United States Securities and Exchange Commission
Washington D.C.
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
For the fiscal year ended December 31, 1997
Commission File Number O-3718
Equity Growth Systems, inc.
(Name of Small Business Registrant in its charter)
Delaware
(State or other jurisdiction of incorporation
or organization)
11-2050317
(I.R.S. Employer Identification
Number)
3821-B Tamiami Trail, Suite 201, Port Charlotte, Florida, 33952
(Address of principal executive offices including Zip Code)
(941) 255-9582
(Registrant's telephone number) Securities registered under
Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which
registered: None
Securities Registered under Section 12(g) of the Act: Common Stock
(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during
the past twelve months (or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days: Yes [_] No[X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the 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: [X]
State Registrant's revenues for its most recent fiscal year: $214,001
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $ 0 based on the absence of any bid price therefore during 1997.
State the number of shares outstanding of each of the Registrant's classes of
equity, as of the latest practicable date: 4,116,148 shares of common stock, as
of June 22, 1998.
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This registration statement on Form 10-KSB, is comprised of 135 sequentially
numbered pages, with the required exhibit index located at sequentially numbered
page 68.
Table of Contents
Item Page
Number Number Item Caption
Item 1. 3 Description of Business
Item 2. 10 Description of Properties
Item 3. 24 Legal Proceedings.
Item 4. 30 Submission of Matters to Vote of Security Holders
Item 5. 30 Market for Common Equity and Related Stockholder
Matters.
Item 6. 31 Management's Discussion and Analysis of Financial
Condition and Results of Operations or Plan of
Operation
Item 7. 31 Financial Statements
Item 8. 31 Changes in and Disagreements with Accountants
Item 9. 34 Directors, Executive Officers, Promoters
and control Persons; Compliance with
Section 16(a) of the Securities Exchange Act
of 1934, as amended.
Item 10. 37 Executive Compensation
Item 11. 43 Security Ownership of Certain Beneficial Owners
and Management
Item 12. 46 Certain Relationships and Related Transactions
Item 13. 53 Exhibits, Financial Statements & Reports on
Form 8-K (index)
58 Signatures
77-101 Exhibits and Additional Information
This document incorporates into a single document the requirements of the
Securities and Exchange Commission for the Annual Report to
Stockholders and the Form 10-KSB.
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PART I
Item 1. Business
(a) Historical Data
Equity Growth Systems, inc. ("the Registrant"), was incorporated in
Delaware on December 8, 1964, as Infotec, Inc. Its current address is 3821-B
Tamiami Trail, Suite 201; Port Charlotte, Florida 33952 and its current
telephone number is (941) 255-9582.
On April 7, 1993, the Registrant and KSG Technologies, Inc., a Maryland
corporation ("KSG") Then operating as Mercantile Realty Investors, Inc.,
"MRI")entered into a Plan and Agreement of Merger ("the Merger Agreement",
pursuant to authorization by their respective Boards of Directors, providing for
the merger of the Registrant into MRI ("the Merger"). The Merger was
subsequently approved by the shareholders of MRI and MRI and the Registrant
filed a registration statement with respect thereto (on FormS-4) with the
Securities and Exchange Commission. Although the registration statement was
declared effective, the Merger was canceled because the parties were unwilling
to spend the funds required to prepare and file the applications with state
securities regulatory authorities that would have been required. KSG has issued
200,000 shares of its common stock to the Registrant, as trustee for its
stockholders of record as of March 23, 1995, as compensation for cancellation of
the merger agreement. Such shares will be distributed to the beneficial owners
at such time as management is assured that such shares can be distributed
pursuant to exemptions from registration requirements under federal or state
securities laws, as restricted securities subject to the holding period
requirements of Securities and Exchange Commission Rule 144. The Registrant and
KSG intend to seek a no action position from the staff of the Securities and
Exchange Commission with reference to federal registration requirements, and to
seek similar relief from state securities regulatory authorities in states where
specific exemptions are not found, at such time as KSG becomes current in its
reporting obligations under the Securities Exchange Act of 1934, as amended. If
KSG and the Registrant obtain a satisfactory no action letter from the
Securities and Exchange Commission but cannot obtain comparable relief from
regulators in all states in which the Registrant has stockholders, then the
200,000 shares would be distributed pro rata, solely to stockholders residing in
states where such distribution would be either exempt from registration
requirements or distribution is permitted pursuant to a no-action agreement with
state regulators. A copy of the agreement between the Registrant and KSG (then
operating as Equity Growth Systems, Inc.; "EGSI") was filed as an exhibit to the
Registrant's report on Form 10-KSB for the year ended December 31, 1994.
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During March of 1995, the Registrant's Board of Directors elected Edward
Granville-Smith, then president of KSG (then operating as EGSI), to the
Registrant's Board of directors, after which, all directors other than Mr.
Granville-Smith resigned. Mr. Granville-Smith, as the sole director, elected
himself as president, chief executive officer and chairman of the Registrant's
board of directors. Thereafter, Mr. Granville-Smith, as the sole stockholder,
officer and director of Milpitas Investors, Inc., a Delaware corporation
("Milpitas"), caused Milpitas to assign interests in four leases involving five
separate leased parcels of real estate (one lease covers two parcels), four
promissory notes secured by mortgages on real estate leased to third parties, in
each case subject to mortgages to third parties, and four demand notes with an
aggregate original principal balance of approximately $163,415, to the
Registrant in exchange for 1,616,000 shares of the Registrant's common stock,
$0.01 par value. The demand notes are subject to an arrangement with Mr. Jerry
C. Spellman (which the Registrant has agreed to honor) whereby payments thereon
are used to repay a $104,000 loan by Mr. Spellman to a former holder. Milpitas
thereafter distributed such stock to the Granville-Smith Trust, which thereafter
transferred it to K. Walker, Ltd., a Bahamian corporation (affiliated with Mr.
Granville-Smith) and Bolina Trading Company, a Panamanian corporation
(affiliated with Jerry C. Spellman).
Because it appeared that certain assets which Mr. Granville-Smith
intended to include in such assignment may not have been included in the
indenture, effective December 29, 1995, Mr. Granville-Smith, on his own behalf
and as the statutory trustee and liquidating agent for Equity Growth Systems,
inc., a dissolved Maryland corporation ("EGS Maryland"); and First Ken-Co
Properties, Inc., a dissolved Delaware corporation ("FKP"); and as the current
sole officer, director and stockholder of Milpitas Investors, Inc., a Delaware
corporation ("Milpitas"), executed a corrective bill of sale (a copy of which
was included as an exhibit to Registrant's Form 10-KSB for year ending December
31, 1995). The corrective bill of sale assigned the following to the Registrant:
all of the assets owned by EGS Maryland and FKP, together with all of the rights
of certain partnerships in which Milpitas served as sole general partner, to a
series of notes secured by wrap mortgages (mortgages inferior to first
mortgages) and to income from long term leases on the subject properties.
The Registrant is now involved in the business of seeking to
acquire and operate interests in income producing, commercial real
estate.
(b) Financial Information About Industry Segments.
Not Applicable.
(c) Narrative Description of Business.
1. The Registrant:
During 1995, the Registrant issued 1,616,000 shares of its common stock, $0.01
par value, in exchange for all of the assets owned by Equity
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Growth Systems, inc., a dissolved Maryland corporation (not to be confused with
the Registrant), all of the assets owned First Ken-Co Properties, Inc., a
dissolved Delaware corporation, and for all of the rights of certain
partnerships in which Milpitas Investors, Inc. (a Delaware corporation) served
as sole general partner), including lease income from five parcels of real
estate, four promissory notes secured by mortgages on such real estate (in each
case subject to mortgages to third parties), and four demand notes with an
aggregate original principal balance of approximately $163,415.00 The demand
notes are subject to an arrangement with Mr. Jerry C. Spellman (which the
Registrant has agreed to honor) whereby payments thereon are used to repay a
$104,000 loan by Mr. Spellman to a former holder thereof. One parcel and one
note, (the Memphis Property), have been written off by the accountants due to
non judicial foreclosure. (See litigation and Financial statements)and a second
parcel and second note, (Kansas Property) is involved in litigation. (See page
6, Litigation and financial statements).
Milpitas is wholly owned by Edward Granville-Smith, the Registrant's
Chairman and President. Mr. Granville-Smith is one of the Registrant's two
largest beneficial stockholders. Milpitas holds the following partnership
interests:
1.98% general partnership interest in Montco Associates.
96.02% limited partnership interest in Montco Associates.
0.99% general partnership interest in Sound-Safe Associates.
97.01% general and limited partnership interest in
Sound-Safe Associates.
.495% limited partnership interest in Safe-Ten Associates
.99666% limited partnership interest in San-Safe Associates
.99666% limited partnership interest in Pay West Associates
0.99% general partnership interest in Paymont Associates
0.99% general partnership interest in Paynev Associates
The Registrant also acquired all rights to unsecured advances
aggregating $163,415 made by Milpitas to four of the limited partnerships in
which it served as general partner (owning less than a 2% general partnership
interest).
The transactions were treated as purchases (rather than pooling of
interests) for accounting purposes and consequently, the assets acquired were
recorded at their estimated current values at the acquisition date. Such current
values were based in part, upon the current values of the net assets and
corporate interests acquired. See notes to the financial statements filed
herewith.
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2. The Notes Receivable:
As of December 31, 1997, the following was true:
The notes receivable were obligations of Pay West Associates, Safe-Ten
Associates, San-Safe Associates and Paynor Associates, partnerships in which
Milpitas has a less than 2% general partnership interest (the "Second Stage
Milpitas Partnerships"). They owned the real estate which they acquired from
Paymont Associates and Pay Nev Associates; Sound Safe Associates; First Ken-Co
Properties, Inc.; and, Montco Associates (all either partnerships in which
Milpitas served as general partner, or in the case of First Ken-Co Properties,
Inc., affiliates of Milpitas, collectively referred to as the First Stage
Milpitas Affiliates").
The properties were acquired by the First Stage Milpitas Affiliates
through the issuance of long term notes secured by first mortgages on the
properties (the "First Mortgages") to Sixth Ludingham Properties, Inc., a
Delaware corporation; First Mortgage Corporation, a Washington corporation;
Eleventh Wallingford Properties, Inc., a Delaware corporation; and, Sixth
Basengstoke Properties, Inc., a Delaware corporation. They were then leased on a
long term basis (the "Long Term Leases") and thereafter sold to the Second Stage
Milpitas Partnerships, subject to the Long Term Leases and the First Mortgages,
in exchange for long term notes secured by wrap mortgages (the "Wrap Mortgages;"
the Second Stage Milpitas Partnerships not being obligors to the holders of the
First Mortgages, but acquiring the properties subject to the rights of such
holders). Consequently, the First Stage Milpitas Affiliates remain as the sole
obligors on the first mortgages, but are the payees on the Wrap Mortgages and
are entitled to all of the income from the Long Term Leases, including all
renewals thereof.
The Wrap Mortgage agreements, as currently in effect, contain repayment
schedules which allocate each quarterly installment such that the interest rates
vary over the term of the notes, from the stated effective interest rate. The
current value of the notes on December 31, 1995 is the remaining balance
reflected in the repayment schedule based on the actual effective interest rate
over the effective remaining terms of the notes.
SOUND SAFE ASSOCIATES, a Limited Partnership formed under the laws of
Maryland, and a wholly owned subsidiary of registrant, defaulted on the mortgage
on the property located in Memphis Tennessee because it was unable to satisfy
the pay-off balloon payment that was due on December 31, 1996 in the amount of
$174,801.00. The mortgage holder refused to negotiate with SOUND SAFE ASSOCIATES
or extend the term of the mortgage and refused further amortization payments
from the lessor of the underlying lease. Non Judicial Foreclosure was instituted
and finalized in August, 7, 1997. Copies of the notice of foreclosure and
advertisement of foreclosure are exhibits filed with form 10K-SB for 1997
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However, as a result of foreclosure, the Registrant has written off the balance
of the related wrap around mortgage receivable ($251,722) and promissory note
receivable of ($93,686). See section on Description of Real Estate and Operating
Data, 1. Lease Rights Currently Owned: b) Safeway Stores, Incorporated.
On October 21, 1997, The District Court of Kansas entered an Order
of Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San
Safe Associates, et. al. Case No. 972072WC. The order is based on a
Joint Stipulation of parties involved in the litigation. A copy of the
Order of Dismissal is filed as an Exhibit to Form 10-KSB for 1996.
On October 20, 1997, In a mutual release, Associated Wholesale Grocers
agreed to pay the sum of One Hundred Fifty Thousand Dollars ($150,000) to Fleet
National Bank in exchange for the transfer of free, clear, insurable, and
marketable title of the Subject Property to Four B Corporation, a Kansas
corporation; Fleet National Bank receives Fifty-two Thousand ($52,000) of the
above $150,000, with the remaining balance of $98,000.00 to be distributed to
First Ken-Co Properties and San Safe. First Ken- Co Properties and San Safe the
agreed to hold the $98,000.00 in escrow and First Ken-Co. Properties and San
Safe would litigate in the State of Maryland all remaining issues between them,
including the rightful disbursement of the $98,000.00 held in escrow.In that
same matter, First Ken-Co. Properties seeks from the limited partners of San
Safe an accounting and damages in the amount in excess of $300,000.00.
Registrant holds the position that the ultimate rightful disbursement of a
substantial portion of these funds is to registrant for the purposes of
reduction of wrap around mortgage indebtedness and promissory note receivables.
A lawsuit was filed January 7, 1998, a copy of which is attached as an Exhibit
to 10-KSB for 1996,case No. 90-007033 in the Circuit Court of Maryland for
Baltimore City. The attorney for Ken Co is Attorney David Albright. Mr. Albright
is unwilling to communicate the status of this litigation with either a company
principal or the Counsel preparing this filing. See letter dated April 22, 1998,
and the letter dated May 28, 1998, attached as an exhibit to 10--KSB for 1997.
The filing clerk of the Circuit Court of Maryland for Baltimore City has orally
represented that there is no activity in this file since the filing in January,
1998: No service on Defendants, no responsive pleadings, no Defaults entered.
The condition of this litigation is unknown.
The following schedule discloses the imputed interest rates and the
stated maturity dates for each loan:
Effective Maturity
Interest Rate Date Remaining Balance at
Amount Stated Stated Maturity Date
$ 910,415 12.904% 2005 $248,395
728,056 9.080% 2003 232,200
* Over the remaining effective term
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The notes are payable in quarterly installments and total amounts due in
the 8 years subsequent to December 31, 1997 and the principal portion thereof
are as follows:
Year Total Principal Portion *
1998 300,409 170,409
1999 300,409 180,944
2000 300,409 191,940
2001 166,861 110,996
2002 833,182 381,609
2003 60,221 47,775
2004 60,221 52,069
2005 445,616 441,252
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* As specified by the repayment schedules.
3. Advances to Partnerships:
The Second Stage Milpitas Partnerships were indebted to Milpitas as
payors under a series of interest free loans from the general partner, called
for by the respective partnership agreements. The loans were to be repaid upon
sale of the real estate owned by the Second Stage Milpitas Partnerships,
however, because the limited partners rejected a number of bone fide purchase
offers, the Second Stage Milpitas Partnerships and Milpitas entered into an
agreement during September of 1987, converting the loans into demand promissory
notes, bearing no interest until called by Milpitas. Milpitas called all of the
demand notes on October 1, 1987. Because the Second Stage Milpitas Partnerships
were unable to make the required payments, the holders and the makers agreed
that the notes would remain outstanding on a demand basis, yielding compound
interest and that all funds in excess of those required to service secured debt
received by the Second Stage Milpitas Partnerships, would be applied to payments
on the notes. Advances to the Second Stage Milpitas Partnerships include an
aggregate of $122,815 (face amount), with a current accrued amount due (based on
principal plus accrued but unpaid interest as of December 31, 1996) of $148,058.
The Registrant acquired all rights to such notes from Milpitas during 1995, as
disclosed above.
4. Mortgages Payable:
The table below summarizes the terms of the First Mortgages which are
repayable in quarterly installments and are collateralized by real property
owned and operated by the Second Stage Milpitas Partnerships.
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Interest Maturity Remaining Balance at
Amount Rate Date Maturity Date
$ 753,493 9.75% 2001 $284,170
602,289 9.75% 2002 $226,674
$1,355,782 Total $510,844 Total
Total installments due in the years subsequent to December 31, 1997 and
the principal portion thereof are as follows:
Year Total Principal Portion
1998 $ 299,409 $ 176,656
1999 $ 299,409 $ 194,529
2000 $ 374,919 $ 290,830
2001 $ 390,737 $ 355,520
2002 $ 337,840 $ 305,361
(d) Investment Policies:
(1) The Registrant plans to invest in retail properties with a physical
make-up of and improved area of between 65,000 and 400,000 square
feet, and unimproved area sufficient to allow credit tenant
expansion. The lease income must be 60% or more from credit tenants
rated "B" or better by one of the major rating bureaus and have a
duration of at least fifteen years remaining. Further, non credit
leases must have at least one year remaining on their lease term.
(2) The medium of exchange for the purchase will consist of cash and
securities of the Registrant, as follows;
a) Seventy-five percent (75%) of the purchase price is to be
provided through institutional mortgages or other securitized
funding. Such institutional paper must have a term of at
least seven years or more and an amortization schedule of at
least two to five years longer than the prime credit lease
term(s). The capitalization rate of the purchased income
streams (leases) must be at least one hundred and thirty
percent (130%) of the financing obligation's pay rate.
b) Ten to fifteen percent of the purchase price is to be provided
through sale of shares of the Registrant's preferred stock
(with an anticipated dividend rate of twenty-five basis points
above the interest rate charged on the institutional mortgage
or securitized paper) to institutional investors. In certain
instances this funding may be raised through issuance of the
Registrant's common stock or a combination of common and
preferred securities.
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c) The balance of the purchase price is expected to be funded through
the issuance of shares of the Registrant's preferred stock to the
Seller.
d) Day to day management of the Registrant's properties is expected to
be carried out on location by local management companies supervised
by the Registrant's personnel and affiliates.
e) Asset management is expected to be supervised directly by the
Registrant's officers, especially Messrs. Granville-Smith, Homan,
and Scimeca . (see Item 8, Directors, Executive Officers, Promoters
and Control Persons).
f) Although the Registrant currently owns three wrap-around first
mortgages (the fourth wrap around was subject to foreclosure
see Legal proceedings and accountants Financial Statements)),
secured by two absolute institutional net leases from
Safe-way, Inc. (See "Item 3: Legal Proceedings" for a
discussion of problems experienced by the Registrant in
obtaining estoppel statements from Safe-way, Inc., and other
matters), and two from the Payless Group, it does not intend
to invest in mortgage instruments in the future, absent
unusual opportunities. Rather, the Registrant's objectives are
investments in credit lease income and related retail
property. As indicated, any retail property purchased must be
covered by leases from institutionally rated credit tenant(s)
in a ratio of at least 60% of the total income stream (lease
income). It is not the intent of the Registrant to venture
into any other area of the real estate industry other than
warehouse space leased to credit tenants and signature office
space (both "land mark" or space leased on a long term basis
to credit tenants).
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
Not applicable.
Item 2. Properties.
Administrative Facilities
As of December 31, 1997:
The Registrant has moved it's principal administrative facility. The
Registrant's principal administrative facility is situated on 1000 square feet
leased from Kay Walker, LTD on a gross lease basis at $500.00 per month. This is
a monthly rental without a written lease and started in June, 1997. The address
of the facility is 3821-B Tamiami Trail, Suite
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201, Port Charlotte, Florida. The current facilities are, in management's
opinion, in adequate condition to meet the Registrant's current requirements.
Investment Property
The Registrant is currently engaged in the business of acquiring
interests in real estate that meet the investment parameters described in "Item
I, Description of Business: .... (d) Investment Policies" above. All of the
Registrant's current property rights were obtained from Mil- pitas Investors,
Inc., a Delaware corporation ("Milpitas") wholly owned by Edward
Granville-Smith, the Registrant's Chairman and President, or from Mr.
