<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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 December 31, 1998
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[ ] 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 ____.
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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 ____
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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 May 14, 1999, was 1,000,000.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
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TABLE OF CONTENTS
Page
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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............................. 10
SIGNATURES .......................................................... 11
EXHIBIT INDEX.......................................................... 12
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
AGEMARK CORPORATION
BALANCE SHEET
December 31, 1998
(In thousands except share data)
(Unaudited)
A S S E T S
Cash and cash equivalents $ 891
Property and equipment, net 21,502
Deferred tax assets 445
Loan costs 126
Other assets 273
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Total assets $ 23,237
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 2,378
Notes payable 15,060
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Total liabilities $ 17,438
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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 (58)
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Total stockholders' equity $ 5,799
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Total liabilities and stockholders' equity $ 23,237
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See accompanying notes to financial statements.
2
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AGEMARK CORPORATION
STATEMENT OF OPERATIONS
Three Months ended December 31, 1998
(In thousands except share data)
(Unaudited)
Revenue
Property gross revenue $ 2,372
Other income 19
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Total revenue $ 2,391
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Expenses
Property operating expenses $ 2,004
Administrative and overhead expenses 179
Interest expense 233
Depreciation 153
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Total expenses $ 2,568
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Net loss $ (177)
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Basic loss per common share $
(0.18)
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3
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AGEMARK CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended December 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 $ 1 $ 5,856 $ 119 $ 5,976
Net loss (177) (177)
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Balance, December 31, 1998 $ 1 $ 5,856 $ (58) $ 5,799
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</TABLE>
4
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AGEMARK CORPORATION
STATEMENT OF CASH FLOWS
Three Months Ended December 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (177)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 153
Change in assets and liabilities:
Decrease in other assets 95
Increase in accounts payable and accrued liabilities 135
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Net cash provided by operating activities $ 206
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment $ (156)
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Net cash used in investing activities $ (156)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ (512)
New loan costs paid (116)
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Net cash used in financing activities $ (628)
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Net decrease in cash and cash equivalents $ (578)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,469
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Cash and cash equivalents, end of period $ 891
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SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest $ 139
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Taxes $ 0
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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
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.
It is suggested that these interim financial statements 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 months ended December 31, 1998,
management fees of $106,757 are included in the property operating
expenses on the statement of operations for services provided by EMI.
At December 31, 1998, accounts payable includes $36,495 owed by the
Company to EMI.
For the three months ended December 31, 1998, the Company paid rent
for the Company's headquarters in Berkeley, CA in the amount of $6,000
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. Subsequent Event
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 balance 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 adequacy
of the Company's capital resources and ability to obtain new sources of capital;
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 for the Three Months Ended December 31, 1998
The Company lost $177,000 for the three months ended December 31, 1998. The
Company was not in operation during the same period in 1997. Property gross
revenue was $2,372,000 for the three months versus property operating expenses
of $2,004,000 for net income from property operations of $368,000; after
interest costs of $233,000 and depreciation expense of $153,000 the properties
lost $18,000. Administrative and overhead expenses totaled $179,000, including
personnel related costs of $121,000, legal and accounting of $23,000, occupancy
costs of $7,000 and other administrative costs of $28,000. Other income of
$19,000 consists of $12,000 of interest income on the Company's reserves, $5,000
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 three months ended
December 31, 1998 was $206,000. The Company was not in operation during the same
period in 1997. Funds were primarily provided by depreciation and the increase
in accounts payable and accrued liabilities, principally accrued interest. 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 three months ended December 31,
1998 used $156,000 which was used to improve the Company's properties. Capital
expenditures were primarily concentrated on the Company's property in Beatrice,
NE where $120,000 was spent during the quarter.
The Company's financing activities used $628,000 during the three months
ended December 31, 1998. Principal payments of $508,000 and $3,000 were made on
the Company's Superfirst and other notes payable. In addition, in an effort to
refinance the Company's long-term debt, $116,000 was paid for services related
to obtaining replacement financing. A portion of this amount was refunded to the
Company subsequent to the close of the quarter.
Cash and cash equivalents at December 31, 1998 totaled $891,000, down
$578,000 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.
8
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The Company has not assessed its readiness in regard to Year 2000
issues. During the current fiscal year the Company will embark upon and complete
an assessment of its hardware and software utilized for accounting and billing
purposes to assure that it is Year 2000 compliant. In addition, the Company will
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.
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
in mid-1999. 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.
9
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PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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Exhibit No. Description
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27 Financial Data Schedule
(b) Reports on Form 8-K. The Registrant filed no reports on Form 8-K
during the quarter ended December 31, 1998.
10
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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
May 13, 1999 /s/ RICHARD J. WESTIN
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Richard J. Westin,
Chief Executive Officer
May 13, 1999 /s/ JAMES P. TOLLEY
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James P. Tolley,
Chief Financial Officer and
Chief Accounting Officer
11
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EXHIBIT INDEX
TO QUARTERLY REPORT ON FORM 10-QSB
FOR AGEMARK CORPORATION
Exhibit No. Exhibit Description
- ----------- -------------------
27 Financial Data Schedule
12
<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> 3-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Oct-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 891
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 891
<PP&E> 21,923
<DEPRECIATION> (421)
<TOTAL-ASSETS> 23,237
<CURRENT-LIABILITIES> 2,378
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,237
<SALES> 2,372
<TOTAL-REVENUES> 2,391
<CGS> 0
<TOTAL-COSTS> 2,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233
<INCOME-PRETAX> (177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (177)
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<NET-INCOME> (177)
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
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