FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the transition period from_________ to_____________
Commission file number 0-3718
Equity Growth Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2050317
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
3821-B Tamiani Trail, Suite 201; Port Charlotte, Florida 33952
(Address of principal executive offices)
(561-416-7239)
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
No ___
As at March 31, 1997, the registrant had outstanding 3,771,148
shares of Common Stock, par value $0.01.
Part I- FINANCIAL INFORMATION
Item 1. Financial Statements
Please see enclosed financial statements.
EQUITY GROWTH SYSTEMS, inc.
FINANCIAL STATEMENT
MARCH 31, 1997
EQUITY GROWTH SYSTEMS, inc.
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
TABLE OF CONTENTS
Page
FINANCIAL STATEMENTS
Accountant's Compilation Report 1
Balance Sheets 2
Statements of Income and Accumulated Deficit 3
Statements of Shareholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-16
To the Shareholders
Equity Growth Systems, Inc.,
Port Charlotte, Florida 33952
I have compiled the accompanying balance sheet of Equity Growth
Systems, Inc. as of March 31, 1997 and 1996 and the related
statements of income and retained earnings and cash flows for the
three months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management.
I have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Leo J. Paul
September 26, 1997
EQUITY GROWTH SYSTEMS, Inc.
BALANCE SHEET
MARCH 31, 1997 AND 1996
1997 1996
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $ 1,113 $ 2,210
Other receivables - 5,671
Mortgage receivable, current portion
(Note 6 & 7) 161,693 203,081
Promissory notes, current portion
(Note 8) 6,844 8,757
TOTAL CURRENT ASSETS 169,650 219,719
OTHER ASSETS
Mortgages receivable (Note 6 & 7) 1,536,197 1,948,605
Promissory notes (Note 8) 271,093 329,724
Interest receivable 46,609 44,187
TOTAL OTHER ASSETS 1,853,899 2,322,516
TOTAL ASSETS $2,023,549 $2,542,235
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current
liabilities (Note 3) $ 29,900 $ 43,173
Mortgage payable, current portion
(Note 7) 277,606 485,317
Note payable (Note 9) 105,500 104,000
TOTAL CURRENT LIABILITIES 413,006 632,490
LONG-TERM LIABILITIES
Mortgage payable (Note 7) 1,167,017 1,339,723
TOTAL LIABILITIES 1,580,023 1,972,213
SHAREHOLDERS' EQUITY (Note 13)
Preferred stock-no par value authoriz-
ed-5,000,000 shares; zero issued and
outstanding - -
Common stock-$.01 par value author-
ized-20,000,000 shares; issued and
outstanding-3,771,148 shares in 1997
and 2,822,072 in 1996 37,711 28,221
Capital in excess of par value 2,892,195 2,690,461
Accumulated deficit (2,477,380) (2,148,660)
TOTAL SHAREHOLDERS' EQUITY 452,526 570,022
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $2,023,549 $2,542,235
========== ==========
Read Accountant's Compilation Report
The accompanying notes are an integral part of these financial
statements.
2
EQUITY GROWTH SYSTEMS, inc.
CONDENSED STATEMENT OF INCOME AND ACCUMULATED DEFICIT
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Income $ 57,991 $ 56,476
General and Administrative
Expenses 43,044 58,612
Net Income (Loss) Before
Provisions for Income Taxes 14,947 (2,136)
Provisions for Income Taxes
Note (10) - -
Net Income (Loss) 14,947 (2,136)
Accumulated Deficit-Beginning (2,492,327) (2,146,524)
Accumulated Deficit-Ending $(2,477,380) $(2,148,660)
=========== ===========
Earnings Per Share .004 (.001)
Weighted Average of Shares 3,771,148 2,411,036
Outstanding
Read Accountant's Compilation Report
The accompanying notes are an integral part of these financial
statements.
3
EQUITY GROWTH SYSTEMS, inc.