Granville-Smith, as the statutory trustee and liquidating agent for Equity
Growth Systems, inc., a dissolved Maryland corporation ("EGS Maryland"); and,
First Ken-Co Properties, Inc., a dissolved Delaware corporation ("FKP"), in
exchange for 1,616,000 shares of the Registrant's common stock, $0.01 par value.
The demand notes included among such assets are subject to an arrangement with
Mr. Jerry C. Spellman (which the Registrant has agreed to honor) whereby profits
generated therefrom are used to repay a $104,000.00 loan by Mr. Spellman, to a
former holder thereof.
Milpitas serves as the general partner in a number of limited
partnerships (the "Milpitas Partnerships"), of which now own or lease the real
estate in which the Registrant has a current leasehold interest (the
"Partnership Properties"). The Partnership Properties were acquired by Milpitas
or its affiliates (the "First Stage Milpitas Affiliates") in exchange for
purchase money notes secured by mortgages (the "First Mortgages"). The
Partnership Properties were then leased to third parties and sold (subject to
such leases) to related limited partnerships (in which Milpitas or its
affiliates served as general partner, hereinafter referred to as the "Second
Stage Milpitas Partnerships") for promissory notes secured by wrap mortgages
(subordinate to the mortgages in place from Milpitas or its affiliates to the
original property owners, the Wrap Mortgages"). In each case, the rights to
income from the long term leases in place were retained by the First Stage
Milpitas Affiliates but are now owned by the Registrant. The Registrant also now
owns the Wrap Mortgages; however, the Registrant is responsible for all payments
due on the First Mortgages, as described in the following tables (as of January
1, 1997):
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A. Leases
P.L. Drug Stores of Nevada and Payless Drug Stores, Inc., Lease
Registrant's Lessee's Registrant's
Aggregate Future Aggregate Term Aggregate Term
Date Obligations Obligations (5) Net Income (2)
October 1, 2000 $ 353,187 $ 247,500 $ (105,687)
October 1, 2005(3) None $ 238,900 $ 238,900
October 1, 2009(4) None $ 192,500 $ 192,500
October 1, 2010(3) None $ 192,500 $ 192,500
October 1, 2015(3) None $ 192,500 $ 192,500
October 1, 2020(3) None $ 192,500 $ 192,500
October 1, 2025(3) None $ 192,500 $ 192,500
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(1) Balance of underlying mortgage payments owed by the Registrant on such
date.
(2) Balance of underlying mortgage payments owed by the Registrant at end of
then current term, after applying all lease payments to debt service.
(3) Represents renewal on parcel one
(4) Represents renewal on parcel two.
(5) Payment of rent to the Registrant during balance of then current term.
The total cumulative net income of the Registrant from the P.L. Drug
Stores of Nevada and Payless Drug Stores, Inc., lease for both parcels, assuming
exercise of all of the option terms, would be $1,175,072
Pay Less Drug Stores, North West, Inc., Lease
Registrant's Lessee's Registrant's
Aggregate Future Aggregate Term Aggregate Term
Date Obligations (1) Obligations(2) Net Income
October 1, 2002 None $ 262,500 $ 262,500
October 1, 2007 None $ 157,500 $ 157,500
October 1, 2012 None $ 157,500 $ 157,500
October 1, 2017 None $ 157,500 $ 157,500
October 1, 2022 None $ 157,500 $ 157,500
October 1, 2027 None $ 157,500 $ 157,500
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(1) Balance of underlying mortgage payments owed by the Registrant on such date.
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(2) Payment of rent to the Registrant during balance of then current term.
The total cumulative net income of the Registrant from the Payless
lease, assuming exercise of all of the option terms, would be $1,050,000
Associated Wholesale Grocers, Inc., Lease
Registrant's Lessee's Registrant's
Aggregate Future Aggregate Term Aggregate Term
Date Obligations (1) Obligations (2) Net Income
April 1, 1998 None $ 208,878 $ 208,878
April 1, 2003 None $ 133,682 $ 133,682
April 1, 2008 None $ 133,682 $ 133,682
April 1, 2013 None $ 133,682 $ 133,682
April 1, 2018 None $ 133,682 $ 133,682
April 1, 2023 None $ 133,682 $ 133,682
April 1, 2028 None $ 133,682 $ 133,682
April 1, 2033 None $ 133,682 $ 133,682
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(1) Balance of underlying mortgage payments owed by the Registrant on such date.
(2) Payment of rent to the Registrant during balance of then current term.
The total cumulative net income of the Registrant from the Associated
Wholesale Grocers, inc., lease, assuming exercise of all of the option terms,
would be $1,144,652; however, Associated Wholesale Grocers, Inc., has indicated
to the Registrant that it intends to exercise buy out rights pursuant to which
it would only be required to pay the Registrant an aggregate sum of $150,000,
from which the Registrant would be required to pay the remaining $137,000 due on
underlying notes. The limited partners have retained legal counsel and are
seeking to replace the general partner. Counsel for the Registrant and the
general partner do not believe that the limited partners have the legal capacity
to effect such change.
On October 21, 1997, The District Court of Kansas entered an Order of
Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San Safe
Associates, et. al. Case No. 972072WC. The order is based on a Joint Stipulation
of parties involved in the litigation. A copy of the Order of Dismissal is filed
as an Exhibit to this Form 10-KSB for 1996.
On October 20, 1997, In a mutual release, Associated Wholesale Grocers
agreed to pay the sum of One Hundred Fifty Thousand Dollars ($150,000) to Fleet
National Bank in exchange for the transfer of free, clear, insurable, and
marketable title of the Subject Property to Four B Corporation, a Kansas
corporation; Fleet National Bank receives Fifty-two Thousand ($52,000) of the
above $150,000, with the remaining balance of $98,000.00 to be distributed to
First Ken-Co Properties and San Safe. First Ken- Co Properties and San Safe the
agreed to hold the $98,000.00 in escrow and First Ken-Co. Properties and San
Safe would
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litigate in the State of Maryland all remaining issues between them, including
the rightful disbursement of the 98,000.00 held in escrow. In that same matter,
First Ken-Co. Properties is expected to seek from the limited partners of San
Safe an accounting and damages in the amount in excess of $300,000.00.
Registrant holds the position that the ultimate rightful disbursement of a
substantial portion of these funds is to registrant for the purposes of
reduction of wrap around mortgage indebtedness and promissory note receivables.
As a material Subsequent event:
A lawsuit was filed January 7, 1998, entitled First Ken Co Properties
v. Morton, a copy of which is attached as an Exhibit to 10--KSB for 1996, case
No. 90-007033 in the Circuit Court of Maryland for Baltimore City. The attorney
fro Ken Co is Attorney David Albright. Mr. Albright is unwilling to communicate
the status of this litigation with either a company principal or the Counsel
preparing this filing. See letters dated April 22 1998 and letter dated May 28,
1998 attached as an exhibit to 10--KSB for 1997. The filing clerk of the Circuit
Court of Maryland for Baltimore City has orally represented that there has been
no activity in this file since the filing in January, 1998: No service on
Defendants; no responsive pleadings, no Defaults entered. The condition of this
litigation is unknown.
B. Description of Real Estate and Operating Data
1. Lease Rights Currently Owned:
The following information pertains to the lease income rights currently
owned by the Registrant and described in the tables above:
a) P.L. Drug Stores of Nevada and Pay Less Drug Stores.
A portion of the property is owned by Pay Nev Associates and Paymont
Associates, Maryland limited partnerships, and the balance is leased by
Pay Nev Associates and Pay Mont Associates from Montebello Plaza
Company, a California general partnership and subleased to P.L. Drug
Stores of Nevada and Pay Less Drug Stores. The combined parcels are
leased (and subleased) to P.L. Drug Stores of Nevada and Pay Less Drug
Stores, subject to the Registrant's rights to all lease income therefrom
and to the Registrant's obligations to pay the underlying note and
mortgage obligations (see table above).
(1) The lease is dated as of May 26, 1975 with the primary term
terminating on October 1, 2000. Thereafter, the lessee has
the right to extend the lease for 5 additional five year
terms, ending on October 1, 2025, except for the subleased
portion of the property, the term of which can only be
extended for one additional nine year period. The lessee may,
upon not less than 12 months' notice to the Registrant, offer
to purchase the property on October 31, 2000, at a price
calculated in accordance with a formula set forth in an
exhibit to the lease (a copy of the lease being included as an
exhibit to this report.
(2) The following legal description pertains to the portion of the
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leased property owned by Pay Nev Associates and Paymont
Associates:
Real property situated in the City of Sparks, County of Washoe,
State of Nevada and described as follows:
PARCEL A: Lot 3 of SUTTER HILL SUBDIVISION, (Subdivision
Tract No. 1438), according to the map thereof, filed in the
office of the County Recorder of Washoe County, State of
Nevada, on November 1, 1973, under Filing No. 306755.
Excepting therefrom that portion of Lot 3 described as follows:
Beginning at the Southeast corner of Lot 2 of said Sutter Hill
Subdivision; thence North 00 degrees 47'27" East along the Easterly
line of said Lot 2; said Easterly line being common with Lot 3, a
distance of 186.32 feet; thence leaving said Easterly line and
proceeding South 89 degrees 12'33" East 2.52 feet; thence North 89
degrees 12'33"West 2.52 feet to the point of beginning.
PARCEL B: Together with the following described parcel being a
portion of Lot 2 of said Sutter Hill Subdivision being more
particularly described as follows: Beginning at the most easterly
NE corner of said Lot 2, as the same is shown on Sheet 2 of 2, of
the map entitled "Official Platt, Sutter Hill Subdivision", filed
in the Official Records of Washoe County, Nevada, November 1, 1973,
as File No. 306755, and proceeding, Thence N 89 degrees 12'33" W
along the northerly line of said Lot 2, a distance of 127.58 feet
to a lot corner as shown on the above mentioned map, Thence leaving
said northerly line and proceeding S 00 degrees 47'27" W 3.68 feet,
Thence S 89 degrees 12'33" E, and parallel to the above mentioned
northerly line 127.58 feet to the easterly line of said Lot 2,
Thence N 00 degrees 47'27" E along said easterly line 3.68 feet to
the point of beginning and containing 469.5 square feet.
(3) The following legal description pertains to the portion of the
leased (technically subleased) property leased by Pay Nev
Associates and Paymont Associates to the sublessees:
Real property situated in the City of Montebello, County of Los
Angeles, State of California, described as: Parcel 1 of Parcel Map
No. 5149 as shown in Maps filed in Book 54, page 67 of Parcel Maps
of Los Angeles County (subject to ground lease dated October 4,
1974 and recorded November 12, 1974 in Book M4836 of Official
Records, Los Angeles County Records, Page 354.
(4) Basic Rent Allocations
Annually Quarterly
Fee Property $ 113,515.00 $ 28,378.75
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Leasehold Property $ 60,908.50 $ 15,227.13
Total $ 174,423.50 $ 43,605.88
The lease calls for payments to the Registrant during the Basic
Term of an annual basic rent (see table above) equal to the sum of
the Basic Allocations described in the table above, payable in
advance in equal quarterly installments on the 1st day of January,
April, July, and October in each year, until October 1, 2000.
(5) Lessee Renewal Options
If the lessee is not in default(as defined in the lease), it will
have the right to renew the term of the lease to the Fee Property,
for five successive periods of five years each; and, as to the
Leasehold Property, for one period of nine years, in each case by
giving the Registrant notice of it's election to renew not less
than six months prior to the expiration of the Basic Term or of the
then current renewal term, as the case may be, each renewal term to
be upon the same terms, covenants and conditions as in the Lease
provided, except that:
(a) there is no right to renew the term of the lease as to any
Property for any period of time beyond the expiration of the
last renewal term;
(b) in the case of the Fee Property, the annual basic rent will be
$49,500 during the first renewal term and $38,500 during each
successive renewal term; and,
(c) in the case of the Leasehold Property, the annual basic rent
will be $26,550 during the renewal term, payable in each case
in equal quarterly installments in advance.
(6) Assignment of Lease Income
The lease income is assigned by the Registrant to service a 30 year
wrap around mortgage (the "Wrap Mortgage"). The Wrap Mortgage was
issued by Paymont Associates and Paynev Associates (both Maryland
limited partnerships in which Milpitas serves as general partner)
to Pay West Associates, for the sum of $1,541,000 with an effective
interest rate of 12.94% per annum. The Wrap Mortgage is payable
quarterly on the first day of each April, July, October and
January. The final payment of $248,395.00 is due January 1, 2007.
The Wrap Mortgage is subordinate to a Deed of Trust dated May 20,
1975, from Paymont Associates and Paynev Associates, (collectively
referred to for purposes of this paragraph as the "Grantor") to
Title Insurance and Trust Company as trustee for Sixth Ludingham
Properties, Inc., a Delaware corporation. The Deed of Trust secures
a note of the Grantors in the original principal amount of
$1,656,000 bearing interest at
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the rate of 9.75% per annum. It matures on January 1, 2001
(the "Trust Note").
The difference between payments on the Wrap Mortgage and the Trust
Note has, since October 1, 1987 when the note was called has been
credited towards payment of the debt service on a demand note due
to the Registrant from Pay-West Associates, a Maryland limited
partnership.
b) Safeway Stores, Incorporated
As of December 31, 1997 the following is reported:
The lease is dated as of October 15, 1975, with the primary term of the
lease terminating December 31, 1996. The lease provides for six
additional five year option terms; however, the lessee made an
irrevocable offer to purchase the leased premises on December 31, 1996
at a price of $250,845.48. Of this amount, $179,007.48 was required to
satisfy the first mortgage, also due on December 31, 1996.
The Registrant rejected such offer to purchase by proper notice to
lessee given prior to August 31, 1996.
The legal description of the subject property is as follows:
Real property and buildings and improvements thereon in the City of
Memphis, County of Shelby, State of Tennessee designated as SWC
Winchester Road & Mill Branch Road, to-wit: A part of Parcel No. 11, a
114,165 acre tract, as described in Deed of Warranty in Book 3142, Page
551, in Office of Register, Shelby County, Tennessee, more particularly
described as follow: Beginning at a point on the West right-of-way line
of Mill Branch Road, said point being the Southeast corner of Chevron
Oil Company property, (also said point being 200 feet south of the
intersection the West right-of-way line of Mill Branch Road and the
South right-of-way line of Mill Branch Road a distance of 257.0 feet;
thence S 89 degrees 55' W a distance of 379.08 feet; thence North a
distance of 487.22 feet to a point on the South right-of-way line of
Winchester Road; thence N 87 degrees 44' E and along said South
right-of-way line of Winchester Road a distance of 72.20 feet a chord
bearing and distance of N 88 degrees 49'36" E 106.82 feet to the
Northwest corner of Chevron Oil Company property a distance of 200.0
feet to the point of beginning, containing 145,580 square feet of 3.342,
more or less.
During the year ending on December 31, 1996 (the last year of the
initial term), the lease called for payment of $95,659.65 payable in
equal quarterly installments of $23,914.91. The lessee extended the term
of the lease for seven additional periods of five years each, at annual
rentals as follows:
During the initial five year option term, the annual lease payments due
will be $55,312.50, payable in quarterly installments of
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$13,828.125; and
During the following six, five year renewal periods, the annual lease
payments due will be $35,400, payable in quarterly installments of
$8,850.
The lease income has been assigned to service a 30 year wrap around
mortgage owned by a wholly owned subsidiary of the Registrant,
(SOUND-SAFE ASSOCIATES, a Limited Partnership formed under the Laws of
Maryland) for the sum of EIGHT HUNDRED THOUSAND DOLLARS ($800,000) with
an effective interest rate of 13.4983% per annum; payable quarterly with
the first payment due on the last day of June 1976 with all subsequent
payments due the last day of each March, June, September and December up
to and including December 2006; as set forth on the amortization
schedule included among the exhibits filed with the Registrant's report
on Form 10-KSB for 1995 (the Sound Safe Associates Amortization
Schedule). The final payment of the remaining balance of $173,128.17 is
due on December 31, 2006. Each payment is credited to interest and
principal as indicated on the Amortization Schedule. The above inclusive
promissory note wraps and is subordinate to a note and Deed of Trust
dated February 1, 1976 between the Registrant (through it's wholly owned
subsidiary SOUND-SAFE ASSOCIATES, a Maryland Limited Partnership) as
Grantor and Mid-South Title Company, Inc. as Trustee, and First Mortgage
Corporation, a Washington Corporation, as Beneficiary, which Deed of
Trust secures a note of the Grantor in the original principal amount of
$875,300 bearing an interest rate of 9 3/4 per annum, due December 31,
1996. The difference between payments on the wrap around mortgage and
the underlying mortgage has been (since October 1, 1987 when the note
was called) and continues to be credited towards payment of the debt
service of a Demand Note due the Registrant from SAFE-TEN ASSOCIATES, a
Maryland Limited Partnership, (including the schedule of uncollected
principal and interest which has been, and continues to accrued and
being added back to the note). A copy of such note is included among the
exhibits filed as a part the Registrant's report on Form 10-KSB for
1995.
SOUND SAFE ASSOCIATES. A Limited Partnership formed under the Laws of
the State of Maryland, defaulted on the mortgage on the property located
in Memphis Tennessee because it was unable to satisfy the pay-off
balloon payment that was due on December 31, 1996 in the amount of
$174,801.00.
The mortgage holder, Lutheran Brotherhood, refused to negotiate with
SOUND SAFE ASSOCIATES, or extend the term of the mortgage and refused
further amortization payments from the lessor of the underlying lease.
Non Judicial Foreclosure was instituted and finalized in August, 7,
1997. Copies of the notice of foreclosure and advertisement of
foreclosure are included as exhibits filed with this 10K-SB for 1996.
First Bank as assignor, granted, conveyed, assigned and transferred
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to Lutheran Brotherhood, Inc., a Minnesota corporation ("Lutheran
Brotherhood"), as assignee, all First Banks rights, title and interest
in and to the Original Deed of Trust, under that certain Assignment of
Deed of Trust dated May 19, 1976, and filed for record as Instrument
Number L2 9160 on May 28, 1976, in the Register's Office of Shelby
County, Tennessee ; and Assignment of Leases under that certain
Assignment of Assignment of Leases and/or Rents dated May 19, 1976, and
filed for record as Instrument Number L2 9161 on May 28, 1976 and in the
Register's of Shelby County, Tennessee; and to Tripartite Agreement
under that certain Assignment of Tripartite, Agreement dated May 19,
1976, and recorded as Instrument Number L2 9162 in the Register's Office
of Shelby County, Tennessee. A copy of the these documents are set forth
as an Exhibit to10-KSB for Calender Year 1996.
On August 7, 1997, the mortgage holder, Lutheran Brotherhood, foreclosed
on the mortgage and purchased the fee at the scheduled foreclosure sale.
As a result of these events, the Registrant has lost it's equitable
interest in the property, lost it's lease income, lost income equal to
the payments of the first mortgage and lost income equal to the
difference between payment of the mortgage and the amount of the
underlying mortgage.
As a result of these events of foreclosure, the Registrant wrote off the
balance of the related wrap around mortgage receivable ($251,722) and
promissory note receivable of ($93,686).
The Registrant, through it's new president, is considering future
negotiation with Lutheran Brotherhood and the possibility of purchasing
the fee. Without a successful repurchase from Lutheran Brotherhood the
equity associated with this real property is lost .
In addition, the Registrant is considering an action to recover the
amounts due on a promissory note due from San Safe and the difference
between the wrap around mortgage and the underlying mortgage foreclosed.
In addition, Through August 1997, the Registrant had received funds from
Sun West N.O. P. the lessee on the underlying lease which represented
the monthly rent payments on the underlying lease by the tenant of the
Memphis property. Because the mortgage holder would not accept any
amortization payments on their matured loan from Sun West N.O.P., the
Registrant was using proceeds to reduce the related wrap around mortgage
receivable.
c) Safeway Stores, Incorporated
As of December 31, 1997,
(1) The lease is dated as of January 1, 1976 with the primary term
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of the lease extending to and including the last day of March,
1998.
