[DESCRIPTION] COVER
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, 1999
-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, 1999, the issuer's revenues were
$1,072,189.
As of March 27, 2000 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
$793,141.
As of March 27, 2000 the issuer has 1,316,989 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, and other risks
detailed in this report and 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.
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.
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 1999,
the Company sold 56, 29, and 19 of its 233 closed loans
(24%, 11%, and 8%), 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 24, 2000,
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 24, 2000, 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. As of December 31, 1999 the Company had no outstanding
borrowings on this credit line which will expire on May 10, 2000.
Further, the Company does not intend on renewing this credit line
when it expires. During October 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 at an interest rate which varies between 2
1/2% and 3 1/2% over the Prime 1 Commercial Paper Rate. The
Company closed on this credit line during December 1999 but did
not commence utilization of it until January 2000. The Company
received an additional $5,000,000 warehouse credit line in
October 1999 at 1 3/4% above the Wall Street Journal Prime Rate.
As a result of a general increase in mortgage interest rates
during 1999, the Company saw a reduction in mortgage
refinancings. This market which had been in a general decline
since its three year peak in December 1994; continued to be less
significant to the Company during 1997 and began to revive during
1998. However, during the 1995 period, Capital implemented other
methods of securing purchase loan originations, including those
discussed below which, to a certain extent, has 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. During October
1999, this person resigned and in November 1999, the Company
hired a Senior Vice President with approximately 7 years mortgage
industry experience as his replacement. He is responsible for
secondary marketing, wholesale and internet development and will
assist management in the day-to-day operations of the Company.
In October 1996, the Company entered into an agreement to
offer its mortgage products on an electronic network system
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 of the
original network. 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. During 1999,
the Company continued to receive mortgage loans from the 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 was
completed during the fourth quarter of 1999. The terms of the
mortgage required monthly interest only payments to the Company.
The mortgage matured in January 1999 and was extended by the
Company until April 1999. During the third quarter of 1999 the
mortgage became delinquent and the Company declared it in
default. During January 2000, the Company filed a complaint in
foreclosure and for possession against the borrower in relation
to the outstanding mortgage receivable. The mortgage was settled
and paid in full during February 2000 and all claims against the
borrower were dismissed by the Company.
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 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.
In August 1999, the Company entered into an agreement to
sell one of its building lots for $149,000. At that time the
Company received a $1,000 deposit. During October 1999, the
Company received an additional deposit of $13,900. The Company
agreed to provide the purchase of this lot with an approved
septic design as a condition of sale. Accordingly, the septic
design approval was granted by municipal authorities, the Company
received the full balance due and transferred title to this lot
in February 2000.
In August 1999, the Company entered into an agreement to
sell one of its building lots and to construct a single family
residence. The Company received a $1,000 deposit and with a
balance due of $38,700 upon approval of final construction plans
and specifications. In November, 1999 the Company was informed
by the buyers architect that the final blueprints were completed.
In February 2000, the Company was informed that the buyer wished
to cancel the contract of sale and accordingly, the Company
returned the $1,000 deposit to the buyers thereby cancelling the
contract.
On March 3, 2000, the Company entered into a contract to
sell one of its building lots and construct a single family
residence for approximately $480,000. As of March 24, 2000 the
contract is in attorney review. The Company expects that the
contract will be approved and construction will commence during
April 2000. The terms of the contract provide for a $1,000
deposit which is currently being held in escrow by the buyer's
realtor and the balance of approximately $47,000 is to be paid
within 10 days of contract approval. This deposit is to be
released to the Company upon mortgage approval and the Company's
President has personally guaranteed the deposit in the event of
default by the Company. The buyers have applied for a mortgage
through a non-affiliate of the Company. The contract further
provides for an additional buyers deposit of approximately
$73,400 be paid at the time of closing when title to the
residence is transferred to the buyers from the Company and the
remainder of the purchase price is to be paid to the Company with
the proceeds of a mortgage loan.
During the fiscal year ending December 31, 1999, the Company
continued marketing its services to the public through the
Internet using its 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 fiscal year ending December 31, 1999, the Company has
received numerous inquiries which have resulted in mortgage loan
applications from persons seeking mortgage financing.
The Company continues to be 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, providing potential customers with an on line mortgage
application and streamlined internet mortgage approval process.
The Company expects to complete these website changes early in
the second quarter 2000. In addition, the Company has identified
and is seeking to link its website with other national and
regional websites that provide mortgage rate listings and
information to potential customers.
To date, the number of domestic mortgages originated over
the Internet, relative to the total mortgage origination market
is very small. In 1998, industry wide only 0.7% of total
mortgage originations were generated via the Internet. However,
according to certain mortgage banking industry sources, 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 marketing conducted over the Internet. There can
be no assurance that the Company will be successful in the future
in using the Internet as a source of mortgage loan applications.
