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 December 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 June 30, 1999, was 1,000,000.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
1
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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............... 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................. 11
SIGNATURES .................................................. 12
Exhibit Index.................................................. 13
1
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
AGEMARK CORPORATION
BALANCE SHEET
December 31, 1999
(In thousands except share data)
A S S E T S
Cash and cash equivalents $ 374
Property and equipment, net 21,179
Deferred tax assets 445
Other assets 262
--------------
Total assets $ 22,260
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 1,631
Notes payable 15,013
--------------
Total liabilities $ 16,644
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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
Retained earnings (241)
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Total stockholders' equity $ 5,616
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Total liabilities and stockholders' equity $ 22,260
==============
See accompanying notes to financial statements.
2
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AGEMARK CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1999 and 1998
(In thousands except share data)
1999 1998
---- ----
Revenue
Property gross revenue $ 2,535 $ 2,372
Other income 4 19
------------- -------------
Total revenue $ 2,539 $ 2,391
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Expenses
Property operating expenses $ 2,222 $ 2,004
Administrative and overhead expenses 177 179
Interest expense 239 233
Depreciation 156 153
------------- -------------
Total expenses $ 2,794 $ 2,568
------------- -------------
(Loss) before income taxes $ (255) $ (177)
Income tax expense (benefit) 0 0
------------- -------------
Net income (loss) $ (255) $ (177)
============= =============
Basic loss per common share $ $
(0.26) (0.18)
============= =============
See accompanying notes to financial statements.
3
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<TABLE>
<CAPTION>
AGEMARK CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended December 31, 1999
(In thousands)
Additional
Common Paid-In Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance, September 30, 1999 $ 1 $ 5,856 $ 14 $ 5,871
Net (loss) (255) (255)
------------- ------------- ------------- ------------
Balance, September 30, 1999 $ 1 $ 5,856 $ (241) $ 5,616
============= ============= ============= ============
</TABLE>
See accompanying notes to financial statements.
4
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<TABLE>
<CAPTION>
AGEMARK CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1999 and 1998
(In thousands)
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (255) $ (177)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 156 153
Change in assets and liabilities:
Appealed real property taxes and interest paid (247)
Decrease in other assets 101 95
(Decrease) increase in accounts payable and accrued liabilities (83) 135
------------- ------------
Net cash (used in) provided by operating activities $ (328) $ 206
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (74) (156)
------------- ------------
Net cash used in investing activities $ (74) $ (156)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (4) (512)
New loan costs paid 0 (116)
------------- ------------
Net cash used in financing activities $ (4) $ (628)
------------- ------------
Net decrease in cash and cash equivalents $ (406) $ (578)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 780 1,469
------------- ------------
Cash and cash equivalents, end of period $ 374 $ 891
============= ============
SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest $ 145 $ 139
============= ============
Taxes $ 0 $ 0
============= ============
</TABLE>
See accompanying notes to financial statements.
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 annual report on Form 10-KSB
for the year ended September 30, 1999. 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, 1999 and December 31, 1998, respectively,
management fees of $114,067 and $106,757 are included in the
property operating expenses on the statement of operations for
services provided by EMI. At December 31, 1999, accounts payable
includes $38,513 owed by the Company to EMI.
For the three months ended December 31, 1999 and 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 renews automatically
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. Employee Stock Incentive 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
210,416 shares of common stock were granted at exercise prices
ranging from $1.00 to $1.10 per share to the officers, directors
and employees of the Company. The options will vest as follows:
Exercise Date
Share Price Fully
Granted Per Share Vested
------- --------- ------
166,666 $1.10 July1, 1999
1,000 1.00 January 1, 2000
42,750 1.00 January 1, 2003
Effective April 1, 1999, options to purchase up to a total of
18,748 shares of common stock were granted at an exercise price of
$1.00 per share to other employees of the Company. These options
become fully vested on April 1, 2001.
On November 10, 1999, options to purchase up to a total of 5,000
shares of common stock were granted at an exercise price of $1.00
per share to employees of the Company's facility in Cumberland, MD
as a bonus for performance. These options become fully vested on
November 1, 2001.