The Lessee made an irrevocable offer to purchase the property on
December 31, 1995, at a price of $136,999.93. In July and August
1995, notices of rejection of the offer to purchase were sent. A
dispute has arisen concerning the sufficiency of the notices.
The Lessee increased its offer to purchase the property to
$150,000; however, the limited partners of San-Safe Associates
objected to the sale. The partnership is currently negotiating with
holder of the underlying mortgage on the property for a
determination that such mortgage has been satisfied (see "Item 3:
Legal Proceedings").
(2) Fee Property
All buildings, structures and other improvements including all
building equipment and building equipment and building fixtures
owned by Lessor, if any (including, without limitation, equipment
and fixtures constituting a portion of the heating, ventilation or
air conditioning systems installed in such buildings, structure or
other improvement, located on that part of Tract 4031-1-1 REPLAT OF
PART OF WHITE OAKS SUBDIVISION, a subdivision of land, and part of
the Southwest 1/4 of the Southwest 1/4 of Section 32, Township 10,
Range 24, in Kansas City, Wyandotte County, Kansas, described as
follows: COMMENCING at the Southeast corner of said 1/4 Section;
thence North 89 degrees 46'08" along the South line of said 1/4 1/4
Section, a distance of 275.34 feet; thence North 0 degrees 13'52"
East, a distance of 60.01 feet to a point on the North right-of-way
line of Parallel Avenue (as now established), and the TRUE POINT OF
BEGINNING of the Tract of land to be herein described; thence
continuing North 0 degrees 13'52" East, a distance of 474.81 feet
to a point on the North line of said Tract 403a-1-1; thence South
89 degrees 38'40" East along the North line of said Tract 403A-1-1,
a distance of 122.14 feet to an angle point therein; thence North
89 degrees 06'33" East and continuing along the North line of said
Tract 403A-1-l, a distance of 125.02 feet to a point on the East
right-of-way line of 81st Street, (as now established) said point
being North 89 degrees 34'40" West, 30.00 feet from the East line
of said 1/4 1/4 section; thence South 0 degrees 25' 20" West along
the West right-of-way line of said 81st street, a distance of 23.90
feet to the point of curve in said right-of-way line; thence
Southerly and Southwesterly along said right-of-way line along a
curve to the right, an arc distance of 229.70 feet; thence South 7
degrees 25'20" West, tangent to the last described curve and
continuing along said right-of-way line, a distance of 178.17 feet
to the point of curve in said right-of-way line; thence
Southwesterly along a curve to the
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right, tangent to the last described course, having a radius of
88.31 feet, and arc distance of 67.01 feet to the intersection of
said West right-of-way, a distance of 164.55 feet to a jog therein;
thence North ) degrees 25'20" East along said jog, a distance of
10.00 feet; thence North 89 degrees 46'08" West and continuing
along said North right-of-way line, a distance of 13.83 feet to the
POINT OF BEGINNING.
(3) Basic Lease Schedule
For the period commencing January 1, 1976 and ending on March 31,
1998, the amount of $75,554.92 per annum, payable in equal
quarter-annual installments of $18,888.73, payable on the first day
of each January, April, July and October during such period.
(4) Assignment of Lease Income
The lease Income has been and continues to be assigned to service a
thirty (30) wrap around mortgage owned by a wholly owned subsidiary
of the Registrant, FIRST KEN-CO PROPERTIES, INC., A Delaware
Corporation for the sum of SIX HUNDRED SIXTY-EIGHT THOUSAND FOUR
HUNDRED TEN DOLLARS ($668,410.00) with an effective interest rate
of 12.32% per annum; payable quarterly, due on the first day of
January, June, July, and January up to and including January 1,
2005 as set as set forth on the amortization schedule included
among the exhibits filed as a part the Registrant's report on Form
10-KSB for 1995 (the First Ken-Co Properties Amortization
Schedule). The final payment of the remaining balance of
$173,128.17 is due on December 31, 2006. Each payment is credited
to principal and interest. The above inclusive promissory note
wraps and is subordinate to a note and Deed of Trust dated October
29, 1990 (a revision of an inclusive Promissory Note dated November
6, 1975) between the Registrant (FIRST KEN-CO PROPERTIES, INC.), a
Delaware Corporation as Mortgagor, and ELEVENTH WALLINGFORD
PROPERTIES, Inc., a Delaware Corporation as Mortgagee, which
Mortgage secures a note of the Mortgagor in the original principal
amount of $685,000 bearing an interest rate 9 3/4% per annum, due
December 31, 1995. The partnership is currently seeking a
determination that such obligation has been satisfied or as to any
remaining balance due claimed.
The difference between payments on the wrap around mortgage and the
underlying mortgage has been (since October 1, 1987 when the note
was called) and continues to be credited towards payment of the
debt service of a Demand Note due the Registrant from SAN-SAFE
ASSOCIATES, a Maryland Limited Partnership. (including the schedule
of uncollected interest and principal which is accruing and being
added back to the note). A copy of such note was included among the
exhibits filed as a part the Registrant's report on Form 10-KSB for
1995.
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On October 21, 1997, The District Court of Kansas entered an Order of
Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San Safe
Associates, et. al. Case No. 972072WC. The order is based on a Joint Stipulation
of parties involved in the litigation. A copy of the Order of Dismissal is filed
as an Exhibit to this Form 10-KSB for 1996.
On October 20, 1997, Associated Wholesale Grocers , Inc., a Missouri
Corporation; First Ken-Co Properties, Inc., a Delaware corporation; Fleet
National Bank , a national banking association; Safeway Inc., a Delaware
corporation, and San Safe Associates, a Maryland limited partnership; entered a
mutual release involving the Kansas litigation and Maryland litigation and the
First Ken-Co., and Safeway lease dated October 15, 1975. A copy of that mutual
release is filed as an Exhibit to this Form 10-KSB for 1996.
In the mutual release, Associated Wholesale Grocers agreed to pay the
sum of One Hundred Fifty Thousand Dollars ($150,000) to Fleet National Bank in
exchange for the transfer of free, clear, insurable, and marketable title of the
Subject Property to Gour B Corporation, a Kansas corporation; Fleet National
Bank receives Fifty-two Thousand ($52,000) of the above $150,000, with the
remaining balance distributed to First Ken-Co Properties and San Safe at closing
on October 16, 1997;
On October 20, 1997, Ken-Co and San Safe agreed to settle the Kansas
City Litigation, Case No. 97-2072-JWL, with Associated Wholesale Grocers,Inc.,
Fleet National Bank, and Safeway, Inc., but reserved claims against each other.
A copy of that agreement is filed as an Exhibit.
The parties agreed that $98,000.00 is to be distributed to First Ken-Co.
Properties and San Safe to be held in escrow; The parties also agreed that First
Ken-Co. Properties and San Safe would litigate in the State of Maryland all
remaining issues between them, including the rightful disbursement of the
98,000.00 held in escrow. In that same matter, First Ken-Co. Properties is
expected to seek from the limited partners of San Safe an accounting and damages
in the amount in excess of $300,000.00. Registrant holds the position that the
ultimate rightful disbursement of a substantial portion of these funds is to go
to the registrant for the purpose of reduction of wrap around mortgage
indebtedness and promissory note receivables. A lawsuit was filed January 7,
1998, a copy of which is attached as an Exhibit to the 10-KSB for 1996.
A lawsuit was filed January 7, 1998, entitled First Ken Co Properties v. Morton,
a copy of which is attached as an Exhibit to 10--KSB for 1996, case No.
90-007033 in the Circuit Court of Maryland for Baltimore City. The attorney for
Ken Co is Attorney David Albright. Mr. Albright is unwilling to communicate the
status of this litigation with either a company principal or the Counsel
preparing this filing. See letters dated April 22 1998 and letter dated May 28,
1998 attached as an exhibit to 10-- KSB for 1997. The filing clerk of the
Circuit Court of Maryland for Baltimore City has orally represented that there
has been no activity in this file since the filing; No service on Defendants; no
responsive pleadings, no Defaults entered. The condition of this litigation is
unknown.
d) Payless Drug Stores Northwest, Inc.
22
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(1) The lease dated as of April 1, 1977 with the primary term of the
lease terminating October 1, 2002.
(2) Fee Property:
All buildings, structures and other improvements (other than
Additions) presently situated or hereafter constructed upon the
Land (the "Leased Improvements"); and all easements, rights and
appurtenances relating to the Land and the leased Improvements;
and, all fixtures, including all components thereof, now or
hereafter located in, on or used in connection with Leased
Improvements, together with all replacements, modifications and
alterations thereof made pursuant to the lease (collectively, the
"Fixtures").
The above improvements, etc., are located on a parcel of land
located in the Northeast quarter of Section 2, Township 2 South,
Range 1 West, Willamette Meridian, Washington County, Oregon, more
particularly describe as follows: Beginning at the most Southerly
corner of Parcel II PAY LESS SHOPPING CENTER, a plat of record in
Washington County, Oregon; thence following the Southeasterly line
of said Parcel II North 44 degrees 50'05" East 125.69 feet; thence
Northeast 45 degrees 09'55" West 4.54 feet; thence 44 degrees
50'05" East 104.00 feet to the most Easterly corner of said Parcel
II; thence along the Northeasterly line of said Parcel II, North 45
degrees 09' 55" West 495.16 feet to the most Northerly corner of
said Parcel II; said point being located on the Southeasterly right
of way line of S.W. Main Street as shown on the plat of the
aforementioned PAY LESS SHOPPING CENTER; thence following said
right of way line 21.28 feet along the arc of a 150.00 foot radius
curve concave to the Northwest (long chord bears South 81 degrees
00' 24" West 21.26 feet) to a point of reverse curve; thence 55.68
feet along the arc of a 380.23 foot radius curve concave to the
Southeast (long chord bears South 80 degrees 53' 14" West 55.63
feet); thence South 14 degrees 36' 10" East 106.97 feet; thence
South 44 degrees 31' 30" West 114.00 feet to a point on the
Southwesterly line of said Parcel II; thence South 45 degrees 16'
18" East 45.225 feet to the point of beginning.
(3) Basic Lease Terms
The Lessee is obligated to pay to the Registrant an annual fixed
rental (the "Fixed Rent") in advance of $107,964.00 payable in
equal quarter-annual installments of $26,991.00 each, on the 1st
day of April, July, October and January to and including October 1,
2002. The Basic Rent is paid absolutely net to the lessor, so that
the lease shall yield the Lessor the full amount of the
installments of Basic Rent throughout the Term.
(4) Lessee Renewal Options
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If no Event of Default has occurred and be continuing, lessee has
been granted the right to extend the lease for five successive
terms of five years each, upon giving written notice to the
Registrant of one or more of such extensions at least one hundred
eighty (180) day prior to the termination of the then current Term.
During each such extended term all of the terms and conditions of
the lease shall continue in full force and effect except that the
annual basic rent during the first extended term is $52,500 and
during each of the remaining four extended terms the annual basic
rent will be $31,500, payable each extended term in equal
quarter-annual installments in advance.
(5) Assignment of Lease Income
The lease Income has been and continues to be assigned to service a
thirty (30) year wrap around mortgage issued by a wholly owned
subsidiary of the Registrant, MONTCO ASSOCIATES, a Limited
Partnership formed under the Laws of Maryland for the sum of ONE
MILLION FIFTY-EIGHT THOUSAND TWO HUNDRED AND FIFTEEN DOLLARS
($1,058,215.00) with an effective interest rate of 9.0825 percent
per annum; payable quarterly on the first day of March, June, July
up to and including January 1, 2003 as set forth on the
amortization schedule include among the exhibits filed as a part
the Registrant's report on Form 10-KSB for 1995 (the Montco
Associates Amortization Schedule). The final payment of the
remaining balance $266,320.98 is due on December 31, 2002. Each
payment will be credited to principal and interest as set forth in
the Amortization Schedule. The above inclusive promissory note
wraps and is subordinate to a note and Deed of Trust dated April 1,
1977 between the Registrant (MONTCO ASSOCIATES) as Mortgagor, and
SIXTH BASINGSTOKE PROPERTIES, INC., as Mortgagee, which Mortgage
secures a note of the Mortgagor in the original principal amount of
$1,029,000 bearing an interest rate of 9.75% per annum, due January
1, 2003. The difference between payments on the wrap around
mortgage and the underlying mortgage has been (since October 1,
1987 when the note was called) and continues to be credited towards
payment of the debt service of a Demand Note due the Registrant
from PAYNOR ASSOCIATES, A Maryland Limited Partnership. (including
the schedule of uncollected interest and principal which is
accruing and being added back to the note). A copy of such note is
included among the exhibits filed as a part the Registrant's report
on Form 10-KSB for 1995.
Item 3. Legal Proceedings.
Litigation:
As of December 31, 1997;
The Registrant was not a party to any legal proceedings. Although
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<PAGE>
the Registrant is not a party to the following proceedings directly, they
involve real estate in which the Registrant has an interest:
First Ken-Co Properties, Inc., v Safeway Stores, Inc., case number
96351021/CL221148, in the Circuit Court for Baltimore County, Maryland (the
"Maryland Case"); and, Associated Wholesale Grocers, Inc., v San Safe
Associates, et. al., case number 97-2072-JWL , in the United States District
Court for the District of Kansas (the "Kansas Case").
The current tenant (by assignment from the original tenant) for the
Registrant'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 Registrant) 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 parties in interest was not adequate
and consequently, that the Registrant's counsel failed to take the steps
required to properly reject such offer as to all potential parties involved.
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 Case has
contested 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).
Because the Registrant is not a party, its potential exposure ap pears
to be limited to sharing in the proceeds of a forced sale, if the litigation is
determined in favor of the current tenant.
1. On October 21, 1997, The District Court of Kansas entered an
Order of Dismissal With Prejudice of Associated Wholesale Grocers, Inc.,
vs San Safe Associates, et. al. Case No. 972072WC. The order is based
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on a Joint Stipulation of parties involved in the litigation. A copy of the
Order of Dismissal is filed as an Exhibit to Form 10-KSB for the year ending
December 31, 1996.
On October 20, 1997, Associated Wholesale Grocers , Inc., a Missouri
Corporation; First Ken-Co Properties, Inc., a Delaware corporation; Fleet
National Bank, a national banking association; Safeway Inc., a Delaware
corporation, and San Safe Associates, a Maryland limited partnership; entered a
mutual release involving the Kansas litigation and Maryland litigation and the
First Ken-Co .And Safeway lease dated October 15, 1975. A copy of that mutual
release is filed as an Exhibit to Form 10-KSB for the year ending 1996.
In the mutual release, Associated Wholesale Grocers agrees to pays the
sum of One Hundred Fifty Thousand Dollars ($150,000) to Fleet National Bank in
exchange for the transfer of free, clear, insurable, and marketable title of the
Subject Property to Gour B Corporation, a Kansas corporation; Fleet National
Bank receives Fifty-two Thousand ($52,000) of the above $150,000, with the
remaining balance distributed to First Ken-Co Properties and San Safe at closing
on October 16, 1997;
On October 20, 1997, Ken-Co and San Safe agreed to settle the Kansas
City Litigation, Case No. 97-2072-JWL, with Associated Wholesale Grocers,Inc.,
Fleet National Bank, and Safeway, Inc., but reserved claims against each other.
A copy of that agreement is filed as an Exhibit to this Form 10-KSB for the year
ending December 31, 1996.
The parties agreed that $98,000.00 is to be distributed to First Ken-Co.
Properties and San Safe to be held in escrow; The parties also agree that First
Ken-Co. Properties and San Safe will litigate in the State of Maryland all
remaining issues between them, including the rightful disbursement of the
98,000.00 held in escrow; The litigation to take place inn the Circuit Court for
Baltimore City. Maryland;
As a Material Subsequent event;
A lawsuit was filed January 7, 1998, entitled First Ken Co Properties
v. Morton, a copy of which is attached as an Exhibit to 10--KSB for 1996, case
No. 90-007033 in the Circuit Court of Maryland for Baltimore City. The attorney
fro Ken Co is Attorney David Albright. Mr. Albright is unwilling to communicate
the status of this litigation with either a company principal or the Counsel
preparing this filing. See letters dated April 22, 1998, and letter dated May
28, 1998, attached as an exhibit to 10--KSB for 1997. The filing clerk of the
Circuit Court of Maryland for Baltimore City has orally represented that there
has been no activity in this file since the filing since January, 1998: No
service on Defendants; no responsive pleadings, no Defaults entered. The
condition of this litigation is unknown.
2. Sound Safe Associates, defaulted on the property located in Memphis Tennessee
because it was unable to satisfy the pay-off balloon payment that was due on
December 31, 1996 in the amount of $174,801.00. Non Judicial Foreclosure was
instituted and finalized in August, 7, 1997. Copies of the Notice of Foreclosure
and advertisement of Foreclosure are included as exhibits filed with 10K-SB for
1996. Sound Safe may have certain rights under Tennessee Law concerning equity
of concerning any
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procedural defects in the non-judicial foreclosure. It is possible after
examination of the legal issues by Tennessee counsel this matter might result in
further legal action.
Furthermore, Sound Safe is obligated to pay a wrap around mortgage that
is more than the above described mortgage. The difference between the payment
due and the wrap around mortgage has reduced the amount of a certain debt owed
by San Safe to the Registrant. The Registrant may have a cause of action against
either San Safe or Sound Safe or both for payment of the San Safe indebtedness.
In addition, the Registrant is considering an action to recover the
amounts due on a promissory note due from San Safe and the difference between
the wrap around mortgage and the underlying mortgage foreclosed
The registrant has used its best efforts to obtain information
concerning the litigation and potential litigation issues now pending and
reported above, however , David Albright, Jr., the lead counsel on most of these
issues described in litigation and potential litigation, has been unwilling to
effectively comment or communicate with Registrant's officers, attorney's and
agents concerning the litigation and potential litigation. It is possible that
Registrant is unaware of certain actions taken by Mr. Albright on behalf of
Registrant concerning litigation or potential litigation.. Unless communication
improves Registrant is considering appropriate action against Mr Albright for
his failure to effectively communicate. Copy of letter to Mr. Albright is
attached as
an Exhibit to this 10-KSB for 1996, and other letters are attached as Exhibits
to 10-KSB for 1997.
Potential Litigation:
As of December 31, 1997,
Based on information available to the Registrant, it believes that there is a
potential for litigation involving:
1. San Safe Associates limited partners (who have retained counsel to
assist them in removing an affiliate of the Registrant as general
partner). Management has retained legal counsel who is negotiating with
counsel for the limited partners on behalf of the Registrant and the
general partner. See Item 2, Description of Properties Investment
Property - A. Leases - Associated Wholesale Grocers, Inc., Lease.
2. The Registrant's predecessors in interest (the Milpitas
partnerships) entered into negotiations with Exten Ventures, Inc.,
a Delaware corporation, during 1990, for sale of the assets
subsequently assigned to the Registrant. The Milpitas Partnerships
have advised the Registrant's management that the transactions were
never concluded due to the inability or refusal of Exten Ventures,
Inc., to comply with its commitments. While management notes that
applicable status of limitation on any alleged transactions with
Exten Ventures, Inc., have probably expired, management cannot
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provide any assurances that Exten Ventures, Inc., will not initiate
litigation in the future.
3. The Registrant has not made the final payments required under the
mortgage for its Kansas City property, although it continues to make
periodic payments which the mortgagor has continued to accept.
4. The Registrant has used its best efforts to obtain information
concerning the assets it obtained from Milpitas; however, much of
the information was under the control of Charles Schnepfe,
Milpitas' accountant, who served for material periods as its chief
executive officer and as the chairman of its board of directors.
Mr. Schnepfe refuses to provide any information with respect to
activities by Milpitas during the time it was under his control, to
the Registrant. It is possible that the Registrant is unaware of
matters performed or ignored by Mr. Schnepfe which could prove
material in the future. Mr. Schnepfe was provided with a copy the
Registrant's report on Form 10-KSB for 1995 with instructions to
comment on any inaccuracies or deficiencies but did not indicate
that any existed, having refused to respond.