During the first quarter of 1999, the Company applied for
a license as a mortgage banker in the State of Connecticut and is
considering applying for mortgage banking licenses in other
states. The Company's license was approved by the State of
Connecticut in June of 1999. During June 1999, the Company made
an application to license itself as a mortgage banker of second
mortgages in the State of New Jersey. In July 1999, the license
was approved. There can be no assurance that the Company will
apply for or be granted licenses in any additional states.
The Company utilizes one of its $5,000,000 warehouse lines
of credit for its daily mortgage loan funding operations.
However, whenever possible the Company employs its available cash
to fund mortgage loans since the use of available cash generates
mortgage interest income, as well as saves interest costs and
other fees associated with the Company 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 that are temporarily
accumulated or warehoused and then sold. At December 31, 1999,
the Company had borrowed $234,024 from its warehouse line of
credit which represented one closed loan ready for sale.
As of March 24, 2000, the Company owns 3 unimproved building
lots in its Hunterdon County, New Jersey real estate development
and has one contract of sale pending. 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 the lots, 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 has retained an on-site construction
manager who is a non-affiliate of the Company, to assist the
Company in this construction project and in December 1999
construction was completed on one house.
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
and Connecticut, the states have 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 24, 2000, the Company had 13 employees,
of whom 3 were executives, 4 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 and Development 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 2002. 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 24, 2000, the Company
owns 3 unimproved building lots within a subdivision consisting
of approximately 12 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.
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 former 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 denying any wrongdoing, did not oppose
plaintiffs' application, as it did not adversely impact the
Company.
Counter defendants, including the AAMC defendants, have
filed cross claims against other defendants and each other for
contribution and indemnification. 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 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, 1999.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In January 2000, the Company extended the expiration date
of the Company's Class B and Class C Common Stock Purchase
Warrants from January 29, 2000 until January 29, 2001.
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.
1999 PRICES FOR THE QUARTER ENDED
March 31 June 30 Sept. 30 Dec. 31
High Low High Low High Low High Low
Common
Stock 3.625 1.75 3.75 1.3125 1.50 0.9375 1.625 0.75
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
HOLDERS
The number of record holders of the Company's Common Stock
was approximately 125 as of March 24, 2000. 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, 1999 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998
Total revenues for the year ended December 31, 1999 were
$1,072,189 compared to $2,342,983 for the year ended December 31,
1998, a decrease of $1,270,794 or 54.3%. The decrease is
primarily attributable to a decrease in revenues generated from
mortgage origination fees made by Capital of $795,642 from
$1,552,496 to $756,854, a decrease in application and commitment
fee income of $142,835 from $254,515 to $111,680, an absence of
land sales during 1999 compared to $355,000 during 1998, which
was partially offset by an increase in mortgage interest income
of $22,683 from $180,972 to $203,655. The decrease in mortgage
related revenues was the result of a decreased amount of mortgage
closings during the year as a result of higher interest rates and
the loss of sales and executive personnel. The decrease in
mortgage originations are a direct result of increased interest
rates throughout the year, a reduction in sales personnel and a
decrease in mortgage refinances. The increase in mortgage
interest income was a direct result of the Company's adding
second mortgages to its product line which carry higher rates of
interest to the Company and interest received from a residential
construction loan which was financed with the Company's own funds
rather than with borrowed funds from its warehouse credit line.
For the year ended December 31, 1999, Capital closed 234
residential mortgage loans in the principal amount of
approximately $48,602,120 compared to 460 loans in the principal
amount of approximately $97,265,964 in the prior year, a decrease
in number of 226 or approximately 49.1%, and a decrease in amount
of $48,663,844 or approximately 50%. At December 31, 1999, the
Company had approximately 13 mortgage loan applications in
process in the amount of approximately $2,999,581 compared to
approximately 77 mortgage loan applications in process in the
approximate amount of $17,355,469 at December 31, 1998, a
decrease in number of 64 or approximately 83.2% and a decrease in
dollar amount of approximately $14,355,888 or 82.8%.
Total operating expenses for the year ended December 31,
1999 were $1,337,167, a decrease of $939,716 or 41.2% from the
$2,276,883 incurred in the prior year. The decrease in operating
expenses was the result of a $442,419 decrease, or approximately
99.9%, in land development costs from $442,937 in the prior year
to $518 in the current period, a decrease in interest expense of
$83,015, or approximately 44.1%, to $65,625 from $148,640 in
the prior year, a decrease of $100,461 or approximately 19.1%, in
employee compensation and benefits to $425,669 from $526,130 in
the prior year, a decrease in commissions of $345,945 or
approximately 46.5% to $301,709 compared to $647,654 in the prior
year, which was partially offset by increases in other expenses
of $32,124 or 106.3% , to $543,646 from $511,522 in the prior
year. The decreased expenses were primarily attributable to
decreased business resulting from the decline in home sales and
mortgage refinancings due to increased interest rates. Expressed
as a percentage of revenues, operating expenses decreased to
approximately 41.3% in 1999 from 97.2% in 1998, reflecting
expenses decreasing at a lessor rate than the 54.3% decrease in
revenues.