STATEMENTS OF SHAREHOLDERS' EQUITY
MARCH 31, 1997
Capital in
No. of Common Excess of Accumulated
Shares Stock Par Value Deficit
Balances
January 1, 1995 $2,000,000 $20,000 $2,125,537 $(2,201,723)
Reverse Split (1,800,000) (18,000) 18,000
Common Stock Issued 2,622,072 26,221 737,955
Net (loss) for the
year ended December
31, 1995 (41,045)
Balances, December
31, 1995 2,822,072 28,221 2,881,492 (2,242,768)
Common Stock Issued 949,076 9,490 10,703
Net (loss) for the
year ended December
31, 1996 (249,559)
Balances, December
31, 1996 3,771,148 37,711 2,892,195 (2,492,327)
Net income for the
three months ended
March 31, 1997 14,947
Balances
March 31, 1997 $3,771,148 $37,711 $2,892,195 $(2,477,380)
========== ======= ========== ===========
Read Accountant's Compilation Report
The accompanying notes are an integral part of these financial
statements.
4
EQUITY GROWTH SYSTEMS, inc.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Cash Flows From Operating Activities:
Net Profit (Loss) $ 14,947 $ (2,136)
Adjustments to Reconcile Net Profit (Loss)
to Net Cash Used for Operating
Depreciation - -
Decrease in mortgages and notes
receivable 32,435 44,502
Increase (decrease) in accounts
payable and current liabilities (8,535) 2,015
Increase (decrease) in mortgage
and notes payable (38,696) (51,384)
Net Cash Provided (Used) by Operations 15,100 (7,003)
Cash Flows From Financial Activities
Additional paid in capital - 9,213
Net Cash Provided by Financial
Activities - 9,213
Net Increase (Decrease) in Cash 151 2,210
Cash-Beginning of Year 962 -
Cash-End of Period $ 1,113 $ 2,210
======== ========
Supplemental Cash Flows Information
Cash paid for interest $ 37,595 $ 49,571
======== ========
Read Accountant's Compilation Report
The accompanying notes are an integral part of these financial
statements.
5
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
The Company (formerly known as InfoTech, Inc.) was
organized under the laws of the State of Delaware on December 8,
1964. The principal business of the Company is specializing in
structuring and marketing mortgaged backed securities as well as,
the acquisition of select commercial real estate for its own
account.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash
in banks, and any highly liquid investments with a maturity of
three months or less at the time of purchase.
The Company maintains cash and cash equivalent
balances at a financial institution which is insured by the
Federal Deposit Insurance Corporation up to $100,000. At March
31, 1997, there is no concentration of credit risk from uninsured
bank balances.
Fixed Assets
The fixed assets are depreciated over their estimated
allowable useful lives, primarily over five to seven years
utilizing the modified acceleration cost recovery system.
Expenditures for major renewals and betterments that extend the
useful lives of fixed assets are capitalized. Expenditures for
maintenance and repairs are charged to expenses as incurred.
Income Taxes
In February 1992, the Financial Accounting Standards
Board issued a Statement on Financial Accounting Standards 109 of
"Accounting for Income Taxes". Under Statement 109, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective bases.
6
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings/Loss Per Shares
Primary earnings per common share are computed by
dividing the net income (loss) by the weighted average number of
shares of common stock and common stock equivalents outstanding
during the year. The number of shares used for the three months
ended March 31, 1997 and 1996 were $3,771,148 and $2,411,036,
respectively.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
1997 & 1996
Equipment $ 2,022
Less: Accumulated depreciation (2,022)
$ -
=======
Depreciation expense charged during 1997 and 1996 was
$-0- and $-0-, respectively.
NOTE 3 - SETTLEMENT WITH CREDITORS
On October 31, 1996, the Company issued 200,000
charges of it common stock in consideration for the cancellation
of $107,393 owed by the Corporation to Diversified Corporate
Consulting Group, LLC for professional services rendered since
1994. Additionally, in June and October of 1996 , the Company
issued an aggregate of 460,000 shares of the Company's $.01 par
value common stock for advisory services performed on its behalf
with a value of $4,600.
