<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
-------------
[ ] Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____________ to ____________
Commission File Number
000-25313
AGEMARK CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 94-32701689
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2614 Telegraph Avenue, Berkeley, California 94704
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (510) 548-6600
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. 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: The number of shares of Common
Stock, $.001 par value per share, outstanding on June 30, 1999, was 1,000,000.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements........................................... 2
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K .............................. 11
SIGNATURES ............................................................. 12
Exhibit Index .......................................................... 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AGEMARK CORPORATION
BALANCE SHEET
June 30, 1999
(In thousands except share data)
(Unaudited)
ASSETS
Cash and cash equivalents $ 854
Property and equipment, net 21,323
Deferred tax assets 445
Loan costs 61
Other assets 271
-----------------
Total assets $ 22,954
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 2,318
Notes payable 15,035
-----------------
Total liabilities $ 17,353
-----------------
STOCKHOLDERS' EQUITY
Common stock, stated value $.001, 20,000,000
shares authorized, 1,000,000 shares issued
and outstanding 1
Additional paid in capital 5,856
Accumulated deficit (256)
-----------------
Total stockholders' equity 5,601
-----------------
Total liabilities and stockholders' equity $ 22,954
=================
See accompanying notes to financial statements.
2
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AGEMARK CORPORATION
STATEMENT OF OPERATIONS
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------------------------------
1999 1998 1999 1998
----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Property gross revenue $ 2,454 $ 1,202 $ 7,267 $ 1,508
Other income 6 - 48 -
----------- ------------ ---------- --------------
Total revenue 2,460 1,202 7,315 1,508
----------- ------------ ---------- --------------
Expenses
Property operating expenses 1,966 1,042 5,953 1,287
Administrative and overhead expenses 196 88 607 88
Interest expense 210 95 669 172
Depreciation 154 85 461 117
----------- ------------ ---------- --------------
Total expenses 2,526 1,310 7,690 1,664
----------- ------------ --------------------------
Net loss $ (66) $ (108) $ (375) $ (156)
=========== ============ ========== ==============
Basic loss per common share $ (0.07) $ (540.00) $ (0.38) $ (780.00)
=========== ============ ========== ==============
Fully diluted loss per common share $ (0.06) $ (540.00) $ (0.34) $ (780.00)
=========== ============ ========== ==============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
AGEMARK CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended June 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
<S> <C> <C> <C> <C>
Balance, September 30, 1998 $ 1 $ 5,856 $ 119 $ 5,976
Net loss (375) (375)
------------ -------------- ------------ ------------
Balance, March 31, 1999 $ 1 $ 5,856 $ (256) $ 5,601
============ ============== ============ ============
See accompanying notes to financial statements.
</TABLE>
4
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AGEMARK CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------------
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (375) $ (156)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 461 117
Change in assets and liabilities:
Decrease (increase) in other assets 97 13
Increase (decrease)in accounts payable and accrued liabilities 75 69
------------ ----------
Net cash provided by (used in) operating activities 258 43
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (286) (56)
------------ ----------
Net cash used in investing activities (286) (56)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash acquired in connection with issuance of common stock 120
Principal payments on notes payable (536) -
New loan costs paid (51)
------------ ----------
Net cash used in financing activities (587) 120
------------ ----------
Net decrease in cash and cash equivalents (615) 107
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,469 26
------------ ----------
Cash and cash equivalents, end of period $ 854 $ 133
============ ==========
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 467 $ 154
============ ==========
Taxes 0 0
============ ==========
See accompanying notes to financial statements.
</TABLE>
5
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AGEMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The interim financial statements included herein have been prepared by
Agemark Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. These interim financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's registration statement on Form
10-SB for the year ended September 30, 1998. The Company follows the same
accounting policies in preparation of interim reports.
Note 2. Transactions With Affiliates
The Company contracts with Evergreen Management, Inc. ("EMI") for the
management of its owned and operated properties. EMI is co-owned by Richard
J. Westin and Jesse A. Pittore, directors and officers of the Company.
Compensation for these management services is 4.5% of gross income paid
monthly. For the three and nine months ended June 30, 1999, management fees
of $110,431 and $327,013, respectively, are included in the property
operating expenses on the statement of operations for services provided by
EMI. At June 30, 1999, accounts payable included $41,770 owed by the
Company to EMI.
For the three and nine months ended June 30, 1999, the Company paid rent
for the Company's headquarters in Berkeley, CA in the amount of $6,000 and
$18,000, respectively, pursuant to a lease between the Company and the
Waterford Company, which is owned by members of Richard J. Westin's family.
The lease is for a one-year term starting October 1, 1998 at a rent of
$2,000 per month. The lease will automatically renew unless terminated by
either party. The lessee is responsible for limited maintenance and repair
expenses and all utilities. The Waterford Company is responsible for major
repairs, real estate taxes and debt service.