Due to the foregoing, the Company incurred a loss from
operations of $264,978, or a $0.20 loss per share basic and
diluted, for the year ended December 31, 1999. There were no
Preferred Stock dividends paid during 1999. Net income for 1998
was $66,100, prior to Preferred Stock dividends of $17,967
resulting in net income available to common shareholders of
$48,133 or $0.04 earnings per share basic and diluted in the
prior year.
The Company had a deferred tax asset of $1,018,056 at
December 31, 1999, arising from net operating loss ("NOL") carry
forwards of approximately $2,285,119. The NOL carryforwards
expire between 2001 and 2012. A valuation allowance has been
recorded in the amount of $1,018,056 at December 31, 1999, due to
the uncertainty of future utilization of the Company's NOL carry
forwards.
No provision for income taxes was made in 1999 due to the
net operating loss and in 1998 due to the utilization of net
operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Throughout 1999 the Company continued to take actions that
it believes are necessary to improve future operating results.
Such actions included, but were not limited to, recruiting new
originators of mortgage loans to its sales staff and seeking
additional outside sources of mortgage loans. During the fourth
quarter of 1999, the Company received two $5,000,000 warehouse
loan commitments from two institutions. One of the new warehouse
credit lines allows the Company to engage in residential
construction lending, which in the past has been beneficial to
the Company both financially as well as a modality to establish
wholesale relationships with additional sources of mortgage
loans.
The Company's capital resources during the year ended
December 31, 1999, have primarily been derived from revenues
generated by its mortgage banking operations. The Company's cash
position decreased in 1999 primarily as a result of losses from
operations. On December 31, 1999 the Company had working
capital of $461,155 compared to working capital of $919,865 on
December 31, 1998.
As of December 31, 1999, the Company had cash and cash
equivalents of $340,906 compared to $608,085 at December 31,
1998, a decrease of $267,179 or approximately 44%. The decrease
was primarily attributable to net cash used in operating
activities of $242,039 and net cash used in financing activities
of $31,364, which was partially offset by net cash provided by
investing activities of $6,224.
Net cash used in operating activities was the result of a
net loss of $254,978 and increases in mortgage loans receivable
of $242,273, land and development costs of $187,748, and
decreases in warehouse finance facilities of $1,129,212 and
deferred income of $51,760. These amounts were partially offset
by a decrease in mortgage loans held for sale.
Net cash used in financing activities was a direct result of
payment of loans payable of $31,364. These were partially offset
by net cash of $6,224 provided by investing activities due to the
net difference of $21,706 in purchases of fixed assets and
proceeds from notes receivable of $27,930.
At December 31, 1999 the Company had completed approximately
90% of the 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 was listed for sale
through a realtor during November of 1999. As of December 31,
1999, the Company has approximately $175,000 invested in the
home, excluding land and development costs.
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
On January 11, 2000 the Company dismissed its principal
independent auditor, Grant Thornton, LLP. The report of Grant
Thornton on the financial statements of the Company for the year
ended December 31, 1998 did not contain an adverse opinion or
disclaimer of opinion, nor was modified as to uncertainty, audit
scope or accounting principles. The decision to change
accountants was approved by the Company's Board of Directors.
During the year ended December 31, 1998 and during the period
from January 1, 1999 through January 11, 2000, there were no
disagreements with Grant Thornton, LLP, on any matter of
accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved
to Grant Thornton, LLP's satisfaction, would have caused it to
make reference in connection with its reports to the subject
matter of the disagreement.
On January 11, 2000 the Company engaged Withum Smith &
Brown, as its principal independent accountant who will report on
the financial statements of the Company for the year ended
December 31, 1999.
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 53 Chairman of the Board,
President and Chief
Executive Officer
Lynn K. Gagliardi 42 Executive Vice President,
Secretary and Director
Bernard Gitlow 73 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 former 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.
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
Spence Killam, 31, has been employed by Capital as a Vice
President and Sales Manager since November 1999. Mr. Killam 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 President of The Mortgage Finder,
Inc. from August 1997 to October 1999 and Sales Manager for
Capital Funding, a licensed New Jersey Mortgage Banker, from
October 1992 to August 1997.
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, 1999
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, 1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Principal Other Annual
Position Year Salary Compensation
Richard G. Gagliardi 1999 $100,000 $11,107(1)
Chairman of the Board, 1998 100,000 9,431(1)
President and Chief 1997 92,500 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 $2,000.00
during 1999 and $1,230.78 during 1998 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, 1999. 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, 1999.