On August 15, 1995, the Company issued 200,000 shares of
the Company's $.01 par value of common stock for significant
services to the Corporation at the request of its President with
a value of $2,000.
7
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 3 - SETTLEMENTS WITH CREDITORS (Continued)
In March of 1995, the Company issued 20,000 shares of
the Company's $.01 par value of common stock after the reverse
split in payment of legal bills of $45,734 and 6,072 shares of
$.01 par value stock in payment of accounting bill of $15,360.
The remaining balance of $67,832 was written off as the Company
was not able to locate creditors.
NOTE 4 - EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with
Edward Granville-Smith, a chief executive officer for an initial
term of five years commencing June 1, 1995. The Company
registered with the Securities and Exchange Commission to issue
110,000 shares of common stock to Edward Granville-Smith for
compensation for services prior to June 1, 1996. In addition,
annual salary is a sum equal to the lesser of 5% of the Company's
annual gross income on a calendar basis or 15% of its net pre-
tax profit as determined for federal income tax purposes, without
taking depreciation or tax credits into account to be paid on or
before March 30, following the calendar for which salary is due;
subject to availability of cash flow. Edward Granville-Smith would also
be entitled to an annual bonus payable in shares of the Company's
common stock, determined by dividing 5% of the Company's pre-tax
profits for the subject calendar year by the average bid price
for the Company's common stock during the last five trading days
prior to the end of the last day of each year and the first days
of the new year.
During May of 1996, the Company recruited two
executive officers, Messers. Gener R. Moffitt and Donald E.
Homan, both with offices in Kansas City, Missouri. Such
recruitment was effected in two parts, first, the Company
exchanged 100,000 shares with each (200,000 shares in the
aggregate), for all of the capital stock in their recently formed
corporations (Moffitt Properties, Ltd., and Homan Equities, Inc.,
both Missouri corporations), and then the Company and the subject
corporation entered into employment agreements. Each employment
agreement was identical and provides for the following
compensation.
(a) An annual bonus payable in shares of the
Company's common stock, determined by dividing 10% of the
Company's pre-tax profits for the subject
calender year by the average bid price for the Company's
common stock at during the last five trading days
prior to the end of the last day of each year and
8
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 4 - EMPLOYMENT AGREEMENT (Continued)
the initial five days of the new year, provided,
however, that the employment agreement shall have
been in effect for at least one half of the
subject year; and, provided further that in the event of
a reorganization pursuant to which another entity
becomes the Company's parent, the common stock of
such entity shall be issuable hereunder, rather
than that of the Company.
(b) An annual cash bonus equal to 40% of the
Company's pre-tax profits for the subject calendar year,
provided, however, that the employment agreement
shall have been in effect for at least one half
of the subject year.
(c) A guaranteed minimum monthly draw against the
annual bonus described above, in a sum equal to
not be less than $6,250; subject to availability of
cash flow.
NOTE 5 - CONSULTING AGREEMENTS
The Company had entered into two consulting
agreements. One with Bolina Trading Company, S.A., a Panamanian
Corporation and the second one with Warren A. McFadden. Each
consultant serves as a special advisor to Mr. Granville-Smith, in
conjunction with Mr. Granville-Smith's role as an officer and
director of the Company, with special responsibilities in the
areas of strategic planning and raising debt on equity capital
required to implement the Company's strategic plans. The
agreements' terms called for Bolina Trading Company, S.A. to
receive as compensation 84,000 shares of the Company's common
stock plus $100 per hour after 520 hours of service per year and
Warren A. McFadden to receive as compensation 110,000 shares of
the Company's common stock plus $100 per hour after 520 hours of
service per year. Subsequent to December 31, 1995, all of the
above shares of the Company's common stock were issued.
In 1996, the consulting agreement with Warren A.
