U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 December 31, 1997
-----------------
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
Commission file number 0-5097
------
UNITED VANGUARD HOMES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-2032899
- ----------------------------------- ---------------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
4 Cedar Swamp Road, Glen Cove, New York 11542
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(516) 759-1188
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(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 / / No / /
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At March 31, 1999, there
were outstanding 3,313,265 shares of the Registrant's Common Stock, $.01 par
value.
Transitional Small Business Disclosure Format:
Yes / / No /X/
<PAGE>
FORM 10-QSB
INDEX
PART I. Financial Information: Page No.
Unaudited Consolidated Balance Sheets - December 31, 1997 and
March 31, 1997......................................................2
Unaudited Consolidated Statement of Earnings
Three Months Ended December 31, 1997 and 1996 and
Nine Months Ended December 31, 1997 and 1996 .......................4
Unaudited Consolidated Statement of Stockholders' Deficiency
Nine Months Ended December 31, 1997.................................5
Unaudited Consolidated Statement of Cash Flows
For the Nine Months Ended December 31, 1997 and 1996................6
Notes to Unaudited Consolidated Financial Statements..................7
Management's Discussion and Analysis of Plan of Operation.............9
PART II. Other Information:
Exhibits and Reports on Form 8-K.....................................12
Signatures...........................................................13
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
CURRENT ASSETS 1997 1997
---- ----
<S> <C> <C>
Cash $ 242,695 $ 202,924
Accounts receivable, less allowance for doubtful
accounts of $40,000 529,061 547,812
Due from affiliates, net 328,874 267,607
Prepaid expenses and other 217,711 518,393
---------- ----------
Total current assets 1,318,341 1,536,736
PROPERTY AND EQUIPMENT - NET 2,157,045 2,276,651
OTHER ASSETS
Development fees 979,200 795,500
Restricted assets 108,352 99,600
Other assets 202,569 176,437
---------- ----------
1,290,121 1,071,537
---------- ----------
$4,765,507 $4,884,924
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Dec. 31, March 31,
1997 1997
---- ----
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 535,179 $ 264,918
Accounts payable 525,125 487,758
Accrued expenses 704,260 660,084
Public Offering Costs 407,383 587,000
Income taxes payable 178,517 190,749
------------ ------------
Total Current Liabilities 2,350,464 2,190,509
RESIDENT SECURITY DEPOSITS 273,473 284,526
LONG-TERM DEBT, less current portion 6,063,068 6,334,265
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock $.001 par value; 1,000,000
shares authorized; none issued and outstanding
Common stock, $.01 par value; authorized, 14,000,000 shares; issued and
outstanding, 3,308,850 shares and 3,320,950 shares,
December 31, 1997 and March 31, 1997, respectively 33,089 33,210
Additional paid-in capital 6,995,847 7,043,226
Accumulated deficit (10,950,434) (11,000,812)
------------ ------------
(3,921,498) (3,924,376)
------------ ------------
$ 4,765,507 $ 4,884,924
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months
December 31, Ended December 31,
1997 1996 1997 1996
---- ---- ---- ----
Operating Revenues:
<S> <C> <C> <C> <C>
Resident Services $ 1,183,977 $ 1,256,595 $ 3,537,665 $ 3,777,826
Health care services 662,161 656,567 2,048,173 1,973,387
Management Fees 30,000 30,000 90,000 30,000
Development fees 60,700 81,040 183,700 220,000
----------- ----------- ----------- -----------
1,936,838 2,024,202 5,859,538 6,001,213
Operating Expenses:
Residence operating expenses 1,531,076 1,590,863 4,561,150 4,566,278
General and administrative 261,471 249,824 804,440 557,967
Depreciation and amortization 68,087 65,966 204,263 203,922
Provision for loss on (recovery of)
advances to affiliates 0 (15,000) 42,494
----------- ----------- ----------- -----------
1,860,634 1,906,653 5,554,853 5,370,661
Income from operations 76,204 117,549 304,685 630,552
Other Income (expense)
Interest expense, net (134,042) (145,399) (421,364) (415,327)
Other income 56,761 13,531 86,540 129,677
Debt conversion expense -- 0 0 (156,466)
Public Offering costs (Loss) Recovery 130,617 (1,000,000) 134,617 (1,000,000)
----------- ----------- ----------- -----------
Income (loss) before income taxes 129,540 (1,014,319) 104,478 (811,564)
Income Taxes 17,989 (47,492) 54,000 55,008
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 111,551 ($ 966,827) $ 50,478 $ (866,572)
=========== =========== =========== ===========
Earnings per share (loss) $ 0.03 ($ 0.43) $ 0.02 ($ 0.39)
Common shares and equivalents outstanding 3,308,932 2,252,689 3,306,395 2,243,895
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1997 3,320,950 $33,210 $7,043,226 ($11,000,812) ($3,924,376)
Shares purchased and
