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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-KSB


|  |  |                                                                                          | 
|- |  | ---------------------------------------------------------------------------------------- | 
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  | For the fiscal year ended September 30, 2002                                            
|  |  | OR                                                                                      
|o |  | 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

(Name of small business issuer in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 94-3270169                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|2614 Telegraph Avenue                                          |  |                                     
|Berkeley, CA                                                   |  | 94704                               
|(Address of Principal Executive Offices)                       |  | (ZIP Code)                          

Issuers telephone number: (510) 548-6600

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.001 per share

Check whether the registrant (1) has 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 þ No o

Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o

State issuers revenues for its most recent fiscal year: $10,694,000

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. $691,062; based on a
per-share market value of $1.00 as determined by the Board of Directors of the
issuer.

Check whether the issuer has 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 a court. Yes þ No o

At December 16, 2002, there were 1,109,481 shares of common stock, par
value $.001 per share, of the registrant issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable.

Transitional Small Business Disclosure Format (check one): Yes
o No þ





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TABLE OF CONTENTS



|                                                                      |                                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                               
|                                                                      | Item 1. DESCRIPTION OF BUSINESS                                                                                        
|                                                                      | Item 2. DESCRIPTION OF PROPERTY                                                                                        
|                                                                      | Item 3. LEGAL PROCEEDINGS                                                                                              
|                                                                      | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                            
|PART II                                                              
|                                                                      | Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS                                                        
|                                                                      | Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                      
|                                                                      | Item 7. FINANCIAL STATEMENTS                                                                                           
|                                                                      | Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                           
|PART III                                                             
|                                                                      | Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
|                                                                      | Item 10. EXECUTIVE COMPENSATION                                                                                        
|                                                                      | Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                
|                                                                      | Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                
|                                                                      | Item 13. FINANCIAL STATEMENTS AND EXHIBITS                                                                             
|                                                                      | Item 14. CONTROLS AND PROCEDURES                                                                                       
|SIGNATURES                                                           
|EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB FOR AGEMARK CORPORATION



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TABLE OF CONTENTS

|         |  |                                                                                                                 |  |  |    |      |  | 
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |  |                                                                                                                 |  |  |    | Page
|         |  |                                                                                                                 |  |  |    |     
|PART I   |  |                                                                                                                 |  |  | 3  |     
|Item 1.  |  | DESCRIPTION OF BUSINESS                                                                                         |  |  | 3  |     
|Item 2.  |  | DESCRIPTION OF PROPERTY                                                                                         |  |  | 11 |     
|Item 3.  |  | LEGAL PROCEEDINGS                                                                                               |  |  | 13 |     
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  |  | 14 |     
|PART II  |  |                                                                                                                 |  |  | 14 |     
|Item 5.  |  | MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS                                                         |  |  | 14 |     
|Item 6.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                       |  |  | 14 |     
|Item 7.  |  | FINANCIAL STATEMENTS                                                                                            |  |  | 19 |     
|Item 8.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE                            |  |  | 40 |     
|PART III |  |                                                                                                                 |  |  | 40 |     
|Item 9.  |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT |  |  | 40 |     
|Item 10. |  | EXECUTIVE COMPENSATION                                                                                          |  |  | 41 |     
|Item 11. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                  |  |  | 42 |     
|Item 12. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  |  | 43 |     
|Item 13. |  | FINANCIAL STATEMENTS AND EXHIBITS                                                                               |  |  | 46 |     
|Item 14. |  | CONTROLS AND PROCEDURES                                                                                         |  |  | 47 |     





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PART I




Item 1. DESCRIPTION OF BUSINESS

General

Agemark Corporation (the Company) owns and operates assisted living
residences, which offer a combination of housing and personalized services for
senior citizens who can no longer live independently but who do not require the
24-hour medical care provided by a skilled nursing facility. The Company
operates 7 properties located in non-urban, secondary markets in four states.
The Companys primary focus is on private pay residents, who generally pay
for the Companys services from their own funds, with the help of other family
members or through private insurance.

Background and Formation of the Company; Plan of Reorganization

The Company was organized in April, 1997 pursuant to an order of the U.S.
Bankruptcy Court dated April 27, 1997 (the Order) to receive the assets of
and continue the businesses of four reorganized, publicly registered limited
partnerships and two privately held limited partnerships (the Partnerships).
The Order confirmed the Second Amended Joint Plan of Reorganization (the
Plan) of the Partnerships filed in January, 1997 and amended in April, 1997.
The first of the property transfers to the Company pursuant to the Plan was
accomplished in January, 1998 and the final transfer took place in July, 1998.
A total of 1,000,000 shares of stock were issued to the Partnerships for these
properties as of September 30, 1998 and immediately distributed to their
partners.

The following is a summary of the properties transferred to the Company
and the adjustments made to historical values to arrive at values approved by
the Bankruptcy Court pursuant to the Plan of Reorganization:

|                                  |  |         |  |             |       |            |        |              |       |             |       |              |       |         |        |   |        |   |       |   |       |   |        | 
|--------------------------------- |  | ------- |  | ----------- | ----- | ---------- | ------ | ------------ | ----- | ----------- | ----- | ------------ | ----- | ------- | ------ | - | ------ | - | ----- | - | ----- | - | ------ | 
|(Amounts in thousands of dollars)
|                                  |  |         |  |             |       |            |        |              |       | Accumulated |       | Net Book     |       |         |        |   |        |   |       |  
|                                  |  |         |  | Transferred |       | Historical |        | Depreciation |       | Value       |       | Write Up     |       | Plan of
|Property Location                 |  | From    |  | Value       |       | 12/31/97   |        | 12/31/97     |       | (Down)      |       | Reorg. Value
|                                  |  |         |  |             |       |            |        |              |       |             |       |             
|Beatrice, NE                      |  | HHS I   |  | $           | 2,742 |            |        | $            | 888   |             |       | $            | 1,854 |         |        | $ | (618   | ) |       | $ | 1,236 |  
|Cumberland, MD                    |  | HHS I   |  |             | 2,188 |            |        |              | 635   |             |       |              | 1,553 |         |        |   | 2,315  |   |       |   | 3,868 |  
|Hastings, NE                      |  | HHS I   |  |             | 3,211 |            |        |              | 1,120 |             |       |              | 2,091 |         |        |   | 198    |   |       |   | 2,289 |  
|Chanute, KS                       |  | HHS II  |  |             | 2,602 |            |        |              | 750   |             |       |              | 1,852 |         |        |   | (901   | ) |       |   | 951   |  
|Rock Island, IL                   |  | HHS II  |  |             | 4,345 |            |        |              | 1,212 |             |       |              | 3,133 |         |        |   | (735   | ) |       |   | 2,398 |  
|Fort Madison, IA                  |  | HHS III |  |             | 3,460 |            |        |              | 781   |             |       |              | 2,679 |         |        |   | (464   | ) |       |   | 2,215 |  
|Manitowoc, WI                     |  | HHS III |  |             | 3,642 |            |        |              | 693   |             |       |              | 2,949 |         |        |   | (2,154 | ) |       |   | 795   |  
|Port Huron, IL                    |  | PIF I   |  |             | 1,090 |            |        |              | 0     |             |       |              | 1,090 |         |        |   | 86     |   |       |   | 1,176 |  
|Dickinson, ND                     |  | Private |  |             | 1,380 |            |        |              | 380   |             |       |              | 1,000 |         |        |   | 1,273  |   |       |   | 2,273 |  
|Williston, ND                     |  | Private |  |             | 1,932 |            |        |              | 538   |             |       |              | 1,394 |         |        |   | 2,978  |   |       |   | 4,372 |  
|                                  |  |         |  |             |       |            |        |              |       |             |       |              |       |         |        |   |        |   |       |   |       |   |        | 
|                                  |  |         |  |             |       | $          | 26,592 |              |       | $           | 6,997 |              |       | $       | 19,595 |   |        | $ | 1,978 |   |       | $ | 21,573 | 
|                                  |  |         |  |             |       |            |        |              |       |             |       |              |       |         |        |   |        |   |       |   |       |   |        | 

In connection with the transfers of the facilities, the Company also
assumed various notes payable. The following is a summary of the notes payable
assumed by the Company:

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|                                                                         |  |   |        | 
|------------------------------------------------------------------------ |  | - | ------ | 
|(Amounts in thousands of dollars)                                       
|Carrying value of notes (including accrued interest) by
the Partnerships |  | $ | 24,186 | 
|Less forgiveness of debt recognized by the Partnerships                  |  |   | 8,595  | 
|                                                                         |  |   |        | 
|Notes payable assumed by the Company                                     |  |   | 15,591 | 
|                                                                         |  |   |        | 

The Senior Care Industry

The senior care industry is characterized by a wide range of living
accommodations and health care services. For those who are able to live in a
home setting, home health care and other limited services can be an appropriate
alternative. Community housing or retirement centers, which are commonly
referred to as independent living facilities, are also available to persons who
need modest assistance, such as with meal preparation, housekeeping and
laundry. Assisted living facilities are typically for those persons whose
physical or cognitive frailties have reached a state where independent living
accommodations can no longer provide the level of care required. These people
do not need the continuous medical attention of a skilled nursing facility.
Generally, assisted living facilities provide a combination of housing and
24-hour personal support services designed to assist seniors with activities of
daily living (ADLs), which include bathing, eating, personal hygiene,
grooming, ambulating and dressing. Certain assisted living facilities also
offer higher levels of personal assistance for residents with Alzheimers
disease or other forms of dementia but always in a residential, as compared
with a medical, setting. Skilled nursing facilities provide care in a
comparatively institutional environment. Assisted living residences provide a
homelike atmosphere. For example, the Companys facilities feature carpeted
floors compared with the linoleum typically found in nursing home, and
single-occupancy rooms. Additionally, assisted living residences operated by
the Company encourage residents to bring their own, more familiar furniture,
serve meals in dining rooms and provide a wide range of social programs
including outings to shows, museums, movies and the like.

The senior care industry, including assisted living, is highly fragmented
and characterized by numerous providers whose services, experience and capital
resources vary widely. The Company believes that the assisted living industry
is evolving as the preferred alternative to meet the growing demand for a
cost-effective setting for those seniors who cannot live independently due to
physical or cognitive frailties, but who do not require the more intensive
medical attention provided by a skilled nursing facility. According to the
United States Bureau of the Census, approximately 45% of persons aged 85 years
and older, approximately 24% of persons aged 80 to 84 and approximately 20% of
persons aged 75 to 79 need assistance with ADLs.

Services

The Company operates assisted living facilities in the following
locations: Rock Island, Illinois; Fort Madison, Iowa; Port Huron, Michigan;
Beatrice, Nebraska; Hastings, Nebraska; Dickinson, North Dakota; and Williston,
North Dakota. Except for the facilities in North Dakota, which are modern
buildings, the Companys facilities are located in historic, renovated hotels,
most of which are on the National Register of Historic Places. The Companys
facilities range in size from 64 units to 115 units. See Item 2Description
of Property.

Assisted Living Properties. The Companys current portfolio of properties
is aimed at the middle to more affordable price range within the senior care
market. The Company offers a

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range of assisted living care and services, which are available 24 hours
per day at each of its assisted living facilities. The services offered by the
Company include personal care, support and certain supplemental services.
Personal care services include assistance with ADLs, such as ambulating,
bathing, dressing, eating, grooming, personal hygiene, monitoring or assistance
with medications and confusion management. Support services include meal
preparation, assistance with social and recreational activities, laundry
services, general housekeeping, maintenance services and transportation
services. Supplemental services, which are offered at an extra charge, include
beauty and barber services, extra laundry services and non-routine care
services. The rates for assisted living units at the Companys facilities
range from approximately $1,000 to $2,400 per month, depending, among other
things, on the size of the unit and the location of the community.

Marketing and Sales

The Companys marketing strategy is intended to create awareness of the
Company and its services among potential residents and their family members and
referral sources, such as physicians, clergy, local area agencies for the
elderly, home health agencies and social workers. A central marketing staff
person located at the Companys facility in Hastings, Nebraska coordinates the
Companys overall strategies for promoting the Company throughout its markets
and monitors the success of the Companys marketing efforts. Additionally, the
Company has hired an outside marketing and public relations firm to develop
marketing materials for the Company as a whole and for each of the Companys
facilities. The Company also relies on print advertising, yellow pages
advertising, direct mail, signage and special events, such as grand openings
for new facilities and community receptions.

Competition

The health care industry is highly competitive and the Company believes
that the assisted living business will become more competitive in the future.
There are currently few regulatory and other barriers to entry in the assisted
living industry. The Company faces competition for residents and for employees
from numerous local, regional and national providers of facility-based assisted
living and long-term care, including skilled nursing facilities, as well as
medical rehabilitation and home health care providers. Many of the Companys
present and potential competitors are significantly larger or have greater
financial resources than those of the Company. Additionally, some of the
Companys competitors operate on a not-for-profit basis or as charitable
organizations. If the development of new assisted living facilities surpasses
the demand for such facilities in particular markets, such markets could become
saturated. Competition could limit the Companys ability to attract residents
and patients and expand its business and could have a material adverse effect
on the Companys business, results of operations and financial condition.

The Company believes the primary competitive factors in the senior care
industry are: reputation for, and commitment to, high quality care; quality of
support services offered (such as home health care and food services); price of
services; physical appearance and amenities associated with the facilities; and
location. Because seniors tend to choose senior living facilities near their
homes, the Companys principal competitors are other senior living and
long-term care facilities in the same geographic areas as the Companys
facilities. The Company also competes

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with other health care businesses with respect to attracting and retaining
nurses, technicians, aides, and other high quality professional and
nonprofessional employees and managers.

Government Regulation

The assisted living industry is subject to extensive federal, state and
local regulation. The various layers of governmental regulation affect the
Companys business by controlling its growth, requiring licensure or
certification of its facilities, regulating the use of its facilities and
controlling reimbursement to the Company for services provided. Licensing,
certification and other applicable governmental regulations vary from
jurisdiction to jurisdiction and are revised periodically. It is not possible
to predict the content or impact of future legislation and regulations
affecting the assisted living industry.

Assisted Living Facilities. The Companys assisted living facilities are
subject to regulation by various state and local agencies. There are currently
no federal laws or regulations specifically governing assisted living
facilities. State requirements relating to the licensing and operation of
assisted living facilities vary from state to state; however, most states
regulate many aspects of a facilitys operations, including physical plant
requirements; resident rights; personnel training and education; requisite
levels of resident independence; administration of medications; safety and
evacuation plans; and the level and nature of services to be provided,
including dietary and housekeeping. In most states, assisted living facilities
must also comply with state and local building and fire codes and certain other
licenses or certifications, such as a food service license, may be required.
Assisted living facilities are subject to periodic survey by governmental
agencies with licensing authority. In certain circumstances, failure to
satisfy survey standards could result in a loss of licensure and closure of a
facility.