6
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AGEMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 3. Stock Option Plan
In December 1998 the stockholders approved the adoption of the 1997
Employee Stock Incentive Plan, a stock option plan for certain employees
and directors. The total number of shares that may be issued upon the
exercise of options under this plan is 250,000. Also under this plan, no
participant may be granted more than 100,000 shares and no awards may be
granted after November 21, 2007.
Effective January 1, 1999, options to purchase up to a total of 187,666
shares of common stock were granted at exercise prices ranging from $1.00
to $1.10 per share to the officers and directors of the Company. The
options will vest as follows:
Exercise Date
Share Price Fully
Granted Per Share Vested
-------- ---------- -------
166,666 $1.10 July 1, 1999
1,000 1.00 January 1, 2000
20,000 1.00 January 1, 2000
Effective April 1, 1999, options to purchase up to a total of 42,750
shares of common stock were granted at an exercise price of $1.00 per
share to other employees of the Company. These options vest 50% on
issuance with the remainder vesting over two years. The date on which
they become fully vested is April 1, 2001.
7
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Statements in this Quarterly Report on Form 10-QSB concerning the Company's
outlook or future economic performance; anticipated profitability, gross
rentals, expenses or other financial items; and statements concerning
assumptions made or exceptions to any future events, conditions, performance or
other matter are "forward looking statements" as that term is defined under the
Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties, and other factors that would cause actual results to differ
materially from those stated in such statements, including those set forth under
the caption "Factors That May Affect Results" in the description of the
Company's business in the Company's Registration Statement on Form 10-SB.
Results of Operations
Overview
The Company commenced partial operations on January 1, 1998 with the
acquisition of its first property located in Williston, North Dakota. Over the
course of the fiscal period that ended September 30, 1998, the remainder of the
ten properties owned by the Company were acquired. On April 1, 1998 six
additional properties were acquired including the Sedalia, Missouri property
which was later sold. Comparisons of results of operations for the three and
nine months ended June 30, 1999, representing the ownership and operation of ten
properties, to the results of operations for the three months ended June 30,
1998, representing the results of operations for seven properties, are not
meaningful.
Three Months Ended June 30, 1999 Compared to the Three Months Ended
June 30, 1998
Property gross revenue increased from $1,202,000 in the three months ended
June 30, 1998 to $2,454,000 in the three months ended June 30, 1999 reflecting
the increase in properties owned from seven in 1998 to ten in 1999. Property
operating expenses also increased in the 1999 period to $1,966,000 from
$1,042,000 in the 1998 period. This increase was also attributable to increased
number of properties owned. Administrative expenses increased from $88,000 in
1998 to $196,000 in 1999 reflecting the increase in number of administrative
personnel, and the full operation of the Company in 1999. Interest expense was
$210,000 for the three months ended June 30, 1999 compared to $95,000 for the
three months ended June 30, 1998 reflecting larger amounts outstanding under
property notes in 1999. Depreciation expense was $154,000 in 1999 compared to
$85,000 in 1998 reflecting the greater number of properties owned in 1999.
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998
The Company only operated six months during the nine months ended June 30,
1998. Therefore, comparisons of the results of operations for the two periods
are not meaningful.
The Company incurred a net loss of $375,000 for the nine months ended
June 30, 1999. Property gross revenue was $7,267,000 for the nine months versus
property operating expenses of $5,953,000 for net income from property
operations of $1,314,000; after interest costs of $669,000 and depreciation
expense of $461,000 the properties made $184,000. Administrative and overhead
expenses totaled $607,000, including personnel related costs of $376,000,
legal and accounting of $125,000, occupancy costs of $21,000 and other
administrative costs of $85,000. Other income of $48,000 consists of $25,000
of interest income on the Company's
8
<PAGE>
reserves, $21,000 from the settlement of prepetition liabilities for less than
their assumed value and $2,000 of miscellaneous income.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended June
30, 1999 was $258,000. Funds were primarily provided by depreciation and the
decrease in other assets. During the period accrued interest increased $203,000
but was substantially offset by the decrease in other accounts payable and
accrued liabilities. The terms of the Company's long-term debt provide for
interest to accrue if computed cash flow is not sufficient to pay it currently.
The Company's investing activities for the nine months ended June 30, 1999
used $286,000 primarily for improvements to the Company's properties. Capital
expenditures were primarily concentrated on the Company's property in Beatrice,
Nebraska where $132,000 was spent during the period.
The Company's financing activities used $587,000 during the nine months
ended June 30, 1999. Principal payments of $508,000 and $3,000 were made on the
Company's superfirst and other notes payable and $25,000 was paid on a tax
notes. In addition, in an effort to refinance the Company's long-term debt,
$116,000 was paid for services and deposits related to obtaining replacement
financing and $65,000 was refunded to the Company.
Cash and cash equivalents at June 30, 1999 totaled $854,000, down $615,000
from September 30, 1998. The principal cause of this decrease was the one-time
payment of $508,000 on the Company's Superfirst note payable. Management
believes that funds provided from operations and cash reserves will be adequate
to support its short-term cash requirements for capital expenditures, repayment
of debt and maintenance of working capital. The Company anticipates that new
sources of capital, such as the refinancing of its portfolio of properties, will
be necessary to meet its long-term cash requirements as presently contemplated.