5. From August to October, 1997 the Registrant has received additional
funds from Sun West N.O.P. for rent on the Tennessee property that had
been subject to the non-judicial foreclosure on August 7, 1997. Demand
for return of these rents paid after the date of the Non- Judicial
foreclosure. The Registrant has not returned the rents as of the filing
of this 1996 10KSB.
6. The registrant has used its best efforts to obtain information
concerning the litigation and potential litigation issues now
pending and reported above, however, David Albright, Jr., the lead
counsel on most of these issues described in litigation and
potential litigation, has been unwilling to effectively comment or
communicate with Registrant's officers, attorney's and agents
concerning the litigation and potential litigation. It is possible
that Registrant is unaware of certain actions taken by Mr. Albright
on behalf of Registrant concerning litigation or potential
litigation. Unless communication improves Registrant is
considering appropriate action against Mr Albright for his failure
to effectively communicate. Copy of letter to Mr. Albright is
attached as an Exhibit to this 10-KSB for 1996, and other letters are
attached as Exhibits to 10-KSB for 1997.
7. Other Legal Matters:
As of December, 31 1997,
The Registrant is seeking to determine the remaining balance due on
underlying mortgages involving the Safe-way, Inc., property and believes that
the remaining balance is approximately $40,000. However, a trustee involved in
the transaction has advised the Registrant's counsel that it should be
compensated for services associated with such mortgage. Consequently, the
Registrant cannot currently quantify the total costs
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that will be required to discharge such mortgage.
During August of 1997, Mr. Gene R. Moffitt resigned as the Registrant's
President, Asset Manager and Chief Operating Officer of the Registrant. It is
the Company's position that this resignation violated the terms of his
employment and acquisition agreements, the Registrant is of the opinion that Mr
Moffitt should voluntarily return all of the Registrant's common stock that has
been issued to him. Should such securities not be voluntarily returned, the
Registrant would probably sue Mr. Moffitt for its return alleging breach of
contract.
Mr. Moffitt submitted his letter of resignation dated August 1, 1997,
In his letter Mr. Moffitt stated the resignation was due to a failure to
communicate concerning certain operations of business and business activities of
the Chairman of the Board. Mr Moffit gave no specific reasons for his
resignation. A Copy of the letter of Resignation is attached as an Exhibit to
Form 10-KSB for the year ending December 31, 1996.
It is the Registrant's position that Mr. Moffitt failed to properly
communicate with the Registrant.
On the 28th day of November, 1997, The Board of Directors of the
Registrant accepted the resignation of Gene R. Moffitt on the basis that Mr.
Moffitt, individually and through the entity known as Moffitt Properties, LTD.,
exercised poor judgement in recent efforts to acquire certain properties and Mr.
Moffitt has failed to communicate with the Board of Directors in a timely and
appropriate fashion. Copy of the Board of Directors"s Resolution is attached as
an Exhibit to Form 10-KSB for the year ending December 31, 1996.
On the same day, The Board of Directors of the Registrant dismissed and
removed Rafi Weiss from the position of Senior Vice President of Acquisitions.
For what ever reason, known only to Mr. Weiss, he failed or refused to cooperate
with counsel in an effort to prepare a basic due diligence package concerning
this filing. A copy of the Board of Director's Resolution is attached as an
Exhibit. To form 10-KSB for the year ending December 31, 1996.
Mr. Weiss's failure to cooperate is in direct violation of his
employment agreement, and as such, the registrant will negotiate with Mr. Weiss
for the voluntary return of the common stock of the Registrant that has been
issued to him.
Non Judicial Matters of Concern:
The Real Property and building improvements, thereon in the City of
Memphis, County of Shelby, designated as SWC Winchester Road & Mill Branch Road,
were subject to a Non Judicial Foreclosure on August 7, 1997. See Description of
Real Estate and Operating data, Safeway Stores, Inc.
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Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant did not submit any matter to a vote of security holders
during its fiscal year ended December 31, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stock-
holder Matters.
(a) Market Information.
The Registrant's Common Stock has been traded in the past in the
over-the-counter market. However, there is currently no established public
trading market for the Common Stock. Information regarding quotations of bid and
asked prices for the Common Stock is not currently reported by the National
Quotation Bureau. Accordingly, there is no information available to the
Registrant as to bid quotations during the quarterly periods in the years 1993,
1994, 1995 or 1996, 1997 as called for by this Item.
Immediately following filing of this report, the Registrant intends to
prepare a disclosure document complying with the requirements of Securities and
Exchange Commission Rule 15c2-11, and to have a Form 15c2-11 filed with the
National Association of Securities Dealers, Inc., by a member thereof,
permitting resumption of trading in the Registrant's securities. Management can
provide no predictions as to the trading value of the Registrant's securities,
if and when trading resumes.
(b) Holders.
The number of holders of record of Common Stock, $.01 par value, of the
Registrant (its sole class of common equity) as of the close of business on
March 31, 1998 was approximately 2,230.
(c) Dividends.
The Registrant has not declared any dividends on its Common Stock, and
does not expect to do so at any time in the foreseeable future. The Registrant
expects to pay dividends on its preferred stock after its issuance, in order to
permit its use as a method to pay for real estate acquisitions.
(d) Selected Financial Data.
The following selected financial data should be read in conjunction with
the financial statements of the Registrant and the notes thereto included
elsewhere herein.
1994 1995 1996 1997
Net Revenues * ** $ 0 154 225 214
Income/(loss) from Operations (17,136) (41) (250) (73)
Income/(loss) from Operations
Per Share *** ( .01) (.0167) (.072) (.019)
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Total Assets 4,843 2,584,527 2,055,534 1,669,468
Total Liabilities 61,029 1,917,582 1,618,255 1,304,832
Stockholders' Equity (Deficit) (56,186) 666,945 437,579 364,636
* As noted in Part I Item 1 above, in March 1974, the Registrant was
forced to discontinue its operations as a result of the foreclosure
by the Registrant's principal creditor, on its security interest in
the Registrant's operating assets. Until March of 1995, the
Registrant's activities were limited to the collection of royalties
under the License Agreement and the Victor Agreement and the
disbursement of funds under the Creditors Plan as described in Item
1 in Part I. Those activities ceased in August 1991.
** Revenue for 1997 includes lease, interest and wrap mortgage income.
*** Earnings per share were calculated using the weighted average of
common stock issued and outstanding.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operation
During the year ended December 31, 1997 the Registrant reported income
of approximately $214,000 as compared to income from all sources of $225,000
during the prior year ended.
During the year ended December 31, 1997 the Registrant's cost of revenue
was approximately $142,317, as compared to $300,090 during the prior year. The
increase was attributable to the bad debt expense incurred for the year ending
December 31, 1997.
During the year ended December 31, 1997 the Registrant reported a net
loss of approximately $(73,000.00), or $(.019) per share, compared to 250,000 or
(.073) per share during the prior year end. The increase in net loss primarily
reflects the bad debt expense previously discussed.
Liquidity and Capital Resources
As of December 31, 1997 the Registrant had a working capital position of
approximately $(50,000) as compared to a working capital position of $(243,000)
for the year ended December 31, 1996.
ACCOUNTANT GIVE DETAILS: The Company has sustained loses of properties each of
the last two years, however, the write off resulting from the loss of property
was greater in the 1996 than in the year 1997.
Item 7. Financial Statements. Inserted at item 13.
Item 8. Changes in and Disagreements with Accountants.
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General
In conjunction with the change in control of the Registrant during 1995,
it replaced the auditor used by former management, William C. Kugler, C.P.A., of
Woodbury, New York, with Leo J. Paul, P.A., of Miami, Florida. There were no
disputes or disagreements associated with such change. During March of 1996, Mr.
Paul advised the Registrant that despite having committed to prepare the audit
for 1995, other commitments made it impossible for him to perform his duties,
whereupon the registrant retained its current auditor, Joel S. Baum, P.A.
Correspondence pertaining to Mr. Paul was filed with the Securities and Exchange
Commission in a 12b-25 Notification during March of 1996 and is incorporated
herein by reference.
Mr. Kugler
Mr. Kugler's report on the financial statements for either of the past
two years contained no adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
During the Registrant's two most recent fiscal years and any subsequent
interim period preceding Mr. Kugler's resignation, there were no disagreements
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Mr. Kugler would have caused him to make a
reference to the subject matter of the disagreement(s) in connection with his
report.
None of the following events occurred during the Registrant's two most
recent fiscal years and any subsequent interim period preceding Mr.
Kugler's resignation, reportable events"):
(A) Mr. Kugler's having advised the Registrant that the internal controls
necessary for the Registrant to develop reliable financial statements do
not exist;
(B) Mr. Kugler's having advised the Registrant that information had come to
Mr. Kugler's attention that led him to no longer be able to rely on
management's representations, or that made him unwilling to be
associated with the financial statements prepared by management;
(C) (1) Mr. Kugler's having advised the Registrant of the need to
expand significantly the scope of its audit, or that
information came to Mr. Kugler's attention during the time
period covered by Item 304(a)(1)(iv) of Securities and Exchange
Commission Regulation SK, that if further investigated might
have (i) materially impacted the fairness or reliability of
either: a previously issued audit report or the underlying
financial statements, or the financial statements issued or to
be issued covering the fiscal period(s) subsequent to the date
of the most recent financial statements covered by an audit
report (including information that might have prevented him
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from rendering an unqualified audit report on those financial
statements), or (ii) caused him to be unwilling to rely on
management's representations or be associated with the Registrant's
financial statements, and
(2) due to Mr. Kugler's resignation (due to audit scope limitations or
otherwise) or dismissal, or for any other reason, Mr. Kugler did
not so expand the scope of his audit or conduct such further
investigation; or
(D) (1) Mr. Kugler's having advised the Registrant that information
came to Mr. Kugler's attention that he has concluded materially
impacts the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or
(ii) the financial statements issued or to be issued covering
the fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that, unless resolved to Mr. Kugler's satisfaction,
would prevent him from rendering an unqualified audit report on
those financial statements), and (2) due to Mr. Kugler's
resignation or for any other reason, the issue was not resolved
to Mr. Kugler's satisfaction prior to his resignation,
dismissal or declination to stand for re-election.
Mr. Paul
Mr. Paul's report on the financial statements for either of the past two
years contained no adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
During the Registrant's two most recent fiscal years and any subsequent
interim period preceding Mr. Paul's resignation, there were no disagreements on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Mr. Paul would have caused him to make a
reference to the subject matter of the disagreement(s) in connection with his
report.
None of the following events occurred during the Registrant's two most
recent fiscal years and any subsequent interim period preceding Mr.
Paul's resignation, reportable events"):
(A) Mr. Paul's having advised the Registrant that the internal controls
necessary for the Registrant to develop reliable financial statements do
not exist;
(B) Mr. Paul's having advised the Registrant that information had come to
Mr. Paul's attention that led him to no longer be able to rely on
management's representations, or that made him unwilling to be
associated with the financial statements prepared by management;
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(C) (1) Mr. Paul's having advised the Registrant of the need to expand
significantly the scope of its audit, or that information came
to Mr. Paul's attention during the time period covered by Item
304(a)(1)(iv) of Securities and Exchange Commission Regulation
SK, that if further investigated might have (i) materially im-
pacted the fairness or reliability of either: a previously
issued audit report or the underlying financial statements, or
the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that might have prevented him from rendering an
unqualified audit report on those financial statements), or
(ii) caused him to be unwilling to rely on management's rep-
resentations or be associated with the Registrant's financial
statements, and
(2) due to Mr. Paul's resignation (due to audit scope limitations or
otherwise) or dismissal, or for any other reason, Mr. Paul did not
so expand the scope of his audit or conduct such further
investigation; or
(D) (1) Mr. Paul's having advised the Registrant that information came
to Mr. Paul's attention that he has concluded materially
Impacts the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or
(ii) the financial statements issued or to be issued covering
the fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that, unless resolved to Mr. Paul's satisfaction,
would prevent him from rendering an unqualified audit report on
those financial statements), and (2) due to Mr. Paul's
resignation or for any other reason, the issue was not resolved
to Mr. Paul's satisfaction prior to his resignation, dismissal
or declination to stand for re-election.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons#;
Compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended.
Name Age Term Positions
Edward
Granville-Smith, Jr. 65 * Chairman of the Board of Directors,
Director, Chief Executive Officer;
Gene R. Moffitt 55 *** President, Asset Management, Chief
Operating Officer;
Rafi Weiss 36 ** Senior Vice President, Acquisitions;
Donald E. Homan 55 ** Vice President & Chief Financial Officer;
Charles J. Scimeca 53 ** Secretary & Treasurer
- ------
# In addition to the Directors, Executive officers, are the following
control persons or potential control persons: Jerry C. Spellman,
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William A. Calvo, III, Joseph D. Radcliffe, Diversified Corporate
Consulting Group, L.L.C. Elected on March 23, 1995, by the board of
directors of the Registrant, to serve as a director until the next
annual meeting of the Registrant's stockholders, and until his
successors are elected, qualified and assume their offices. Service as
an officer is at the pleasure of the board of directors. In November,
1997 was elected as President and Chief Operating Officer.
** Elected on March 31, 1996, and hold office at the pleasure of the
Registrant's Board of Directors. In November, 1997 Rafi Weiss was
removed from his position with the Registrant in November, 1997.
*** Elected on March 31, 1996, and resigned on August 2, 1997.
Resignation accepted by the Registrant's Board of Directors in
November, 1997.
Biographies of Directors, Officers and Director Nominees
1. Edward Granville-Smith, Jr.
As of December 31, 1997, E. Granville-Smith, Jr., age 66, has since
March 23, 1995, served as the Registrant's president, as a member of its Board
of Directors (in which he serves as Chairman) and as the Registrant's Chief
Executive Officer. He was President of Equity Growth Systems, Inc., a Registrant
specializing in structuring and marketing mortgage backed securities as well as
the acquisition of select commercial real estate for its own account. From 1981
to the present, he has been a real estate consultant and principal involved in
various aspects of commercial real estate financing and syndication, both
internationally and domestically. One primary accomplishment during this period
was the successful sale of the real estate assets of some twenty-nine limited
partnerships to both domestic and foreign investors. From 1972 through 1980, he
was Chairman of the Board, Chief Executive Officer and President of United
Equity Corporation, a Registrant which was primarily involved in the
structuring, financing and marketing, through the syndication of various tax
incentive ventures with an aggregate valuation in excess of $100 million. From
1959 through 1972, Mr. Granville-Smith, Jr. built the Washington Insurance
Agency, Inc., and became the Chairman of one of the top one percent of insurance
brokerage houses in the Washington area.
Mr. Granville-Smith, attended Brown University from September, 1951
through June, 1952 at which time he entered the United States Marine Corps. Upon
discharge from the Marine Corps in 1955, he enrolled in the Georgetown
University School of Foreign Service and graduated in June of 1959 with a
B.S.F.S. degree. Mr. Granville-Smith's professional affiliations include CLU
and CPCL.
E. Granville Smith, Jr. was elected President an Chief operating Officer
of the Registrant to serve at the pleasure of the Registrant's Board of
Directors in addition to his duties as of December 31, 1996.
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Gene R. Moffitt
As of December 31, 1997, Gene R. Moffitt, age 55, no longer serves as
the Registrant's Executive Vice President for Asset Management and Chief
Operating Officer.
On August 2, 1997 Mr. Moffitt resigned as President and Chief Operating
Officer of the Registrant. On the 29th day of November, 1997, the Registrant
accepted the resignations.
Rafi Weiss
As of December 31, 1997, Mr. Weiss, age 38, no longer serves as the
Registrant's vice president for acquisitions.
In November, 1997, the Board of Directors removed Mr. Weiss from the
above positions.
Donald E. Homan
Mr. Homan, age 57, is the Vice-President and Chief Financial Officer
of the Registrant. Mr. Homan has been in the Mortgage Banking business
since 1980. In that period of time Mr. Homan has been a regional manager
and senior vice president for the national mortgage company,
Waterfield/RealAmerica Mortgage Corporation of Fort Wayne, Indiana. Mr
Homan has also served as President of his own Registrant, Homan Financial
Corporation located in Kansas City, Missouri. Prior to entering the
mortgage banking business, Mr. Homan was a real estate appraiser for Job
Real Estate Appraisers and O'Flaherty Company, both of Kansas City,
Missouri. Mr. Homan's appraisal expertise has been primarily focused in
commercial and income producing properties. Mr. Homan started his real
estate career in 1969 in the commercial real estate brokerage business.
Mr. Homan graduated from Rockhurst College in 1965 with a Bachelor
of Arts Degree. Mr. Homan has been a member of the Mortgage Bankers
Association since 1980 and a member of the National Association of Review
Appraisers from 1986 through 1993.
Charles J. Scimeca
Charles J. Scimeca, age 56, serves as the secretary and treasurer of the
Registrant and as the president of Equity Growth Systems Realty, Inc., a wholly
owned subsidiary of the Registrant formally named Coast To Coast Realty. Equity
Growth Systems Realty, Inc., was acquired by the Registrant during 1996 and is
headquartered in Clearwater, Florida. Mr. Scimeca has served as the president of
Equity Growth Systems Realty, Inc., since its formation in 1982. From 1980 until
1982, Mr. Scimeca was on sabbatical, exploring business opportunities in various
industries. From 1975 until 1980, Mr. Scimeca served as chief operating officer
for Andy Frain Maintenance & Security, Inc., headquartered in Chicago, Illinois.
His responsibilities included budgeting and implementing cleaning services for
high rise office, retail and industrial properties for such notable clients as
Standard Brands, JMB Realty, John Hancock Insurance Company and
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other Fortune 500 companies.
From 1965 until 1975, Mr. Scimeca was the owner and manager of the
Mecca Restaurant, a full-service family owned multi-unit restaurant business
headquartered in Chicago, Illinois. He is a member of the Clearwater Association
of Realtors and International Council of Shopping Centers. He holds a degree in
Business Administration.
Family Relationships.
There are no family relationships among the current officers and
directors of the Registrant.
Involvement in Certain Legal Proceedings.
Based on information provided in response to questionnaires filed as
exhibits to this report, except as otherwise disclosed in this Report, during
the five year period ending on December 31, 1997, no current director, person
nominated to become a director, executive officer, promoter or control person of
the Registrant has been a party to or the subject of:
(1) Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceeding or has been subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
and
(4) Been found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated
a federal or state securities or commodities law, and the judgment has
not been reversed, suspended, or vacated.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as
Amended
To the best of the Registrant's knowledge, no one engaged in any
transactions in the Registrant's securities during 1996, except with reference
to receipt of securities from the Registrant, as described in this report.
Item 10. Executive Compensation.
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(a) Prior to March 23, 1995
In March 1993, the Board of Directors of the Registrant authorized the
issuance of 25,000 shares of Common Stock (valued for this purpose at $.01 per
share) to Solomon Manber as compensation for various consulting services which
he had performed for the Registrant. Such shares were issued in May 1993.
Except as set forth in the preceding paragraph, neither Mr. Wulfing nor
Mr. Manber received any cash or other compensation whatsoever from the
Registrant for services rendered during the fiscal years ending December 31,
1991, 1992, 1993 or 1994 as an officer or director, or in any other capacity.
There is no compensation plan or arrangement which would result in a payment to
either Mr. Wulfing or Mr. Manber upon his resignation, retirement or termination
of employment, or a change in his responsibilities following a change in control
of the Registrant.
(b) After March 23, 1995
No current officers or directors of the Registrant have ever received
any compensation from the Registrant, except, as follows:
Edward Granville-Smith
Employment Agreement
On May 22, 1995, the Registrant entered into a five year employment
agreement with Edward Granville-Smith, its current sole director, president and
chief executive officer. A copy of such agreement is filed as an exhibit to this
report. The agreement provided the following
compensation:
(a) 110,000 shares of the Registrant's newly authorized common stock, $0.01
par value, the shares to be registered on Securities and Exchange
Commission Form S-8 and listed with any exchange or trading system on
which other shares of the Registrant's Common Stock are subsequently
listed.