Because assisted living facilities historically have not been considered
as traditional health care entities and government and private insurers have
not reimbursed providers for assisted living services, these facilities have
not been subject to the degree of regulation which governs nursing homes and
other health care providers. As assisted living emerges as a cost-effective
alternative to nursing facility care, assisted living facilities could become
subject to more extensive regulation, particularly in the areas of licensure
and reimbursement. The content of such regulations, the extent of any
increased regulation and the impact of any such regulation on the Company
cannot be predicted at this time and there can be no assurance that such
regulations will not adversely affect the Companys business.

The Company believes the structure and composition of government
regulation of health care will continue to change and, as a result, it
regularly monitors developments in the law. The Company expects to modify its
agreements and operations from time to time as the business and regulatory
environment changes. While the Company believes it will be able to structure
all its agreements and operations in accordance with applicable law, there can
be no assurance that its arrangements will not be successfully challenged.

Americans with Disabilities Act. Under the Americans with Disabilities
Act of 1990, all places of public accommodation are required to meet certain
federal requirements related to access and use by disabled persons. A number
of additional federal, state and local laws exist which also may require
modifications to existing and planned properties to create access by

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disabled persons. While the Company believes that its properties are
substantially in compliance with present requirements or are exempt therefrom,
in part because of their historic value, if required changes involve a greater
expenditure than anticipated or must be made on a more accelerated basis than
anticipated, additional costs would be incurred by the Company. Further,
legislation may impose additional burdens or restrictions with respect to
access by disabled persons, the costs of compliance with which could be
substantial.

Environmental Regulation. The Company is subject to various federal,
state and local environmental laws and regulations. Such laws and regulations
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial
and the liability of an owner or operator as to any property is generally not
limited under such laws and regulations and could exceed the propertys value
and the aggregate assets of the owner or operator. The presence of these
substances, or failure to remediate such contamination properly, may also
affect adversely the owners ability to sell or rent the property, or to borrow
using the property as collateral. Under these laws and regulations, an owner,
operator or an entity that arranges for the disposal of hazardous or toxic
substances, such as asbestos-containing materials, at the disposal site, may
also be liable for the costs of any required remediation or removal of the
hazardous or toxic substances at the disposal site. In connection with the
ownership or operation of its properties, the Company could be liable for these
costs, as well as certain other costs, including governmental fines and
injuries to persons or properties.

Employees

As of October 5, 2002, the Company had approximately 287 employees,
including 125 part-time employees. None of the Companys employees are
currently represented by a union. The Company believes that it has a good
relationship with its employees, in part because it provides them with annual
cash bonuses, a stock option program, health care coverage and a 401(k)
program.

Factors That May Affect Results

The Companys business, financial condition and results of operations are
subject to many risks, including those discussed under Competition and
Government Regulation above and those set forth below.

Limited Operating History. The Company was incorporated in 1997 and began
operations in January 1998 and consequently has a limited operating history.
Accordingly, there can be no assurance that the Company will not incur losses.
Failure to achieve profitability could have a material adverse effect on the
Companys business, results of operations and financial condition.

Formation from Chapter 11 Proceedings. The Company was formed pursuant to
the Plan of Reorganization, which became effective on September 30, 1998. The
Companys experience with Chapter 11 reorganization has affected the Companys
ability to negotiate favorable trade terms with vendors. The failure to obtain
such favorable terms could have a material adverse effect on the Companys
business, results of operations and financial condition.

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Need for Additional Capital.The Companys growth is subject to its
ability to maintain or further increase revenues at existing facilities and the
availability of capital. The Company has begun and continues to work with
various sources of long-term financing to refinance existing loans in order to
obtain financing with a longer term and obtain additional liquidity for future
capital projects. In the opinion of management, we expect the Company will
have sufficient cash from operations for the Companys operating and capital
expenditure needs for at least the next 12 months. There can be no assurance
that the Company will be able to maintain or further increase revenues at
current facilities or that sufficient capital will be available or, if
available, that it will be available on terms that the Company considers
reasonable. Further, owing to the age of the Companys historic properties,
the Companys facilities may require greater upkeep and capital expenditures
than more modern facilities. The Companys inability or failure to maintain or
further increase such revenues or obtain such sufficient capital on favorable
terms could have a material adverse effect on its business, results of
operations and financial condition.

Debt Obligations.As of September 30, 2002, there was an aggregate
balance of approximately $11,981,000 outstanding on mortgages secured by
certain of the Companys properties. See Item 2Description of Property.
Virtually all of the Companys long-term debt will come due in one year,
subject to an extension to as much as an additional two years upon the
repayment of substantial amounts of principal. Consequently, a significant
portion of the Companys cash flow is expected to be devoted to debt service,
and there is a risk that the Company will not be able to generate sufficient
cash flow from operations to cover required debt payments. The Company has
begun and continues to work with various sources of long-term financing to
refinance the existing loans in order to obtain financing with a longer term,
reduce the impact of debt financing on future cash flows, and obtain additional
liquidity for future capital projects. If the Company were unable to generate
sufficient cash flow from operations to cover required debt payments in the
future, there can be no assurance that sufficient financing would be available
to cover the insufficiency or, if available, that the financing would be on
terms acceptable to the Company. In the absence of financing, the Companys
ability to make scheduled principal and interest payments on its indebtedness
would be adversely affected.

Obtaining Residents and Maintaining Rental Rates.As of September 30,
2002, the senior citizen housing facilities owned and operated by the Company
had a combined occupancy rate of approximately 79%. Occupancy may drop in
these facilities primarily due to changes in the health of residents, increased
competition from other providers of assisted living services that may give
residents more choices with respect to the provision of such services, and
changes in state regulations. Turnover among residents is affected by their
health, and higher turnover can adversely affect the Companys results of
operations. There can be no assurance that, at any time, any of the Companys
facilities will be substantially occupied at assumed rents. In addition, full
occupancy may be achievable only at rental rates below those assumed. The
Companys operating expenses could be affected adversely by a variety of
factors, including the level of services required to retain residents, which in
turn is affected by the age and health of residents. If operating expenses
increase, local rental market conditions may limit the extent to which rents
may be increased. In addition, the failure of the Company to generate
sufficient revenue could result in an inability to make interest and principal
payments on its indebtedness.

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General Real Estate Risks.The performance of the Companys senior
citizen housing facilities is influenced by factors affecting real estate
investments, including the general economic climate and local conditions, such
as an oversupply of, or a reduction in demand for, assisted living residences.
Other factors include the attractiveness of properties to residents, zoning,
rent control, environmental quality regulations or other regulatory
restrictions, competition from other forms of housing and the ability of the
Company to provide adequate maintenance and insurance and to control operating
costs, including maintenance, insurance premiums and real estate taxes. Real
estate investments are also affected by such factors as applicable laws,
including tax laws, interest rates and the availability of financing. Real
estate investments are relatively illiquid and, therefore, limit the ability of
the Company to vary its portfolio promptly in response to changes in economic
or other conditions. Any failure by the Company to operate its senior citizen
housing facilities effectively may have a material adverse effect on the
Companys business, financial condition and results from operations.

Liability and Insurance. Providing assisted living services involves an
inherent risk of liability. Participants in the senior living and health care
industry are subject to lawsuits alleging negligence or related legal theories,
many of which may involve large claims and significant legal costs. The
Company currently maintains liability insurance intended to cover claims in
amounts and with such coverages and deductibles that it believes are adequate
and in keeping with industry practice. However, claims in excess of the
Companys insurance coverage or claims not covered by the Companys insurance
(e.g., claims for punitive damages) may arise. A successful claim against the
Company not covered by or in excess of the Companys insurance coverage could
have a material adverse effect on the Companys business, results of operations
and financial condition. Claims against the Company, regardless of their merit
or eventual outcome, may also have a material adverse effect upon the Companys
reputation and its ability to attract residents or expand its business. The
Companys insurance policies generally must be renewed annually, and there can
be no assurance that the Company will be able to obtain liability insurance
coverage in the future on acceptable terms, if at all.

Dependence on Key Personnel. The Companys operations have been
significantly dependent on the contributions of management, and the loss of the
services of the Companys senior officersMessrs. Pittore, Tolley and
Westincould have a material adverse effect on the Companys business, results
of operations and financial condition. The Company has entered into employment
agreements with each of its senior officers. See Item 10Executive
CompensationEmployment Agreements. The Companys success also depends to a
significant extent upon a number of other key employees of the Company,
including the Companys Chief Operating Officer and National Marketing
Director. The loss of the services of one or more of these key employees also
could have a material adverse effect on the Company. The Company does not
carry key person life insurance. In addition, the Company believes that its
future success will depend in part upon its ability to attract and retain
additional highly skilled professional, managerial, sales and marketing
personnel. Competition for such personnel is intense. There can be no
assurance that the Company will be successful in attracting and retaining the
personnel that it requires for its business and planned growth.

Labor Costs. The Company competes with various health care providers and
other employers for limited qualified and skilled personnel in the markets that
it serves. The Company expects that its labor costs will increase over time.
Currently, none of the Companys employees

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is represented by a labor union. If employees of the Company were to
unionize, the Company could incur labor costs higher than those of competitors
with nonunion employees. The Companys business, results of operations and
financial condition could be adversely affected if the Company is unable to
control its labor costs.

Conflicts of Interest.Certain of the Companys officers and directors
may, by virtue of their investment in or involvement with entities providing
services or office space to the Company have an actual or potential conflict of
interest with the interests of the Company. See Item 12Certain Relationships
and Related Transactions. From time to time, vendors may require personal
guarantees from the executive officers of the Company and such personal
guarantees may create a conflict of interest for such executive officer.

No Public Market for the Common Stock. If shares of the Companys Common
Stock are traded after their original issuance pursuant to the Plan of
Reorganization, they are expected to trade at varying prices, depending upon
the market for similar securities and other factors, including general economic
conditions and the financial condition and performance of, and prospects for,
the Company. The Plan of Reorganization provides that, as soon as practicable
after the effective date of the Plan of Reorganization, the Company shall take
the necessary steps to have the Companys Common Stock publicly traded. The
Companys management is currently investigating over-the-counter quotation of
the Companys Common Stock on the OTC Bulletin Board®. However, there can be
no assurance that the Company will be successful in its efforts to establish a
public trading market for the Common Stock or that any market making activity
with respect to the Common Stock will continue in the future, if and once
initiated. See Risks of Low-Priced Stock; Possible Effect of Penny Stock
Rules on Liquidity for the Companys Securities.

Risks of Low-Priced Stock; Possible Effect of Penny Stock Rules on
Liquidity for the Companys Securities. As discussed above, the Companys
management is currently investigating over-the-counter quotation of the
Companys Common Stock on the OTC Bulletin Board®. See No Public Market
for the Common Stock. As such, the Companys securities may become subject to
Rule 15g-9 under the Exchange Act, which imposes additional sales practice
requirements on broker-dealers that sell such securities to persons other than
established customers and accredited investors (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or
$300,000 together with their spouses). Rule 15g-9 defines penny stock to be
any equity security that has a market price (as therein defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions, none of which are currently met or are anticipated to be
met by the Company in the foreseeable future. For transactions covered by Rule
15g-9, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchasers written consent to the transaction
prior to sale. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Securities and Exchange Commission (SEC)
relating to the penny stock market. Disclosure is also required to be made
about sales commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account of the broker-dealers client and information
on the limited market in penny stock. Consequently, such Rule may affect the
ability of broker-dealers to sell the

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Companys securities and may affect the ability of purchasers to sell any
of the Companys securities in the secondary market.

There can be no assurance that the Companys securities will qualify for
an exemption from the penny stock restrictions. In any event, even if the
Companys securities become exempt from such restrictions, the Company would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public
interest.

If the Companys securities are subject to the rules on penny stocks, the
market liquidity for the Companys securities could be materially and adversely
affected.

Limitation on Payment of Dividends on Capital Stock. Since the Companys
formation in April 1997, the Company has not paid any dividends on its common
stock and does not anticipate doing so in the foreseeable future. Moreover, the
Plan of Reorganization provides that the Company may not declare any dividends
until certain indebtedness specified in the Plan of Reorganization is paid in
full or otherwise satisfied. There can be no assurance that the Company will
pay out any return on its common stock.

Control by Officers, Directors and Affiliated Entities. The Companys
executive officers, directors and certain entities affiliated with such
directors beneficially own in the aggregate approximately 35.1% of the issued
and outstanding shares of the Companys common stock. See Item 11Security
Ownership of Certain Beneficial Owners and Management. Such stockholders may
have sufficient voting power to control the outcome of matters (including the
election of directors and any merger, consolidation or sale of all or
substantially all of the Companys assets) submitted to the stockholders for
approval and may be deemed to have effective control over the affairs and
management of the Company. This controlling interest in the Company may also
have the effect of making certain transactions more difficult or impossible,
absent the support of such stockholders. Such transactions could include a
proxy contest, mergers involving the Company, tender offers and open market
purchase programs involving the Companys common stock that could give
stockholders of the Company the opportunity to realize a premium over the then
prevailing market price for their shares of the Companys common stock.

Anti-Takeover Provisions. Certain provisions of the Companys Bylaws and
Nevada law could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Companys
Common Stock.




Item 2. DESCRIPTION OF PROPERTY

The following table sets forth, as of September 30, 2002, certain
information as to the facilities owned by the Company:

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|                                                       |  |        |     |       |  |             |      |  |  |  |      | 
|------------------------------------------------------ |  | ------ | --- | ----- |  | ----------- | ---- |  |  |  | ---- | 
|                                                       |  | No. of |     | Year  |  | Year       
|Facility Location (Facility Name)                      |  | Beds   |     | Built |  | Reopened(1)
|                                                       |  |        |     |       |  |            
|Rock Island, Illinois (The Fort Armstrong)             |  |        | 92  |       |  |             | 1926 |  |  |  | 1990 | 
|Fort Madison, Iowa (The Kensington)                    |  |        | 75  |       |  |             | 1954 |  |  |  | 1988 | 
|Port Huron, Michigan (The Harrington Inn)              |  |        | 72  |       |  |             | 1896 |  |  |  | 1990 | 
|Beatrice, Nebraska (The Kensington Paddock)            |  |        | 64  |       |  |             | 1934 |  |  |  | 1989 | 
|Hastings, Nebraska (The Kensington)                    |  |        | 80  |       |  |             | 1914 |  |  |  | 1988 | 
|Dickinson, North Dakota (The Evergreen Retirement Inn) |  |        | 78  |       |  |             | 1980 |  |  |  | 1990 | 
|Williston, North Dakota (The Kensington)               |  |        | 115 |       |  |             | 1983 |  |  |  | 1988 | 



---

|(1) |  | Year Reopened refers to the year in which the facility was
reopened as an assisted living facility, after renovation of the
historic property. The Companys facilities at Dickinson, North Dakota
and Williston, North Dakota are not historic properties.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each of the facilities listed in the table above is subject to a mortgage,
except Port Huron, Michigan and Beatrice, Nebraska. See Item 6"Managements
Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources. As of September 30, 2002 there
was an aggregate balance of $11,981,000 outstanding under the mortgages, with
the amount owing on a property ranging from approximately $806,000 to
$4,171,000.