McFadden was terminated and the 110,000 shares of common stock he
received, which were subsequently acquired by Diversified
Consulting, were used by Diversified as consideration to cancel a
$30,000 promissory note liability owed to the Company.
9
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 6 - INDENTURE OF TRUST AND WRAP AROUND MORTGAGES RECEIVABLE
On June 30, 1995, the Company issued 1,616,000 shares
of common stock in payment of an indenture of trust and wrap
around mortgages subject to the underlying mortgages, from the
following partnerships: Pay-West Associates, Montco Associates,
San-Safe Associates and San-Ten Associates.
The indenture of trust consists of (4) four demand
notes bearing interest at prime plus 4%. These notes are payable
from the rental of the various properties less payment on the
wrap around mortgages. The payment does not cover the accrued
interest which is added back to the notes.
The wrap around notes bear interest of 9.08% to
13.50%. The underlying mortgages bear interest at 9.625 to
9.75%. The difference between payments on the wrap around
mortgages and underlying mortgages are applied to debt service of
the demand notes.
NOTE 7 - MORTGAGES
3/31/97 3/31/96
Mortgages consist of the following:
Subordinate "wrap" mortgage receivables:
(a) Nevada/California Property 12.9041 $ 749,094 $ 835,827
(b) Tennessee Property-Note 14 13.500% - 300,581
(c) Kansas Property-Note 14 12.320% 320,768 340,344
(d) Oregon Property 9.080% 628,028 674,934
1,697,890 2,151,686
Less: Current Portion (161,693) (203,081)
$1,536,197 $1,948,605
========== ==========
Original Mortgages Payable:
(a) Nevada/California Property 9.750% $ 729,158 $ 823,079
(b) Tennessee Property-Note 14 9.625% - 231,412
(c) Kansas Property-Note 14 9.750% 124,393 134,256
(d) Oregon Property 9.750% 591,072 636,293
1,444,623 1,825,040
Less: Current Portion (277,606) (485,317)
$1,167,017 $1,339,723
========== ==========
10
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 7 - MORTGAGES (Continued)
(a) The mortgage secures a promissory note and is
payable in equal quarterly installments of $42,701.69 with
a final payment of $291,096.92, maturing January 1,
2001. There is also an underlying "wrap" mortgage
that is payable in equal quarterly installments of
$42,826.50, maturing July 1, 2005, with quarterly
payments decreasing to $9,314.75 for the last five
years.
(b) The mortgage secured a promissory note and was pay-
able in equal quarterly installments of $23,437.01,
with a final payment of $198,238.33 maturing Decem-
ber 31, 1996. There also was an underlying "wrap"
mortgage that was payable in equal quarterly
installments of $23,562.25 maturing December, 2006, with
quarterly payments decreasing to $7,329 for the
last 10 years. At March 31, 1997, the mortgage payable
was in default and in 1997, the mortgage holder
foreclosed on it. Therefore, the mortgage payable
and related wrap mortgage receivable were written
off. (See Note 14)
(c) The mortgage secures a promissory note and was pay-
able in equal quarterly installments of $18,508.87
with a final payment of $136,999 maturing Decem-
ber 31, 1995. There is also an underlying "wrap"
mortgage that is payable in annual installments of
$74,482, maturing October 1, 2005, with annual pay-
ments decreasing to $22,962 the last 10 years. The
mortgage payable is currently in default and the
remaining balance has been classified as current.
(See Note 14).
(d) The mortgage secures a promissory note and is
payable in equal quarterly installments of $26,409.87 with
a final payment of $232,199.50, maturing January 1,
2002. There is also an underlying "wrap" mortgage
that is payable in equal annual payments of $106,640
maturing December 31, 2002.
