants was extended to January 29,
2000.
Effective February 24, 1999, the Company extended its office
lease through March 31, 2002 at terms similar to those in its
existing lease.
Effective March 15, 1999, the Company issued 1,696 shares of
Common Stock in lieu of payment for 1998 directors' fees.
On March 18, 1999, the Company received a decision from the NASD
regarding the arbitration in which all claims against the Company
were dismissed, and all claims against the officers of the
Company were denied in their entirety.
F-19
<PAGE>
</AUDIT-REPORT>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant cause this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN ASSET MANAGEMENT CORPORATION
(Registrant)
/S/_Richard G. Gagliardi________
03/26/99 Richard G. Gagliardi
Date President
(Signature)
In accordance with the 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.
/S/_Richard G. Gagliardi________
3/26/99 Richard G. Gagliardi
Date President
(Principal Executive,
Financial and Accounting
Officer)
(Signature)
/S/_Lynn K. Gagliardi___________
3/26/99 Lynn K. Gagliardi
Date Executive Vice President
(Signature)
3/26/99 /S/_Bernard Gitlow______________
Date Bernard Gitlow
Director
(Signature)
3/26/99 /S/_Theodore P. Rica, Jr._______
Date Theodore P. Rica, Jr.
Director
(Signature)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.6 Lease agreement for Capital Financial,
Bernardsville, NJ
21 Subsidiaries of the Company
27 Financial Data Schedule (For SEC Use Only)
<PAGE>
Exhibit No. 21
SUBSIDIARIES OF THE COMPANY
JURISDICTION
NAME OF INCORPORATION
American Asset Development Corporation New Jersey
Capital Financial Corp. New Jersey
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR FISCAL YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 608085
<SECURITIES> 0
<RECEIVABLES> 1817891
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2512864
<PP&E> 86948
<DEPRECIATION> 8251
<TOTAL-ASSETS> 3094630
<CURRENT-LIABILITIES> 1592999
<BONDS> 0
0
0
<COMMON> 3845825
<OTHER-SE> 2312070
<TOTAL-LIABILITY-AND-EQUITY> 3094630
<SALES> 2342983
<TOTAL-REVENUES> 2342983
<CGS> 0
<TOTAL-COSTS> 1765360
<OTHER-EXPENSES> 511523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 66100
<INCOME-TAX> 0
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</TABLE>