In July, 2002 the Company disposed of its interest in CountryHouse, LLC.
This entity was organized in conjunction with entities controlled by Richard J.
Westin and Jesse A. Pittore, directors and officers of the Company, to jointly
develop, build and operate an Alzheimers facility in Cumberland, Maryland.
The Company contributed land located adjacent to its Cumberland, Maryland
facility upon which the Alzheimers facility has been built. The Westin and
Pittore entities have funded or guaranteed financing of all costs to build,
furnish and operate the facility. For its contribution of land, the Company
received a 25% ownership interest and 25% of all net income and proceeds from
the operation of the facility. The Company received $200,000 for its interest
which was sold to the joint venturers.

On August 30, 2002, the Company completed the sale of certain assets and
liabilities related to the ownership and operation of its 85-bed assisted
living facility located in Cumberland, MD (the Kensington Algonquin). Title
to the Kensington Algonquin facility was transferred to Kensington Algonquin,
LLC, a Nevada single member limited liability company, wholly owned by the
Company in calendar year 2000 in anticipation of a financing transaction that
was never consummated. Since that transfer the entity has been 100% owned by
the Company. The form of the August 30, 2002 transaction was the sale of the
Companys member interest to Richard J. Westin and Jesse A. Pittore for a price
of $3,300,000 less a credit for repairs of $200,000.

As indicated above, the purchasers in these two transactions are
affiliates of the Company. Both Richard J. Westin and Jesse A. Pittore are
officers and directors of the Company. Their offers for these property
interests of $200,000 and $3,300,000 were tested in an auction process that
took place during the month of May, 2002. The auction was advertised in the
national edition of the Wall Street Journal and the Baltimore Sun. These
advertisements

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produced approximately 30 responses for additional information. Each of
the respondents to the advertisements was sent additional information regarding
the property and the auction process. No further interest in the property was
expressed by any of these respondents. None of the respondents pursued the
auction further by visiting the property or bidding on the property. The
auction was held on June 5, 2002. The only bids made on the property were
those by Messrs Westin and Pittore.

On August 26, 2002 the Company signed an agreement to sell its property
located in Chanute, KS for $275,000 to an unaffiliated buyer. The contract
provides for a 5% commission to an unaffiliated broker and was conditional
until October 15, 2002. On November 20, 2002 the sale closed by means of a
$100,000 down payment and the execution of Contract for Sale of Real Estate in
the amount of $175,000 bearing interest at 8% per annum all due April 23, 2003.

On October 22,2002 the Company signed an agreement to sell its property
located in Rock Island, IL for $2,500,000 to an unaffiliated buyer. The
property has previously been listed with an unaffiliated broker with an agreed
commission of 3%. On December 13, 2002 the buyer removed all contingencies
except for financing. Conditional on the buyer obtaining financing, the
proposed closing date for the sale is February 28, 2003.

The Company is in the process of considering other sales of its property.
The Company does not believe that a sale of all of the Companys assets would
be in the best interests of its stockholders as the buyer in such a sale would
likely seek a bulk sale discount. However, the Company is actively
contemplating undertaking a sale of its assets through the sales of its
individual properties in separate transactions. If the Company determines that
such a sale of assets is in the best interests of its stockholders, it will
solicit stockholder approval for the liquidation of the Company and the sale of
its assets. No final decision has been reached to sell the assets of the
Company, but the Company anticipates that a final decision will be reached in
the near future.

The Company currently maintains insurance on its properties in amounts and
with such coverages and deductibles that it believes are adequate and in
keeping with industry practice. The Company also believes that its properties
are suitable for their use as assisted living facilities.

The Company leases its headquarters in Berkeley, California from The
Waterford Company, which is owned by members of Mr. Westins family, for
$24,000 per year and on terms and conditions that the Companys believes are at
or more favorable than prevailing market rates. See Item 12Certain
Relationships and Related Transactions.




Item 3. LEGAL PROCEEDINGS

The Company was formed pursuant to the Plan of Reorganization, which was
proposed by the Partnerships in January 1997 and confirmed by the bankruptcy
court on September 30, 1998. See Item 1BusinessFormation of the Company and
Plan of Reorganization.

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From time to time, the Company is party to litigation arising out in the
ordinary course of business. The Company believes that no pending legal
proceeding will have a material adverse effect on the Companys business,
financial condition or results of operations.




Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.




PART II




Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

There is currently no public trading market for the Companys Common
Stock. As of December 15, 2002, there were 3,959 stockholders of record.

The outstanding Common Stock of the Company issued pursuant to the Plan of
Reorganization is freely tradable by reason of the exemption from registration
provided by section 1145 of the Bankruptcy Code.

The Plan of Reorganization prohibits the Company from declaring any
dividends on its Common Stock until certain of the notes issued pursuant to the
Plan of Reorganization are paid in full or otherwise satisfied. Since the
Companys formation in April 1997, the Company has not paid any dividends on
its common stock and does not anticipate doing so in the foreseeable future.

In December 1998, the stockholders of the Company approved the adoption of
the Companys 1997 Employee Stock Incentive Plan, a stock option plan for
certain employees and directors. As of September 30, 2002, options to purchase
up to a total of 237,164 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 Company relied on the exemption from the registration
requirements of the Securities Act provided by Rule 701 under the Securities
Act.




Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

When used in this discussion, the words expects, anticipates,
estimates, and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements as to the adequacy of
the Companys capital resources, the ability to obtain new sources of capital,
and the ability to service its debt obligations as they become due, are subject
to risks and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are not
limited to, those risks discussed below, as well as the matters discussed in
Factors That May Affect Results. See Item 1Description of BusinessFactors
That May Affect Results. These forward-looking statements speak only as of
the date hereof. The Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Companys expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.

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Results of Operations

Overview

Operations for the twelve months ended September 30, 2002 reflect partial
year operations for one property and a full year of operations for six of the
Companys eight properties. The property in Chanute, KS closed and is held for
sale. Operations for the twelve months ended September 30, 2001 reflect partial
year operations for two of the Companys properties and a full year for eight
of the Companys properties.

Twelve Months Ended September 30, 2002 Compared to the Twelve Months Ended
September 30, 2001

Property gross revenue increased from $10,520,000 for the twelve months
ended September 30, 2001 to $10,597,000 for the twelve months ended September
30, 2002, reflecting generally higher rental rates. In general, higher rates
reflect an increase in the kinds and quantities of services being provided to
residents.

Payments on the Companys secured indebtedness were allowed to be deferred
during a moratorium period from June, 2000 through January, 2001. To the extent
amounts have been expended to make improvements to the Companys Hastings, NE
property these payments have been forgiven. During the periods ended September
30, 2002 and September 30, 2001, $89,000 and $374,000, respectively, was paid or
incurred for such improvements.

Other income decreased from $66,000 in 2001 to $8,000 in 2002.

Property operating expenses decreased from $8,960,000 in the 2001 period
to $8,575,000 in the 2002 period, reflecting higher costs of providing higher
levels of services primarily driven by higher personnel costs offset by lower
costs for insurance and a month less operations at the Cumberland, MD property
and no costs for the Chanute, KS and Manitowoc, WI properties.

Administrative and overhead expenses decreased from $734,000 in the 2001
period to $687,000 in the 2002 period. The decrease is reflected in lower
amounts for each classification of expense in the 2002 period except for
personnel and occupancy costs which increased during the period.
Administrative and overhead expenses for the 2002 period consisted of $510,000
in salaries and other personnel-related costs including employee benefits,
payroll taxes and travel expenses; legal and accounting expenses of $55,000;
office and occupancy costs of $35,000; and other administrative costs of
$87,000. Administrative and overhead expenses for the 2001 period consisted of
$475,000 in salaries and other personnel-related costs including employee
benefits, payroll taxes and travel expenses; legal and accounting expenses of
$65,000; office and occupancy costs of $28,000; and other administrative costs
of $166,000. Within other administrative costs are $58,000 of expenses paid
and capitalized during the 2000 period for reports and appraisals required to
refinance debt which were expensed in 2001 when financing was not obtained.

Stock option compensation increased from $210,000 during the 2001 period
to $215,000 during the 2002 period, reflecting fewer options being ceded in the
2002 period.

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Income tax expense decreased from $445,000 for the 2001 period to $4,000
in 2002, due primarily to the adjustment of deferred taxes in the earlier
period.

Interest expense increased from $1,002,000 in the 2001 period to
$1,025,000 in the 2002 period, primarily due to interest attributable to a note
secured by the Companys Cumberland, MD facility.

Liquidity and Capital Resources

Cash and cash equivalents increased from $188,000 at September 30, 2001 to
$519,000 at September 30, 2002. Net cash provided by operations was $313,000
in the 2002 period compared to net cash provided by operations of $379,000 in
the 2001 period. This change was primarily due to greater deferrals of
interest payments in the 2001 period.

Net cash provided by investing activities in the 2002 period was
$2,507,000 consisting of sales proceeds of $200,000 from the sale of the
Companys interest in the joint venture , sales proceeds of $2,543,000 from the
sale of the facility in Cumberland, MD and the recovery of $90,000 in advances
to the joint venture. Offsetting these were additions to property and equipment
of $326,000 at the Companys facilities. Net cash used by investing activities
was $673,000 in 2001, reflecting additions to property and equipment at the
Companys facilities

Net cash used in financing activities in the 2002 period was $2,489,000
consisting primarily of regular and special principal payments of $2,485,000 on
secured notes payable and tax notes. Net cash provided by financing activities
in the 2001 period was $127,000 consisting of new notes payable proceeds of
$550,000 offset by principal payments on Superfirst notes payable of $366,000,
principal payments on tax notes of $50,000 and principal payments on lease
obligations of $7,000.

Notes payable (in thousands) consist of the following at September 30, 2002:

|                              |                           |                     |    |       |        | 
|----------------------------- | ------------------------- | ------------------- | -- | ----- | ------ | 
|Notes secured by real estate: |                           |                     |    |      
|                              | Regular mortgage notes    |                     | $  | 7,810 |       
|                              | Rock Island mortgage note |                     |    | 4,171 |       
|                              |                           |                     |    |      
|                              |                           | Total secured notes |    | $     | 11,981 | 
|Tax notes                     |                           |                     | 91 |      
|                              |                           |                     |    |      
|                              |                           | Total notes payable |    | $     | 12,072 | 
|                              |                           |                     |    |      

As of September 30, 2002 there are four regular mortgage notes, dated
September 30, 1998, that bear interest at 8% per annum. Interest on each of
the notes is payable monthly at a rate of 6% per annum. Accrued and unpaid
interest resulting from this deferral provision increased by $231,926 and
$278,309 respectively, during the years ended September 30, 2002 and 2001. As
of September 30, 2002, the total amount of accrued and unpaid interest on these
notes is $908,680. The notes were originally due on September 30, 2001 but were
extended to

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September 30, 2002 and additionally extended to September 30, 2003 after
significant principal reductions. They may be extended for an additional
period of one year upon payment of $222,000 before September 30, 2003. On a
quarterly basis, any portion of the 8% interest which is unpaid and 75% of any
computed net cash flow from the properties securing the notes is payable. To
the extent that this calculation results in a payment of principal, that sum is
to be retained by the lender as a reserve for capital improvements. No
amounts were computed to be payable under this provision during the years ended
September 30, 2002 and 2001. These notes are secured by first mortgage liens on
properties in Dickinson, ND, Williston, ND, Fort Madison, IA and Hastings, NE.

The Rock Island mortgage note, dated September 30, 1998, bears interest as
follows: from October 1, 1998 through September 30, 1999, the lesser of 3% per
annum on the unpaid principal balance or computed cash flow from the Rock
Island property; from October 1, 1999 through September 30, 2000, the greater
of 3% per annum on the unpaid principal balance or computed cash flow from the
Rock Island property; from October 1, 2000 until maturity, the greater of 4%
per annum on the unpaid principal balance or computed cash flow from the Rock
Island property. For the year ended September 30, 200 interest payable
$165,240 was computed and $171,525 was paid. For the year ended September 30,
2001, interest payable of $110,160 was computed and $62,565 was paid. The note
is secured by a first mortgage lien on the property located in Rock Island, IL
and was due on September 30, 2001 but was extended to September 30, 2003.

By agreement with the holder of the regular mortgage notes and the Rock
Island mortgage note, minimum interest payments required to be paid from June,
2000 through January, 2001 have been deferred to provide funds to perform
substantial modifications to the property located in Hastings, NE. These
modifications are required by local licensing authorities in order to continue
the operation of the property as an assisted living facility. Accrued and
unpaid interest pursuant to this arrangement amounted to $467,870 by January,
2001. For the years ended September 30, 2002 and 2001, respectively, $89,162
and $374,049 were incurred for the modifications required on the Hastings, NE
property leaving a remaining balance of $4,659 deferred.

The tax notes bear interest at 8% per annum. Payments of interest and
principal are due semi-annually each January and July in the amount of $5,886
through January, 2004 and each February and August in the amount of $26,638
through February,2004.

Future maturities of notes payable (in thousands) at September 30, 2002
are as follows:

|                           |      |   |        |        | 
|-------------------------- | ---- | - | ------ | ------ | 
|Years ending September 30: |      |   |        |       
|                           | 2003 |   |        | 12,042 | 
|                           | 2004 |   |        | 30     | 
|                           |      |   |        |       
|                           |      | $ | 12,072 |       
|                           |      |   |        |       

Virtually all of the Companys long-term debt will come due next year,
subject to an extension of an additional year upon the repayment of substantial
amounts of principal. In addition, the loans provide for substantial discounts
for early repayment. As a result of the Companys economic difficulty, we have
been actively pursuing strategic transactions in order to

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satisfy the needs of our creditors and to maximize stockholder value.
Unfortunately, we have met with little success in these endeavors.
Accordingly, we believe it is in the best interests of our stockholders to sell
substantially all of the Companys assets, dissolve the corporation and
distribute any available proceeds to the Companys stockholders. Management
believes that in order to obtain the largest possible discount on the secured
indebtedness, we must offer the note holder payment well before the final due
date for these notes, which is September 30, 2004 if all of the possible
extensions are exercised. The Company has engaged in preliminary discussions
with the holder of the secured obligations and believes that an agreement may
be reached to reduce the existing debt from over $12 million to approximately $6
million, representing a discount of approximately 50% from the total otherwise
due. The board of directors believes that if the Company is unable to
negotiate this discount, there will be no proceeds available for distribution
to our stockholders. Subject to stockholder approval, we intend to liquidate
and distribute to our stockholders available proceeds from the sale of the
assets. We believe that we will be able to generate enough cash through these
sales to pay creditors, and subject to our ability to obtain a discount on the
repayment of our secured indebtedness, that the sale of such assets would be
sufficient to effect a distribution of proceeds to all of our stockholders.