simultaneously retired (19,600) (196) (69,804) (70,000)
Investment in Vanguard Homes
of N.J., Inc. (100) (100)
Shares issued as compensation 7,500 75 22,425 22,500
Net Income 50,478 50,478
--------- ------- ---------- ------------ -----------
Balance, December 31, 1997 3,308,850 $33,089 $6,995,847 ($10,950,434) ($3,921,498)
========= ======= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 50,478 ($866,572)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 202,094 238,925
Common stock issued for services 22,500 2,781
Debt Conversion expense - 156,466
Changes in operating assets and liabilities:
Accounts receivable, advances and other receivables 18,752 (73,708)
Prepaid expenses 313,108 18,578
Other assets (35,086) -
Development fees (183,700) 154,806
(Decrease) in due to affiliates (61,267) (61,278)
Accounts payable 37,367 (252,565)
Accrued expenses (135,442) 611,642
Income taxes payable ( 12,232) (26,000)
Resident security deposits ( 11,053) 507
-------- ----------
Net cash provided by operating activities: 205,519 (96,418)
-------- ----------
Cash flows used in investing activities:
Investment in VHNJ (100) -
Purchases of property and equipment (73,535) (97,009)
-------- ----------
(73,635) (97,009)
-------- ----------
Cash flows from financing activities:
Proceeds from borrowings on mortgages and notes payable 225,000 500,000
Principal repayments of mortgages and notes payable (238,361) (180,412)
Common stock purchased and simultaneously retired (70,000) -
Proceeds from exercised warrants - 207,074
Increase in deferred costs - (8,660)
Restricted cash financing (8,752) -
-------- ----------
Net cash used financing activities (92,113) 518,002
-------- ----------
NET INCREASE IN CASH 39,771 324,575
Cash at beginning of period 202,924 210,245
--------- ----------
Cash at end of period $ 242,695 $ 534,820
========= ==========
Cash paid during the period for
Interest $ 376,642 $ 416,000
========= ==========
Income taxes $ 58,270 $ 81,000
========= ==========
Schedule of noncash investing and financing activities:
Capital leases for furniture and equipment $ - $ 47,591
Debt converted to equity - $1,305,000
--------- ----------
$ - $1,352,591
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying consolidated balance sheet as of March 31, 1997 and
December 31, 1997, the related consolidated statements of earnings and cash
flows for the three-month periods ended December 31, 1997 and 1996, and the
statement of stockholders' deficiency for the nine-month period ended December
31, 1997 have been prepared by the management of United Vanguard Homes, Inc.
(the "Company") without audit. In the opinion of management, all adjustments
(which include only normal recurring accrual adjustments) necessary to present
fairly the financial position and results of operations as of and for the nine
months ended December 31, 1997 have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. These financial statements should 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 March 31, 1997.
The results of operations for the period ended December 31, 1997 are not
necessarily indicative of the operating results expected for a full year.
Note B - Stockholders' Equity
Convertible Debt
In March 1996, the Company offered the convertible mortgage holders and
noteholders the option to convert, through April 30, 1996, to shares of common
stock at a price of $3.75 instead of prices ranging from $6.67 through $7.22. In
April 1996, 347,996 common shares were issued in connection with the offer. As a
result of the offer, the Company issued 167,877 additional shares upon
conversion, the fair value of which, $156,466, has been recorded as debt
conversion expense in the accompanying consolidated statement of operations for
the three months ended June 30, 1996.
Stock Option Plan
In June 1996, the Company adopted the 1996 Outside Directors' Stock Option
Plan (the "Directors' Plan"), which provides for the grant of options to
purchase common stock of the Company to non-employee directors of the Company.
The Directors' Plan authorizes the issuance of a maximum of 90,000 shares of
common stock.
The Directors' Plan is administered by the Board of Directors. Under the
Directors' Plan, each non-employee director elected after April 1, 1996 will
receive options for 3,000 shares of common stock upon election. To the extent
that shares of common stock remain available for the grant of options under the
Directors' Plan, each year on April 1, commencing April 1, 1997, each
non-employee director will be granted an option to purchase 1,800 shares of
common stock. The exercise price per share for all options granted under the
Directors' Plan will be equal to the fair market value of the common stock as of
the date preceding the date of grant. All options vest in three equal annual
installments -- beginning on the first anniversary on the date of the grant.
Prior to the adoption of the Directors' Plan, options had been issued to
outside directors, of which options to purchase ____ shares were outstanding at
December 31, 1997.