COMPENSATION OF DIRECTORS
During 1999 the Company accrued director fees of $600 for
Board of Director meeting attendance. 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, 1999, options to purchase 30,000
shares of the Company's Common Stock have been granted pursuant
to the Plan and options to purchase 70,000 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 24, 2000 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:
AMOUNT AND NATURE PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP (2) SHARES OWNED
Richard G. Gagliardi(1) 503,490 (3)(6) 38.2%
Lynn K. Gagliardi 12,911 (4)(6) *
Bernard Gitlow 9,177 (5)(6) *
Nathan Low 179,000 (1)(7) 13.6%
Sunrise Foundation Trust 68,000 (1)(8) 5.1%
Brian Gonnelli 68,000 (1) 5.1%
All directors and executive
officers as a group (three persons) 523,882 (5)(6) 39.9%
* 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 former wife, as to which he disclaims
beneficial ownership.
(4) Does not include shares owned by Richard G. Gagliardi, Ms.
Gagliardi's former husband, as to which she disclaims beneficial
ownership.
(5) Includes 3,426 shares of Common Stock which may be purchased
by Mr. Gitlow upon exercise of immediately exercisable warrants.
(6) Includes 424 shares to be issued in lieu of cash compensation
for attendance at directors meetings.
(7) 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.
(8) 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 7(iii) above.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
ITEM 13. FINANCIAL STATEMENTS, REPORTS ON FORM 8-K AND EXHIBITS
(a)(1) FINANCIAL STATEMENTS
PAGE NO.
Report of Independent Certified Public Accountants F-2 - F-3
Consolidated Balance Sheets - December 31, 1999 and 1998 F-4
Consolidated Statements of Operations -
for the years ended December 31, 1999 and 1998 F-5
Consolidated Statement of Changes In Stockholders'
Equity - for the years ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows - for the years
ended December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-20
(b) CURRENT REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
fiscal quarter ended December 31, 1999.
(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
**10.1 1992 Stock Option Plan
10.2 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
INDEPENDENT AUDITORS' REPORT
To the 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, 1999, 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.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of American Asset Management Corporation and
Subsidiaries as of December 31, 1999 and the consolidated results
of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
Withum Smith+Brown
New Brunswick, New Jersey
March 14, 2000
F-2
INDEPENDENT AUDITORS' REPORT
To the 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.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements 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 cash flows for the year then ended
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
New York, NY
February 9, 1999
F-3
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS: 1999 1998
Current Assets:
Cash and cash equivalents $ 340,906 $ 608,085
Mortgage loans held for sale 240,000 1,755,009
Mortgage loans receivable 242,273 --
Notes receivable, net 34,892 62,822
Prepaid expenses and other current assets 21,986 86,948
Total Current Assets 880,057 2,512,864
Land and Development Costs 761,263 573,515
Property and Equipment, Net 21,235 8,251
TOTAL ASSETS $1,662,555 $3,094,630
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Warehouse finance facility $ 234,024 $1,363,236
Deferred income 4,100 55,860
Loans payable -- 31,364
Accounts payable, accrued expenses and
other current liabilities 180,778 142,539
Total Current Liabilities 418,902 1,592,999
Commitments and Contingencies
Stockholders Equity:
Common stock, no par value;
10,000,000 shares authorized;
issued & outstanding 1,316,989 shares
in 1999 & 1,315,293 shares in 1998 3,852,825 3,845,825
Additional paid-in capital 231,207 231,207
Accumulated deficit (2,840,379) (2,575,401)
Total Stockholders' Equity 1,243,653 1,501,631
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,662,555 $3,094,630
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-4
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Revenues:
Mortgage origination fees $ 756,854 $ 1,552,496
Land sales -- 355,000
Application and commitment fees 111,680 254,515
Mortgage interest income 203,655 180,972
Total Revenues 1,072,189 2,342,983
Expenses:
Employee compensation and benefits 425,669 526,130
Commissions 301,709 647,654
Other expenses 544,164 511,522
Land development costs -- 442,937
Interest expense 65,625 148,640
Total Expenses 1,337,167 2,276,883
Income (Loss) Before
Provision for Income Taxes ( 264,978) 66,100
Provision for Income Taxes -- --
Net Income (Loss) ( 264,978) 66,100
Dividends on Preferred Stock -- 17,967
Income (Loss) Available for
Common Stockholders $ (264,978) $ 48,133
Earnings (Loss) Per Common Share:
Basic $ (.20) $ 0.04
Diluted $ (.20) $ 0.04
Weighted Average Number of Shares of Common
Stock Outstanding:
Basic 1,316,649 1,131,563
Diluted 1,316,649 1,176,286
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-5
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Add'l
Common Stock Preferred Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
- ------- ---------- ------ -------- -------- ------------ --------
Balance, January 1, 1998
936,119 $2,449,325 68,750 $687,500 $231,207 $(2,623,534) $744,498
Conversion of Preferred Stock for
Common Stock
137,500 687,500 (68,750)(687,500) -- -- --
Issuance of Common Stock as a
Result of a Private Placement
230,000 690,000 -- -- -- -- 690,000