Impact of Inflation

Management believes that the Companys operations have not been materially
adversely affected by inflation. The Company expects that it will be able to
offset the effects of inflation on salaries and other operating expenses by
increases in rental rates, subject to applicable restrictions in North Dakota,
where the Company receives subsidies.

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Item 7. FINANCIAL STATEMENTS

AGEMARK CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                   |  |      |       | 
|---------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                   |  | Page
|                                                                                   |  |     
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                 |  |      | 20    | 
|                                                                                   |  |      |       | 
|FINANCIAL STATEMENTS                                                               |  |      |       | 
|Balance sheet as of September 30, 2002                                             |  |      | 21    | 
|Statements of operations for the years ended September 30, 2002 and 2001           |  |      | 22    | 
|Statements of stockholders equity for the years ended September 30, 2002 and 2001 |  |      | 23    | 
|Statements of cash flows for the years ended September 30, 2002 and 2001           |  |      | 24    | 
|Notes to financial statements                                                      |  |      | 2538 | 
|                                                                                   |  |      |       | 
|SCHEDULE XI                                                                        |  |      |       | 
|Real estate and accumulated depreciation                                           |  |      | 39    | 

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders and
Board of Directors of
Agemark Corporation

We have audited the accompanying balance sheet of Agemark Corporation(a Nevada
corporation) as of September 30, 2002, and the related statements of
operations, stockholders equity, and cash flows for the years ended September
30, 2002 and 2001. We have also audited the financial statement Schedule XI.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Agemark Corporationas of
September 30, 2002, and the results of its operations and its cash flows for
the years ended September 30, 2002 and 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement Schedule XI, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

|                    |  |                    
|------------------- |  | -------------------
|                    |  | TIMPSON GARCIA, LLP
|                    |  |                    
|Oakland, California |  |                    
|December 19, 2002   |  |                    

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AGEMARK CORPORATION

BALANCE SHEET

September 30, 2002

(In thousands except share data)

|                                     |                                                                                                         |                                            |        |        |        | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------ | ------ | 
|A S S E T S                         
|Cash and cash equivalents            |                                                                                                         | $                                          | 519    |       
|Property and equipment, net          |                                                                                                         |                                            | 15,159 |       
|Property held for sale               |                                                                                                         |                                            | 255    |       
|Other assets                         |                                                                                                         |                                            | 482    |       
|                                     |                                                                                                         |                                            |        |       
|                                     |                                                                                                         | Total assets                               |        | $      | 16,415 | 
|                                     |                                                                                                         |                                            |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|LIABILITIES                          |                                                                                                         |                                            |        |       
|                                     | Accounts payable and accrued liabilities                                                                |                                            | $      | 1,918  |       
|                                     | Notes payable                                                                                           |                                            |        | 12,072 |       
|                                     | Vehicle loans                                                                                           |                                            |        | 29     |       
|                                     | Capitalized lease obligations                                                                           |                                            |        | 64     |       
|                                     |                                                                                                         |                                            |        |       
|                                     |                                                                                                         | Total liabilities                          |        | $      | 14,083 | 
|                                     |                                                                                                         |                                            |        |       
|STOCKHOLDERS EQUITY                 |                                                                                                         |                                            |        |       
|                                     | Common stock, stated value $.001, 20,000,000 shares
authorized, 1,109,481 shares issued and outstanding |                                            | $      | 1      |       
|                                     | Additional paid in capital                                                                              |                                            |        | 7,152  |       
|                                     | Unearned compensation                                                                                   |                                            |        | (171   | )     
|                                     | Stock notes receivable                                                                                  |                                            |        | (204   | )     
|                                     | Accumulated (deficit)                                                                                   |                                            |        | (4,446 | )     
|                                     |                                                                                                         |                                            |        |       
|                                     |                                                                                                         | Total stockholders equity                 |        | $      | 2,332  | 
|                                     |                                                                                                         |                                            |        |       
|                                     |                                                                                                         | Total liabilities and stockholders equity |        | $      | 16,415 | 
|                                     |                                                                                                         |                                            |        |       

See accompanying notes to financial statements.

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AGEMARK CORPORATION

STATEMENTS OF OPERATIONS

Years Ended September 30, 2002 and 2001

(In thousands except share data)

|                                          |                                      |                                                 |      |        |        |      |      |        |        |  
|----------------------------------------- | ------------------------------------ | ----------------------------------------------- | ---- | ------ | ------ | ---- | ---- | ------ | ------ | -
|                                          |                                      |                                                 |      | 2002   |        | 2001
|                                          |                                      |                                                 |      |        |        |     
|Revenue                                   |                                      |                                                 |      |        |        |      |      |       
|                                          | Property gross revenue               |                                                 | $    | 10,597 |        |      | $    | 10,520 |       
|                                          | Interest forgiven                    |                                                 |      | 89     |        |      |      | 374    |       
|                                          | Other income                         |                                                 |      | 8      |        |      |      | 66     |       
|                                          |                                      |                                                 |      |        |        |      |      |       
|                                          |                                      | Total revenue                                   |      | $      | 10,694 |      |      | $      | 10,960 |  
|                                          |                                      |                                                 |      |        |        |      |      |       
|Expenses                                  |                                      |                                                 |      |        |        |      |      |       
|                                          | Property operating expenses          |                                                 | $    | 8,575  |        |      | $    | 8,960  |       
|                                          | Administrative and overhead expenses |                                                 |      | 687    |        |      |      | 734    |       
|                                          | Stock option compensation            |                                                 |      | 215    |        |      |      | 210    |       
|                                          | Interest expense                     |                                                 |      | 1,025  |        |      |      | 1,002  |       
|                                          | Depreciation                         |                                                 |      | 597    |        |      |      | 615    |       
|                                          |                                      |                                                 |      |        |        |      |      |       
|                                          |                                      | Total expenses                                  |      | $      | 11,099 |      |      | $      | 11,521 |  
|                                          |                                      |                                                 |      |        |        |      |      |       
|                                          |                                      | $                                               | (405 | )      |        | $    | (561 | )     
|Gain on sale of joint venture interest    |                                      |                                                 | 98   |        |        |      |     |       
|Loss on disposition of property           |                                      |                                                 | (607 | )      |        |      | (626 | )     
|Loss from write down of long lived assets |                                      |                                                 | (25  | )      |        |      | (642 | )     
|Equity in net income of joint venture     |                                      |                                                 | 18   |        |        |      | 13   |       
|                                          |                                      |                                                 |      |        |        |      |      |       
|                                          |                                      | (Loss) before income taxes                      |      | $      | (921   | )    |      | $      | (1,816 | )
|Income tax expense                        |                                      |                                                 | 4    |        |        |      | 445  |       
|                                          |                                      |                                                 |      |        |        |      |      |       
|                                          |                                      | Net (loss)                                      |      | $      | (925   | )    |      | $      | (2,261 | )
|                                          |                                      |                                                 |      |        |        |      |      |       
|                                          |                                      | Basic and fully diluted (loss) per common share |      | $      | (0.92  | )    |      | $      | (2.26  | )
|                                          |                                      |                                                 |      |        |        |      |      |       

See accompanying notes to financial statements.

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AGEMARK CORPORATION

STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended September 30, 2002 and 2001

(In thousands)

|                            |  |        |   |         |  |            |       |            |  |           |      |        |  |   |      |   |  |   |        |   |  |   |        |  
|--------------------------- |  | ------ | - | ------- |  | ---------- | ----- | ---------- |  | --------- | ---- | ------ |  | - | ---- | - |  | - | ------ | - |  | - | ------ | -
|                            |  |        |   |         |  | Additional |       | Unearned   |  | Stock     |      | Accum- |  |   |      |  
|                            |  | Common |   | Paid-In |  | Compen-    |       | Notes      |  | ulated    |      |        |  |  
|                            |  | Stock  |   | Capital |  | sation     |       | Receivable |  | (Deficit) |      | Total 
|                            |  |        |   |         |  |            |       |            |  |           |      |       
|Balance, September 30, 2000 |  | $      | 1 |         |  | $          | 6,352 |            |  |           |      |        |  |   |      |   |  | $ | (1,260 | ) |  | $ | 5,093  |  
|Stock option compensation   |  |        |   |         |  |            | 210   |            |  |           |      |        |  |   |      |   |  |   |        |   |  |   | 210    |  
|Net (loss)                  |  |        |   |         |  |            |       |            |  |           |      |        |  |   |      |   |  |   | (2,261 | ) |  |   | (2,261 | )
|                            |  |        |   |         |  |            |       |            |  |           |      |        |  |   |      |   |  |   |        |   |  |   |        |  
|Balance, September 30, 2001 |  | $      | 1 |         |  | $          | 6,562 |            |  |           |      |        |  |   |      |   |  | $ | (3,521 | ) |  | $ | 3,042  |  
|Stock option compensation   |  |        |   |         |  |            | 172   |            |  | $         | 43   |        |  |   |      |   |  |   |        |   |  |   | 215    |  
|Stock option exercise       |  |        |   |         |  |            | 418   |            |  |           | (214 | )      |  | $ | (204 | ) |  |   |        |   |  |   | 0      |  
|Net (loss)                  |  |        |   |         |  |            |       |            |  |           |      |        |  |   |      |   |  |   | (925   | ) |  |   | (925   | )
|                            |  |        |   |         |  |            |       |            |  |           |      |        |  |   |      |   |  |   |        |   |  |   |        |  
|Balance, September 30, 2002 |  | $      | 1 |         |  | $          | 7,152 |            |  | $         | (171 | )      |  | $ | (204 | ) |  | $ | (4,446 | ) |  | $ | 2,332  |  
|                            |  |        |   |         |  |            |       |            |  |           |      |        |  |   |      |   |  |   |        |   |  |   |        |  

See accompanying notes to financial statements.

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AGEMARK CORPORATION

STATEMENTS OF CASH FLOWS

Years Ended September 30, 2002 and 2001

(In thousands)

|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |        |      |     |      |  
|-------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | ------- | ---- | ------ | ------ | ---- | --- | ---- | -
|                                             |                                                                                   |                                                             |                                                      |                                                      |         | 2002 |        | 2001  
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|CASH FLOWS FROM OPERATING ACTIVITIES         |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             | Net (loss)                                                                        |                                                             | $                                                    | (925                                                 | )       |      | $      | (2,261 | )   
|                                             | Adjustments to reconcile net (loss) to net cash
provided by operating activities: |                                                             |                                                      |                                                      |         |      |        |        |     
|                                             |                                                                                   | Depreciation                                                |                                                      |                                                      | 597     |      |        |        | 615  |    
|                                             |                                                                                   | Deferred income taxes                                       |                                                      |                                                      |        |      |        |        | 445  |    
|                                             |                                                                                   | Prepetition liabilities settled or compromised              |                                                      |                                                      |        |      |        |        | (17  | )  
|                                             |                                                                                   | Moratorium interest forgiven                                |                                                      |                                                      | (89     | )    |        |        | (374 | )  
|                                             |                                                                                   | (Gain)
on sale of joint venture interest                    |                                                      |                                                      | (98     | )    |        |        |     |    
|                                             |                                                                                   | Loss on disposition of property                             |                                                      |                                                      | 607     |      |        |        | 626  |    
|                                             |                                                                                   | Loss from write down of long-lived assets                   |                                                      |                                                      | 25      |      |        |        | 642  |    
|                                             |                                                                                   | Stock option compensation                                   |                                                      |                                                      | 215     |      |        |        | 210  |    
|                                             |                                                                                   | Loan costs expensed                                         |                                                      |                                                      | 2       |      |        |        | 58   |    
|                                             |                                                                                   | Undistributed income from joint venture                     |                                                      |                                                      | (18     | )    |        |        | (13  | )  
|                                             |                                                                                   | Change in assets and liabilities:                           |                                                      |                                                      |         |      |        |        |      |    
|                                             |                                                                                   |                                                             | (Increase) in other assets                           |                                                      |         | (7   | )      |        |      | (78 | )   
|                                             |                                                                                   |                                                             | Increase in accounts payable and accrued liabilities |                                                      |         | 4    |        |        |      | 526 |     
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             |                                                                                   |                                                             |                                                      | Net cash provided by operating activities            |         | $    | 313    |        |      | $   | 379  |  
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES         |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             | Additions to property and equipment                                               |                                                             | $                                                    | (326                                                 | )       |      | $      | (675   | )   
|                                             | Sales proceeds joint venture interest                                             |                                                             |                                                      | 200                                                  |         |      |        |       |     
|                                             | Sales proceeds Cumberland facility                                                |                                                             |                                                      | 2,543                                                |         |      |        |       |     
|                                             | Distributions from joint venture                                                  |                                                             |                                                      | 90                                                   |         |      |        | 2      |     
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             |                                                                                   |                                                             |                                                      | Net cash provided by (used in) investing activities  |         | $    | 2,507  |        |      | $   | (673 | )
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES         |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             | Proceeds from notes payable                                                       |                                                             | $                                                    |                                                     |         |      | $      | 550    |     
|                                             | Proceeds from vehicle loans                                                       |                                                             |                                                      | 32                                                   |         |      |        |       |     
|                                             | Principal payments on notes payable and vehicle loans                             |                                                             |                                                      | (2,485                                               | )       |      |        | (416   | )   
|                                             | Principal payments on capital lease obligations                                   |                                                             |                                                      | (36                                                  | )       |      |        | (7     | )   
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             |                                                                                   |                                                             |                                                      | Net cash provided by (used in) financing activities  |         | $    | (2,489 | )      |      | $   | 127  |  
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             |                                                                                   |                                                             |                                                      | Net increase (decrease) in cash and cash equivalents |         | $    | 331    |        |      | $   | (167 | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |                                                                                   |                                                             | 188                                                  |                                                      |         |      | 355    |       
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             |                                                                                   |                                                             |                                                      | Cash and cash equivalents, end of year               |         | $    | 519    |        |      | $   | 188  |  
|                                             |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|SUPPLEMENTAL DISCLOSURES                     |                                                                                   |                                                             |                                                      |                                                      |         |      |        |       
|                                             | Cash payments for:                                                                |                                                             |                                                      |                                                      |         |      |        |        |     
|                                             |                                                                                   | Interest                                                    |                                                      | $                                                    | 826     |      |        | $      | 552  |    
|                                             |                                                                                   | Taxes                                                       |                                                      | $                                                    | 4       |      |        | $      |     |    
|                                             | Noncash investing and financing activities:                                       |                                                             |                                                      |                                                      |         |      |        |        |     
|                                             |                                                                                   | Property and equipment acquired by capital lease obligation |                                                      | $                                                    | 61      |      |        | $      | 46   |    
|                                             |                                                                                   | Note payable cancelled on sale of facility                  |                                                      | $                                                    | 550,000 |      |        | $      |     |    

See accompanying notes to financial statements.