Year 2000 Disclosure
"Year 2000 issues" relate to the result of computer programs having been
written using two digits rather than four to define the applicable year.
Computer programs and electronic devices that utilize date-sensitive software or
information may recognize a date using the "00" as the year 1900 rather than as
the year 2000. This recognition could result in a system failure or
miscalculations causing disruptions of operations or the inability of suppliers
of material goods or services to continue supporting the Company's operations.
The Company has not completed its assessment of its readiness in regard to
Year 2000 issues. During the last fiscal quarter the Company embarked upon a
complete assessment of its hardware and software utilized for accounting and
billing purposes to assure that it is Year 2000 compliant. In addition, the
Company has begun to obtain certificates of Year 2000 compliance from all
vendors of material supplies and services as well as vendors of certain
emergency call systems utilized in the company's facilities. Contingency plans
will be developed and executed with respect to vendors who will not be Year 2000
ready in a timely manner where such lack of readiness is expected to have a
material adverse impact on the Company's operations. However, because the
Company cannot be certain that its vendors will be able to supply material goods
and services without material interruption, and because the Company cannot be
certain that execution of its contingency plans will be capable of
implementation or result in a continuous and adequate supply of such goods and
services, the Company cannot give assurance that these matters will not have a
material adverse effect on the Company's future financial position, results of
operations or cash flows.
9
<PAGE>
As these assessments and initiatives are not as yet completed, the Company
cannot say whether the cost of replacing noncompliant hardware, software and
systems will have a material adverse effect upon the Company's future operations
or prospects. The Company intends to develop and implement, if necessary,
appropriate contingency plans to mitigate to the extent possible the effects of
any Year 2000 noncompliance, and expects to have such plans completed during the
current fiscal year. As part of the development of a contingency plan, the
Company will evaluate its worst-case scenario in the event of Year 2000
noncompliance. Although the full consequences are unknown, the failure of either
the Company's critical systems or those of its material third parties to be Year
2000 compliant would result in the interruption of the Company's business, which
could have a material adverse effect on the Company's business, financial
position and results of operations.
10
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
11 Statement regarding Computation of Per Share
Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K. The Registrant filed no reports on Form 8-K
during the quarter ended June 30, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGEMARK CORPORATION
August 11, 1999 /s/ RICHARD J. WESTIN
----------------------------------------
Richard J. Westin,
Chief Executive Officer
August 11, 1999 /s/ JAMES P. TOLLEY
----------------------------------------
James P. Tolley,
Chief Financial Officer and
Chief Accounting Officer
12
<PAGE>
EXHIBIT INDEX
TO QUARTERLY REPORT ON FORM 10-QSB
FOR AGEMARK CORPORATION
Exhibit No. Exhibit Description
11 Statement regarding Computation of Per Share Earnings
27 Financial Data Schedule
13
<PAGE>
EXHIBIT 11
<TABLE>
AGEMARK CORPORATION
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------------------------
1999 1998 1999 1998
------------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Weighted average common shares actually outstanding
1,000,000 200 1,000,000 200
------------- --------- ------------ ---------
Stock options issued January1,1999
At $1.10 per share
166,666 - 166,666
At $1.00 per share
21,000 - 21,000
------------- --------- ------------ ---------
Total shares subject to options
187,666 - 187,666 -
Total assumed proceeds of exercise $ 204,333 - $ 204,333 -
Number of shares assumed purchased at $5.97 / share (1)
34,227 - 34,227 -
------------- ------------
Net shares assumed issued at January 1, 1999 153,439 - 153,439 -
------------- ------------
Stock options issued April 1, 1999
At $1.00 per share 42,750 42,750
------------- ------------
Total shares subject to options
42,750 42,750
Total assumed proceeds of exercise $ 42,750 $ 42,750
Number of shares assumed purchased at $5.97 / share (1)
7,161 7,161
------------- --------- ------------ ---------
Net shares assumed issued at April 1, 1999
35,589 35,589
------------- --------- ------------ ---------
Weighted average common shares assumed outstanding for
period 1,189,029 200 1,114,156 200
============= ========= ============ =========
<FN>
(1) There is no market for the Company's shares. For computational purposes the value assumed is the September 30,
1998 book value per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND INCOME STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 854
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 854
<PP&E> 22052
<DEPRECIATION> 729
<TOTAL-ASSETS> 22954
<CURRENT-LIABILITIES> 2318
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 5600
<TOTAL-LIABILITY-AND-EQUITY> 22954
<SALES> 7267
<TOTAL-REVENUES> 7315
<CGS> 0
<TOTAL-COSTS> 7690
<OTHER-EXPENSES> 607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 669
<INCOME-PRETAX> (156)
<INCOME-TAX> 0
<INCOME-CONTINUING> (156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (156)
<EPS-BASIC> (.38)
<EPS-DILUTED> (.34)
</TABLE>