Issuance of Common Stock for
Accrued Directors' Fees
11,674 19,000 -- -- -- -- 19,000
Preferred Stock Dividends
-- -- -- -- -- (17,967) (17,967)
Net Income for the Year Ended 1998
-- -- -- -- -- 66,100 66,100
Balance, December 31, 1998
1,315,293 3,845,825 -- -- 231,207 (2,575,401) 1,501,631
Issuance of Common Stock for
Accrued Directors' Fees
1,696 7,000 -- -- -- -- 7,000
Net Loss for the Year Ended 1999
-- -- -- -- -- (264,978) (264,978)
Balance, December 31, 1999
1,316,989 $3,852,825 -- $ -- $231,207 $(2,840,379)$1,243,653
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-6
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Cash Flows From Operating Activities:
Net income (loss) $ (264,978) $ 66,100
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 8,722 6,634
Changes in operating assets
and liabilities:
Mortgage loans held for sale 1,515,009 171,991
Mortgage loans receivable (242,273) --
Prepaid expenses and
other current assets 64,962 (18,642)
Land and development costs (187,748) 436,180
Warehouse finance facility (1,129,212) (522,804)
Deferred income (51,760) 49,690
Accounts payable & accrued expenses 45,239 (148,892)
Utilization of lot deposits -- (75,000)
Net Cash Used In Operating Activities (242,039) (34,743)
Cash Flows From Investing Activities:
Collection of commission advances -- 4,600
Purchases of fixed assets (21,706) (6,662)
Proceeds from notes receivable 27,930 3,500
Net Cash Provided By Investing Activities 6,224 1,438
Cash Flows From Financing Activities:
Principal payments of mortgage payable -- (163,790)
Proceeds from issuance of common stock -- 690,000
Payments of loans payable (31,364) (86,553)
Payments of preferred stock dividends -- (34,370)
Net Cash Provided By (Used In)
Financing Activities (31,364) 405,287
Net Increase (Decrease) in
Cash and Cash Equivalents (267,179) 371,982
Cash and Cash Equivalents,
at Beginning of Year 608,085 236,103
Cash and Cash Equivalents,
End of Year $ 340,906 $ 608,085
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 65,625 $ 148,640
Supplemental Schedule of Non-Cash Investing
and Financial Activities:
Reduction in accrued land and
development costs $ -- $ 32,108
Issuance of common stock to
reduce an accrued liability $ 7,000 $ 19,000
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-7
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
states of New Jersey and Connecticut. The real estate project
involves a parcel of land being developed for sale in Hunterdon
County, New Jersey.
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.
GEOGRAPHIC AND CUSTOMER CONCENTRATION AND SIGNIFICANT RISKS
The Company's mortgage banking activities are primarily
concentrated in the New Jersey market.
During 1999, the Company's origination revenues were derived from
loan sales to various investors and interest revenues from the
use of Company funds to fund loans. Two of the investors
comprised revenue percentages of 24% and 11%. The remaining
investors purchased less than 10% each of the loans.
During 1998, the Company's origination revenues were derived from
loan sales to various investors. Three investors comprised
revenue percentages of 39.7%, 17.8% and 15.6%. The remaining
investors purchased less than 10% each of the loans.
The Company receives all of its funds for mortgage banking
activities from three mortgage warehouse lenders (see Note 6).
USE OF ESTIMATES
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-8
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies (Continued):
RETIREMENT PLAN
The Company has a voluntary simple IRA plan for its employees.
Employer contributions to this plan included as a charge to
operations were $9,554 and $9,415 for the years ended December
31, 1999 and 1998, respectively.
PROPERTY AND EQUIPMENT 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 fixtures and office
equipment, for both financial reporting and income tax purposes.
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, 1999 and
1998.
REVENUE RECOGNITION
GAIN ON SALE
The gain or loss on sales of mortgage loans held for sale to
investors is recognized upon purchase of the loan by the
investor. The Company records gain on sale of mortgages in
accordance with SFAS No. 125, which provides accounting and
reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This statement also
provides standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings.
The Company does not engage in servicing mortgages held for sale.
ORIGINATION FEES
The Company accounts for origination fee income on mortgages held
for sale or mortgage loans receivable 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 at
the time the loan is sold.
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 at the time the loan
is sold or when the specific processing service (i.e. appraisal)
has been provided and the fee is non-refundable.
F-9
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies (Continued):
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
temporary 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.
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.
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances, at times, with financial
institutions in excess of amounts insured by the Federal Deposit
Insurance Corporation. Management monitors the soundness of
these institutions and considers the Company's risk negligible.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average
number of common shares outstanding. In March 1998, 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 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. Basic and diluted loss per share for
1999 are the same because the effect of outstanding stock options
would be anti-dilutive.