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AGEMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS

Note 1. Organization and Significant Accounting Policies



| |  | Organization:
| |  | -------------



| |  |  | Agemark Corporation (the Company) was organized in April, 1997
pursuant to an order of the U.S. Bankruptcy Court dated April
27, 1997 (the Order) to receive the assets of and continue the
businesses of four reorganized, publicly registered limited
partnerships and two privately held limited partnerships (the
Partnerships). The Order confirmed the Second Amended Joint
Plan of Reorganization (the Plan) of the Partnerships filed in
January, 1997 and amended in April, 1997. The first of the
property transfers to the Company pursuant to the Plan was
accomplished in January, 1998 and the final transfer took place
in July, 1998. A total of 1,000,000 shares of stock were issued
to the Partnerships for these properties as of September 30,
1998 and immediately distributed to their partners.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The property locations and their transfer dates were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                 |  |              
|---------------- |  | -------------
|Williston, ND    |  | January, 1998
|Beatrice, NE     |  | April, 1998  
|Chanute, KS      |  | April, 1998  
|Cumberland, MD   |  | April, 1998  
|Manitowoc, WI    |  | April, 1998  
|Port Huron, MI   |  | April, 1998  
|Fort Madison, IA |  | July, 1998   
|Hastings, NE     |  | July, 1998   
|Dickinson, ND    |  | July, 1998   
|Rock Island, IL  |  | July, 1998   



| |  |  | All of the above properties transferred and retained by the
Company are renovated hotels that have been designated as
Certified Historic Structures, except for the two facilities
in North Dakota, which are modern buildings. All of the
locations are operated as senior residential and assisted living
facilities, except for the Manitowoc, WI property. These
facilities provide an apartment style residence, three meals per
day, housekeeping, transportation, activities and 24-hour
non-medical assistance to elderly residents for a monthly fee.
Revenues are received directly from residents, their family, or
another responsible party. Services are generally not covered
by government or private insurance programs, except in North
Dakota, where the State government provides limited subsidies.
Resident fee revenue is recognized when services are rendered.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

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NOTES TO FINANCIAL STATEMENTS

Note 1. Organization and Significant Accounting Policies (Continued)



| |  | Organization: (Continued)
| |  | -------------------------



| |  |  | The property located in Manitowoc, WI was operated as an
apartment complex. Those units were generally rented on a
month-to-month basis.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | Use of Estimates:
| |  | -----------------



| |  |  | Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, and the reported revenues and
expenses. Actual results could differ from those estimates.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Property and Equipment:
| |  | -----------------------



| |  |  | Property and equipment transferred to the Company pursuant to
the Plan is carried at amounts stated in the Plan. Additions to
property and equipment are stated at cost. Depreciation of
buildings is computed using the straight-line method over
estimated useful lives of forty years. Personal property is
depreciated using the straight-line method over useful lives of
fifteen years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In accordance with SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, these long-lived assets to be held and used by the Company
are reviewed to determine whether any events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. For long-lived assets to be held and used,
the Company bases its evaluation on such impairment indicators
as the nature of the assets, the future economic benefit of the
assets, any historical or future profitability measurements, as
well as other external market conditions or factors that may be
present. If such impairment indicators are present or other
factors exist that indicate that the carrying amount of the
asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash
flows analysis of assets at the lowest level for which
identifiable cash flow exists. If an impairment has occurred,
the Company recognizes a loss for the difference between the
carrying amount and the estimated value of the asset.



| |  | Investment in Joint Venture:
| |  | ----------------------------



| |  |  | The Company has adopted the equity method of accounting for 20%
or more owned investee companies. Under this method, the
Companys equity in the earnings or losses of these companies is
reflected in the Companys earnings.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

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NOTES TO FINANCIAL STATEMENTS

Note 1. Organization and Significant Accounting Policies (Continued)



| |  | Income Taxes:
| |  | -------------



| |  |  | Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are
recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes.
The differences relate primarily to the accrual of compensated
absences that are not deductible for income tax purposes, stock
options and differences between the carrying amounts of the
property and equipment transferred to the Company pursuant to
the Plan. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will
either be deductible or taxable when the assets and liabilities
are recovered or settled. Deferred taxes are also recognized
for operating losses that are available to offset future taxable
income.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Stock-Based Compensation:
| |  | -------------------------



| |  |  | The Company has elected to account for its stock option plan
under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. Accordingly, no compensation expense
has been recognized for the stock option grants.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Cash and Cash Equivalents:
| |  | --------------------------



| |  |  | For purposes of the statement of cash flows, the Company
considers all money market funds purchased with a maturity of
three months or less to be cash equivalents.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 2. Cash and Cash Equivalents



| |  |  | At September 30, 2002, cash and cash equivalents included
approximately $306,000 invested in Vanguard Federal Money Market
Fund. Vanguard Federal Money Market Fund invests in United
States Treasury obligations, securities issued or guaranteed by
agencies of the U.S. Government, and repurchase agreements
collateralized by these obligations and securities.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

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NOTES TO FINANCIAL STATEMENTS

Note 3. Property and Equipment

Property and equipment (in thousands) consists of the following at
September 30, 2002:

|                              |  |   |        |        |      |   |       |     |  |   |        |        | 
|----------------------------- |  | - | ------ | ------ | ---- | - | ----- | --- |  | - | ------ | ------ | 
|                              |  |   | Plan   |        |      |   |       |     |  |   |       
|                              |  |   | Values |        | Cost |   | Total
|                              |  |   |        |        |      |   |      
|Land                          |  |   | $      | 556    |      |   | $     |    |  |   | $      | 556    | 
|Buildings                     |  |   |        | 13,599 |      |   |       | 999 |  |   |        | 14,598 | 
|Personal property             |  |   |        | 1,804  |      |   |       | 323 |  |   |        | 2,127  | 
|                              |  |   |        |        |      |   |       |     |  |   |        |        | 
|                              |  | $ | 15,959 |        |      | $ | 1,322 |     |  | $ | 17,281 |       
|                              |  |   |        |        |      |   |       |     |  |   |        |        | 
|Less accumulated depreciation |  |   |        |        |      |   |       |     |  |   | 2,122  |       
|                              |  |   |        |        |      |   |       |     |  |   |        |       
|                              |  |   |        |        |      |   |       |     |  | $ | 15,159 |       
|                              |  |   |        |        |      |   |       |     |  |   |        |       



| |  | Plan values represent the assets transferred from the four publicly
registered limited partnerships and two privately held limited
partnerships pursuant to the Order of the U.S. Bankruptcy Court. The
Partnerships were as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Publicly registered limited partnerships:
| |  |  | -----------------------------------------

| |  |  | Historic Housing for Seniors Limited Partnership (HHS I)
Historic Housing for Seniors II Limited Partnership (HHS II)
Historic Housing for Seniors III Limited Partnership (HHS III)
Housing for Seniors Participating Mortgage Fund Limited Partnership
(PIF I)
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Privately held limited partnerships:
| |  |  | ------------------------------------

| |  |  | Dickinson Associates Limited Partnership
Williston Associates Limited Partnership
| |  |  | ---------------------------------------------------------------------------------



| |  | Under the Plan, those facilities which were determined to have the
strongest long-term potential for generating cash flow to support
ongoing debt or which were needed to secure certain obligations from
previous loans were transferred to the Company. The following is a
summary (in thousands) of the properties the Company currently holds,
net of transfers, and the adjustments made to historical values to
arrive at Plan values pursuant to the Order of the U.S. Bankruptcy
Court:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                 |  |         |  |            |       |          |        |          |       |          |       |        |       |   |        |   |       |   |       |   |       |   |        | 
|---------------- |  | ------- |  | ---------- | ----- | -------- | ------ | -------- | ----- | -------- | ----- | ------ | ----- | - | ------ | - | ----- | - | ----- | - | ----- | - | ------ | 
|                 |  | Trans-  |  |            |       |          |        | Accum.   |       | Net Book |       | Write  |       |   |        |  
|Property         |  | ferred  |  | Historical |       | Depr.    |        | Value    |       | Up       |       | Plan  
|Location         |  | From    |  | Value      |       | 12/31/97 |        | 12/31/97 |       | (Down)   |       | Values
|                 |  |         |  |            |       |          |        |          |       |          |       |       
|Beatrice, NE     |  | HHS I   |  | $          | 2,742 |          |        | $        | 888   |          |       | $      | 1,854 |   |        | $ | (618  | ) |       | $ | 1,236 |  
|Hastings, NE     |  | HHS I   |  |            | 3,211 |          |        |          | 1,120 |          |       |        | 2,091 |   |        |   | 198   |   |       |   | 2,289 |  
|Rock Island, IL  |  | HHS II  |  |            | 4,345 |          |        |          | 1,212 |          |       |        | 3,133 |   |        |   | (735  | ) |       |   | 2,398 |  
|Fort Madison, IA |  | HHS III |  |            | 3,460 |          |        |          | 781   |          |       |        | 2,679 |   |        |   | (464  | ) |       |   | 2,215 |  
|Port Huron, IL   |  | PIF I   |  |            | 1,090 |          |        |          | 0     |          |       |        | 1,090 |   |        |   | 86    |   |       |   | 1,176 |  
|Dickinson, ND    |  | Private |  |            | 1,380 |          |        |          | 380   |          |       |        | 1,000 |   |        |   | 1,273 |   |       |   | 2,273 |  
|Williston, ND    |  | Private |  |            | 1,932 |          |        |          | 538   |          |       |        | 1,394 |   |        |   | 2,978 |   |       |   | 4,372 |  
|                 |  |         |  |            |       |          |        |          |       |          |       |        |       |   |        |   |       |   |       |   |       |   |        | 
|                 |  |         |  |            |       | $        | 18,160 |          |       | $        | 4,919 |        |       | $ | 13,241 |   |       | $ | 2,718 |   |       | $ | 15,959 | 
|                 |  |         |  |            |       |          |        |          |       |          |       |        |       |   |        |   |       |   |       |   |       |   |        | 

(Continued)

28



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 3. Property and Equipment (Continued)



| |  |  | In connection with the transfers of the facilities, the Company
also assumed various notes payable. The following is a summary
(in thousands) of the notes payable assumed by the Company:
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                         |  |   |        | 
|------------------------------------------------------------------------ |  | - | ------ | 
|Carrying value of notes (including accrued
interest) by the Partnerships |  | $ | 24,186 | 
|Less forgiveness of debt recognized by the Partnerships                  |  |   | 8,595  | 
|                                                                         |  |   |        | 
|Notes payable assumed by the Company                                     |  | $ | 15,591 | 
|                                                                         |  |   |        | 

Note 4. Accounts Payable and Accrued Liabilities



| |  |  | Accounts payable and accrued liabilities (in thousands) consist of
the following at September 30, 2002:
| |  |  | -------------------------------------------------------------------------------------------------------

|                                             |  |   |       | 
|-------------------------------------------- |  | - | ----- | 
|Current and continuing operating liabilities |  | $ | 964   | 
|Accrued interest on notes payable            |  |   | 954   | 
|                                             |  |   |       | 
|                                             |  | $ | 1,918 | 
|                                             |  |   |       | 

Note 5. Notes Payable



| |  |  | Notes payable (in thousands) consist of the following at September 30, 2002:
| |  |  | ----------------------------------------------------------------------------

|                              |                           |                     |    |       |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|----------------------------- | ------------------------- | ------------------- | -- | ----- | ------ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Notes secured by real estate: |                           |                     |    |      
|                              | Regular mortgage notes    |                     | $  | 7,810 |       
|                              | Rock Island mortgage note |                     |    | 4,171 |       
|                              |                           |                     |    |       |       
|                              |                           | Total secured notes |    | $     | 11,981 | 
|Tax notes                     |                           |                     | 91 |      
|                              |                           |                     |    |       |       
|                              |                           | Total notes payable |    | $     | 12,072 | 
|                              |                           |                     |    |       |       



| |  |  | There are four regular mortgage notes, dated September 30, 1998,
that bear interest at 8% per annum. Interest on each of the notes
is payable monthly at a rate of 6% per annum. Accrued and unpaid
interest resulting from this deferral provision increased by
$231,926 and $278,309 respectively, during the years ended
September 30, 2002 and 2001. As of September 30, 2002, the total
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

29



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 5. Notes Payable (Continued)



| |  |  | amount of accrued and unpaid interest on these notes is $906,818.
The notes were originally due on September 30, 2001 but were
extended to September 30, 2002 and additionally extended to
September 30, 2003. They may be extended for additional period of
one year upon payment of $222,000 before September 30, 2003. On a
quarterly basis, any portion of the 8% interest which is unpaid
and 75% of any computed net cash flow from the properties securing
the notes is payable. To the extent that this calculation results
in a payment of principal, that sum is to be retained by the
lender as a reserve for capital improvements. No amounts were
computed to be payable under this provision during the years ended
September 30, 2002 and 2001. These notes are secured by first
mortgage liens on properties in Dickinson, ND, Williston, ND, Fort
Madison, IA and Hastings, NE.                                                                                                                                                            
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Rock Island mortgage note, dated September 30, 1998, bears
interest as follows: from October 1, 1998 through September 30,
1999, the lesser of 3% per annum on the unpaid principal balance
or computed cash flow from the Rock Island property; from October
1, 1999 through September 30, 2000, the greater of 3% per annum on
the unpaid principal balance or computed cash flow from the Rock
Island property; from October 1, 2000 until maturity, the greater
of 4% per annum on the unpaid principal balance or computed cash
flow from the Rock Island property. For the year ended September
30, 2002 interest payable $165,240 was computed and $171,525 was
paid. For the year ended September 30, 2001, interest payable of
$110,160 was computed and $62,565 was paid. As of September 30,
2002, the total amount of accrued and unpaid interest on this note
is $41,310. The note is secured by a first mortgage lien on the
property located in Rock Island, IL and was due on September 30,
2001 but was extended to September 30, 2003.
|
| |  |  | By agreement with the holder of the regular mortgage notes and the
Rock Island mortgage note, minimum interest payments required to
be paid from June, 2000 through January, 2001 have been deferred
to provide funds to perform substantial modifications to the
property located in Hastings, NE. These modifications are
required by local licensing authorities in order to continue the
operation of the property as an assisted living facility. Accrued
and unpaid interest pursuant to this arrangement amounted to
$467,870 by January, 2001. For the years ended September 30, 2002
and 2001, respectively, $89,162 and $374,049 were incurred for the
modifications required on the Hastings, NE property leaving a
remaining balance of $4,659 deferred.                                                                                                                                                                                                                                                                                        
|
| |  |  | The tax notes bear interest at 8% per annum. Payments of interest
and principal are due semi-annually each January and July in the
amount of $5,886 through January, 2004 and each February and
August in the amount of $26,638 through February, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

(Continued)