(b) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 5% of the Registrant's pre-tax profits for the
subject calendar year by the average bid price for the Registrant's
common stock during the last five trading days prior to the end of the
last day of each year and the first five days of the new year, provided,
however, that the employment agreement must have been in effect for at
least one business day during the subject year.
(c) An annual salary in a sum equal to the lesser of 5% of the Registrant's
annual gross income, on a calendar basis, or 15% of its
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net pre-tax profit, all as determined for federal income tax purposes,
without taking depreciation or tax credits into account, to be paid on
or before the 30th day of March of the year following the calendar year
for which such salary is due; provide, however, that subject to
availability of cash flow, Mr. Granville-Smith will be entitled to a
monthly draw against his salary rights of $2,500 per month, but subject
to review on a quarterly basis, with the expectation of the parties that
it will be substantially increased as increased profits and cash flow
from operations permit.
(d) Mr. Granville-Smith shall, in addition to the foregoing, be entitled to
a benefit package equal to the most favorable benefit package provided
by the Registrant or its subsidiaries to any of their employees,
officers, directors, consultants or agents.
(e) The Registrant will defend, indemnify and hold Mr. Granville-Smith
Mr. Granville-Smith and his personal advisors and attorneys harmless
from any and all liabilities, suits, judgments, fines, penalties or
disabilities, including expenses associated directly, indirectly or
incidentally therewith (e.g. legal fees, court costs, travel,
lodging and meal expenses, investigative costs, witness fees, etc.)
resulting from any actions or failures to act on behalf of the
Registrant, whether in the past or future, to the fullest extent
legally permitted, and in conjunction therewith, shall assure that
all required expenditures are made by the Registrant in a manner
making it unnecessary for Mr. Granville-Smith or his personal
advisors or attorneys to incur any out of pocket expenses.
Pursuant to the terms of the employment agreement, Mr. Granville-Smith
was entitled to receive $27,863 in cash and an amount of the
Registrant's common stock equal to $27,863 divided by the average bid
price for the Registrant's common stock during the last five trading
days prior to the end of 1996 and the first five trading days of 1997.
Because there was no bid price during such period (and the resulting
number would therefore have been infinite), Mr. Granville-Smith has
agreed to defer determination of his stock compensation until the first
day that bids for the Registrant's common stock are quoted on the NASDAQ
bulletin board system. Consequently, the quantity of stock issuable to
him cannot currently be determined. In addition, because management
deemed that the Registrant's cash flow should be conserved, Mr.
Granville-Smith has agreed to defer payment of his annual bonus.
Stock Issued in Exchange for Assets
Mr. Granville-Smith, as the sole stockholder, officer and director of
Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), caused Milpitas
to assign interests in four leases involving five separate leased parcels of
real estate (one lease covers two parcels), four promissory notes secured by
mortgages on such real estate (in each case subject to mortgages to third
parties), and four demand notes with an aggregate original principal balance of
approximately $160,000 to the Registrant, in exchange for 1,616,000 shares of
the Registrant's common stock, $0.01 par value.
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The demand notes are subject to an arrangement with Mr. Jerry C.
Spellman (which the Registrant has agreed to honor) whereby payments thereon are
used to repay a $104,000 loan by Mr. Spellman to a former holder thereof.
Milpitas thereafter distributed such stock to the Granville-Smith Trust, which
thereafter transferred it to K. Walker, Ltd., a Bahamian corporation (affiliated
with Mr. Granville-Smith) and Bolina Trading Company, a Panamanian corporation
(affiliated with Jerry C. Spellman).
Because it appeared that certain assets which Mr. Granville-Smith
intended to include in such assignment may not have been included in the
indenture, effective December 29, 1995, Mr. Granville-Smith, on his own behalf
and as the statutory trustee and liquidating agent for Equity Growth Systems,
inc., a dissolved Maryland corporation ("EGS Maryland"); and First Ken-Co
Properties, Inc., a dissolved Delaware corporation ("FKP"); and as the current
sole officer, director and stockholder of Milpitas Investors, Inc., a Delaware
corporation ("Milpitas"), executed a corrective bill of sale (a copy of which is
included as an exhibit to this registration statement). The corrective bill of
sale assigned the following to the Registrant: all of the assets owned by EGS
Maryland and FKP, together with all of the rights of certain partnerships in
which Milpitas Investors, Inc. (a Delaware corporation) served as sole general
partner, to a series of notes secured by wrap mortgages (mortgages inferior to
first mortgages) and to income from long term leases on the subject properties.
Bolina Trading Co., S.A.
On May 26, 1995, the Registrant entered into a consultant agreement with
Bolina Trading Co., S.A., a Panamanian corporation. A copy of such consulting
agreement is filed as an exhibit to this report.
Pursuant to the terms of the consulting agreement, Bolina Trading Co.,
S.A., will serve as a special advisor to Mr. Granville-Smith, in conjunction
with Mr. Granville-Smith's role as an officer and director of the Registrant,
with special responsibilities in the areas of strategic planning and raising
debt or equity capital required to implement the Registrant's strategic plans.
In conjunction wit the foregoing, the consultant will make available to Mr.
Granville-Smith, the services of J. C. Spellman, its managing director, or of
other personnel acceptable to Mr. Granville-Smith, on an as needed basis,
provided that, such services shall not exceed 520 hours per year without an
additional payment of $100 per additional hour. As compensation for the
consultant's services, the Registrant is required to register on Securities and
Exchange Commission Form S-8 and thereafter, immediately issue to the
consultant, 84,000 shares of its common stock, no further payments being
required unless the Registrant requires the consultant to provide more than 520
hours of services per year, in which case the consultant will be entitled to an
additional payment of $100 per additional hour.
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Messrs. Scimeca, Moffitt and Homan
During June of 1996, the Registrant recruited three executive
officers, Messrs. Charles J. Scimeca, Gene R. Moffitt and Donald E. Homan.
Mr. Scimeca is a Florida resident and Messrs. Homan and Moffitt both have
offices in Kansas City, Missouri.
Such recruitment was effected in two parts, first, the Registrant
exchanged 100,000 shares with each person (300,000 shares in the aggregate), for
all of the capital stock in their corporations (Mr. Scimeca's corporation was
formed in 1983 and its name was recently changed to Equity Growth Realty, inc.;
Messrs. Homan's and Moffitt's corporations, Moffitt Properties, Ltd., and Homan
Equities, Inc., are both recently organized Missouri corporations). Immediately
following such acquisitions the Registrant and the subject corporation entered
into employment agreements with the respective officer. Each employment
agreement was materially identical and provides for the following compensation
(the subject corporation being identified a the "Subsidiary"): ....
(a) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 10% of the Subsidiary's pre-tax profits for
the subject calendar year by the average bid price for the
Registrant's common stock at during the last five trading days prior
to the end of the last day of each year and 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 Subsidiary's parent, the common
stock of such entity will be issuable hereunder, rather than that of
the Registrant.
(b) An annual cash bonus equal to 40% of the Subsidiary'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 that $6,250; subject to
availability of cash flow.
During August of 1997, Mr. Moffitt resigned as an officer of the
Registrant because of delays in implementing its proposed plan of operation.
Because such resignation violated the terms of his employment and acquisition
agreements, as described above, the Registrant is negotiating for him to
voluntarily return all of the Registrant's common stock that has been issued to
him (as described above). Should such securities not be voluntarily returned,
the Registrant would probably suit Mr. Moffitt for its return alleging breach of
contract (see Item 3, Legal Proceedings).
In November, 1997, The Board of Directors terminated Mr. Rafi Weiss as
an officer of the Registrant because of unwillingness to communicate with the
Registrant. Because such resignation violated the terms of his employment and
acquisition agreements, as described above, the Registrant is negotiating
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for him to voluntarily return all of the Registrant's common stock that has been
issued to him (as described above). Should such securities not be voluntarily
returned, the Registrant would probably suit Mr. Moffitt for its return alleging
breach of contract (see Item 3, Legal Proceedings).
Compensation Committee Interlocks and Insider Participation.
Except as described above or the subsequent event described below, the
only decision which was made by the Registrant's Board of Directors since
January 1, 1993 regarding compensation of an executive officer was the
determination to issue stock to Mr. Manber, as described above. Mr.
Manber abstained from voting on such matter.
In view of the foregoing, the remaining information called for by this
Item is inapplicable.
Long-Term Incentive Plan ("LTIP") Awards Table
Neither the Registrant nor any subsidiary thereof has any long term
incentive plans, except as described above or the subsequent event described
below.
Compensation of Directors
Standard Arrangements
In the future, subject to availability of funds, all members of the
Registrant's board of directors will be paid a per diem fee of $300 dollars for
attendance at meetings of the board of directors and committees thereof. Such
compensation will, at the option of the Registrant, be paid in cash or in shares
of the Registrant's common stock, based on the mean closing bid price therefore
reported on the date of the meeting.
In addition, if required, members of the Registrant's board of directors
will be reimbursed for travel expenses and lodging is arranged for them, at the
Registrant's expense. At such time as adequate funds are available, all
directors (and officers) of the Registrant will be covered by liability
insurance. Outside directors (those who are not officers or employees of the
Registrant) will generally be issued 10,000 shares of the Registrant's common
stock (post reverse split) as an inducement to become directors; however, the
stock will be subject to total forfeiture in the event that the director does
not serve in such role for at lease 365 days. Directors will be reimbursed for
all out of pocket expenses incurred in the performance of their roles, subject
to provision of receipts in form and substance adequate to satisfy Internal
Revenue Service audit requirements (e.g., long distance telephone, postage,
etc.).
Other Arrangements
Neither the Registrant nor any of its subsidiaries have any other
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arrangements to compensate its directors.
Employment contracts, termination of employment & change-in-control
arrangements.
The Registrant does not have any compensatory plan or arrangement,
including payments to be received from the Registrant, with respect to a named
executive officer that results or will result from the resignation, retirement
or any other termination of such executive officer's employment with the
Registrant and its subsidiaries or from a change-in-control of the Registrant or
a change in the named executive officer's responsibilities following a
change-in-control, which, including all periodic payments or installments,
exceeds $104,000, except as follows:
Section 1.4 of the Registrant's employment agreement with Mr.
Granville-Smith provides as follows:
"In the event that this Agreement is terminated by the Registrant for
any reason, including those set forth in Section 1.3, or, if it is
terminated because of a discontinuance of business as a result of a
corporate reorganization or change in management, then the Chief
Executive Officer will be entitled to all of the compensation called for
by this Agreement, payable, to the extent possible, in one lump sum
payment to be provided concurrently with such termination. In
conjunction with such termination, any stock options to which the Chief
Executive Officer will be entitled at the time of termination will be
converted into the immediate right to receive the difference between the
exercise price therefor and the average offering price for the
Registrant's common stock during the ten days preceding such
termination, but in no event less than $1.00 per share option."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1996, the Registrant had 3,771,148 shares of common
stock outstanding. The following information pertains to the ownership of such
securities by the Registrant's principal stockholders, officers and directors.
As a material subsequent event, as of December 18, 1997, the Registrant
had 3,826,148 shares of common stock outstanding.
(a) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the date of this Registration
Statement, the number and percentage of shares of common stock owned of record
and beneficially by any group (as that term is defined for purposes of Section
13(d)(3) of the Exchange Act), person or firm that owns more than five percent
(5%) of the Registrant's outstanding common stock (the Registrant's only class
of voting securities).
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Name and Address of Amount of Nature of Percent of
Beneficial Owner * Shares Ownership Class ++
Edward Granville-Smith 1,055,000# ** 27.6%
3821-B Tamiami Trail,
Suite 201 Port Charlotte
Florida, 33952
Jerry C. Spellman 867,691## *** 22.7%
2510 Virginia Avenue, NW
Washington, D.C. 20037
Charles J. Scimeca 450,000 *** 10.93%
23698 US Highway 19 North
Clearwater, 34265
Cyndi N. Calvo and
William A. Calvo, III 365,000 + 8.87%
1941 Southeast 51st Terrace ****
Ocala, Florida 34471
Joseph D. Radcliffe 365,000 + 8.87%
84 Clum Hill Road *****
Elka Park, New York 12427
- -----
# The 1995 10-KSB erroneously showed the amount of shares to be 954,000.
The correct amount was 945,000. Scrivener's error transposed the 954,000
for 945,000 ON THE 1995 10-ksb.
## The 1995 10-KSB erroneously reports that Mr Spellman is erroneously
reported the amount of shares to be 954,000 shares. The same scriveners
error mentioned above is partially responsible for the error, but a
second error is the number of shares issued. The correct number of
shares issued to persons or entities controlled by Mr. Spellman was
867,691.
* Includes all stock held either personally or by affiliates.
** Beneficial ownership, record ownership is held by K. Walker, Ltd., a
Bahamian corporation and also 110,000 shares of stock in the record
ownership of Warren McFaddin.
*** Beneficial ownership, record ownership is held by Bolina Trading
Company, a Panamanian corporation of all but 2701 shares. 2400 shares
are held by Mr Spellman personally and 301 shares held by First
Investment Planning Company..
**** Record ownership of 40,000 shares, and joint record ownership with wife,
Cyndi N.Calvo of 100,000 shares. in addition, wife, Cyndi N. Calvo has
record ownership of 40,000 shares. Three children have 40,000 shares
each in Trust with Mr Calvo as Trustee. 65,000 shares effectively
transferred to Southeast Companies, Inc., from Diversified Corporate
Consulting Group, Inc., on June, 16, 1998, are included. Mrs. Calvo is
the principal stockholder, Sole Director, and Chief Executive Officer of
Southeast Companies, Inc.
***** Record ownership of 200,000 shares. In addition, son, Michael Radcliffe
has record ownership of 50,000 shares and son, Dennis Radcliffe has
record ownership of 50,000 shares. 65,000 shares
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effectively transferred to Vanessa Radcliffe, from Diversified Corporate
Consulting Group, Inc., on June, 16, 1998, are included.
+ Does not include an additional 150,000 shares held by other members of
Diversified Corporate Consulting Group, LLC, or their families Which
effectively divested it's shares on June 16, 1998. (see Item 12: Certain
Relationships and Related Transactions).
Messrs. Calvo and Radcliffe are principals in Diversified
Corporate Consulting Group, LLC. As a material subsequent event, on June
16, 1998, Diversified Corporate Consulting Group, LLC. Divested itself
of the 150,000 shares in order to clarify that it was not acting in
concert with and member of the Radcliffe or Calvo families. The 150,000
shares held by diversified and transferred as follows: 65,000 shares to
Vanessa Radcliffe, daughter of Joseph Radcliffe and 65,000 shares were
conveyed to Southeast Companies, Inc., a company owned by Cyndi N.
Calvo. These shares are listed in the totals of Calvo or Radcliffe,
respectively, however as of the date of this 10-K, the stock transfer
though effectuated by Diversified, has not been changed by the stock
transfer company.
(b) Security Ownership of Management
The following table sets forth, as of the date of this Registration
Statement, the number and percentage of the equity securities of the
Registrant, its parent or subsidiaries, owned of record or beneficially by
each officer, director and person nominated to hold such office and by all
officers and directors as a group.
Title of Name of Amount Nature of Percent of
Class Beneficial Owner Shares Ownership Class +
Common Edward
Granville-Smith 1,055,000 ** 27.6%
Common Gene R. Moffitt 100,000 *** 2.6% +
Common Rafi Weiss 50,000 *** 1.3% ++
Common Donald E. Homan 100,000 *** 2.6%
Common Charles J. Scimeca 450,000 *** 10.93%
Common All officers and
directors as a
group (5 people) 1,605,000 ** *** 41.95%
-----
* Includes all stock held either personally or by affiliates.
** Beneficial ownership, record ownership is held by K. Walker, Ltd.,
a Bahamian corporation.
*** Record & Beneficial.
+ Because Mr. Moffitt has resigned without meeting the terms of his
employment or acquisition agreements, the Registrant intends to
recover all of the securities heretofore issued to him (see Item 3,
Legal Proceedings").
++ Because Mr. Weiss has been removed from his position with the
company and has violated his employment or acquisition agreements
the Registrant intends to recover all of the securities heretofore
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issued to him (see item 3, legal proceedings).
To the best knowledge and belief of the Registrant, there are no
arrangements, understandings, or agreements relative to the disposition of
the Registrant's securities, the operation of which would at a subsequent
date result in a change in control of the Registrant.
(c) Parents of the Registrant
The following table discloses all persons who are parents of the
Registrant (as such term is defined in Securities and Exchange Commission
Regulation C), showing the basis of control and as to each parent, the
percentage of voting securities owned or other basis of control by its
immediate parent if any.
Percentage Other
of Voting Basis
Basis for Securities For
Name Control Owned Control
Edward
Granville-Smith, Jr. Office 27.6% Officer & Director **
J. C. Spellman Shares Held 22.7% Consultant * **
Charles J. Scimeca Share 10.93 Officer
-------
Mr. Spellman is the Managing Director of Bolina Trading Co.,
S.A., a Panamanian corporation, which owns the subject shares.
Control is effectively in the hands of Kay Walker, LTD. Bolina
Trading Company. Edward Granville Smith is the Managing Director of and
US Registered Agent for Kay Walker, LTD. Edward Granville Smith, Jr., is
also the sole director, Chief Executive Officer, of the issuer. Mr
Spellman is the Managing Director ogf Bolina Trading Co., S.A.
(d) Changes in Control.
There are no arrangements, known to the Registrant, the operation
hich mat at a subsequent date result in a change in control of the
Registrant, except that on January 30, 1998 Charles J. Scimeca was issued the
150,000 shares of company common stock bringing his total stock holding to
450,000 shares.
Item 12. Certain Relationships and Related Transactions.
Prior to March 23, 1995
In March 1993, the Registrant's Board of Directors authorized the
issuance of 22,848 shares of Common Stock (valued for this purpose at $.01 per
share) to certain shareholders who had agreed to accept such shares in full
settlement of their unpaid claims for accrued interest aggregating $24,354 on
the Debentures and Note described in Item 1(a)(i) of the 1991 10-K. The number
of shares to be issued to each payee was determined pro
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rata in accordance with the respective amounts of the claims. 15,011 of
such shares were issued in May 1993 to George Wulfing (President and a
director of the Registrant, and the beneficial owner of 6.98% of its
outstanding voting securities). Mr. Wulfing abstained from voting on such
matter insofar as it pertained to the issuance of shares to himself.
Subsequent to March 23, 1995
Mr. George Wulfing, the Registrant's president until March 23, 1995, has
represented to current management that, except for liabilities to the
Registrant's attorneys and accountants associated with compliance with
Securities and Exchange Commission reporting obligations, all of the
Registrant's liabilities to creditors are older than six years, and are no
longer enforceable as a result of the expiration of applicable statutes of
limitation.
Edward Granville-Smith, the Registrant's president since March 23, 1995,
has negotiated a settlement agreement with the Registrant's attorneys pursuant
to which they accepted the right to receipt of 20,000 shares of the Registrant's
common stock, immediately after an increase in the Registrant's authorized
capitalization is effected, in lieu of all outstanding obligations as of March,
1995. A copy of the subject agreement is included as an exhibit to 10-KSB for
the year ending December 31, 1995.
Mr. Granville-Smith, Registrant's Chairman, President and Chief Executive
Officer, loaned the Registrant approximately $45,000, $14,800 of which was used
for legal expenses, and $8,000 of which was used to pay the registrant's
accountants for prior work and for the costs of updating the Registrant's
reports under the Securities Exchange Act of 1934, as amended, including this
Report. Mr. Granville-Smith has converted such loan into additional capital
contributions (i.e., he has elected to neither require repayment of such debt
nor issuance of additional common stock in consideration therefor; rather, only
the tax basis for the common stock he already owns has been increased). In
addition, the Registrant's prior accountants have agreed to accept the right to
receipt of 3,072 shares of the Registrant's common stock, immediately after an
increase in the Registrant's authorized capitalization is effected, in lieu of
all outstanding obligations as of March, 1995.