11
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 8 - NOTES RECEIVABLE
1997 1996
Nevada/California Property
Quarterly payments of $868.55
4% above prime, currently 12.40%
original amount $63,000 $142,126 $129,014
Tennessee
Quarterly payments of $477.90
4% above prime, currently 12.40%
original amount $40,000. At Decem-
ber 31, 1996, the note was deemed to
be uncollectible and was written off
(See Note 14). - 86,836
Kansas
Quarterly payments of $341.73
4% above prime, currently 12.40%
original amount $21,073 (See Note 14) 46,065 41,379
Oregan
Quarterly payments of $501.13
4% above prime, currently 12.40%
original amount $38,742 89,746 81,252
277,937 338,481
Less Current Portion (6,844) (8,757)
$271,093 $329,724
======== ========
NOTE 9 - NOTE PAYABLE
A secured note payable including
accrued interest, due on demand on
interest payable quarterly at a rate
of 10% per annum. This loan was
assumed by the Company as part of
the asset acquisition. The note has
a cumulative interest clause on any
short fall in payment being added to
the original principal amount of
$104,000 $105,500 $ -
======== ========
12
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 10 - INCOME TAXES
As discussed in Note 1, the Company has applied the
provisions of Statement 109.
The significant components of deferred income tax expense
benefit for the years ended March 31, 1997 and 1996 arising from net
operating losses as follows:
Deferred tax benefit $11,800 $ 6,200
Valuation allowance 11,800 6,200
$ - $ -
======= =======
The Company has operating loss carry forwards in excess of
two million dollars that can be used to offset future taxable income.
NOTE 11 - RELATED PARTY TRANSACTION
The chief executive officer of the Company is also an officer
of the general partner in all the partnerships involved in the wrap
around mortgages subject to the underlying mortgages and promissory
notes.
NOTE 12 - COMPENSATION
No officer or director has received any compensation to date,
except as discussed in Note 4.
NOTE 13 - STOCKHOLDERS' EQUITY
On May 18, 1995, the Company adopted a resolution to change
the authorized capitalization as follows:
(a) The 2,000,000 shares of common stock, $0.01 par value
then authorized, all of which were currently outstand-
ing, were reverse split into 200,000 shares, $0.01 par
value; and immediately thereafter;
(b) The Company's authorized common stock was increased
from 200,000 shares, $0.01 par value, to 20,000,000
shares of common stock, $0.01 par value, and
(c) The Company was authorized to issue 5,000,000 shares
of preferred stock, the attributes of which are to be
determined by the Company's Board of Directors from
time to time, prior to issuance, in conformity with
the requirements of Sections 151 of the Delaware
General Corporation Law.
13
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 14 - LEGAL MATTERS
The Company is currently not a party to any legal
proceedings. Although the Company is not a party to the following
proceedings directly, they involve real estate located in Kansas
and Tennessee in which the Company has an interest.
A. The Company is currently in default of the mortgage on
the property located in Kansas City because it did not
have the funds to satisfy the balloon payment, in the
amount of $136,999, that was due on December 31, 1995.
However, the mortgage holder has continued to accept
quarterly amortization payments equal to the quarterly
proceeds from the related wrap mortgage receivable.
Even though the aforementioned mortgage payments are
currently being accepted without protest, the mortgage
holder still retains the right to demand full and
immediate payment of the total principal due.
Presently, there are two ongoing legal proceedings
involving the Kansas City property. First, Associated
Wholesale Grocers, Inc., -vs- San Safe Associates, et al,
in the US District Court for the District of Kansas (the
"Kansas Case") and second, Ken-Co Properties, Inc., -vs-
Safeway Stores, Inc., in the Circuit Court for Baltimore
County, Maryland (the "Maryland Case").
(a) The current tenant (by assignment from the original
tenant) for the Company's Kansas City property
(located at 8120 Parallel, in the City of Kansas
City, Wyandotte County, Kansas), claims to have had
a conditional right to purchase such property
(based on the rights of the original tenant) and allegedly
submitted an irrevocable offer to purchase. The
plaintiff (a predecessor in interest to the rights
of the Company) alleged that the assignment of
lease rights to the current tenant had not been adequately
effected and that it was, pursuant to the terms of
the lease, entitled to continue dealing with the
original tenant for, among other purposes, provision of
required notices.