30



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 5. Notes Payable (Continued)



| |  |  | Future maturities of notes payable (in thousands) at September 30,
2002 are as follows:
| |  |  | ---------------------------------------------------------------------------------------

|                           |      |   |        |        | 
|-------------------------- | ---- | - | ------ | ------ | 
|Years ending September 30: |      |   |        |       
|                           | 2003 |   |        | 12,042 | 
|                           | 2004 |   |        | 30     | 
|                           |      |   |        |       
|                           |      | $ | 12,072 |       
|                           |      |   |        |       



| |  | Note 6. Vehicle Loans
| |  | ---------------------



| |  |  | During 2002, the Company financed the purchase of two automobiles at
two of its facilities. The loans are secured by the automobiles, bear
interest at 6.75% and 3.9%, and require monthly payments of principal
and interest of $392 through January 2005 and $392 through July 2007.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Future maturities of vehicle loans (in thousands) at September 30,
2002 are as follows:                                                                                                                                                                                               

|                           |      |   |    |   | 
|-------------------------- | ---- | - | -- | - | 
|Years ending September 30: |      |   |    |  
|                           | 2003 |   | $  | 8 | 
|                           | 2004 |   |    | 8 | 
|                           | 2005 |   |    | 6 | 
|                           | 2006 |   |    | 4 | 
|                           | 2007 |   |    | 3 | 
|                           |      |   |    |  
|                           |      | $ | 29 |  
|                           |      |   |    |  

(Continued)

31



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 7. Lease Obligations



| |  |  | The Company leases an emergency generator and an alarm system at its
Hastings, NE facility under capital leases expiring in April 2003 and
September 2004, respectively. The cost of the emergency generator has
been capitalized at $46,353 and the alarm system at $61,051 and
included in property and equipment.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company currently also leases a total of three buses at three of
its facilities under operating leases expiring in July 2003. Annual
rent expense under these operating leases amounted to $58,533 in 2002
and $59,461 in 2001.                                                                                 
|
| |  |  | The following is a schedule by year of future minimum lease payments
under capital and operating leases, together with the present value of
the net minimum lease payments as of September 30, 2002 (in thousands):                                                                                                 

|                                       |      |   |         |    |           |   |       |    |  |   |     |    | 
|-------------------------------------- | ---- | - | ------- | -- | --------- | - | ----- | -- |  | - | --- | -- | 
|                                       |      |   | Capital |    | Operating |   | Total
|                                       |      |   |         |    |           |   |      
|Years ending September 30:             |      |   |         |    |           |   |       |    |  |   |     |   
|                                       | 2003 |   | $       | 46 |           |   | $     | 37 |  |   | $   | 83 | 
|                                       | 2004 |   |         | 25 |           |   |       |   |  |   |     | 25 | 
|                                       |      |   |         |    |           |   |       |    |  |   |     |    | 
|                                       |      | $ | 71      |    |           | $ | 37    |    |  | $ | 108 |   
|                                       |      |   |         |    |           |   |       |    |  |   |     |   
|Less amount representing interest      |      |   | (7      | )  |           |   |       |    |  |   |     |   
|                                       |      |   |         |    |           |   |       |    |  |   |     |    | 
|Total obligations under capital leases |      | $ | 64      |    |           |   |       |    |  |   |     |   
|                                       |      |   |         |    |           |   |       |    |  |   |     |    | 

Note 8. Transactions With Affiliates



| |  |  | The Company contracts with Opus X, Inc. (OPUS) for the management of
its owned and operated properties. OPUS is co-owned by Richard J.
Westin and Jesse A. Pittore, directors and officers of the Company.
Prior to June 1, 2001 these management services were provided by
Evergreen Management, Inc. (EMI), also an affiliate of Westin and
Pittore. Compensation for these management services is 4.5 % of gross
income paid monthly prior to October 1, 2001 and 3.75% thereafter.
Management fees of $397,404 and $473,400 for the years ended September
30, 2002 and 2001, respectively, are included in the property operating
expenses on the statement of operations for services provided by EMI
and OPUS. At September 30, 2002, accounts payable includes $28,403
owed by the Company to OPUS.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company rents its corporate headquarters in Berkeley, CA pursuant
to a lease between the Company and the Waterford Company, which is
owned by members of Richard J. Westins family. The lease was written
for a one-year term starting October 1, 1998 at a rent of $2,000 per
month and automatically renews 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.                                                                                                                                                                                                                                                                    

(Continued)

32



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 8. Transactions With Affiliates (Continued)



| |  |  | For the years ended September 30, 2002 and 2001, administrative
expenses include rent for the Companys headquarters in the amount of
$24,000 paid pursuant to the above lease between the Company and the
Waterford Company.                         
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | During 1999, the Company entered into a joint venture agreement with
entities controlled by Richard J. Westin and Jesse A. Pittore,
directors and officers of the Company (see Note 9).                                                               
|
| |  |  | During 2002, entities controlled by Richard J. Westin and Jesse A.
Pittore, directors and officers of the Company, purchased the Companys
interests in the joint venture discussed above and in Note 9 and the
Cumberland, MD facility (see Note 10).

Note 9. Investment in Joint Venture



| |  |  | During 1999, the Company entered into an agreement with entities
controlled by Richard J. Westin and Jesse A. Pittore, directors and
officers of the Company, to jointly develop, build and operate an
Alzheimers facility in Cumberland, MD. The agreement provided, in
part, for the Company to contribute land located adjacent to its
Cumberland, MD facility upon which the Alzheimers facility was built.
The Westin and Pittore entities funded all of the costs to build,
furnish and operate the facility. For its contribution of land, the
Company received a 25% ownership interest and 25% of all net income and
proceeds from the operation of the facility. This facility began
operations in August, 2000.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The following information (in thousands) summarizes the activity of the
joint venture since its inception:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                  |  |   |     |  
|--------------------------------- |  | - | --- | -
|Land contributed to joint venture |  | $ | 130 |  
|Distributions net of advances     |  |   | (40 | )
|Companys share of net income     |  |   | 12  |  
|                                  |  |   |     |  
|Investment in joint venture       |  | $ | 102 |  
|                                  |  |   |     |  



| |  |  | On July 1, 2002, the Company sold its interest in the joint venture to
the Westin and Pittore entities for $200,000 in cash for a gain of
$98,000.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------

Note 10. Loss on Disposition of Property



| |  |  | In December, 2000 the Company disposed of its property located in
Manitowoc, WI in return for cancellation of liability for prior
years unpaid property taxes. The depreciated book value of the
property disposed of was $769,000 and the liabilities cancelled
were $143,000, resulting in a net loss of $626,000. This property
has always been operated as an apartment house and was not part of
the core business of the Company.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

33



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 10. Loss on Disposition of Property (Continued)



| |  |  | On August 31, 2002, the Company sold its facility located in
Cumberland, MD to entities controlled by Richard J. Westin and
Jesse A. Pittore, directors and officers of the Company, as
follows:
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     |  |   |           |  
|---------------------------------------------------- |  | - | --------- | -
|Sales price                                          |  | $ | 3,300,000 |  
|Credit for repairs                                   |  |   | (200,000  | )
|Related party note cancelled                         |  |   | (550,000  | )
|Costs of sale                                        |  |   | (7,000    | )
|                                                     |  |   |           |  
|Net proceeds from sale                               |  | $ | 2,543,000 |  
|Book value of assets sold, net of related party note |  |   | 3,150,000 |  
|                                                     |  |   |           |  
|Loss on disposition of facility                      |  | $ | (607,000  | )
|                                                     |  |   |           |  

Note 11. Loss from Write-down of Long-lived Assets



| |  |  | In May 2001, the Company closed its facility located in Chanute,
KS and offered the property for sale. In November 2001, the
Company signed a contract to sell the property for $300,000, less
estimated commissions and closing costs of $20,000. The write down
of the net book value of the real and personal property of
$922,000 to the net sales price of $280,000 resulted in the
recognition of a loss of $642,000. This contract was never
finalized.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On August 26, 2003, the Company signed an agreement to sell its
property located in Chanute, KS for $275,000 to an unaffiliated
buyer. The contract provides for a 5% commission to an
unaffiliated broker and was conditional until October 15, 2002.
On the basis of this contract, the carrying value of the property
was further written down by $25,000.                                                                                                 

Note 12. Income Taxes



| |  |  | Income taxes consist of deferred federal income taxes of $445,000 for
the year ended September 30, 2001 and current state franchise taxes of
approximately $13,000 for the year ended September 30, 2000. The
following is a reconciliation (in thousands) of the federal statutory
income tax amount on income to the provision for income tax expense:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

34



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 12. Income Taxes(Continued)

|                                               |                    |   |        |     |      |   |      |    | 
|---------------------------------------------- | ------------------ | - | ------ | --- | ---- | - | ---- | -- | 
|                                               |                    |   | 2001   |     | 2000
|                                               |                    |   |        |     |     
|Federal statutory income tax (benefit) at 34%  |                    | $ | (1,700 | )   |      | $ | (476 | ) 
|State franchise taxes                          |                    |   |       |     |      |   | 13   |   
|Valuation allowance increase during the period |                    |   | 2,145  |     |      |   | 476  |   
|                                               |                    |   |        |     |      |   |      |   
|                                               | Income tax expense |   | $      | 445 |      |   | $    | 13 | 
|                                               |                    |   |        |     |      |   |      |   



| |  |  | A summary (in thousands) of the deferred tax assets and liabilities at
September 30, 2001 follows:
| |  |  | --------------------------------------------------------------------------------------------------

|                          |                                         |   |       |       | 
|------------------------- | --------------------------------------- | - | ----- | ----- | 
|Deferred tax assets:      |                                         |   |       |      
|                          | Net operating loss carryforward         |   | $     | 2,519 | 
|                          | Accrued compensated absences            |   |       | 20    | 
|                          | Stock option compensation               |   |       | 240   | 
|                          |                                         |   |       |       | 
|                          |                                         |   | $     | 2,779 | 
|Deferred tax liabilities: |                                         |   |       |      
|                          | Depreciation and property and equipment |   |       | 730   | 
|                          |                                         |   |       |       | 
|Net deferred tax assets   |                                         | $ | 2,049 |      
|                          |                                         |   |       |       | 



| |  |  | SFAS No. 109, Accounting for Income Taxes, requires a valuation
allowance to be recorded when it is more likely than not that some or
all of the deferred tax assets will not be realized. At September 30,
2001, a valuation allowance for the full amount of the net deferred tax
asset was recorded because of the uncertainties as to the amount of
taxable income that will be generated in future years.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | At September 30, 2001, the Company has federal net operating loss
carryforwards of approximately $7,410,000 that will expire as follows:                                                                                                                                                                                                                                                                      

|                        |  |   |           | 
|----------------------- |  | - | --------- | 
|Amount expiring in 2018 |  | $ | 410,000   | 
|Amount expiring in 2019 |  |   | 600,000   | 
|Amount expiring in 2020 |  |   | 1,400,000 | 
|Amount expiring in 2021 |  |   | 5,000,000 | 

Note 13. 401(k) Savings Plan



| |  |  | The Company has adopted a Savings Plan effective July 1, 1998 (the
401(k) Plan) that is intended to qualify under Section 401(k) of the
Internal Revenue Code. After completing twelve months of service,
employees that are at least twenty-one years of age are eligible to
participate in the 401(k) Plan by contributing up to 15% of their gross
income to the 401(k) Plan subject to Internal Revenue Service
restrictions. The Company may make contributions to the 401(k) Plan at
the discretion of the Board of Directors, but such contributions are
not required. For the years ended September 30, 2002 and 2001, no
contributions to the 401(k) Plan were made by the Company.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

35



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

Note 14. Net Loss per Common Share



| |  |  | In accordance with Statement of Financial Accounting Standards No.
128, Earnings per Share, the Company is required to present both
basic and diluted loss per common share.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | For the year ended September 30,
2002 the weighted average common shares outstanding is 1,000,232. For the year ended September 30, 2001 the weighted average common
shares outstanding is 1,000,000 shares for the calculation of
basic loss per common share. Diluted loss per common share is computed on the basis of the
weighted average number of common shares outstanding plus the
effect, if any, of outstanding stock options using the treasury
stock method. During 2002 and 2001, the impact of the stock
options are anti-dilutive and, accordingly, are not included in
the calculation of diluted loss per common share.

Note 15. 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.                                                                                                     
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Options to purchase up to a total of 237,164 shares of common
stock have been granted at exercise prices ranging from $1.00 to
$1.10 per share to the officers, directors and employees of the
Company. On June 1, 2002 the officers and directors exercised
their vested options and acquired 187,749 shares of the Companys
common stock by executing promissory notes and pledge agreements
totaling $204,415. The notes have a term of four years and bear
interest at 5%. Details of the options are:

(Continued)

36



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS

|                    |  |         |          |           |  |                   |      |                |  |                  |  |  |  |  |  | 
|------------------- |  | ------- | -------- | --------- |  | ----------------- | ---- | -------------- |  | ---------------- |  |  |  |  |  | 
|                    |  |         |          |           |  | Shares            |      | Exercise Price |  |                  |  | 
|Date of Grant       |  | Granted |          | Per Share |  | Date Fully Vested
|                    |  |         |          |           |  |                  
|January 1, 1999     |  |         | 166,666  |           |  | $                 | 1.10 |                |  | July 1, 1999    
|January 1, 1999     |  |         | 1,000    |           |  |                   | 1.00 |                |  | January 1, 2000 
|January 1, 1999     |  |         | 42,750   |           |  |                   | 1.00 |                |  | January 1, 2003 
|April 1, 1999       |  |         | 18,748   |           |  |                   | 1.00 |                |  | April 1, 2001   
|November 10, 1999   |  |         | 5,000    |           |  |                   | 1.00 |                |  | November 1, 2001
|December 22, 1999   |  |         | 3,000    |           |  |                   | 1.00 |                |  | December 1, 2000
|                    |  |         |          |           |  |                   |      |                |  |                  |  | 
|Total               |  |         | 237,164  |           |  |                   |      |                |  |                  |  | 
|Options ceded       |  |         | (12,882  | )         |  |                   | 1.00 |                |  |                  |  | 
|Options exercised   |  |         | (166,666 | )         |  |                   | 1.10 |                |  |                  |  | 
|Options exercised   |  |         | (21,083  | )         |  |                   | 1.00 |                |  |                  |  | 
|                    |  |         |          |           |  |                   |      |                |  |                  |  | 
|Options outstanding |  |         | 36,533   |           |  |                   | 1.00 |                |  |                  |  | 
|                    |  |         |          |           |  |                   |      |                |  |                  |  | 



| |  |  | The stock of the Company has not been listed for sale on any
public exchange. For purposes of accounting for compensation
expense arising from the granting of stock options under APB
Opinion No. 25, the book value of $5.97 per share on September 30,
1998 has been used in the absence of any other reliable market
information. In the case of the 166,666 options which fully vest
July 1, 1999, the compensation represented by the difference
between the $1.10 exercise price and the $5.97 net book value is
being recognized over the 57 months remaining of the terms of the
employment contracts of the officers to whom the options were
granted. The compensation attributable to the remaining 70,498
options is being recognized over their respective vesting periods.
Total compensation for the years ended September 30, 2002 and
2001 under APB Opinion No. 25 was approximately $215,000 and
$210,000.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | If the Company had used the fair value based method of accounting
for its employee stock incentive plan, as prescribed by SFAS No.
123, stock option compensation cost in the statement of operations
for the year ended September 30, 2002 would have decreased by
$171,000, resulting in a net loss of $754,000 and the basic loss
per common share would have been $0.75. For the year ended
September 30, 2001 stock option compensation costs would have
decreased by $171,000, resulting in a net loss of $2,090,000 and
the basic loss per common share would have been $2.09.                                                                                                                                                                                                                                                                                                                                         