Issuance of Securities to Related Parties
Edward Granville-Smith
Employment Arrangement
On May 22, 1995, the Registrant entered into a five year employment
agreement with Edward Granville-Smith, its current sole director, president and
chief executive officer. A copy of such agreement is filed as an exhibit to this
current report. The agreement provided the following compensation:
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(a) 110,000 shares of the Registrant's newly authorized common stock,
without par value, the shares to be registered on Securities and
Exchange Commission Form S-8 and listed with any exchange or trading
system on which other shares of the Registrant's Common Stock are
subsequently listed.
(b) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 5% of the Registrant's pre-tax profits for
the subject calendar year by the average bid price for the
Registrant's common stock during the last five trading days prior to
the end of the last day of each year and the first five days of the
new year, provided, however, that the employment agreement must have
been in effect for at least one business day during the subject
year.
(c) An annual salary in a sum equal to the lesser of 5% of the
Registrant's annual gross income, on a calendar basis, or 15% of its
net pre-tax profit, all as determined for federal income tax
purposes, without taking depreciation or tax credits into account,
to be paid on or before the 30th day of March of the year following
the calendar year for which such salary is due; provide, however,
that subject to availability of cash flow, Mr. Granville-Smith will
be entitled to a monthly draw against his salary rights of $2,500
per month, but subject to review on a quarterly basis, with the
expectation of the parties that it will be substantially increased
as increased profits and cash flow from operations permit.
(d) Mr. Granville-Smith shall, in addition to the foregoing, be entitled to
a benefit package equal to the most favorable benefit package provided
by the Registrant or its subsidiaries to any of their employees,
officers, directors, consultants or agents.
(e) The Registrant will defend, indemnify and hold Mr. Granville-Smith
and his personal advisors and attorneys harmless from any and all
liabilities, suits, judgments, fines, penalties or disabilities,
including expenses associated directly, indirectly or incidentally
therewith (e.g. legal fees, court costs, travel, lodging and meal
expenses, investigative costs, witness fees, etc.) resulting from
any actions or failures to act on behalf of the Registrant, whether
in the past or future, to the fullest extent legally permitted, and
in conjunction therewith, shall assure that all required
expenditures are made by the Registrant in a manner making it
unnecessary for Mr. Granville-Smith or his personal advisors or
attorneys to incur any out of pocket expenses.
To date, only the stock compensation has been paid.
Acquisition of Assets
Mr. Granville-Smith, as the sole stockholder, officer and director of
Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), caused Milpitas
to assign interests in four leases involving five separate leased parcels of
real estate (one lease covers two parcels), four promissory notes secured by
mortgages on such real estate (in each case subject to
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mortgages to third parties) and four demand notes with an aggregate original
principal balance of approximately $160,000 to the Registrant, in exchange for
1,616,000 shares of the Registrant's common stock, $0.01 par value. The demand
notes are subject to an arrangement with Mr. Jerry C. Spellman (which the
Registrant has agreed to honor) whereby payments thereon are used to repay a
$100,000 loan by Mr. Spellman to a former holder. Milpitas thereafter
distributed such stock to the Granville-Smith Trust, which thereafter
transferred it to K. Walker, Ltd., a Bahamian corporation (affiliated with Mr.
Granville-Smith) and Bolina Trading Company, a Panamanian corporation
(affiliated with Jerry C. Spellman).
Because it appeared that certain assets which Mr. Granville-Smith
intended to include in such assignment may not have been included in the
indenture, effective December 29, 1995, Mr. Granville-Smith, on his own behalf
and as the statutory trustee and liquidating agent for Equity Growth Systems,
inc., a dissolved Maryland corporation ("EGS Maryland"); and First Ken-Co
Properties, Inc., a dissolved Delaware corporation ("FKP"); and as the current
sole officer, director and stockholder of Milpitas Investors, Inc., a Delaware
corporation ("Milpitas"), executed a corrective bill of sale (a copy of which is
included as an exhibit to this registration statement). The corrective bill of
sale assigned the following to the Registrant: all of the assets owned by EGS
Maryland and FKP, together with all of the rights of certain partnerships in
which Milpitas Investors, Inc. (a Delaware corporation) served as sole general
partner, to a series of notes secured by wrap mortgages (mortgages inferior to
first mortgages) and to income from long term leases on the subject properties.
Bolina Trading Co., S.A.
On May 26, 1995, the Registrant entered into a consultant agreement with
Bolina Trading Co., S.A., a Panamanian corporation. A copy of such consulting
agreement is filed as an exhibit to the current report.
Pursuant to the terms of the consulting agreement, Bolina Trading Co.,
S.A. ("Bolina"), serves as a special advisor to Mr. Granville-Smith, in
conjunction with Mr. Granville-Smith's role as an officer and director of the
Registrant, with special responsibilities in the areas of strategic planning and
raising debt or equity capital required to implement the Registrant's strategic
plans. In conjunction with the foregoing, Bolina is required to make available
to Mr. Granville-Smith, the services of J. C. Spellman, its managing director,
or of other personnel acceptable to Mr. Granville-Smith, on an as needed basis,
provided that, such services may not exceed 520 hours per year without an
additional payment of $100 per additional hour. As compensation for Bolina's
services, the Registrant registered (on Securities and Exchange Commission Form
S-8) and converted to Bolina, 84,000 shares of its common stock.
The Registrant has agreed to honor an obligation owed by Mercantile
Realty Investors, Inc., to the WEFT Trust, an off shore trust affiliated with
Bolina. The obligation, in the original amount of $102,000, was based on loans
made by such trust, to be repaid from income generated by leases that have
subsequently been acquired by the Registrant. To date,
49
<PAGE>
only interest payments have been made. The Registrant has recently memorialized
its obligations in an instrument requiring it to repay the $102,000 in loans
plus 10% interest. A copy of such instrument is filed as an exhibit to this
report.
Diversified Corporate Consulting Group, LLC
On April 2, 1996, the Registrant entered into an agreement with
Diversified Corporate Consulting Group, LLC, a Delaware limited liability
Registrant ("Diversified"), pursuant to which it agreed to provide the
Registrant with a broad range of assistance and in consideration for which the
Registrant agreed to provide Diversified with the following compensation:
payment at Diversified's standard hourly rates for all work as to which a prior
written arrangement with different terms has not been entered into; payment for
documents prepared by Diversified on existing forms at $50 per page (as an
initial licensing fee) augmented by the time spent in personalizing the subject
form; and, an option to purchase 200,000 shares of the Registrant's common stock
registered on Securities and Exchange Commission Form S-8, for the aggregate sum
of $80,000.
In addition, in an unrelated transaction, Diversified acquired 110,000
shares of the Registrant's free trading securities from Mr. Warren A. McFadden,
in exchange for an agreement to discharge $30,000 in liabilities assumed by Mr.
McFadden to creditors of the Registrant.
From April to September of 1997, the Registrant and Diversified
entered into a settlement agreement pursuant to which, in extinguishment of
approximately $110,000 owed by the Registrant to Diversified for services
rendered under the engagement agreement and $30,000 owed by Diversified to the
Registrant (as a result of assumption of a promissory note from Mr. McFadden to
the Registrant), Diversified accepted the 200,000 shares registered on Form S-8
and assigned to Mr. Granville-Smith, the 110,000 shares of the Registrant's
common stock acquired from Mr. McFadden. Such transaction was more particularly
described in a current report on Form 8-K filed by the Registrant with the
Securities and Exchange Commission during September of 1997.
In addition to the shares described above, principals of Diversified and
their families own an additional 600,000 restricted shares of the Registrant's
common stock, although the holding period requirements under SEC Rule 144
pertaining thereto have been met.
As a material subsequent event, on June 16, 1998, Diversified
terminated it's consulting function with the company and divested itself of
150,00 shares of the common stock.
As a material subsequent event, on January 30, 1998, the company
transferred to Sara Sanders wife of Al Sanders, Trustee for Liberty Transfer
Company, 100,000 shares of the company common stock for the purposes of securing
Mr Sanders services as a consultant to the Company. The stock was issued in lieu
of compensation. A Director's Resolution providing that 75,000 of these shares
were to bear a restriction per rule 144d and 25,000 shares were to be issued as
free trading. A form 8 S--B was to be filed with the S.E.C. Mrs Sanders declined
the tender concerning the free trading stock and instead, had all 100,000 shares
are issued
50
<PAGE>
pursuant to exemptions 4(2) under the securities Act of 1933 as amended. Mr.
Sanders is married to Sara Sanders, who is the sole owner of Liberty Transfer
Company. A copy of the resolution of the Board of Directors is attached as an
Exhibit to this 10-KSB for 1997.
As a material subsequent event, on January 30, 1998, Charles J. Scimeca was
issued 150,000 additional shares of company common stock bringing his total
stock holdings to 450,000 shares of the company common stock. This 150,000
shares were issued bearing a restriction per 144d as compensation for efforts
made to by Scimeca to secure acqursiton targets and for other purposes. Mr.
Scimeca is secretary and treasurer of the company. A copy of the resolution of
the Board of Directos is attached as an Exhibit to this 10-KSB for 1997.
Employment contracts, termination of employment & change-in-control
arrangements.
Termination Arrangements
Section 1.4 of the Registrant's employment agreement with Mr.
Granville-Smith provides as follows: "In the event that this Agreement
is terminated by the Registrant for any reason, including those set
forth in Section 1.3, or, if it is terminated because of a
discontinuance of business as a result of a corporate reorganization or
change in management, then the Chief Executive Officer will be entitled
to all of the compensation called for by this Agreement, payable, to the
extent possible, in one lump sum payment to be provided concurrently
with such termination. In conjunction with such termination, any stock
options to which the Chief Executive Officer will be entitled at the
time of termination will be converted into the immediate right to
receive the difference between the exercise price therefor and the
average offering price for the Registrant's common stock during the ten
days preceding such termination, but in no event less than $1.00 per
share option."
Messrs. Scimeca and Homan will enjoy similar rights after they have
been in the employ of the Registrant for two years (approximately June of
1998).
Additional Employment Agreements
During June of 1996, the Registrant recruited three executive
officers, Messrs. Charles J. Scimeca, Gene R. Moffitt and Donald E. Homan.
Mr. Scimeca is a Florida resident and Messrs. Homan and Moffitt both have
offices in Kansas City, Missouri.
Such recruitment was effected in two parts, first, the Registrant
exchanged 100,000 shares with each person (300,000 shares in the
aggregate), for all of the capital stock in their corporations (Mr.
Scimeca's corporation was formed in 1983 and its name was recently changed
to Equity Growth Realty, inc.; Messrs. Homan's and Moffitt's corporations,
Moffitt Properties, Ltd., and Homan Equities, Inc., are both recently
organized Missouri corporations).
Immediately following such acquisitions the Registrant and the subject
corporation entered into employment agreements with the respective officer. Each
employment agreement was materially identical and provides for the
51
<PAGE>
following compensation (the subject corporation being identified a the
"Subsidiary"):
(a) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 10% of the Subsidiary's pre-tax profits for the
subject calendar year by the average bid price for the Registrant's
common stock at during the last five trading days prior to the end of
the last day of each year and 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 Subsidiary's parent, the common stock of such entity will be
issuable hereunder, rather than that of the Registrant.
(b) An annual cash bonus equal to 40% of the Subsidiary'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, subject to availability of cash flow. The initial guaranteed
draws are $2,000 for Mr. Scimeca and $6,250 for Messrs. Homan and
Moffitt.
As a material subsequent event, during August of 1997, Mr. Moffitt
resigned as an officer of the Registrant because of delays in implementing
its proposed plan of operation. Because such resignation violated the terms
of his employment and acquisition agreements, as described above, the
Registrant is negotiating for him to voluntarily return all of the
Registrant's common stock that has been issued to him (as described above).
Should such securities not be voluntarily returned, the Registrant would
probably suit Mr. Moffitt for its return alleging breach of contract (see
Item3, Legal Proceedings"). Mercantile Realty Settlement
On June 20, 1995, the Registrant and Equity Growth Systems, inc., a
Maryland corporation formerly operating under the name Mercantile Realty
Investors (SEC File Number 33-64526) but now operating as KSG Technologies,
Inc., entered into an agreement for settlement of any potential claims
resulting from their mutual decision to cancel a merger agreement between
them. A copy of the agreement has been incorporated by reference as an
exhibit to the 10-KSB for the year ending December 31, 1995.
Recapitalization
On May 18, 1995, the holders of 1,018,106 of the 2,000,000 shares of
the Registrant's common stock adopted a resolution by execution of a
written consent in lieu of stockholders meeting pursuant to which they
authorized amendments to the Registrant's certificate incorporation be
amended as required to change the name of the Registrant to "Equity Growth
52
<PAGE>
Systems, inc." and to change the Registrant's authorized capitalization as
follows:
(a) The 2,000,000 shares of common stock, $0.001 par value then
authorized, all of which were currently outstanding, were reverse
split into 200,000 shares, $0.01 par value; and, immediately
thereafter;
(b) The Registrant'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 Registrant was authorized to issue 5,000,000 shares of preferred
stock, the attributes of which are to be determined by the
Registrant'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.
In addition, the actions taken by the Registrant's immediately past
board of directors during March of 1995, as reflected in the secretarial
certificate executed by Solomon Mamber, then the Registrant's secretary, on
March 23, 1995, were ratified, approved and confirmed; and, Registrant's
officers were authorized, empowered and directed to take all actions either
necessary or expedient to accomplish all of the foregoing directives.
During the week of May 22, 1995 through May 26, 1995, the
Registrant's officers filed a certificate of amendment accomplishing the
foregoing amendments, with the Delaware Secretary of State, and filed a
notification pursuant to Securities and Exchange Commission Rule 10b-17
with the National Association of Securities Dealers, Inc. Copies of the
certificate of amendment and 10b-17 notification have been incorporated by
reference as exhibits to the 10-KSB for the year ending December 31, 1995.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K.
(a) Index to financial statements and financial statement schedules.
The audited balance sheet of the Registrant for its years ended
December 31, 1997, and 1996 and related statements of operations,
stockholder's equity and cash flows for the years ended December 31, 1997,
and 1996 follow in sequentially numbered pages numbered 62 through 66. The
page numbers for the financial statement categories are as follows:
53
<PAGE>
Exhibit Description
Page Description
59 Cover Page (Joel S. Baum, C.P.A.)
60 Table of Contents
61 Report of Independent Accountants - December 31, 1997 and 1996;
62-63 Balance Sheet - December 31, 1997 and 1996;
64 Statements of Income and Accumulated Deficit, December 31, 1997
and 1996;
65 Statements of Shareholders' Deficit, December 31, 1997 and 1996;
66 Statementof Cash Flows - December 31, 1997 and 1996; and
67-76 Notes to Financial Statements - December 31, 1997 and 1996.
(b) 8-K Reports
No reports on Form 8-K were filed during the last quarter of the
calendar year ended December 31, 1997. One report on Form 8-K dealing with
the settlement agreement between the Registrant and Diversified was filed
during the third quarter of 1997.
(c) Exhibits:
Exhibit Description
2.1 Plan and Agreement of Merger dated April 7, 1993 between the
Registrant and Mercantile Realty Investors, Inc. (1)
2.2 Amendment dated May 25, 1993 to Plan and Agreement of Merger.
(3)
2.3 Agreement pertaining to cancellation of the merger between the
Registrant and Equity Growth Systems, Inc. (4)
2.4 Stock Exchange Agreement re Homan Equities, Inc., (6)
2.5 Stock Exchange Agreement re Moffitt Properties, Ltd.. (6)
2.6 Stock Exchange Agreement re Equity Growth Realty, inc.. (6)
3.1 Certificate of Incorporation of the Registrant. (2)
3.11 Certificate of Amendment to Certificate of Incorporation (May,
1995). (4)
10.1 Agreement for settlement of outstanding claims with the Registrant*s
attorneys. (4)
10.2 Agreement for settlement of outstanding claims with the Registrant*s
accountants. (4)
10.3 Employment Agreement with Edward Granville--Smith. (4)
54
<PAGE>
10.4 Consultant Agreement with Bolina Trading Co., S.A. (4)
10.5 Settlement Agreement between Registrant and Equity Growth Systems, inc.,
a Maryland corporation. (5)
10.6 Assignment of Indenture of Trust by Milpitas, Inc., including Indenture
of Trust. (6)
10.7 Engagement agreement with Diversified Corporate Consulting Group, LLC.
(6)
10.8 Corrective Bill of Sale. (6)
10.9 (a) Employment Agreement with Gene R. Moffitt. (6)
(b) Resignation of Gene R. Moffitt
10.10 Employment Agreement with Donald E. Homan. (6)
10.11 Employment Agreement with Charles J. Scimeca. (6)
10.12 Repayment Agreement with WEFT Trust. (6)
10.13 Settlement between Registrant, Diversified, and Trustee (8)
10.14 Assignment of Deed of Trust: L29160 (7)
10.15 Assignment of Leases and! or Rents L2 9161 (7)
10.16 Assignment of Tripartite Agreement L29162 (7)
10.17 Agreement: First Ken--Co with San Safe dated Oct 20, 1997 (7)
10.18 Statement of Unanimous Consent by Ken--Co Properties (7)
10.19 General Warranty Deed dated October 20, 1997, Kansas property (7)
10.20 Termination of Memorandum of lease., Kansas property (7)
10.21 Mutual Release dated October 20 1997 (7)
16.01 Letter re: Change in Certifying Accountant. (6)
17.01 Moffett Letter of Resignation (7)
17.02 Corporate Resolution Dismissing Vice President for Acquisitions. (7)
55
<PAGE>
21 Subsidiaries.(6)
23.1 Auditor*s Consent (Baum).(6)
23.2 Auditor*s Consent (Kugler).(6)
23.3 Auditor*s Consent (Baum) (7)
24.4 Auditor*s Consent (Baum) (9)
99.1 Notifications to National Association of Securities Dealers,
Inc., pursuant to Securities and Exchange Commission
Rule IOh--17. (4)
99.2 Real Estate Title Reports for Nevada/California, Tennessee,
Kansas and Oregon properties subject to Wrap Mortgages
and Leases. (6)
99.03 Substitute Trustee*s Deed , Memphis Property (7)
99.04 Proof of Publication, Memphis Property (7)
99.05 Order of Dismissal with Prejudice: Case No 97--2072 (7)
99.6 Letter to David Aibright, Esq. Dated December 18, 1997. (7)
99.7 Complaint for Declaratory Judgement:
First Ken Co. V. JJ Martin et. al. (7)
99.8 Letter to David Aibright, Esq. Dated April 22, 1998. (9)
99.9 Letter to David Aibright, Rsq. Dated May 28, 1998. (9)
99.10 Real Estate Title Reports for Nevada/California, Tennessee,
Kansas and Oregon properties subject to Wrap Mortgages
and Leases. (9)
99.11 Director's Resolution as to shares of company common stock
to officer and transfer agent
56
<PAGE>
(1) Filed as exhibit 2 to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1992; incorporated by reference herein as
an Exhibit hereto.
(2) Filed as an exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1991, bearing the exhibit designation
number shown above; incorporated by reference herein as an exhibit
hereto.
(3) Filed as an exhibit to the Registrant's registration statement on Form
S-4, filed together with Mercantile Realty Investors, registration
number 33-64526, declared effective by the Securities and Exchange
Commission on June 24, 1994, at the identical exhibit designation
numbers; and, incorporated by reference herein as an exhibit hereto.
(4) Filed as an exhibit to the Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1994, bearing the exhibit designation
number shown above; incorporated by reference herein as an exhibit
hereto.
(5) Filed as an exhibit to the Registrant's Report on Form 8-K dated July
14, 1995, bearing the exhibit designation number shown above;
incorporated by reference herein as an exhibit hereto.
(6) Filed as an exhibit to the Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1995, bearing the exhibit designation
number shown above; incorporated by reference herein as an exhibit
hereto.
