U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended: June 30, 2000
___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _______ to _______.
Commission file number: 0-19154.
AMERICAN ASSET MANAGEMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2902677
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Morristown Road, Suite 108, Bernardsville, New Jersey 07924
(Address of principal executive offices)
Issuer's telephone number, including area code: (908) 766-1701
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES_X_ NO___.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: As
of August 14, 2000 there were 1,316,989 shares outstanding of the
issuer's no par value common stock.
Transitional Small Business Disclosure Format (check one):
YES___ NO_X_
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
_________________________________________________________________
June 30, December 31,
___2000___ ____1999____
_____________ASSETS________________
Cash & cash equivalents $ 396,829 $ 340,906
Mortgage loans held for sale 2,177,000 240,000
Mortgage loans receivable -0- 242,273
Notes receivable 10,392 34,892
Prepaid expenses &
other current assets 68,787 21,986
Total Current Assets 2,653,008 880,057
Land Development Costs 637,983 761,263
Property & Equipment, net of accumulated
depreciation & amortization 16,838 21,235
Total Assets 3,307,829 1,662,555
__LIABILITIES AND STOCKHOLDERS' EQUITY__
Current Liabilities:
Warehouse finance facility 2,104,282 234,024
Deferred income 2,012 4,100
Accounts payable, accrued expenses
and other current liabilities 211,225 180,778
Total Current Liabilities 2,317,519 418,902
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized;
1,316,989 shares issued
and outstanding
at 6/30/00 & 12/31/99 3,852,825 3,852,825
Additional paid-in capital 231,207 231,207
Accumulated deficit (3,093,722) (2,840,379)
Total Stockholders' Equity 990,310 1,243,653
Total Liabilities and
Stockholders' Equity 3,307,829 1,662,555
See accompanying Notes to Consolidated Financial Statements.
<PAGE> -2-
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
_________________________________________________________________
For the Three Months|For the Six Months
__Ended June 30,___|__Ended June 30,___
___2000__ __1999___|__2000__ __1999__
Revenues:
Mtg origination fees $ 149,171 $ 190,222 $ 247,773 $490,555
Land sales -- -- 145,924 --
Application &
commitment fees 4,055 14,153 7,395 32,953
Mtg interest income 61,585 64,119 83,065 94,960
Total revenues 214,811 268,494 484,157 618,468
Expenses:
Employee compensation
& benefits 105,187 107,841 191,320 232,245
Commissions 104,625 62,868 154,119 168,674
Other expenses 115,768 150,700 204,819 274,901
Land development costs -- -- 146,971 --
Interest expense 30,555 11,518 47,056 21,852
Total expenses 356,135 332,927 744,285 697,672
Loss from operations (141,324) (64,433) (260,128) (79,204)
Other income 4,465 6,360 6,785 15,132
Loss before provision
for income taxes (136,859) (58,073) (253,343) (64,072)
Provision for
income taxes -0- -0- -0- -0-
Net loss (136,859) (58,073) (253,343) (64,072)
LOSS PER COMMON SHARE,
Basic $ (0.10) $ (0.04) $ (0.19) $ (0.05)
Diluted $ (0.10) $ (0.04) $ (0.19) $ (0.05)
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING,
Basic 1,316,989 1,315,293 1,316,989 1,315,293
Diluted 1,316,989 1,315,293 1,316,989 1,315,293
See accompanying Notes to Consolidated Financial Statements.
<PAGE> -3-
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
_________________________________________________________________
For the Three Months|For the Six Months
__Ended June 30,___|__Ended June 30,___
___2000__ __1999___|__2000__ __1999__
Cash flows from operating activities:
Net loss $(136,859) $(58,073) $(253,343) $( 64,072)
Adjustments to reconcile
net loss to net cash
provided by/(used in)
operating activities:
Depreciation
and amortization 3,133 1,834 6,266 3,616
Changes in assets & liabilities:
Mortgage loans
held for sale (1,200,400) 1,643,350 (1,937,000) 958,274
Mortgage loans
receivable -0- 44,000 242,273 43,999
Prepaid expenses &
other current assets (9,041) (100,514) (46,801) (64,207)
Land development costs (21,665) (46,141) 123,280 (135,372)
Warehouse finance
facility 1,165,923 (1,620,185)1,870,258 (802,957)
Deferred Income (13,343) 22 (2,088) (46,428)
Accounts payable
and accrued expenses 76,838 54,140 30,447 45,007
Net cash provided by/
(used in) operating
activities (135,414) (81,567) 33,292 (62,140)
Cash flows from investing activities:
Purchases of fixed assets -0- (19,954) (1,869) (19,954)
Proceeds from notes
receivable (24,500) -0- (24,500) -0-
Net cash provided
by/(used in)
investing activities -0- (19,954) 22,631) (19,954)
Cash flows from financing activities:
Payments of loans payable -0- -0- -0- (19,319)
Net increase/(decrease) in
cash & cash equivalents (135,414) (121,761) 55,923 (101,413)
Cash and cash equivalents
at beginning of period 532,243 628,433 340,906 608,085
Cash and cash equivalents
at end of period 396,829 506,672 396,829 506,672
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the
period for interest $ 30,555 $ 11,518 $ 47,056 $ 21,852
See accompanying Notes to Consolidated Financial Statements.