(Continued)

37



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##### Table of Contents



NOTES TO FINANCIAL
STATEMENTS

Note 16. Subsequent Event



| |  |  | On October 22, 2002, the Company signed an agreement to sell its
property located in Rock Island, IL for $2,500,000 to an
unaffiliated buyer. The property has previously been listed with
an unaffiliated broker with an agreed commission of 3%. On
December 13, 2002, the buyer removed all contingencies except for
financing. Conditional on the buyer obtaining financing, the
proposed closing date for the sale is February 28, 2003.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

38



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##### Table of Contents



AGEMARK CORPORATION
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 2002



|                                          |        |              |       |          |  |           |              |             |               |      |                            |           |  |       |       |     |  |   |     |     |  |   |       |        |  |   |       |        | 
|----------------------------------------- | ------ | ------------ | ----- | -------- |  | --------- | ------------ | ----------- | ------------- | ---- | -------------------------- | --------- |  | ----- | ----- | --- |  | - | --- | --- |  | - | ----- | ------ |  | - | ----- | ------ | 
|Column A                                  |        | Column B     |       | Column C |  | Column D  |              | Column E   
|                                          |        |              |       |          |  |           |              |            
|                                          |        |              |       |          |  |           |              |             |               |      |                            |           |  |       | Costs |     |  |   |     |     |  |   |       |        |  |   |      
|                                          |        |              |       |          |  |           | Initial Cost |             | Capitalized   |      | Gross Amount
at Which     
|                                          |        |              |       |          |  |           | to Company   |             | (Charged Off) |      | Carried
at Close of Period
|                                          |        |              |       |          |  |           |              |             | Subsequent to |      |                           
|Description                               |        | Encumbrances |       | Land     |  | Buildings |              | Acquisition |               | Land |                            | Buildings |  | Total
|                                          |        |              |       |          |  |           |              |             |               |      |                            |           |  |      
|Assisted Living Facility
Williston, ND    |        | $            | 2,500 |          |  | $         | 74           |             |               | $    | 3,860                      |           |  | $     | 165   |     |  | $ | 74  |     |  | $ | 4,025 |        |  | $ | 4,099 |       
|Assisted Living Facility
Beatrice, NE     |        |              |       |          |  |           | 14           |             |               |      | 1,083                      |           |  |       | 156   |     |  |   | 14  |     |  |   | 1,239 |        |  |   | 1,253 |       
|Assisted Living Facility
Port Huron, MI   |        |              |       |          |  |           | 98           |             |               |      | 902                        |           |  |       | 43    |     |  |   | 98  |     |  |   | 945   |        |  |   | 1,043 |       
|Assisted Living Facility
Rock Island, IL  |        |              | 4,171 |          |  |           | 189          |             |               |      | 1,855                      |           |  |       | 20    |     |  |   | 189 |     |  |   | 1,875 |        |  |   | 2,064 |       
|Assisted Living Facility
Fort Madison, IA |        |              | 2,215 |          |  |           | 52           |             |               |      | 1,915                      |           |  |       | 44    |     |  |   | 52  |     |  |   | 1,959 |        |  |   | 2,011 |       
|Assisted Living Facility
Hastings, NE     |        |              | 2,289 |          |  |           | 92           |             |               |      | 1,892                      |           |  |       | 333   |     |  |   | 92  |     |  |   | 2,225 |        |  |   | 2,317 |       
|Assisted Living Facility
Dickinson, ND    |        |              | 806   |          |  |           | 36           |             |               |      | 2,091                      |           |  |       | 63    |     |  |   | 36  |     |  |   | 2,154 |        |  |   | 2,190 |       
|                                          |        |              |       |          |  |           |              |             |               |      |                            |           |  |       |       |     |  |   |     |     |  |   |       |        |  |   |       |       
|                                          | Totals |              | $     | 11,981   |  |           | $            | 555         |               |      | $                          | 16,986    |  |       | $     | 999 |  |   | $   | 555 |  |   | $     | 14,597 |  |   | $     | 15,152 | 
|                                          |        |              |       |          |  |           |              |             |               |      |                            |           |  |       |       |     |  |   |     |     |  |   |       |        |  |   |       |       

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                          |        |              |                  |              |         |          |      |          |  |  |        |  |  |        |  |  | 
|----------------------------------------- | ------ | ------------ | ---------------- | ------------ | ------- | -------- | ---- | -------- |  |  | ------ |  |  | ------ |  |  | 
|Column A                                  |        | Column F     |                  | Column G     |         | Column H |      | Column I
|                                          |        |              |                  |              |         |          |      |         
|                                          |        |              | Accumulated      |              |         |          |      |          |  |  |        |  |  |        | 
|                                          |        |              | Depreciation and |              | Date of |          | Date |          |  |  |       
|Description                               |        | Amortization |                  | Construction |         | Acquired |      | Life    
|                                          |        |              |                  |              |         |          |      |         
|Assisted Living Facility
Williston, ND    |        | $            | 471              |              |         |          | 1983 |          |  |  | 1/1/98 |  |  | 40 yr.
|Assisted Living Facility
Beatrice, NE     |        |              | 135              |              |         |          | 1934 |          |  |  | 4/1/98 |  |  | 40 yr.
|Assisted Living Facility
Port Huron, MI   |        |              | 102              |              |         |          | 1896 |          |  |  | 4/1/98 |  |  | 40 yr.
|Assisted Living Facility
Rock Island, IL  |        |              | 198              |              |         |          | 1926 |          |  |  | 7/1/98 |  |  | 40 yr.
|Assisted Living Facility
Fort Madison, IA |        |              | 207              |              |         |          | 1954 |          |  |  | 7/1/98 |  |  | 40 yr.
|Assisted Living Facility
Hastings, NE     |        |              | 210              |              |         |          | 1914 |          |  |  | 7/1/98 |  |  | 40 yr.
|Assisted Living Facility
Dickinson, ND    |        |              | 225              |              |         |          | 1980 |          |  |  | 7/1/98 |  |  | 40 yr.
|                                          |        |              |                  |              |         |          |      |          |  |  |        |  |  |        |  | 
|                                          | Totals |              | $                | 1,548        |         |          |      |          |  |  |        |  |  |        |  |  | 
|                                          |        |              |                  |              |         |          |      |          |  |  |        |  |  |        |  | 

39



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Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.




PART III




Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

As of September 30, 2002, the directors and executive officers and their
respective ages of the Company are as follows:

|                        |  |     |    |          |  |                                                                          
|----------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Richard J. Westin       |  |     | 61 |          |  | Director, Co-Chairman of the Board, Chief
Executive Officer and Secretary
|Jesse A. Pittore        |  |     | 62 |          |  | Director, Co-Chairman of the Board, President                            
|Robert R. Herrick, M.D. |  |     | 63 |          |  | Director                                                                 
|James P. Tolley         |  |     | 59 |          |  | Treasurer and Chief Financial Officer                                    

The business experience of the Companys directors and executive officers,
including each such persons principal occupations and employment during the
last five years, is summarized below.

Richard J. Westin has been Director, Co-Chairman of the Board of
Directors, Chief Executive Officer and Secretary of the Company since its
incorporation in April 1997. From 1986 until 1998, Mr. Westin served as
President of The Westor Financial Group, Inc., now, Opus X Inc. (Opus), a
company specializing in financing the development of assisted living facilities
across the county. Mr. Westin received his B.A. degree from the University of
North Carolina at Chapel Hill and his Juris Doctor degree from the University
of Californias Hastings College of the Law.

Jesse A. Pittore has been Director, Co-Chairman of the Board of Directors,
President and Chief Operating Officer of the Company since its incorporation in
April 1997. From 1986 until 1998, Mr. Pittore was Chairman of the Board of
Opus. Mr. Pittore holds a Bachelor of Science degree in Industrial Engineering
and Business Management from the University of California, Berkeley.

Robert R. Herrick, M.D. has been a Director of the Company since January
1998. Dr. Herrick has been in private practice in neurology in Northern
California since 1971. In 1997, he served as Chief of Staff to Doctors
Medical Center in San Pablo, California and currently serves as President of
the Board of Governors of that hospital. Dr. Herrick received his bachelors
degree from Oberlin College in Ohio and his medical degree from the University
of Chicago Medical School.

James P. Tolley has been Treasurer and Chief Financial Officer of the
Company since its incorporation in April 1997. From 1988 to present, he has
served as Controller of Opus.

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Mr. Tolley is a Certified Public Accountant and holds a Bachelor of
Science degree from California State University, San Francisco.

Section 16(a) Beneficial Ownership Reporting Compliance.Under the
securities laws of the United States, the Companys directors, executive
officers and any persons holding more than 10% of the Companys Common Stock
are required to report their initial ownership of the Companys Common Stock
and any subsequent changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established and the
Company is required to identify in this Annual Report on Form 10-KSB those
persons who failed to timely file these reports. Based on a review of the
Companys records, all of the filing requirements were satisfied for the fiscal
year ended September 30, 2002.




Item 10. EXECUTIVE COMPENSATION

Pursuant to the Plan of Reorganization, for two years after the effective
date of the Plan of Reorganization, which period ended on September 30, 2000,
Messrs. Westin and Pittore have agreed not to accept more than $1,000 per month
in salary for their services as officers of the Company. The Plan also
provides that neither of Messrs. Westin nor Pittore may receive compensation
for his services as director of the Company except for stock options and other
perquisites as set forth in each of their employment agreements. See
Employment Agreements below. Dr. Herrick, who is a nonemployee director
received a payment of $25,000 for his services from June 1, 2002 to May 31,
2003 which was paid in October, 2002.

Summary Compensation Table

|                            |                                   |      |      |        |  |       |                     |              |            |                 |           |   |  |  |                     |       |  |   |        |        | 
|--------------------------- | --------------------------------- | ---- | ---- | ------ |  | ----- | ------------------- | ------------ | ---------- | --------------- | --------- | - |  |  | ------------------- | ----- |  | - | ------ | ------ | 
|                            |                                   |      |      |        |  |       |                     |              |            |                 |           |   |  |  | Long-Term           |       |  |   |       
|                            |                                   |      |      |        |  |       |                     |              |            |                 |           |   |  |  | Compensation Awards |       |  |   |       
|                            |                                   |      |      |        |  |       |                     |              |            |                 |           |   |  |  |                     |       |  |   |       
|                            |                                   |      |      |        |  |       |                     |              |            |                 |           |   |  |  | Securities          |       |  |   |       
|                            |                                   |      |      |        |  |       | Annual
Compensation |              | Underlying |                 | All Other
|Name and Principal Position |                                   | Year |      | Salary |  | Bonus |                     | Options/SARs |            | Compensation(1)
|                            |                                   |      |      |        |  |       |                     |              |            |                
|Richard J. Westin           |                                   |      | 2002 |        |  | $     | 24,000              |              |            |                 |          |   |  |  |                    |       |  | $ | 12,000 |       
|                            | Co-Chairman of the                |      |      | 2001   |  |       |                     | 12,000       |            |                 |           |  |  |  |                     |      |  |   |        | 12,000 | 
|                            | Board and Chief
Executive Officer |      |      |        |  |       |                     |              |            |                 |           |   |  |  |                     |       |  |   |        |        | 
|Jesse A. Pittore            |                                   |      | 2002 |        |  |       | 24,000              |              |            |                 |          |   |  |  |                    |       |  |   | 12,000 |       
|                            | Co-Chairman of the                |      |      | 2001   |  |       |                     | 12,000       |            |                 |           |  |  |  |                     |      |  |   |        | 12,000 | 
|                            | Board and President               |      |      |        |  |       |                     |              |            |                 |           |   |  |  |                     |       |  |   |        |        | 
|Robert R. Herrick, M.D.     |                                   |      | 2002 |        |  |       | 8,332               |              |            |                 |          |   |  |  |                     |       |  |   |       |       
|                            | Director                          |      |      | 2001   |  |       |                     |             |            |                 |           |  |  |  |                     | 1,000 |  |   |        |       | 
|James P. Tolley             |                                   |      | 2002 |        |  |       | 133,500             |              |            |                 |           |   |  |  |                    |       |  |   |       |       
|                            | Chief Financial Officer           |      |      | 2001   |  |       |                     | 120,000      |            |                 |           |  |  |  |                     |      |  |   |        |       | 



---

|(1) |  | Car and travel allowance of $1,000 per month.
|--- |  | ---------------------------------------------

Employment Agreements

Each of Messrs. Pittore and Westin have entered into employment agreements
with the Company dated as of September 30, 1998. The employment agreements
provide that from October 1, 1998 through September 30, 2000, each shall be
paid a salary at the annual rate of $12,000. Thereafter, the salary to be paid
to each shall be at the discretion of the board of

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directors, but in no case shall such salary be less than $240,000 per
year. The agreements also provide that each of Messrs. Pittore and Westin is
eligible for an annual incentive bonus to be granted in the discretion of the
board of directors with such bonus to be up to 100% of base salary. The
agreements provide further that the Company shall grant to each of Messrs.
Pittore and Westin options to purchase up to 83,333 shares of the Companys
Common Stock, pursuant to the Companys 1997 Employee Stock Incentive Plan.
Pursuant to the agreements, each of Messrs. Pittore and Westin are eligible for
loans from the Company up to $720,000 subject to certain terms and conditions
provided in the employment agreements.




Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows as of December 15, 2002 (i) the beneficial
owners of more than 5% of the outstanding Common Stock of the Company and their
holdings and (ii) the number of shares held by each director and each executive
officer listed in the table under the section titled Executive Compensation
below and all directors and executive officers as group, as reported by each
person. Except as noted, each person has sole voting and investment power over
shares indicated in the table.

|                                              |  |                                   |         |                  |  |  |      | 
|--------------------------------------------- |  | --------------------------------- | ------- | ---------------- |  |  | ---- | 
|                                              |  | Amount and Nature of Common Stock
|                                              |  | Beneficially Owned               
|                                              |  |                                  
|Common Stock Holder                           |  | Number of Shares                  |         | Percent of Class
|                                              |  |                                   |         |                 
|Directors and Other Executive Officers        |  |                                   |         |                  |  |  |      | 
|Jesse A. Pittore                              |  |                                   | 194,177 |                  |  |  | 17.9 | 
|Richard J. Westin                             |  |                                   | 194,178 |                  |  |  | 17.9 | 
|Robert Herrick, M.D.                          |  |                                   | 4,131   |                  |  |  | *    | 
|James P. Tolley                               |  |                                   | 28,850  | (1)              |  |  | 2.6  | 
|Directors and Officers as a Group (4 persons) |  |                                   | 421,336 |                  |  |  | 37.9 | 



---

|*   |  | Less than 1%                                                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Includes 2,917 shares that Mr. Tolley could acquire by exercising options
within 60 days of December 15, 2002.