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 $67,195 and $13,531 at December 31, 1999 and 1998,
respectively.
F-10
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies (Continued):
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed for or Obtained for
Internal Use." The SOP is effective for the Company beginning in
fiscal 2000. After the date of adoption, the SOP will require
the capitalization of certain costs to develop or obtain software
for internal use that the Company currently expenses as incurred
and will require expensing certain costs that the Company now
capitalizes. The Company does not anticipate that the adoption
of this SOP will have a material impact on the Company's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (SFAS 133).
This statement establishes accounting and reporting guidelines
for derivatives and requires an establishment to record all
derivatives as assets or liabilities on the balance sheet at fair
value. Additionally, this statement establishes accounting
treatment for three types of hedges: hedges of changes in the
fair value of assets, liabilities or firm commitments; hedges of
the variable cash flows of forecasted transactions; and hedges of
foreign currency exposures of net investments in foreign
operations. Any derivative that qualifies as a hedge, depending
upon the nature of that hedge, will either be offset through
earnings against the change in fair value of the hedged assets,
liabilities or firm commitments or recognized in other
comprehensive income until the hedged item is recognized in
earnings. SFAS 133 has been amended by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date
of FASB Statement No. 133 - An Amendment of FASB Statement No.
133," which has delayed the effective date to all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company is
analyzing the implementation requirements and does not anticipate
that the adoption of these statements will have a material impact
on the Company's consolidated financial statements.
F-11
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments as of December 31, 1999 and 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.
1999 1998
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets
Mortgage loans
held for sale $ 240,000 $ 240,000 $1,148,000 $1,157,000
Mortgage loan
receivable $ 242,273 $ 242,273 $ -- $ --
Liabilities
Warehouse finance
facility $ 234,024 $ 234,024 $1,363,236 $1,363,236
The fair value estimates as of December 31, 1999 and 1998 are
based on pertinent information available to management as of
December 31, 1999 and 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 and mortgage loan receivable - 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.
Note 3 - Fixed Assets:
Fixed assets at December 31 consist of:
1999 1998
Computer equipment $ 68,139 $ 46,433
Furniture and fixtures 19,291 19,291
Office equipment 44,075 44,075
Leasehold improvements 2,240 2,240
133,745 112,039
Less: Accumulated
depreciation and amortization 112,510 103,788
Net Fixed Assets $ 21,235 $ 8,251
F-12
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Fixed Assets (Continued):
Depreciation and amortization expense was $8,722 and $6,634 for
the years ended December 31, 1999 and 1998 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, 1999.
During 1999 and 1998, $-0- and $442,937 of land and development
costs were charged to expense, respectively, for the lots sold
during the year. At December 31, 1999 and 1998, no allowance for
net realizable value was established as revenues from the
remaining land and development are anticipated to exceed related
costs.
Note 5 - Accounts Payable, Accrued Expenses and Other Current
Liabilities:
Accounts payable, accrued expenses and other current liabilities
consist of the following at December 31:
1999 1998
Accounts payable $ 108,806 $ 62,542
Accrued development costs 23,000 23,000
Accrued expenses and
other current liabilities 48,972 56,997
Total $ 180,778 $ 142,539
Note 6 - Warehouse Lines of Credit:
On October 14, 1999, the Company entered into a warehouse line of
credit of $5,000,000 with a financial institution which expires
October 13, 2000. Funds from this line of credit are used for
short-term financing of mortgage loans held for sale and mortgage
loan receivable, and are secured by residential mortgage loans.
The investor pays the line of credit at the time of the closing.
As of December 31, 1999, one loan amounting to $240,000 had yet
to be delivered to investors, resulting in a warehouse loan
payable of $234,024.
On March 3, 1995, the Company had entered into another warehouse
line of credit of $5,000,000 with a financial institution. This
line has been renewed and has an expiration date of May 10, 2000.
As of December 31, 1999, there were no outstanding borrowings
related to this line of credit. 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.
F-13
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Warehouse Lines of Credit (Continued):
At December 31, 1999, the Company also had one additional
warehouse line of credit of $5,000,000, which expires October 31,
2000, for which there were no outstanding borrowings.
Interest expense under the above lines of credit was $65,625 and
$148,640 for the years ended December 31, 1999 and 1998,
respectively.
Note 7 - Income Taxes:
The provision for income taxes consists of the following for the
years ended December 31:
1999 1998
Current $ -- $ --
Deferred -- 26,000
Benefit of net operating
loss carryforwards -- (26,000)
Total $ -- $ --
Deferred income taxes are summarized as follows at December 31:
1999 1998
Deferred Income Tax Asset $1,018,056 $ 992,000
Valuation Allowance (1,018,056) (992,000)
Net Deferred Income Tax Asset -- --
Deferred Income Tax Liability -- --
Net Deferred Income Tax Liability $ -- $ --
The Company has net operating loss carryforwards available to
offset future taxable income of approximately $2,285,119 at
December 31, 1999, which expires in 2001 through 2012.