(7) Filed as an exhibit to the Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1996, bearing the exhibit designation
number shown above; incorporated by reference herein as an exhibit
hereto.
(8) Filed as an exhibit to the Form 8-K for period dated September 8, 1997,
bearing the exhibit designation number shown above; incorporated by
reference herein as an exhibit hereto.
(9) Filed as an exhibit to the Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1997, bearing the exhibit designation
number shown above; incorporated by reference herein as an exhibit
hereto.
57
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, there unto duly authorized.
Dated: June 25, 1998
Equity Growth Systems, inc.
By: /s/ Edward Granville-Smith
---------------------------------
Edward Granville-Smith, President
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 dates indicated:
Signature Title Date
/s/ Edward Granville-Smith Chairman & Chief Executive June 25, 1998
- -------------------------- Officer and Sole Director
Edward Granville-Smith
/s/ Donald E. Homan Vice President & Chief
- ------------------------- Financial Officer June 26, 1998
Donald E. Homan
58
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
59
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Page
FINANCIAL STATEMENTS
Independent auditor's report 1
Balance sheets 2 - 3
Statements of operations 4
Statements of shareholders' equity 5
Statements of cash flows 6
Notes to financial statements 7 - 16
60
<PAGE>
BAUM & COMPANY, P.A.
Certified Public Accountant
1515 University Drive, suite 209
Coral Springs, Florida 33071
(954) 752-1712
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Equity Growth Systems, Inc.
Port Charlotte, Florida
We have audited the balance sheets of Equity Growth Systems, Inc. at December
31, 1997 and 1996, and the related statements of operations, shareholders'
equity and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 audit provides a reasonable basis for our opinion.
We were unable to obtain a discussion or evaluation from the Company's outside
legal counsel of pending or threatened litigations described in Note 14.
In our opinion, except for the effects on the 1997 and 1996 financial statements
of such adjustments, if any, as might have been determined to be necessary have
we been able to obtain a discussion or evaluation of pending or threatened
litigation from the Company's outside legal counsel as discussed in the
preceding paragraph, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Equity
Growth Systems, Inc., as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
May 4, 1998
Coral Springs, Florida
61
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---- ----
Current Assets
Cash and cash equivalents $ - 0 - $ 962
Other receivables 98,580 - 0 -
Mortgage receivable,
current portion(Notes 6 and 7) 150,380 160,436
Promissory notes, current portion
(Note 8) 5,480 6,844
----------- -----------
Total Current Assets 254,440 168,242
----------- -----------
Equipment
Net of $2,022 accumulated depreciation
at December 31, 1997 and 1996 - 0 - - 0 -
----------- ----------
Other Assets
Mortgages receivable (Notes 6 and 7) 1,121,257 1,577,559
Promissory Notes (Notes 8) 245,345 264,029
Interest Receivable 48,426 46,004
----------- -----------
Total Other Assets 1,415,028 1,887,592
----------- -----------
Total Assets $ 1,669,468 $ 2,055,834
=========== ===========
62
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash Overdraft $ 4 $ - 0 -
Accounts Payable And
Other Current liabilities(Note 3) 5,000 12,990
Mortgage payable, current portion
(Note 7) 164,693 276,605
Note Payable (Note 9) 135,476 121,946
----------- -----------
Total Current Liabilities 305,169 411,541
Long-Term Liabilities
Mortgage payable (Note 7) 999,663 1,206,714
----------- -----------
Total Liabilities 1,304,832 1,618,255
----------- -----------
Shareholders' Equity (Note 13)
Preferred Stock - no par value
authorized-5,000,000 shares;
zero issued and outstanding - 0 - - 0 -
Common stock - $.01 par value
authorized-20,000,000 shares; issued
and outstanding-3,826,148 and
3,771,148 shares in 1997 and in
1996, respectively 38,261 37,711
Capital in excess of par value 2,891,645 2,892,195
Accumulated deficit (2,565,270) (2,492,327)
---------- ---------
Total Shareholders' Equity 364,636 437,579
---------- ---------
Total Liabilities and
Shareholders' Equity $ 1,669,468 $ 2,055,834
=========== ===========
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Revenue $ 214,001 $ 225,031
---------- ---------
Loss on Noncollectable Financial Instruments
-Net 144,440 170,657
General and Administrative Expenses 142,504 300,090
---------- ----------
286,944 470,747
---------- ----------
Loss before provision for income taxes (72,943) (245,716)
Provisions for income taxes (Note 10) - 0 - 3,843
---------- ----------
Net Loss $ (72,943) $ (249,559)
========== ==========
Loss per share $ (.019) $ (.073)
========== ==========
Weighted average of shares outstanding 3,807,814 3,402,810
---------- ----------
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Capital In
No. of Common excess of Accumulated
Shares Stock Par Value Deficit
------ ------ ---------- -----------
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)
Common Stock Issued 55,000 500 (550)
Net Loss For the
Year Ended
December 31, 1997 (72,943)
---------- --------- -------------- -----------
Balances
December 31, 1997 3,826,148 $ 38,211 $ 2,891,645 $(2,565,270)
========== ========= ============== ===========
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Cash Flows from Operating Activities:
Net Loss $ (72,943) $ (249,559)
Adjustments to Reconcile Net Loss to
Net Cash Used for Operating Activities:
Depreciation - 0 - - 0 -
Loss on Noncollectable Financial
Instruments - Net 144,440 170,657
(Increase) Decrease in Other Receivables (98,580) 5,671
(Increase) Decrease in Mortgage
and Notes Receivable 339,544 178,526
(Decrease) in Accounts Payable and
Current Liabilities (7,990) (28,168)
Increase (Decrease) in Mortgages and
Note Payable (305,437) (96,358)
---------- ---------
Net Cash Used for Operations (966) (19,231)
---------- ---------
Cash Flow From Financing Activities:
Issuance of Common Stock - 0 - 9,490
Additional Paid in Capital Generated
As a result of Issuance of Common Stock - 0 - 10,703
---------- ---------
Net Cash Provided by
Financing Activities - 0 - 20,193
---------- ---------
Net Increase (Decrease) in Cash (966) 962
Cash - Beginning of Year 962 - 0 -
---------- ---------
Cash - End of Year $ (4) $ 962
========== =========
Supplemental Cash Flows Information:
Cash Paid for Interest $ 99,602 $ 183,735
Cash Paid for Income Taxes - 0 - 2,551
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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, 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 December 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.
67
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------------------
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.
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 Share
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 fiscal years ended December 31, 1997 and 1996 were
3,807,814 and 3,402,810, respectively.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
-----------------------------
1997 and
1996
---------
Equipment $ 2,022
-------
Less Accumulated Depreciation (2,022)
-------
$ - 0 -
=======
Depreciation expense charged during 1997 and 1996, was $ - 0 -.
68
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - SETTLEMENTS WITH CREDITORS
--------------------------
On October 31, 1996, the Company issued 200,000 shares of its 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.
NOTE 4 - EMPLOYMENT AGREEMENTS
---------------------
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, 1995. In addition, annual salary in 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 first five trading days prior to the end of the
last day of each year and the first five 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
69
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - EMPLOYMENT AGREEMENTS (Continued)
--------------------------------
profits for the subject calendar 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 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.
(d) On November 28, 1997, the Board of Directors accepted the
resignation of Mr. Moffitt.
NOTE 5 - CONSULTING AGREEMENTS
---------------------
The Company had entered into two consulting agreements. One with the
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
hours 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.
70
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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 consisted 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 mortgage notes bear interest of 9.08% to 13.50%. The
related 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
---------
Mortgages consist of the following:
12/31/97 12/31/96
-------- --------
Subordinate "wrap" mortgage receivables:
(a) Nevada/California Property 12.904% $ 681,212 $ 771,716
(b) Tennessee Property (Note 14) 13.500% - 0 - - 0 -
(c) Kansas Property (Note 14) 12.320% - 0 - 325,717
(d) Oregon Property 9.080% 590,425 640,562
---------- ----------
1,271,637 1,737,995
Less Current Portion (150,380) (160,436)
---------- ----------
$1,121,257 $1,577,559
========== ==========
Original Mortgages Payables:
(a) Nevada/California Property 9.750% $ 625,774 $ 753,493
(b) Tennessee Property (Note 14) 9.625% - 0 - - 0 -
(c) Kansas Property (Note 14) 9.750% - 0 - 127,037
(d) Oregon Property 9.750% 538,582 602,789
---------- ----------
1,164,356 1,483,319
Less Current Portion (164,693) (276,605)
---------- ----------
$ 999,663 $1,206,714
========== ==========
71
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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 payable in equal
quarterly installments of $23,437.01, with a final payment of
$198,238.33 maturing December 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 December 31, 1996 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 payable in equal
quarterly installments of $18,508.87 with a final payment of
$136,999 maturing December 31, 1995. There is also an underlying
"wrap" mortgage that is payable in annual installments of
$74,482, maturing October 1, 2005, with annual payments
decreasing to $22,962 the last 10 years. (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, 2003. There is also an
underlying "wrap" mortgage that is payable in equal annual
payments of $106,640 maturing December 31, 2002.
72
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 - NOTES RECEIVABLE
----------------
1997 1996
---- ----
Nevada/California Property $ 153,803 $ 138,699
--------------------------
Quarterly payments of $868.55
4% above prime, currently 12.40%
original amount $63,000
Tennessee - 0 - - 0 -
--------------------------
Quarterly payment of $477.90
4% above prime, currently 12.40%
original amount $40,000. At 12/31/96
the Note was deemed to be uncollectable
and was written off (See Note 14).
Kansas - 0 - 44,680
--------------------------
Quarterly payments of $341.73
4% above prime, currently 12.40%
original amount $21,073 (See Note 14)
Oregon 97,022 87,494
--------------------------
Quarterly payments of $501.13
4% above prime, currently 12.40%
original amount $38,742
------- -------
250,825 270,873
Less Current Portion (5,480) (6,844)
------- -------
$ 245,345 $ 264,029
========= ==========
NOTE 9 - NOTE PAYABLE
------------ 1997 1996
---- ----
A secured note payable including accrued interest, due
on demand with 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 claus on any short fall in payment being added
to the original principal amount of $104,000. To date no
payments have been made. $116,049 $105,500
A secured note payable, due on demand, including accrued
interest at a rate of 10% per annum. 19,427 16,446
-------- --------
$135,476 $121,946
======== ========
73
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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 December 31, 1997 and 1996 arising from net operating
losses follows:
1997 1996
---- ----
Deferred Tax Benefit $ 36,664 $ 11,800
Valuation Allowance 36,664 11,800
-------- --------
$ - 0 - $ - 0 -
======== ========
The Company has operating loss carry forwards in excess of two million
dollars that can be used to offset future taxable income.
1996 income tax expense consist of prior years' Federal income tax of
$1,292 and prior years' Delaware franchise tax of $2,551.
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.
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
outstanding, 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
74
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 13 - STOCKHOLDERS' EQUITY (Continued)
-------------------------------
(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.
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. On October 20, 1997, the various parties to a wrap around
mortgage transaction with the company and the current tenant
agreed to settle, but certain parties reserved claims against
each other. The settlement calls for a payment from the current
tenant of $150,000 in exchange for the transfer of a clear and
free title of the underlying real estate. The mortgage holder
Fleet National Bank received $52,000 and the balance to be held
in escrow between the other parties. The Company holds the
position that the ultimate disbursement of a substantial portion
of these escrowed funds should be earmarked for the reduction of
the wrap around mortgage and promissory note receivable.
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 payments 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, which
represented the monthly rent payments made on such lease
($4,609.38) by the tenant of the Memphis Property. Because 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
75
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 14 - LEGAL MATTERS (Continued)
------------------------
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).
76
EXHIBITS
TO 10-KSB FOR 1997
77
EXHIBIT 23.4
INDEPENDENT AUDITORS CONSENT (Baum)
78
<PAGE>
BAUM & COMPANY, P.A.
Certified Public Accountants
1515 University Drive, Suite 209
Coral Springs, Florida 33071
voice 954-752-1712 (fax) 954-344-
INDEPENDENT AUDITORS CONSENT
To the Securities and Exchange Commission
Washington, D.C.
Equity Growth 0-3718
I consent to the use in the Form 10-K for the year ending December 31, 1997 of
our report dated May 4, 1998 accompanying the financial statements of Equity
Growth Systems, inc.
June 26, 1998 Certified Public Accountant Baum & Company, P.A.
79
EXHIBIT 99.08
LETTER TO DAVID ALBRIGHT, JR.
April 22, 1998
80
<PAGE>
G. Richard Chamberlin, Esq*.
14950 South Highway 441
Summerfield, Florida 34491
352-245-6044 (voice)
352-245-8155 (fax)
Mail to:
P.O. Box 3370
Belleview, Florida 34421-3370
* Florida & Georgia Bars only
OVERNITE MAIL
April 21, 1998
David Albright, Esq.
Albright, Brown and Goetemiller
120 East Baltimore Street
Suite 2150
Baltimore, Maryland 21202
Cover letter sent by facsimile transmission to: (410) 244-0356
Re: Equity Growth Systems, inc.; Form 10-KSB for 1996/1997
Dear Mr Albright
I have been assured by Edward "Ted" Granville Smith Jr. that you will
cooperate and respond to this due diligence effort to properly in form
stockholders, the Securities and Exchange Commission and the World of
the condition of Equity Growth Systems, inc. and any potential or
present litigation that might impact this public company.
Enclosed and attached to this letter is a copy of the 10K for 1996. Our
present efforts are to verify and update that prospectus. The 1997 10K
is now past due and must be filed immediately. Please review the
prospectus and indicate any information that should believe is
inaccurate , misleading or should be updated. If I do not hear from you
by April 28, 1998, I will assume all information is correct as it
relates to your involvement.
Please pay particular attention to: the proposed language concerning
the following: Safeway Stores, Incorporated, Legal proceedings,
Potential Litigation, other legal matters, and non judicial matters of
concern.
Please make comments on any of the above and forward your comments to
me no latter than April 28, 1998. If you have any additional
information or disclosures, please make your appropriate comments. If
you know of any omissions please disclose the omissions.
In addition, please respond to the following,
On October 21, 1997, The District Court of Kansas entered an Order of
Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San
Safe Associates, et. al. Case No. 972072WC.
81
<PAGE>
The order is based on a Joint Stipulation of parties involved in the
litigation. Have the terms of that Joint stipulation been carried out?
Have any terms of the agreement not been carried out? Please send me
copies of any appropriate signed documents.
On October 20, 1997, Associated Wholesale Grocers , Inc., a Missouri
Corporation; First Ken-Co Properties, Inc., a Delaware corporation;
Fleet National Bank , a national banking association; Safeway Inc., a
Delaware corporation, and San Safe Associates, a Maryland limited
partnership; entered a mutual release involving the Kansas litigation
and Maryland litigation and the First Ken-Co., and Safeway lease dated
October 15, 1975. Has all of that litigation been resolved? Please send
copies of any signed documents?.
On October 20, 1997, Ken-Co and San Safe agreed to settle the Kansas
City Litigation, Case No. 97-2072-JWL, with Associated Wholesale
Grocers, Inc., Fleet National Bank, and Safeway, Inc., but reserved
claims against each other.The parties agreed that $98,000.00 was to be
distributed to First Ken-Co. Properties and San Safe to be held in
escrow;
The parties also agreed that First Ken-Co. Properties and San Safe
would litigate in the State of Maryland all remaining issues between
them, including the rightful disbursement of the 98,000.00 held in
escrow. You have filed a complaint or petition in a Maryland court.
Please inform us as to the condition of that litigation at this time.
Please forward a case number or case numbers and a copy of all
pleadings.
Has the money been disbursed, if so provide details and any written
evidence?
Has any other litigation been instituted? If so, where and when? Please
send a copy of the pleadings?
Please provide us with a due diligence file on the non judicial
foreclosure involving property in Memphis, Tennessee?
As you are aware, SOUND SAFE ASSOCIATES. defaulted on the mortgage on
the property located in Memphis Tennessee because it was unable to
satisfy the pay-off balloon payment that was due on December 31, 1996
in the amount of $174,801.00. The mortgage holder, Lutheran
Brotherhood, refused to negotiate with SOUND SAFE ASSOCIATES, or extend
the term of the mortgage and refused further amortization payments from
the lessor of the underlying lease. Non Judicial Foreclosure was
instituted and finalized in August, 7, 1997. Please fax at 352-245-8155
or E-Mail at [email protected]. I use WordPerfect 7.0 or Microsoft
Word.
The mortgage holder, Lutheran Brotherhood, refused to negotiate with
SOUND SAFE ASSOCIATES, or extend the term of the mortgage and refused
further amortization payments from the lessor of the underlying lease.
Non Judicial Foreclosure was instituted and finalized in August, 7,
1997. Do you have any reason to believe this foreclosure was not
properly or legally conducted? Have you taken any legal action
concerning the setting aside of this non judicial foreclosure? If so,
what action have you taken?
As a result of these events, the Registrant has lost it's equitable
interest in the property, lost it's lease income, lost income equal to
the payments of the first mortgage and lost income equal to the
difference between payment of the mortgage and the amount of the
underlying mortgage. Is there any cause of action you would recommend
concerning the recovery of this loss on behalf of Equity Growth
Systems, inc?
82
<PAGE>
Is there any litigation concerning Equity Growth Systems, inc., or any
subsidiary or related Company of Equity Growth Systems, inc??
Are you aware of any other information not mentioned in 10K for 1996,
or any facts or situations or legal issues since the filing of the 10K
for 1996 on January 15, 1998 that might adversely affect the
stockholders of Equity Growth Systems, inc.?
If you have any other disclosure information concerning the filing of
this registration please provide me with the information as soon as
possible.
If I do not here from you by April 28, 1998, concerning this
information request I will assume the information in the attachment is
correct.
You may feel free to contact Edward "Ted" Granville Smith at (941)
505-8633, concerning any question as to my representation.
Sincerely,
G. Richard Chamberlin , Esq.
83
EXHIBIT 99.09
LETTER TO DAVID ALBRIGHT, JR.
May 28, 1998
84
<PAGE>
G. Richard Chamberlin, Esq*.
14950 South Highway 441
Summerfield, Florida 34491
352-245-6044 (voice)
352-245-8155 (fax)
Mail to:
P.O. Box 3370
Belleview, Florida 34421-3370
* Florida & Georgia Bars only
May 28, 1998
David Albright, Esq.
Albright, Brown and Goetemiller
120 East Baltimore Street
Suite 2150
Baltimore, Maryland 21202
Cover letter sent by facsimile transmission to: (410) 244-0356
Re: Equity Growth Systems, inc.; Form 10-KSB for 1997 and
Case No. 98-007033; First Ken Co Properties V Martin, et. al.,
Circuit of Maryland for Baltimore City
Dear Mr Albright
We have disclosed to the SEC, the general public, and 2,200 Investors
of Equity Growth Systems, Inc. that the above referenced lawsuit was filed in
January, 1998.
Edward "Ted" Granville Smith, Jr., represents that he is uninformed as
to the progress or lack of progress in this matter.
The clerk at the Circuit Court of Maryland for Baltimore City indicates
that their has been no activity in the file since the date of filing. The clerk
indicates that there has been no service on Defendants, no answers, no defaults
and no other filings.
Please provide either myself or Ted an update as to action taken in
this matter after the initial filing. I need this information immediately for
the purposes of filing Equity's 10K for 1997.
85
<PAGE>
A telephone call or a return fax would be appreciated. Time is of the
essence. If I have not heard from your office within five days, a copy of this
letter will be filed as an exhibit with Equity's 10k for 1997.
Sincerely,
G. Richard Chamberlin, Esq.
cc: Edward "Ted" Granville Smith, Jr.