Stock Incentive Plan

In December 1998, the stockholders of the Company 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.

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Options to purchase up to a total of 237,164 shares of common stock have
been granted at exercise prices ranging from $1.00 to $1.10 per share to the
officers, directors and employees of the Company. On June 1, 2002 the officers
and directors exercised their vested options and acquired 187,749 shares of the
Companys common stock by executing promissory notes and pledge agreements
totaling $204,415. The notes have a term of four years and bear interest at 5%.
Details of the options are:

|                    |  |         |          |           |  |                   |      |                |  |                  |  |  |  |  |  | 
|------------------- |  | ------- | -------- | --------- |  | ----------------- | ---- | -------------- |  | ---------------- |  |  |  |  |  | 
|                    |  |         |          |           |  | Shares            |      | Exercise Price |  |                  |  | 
|Date of Grant       |  | Granted |          | Per Share |  | Date Fully Vested
|                    |  |         |          |           |  |                  
|January 1, 1999     |  |         | 166,666  |           |  | $                 | 1.10 |                |  | July 1, 1999    
|January 1, 1999     |  |         | 1,000    |           |  |                   | 1.00 |                |  | January 1, 2000 
|January 1, 1999     |  |         | 42,750   |           |  |                   | 1.00 |                |  | January 1, 2003 
|April 1, 1999       |  |         | 18,748   |           |  |                   | 1.00 |                |  | April 1, 2001   
|November 10, 1999   |  |         | 5,000    |           |  |                   | 1.00 |                |  | November 1, 2001
|December 22, 1999   |  |         | 3,000    |           |  |                   | 1.00 |                |  | December 1, 2000
|                    |  |         |          |           |  |                   |      |                |  |                  |  | 
|Total               |  |         | 237,164  |           |  |                   |      |                |  |                  |  | 
|Options ceded       |  |         | (12,882  | )         |  |                   | 1.00 |                |  |                  |  | 
|Options exercised   |  |         | (166,666 | )         |  |                   | 1.10 |                |  |                  |  | 
|Options exercised   |  |         | (21,083  | )         |  |                   | 1.00 |                |  |                  |  | 
|                    |  |         |          |           |  |                   |      |                |  |                  |  | 
|Options outstanding |  |         | 36,533   |           |  |                   | 1.00 |                |  |                  |  | 
|                    |  |         |          |           |  |                   |      |                |  |                  |  | 




Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Evergreen, which is jointly owned by Messrs. Westin and Pittore, managed
all of the Companys properties under management agreements that were
substantially amended pursuant to the Plan of Reorganization through the month
of May, 2001. The Company and Evergreen entered into individual contracts for
each of the facilities owned by the Company. Each management contracts
initial term is three years, and Evergreen has the option to extend each
management contract for an additional three year term. The management fee paid
pursuant to each management contract is based on a percentage of gross revenues
of the property, with the contract management fee being 4.5% prior to October
1, 2001 and 3.75% thereafter. The existing contracts were assigned to Opus X,
Inc., also an affiliate of Westin and Pittore on June 1, 2001. The following
table sets forth the management fees earned by Evergreen and Opus for each
property for the years ended September 30, 2002 and 2001.

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|                                                       |       |      |                 |         |  |   |        |         | 
|------------------------------------------------------ | ----- | ---- | --------------- | ------- |  | - | ------ | ------- | 
|                                                       |       |      | Management Fees
|                                                       |       |      |                
|Facility Location (Facility Name)                      |       | 2002 |                 | 2001   
|                                                       |       |      |                 |        
|Rock Island, Illinois (The Fort Armstrong)             |       | $    | 48,895          |         |  | $ | 60,162 |        
|Fort Madison, Iowa (The Kensington)                    |       |      | 53,903          |         |  |   | 60,640 |        
|Chanute, Kansas (The Tioga)                            |       |      |                 |         |  |   | 14,834 |        
|Cumberland, Maryland (The Kensington Algonquin)        |       |      | 58,871          |         |  |   | 69,596 |        
|Port Huron, Michigan (The Harrington Inn)              |       |      | 37,320          |         |  |   | 54,149 |        
|Beatrice, Nebraska (The Kensington Paddock)            |       |      | 34,416          |         |  |   | 30,840 |        
|Hastings, Nebraska (The Kensington)                    |       |      | 51,346          |         |  |   | 54,593 |        
|Dickinson, North Dakota (The Evergreen Retirement Inn) |       |      | 56,286          |         |  |   | 60,568 |        
|Williston, North Dakota (The Kensington)               |       |      | 56,367          |         |  |   | 66,570 |        
|Manitowoc, Wisconsin (Hotel Manitowoc)                 |       |      |                 |         |  |   | 1,448  |        
|                                                       |       |      |                 |         |  |   |        |        
|                                                       | Total |      | $               | 397,404 |  |   | $      | 473,400 | 

The Company leases its headquarters in Berkeley, California from The
Waterford Company, which is owned by members of Mr. Westins family, for
$24,000 per year and on terms and conditions that the Companys believes are at
or more favorable than prevailing market rates. See Item 2Description of
Property.

In July, 2002 the Company disposed of its interest in CountryHouse, LLC.
This entity was organized in conjunction with entities controlled by Richard J.
Westin and Jesse A. Pittore, directors and officers of the Company, to jointly
develop, build and operate an Alzheimers facility in Cumberland, Maryland.
The Company contributed land located adjacent to its Cumberland, Maryland
facility upon which the Alzheimers facility has been built. The Westin and
Pittore entities have funded or guaranteed financing of all costs to build,
furnish and operate the facility. For its contribution of land, the Company
received a 25% ownership interest and 25% of all net income and proceeds from
the operation of the facility. The Company received $200,000 for its interest
which was sold to the joint venturers.

On August 30, 2002, Agemark Corporation (the Company) completed the sale
of certain assets and liabilities related to the ownership and operation of its
85-bed assisted living facility located in Cumberland, MD (the Kensington
Algonquin). Title to the Kensington Algonquin facility was transferred to
Kensington Algonquin, LLC, a Nevada single member limited liability company,
wholly owned by the Company in calendar year 2000 in anticipation of a
financing transaction that was never consummated. Since that transfer the
entity has been 100% owned by the Company. The form of the August 30, 2002
transaction was the sale of the Companys member interest to Richard J. Westin
and Jesse A. Pittore for a price of $3,300,000 less a credit for repairs of
$200,000.

As indicated above, the purchasers in these two transactions are
affiliates of the Company. Both Richard J. Westin and Jesse A. Pittore are
officers and directors of the Company. Their offers for these property
interests of $200,000 and $3,300,000 were tested in an auction process that
took place during the month of May, 2002. The auction was advertised in the
national edition of the Wall Street Journal and the Baltimore Sun. These
advertisements produced approximately 30 responses for additional information.
Each of the respondents to the advertisements was sent additional information
regarding the property and the auction process.

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No further interest in the property was expressed by any of these
respondents. None of the respondents pursued the auction further by visiting
the property or bidding on the property. The auction was held on June 5, 2002.
The only bids made on the property were those by Messrs Westin and Pittore.

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Item 13. FINANCIAL STATEMENTS AND EXHIBITS



| | (a) |  | Exhibit List.
| | --- |  | -------------

|        |  |                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                 
|        |  |                                                                                                             
|3.1*    |  | Articles of Incorporation                                                                                   
|        |  |                                                                                                             
|3.2*    |  | Bylaws                                                                                                      
|        |  |                                                                                                             
|10.1*   |  | Order Confirming Debtors Second Amended Joint Plan of
Reorganization dated April 29, 1997                  
|        |  |                                                                                                             
|10.2*   |  | Amended Modification of Debtors Second Amended Joint Plan of
Reorganization dated April 24, 1997           
|        |  |                                                                                                             
|10.3*   |  | Debtors Second Amended Joint Plan of Reorganization dated January
15, 1997                                 
|        |  |                                                                                                             
|10.4*   |  | Employment Agreement between the Company and Jesse A. Pittore                                               
|        |  |                                                                                                             
|10.5*   |  | Employment Agreement between the Company and Richard J. Westin                                              
|        |  |                                                                                                             
|10.6*   |  | 1997 Employee Stock Incentive Plan                                                                          
|        |  |                                                                                                             
|10.7*   |  | Form of management contract between Evergreen Management, Inc. and
the Company                              
|        |  |                                                                                                             
|10.8**  |  | Lease Agreement between The Waterford Company and Westor Financial
Group, Inc.                              
|        |  |                                                                                                             
|10.9*** |  | Purchase Agreement dated May 1, 2002 by and between Jesse A.
Pittore, Richard Westin and Agemark Corporation
|        |  |                                                                                                             
|24      |  | Power of Attorney (see page 44)                                                                             



---

|*   |  | Incorporated by reference to the registrants Form 10-SB filed on January
29, 1999.    
|--- |  | ---------------------------------------------------------------------------------------
|   
|**  |  | Incorporated by reference to Amendment No. 1 to Form 10-SB filed on
September 17, 1999.
|   
|*** |  | Incorporated by reference to Report on Form 8-K filed on September 13,
2002            



| | (b) |  | Reports on Form 8-K.: September 13, 2002 Reporting the Sale
of Cumberland, MD Property Interests
| | --- |  | ------------------------------------------------------------------------------------------------

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Item 14. CONTROLS AND PROCEDURES

(a)  Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act
of 1934, as amended (the Exchange Act), within 90 days of the filing date of
this report. Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are effective.

(b)  There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph (a) above.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|   |  |                         |  |                     |  |                        
|-- |  | ----------------------- |  | ------------------- |  | -----------------------
|   |  | Date: December 27, 2002 |  |                     |  |                        
|   |  |                         |  |                     |  |                        
|   |  |                         |  | AGEMARK CORPORATION
|   |  |                         |  |                     |  |                        
|By |  | /s/ Richard J. Westin   |  | By                  |  | /s/ James P. Tolley    
|   |  |                         |  |                     |  |                        
|   |  | Richard J. Westin       |  |                     |  | James P. Tolley        
|   |  | Chief Executive Officer |  |                     |  | Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard J. Westin and James P. Tolley,
and each of them, his true and lawful attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any amendments to
this report on Form 10-KSB and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.

|                                    |  |                                                                                        |  |                     
|----------------------------------- |  | -------------------------------------------------------------------------------------- |  | --------------------
|Signature                           |  | Title                                                                                  |  | Date                
|                                    |  |                                                                                        |  |                     
|                                   
|/s/ Richard J. Westin               |  | Chief Executive Officer and Director
(Principal Executive Officer)                     |  | December 27, 2002   
|Richard J. Westin                   |  |                                                                                        |  |                     
|                                    |  |                                                                                        |  |                     
|                                    |  |                                                                                        |  |                     
|/s/ James P. Tolley
James P. Tolley |  | Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer) |  | December 27, 2002   
|                                    |  |                                                                                        |  |                     
|                                    |  |                                                                                        |  |                     
|/s/ Jesse A. Pittore                |  | President and Director                                                                 |  | December 27, 2002   
|Jesse A. Pittore                    |  |                                                                                        |  |                     
|                                    |  |                                                                                        |  |                     
|                                    |  |                                                                                        |  |                     
|                                    |  | Director                                                                               |  | December      , 2002
|Robert R. Herrick, M.D.             |  |                                                                                        |  |                     

Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act by Non-reporting Issuers.

No such annual report or proxy material has been sent to security holders.

48



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##### Table of Contents



CERTIFICATIONS

Certification of Chief Executive Officer

I, Richard J. Westin, certify that:

1.     I have reviewed this annual report on Form 10-KSB of Agemark
Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation of internal
controls which could aversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and





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6.     The registrants other certifying officer and I have indicated in this
annual report whether there are significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                         |  |                        
|------------------------ |  | -----------------------
|Dated: December 27, 2002 |  | /s/ Richard J. Westin  
|                         |  |                        
|                         |  | Richard J. Westin      
|                         |  | Chief Executive Officer





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##### Table of Contents



Certification of Chief Financial Officer

I, James Tolley, certify that:

1.     I have reviewed this annual report on Form 10-KSB of Agemark
Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation of internal
controls which could aversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and





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##### Table of Contents



6.     The registrants other certifying officer and I have indicated in this
annual report whether there are significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                         |  |                        
|------------------------ |  | -----------------------
|Dated: December 27, 2002 |  | /s/ James Tolley       
|                         |  |                        
|                         |  | James Tolley           
|                         |  | Chief Financial Officer





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##### Table of Contents



Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act by Non-reporting Issuers.

No such annual report or proxy material has been sent to security holders.





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##### Table of Contents






EXHIBIT INDEX TO
ANNUAL REPORT ON FORM 10-KSB
FOR AGEMARK CORPORATION

|        |  |                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                 
|        |  |                                                                                                             
|3.1*    |  | Articles of Incorporation                                                                                   
|        |  |                                                                                                             
|3.2*    |  | By-Laws                                                                                                     
|        |  |                                                                                                             
|10.1*   |  | Order Confirming Debtors Second Amended Joint Plan of
Reorganization dated April 29, 1997                  
|        |  |                                                                                                             
|10.2*   |  | Amended Modification of Debtors Second Amended Joint Plan of
Reorganization dated April 24, 1997           
|        |  |                                                                                                             
|10.3*   |  | Debtors Second Amended Joint Plan of Reorganization dated January
15, 1997                                 
|        |  |                                                                                                             
|10.4*   |  | Employment Agreement between the Company and Jesse A. Pittore                                               
|        |  |                                                                                                             
|10.5*   |  | Employment Agreement between the Company and Richard J. Westin                                              
|        |  |                                                                                                             
|10.6*   |  | 1997 Employee Stock Incentive Plan                                                                          
|        |  |                                                                                                             
|10.7*   |  | Form of management contract between Evergreen Management, Inc. and
the Company                              
|        |  |                                                                                                             
|10.8**  |  | Lease Agreement between The Waterford Company and Westor Financial
Group, Inc.                              
|        |  |                                                                                                             
|10.9*** |  | Purchase Agreement dated May 1, 2002 by and between Jesse A.
Pittore, Richard Westin and Agemark Corporation
|        |  |                                                                                                             
|24      |  | Power of Attorney (see page 48)                                                                             



---

|*   |  | Incorporated by reference to the registrants Form 10-SB filed on January
29, 1999.   
|--- |  | --------------------------------------------------------------------------------------
|   
|**  |  | Incorporated by reference to Amendment No. 1 to Form 10-SB filed on
September 17, 1999
|   
|*** |  | Incorporated by reference to Report on Form 8-K filed on September 13,
2002