On December 22, 1999, options to purchase up to 3,000 shares of
common stock were granted at an exercise price of $1.00 to one of
the Company's directors in consideration of his service on the
Board of Directors. These options become fully vested on
December 1, 2000.
The Board of Directors of the Company has estimated the value of
the Company's common stock at $1.00 per share based on the
following
7
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AGEMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 3. Employee Stock Incentive Plan (continued)
considerations: there is no public market for stock; the Company
and the contributing Partnerships have no operating profit
history; the Plan of Reorganization prohibits the Company from
declaring any dividends on its common stock until certain notes
payable assumed pursuant to the Plan of Reorganization are paid in
full or otherwise satisfied; a significant portion of the Company's
cash flow for at least the near term is expected to be devoted to
debt service; and transactions affecting 50,000 shares have been
effected in the past between the former general partner of the
contributing Partnerships and certain limited partners where the
limited partnership interests were purchased by the general
partner at an equivalent value of approximately $1.00 per share.
Therefore, the stock option grants are not considered compensatory
and do not have a dilutive effect on the calculation of earnings
per share.
8
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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 Annual Report on Form 10-KSB.
Results of Operations
Three Months Ended December 31, 1999 Compared to the Three Months Ended
December 31, 1998
Property gross revenue increased from $2,372,000 in the three months ended
December 31, 1998 to $2,535,000 in the three months ended December 31, 1999,
reflecting generally higher rental rates. Property operating expenses also
increased in the 1999 period to $2,222.000 from $2,004,000 in the 1998 period.
This increase was attributable primarily to increased maintenance, marketing and
personnel costs. Administrative expenses decreased from $179,000 in the three
months ended December 31, 1998 to $177,000 in the three months ended December
31, 1999. Interest expense was $239,000 for the three months ended December 31,
1999 compared to $233,000 for the three months ended December 31, 1998,
reflecting higher expenses on the Company's Rock Island Note partially offset by
lower expenses on the Company's tax notes which are amortizing. Depreciation
expense was $156,000 in the three-month period of 1999 compared to $153,000 in
the same period in 1998.
Liquidity and Capital Resources
Net cash used in operations during the three months ended December 31, 1999
was $328,000. The largest single expenditure during the period was to pay the
previously appealed taxes and interest on the Port Huron, Michigan facility in
the amount of $247,000.
The Company's investing activities for the three months ended December 31,
1999 used $74,000 for improvements to the Company's properties. Capital
expenditures were primarily concentrated on the Company's property in Dickinson,
North Dakota.
The Company's financing activities used $4,000 during three months ended
December 31, 1999. A principal payment of $4,000 was paid on a tax note.
Cash and cash equivalents at December 31, 1999 totaled $374,000, down
$406,000 from September 30, 1999. The principal cause of this decrease was the
one-time payment of $247,000 to retire the entire amount of the appealed real
property taxes and interest on the Company's facility in Port Huron, Michigan.
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.
9
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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. In addition, some computer programs that are date sensitive to
the Year 2000 may not have been programmed to process the Year 2000 as a leap
year. These Year 2000 issues 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 assessed its readiness in regard to Year 2000 issues. The
Company has completed 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 has obtained certificates of Year 2000 compliance from
significant vendors of material supplies and services as well as vendors of
certain emergency call systems utilized in the company's facilities. Contingency
plans have been 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. To date, the Company
is not aware of any Year 2000 issues affecting any of its systems or 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.
The cost of replacing noncompliant hardware, software and systems has not
had a material adverse effect upon the Company's future operations or prospects.
The Company has developed and implemented appropriate contingency plans to
mitigate to the extent possible the effects of any Year 2000 noncompliance. The
Company has evaluated 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
----------- -----------
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, 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
February 11, 2000 /s/ RICHARD J. WESTIN
------------------------------
Richard J. Westin,
Chief Executive Officer
February 11, 2000 /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
- ----------- -------------------
27 Financial Data Schedule
13
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<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>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
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<OTHER-SE> 5856
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