<PAGE> -4-
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_________________________________________________________________
1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements of
American Asset Management Corporation and subsidiaries (the
"Company") are unaudited. In the opinion of management, all
adjustments and intercompany eliminations necessary for a fair
presentation of the results of operations have been made and were
of a normal recurring nature. These interim consolidated
financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto
contained in the Company's 1999 Annual Report on Form 10-KSB.
Reference is made to the Company's annual financial statements
for the year ended December 31, 1999, for a description of the
accounting policies which have been continued without change.
Also refer to the footnotes with those annual statements for
additional details of the Company's financial condition, results
of operations and changes in cash flows. The details in those
notes have not changed except as a result of normal transactions
in the interim. The results of the six months ended June 30,
2000 are not necessarily indicative of the results of the full
year.
2. NET LOSS PER SHARE
Basic EPS and Diluted EPS for the six months and three month
periods ended June 30, 2000 and 1999 have been computed by
dividing the net loss for each respective period by the weighted
average shares outstanding during that period. All outstanding
warrants and options have been excluded from the computation of
Diluted EPS as they are antidilutive.
3. SEGMENT REPORTING
The Company has two primary operating segments including
originating and selling loans secured primarily by first
mortgages on one-to-four family residential properties (CFC) and
real estate development (AADC). Segment selection was based upon
the nature of operations as determined by management and all of
the operations of these segments are conducted in New Jersey.
Certain selected financial information of these segments is
described below:
CFC AADC Parent Total
June 30, 2000
Revenues 338,233 145,924 484,157
Segment Profit (Loss) (174,908) (789) (77,646) (253,343)
Net identifiable assets 2,591,370 686,019 30,440 3,307,829
CFC AADC Parent Total
June 30, 1999
Revenues 618,468 618,468
Segment Profit (Loss) 48,225 (1,057) (111,040) (63,872)
Net identifiable assets 1,376,978 781,411 48,472 2,206,861
-5-
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Item 2.
AMERICAN ASSET MANAGEMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
_________________________________________________________________
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1999.
Total revenues for the three months ended June 30, 2000 were
$214,811 compared to $268,494 for the three months ended June 30,
1999, a decrease of $53,683 or approximately 20%. The decrease
was primarily attributable to a reduction of $10,098, or
approximately 71% in application and commitment fees to $4,055
from $14,153 in the comparable 1999 period, a decrease in
origination fees of $41,051, or approximately 21%, from $190,222
in the comparable 1999 period to $149,171 for the three months
ended June 30, 2000 and a decrease of $2,534 in mortgage interest
income of Capital Financial Corp. ("Capital"), the Company's
mortgage banking subsidiary, or approximately 4% from $64,199 in
the comparable 1999 period to $61,585 for the three months ended
June 30, 2000. The reduction in applications was a result of
increased mortgage interest rates during the period which
continued to sharply reduce the number of refinance applications
the Company received, as well as a reduction in real estate sales
in the Company's service area primarily due to a reduction in the
available supply of homes for sale. In addition, during the 2000
period the Company decided to primarily refocus its sources of
applications by expanding its wholesale business and to lessen
its dependence on its retail sale personnel which have not been
economically viable sources of originations for the Company in
the past. To that end, during the three month period ended June
30, 2000, the Company added two wholesale executives to represent
the Company in the wholesale market place. These individuals
have demonstrated the ability and experience the Company believes
necessary to attract new sources of mortgage originations,
although there can be no assurance that the Company will be
successful in its endeavor. During the three months
ended June 30, 2000 Capital closed 45 residential mortgage loans
in the principal amount of $8,249,850 compared to 56 loans closed
in the principal amount of $11,298,979 in the three months ended
June 30, 1999. At June 30, 2000, the Company had approximately
50 residential mortgage applications in process in the principal
amount of $10,571,180 compared to 65 residential mortgage
applications in process in the principal amount of $13,947,472,
at June 30, 1999.