For the years ended December 31, 1999 and 1998, the Company's
effective tax rate differs from the federal statutory rate
principally due to net operating losses and other temporary
differences for which no benefit was or has been recorded.
Note 8 - Stockholders' Equity:
The Company has outstanding Class B Warrant which entitle the
holder to purchase .20941 share (adjusted) of Common Stock at an
exercise price of $19.10 per whole share until January 29, 2000.
The Company also has outstanding Class C Warrant which entitle
the holder to purchase .20977 share (adjusted) of Common Stock at
an exercise price of $21.45 per whole share until January 29,
2000 (see Note 13).
Effective July 1, 1998, the Company's preferred stockholders
converted all 68,750 outstanding shares of Non-voting Series A
Cumulative Convertible Preferred Stock into 137,500 shares of
Common Stock of the Company.
F-14
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' Equity (Continued):
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 1,696 and 11,674 shares of Common Stock during
1999 and 1998, respectively, to satisfy an obligation for 1998
and 1997 directors' fees payable of $7,000 and $19,000,
respectively.
Note 9 - Related Parties:
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 as of
December 31, 1999 and 1998. An allowance of $11,000 and $7,569 as
of December 31, 1999 and 1998, respectively, has been established
for the amount deemed to be uncollectible.
Loans payable as of December 31, included the following related
party demand notes:
Annual
Interest
1999 1998 Rate
Stockholders $ -- $ 11,370 12%
Executive Vice President -- 19,994 12%
Note 10 - Commitments and Contingent Liabilities:
OPERATING LEASES
The Company has entered into various operating lease agreements
for office space and office equipment. The leases expire
periodically through March 2002.
The future minimum rental commitments under noncancelable
operating leases are as follows:
Year Amount
2000 $ 62,300
2001 65,100
2002 16,450
Total Minimum Lease Payments $ 143,850
F-15
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Commitments and Contingent Liabilities (Continued):
OPERATING LEASES (Continued)
Rental costs under operating leases included in other operating
expenses amounted to $48,899 and $63,816 for the years ended
December 31, 1999 and 1998, respectively.
PENDING LITIGATION
In March 1993, an action seeking compensatory damages of $1
million and punitive damages of $5 million was commenced against
the Company, the Company's President, and other companies. In the
complaint, the plaintiffs, two individuals who collectively
invested a total of $250,000 in the Company's 1989 private
offering of common stock, claim fraud, unjust enrichment,
conversion, breach of fiduciary duty and breach of contract. The
Company's President and the Company moved to dismiss the
complaint and by Order dated January 10, 1994 the court dismissed
with prejudice the claims of unjust enrichment and conversion and
dismissed the breach of contract claims with leave to amend. On
February 25, 1994, the plaintiffs filed an amended complaint
containing allegations similar to those in 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.
Although the Company believes that it has meritorious defenses to
this action, the Company is unable to predict the outcome of this
litigation at this time. However, it does not expect that the
ultimate resolution to this matter will have a material effect on
its results of operations and financial condition.
On March 25, 1999, the Company, its President, and the Company's
wholly owned subsidiary (CFC) (the "Company Defendants") and one
of the Company's former directors together with other individuals
were named in an action filed in the Superior Court of New
Jersey, Chancery Division by two New Jersey limited liability
companies (the "LLCs"). The plaintiffs allege the Company's
former director and other defendants other than the Company
Defendants ("Other Defendants") misappropriated assets and
opportunities of the LLCs for their own use, engaged in
self-dealing with respect to the LLCs, breached the operating
agreements of the LLCs and converted and embezzled assets and
funds of the LLCs. The Company Defendants are alleged to have
aided and abetted the Company's former director in converting the
assets of the LLCs by accepting loans and payments from the LLCs
and the Company's former director and repaying loans to the
Company's former director in the form of cash and Company stock.
The LLCs seek declaratory and injunctive relief against the
Company Defendants; an accounting of (1) all shares of Company
stock purchased by the Company's former director and Other
Defendants and (2) all payments to or from the Company and the
Company's former director and Other Defendants; imposition of a
lien or equitable trust in favor of the LLCs on shares of the
Company's stock issued to the Company's former director and Other
Defendants; and certain unspecified compensatory and punitive
damages, attorney's fees and costs.