The plaintiff alleged that it exercised its right
to reject the tenant's offer to purchase through
notice of rejection tendered to the original tenant. The
defendant/tenant has answered, alleging that because
of subsequent assignments of the lease, notice to prior
14
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 14 - LEGAL MATTERS (Continued)
parties in interest was not adequate and
consequentlythat the Company's counsel failed to take the steps
required to properly reject such offer as to all
potential parties involved.
(b) The Corporation in whose name record ownership was
originally registered, as general partner of a
limited partnership, initiated suit against the tenant in
Baltimore, Maryland for declaratory relief that
notice of rejection was adequate. The defendant then
initiated action in the United States District Court for
the District of Kansas to the same subject matter
seeking judgment requiring the plaintiff in the Maryland
action to sell the property. That action has been
contested. The defendant/tenant in the Maryland
Case has filed a motion seeking to have the venue of
that law suit changed to Kansas City and to consolidate
the actions, and the plaintiff in the Maryland has con-
tested such motion. Lease payments continue to be
made. The plaintiff in the Maryland action is also
considering interposing counterclaims in the Kansas
action, including claims alleging violations of the
lease (unapproved improvements that detrimentally
affected the lessor's business).
In management's opinion, because the Company is not
a party, its potential exposure appears to be
limited to sharing in the proceeds of a forced sale, if the
litigation is determined in favor of the current
tenant.
B. The Company was also in default of the mortgage on the
property located in Memphis, Tennessee because it could
not satisfy the balloon payment, in the original amount
of $193,580, that was due on December 31, 1996.
($174,801 at 12/31/96). The mortgage holder (Lutheran
Brotherhood) had refused to renegotiate or extend the term of the
mortgage and would not accept any further amortization pay-
ments from the lessor of the underlying lease, other
than the one made in December, 1996, which was based upon
the old repayment schedule's terms.
Through August 1997, the Company had received funds
from Sun West N.O.P., the lessor on the underlying lease,
15
EQUITY GROWTH SYSTEMS, inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 14 - LEGAL MATTERS (Continued)
which represented the monthly rent payments made on such
lease ($4,609.38) by the tenant of the Memphis Property. Be-
cause the mortgage holder would not accept any
amortization payments on their matured loan from Sun West
N,O.P., the Company was using such proceeds to reduce the
related wrap mortgage receivable. In August of 1997, the
mortgage holder foreclosed on the mortgage payable, which
resulted in a foreclosure sale of the Memphis, Tennessee
property As a result of these events of foreclosure, the Company
wrote off the balance on the mortgage payable and the
related wrap mortgage receivable ($251,722) and
promissory note receivable ($93,686) at December 31, 1996. (See
Notes 7 and 8).
16
PART II- OTHER INFORMATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
During the three months ended March 31, 1997, the registrant
reported income of approximately $58,000 as compared to income from
all sources of $56,000 during the prior three months ended.
During the three months ended March 31, 1997, the registrant's cost
of revenue was approximately $43,000 as compared to $59,000 during
the prior three months ended. The decrease was attributable to the
decrease in interest expense.
During the three months ended March 31, 1997, the registrant
reported net income of approximately $15,000 or $0.004 per share,
compared to (2,000) or (0.001) per share prior to the three months
ended. The $17,000 in net gain reflects the decrease in the cost of
operations.
Liquidity and Capital Resources
As of March 31, 1997, the registrant has a working capital position
of approximately ($243,000) as compared to working capital position
of ($413,000) for the three months ended March 31, 1996. This
reflects the write off of the Tennessee wrap around mortgage, note
receivable and underlying mortgage. To date, the cash flow
generated from operations have been adequate to meet the
registrant's mortgage obligations. A shareholder has been
contributing funds to meet various general and administrative
expenses required to fullfill all of the registrant's obligations.
No officer of the registrant has been receiving or accruing
compensation at this time.