Total expenses for the three months ended June 30, 2000 were
$356,135, an increase of $23,208 or approximately 7% from
$332,927 in the comparable 1999 period due to an increase of
$41,757 in the Company's sales commissions which was primarily
attributable to wholesale commissions which are paid at a higher
rate than retail commissions, an increase in interest expense of
$19,037 which was partially offset by a decrease in employee
compensation of $2,654 and a decrease in other expenses of
$34,932 as a result of Capital's modification in the compensation
structure for loan originators and certain other employees.
Other expenses include costs related to ongoing litigation which
are expected to continue for the foreseeable future. As a
percentage of revenues, expenses were approximately 166% in the
current period compared to approximately 124% in the comparable
1999 period.
As a result of the foregoing, the Company's net loss for the
three months ended June 30, 2000 was $136,859 or $0.10 per
common share, compared to a net loss of $58,073, or $0.04 per
common share in the comparable 1999 period.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1999.
Total revenues for the six months ended June 30, 2000 were
$484,157 compared to $618,468 for the six months ended June 30,
1999, a decrease of $134,311 or approximately 22%. The decrease
was primarily attributable to a reduction of $25,558 in
application and commitment fees to $7,395 from $32,953 in the
comparable 1999 period, and a decrease in origination fees of
$242,782, from $490,555 in the comparable 1999 period to $247,773
and a decrease of $11,895 in mortgage interest income. The
decreases were partially offset by $145,924 in land sales during
the period as compared to no land sales recorded during the same
period in 1999. The reduction in applications was a result of
increased mortgage interest rates during the period which sharply
reduced the number of refinance applications the Company
received, as well as a reduction in real estate sales in the
Company's service area primarily due to a reduction in the
available supply of homes for sale. Continuation of interest
rates at the current or higher levels will most likely have an
adverse effect on the Company's business. During the six months
ended June 30, 2000 Capital closed 75 residential mortgage loans
in the principal amount of $14,394,965 compared to 128 loans
closed in the principal amount of $28,360,607 in the six months
ended June 30, 1999.
Total expenses for the six months ended June 30, 2000 were
$744,285 an increase of $46,613 or approximately 7% from $697,672
in the comparable 1999 period due to an increase of land and
development costs of $146,971 versus an absence of such costs
during the same period in 1999. An increase in interest expense
of $25,204 was primarily attributable to construction loans and
other warehoused loans to be sold to investors during this period
which was partially offset by a decrease in employee compensation
and benefits of $40,925, a decrease in commissions of $14,555
primarily due to an increase in the number of management
originated loan closings, on which commissions are not paid, and
a decrease in other expenses of $70,082. Other expenses include
costs related to ongoing litigation which are expected to
continue for the foreseeable future. As a percentage of
revenues, expenses were approximately 154% in the current period
compared to 113% in the comparable 1999 period.
As a result of the foregoing, the Company's net loss for the
six months ended June 30, 2000 was $253,343 or $0.19 per common
share, compared to a net loss of $64,072 or $0.05 per common
share for the comparable 1999 period.
The Company has been encouraged with the results the Internet
has provided as an additional source of mortgage applications and
during the period ended June 30, 2000 has updated its website by
linking the Company's website to its homepage on a national
provider of financial statistics website utilizing an online
mortgage application and streamlined Internet mortgage approval
process. In addition the Company has linked its website with
other national and regional websites that provide mortgage rate
listings and information to the public as additional potential
sources of mortgage applications.
To date, the number of domestic mortgages originated over
the Internet, relative to the total mortgage origination market
is very small. In 1998, 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 the Internet.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash
equivalents of $396,829 compared to $340,906 at December 31,
1999, an increase of $55,923. The increase is primarily
attributable to cash provided by operating activities which
include the proceeds of a lot sale during February 2000 in the
amount of $149,000 and a lot deposit in the amount of $47,160
which was received by the Company during April 2000.
The Company utilizes two $5,000,000 warehouse lines of
credit, which together total $10,000,000 for its daily mortgage
loan funding operations and whenever possible the Company employs
its available cash to fund mortgage loans which generates
mortgage interest income, as well as save interest costs and
other fees associated with utilizing its warehouse credit lines.