7
<PAGE>
Employment Agreement
As of April 1, 1996, the Company entered into an employment agreement with
the Company's President and Chief Operating Officer pursuant to which an annual
base salary under the employment agreement is $100,000. In June 1996, The
President received a $25,000 cash bonus and 3,000 shares of the Company's common
stock fair valued at $.93 per share.
Note C - Contingencies
An affiliate of Vanguard Ventures, Inc. ("Vanguard"), the Company's
majority stockholder, was indebted under a first mortgage in the principal
amount of $4,081,000. The mortgage securing this loan provides that a default
under such loan is a default under each of the Company's Hillside Terrace and
Whitcomb Tower Mortgages. Therefore, a potential Vanguard default on this
affiliate's loan could result in the foreclosure of Hillside Terrace and
Whitcomb Tower.
Health care and senior living facilities are areas of extensive and
frequent regulatory change. Changes in the laws or new interpretations of
existing laws can have a significant effect on methods of doing business, costs
of doing business and amounts of reimbursement, from governmental and other
payors. The Company at all times attempts to comply with all applicable fraud
and abuse laws; however, there can be no assurance that administrative or
judicial interpretation of existing laws or regulations will not have a material
adverse effect on the Company's operations or financial conditions.
Note D - Promissory Note
In August 1996, the Company received a $450,000 installment loan from State
Bank of Long Island. The principal is payable in 36 equal installments plus
interest at prime plus 1 1/2 percent.
In September 1997, the Company received $75,000 on a promissory note
payable to State Bank of Long Island. The principal is payable in one
installment, due November 8, 1997, with interest at prime plus 1 1/2 percent.
In December 1997, the Company received $150,000 on promissory note to a
private party. The note is due June 30, 1998 and bears interest at 20 percent
per annum.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Nine Months Ended 1996 vs. 1997
Revenues
Net revenues of the Company represent its gross consolidated revenues, less
charitable and Supplementary Social Security Income discounts.
Net revenues decreased by $142,000, or 2 percent, from $6,001,000 in the
1996 period to $5,859,000 in the 1997 period. The primary cause was a reduction
in Resident Services Revenues which decreased by $240,000, or 6 percent, from
$3,778,000 in the 1996 period to $3,538,000 in the 1997 period. The decrease was
a result of a reduction in occupancy due to a temporary mortorium on admissions
at one of the Company's facilities. From January to October 1997, Olds Manor was
subject to a moratorium on admissions in the Home for the Aged due to the
allegation that certain services being rendered were beyond the scope of the
facility's Home for the Aged License. As a consequence of the moritorium,
occupancy dropped from 95 percent, as of March 31, 1996, to 66 percent, as of
December 31, 1997.
Healthcare services revenues increased by $75,000, or 4 percent, from
$1,973,000 in the 1996 period to $2,048,000 in the 1997 period. The increase was
a result of higher rates.
Management fees of $90,000 were earned this period on a contract which
began October 1, 1996.
Development Fee income decreased by $36,000 or 17 percent, from $220,000 in
the 1996 period to $184,000 in the 1997 period. These fees are lower this year
since they are based on a 1995 development agreement which is substantially
completed.
Residence Operating Expenses
Residence operating expenses include all retirement and healthcare center
operating expenses, including, among other things, payroll and employments
costs, food, utilities, repairs and maintenance, insurance, and property taxes.
Residence operating expenses were slightly lower ($5,000) than last year.
The decrease was primarily attributed to operating cost reductions at Olds Manor
in the current quarter.
General and Administrative Expenses
General and administrative expenses include all marketing costs, as well as
the general and administrative expenses incurred at the Company's principal
executive offices. General and administrative expenses include, among other
things, administrative salaries, rent, utilities, insurance, and related
expenses.
General and administrative expenses increased by $246,000, or 44 percent,
from $558,000 in the 1996 period to $804,000 in the 1997 period. The increase is
primarily attributable to an increase in personnel costs and an increase in
overhead associated with the Company's attempted public offering and plans to
expand its development projects.
9
<PAGE>
Provision for Recovery on Advances to Affiliates
During the nine months ended December 31, 1997, the Company recorded a net
recovery of Advances to Affiliates aggregating $15,000 as compared to a net loss
on Advances of $42,000 in the 1996 period. The variance is a function of net
funds paid out or received from the Company's parent (Vanguard) and affiliated
companies. Future recoveries are anticipated as Vanguard liquidates some of its
properties.
Interest Expense, Net
Interest expense, net, increased by $6,000, or 1 percent, from $415,000 in
the 1996 period to $421,000 in the 1997 period. The increase is primarily
attributable to increased borrowing (see Note D).
