<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 March 31, 1999
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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
_______________________________
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 ___
---
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 17, 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......................... 11
SIGNATURES ...................................................... 12
EXHIBIT INDEX...................................................... 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
AGEMARK CORPORATION
BALANCE SHEET
March 31, 1999
(In thousands except share data)
(Unaudited)
A S S E T S
Cash and cash equivalents $ 758
Property and equipment, net 21,375
Deferred tax assets 445
Loan costs 61
Other assets 259
-----------
Total assets $ 22,898
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 2,188
Notes payable 15,043
-----------
Total liabilities $ 17,231
-----------
STOCKHOLDERS' EQUITY
Common stock, stated value $.001, 20,000,000 shares $ 1
authorized, 1,000,000 shares issued and outstanding 5,856
Additional paid in capital (190)
Accumulated deficit -----------
Total stockholders' equity $ 5,667
-----------
Total liabilities and stockholders' equity $ 22,898
===========
See accompanying notes to financial statements.
2
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<TABLE>
<CAPTION>
AGEMARK CORPORATION
STATEMENT OF OPERATIONS
(In thousands except share data)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue
Property gross revenue $ 2,441 $ 306 $ 4,813 $ 306
Other income 23 42
Total revenue $ 2,464 $ 306 $ 4,855 $ 306
Expenses
Property operating expenses $ 1,983 $ 245 $ 3,987 $ 245
Administrative and overhead expenses 232 411 -
Interest expense 226 77 459 77
Depreciation 154 32 307 32
Total expenses $ 2,595 $ 354 $ 5,164 $ 354
Net loss $ (131) $ (48) $ (309) $ (48)
Basic loss per common share $ (0.13) $ (240.00) $ (0.31) $ (240.00)
Fully diluted loss per common share $ (0.11) $ (240) $ (0.29) $ (240)
See accompanying notes to financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
AGEMARK CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended March 31, 1999
(In thousands)
(Unaudited)
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 (309) (309)
----------- ----------- ----------- -----------
Balance, March 31, 1999 $ 1 $ 5,856 $ (190) $ 5,667
=========== =========== =========== ============
See accompanying notes to financial statements.
</TABLE>
4
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AGEMARK CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (309) $ (48)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 307 32
Change in assets and liabilities:
Decrease (increase) in other assets 109 (9)
Increase (decrease)in accounts payable and accrued liabilities (54) 10
Net cash provided by (used in) operating activities $ 53 $ (15)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment $ (184) $ (1)
Net cash used in investing activities $ (184) $ (1)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ (529) $ -
New loan costs paid (51)
Net cash used in financing activities $ (580) $ 0
Net decrease in cash and cash equivalents $ (711) $ (16)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,469 26
Cash and cash equivalents, end of period $ 758 $ 10
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 168 $ 77
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 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. Results for
any interim period are not necessarily indicative of results for
any future interim period or for the entire fiscal year.
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 six months
ended March 30, 1999, management fees of $109,845 and $217,212,
respectively, are included in the property operating expenses on
the statement of operations for services provided by EMI. At
March 30, 1999, accounts payable includes $41,964 owed by the
Company to EMI.
For the three and six months ended March 30, 1999, the Company paid
rent for the Company's headquarters in Berkeley, CA in the amount
of $6,000 and $12,000, 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 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
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 which ended September 30, 1998, the
remainder of the ten properties owned by the Company were acquired. Comparisons
of results of operations for the three and six months ended March 31, 1999,
representing the ownership and operation of ten properties, to the results of
operations for the three months ended March 31, 1998, representing the results
of operations for the Williston, North Dakota property alone, are not
meaningful.
Three Months Ended March 31, 1999 Compared to the Three Months
Ended March 31, 1998
Property gross revenue increased from $306,000 in the three months ended
March 31, 1998 to $2,441,000 in the three months ended March 31, 1999
reflecting the increase in properties owned from one in 1998 to ten in 1999.
Property operating expenses also increased in the 1999 period to $1,983,000
from $245,000 in the 1998 period. This increase was also attributable to
increased number of properties owned. Administrative expenses increased from
$-0- in 1998 to $232,000 in 1999 reflecting the increase in number of
administrative personnel, and the full operation of the Company in 1999.
Interest expense was $232,000 for the three months ended March 31, 1999
compared to $77,000 for the three months ended March 31, 1998 reflecting the
greater number of property notes in 1999. Depreciation expense was $154,000 in
1999 compared to $32,000 in 1998 reflecting the greater number of properties
owned in 1999.
Results of Operations for the Six Months Ended March 31, 1999
The Company only operated three months during the six months ended
March 31, 1998. Therefore, comparisons of the results of operations for the
two periods are not meaningful.
8
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The Company lost $309,000 for the six months ended March 31, 1999.
Property gross revenue was $4,813,000 for the six months versus property
operating expenses of $3,987,000 for net income from property operations of
$826,000; after interest costs of $459,000 and depreciation expense of $307,000,
the properties made $60,000. Administrative and overhead expenses totaled
$411,000, including personnel related costs of $253,000, legal and accounting of
$83,000, occupancy costs of $14,000 and other administrative costs of $61,000.
Other income of $42,000 consists of $19,000 of interest income on the Company's
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 six months ended
March 31, 1999 was $63,000. Funds were primarily provided by depreciation and
the decrease in other assets. During the period accrued interest increased
$143,000 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 six months ended March 31,
1999 used $184,000 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 $580,000 during the six months
ended March 31, 1999. Principal payments of $508,000 and $3,000 were made on the
Company's Superfirst and other notes payable and $18,000 was paid on a tax note.
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 March 31, 1999 totaled $758,000, down
$711,000 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
9
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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 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.
10
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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 March 31, 1999.
11
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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 14, 1999 /s/ RICHARD J. WESTIN
--------------------------------
Richard J. Westin,
Chief Executive Officer
May 14, 1999 /s/ JAMES P. TOLLEY
--------------------------------
James P. Tolley,
Chief Financial Officer and
Chief Accounting Officer
12
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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
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EXHIBIT 11
AGEMARK CORPORATION
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
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
January 1, 1999 at $1.10 per share 166,666 - 166,666 -
January 1, 1999 at $1.00 per share 21,000 - 21,000 -
--------- ---------
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 -
Weighted average common shares assumed outstanding for 1,153,439 200 1,076,720 200
period
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 758
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 758
<PP&E> 21,950
<DEPRECIATION> 575
<TOTAL-ASSETS> 22,898
<CURRENT-LIABILITIES> 2,188
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 5,666
<TOTAL-LIABILITY-AND-EQUITY> 22,898
<SALES> 4,813
<TOTAL-REVENUES> 4,855
<CGS> 0
<TOTAL-COSTS> 5,164
<OTHER-EXPENSES> 411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> (309)
<INCOME-TAX> 0
<INCOME-CONTINUING> (309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.29)
</TABLE>