These warehouse lines are maintained with mortgage warehouse
lenders which enable the Company to borrow funds secured by
residential mortgage loans which will be temporarily accumulated
or warehoused and then sold. At June 30, 2000 the Company had
borrowed $2,104,282 from its warehouse lines of credit
representing approximately $1,248,850 in closed loans ready for
sale, of which three loans were new construction loans
aggregating approximately $1,259,000. The construction loans
will remain in the warehouse until such time that all
construction work is completed, the balance of approximately
$245,850 in disbursements are made and the loans are sold to an
institutional investor.
In August 1999, the Company entered into an agreement to
sell one of its building lots for $149,000. The Company agreed
to provide the purchaser of this lot with an approved septic
design as a condition of sale. Accordingly, the septic design
approval was granted by municipal authorities and the Company
transferred title to this lot in February 2000.
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 $481,600. Construction commenced during
May 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 $47,160 is to be paid
within 10 days of contract approval. A deposit in the amount of
$48,160 was released to the Company during April 2000 upon
mortgage approval and the Company's President has personally
guaranteed the deposit in the event of default by the Company.
The buyers have received a mortgage commitment through a
non-affiliate of the Company. The contract further provides for
an additional buyers deposit of approximately $73,400 to 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.
In July 2000, the Board of Directors voted on and authorized
a moderate increase in salary for the President and implemented
an incentive bonus plan for the President based on profitability
which will be reviewed and paid quarterly when earned.
On July 13, 2000 the Company entered into a contract to sell
a building lot which contains a house the Company built on
speculation. During August, 2000 the contract was approved after
attorney review. The terms of the contract provide for a $1,000
deposit currently being held in escrow by the buyer's realtor and
an additional deposit of $20,000 is to be paid within 10 days
of the buyers mortgage approval. The balance of buyers deposit
of approximately $23,590 is to be paid upon transfer of title
which the Company estimates will be in October, 2000. As of
August 7, 2000 the buyer has made a mortgage application through
a non-affiliate of the Company. The balance of the purchase
price, aggregating approximately $383,300, is to be paid to the
Company with the proceeds of a mortgage loan.
As of August 2000 the Company owns 2 unimproved and 1
improved building lots in its Hunterdon County, New Jersey real
estate development; one of which is under contract to build a
house and transfer title to the buyer and one lot containing a
house the Company built on speculation is under contract. 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.
Effective August 9, 2000 the Company was notified by U.S.
Department of Housing and Urban Development ("HUD") that it's
approval with the agency as a non-supervised lender was upgraded
to what is commonly referred to as Full Eagle status. This
approval allows the Company to act in the capacity of a mortgage
banker rather than a mortgage broker to underwrite and close
loans in its own name and HUD will insure these loans without
prior approval from the Company's sponsoring investors, as
previously required. This approval also allows the Company to
expand its wholesale product line to include third party
origination of FHA loans through this new delegated underwriting
privilege. Additionally, this approval allows the Company to be
potentially more competitive in the market place with these types
of loans.
The Company estimates that it will require additional
capital in order to successfully implement its future operational
plans. As a result, the Company is seeking additional capital
through, among other means, an infusion of noncollateralized
loans and the sale of additional equity in the Company. However,
there can be no assurance that the Company will be able to obtain
additional capital on terms acceptable to the Company.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part 1 - Item 3 contained in the
Company's 10-KSB for the year ended December 31, 1999 for further
information relating to two pending actions commenced against,
among others, the Company and its President described below.
The first action was commenced in the Supreme Court of the
State of New York, Queens County in March 1993, by two
individuals who allege that misrepresentations were made or
material information was omitted in connection with their
investment in the Company's 1989 private offering of Common
Stock.
In the other action, which commenced in March 1999 in the
Chancery Division of the Superior Court of New Jersey, Union
County, the plaintiffs allege that the Company aided and abetted
a former director in converting the assets of two New Jersey
limited liability companies (the "LLC's") by accepting loans and
payments from the LLC's and the former director and repaying the
loans to the former director in the form of cash and Company
stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule (For SEC use only)
(b) No reports on Form 8-K where filed during the quarter
ended June 30, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ASSET MANAGEMENT CORPORATION
(Registrant)
Date: August 14, 2000 By:_s/Richard G. Gagliardi____________
Richard G. Gagliardi
Chairman, President and Chief
Executive Officer (Principal
Executive and Financial Officer)
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