Debt Conversion Expense
The Company offered its debt holders an inducement in the form of a reduced
conversion price on its then outstanding debt. As a result of such inducement,
an aggregate of $1,305,000 of the Company's debt was converted into 347,996
shares of the Company's Common Stock effective April 1, 1996. As a result of
such inducement, the Company issued 167,877 additional shares upon conversion,
the fair value of which, $156,466, has been recorded as debt conversion expense
during the 1996 period.
Three Months 1998 vs. 1997
The principal reasons for the changes in operations for the three months ended
December 31, 1997 vs. 1996 are outlined in the discussion of the Nine Months
Results. No material items which adversely affected liquidity and the financial
position occurred in the three-month period.
Liquidity and Capital Resources
During the 1997 period operating activities provided cash of approximately
$205,000 compared to requiring cash of approximately $97,000 from operating
activities in the 1996 period. The increase in cash flows from operating
activities was principally due to the Company's net profit in the current
period.
During the 1997 period the Company required approximately $92,113 for
financing activities compared to providing cash from financing activities of
approximately $518,000 in the 1996 period. The decline in cash flows from
financing activities was principally due to $275,000 in reduced borrowing for
the current period and approximately $207,000 of proceeds from exercise of
warrants which occurred only in year 1996.
As of December 31, 1997 the Company had a deficiency in working capital of
$1,032,000. Of this deficiency $654,000 was the result of last year's aborted
public offering.
In the current period the Company borrowed $225,000 in short-term notes
(see Note D) to fund financing and investing activities. The effect of these
loans and use to fund noncurrent obligations was the principal cause of the
$378,000 increase in working capital deficit.
The Company's capital is not sufficient to fund its operating plans. Given
the above, the Company is currently negotiating to sell a substantial portion of
its operating and development properties. If such sales are successful, the
Company would have adequate capital to fund future development projects.
10
<PAGE>
In addition, the Company received a commitment letter from a financial
institution to refinance substantially all of its outstanding mortgages.
Although this commitment letter has expired, the Company believes it can
successfully renegotiate this financing alternative, which, in the Company's
opinion, would provide adequate working capital.
11
<PAGE>
Part II -- OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the quarter ended December 31, 1997.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11, Unaudited Computation of Earnings Per Share
Exhibit 27, Unaudited Financial Data Schedule
(b) Report on 8-K
No reports on Form 8-K were filed during this period.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, as amended, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
UNITED VANGUARD HOMES, INC.
by: /s/ Carl G. Paffendor
------------------------------------------
Carl G. Paffendorf, Chairman of the Board
by: /s/ Paul D'Andrea
------------------------------------------
Paul D'Andrea, Vice President - Finance
Date: July 22, 1999
13
EXHIBIT 11
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
UNAUDITED COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Three Months Ended December 31, 1997 For the Nine Months Ended December 31, 1997
-------------------------------------------- -------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS
<S> <C> <C> <C> <C> <C> <C>
Net Income $111,551 3,308,932 $0.03 $50,479 3,306,395 $0.02
Effect of Dilutive
Securities
Stock Options 34,200 34,200
-------------- ----------- --------- ------------ ----------- ---------
Diluted EPS
Income available
to common stock-
holders plus
assumed
conversions $111,551 3,343,132 $0.03 $50,479 3,340,595 $0.02
======== ========= ===== ======= ========= =====
For the Three Months Ended December 31, 1996 For the Nine Months Ended December 31, 1996
-------------------------------------------- -------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS
Net Income ($966,827) 2,252,689 ($0.43) ($866,572) 2,243,895 ($0.39)
Effect of Dilutive
Securities
Stock Options 27,792 27,792
-------------- ----------- --------- -------------- ----------- ---------
Diluted EPS
Income available
to common stock-
holders plus
assumed
conversions ($966,827) 2,280,481 ($0.42) ($866,572) 2,271,687 ($0.38)
========= ========= ====== ========= ========= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's Form 10- QSB for the quarter ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 242,695
<SECURITIES> 0
<RECEIVABLES> 569,061
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,341
<PP&E> 6,139,770
<TOTAL-ASSETS> 0
<DEPRECIATION> 3,982,725
<CURRENT-LIABILITIES> 2,350,464
<BONDS> 6,063,068
0
0
<COMMON> 33,089
<OTHER-SE> (3,954,587)
<TOTAL-LIABILITY-AND-EQUITY> 4,765,507
<SALES> 0
<TOTAL-REVENUES> 2,124,216
<CGS> 0
<TOTAL-COSTS> 1,860,634
<OTHER-EXPENSES> (130,617)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,042
<INCOME-PRETAX> 129,540
<INCOME-TAX> 17,989
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,551
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