F-16
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Commitments and Contingent Liabilities (Continued):
PENDING LITIGATION (Continued)
In April 1999, the Court granted a preliminary injunction, which
among other things, enjoins the Company's Defendants from
allowing the transfer of any Company stock held in the name of
the Company's former director and Other Defendants and directs
the Company Defendants to provide an accounting of all such
stock. The Company, while denying any wrongdoing, did not oppose
plaintiffs' application, as it did not adversely impact the
Company. The Company denies any wrongdoing and believes that the
claims are without merit and intends to defend the action
vigorously. The Company is unable to predict the outcome of this
litigation at this time. However, it does not expect that the
ultimate resolution to this matter will have a material effect on
its results of operations and financial condition.
With respect to all litigation, as additional information
concerning the estimates used by the Company become known, the
Company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change relate to legal matters,
which are subject to change as events evolve and as additional
information becomes available during the administration and
litigation process.
Note 11 - Stock Based Compensation:
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-17
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock Based Compensation (Continued):
STOCK OPTIONS (Continued)
During 1999, the Company granted 10,000 options with an exercise
price of $2 per share. There were no options granted during
1998. A summary of the stock option plan activity for the years
ended December 31, 1999 and 1998 is presented below:
Options
to Purchase Options
Shares at to Purchase
Price Range Shares
$1.25 - $1.50 at $2.00
Outstanding and exercisable
at January 1, 1998: 69,000 --
Granted -- --
Exercised -- --
Expired -- --
Forfeited (2,000) --
Outstanding and exercisable
at December 31, 1998: 67,000 --
Granted -- 10,000
Exercised -- --
Expired (47,000) --
Forfeited -- --
Outstanding and exercisable
at December 31, 1999 20,000 10,000
The fair value of the 1999 stock option grant was $6,140 and was
estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions for the grant:
a dividend yield of 0%, a risk-free interest rate 5.71%, an
expected life of two years, and a volatility of 1.11.
F-18
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock Based Compensation (Continued):
Options outstanding and exercisable as of December 31, 1999 are
summarized below:
Weighted-Average
Remaining
Range of Number Contractual Exercise
exercise prices Outstanding Life (Years) Price
$1.25 20,000 .33 $1.25
$2.00 10,000 1.92 $2.00
Options outstanding and exercisable as of December 31, 1998 are
summarized below:
Weighted-Average
Remaining
Range of Number Contractual Exercise
exercise prices Outstanding Life (Years) 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:
1999 CFC AADC PARENT TOTAL
Revenues $ 868,534 $ -- $ -- $ 868,534
Interest income 203,655 -- -- 203,655
Interest expense 65,625 -- -- 65,625
Depreciation expense 8,317 -- 405 8,722
Segment profit(loss) (14,036) (22,794) (228,148) (264,978)
Identifiable assets $2,359,169 $799,893 $2,494,150 $5,653,212
Elimination of
intercompany
receivable (1,479,308) (3,626) (2,507,723) (3,990,657)
Net identifiable
assets $ 879,861 $ 796,267 $ (13,573) $1,662,555
F-19
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Segment Reporting (Continued):
1998 CFC AADC PARENT TOTAL
Revenues $1,807,011 $355,000 $ -- $2,162,011
Interest income 180,972 -- -- 180,972
Interest expense 148,640 -- -- 148,640
Depreciation expense 5,215 -- 1,419 6,634
Segment profit(loss) 341,215 (94,822) (180,293) 66,100
Identifiable assets $3,569,021 $652,066 $1,326,894 $5,547,981
Elimination of
intercompany
receivable (1,147,793) -- (1,305,558) (2,453,351)
Net identifiable
assets $2,421,228 $652,066 $ 21,336 $3,094,630
Note 13 - Subsequent Events:
Effective January 24, 2000, the expiration date for the Class B
warrants and the Class C warrants was extended to January 29,
2001.
Effective January 3, 2000, the Company filed a complaint in
foreclosure and for possession against a customer whose mortgage
receivable the Company was holding. The mortgage was settled and
paid in full on February 22, 2000 and all claims were dismissed.
Effective February 18, 2000, the Company closed on the sale of
one of its development properties resulting in net proceeds to
the Company of $145,924, which included a previously received
deposit of $14,900.
F-20
</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________
04/07/00 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________
04/07/00 Richard G. Gagliardi
Date President
(Principal Executive,
Financial and Accounting
Officer)
(Signature)
/S/_Lynn K. Gagliardi___________
04/07/90 Lynn K. Gagliardi
Date Executive Vice President
(Signature)
04/07/00 /S/_Bernard Gitlow______________
Date Bernard Gitlow
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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 340906
<SECURITIES> 0
<RECEIVABLES> 517165
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 889057
<PP&E> 133745
<DEPRECIATION> 112510
<TOTAL-ASSETS> 1662255
<CURRENT-LIABILITIES> 418902
<BONDS> 0
0
0
<COMMON> 3852825
<OTHER-SE> 231207
<TOTAL-LIABILITY-AND-EQUITY> 1662555
<SALES> 1072189
<TOTAL-REVENUES> 1072189
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