86
EXHIBIT 99.10
TITLE EXAMINATION FOR REAL PROPERTY
87
<PAGE>
Chicago Title Insurance Company
PRELIMINARY TITLE REPORT
April 22, 1998
To: CHICAGO TITLE INSURANCE CO. Order No: 184048
1129 20TH ST., STE 300 Escrow No: #NBU-180 98039
WASHINGTON, D.C. 20036 Ref: Payless Drug
Attention: TRACI HARRIS
Phone No: 202-466-2266
Extended Owners Coverage $1,000.00 Premium $330.00
Service Fee $25.00
We are prepared to issue a title insurance policy in ALTA (1992) form and amount
shown above insuring the title to the property described herein. This report is
preliminary to the issuance of a policy of title insurance and shall become null
and void unless a policy is issued, and the full premium therefore paid.
Vestee: MONTCO ASSOCIATES, a Maryland limited partnership
Dated as of: April 10, 1998 at 8:00 A.M.
Subject to the exceptions, exclusions, conditions and stipulations which are
part of said policy, and to exceptions as shown herein
CHICAGO INSURANCE COMPANY OF OREGON
By:
All inquiries regarding this commitment
Should be directed to: Rollie
Feuchtenberger: Chicago Title Ins. Co.;
1129 20th Street, Suite 300; Washington,
DC 20036, 202.466.2266 ext 27
88
<PAGE>
Order No: 184048
DESCRIPTION
(Continued)
GENERAL EXCEPTIONS (Standard Coverage Policies only)
1. a. Taxes or assessments which are not shown as existing liens by the
records of any taxing authority that levies taxes or assessments on
real property or by the public records. b. Proceedings by a public
agency which may result in taxes or assessments, or notices of such
proceedings, whether or not shown by the records of such agency or by
the public records.
2. a. Easements, liens, encumbrances, interests or claims thereof which
are not shown by the public records. b. Any facts, rights, interests or
claims which are not shown by the public records but which could be
ascertained by an inspection of the land or by making inquiry of
persons in possession thereof.
3. Discrepancies, conflicts in boundary lines, shortage in area,
encroachments, or any other facts which a correct survey would
disclose, and which are not shown by the public records.
4. a. Un-patented mining claims;
b. Reservations or exceptions in patents or in Acts authorizing the
issuance thereof;
c. Water rights, claims or title to water;
whether or not the matters excepted under (a), (b), or (c) are shown
by the public records.
5. Any lien or right to a lien, for services, labor or material heretofore
or hereafter furnished, imposed by law and not shown by the public
records.
SPECIAL EXCEPTIONS
6. City liens, if any, of the city of Tigard. (An inquiry has been
directed to the City Clerk concerning the status of said liens and a
report will follow if such liens are found.)
7. The premises herein described are within and subject to the statutory
powers including the power of assessment of the Unified Sewerage
Agency.
8. Easements as dedicated or delineated on the recorded plat.
For: Utility
Affects: A strip 15 feet in width through subject property
9. Declaration of establishment of protective covenants, conditions and
restrictions and grants of easements, including the terms and
provisions thereof;
Dated: August 31, 1976
Recorded: December 16, 1976
Book: 1132
Page: 456
89
<PAGE>
10. Reciprocal Easement Agreement, including the terms and provisions
thereof;
Dated: July 9, 1975
Recorded: December 16, 1976
Book: 1132
Page: 485
Amended by instrument;
Recorded: November 30, 1977
Book: 1220
Page: 712
11. Lease, including the terms and provisions thereof;
Dated: April 1, 1977
A memorandum of which was:
Recorded: April 26, 1977
Book: 1160
Page 740
Lessor: Montco Associates, a Maryland limited partnership
Lessee: Pay Less Drug Stores Northwest, Inc., a Maryland corporation
The present ownership of said leasehold and other matters affecting the
interest of the lessee are not shown herein.
(Continued)
Order No: 184048 SPECIAL EXCEPTIONS (Continued)
12. The terms and provisions of Assignment of Lease and Agreement Agreement
, including the terms and provisions thereof;
Recorded: April 26, 1977
Book: 1160
Page: 746
Which instrument was modified by Reassignment of Lease and Agreement;
Recorded: April 26, 1977
Book: 1160
Page: 805
13. Mortgage, including the terms and provision thereof, give to secure an
indebtedness with interest thereon and such future advances as may be
provided therein.
Dated: April 1, 1977
Recorded: April 26, 1977
Book: 1160
Page: 762
Amount: $1,029,000.00
Mortgagor: Montco Associates, a limited partnership
Mortgagee: Sixth Basingstoke Properties, Inc., a Delaware corporation
Said Mortgage was assigned by instrument;
Recorded: April 26, 1977
Book: 1160
Page: 800
To: The Monumental Life Insurance Company, a Maryland corporation and
Volunteer State Life Insurance Company, a Tennessee corporation
90
<PAGE>
14. Pylon Sign Lease Agreement, including the terms and provisions thereof;
Dated: July 15, 1984
Recorded: May 3, 1985
Recorder's Fee No.: 85016315
By and Between: Bissett and Bissett, Ltd., an Oregon limited
partnership, et al and Albertson's Inc., a Delaware
corporation, et al
The terms and provisions of said Agreement were modified by instrument;
Recorded: May 3, 1985
Recorder's Fee No.: 86061443
15. Reciprocal Easement Agreement, including the terms and provisions
thereof;
Dated: June 27, 1985
Recorded: December 30, 1986
Recorder's Fee No.: 86061443
16. The terms and provisions of the partnership agreement of Monco
Associates, a copy of which should be furnished for our examination
prior to closing. Any conveyance or encumbrance of partnership property
must be executed by all of the general partners, unless otherwise
provided for in the partnership agreement. (Continued)
Order No: 184048
SPECIAL EXCEPTIONS (Continued)
17. Note: An inquiry of the Corporation Department of the State of Oregon
reveals no record of Montco Associates, a Maryland limited partnership.
Our offices shall require evidence as to its nature and parties of
authority thereunder.
18. Any encroachments, unrecorded easements, violations of covenants,
conditions and restrictions, and any other matters which would be
disclosed by a correct survey.
19. Proof that there are no parties in possession, or claiming to be in
possession, other than above vestees.
20. Any statutory liens for labor or material, including liens for
contributions due to the State of Oregon for unemployment compensation
and for workmen's compensation, which have now gained or hereafter may
gain priority over the lien of the insured mortgage, which liens do not
now appear of record.
91
<PAGE>
NOTE: Taxes for the fiscal year 1997-98, paid in full;
Amount: $17,469.87
Levy Code: 023-74
Account No.: R450218
Map No.: 2812AA
Tax Lot No.: 00906
NOTE: Any transfer of the herein described property is subject to the
payment of Washington County Transfer Tax at the rate of $1.00 per
$1,000.00 or fraction thereof of stated consideration.
NOTE: This report is subject to any amendments which might occur when
the names of prospective purchasers are submitted to us for
examination.
END OF REPORT
cc: Chicago Title-Malcolm Newkirk
DCO/cl
April 22, 1998
92
<PAGE>
Order No: 184048
LEGAL DESCRIPTION
A parcel of land located in the Northeast quarter of Section 2, Township 2
South, Range 1 West, Willamette Meridian, in the County of Washington and State
of Oregon, more particularly described as follows:
Beginning at the most Southerly corner of Parcel II PAY LESS SHOPPING CENTER, a
plat of record in Washington County, Oregon; thence following the Southeasterly
line of said Parcel II North 44(degree)50'05" East 125.69 feet; thence North
43(degree)09'55" West 4.54 feet; thence North 44(degree)50'05" East 104.00 feet
to the most Easterly corner of said Parcel II; thence along the Northeasterly
line of said Parcel II, North 45(degree)09'55" West 495.16 feet to the most
Northerly corner of said Parcel II; said point being located on the
Southeasterly right of way line of S.W. Main Street as shown on the plat of the
aforementioned PAY LESS SHOPPING CENTER; thence following said right of way line
21.28 feet along the arc of a 150.00 foot radius curve concave to the Northwest
(long chord bears South 81(degree)00'24" West 21.26 feet) to a point of reverse
curve; thence 55.68 feet along the arc of a 380.23 foot radius curve concave to
the Southeast (long chord bears South 80(degree)53'14" West 55.63 feet); thence
South 14(degree)36'10" East 106.97 feet; thence South 44(degree)31'30" West
114.00 feet to a point on the Southwesterly line of said Parcel II; thence South
45(degree)16'18" East 452.25 feet to the point of beginning.
93
<PAGE>
PRELIMINARY REPORT (Rev. 1/95)
PRELIMINARY REPORT
All inquiries regarding this commitment
Should be directed to: Rollie
Feuchtenberger: Chicago Title Ins. Co.; Order No. R95336TJS
1129 20th Street, Suite 300; Washington, Assessor's Parcel No. 033-151-16
DC 20036, 202.466.2266 ext 27 Escrow Officer: Your No. 180980391
In response to the above referenced application for a Policy of Title Insurance,
TICOR TITLE INSURANCE COMPANY hereby reports that it is prepared to issue, or
cause to be issued, as of the date hereof, a Policy or Policies of Title
Insurance describing the land and the estate or interest therein, hereinafter
set forth, insuring against loss which may be sustained by reason of any defect,
lien or encumbrance not shown or referred to as an Exception below or not
excluded from coverage pursuant to the printed Schedules, Conditions and
Stipulations of said policy forms.
The printed Exceptions and Exclusions from the coverage of said Policy or
Policies are set forth on the attached cover. Copies of the Policy forms should
be read. They are available from the office which issued this Report.
Please read the exceptions shown or referred to below and the exceptions and
exclusions set forth on the attached cover of this report carefully. The
exceptions and exclusions are meant to provide you with notice of matters which
are not covered under the terms of the title insurance policy and should be
carefully considered. It is important to note that this preliminary report is
not a written representation as to the condition of title and may not list all
liens, defects, and encumbrances affecting title to the land.
This Report (and any supplements or amendments thereto) is issued solely for the
purpose of facilitating the issuance of a Policy of Title Insurance and no
liability is assumed hereby. If it is desired that liability be assumed prior to
the issuance of a policy of Title Insurance, a binder or Commitment should be
requested.
Dated as of April 3, 1998 At 7:30 A.M.
WESTERN TITLE COMPANY, INC., an authorized agent
Countersigned By:
- -------------
John H. Speck Authorized Officer
The form of Policy of Title Insurance contemplated by this Report is:
[ ] ALTA Residential Policy
[XX] ALTA Loan Policy with ALTA endorsement Form 1 Coverage
[ ] CLTA Standard Coverage Policy
94
<PAGE>
[ ] ALTA Owner's Policy
[ ] Short Term Rate Applicable:
The estate or interest in the land hereinafter described or referred to covered
by this report is: A Fee Title to said estate or interest at the date hereof is
vested in: PAYNEV ASSOCIATES, a Maryland Limited Partnership
95
<PAGE>
Order No. R95335TJS
it the date hereof exceptions to coverage in addition to the printed Exceptions
and Exclusions contained in said Policy form would be as follows:
1. The lien, if any, of supplemental taxes, assessed pursuant to the
provision of the Nevada revised Statutes.
2. Any liens that may be created for Delinquent Sewer charges by reason of
said premises lying withing the City of Sparks.
3. Rights of way for any existing roads, trails, streams, ditches, drain
ditches, pipe, pole or transmission lines traversing said premises.
4. Water rights, claims or title to water, whether or not recorded.
5. Rights of parties in possession.
6. Matters which may be disclosed by an inspection or by survey of said
land that is satisfactory to this Company, or by inquiry of the parties
in possession thereof.
7. Easements, dedications, reservations, provisions, recitals, building
set back lines, and any other matters as provided for or delineated on
the subdivision map referenced in the legal description contained
herein.
Reference is hereby made to said plat for particulars. If one is not
included herewith, one will be furnished upon request.
8. Covenants, conditions, restrictions, easements and building set-back
lines as set forth in an instrument, Recorded:
November 2, 1973, in Book 775, Page 76, Document No. 306896,
Official Records of Washoe County, Nevada.
BUT OMITTING ANY COVENANTS OR RESTRICTIONS IF ANY, BASED UPON RACE,
COLOR, RELIGION, SEX, HANDICAP, FAMILIAL STATUS, OR NATIONAL ORIGIN
UNLESS AND ONLY TO THE EXTENT THAT SAID COVENANT (A) IS EXEMPT UNDER
CHAPTER 42, SECTION 3607 OF THE UNITED STATES CODE OR (B) RELATES TO
HANDICAP BUT DOES NOT DISCRIMINATE AGAINST HANDICAPPED PERSONS.
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
December 12, 1974, in Book 863, Page 674, Document No. 349653,
Official Records of Washoe County, Nevada.
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
June 13, 1975, in Book 897, Page 133, Document No. 367571,
Official Records of Washoe County, Nevada.
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
August 12, 1977, in Book 1114, Page 472, Document No. 491345,
Official Records of Washoe County, Nevada.
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
March 13, 1986, in Book 2306, Page 276, Document No. 1057985,
Official Records of Washoe County, Nevada.
96
<PAGE>
Western Title Company, Inc. Order No.: R95336TJS
EXCEPTIONS (continued)
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
March 13, 1986, Document No. 1057987, Official Records of
Washoe County, Nevada.
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
July 31, 1987, Document No. 1182460, Official Records of
Washoe County, Nevada.
Said covenants, conditions and restrictions were amended in an
instrument
Recorded:
October 12, 1987, Document No. 1199251, Official Records of
Washoe County, Nevada.
9. The matter set forth in a Common Area Maintenance Agreement,
Recorded:
November 2, 1973, in Book 775, Page 96, Document No. 349654,
Official Records of Wahsoe County, Nevada.
And amendment thereto,
Recorded:
December 12, 1974, in Book 863, Page 681, Document No. 349654,
Official Records of Washoe County, Nevada.
And amendment thereto,
Recorded:
July 31, 1987, Document No. 1182461, Official Records of
Washoe County, Nevada.
Said amendment was re-recorded in an instrument
Recorded:
October 12, 1987, Document No. 1199250, Official Records of
Washoe County, Nevada.
10. A Deed of Trust to secure an indebtedness in the amount shown below:
Amount: $1,200,000.00
Dated: February 10, 1975
Trustor: PAYNEV ASSOCIATES, a Maryland Limited Partnership
Trustee: TITLE INSURANCE AND TRUST COMPANY,
a California corporation
Beneficiary: PAY LESS DRUG STORES, a California corporation
Recorded:
April 1, 1975, in Book 882, Page 320, Document No. 359648,
Official Records of Washoe County, Nevada.
11. A Deed of Trust to secure an indebtedness in the amount shown below:
Amount: $1,656,000.00
Dated: May 26, 1975
Trustor: PAYNEV ASSOCIATES, a Maryland Limited Partnership, and
PAYMONT ASSOCIATES, a Maryland Limited Partnership
Trustee: TITLE INSURANCE AND TRUST COMPANY
Beneficiary: SIXTH LUDINGHAM PROPERTIES, INC.
Recorded:
July 16, 1975, in Book 903, Page 518, Document No. 370933,
Official Records of Washoe County, Nevada,
(Continued)
97
<PAGE>
Western Title Company, Inc. Order No.: R95336TJS
EXCEPTIONS (continued)
12. A Deed of Trust to secure an indebtedness in the amount shown below:
Amount: $1,541,000.00
Dated: October 29, 1990
Trustor: PAY-WEST ASSOCIATES, a Maryland Limited Partnership
Trustee: TITLE INSURANCE AND TRUST COMPANY
Beneficiary: PAYMONT ASSOCIATES and PAYNEV ASSOCIATES, a partnership
Recorded:
June 6, 1991, in Book 3271, Page 218, Document No. 1484861,
Official Records of Washoe County, Nevada.
13. The requirement that vestee is registered with Nevada Secretary of
State and in good standing.
14. This report is preparatory to the issuance of an ALTA Policy of Title
Insurance. We have no knowledge of any fact which would preclude the
issuance of said ALTA Policy with Endorsements 100 and 116 attached.
(Provided there is a valid Notice of Completion of record.)
There is located on said land a commercial building, known as 590 E.
Prater Way, Sparks, Nevada.
NOTE: Taxes for the fiscal year 1997-1998, in the amount of $28,071.29 have been
paid in full. (APN 033-151-16)
NOTE: This report makes no representations as to water, water rights, minerals
or mineral rights and no reliance can be made upon this report or a resulting
title policy for such rights or ownership.
98
<PAGE>
Order No. R95336TJS
DESCRIPTION
All that real property situate in the City of Sparks, County of Washoe, State of
Nevada, described as follows:
Lot 3 of SUTTER HILL SUBDIVISION, (Subdivision Tract No. 1438), according to the
map thereof, filed in the office of the County Recorder of Washoe County, State
of Nevada, on November 1, 1973, under Filing No. 306755.
EXCEPTING THEREFROM that portion of Lot 3 described as follows:
BEGINNING at the Southeast corner of Lot 2 of said Sutter Hill Subdivision;
thence North 00(degree)47'27" East along the Easterly line of said Lot 2; said
Easterly line being common with Lot 3, a distance of 186.32 feet; thence leaving
said Easterly line and proceeding south 89(degree)12'33" East 2.52 feet; thence
South 00(degree)47'27" West and parallel to the Easterly line of said Lot 2 a
distance of 186.32 feet; thence North 89(degree)12'33" West 2.52 feet to the
point of beginning.
PARCEL B:
BEGINNING at the most Easterly Northeast corner of said Lot 2, as the same is
shown on Sheet 2 of 2, of the map entitle d "Official Plat, Sutter Hill
Subdivision", filed in the Official Records of Washoe County, Nevada, November
1, 1973, as File No. 306755, and proceeding thence North 89(degree)12'33" West
along the Northerly line of said Lot 2, a distance of 127.58 feet to a lot
corner as shown on the above mentioned map; thence leaving said Northerly line
and proceeding South 00(degree)47'27" West 3.68 feet; thence South
89(degree)12'33" East, and parallel to the above mentioned Northerly line 127.58
feet to the Easterly line of said Lot 2; thence South 89(degree)12'33" East, and
parallel to the above mentioned Northerly line 127.58 feet to the Easterly line
of said Lot 2; thence North 00(degree)47'27" East along said Easterly line 3.68
feet to the point of beginning and containing 469.5 square feet.
99
EXHIBIT 99.11
BOARD OF DIRECTORS RESOLUTIONS
100
<PAGE>
MEETING OF THE BOARD OF DIRECTORS
OF
EQUITY GROWTH SYSTEMS, INC.
A meeting of the Board of Directors of Equity Growth Systems, inc., was
held on January 30, 1998 at which meeting a quorum was present.
Upon motion duly made, the following corporate resolution was adopted
by the Board of Directors of the Corporation.
"Resolved, that A. Al Sanders be issued 100,000 shares as compensation
for acting and continuing to act as a consultant to Equity Growth
Systems, inc. These shares are to be issued in lieu of cash
compensation as ffollows: 75,000 shares shall bear a restriction per
rule 144d and 25,000 shares shall be issued as free trading per form
S-B which has been filed with the S.E.C."
"Further Resolved: that Charles Scimeca shall be issued 150,000 shares
which will bear a restriction per rule 144d as a reward for his
tireless effort in finding acquisition targets for the corporation as
well as during these days of delay in the issuance of the 10KSB96 and
further delay in the issuance of the 15C211 now in the process of being
rewritten and submitted to the NASD."
There being no further business requiring action or consideration, and
upon motion duly made, the meeting was adjourned.
/s/ Edward Granville-Smith
--------------------------
Edward Granville-Smith
CEO and Chairman
101
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 254,440
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<CURRENT-ASSETS> 254,440
<PP&E> 2,022
<DEPRECIATION> 2,022
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<CURRENT-LIABILITIES> 305,169
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0
0
<COMMON> 38,261
<OTHER-SE> 2,891,645
<TOTAL-LIABILITY-AND-EQUITY> 364,636
<SALES> 214,001
<TOTAL-REVENUES> 214,001
<CGS> 0
<TOTAL-COSTS> 286,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (72,943)
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<EXTRAORDINARY> 0
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<NET-INCOME> (72,943)
<EPS-PRIMARY> (.019)
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